nil cases 10-20 (full text)

7/30/2019 Nil Cases 10-20 (Full Text)

1/85

Case #10 RCBC vs. Hi-Tri Development Corp., et al.

June 13, 2012

SERENO, J.:

Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner RizalCommercial Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation(Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA),1 which reversed andset aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati City RegionalTrial Court (RTC) in Civil Case No. 06-244.2 The case before the RTC involved the Complaint forEscheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, asamended by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, andunclaimed balances held by the branches of various banks in the Philippines. The trial courtdeclared the amounts, subject of the special proceedings, escheated to the Republic andordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor ofthe Republic.3The assailed RTC judgments included an unclaimed balance in the amountof P 1,019,514.29, maintained by RCBC in its Ermita Business Center branch.

We quote the narration of facts of the CA4as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") areregistered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of theQuezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the MarikinaRegister of Deeds. These lots were sequestered by the Presidential Commission on GoodGovernment [(PCGG)].

Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, JerryMontemayor, offered to buy said lots for "P 6,724,085.71", with the promise that she will takecare of clearing whatever preliminary obstacles there may[]be to effect a "completion of the sale".The Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millanmade a down[]payment of "P 1,019,514.29" for the intended purchase. However, for one reasonor another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawarescinded the sale and offered to return to Millan her down[]payment of P 1,019,514.29.However, Millan refused to accept back the P1,019,514.29 down[]payment. Consequently, theSpouses Bakunawa, through their company, the Hi-Tri Development Corporation ("Hi-Tri") tookout on October 28, 1991, a Managers Check from RCBC-Ermita in the amountof P1,019,514.29, payable to Millans company Rosmil Realty and Development Corporation("Rosmil") c/o Teresita Millan and used this as one of their basis for a complaint against Millanand Montemayor which they filed with the Regional Trial Court of Quezon City, Branch 99,docketed as Civil Case No. Q-91-10719 [in 1991], praying that:

1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to returnto plaintiffs spouses the Owners Copies of Transfer Certificates of Title Nos. 324985,324986, 103724, 98827, 98828 and 98829;

2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amountof One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty NineCentavos (P 1,019,514.29);

3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the

amount of P 2,000,000.00; and
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt1http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt2http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt3http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt3http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt4http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt4http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt1http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt2http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt3http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt4


2/85

4. That the defendants be ordered to pay plaintiffs attorneys fees in the amountof P 50,000.00.

Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that "Teresita Mil[l]an be correspondingly ordered to receive the amount of One MillionNineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos]("P 1,019,514.29")["], the Spouses Bakunawa, upon advice of their counsel, retained custody ofRCBC Managers Check No. ER 034469 and refrained from canceling or negotiating it.

All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for apossible settlement of the case, Millan was informed that the Managers Check was available forher withdrawal, she being the payee.

On January 31, 2003, during the pendency of the abovementioned case and without theknowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the "P 1,019,514.29-creditexisting in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as ofJanuary 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza,Manager and Head of RCBCs Asset Management, Disbursement & Sundry Department("AMDSD") was posted within the premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filedwith the RTC the action below for Escheat [(Civil Case No. 06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan.Instead of only the amount of "P 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil andMillan the amount of "P 3,000,000.00", [which is] inclusive [of] the amount of ["]P 1,019,514.29".But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri]inquired from RCBC-Ermita the availability of the P 1,019,514.29 under RCBC Managers CheckNo. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they wereinformed that the amount was already subject of the escheat proceedings before the RTC.

On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:

"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in theManagers Check is currently the subject of escheat proceedings pending before Branch 150 ofthe Makati Regional Trial Court.

Please note that it was our impression that the deposit would be taken from [Hi-Tris] RCBC bankaccount once an order to debit is issued upon the payees presentation of the Managers Check.Since the payee rejected the negotiated Managers Check, presentation of the Managers Check

was never made.

Consequently, the deposit that was supposed to be allocated for the payment of the ManagersCheck was supposed to remain part of the Corporation[s] RCBC bank account, which,thereafter, continued to be actively maintained and operated. For this reason, We herebydemand your confirmation that the amount of Php 1,019,514.29 continues to form part of thefunds in the Corporations RCBC bank account, since pay-out of said amount was never ordered.We wish to point out that if there was any attempt on the part of RCBC to consider the amountindicated in the Managers Check separate from the Corporations bank account, RCBC wouldhave issued a statement to that effect, and repeatedly reminded the Corporation that the depositwould be considered dormant absent any fund movement. Since the Corporation never receivedany statements of account from RCBC to that effect, and more importantly, never received any

single letter from RCBC noting the absence of fund movement and advising the Corporation thatthe deposit would be treated as dormant."


3/85

On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their positionas above-quoted.

In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa]that:

"The Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of ManagersCheck No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well asthe status thereof, between 28 January 2008 and 1 February 2008.

x x x x x x x x x

Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No. ER034469does not form part of the Banks own account. By simple operation of law, the funds covered bythe managers check in issue became a deposit/credit susceptible for inclusion in the escheatcase initiated by the OSG and/or Bureau of Treasury.

x x x x x x x x x

Granting arguendo that the Bank was duty-bound to make good the check, the Banks obligationto do so prescribed as early as October 2001."

(Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial courtrendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject of

Civil Case No. 06-244 escheated to the Republic. Among those included in the order of forfeiturewas the amount of P 1,019,514.29 held by RCBC as allocated funds intended for the payment ofthe Managers Check issued in favor of Rosmil. The trial court ordered the deposit of theescheated balances with the Treasurer and credited in favor of the Republic. Respondents claimthat they were not able to participate in the trial, as they were not informed of the ongoingescheat proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partialreconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment ofthe Managers Check. They asked that they be included as party-defendants or, in thealternative, allowed to intervene in the case and their motion considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask reconsideration of

the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit wassubject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since1991, and that they were interested parties to that case.5

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trialcourt explained that the Republic had proven compliance with the requirements of publicationand notice, which served as notice to all those who may be affected and prejudiced by theComplaint for Escheat. The RTC also found that the motion failed to point out the findings andconclusions that were not supported by the law or the evidence presented, as required by Rule37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out oftime.

The CA Ruling
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt5http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt5


4/85

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decisionand 3 November 2008 Order of the RTC. According to the appellate court,6 RCBC failed to provethat the latter had communicated with the purchaser of the Managers Check (Hi-Tri and/orSpouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed itsSworn Statement on the dormant accounts held therein. The CA ruled that the banks failure to

notify respondents deprived them of an opportunity to intervene in the escheat proceedings andto present evidence to substantiate their claim, in violation of their right to due process.Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issueindividual notices directed to all persons claiming interest in the unclaimed balances, as well asto require them to appear after publication and show cause why the unclaimed balances shouldnot be deposited with the Treasurer of the Philippines. It explained that the jurisdictionalrequirement of individual notice by personal service was distinct from the requirement of noticeby publication. Consequently, the CA held that the Decision and Order of the RTC were void forwant of jurisdiction.

Issue

After a perusal of the arguments presented by the parties, we cull the main issues as follows:

I. Whether the Decision and Order of the RTC were void for failure to send separatenotices to respondents by personal service

II. Whether petitioner had the obligation to notify respondents immediately before it filedits Sworn Statement with the Treasurer

III. Whether or not the allocated funds may be escheated in favor of the Republic

Discussion

Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal serviceupon respondents is a jurisdictional requirement in escheat proceedings. Petitioner contends thatrespondents were not the owners of the unclaimed balances and were thus not entitled to noticefrom the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by theManagers Check were deemed transferred to the credit of the payee or holder upon itsissuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service ofprocesses, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall

commence an action or actions in the name of the People of the Republic of the Philippines inthe Court of First Instance of the province or city where the bank, building and loan association ortrust corporation is located, in which shall be joined as parties the bank, building and loanassociation or trust corporation and all such creditors or depositors. All or any of such creditors ordepositors or banks, building and loan association or trust corporations may be included in oneaction. Service of process in such action or actions shall be made by delivery of a copy of thecomplaint and summons to the president, cashier, or managing officer of each defendant bank,building and loan association or trust corporation and by publication of a copy of such summonsin a newspaper of general circulation, either in English, in Filipino, or in a local dialect, publishedin the locality where the bank, building and loan association or trust corporation is situated, ifthere be any, and in case there is none, in the City of Manila, at such time as the court mayorder. Upon the trial, the court must hear all parties who have appeared therein, and if it be

determined that such unclaimed balances in any defendant bank, building and loan associationor trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment infavor of the Government of the Republic of the Philippines, declaring that said unclaimed
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt6http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt7http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt6http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt7


5/85

balances have escheated to the Government of the Republic of the Philippines and commandingsaid bank, building and loan association or trust corporation to forthwith deposit the same withthe Treasurer of the Philippines to credit of the Government of the Republic of the Philippines tobe used as the National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of court shall alsoissue a notice signed by him, giving the title and number of said action, and referring to thecomplaint therein, and directed to all persons, other than those named as defendants therein,claiming any interest in any unclaimed balance mentioned in said complaint, and requiring themto appear within sixty days after the publication or first publication, if there are several, of suchsummons, and show cause, if they have any, why the unclaimed balances involved in said actionshould not be deposited with the Treasurer of the Philippines as in this Act provided and notifyingthem that if they do not appear and show cause, the Government of the Republic of thePhilippines will apply to the court for the relief demanded in the complaint. A copy of said noticeshall be attached to, and published with the copy of, said summons required to be published asabove, and at the end of the copy of such notice so published, there shall be a statement of thedate of publication, or first publication, if there are several, of said summons and notice. Any

person interested may appear in said action and become a party thereto. Upon the publication orthe completion of the publication, if there are several, of the summons and notice, and theservice of the summons on the defendant banks, building and loan associations or trustcorporations, the court shall have full and complete jurisdiction in the Republic of the Philippinesover the said unclaimed balances and over the persons having or claiming any interest in thesaid unclaimed balances, or any of them, and shall have full and complete jurisdiction to hearand determine the issues herein, and render the appropriate judgment thereon. (Emphasissupplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a copy ofthe complaint and summons upon the president, cashier, or managing officer of the defendantbank.8 On the other hand, as to depositors or other claimants of the unclaimed balances, service

is made by publication of a copy of the summons in a newspaper of general circulation in thelocality where the institution is situated. 9 A notice about the forthcoming escheat proceedingsmust also be issued and published, directing and requiring all persons who may claim anyinterest in the unclaimed balances to appear before the court and show cause why the dormantaccounts should not be deposited with the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of individualnotices upon respondents was a jurisdictional requirement, and that failure to effect personalservice on them rendered the Decision and the Order of the RTC void for want of jurisdiction.Escheat proceedings are actions in rem,10whereby an action is brought against the thing itselfinstead of the person.11 Thus, an action may be instituted and carried to judgment withoutpersonal service upon the depositors or other claimants.12 Jurisdiction is secured by the power of

the court over the res.13 Consequently, a judgment of escheat is conclusive upon persons notifiedby advertisement, as publication is considered a general and constructive notice to all personsinterested.14

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocatedfor the payment of the Managers Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty,steps in and claims abandoned, left vacant, or unclaimed property, without there being aninterested person having a legal claim thereto.15In the case of dormant accounts, the stateinquires into the status, custody, and ownership of the unclaimed balance to determine whetherthe inactivity was brought about by the fact of death or absence of or abandonment by the

depositor.16 If after the proceedings the property remains without a lawful owner interested toclaim it, the property shall be reverted to the state "to forestall an open invitation to self-service
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt8http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt9http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt10http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt10http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt11http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt12http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt13http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt14http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt15http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt16http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt8http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt9http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt10http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt11http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt12http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt13http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt14http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt15http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt16


6/85

by the first comers."17However, if interested parties have come forward and lain claim to theproperty, the courts shall determine whether the credit or deposit should pass to the claimants orbe forfeited in favor of the state.18 We emphasize that escheat is not a proceeding to penalizedepositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby thestate compels the surrender to it of unclaimed deposit balances when there is substantial ground

for a belief that they have been abandoned, forgotten, or without an owner. 19

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and othersimilar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month of January of everyodd year, all banks, building and loan associations, and trust corporations shall forward to theTreasurer of the Philippines a statement, under oath, of their respective managing officers, of allcredits and deposits held by them in favor of persons known to be dead, or who have not madefurther deposits or withdrawals during the preceding ten years or more, arranged in alphabeticalorder according to the names of creditors and depositors, and showing:

(a) The names and last known place of residence or post office addresses of the personsin whose favor such unclaimed balances stand;

(b) The amount and the date of the outstanding unclaimed balance and whether thesame is in money or in security, and if the latter, the nature of the same;

(c) The date when the person in whose favor the unclaimed balance stands died, ifknown, or the date when he made his last deposit or withdrawal; and

(d) The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in the premises ofthe bank, building and loan association, or trust corporation concerned for at least sixty daysfrom the date of filing thereof: Provided, Thatimmediately before filing the above swornstatement, the bank, building and loan association, and trust corporation shall communicate withthe person in whose favor the unclaimed balance stands at his last known place of residence orpost office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time totime the existence of unclaimed balances held by banks, building and loan associations, andtrust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of

unclaimed balances. This notification is meant to inform them that their deposit could beescheated if left unclaimed. Accordingly, before filing a sworn statement, banks and other similarinstitutions are under obligation to communicate with owners of dormant accounts. The purposeof this initial notice is for a bank to determine whether an inactive account has indeed beenunclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wishto touch the funds in the meantime, but still asserts ownership and dominion over the dormantaccount, then the bank is no longer obligated to include the account in its sworn statement. 20It isnot the intent of the law to force depositors into unnecessary litigation and defense of their rights,as the state is only interested in escheating balances that have been abandoned and left withoutan owner.

In case the bank complies with the provisions of the law and the unclaimed balances are

eventually escheated to the Republic, the bank "shall not thereafter be liable to any person forthe same and any action which may be brought by any person against in any bank xxx forunclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt17http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt17http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt18http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt19http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt20http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt20http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt17http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt18http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt19http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt20


7/85

such bank."21Otherwise, should it fail to comply with the legally outlined procedure to theprejudice of the depositor, the bank may not raise the defense provided under Section 5 of ActNo. 3936, as amended.

Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send priornotices to respondents about the forthcoming escheat proceedings involving the funds allocatedfor the payment of the Managers Check. It explains that, pursuant to the law, only those "whosefavor such unclaimed balances stand" are entitled to receive notices. Petitioner argues that,since the funds represented by the Managers Check were deemed transferred to the credit ofthe payee upon issuance of the check, the proper party entitled to the notices was the payee Rosmil and not respondents. Petitioner then contends that, in any event, it is not liable forfailing to send a separate notice to the payee, because it did not have the address of Rosmil.Petitioner avers that it was not under any obligation to record the address of the payee of aManagers Check.

In contrast, respondents Hi-Tri and Bakunawa allege23that they have a legal interest in the fundallocated for the payment of the Managers Check. They reason that, since the funds were part of

the Compromise Agreement between respondents and Rosmil in a separate civil case, theapproval and eventual execution of the agreement effectively reverted the fund to the credit ofrespondents. Respondents further posit that their ownership of the funds was evidenced by theircontinued custody of the Managers Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank(drawee),24requesting the latter to pay a person named therein (payee) or to the order of thepayee or to the bearer, a named sum of money.25The issuance of the check does not of itselfoperate as an assignment of any part of the funds in the bank to the credit of the drawer. 26Here,the bank becomes liable only after it accepts or certifies the check.27 After the check is acceptedfor payment, the bank would then debit the amount to be paid to the holder of the check from theaccount of the depositor-drawer.

There are checks of a special type called managers or cashiers checks. These are bills ofexchange drawn by the banks manager or cashier, in the name of the bank, against the bankitself.28Typically, a managers or a cashiers check is procured from the bank by allocating aparticular amount of funds to be debited from the depositors account or by directly paying ordepositing to the bank the value of the check to be drawn. Since the bank issues the check in itsname, with itself as the drawee, the check is deemed accepted in advance.29Ordinarily, thecheck becomes the primary obligation of the issuing bank and constitutes its written promise topay upon demand.30

Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatictransfer of funds to the account of the payee. In case the procurer of the managers or cashiers

check retains custody of the instrument, does not tender it to the intended payee, or fails to makean effective delivery, we find the following provision on undelivered instruments under theNegotiable Instruments Law applicable:31

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrumentis incomplete and revocable until delivery of the instrument for the purpose of giving effectthereto. As between immediate parties and as regards a remote party other than a holder in duecourse, the delivery, in order to be effectual, must be made either by or under the authority of theparty making, drawing, accepting, or indorsing, as the case may be; and, in such case, thedelivery may be shown to have been conditional, or for a special purpose only, and not for thepurpose of transferring the property in the instrument. But where the instrument is in the hands ofa holder in due course, a valid delivery thereof by all parties prior to him so as to make them

liable to him is conclusively presumed. And where the instrument is no longer in the possession
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt21http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt21http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt22http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt23http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt23http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt24http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt24http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt25http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt26http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt26http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt27http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt28http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt28http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt28http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt29http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt29http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt30http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt31http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt21http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt22http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt23http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt24http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt25http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt26http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt27http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt28http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt29http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt30http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt31


8/85

of a party whose signature appears thereon, a valid and intentional delivery by him is presumeduntil the contrary is proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by respondents, and that theamount to be paid for the check would be sourced from the deposit account of Hi-Tri.32WhenRosmil did not accept the Managers Check offered by respondents, the latter retained custody ofthe instrument instead of cancelling it. As the Managers Check neither went to the hands ofRosmil nor was it further negotiated to other persons, the instrument remained undelivered.Petitioner does not dispute the fact that respondents retained custody of the instrument. 33

Since there was no delivery, presentment of the check to the bank for payment did not occur. Anorder to debit the account of respondents was never made. In fact, petitioner confirms that theManagers Check was never negotiated or presented for payment to its Ermita Branch, and thatthe allocated fund is still held by the bank.34As a result, the assigned fund is deemed to remainpart of the account of Hi-Tri, which procured the Managers Check. The doctrine that the depositrepresented by a managers check automatically passes to the payee is inapplicable, becausethe instrument although accepted in advance remains undelivered. Hence, respondents

should have been informed that the deposit had been left inactive for more than 10 years, andthat it may be subjected to escheat proceedings if left unclaimed. 1wphi1

After a careful review of the RTC records, we find that it is no longer necessary to remand thecase for hearing to determine whether the claim of respondents was valid. There was nocontention that they were the procurers of the Managers Check. It is undisputed that there wasno effective delivery of the check, rendering the instrument incomplete. In addition, we havealready settled that respondents retained ownership of the funds. As it is obvious from theirforegoing actions that they have not abandoned their claim over the fund, we rule that theallocated deposit, subject of the Managers Check, should be excluded from the escheatproceedings. We reiterate our pronouncement that the objective of escheat proceedings is stateforfeiture of unclaimed balances. We further note that there is nothing in the records that would

show that the OSG appealed the assailed CA judgments. We take this failure to appeal as anindication of disinterest in pursuing the escheat proceedings in favor of the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.

SO ORDERED.
http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt32http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt32http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt33http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt34http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt34http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt32http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt33http://lawphil.net/judjuris/juri2012/jun2012/gr_192413_2012.html#fnt34


9/85

Case #11 Eusebio Gonzales vs. PCIB et al.

February 23, 2011

VELASCO, JR., J.:

The Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision1 datedOctober 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which deniedpetitioners appeal from the December 10, 2001 Decision2 in Civil Case No. 99-1324 of theRegional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification forrespondents dishonor of petitioners check and found petitioner solidarily liable with the spousesJose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed in

favor of respondent Philippine Commercial and International Bank (PCIB).

The Facts

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filedthe instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo)until she was replaced by respondent Roberto Noceda (Noceda).

In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement3(COHLA), in which the aggregate amount of the accounts of Gonzaleswith PCIB served as collateral for and his availment limit under the credit line. Gonzales drewfrom said credit line through the issuance of check. At the institution of the instant case,

Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, onDecember 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained twoadditional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.These three loans amounting to PhP 1,800,000 were covered by three promissory notes.4 Tosecure the loans, a real estate mortgage (REM) over a parcel of land covered by TransferCertificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio.Notably, the promissory notes specified, among others, the solidary liability of Gonzales and thespouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who receivedthe loan proceeds of PhP 1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio through the automaticdebiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998,defaulted in the payment of the periodic interest dues from their PCIB account which apparentlywas not maintained with enough deposits. PCIB allegedly called the attention of Gonzalesregarding the July 1998 defaults and the subsequent accumulating periodic interest dues whichwere left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson(Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13, 1998,upon presentment for payment by Unson of said check, it was dishonored by PCIB due to thetermination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodicinterest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD

account of Gonzales.
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt1http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt2http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt3http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt4http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt1http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt2http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt3http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt4


10/85

Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They hada heated argument in the premises of the Philippine Columbian Association (PCA) where theyare both members, which caused great embarrassment and humiliation to Gonzales. Thereafter,on November 5, 1998, Unson sent a demand letter5 to Gonzales for the PhP 250,000. And onDecember 3, 1998, the counsel of Unson sent a second demand letter6to Gonzales with the

threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source outand pay the PhP 250,000 he owed to Unson in cash.

On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issuedhad been fully funded, and demanded the return of the proceeds of his FCD as well as damagesfor the unjust dishonor of the check.7PCIB replied on March 22, 1999 and stood its ground infreezing Gonzales accounts due to the outstanding dues of the loans. 8 On May 26, 1999,Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers werethe spouses Panlilio and he never benefited from the proceeds of the loans, which were servicedby the PCIB account of the spouses Panlilio.9

PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages

with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.

The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. Thedecretal portion reads:

WHEREFORE, judgment is rendered as follows

(a) on the first issue, plaintiff is liable to pay defendant Bank as principal under thepromissory notes, Exhibits A, B and C;

(b) on the second issue, the Court finds that there is justification on part of the defendantBank to dishonor the check, Exhibit H;

(c) on the third issue, plaintiff and defendants are not entitled to damages from eachother.

No pronouncement as to costs.

SO ORDERED.10

The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes

relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB ofthe COHLA with Gonzales and in freezing the latters accounts to answer for the past due PhP1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor ofUnson was proper considering that the credit line under the COHLA had already been terminatedor revoked before the presentment of the check.

Aggrieved, Gonzales appealed the RTC Decision before the CA.

The Ruling of the CA

On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales appealand affirming in totothe RTC Decision. The fallo reads:
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt5http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt6http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt6http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt7http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt7http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt8http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt9http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt10http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt10http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt5http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt6http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt7http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt8http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt9http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt10


11/85

WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil CaseNo. 99-1324 is hereby AFFIRMED in toto.

SO ORDERED.11

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales wasindeed solidarily liable with the spouses Panlilio for the three promissory notes executed for theREM loan; second, it likewise found neither fault nor negligence on the part of PCIB indishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merelyexercising its rights under the contractual stipulations in the COHLA brought about by theoutstanding past dues of the REM loan and interests for which Gonzales was solidarily liable withthe spouses Panlilio to pay under the promissory notes.

Thus, we have this petition.

The Issues

Gonzales, as before the CA, raises again the following assignment of errors:

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORYNOTES (EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS "1", "2" AND "3",RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TOAPPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENTPHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK).

II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OFGROSS NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON "ACCOUNT

CLOSED", INSTEAD OF MERELY "REFER TO DRAWER" GIVEN THE FACT THATEVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILLVALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]48,715.72.

III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITEPRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.12

The Courts Ruling

The core issues can be summarized, as follows: first, whether Gonzales is liable for the three

promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where aREM over a parcel of land covered by TCT No. 38012 was constituted as security; and second,whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had withthe bank.

The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzales solidarilyliable with the spouses Panlilio for the three promissory notes.

The promissory notes covering the PhP 1,800,000 loan show the following:
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt11http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt11http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt12http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt11http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt12


12/85

(1) Promissory Note BD-090-1766-95,13 dated October 30, 1995, for PhP 500,000 wassigned by Gonzales and his wife, Jessica Gonzales;

(2) Promissory Note BD-090-2122-95,14 dated December 26, 1995, for PhP 1,000,000was signed by Gonzales and the spouses Panlilio; and

(3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP 300,000 wassigned by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzalesadmitted that he is an accommodation party which PCIB did not dispute. In his testimony,Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion ofOcampo, who was then handling his accounts, in order to facilitate the fast release of the loan.Gonzales testified:

ATTY. DE JESUS:

Now in this case you filed against the bank you mentioned there was a loan also applied for bythe Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how this cameabout?

GONZALES:

Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if hesecures another P1.8 Million loan the release will be longer because it has to pass to XO.

Q: After that what happened?

A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the propertyI agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos?

A: Well, in paper me and Mr. Panlilio.

Q: Who received the proceeds of said loan?

A: Mr. Panlilio.

Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this P1.8Million Pesos loan?

A: A check was deposited in the account of Mr. Panlilio.16

x x x x

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your nameinitially?

A: Well it was actually suggested by the account officer at that time Edna Ocampo.

Q: How about this Mr. Rodolfo Noceda?


13/85

A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he hasbeen familiar with my account ever since its inception.

Q: So these two officers Ocampo and Noceda knew that this was actually the account of Mr.Panlilio and not your account?

A: Yes, sir. In fact even if there is a change of account officer they are always informing me thatthe account will be debited to Mr. Panlilios account. 17

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers,while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. Itis, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP1,800,000 loan despite not receiving any of the proceeds.

Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP1,800,000 loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination]

Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8million loan was received by Mr. Panlilio?

NOCEDA:

Yes sir.18

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds went to

the spouses Panlilio who were servicing or paying the monthly duesis beside the point. Forsigning as borrower and co-borrower on the promissory notes with the proceeds of the loansgoing to the spouses Panlilio, Gonzales has extended an accommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for theloans. InAng v. Associated Bank,19quoting the definition of an accommodation party underSection 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is aperson "who has signed the instrument as maker, drawer, acceptor, or indorser, withoutreceiving value therefor, and for the purpose of lending his name to some other person."20 TheCourt further explained:

[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to

the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive valuetherefor; and (3) he must sign for the purpose of lending his name or credit to some other person.An accommodation party lends his name to enable the accommodated party to obtain credit or toraise money; he receives no part of the consideration for the instrument but assumes liability tothe other party/ies thereto. The accommodation party is liable on the instrument to a holder forvalue even though the holder, at the time of taking the instrument, knew him or her to be merelyan accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and theaccommodated party is one of principal and suretythe accommodation party being the surety.As such, he is deemed an original promisor and debtor from the beginning; he is considered inlaw as the same party as the debtor in relation to whatever is adjudged touching the obligation of

the latter since their liabilities are interwoven as to be inseparable. Although a contract ofsuretyship is in essence accessory or collateral to a valid principal obligation, the suretys liability
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt17http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt18http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt19http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt19http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt19http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt20http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt17http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt18http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt19http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt20


14/85

to the creditor is immediate, primaryand absolute; he is directlyand equallybound with theprincipal. As an equivalent of a regular party to the undertaking, a surety becomes liable to thedebt and duty of the principal obligor even without possessing a direct or personal interest in theobligations nor does he receive any benefit therefrom.21

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation byGonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does notexonerate Gonzales from liability on the three promissory notes.

Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes whichuniformly begin, "For value received, the undersigned (the "BORROWER") jointly andseverally promise to pay x x x." Solidary liability cannot be presumed but must be established bylaw or contract.22 Article 1207 of the Civil Code pertinently states that "there is solidary liabilityonly when the obligation expressly so states, or when the obligation requires solidarity." This istrue in the instant case where Gonzales, as accommodation party, is immediately, equally, andabsolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulatedsolidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract

between the parties. Contracts have the force of law between the parties and must be compliedwith in good faith.23

Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touchupon the question of whether it was proper for PCIB to dishonor the check issued by Gonzalesagainst the credit line under the COHLA.

We answer in the negative.

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errorsof law.24The factual findings of the trial court, especially when affirmed by the appellate court, aregenerally binding on us unless there was a misapprehension of facts or when the inferencedrawn from the facts was manifestly mistaken.25 The instant case falls within the exception.

The courts a quo found and held that there was a proper dishonor of the PhP 250,000 checkissued by Gonzales against the credit line, because the credit line was already closed prior to thepresentment of the check by Unson; and the closing of the credit line was likewise properpursuant to the stipulations in the promissory notes on the banks right to set off or apply allmoneys of the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right toterminate the credit line on grounds of default by Gonzales.

Gonzales argues otherwise, pointing out that he was not informed about the default of thespouses Panlilio and that the September 21, 1998 account statement of the credit line shows abalance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBscertification that he has USD 8,715.72 in his FCD account which is more than sufficient collateralto guarantee the PhP 250,000 check, dated September 30, 1998, he issued against the creditline.

A careful scrutiny of the records shows that the courts a quo committed reversible error in notfinding negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on

the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only anaccommodation party and as such only lent his name and credit to the spouses Panlilio. Whilenot exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt21http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt22http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt23http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt24http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt24http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt25http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt21http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt22http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt23http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt24http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt25


15/85

delinquency of the loan precisely because he is a co-signatory of the promissory notes and of hissolidary liability.

We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay theoutstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party andwas not personally interested in the loan. Thus, a meeting was set by Gonzales with the spousesPanlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in SMMegamall on October 5, 1998. Unfortunately, the meeting did not push through due to the heavytraffic Noceda and Ocampo encountered.

Such knowledge of the default by Gonzales was, however, not enough to properly appriseGonzales about the default and the outstanding dues. Verily, it is not enough to be merelyinformed to pay over a hundred thousand without being formally apprised of the exact aggregateamount and the corresponding dues pertaining to specific loans and the dates they became due.

Gonzales testified that he was not duly notified about the outstanding interest dues of the loan:

ATTY. DE JESUS:

Now when Mr. Panlilios was encountering problems with the bank did the defendant bank[advise] you of any problem with the same account?

GONZALES:

They never [advised] me in writing.

Q: How did you come to know that there was a problem?

A: When my check bounced sir.26

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:

ATTY. PADILLA:

Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to him atthe celphone?

NEPOMUCENO:

I just told him to update the interest so that we would not have to cancel the COH Line and hecould withdraw the money that was in the deposit because technically, if an account is past duewe are not allowed to let the client withdraw funds because they are allowed to offset funds so,just to help him get his money, just to update the interest so that we could allow him to withdraw.

Q: Withdraw what?

A: His money on the COH, whatever deposit he has with us.

Q: Did you inform him that if he did not update the interest he would not be able to withdraw hismoney?

A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why wesuggested just to update the interest because at the end of everything, he would be able to
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt26http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt26


16/85

withdraw more funds than the interest that the money he would be needed to update theinterest.27

From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB thatGonzales was properly apprised, we find for Gonzales. We find the testimonies of the formerPCIB employees to be self-serving and tenuous at best, for there was no proper written noticegiven by the bank. The record is bereft of any document showing that, indeed, Gonzales wasformally informed by PCIB about the past due periodic interests.

PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It alsoacted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilioand likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio,through their account28 with PCIB, were paying the periodic interest dues and were the onesperiodically informed by the bank of the debiting of the amounts for the periodic interestpayments. Gonzales never paid any of the periodic interest dues. PCIBs Noceda admitted asmuch in his cross-examination:


And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not, itsalways Mr. Panlilio who was paying the interest for this loan?

NOCEDA:

Yes sir.29

Indeed, no evidence was presented tending to show that Gonzales was periodically sent noticesor notified of the various periodic interest dues covering the three promissory notes. Neither do

the records show that Gonzales was aware of amounts for the periodic interests and thepayment for them. Such were serviced by the spouses Panlilio.

Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of theinterest dues that were not paid starting July 1998. And such notification must be formal or inwritten form considering that the outstanding periodic interests became due at various dates, i.e.,on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is notonly properly apprised but is given the opportunity to pay them being solidarily liable for the loanscovered by the promissory notes.

It is the bank which computes these periodic interests and such dues must be put into writing andformally served to Gonzales if he were asked to pay them, more so when the payments by the

spouses Panlilio were charged through the account of the spouses Panlilio where the interestdues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB,since he is only an accommodation party who has no personal interest in the PhP 1,800,000loan. Without a clear and determinate demand through a formal written notice for the exactperiodic interest dues for the loans, Gonzales cannot be expected to pay for them.

In business, more so for banks, the amounts demanded from the debtor or borrower have to bedefinite, clear, and without ambiguity. It is not sufficient simply to be informed that one must payover a hundred thousand aggregate outstanding interest dues without clear and certain figures.Thus, We find PCIB negligent in not properly informing Gonzales, who is an accommodationparty, about the default and the exact outstanding periodic interest dues. Without being properlyapprised, Gonzales was not given the opportunity to properly act on them.
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt27http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt28http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt29http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt27http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt28http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt29


17/85

It was only through a letter30 sent by PCIB dated October 2, 1998 but incongruously showing thedelinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31, 1998, whenGonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 andpenalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP171,383.37. But it is not certain and the records do not show when the letter was sent and when

Gonzales received it. What is clear is that such letter was belatedly sent by PCIB and receivedby Gonzales after the fact that the latters FCD was already frozen, his credit line under theCOHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson wasdishonored.

And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent toGonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal writtennotices sent to Gonzales were too late in the day for Gonzales to act properly on the delinquencyand he already suffered the humiliation and embarrassment from the dishonor of his checkdrawn against the credit line.

To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered by

the three promissory notes was required to apprise Gonzales, an accommodation party. PCIB isobliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations,more so when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course ofaction to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in theCOHLA.

The COHLA, in its effectivity clause, clearly provides:

4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing fromthe receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automaticrenewals for same periods unless terminated by the BANK upon prior notice served onCLIENT.31 (Emphasis ours.)

It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLAwithout giving Gonzales prior notice as required by the above stipulation in the COHLA. Nocedatestified on cross-examination on the Offering Ticket 32 recommending the termination of the creditline, thus:


This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it not?

NOCEDA:

No sir but verbally it was relayed to him.

Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?

A: It was relayed to him verbally.

Q: But there is no written proof?

A: No sir.
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt30http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt31http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt32http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt30http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt31http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt32


18/85

Q: And it is only now that you claim that it was verbally relayed to him, its only now when youtestified in Court?

A: Before . . .

Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed by Liza that he has topay his obligations or else it will adversely affect the status of the account.33

On the other hand, the testimony of Corazon Nepomuceno shows:


Now we go to the other credit facility which is the credit on hand extended solely of course to Mr.Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand

facility. Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the one whorecommended the cancellation of this credit on hand facility?

NEPOMUCENO:

It was recommended by the account officer and I supported it.

Q: And you approved it?

A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility?

A: As far as I know, it is the account officer who will inform him.

Q: But you have no record that he was informed?

A: I dont recall and we have to look at the folder to determine if they were informed.

Q: If you will notice, this letter . . . what do you call this letter of yours?

A: That is our letter advising them or reminding them of their unpaid interest and that if he is ableto update his interest he can extend the promissory note or restructure the outstanding.

Q: Now, I call your attention madam witness, there is nothing in this letter to the clients advisingthem or Mr. Gonzales that his credit on hand facility was already cancelled?

A: I dont know if there are other letters aside from this.

Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on handfacility was already cancelled?

A: No actually he can understand it from the last sentence. "If you will be able to update youroutstanding interest, we can apply the extention of your promissory note" so in other words weare saying that if you dont, you cannot extend the promissory note.
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt33http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt33


19/85

Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8million is it not, as you can see from the letter? Okay?

A: Ah . . .

Q: Okay. There is nothing there that will show that that also refers to the credit on hand facilitywhich was being utilized by Mr. Gonzales is it not?

A: But I dont know if there are other letters that are not presented to me now.34

The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give priornotice to Gonzales about the Offering Ticket for the process of termination, suspension, orrevocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of thefact that his credit line has been terminated. Thus, we find PCIB grossly negligent in thetermination, revocation, or suspension of the credit line under the COHLA. While PCIB invokesits right on the so-called "cross default provisions," it may not with impunity ignore the rights of

Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made onthe banks sworn profession of diligence and meticulousness in giving irreproachable service.Like a common carrier whose business is imbued with public interest, a bank should exerciseextraordinary diligence to negate its liability to the depositors.35 In this instance, PCIB is sorelyremiss in the diligence required in treating with its client, Gonzales. It may not wantonly exerciseits rights without respecting and honoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise of hisrights and in the performance of his duties, act with justice, give everyone his due, and observehonesty and good faith." This is the basis of the principle of abuse of right which, in turn, is based

upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).36

In order for Art. 19 to be actionable, the following elements must be present: "(1) the existence ofa legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing orinjuring another."37 We find that such elements are present in the instant case. The effectivityclause of the COHLA is crystal clear that termination of the COH should be done only upon priornotice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales of thetermination. However, as shown by the above testimonies, PCIB failed to give prior notice toGonzales.

Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious andintentional design to do a wrongful act for a dishonest purpose or moral obliquity."38In the instant

case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans39

butfailed to mention anything about the termination of the COHLA. More significantly, no letter wasever sent to him about the termination of the COHLA. The failure to give prior notice on the partof PCIB is already prima facie evidence of bad faith.40 Therefore, it is abundantly clear that thiscase falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLAunder the "cross default provisions" of both the promissory notes and the COHLA. However,these cross default provisions do not confer absolute unilateral right to PCIB, as they arequalified by the other stipulations in the contracts or specific circumstances, like in the instantcase of an accommodation party.

The promissory notes uniformly provide:
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt34http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt35http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt36http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt37http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt38http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt38http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt39http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt40http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt34http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt35http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt36http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt37http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt38http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt39http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt40


20/85

The lender is hereby authorized, at its option and without notice, to set off or apply to thepayment of this Note any and all moneys which may be in its hands on deposit orotherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effectiveupon the nonpayment of this Note on demand/at maturity or upon the happening of any of theevents of default, but without any obligation on the Lenders part should it choose not to perform

this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of theBorrower, which may be in the Lenders possession by public or private sale, and to apply theproceeds thereof to the payment of this Note; the Borrower, however, shall remain liable for anydeficiency.41(Emphasis ours.)

The above provisos are indeed qualified with the specific circumstance of an accommodationparty who, as such, has not been servicing the payment of the dues of the loans, and must firstbe properly apprised in writing of the outstanding dues in order to answer for his solidaryobligation.

The same is true for the COHLA, which in its default clause provides:

16. DEFAULT The CLIENT shall be considered in default under the COH if any of thefollowing events shall occur:

1. x x x

2. Violation of the terms and conditions of this Agreement or any contract of the CLIENTwith the BANK or any bank, persons, corporations or entities for the payment of borrowedmoney, or any other event of default in such contracts.42

The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The

rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend thecredit line, the client must be notified of such intent in order for the latter to act accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit line andto dishonor any check issued or to act in accord with such termination, i.e., not to issue anycheck drawn from the credit line or to replace any checks that had been issued. This, the bankwith gross negligencefailed to accord Gonzales, a valued client for more than 15 years.

Fourth. We find the testimony43 of Ocampo incredible on the point that the principal borrower ofthe PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bankofficers had special instructions to grant and that it was through the instructions of Gonzales thatthe payment of the periodic interest dues were debited from the account of the spouses Panlilio.

For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as theprincipal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments bythe spouses Panlilio through the debiting of their bank account. It is incredulous that the paymentarrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. Thefact that the spouses Panlilio not only received the proceeds of the loan but were servicing theperiodic interest dues reinforces the fact that Gonzales was only an accommodation party.

Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper noticerelative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes,the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIBs

gross negligence in not honoring its obligation to give prior notice to Gonzales about suchtermination and in not informing Gonzales of the fact of such termination, treating Gonzalesaccount as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB.


21/85

This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozenand had to look elsewhere for money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the familyconsidering that the business of banking is imbued with public interest due to the nature of theirfunction. The law imposes on banks a high degree of obligation to treat the accounts of itsdepositors with meticulous care, always having in mind the fiduciary nature of banking. 44 HadGonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the processof terminating his credit line under the COHLA, he could have acted accordingly and the dishonorof the check would have been avoided.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world and plays avital role in the economic life of every civilized societybanks have attained a ubiquitouspresence among the people, who have come to regard them with respect and even gratitude andmost of all, confidence, and it is for this reason, banks should guard against injury attributable tonegligence or bad faith on its part.45

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From thetestimonies of Gonzales witnesses, particularly those of Dominador Santos46 and FreddyGomez,47 the embarrassment and humiliation Gonzales has to endure not only before his formerclose friend Unson but more from the members and families of his friends and associates in thePCA, which he continues to experience considering the confrontation he had with Unson and theconsequent loss of standing and credibility among them from the fact of the apparent bouncingcheck he issued. Credit is very important to businessmen and its loss or impairment needs to berecognized and compensated.48

The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of thecheck issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refersto such acts when it says, "Any person who willfully causes loss or injury to another in a mannerthat is contrary to morals, good customs or public policy shall compensate the latter for damage."

Accordingly, this Court finds that such acts warrant the payment of indemnity in the form ofnominal damages. 1avvphi1Nominal damages "are recoverable where a legal right is technically violatedand must be vindicated against an invasion that has produced no actual present loss of any kindx x x."49 We further explained the nature of nominal damages in Almeda v. Cario:

x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition andvindication of a right. Indeed, nominal damages are damages in name only and not in fact. When

granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply arecognition of the existence of a technical injury. A violation of the plaintiffs right, even if onlytechnical, is sufficient to support an award of nominal damages. Conversely, so long as there is ashowing of a violation of the right of the plaintiff, an award of nominal damages isproper.50 (Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest and mostespecially, for the suspension of his COHLA. For failure to do so, the bank is liable to paynominal damages. The amount of such damages is addressed to the sound discretion of thecourt, taking into account the relevant circumstances.51In this case, the Court finds that the grantof PhP 50,000 as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,

52

failure to give prior notice when required, such as inthe instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. Incases such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts
http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt44http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt45http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt46http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt47http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt48http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt49http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt50http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt51http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt51http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt52http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt44http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt45http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt46http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt47http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt48http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt49http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt50http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt51http://lawphil.net/judjuris/juri2011/feb2011/gr_180257_2011.html#fnt52


22/85

referred to in its Art. 21. Further, Art. 2220 of the Code provides that "[w]illful injury to propertymay be a legal ground for awarding moral damages if the court should find that, under thecircumstances, such damages are justly due. The same rule applies to breaches of contractwhere the defendant acted fraudulently or in bad faith." Similarly, "every person who, contrary tolaw, willfully or negligently causes damage to another, shall indemnify the latter for the

same."53Evidently, Gonzales is entitled to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the right to recover reasonablemoral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, andhumiliation.54 Although incapable of pecuniary estimation, moral damages are certainlyrecoverable if they are the proximate result of the defendants wrongful act or omission. Thefactual antecedents bolstered by undisputed testimonies likewise show the mental anguish andanxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had to payUnson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demandfrom PCIB and to file the instant suit.

The award of moral damages is aimed at a restoration within the limits of the possible, of the

spiritual status quo anteit must always reasonably approximate the extent of injury and beproportional to the wrong committed.55Thus, an award of PhP 50,000 is reasonable moraldamages for the unjust dishonor of the PhP 250,000 which was the proximate cause of theconsequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales fromhis loss of credibility among his friends, colleagues and peers.

Furthermore, the initial carelessness of the banks omission in not properly informing Gonzales ofthe outstanding interest duesaggravated by its gross neglect in omitting to give prior notice asstipulated under the COHLA and in not giving actual notice of the termination of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way ofexample or correction for the public good.

Finally, an award for attorneys fees is likewise called for from PCIBs negligence whichcompelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of theCode, attorneys fees may be recovered when exemplary damages are awarded. We find thatthe amount of PhP 50,000 as attorneys fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The PhilippineCommercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio GonzalesPhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplarydamages, and PhP 50,000 as attorneys fees.

No pronouncement as to costs.

SO ORDERED.


23/85

Case #12 Robert Dino vs. Maria Luisa Loot

April 19, 2010

CARPIO, J.:

The Case

This is a petition for review1of the 16 August 2005 Decision2 and 30 November 2005Resolution3 of the Court of Appeals in CA-G.R. CV No. 57994. The Court of Appeals affirmed thedecision of the Regional Trial Court, 7th Judicial Region, Branch 56, Mandaue City (trial court),with the deletion of the award of interest, moral damages, attorneys fees and litigation expenses.The trial court ruled that respondents Maria Luisa Judal-Loot and Vicente Loot are holders in duecourse of Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino asdrawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay respondents theface value of the check, among others.

The Facts

Sometime in December 1992, a syndicate, one of whose members posed as an owner of severalparcels of land situated in Canjulao, Lapu-lapu City, approached petitioner and induced him tolend the group P3,000,000.00 to be secured by a real estate mortgage on the properties. Amember of the group, particularly a woman prete

nil cases 10-20 (full text)

Documents