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G.R. No.

176697 September 10, 2014 The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies
of the documents given by its depositary bank.7 On the other hand, petitioners maintained that the Bank never
CESAR V. AREZA and LOLITA B. AREZA, Petitioners, informed them of these developments.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets. On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was dishonored by the
Bank for the reason "Deposit Under Hold." According topetitioners, the Bank unilaterally and unlawfully put
DECISION their account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent a demand letter asking the
Bank to honor their check. The Bank refused to heed their request and instead, closed the Special Savings
Account of the petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings
PEREZ, J.: account. The Bank then withdrew the amount of ₱1,800,000.00representing the returned checks from
petitioners’ savings account.
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which seeks to
reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of Appeals in Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral
CAG.R. CV No. 83192. The Court of Appeals affirmed with modification the 22 April 2004 Resolution3 of the withdrawal from their savings account, petitioners filed a Complaint for Sum of Money with Damages against
Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886. the Bank and Potenciano with the RTC of Calamba.

The factual antecedents follow. On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The dispositive
portion of the Decision reads:
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent Express Savings
Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2) Special Savings Account No. 004-02- WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of plaintiffs and
000092-3. against the defendants jointly and severally to pay plaintiffs as follows, to wit:

They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May 1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the
2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand account of plaintiffs;
Mitsubishi Pajero and a brand-new Honda CRV.

2. ₱500,000.00 as moral damages; and

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00). 3. ₱300,000.00 as attorney’s fees.8

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager of The trial court reduced the issue to whether or not the rights of petitioners were violated by respondents when
respondent Express Savings Bank (the Bank) was present during the transaction and immediately offered the the deposits of the former were debited by respondents without any court order and without their knowledge
services of the Bank for the processing and eventual crediting of the said checks to petitioners’ account.4 On the and consent. According to the trial court, it is the depositary bank which should safeguard the right ofthe
other hand,Potenciano countered that he was prevailed upon to accept the checks by way of accommodation depositors over their money. Invoking Article 1977 of the Civil Code, the trial court stated that the depositary
of petitioners who were valued clients of the Bank.5 cannot make use of the thing deposited without the express permission of the depositor. The trial court also
held that respondents should have observed the 24-hour clearing house rule that checks should be returned
within 24-hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, inturn, action. In this case, petitioners deposited the checks in May 2000, and respondents notified them of the
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank problems on the check three months later or in August 2000. In sum, the trial court characterized said acts of
presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks. respondents as attended with bad faith when they debited the amount of ₱1,800,000.00 from the account of
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank werehonored.
He allegedly warned petitioners that the clearing of the checks pertained only to the availability of funds and Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the Decision
did not mean that the checks were not infirmed.6 Thus, the entire amount of ₱1,800,000.00 was credited to of the RTC on the ground that respondents’ motion for reconsideration did not conform with Section 5, Rule 16
petitioners’ savings account. Based on this information, petitioners released the two cars to the buyer. of the Rules of Court; hence, it was a mere scrap of paper that did not toll the running of the period to appeal.

Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that the amount On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set
on the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee aside the Pozas Decision, and dismissed the complaint. The trial court awarded respondents their counterclaim
returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was of moral and exemplary damages of ₱100,000.00 each. The trial court first applied the principle of liberality
informed by Equitable-PCI Bank that the drawee dishonored the checks onthe ground of material alterations. when it disregarded the alleged absence of a notice of hearing in respondents’ motion for reconsideration. On
Equitable-PCI Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter ruled the merits, the trial court considered the relationship of the Bank and petitioners with respect to their savings
in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the account deposits as a contract of loan with the bank as the debtor and petitioners as creditors. As such, Article
Bank in the amount of ₱1,800,000.00. 1977 of the Civil Code prohibiting the depository from making use of the thing deposited without the express
permission of the depositor is not applicable. Instead, the trial court applied Article 1980 which provides that
fixed, savings and current deposits ofmoney in banks and similar institutions shall be governed by the provisions

governing simple loan. The trial court then opined thatthe Bank had all the right to set-off against petitioners’ Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the adverse party as
savings deposits the value of their nine checks that were returned. the rules require. Petitioners add that the hearing on the motion for reconsideration was scheduled beyond 10
days from the date of filing.
On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of damages. The
appellate court made the following ratiocination: As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse party has
beensubstantially complied with when a copy of the motion for reconsideration was furnished to the counsel of
Any argument as to the notice of hearing has been resolved when the pairing judge issued the order on the adverse party, coupled with the fact that the trial court acted on said notice of hearing and, as prayed for,
February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice of hearing shows that request issued an order12 setting the hearing of the motion on 26 March 2004.
was addressed to the Clerk of Court and plaintiffs’ counsel for hearing to be set on March 26, 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the said
The core issues in this case revolve on whether the appellee bank had the right to debit the amount of motion for reconsideration was furnished to the counsel of the adverse party.13
₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting was done "without the
plaintiffs’ knowledge." Now to the substantive issues to which procedural imperfection must, in this case, give way.

We find that the elements of legal compensation are all present in the case at bar. Hence, applying the case of The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts.
the Bank of the Philippine Islands v. Court of Appeals, the obligors bound principally are at the same time
creditors of each other. Appellee bank stands as a debtor of appellant, a depositor. At the same time, said bank On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the amountof
is the creditor of the appellant with respect to the dishonored treasury warrant checks which amount were ₱1,800,000.00 was accordingly credited to petitioners’ accounts, prompting them to release the purchased cars
already credited to the account of appellants. When the appellants had withdrawn the amount of the checks to the buyer.
they deposited and later on said checks were returned, they became indebted to the appellee bank for the
corresponding amount.
Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank. Three
months had passed when the Bank was informed by its depositary bank that the drawee had dishonored the
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers, appellants oughtto have checks on the ground of material alterations.
exercised due diligence in assessing his credit or personal background. The 24-hour clearing house rule is not
the one that governs in this case since the nine checks were discovered by the drawee bank to contain material
alterations. The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon the savings
account of petitioners with respondent bank. The trial court inits reconsidered decision and the appellate court
were one in declaring that petitioners should bear the loss.
Appellants merely allege that they were not informed of any development on the checks returned. However,
this Court believes that the bank and appellants had opportunities to communicate about the checks
considering that several transactions occurred from the time of alleged return of the checks to the date of the We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In
However, this Court agrees withappellants that they should not pay moral and exemplary damages to each of this case, before the alteration was discovered, the checks were already cleared by the drawee bank, the
the appellees for lack of basis. The appellants were not shown to have acted in bad faith.9 Philippine Veterans Bank. Three months had lapsed before the drawee dishonored the checks and returned
them to Equitable-PCI Bank, the respondents’ depositary bank. And itwas not until 10 months later when
petitioners’ accounts were debited. A question thus arises: What are the liabilities of the drawee, the
Petitioners filed the present petition for review on certiorariraising both procedural and substantive issues, to intermediary banks, and the petitioners for the altered checks?
1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave
abuse of discretion in upholding the legality and/or propriety of the Motion for Reconsideration
filed in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure; Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who
accepts the bill. In Philippine National Bank v. Court of Appeals,14 the payment of the amount of a check implies
2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in not only acceptance but also compliance with the drawee’s obligation.
declaring that the private respondents "had the right to debit the amount of ₱1,800,000.00 from
the appellants’ accounts" and the bank’s act of debiting was done with the plaintiff’s knowledge.10
In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or the
altered tenor of acceptance? There are two divergent intepretations proffered by legal analysts.15 The first view
Before proceeding to the substantive issue, we first resolve the procedural issue raised by petitioners. is supported by the leading case of National City Bank ofChicago v. Bank of the Republic.16 In said case, a certain
Andrew Manning stole a draft and substituted his name for that of the original payee. He offered it as payment
Sections 5, Rule 15 of the Rules of Court states: to a jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which
collectedthe equivalent amount from the drawee. Upon learning of the alteration, the drawee sought to
Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned, and shall recover from the defendant bank the amount of the draft, as money paid by mistake. The court denied recovery
specify the time and date of the hearing which must not be later than ten (10) days after the filing of the on the ground that the drawee by accepting admitted the existence of the payee and his capacity to
motion. endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy,18 the court echoed the court’s
interpretation in National City Bank of Chicago, in this wise:

We think the construction placed upon the section by the Illinois court is correct and that it was not the endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
legislative intent that the obligation of the acceptor should be limited to the tenorof the instrument as drawn the party making the presentment has done its duty to ascertain the genuineness of the endorsements.26 If any
by the maker, as was the rule at common law,but that it should be enforceable in favor of a holder in due of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may
course against the acceptor according to its tenor at the time of its acceptance or certification. recover from it up to the amount of the check.27

The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the Negotiable The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose
Instruments Law. As stated in the Illinois case: "The court must take the act as it is written and should give to of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds
the words their natural and common meaning . . . ifthe language of the act conflicts with statutes or decisions in itself out to the public as the expert and the law holds it to a high standard of conduct.28
force before its enactment the courts should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act suggests that a change in the common law As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered
was intended. A careful reading thereof, independent of any common-law influence, requires that the words checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its account with EquitablePCI
"according to the tenor of his acceptance" be construed as referring to the instrument as it was at the time it Bank to be debited, it has the option toseek recourse against the latter in another forum.
came into the hands of the acceptor for acceptance, for he accepts no other instrument than the one presented
to him — the altered form — and it alone he engages to pay. This conclusion is in harmony with the law of
England and the continental countries. It makes for the usefulness and currency of negotiable paper without 24-HOUR CLEARING RULE
seriously endangering accepted banking practices, for banking institutions can readily protect themselves
against liability on altered instruments either by qualifying their acceptance or certification or by relying on Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August
forgery insurance and specialpaper which will make alterations obvious. All of the arguments advanced against 2000 that the drawee bank notified Equitable-PCI that there were material alterations in the checks.
the conclusion herein announced seem highly technical in the face of the practical facts that the drawee bank
has authenticated an instrument in a certain form, and that commercial policy favors the protection of anyone We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it did not
who, in due course, changes his position on the faith of that authentication.19 follow the 24-hour clearing period which provides that when a drawee bank fails to return a forged or altered
check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of
the bill prior to alteration.20 This view appears to be in consonance with Section 124 of the Negotiable Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items
Instruments Law which statesthat a material alteration avoids an instrument except as against an assenting Beyond The Reglementary Clearing Period.- Items which have been the subject of material alteration or items
party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct
Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the
duty tocharge its client’s account only for bona fide disbursements he had made. If the drawee did not pay period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity
according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim sending the same.
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the
drawer’s account which it was expected to treat with utmost fidelity.21 The drawee, however, still has recourse
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did
in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.
It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai vs. People’s
Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour
rule under which the drawee bank forever loses the right to claim against presenting/collecting bank if the
check is not returned at the next clearing day orwithin 24 hours. Apparently, the commercial banks felt strict
A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is enforcement of the 24-hour rule is too harsh and therefore made representations and obtained modification of
presented for immediate payment over the counter.22 It is also the bank to which a check is transferred for the rule, which modification is now incorporated in the Manual of Regulations. Since the same commercial
deposit in an account at such bank, evenif the check is physically received and indorsed first by another banks controlled the Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules
bank.23 A collecting bank is defined as any bank handling an item for collection except the bank on which the naturally followed.
check is drawn.24
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the
When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank. drawee bank in accordance with long standing and accepted banking practices shall be returned through the
This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or PCHC/local clearing office, as the case may be, not later than the next regular clearing (24-hour). The
ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit modification, however, is that items which have been the subject of material alteration or bearing forged
the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the endorsement may be returned even beyond 24 hours so long that the same is returned within the prescriptive
amount of the check or the check has been cleared for deposit.25 period fixed by law. The consensus among lawyers is that the prescriptiveperiod is ten (10)years because a
check or the endorsement thereon is a written contract. Moreover, the item need not be returned through the
The Bank and Equitable-PCI Bank are both depositary and collecting banks. clearing house but by direct presentation to the presenting bank.29

A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with In short, the 24-hour clearing ruledoes not apply to altered checks.
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all LIABILITY OF PETITIONERS
prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting." It has been repeatedly held that in check transactions, the depositary/collecting bank or last
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co.30 is in point. A foreigner
endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
purchased several pieces of jewelry from Gold Palace Jewellery using a United Overseas Bank (Malaysia) issued

draft addressed to the Land Bank of the Philippines (LBP). Gold Palace Jewellery deposited the draft in the The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings account. Under Art.
company’s account with Far East Bank. Far East Bank presented the draft for clearing to LBP. The latter cleared 1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors
the same and Gold Palace Jewellery’s account was credited with the amount stated in the draft. Consequently, and debtors of each other. And the requisites for legal compensation are:
Gold Palace Jewellery released the pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East
Bank that the amount in the foreign draft had been materially altered from ₱300,000.00 to ₱380,000.00. LBP Art. 1279. In order that compensation may be proper, it is necessary:
returnedthe check to Far East Bank. Far East Bank refunded LBP the ₱380,000.00 paid by LBP. Far East Bank
initially debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded the payment of the
difference between the amount in the altered draft and the amount debited from Gold Palace Jewellery. (1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

However, for the reasons already discussed above, our pronouncement in the Far East Bank and Trust
Companycase that "the drawee is liable on its payment of the check according to the tenor of the check at the (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
time of payment, which was the raised amount"31 is inapplicable to the factual milieu obtaining herein. same kind, and also of the same quality if the latter has been stated;

We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus: (3) That the two debts be due;

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far (4) That they be liquidated and demandable;
East, should not have debited the money paid by the drawee bank from respondent company's account. When
Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of (5) That over neither of them there be any retention or controversy, commenced by third persons
the NIL, became an agent of the former for the collection of the amount in the draft. The subsequent payment and communicated in due time to the debtor.
by the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as
the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-
and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the debtor. Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks
transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will and similar institutions shall be governed by the provisions concerning simple loans. The bank is the debtorand
arise if a bank at some future time will call on the payee for the return of the money paid to him on the check. the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank and the depositor is the contract that determines
As the transaction in this case had been closed and the principalagent relationship between the payee and the the rights and obligations of the parties.33
collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting
on its own and should now be responsible for its own actions. x x x Likewise, Far East cannot invoke the But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank, asthe
warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon depositary and collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the
itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 part of petitioners, legal compensation cannot take place. DAMAGES
of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting
bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a
The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was informed of the
general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to
dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001 when the Bank
holders in due course, these warranties did not attach to the indorsement for deposit and collection made by
informed petitioners that it will debit from their account the altered amount. This delay is tantamount to
Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit
negligence on the part of the collecting bank which would entitle petitioners to an award for damages under
respondent's account for the amount it refunded to the drawee bank.
Article 1170 of the New Civil Code which reads:

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
the account of Gold Palace, and for doing so, it must return what it had erroneously taken.32
who in any manner contravene the tenor thereof, are liable for damages.

Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A
The damages in the form of actual or compensatory damages represent the amount debited by the Bank from
depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer, the payee,
petitioners’ account.
or either the drawee bank or depositary bank was negligent and such negligence substantially contributed tothe
loss from alteration. In the instant case, no negligence can be attributed to petitioners. We lend credence to
their claim that at the time of the sales transaction, the Bank’s branch manager was present and even offered We delete the award of moral damages. Contrary to the lower court’s finding, there was no showing that the
the Bank’s services for the processing and eventual crediting of the checks. True to the branch manager’s Bank acted fraudulently or in bad faith. It may have been remiss in its duty to diligently protect the account of
words, the checks were cleared three days later when deposited by petitioners and the entire amount ofthe its depositors but its honest but mistaken belief that petitioners’ account should be debited is not tantamount
checks was credited to their savings account. to bad faith. We also delete the award of attorney’s fees for it is not a sound public policy to place a premium
on the right to litigate. No damages can becharged to those who exercise such precious right in good faith, even
if done erroneously.34

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should have made a
to alteration.1âwphi1 Since Philippine Veterans Bank paid the altered amount of the check, it may pass the
claim of the amount of ₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the collecting bank
liability back as it did, to Equitable-PCI Bank,the collecting bank. The collecting banks, Equitable-PCI Bank and
in this case and not from them.
the Bank, are ultimately liable for the amount of the materially altered check. It cannot further pass the liability

back to the petitioners absent any showing in the negligence on the part of the petitioners which substantially PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium deposit account and time
contributed to the loss from alteration. deposit account) with PNB.[15] They alleged that Angel C. Santos' deposit account was originally a time deposit
account that was subsequently converted into a premium savings account.[16] They also alleged that Aguilar did
Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly and not know about Angel C. Santos' death in 1991 because she only assumed office in 1996.[17] Manimbo was able
severally pay petitioners ₱1,800,000.00, representing the amount withdrawn from the latter’s account. We do to submit an affidavit of self-adjudication and the required surety bond.[18] He also submitted a certificate of
not conform with said ruling regarding the finding of bad faith on the part of respondents, as well as its failure payment of estate tax dated March 31, 1997.[19] All documents he submitted appeared to be regular.[20]
toobserve the 24-hour clearing rule.
PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc.[21]
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12 February 2007
respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15 January 2004 Angel P. Santos denied having anything to do with the special power of attorney and affidavit of self-
Decision of the Regional Trial Court of Calamba City, Branch 92 in Civil Case No. B-5886 rendered by Judge adjudication presented by Manimbo.[22] He also alleged that Manimbo presented the certificate of time deposit
Antonio S. Pozas is REINSTATEDonly insofar as it ordered respondents to jointly and severally pay petitioners without his knowledge and consent.[23]
₱1,800,000.00 representing the amount withdrawn from the latter’s account. The award of moral damages and
attorney’s fees are DELETED. Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay claims only when persons who
were unduly deprived of their lawful participation in the estate filed an action in court for their claims.[24] It did
SO ORDERED. not undertake to pay claims resulting from PNB's negligence.[25]

In the decision[26] dated February 22, 2011, the trial court held that PNB and Aguilar were jointly and severally
liable to pay respondents the amount of P1,882,002.05 with an interest rate of 6% starting May 20,
1998.[27] PNB and Aguilar were also declared jointly and severally liable for moral and exemplary damages,
attorney's fees, and costs of suit.[28] Manimbo, Angel P. Santos, and Capital Insurance and Surety Co., Inc. were
held jointly and severally liable to pay PNB P1,877,438.83 pursuant to the heir's bond and P50,000.00 as
attorney's fees and the costs of suit.[29] The dispositive portion of the trial court's decision reads:

The standard of diligence required of banks is higher than the degree of diligence of a good father of a family.
WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows:
Respondents are children of Angel C. Santos who died on March 21, 1991.[1]

Sometime in May 1996, respondents discovered that their father maintained a premium savings account with
Philippine National Bank (PNB), Sta. Elena-Marikina City Branch.[2] As of July 14, 1996, the deposit amounted to 1. ordering the defendants PNB and LIN A B. AGUILAR jointly and severally liable to pay the plaintiffs
P1,759,082.63.[3] Later, respondents would discover that their father also had a time deposit of P1,000,000.00 the amount of P1,882,002.05, representing the face value of PNB Manager's Check No. AF-974686B
with PNB.[4] as balance of the total deposits of decedent Angel C. Santos at the time of its issue, with interest
thereon at the rate of 6% starting on May 20, 1998, the date when the complaint was filed, until
Respondents went to PNB to withdraw their father's deposit.[5] fully paid;

Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch, required them to submit the
following: "(1) original or certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of 2. ordering both defendants jointly and severally liable to pay plaintiffs the amount of Php 100,000.00
payment of, or exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of as moral damages, another Php 100,000.00 as exemplary damages and Php 50,000.00 as attorney's
Extrajudicial Settlement; (4) Publisher's Affidavit of publication of the Deed of Extrajudicial Settlement; and (5) fees and the costs of suit;
Surety bond effective for two (2) years and in an amount equal to the balance of the deposit to be
withdrawn."[6] On the Third party complaint:
By April 26, 1998, respondents had already obtained the necessary documents.[7] They tried to withdraw the
deposit.[8] However, Aguilar informed them that the deposit had already "been released to a certain Bernardito
Manimbo (Manimbo) on April 1, 1997."[9] An amount of PI,882,002.05 was released upon presentation of: (a) an 3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. Santos and Capital Insurance
affidavit of self-adjudication purportedly executed by one of the respondents, Reyme L. Santos; (b) a certificate & Surety Co., Inc., jointly and severally liable to pay third party plaintiff PNB, the amount of Php
of time deposit dated December 14, 1989 amounting to P1,000,000.00; and (c) the death certificate of Angel C. 1,877,438.83 pursuant to the Heir's Bond and the amount of Php 50,000.00 as attorney's fees and
Santos, among others.[10] A special power of attorney was purportedly executed by Reyme L. Santos in favor of the costs of suit.
Manimbo and a certain Angel P. Santos for purposes of withdrawing and receiving the proceeds of the
certificate of time deposit.[11] SO ORDERED.[30]

On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for sum of The trial court found that Angel C. Santos had only one account with PNB.[31] The account was originally a time
money and damages against PNB, Lina B. Aguilar, and a John Doe.[12] Respondents questioned the release of the deposit, which was converted into a premium savings account when it was not renewed on maturity.[32] The
deposit amount to Manimbo who had no authority from them to withdraw their father's deposit and who failed trial court took judicial notice that in 1989, automatic rollover of time deposit was not yet prevailing.[33]
to present to PNB all the requirements for such withdrawal.[13] Respondents prayed that they be paid: (a) the
premium deposit amount; (b) the certificate of time deposit amount; and (c) moral and exemplary damages, On the liability of PNB and Aguilar, the trial court held that they were both negligent in releasing the deposit to
attorney's fees, and costs of suit.[14] Manimbo.[34] The trial court noted PNB's failure to notify the depositor about the maturity of the time deposit

and the conversion of the time deposit into a premium savings account.[35] The trial court also noted PNB's III. Whether respondents were properly awarded damages.
failure to cancel the certificate of time deposit despite conversion.[36] PNB and Aguilar also failed to require the
production of birth certificates to prove claimants' relationship to the depositor.[37] Further, they relied on the Petitioner Aguilar argued that the Court of Appeals had already found no malice or bad faith on her
affidavit of self-adjudication when several persons claiming to be heirs had already approached them part.[61] Moreover, as a mere officer of the bank, she cannot be made personally liable for acts that she was
previously.[38] authorized to do.[62] These acts were mere directives to her by her superiors.[63] Hence, she should not be held
solidarity liable with PNB.[64]
Aguilar filed a motion for reconsideration[39] of the February 22, 2011 Regional Trial Court decision. This was
denied in the June 21, 2011 Regional Trial Court order.[40] Petitioner PNB argued that it was the presumptuousness and cavalier attitude of respondents that gave rise to
the controversy and not its judgment call.[65] Respondents were lacking in sufficient
PNB and Aguilar appealed before the Court of Appeals.[41] documentation.[66] Petitioner PNB also argued that respondents failed to show any justification for the award of
moral damages.[67] No bad faith can be attributed to Aguilar.[68]
Aguilar contended that she was not negligent and should not have been made jointly and severally liable with
PNB.[42] She merely implemented PNB's Legal Department's directive to release the deposit to Manimbo.[43] In their separate comments to the petitions, respondents argued that the trial court and the Court of Appeals
did not err in finding that petitioners PNB and Aguilar were negligent in handling their father's deposit.[69] The
PNB argued that it was not negligent.[44] The release of the deposit to Manimbo was pursuant to an existing acceptance of invalid and incomplete documents to support the deposit's release to Manimbo was a violation
policy.[45] Moreover, the documents submitted by Manimbo were more substantial than those submitted by of the bank's fiduciary duty to its clients.[70] These acts constituted grcss negligence on the part of petitioners
respondents.[46] Respondents could have avoided the incident "had they accomplished the required documents PNB and Aguilar.[71]
However, according to respondents, the Court of Appeals erred in deleting the award for exemplary damages
In the decision[48] promulgated on July 25, 2013, the Court of Appeals sustained the trial court's finding that because the acts in violation of the bank's fiduciary were done in bad faith.[72]
there was only one account.[49] Angel C. Santos could not have possibly opened the premium savings account in
1994 since he already died in 1991.[50] The Court of Appeals also held that PNB and Aguilar were negligent in We rule for the respondents.
handling the deposit.[51] The deposit amount was released to Manimbo who did not present all the
requirements, particularly the Bureau of Internal Revenue (BIR) certification that estate taxes had already been The trial court and the Court of Appeals correctly found that petitioners PNB and Aguilar were negligent in
paid.[52] They should also not have honored the affidavit of self-adjudication.[53] handling the deposit of Angel C. Santos.

The Court of Appeals ruled that Aguilar could not escape liability by pointing her finger at PNB's Legal The contractual relationship between banks and their depositors is governed by the Civil Code provisions on
Department.[54] As the Bank Manager, she should have given the Legal Department all the necessary simple loan.[73] Once a person makes a deposit of his or her money to the bank, he or she is considered to have
information that must be known in order to protect both the depositors' and the bank's interests.[55] lent the bank that money.[74] The bank becomes his or her debtor, and he or she becomes the creditor of the
bank, which is obligated to pay him or her on demand.[75]
The Court of Appeals removed the award of exemplary damages, upon finding that there was no malice or bad
faith.[56] The default standard of diligence in the performance of obligations is "diligence of a good father of a family."
Thus, the Civil Code provides:
The Court of Appeals considered the deposit as an ordinary loan by the bank from Angel C. Santos or his
heirs.[57] Therefore, the deposit was a forbearance which should earn an interest of 12% per annum.[58] The
dispositive portion of the Court of Appeals' decision reads:
ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another standard of care.

WHEREFORE, premises considered, the assailed decision of the court a quo dated February 22, 2011 ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by
is AFFIRMED with the MODIFICATIONS in that the rate of interest shall be twelve percent (12%) per annum the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the
computed from the filing of the case until fully satisfied. The interest due shall further earn an interest of 12% place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
per annum to be computed from the date of the filing of the complaint until fully paid. Meanwhile, the award of
exemplary damages is DELETED. If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required. (Emphasis supplied)
"Diligence of a good father of a family" is the standard of diligence expected of, among others,
PNB and Aguilar filed their separate petitions for review of the Court of Appeals' July 25, 2013 decision.[60] usufructuaries,[76] passengers of common carriers,[77] agents,[78] depositaries,[79] pledgees,[80] officious
managers,[81] and persons deemed by law as responsible for the acts of others.[82] "The diligence of a good
We resolve the following issues: father of a family requires only that diligence which an ordinary prudent man would exercise with regard to his
own property."[83]

I. Whether Philippine National Bank was negligent in releasing the deposit to Bernardito Manimbo; Other industries, because of their nature, are bound by law to observe higher standards of diligence. Common
carriers, for example, must observe "extraordinary diligence in the vigilance over the goods and for the safety of
[their] passengers"[84] because it is considered a business affected with public interest. "Extraordinary diligence"
II. Whether Lina B. Aguilar is jointly and severally liable with Philippine National Bank for the release of with respect to passenger safety is further qualified as "carrying the passengers safely as far as human care and
the deposit to Bernardito Manimbo; and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the

Similar to common carriers, banking is a business that is impressed with public interest. It affects economies of Angel C. Santos; (2) certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal
and plays a significant role in businesses and commerce.[86] The public reposes its faith and confidence upon Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher's Affidavit of publication of the Deed of
banks, such that "even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the balance
choice, knowing that they will be safe in its custody and will even earn some interest for him."[87] This is why we of the deposit to be withdrawn."[96]
have recognized the fiduciary nature of the banks' functions, and attached a special standard of diligence for
the exercise of their functions. Petitioners PNB and Aguilar, however, accepted Manimbo's representations, and they released Angel C. Santos'
deposit based on only the following documents:
In Simex International (Manila), Inc. v. Court of Appeals,[88] this court described the nature of banks' functions
and the attitude expected of banks in handling their depositors' accounts, thus:
1. Death certificate of Angel C. Santos;

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. . . . 2. Birth certificate of Reyme L. Santos;

The point is that as a business affected with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.[89](Emphasis supplied) 3. Affidavit of self-adjudication of Reyme L. Santos;

The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking Law, thus:
4. Affidavit of publication;

SEC. 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking that 5. Special power of attorney that Reyme L. Santos executed in favor of Bernardito Manimbo and Angel
requires high standards of integrity and performance. In furtherance thereof, the State shall promote and P. Santos;
maintain a stable and efficient banking and financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy. (Emphasis supplied)
6. Personal items of Angel C. Santos, such as photocopies or originals of passport, residence certificate
In The Consolidated Bank and Trust Corporation v. Court of Appeals,[90] this court explained the meaning of for year 1990, SSS I.D., etc.;
fiduciary relationship and the standard of diligence assumed by banks:

7. Surety good for two (2) years; and

This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. 8. Certificate of Time Deposit No. 341306.[97]
Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law
or contract, and absent such stipulation then the diligence of a good father of a family.[91] (Emphasis supplied, Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for the release of
citation omitted) their deceased clients' deposits or they have standards that they disregard for convenience, favor, or upon
exercise of discretion. Both are inconsistent with the required diligence of banks. These threaten the safety of
Petitioners PNB and Aguilar's treatment of Angel C. Santos' account is inconsistent with the high standard of the depositors' accounts as they provide avenues for fraudulent practices by third persons or by bank officers
diligence required of banks. They accepted Manimbo's representations despite knowledge of the existence of themselves.
circumstances that should have raised doubts on such representations. As a result, Angel C. Santos' deposit was
given to a person stranger to him. In this case, petitioners PNB and Aguilar released Angel C. Santos' deposit to Manimbo without having been
presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a legal requirement
Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-Sta. Elena-Marikina City Branch before the deposit of a decedent is released. Presidential Decree No. 1158,[98] the tax code applicable when
Manager only five (5) years from Angel C. Santos' death, she was not in the position to know that respondents Angel C. Santos died in 1991, provides:
were the heirs of Angel C. Santos.[92] She could not have accepted the unsigned and unnotarized extrajudicial
settlement deed that respondents had first showed her.[93] She was not competent to make a conclusion
whether that deed was genuine.[94] Neither could petitioners PNB and Aguilar pass judgment on a letter from SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There shall not be transferred
respondents' lawyer stating that respondents were the nine heirs of Angel C. Santos.[95] to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry
organized or established in the Philippines, any shares, obligations, bonds or rights by way of gift inter
Petitioners PNB and Aguilar's negligence is not based on their failure to accept respondents' documents as vivos or mortis causa, legacy, or inheritance unless a certification from the Commissioner that the taxes fixed in
evidence of their right to claim Angel C. Santos' deposit. Rather, it is based on their failure to exercise the this Title and due thereon have been paid is shown.
diligence required of banks when they accepted the fraudulent representations of Manimbo.
If a bank has knowledge of the death of a person who maintained a hank deposit account alone, or jointly with
Petitioners PNB and Aguilar disregarded their own requirements for the release of the deposit to persons another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
claiming to be heirs of a deceased depositor. When respondents asked for the release of Angel C. Santos' that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the
deposit, they were required to present the following: "(1) original or certified true copy of the Death Certificate

estate or any one of the heirs of the decedent may upon authorization by the Commissioner of Internal Aguilar to verify. A prudent man would have inquired why Reyme L. Santos would issue an affidavit of self-
Revenue, withdraw an amount not exceeding P10,000 without the said certification. For this purpose, all adjudication when others had also claimed to be heirs of Angel C. Santos. Contrary to petitioner Aguilar's
withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time reasoning, the fact that Reyme L. Santos was not petitioner PNB's client should have moved her to take
of withdrawal by any one of the joint depositors and such statement shall be under oath by the said measures to ensure the veracity of Manimbo's documents and representations. This is because she had no
depositors.[99] (Emphasis supplied) previous knowledge of Reyme L. Santos his representatives, and his signature.

This provision was reproduced in Section 97 of the 1997 National Internal Revenue Code, thus: Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a family is
expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of diligence of a
good father of a family. Their actions and inactions constitute gross negligence. It is for this reason that we
sustain the trial court's and the Court of Appeals' rulings that petitioners PNB and Aguilar are solidarity liable
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. — There shall not be with each other.[111]
transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos For the same reason, we sustain the award for moral damages. Petitioners PNB and Aguilar's gross negligence
or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in this deprived Angel C. Santos' heirs what is rightfully theirs. Respondents also testified that they experienced anger
Title and due thereon have been paid is shown. and embarrassment when petitioners PNB and Aguilar refused to release Angel C. Santos' deposit.[112] "The
bank's negligence was the result of lack of due care and caution required of managers and employees of a firm
If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with engaged in so sensitive and demanding business as banking."[113]
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the Exemplary damages should also be awarded. "The law allows the grant of exemplary damages by way of
estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an example for the public good. The public relies on the banks' sworn profession of diligence and meticulousness in
amount not exceeding Twenty thousand pesos (P20,000) without the said certification. For this purpose, all giving irreproachable service. The level of meticulousness must be maintained at all times by the banking
withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time sector."[114]
of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors.
(Emphasis supplied) Since exemplary damages are awarded and since respondents were compelled to litigate to protect their
interests,[115] the award of attorney's fees is also proper.
Taxes are created primarily to generate revenues for the maintenance of the government. However, this
particular tax may also serve as guard against the release of deposits to persons who have no sufficient and The Court of Appeals' award of interest should be modified to 12% from demand on April 26, 1998 until June
valid claim over the deposits. Based on the assumption that only those with sufficient and valid claim to the 30, 2013, and 6% from July 1, 2013 until fully paid. In Nacar v. Gallery Frames:[116]
deposit will pay the taxes for it, requiring the certificate from the BIR increases the chance that the deposit will
be released only to them.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern
In their compulsory counterclaim,[100] petitioners PNB and Aguilar claimed that Manimbo presented a certificate the parties, the rate of legal interest for loans or forbearance of any money. . . shall no longer be twelve percent
of payment of estate tax.[101] During trial, however, it turned out that this certificate was instead an authority to (12%) per annum. . . but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
accept payment, which is not the certificate required for the release of bank deposits.[102] It appears that nonetheless, that. . . the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013.
Manimbo was not even required to submit the BIR certificate.[103] He, thus, failed to present such certificate. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
Petitioners PNB and Aguilar provided no satisfactory explanation why Angel C. Santos' deposit was released applicable.
without it.
Petitioners PNB and Aguilar's negligence is also clear when they accepted as bases for the release of the deposit
to Manimbo: (a) a mere photocopy of Angel C. Santos' death certificate;[104] (b) the falsified affidavit of self-
adjudication and special power of attorney purportedly executed by Reyme L. Santos;[105] and (c) the certificate
of time deposit.[106] 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos' deposit. Respondents had Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
already communicated with petitioner Aguilar regarding Angel C. Santos' account before Manimbo appeared. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
Petitioner Aguilar even gave respondents the updated passbook of Angel C. Santos' account.[107] Yet, petitioners default, i.e., from judicial or extrajudicial demand. . .
PNB and Aguilar did not think twice before they released the deposit to Manimbo. They did not doubt why no
original death certificate could be submitted. They did not doubt why Reyme L. Santos would execute an ....
affidavit of self-adjudication when he, together with others, had previously asked for the release of Angel C.
Santos' deposit. They also relied on the certificate of time deposit and on Manimbo's representation that the
passbook was lost when the passbook had just been previously presented to Aguilar for updating.[108]
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
During the trial, petitioner PNB's counsel only reasoned that the photocopy of the death certificate was also legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
submitted with other documents, which led him to no other conclusion than that Angel C. Santos was already annum from such finality until its satisfaction, this interim period being deemed to be by then an
dead.[109] On petitioners PNB and Aguilar's reliance special power of attorney allegedly executed by Reyme L. equivalent to a forbearance of credit.[117]
Santos, Aguilar admitted that she did not contact Reyme L. Santos for verification. Her reason was that Reyme L.
Santos was not their client. Therefore, they had no obligation to do so.[110]
WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED with the MODIFICATIONS in that
Given the circumstances, "diligence of a good father of a family" would have required petitioners PNB and petitioners Philippine National Bank and Lina B. Aguilar are ordered solidarity liable to pay respondents

P100,000.00 as exemplary damages. Further, the interest rate for the amount of P1,882,002.05, representing February 23, 2011
the face value of PNB Manager's Check No. AF-974686B is modified to 12% from April 26, 1998 until June 30,
2013, and 6% from July 1, 2013 until satisfaction. All monetary awards shall then earn interest at the rate of 6% x-----------------------------------------------------------------------------------------x
per annum from finality of the decision until full satisfaction.


Carpio, (Chairperson), Del Castillo, Villarama, Jr.,* and Mendoza, JJ., concur. VELASCO, JR., J.:

The Case

Republic of the Philippines This Petition for Review on Certiorari under Rule 45 seeks to annul the August 17, 2006 Decision[1] and March
27, 2007 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 93206, which affirmed the Order dated
SUPREME COURT March 4, 2005[3] of the Regional Trial Court (RTC), Branch 46 in San Jose, Occidental Mindoro, in Agrarian Case
No. 1390 for the fixing of just compensation, entitled Land Bank of the Philippines v. Josefina S. Lubrica, in her
capacity as assignee of Federico Suntay, and Hon. Teodoro A. Cidro, as Provincial Agrarian Reform Adjudicator
Manila of San Jose, Occidental Mindoro. The RTC Order affirmed the Decision dated March 21, 2003[4] of the Provincial
Agrarian Reform Adjudicator (PARAD) of San Jose, Occidental Mindoro in Case No. DCN-0405-0022-02,
entitled Josefina S. Lubrica, in her capacity as Assignee of Federico Suntay v. Hon. Hernani A. Braganza, in his
capacity as Secretary of the Department of Agrarian Reform, and Land Bank of the Philippines.
The Facts

On October 21, 1972, the 3,682.0286-hectare Suntay Estate, consisting of irrigated/unirrigated rice and corn
lands covered by Transfer Certificate of Title No. T-31(1326) located in the Barangays of Gen. Emilio Aguinaldo,
Sta. Lucia, and San Nicolas in Sablayan, Occidental Mindoro, was subjected to the operation of Presidential
Decree No. 27, under its Operation Land Transfer (OLT), with the farmer-beneficiaries declared as owners of the
LAND BANK OF THE PHILIPPINES, G.R. No. 177190 property. However, a 300-hectare portion of the land was subjected to the Comprehensive Agrarian Reform
Program (CARP) instead of the OLT. Thus, Certificates of Landownership Award were issued to the farmer-
Petitioner, beneficiaries in possession of the land.[5] Such application of the CARP to the 300-hectare land was later the
subject of a case before the Department of Agrarian Reform Adjudicatory Board (DARAB), which ruled that the
Present: subject land should have been the subject of OLT instead of CARP. The landowner admitted before the PARAD
that said case was pending with this Court and docketed as G.R. No. 108920, entitled Federico Suntay v. Court of
- versus -

CORONA, C.J., Chairperson, VELASCO, JR.,

Meanwhile, the owner of the land remained unpaid for the property. Thus, Josefina S. Lubrica, in her capacity as
assignee of the owner of the property, Federico Suntay, filed a Petition for Summary Determination of Just
as Presiding Judge of the Regional Trial Court,
Compensation with the PARAD, docketed as Case No. DCN-0405-0022-2002. Thereafter, the PARAD issued its
Branch 46, San Jose, Occidental Mindoro; and DEL CASTILLO, and Decision dated March 21, 2003, the dispositive portion of which reads:
JOSEFINA S. LUBRICA, in her capacity as
Assignee of Federico Suntay,
WHEREFORE, judgment is hereby rendered:
1. Fixing the preliminary just compensation for 431.1407 hectare property at
P166,150.00 per hectare or a total of P71,634,027.30.

2. Directing the Land Bank of the Philippines to immediately pay the

Promulgated: aforestated amount to the Petitioner;

3. Directing the DAR to immediately comply with all applicable requirements so

that the subject property may be formally distributed and turned over to the

farmer beneficiaries thereof, in accordance with the Decision of the DARAB In an Order dated December 8, 2005,[11] the RTC denied the Omnibus Motion finding no reversible
Central in DARAB Case No. 2846. error in its Order dated March 4, 2005 and denying the motion to amend the petition for being unnecessary
towards land valuation.
No cost.
Thus, the LBP appealed the RTC Orders dated March 4, 2005 and December 8, 2005 to the CA
SO ORDERED.[6] through a Petition for Certiorari dated February 13, 2006. The LBP argued that without the claim folder from the
DAR, it could not preliminarily determine the valuation of the covered lands and process the compensation
claims. Moreover, it said that the amount to be deposited under Sec. 16 of RA 6657, or the Agrarian Reform
Petitioner Land Bank of the Philippines (LBP) filed a Motion for Reconsideration dated April 10, 2003 Law of 1988, is the offered purchase price of DAR for the land contained in the notice of acquisition and not the
of the above decision, but the PARAD denied the motion in an Order dated December 15, 2003.[7] price determined in an administrative proceeding before the PARAD.

The LBP then filed a Petition dated March 4, 2004 with the RTC docketed as Agrarian Case No. 1390, Afterwards, on August 17, 2006, the CA issued the assailed decision, the dispositive portion of which
appealing the PARAD Decision. In the Petition, the LBP argued that because G.R. No. 108920 was pending with reads:
this Court in relation to the 300-hectare land subject of the instant case, the Petition for Summary
Determination of Just Compensation filed before the PARAD was premature. The LBP argued further that the WHEREFORE, premises considered, the petition is hereby DENIED DUE
PARAD could only make an award of up to PhP 5 million only. The PARAD, therefore, could not award an COURSE, and subsequently DISMISSED for lack of merit.
amount of PhP 71,634,027.30. The LBP also contended that it could not satisfy the demand for payment of
Lubrica, considering that the documents necessary for it to undertake a preliminary valuation of the property SO ORDERED.[12]
were still with the Department of Agrarian Reform (DAR).
The LBP moved for reconsideration of the CA Decision, but the CA did not reconsider it, as stated in
By way of answer, Lubrica filed a Motion to Deposit the Preliminary Valuation under Section 16(e) of its Resolution dated March 27, 2007.
Republic Act No. (RA) 6657 and Ad Cautelam Answer dated June 18, 2004.[8] In the said motion, Lubrica claimed
that since the DAR already took possession of the disputed property, the LBP is duty-bound to deposit the Hence, the LBP filed this petition.
compensation determined by the PARAD in a bank accessible to the landowner.

In an Order dated March 4, 2005, the RTC resolved Lubricas motion, as follows: The Issue

The foregoing considered and as prayed for by the respondent-movant The

Land Compensation Department, Land Bank of the Philipines, is hereby directed to
deposit the preliminary compensation as determined by the PARAD, in case and bonds
in the total amount of Php 71,634,027.30, with the Land Bank of the Philippines, Manila, What is the proper amount to be deposited under Section 16 of Republic Act No. 6657?
within seven (7) days from receipt of this order, and to notify this Court of compliance Is it the PARAD/DARAB determined valuation or the preliminary valuation as
within such period.[9] determined by the DAR/LBP?[13]

The Ruling of the Court

Thus, the LBP filed an Omnibus Motion dated March 17, 2005 praying for the reconsideration of the
above order, the admission of an amended petition impleading the DAR, and the issuance of summons to the
new defendants. In the Omnibus Motion, the LBP contended:
The petition is meritorious.
In this AMENDED PETITION, Land Bank impleaded the DAR as respondent because DAR
is the lead agency of the government in the implementation of the agrarian reform. It is
the one which is responsible in identifying the lands to be covered by agrarian reform
program, placing/identifying the farmer beneficiaries, parcellary mapping of the land,
and determining the land value covered by PD 27/EO 228. The documents DAR prepares Private respondent Lubrica argues that, under the doctrines of res judicata and stare decisis, the
is placed in a folder called claim folder which it forwards to Land Bank for processing instant case must be dismissed in light of the decision of this Court in Lubrica v. Land Bank of the
and payment. Philippines,[14] the dispositive portion of which reads:

21. At present there is no claim folder prepared and submitted by DAR to WHEREFORE, premises considered, the petition is GRANTED. The assailed
Land Bank, and therefore Land Bank has no claim folder to process and no basis to pay Amended Decision dated October 27, 2005 of the Court of Appeals in CA-G.R. SP No.
the landowner.[10] 77530 is REVERSED and SET ASIDE. The Decision dated May 26, 2004 of the Court of
Appeals affirming (a) the March 31, 2003 Order of the Special Agrarian Court ordering
the respondent Land Bank of the Philippines to deposit the just compensation
provisionally determined by the PARAD; (b) the May 26, 2003 Resolution denying
respondents Motion for Reconsideration; and (c) the May 27, 2003 Order directing
Teresita V. Tengco, respondents Land Compensation Department Manager to comply

with the March 31, 2003 Order, is REINSTATED. The Regional Trial Court of San Jose, We cannot apply the principle of stare decisis to the instant case, too. The Court explained the
Occidental Mindoro, Branch 46, acting as Special Agrarian Court is ORDERED to proceed principle in Ting v. Velez-Ting:[17]
with dispatch in the trial of Agrarian Case Nos. R-1339 and R-1340, and to compute the The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by
final valuation of the subject properties based on the aforementioned formula. this Court in its final decisions. It is based on the principle that once a question of law has been examined and
decided, it should be deemed settled and closed to further argument. Basically, it is a bar to any attempt to
relitigate the same issues, necessary for two simple reasons: economy and stability. In our jurisdiction, the
principle is entrenched in Article 8 of the Civil Code. (Emphasis supplied.)
To reiterate, Lubrica and the instant case have different issues. Hence, stare
SO ORDERED. (Emphasis supplied.) decisis is also inapplicable here.

The LBP posits that under Sec. 16(e) of RA 6657, and as espoused in Land Bank of the Philippines v.
Court of Appeals,[18] it is the purchase price offered by the DAR in its notice of acquisition of the land that must
be deposited in an accessible bank in the name of the landowner before taking possession of the land, not the
The principles of res judicata and stare decisis do not apply to the case at bar. valuation of the PARAD.

In Lanuza v. Court of Appeals,[15] the Court discussed the principle of res judicata, to wit: The Court agrees with the LBP. The RTC erred when it ruled:

Under Section 16 (e) the payment of the provisional compensation

determined by the PARAD in the summary administrative proceedings under Section 16
Res judicata means a matter adjudged, a thing judicially acted upon or
(d) should precede the taking of the land. In the present case, the taking of the property
decided; a thing or matter settled by judgment. The doctrine of res judicata provides
even preceded the mere determination of a provisional compensation by more than 30
that a final judgment, on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes an absolute
bar to subsequent actions involving the same claim, demand, or cause of action. The
elements of res judicata are (a) identity of parties or at least such as representing the
Sec. 16 of RA 6657 contains the procedure for the acquisition of private lands, viz:
same interest in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity in the two (2) particulars is
SEC. 16. Procedure for Acquisition of Private Lands.For purposes of
such that any judgment which may be rendered in the other action will, regardless of
acquisition of private lands, the following procedures shall be followed:
which party is successful, amount to res judicata in the action under consideration.
(Emphasis supplied.)
(a) After having identified the land, the landowners and the beneficiaries,
the DAR shall send its notice to acquire the land to the owners thereof, by personal
delivery or registered mail, and post the same in a conspicuous place in the municipal
building and barangay hall of the place where the property is located. Said notice shall
In Lubrica, the issue was as follows: contain the offer of the DAR to pay a corresponding value in accordance with the
valuation set forth in Sections 17, 18, and other pertinent provisions hereof.

Petitioners insist that the determination of just compensation should be

based on the value of the expropriated properties at the time of payment. Respondent (b) Within thirty (30) days from the date of receipt of written notice by
LBP, on the other hand, claims that the value of the realties should be computed as of personal delivery or registered mail, the landowner, his administrator or representative
October 21, 1972 when P.D. No. 27 took effect.[16] shall inform the DAR of his acceptance or rejection of the offer.

While the Court directed that the valuation made by the PARAD be the
amount to be deposited in favor of the landowner, it was done only because the
PARADs valuation was based on the time the payment was made. (c) If the landowner accepts the offer of the DAR, the LBP shall pay the
landowner the purchase price of the land within thirty (30) days after he executes and
delivers a deed of transfer in favor of the Government and surrenders the Certificate of
The issue before Us is whether the RTC acted properly in ordering the deposit or payment to the Title and other muniments of title.
landowner of the preliminary valuation of the land made by the PARAD. This is considering that Sec. 16(e) of RA
6657 clearly requires the initial valuation made by the DAR and LBP be deposited or paid to the landowner
before taking possession of the latters property, not the preliminary valuation made by the PARAD.
(d) In case of rejection or failure to reply, the DAR shall conduct summary
Evidently, the second element of res judicata is not present. The relief prayed for in Lubrica is that
administrative proceedings to determine the compensation of the land by requiring the
the amount for deposit in favor of the landowner be determined on the basis of the time of payment and not of
landowner, the LBP and other interested parties to submit evidence as to the just
the time of taking. But here, the prayer of the LBP is for the deposit of the valuation of the LBP and DAR and not
compensation for the land, within fifteen (15) days from the receipt of the notice. After
that of the PARAD. These are two distinct and separate issues. Res judicata, therefore, cannot apply.
the expiration of the above period, the matter is deemed submitted for decision. The
DAR shall decide the case within thirty (30) days after it is submitted for decision.

(e) Upon receipt by the landowner of the corresponding payment or in determination of the land valuation and compensation by the LBP as the latter is
case of rejection or no response from the landowner, upon the deposit with an primarily responsible for the determination of the land valuation and compensation. In
accessible bank designated by the DAR of the compensation in cash or LBP bonds in fact, the LBP can disagree with the decision of the DAR in the determination of just
accordance with this Act, the DAR shall take immediate possession of the land and compensation, and bring the matter to the RTC designated as [Special Agrarian Court]
shall request the proper Register of Deeds to issue a Transfer Certificate of Title (TCT) for final determination of just compensation.
in the name of the Republic of the Philippines. The DAR shall thereafter proceed with
the redistribution of the land to the qualified beneficiaries. The amount of offer which the DAR gives to the landowner as
compensation for his land, as mentioned in Section 16 (b) and (c), is based on the
(f) Any party who disagrees with the decision may bring the matter to the initial valuation by the LBP. This then is the amount which may be accepted or
court of proper jurisdiction for final determination of just compensation. (Emphasis rejected by the landowner under the procedure established in Section 16. Perforce,
supplied.) such initial valuation by the LBP also becomes the basis of the deposit of provisional
compensation pending final determination of just compensation, in accordance with
sub-paragraph (e). (Emphasis supplied.)
Conspicuously, there is no mention of the PARAD in the foregoing Sec. 16(e) when it speaks of the
deposit with an accessible bank designated by the DAR of the compensation in cash or LBP bonds in accordance
with this Act. Moreover, it is only after the DAR has made its final determination of the initial valuation of the It is clear from Sec. 16 of RA 6657 that it is the initial valuation made by the DAR and the LBP that
land that the landowner may resort to the judicial determination of the just compensation for the land. Clearly, must be released to the landowner in order for DAR to take possession of the property. Otherwise stated, Sec.
therefore, it is the initial valuation made by the DAR and LBP that is contained in the letter-offer to the 16 of RA 6657 does not authorize the release of the PARADs determination of just compensation for the land
landowner under Sec. 16(a), said valuation of which must be deposited and released to the landowner prior to which has not yet become final and executory.
taking possession of the property.
This too was the Courts interpretation of the above provision in Land Bank of the Philippines v. Heir Moreover, it bears pointing out that, pursuant to DAR Administrative Order No. 02, Series of 1996,
of Trinidad S. Vda. De Arieta:[20] entitled Revised Rules and Procedures Governing the Acquisition of Agricultural Lands subject of Voluntary Offer
to Sell and Compulsory Acquisition pursuant to Republic Act No. 6657, the DAR Municipal Office (DARMO) first
It was thus erroneous for the CA to conclude that the provisional prepares a claim folder (CF) containing the necessary documents for the valuation of the land. The DARMO then
compensation required to be deposited as provided in Section 16 (e) is the sum forwards this claim folder to the DAR Provincial Office (DARPO) which, in turn, has the following duties:
determined by the DARAB/PARAD/RARAD in a summary administrative proceeding Receives claim folder and forwards to the DAR-LBP Pre-Processing Unit (PPU) for review/evaluation of
merely because the word deposit appeared for the first time in the sub-paragraph documents. Gathers lacking documents, if any.[21] The DAR-LBP PPU then forwards the CF to the LBP-Land
immediately succeeding that sub-paragraph where the administrative proceeding is Valuation and Landowners Compensation Office (LVLCO) which receives and evaluates the CF for completeness,
mentioned (sub-paragraph d). On the contrary, sub-paragraph (e) should be related to consistency and document sufficiency. Gathers additional valuation documents.[22] Thereafter, the LBP-LVLCO
sub-paragraphs (a), (b) and (c) considering that the taking of possession by the State of determines land valuation based on valuation inputs and prepares and sends Memo of Valuation, Claim Folder
the private agricultural land placed under the CARP is the next step after the DAR/LBP Profile and Valuation Summary (MOV-CFPVS) to the DARPO.[23] The DARPO then sends Notice of Valuation and
has complied with notice requirements which include the offer of just compensation Acquisition to LO [landowner] by personal delivery with proof of service or by registered mail with return card,
based on the initial valuation by LBP. To construe sub-paragraph (e) as the appellate attaching copy of MOV-CFPVS and inviting LOs attention to the submission of documents required for payment
court did would hamper the land redistribution process because the government still of claim.[24]
has to wait for the termination of the summary administrative proceeding before it can
take possession of the lands. Contrary to the CAs view, the deposit of provisional Notably, DAR failed to prepare the claim folder which is necessary for the LBP to make a valuation
compensation is made even before the summary administrative proceeding of the land to be expropriated. The proper remedy would have been to ask the DAR and LBP to determine such
commences, or at least simultaneously with it, once the landowner rejects the initial initial valuation and to have the amount deposited to his account, in accordance with Sec. 16 of RA 6657.
valuation (offer) by the LBP. Such deposit results from his rejection of the DAR offer Nevertheless, it was erroneous for private respondent to have filed a Petition for Determination of Just
(based on the LBPs initial valuation). Both the conduct of summary administrative Compensation with PARAD when the remedy that she was seeking was for the deposit of the initial valuation
proceeding and deposit of provisional compensation follow as a consequence of the that the DAR and LBP should have made.
landowners rejection under both the compulsory acquisition and VOS. This explains why
the words rejection or failure to reply and rejection or no response from the landowner Contrary to the CAs ruling, the RTCs failure to distinguish between the initial valuation that is
are found in sub-paragraphs (d) and (e). Such rejection/no response from the landowner contemplated in Sec. 16 of RA 6657 and the just compensation subject of judicial determination is a gross and
could not possibly refer to the award of just compensation in the summary patent error that can be considered as grave abuse of discretion. Gross abuse of discretion is defined, as
administrative proceeding considering that the succeeding sub-paragraph (f) states that follows:
the landowner who disagrees with the same is granted the right to petition in court for
final determination of just compensation. As it is, the CAs interpretation would have A special civil action for certiorari, under Rule 65, is an independent action
loosely interchanged the terms rejected the offer and disagrees with the decision, which based on the specific grounds therein provided and will lie only if there is no appeal or
is far from what the entire provision plainly conveys. any other plain, speedy, and adequate remedy in the ordinary course of law. A petition
for certiorari will prosper only if grave abuse of discretion is alleged and proved to exist.
xxxx Grave abuse of discretion, under Rule 65, has a specific meaning. It is the arbitrary or
despotic exercise of power due to passion, prejudice or personal hostility; or the
Under the law, the LBP is charged with the initial responsibility of whimsical, arbitrary, or capricious exercise of power that amounts to an evasion or
determining the value of lands placed under land reform and the compensation to be refusal to perform a positive duty enjoined by law or to act at all in contemplation of
paid for their taking. Once an expropriation proceeding or the acquisition of private law. For an act to be struck down as having been done with grave abuse of discretion,
agricultural lands is commenced by the DAR, the indispensable role of LBP begins. EO the abuse of discretion must be patent and gross.[25] x x x (Emphasis supplied.)
No. 405, issued on June 14, 1990, provides that the DAR is required to make use of the

WHEREFORE, upon the petitioner filing an injunction bond in the amount of P3,000.00, let a writ of
It should also be pointed out that in the related Land Bank of the Philippines v. Pagayatan,[26] the preliminary preventive and/or mandatory injunction issue, restraining the respondents, their agents
Court had found the presiding judge of the RTC, Branch 16 in San Jose, Occidental Mindoro, herein respondent or representatives, from further searching the premises and properties and from taking custody of
Judge Ernesto P. Pagayatan, guilty of Gross Ignorance of the Law or Procedure and Gross Misconduct for the various documents and papers of the petitioner corporation, whether in its main office or in any
holding Teresita V. Tengco, Acting Chief of the Land Compensation Department of the LBP, and Leticia Lourdes of its branches; and ordering the respondent Central Bank and/or its co-respondents to return to
A. Camara, Chief of the Land Compensation Department of the LBP, guilty of indirect contempt for allegedly the petitioner within five (5) days from service on respondents of the writ of preventive and/or
disobeying the very same Order dated March 4, 2005 of the RTC. In that case, Court ruled: mandatory injunction, all the books, documents, and papers so far seized from the petitioner
pursuant to the aforesaid search warrant.1äwphï1.ñët
The partiality of respondent was highlighted when, out of his selective
invocation of judicial courtesy, he refused to resolve Leticia and Teresitas February 14, Upon the filing of the petition herein and of the requisite bond, we issued, on August 14, 1962, a writ of
2007 Urgent Manifestation of Compliance and Motion and other pending incidents in preliminary injunction restraining and prohibiting respondents herein from enforcing the order above quoted.
view of the pendency before the appellate court of the LBPs Omnibus Motion praying
for, among other things, the quashal of the warrant of arrest, whereas he had earlier
found Leticia and Teresita guilty of contempt despite the pendency before the appellate The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. — hereinafter referred to
court of LBPs motion for reconsideration of the dismissal of the petition in CA-G.R. SP as the Organization — is a registered non-stock corporation, the main purpose of which, according to its Articles
No. 93206. of Incorporation, dated February 14, 1961, is "to encourage . . . and implement savings and thrift among its
members, and to extend financial assistance in the form of loans," to them. The Organization has three (3)
classes of "members,"1 namely: (a) founder members — who originally joined the organization and have signed
Evidently, the RTC had already acted with partiality in deciding the case and with grave abuse of discretion. the pre-incorporation papers — with the exclusive right to vote and be voted for ; (b) participating members —
with "no right to vote or be voted for" — to which category all other members belong; except (c) honorary
Moreover, in order to give life and breath to Sec. 16 of RA 6657, as well as DAR Administrative Order No. 02, members, so made by the board of trustees, — "at the exclusive discretion" thereof — due to "assistance,
Series of 1996, the Court is constrained to direct the DAR and the LBP to make the initial valuation of the honor, prestige or help extended in the propagation" of the objectives of the Organization — without any
subject land as of the time of its taking and to deposit the valuation in the name of the landowner or his estate, pecuniary expenses on the part of said honorary members.
in accordance with RA 6657 and the pertinent decisions of this Court on the matter.
On February 14, 1962, the legal department of the Central Bank of the Philippines — hereinafter referred to as
The length of time that has elapsed that the landowner has not received any compensation for the land cannot the Bank — rendered an opinion to the effect that the Organization and others of similar nature are banking
justify the release of the PARAD valuation to the landowner. Sec. 16 of RA 6657 only allows the release of the institutions, falling within the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank caused
initial valuation of the DAR and the LBP to the landowner prior to the determination by the courts of the final to be published in the newspapers the following:
just compensation due. Besides, it must be stressed that it was only sometime in 2003 that the assignee of the
landowner filed a petition for determination of just compensation with the PARAD. Clearly, the landowner slept ANNOUNCEMENT
on his right to demand payment of the initial valuation of the land. Nevertheless, such lapse of time demands
that the DAR and the LBP act with dispatch in determining such initial valuation and to deposit it in favor of the
To correct any wrong impression which recent newspaper reports on "savings and loan associations" may have
landowner at the soonest possible time.
created in the minds of the public and other interested parties, as well as to answer numerous inquiries from
the public, the Central Bank of the Philippines wishes to announce that all "savings and loan associations" now
WHEREFORE, the petition is GRANTED. The CAs August 17, 2006 Decision and March 27, 2007
in operation and other organizations using different corporate names, but engaged in operations similar in
Resolution in CA-G.R. SP No. 93206 are hereby REVERSED andSET ASIDE. The DAR and the LBP are hereby given
three (3) months from receipt of notice that this Decision has become final and executory, within which to
determine the initial valuation of the subject lot and to deposit its initial value to the account of private
respondent Lubrica.

The PARAD Decision dated March 21, 2003 in Case No. DCN-0405-0022-02 is Such institutions violate Section. 2 of the General Banking Act, Republic Act No. 337, should they engage in the
hereby ANNULLED and SET ASIDE. The RTC Order dated March 4, 2005 in Agrarian Case No. 1390 is "lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities or
also ANNULLED and SET ASIDE. obligations of any kind" without authority from the Monetary Board. Their activities and operations are not
supervised by the Superintendent of Banks and persons dealing with such institutions do so at their risk.
No costs.
G.R. No. L-20119 June 30, 1967
Moreover, on April 23, 1962, the Governor of the Bank directed the coordination of "the investigation and
gathering of evidence on the activities of the savings and loan associations which are operating contrary to
law." Soon thereafter, or on May 18, 1962, a member of the intelligence division of the Bank filed with the
Municipal Court of Manila a verified application for a search warrant against the Organization, alleging that
Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.
"after close observation and personal investigation, the premises at No. 2745 Rizal Avenue, Manila" — in which
Halili, Bolinao, Bolinao and Associates for respondents.
the offices of the Organization were housed — "are being used unlawfully," because said Organization is
illegally engaged in banking activities, "by receiving deposits of money for deposit, disbursement, safekeeping
CONCEPCION, C.J.: or otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . . .
without having first complied with the provisions of Republic Act No. 337" and that the articles, papers, or
This is an original action for certiorari, prohibition and injunction, with preliminary injunction, against an order effects enumerated in a list attached to said application, as Annex A thereof.3 are kept in said premises, and
of the Court of First Instance of Manila, the dispositive part of which reads:

"being used or intended to be used in the commission of a felony, to wit: violation of Sections 2 and 6 of (15) Trial Balance
Republic Act No. 337."4 Said articles, papers or effects are described in the aforementioned Annex A, as follows:
(16) Minutes Book — Board of Directors
(1) General Journal
(1) Income and Expenses Statements
(2) Columnar Journal or Cash Book
(2) Balance Sheet or Statement of Assets and Liabilities
(a) Cash Receipts Journal or Cash Receipt Book
(b) Cash Disbursements Journal or Cash Disbursement Book
(1) Articles of Incorporation
(2) By-Laws
(1) General Ledger
(3) Prospectus, Brochures Etc.
(2) Individual Deposits and Loans Ledgers
(4) And other documents and articles which are being used or intended to be used in unauthorized
(3) Other Subsidiary Ledgers banking activities and operations contrary to law.

III. OTHER ACCOUNTING RECORDS Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said municipal court,
issued the warrant above referred to,5 commanding the search of the aforesaid premises at No. 2745 Rizal
(1) Application for Membership Avenue, Manila, and the seizure of the foregoing articles, there being "good and sufficient reasons to believe"
upon examination, under oath, of a detective of the Manila Police Department and said intelligence officer of
the Bank — that the Organization has under its control, in the address given, the aforementioned articles, which
(2) Signature Card are the subject of the offense adverted to above or intended to be used as means for the commission of said off
(3) Deposit Slip
Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of First Instance
(4) Passbook Slip of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction and/or writ of
preliminary mandatory injunction," against said municipal court, the Sheriff of Manila, the Manila Police
(5) Withdrawal Slip Department, and the Bank, to annul the aforementioned search warrant, upon the ground that, in issuing the
same, the municipal court had acted "with grave abuse of discretion, without jurisdiction and/or in excess of
jurisdiction" because: (a) "said search warrant is a roving commission general in its terms . . .;" (b) "the use of
(6) Tellers Daily Deposit Report
the word 'and others' in the search warrant . . . permits the unreasonable search and seizure of documents
which have no relation whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines has any
(7) Application for Loan Credit Statement jurisdiction to try a criminal case against a corporation . . ."

(8) Credit Report The Organization, likewise, prayed that, pending hearing of the case on the merits, a writ of preliminary
injunction be issued ex parte restraining the aforementioned search and seizure, or, in the alternative, if the
(9) Solicitor's Report acts complained of have been partially performed, that a writ of preliminary mandatory injunction be forthwith
issued ex parte, ordering the preservation of the status quo of the parties, as well as the immediate return to
the Organization of the documents and papers so far seized under, the search warrant in question. After due
(10) Promissory Note
hearing, on the petition for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the
branch of the Court of First Instance of Manila to which said Case No. 50409 had been assigned, issued, on July
(11) I n d o r s e m e n t 2, 1962, the order complained of.

(12) Co-makers' Statements Within the period stated in said order, the Bank moved for a reconsideration thereof, which was denied on
August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present action, against Judge
(13) Chattel Mortgage Contracts Morfe and the Organization, alleging that respondent Judge had acted with grave abuse of discretion and in
excess of his jurisdiction in issuing the order in question.
(14) Real Estate Mortgage Contracts

At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned search to be It is true, that such funds are referred to — in the Articles of Incorporation and the By-laws — as their "savings."
made and the articles above listed to be seized, was predicated upon the theory that the Organization was and that the depositors thereof are designated as "members," but, even a cursory examination of said
illegally engaged in banking — by receiving money for deposit, disbursement, safekeeping or otherwise, or documents will readily show that anybody can be a depositor and thus be a "participating member." In other
transacting the business of a savings and mortgage bank and/or building and loan association, — without first words, the Organization is, in effect, open to the "public" for deposit accounts, and the funds so raised may be
complying with the provisions of R.A. No. 337, and that the order complained of assumes that the Organization lent by the Organization. Moreover, the power to so dispose of said funds is placed under
had violated sections 2 and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in question to the exclusive authority of the "founder members," and "participating members" are expressly denied the right
be unreasonable, through the following process of reasoning: the deposition given in support of the application to vote or be voted for, their "privileges and benefits," if any, being limited to those which the board of trustees
for a search warrant states that the deponent personally knows that the premises of the Organization, at No. may, in its discretion, determine from time to time. As a consequence, the "membership" of the "participating
2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent judge deduce, members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers or evils which
from this premise, that the deponent " knows specific banking transactions of the petitioner with specific Republic Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the
persons," and, then concluded that said deponent ". . . could have, if he really knew of actual violation of the transactions in question could be undertaken.
law, applied for a warrant to search and seize only books" or records:
It is interesting to note, also, that the Organization does not seriously contest the main facts, upon which the
covering the specific purportedly illegal banking transactions of the petitioner with specific action of the Bank is based. The principal issue raised by the Organization is predicated upon the theory that the
persons who are the supposed victims of said illegal banking transactions according to his aforementioned transactions of the Organization do not amount to " banking," as the term is used in Republic
knowledge. To authorize and seize all the records listed in Annex A to said application for search Act No. 337. We are satisfied, however, in the light of the circumstance obtaining in this case, that the
warrant, without reference to specific alleged victims of the purported illegal banking transactions, Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the
would be to harass the petitioner, and its officers with a roving commission or fishing expedition for Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that,
evidence which could be discovered by normal intelligence operations or inspections (not seizure) accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained
of books and records pursuant to Section 4 of Republic Act No 337 . . ." of have not been proven to be unreasonable.

The concern thus shown by respondent judge for the civil liberty involved is, certainly, in line with the function Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory injunction
of courts, as ramparts of justice and liberty and deserves the greatest encouragement and warmest issued in compliance therewith are hereby annulled, and the writ of preliminary injunction issued by this Court
commendation. It lives up to the highest traditions of the Philippine Bench, which underlies the people's faith in on August 14, 1962, accordingly, made permanent, with costs against respondent First Mutual Savings and Loan
and adherence to the Rule of Law and the democratic principle in this part of the World. Organization, Inc. It is so ordered.

At the same time, it cannot be gainsaid the Constitutional injunction against unreasonable searches and Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
seizures seeks to forestall, not purely abstract or imaginary evils, but specific and concrete ones. Indeed, Dizon, J., took no part.
unreasonableness is, in the very nature of things, a condition dependent upon the circumstances surrounding
each case, in much the same way as the question whether or not "probable cause" exists is one which must be
decided in the light of the conditions obtaining in given situations.

Referring particularly to the one at bar, it is not clear from the order complained of whether respondent Judge
opined that the above mentioned statement of the deponent — to the effect that the Organization was
engaged in the transactions mentioned in his deposition — deserved of credence or not. Obviously, however, a
mere disagreement with Judge Cancino, who issued the warrant, on the credibility of said statement, would not
justify the conclusion that said municipal Judge had committed a grave abuse of discretion, amounting to lack of
jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the witness to mention particular
individuals does not necessarily prove that he had no personal knowledge of specific illegal transactions of the
Organization, for the witness might be acquainted with specific transactions, even if the names of the
individuals concerned were unknown to him.

Again, the aforementioned order would seem to assume that an illegal banking transaction, of the kind
contemplated in the contested action of the officers of the Bank, must always connote the existence of a
"victim." If this term is used to denote a party whose interests have been actually injured, then the assumption
is not necessarily justified. The law requiring compliance with certain requirements before anybody can engage
in banking obviously seeks to protect the public against actual, as well as potential, injury. Similarly, we are not
aware of any rule limiting the use of warrants to papers or effects which cannot be secured otherwise.

The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the Organization
consisted of isolated transactions, distinct and different from the type of business in which it is generally
engaged. In such case, it may be necessary to specify or identify the parties involved in said isolated
transactions, so that the search and seizure be limited to the records pertinent thereto. Such, however,
is not the situation confronting us. The records suggest clearly that the transactions objected to by the Bank
constitute the general pattern of the business of the Organization. Indeed, the main purpose thereof, according
to its By-laws, is "to extend financial assistance, in the form of loans, to its members," with funds deposited by

[G.R. No. L-4300. March 21, 1908. ] dealer of the opportunity to buy at the cheapest rate in the interval.

MARIA BARRETTO, administratrix of the estate of Marcelo Dominguez, deceased, Plaintiff-Appellee, v. LEONA In this instance it seems that about the date of the contract the price of palay was under 1 peso, but owing to
REYES, Defendant-Appellant. rinderpest among the working cattle and to the insurrection, quotation steadily rose, at time reaching from 5 to
6 pesos a cavan. The trial judge assessed the damages at the market price on the date of his decision, giving a
Kincaid and Hurd, for Appellant. judgment for the return of 7,302 ½ cavanes or the recovery of its value at the rate of 3 pesos a cavan. We are of
the opinion that he should rather have followed the method of ascertaining damage provided in the contract
Manly and Gallup and Hartigan Rohde and Gutierrez, for Appellee. itself, which involved no illegality and no and no oppressive penalty.

SYLLABUS There was much conflicting testimony as to the value of the grain at different periods, and especially in the year
1900, owing to the disordered condition of the country. The date of liquidation was set as June 15, 1899, and
1. DEPOSIT. — A transaction held not to constitute a deposit, although so termed by the contracting parties. the price in that year has been variously estimated by different witnesses at P1.25, P1.31, and upward, but we
think, in view of all the testimony, a fair maximum figure for that date is P1.50, which would liquidated the
2. DAMAGES ON BREACH OF CONTRACT. — The measure of damages stipulated for by parties to a valid undelivered balance of P7,302 ½ cavanes at P10,953.75. This is the true measure of damages, as is seem from
contract will be adopted by the court in rendering judgment thereon. following out the process of the contract, the next step according to which is to ascertain the equivalent of this
sum in cavanes of palay, at the rate of 30 gantas, that is to say, at the rate of P0.83 1/3 for each cavan, resulting
in 13,144 cavanes. This is the quality of palay to the delivery of which the plaintiff, under the contract, is
entitled, and the amount of money to which, in default of such delivery, she has a right to be paid is its value at
DECISION that time at the contract rate of P0.83 1/3, to wit, P10,953.75, with interest. In other words, the effect of the
contract is to fix the damages by the price at the date of liquidation, although finally payable one year
TRACEY, J. : thereafter.

Our judgment, therefore, is that the plaintiff recover from the defendant 13,144 cavanes of palay, or in lieu
thereof, at the option of the defendant, P10,953.75, with interest thereon at the rate of 6 per cent per annum
from the 15th of June, 1900, without costs of this instance, and the judgment of the Court of First Instance is
modified accordingly. So ordered.
On June 30, 1898, the defendant and Marcelo Dominguez, the plaintiff’s intestate, executed an agreement
containing the following
Arellano, C.J. Torres, Mapa and Johnson, JJ., concur.
"I, Doña Leona Reyes, widow of Don Teodoro Durante, do hereby acknowledge that I have on this date received
Carson, J., reserves his vote.
from Don Marcelo Dominguez, a Peninsular Spaniard, married, and a resident of this town, the amount of 7,556
cavanes of palay, as a deposit without interest, which palay, clean and of good weight, I promise to deliver at
the store of Sr. Dominguez on or before the 15th of June of the next year, 1899.

"In case that on the aforesaid date I am not able to deliver the whole number of cavanes as above stated, I
promise to liquidate any undelivered balance and reduce the same to money, at the highest price for which the
product may be sold in Nueva Caceres, and the resulting amount I likewise agree to pay for in palay, clean and
of good weight, at this store on the 15th of June of the following year, 1900, at the rate of 30 provincial gantas
for each peso."cralaw virtua1aw library

The testimony established these additional facts:chanrob1es virtual 1aw library

That the defendant had in reality received from Dominguez not palay but money, estimated according to a
standard not shown, as the equivalent of the palay mentioned the result of the settlement of previous
transactions between them; that during the absence of Dominguez from the province, he left his affairs in
charge of an agent, whose powers included the carrying out of this contract; that the defendant made delivery
on account, amounting to 253 ½ cavanes, leaving a balance of 7,302 ½ cavanes undelivered, and on May 14,
1903, the defendant offered in writing to settle at 2 pesos a cavan.

We also take judicial notice of the fact that a cavan contains 25 gantas.

This peculiar contract, locally known as bulbulauen, presents difficulties of construction but is not necessarily
unconscionable, although its event is at the risk of the market. There is, in fact, no deposit and such is not the
true nature of her transaction. The distant capitalist contributes his money with which the local merchant is to
buy a stock of palay, having the entire season ahead in which to take advantage of the fluctuations in the
market and the necessities of the local growers before the amount due in palay is delivered or its value is
liquidated, with an additional season in which to make himself good in the amount ascertained by the
liquidation. The fixing of the ultimate price of 1 peso for 30 gantas, equivalent to 1 1/5 cavanes, obviously
secures the party advancing the money against a fall in price during the second year, while not depriving the