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G.R. No.

L-20583

January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner, vs. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents. Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner. Sycip, Salazar, Luna, Manalo & Feliciano for respondents. Natalio M. Balboa and F. E. Evangelista for the receiver.

CONCEPCION, C.J.: This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely: NAME Pablo Tanjutco Arturo Soriano Ruben Beltran Bienvenido V. Zapa Pilar G. Resuello Ricardo D. Balatbat Jose R. Sebastian Vito Tanjutco Jr. Director Director Director Director & Vice-President Director & Secretary-Treasurer Director & Auditor Director & Legal Counsel Director & Personnel Manager POSITION

Rosendo T. Resuello President & Chairman of the Board

The record shows that the Articles of Incorporation of defendant corporation 1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws, 2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the

Commission referred it to the Central Bank, which, in turn, gave the former a copy of the abovementioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: 1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received ; 2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires: 3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and 4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum dated August 28, 1962, stating inter alia. 11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May 23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team was conducted by this Department. The examination disclosed the following findings: a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc., receives deposits from the public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock . Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations .

b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities, loans are made regularly to any person by the Security Credit and Acceptance Corporation. A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto. 12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows: Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws. ... 13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation is regularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act . Recommendations: In view of all the foregoing, it is recommended that the Monetary Board decide and declare: 1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and 2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including, if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. (Emphasis supplied.) that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of the aforementioned resolution, but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits with the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating

and that a receiver be appointed pendente lite. Soriano. that on November 29. Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank. 1962 — or before the commencement of the present proceedings — the corporation and defendants Rosendo T. vice-president. 52342. on August 20. auditor and legal counsel. to the financial condition of the corporation as an investment firm. and upon the filing of the requisite bond. Zapa. that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due. Soriano.273. are directors of the corporation. that. during the year 1961. as of July 7.685. by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26.P1. .). except as to one of the defendants in said case No. Balatbat and Sebastian as proposed president. 1095 of the Monetary Board. Resuello. made and/or reached by the legal counsel and the intelligence division of the Central Bank. In their answer. by the attachment of property of the corporation by its creditors. Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No. 1962. the Securities and Exchange Commission. denied that defendants Tanjutco (Pablo and Vito. that defendants Soriano. said officer assumed his functions as such receiver on September 16. and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject. 1962. Beltran. on December 6. however. the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation. on December 12. defendants admitted practically all of the allegations of fact made in the petition. rendered. as to time and amounts. a loss of P96. the Court of First Instance of Manila had appointed Jose Ma. secretary-treasurer. or of Search Warrant No. Pilar G. but to an abnormal situation created by the mass demand for withdrawal of deposits. 1961. that acting upon a petition filed by plaintiffs in said case No. with defendants Rosendo T. in addition to the defendants first named above. Accordingly. Aquilino L. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory relief and an injunction. 1962. Sebastian. 52342. 1962. Beltran and Sebastian as proposed directors. the Board of Directors of the corporation was composed of defendants Rosendo T.98 and suffered. defendants averred that. from performing the banking operations complained of. Resuello had instituted Civil Case No. Upon joint motion of both parties. Ramirez as receiver of the corporation.265. and of the search and seizure made thereunder. They. and the Superintendent of Banks of the Philippines.29. 1963. Resuello.). the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation. ruling. said Ramirez qualified as such receiver. 1963. with a prayer that. Zapa. Balatbat and Sebastian. Resullo. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan. that on July 11. Vito Tanjutco Jr. as well as its officers and agents. Beltran. 1962. as well as the validity of the opinion. after filing the requisite bond. Resuello and Pilar G. respectively. that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion. not to mismanagement or misappropriation of corporate funds. enjoining the corporation and its branches. to the corporation to stop soliciting and receiving deposits. 1962. evaluation and conclusions. By way of affirmative allegations. Resuello. Jr. a writ of preliminary injunction be issued ex parte. meanwhile. the issues therein have already been joined. that. that on December 3. A-1019 of the Municipal Court of Manila. Illera and Pilar G. on December 6. Tanjutco (Pablo and Vito. the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank. or in Resolution No. with defendants Zapa. Balatbat.

however. 348] founded to facilitate the borrowing. S. 1962. It is clear that these transactions partake of the nature of banking. and that the aforementioned petition of the corporation.. a moneyed institute [Talmage vs. Cas.689.. bills of exchange. defendant corporation has not secured the requisite authority to engage in banking. 731. 6 Ariz 215. Ricardo D. although but one of these functions is exercised. held on September 27. plaintiff alleged that a photostat copy. or of circulation is doing a banking business. (MacLaren vs. and credits (State vs. is a bank. lending and safe-keeping of money (Smith vs. ) 328. owing to the number of persons affected thereby. 30. 243. it has been held that: An investment company which loans out the money of its customers. 56 P. defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco.Y. Pell 7 N. the Intelligence Division. 135 Am. Zapa.74. 115 N. Indeed.S. for a declaratory relief is now highly improper.. 337. of discount. 826.) . Arturo Soriano. that it is willful and has been repeated 59.W. 41 S. 9 C.. defendants deny that its transactions partake of the nature of banking operations. are officers and/or directors thereof. and that its continuance inflicts injury upon the public. 210. Moreover. showing that said defendants had been elected officers thereof. 937. Ed. a bank has been defined as: . (3 Seld. by Zellmann Vol. Balatbat. 730.. a total of 59. 667.000.W. State. that the only assets of the corporation now consist of accounts receivable amounting approximately to P500. in notes. . 18 Ann. Bank. that the views of the legal counsel of the Central Bank. any person engaged in the business carried on by banks of deposit.R. which has been lent out to such persons as the corporation deemed suitable therefor. (Banks & Banking. 577. It is conceded.136. admittedly. in Civil Case No. A-1019 been contested as provided by law. Jose R. 55. Kansas City Title & Trust Co. 52342 of the Court of First Instance of Manila. Bienvenido V. 65 L. collects the interest and charges a commission to both lender and borrower. 141 Wis. Although. 255 U. that neither has the validity of Search Warrant No. 139 Iowa 338). 1. that this is confirmed by the minutes of a meeting of stockholders of the corporation. and its office equipment and appliances. Cornings Sav. 46). p.463 times. in consequence of a propaganda campaign therefor.689. Sebastian and Vito Tanjutco Jr.In its reply.) Accordingly.S. 577) and to deal. that. 728. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business. the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law. with an aggregate deposit of P1. vs. attached to said pleading. of the Securities and Exchange Commission. Ruben Beltran.000. as the term is used in Section 2 of the General Banking Act. the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation. 180.J. 347.463 savings account deposits have been made by the public with the corporation and its 74 branches. despite its increased capitalization of P3. (Western Investment Banking Co.136.74. 124 N. Murray.000 and its deposits amounting to not less than P1. Ct.

we have deemed it best to determine the merits thereof. Wherefore. In the case at bar. The main issue here is one of law. The appointment of receiver herein issued pendente lite is hereby made permanent. and because public interest demands an early disposition of the case.P. . 52342. concur. it should be noted that this Court is vested with original jurisdiction. the writ prayed for should be. in support of the second alternative. Sanchez and Castro. no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. J. The Veraguth case cited by herein defendants. the legal nature of said facts or of the aforementioned acts of the corporation. namely. For this reason. however. directed to administer the properties. it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No. Zaldivar. is not in point.. In this connection. however.. that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. It is so ordered. better equipped than appellate courts for the taking of testimony and the determination of questions of fact. Reyes. because in said case there were issues of fact which required the presentation of evidence. Makalintal. and courts of first instance are. and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. Bengzon. Regala. accordingly.B. to hear and decide quo warranto cases and. ordered dissolved. JJ.L. 266). in general..It is urged. there is. deposits. Isabela Sugar Co. Dizon. and the receiver is. accordingly. consequently. that. J. concurrently with courts of first instance. (57 Phil. as it is hereby granted and defendant corporation is.

74. 1981. in favor of Malabon Longlife Trading Corporation in the amount of P42. the petitioner deposited to its account in the said bank the amount of P100. particularly in the United States.386. in favor of Enriqueta Bayla in the amount of P6. Most of its exports are purchased by the petitioner on credit. petitioner.00. Check No. in favor of Sea-Land Services.000. The dishonored checks are the following: 1. 215426 dated May 28. 215441 dated June 5.480.: We are concerned in this case with the question of damages. Check No. Check No. thus increasing its balance as of that date to P190.00: 6.00: 2. 215474 dated June 10. The parties agree on the basic facts. 4.380. in favor of Mr. vs. the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. 1990 SIMEX INTERNATIONAL (MANILA). Don P. CRUZ. 215391 dated May 29. 88013 March 19. Greg Pedreño in the amount of P7.080. 1981. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue. The petitioner is a private corporation engaged in the exportation of food products. Check No.00. in favor of the Bureau of Internal Revenue in the amount of P3. Check No. Check No. 1 Subsequently. Porcuincula for petitioner. in favor of California Manufacturing Company. respondents. specifically moral and exemplary damages. 1981. No. 215451 dated June 4. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK. It buys these products from various local suppliers and then sells them abroad. if so. 1981. Gonzalez. The negligence of the private respondent has already been established. 1981.906. Inc.G. 215477 dated June 9. in favor of Baguio Country Club Corporation in the amount of P4. San Agustin & Sinense for private respondent. for P16. 1981.275. Inc. Quezon City. in the amount of P27. 1981. INCORPORATED. 1981. J.02: and 8.R. Check No. Canada and the Middle East. All we have to ascertain is whether the petitioner is entitled to the said damages and. Cubao.00: 5. Check No. 1981.385. On May 25. in favor of Malabon Longlife Trading Corporation in the amount of P12. 215480 dated June 9. San Juan.73: 3. 2 .00. in what amounts.45: 7.953. 215412 dated June 10.024.

It is this ruling that is faulted in the petition now before us. if not wanton bad faith. the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence.00 and exemplary damages in the sum of P500.00 plus P5. and the dishonored checks were paid after they were redeposited. 6 The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. 5 This decision was affirmed in toto by the respondent court. It credited the said amount in favor of plaintiff-appellant in less than a month. properly. a letter of demand to the petitioner. "eventually" paid.000. 3 Investigation disclosed that the sum of P100. 150 SCRA 280). on June 15. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. aggravated by the lack of promptitude in repairing its error.000. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Similar letters were sent to the petitioner by the Malabon Long Life Trading. and by the G.00 deposited by the petitioner on May 25.00 attorney's fees and costs. wanton and gross bad faith and negligence on the part of the defendant-appellant. The petitioner complained to the respondent bank on June 10. 4 In its letter dated June 20.As a consequence. justifies the grant of moral damages. 1981. Indeed. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. as the Court of Appeals put it. indeed. Meantime. 1981. The fact is that the petitioner's credit line was canceled and its orders were not . It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist.000. As the Court sees it.000. that the respondent court said had not been established by the petitioner. The error should not have been committed in the first place. 1981. this took almost a month when. 1981. the California Manufacturing Corporation sent on June 9. However. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. disbelieved. After trial. We also note that while stressing the rectification made by the respondent bank. the decision practically ignored the prejudice suffered by the petitioner. It is true that the dishonored checks were. and U." This demand was not met. threatening prosecution if the dishonored check issued to it was not made good. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1. This was simply glossed over if not. The respondent bank has not even explained why it was committed at all.00. the checks should have been paid immediately upon presentment. 1981. Enterprises. 1981.000. 1981. It also withheld delivery of the order made by the petitioner. plus 25% attorney's fees. Judge Johnico G. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence.000. and costs. Parogurga. These circumstances negate any imputation or insinuation of malicious. 1981. observing that the plaintiff's right had been violated. fraudulent. there was the omission by the defendant-appellee bank to credit appellant's deposit of P100. the initial carelessness of the respondent bank. had not been credited to it.00 on May 25. But the bank rectified its records.000. However. The dishonored checks were eventually paid. action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. he ordered the defendant to pay nominal damages in the amount of P20. The error was rectified on June 17. on June 10.

8 In the case at bar. but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit. Moreover. mental anguish and moral shock. The private respondent makes much of the one instance when the petitioner was sued in a collection case. The pertinent provisions of the Civil Code are the following: .000. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. nominal. as the private respondent would portray it.000. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral. according to "the circumstances of each case." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required. the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. but that did not prove that it did not have a good reputation that could not be marred. liquidated or exemplary damages may be adjudicated. Its business declined.000. serious anxiety. or its name that prestigious. more so since that case was ultimately settled. Considering all this. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent. in the same amount of P20. temperate. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence. The only exception to this rule is where the corporation has a good reputation that is debased. we feel that the award of nominal damages in the sum of P20.00. to sustain such an extravagant pretense. not being a natural person. Its business certainly is not that big. which has been violated or invaded by the defendant. 10 It does not appear that. Now for the exemplary damages. resulting in its social humiliation. and not for the purpose of indemnifying the plaintiff for any loss suffered by him. it cannot experience physical suffering or such sentiments as wounded feelings. in our discretion. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished." From every viewpoint except that of the petitioner's. Its standing was reduced in the business community. the petitioner is an unsavory and disreputable entity that has no good name to protect. may be vindicated or recognized. a corporation is not as a rule entitled to moral damages because. which we impose. the proper remedy is the award to it of moral damages." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court. Its reputation was tarnished." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim.00 is nothing short of preposterous. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.000.00 was not the proper relief to which the petitioner was entitled.acted upon pending receipt of actual payment by the suppliers. Under Article 2221 of the Civil Code. "nominal damages are adjudicated in order that a right of the plaintiff. Moral damages are not susceptible of pecuniary estimation. its claim of moral damages in the amount of P1.

the bank is under obligation to treat the accounts of its depositors with meticulous care. in lieu of nominal damages. ACCORDINGLY. always having in mind the fiduciary nature of their relationship. 2229.00. Narvasa. reckless. moral damages in the amount of P20. The bank must record every single transaction accurately. and as promptly as possible. A blunder on the part of the bank. by way of example or correction for the public good. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. What is especially deplorable is that.00. the depositor expects the bank to treat his account with the utmost fidelity.000. As for business entities like the petitioner. most of all. The ordinary person. Art.Art. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. fraudulent. down to the last centavo. banks have become an ubiquitous presence among the people. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here. it is obvious that the respondent bank was remiss in that duty and violated that relationship..000. lest the confidence of the public in the banking system be further impaired. usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. confident that the bank will deliver it as and to whomever he directs. not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.00 plus the original award of attorney's fees in the amount of P5.000. the bank is a trusted and active associate that can help in the running of their affairs. and costs. whether such account consists only of a few hundred pesos or of millions. Gancayco. liquidated or compensatory damages.000. SO ORDERED. having been informed of its error in not crediting the deposit in question to the petitioner. the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner. hereby imposes upon the respondent bank exemplary damages in the amount of P50. even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice. In every case. who have come to regard them with respect and even gratitude and. oppressive. In the case at bar. concur. with equal faith. Exemplary or corrective damages are imposed. temperate. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit. Grino-Aquino and Medialdea. the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. "by way of example or correction for the public good. or malevolent manner. and exemplary damages in the amount of P50. the Court.00. . in the exercise of its discretion. the court may award exemplary damages if the defendant acted in a wanton. confidence. can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. 2232. knowing that they will be safe in its custody and will even earn some interest for him. After deliberating on this particular matter. in addition to the moral." in the words of the law. In contracts and quasi-contracts. such as the dishonor of a check without good reason. The point is that as a business affected with public interest and because of the nature of its functions. JJ. Thus. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery.

acting through Godofredo. He was attended to by respondent bank's assistant cashier. 1988.S. 209968. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney. Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1. the club's chief cashier. Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1. On September 14. 1988. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company. 1994 of the Court of Appeals3 affirming with modification the Decision4 dated November 12.A.R. 118492 August 15. 1988 in Sydney. with the notice of dishonor stating the following: "xxx No account held with Westpac.610.1âwphi1. to the respondent bank to apply for a foreign exchange demand draft in Australian dollars. 1988. DE LEON. that is. 1988.: Before us is a petition for review of the Decision1 dated July 22. No. One Thousand Six Hundred Ten Australian Dollars (AU$ 1. U. vs.S. and director of PRCI. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY. The respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. respondents. Yasis. (PRCI. as vice-president for finance. JR. THE HON. that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney.610. On August 19. 1988. (Westpac-New York for brevity). payable to the order of the 20th Asian Racing Conference Secretariat of Sydney. the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U. treasurer. denominated as FXDD No.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney. Petitioner Gregorio H. Australia. Australia. Australia. 209968 in the sum applied for. 209968 was again dishonored by Westpac-Sydney for the same reason. on August 16. REYES and CONSUELO PUYAT-REYES. for brevity) sent four (4) delegates to the said conference.610. 209968. FXDD No. On July 28. J. 2001 GREGORIO H.G. drawn against the Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's dollar account in Westpac-New York. in response to PRCI's complaint about the dishonor of the said foreign exchange demand draft. sent Godofredo Reyes. Metro Manila. Reyes. who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney.nêt On August 10. Inc. which dismissed the complaint for damages of petitioners spouses Gregorio H. Branch 64. dollar account of the respondent in Westpac Bank in New York. and addressed to Westpac-Sydney as the drawee bank. racing manager." Meanwhile. . upon due presentment of the foreign exchange demand draft.00) was debited. petitioners. respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. upon its second presentment for payment. that is. The undisputed facts of the case are as follows: In view of the 20th Asian Racing Conference then scheduled to be held in September. the same was dishonored. Mr. agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference. Reyes. 1994 and Resolution2 dated December 29. This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. 1992 of the Regional Trial Court of Makati.00). PRCI and the petitioner Gregorio H. the Philippine Racing Club..

on September 19. She has been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award.5 The petitioners appealed the decision of the trial court to the Court of Appeals. the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners). 1988. At the registration desk. 1988 and September 18. 1992. On July 22. The petitioners claim that as a result of the dishonor of the said demand draft. When petitioner Gregorio H. the dispositive portion of which states: WHEREFORE. She too was embarassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. 1994. The lady member of the conference secretariat relented and gave him his name plate and conference kit. 1988. Costs against the plaintiff. Fortunately. She felt herself trembling and unable to look at the people around her. against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. on its counterclaim. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the ninth (9th) consecutive year.00. Reyes arrived in Sydney in the morning of September 18. Metro Manila. coming toward her. respectively. a complaint for damages. Meanwhile. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fee in cash once he was shown the dishonored demand draft. In the meantime he demanded that he be given his name plate and conference kit. petitioner Consuelo Puyat-Reyes arrived in Sydney. 1988. in the presence of other delegates from various member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. and in the presence of an international audience. she saw her husband. At the time the incident took place. the petitioners filed in the Regional Trial Court of Makati. A discussion ensued in the presence and within the hearing of many delegates who were also registering. It was only two (2) days later. social humiliation. as reasonable attorney's fees. 1988. dismissing plaintiff's complaint. The decretal portion of the decision of the appellate court states: . the appellate court affirmed the decision of the trial court but in effect deleted the award of attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs. and deep mental anguish in a foreign country.000. Only then was petitioner Puyat-Reyes given her name plate and conference kit. they were exposed to unnecessary shock. Feeling terribly embarrassed and humiliated. and ordering plaintiffs to pay to defendant. the amount of P50. It was then that he actually paid in cash the registration fees as he had earlier promised. SO ORDERED. petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati. or on September 20. On November 23. On November 12. 88-2468. petitioners spouses Gregorio H. he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. that he was given the dishonored demand draft and a covering letter. Metro Manila.On September 17. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. judgment is hereby rendered in favor of the defendant. 1988. docketed as Civil Case No. petitioner Gregorio H.

anchored on the following assignment of errors: I THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.6 According to the appellate court. The Bank had done what an ordinary prudent person is required to do in the particular situation. although appellants expect the Bank to have done more. to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank. From the evidence. "6" and "7" are just documentary copies of the cable message sent to Wespac-Sydney. the above procedure. insofar as it dismissed plaintiff's complaint. it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers "1" to "7". it appears that the root cause of the miscommunications of the Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. not the Bank's. The appellate court found and declared that: xxx xxx xxx Thus. The Bank having done everything necessary or usual in the ordinary course of banking transaction. the Bank had every reason to believe that the transaction finally went through smoothly. Moreover. "6" and "7" would show that despite what appears to be an asterick written over the figure before "99". is hereby AFFIRMED. it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred. and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney. with the Bank as drawer and Westpac-Sydney as drawee. Hence. However. II THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND . if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's message to be sent to the wrong department. this petition. No special pronouncement as to costs. since Exhs.7 xxx xxx xxx Hence. there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. but is hereby REVERSED and SET ASIDE in all other respect. a closer look at the Bank's Exhs. the judgment appealed from.WHEREFORE. the figure can still be distinctly seen as a number "1" and not number "7". SO ORDERED. the mistake was Westpac's. Besides. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business.

8 The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients. according to its tenor xxx. Respondent bank's assistant cashier explained to Godofredo Reyes. Reyes. The appellate court. In fact. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. according to petitioners.11 The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining." Thus. Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall raise only questions of law which must be distinctly set forth. how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. where respondent bank has a deposit dollar account. Prior to the first dishonor of the subject foreign exchange demand draft.DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF. re-confirmed the authority of Westpac-New York to debit its dollar . The petitioners pray this Court to re-examine the facts to cite certain instances of negligence. The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. the respondent should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. the instrument will be accepted or paid. the SWIFT cable message sent by respondent bank to the drawee bank. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'. or both. agreed to that arrangement or procedure. stated that it may claim reimbursement from its New York branch. the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. the respondent bank advised Westpac-New York to honor the reimbursement claim of WestpacSydney and to debit the dollar account12 of respondent bank with the former. the number "1" in "MT199" cannot be construed as "7". the petitioners are estopped from denying the said arrangement or procedure. erred in applying the standard of diligence of an ordinary prudent person only. petitioner Gregorio H. representing PRCI and petitioner Gregorio H. PRCI and its Vice-President for finance." Indeed. the petitioners argue that respondent bank should be held liable for damages for violation of this warranty. Westpac-Sydney construed the said cable message as a format for a letter of credit. we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court – and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court. An employee of Westpac-Sydney in Sydney.10 The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. In other words. THE DISHONOR OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK. Thus." Thus. Reyes. 209968) could be encashed by the payee. and not for a demand draft. It is our view and we hold that there is no reversible error in the decision of the appellate court. Petitioners also claim that the respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer that "xxx on due presentment. Westpac-Sydney. through their said representative. As a result. thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication. As soon as the demand draft was dishonored. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE. the 20th Asian Racing Conference Secretariat. the respondent bank. WestpacNew York. Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft.

that is. Hence. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney. with the 20th Asian Racing conference Secretariat in Sydney. In Philippine Bank of Commerce v. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. that is. concur. the respondent bank had the impression that WestpacNew York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank. But the said ruling applies only to cases where banks act under their fiduciary capacity. JJ.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored. Quisumbing. The case at bar does not involve the handling of petitioners' deposit. WHEREFORE. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. In view of all the foregoing. the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft.nêt Bellosillo. Considering the foregoing. and Buena. Australia. the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney. whereas the petitioners appeared to be under estoppel as earlier mentioned. SO ORDERED. we now determine the degree of diligence that banks are required to exert in their commercial dealings. the Court of Appeals did not commit any reversable error in its challenged decision. we ruled that the degree of diligence required of banks.1âwphi1. Court of Appeals15 upholding a long standing doctrine.14 With these established facts. the relationship involved was that of a buyer and seller.. Australia as the payee thereof. between the respondent bank as the seller of the subject foreign exchange demand draft. The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. as depositary of the deposits of their depositors. Mendoza. In any event. Being unaware that its employee erroneously read the said cable message. . and PRCI as the buyer of the same. with the respondent bank. Instead. it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. and the assailed decision of the Court of Appeals is AFFIRMED. Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610. As earlier mentioned.account for the purpose of reimbursing Westpac-Sydney. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft. is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. Thus. if any. the petition is hereby DENIED.00) indicated in the foreign exchange demand draft. Costs against the petitioners.

[G.3[3] In 1950. R-799 issued in 1961 6[6] and D-2247 issued in 1974. declaring private respondent Carlos Cajes the owner of 19. R-1475 that same year.4 hectares located in San Miguel. petitioner. 2000] DEVELOPMENT BANK OF THE PHILIPPINES. 1996 and April 23. 5[5] The tax declaration was later superseded by Tax Declaration Nos.: Misact This is a petition for certiorari seeking to reverse the decision1[1] and resolution2[2] of the Court of Appeals dated August 30. Province of Bohol. Jose Alvarez succeeded in obtaining the registration of a parcel of land with an area of 1. was originally owned by Ulpiano Mumar. vs.468. No. 129471. DECISION MENDOZA. consisting of 19. whose ownership since 1917 was evidenced by Tax Declaration No. April 28. 10101 and ordering the segregation and reconveyance of said portion to him. COURT OF APPEALS and CARLOS CAJES. 1997.4[4] Mumar sold the land to private respondent who was issued Tax Declaration No. 3840.7[7] Private respondent occupied and cultivated the said land.4 hectares of land embraced in TCT No. respondents. unknown to private respondent.512. 546 on 1 2 3 4 5 6 7 8 9 10 .8[8] planting cassava and camote in certain portions of the land.R.00 square meters. J.10[10] in his name for which he was issued OCT No.9[9] In 1969. The antecedent facts are as follows: The land in dispute. respectively.

1985. 10101 was issued. mortgaged the land covered by TCT No.14[14] In 1978. petitioner consolidated its ownership.000.12[12] In 1972.17[17] As the spouses Beduya failed to redeem the property.15[15] Sdjad The spouses Beduya later failed to pay their loans.11[11] The parcel of land included the 19. petitioner was the highest bidder. cancelled the loan and demanded immediate 11 12 13 14 15 16 17 18 19 . As part of the processing of the application. 1969. Petitioner. petitioner found that the land mortgaged by private respondent was included in the land covered by TCT No. inspected the land and appraised its value.4 hectares occupied by private respondent. as a result of which. therefore.430. 19[19] However after releasing the amount of the loan to private respondent. the SAAD Investment Corp.00 and. Olano.4 hectare property under Tax Declaration No. the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines for P526. as security.June 16.00. Patton R. 10101 in the name of the spouses Beduya. Alvarez never occupied nor introduced improvements on said land. represented by Gaudencio Beduya. and the SAAD Agro-Industries.16[16] In the resulting foreclosure sale held on January 31. D-2247 as security for the loan. a representative of petitioner. Private respondent’s loan application was later approved by petitioner.18[18] It appears that private respondent had also applied for a loan from petitioner in 1978. Inc. and the spouses Beduya personally executed another mortgage over the land in favor of petitioner to secure a loan of P1.13[13] That same year. offering his 19.. 10101 to the bank.000.. the mortgage on the property was foreclosed. Alvarez sold the land to the spouses Gaudencio and Rosario Beduya to whom TCT No.

Declaring plaintiff bank Development Bank of the Philippines the true and legal owner of the land in question covered by TCT No. 4. 2.. 22[22] petitioner filed a complaint for recovery of possession with damages against him.. 20 21 22 23 24 .Dismissing defendant’s counterclaim. dated March 18.. 1989. molesting and interfering plaintiff’s possession of the land in question...20[20] Private respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgage.. SO ORDERED. declaring petitioner the lawful owner of the entire land covered by TCT No..24[24] The dispositive portion of the decision reads: WHEREFORE... Private respondent was informed that petitioner had become the owner of the land he was occupying. 10101 farm of Gaudencio Beduya. and from committing any such act as would tend to mitigate.. 10101 on the ground that the decree of registration was binding upon the land.. foregoing considered.Ordering defendant to vacate from the land in question.. rendered a decision. 1981... a reappraisal of the property covered by TCT No..Ordering defendant.. The case was assigned to Branch 1 of the Regional Trial Court. releasing the property in question from encumbrance.payment of the amount. his agents or any person representing him or those who may claim substantial rights on the land to vacate therefrom. 21[21] Sometime in April of 1986.. As private respondent refused to do so.. and he was asked to vacate the property. Tagbilaran City.. 10101 was conducted by petitioner’s representatives. It was then discovered that private respondent was occupying a portion of said land. Sppedsc 3.. dated August 22. the portion of which he claims to belong to him for without basis in fact and law.23[23] which after trial.. deny or deprive plaintiff of its ownership and possession over said land.. cease and desist from disturbing. more than a year after the foreclosure sale... the court renders judgment: 1.

Calrsc III... 10101. Petitioner contends that: I. declaring him the owner of the 19.4000 hectares of land embraced in TCT 10101 as exclusively belonging to defendant-appellant.25[25] Petitioner moved for a reconsideration but its motion was denied in a resolution dated April 23. Dismissing the complaint.. TUASON. 57 SCRA 531. the Court of Appeals reversed and gave judgment for private respondent. Tuason28[28] in support of its claim that its predecessor-in-interest. The dispositive portion of the appellate court’s decision reads: WHEREFORE. II. No pronouncement as to costs. PARTICULARLY IN THE CASE OF BENIN VS.27[27] First.THE RESPONDENT COURT OVERLOOKED THE ISSUES ABOUT THE DBP BEING AN INNOCENT MORTGAGEE FOR VALUE OF THE LAND IN QUESTION AND OF HAVING PURCHASED LATER THE SAME DURING A PUBLIC AUCTION SALE. SO ORDERED.On appeal. Declaring the disputed 19. became 25 26 27 28 ..THE RESPONDENT COURT’S RULING DECLARING DBP IN ESTOPPEL IS ILLOGICAL... 2..... Petitioner invokes the ruling of this Court in Benin v. A new decision is hereby rendered: 1.4 hectares of land erroneously included in TCT No. Jose Alvarez. ordering its segregation from plaintiff-appellee’s title and its reconveyance to appellant..26[26] Hence this petition. the appealed decision is hereby REVERSED AND SET ASIDE.THE DECISION OF THE RESPONDENT COURT IS NOT IN ACCORD WITH THE APPLICABLE PROVISIONS OF LAW (Sections 38 and 46 of ACT 496) AND THE APPLICABLE DECISIONS OF THE SUPREME COURT.. 1997.

it was not solely the decree of registration which was considered in resolving the Benin case. Inc.. Thus. OCT No. and that of the other innocent purchasers for value and in good faith compared to the failure of the claimants to show their right to own or possess the questioned properties. Tuason & Co. Benin is distinguished from this case. 735 covering two parcels of land called the Sta.798.00 square meters. Tuason & Co.00 square meters. or Parcel 2. If such prescription was completed before the registration of the land in favor of the Tuasons. with an area of 8. the validity of OCT No. 735 had already been recognized by this Court in several cases 29[29] and.M. praying for the cancellation of OCT No. the resulting prescriptive title was cut off and extinguished by the decree of registration. Inc.246. but the fact was that the claimants were also barred from doing so by laches. Tuason & Co. 735 to J. In 1914. the prescription was either begun or completed after the decree 29 .617. as a result thereof.the owner of the land by virtue of the decree of registration issued in his name. In the first place. Petitioner quotes the following statement in the Benin case: It follows also that the allegation of prescriptive title in favor of plaintiffs does not suffice to establish a cause of action. with an area of 15.. having filed the complaint only in 1955.4 hectares of land for more than 30 years cannot overcome the decree of registration issued in favor of its predecessor-in-interest Jose Alvarez. or 41 years after the issuance of OCT No. when the claimants’ ancestors occupied the lands in question and declared them for tax purposes in 1944. If. Secondly. no possession could defeat the title of the registered owners of the land. Inc. M..961. Benin involved vast tracts of lands which had already been subdivided and bought by innocent purchasers for value and in good faith at the time the claimants obtained registration.M. It was held that neither could the claimants file an action to annul these titles for not only had these actions prescribed. from that time on. They asked that they be declared the owners and lawful possessors of said lands. the transfer certificates of title acquired by the innocent purchasers for value were also declared valid. 735 was issued in the name of Tuason so that. M. Thirdly. or Parcel 1. the lands were already covered by the tax declarations in the name of J.. on the contrary. three sets of plaintiffs filed separate complaints against Mariano Severo Tuason and J. and the Diliman Estate. What was considered decisive was the valid title or right of ownership of J. Sccalr Petitioner maintains that the possession by private respondent and his predecessor-in-interest of the 19. Tuason & Co. Inc. In Benin. Mesa Estate..

30 . and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate. This view is mistaken. prescription can not operate against the registered owner (Act 496). and shall be held to pass with the land until cut off or extinguished by the registration of the servient estate. where the certificate of title does not state that the boundaries of such highway. Liens. or irrigation canal or lateral thereof.30[30] Petitioner would thus insist that. namely: Calrspped First. 39. or in any other manner. way. Thus. Jose Alvarez and those claiming title from him (i. A consideration of the cases shows that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the land ¾ not to the right of ownership thereof ¾ which was not annotated on the certificate of title issued thereon. despite the fact that they neither possessed nor occupied these lands. it conferred no title because. Third.. by express provision of law.e. Taxes within two years after the same became due and payable. and any of the following encumbrances which may be subsisting. by virtue of the decree of registration. Act No. way. Any public highway. Every person receiving a certificate of title in pursuance of a decree of registration. 496 provides: Sec. or rights arising or existing under the laws of Constitution of the United States or of the Philippine Islands which the statutes of the Philippine Islands cannot require to appear of record in the Registry. have been determined. or any Government irrigation canal or lateral thereof. private way established by law. But if there are easements or other rights appurtenant to a parcel of registered land which for any reason have failed to be registered. Second.of registration. claims. the spouses Beduya) acquired ownership of the 19. such easements or rights shall remain so appurtenant notwithstanding such failure.4 hectares of land.

33[33] the Court already ruled on the purpose of registration of lands. pursuant to Section 39 of the Land Registration Act. the cardinal features of which are indefeasibility of title and the intervention of the State as a prerequisite to the creation and transfer of titles and interest. Consequently. registration has never been a mode of acquiring ownership over immovable property. It simply confirms a title already created and already vested. . rendering it forever indefeasible. Javier. . it had been cut off and extinguished by the registration of the servient estate under the Torrens system without the easement being annotated on the corresponding certificate of title.: The Court of Land Registration was created for a single purpose. It does not create a title nor vest one. Samia34[34] where land was erroneously registered in favor of persons who neither possessed nor occupied the same. Lack. Paredes32[32] which also involved an easement of light and view that was not annotated on the certificate of title of the servient estate. to the prejudice of the actual occupant. in Cid v.Hence. . the Court held: 31 32 33 34 . in the case of Angeles v. As early as 1911. Scedp But to make this principle applicable to a situation wherein title acquired by a person through acquisitive prescription would be considered cut off and extinguished by a decree of registration would run counter to established jurisprudence before and after the ruling in Benin. This principle was reiterated in Purugganan v. even conceding arguendo that such an easement has been acquired. . in the case of City of Manila v.31[31] it was helds: . Again. with the resultant increase in the use of land as a business asset by reason of the greater certainty and security of title. Indeed. viz." The sole purpose of the Legislature in its creation was to bring the land titles of the Philippine Islands under one comprehensive and harmonious system. The Act is entitled "An Act to provide for the adjudication and registration of titles to lands in the Philippine Islands.

Saleeby. 8995 could not have vested in the defendant more title than what was rightfully due her and her coowners. Lim y Cia. In other words. 590). 496. but to confirm and register title already created and already vested. If he happened to obtain it by mistake or to secure. said original certificate of title No. The purpose of the Land Registration Act.. Ongsiako. It cannot be otherwise because. errors in the plans of lands sought to be registered in the registry and reproduced in the certificate of title issued later. the certificate of title. came to know that it was through error that the original certificate of title in question was issued by the court which heard cadastral case No. which may have been issued to him under the circumstances. 48 Phil. at least. which gave rise to said anomaly.. 1933. Angelo vs. and the land which he really owns and desires to register in the registry is only 80 ares. 1921. who resorts to the provisions thereof. that is. 31 Phil. It appearing that said certificate granted her much more than she expected. a better title than he really and lawfully has. do not annul the decree of registration on the ground that it is not the plan but the land itself which is registered in the registry. The Land Registration Act as well as the Cadastral Act protects only the holders of a title in good faith and does not permit its provisions to be used as a shield for the commission of fraud.. (55 Phil. Lack. naturally to the prejudice of another. is not to create or vest title. it is but just that the error. which is applicable to the Cadastral Act because it is so provided expressly by the provisions of section 11 of the latter Act. This is evidenced by the fact that. . he cannot claim to be the owner of the existing difference if . 19 Phil. or that one should enrich himself at the expense of another (Gustilo vs. ever since. if the plan of an applicant for registration or claimant in a cadastral case alleges that the land referred to in said plan is 100 or 1. 361). Maravilla. and of course. not only in or prior to March. but from the time said certificate was issued in their favor. 442.. from December 15. 838).. The defendant and her coowners knew or. This is permitted by section 112 of Act No. they remained passive without even attempting to make the least showing of ownership over the land in question until after the lapse of more than eleven years.000 hectares. 11 of Bacolor. be corrected (City of Manila vs. Santos. may and should be cancelled or corrected (Legarda and Prieto vs.. as this court has had occasion to so state more than once. The above-stated Acts do not give anybody. 49 Phil. 324). as stated in the case of Domingo vs. more land than he really owns. Director of Lands. with or without bad faith on his part. . to the prejudice of his neighbor.

these tax declarations constitute strong evidence of ownership of the land occupied by him. 1961 and 1974. In the present case. The voluntary declaration of a piece of property for taxation purposes manifests not only one’s sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties. peaceful and continuous possession of the property since 1950. R-1475. but also the intention to contribute needed revenues to the Government. Court of Appeals 36[36] wherein we ruled that the fact that a party was able to secure a title in his favor did not operate to vest ownership upon her of the property. nevertheless. Together with his actual possession of the land. Court of Appeals:40[40] Although tax declarations or realty tax payments of property are not conclusive evidence of ownership. 35 36 37 38 39 40 . Such an act strengthens one’s bona fide claim of acquisition of ownership. respectively. open. R-799 and D-224739[39] which were issued in his name in 1950. its latest application being in the case of Reyes v.35[35] Edpsc The principle laid down in this 1938 case remains the prevailing doctrine. they are good indicia of possession in the concept of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. As we said in the case of Republic vs. 384037[37] in favor of private respondent in 1950.000 hectares. private respondent has been in actual.38[38] Private respondent’s claim based on actual occupation of the land is bolstered by Tax Declaration Nos. This fact was corroborated by the testimony of Eleuterio Cambangay who personally knew that Ulpiano Mumar transferred the land covered by Tax Declaration No.afterwards he is issued a certificate of title granting him said area of 100 or 1. They constitute at least proof that the holder has a claim of title over the property.

In fact. having been in possession of the land since 1950. Prescription requires public. we hold that ownership of the 19. therefore. in TCT No. Ulpiano Mumar. his possession tacked to that of his predecessor-in-interest. the land in question must be reconveyed in favor of private respondent. uninterrupted and adverse possession of the property in the concept of an owner for ten (10) years. which dates back to 1917." 44[44] Considering the circumstances pertaining in this case. more than 30 years had elapsed before a decree of registration was issued in favor of Jose Alvarez.4 hectares included in the area covered by TCT No. which includes by mistake or oversight land which can no longer be registered under the system. 42 [42] Edp In contrast to private respondent. reconveyance being clearly the proper remedy in this case. it has been shown that neither Jose Alvarez nor the spouses Beduya were at any time in possession of the property in question. the true and actual owner thereof. 10101. was the owner of the property when it was registered by Jose Alvarez in 1969.4 hectares of land presently occupied by private respondent was already vested in him and that its inclusion in OCT No. as distinguished from extraordinary prescription which requires possession for 30 years in case possession is without just title or is not in good faith. in case the possession is in good faith and with a just title. despite knowledge by Gaudencio Beduya that private respondent occupied this 19. was erroneous. by virtue of the said certificate alone. Hence.More importantly. "If a person obtains a title under the Torrens system. 10101. Such prescription is called ordinary prescription. peaceful.43[43] he never instituted any action to eject or recover possession from the latter. Accordingly. 41 42 43 44 . it can be concluded that neither Jose Alvarez nor the spouses Beduya ever exercised any right of ownership over the land. This uninterrupted adverse possession of the land for more than 30 years could only ripen into ownership of the land through acquisitive prescription which is a mode of acquiring ownership and other real rights over immovable property. 546 and. he does not. it was established that private respondent. subsequently. become the owner of the lands illegally included. 41[41] Clearly. The fact of registration in their favor never vested in them the ownership of the land in dispute.

" (Vital vs. the registered owner to reconvey the parcel of land to the plaintiff who has been found to be the true owner thereof.47[47] 45 46 47 . prescribes in 10 years from the date of issuance of decree of registration. the right to seek reconveyance. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. . may direct the defendants. the reason for the rule being. Amore. the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property. without ordering the cancellation of the Torrens title issued upon the patent. such as the instant case. Generally. 46[46] However. which in effect seeks to quiet title to the property. . 955) "The reconveyance is just and proper in order to terminate the intolerable anomaly that the patentees should have a torrens title for the land which they and their predecessors never possessed which has been possessed by Novo in the concept of owner. Thus. as the defendants are in the instant case."The true owner may bring an action to have the ownership or title to the land judicially settled and the Court in the exercise of its equity jurisdiction. 90 Phil. Novo. this rule does not apply when the plaintiff is in actual possession of the land. since if a person claiming to be the owner thereof is in actual possession of the property. does not prescribe." (Bustarga v. but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the property. which right can be claimed only by one who is in possession. an action for reconveyance based on an implied or constructive trust. 129 SCRA 125)45[45] Second. [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years. that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title. it has been held: Misedp .

To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. . . private respondent may seek reconveyance of his property despite the lapse of more than 10 years. we could rule on the question of the validity of TCT No. Third. 10101. 10101 on which petitioner bases its right. the Land Registration Act. to direct the party to institute cancellation proceedings would be needlessly circuitous and would unnecessarily delay the termination of the controversy which has already dragged on for 20 years. including the Insular Government and all the branches thereof. It is true that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case. it is the original defendant who becomes the plaintiff.Having been the sole occupant of the land in question. only this time.49[49] we ruled on the validity of a certificate of title despite the fact that the original action instituted before the lower court was a case for recovery of possession. a decree of confirmation and registration shall be entered. it should not be overlooked that private respondent filed a counterclaim against petitioner. the original complaint is for recovery of possession filed by petitioner against private respondent. Hence. or included in the general description "To all whom it 48 49 . Petitioner nonetheless contends that an action for reconveyance does not lie against it. provides: Misoedp If the court after hearing finds that the applicant or adverse claimant has title as stated in his application or adverse claim and proper for registration. whether mentioned by name in the application. claiming ownership over the land and seeking damages. Nor is there any obstacle to the determination of the validity of TCT No." 48[48] In an analogous case. 10101 for the counterclaim can be considered a direct attack on the same. This contention has no merit. subject only to the exceptions stated in the following section. 496. . Every decree of registration shall bind the land. It stands on the same footing and is to be tested by the same rules as if it were an independent action. notice. However. because it is an innocent purchaser for value in the foreclosure sale held in 1985. It shall be conclusive upon and against all persons. and quiet title thereto. or citation. Sec. 38 of Act No. The Court reasoned that since all the facts of the case are before it. not an original action filed by the latter to question the validity of TCT No. "A counterclaim is considered a complaint.

If there is any such purchaser. it shall be deemed to include an innocent lessee. however. 3. But any person aggrieved by such decree in any case may pursue his remedy by action for damages against the applicant or any other person for fraud in procuring the decree. or other encumbrancer for value. subject only to the right of appeal hereinbefore provided: Provided.may concern. Act No. we held: Where the certificate of title is in the name of the mortgagor when the land is mortgaged. but shall remain in full force and effect forever. That no decree or certificate of title issued to persons not parties to the appeal shall be cancelled or annulled. (As amended by Sec. In the absence of anything to excite suspicion. the innocent mortgagee for value has the right to rely on what appears on the certificate of title.) Edpmis Succinctly put. said mortgagee is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. 3630. to the right of any person deprived of land or of any estate or interest therein by decree of registration obtained by fraud to file in the competent Court of First Instance a petition for review within one year after entry of the decree. subject. 1. infancy. however. every decree or certificate of title issued in accordance with this section shall be incontrovertible. "It is a condition sine qua non for an action for reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for value." Such decree shall not be opened by reason of the absence."50[50] The same rule applies to mortgagees. and Sec. Act 3621. Although Article 2085 of the Civil Code provides that absolute ownership of the mortgaged property by the mortgagor 50 . provided that it does not prejudice the rights of an innocent purchaser for value and in good faith. Whenever the phrase "innocent purchaser for value" or an equivalent phrase occurs in this Act. or other disability of any person affected thereby. the decree of registration shall not be opened. mortgagee. nor by any proceeding in any court for reversing judgments or decrees. Upon the expiration of said term of one year. like petitioner. this is subject to the right of a person deprived of land through fraud to bring an action for reconveyance. However. a buyer need not look behind the certificate of title in order to determine who is the actual owner of the land. Thus. Consequently. §38 provides that a certificate of title is conclusive and binding upon the whole world. provided no innocent purchaser for value has acquired an interest.

Indeed. no investigation had been made by petitioner. 10101. 10101. it would not have failed to discover that private respondent was occupying the disputed portion of 19. even those involving registered lands. 10101 in 1985 at the foreclosure sale. their business being impressed with public interest. admitted that he came to know of the property for the first time in 1979 when he inspected it to determine whether the portion occupied by private respondent and mortgaged by the latter to petitioner was included in TCT No.4 hectares.is essential. In other words. two circumstances negate petitioner’s claim that it was an innocent purchaser for value when it bought the land in question. therefore. before approving a loan. Olano. including the portion occupied by private respondent: (1) petitioner was already informed by Gaudencio Beduya that private respondent occupied a portion of the property covered by TCT No. To be sure. and (2) petitioner’s representative conducted an investigation of the property in 1979 to ascertain whether the land mortgaged by private respondent was included in TCT No. especially in the case of a banking institution.52[52] Jjsc In this case. For this reason. the subsequent declaration of a title as null and void is not a ground for nullifying the mortgage right of a mortgagee in good faith. Banks. It is clear. petitioner cannot be considered an innocent purchaser for value when it bought the land covered by TCT No. a mortgagee must exercise due diligence before entering into said contract. Nonetheless. This means that when the land was mortgaged by the spouses Beduya in 1972. however. indicates that petitioner is not a mortgagee in good faith. an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title. petitioner’s representative. that petitioner failed to exercise due care and diligence in establishing the condition of the land as regards its actual owners and possessors before it entered into the mortgage contract in 1972 with the Beduyas.51[51] The evidence before us. Judicial notice is taken of the standard practice for banks. 10101. to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof. Patton R. petitioner was already aware that a person other than the registered owner was in actual possession of the land when it bought the same at the foreclosure sale. Had it done so. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an 51 52 . are expected to exercise more care and prudence than private individuals in their dealings.

in the absence of such inquiry. Petitioner claims that the fact that it approved a loan in favor of private respondent and executed a mortgage contract covering the 19.4 hectares covered by tax declarations 53 54 . As we ruled: Scjj "The failure of appellees to take the ordinary precautions which a prudent man would have taken under the circumstances. constitutes gross negligence amounting to bad faith. specially in buying a piece of land in the actual. He can scarcely. It cannot feign ignorance of private respondent’s claim to the land since the latter mortgaged the same land to petitioner as security for the loan he contracted in 1978 on the strength of the tax declarations issued under his name. be regarded as a bona fide purchaser as against such possessors. make some inquiry concerning the right of those in possession."54[54] Fourth. the land sold is in the possession of a person other than the vendor. One who purchases real property which is in the actual possession of another should.) . petitioner cannot be deemed an innocent mortgagee/purchaser for value. From the foregoing. at least put the purchaser upon inquiry.. we find that the resolution of the issue of estoppel will not affect the outcome of this case. Instead of inquiring into private respondent’s occupation over the land. "It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard. Considering these circumstances. In this connection. 10101. at least. it has been held that where.innocent purchaser for value.. petitioner simply proceeded with the foreclosure sale. and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. pretending that no doubts surround the ownership of the land covered by TCT No. other than the vendor. the purchaser is required to go beyond the certificates of title and ma[k]e inquiries concerning the rights of the actual possessor. (Citations omitted. The actual possession by other than the vendor should."53[53] Petitioner deliberately disregarded both the fact that private respondent already occupied the property and that he was claiming ownership over the same. visible and public possession of another person. as in this case..

by his acts. representations or admission. 10101. or by his own silence when he ought to speak out. a fact that is admitted by private respondent himself. so that he will be prejudiced if the former is permitted to deny the existence of such facts. land registration or cadastral case has been filed or instituted before the court affecting the validity of Tax Declaration No. 55 56 57 . we do not find petitioner to be estopped from questioning private respondent’s title. intentionally or through culpable negligence."56[56] In the case at bar. petitioner immediately demanded full payment of the loan and thereafter cancelled the mortgage contract. As a necessary consequence thereof. such portion of land included in TCT No. his claim of ownership was supported not only by the tax declarations but also by a certification of the Clerk of Court of the Court of First Instance of Bohol that no civil. Moreover. 10101 must be segregated and reconveyed in his favor. However. Bohol and declared in the name of Carlos Cajes.57[57] Indeed. upon learning that the land occupied by private respondent was also covered by TCT No. The claim has no basis.4 hectares occupied by him.4 hectares occupied by him. Sjcj As to the question of estoppel. induces another to believe certain facts to exist and such other rightfully relies and acts on such belief. San Miguel. we uphold private respondent’s ownership of 19. Private respondent made no misrepresentation with regard to the land occupied by him as he is actually the real owner thereof. Rather. 10101. when private respondent entered into a mortgage contract with petitioner.issued under private respondent’s name does not mean that it is estopped from questioning the latter’s title. Petitioner accuses private respondent of having made misrepresentations which led it to believe in his valid title and ownership. for reasons aforestated. D-2247 covering the land located in Bugang. private respondent believed in good faith and with good reason that he was the owner of the 19. 55[55] These documents were relied upon by private respondent in support of his claim of ownership. "Estoppel in pais arises when one. We cannot consider the submission of these documents as misrepresentations by private respondent as to the actual ownership of the land. nothing in record indicates that petitioner impliedly acquiesced to the validity of private respondent’s title when it found out that the latter was occupying a portion of the land covered by TCT No.

respondent.. JJ. concur.R. J. RAMOS. 147800. Buena.: . Quisumbing. No. Jr. vs. DECISION CALLEJO. (Chairman). SR. and De Leon. 2003] UNITED COCONUT PLANTERS BANK.WHEREFORE. SO ORDERED. November 11.. petitioner.. Supreme Bellosillo. [G. TEOFILO C. the decision of the Court of Appeals is AFFIRMED in toto.

To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3.000. Sr. with an area of 400 square meters. B-023-07600-R under the names of the said spouses.Before us is a petition for review on certiorari of the March 30. [7] The property was covered by Tax Declaration No. Villapaña to levy and attach all the real and personal properties belonging to the aforesaid defendants to satisfy the judgment. 1983. [4] 61 The decision became final and executory. The latter filed a complaint with the RTC of Makati against the ZDC. [3] However.000 to Zamboanga Development Corporation (ZDC) with Venicio Ramos and the Spouses Teofilo Ramos. 62 To help the Sheriff implement the writ. 2001 Decision [1] of the Court of Appeals in CA-G. In March 1984. was the Executive Officer of the Iglesia ni Cristo. requested Eduardo C. The lawyer furnished Reniva with a copy of Tax Declaration B-023-07600-R covering a property in Quezon City. Ramos. 275167 (PR-13108) under the name of Teofilo C. the RTC of Makati. again with Venicio Ramos and the Spouses Teofilo Ramos and Amelita Ramos as sureties. the petitioner granted an additional loan to ZDC.00) plus interest. [8] However.00 for attorney’s fees. he failed to talk to the owner of the property. married to Rebecca F. He saw workers on the property constructing a bungalow. 94-1822. President and Chairman of the Board of Directors of the Ramdustrial Corporation. Ocampo Avenue. Branch 148. the court issued on December 18. and Amelita Ramos as sureties. Sr. penalties and other charges. Reniva found that the property was a residential lot. 1992 to ascertain if the defendants had any leviable real and personal property. the head of the Litigation and Enforcement Division (LED) of the petitioner. Branch 134. Atty. Block 5. Quezon City. 2. Reniva.150.R.800. CV No. the ZDC failed to pay its account to the petitioner despite demands. The case was docketed as Civil Case No. rendered judgment in favor of the petitioner and against the defendants. Per information 63 64 65 58 59 60 61 62 63 64 65 . 3. 56737 which affirmed the Decision [2] of the Regional Trial Court (RTC) of Makati City. the name of one of the defendants was correctly stated as Teofilo Ramos. an appraiser of the petitioner’s Credit and Appraisal Investigation Department (CAID) on July 17. To pay plaintiff the sum of P20. 58 59 The Antecedents On December 22. Sr. 1990 a writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Ramos. 16453. Cesar Bordalba. Sr. The decretal portion of the decision reads: 60 1. covered by TCT No.000. 1989. the petitioner United Coconut Planters Bank (UCPB) granted a loan of P2. Reniva went to the property to inspect it and to verify the identity of the owner thereof. Don Jose Subdivision. [5] In the writ of execution. On February 15. in Civil Case No. [6] In the course of his investigation. for the collection of the corporation’s account. and To pay the cost of suit. Teofilo Ramos. identified as Lot 12. Venicio Ramos and the Spouses Teofilo Ramos. On motion of the petitioner.

000 and that the owner thereof was Teofilo C. 16453. through counsel. a notice of levy was annotated in TCT No. 16453. Sr. 1992.gathered from the neighborhood. Venicio A. Teofilo C. 275167 (PR-13108). 1992 was P900. the defendant in Civil Case No. His blood temperature rose so much that immediately after the meeting. Ramos. the respondent executed an affidavit of denial [12] declaring that he and Teofilo Ramos. Sheriff Villapaña furnished the petitioner with a copy of the said letter. He was not a party in the said case. the respondent was informed that upon verification. because of which the bank had to hold in abeyance any action on its loan application. 1993.. the defendant in Civil Case No. covered by TCT No. 67 The respondent was shocked by the information. in August of 1993. who gave the respondent the usual treatment and medication for cardio-vascular and hypertension problems. he proceeded to his doctor. Atty. Reniva confirmed that the Spouses Teofilo C. Sr. the Sheriff prepared a notice of levy in Civil Case No. in his capacity as President and Chairman of the Board of Directors of Ramdustrial Corporation. Sr. [10] In a meeting called for by the UCPB. the respondent. Ramos and Rebecca Ramos owned the property. were not one and the same person. otherwise the respondent would take the appropriate civil. 69 In a conversation over the phone with Atty. Gatchalian.. neither was he aware that his property had been levied by the sheriff in the said case. inter alia. 16453 stating. When appraised by the petitioner of the said report. Zamboanga Realty Development Corporation. Lukes Medical Center. using the property covered by TCT No. Ramos. criminal or administrative action against him. Cesar Bordalba. Carmelito Montano. Montano. suggested that the respondent file the appropriate pleading in Civil Case No. 16453. on October 22. of Iglesia ni Cristo. Ramos and Teofilo Ramos. Dr. He stated therein that the fair market value of the property as of August 1. [11] 68 Upon advise from his lawyer. and Rebecca F. [9] 66 Meanwhile. 1993.000. On September 30. Ramos executed a promissory note for the said amount payable to the UCPB in installments for a period of 180 70 66 67 68 69 70 . Montano’s client. 275167 (PR-13108) as collateral therefor.. at the St. the respondent was informed by the UCPB that Ramdustrial Corporation’s credit line application for P2. Ramdustrial Corporation applied for a loan with the UCPB. a sister company of the petitioner. wrote Sheriff Villapaña. entitled United Coconut Planters Bank v. He demanded that Sheriff Villapaña cause the cancellation of the said annotation within five days from notice thereof. Atty.000 had been approved. Sr. Sr. one of the judgment debtors in Civil Case No. 16453 to prove his claim that Atty. On July 22. and that such annotation was irregular and unlawful considering that the respondent was not Teofilo Ramos. Atty. Appended thereto was the respondent’s affidavit of denial. informing him that a notice of levy was annotated on the title of the residential lot of the respondent. Reniva submitted a report on his appraisal of the property. Carmelito A. On October 21. and his wife Amelita Ramos and caused the annotation thereof by the Register of Deeds on the said title. 16453. The Ramdustrial Corporation intended to use the proceeds of the loan as additional capital as it needed to participate in a bidding project of San Miguel Corporation. 1993. married to Rebecca Ramos. that the defendants were Teofilo Ramos. was not defendant Teofilo Ramos. 275167 in favor of the petitioner as plaintiff in Civil Case No. [13] Subsequently. Carmelito Montano. the respondent. For his part. the head of the petitioner’s LED.

94-1822. 1994. the respondent was concerned because when the proceeds of the loan were released. thus made him lose an opportunity to participate in the bidding of a considerable project. [18] 71 72 73 74 75 Despite the cancellation of the notice of levy. the petitioner and Sheriff Villapaña caused the annotation of a notice to levy on the TCT of his aforesaid property which caused the disapproval of his loan from UCPB and. When the respondent went to the petitioner for the cancellation of the notice of levy annotated on his title.days. 275167 (PR-13108) at the instance of the petitioner had not yet been cancelled. however. The monthly amortization on its loan from UCPB became due and remained unpaid. that by reason of such wrongful annotation of notice of levy. [16] As business did not go well. the respondent and his wife Rebecca F. [15] However. 200. the respondent discovered that the notice of levy annotated on TCT No. The corporation then applied for a loan with the Planters Development Bank (PDB). the bidding period for the San Miguel Corporation project had already elapsed. mental anguish and almost a heart attack due to high blood pressure. [17] When apprised thereof. to pay as follows: 1. He thus prayed: WHEREFORE. P3.00 as moral damages.000.00 as actual damages. was only his namesake. through counsel. Ramdustrial Corporation found it difficult to pay the loan.. 1994. 16453.00 as attorney’s fees. The petitioner assured the respondent that the motion would not be opposed. 300. it is most respectfully prayed of the Honorable Regional Trial Court that after due hearing. 275167 as collateral for its loan. [14] Simultaneously. raffled to Branch 148 and docketed as Civil Case No. the petitioner’s counsel suggested to the respondent that he file a motion to cancel the levy on execution to enable the court to resolve the issue.000. that Teofilo Ramos. Rather than wait for the petitioner to act. Therein. 4. The respondent offered to use his property covered by TCT No. 71 72 73 74 75 . PDB agreed to pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB. The account of Ramdustrial Corporation with UCPB thus remained outstanding. Sr. denied. a complaint for damages against the petitioner and Sheriff Villapaña before the RTC of Makati City. the petitioner did not oppose the motion. Pending negotiations with UCPB. the proceeds of which would be used to pay its account to the UCPB.00 as exemplary damages.000. 275167. The court granted the motion and issued an order on April 12. 200. the respondent. premises considered. filed the said motion on April 8. judgment be rendered in his favor by ordering defendants jointly and severally. on May 26. that without any legal basis. The Register of Deeds of Quezon City complied and cancelled the notice of levy. Ramos acted as sureties to the loan of Ramdustrial Corporation. 3. on the condition that the mortgage with the latter would be released. the respondent filed. the respondent (as plaintiff) alleged that he was the owner of a parcel of land covered by TCT No. 2. he suffered sleepless nights. moral shock. UCPB agreed. As promised. PDB withheld the release of the loan pending the cancellation of the notice of levy.000.000. It thus applied for an additional loan with the UCPB which was. 1994 ordering the Register of Deeds to cancel the levy. one of the judgment debtors of UCPB in Civil Case No.

000.000.00 as exemplary damages. forthwith.000. and the latter is hereby ordered to pay the following: (1) P800. pay moral damages in the amount of PESOS: THREE MILLION P3. (2)P100. (3)P100. 1994 that the respondent filed such motion.00. The decretal part of the decision is herein quoted: WHEREFORE. surprisingly. it suggested to the respondent the filing of a motion to cancel levy and that the petitioner will not oppose such motion. [20] In the meantime. 275167 that it learned for the first time the notice of levy on the respondent’s property. The petitioner should not thus be made to suffer for the consequences of the respondent’s delay. it proposed that the respondent file a motion to cancel levy with a promise that it would not oppose the said motion.000.00 and exemplary damages in the amount of PESOS: FIVE HUNDRED THOUSAND P500. it was because it took him quite a long time to file the motion. 2. the respondent dilly-dallied and failed to file the said motion. dismissing the complaint in toto and ordering the plaintiff to: 1. [21] 78 76 77 78 . The complaint against Sheriff Villapaña was dismissed on the ground that he was merely performing his duties. The petitioner thus prayed: WHEREFORE. The petitioner alleged that after ascertaining that it indeed made a mistake. in 1995. 16453.00 as moral damages. (4) Cost of suit. pay attorney’s fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED THOUSAND P200. if any damages were sustained by the respondent. premises considered.00 as attorney’s fees. 76 [19] In its answer. the RTC rendered a decision in favor of the respondent. PDB released the proceeds of the loan of Ramdustrial Corporation which the latter remitted to UCPB. judgment is hereby rendered in favor of the plaintiff and against the defendant UCPB.00.000. in view of the foregoing premises. barred by the failure of the respondent to file a third-party claim in Civil Case No. denied that it was motivated by malice and bad faith. Ramos who appeared to be the registered owner of TCT No. the petitioner. the petitioner held in abeyance the sale of the levied property at public auction. in lieu thereof. However.5. it is respectfully prayed of this Honorable Court that judgment be rendered in favor of defendant UCPB. 77 Other reliefs and remedies deemed just and equitable under the premises are also prayed for. 1997. the petitioner was thus surprised that the respondent filed an action for damages against it for his failure to secure a timely loan from the UCPB and PDB. On March 4. while admitting that it made a mistake in causing the annotation of notice of levy on the TCT of the respondent. forthwith. it was only on April 12. The petitioner further asserted that it had no knowledge that there were two persons bearing the same name Teofilo Ramos. the petitioner could not cause the removal of the levy.000. Cost of suit. it was only when Sheriff Villapaña notified the petitioner that a certain Teofilo C.000.

it proceeded with haste as it did not take into consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had a “Sr. in toto. 16453 was the registered owner of the property covered by TCT No. the decision of the trial court. the respondent. as Chairman of Ramdustrial Corporation. The investigation conducted by CAID appraiser Eduardo C. 79 . 275167. On March 30. 16453. with his wife Rebecca Ramos. WAS RAMDUSTRIAL CORPORATION. However. ON THE EVIDENCE. in Civil Case No. the property which was levied was the respondent’s only property where he and his family resided. Dissatisfied. THE COURT OF APPEALS COMMITTED MANIFESTLY MISTAKEN INFERENCES AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW. Reniva did not conclusively ascertain if the respondent and Teofilo Ramos. The trial court further ruled that the mere fact that the petitioner did not file an opposition to the respondent’s motion to cancel levy did not negate its negligence and bad faith.” in his name. C. the court considered the cancellation of annotation of levy as a mitigating factor on the damages caused to the respondent. while the respondent was married to Rebecca Ramos and had “C” for his middle initial. CONSIDERING THAT: A. and thereafter request for the cancellation of the motion of levy on the property. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOS’S (SIC) OWN DOING. WHICH RESPONDENT RAMOS CLAIMED HE TRIED TO OBTAIN. For failure to show that he suffered actual damages. 79 [22] The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos. Thus. the thought of losing it for reasons not of his own doing gave rise to his entitlement to moral damages. THE BORROWER OF THE LOAN. Disappointed. 2001. the court a quo dismissed the respondent’s claim therefor. B. the petitioner filed this instant petition assigning the following errors: I IN AFFIRMING THE TRIAL COURT’S ORDER. Sr. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS DEVELOPMENT BANK WERE GRANTED PRIOR TO THE CANCELLATION OF THE ANNOTATION ON THE TITLE OF THE SUBJECT PROPERTY. the petitioner interposed an appeal to the Court of Appeals (CA). it acted with caution in looking for leviable properties of the judgment debtors/defendants in Civil Case No. ANY DAMAGE RESULTING FROM THE ANNOTATION WAS SUFFERED BY THE CORPORATION AND NOT BY RESPONDENT RAMOS. the assailed decision is hereby AFFIRMED. The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB and PDB. Sr. Moreover. the CA rendered a decision affirming. HENCE.The trial court found that contrary to the contention of the petitioner. the decretal portion of which is herein quoted: WHEREFORE. based on the foregoing premises. were one and the same person. signed in the promissory note and acted as sureties on the said obligations. and to inform the sheriff that the registered owners of the property were the respondent and his wife Rebecca Ramos.

(c) if so. and ordering the dismissal of respondent Ramos’ Complaint dated 05 May 1994. credits.000 ON A FINDING OF NEGLIGENCE IS CONTRARY TO LAW AND EVIDENCE.II THE COURT OF APPEALS’ DECISION AFFIRMING THE TRIAL COURT’S AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS IN THE AMOUNT OF P800. [24] 81 In his comment. 275167. [23] 80 AS A MATTER OF LAW. foreign and domestic bills of exchange. for one or more of the purposes of making temporary loans and discounts. coin bullion. and with the privileges. On the first issue. if the institution sees fit to engage in such business. IN ANY EVENT. or with both these powers. whether or not the respondent is entitled to moral damages. or to receive the money of others on general deposit. to form a joint fund that shall be used by the institution for its own benefit. we have held that the business of a bank is one affected with public interest. (b) if so. C. a financial institution with power to issue its promissory notes intended to circulate as money (known as bank notes). the decision of the trial court. He prayed that the petition be denied due course. THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS UNREASONABLE AND OPPRESSIVE. UCPB prayed that: WHEREFORE. petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court render judgment reversing and setting aside the Court of Appeals’ Decision dated 30 March 2001. B. For this reason. and making collection for the holders of negotiable paper. exemplary damages and attorney’s fees. we rule that the petitioner acted negligently when it caused the annotation of the notice of levy in TCT No. of receiving special deposits. MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE NEGLIGENCE. the respondent alleged that the CA did not err in affirming. for which reason the bank should guard against loss due to negligence 82 80 81 82 . in toto. It bears stressing that the petitioner is a banking corporation. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY. The issues posed for our resolution are the following: (a) whether or not the petitioner acted negligently in causing the annotation of levy on the title of the respondent. and the remission of money. of dealing in notes. III THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEY’S FEES IS CONTRARY TO LAW SINCE THE AWARD OF MORAL DAMAGES WAS IMPROPER IN THE FIRST PLACE. whether or not the respondent was the real party-in-interest as plaintiff to file an action for damages against the petitioner considering that the loan applicant with UCPB and PDB was RAMDUSTRIAL CORPORATION. the bank invests the money that it holds in trust of its depositors. [25] In funding these businesses. in addition to these basic powers. A.

then he is guilty of negligence. as a bank and a financial institution engaged in the grant of loans. Sr. did the act complained of. Reniva as a flimsy matter. the petitioner failed to have the annotation cancelled by the Register of Deeds. [30] 86 87 In this case. in Civil Case No. [29] A middle name is very important or even decisive in a case in which the issue is as between two persons who have the same first name and surname. the constant test is: “Did the defendant in doing the negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not. It behooved the petitioner to ascertain whether the defendant Teofilo Ramos. 16453. We note. Sr. However. caused the annotation of notice of levy in the respondent’s title despite its knowledge that the property was owned by the respondent and his wife Rebecca Ramos. Even when the respondent informed the petitioner. or is injured or sued or the like. as appearing in the judgment of the court and in the writ of execution issued by the trial court. and Amelita Ramos. Sr. before a surname. It should have acted more cautiously. that the property levied by the sheriff was owned by the respondent. 83 84 85 86 87 . utterly disregarding the identity of the registered owner thereof. as the Supreme Court of Washington in 1909 had. and merely assumed that the respondent and the judgment debtor Teofilo Ramos. and in many. 94-1822 were the Spouses Teofilo Ramos. 16453 was Teofilo Ramos. Sr. has become a practice. Bordalba as the Chief of LED and handling lawyer of Civil Case No. the bank concerns itself with proper informations regarding its debtors. The name of the owner of the property covered by TCT No. the petitioner knew that the sureties to the loan granted to ZDC and the defendants in Civil Case No. The petitioner. It appears that the petitioner treated the uncertainty raised by appraiser Eduardo C. were one and the same person. the necessity that these initials be all given and correctly given in court proceedings has become of importance in every case. we are convinced that the petitioner failed to act with the reasonable care and caution which an ordinarily prudent person would have used in the same situation. it would have surely discovered that the respondent was not the surety and the judgment debtor in Civil Case No. 85 The petitioner has access to more facilities in confirming the identity of their judgment debtors.. who were not privies to the loan availment of ZDC nor parties-defendants in Civil Case No. 16453. 16453. through counsel. In determining whether or not the petitioner acted negligently. If the petitioner had done so.or bad faith. [27] In this case. It placed more importance on the information regarding the marketability and market value of the property. the name of the judgment debtor in Civil Case No. especially since some uncertainty had been reported by the appraiser whom the petitioner had tasked to make verifications. with Atty. 16453 was the same person who appeared as the owner of the property covered by the said title. Sr. since the use of initials. 275167 was Teofilo C. and Amelita Ramos were specified in the writ of execution issued by the trial court. and a mistake in a middle name is not regarded as of consequence. is expected to ascertain and verify the identities of the persons it transacts business with. The names of the Spouses Teofilo Ramos.” [28] Considering the testimonial and documentary evidence on record. The petitioner failed to do so. Ramos. 83 84 The petitioner. instead of a given name. [26] In approving the loan of an applicant. Sr. in coordination with the sheriff. that a legal name consists of one given name and one surname or family name. absolutely essential to a correct designation of the person intended. It should not be amiss to note that the judgment debtor’s name was Teofilo Ramos.

90 91 Hence. was a surety of the aforesaid loans. (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant. The owner also has a right of action against the holder and possessor of the thing in order to recover it. [35] 92 In the case at bar. (2) there must be a culpable act or omission factually established. although the respondent was not the loan applicant and the business opportunities lost were those of Ramdustrial Corporation. the respondent had the legal standing to file the said action for damages. In both instances. regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB. all four requisites were established. we find that the petitioner acted negligently in causing the annotation of notice of levy in the title of the herein respondent. his right to use. [31] 88 It must be underscored that the registered owner of the property which was unlawfully levied by the petitioner is the respondent. [32] Necessarily. the respondent. he is one who would be benefited or injured by the judgment. and almost a heart attack due to high blood pressure. clearly has the legal personality and cause of action to file an action for damages. mental or psychological. for the award of moral damages to be granted. [33] As an owner. Moreover. While it is true that the loss of business opportunities cannot be used as a reason for an action for damages arising from loss of business opportunities caused by the negligent act of the petitioner. whether physical. as a registered owner whose right of ownership had been disturbed and limited. He could no longer mortgage the same or use it as collateral for a loan. he suffered sleepless nights. together with his wife. as he was not the one who applied for a loan from UCPB and PDB but Ramdustrial Corporation. First. of which he was merely the President and Chairman of the Board of Directors. upon the annotation of the notice of levy on the TCT. and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code. encumber and dispose of his property was diminished. moral shock. The respondent very clearly stated in his complaint that as a result of the unlawful levy by the petitioner of his property. or who is entitled to the avails of the suit [34] for an action for damages against one who disturbed his right of ownership. On the second issue. As owner of the property. On the third issue. the respondent sustained injuries in 88 89 90 91 92 . Not even the respondent’s failure to have the annotation cancelled immediately after he came to know of the said wrongful levy negates his cause of action. the petitioner insists that the respondent is not the real party-in-interest to file the action for damages. and that its negligence was the proximate cause of the damages sustained by the respondent. the respondent’s property was used as collateral of the loans applied for by Ramdustrial Corporation. We do not agree. 89 Arising from his right of ownership over the said property is a cause of action against persons or parties who have disturbed his rights as an owner. if not negated. as the registered owner of the property whose ownership had been unlawfully disturbed and limited by the unlawful annotation of notice of levy on his TCT.In sum. the respondent. encumber and dispose of his property without other limitations than those established by law. the following must exist: (1) there must be an injury clearly sustained by the claimant. the respondent has the right to enjoy.

(Chairman). [36] 93 Although the respondent was able to establish the petitioner’s negligence. [38] 95 In sum. Fourth. fraudulent or malevolent manner. we rule that the petitioner acted negligently in levying the property of the respondent despite doubts as to the identity of the respondent vis-à-vis its judgment debtor. hence. Quisumbing. the decision of the Court of Appeals in CA-G. concur. a wrongful levy was made. CV No. particularly. Such injuries entitle the respondent to an award of moral damages in the amount of P800. Third. In this case.000. we cannot. and his reputation as mortgagor had been tarnished. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in a wanton. the award for damages is predicated on Article 2219 of the Civil Code.R. 93 94 95 . allow the award for exemplary damages. causing physical. hounded him endlessly. WHEREFORE. By reason of such negligent act. [37] 94 Attorney’s fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party. 56737 is AFFIRMED WITH MODIFICATION. absent the private respondent’s failure to show that the petitioner acted with malice and bad faith. mental and psychological injuries on the person of the respondent. Bellosillo. No exemplary damages can be awarded because the petitioner’s negligent act was not tainted with malice and bad faith. the respondent was compelled to engage the services of counsel and to incur expenses of litigation in order to protect his interest to the subject property against the petitioner’s unlawful levy. his fear that his one and only property would be foreclosed. such wrongful levy was the proximate cause of the respondent’s misery.that his physical health and cardio-vascular ailment were aggravated. SO ORDERED. Austria-Martinez. The award for exemplary damages is deleted. Second. By reason of such wrongful levy. The award is reasonable in view of the time it has taken this case to be resolved. number 10 thereof. and Tinga. the respondent had to hire the services of counsel to cause the cancellation of the annotation. JJ. the annotation of notice of levy on the TCT of the private respondent was wrongful. the award of attorney’s fees. No costs.. arising as it did from the petitioner’s negligent act of allowing the levy without verifying the identity of its judgment debtor. however.

.00 secured by real estate mortgages over parcels of land covered by TCT Nos. .000. 2002 of the Court of Appeals (CA) in CA-G. 1974. 1957 in the total amount of P3. petitioner. 1956 to October. 23-28) was issued by then Provincial Sheriff Nicanor D. seeking to reverse and set aside the Decision1 dated February 22. Ninety-one (91) lots were expressly excluded from the auction since the lots were sufficient to pay for all the mortgage debts. vs. as culled from the assailed CA decision and that of the trial court. Salaysay. Not all lots covered by the mortgaged titles. Zulueta and Soledad Ramos obtained various loans from defendant GSIS for (the) period September. 2002 denying its motion for reconsideration. CV No. respondent.R. DE SANTIAGO. March 6. DECISION CALLEJO. April 4. 155206 October 28. On August 14. A Certificate of Sale (Annex "F. 37177 and 50365. pp. the mortgaged properties were sold at public auction by defendant GSIS submitting a bid price of P5. J.: Before the Court is the petition for review on certiorari filed by the Government Service Insurance System (GSIS).117. 62309 and its Resolution dated September 5. 1956.927. were sold. 1957 and October 15. SR. are as follows: Deceased spouses Jose C. substituted by his widow ROSARIO ENRIQUEZ VDA. however.84. 1957.G. The antecedent facts of the case. The Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed the real estate mortgages dated September 25.R.229. 26105." Records. I. No. SANTIAGO. EDUARDO M. 2003 GOVERNMENT SERVICE INSURANCE SYSTEM. 1957. Vol.

4.m. 21926. 23553 cancelled TCT No. 7." In another "NOTE: The following lots in the Antonio Subdivision were already released by the GSIS and therefore are not included in this sale. 2. Vol. were already excluded from the foreclosure. 1. 6 (New Plan) Block XI (Old Plan) Block XII. 2. TCT No. a complaint for reconveyance of real estate against the GSIS. Manuel III and Sylvia G." Records. Block No. 26105. Urbano. Lot No. Spouses Alfeo and Nenita Escasa. 1 –-6. TCT No. 3 –487 sq. 15. 6 Block 4. Block No. Road Lots Nos. it began disposing the foreclosed lots including the excluded ones. Santiago. 1990. 7. Vol. 12 Block 1. 32-33) to defendant GSIS asking for the return of the eighty-one (81) excluded lots. 1.1awphi1. de Santiago. 9. 6. 4.m. & 4 – 2. 1989 (Annex "H. The Register of Deeds of Rizal cancelled the land titles issued to Yorkstown Development Corporation. 7. with the following notations: "(T)he following lots which form part of this title (TCT No. Rosario Enriquez Vda. 1 to 11. 1. defendant GSIS sold the foreclosed properties to Yorkstown Development Corporation which sale was disapproved by the Office of the President of the Philippines. and 13 (Old Plan) Block I. 50-H-5-C-9J-M-7. the petitioner. 23552 was issued cancelling TCT No. Block No. all in the name of defendant GSIS. de Santiago. 7 – 402 sq. On April 7. 3. The sold properties were returned to defendant GSIS. 10 Block 6. 1996. 2 and 3 Block 11. 10. 1 lots Nos. 3 and 10 (New Plan) Block V (Old Plan) Block VII. 1975. 21925. Lot No.2 On May 7. 1." And the lots on "ADDITIONAL EXCLUSION FROM PUBLIC SALE" are "LOTS NO. 2. Branch 71. representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an agreement whereby Zulueta transferred all his rights and interests over the excluded lots. represented by Eduardo M. 8. I. filed with the Regional Trial Court (RTC) of Pasig City. 1. 26105) are not covered by the mortgage contract due to sale to third parties and donation to the government: 50-H-5-C-9-J-65H-8.m. 5 Block 1. 3. After due trial. which as earlier stated. Block 9.nét After defendant GSIS had re-acquired the properties sold to Yorkstown Development Corporation. 8 and 10 (Old Plan) Block II. 3. 6. the seventy-eight lots excluded from the foreclosure sale. as defendant therein. 23554 cancelling TCT No.m. 5 (New Plan) Block X (Old Plan) Block ZXII. 6. as the plaintiff. including the lots. wrote a demand letter dated May 11. Block No. 19 Block 1. filed its answer alleging inter alia that the action was barred by the statute of limitations and/or laches and that the complaint stated no cause of action. 10. 4 –263 sq. Subsequently. 12 and 13 (New Plan) Block I (Old Plan) Block III. 1 to 13.m. 5 Block 11 (New). pp.1awphi1.660 sq. 37177 and 50356.nét The dispositive portion of the RTC decision reads: . On March 6. Subsequently. Plaintiff Eduardo Santiago’s lawyer.138 sq. 1980. 12 Block 5. 3 and 4 Block 10. 3. 3 Block 10. 14 and 20 (New Plan) Block III (Old Plan) Block V. Wenceslao B. 12 and 20 (New Plan) Block VII (Old Plan) Block II. 23 Block 3. 1980. the RTC rendered judgment against the petitioner ordering it to reconvey to the respondent. 1974 had been annotated and inscribed in TCT Nos. Block No. 13 Block 5. 1. 2. 17. 11 Block 9. Zulueta was substituted by Santiago as the plaintiff in the complaint a quo. 1. 2 Block 2. namely: LOT NO. 7.747 sq. 5 Block 5. 1990. 5." Records. 50-H-5-C-9-J-65-H-5." On November 25. 29-31) was executed by defendant GSIS over Zulueta’s lots. 26 and 27 (New Plan) Block VI (Old Plan) Block VIII. Gonzales and the heirs of Mamerto Gonzales moved to be included as intervenors and filed their respective answers in intervention. 1. 15. Atty. 13 and 20 (New Plan) Block IV (Old Plan) Block VI. 1 Block 3. 2 –4. 1. Antonio Vic Zulueta. Lots Nos. 1. pp. Upon the death of Santiago on March 6.m. Lot No. 4 and 6 (New Plan) Block VIII (Old Plan) Block X. 8. 21924. he was substituted by his widow. Rosario Enriquez Vda. an Affidavit of Consolidation of Ownership (Annex "G. 15 Block 7.The Certificate of Sale dated August 14. I. and Marciana P. and TCT No. 11 Block 2. 5. On July 2. in substitution of her deceased husband Eduardo. 5. Trinidad.

e. 8 and 10. 5. 3. Block 8. the fair market value of each of said lots. 28 and 29. k. Block VIII (New Plan). c. 0. Lot Nos. 5. Block V (Old Plan). q. 4 and 6. 1. Block 9. Lots 6. 12 and 15. d. m. j. Block I (New Plan). Block 11. Lots 2. f. 8. Block VIII (Old Plan). l. namely: a. Block X (New Plan). Lots 6 and 15. Block V (New Plan). 13 and 24. n. Ordering defendant to reconvey to plaintiff the seventy-eight (78) lots released and excluded from the foreclosure sale including the additional exclusion from the public sale. p. Lot Nos. Block VII (New Plan). Block XII (Old Plan). 1. Block 10. Lot Nos. 1. 9 and 11. Block VI (Old Plan). 7. 7 and 12. Block 3. 3. Block I. . Block VI (New Plan). Lot Nos. 4. 2. v. Block II (Old Plan). Block 4. 2. Block 7. Block IV (New Plan). Lots 1. 16 and 23. Ordering defendant to pay plaintiff. Lots 5. Lots 1. h. 2.WHEREFORE. 1. 13. 1. Block X (Old Plan). 6. 13 and 20. Block II (Old Plan). 3 and 10. Lot Nos. 3 and 4. judgment is hereby rendered in favor of plaintiff and against the defendant: 1. Block I (Old Plan). 15. s. 12. Lot Nos. Block III (New Plan). 11. and 13. o. Block III (Old Plan). 26 and 27. Lots 1. Block 6. 14 and 20. Lots 10 and 16. Lot Nos. u. 8. Lot 5. 12. Lot 6. Block XII (Old Plan). 5. 2. Block XI (New Plan). Lots 1. Block 5. r. 5. b. 17 and 22. 3 and 5 (New). 6. 7. 10. Block 2. 10. Lot 6. 24. Lots 13. i. Lot Nos. Lot Nos. g. Block VII (Old Plan). if the seventy-eight (78) excluded lots could not be reconveyed. t. 7. 7.

. There was no proof of bad faith nor could fraud or malice be attributed to the petitioner when it erroneously caused the issuance of certificates of title over the subject lots despite the fact that these were expressly excluded from the foreclosure sale.nét At the outset. PT-80342 under Entry No. Although there are exceptions to the said rule.4 The petitioner moved for a reconsideration of the aforesaid decision but the same was denied in the assailed CA Resolution of September 5. Ordering the Registry of Deeds of Pasig City to cancel the Notices of Lis Pendens inscribed in TCT No. 1990. 2002. PT-12267/T-23554. is limited to reviewing only errors of law. PT-84913 under Entry No. more than fourteen years had already lapsed. as amended. 1975 when the petitioner consolidated its ownership over the subject lots. The dispositive portion of the assailed decision reads: WHEREFORE. Costs of suit. AND B) THERE WAS NO PRESCRIPTION IN THIS CASE. we find no reason to deviate therefrom. that it acted in bad faith. it bears emphasis that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Rules of Court. the petitioner contends that the same was already barred by prescription as well as laches. the petitioner maintains that it did not act in bad faith when it erroneously included in its certificate of sale. The petitioner now comes to this Court alleging that: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT A) PETITIONER WAS GUILTY OF BAD FAITH WHEN IN TRUTH AND IN FACT. premises considered. The petitioner’s arguments fail to persuade.3 The petitioner elevated the case to the CA which rendered the assailed decision affirming that of the RTC. PT-12267/T23554. TCT No. the herein appeal is DISMISSED for lack of merit. According to the petitioner. and subsequently consolidated the titles in its name over the seventy-eight lots ("subject lots") that were excluded from the foreclosure sale. the seventy-eight lots excluded from the foreclosure sale because the petitioner had no such obligation under the pertinent loan and mortgage agreement. the respondent’s predecessors-in-interest. The petitioner likewise takes exception to the holding of the trial court and the CA that it (the petitioner) failed to apprise or return to the Zuluetas. In this case. The Decision of December 17.6 By assailing the findings of facts of the trial court as affirmed by the CA.1awphi1. This Court is not a trier of facts. 5. and TCT No. Thus. 1997 of Branch 71 of the Regional Trial Court of Pasig City is hereby AFFIRMED. 81812 under Entry No. when the action was instituted on May 7. Case law has it that the findings of the trial court especially when affirmed by the CA are binding and conclusive upon this Court. The petitioner asserts that the action for reconveyance instituted by the respondent had already prescribed after the lapse of ten years from November 25. an action for reconveyance based on implied or constructive trust prescribes in ten years from the time of its creation or upon the alleged fraudulent registration of the property. 4.3.5 In its petition. the petitioner thereby raised questions of facts in its petition. Ordering the Registry of Deeds of Pasig City to cancel the land titles covering the excluded lots in the name of defendant or any of its successors-in-interest including all derivative titles therefrom and to issue new land titles in plaintiff’s name. THERE WAS NO SUFFICIENT GROUND TO SUPPORT SUCH CONCLUSION. PT-12267/T-23554.

At the least. Act [No. notwithstanding that these were expressly excluded from the foreclosure sale was the uniform ruling of the trial court and appellate court. should exercise more care and prudence in dealing even with registered lands.7 The Court agrees with the findings and conclusion of the trial court and the CA. including those involving registered lands. By so doing.10 Due diligence required of banks extend even to persons. keeping in trust money belonging to their depositors. the petitioner’s acts of concealing the existence of these lots. Article 1456 of the Civil Code provides: Art. Registration of real property is a constructive notice to all persons and.] 496. its failure to return them to the Zuluetas and even its attempt to sell them to a third party is proof of the petitioner’s intent to defraud the Zuluetas and appropriate for itself the subject lots. The petitioner is not an ordinary mortgagee. even if we indulged the petition and delved into the factual issues. Marcos during the same year demonstrated a clear effort on its part to defraud the spouses Zulueta and appropriate for itself the subject properties. as well as to mortgagees of the same character and description. the petitioner executed an affidavit in consolidating its ownership and causing the issuance of titles in its name over the subject lots despite the fact that these were expressly excluded from the foreclosure sale. If property is acquired through mistake or fraud. Further. like banks. thus. an action for reconveyance of real property based on fraud prescribes in four years from the discovery of fraud. It is wellsettled that a holder in bad faith of a certificate of title is not entitled to the protection of the law for the law cannot be used as a shield for fraud. we find the petition barren of merit. still it could not legally claim ownership and absolute dominion over them because indefeasibility of title under the Torrens system does not attach to titles secured by fraud or misrepresentation. its act constituted gross negligence amounting to bad faith. Even if titles over the lots had been issued in the name of the defendant-appellant.Nonetheless. is expected to exercise greater care and prudence in its dealings. as found by the CA. . regularly engaged in the business of lending money secured by real estate mortgages.11 In this case. than private individuals. the person obtaining it is. The fraud committed by defendantappellant in the form of concealment of the existence of said lots and failure to return the same to the real owners after their exclusion from the foreclosure sale made defendant-appellant holders in bad faith. such discovery is deemed to have taken place upon the issuance of the certificate of title over the property. It cannot feign ignorance of the fact that the subject lots were excluded from the sale at public auction. As declared by the CA: The acts of defendant-appellant GSIS in concealing from the Zuluetas [the respondent’s predecessors-ininterest] the existence of these lots. extended only to purchasers for value and in good faith. generally. It is a government financial institution and. for their business is one affected with public interest. 1456. by force of law. On the issue of prescription. or institutions like the petitioner. CA9 is apropos: Banks. in failing to inform them when it entered into a contract of sale of the foreclosed properties to Yorkstown Development Corporation in 1980 as well as when the said sale was revoked by then President Ferdinand E. which they should guard against loss by not committing any act of negligence which amounts to lack of good faith by which they would be denied the protective mantle of land registration statute. That the petitioner acted in bad faith in consolidating ownership and causing the issuance of titles in its name over the subject lots. considered a trustee of an implied trust for the benefit of the person from whom the property comes. in failing to notify or apprise the spouses Zulueta about the excluded lots from the time it consolidated its titles on their foreclosed properties in 1975. the petitioner acted in gross and evident bad faith.8 The Court’s ruling in Rural Bank of Compostela v. indeed. the four-year period shall be counted therefrom.12 On the other hand.

Article 22 of the Civil Code explicitly provides that "every person who. assuming there was one.1a\^/phi1. Santiago) had actually discovered the fraudulent act of defendant-appellant which was. the petitioner is a holder in bad faith of certificates of title over the subject lots. Costs against the petitioner. Having acted in bad faith in securing titles over the subject lots. in 1989. the institution of the action for reconveyance in the court a quo in 1990 was thus well within the prescriptive period. The CA correctly cited the cases of Adille v. While actions to enforce a constructive trust prescribes in ten years. are not prepared to count the period from such a date in this case. 14-15) that he came to know that there were 91 excluded lots in Antonio Village which were foreclosed by the GSIS and included in its consolidation of ownership in 1975 when." WHEREFORE. It is therefore no argument to say that the act of registration is equivalent to notice of repudiation. Court of Appeals14 and Samonte v.net The assailed Decision dated February 22. For the same reason. as we said. Santiago categorically testified (TSN of July 11." Accordingly. the general rule that the discovery of fraud is deemed to have taken place upon the registration of real property because it is "considered a constructive notice to all persons" does not apply in this case. 1995. We note the petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name [alone]. 2002 of the Court of Appeals in CA-G. shall return the same to him. 2002 and Resolution dated September 5. notwithstanding the long-standing rule that registration operates as a universal notice of title. [T]he prescriptive period of the action is to be reckoned from the time plaintiff-appellee (then Eduardo M. they "came to know [of it] apparently only during the progress of the litigation. The petitioner’s attempts to justify its omission by insisting that it had no such duty under the mortgage contract is obviously clutching at straw.13 The petitioner’s defense of prescription is untenable. In this case.. we cannot dismiss private respondents’ claims commenced in 1974 over the estate registered in 1955. or any other means. only in 1989. acquires or comes into possession of something at the expense of the latter without just or legal ground. through an act of performance by another. the petition is DENIED for lack of merit. the petitioner unarguably had the legal duty to return the subject lots to the Zuluetas. In ruling that the action had not yet prescribed despite the fact that more than ten years had lapsed between the date of registration and the institution of the action for reconveyance. As held by the CA.An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property. The petitioner is not entitled to the protection of the law for the law cannot be used as a shield for frauds. Plaintiff-appellee Eduardo M.15 where this Court reckoned the prescriptive period for the filing of the action for reconveyance based on implied trust from the actual discovery of fraud. . the respondent actually discovered the fraudulent act of the petitioner only in 1989: . but it has likewise been our holding that the Torrens title does not furnish a shield for fraud.16 The above ruling was reiterated in the more recent case of Samonte. he and Antonio Vic Zulueta discussed it and he was given by Zulueta a special power of attorney to represent him to recover the subject properties from GSIS. According to the respondent Court of Appeals. we hold that the right of the private respondents commenced from the time they actually discovered the petitioner’s act of defraudation. as established by the CA. 62309 are AFFIRMED IN TOTO. prescription is not a bar.18 Contrary to its claim.R. as borne out by the records. the Court in Adille ratiocinated: It is true that registration under the Torrens system is constructive notice of title. we.17 Following the Court’s pronouncements in Adille and Samonte. Court of Appeals. The complaint for reconveyance was filed barely a year from the discovery of the fraud.." Hence. reckoned from the date of the registration of the property. pp. CV No.

Agapito S. PRODUCERS BANK OF THE PHILIPPINES.. HON.R.RAFAEL E. .SO ORDERED. Leonida G. PRODUCERS BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES. G. Fernandez. Barot. Tan for petitioners in G. TEOFILO GUADIZ.R. JR. No.R. COURT OF APPEALS. DAVIDE. FERNANDEZ. No. petitioners. respondents. Fajardo. Quiason. and PRODUCERS BANK OF THE PHILIPPINES. SP-13624. Jerry P. 88353. 17692 filed before Branch 147 (Makati) of the Regional trail Court. HON.R. 1 The first case.R. INC. J.-G. TANSINSIN-ENCARNACION.R.A. No. No. JR. Bellosillo. 88353. TORRES AND EVANGELISTA" (RAMON J. is a petition for review on certiorari of the decision of 6 October 1988 2 and the resolution of 17 May 1989 3 of the respondent Court of Appeals in C.. and Tinga. 88353 & 92943. Ibarra Law Office for the respondents in G. HON. G. respondents.: The common origin of these cases is Civil Case No. versus Central Bank of the Philippines. 88353. 92943 May 8. COURT OF APPEALS. No. LIM). and the Monetary Board.R. QUISUMBING. 1992 CENTRAL BANK OF THE PHILIPPINES and HON.. Encarnacion for petitioners in G. National Capital Judicial Region and entitled Producers Bank of the Philippines and Producers Properties. concur. 88353 May 8. and CHRISTOFER L. JOSE B. Jr. 92943 with G. Makalintal. Quisumbing. On 21 January 1991. No. and the "LAW FIRM OF QUISUMBING. Nos. vs. Austria-Martinez. No. JJ. JR. Inc. (Chairman). allegedly represented by HENRY L. Torres. as the Acting Conservator of Producers Bank of the Philippines. LEONIDA G.R. petitioners..R. Jose B. No. VICENTE TORRES. vs. 92943. EVANGELISTA. this Court ordered the consolidation of G. 1992 ATTY.. CO. G. RTC JUDGE TEOFILO GUADIZ. Rebutoc & Antonio M.T. JR.

649 and No. Upon further examination. Jr.The impugned decision upheld the 21 September 1987 Order of respondent Judge Teofilo Guadiz.955 million. This means that the entire paid-in capital of the bank. Sometime in August of the same year. pursuant to its authority under Section 28-A of R. on the basis of the report submitted by the Supervision and Examination Sector. placed PBP under conservatorship. or any of their agencies from implementing Monetary Board (MB) Resolutions No. 17692 granting the motion for issuance of a writ of preliminary injunction –– enjoining petitioners Central Bank of the Philippines (CB). By 17 January 1984. No. 265 and by virtue of MB Board Resolution No. The said decision dismissed the petition therein filed and sustained the various Orders of the respondent Judge in Civil Case No. totalling approximately P300 million. several blind items about a family-owned bank in Binondo which granted fictitious loans to its stockholders appeared in major newspapers.R. the Monetary Board (MB).A. Jr. is a petition for review directed principally against the 17 January 1990 decision of the respondent Court of Appeals in C.544 million. in Civil Case No.A. On 10 April 1984. No. during the regular examination of the PBP. including but not limited to the Following properties offered by PBP's principal stockholders: . 4 The records of both cases reveal the following factual and procedural antecedents: Petitioners claim that on 29 April 1983.R. the Clerk of Court was also ordered to determine the amount of filing fees which should be paid by the plaintiffs within the applicable prescriptive or reglementary period. Hence. Department I of the CB. to certain interests related to PBP owners themselves. CB examiners stumbled upon some highly questionable loans which had been extended by the PBP management to several entities. denied petitioners' motion for reconsideration of the 6 October 1988 decision. 6 it nonetheless requested that the same be lifted by the CB. at the height of the controversy surrounding the discovery of the anomalous loans. the MB issued on 3 February 1984 Resolution No. were "fictitious" as they were extended. Jose B. on the other hand. PBP's overdraft with the CB increased to P143. CB senior deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution No. Consequently. Mr. 751. 490 of 30 March 1984. the over-drawings reached P74. or from taking the threatened appropriate alternative action –– and the 27 October 1987 Order in the same case denying petitioners' motion to dismiss and vacate said injunction. The challenged resolution. together with some P160 million of depositors' money. but directed the plaintiffs therein to amend the amended complaint by stating in its prayer the specific amount of damages which Producers Bank of the Philippines (PBP) claims to have sustained as a result of losses of operation and the conservator's bank frauds and abuses. to be secured by sufficient collateral. was utilized by PBP management to fund these unsecured loans. These news items triggered a bank-run in PBP which resulted in continuous over-drawings on the bank's demand deposit account with the Central Bank.109 million by 29 August 1983.-G. Said loans were deemed to be anomalous particularly because the total paid-in capital of PBP at that time was only P 140. The second case. an indication of PBP's continuing inability to maintain that condition of solvency and liquidity necessary to protect the interests of its depositors and creditors. the CB would be willing to lift the conservatorship under the following conditions: (a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency loan. and the Monetary Board. SP No. without collateral. it was discovered that these loans. 169 directing the principal stockholders of PBP to increase its capital accounts by such an amount that would be necessary for the elimination of PBP's negative net worth of P424 million. 17692. 5 While PBP admits that it had no choice but to submit to the conservatorship. Fernandez. 16972. 164. 92943. G. on 20 January 1984.

(PPI) shares of stock in PBP presently pledged to the Central Bank. 6 floors and other areas of the Producers Bank Bldg. 3. and iv. the CB Monetary Board decided to approve in principle what it considered a viable rehabilitation program for PBP. at Paseo de Roxas. penalties and liquidated damages. On 4 June 1984. the MB adopted Resolution No. 649 dated 3 July 1987. and . The same resolution authorized the CB Governor to lift the conservatorship and return PBP's management to its principal stockholders upon completion of the documentation and full collateralization of the emergency loan.. Makati. retroactively to the date when the overdraft of PBP was incurred. as well as the unbooked penalties on legal reserve deficiencies of PBP will be assigned in favor of PDIC and such amounts will be allowed to be converted into preferred shares of stock of PBP. at the reduced rate approved in Item 3 above.116. ii. iii. per Resolution No. The accrued interest on the overdraft of PBP. and liquidated damages of 5% for delayed payments. By the end of June 1987. Manila. will also be assigned to PDIC and converted into preferred shares of stock of PBP. (c) A letter from the Management of PBP authorizing the Central Bank to automatically return clearing items that would result in an overdraft in its Central Bank account shall be submitted to the Central Bank. Makati Branch Bldg.a. after the assignment to PDIC of a portion of such overdraft referred to in Item I above. Inc. its principal stockholder and the subsequent mortgage of said properties to the CB as collateral for the bank's overdraft obligation. (b) A comptroller for PBP and any number of bank examiners deemed necessary to oversee PBP's operations shall be designated by the Central Bank. owned by the Producers Properties. The Central Bank will assign in favor of the Philippine Deposit Insurance Corporation (PDIC) its claim over the overdraft of PBP net of net peso differential arising from swap transactions and interest thereon. Makati.i. The interest on the overdraft of PBP will be reduced to 11.023 billion. 2. On 27 April 1984. and PDIC will enter into a contract of dacion en pago with PBP and PPI whereby PDIC will acquire 4. Inc. The balance of the overdraft of PBP. The program had these principal features: Al. in favor of PPI. as a result thereof. 4. 15 floors of the Producers Bank Bldg. Inc.. Manhattan Bldg. the figure swelled to a staggering P1. on Nueva Street. with interest and penalty rates at MRR 180 days plus 48% per annum. no program acceptable to both the CB and PPI was arrived at because of disagreements on certain matters such as interest rates.. Consequently. 584 approving the consolidation of PBP's other unsecured obligations to the CB with its overdraft and authorizing the conversion thereof into an emergency loan. its overdrafts with the CB continued to accumulate. PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of three (3) buildings owned by Producers Properties.75% p. Producers Bank. owned by PBP.100 preferred shares of stock of PBP with a par value of P100 per share in consideration for which PDIC will convey its rights over the overdraft assigned to it by the Central Bank. (PPI). 7 Although said proposal was explored and discussed. under terms of reference to be determined by the Governor. No other rehabilitation program was submitted by PBP for almost three (3) years. Binondo. but directed PBP to pay the emergency loan in five (5) equal annual installments. at Buendia Avenue. at Paseo de Roxas. up to the amount of the par value of the Producers Properties.

with the effect that any previous agreements to the contrary shall be set aside. (iii) in consideration of the accrued interest on PBP's overdraft assigned to PDIC and the unbooked penalties on legal reserve deficiencies of PBP also assigned to PDIC . non-participating shares of stock with a dividend rate of 12% which shall be issued (i) in exchange for the PPI shares that will be conveyed to PDIC under the dacion en pago mentioned in Item 1 above. under which indenture PDIC as holder of preferred shares of stocks. To require PBP to submit to the Monetary Board for approval the identities of the new stockholders and the new management which shall not be changed without the prior approval of the Central Bank. PBP shall submit additional collaterals to fully collateralize its overdraft with the Central Bank. and to give PBP a period of two weeks after such final approval within which to implement the above rehabilitation plan 8 (Emphasis supplied). with features as presently provided under PBP's Articles of Incorporation and By-Laws.94 million for shares of stock of PBP.0 million shall be put up.89 million preferred. provided that PBP shall submit an opinion from the Securities and Exchange Commission that such indenture is legal and valid. e. P15. The principal stockholders of both PBP and PPI shall submit in writing their conformity to the above conditions. it being understood that final approval of the above rehabilitation plan shall depend entirely upon the acceptance by the Board of the new stockholders and the new management. PBP's Articles of Incorporation and By-Laws shall be amended so as to create a special class of preferred. The said preferred shares of stock shall be convertible into common voting shares of stock upon the sale of such preferred shares to private parties at the option of such parties .54 million partly in payment of DOSRI loans of P27. shall have the first lien and preference over the assets subject of the indenture in case of insolvency. b.61 million subject to the following conditions: a. (ii) in consideration of the balance of PBP's overdraft assigned to PDIC under Item 2 above. . and the balance of P115. provided that a new group of stockholders shall hold at least 40% of the total outstanding voting shares of stock of PBP. to the extent of the overdraft converted into preferred shares of stock. 2. Fresh capital of P200. and f.5. cumulative. PBP shall execute in favor of a trustee to be approved by the Central Bank of mortgage trust indenture covering the assets presently mortgaged/pledged to Central Bank as collateral for the overdraft of PBP as well as additional collaterals to be submitted to fully collateralize the overdraft of PBP.12 million common and P100. The booking of valuation reserves will be allowed as follows: 3rd year — P31 million 4th year — 48 million 5th year — 67 million 6th year — 85 million 7th year — 105 million 8th year — 124. Proceeds from the sale of these shares of stock shall be used to liquidate the advances made by the Central Bank to PDIC by virtue of the various assignments under Items 1. d. The said shares of stock shall not share in losses and other capital adjustments representing reduction of capital accounts as recommended by SES Department I incurred up to the date of the issuance of such shares of stock.6 million. PPI shall convey to PBP the remaining floors of the Producers Bank Centre for a value of P143. and 4 above. principal plus interest. c. and B. non-voting.

that herein petitioners acted in bad faith. that: . . the Central Bank shall take such action against the bank as may be warranted under this Act . and for: . that the CB is guilty of promissory estoppel. 12 Only P102. or on 27 August 1987. The Central Bank conservatorship over PBP may be lifted only after PBP shall have identified the new group of stockholders who will put in new capital in PBP and after the Monetary Board shall have considered such new stockholders as acceptable. the CB called the attention of the PBP directors and officers to Section 107 of R.771. That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Henry Co.A. the total quantifiable extent of which is P108. . ill-motivated. Finally. filed a complaint verified by its former board chairman. docketed as Civil Case No.00 was paid as docket fee. the MB and CB Governor Jose B. 1987 –– defendants not being above the law. as follows: a. 289 dated 23 July 1987. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall within such period as may be prescribed by the Monetary Board. 1987 within one week from receipt of notice hereof and if such terms are not acceptable to them. 1987 and No. . and b. . That settlement of clearing balances shall not be effected for any account which continue (sic) to be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 1987 and No. as amended by Executive Order No. . pending judicial review of Monetary Board Resolutions No. few days later. 649 dated July 3. 90 of this Act. .00. further. 9 Additionally. with costs against defendants. that the CB-designated conservators committed bank frauds and abuses. 751 dated 14 August. 649 dated July 3. Fernandez. The stockholders of PBP have to decide whether or not to accept the terms of the rehabilitation plan as provided under Resolution No. judicial review of Monetary Board Resolutions No. through Mr. which provides. inter alia. with the Regional Trial Court of Makati against the CB. that the appointment of the conservator was arbitrary. utterly unnecessary and unjustified.479. 751 on 7 August 1987 instructing Central Bank management to advise the bank. Henry Co. either convert the overdraft into an emergency loan or advance with a plan of payment. the Central Bank will take appropriate alternative action on the matter.There being no response from both PBP and PPI on the proposed rehabilitation plan. 649 dated July 3. 1987 and that judgment be rendered nullifying the same and ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by section 28-A of R. . A. (emphasis supplied). 751 dated August 14. and that by reason of the conservatorship. . The complaint. illegal. . 17692. any bank which incurs an overdrawing in its deposit account with the Central Bank shall fully cover said overdraft not later than the next clearing day: Provided. 10 devoted several pages to specific allegations in support of PBP's assertions that the conservatorship was unwarranted. 265 and to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses. Provided. and that upon failure to so comply herewith. Jr. the MB issued Resolution No. the issue of a temporary restraining order/preliminary injunction enjoining defendants' coercion on PBP to accept the rehabilitation plan within one week or their taking "appropriate alternative action" including exclusion of PBP from settlement of clearing balances at the Central Bank clearing house. without responding to the communications of the CB. or settle such overdrafts. . it suffered losses enumerated in paragraph 27 thereof. in a letter dated 14 August 1987. exclusive of loss of profits and loss of goodwill. 11 It concluded with a prayer for: . the PBP.A. No. 265. (Emphasis provided).

herein petitioners CB and Jose B. The trial court's injunctive order and writ are anomalous and illegal because they are directed against CB acts and measures which constitute no invasion of plaintiff's rights. On 5 November 1987. PPI is now a party-plaintiff in the action. They contend therein that: 19 1. Jr. . implementing Monetary Board Resolutions Nos. MB Resolution Nos. 88353 Unable to accept the above Order." 18 G. "being a part of a scheme to divest plaintiff's present stockholders of their control of PBP and to award the same to the PDIC or its unknown transferees". No new allegations or causes of action for said plaintiff were made. on 21 September 1987.000. thus. respondent Judge issued a temporary restraining order and set the hearing of the application for preliminary injunction on 9 September 1987. petitioners filed a Motion to Dismiss the Amended Complaint. there is no basis for the averments on the legality or illegality of the conservatorship since the amended complaint does not seek its annulment. and the averments of legality or illegality of the conservatorship are relevant to the cause of action since the complaint seeks the lifting of the conservatorship. furthermore.000. loss or damage. On 25 October 1987. 649 and 751 are merely advisory. . 17 On 27 November 1987.The case was raffled to Branch 147 of said court which was then presided over by respondent Judge. besides. The motion contained a prayer to vacate the injunction and raised the following grounds: 1) the amended complaint states no cause of action. the questioned MB Resolutions were issued arbitrarily and with bad faith. restrain the implementation of the same and nullify the writ of preliminary injunction. 14 Subsequently. handed down an Order denying the motion to dismiss on the following grounds: (a) the amended complaint alleges ultimate facts showing that plaintiff has a right and that such a right has been violated by defendant. (b) While it is true that under Section 28-A of the Central Bank Act the conservator takes over the management of a bank. respondent Judge issued an Order granting the writ enjoining defendant-petitioners or any of their agents from: 15 and . and (c) plaintiffs have paid the correct filing fees since "the value of the case cannot be estimated. petitioner filed an Opposition to the application for preliminary injunction. 649 and 751 or from taking the threatened "appropriate alternative action" including exclusion of plaintiff bank from settlement of clearing balances at the Central Bank clearing house or any other action that will disturb the status quo or the viability of plaintiff bank during the pendency of this case conditioned upon the posting of a bond in the amount of P2. and . On 31 August 1987. the Board of Directors of such bank is not prohibited from filing a suit to lift the conservatorship and from questioning the validity of both the conservator's fraudulent acts and abuses and its principal's (MB) arbitrary action. No. 13 On 11 September 1987. through the respondent Judge. and 3) the lower court did not acquire jurisdiction over the case except to order the amended complaint expunged from the records because the proper filing fee was not paid. PBP filed the Amended Complaint 16 impleading PPI as an additional plaintiff.R. neither effect impairment of plaintiffs' rights nor cause it prejudice. the trial court. 2) the amended complaint is not authorized by the management of PBP.00. Fernandez. filed with respondent Court of Appeals on 11 January 1988 a petition for certiorari with preliminary injunction to annul the 21 September and 27 November 1987 Orders of the respondent Judge.

" It further held that the challenged resolutions of the MB are not just advisory in character "because the same sought to impose upon the respondent bank petitioners' governmental acts that were specifically designed and executed to devise a scheme that would irreparably divest from the stockholders of the respondent bank control of the same." the respondent Court promulgated the challenged decision dismissing the petition for lack of merit. . (b) for being unauthorized by the party in whose name it purports to have been filed. petitioners filed with this Court on 30 July 1989 the instant petition for review under Rule 45 of the Rules of Court. in ruling that the correct amount was paid. et al. . No. 22 It is alleged therein that the respondent Court committed grave abuse of discretion in: (1) Ignoring petitioners' contention that since PBP did not pay the correct filing fees. private respondents maintain that: (a) the issue of whether or not they paid the correct filing fees involves a question of correctness of judgment. the said court. . This petition was docketed as G. ruling on the propriety or impropriety of the conservatorship as a basis for determining the existence of a cause of action since the amended complaint does not seek the annulment or lifting of the conservatorship. PBP was not given an opportunity to be heard since the CB arbitrarily brushed aside administrative due process notwithstanding PBP's having sufficiently established its inherent corporate right to autonomously perform its banking activities without undue governmental interference that would in effect divest its stockholders of their control over the operations of the bank. ." Undaunted by the adverse decision of the Court of Appeals. and (4) . . 23 the complaint should have been dismissed for lack of jurisdiction on the part of the court. 21 On the issue of the non-payment of the correct docket fees. dismissible: (a) for failure to state a cause of action. pursuant to Manchester Development Corp. (3) . 649 and 751 for having been issued arbitrarily and with bad faith. Court of Appeals. the trial court did not acquire jurisdiction over the case. No. said that "the instant case is incapable of pecuniary estimation because the value of the losses incurred by the respondent bank cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community. and (c) for failure of the purported plaintiff to pay the required filing fees. 88353.. 20 Respondent Court ruled that the CB's sudden and untimely announcement of the conservatorship over PBP eroded the confidence which the banking public had hitherto reposed on the bank and resulted in the bank-run. et al. The complaint filed was. it then concluded that when the CB "peremptorily and illtimely ( sic) announced" the conservatorship.R. vs. not grave abuse . hence.. on its face. 75919.2. On 19 July 1989. this Court required the respondents to comment on the petition. not setting aside the Order of the trial court granting the issuance of a writ of preliminary injunction which unlawfully restrained the CB from exercising its mandated responsibilities and effectively compelled it to allow the PBP to continue incurring overdrafts with it. (2) . 24 In the Comment 25 filed on 9 October 1989. not holding that the amended complaint should have been dismissed because it was filed in the name of PBP without the authority of its conservator. G. . 7 May 1987." The motion filed by petitioners for the reconsideration of the above decision was denied by the respondent Court in its Resolution of 17 May 1989. Confronted with the "threshold and decisive issue of whether the respondent Judge gravely abused his discretion when he issued the Writ of Preliminary Injunction to enjoin petitioner from implementing Monetary Board Resolutions Nos.R.

the prospective investors. However. this Court resolved to give due course to the instant petition and require the parties to simultaneously file their respective Memoranda. Eventually. 92943 Pursuant to the powers and authority conferred upon her by the Central Bank. besides. 497 dated 23 June 1989. 27 which they complied with. As of 13 February 1990. G. a "quarrel" developed between Henry and Luis Co. the trial court committed no grave abuse of discretion when it found that the questioned MB Resolutions were arbitrarily issued in contravention of the due process clause of the Constitution. who both have controlling interests in PBP. errors of judgment cannot be the subject of the present petition for certiorari. Petitioner further allege that with the withdrawal of Banque Indosuez and RSBS. it is further alleged that an order denying a motion to dismiss is neither appealable nor be made the proper subject of a petition for certiorari absent a clear showing of lack of jurisdiction or grave abuse of discretion. even the CB. all existing law suits of PBP against the Central Bank and the PBP Conservator. On 15 February 1990. Atty. before the mechanics of the rehabilitation plan could be threshed out among the parties. Luis accused Henry of "serious manipulations" in PBP and both steadfastly refused to settle their differences notwithstanding efforts of mediators. The plan was approved by the Monetary Board in its Resolution No. PBP's overdraft with the CB increased to P1. no administrative authority. With this purpose in mind.of discretion. proposed another rehabilitation plan which involved the infusion of fresh capital into PBP by Banque Indosuez (Bangue) and the AFP-Retirement and Separation Benefits Systems (ARSBS). Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party in interest. In their Supplemental Comment. (c) the "Filing of the complaint without authority from the conservator is an issue involving an error of judgment. petitioners filed an Urgent Motion 28 informing this Court of the fact that on 6 June 1989. disastrous and repressive conservatorship conducted contrary to its mandated purpose. and breach of promissory estoppel. besides. On 1 March 1990. can nullify judicial review of administrative action by requiring that only said administrative authority or its designated conservator can file suit for judicial review of its actuation. moreover. PBP will continually bleed the CB because of the former's liability to discharge its responsibilities under the law. PBP. furthermore. If the injunction is not lifted. . it would be ridiculous and absurd to require such prior authorization from the conservator for no one expects him to sanction the filing of a suit against his principal –– the CB. Leonida Tansinsin-Encarnacion. the rehabilitation plan for PBP is no longer feasible. instituted reforms aimed at making PBP more viable. including prospective investors. in a letter dated 20 November 1989. she started reorganizing the bank's personnel and committees. through Henry Co. and (d) the writ of preliminary injunction was properly issued. private respondents argue that the Manchester rule is not applicable in the case at bar because what is primarily sought for herein is a writ of injunction and not an award for damages. in her capacity as conservator. unnecessary.R. Meanwhile. and vice-versa. No. Under said proposal. advised the Central Bank that they are withdrawing their offer to infuse capital in PBP and that they have terminated all discussions with the Co family. (b) the complaint and the amended complaint state sufficient causes of action because they both contain specific allegations of an illegal. Petitioners filed a Reply 26 to the Comment on 3 November 1989. the bank's overdraft with the Central Bank continues to rise. shall be withdrawn upon approval and implementation of the plan.233 billion.

092.00 as "suspense" accounts. with the following claims of plaintiff PBP against the Central Bank. directed conservator Tansinsin-Encarnacion to publish the financial statement of PBP in the manner prayed for in the aforesaid 17 November 1987 motion. issued by respondent Judge on the same day. A motion for reconsideration of this order was filed by petitioners but was subsequently denied by respondent Judge in the Order of 4 October 1988. However. upon its inclusion as party-plaintiff via the amended complaint. 1984 to October 31.002.000.000. respondent Judge granted PPI's motion for an order transferring to it the administration of the three (3) buildings assigned to PBP.00. The motion to reconsider this Order was denied by respondent Judge on 3 October 1988. (d) Losses of operation by the CB conservators from January 31. On 22 December 1987. or after it obtained a writ of preliminary injunction in Civil Case No. (b) enjoining the lease of any portion of the bank's space in Producers Bank Centre building to third parties and the relocation of departments/offices of PBP as was contemplated. said conservator in contempt of court for disobedience of and resistance to the writ of injunction. On 17 November 1987. PPI claimed that such transfer was necessary to prevent the rental income of said buildings being dissipated by the conservator. (b) Penalties on reserve deficiencies illegally paid by the CB conservators to CB –– now totaling P20. respondent Judge issued an Order (a) requiring conservator TansinsinEncarnacion to reinstate PBP officers to their original positions prior to the reorganization of the bank's personnel and restore PBP's standing committees to their original compositions. Subsequently.717.In order to prevent her from continuing with the reorganization. both PBP and PPI filed a motion praying: (1) that the CB Conservator be ordered to publish PBP's financial statement for the last quarter of 1987 and every quarterly statement thereafter during the pendency of this case. after an opportunity to be heard is given her. and (c) to hold. an Omnibus Motion asking the trial court for an order: (a) reinstating PBP officers to their original positions and restoring the bank's standing committees to their respective compositions prior to said reorganization.657. 17692. respondent Judge held in abeyance the contempt proceedings against the conservator pending her immediate compliance with the Order. The following day. to wit: (a) Interest in unconscionable rates of CB overdrawing illegally paid by the CB conservators to CB –– now totaling P56. PPI filed on 4 November 1987 a motion asking the lower court to order the Central Bank and its agents to restore to PPI the administration of the three (3) buildings earlier assigned to PBP pending the lifting of the conservatorship. and (2) that the CB conservator be ordered to carry those "suspense" accounts in the books of PBP. (c) Penalties on reserve deficiencies not yet paid but which the conservator has booked as liabilities –– now totaling P31. 1987 –– now totaling P461.00. 22 December 1987.000. and (b) restraining her from leasing out to third parties any portion of PBP's space in the Producers Bank Centre building.00. PBP filed on 24 October 1987. A second Order. An opposition to the contempt charge was later filed by said petitioner. .000.

declaring null and void all his orders. 17692. In disposing of the issues raised. failure of which said claims for damages shall be dismissed. and (4) respondents Judge and lawyers are administratively liable for their grossly illegal actuations and for depriving the Government of at least P13.R. 265. 16972.-G.A. On 9 November 1988. respondent Court merely adopted with approval the ruling of the respondent Judge on the question of jurisdiction and cited the decision of the Court of Appeals in . (2) respondent Judge illegally ordered her to return to PPI the administration of the bank's three (3) properties. Tansinsin-Encarnacion filed with this Court on 11 January 1989 a petition for certiorari against respondent Judge." She was again found guilty as charged and her motion for reconsideration was denied. which should be paid by complainants within the applicable prescriptive or reglementary period. carrying the items enumerated by the trial court as "suspense accounts.On several occasions thereafter.R. Torres and Evangelista. This case was docketed as G. and to publish the alleged "suspense accounts" contrary to Section 28-A of R. it was filed after the ten (10) day period prescribed by Section 29 of R . No.2 million in filing fees. Another contempt charge against her was filed for publishing the statement of condition of PBP (as of 13 September 1988) in the 9 November 1988 issue of the Daily Globe without carrying the alleged "suspense accounts.A. shall file the corresponding amendment to their amended complaint in said case. and the correct docket fees were not paid.-SP No. contrary to his own writ of preliminary injunction and earlier order to make the bank viable. The latter asked for reconsideration of the order but the respondent Judge denied the same. . Tansinsin-Encarnacion alleged that: (1) respondent Judge has no jurisdiction over Civil Case No. No. No. in the prayer of their amended complaint. and finding respondent Judge and respondent lawyers guilty of violating their respective oaths of office. In her Memorandum submitted to the Court of Appeals. as amended. while finding the claim of lack of jurisdiction to be without merit. 30 In its decision dated 17 January 1990. as amended. conservator Tansinsin-Encarnacion caused the publication of PBP's financial statement as required by regulations. should determine the amount found due. Co and the law firm of Quisumbing. 86526. 265. the writ of preliminary injunction and her constitutional right to silence." Consequently. in violation of her right to due process of law. the Clerk of Court of the lower court and/or his duly authorized Docket Clerk of Court in charge.A. within 15 days from receipt of a copy of this Decision. this Court resolved to refer said petition to the Court of Appeals which docketed it as C. Henry L. Finding no other adequate relief. 29 On 8 February 1989. 265. one for the 3 February 1988 publication in the Manila Standard of PBP's statement of condition as of 29 December 1987 and the other for the 29 July 1988 publication in the Daily Globe of the bank's statement as of 30 June 1988. the Court of Appeals (Twelfth Division) 31 dismissed the petition. (3) respondent Judge erred in declaring her in contempt of court notwithstanding his lack of jurisdiction over the case and failure to set any date for the hearing and reception of evidence. Thereafter. specially the contempt orders. stating a specific amount "to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses". except that plaintiffs in Civil Case No. respondent Judge declared said conservator guilty of contempt of court on three (3) counts and imposed upon her a fine of P1. without. two (2) contempt charges were filed against her. . Oppositions to both charges of contempt were filed.A. No. as amended.000. 17692 because its filing was not authorized by the petitioner or the conservator in violation of Section 28-A of R. the said court nonetheless gave the following exception: . however.00 for each count of contempt. She prays therein for judgment declaring respondent judge to be without jurisdiction to entertain both the complaint and amended complaint in Civil Case No. 17692.

they cannot be corrected by certiorari Whether the court's conclusions was based merely on speculations and conjecture. and however. .R. 92943. Generally. the same became final and executory. It also held that the Manchester case "has been legally construed in the subsequent case of Sun Insurance Office Ltd. . and in holding her in contempt of court on four occasions. private respondents practically reiterated the arguments in their Comment to the petition in G. the damages inflicted on PBP due to losses of operation and the conservator's bank frauds and abuses were in fact pegged at P108. the instant petition cannot prosper. 265. when the court has jurisdiction over the subject matter and of the person. 17692 should be given a reasonable time to amend their complaint. a judgment of contempt may be questioned on appeal and not on certiorari. they assert that while the motions for contempt were set for hearing. sustaining the respondent Judge's ruling. On the issue of lack of jurisdiction for non-payment of correct filing fees. This specific amount. As to the last ground.479. in addition. . Petitioner Claims that respondent Court grossly erred in confirming/affirming the allegedly void Orders of respondent Judge which denied the motion to dismiss the complaint and granted the writ of preliminary injunction.771. No.A. No. is not for us to determine in a petition for certiorari wherein only issues of jurisdiction may be raised. SP No. . which was docketed as G. and opined that under the Rules of Court. the respondent Court declared the claim to be without merit. . the remedy to question a contempt order is an appeal. to state in their prayer in the amended complaint the specific amount of damages ." On the orders of contempt and the reasons therefor.00 in paragraph 26 of the amended complaint. together with said subsequent thereto (sic). 88353). 34 she filed with this Court a petition under Rule 45 of the Rules of Court.R. decisions upon or questions pertinent to the cause are decisions within its jurisdiction. No. In their Comment. should have been stated in the prayer of the complaint. 88353.R. 88353. Thus.C. 35 filed in compliance with Our Resolution 21 May 1990. Besides. except for the third motion wherein respondent Judge immediately ordered the movant to present evidence. plaintiffs in Civil Case No. As to the filing of the complaint after the lapse of the 10-day period provided for in Section 29 of R. the respondent Court found the same to be "partly" meritorious. it ruled that the Section does not apply because the complaint essentially seeks to compel the conservator to perform his duties and refers to circumstances and incidents which transpired after said 10-day period.-G. It agreed with petitioner that while the other losses and damages sought to be recovered are incapable of pecuniary estimation. 13624 (subject of G. more specifically on the issue of contempt. respondent Court merely stated: . to which an exception was made in the dispositive portion. Petitioner's motion to reconsider the decision having been denied in the 2 April 1990 Resolution of the respondent Court. however. or on a misapprehension of facts contrary to the documents and exhibits of the case. more particularly. No. there is no showing that the scheduled hearings actually took place. . on the administrative liability of the respondent Judge and the lawyers. No.R. 36 since petitioner did not appeal the questioned orders. irregular or erroneous they may be. restating in this regard the issues raised by the CB in G. 37 . Finally. 32 and the case of Filipinas Shell Petroleum Corp. 33 to the effect that applying the doctrine initiated in the case of Manchester.A. she asserts that the Orders were issued in violation of the Rules of Court and infringed her right to due process since there was no hearing on the motions for contempt.R. .

takes over the management of the bank and assumes exclusive powers to oversee every aspect of the bank's operations and affairs. Thus. the disastrous effects of the conservatorship and the conservator's bank frauds and abuses as alleged in the complaint. nevertheless. and (c) non-payment of the correct amount of docket fee in violation of the rule enunciated in Manchester Development Corp. Pursuant to Section 28-A of the Central Bank Act. once appointed. 1. 265 . That such action was not. to question the validity of the conservator's fraudulent acts and abuses and the arbitrary action of the conservator's principal –– the Monetary Board of the Central Bank. filed to have the conservatorship lifted. . and unjustified conservatorship." 41 Unfortunately too. vs. He cannot be expected to file suit to annul the action of his principal . submitted to the same. on its face. Court of Appeals. and (3) In issuing the assailed Orders in G. . 17692 on the following grounds: (a) lack of legal. unnecessary." 39 The trial court overruled this contention stating that the section alluded to "does not prohibit the Board of Directors of a bank to file suit to lift the conservatorship over it. is best evidenced by PBP's prayer for a judgment "ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by Section 28-A of R. 17692 is the lifting of the conservatorship because it was arbitrarily and illegally imposed. THE ISSUES The basic issue in these cases is whether or not the respondent Court committed reversible error in affirming the challenged Orders of the respondent Judge. this Court gave due course to the petition." 40 Obviously. 92943.R. There is nothing in the amended complaint to reflect an unequivocal intention to ask for its lifting. Of course. respondent Court was easily misled into believing that the amended complaint sought the lifting of the conservatorship.After petitioner filed a Reply and private respondents submitted their Rejoinder thereto. (b) failure of the complaint and amended complaint to state a cause of action. personality to bring the action as the same was filed in the name of the PBP without the authority of the conservator. The conservator cannot be expected to question his own continued existence and acts. 38 a conservator. ill-motivated.. DISCUSSION We shall take up the issues sequentially. the respondent Court opined: It is Our sober assessment that the respondent bank was not given an opportunity to be heard when the Central Bank peremptorily and illtimely (sic) announced the appointment of a conservatorship over the . PBP has been under conservatorship since 20 January 1984. . although the matter was not specifically raised in issue and clearly unnecessary for the determination of the issues squarely raised. No. Petitioners now maintain that this power includes the authority to determine "whether or not to maintain suit in the bank's name. illegal. (2) In granting the writ of preliminary injunction. No.A. This necessarily calls for a determination of whether or not the respondent Judge committed grave abuse of discretion amounting to lack of jurisdiction: (1) In not dismissing Civil Case No. or a suit that would point out the ill-motivation. the trial court was of the impression that what was sought for in Civil Case No. as subsequent maneuvers would show. . PBP sought to accomplish the lifting thereof through surreptitious means. While it may be true that the PBP devoted the first 38 pages of its 47-page complaint and amended complaint to what it considers an unwarranted. it. et al.

289. within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship or liquidation. There must be convincing proof. if only because by law (Section 29. 265) such review must be asked within 10 days from notice of the resolution of the Board. . the order placing PBP under conservatorship had long become final and its validity could no longer be litigated upon before the trial court. However. Section 28-A. PBP was placed under conservatorship on 20 January 1984. must be present before the order of conservatorship may be set aside by a court: 1. that the action is plainly arbitrary and made in bad faith. Inc. in case of conservatorship or liquidation. 2. whose role under the fourth paragraph of section 29 is confined to assisting and supervising the liquidation of the Lucena bank. The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court. .A. It is also beyond question that the complaint and the amended complaint were not initiated by the stockholders of record representing the majority of the capital stock. and can be set aside by a court only if there is convincing proof. this Court. That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from the date the receiver takes charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasi-banking functions or. 17692 was filed only on 27 August 1987. Accordingly. 122 of the Monetary Board. . in Rural Bank of Lucena. to make it appear that it had a . vs. more than one year had elapsed. the actions of the MB may be assailed in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt of notice by the said majority stockholders of the order placing the bank under conservatorship. after hearing. The following requisites. and 3. Applying the original provision of the aforesaid Section 29 of the Central Bank Act. therefore. The pertinent portion of said paragraph reads as follows: The provisions of any law to the contrary notwithstanding. as amended by Executive Order No. long after the expiration of the 10-day period deferred to above. 43 ruled that: Nor can the proceedings before Judge Arca be deemed a judicial review of the 1962 resolution No. Hence. If it were to lift the conservatorship because it was arbitrarily imposed.. seven (7) months and seven (7) days later. . This rule is still good law notwithstanding the amendment to Section 29 which expands its scope by including the action of the MB under Section 28-A of the Act on the appointment of a conservator. 649 and 751. 42 In the instant case. The original complaint in Civil Case No. 122 and the challenged order of Judge Arca. Arca. R. the validity of the Monetary Board's resolution can no longer be litigated before Judge Arca. then the case should have been dismissed on the grounds of prescription and lack of personality to bring the action.latter (bank) for which reason We believe that administrative due process was arbitrarily brushed aside to the prejudice of the said bank. It was precisely an awareness of the futility of any action to set aside the conservatorship which prompted PBP to limit its action to a claim for damages and a prayer for an injunction against the implementation of MB Resolution Nos. or three (3) years. Between the adoption of Resolution No. the actions of the Monetary Board under this Section. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship. that the action is plainly arbitrary and made in bad faith: Provided. et al. . and the second paragraph of section 34 of this Act shall be final and executory. . after hearing. Per the fifth paragraph of Section 29 of the Central Bank Act.

the maneuver was crudely and imperfectly executed. In other words. and that the action therefor is inseparable from an action to set aside the conservatorship. as amended by P. through shrewd maneuvering. No. and (b) since in this case such approval was not secured prior to the filing of Civil Case No. however. the PPI. Otherwise. .D. hence it should have been dismissed. It must be stressed here that a bank retains its juridical personality even if placed under conservatorship. No such approval is necessary where the action was instituted by the majority of the bank's stockholders. Indirectly. oppression and injustice since the inception of the conservatorship –– obviously to gain the sympathy of the court. Except for the inclusion of its name. or revoke the actions of the previous management and board of directors . . the provision of the fifth paragraph of Section 29 of the Central. . shall only: . subscribe to the petitioner's view that: (a) once a bank is placed under conservatorship. the same must be filed within ten (10) days from receipt of notice of the order placing the bank under conservatorship. We cannot. may be brought only for and in behalf of the PBP by the stockholders on record representing the majority of the capital stock thereof or simply upon authority of its Board of Directors. or in connection with the conservatorship. and such other powers as the Monetary Board shall deem necessary.. To contend otherwise would be to defeat the rights of such stockholders under the fifth paragraph of Section 29 of the Central Bank Act. reorganize the management thereof. . The next crucial question that suggests itself for resolution is whether an action for damages arising from the MB's act of placing the PBP under conservatorship and the acts of the conservator. collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution. It is presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. confronted with this fatal flaw. and restore its viability. However. 17692 was not initiated by the majority of the stockholders. 1932. per Section 28A of the Central Bank Act. The original complaint in Civil Case No. take charge of the assets. counsel for PBP. We hereby rule that as to the first kind of damages. The purpose of the law in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. no action may be filed on behalf of the bank without prior approval of the conservator.meritorious case and a valid grievance against the Central Bank. As to actions for the second kind of damages and for injunction to restrain the enforcement of the CB's implementing resolutions. equally applies because the questioned acts are but incidental to the conservatorship. liabilities. said fifth paragraph of Section 29 of the Central Bank Act. and the management of that institution. 44 it is neither replaced nor substituted by the conservator who. Common sense and public policy dictate then that the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith. it is likewise intended to protect and safeguard the rights and interests of the stockholders. of an action ostensibly claiming damages but in reality questioning the conservatorship. attempted to save the day by impleading as co-plaintiff a corporation. and to enjoin the MB from implementing resolutions related or incident to. Bank Act could be rendered meaningless and illusory by the bank's filing. any provision of law to the contrary notwithstanding. . nothing new was actually added to the original complaint in terms of causes of action and reliefs for PPI. 17692. Unfortunately. which was not under conservatorship. the latter must also be dismissed on that ground. as amended. it wandered long into the past and narrated a sad story of persecution. He shall have the power to overrule. The amendment then was an exercise in futility. or by its Chairman. the same may be claimed only if the MB's action is plainly arbitrary and made in bad faith. which it eventually obtained. beyond the prescribed ten-day period.

a careful examination thereof bears that the same is in reality an action for damages arising out of the alleged "unwarranted.R. ill-motivated and illegal conservatorship. 47 Thus." or a conservatorship which "was utterly unnecessary and unjustified. 13624. from (a) to (u). in short.A. the claim for damages is merely incidental. pursuant to Manchester Development Corp. The respondent Judge. et al. it devoted the bulk of its petition to detailed events. An amendment of the complaint or similar pleading will not thereby vest jurisdiction in the Court.-G. in so far as it is inconsistent with this pronouncement is overturned and reversed." 46 Both conclusions are unfounded and are the result of a misapprehension of the allegations and causes of action in both the complaint and amended complaint. The pertinent portions of paragraph 27 of both the original and amended complaints read as follows: 27. vs. in its Resolution of 17 May 1989 in C.Even assuming for the sake of argument that the action was properly brought by an authorized party. SP No. 45 the said case was decided by this Court on 7 May 1987. Upon the other hand.00.479. We ruled therein that: The Court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. 17692. And that excludes loss of profits that PBP could have realized if that disastrous conservatorship had not been imposed on it and loss of goodwill." and the "arbitrary" appointment of a conservator. While PBP cleverly worded its complaint in Civil Case No. ruled that the case is "incapable of pecuniary estimation" because the value of the losses incurred by the PBP "cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community. the same must nevertheless be dismissed for failure of the plaintiffs therein to pay the correct docket fees. 17692 to make it appear as one principally for injunction. as stated earlier. said that "the value of the case cannot be estimated" since what is sought is an injunction against the enforcement of the challenged resolutions of the MB. xxx xxx xxx [Then follows an enumeration. (emphasis supplied) xxx xxx xxx . much less the payment of the docket fee based on the amounts sought in the amended pleading. The causes for these abuses of the conservators are course graft and corruption of the conservators aside from fault in the system which denies private enterprise. deliberately omitting the claim for damages as a specific cause of action.. of particular acts causing or resulting in losses.00.771 . occurrences and transactions in support thereof and patiently enumerated the losses it sustained and suffered. respondent Court. in ruling that PBP and PPI had paid the correct docket fee of P102. The record of the Central Bank –– conservatorship of PBP clearly shows that it was responsible for the losses. The ruling in the Magaspi case [115 SCRA 193]. Court of Appeals. most of which are specifically stated] xxx xxx xxx (v) Total of only the foregoing mentioned and only of those that can be quantified is P108. exactly three (3) months and twenty (20) days before the filing of the original complaint and five (5) months and eighteen (18) days before the filing of the Amended Complaint in Civil Case No.

These are the very damages referred to in the prayer:
. . . to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses, . . .

but not specified therein. To this Court's mind, this was done to evade the payment of the corresponding filing fees which, as computed by petitioner on the basis alone of the specified losses of P108,479,771.00, would amount to about P 437,000.00. 48 The PBP then clearly acted with manifest bad faith in resorting to the foregoing clever strategy to avoid paying the correct filing fees. We are thus constrained to reiterate Our pronouncements in the Manchester case:
The Court cannot close this case without making the observation that it frowns at the practice of counsel who filed the original complaint in this case of omitting any specification of the amount of damages in the prayer although the amount of over P78 million is alleged in the body of the complaint. This is clearly intended for no other purpose than to evade the payment of the correct filing fees if not to mislead the docket clerk in the assessment of the filing fee. . . .

The respondent Court itself, in its decision of 17 January 1990 in C.A-G.R. SP No. 16972, 49 confronted by the same issue, but perhaps unaware of its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are liable for the filing fees on the claim for damages. It even directed PBP and PPI to file "the corresponding amendment to their amended complaint in said case stating a specific amount 'to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses' . . .," after which the Clerk of Court of the lower court or his duly authorized docket clerk should determine the amount found due, which said plaintiffs shall pay "within the applicable prescriptive or reglementary period, . . ." 50 The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful propriety in view of the petition for review of the decision in C.A.-G.R. SP No. 13624 filed by the petitioner. In granting PBP and PPI an opportunity to amend their amended complaint to reflect the specific amount of damages in the prayer of their Amended Complaint, respondent Court took refuge under the rule laid down in Sun Insurance Office, Ltd., et al. vs. Asuncion, et al. 51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et al. 52 Of course, it was erroneous for respondent Court to apply these last two (2) cases which were decided by this Court three (3) months short of two (2) years after the promulgation of the Manchester decision on 7 May 1987. Accordingly, since the original complaint in Civil Case No. 17692 was filed on 27 August 1987, the Manchester doctrine was the controlling and applicable law. The lower court had no choice but to apply it when its attention was called by the petitioner. Moreover, even granting for the sake of argument that Sun Insurance and Pilipinas Shell 53 may apply in this case, We should not lose sight of the fact that in the former, this Court categorically stated:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filling of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow the payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

The prescriptive period therein mentioned refers to the period within which a specific action must be filed. It means that in every case, the docket fee must be paid before the lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal law governing prescription of actions.

There can be no question that in the instant case, PBP's claims for damages arise out of an injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor must be initiated within four (4) years from the time the cause of action accrued. Since the damages arose out of the alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified conservatorship, the cause of action, if any, first accrued in 1984 and continued until 27 August 1987, when the original complaint was filed. Even if We are to assume that the four-year period should start running on 27 August 1987, that period lapsed on 27 August 1991. There is no showing that PBP paid the correct filing fee for the claim within the prescribed period. Hence, nothing can save Civil Case No. 17692 from being dismissed. 2. And now on the issue of the writ of preliminary injunction. The challenged Orders of the trial court granting the application for a writ of preliminary injunction and the assailed decision of the respondent Court in C.A. G.R. No. 13624 clearly betray a prejudgment of the case. In both instances, not only did said courts declare MB Resolutions Nos. 649 and 751 to be arbitrary, both also declared the conservatorship to have been issued in violation of PBP's right to administrative due process, which the CB "arbitrarily brushed aside to the prejudice" of the latter. The said courts further concluded that "the sudden and untimely announcement by the Central Bank that respondent Producers Bank will be under a conservatorship that will oversee its operations worked havoc over the confidence that the public had hitherto reposed on respondent bank so that the majority of its depositors over-reacted and rashly withdrew their accounts from said bank, thus it incurred a loss of P593.707 million or 59.5% of its deposits." Thus, save only for the determination of the full extent of PBP's claim for damages, said courts have, at the most, decided or, at the very least, prejudged the case. Courts, notwithstanding the discretion given to them, should avoid issuing writs of preliminary injunction which in effect dispose of the main case without a trial. 54 We do not then hesitate to rule that there was grave abuse of discretion in the issuance of the writ of preliminary injunction. Besides, there was neither arbitrariness nor bad faith in the issuance of MB Resolutions Nos. 649 and 751. It must be stressed in this connection that the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state. 55 Banks are affected with public interest because they receive funds from the general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who have reposed their trust and confidence in them. 56 It is then Government's responsibility to see to it that the financial interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which, pursuant to its Charter, 57 is authorized to administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit; corollarily, it shall have supervision over the operations of banks. 58 Under its charter, the CB is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank Employees Union-NUBE vs . Philippine Veterans Bank, 59 this Court held that:
. . . Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and

stockholders, who all deserve the protection of the government. The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may not continue to be dissipated or plundered by those entrusted with their management.

One important measure adopted by the government to protect the public against unscrupulous practices of some bankers is to require banking institutions to set up reserves against their deposit liabilities. These reserves, pegged at a certain percentage of the volume of deposit liability, is that portion of the deposit received by a banking institution which it cannot use for loans and investments. The reserve requirement, which ordinarily takes the form of a deposit with the Central Bank, is one means by which the government ensures the liquidity of banking institutions. 60 These reserve accounts maintained by banking institutions with the Central Bank also serve as a basis for the clearing of checks and the settlement of interbank balances. 61 The need to maintain these required reserves cannot be over-emphasized. Thus, where overdrawings on deposit accounts (regardless of amount) are incurred, R.A. No. 265 requires the delinquent bank to:
. . . fully cover said overdraft not later than the next clearing day: Provided, Further, That settlement of clearing balances shall not be effected for any account which continue to, be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall, within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to comply herewith, the Central Bank shall take such action against the bank as may be warranted under this Act . 62 [Emphasis supplied.]

The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233 billion as of 13 February 1990) is not disputed by PBP. This enormous overdraft evidences the patent inability of the bank's management to keep PBP liquid. This fact alone sufficiently justifies the remedial measures taken by the Monetary Board. MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the present stockholders of control over PBP, as is claimed by the latter. The same contemplates an effective and viable plan to revive and restore PBP. It is to be noted that before issuing these resolutions, the MB gave the management of PBP ample opportunity (from 30 March 1984 to June of 1987) to submit a viable rehabilitation plan for the bank. MB Resolution Nos. 751 merely reiterated the requirement set forth in Resolution No. 649 for PBP to identify and submit the list of new stockholders who will infuse new capital into the bank for CB approval. In this Resolution, the MB gave PBP's stockholders one (1) week from notice within which to signify their acceptance or rejection of the proposed rehabilitation plan. The foregoing resolutions refer to a recommended rehabilitation plan. What was conveyed to PBP was a mere proposal. There was nothing in the resolutions to indicate that the plan was mandatory. On the contrary, PBP was given a specific period within which to accept or reject the plan. And, as petitioners correctly pointed out, the plan was not self-implementing. The warning given by the MB that should said proposal be rejected, the CB "will take appropriate alternative actions on the matter," does not make the proposed rehabilitation plan compulsory. Whether or not there is a rehabilitation plan agreed upon between PBP and the MB, the CB is authorized under R.A. No. 265 to take appropriate measures to protect the interest of the bank's depositors as well as of the general public.

the shares which shall be issued to PDIC under the dacion are preferred. illegal and made in bad faith. There is nothing objectionable to the actions of the MB. We. As could be gleamed from the pleadings in G. Moreover. The respondent Judge should not have forgotten the settled doctrine that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing. he granted the motion directing the conservator to publish the financial statement of the PBP in the manner prayed for by the latter. He also arbitrarily and capriciously decided who can continually overdraw from the deposit account with the CB. and without scrutinizing the law. non-voting and non-participating shares. 265 and. than to establish a new relation. these preferred shares will eventually be sold to private parties or new stockholders as soon as they are identified by PBP and approved by the CB.A. No. it even prayed that the conservator be ordered to restore the viability of PBP as mandated by said Section 28-A. where there is a willful and unlawful invasion of plaintiff's right against his protest and remonstrance. respondent Judge acted in complete disregard of Section 107 of R. Hence. PDIC shall have no hand in the bank's operation or business. In any event. They were not even covered by any specific allegations therein. and per the Order of 22 December 1987. set aside the conservatorship with PBP itself had earlier accepted. the banking public and the government. in its Amended Complaint. except for the instances enumerated in the Corporation Code where holders of non-voting shares are given the right to vote. The foregoing Orders were issued without due hearing. By using his own standards. the rest partook of the nature of a preliminary mandatory injunction which deprived the conservator of her rights and powers under Section 28-A of R. respondent Judge arbitrarily determined when CB may or may not initiate measures against a bank that cannot maintain its liquidity. As may be readily observed from the terms of Resolution No. respondent Judge granted PPI's motion for an order transferring to the latter the administration of the three (3) buildings. for the setting aside of the conservatorship. It must be remembered that PBP did not ask. find to be completely without legal or evidentiary basis the contention that the impugned resolutions are arbitrary. these reliefs were not prayed for in the Amended Complaint. per his order of 18 November 1987. per his Order of 22 December 1987. to the prejudice of other banking institutions. 92943. On the contrary. where the right is very clear. No.Furthermore. Except for the prohibition to lease. therefore. (a) directed the conservator to restore both the PBP officers to their original positions prior to the reorganization of the bank's personnel. 63 It is plain to this Court that respondent Judge ceased to be an impartial arbitrator. granting to them practically all that they had asked for in the motions they filed. the assignment of claims to PDIC and the subsequent dacion en pago (payment of credit through shares) do not divest the present stockholders of control over PBP. 3.A. nothing appeared clearer in the judicial horizon than this –– . Upon the issuance of these Orders.R. "including exclusion of (PBP) from settlement of clearing balances at the Central Bank clearing house" as warranted by law. he became the godfather of PBP and PPI. the respondent Judge. Prior approval by the CB of the stockholders is necessary screening purposes. except in cases of extreme urgency. Moreover. No. 645. the injury being a continuing one. and the PBP's standing committees to their original compositions. and where the effect of the mandatory injunction is rather to re-establish and maintain a pre-existing continuing relation between the parties. where considerations of relative inconvenience bear strongly in complainant's favor. in effect. recently and arbitrarily interrupted by the defendant. 265 when he enjoined the CB from taking appropriate actions against the bank. and (b) restrained her from leasing out to a third party any portion of PBP's space in the Producers Bank Centre.

. There is. 3 Indirect contempts to be punished after charge and hearing . of the orders of contempt without the proper hearing. be liable for contempt.R. It is clear from the said section that it is necessary that there be a charge and that the party cited for contempt be given an opportunity to be heard. Nos. Narvasa. . it was the duty of the respondent Judge to hold a hearing on the motions. . It is settled that a charge may be filed by a fiscal. Compounding such detestable conduct is the respondent Judge's issuance. process. The reason for this is that contempt partakes of the nature of a criminal offense. –– After charge in writing has been filed. cannot then be characterized as lawful. C. IT IS SO ORDERED. In the instant case. a judge. Consequently. more specifically item (b) of the first paragraph which reads: Sec. .J. the petitions in G. and an opportunity given to the accused to be heard by himself or counsel. null and void for having been issued with grave abuse of discretion amounting to lack of jurisdiction. The challenged Orders then were whimsically and arbitrarily issued. The writ of preliminary injunction issued by the trial court in its Order dated 21 September 1987 is hereby LIFTED. at all. Bidin. 64 Petitioner Tansinsin-Encarnacion filed oppositions thereto. each motion for contempt served as the charge. JJ. order.. Paras.. judgment. Thereafter. moreover. with undue haste and unusual speed. If the conservator could.-G. Rule 71 of the Rules of Court. Romero and Nocon. a person guilty of any of the following acts may be punished for contempt: xxx xxx xxx (b) Disobedience of or resistance to a lawful writ. as earlier indicated. 13624 are REVERSED and SET ASIDE. Melencio-Herrera. Griño-Aquino. therefore. or injunction granted by a court or judge. Respondent Judge deliberately did away with the hearing and this Court finds no justifiable reason therefor. or command of a court. The 6 October 1988 decision and 17 May 1989 resolution of the Court of Appeals in C. Such Orders. SP No. Feliciano.PBP and PPI had everything in the bag. 88353 and 92943 are GRANTED. All proceedings undertaken and all orders issued by respondent Judge are hereby SET ASIDE for being null and void. resistance thereto cannot be punished as contempt 65 PREMISES CONSIDERED. another reason why the contempt orders must be struck down.R. concur. Respondent Judge is ordered to dismiss Civil Case No. . including the reliefs not even contemplated in their Amended Complaint.. Cruz. 17692. so to speak. took no part.A. JJ. it would be for indirect contempt punished under Section 3. or even a private person. Regalado. The orders which were supposedly disobeyed and from which the motions for contempt arose were. Padilla and Bellosillo.

. respondents. PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS. COURT OF APPEALS and FORD PHILIPPINES. G. The original actions a quo were instituted by Ford Philippines to recover from the drawee bank. petitioner-plaintiff. 2001 PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA). INC. COURT OF APPEALS and CITIBANK.1âwphi1.. 2001 FORD PHILIPPINES. No. N.R. (Citibank) and collecting bank.. which were embezzled allegedly by an organized syndicate.G..: These consolidated petitions involve several fraudulently negotiated checks. vs. CITIBANK.R. N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL BANK. N. INC. 2001 FORD PHILIPPINES. vs. respondents. No. petitioner. 128604 January 29.R. 121479 January 29. N.A. J. vs. petitioner.nêt . Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America]. INC. the value of several checks payable to the Commissioner of Internal Revenue.A. QUISUMBING. G. No. and CITIBANK. CITIBANK.A. respondents. 121413 January 29.

114. Inc. The latter accepted the check and sent it to the Central Clearing House for clearing on the samd day. Alabang branch to receive the tax payment of the plaintiff. 28430 entitled "Ford Philippines. with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed. It is further admitted by defendant Citibank that during the time of the transactions in question. SN-04867 in the amount of P4.A. the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4. and the latter paid the face value of the check in the amount of P4. and that defendant Citibank paid the full face value of the check in the amount of P4. 18747002. on its face were two parallel lines and written in between said lines was the phrase "Payee's Account Only". N. upon demand of the Bureau and/or Commissioner of Internal Revenue. dated October 20. The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof. The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. As a consequence. .41 was duly received by the Bureau of Internal Revenue. to pay the amount of Citibank Check No. 121413 and 121479 are twin petitions for review of the March 27. 18747002.A. No." Thereafter. 1995 Resolution.2 ordering the collecting bank. petitioner Ford Philippines assails the October 15. In G. On December 19. 1977. SN-04867 which was drawn and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in that.114. 128604.R.s percentage or manufacturer's sales taxes for the third quarter of 1977. Citibank. the Commissioner of Internal Revenue.114. Inc. Citibank. Metro Manila. SN04867. the proceeds of the check was paid to IBAA as collecting or depository bank. the amount of P4. entitled "Ford Philippines.746. Nos. and the August 8.R. designating therein in Muntinlupa.41. that Citibank Check No. Citibank.. N. vs.41 to the defendant IBAA. 1977.41.746. CV No. through its Ermita Branch.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508. the plaintiff Ford drew and issued its Citibank Check No. plaintiff's Citibank Check No.G. N.R. SN-04867.746. Nos. vs.114. Upon presentment with the defendant Citibank. 1977. Consequently.746. 1997 Resolution4 in CA-G. in favor of the Commissioner of Internal Revenue as payment of plaintiff. 25017. No. 1995 Decision1 of the Court of Appeals in CA-G.163. and Philippine Commercial International Bank. 121413 and 121479 The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows: "On October 19. the Bureau of Internal Revenue issued Revenue Tax Receipt No.A. I. together with the Revenue Tax Receipt No. as the authorized agent bank of Metrobanl. Philippine Commercial International Bank. December 19. and Insular Bank of Asia and America (now Philipppine Commercial International Bank).114. 1977. G.746.41 was debited in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff.R. defendant IBAA presented the check for payment to defendant Citibank on same date. It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977. plaintiff had been maintaining a checking account with defendant Citibank.298.R." affirming in toto the judgment of the trial court holding the defendant drawee bank. was deposited with defendant IBAA. 1996 Decision3 of the Court of Appeals and its March 5. solely liable to pay the amount of P12.

SN048867 was paid to defendant IBAA as collecting bank. filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and Godofredo Rivera. The course likewise dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as the NBI declared him as a "fugitive from justice". as follows: "Premises considered. addressed to the defendants. SN-04867 was recalled by Godofredo Rivera. the trial court rendered its decision. On December 24. an investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No. Defendant Citibank maintains that. to pay the plaintiff the amount of P4. Ford. it merely relied on the clearing stamp of the depository/collecting bank."5 Although it was not among the stipulated facts. judgment is hereby rendered as follows: "1. SN-04867 in the amount of P4. plaintiff on March 11. In a letter dated February 28.114.746.Upon verification. plaintiff filed on January 20.41 "was in due course". in separate letters dated October 26. as third party defendants. 1982. and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question. 1977 when the proceeds of plaintiff's Citibank Check No. jointly and severally. He purportedly needed to hold back the check because there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). the latter was officially informed. among others. defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the latter as the surviving entity. 1979.746.746. the plaintiff notified the latter that in case it will be reassessed by the BIR for the payment of the taxes covered by the said checks. representing payment of plaintiff's percentage tax for the third quarter of 1977.114. hence.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons.114. 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff . 1989. the payment it made of plaintiff's Citibank Check No. With Rivera's instruction. SN-04867 in the amount of P4.supposed to be Exhibit "D". Ordering the defendants Citibank and IBAA (now PCI Bank). But the court dismissed the complaint against PBC for lack of cause of action.41 representing the face value of plaintiff's Citibank . 746. As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its percentage taxes. the defendant IBAA that "all prior indorsements and/or lack of indorsements guaranteed". It is admitted that on December 19. plaintiff was maintaining a checking account with defendant Citibank. the amount of P4. that its check in the amount of P4. paid to the Bureau of Internal Revenue. the General Ledger Accountant of Ford. 1985. plaintiff has to pay the said amount within fifteen days from receipt of the letter.114. then plaintiff shall hold the defendants liable for reimbursement of the face value of the same. plaintiff discovered that its Citibank Check No.746.41 was not paid to the Commissioner of Internal Revenue. Both defendants denied liability and refused to pay. with leave of court.41. On June 15. Upon advice of the plaintiff's lawyers. Hence. Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation. 1983 its original complaint before this Court. PCIBank replaced the check with two of its own Manager's Checks (MCs).114.

SN-04867. Dismissing the complaint in Civil Case No. is concerned.R.A. while Ford filed a "Motion for Partial Reconsideration. 2. Separately. with interest thereon at the legal rate starting January 20. the court AFFIRMS the appealed decision with modifications. the date when the original complaint was filed until the amount is fully paid.114." Both motions were denied for lack of merit. The court hereby renderes judgment: 1. With costs against the defendants. The counterclaims asserted by the defendants against the plaintiff. the date when the original complaint was filed until the amount is fully paid. SN-04867. with interest thereon at the legal rate starting January 20. PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals contending that it merely acted on the instruction of Ford and such casue of action had already prescribed. No."6 Not satisfied with the said decision. elevated their respective petitions for review on certiorari to the Courts of Appeals. 3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-defendant against the cross-claimant. the appellate court issued its judgment as follows: "WHEREFORE. "3. SO ORDERED. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4. for lack of merits. IT IS SO ORDERED. On March 27. plus costs. Citibank and PCIBank. In G.41 representing the face value of plaintiff's Citibank Check No. in view of the foregoing. 1983. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding paragraph. Costs against the defendant IBAA (now PCI Bank)."7 PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals.Check No. and "4. both defendants. as well as that asserted by the cross-defendant against the cross-claimant are dismissed. 121413. PCIBank sets forth the following issues for consideration: .746. petitions for review by certiorari under Rule 45. for lack of merits. 1983. "2. 1995. 49287 insofar as defendant Citibank N. PCIBank and Ford filed before this Court.

11 3.706. after finding that the petitioner acted on the check drawn by respondent Ford on the said respondent's instructions. Did the respondent court err when. respondent Citibank owes to petitioner Ford. it nevertheless found the petitioner liable to the said respondent for the full amount of the said check. Respondent Citibank failed to observe its duty as banker with respect to the subject check. . As correctly held by the trial court. 121479. is liable as collecting bank. Petitioner Ford's cause of action had not prescribed. and praying for the reinstatement in toto of the decision of the trial court which found both PCIBank and Citibank jointly and severally liable for the loss. No. this time. an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof. Respondent Citibank is liable to petitioner Ford considering that: 1. thus the same should not be considered by the Honorable Court." 3. 2. PCI Bank is liable to petitioner Ford considering that: 1.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue.I. G.10 2. thus. 1978 in the amount of P5. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than the payee named therein.13 II. II. 28645385 was issued for the said purpose. Respondent Citibank raises an issue for the first time on appeal. Did the respondent court err when it did not find prescription in favor of the petitioner. 121479. 4. to settle Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979. 128604 The same sysndicate apparently embezzled the proceeds of checks intended. In G. PCIBank's only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue. PCIBank is barred from raising issues of fact in the instant proceedings. As drawee bank. SN-10597 on July 19. No. appellant Ford presents the following propositions for consideration: I. questioning the same decision and resolution of the Court of Appeals. which was crossed and payable to "Payee's Account Only. A BIR Revenue Tax Receipt No. The facts as narrated by the Court of Appeals are as follows: Ford drew Citibank Check No. No.R. there is no evidence of gross negligence on the part of petitioner Ford.851. the Commissioner of the Bureau of Internal Revenue.9 II.R. as the drawer of the subject check and a depositor of respondent Citibank. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement guaranteed").12 4. Ford filed its petition docketed as G.8 In a counter move.R. the Commissioner of Internal Revenue.

* In connivance with one Winston Dulay. Instead. CIR. FORD's accountant who passed on the first check (Exhibit "A") to Castro. demanded for the said tax payments the corresponding periods above-mentioned. Castro himself subsequently opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant Manager.73.On April 20. Castro deposited a worthless Bank of America Check in exactly the same amount as the first FORD check (Exh. have not been . SN-16508 in the amount of P6. Exhibit 'A' was cleared by defendant CITIBANK. As far as the BIR is concernced. FORD's Godofredo Rivera and PCIB's Remberto Castro. he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB. (7) ALEXIS MARINDO. the mastermind who formulated the method for the embezzlement. 1979. Castro drew various checks distributing the sahres of the other participating conspirators namely (1) CRISANTO BERNABE. Thus. (2) RODOLFO R. Both checks were "crossed checks" and contain two diagonal lines on its upper corner between. 'A' [Citibank Check No. Region 4-B. replaced this worthless check with FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover the replacement.706. he prepared the plaintiff's check marked Ex. The same method was again utilized by the syndicate in profiting from Exh. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. (4) GODOFREDO RIVERA.851." The checks never reached the payee. while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. As a result. made its findings on the modus operandi of the syndicate. and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD check Exhibit 'A'. A-1697160 was issued for the said purpose. (8) ELEUTERIO JIMENEZ. BIR Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's tax payments. representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. DE LEON a customs broker who negotiated the initial contact between Bernabe. but like the aforementioned participants in the conspiracy. who assisted Castro in switching the checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account.37) while this worthless check was coursed through PCIB's main office enroute to the Central Bank for clearing. as follows: "A certain Mr.591. After an initial deposit of P100. 1980. The Regional Trial Court of Makati. This anomaly was confirmed by the NBI upon the initiative of the BIR. Again a BIR Revenue Tax Receipt No. "B") to Castro. Rivera's Assistant at FORD. who gave the second check (Exh. the said two BIR Revenue Tax Receipts were considered "fake and spurious". (5) REMERTO CASTRO. "A". however. 'B' [Citibank Check No. The findings forced Ford to pay the BIR a new. Rivera's Assistant at FORD.00 to validate the account. in a letter dated February 28. fo delivering the same of the payee. SN-16508] which was subsequently pilfered by Alexis Marindo. From this 'Reynaldo Reyes' account. Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two checks. (6) WINSTON DULAY. which were written the words "payable to the payee's account only. Ford drew another Citibank Check No. which tried the case. Sn-10597] for payment to the BIR. PCIB's Assistant Manager at its Meralco Branch. P5. (3) JUAN VASTILLO who assisted de Leon in the initial arrangements.311. As such. the BIR. PCIB's pro-manager at San Andres who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch. Branch 57.

impleaded in the present case. SO ORDERED.851. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and employees. this petition. liable for the value of the two checks while adsolving PCIBank from any liability. with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check Numbers SN-10597 and 16508 for P5. 1997. with 6% interest thereon from date of first written demand until full payment.16 The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue? Or has Ford's cause of action already prescribed? Note that in these cases. clearly liable for the loss or damage resulting to the plaintiff Ford as a consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated March 5. The manner by which the said funds were distributed among them are traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what amounts they did so. and to pay the defendant. Defendant PCIBank was. judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of P12.000. in toto. the checks were drawn against the drawee bank. 580 series of 1977. IV. endorse or negotiate in due course the subject checks.298. the decision of the trial court. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking insitution.706.00 attorney's fees and expenses litigation. to return the money which it admits having received. plus P300. Assuming arguedo that defedant PCIBank did not accept.00 as attorney's fees and costs of litigation. under Article 2154 of the Civil Code. Citibank. Regional Trial Court of Makati. held drawee-bank.163.10 prayed for in its complaint. disposing as follows: "WHEREFORE. due to its negligence. Branch 57. but the title of the person negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful means. the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. II.73 respectively. Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that: I. which provides: .000. It was established that instead of paying the checks to the CIR. and which was credited to it its Central bank account.311. Hence.73 and P6. PCIB (on its counterclaim to crossclaim) the sum of P300."14 On December 9. and pay the costs. it is liable. and the proceeds of the checks were not remitted to the payee. III. As to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL). for the settlement of the approprite quarterly percentage taxes of Ford.591. 1988."15 Both Ford and Citibank appealed to the Court of Appeals which affirmed.

or for an illegal consideration.The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument. Though their own negligence." Pursuant to this provision. we must resolve whether the injured party. Ford contends the Godofredo rivera was not authorized to make any representation in its behalf. the drawee bank was still ordered to pay damages. bearing ing mind that its employees. by his act of negligence. Foremost. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. These circumstances were not checked by other officers of the company including its comptroller or internal auditor. it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. It all boils down to thequestion of liability based on the degree of negligence among the parties concerned. or any signature thereto. PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. are now fugitives from justice. Thus. instead of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee.17 Ford argues that even if there was a finding therein that the drawer was negligent."When title defective -. the one who made it possible. inasmuch as it only discovered the syndicate's activities through the information given by the payee of the checks after an unreasonable period of time. CIR. Ford. For its part. escaped liability for the embezzlement of millions of pesos. or when he negotiates it in breach of faith or under such circumstances as amount to a fraud. Court of Appeals. it should not be considered by this Court. They have. even if temporarily. Furthermore. On this point. or other unlawful means. Godofredo Rivera and Alexis Marindo. instead of using it to pay the BIR. to divert the proceeds of the checks. As to the subsequent run-around of unds of Citibank Check Nos. or fore and fear. the negligence or wrongful conduct is the negligence or wrongful conduct of the master. namely the embezzlers belonging to a syndicate. he may set up the personal defense to escape liability and recover from other parties who. for which he is liable. Citibank points out that Ford allowed its very own employee. were among the members of the syndicate. is guilty of the "imputed contributory negligence" that would defeat its claim for reimbursement. It avers that there was no evidence presented before the trial court showing lack of diligence on the part of Ford. SN-04867. specifically. And. by fraud. as between two innocent persons. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and stated that. Godofredo Rivera. SN-10597 and 16508. one of whom must suffer the consequences of a breach of trust. Ford denies any negligence in the performance of its duties. duress. Since a master may be held for his servant's wrongful act. to negotiate the checks to his co-conspirators. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no negligence in the performance of his duties. and if that act is negligent or wrongful and proximately results in injury to a third person. In this case.18 The general rule is that if the master is injured by the negligence of a third person and by the concuring contributory negligence of his own servant or agent. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. must bear the loss. citing the case of Gempesaw vs. the latter's negligence is imputed to his superior and will . PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent schemes and the transactions. Citibank bewails the fact that Ford was remiss in the supervision and control of its own employees. alowed the commission of the crime. jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. the law imputes to the master the act of the servant. we note that the direct perpetrators of the offense.

intervening cause produces the injury and without the result would not have occurred. Therefore. in our view. As an agent of BIR. to wit: "xxx. was the proximate cause of the loss or damage. The degree of Ford's negligence. if any. PCIBank failed to verify the authority of Mr. The Board of Directors of Ford. it was established that these checks were made payable to the CIR. in the absence of some circumstance raising estoppel against the drawer. we need to determine whether or not the action of Godofredo Rivera. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could have prompted PCIBank to validate the same. could not be characterized as the proximate cause of the injury to the parties. xxx xxx xxx . and/or Alexis Marindo. we note. Nos. the trial courts found variations between the negotiation of Citibank Check No.R. which claimed to be a depository/collecting bank of BIR. Furthermore. Given these circumstances. prepared two of its Manager's checks and enabled the syndicate to encash the same. in the natural and continuous sequence. Rivera to negotiate the checks. separately. who by virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank. sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed. does notentitle the bank toshift the loss to the drawer-payor. proximate cause is that which. showed lack of care and prudence required in the circumstances. It was coursed through the ordinary banking transaction. it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. Thereafter PCIBank.defeat the superior's action against the third person. SN-04867. we have to scrutinize. instead of remitting the proceeds to the CIR. SN-10597 and 16508. did not confirm the request of Godofredo Rivera to recall Citibank Check No. Both were crossed checks. SN04867 was duly authorized. the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent. PCIBank's share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these checks. PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent.20 It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate. With respect to the negligence of PCIBank in the payment of the three checks involved. Since the questioned crossed check was deposited with IBAA [now PCIBank]. As aptly stated by the trial court. separately. who were acting on their own personal capacity. their actions were not the proximate cause of encashing the checks payable to the CIR. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. AS defined. of course that the contributory negligence was the proximate cause of the injury of which complaint is made. As to the preparation of Citibank Checks Nos. G. unbroken by any efficient. 121413 and 121479 Citibank Check No. it has the responsibility to make sure that the check in question is deposited in Payee's account only.21 This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession." and was presented to Citibank for payment. On record. These checks were apparently turned around by Ford's emploees. asuming. his assistant. Ford's General Ledger Accountant.19 Accordingly. SN-04867 was deposited at PCIBank through its Ermita Branch. The neglect of PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No.

the diversion can be justified only by proof of authority from the drawer. satisfied itself of the authenticity of the . a bank which cashes a check drawn upon another bank. the defendant made an express guarantee on the validity of "all prior endorsements. In Banco de Oro Savings and Mortgage Bank vs.23 Even considering arguendo. And if the one cashing the check through indifference or othe circumstance assists the forger in committing the fraud. it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed". it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only.22 A bank which receives such paper for collection is the agent of the payee or holder. Therefore. Since the questione dcrossed check was deposited with PCIBank." Thus. Equitable Banking Corporation. defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to the defendant. it had the responsibility to make sure that the check in questions is deposited in Payee's account only. that the diversion of the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed. which claimed to be a depository/collecting bank of the BIR. he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had. stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Thus. or making inquiries with regard to them.' No amount of legal jargon can reverse the clear meaning of defendant's warranty. that of principal and agent. the crossing of the check with the phrase "Payee's Account Only. As the warranty has proven to be false and inaccurate. Without such warranty.24 we ruled: "Anent petitioner's liability on said instruments. still such diversion must be properly authorized by the payor." is a warning that the check should be deposited only in the account of the CIR. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the plaintiff is not a client of the defendant IBAA. Otherwise stated. the defendant is liable for any damage arising out of the falsity of its representation. Thus."25 Lastly. plaintiff would not have paid on the checks. Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Indeed. Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no other option but to pay it. in the absence of an argreement to the contrary.As agent of the BIR (the payee of the check). banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether or not it is genuine. Citibank had no other option but to pay it. this court is in full accord with the ruling of the PCHC's Board of Directors that: 'In presenting the checks for clearing and for payment. without requiring proof as to the identity of persons presenting it. Thus." It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is. cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. by the usual proper investigation. or that the drawer has clothed his agent with apparent authority to receive the proceeds of such check.

26 Having established that the collecting bank's negligence is the proximate cause of the loss. The trial court held. G. Castro." Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. even though no benefit may accrue to the bank therefrom. thus: "Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the embezzlement.29 And if an officer or employee of a bank. This Court is convinced that the switching operation (involving the checks while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the syndicate in their own personl. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes.R. As a general rule. nor will t be permitted to shirk its responsibility for such frauds. responsibility for negligence does not lie on PCIBank's shoulders alone. is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank.28 A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. SN 10597 and 16508. The latter may recover from the holder the money paid on the check. 580. . one who encashed a check which had been forged or diverted and in turn received payment thereon from the drawee. In this case. as correctly pointed out by Ford. received Citibank Check Numbers SN10597 and 16508. receives money to satisfy an evidence of indebetedness lodged with his bank for collection. No.30 Moreover. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. Series of 1977 provides that any theft affecting items in transit for clearing. however. covert and private capacity and done without the knowledge of the defendant PCIBank…"27 In this case. we conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. He passed the checks to a co-conspirator. Section 531 of Central Bank Circular No. Remberto Castro. which in this case is PCIBank. there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit. SN-04867. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos.negotiation of the checks. 128604 The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508. Thus. shall be for the account of sending bank. we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had particiapted. an Assistant Manager of PCIBank's Meralco Branch. The pro-manager of San Andres Branch of PCIBank. the bank is liable for his misappropriation of such sum. in his official capacity. because PCIBank did not actually receive nor hold the two Ford checks at all. But in this case. The PCIBank Ptro-manager.

we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. On this score. in our view. SN 10597 AND 16508. invoking the doctrine of comparative negligence. In its defense. if not the highest. For its part. Citibank had indeed failed to perform what was incumbent upon it. 1977 but the relief was sought only in 1983. Citibank. we agree with the respondent court's ruling. The point is that as a business affected with public interest and because of the nature of its functions. considering the fact that here the check was crossed with annotation "Payees Account Only. considering that the alleged negligent act took place prior to December 19.35 Banks handle daily transactions involving millions of pesos. (the CIR). it has the obligation to honor and pay the same. 10597 and 16508 would have been discovered in time. Citibank failed to notice and verify the absence of the clearing stamps. thus. we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. Ford argues that by accepting the instrument.34 A bank's liability as obligor is not merely vicarious but primary. Had this been duly examined. consitutes negligence in carrying out the bank's duty to its depositors. Thus. the bank is under obligation to treat the accounts of its depositors with meticulous care. and that it will pay only to the payee. the switching of the worthless checks to Citibank Check Nos.37 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. SN 10597 and 16508 do not bear any initials. the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance.36 By the very nature of their work the degree of responsibility. we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount umportance such that the appropriate standard of diligence must be very high. wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. always having in mind the fiduciary nature of their relationship. Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508. For this reason.The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably. as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the payee thereof. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos." As ruled by the Court of Appeals. the CIR.33 Thus. Time and again. . care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. or seven years thereafter. Citibank failed to establish that its payment of Ford's checjs were made in due course and legally in order.38 On the issue of prescription. The fact that the drawee bank did not discover the irregularity seasonably. because of the contractual relationship existing between the two. degree of diligence. considering that Citibank (1) has no knowledge of any informity in the issuance of the checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA). Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. Citibank claims the genuineness and due execution of said checks. which is to ensure that the amount of the checks should be paid only to its designated payee. Citing Section 6232 of the Negotiable Instruments Law.

serves to mitigate the banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. the Decision and Resolution of the Court of Appeals in CA-G. we also find thet Ford is not completely blameless in its failure to detect the fraud. know formerly as Insular Bank of Asia and America.41. concur. JJ.114. statements of account. Jr. CV No. Buena. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss. the assailed Decision and Resolution of the Court of Appeals in CA-G.R.746. the contributory negligence of the plaintiff shall reduce the damages that he may recover. from the date when the original complaint was filed until said amount is fully paid.40 Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues. the cause of action for the recovery of the proceeds of Citibank Check No. barely six years had lapsed.The statute of limitations begins to run when the bank gives the depositor notice of the payment.1âwphi1. with six percent (6%) interest thereon. and cancelled checks and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein.39 and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing. De Leon. (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12. SO ORDERED. 1984. However. Bellosillo. when Citibank paid the face value of the check in the amount of P4. Since the original complaint for the cause of action was filed on January 20.05.42 WHEREFORE. 25017 are AFFIRMED.R.41.081.746. and each bank is ORDERED to pay Ford Philippines Inc. PCIBank.298.163. but such liability may be regulated by the courts. according to the circumstances.. In quasi-delicts.A.649. which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account. from the date the complaint was filed until full payment of said amount. Finally. id declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount P4. SN 04867 was seasonably filed within the period provided by law.114. 1977.10) on a fifty-fifty ratio. As provided in Article 1172 of the Civil Code of the Philippines. which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. respondibility arising from negligence in the performance of every kind of obligation is also demandable. Applying the same rule. SN 04867 would normally be a month after December 19. No. Failure on the part of the depositor to examine its passbook.nêt Costs against Philippine Commercial International Bank and Citibank N. .41 hence. Thus. the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor (normally a month thereafter). we conclude that Ford's cause of action to recover the amount of Citibank Check No. Mendoza. P6.

AURORA R. F. Petitioners opposed the motion but the lower court approved the same. Pablo Roman and several other Republic Bank officials for violations of the General Banking Act (specifically secs. herein intervenors-appellees. Quisumbing-Fernando for intervenors-appellees. Balboa. Alafriz and Solicitor C. 76-78 and 83 thereof) and the Central Bank Act.. the Central Bank and the Secretary of Justice. and for falsification of public or commercial documents in connection with certain alleged anomalous loans amounting to P1. S.. Evangelista and Severo Malvar for respondent-appellee Central Bank. ET AL. CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE.400. L-23307 June 30. The lower court denied the motion. respondents-appellees. E. against the Monetary Board. intervenors-appellees. Office of the Solicitor General Arturo A. RECTO. His object was to compel these respondents to prosecute. PABLO ROMAN. The Central Bank and its respondent officials. instituted mandamus proceedings in the Court of First Instance of Manila on June 23. MONETARY BOARD. Subsequently. C. PEREZ and REPUBLIC BANK. J. 1962. N. respondents moved for the dismissal of the petition for lack of cause of action. Baizas and Associates and Halili.303. Respondents assailed. ROMAN and NORBERTO J. No. J. LEON ANCHETA.G. 1962. in their respective answers. petitioners-appellants. on the other hand. ETC. Gaddi for respondent-appellee Secretary of Justice. THE SUPERINTENDENT OF BANKS. Perez. 1967 DAMASO P.1 On July 10. Quisumbing and E. QUISUMBING. BENGZON.. among others. the propriety of mandamus. filed motion to intervene in the proceedings. averred that they had already done their duty under the law by referring to the special prosecutors of the Department of Justice for criminal investigation and prosecution those cases involving the alleged anomalous loans. . for himself and in a derivative capacity on behalf of the Republic Bank.R.00 authorized by Roman and the other bank officials. the Superintendent of Banks. Natalio M. MIGUEL CANIZARES. D. VICTORIA B. The Secretary of Justice claimed that it was not their specific duty to prosecute the persons denounced by Perez. as the incumbent directors of the Board of the Republic Bank. vs. Petitioners opposed.P. Bolinao and Associates for petitioners-appellants.: Petitioner-appellant Damaso P. J.

yet it is settled rule that mandamus will not lie to compel a prosecuting officer to prosecute a criminal case in court. Being an artificial person. We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. however. The lower court was not estopped from changing its opinion while it was under its . Respondents-appellees also filed motion to dismiss in which they again raised the impropriety of mandamus. adequate and speedy remedy in the ordinary course of law. Acting upon the two motions and the oppositions thereto filed by petitioners. For respondents to do the actual prosecuting themselves. 1964.2 In view of these developments. Subsequently. anyone — even private individuals — can denounce such violations before the prosecuting authorities. Pursuant to this resolution.8 Moreover. or on March 13. Miguel Cuaderno and Mr. Said violations constitute a public offense. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators. This is untenable. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans. the Monetary Board of the Central Bank passed Resolution No.1äwphï1. it does not appear from the law that only the Central Bank or its respondent officials can cause the prosecution of alleged violations of banking laws. As for the Secretary of Justice. then he has a plain. contending that the ouster of Pablo Roman from Republic Bank's management and control has not altered or rendered moot the issues in the case. to cause the prosecution of those persons denounced by Perez. But petitioners-appellants would insist that the impropriety of mandamus could no longer be raised before the lower court for the second time since it had already been invoked in previous motion to dismiss which was denied. would be tantamount to an ultra vires act already. which makes mandamus against respondents improper. yet We find nothing in said laws that imposes a clear. the lower court granted the motions and dismissed the case. this agreement was superseded by another one with the Philippine National Bank as the trustee. Felix de la Costa.ñët The Central Bank and its respondent officials have already done all they could. as petitioners would have it. Pablo Roman and his family. executed a voting trust agreement in favor of a board of trustees composed of former Chief Justice Ricardo Paras. while he may have the power to prosecute — through the office of the Solicitor General — criminal cases. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic. was conditioned upon the execution by the management and controlling stockholders of the Republic Bank of a voting trust agreement in favor of a Board of Trustees to be chosen by the latter with the approval of the Central Bank. 81 granting the request of Republic Bank for credit accommodations to cover the unusual withdrawal of deposits by its depositors in view of the fact that said Bank was under investigation then by the authorities. 1964. The grant. Hence. the intervenors-appellees filed a motion to dismiss before the lower court claiming that the ouster of Pablo Roman and his family from the management of the Republic Bank effected by the voting trust agreement rendered the mandamus case moot and academic. Hon. Appellants. if any. Addressing Ourselves directly to this issue raised on the propriety of the petition for mandamus.4 not a prosecution agency5 like the fiscal's office.On January 20. specific duty on the former to do the actual prosecution of the latter. this appeal. is the controlling stockholders of Republic Bank.6 But this corporate power of litigation evidently refers to civil cases only. The Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued. Annexes 5 to 7-C CBP of respondents' answer and even petitioners' opposition to the first motion to dismiss7 show that the cases of the alleged anomalous loans had already been referred by the Central Bank to the special prosecutors of the Department of Justice for criminal investigation and prosecution. the prosecution of which is a matter of public interest and hence. within the confines of their powers. argue that the remedy of mandamus lies3 to compel respondents to prosecute the aforementioned Pablo Roman and company.

L-38427 March 12. F. Albert R. Evangelista and Agapito S. So ordered.£ªwph!1 This case involves the question of whether a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent. Dizon.9 Wherefore. 82520 assigned to Branch I). C. modification or reversal by it before the rendition of final judgment on its merits. MORFE. Costs against petitioner-appellant Perez. The Board directed the Superintendent of Banks to take charge of its assets. Makalintal. 1969 the Board involved to seek the court's assistant and supervision in the liquidation of the ban The resolution implemented only on January 25. because the former order was purely interlocutory and thus remained constantly subject to alteration.R.1äwphï1.jurisdiction to do so and on the same ground of lack of cause of action raised before. Court of First Instance of Manila. sometime in March. for respondent Spouses Augusto and Adelaida Padilla.:ñé+. No. On December 9. Reyes. 1975 CENTRAL BANK OF THE PHILIPPINES as Liquidator of the FIDELITY SAVINGS BANK. Palacio for respondent spouses Marcela and Job Elizes. when his Central Bank of the Philippines filed the corresponding petition for assistance and supervision in the Court of First Instance of Manila (Civil Case No. Spouses AUGUSTO and ADELAIDA PADILLA and Spouses MARCELA and JOB ELIZES.B. J. . The question arises under the following facts: On February 18. G.L. petitioner. Nabong. 1971. Sanchez and Castro JJ. Fajardo for petitioner. specifically.. or.ñët Concepcion. 86005 assigned to Branch XIII). vs.J. Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery of the sum of P50.E. Prior to the institution of the liquidation proceeding but after the declaration of insolvency. the spouses Job Elizes and Marcela P. Jr. as Presiding Judge of Branch XIII. HONORABLE JUDGE JESUS P. respondents. Juan C.1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. 350). Zaldivar.. 1972. J. the order of dismissal appealed from is. AQUINO. affirmed. as it is hereby. is a preferred claim against the bank.. concur. 584 as the balance of their time deposits (Civil Case No. forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions (Resolution No.

after payment of the costs of the proceedings. Distribution of assets. upon finding the statements of the Superintendent to be true. 30. 1972 a judgment against the Fidelity Savings Bank for the sums of P80. P70. From the said order.000 as the balance of their time deposits.—Whenever upon examination by the Superintendent or his examiners or agents into the condition of any banking institution. shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. 1973 and February 25. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors. Proceeding upon insolvency. convert the assets of the banking institution to money. by the Office of the Solicitor General. 265 provides:têñ. the Central Bank shall pay the debts of such institution. In such case the expenses and fees in the administration of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. in writing to inform the Monetary Board of the facts.000 as moral and exemplary damages and P9. Padilla and Adelaida Padilla secured on April 14. within the meaning of article 2244(14)(b) of the Civil Code. under the order of the court. the lower court (Branch XIII having cognizance of the liquidation proceeding). 1974. and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets. In another case. in accordance with their legal priority. . file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. upon motions of the Elizes and Padilla spouses and over the opposition of the Central Bank. directed the latter as liquidator. and the Board. Republic Act No. it shall. to pay their time deposits as preferred judgments. In its orders of August 20. 84200 where the action was filed on September 6. The Superintendent shall thereafter. if there are enough funds in the liquidator's custody in excess of the credits more preferred under section 30 of the Central Bank Law in relation to articles 2244 and 2251 of the Civil Code. The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. 1971). SEC. evidenced by final judgments. it shall be disclosed that the condition of the same is one of insolvency. the spouses Augusta A.—In case of liquidation of a banking institution. plus interests. 29. including reasonable expenses and fees of the Central Bank to be allowed by the court. or that its continuance in business would involve probable loss to its depositors or creditors. the Central Bank appealed to this Court by certiorari. 1972 the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of P50. it shall be the duty of the Superintendent forthwith.In the judgment rendered in that case on December 13.£îhqw⣠SEC. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution. It contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law.600 as attorney's fees (Civil Case No.584 plus accumulated interest. assigned to Branch XXX of the Court of First Instance of Manila. upon order of the Monetary Board and under the supervision of the court and with all convenient speed. no final judgment can be validly obtained against an insolvent bank.

including the depositors". to be exact. without special privilege. if they have been the subject of litigation. (2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates. or who pays out or permits or causes to be paid out any funds of said bank. as to the amount not paid. Any director or officer of any banking institution who receives or permits or causes to be received in said bank any deposit. and after its insolvency. 2244. 947). the liquidation court noted that there is no provision in the charter of the Central Bank in the General Banking Law (Republic Acts Nos. 2251. the Board becomes the trustee of its assets "for the equal benefit of all the creditors. Republic Act No.£îhqw⣠SEC. in contrast with the Central Act. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code. and those which enjoy preference. (1929a) The trial court or. (n) ART. 248.The General Banking Act. 337. section 18 of the Insolvency Law provides that upon the issuance by the court of an order declaring a person insolvent "all civil proceedings against the said insolvent shall be stayed. (1924a) ART.£îhqw⣠ART. 85. . Those credits which do not enjoy any preference with respect to specific property. appear in (a) a public instrument. real and personal. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments. 52 of Act No. 265 and 337. execution or otherwise" (Rohr vs. or (b) in a final judgment. judgments against insolvent banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code. of the debtor. the following claims or credits shall be preferred in the order named: xxx xxx xxx (14) Credits which. after said bank becomes insolvent. 245 Pac. shall be punished by fine of not less than one thousand nor more than ten thousand pesos and by imprisonment for not less than two nor more than ten years. In support of that view it cites the provision that the Insolvency Law does not apply to banks (last sentence. the Central Bank argues that after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations. It further noted that. after satisfaction of the judgment the Central Bank. Stanton Trust & Savings Bank. With reference to other property. or who transfers or permits or causes to be transferred any securities or property of said bank. 2237. 1956). It reasoned out that. The stand of the Central Bank is that all depositors and creditors of the insolvent bank should file their actions with the liquidation court. The Central Bank cites the ruling that "the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors. because such actions are not suspended. shall be satisfied according to the following rules: (1) In the order established in article 2244. It suggested that. should include said judgments in the list of preferred credits contained in the "Project of Distribution" "with the notation "already paid" " On the other hand." The liquidation court directed the Central Bank to honor the writs of execution issued by Branches I and XXX for the enforcement of the judgments obtained by the Elizes and Padilla spouses. as liquidator. 76 Mont. respectively) which suspends or abates civil actions against an insolvent bank pending in courts other than the liquidation court. The Civil Code provides:têñ. provides: têñ. respectively. sec. one cannot obtain an advantage or a preference over another by an attachment.

It also invokes the provision penalizing a director officer of a bank who disburses, or allows disbursement, of the funds of the bank after it becomes insolvent (Sec. 85, General Banking Act, Republic Act No. 337). It cites the ruling that "a creditor of an insolvent state bank in the hands of a liquidator who recovered a judgment against it is not entitled to a preference for (by) the mere fact that he is a judgment creditor" (Thomas H. Briggs & Sons, Inc. vs. Allen, 207 N. Carolina 10, 175 S. E. 838, Braver Liquidation of Financial Institutions, p. 922). It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits (Art. 1980, Civil Code; In re Liquidation of Mercantile Bank of China: Tan Tiong Tick vs. American Apothecaries Co., 65 Phil. 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association, 65 Phil. 375; Fletcher American National Bank vs. Ang Cheng Lian, 65 Phil. 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 Phil. 429; Gopoco Grocery vs. Pacific Coast Biscuit Co., 65 Phil. 443). The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. The Board in its Resolution No. 350 dated February 18,1969 banned the Fidelity Savings Bank from doing business. It took charge of the bank's assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the Civil Code. We are of the opinion that such judgments cannot be considered preferred and that article 2244(14) (b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize such judgments as entitled to priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has closed its doors or has been enjoined by the Monetary Board from doing business, would rush to the courts to secure judgments for the payment of their deposits. In such an eventuality, the courts would be swamped with suits of that character. Some of the judgments would be default judgments. Depositors armed with such judgments would pester the liquidation court with claims for preference on the basis of article 2244(14)(b). Less alert depositors would be prejudiced. That inequitable situation could not have been contemplated by the framers of section 29. The Rohr case (supra) supplies some illumination on the disposition of the instant case. It appears in that case that the Stanton Trust & Savings Bank of Great Falls closed its doors to business on July 9, 1923. On November 7,1924 the bank (then already under liquidation) issued to William Rohr a certificate stating that he was entitled to claim from the bank $1,191.72 and that he was entitled to dividends thereon. Later, Rohr sued the bank for the payment of his claim. The bank demurred to the complaint. The trial court sustained the demurrer. Rohr appealed. In affirming the order sustaining the demurrer, the Supreme Court of Montana said: têñ.£îhqwâ£

The general principle of equity that the assets of an insolvent are to he distributed ratably among general creditors applies with full force to the distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is not entitled to any preference or priority over other general creditors. The assets of a bank in process of liquidation are held in trust for the equal benefit of all creditors, and one cannot be permitted to obtain an advantage or preference over another by an attachment, execution or otherwise. A disputed claim of a creditor may be adjudicated, but those whose claims are recognized and admitted may not successfully maintain action thereon. So to permit would defeat the very purpose of the liquidation of a bank whether being voluntarily accomplished or through the intervention of a receiver. xxx xxx xxx The available assets of such a bank are held in trust, and so conserved that each depositor or other creditor shall receive payment or dividend according to the amount of his debt, and that none of equal class shall receive any advantage or preference over another.

And with respect to a national bank under voluntary liquidation, the court noted in the Rohr case that the assets of such a bank "become a trust fund, to be administered for the benefit of all creditors pro rata and, while the bank retains its corporate existence, and may be sued, the effect of a judgment obtained against it by a creditor is only to fix the amount of debt. He can acquire no lien which will give him any preference or advantage over other general creditors . (245 Pac. 249). * Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time deposits. The judicial declaration that the said deposits were payable to the depositors, as indisputably they were due, could not have given the Elizes and Padilla spouses a priority over the other depositors whose deposits were likewise indisputably due and owing from the insolvent bank but who did not want to incur litigation expenses in securing a judgment for the payment of the deposits. The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. (See Maurello vs. Broadway Bank & Trust Co. of Paterson 176 Atl. 391, 114 N.J.L. 167). It is noteworthy that in the trial court's order of October 3, 1972, which contains the Bank Liquidation Rules and Regulations, it indicated in step III the procedure for processing the claims against the insolvent bank. In Step IV, the court directed the Central Bank, as liquidator, to submit a Project of Distribution which should include "a list of the preferred credits to be paid in full in the order of priorities established in Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code (note that article 2244 was not mentioned). There is no cogent reason why the Elizes and Padilla spouses should not adhere to the procedure outlined in the said rules and regulations. WHEREFORE, the lower court's orders of August 20, 1973 and February 25, 1974 are reversed and set aside. No costs. SO ORDERED. Makalintal, C.J., Fernando, Barredo, and Fernandez, JJ., concur.1äwphï1.ñët

Antonio, J., took no part.

G.R. No. L-30511 February 14, 1980 MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents. Rene Diokno for petitioner. F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines. Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila. Josefina G. Salonga for all other respondents.

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

of One Hundred Fifty Thousand Pesos (P150. for one year with 6% interest. but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks.A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court. the Overseas Bank of Manila. 1965. Serrano. her time deposit of P200. declaring the former insolvent. wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing. petitioner made a time deposit.R. No. L-29362. 5 Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila. Ramos. and liquidating its assets. Concepcion Maneja. 1966. 1966 and December 12. on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank . 1967 up to March 4. et al. on March 6. 1968. married to Felixberto M. dating from December 6.000. No.00 with respondent Overseas Bank of Manila. 7 Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. including that of the petitioner and Concepcion Maneja.00) with the same respondent Overseas Bank of Manila. of Two Hundred Thousand Pesos (P200. 1968. 1967.R. not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 10 In G. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". dated March 12." a case was filed by the petitioner Ramos. Central Bank of the Philippines. vs. filed on September 6. 8 Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. implying that respondent Central Bank has to watch every move or activity of all banks. Respondent Central Bank claims that as of March 12. 6 Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines. was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 4 On August 31. for one year with 6-½% interest.00) with the respondent Overseas Bank of Manila. entitled "Emerita M. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 1968. a motion to intervene in G. L-29352. Petitioner Manuel Serrano in this case. 3 Concepcion Maneja also made a time deposit. Serrano. there were no findings to declare the respondent Overseas Bank of Manila as insolvent. including respondent Overseas Bank of Manila. to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. assigned and conveyed to petitioner Manuel M.000. In the years 1966-1967. while operating. 9 Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money.000. Undisputed pertinent facts are: On October 13. 322. 1965.

whether fixed. and if this Court were to allow Serrano to intervene as depositor in G. on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance. Respondent Central Bank in G. Bank deposits are in the nature of irregular deposits. No.of Manila in the matter in litigation in that case. this Court denied Serrano's. and ordering the liquidation of said bank) are hereby annulled and set aside. petitioner in this case filed a motion for judgment in this case. L-29352. Furthermore. thousands of other depositors would follow and thus cause an avalanche of cases in this Court. L-29352. Costs against respondent Central Bank of the Philippines. No. 1972. In the resolution dated October 4. savings. praying for a decision on the merits. No. direct the suspension of its operation. both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans. with the dispositive portion to wit: WHEREFORE. since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila).R.R. and if there was.R. with all interests due therein. 1263. All kinds of bank deposits. and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. 11 This Court rendered decision in G. the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. or current are to be treated as loans and are to be covered by the law on loans. had been accomplished a long time ago. Neither is there anything to prohibit in this case. and to desist from taking action in violation therefor. 1971. 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila. and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement. 1968. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. The petitioner here in making time deposits that earn interests with respondent . The contents of said motion to intervene are substantially the same as those of the present petition. petitioner here is not the proper party to raise that question. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case. 14 Current and savings deposit are loans to a bank because it can use the same. No. L-29352. No. said collaterals allegedly acquired through the use of depositors money. and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans. since these collaterals were acquired by the use of depositors' money. but rather the Overseas Bank of Manila. which petitioner here intends to use as his basis for claims of damages against respondent Central Bank. favorable to the respondent Overseas Bank of Manila. which became final and executory on March 3. 13 By the very nature of the claims and causes of action against respondents.000 time deposit made with the latter bank. adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350. They are really loans because they earn interest.R. 12 Because of the above decision. they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila. as it did in G. L-29352 on October 4. motion to intervene.

Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit WHEREFORE. On April 12. Vitug's estate with her (Mrs. The respondent Bank was in turn a debtor of petitioner. Metro Manila. who died in New York. naming private respondent Rowena Faustino-Corona executrix.749. G. Quisumbing.. vs. and hence.40 spent for the payment of estate tax.99 from savings account No.. SO ORDERED. No. Antonio. Vitug filed a motion asking for authority from the probate court to sell certain shares of stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum of P667. J. concur in the judgment on the of the concurring opinion of Justice Aquino.A. In our said decision. On January 13. he withdrew the sums of P518. there was allegedly no ground for reimbursement. As found by the Court of Appeals. Vitug. 1990 ROMARICO G. 2 the alleged advances consisted of P58.27 and P90.99 as "increment thereto. 35342-038 of the Bank of America. S.147. Abad Santos.: This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two wills of the late Dolores Luchangco Vitug.834. VITUG. 35342-038 were conjugal partnership properties and part of the estate. She also sought his ouster for failure to include the sums in question for inventory and for "concealment of funds belonging to the estate. Vitug. pending probate. Makati. on November 10. Rufino B.R." 3 According to Mr." 4 . THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA. 1985. U. petitioner. Torres & Evangelista for private respondent. Javier Law Office for petitioner. 1980. plus interests. 82027 March 29. Vitug's) widower.749.834.27 as deficiency estate tax. and P90. petitioner Romarico G. which he claimed were personal funds. P518.. we upheld the appointment of Nenita Alonte as co-special administrator of Mrs. Barredo (Chairman) J.731. concur. Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn from savings account No. Romarico G.66. 1985. respondents. SARMIENTO. JJ. with costs against petitioner.Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. the petition is dismissed for lack of merit.

Vitug. the bequest or device must pertain to the testator. but the same order is sustained in all other respects. revocable and free act by which a capacitated person disposes of his property and rights and declares or complies with duties to take effect after his death.." 8 and secondly.731. Such conclusion is evidently predicated on the assumption that Stephenson was the exclusive owner of the funds-deposited in the bank." 14 In other words. held that the above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not comply with the formalities of a valid will as prescribed by Article 805 of the Civil Code. that all money now or hereafter deposited by us or any or either of us with the BANK in our joint savings current account shall be the property of all or both of us and shall be payable to and collectible or withdrawable by either or any of us during our lifetime. the surviving spouse. 5 The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of the estate of Dolores L. 1985 (Annex II. assuming that it is a mere donation inter vivos. 13 The petition is meritorious. . Vitug. With costs against private respondent. one of mortis causa. in the petition for certiorari filed by the herein private respondent. it is a prohibited donation under the provisions of Article 133 of the Civil Code." But it not infrequently happens that a person deposits money in the bank in . respondent Judge is directed to include provisionally the deposits in Savings Account No.Vitug insists that the said funds are his exclusive property having acquired the same through a survivorship agreement executed with his late wife and the bank on June 19. A will has been defined as "a personal. any or all of us during our lifetime. Rivera v. and shall be payable to and collectible or withdrawable by such survivor or survivors. The agreement provides: We hereby agree with each other and with the BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION (hereinafter referred to as the BANK). but simply. 9 The dispositive portion of the decision of the Court of Appeals states: WHEREFORE.. 35342-038 with the Bank of America. We further agree with each other and the BANK that the receipt or check of either. petition) is hereby set aside insofar as it granted private respondent's motion to sell certain properties of the estate of Dolores L.. solemn. 10 In his petition. 15 In this case.. 35342-038 were in the nature of conjugal funds In the case relied on. the monies subject of savings account No. assails the appellate court's ruling on the strength of our decisions in Rivera v. 1970. their joint holdings: xxx xxx xxx .66 . 11 and Macam v. the Court of Appeals. People's Bank and Trust Co. The conveyance in question is not. in the inventory of actual properties possessed by the spouses at the time of the decedent's death. which assumption was in turn based on the facts (1) that the account was originally opened in the name of Stephenson alone and (2) that Ana Rivera "served only as housemaid of the deceased. first of all." 7 On the other hand. the order of respondent Judge dated November 26. the proceeds of which shall be used to pay the personal funds of Romarico Vitug in the total sum of P667. 16 we rejected claims that a survivorship agreement purports to deliver one party's separate properties in favor of the other. for any payment or withdrawal made for our above-mentioned account shall be valid and sufficient release and discharge of the BANK for such payment or withdrawal. or the receipt or check of the survivor or survivors. In addition. Makati. Gatmaitan 12 in which we sustained the validity of "survivorship agreements" and considering them as aleatory contracts. Vitug for reimbursement of his alleged advances to the estate.. People's Bank and Trust Co. which should be embodied in a will. and after the death of either or any of us shall belong to and be the sole property of the survivor or survivors.

is binding upon the parties thereto. and Leonarda would become the owner of the automobile and the furniture if Juana were to die first. By virtue of Exhibit C. and hence it must be presumed to be conjugal. 35342-038. we must give full faith and credit to the certificate of deposit which recites in effect that the funds in question belonged to Edgar Stephenson and Ana Rivera. one of the parties or both reciprocally bind themselves to give or do something as an equivalent for that which the other party is to give or do in case of the occurrence of an event which is uncertain or will happen at an indeterminate time. by way of a joint and several bank account. 17 xxx xxx xxx In Macam v. more commonly denominated in banking parlance as an "and/or" account. the time of death determining the event upon which the acquisition of such right by the one or the other depended. Gatmaitan. and that either of them could withdraw any part or the whole of said account during the lifetime of both. and in the instant case it also appears that Ana Rivera served her master for about nineteen years without actually receiving her salary from him. In this manner Leonarda and Juana reciprocally assigned their respective property to one another conditioned upon who might die first. then. as held by the Court of Appeals. Juana would become the owner of the house in case Leonarda died first. 24 Under Article 2010 of the Code: . In the absence. which would have arguably been sanctionable as a prohibited donation. it is not a donation between the spouses because it involved no conveyance of a spouse's own properties to the other. The fact that subsequently Stephenson transferred the account to the name of himself and/or Ana Rivera and executed with the latter the survivorship agreement in question although there was no relation of kinship between them but only that of master and servant. that they were joint (and several) owners thereof. And since the funds were conjugal. This contract. in the same manner as Leonarda would have acquired the ownership of the automobile and of the furniture if Juana had died first. if any. The validity of the contract seems debatable by reason of its "survivor-take-all" feature. belonged to the survivor. As already stated. 18 it was held: xxx xxx xxx This Court is of the opinion that Exhibit C is an aleatory contract whereby. Leonarda was the owner of the house and Juana of the Buick automobile and most of the furniture. relations. having been acquired during the existence of the marita. the latter thereupon acquired the ownership of the house. 21 by "mere stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal property relations. Inasmuch as Leonarda had died before Juana. and the balance. 20 Neither is the survivorship agreement a donation inter vivos. They did not dispose of it in favor of the other. according to article 1790 of the Civil Code. In the case at bar. that contract imposed a mere obligation with a term. for obvious reasons. because it was to take effect after the death of one party. when the spouses Vitug opened savings account No. nullifies the assumption that Stephenson was the exclusive owner of the bank account. It is also our opinion that the agreement involves no modification petition of the conjugal partnership. the spouses are not prohibited by law to invest conjugal property. upon the death of either. they merely put what rightfully belonged to them in a money-making venture. say. the term being death.the name of another. Certainly. but in reality. it can not be said that one spouse could have pressured the other in placing his or her deposits in the money pool. 19 xxx xxx xxx There is no showing that the funds exclusively belonged to one party. as any other contract. Such agreements are permitted by the Civil Code. of clear proof to the contrary. Secondly.

Vitug. as held by the respondent court. Paras. No costs." A survivorship agreement. one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain. No such vice has been imputed and established against the agreement involved in this case. However. 2010. to transfer property in fraud of creditors. the sale of a sweepstake ticket. or which is to occur at an indeterminate time. the latter has acquired upon her death a vested right over the amounts under savings account No." (2) "which is to occur at an indeterminate time. the decision of the respondent appellate court. In the case at bar. Vitug having predeceased her husband. Being the separate property of petitioner. 1988. and its resolution. concur. 1987. SO ORDERED. while a contract for life annuity or pension under Article 2021. 25 In either case. we hold that the court was in error. Under the aforequoted provision. dated February 9. the element of risk is present. dated June 29. For instance. and conjugal partnership. 35342-038 of the Bank of America. . The conclusion is accordingly unavoidable that Mrs. a transaction stipulating on the value of currency. as we have warned: xxx xxx xxx But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law. has been categorized under the second. Melencio-Herrera (Chairperson).ART. in order to frustrate our laws on wills. if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation. Padilla and Regalado JJ. or. are SET ASIDE. it may be assailed and annulled upon such grounds. 26 xxx xxx xxx There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes. the risk was the death of one party and survivorship of the other. WHEREFORE. et sequentia. and insurance have been held to fall under the first category. the fulfillment of an aleatory contract depends on either the happening of an event which is (1) "uncertain.. or to defeat the legitime of a forced heir. it forms no more part of the estate of the deceased. By an aleatory contract. Insofar as the respondent court ordered their inclusion in the inventory of assets left by Mrs. donations.