Credit Transactions

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 90027 March 3, 1993 CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. Dolorfino & Dominguez Law Offices for petitioner. Danilo B. Banares for private respondent.

DAVIDE, JR., J.: Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee? This is the crux of the present controversy. On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith.
1

After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box. Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the 2 expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382. In its Answer with Counterclaim, respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as 4 attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a decision adverse to the petitioner on 8 December 1986, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint. On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees. With costs against plaintiff.
6 5 3

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties. Its motion for reconsideration having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions in the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's 8 fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's fees. In its Decision promulgated on 4 July 1989, respondent Court affirmed the appealed decision principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As such, the contract is governed by Article 1643 10 of the Civil Code which provides: Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.
9 7

It invoked Tolentino vs. Gonzales — which held that the owner of the property loses his control over the property leased during the period of the contract — and Article 1975 of the Civil Code which provides: Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. The above provision shall not apply to contracts for the rent of safety deposit boxes. and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The stipulation absolving the defendant-appellee 12 from liability is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public order and public policy." The appellate court was quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the contract in question: 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the 13 contents of any safe rented from it. Its motion for reconsideration having been denied in the respondent Court's Resolution of 28 August 1989, petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the 16 Philippines. Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the said Code which provides: Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book. If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe. Petitioner then quotes a passage from American Jurisprudence
17 14 15

11

which is supposed to expound on the prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the lessee takes possession of the box or safe and places therein his securities or other valuables, the relation of bailee and bail or is created between the parties to the transaction as to such securities or other valuables; the fact that the safe-deposit company does not know, and that it is not expected that it shall know, the character or description of the property which is deposited in such safe-deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee ( whether it is the sole key or one to be used in connection with one retained by the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment, has been generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the

company, it should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and active participation of the company. . . . (citations omitted). and a segment from Words and Phrases a bailment for hire.
18

which states that a contract for the rental of a bank safety deposit box in consideration of a fixed amount at stated periods is

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously submit their respective Memoranda. The petition is partly meritorious. We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. 19 However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box. Hence, the authorities cited by the respondent Court on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present. We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and 21 bailee, the bailment being for hire and mutual benefit. This is just the prevailing view because: There is, however, some support for the view that the relationship in question might be more properly characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect 22 of loss of the contents of safe-deposit boxes. (citations omitted) In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has 23 been adopted. Section 72 of the General Banking Act pertinently provides: Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:
20

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. xxx xxx xxx The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as agents. . . .
24

(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be 25 entered into orally or in writing and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, 26 negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a 27 family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith.
28

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit: 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the 29 contents of any safe rented from it. Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said: With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limits its liability to 30 some extent by agreement or stipulation. (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter being present. Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified. WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit. No pronouncement as to costs. SO ORDERED. Feliciano, Bidin, Romero and Melo, JJ., concur. Gutierrez, Jr., J., is on leave.

JAVELLANA VS. LIM ET AL., 11 Phil. 141 , No. 4015, August 24, 1908 G.R. No. 4015 August 24, 1908 ANGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM, ET AL., defendants-appellants. R. Zaldarriaga for appellants. B. Montinola for appellee. TORRES, J.: The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15 per cent per annum from the 20th of January, 1898, until full payment should be made, deducting from the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings. Authority from the court having been previously obtained, the complaint was amended on the 10th of January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and subscribed a document in favor of the plaintiff reading as follows:

We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and severally, on the 20th of January, 1898. — Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed: Ceferino Domingo Lim. That, when the obligation became due, the defendants begged the plaintiff for an extension of time for the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount of their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid on account of interest due the sum of P1,000 pesos, with the exception of either capital or interest, had thereby been subjected to loss and damages. A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendants answered the original complaint before its amendment, setting forth that they acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relative to the payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment of interest on the amount stated in the foregoing document, but on account of the principal, and denied that there had been any agreement as to an extension of the time for payment and the payment of interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the complaint, and also denied all the other statements contained therein. As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together with the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that, deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint, the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be entered absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs. Evidence was adduced by both parties and, upon their exhibits, together with an account book having been made of record, the court below rendered judgment on the 15th of January, 1907, in favor of the plaintiff for the recovery of the sum of P5,714.44 and costs. The defendants excepted to the above decision and moved for a new trial. This motion was overruled and was also excepted to by them; the bill of exceptions presented by the appellants having been approved, the same was in due course submitted to this court. The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with the defendants a given sum of money which they were jointly and severally obliged to return on a certain date fixed in the document; but that, nevertheless, when the document appearing as Exhibits 2, written in the Visayan dialect and followed by a translation into Spanish was executed, it was acknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had not yet been returned to the creditor, whereby he was subjected to losses and damages amounting to 830 pesos since the 20th of January, 1898, when the return was again stipulated with the further agreement that the amount deposited should bear interest at the rate of 15 per cent per annum, from the aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of May, 1900, according to the receipt issued by him to the debtors, would be included, and that the said rate of interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted, and they could have accomplished the return agreed upon by the delivery of a sum equal to the one received by them. For this reason it must be understood that the debtors were lawfully authorized to make use of the amount deposited, which they have done, as subsequent shown when asking for an extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and damages for not complying with what had been stipulated, and being conscious that they had used, for their own profit and gain, the money that they received apparently as a deposit, they engaged to pay interest to the creditor from the date named until the time when the refund should be made. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan. Article 1767 of the Civil Code provides that — The depository can not make use of the thing deposited without the express permission of the depositor. Otherwise he shall be liable for losses and damages. Article 1768 also provides that — When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven. When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking for an extension of one year, in view of the fact the money was scare, and because neither himself nor the other defendant were able to return the amount deposited, for which reason he agreed to pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his possession the amount deposited, he having made use of the same in his business and for his own profit; and the creditor, by granting them the extension, evidently confirmed the express permission previously given to use and dispose of the amount stated as having bee deposited, which, in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January, 1898, and from that dated with interest at 15 per cent per annum until its full payment, deducting from the total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code. Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in the presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the said document has not been contested as false, either by a criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures of the witnesses who attested the execution of the same; and from the evidence in the case one is sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid document No. 2. A true ratification of the original document of deposit was thus made, and not the least proof is shown in the record that Jose Lim had ever paid the whole or any part of the capital stated in the original document, Exhibit 1. If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully established, such is not the case with the defendant's counterclaim for P5,602.16, because the existence and certainty of said indebtedness imputed to the plaintiff has not been proven, and the defendants, who call themselves creditors for the said amount have not proven in a satisfactory manner that the plaintiff had received partial payments on account of the same; the latter alleges with good reason, that they should produce the receipts which he may have issued, and which he did issue whenever they paid him any money on account. The plaintiffs allegation that the two amounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidence by the defendants, had been received from Ceferino Domingo Lim on account of other debts of his, has not been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000 pesos, the only payment made on account of interest on the amount deposited according to documents No. 2 and letter "B" above referred to, was due to a mistake. Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no renewal of the contract deposited converted into a loan, because, as has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown. The original joint obligation contracted by the defendant debtor still exists, and it has not been shown or proven in the proceedings that the creditor had released Joe Lim from complying with his obligation in order that he should not be sued for or sentenced to pay the amount of capital and interest together with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory evidence against the pretension of Jose Lim, and it further appears that document No. 2 was executed by the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it has also been proven that Jose Lim, being fully aware that his debt had not yet been settled, took steps to secure an extension of the time for payment, and consented to pay interest in return for the concession requested from the creditor. In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion that the same should be and is hereby affirmed with the costs of this instance against the appellant, provided that the interest agreed upon shall be paid until the complete liquidation of the debt. So ordered. Arellano, C.J., Carson, Willard and Tracey, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 93849 December 20, 1991 THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant. The Solicitor General for plaintiff-appellee. Leoncio T. Mercado for accused-appellant.

MEDIALDEA, J.:p The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged with the crime of estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35. The information filed in said case reads, as follows (pp. 8-9, Rollo): That in (sic) or about and during the period comprised between December 6, 1978 and January 31, 1979, both dates inclusive, in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one another, did then and there wilfully, unlawfully and feloniously defraud the Home Savings Bank in the following manner, to wit: the said accused Dick Ong y Chan, by means of false manifestations and fraudulent representations which he made to the management of the Home Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the effect that the following checks, to wit: NAME OF CHECK Metropolitan Bank & Trust Co Equitable Bank Phil. Bank of Comm NUMBER PAYBLE TO Cash DATE AMOUNT

82508

1-3079

P49,500.00

27624961

do.

do.

14,569.00

T1907249

do.

do.

59,600.00

-doChina Banking Corp. Pacific Banking Corp. Producers Bank of the Phil. Equitable Banking Phil. Bank of Comm. -do-do-

T1907249 QCO86174A

do. do.

do. 1-3179

67,400.00 69,850.00

PCB 238056 S

do.

1-3179

60,890.00

C 987955

do.

do.

49,090.00

27624963

do.

do.

14,965.00

1915852

do.

do.

63,900.00

1915855 1915856

do. do.

do. do.

59,800.00 65,880.00

or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and by means of other similar deceits with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, in their capacities as officer-in-charge, branch accountant and bank branch cashier, respectively, of said bank (Home Savings Bank), induced and succeeded in inducing the management of the said bank to accept said checks as deposits, all the said accused well knowing that his (Dick Ong y Chan's) representations and manifestations are false and untrue and were made solely for the purpose of defrauding the said bank, and, in accordance with the conspiracy, his co-accused Lino Morfe y Gutierrez, Ricardo Villara and Lucila Talabis, facilitated the opening of a savings account in the name of accused Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such deposits made and the opening of an account, the said accused were able to withdraw the total amount of P575,504.00, which once in their possession, with intent defraud, they thereafter wilfully, unlawfully and feloniously misappropriated, misapplied and converted to their own personal use and benefit, to the damage and prejudice of said Home Savings Bank in the said amount of P575,504.00, Philippine Currency. Contrary to law. On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe y Gutierrez is concerned, on the ground that after a reinvestigation, it was found that the evidence against him is not sufficient to sustain the allegations contained in the information (p. 54, Records). On October 31, 1979, the trial court granted the motion (p. 6 Records). Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime charged. After trial on the merits, the trial court rendered its decision on January 11, 1990, the dispositive portion of which reads, as follows (p. 26,Rollo):

WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty beyond reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal Code, as amended by Republic Act 4885, and penalized under the lst paragraph of the same Code as amended by Presidential Decree No. 818, and sentencing said accused to RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt of (sic) the felony charged against them not having been established beyond reasonable doubt; (3) ordering accused Dick Ong to pay the Home Saving Bank and Trust Company the sum of P559,381.34 as partial reparation of the damage caused to said Bank; (4) ordering forfeited in favor of the Home Savings Bank and Trust Company the sum of P16,122.66 the positive balance remaining outstanding in Savings Account No. 6-1981 of accused Dick Ong with, and in the possession of, said Bank to complete the reparation of the damage caused by Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and (6) ordering two-thirds (2/3) of the costs charged de oficio. SO ORDERED. On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990, he filed a supplemental memorandum in support of the motion for reconsideration. On April 3, 1990, said motion was denied for lack of merit (pp. 575-576, Records). Hence, the present appeal by Dick Ong y Chan. The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo): Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in its Aurea Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his savings account on December 6, 1978, under the Bank's Saving Account No. 6-1981, with an initial deposit of P22.14 in cash and P10,000.00 in (a) check. On the same date, December 6, 1978, without his check undergoing the usual and reglamentary (sic) clearance, which normally takes about five working days, Dick Ong was allowed to withdraw from his savings account with the Bank the sum of P5,000.00. The corresponding withdrawal slip was signed and approved by Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier. That initial transaction was followed by other similar transactions where Dick Ong, upon depositing checks in his savings account with the Bank, was allowed to withdraw against those uncleared checks and uncollected deposits. The withdrawals were authorized and approved by accused Ricardo Villaran and Lucila Talabis, sometimes jointly, sometimes by aither (aic) of them alone, and at other times by one of them together with another official of the Bank. But all of those uncleared checks deposited by Dick Ong prior to January 3, 1979 and against which he was allowed to withdraw were subsequently honored and paid by the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.) On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the following checks: Drawee Bank Check No. 82508 Payee Amount

1. Metropolitan Bank & Trust Co. 2. Equitable Bank

Cash

P49,500.00

27624961

Cash

14,569.00

3. Phil. Bank of Comm. 4. Phil. Bank of Comm.

T1907265 T1907249 TOTAL

Cash

59,600.00

Cash

67,400.00

P191,06900

Afterwards but before these checks could be cleared and the Bank could collect their amounts from the drawee banks, Lucila Talabis allowed and approved the withdrawal of Dick Ong against the amounts of said checks. (TSN, Mar. 18, 1981, pp. 47-48.) On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with the Bank the following check; Drawee Bank 1. China Banking Corporation 2. Pacific Banking Corporation 3. Producers Bank of the Phil. 4. Equitable Banking 5. Phil. Bank of Communications 6. Phil. Bank of Communications 7. Phil. Bank of Communications Check No. QC08617A Payee Cash Amount P69,850.00

PCB238056 S

Cash

60,890.00

C987955

Cash

49,090.00

27624963

Cash

14,965.00

1915852 1915855

Cash Cash

63,9000.009 59,860.00

1915856

Cash

65,880.00

TOTAL

P384,435.00

Subsequently, but before said seven checks were cleared and the Bank had collected their amounts, Lucila Talabis and then officer in charge of the Bank Grace Silao allowed and approved the withdrawals of Dick Ong against the amounts of these seven checks. (TSN, lbid., pp. 47-48.)

However, when the Bank presented those eleven checks issued and deposited by Dick Ong on January 30, 1979 and January 3l, 1979 and against which he made withdrawals against (sic) their amounts, to their respective drawee banks for payment, they were all dishonored for lack or insufficiency of funds. (TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.) The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness to testify in his favor. Instead, he offered the following documents (p. 20, Rollo): 1. Exhibit 1 — Ong. — The letter dated June 27, 1980 of the Central Bank Governor to all banks authorized to accept demand deposits, enjoining strict compliance with Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected deposits effective July 1, 1980. 2. Exhibit 2 — Ong. — The Memorandum of the Central Bank Governor dated July 9, 1980, to all banks for their guidance, that Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected deposits effective July 1, 1980, covers drawing against demand deposits as well as withdrawals from savings deposits. 3. Exhibits 3 — Ong. — and 3-a. — Clippings from the Bulletin Today issue on July 25, 1980 regarding on (sic) ban on DAUD (drawn against uncollected deposits) effective July 1, 1980, and the one-day loan which replaced the DAUD arrangement. 4. Exhibit 4 — Ong. — The sworn statement of Lino Morfe before the METROCOM taken on February 11, 1979. 5. Exhibit 5 — Ong. — The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of Manila, transmitting his (Morfe's) affidavit. 6. Exhibits 5-a — Ong to 5-a-3-Ong. — Affidavit of Lino Morfe sworn on June 28, 1979. 7. Exhibit 5-b — Ong. — The Bank's Memorandum dated January 31, 1979, to all Branch Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head Office of the Bank every Monday and Thursday with a list of all "drawn against" and "encashment" acommodations (sic) of P1,000.00 and above granted by the Branch during the week. 8. Exhibit 6 — Ong. — The sworn statement of accused Dick Ong. On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the accused-appellant against uncleared checks. However, she explained that her approval thereof was in accordance with the instruction of then bank manager Lino Morfe; that this accommodation given or extended to the accused-appellant had been going on even before she started giving the same accommodation; that this was common practice in the bank; that she approved those withdrawals together with one other bank official, namely, either the bank manager, the bank accountant, the other bank cashier, or the bank assistant cashier; and that they reported those withdrawals against, and the dishonor of, the subject checks always sending copies of their reports to the head office. Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against his uncleared checks because of the accommodations extended to him by bank officials Lino Morfe, co-accused Lucila Talabis, Grace Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits was a common practice in branches of the Bank; that on December 14, 1978, the accused-appellant withdrew the sum of P75,000.00 against his uncleared checks; that on December 21, 1978, the accused-appellant deposited several checks in the total amount of P197,000.00 and withdrew on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant again deposited several checks in the aggregate sum of P260,000.00 and withdrew also on the same date, the amount of P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-appellant against his uncollected deposits.

In this appeal, the accused-appellant assigns the following errors committed by the trial court: 1) it concluded that the withdrawals against the amounts of the subject checks before clearance and collection of the corresponding amounts thereof by the depository bank from the drawee banks is deceit or fraud constituting estafa under Article 315, paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing criminal intent to defraud the depository bank; and not a case which is civil in nature governed solely by the Negotiable Instruments Law; 2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer thereof but merely an indorser; hence, his liability, if any, is that of a general indorser under the Negotiable Instruments Law; 3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack or insufficiency of funds in the drawee banks to cover the amounts of the subject checks; and 4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment of the value of the checks indorsed by him; no damage could have been suffered by the depository bank because he had offered payment thereof. To support the aforementioned assignment of errors, the accused-appellant alleges that based on the testimonies of co-accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on the Bank because the practice of deposit and withdrawal against uncleared checks and uncollected deposits was tolerated by it. As soon as he learned of the dishonor of the subject checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and put up as security his property. The subject checks were not in payment of an obligation but were deposited in his savings account. He was merely a general indorser of the subject checks and this being the case, his obligations as such, if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject checks were issued or drawn by his customers and paid to him. He could not have had any knowledge as to the sufficiency of their funds in the drawee banks. The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by reason of the accused-appellant's antecedent acts of issuing and depositing check and withdrawing the amounts thereof before clearing by the drawee banks, which checks were later honored and paid by drawee banks, he was able to gain the trust and confidence the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and confidence of the Bank, the accused-appellant issued and deposited the subject checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks. Contrary to the accused-appellant's allegation, the trial court found that he issued and deposited the subject checks in his savings account. As drawer of the subject checks, the accused-appellant had the obligation to maintain funds in his current account in the drawee banks sufficient to cover the amounts thereof or, in case of dishonor, to deposit within three (3) days from receipt notice of dishonor, the amounts necessary to cover the check. The testimony of Felix Hocson, Senior Vice President and Treasurer of the Bank, apart from being hearsay, does not prove that the accused-appellant made an offer to pay the amounts covered by the subject checks. Even assuming arguendo that accused-appellant made an offer to pay the amounts covered by the subject checks, said offer is not sufficient to rebut the prima facie evidence of deceit. There is no showing that the accused-appellant deposited the amounts necessary to cover the subject checks within three (3) days from receipt of notice from Bank and/or the payee or holder that said checks have been dishonored. The damage suffered by the Bank consists in its inability to make use of the P575,504.00 it had delivered to the accused-appellant. We are convinced that the accused-appellant is innocent of the crime charged against him. Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides: Art. 315. Swindling (estafa) — Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: ..., provided that in the four cases mentioned, the fraud be committed by any of the following means:

xxx xxx xxx 2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: xxx xxx xxx (d) By post-dating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. The following are the elements of this kind of estafa: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29, 1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86 SCRA 568). Based thereon, the trial court concluded that the guilt of the accused-appellant has "been duly established by the required quantum of evidence adduced by the People against (him)" (p. 22, Rollo). We shall confine Our discussion only on the first element because there is no argument that the second and third elements are present in this case. For an orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or issuance of a check," and second, "in payment of an obligation contracted at the time the check was issued." Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised Penal Code is concerned with the act of "postdating or issuance of a check," the accused-appellant raises the defense that he was neither the issuer nor drawer of the subject checks, but only an indorser thereof. Thus, his liability, if any, should be governed by the provision of the Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to the sufficiency of the drawers' funds in their respective banks. The Office of the Solicitor General contend's that the trial court found as a fact that the accused-appellant issued the subject checks. The contention of the Office of the Solicitor General is accurate only in part. In the trial court's disquisition on the liability of the accused-appellant, it said (p. 22, Rollo): There is no question that on January 30, 1979, accused Dick Ong issued or used and indorsed, and deposited in his Savings Account No. 6-1981 with the Bank the four checks ... . There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or used and indorsed,and deposited in his savings account with the Bank seven checks ... . (emphasis supplied) On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the prosecution, testified that (pp. 101-103, tsn, January 7, 1981): Court — Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever verify the actual depositors of these checks whether it is Mr. Dick Ong himself.? A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and found out that one of or rather, two of those checks are in the account of Mr. Dick Ong but the other checks are not in his account. Court —

Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong? A: Could I go over the checks, Your Honor. Q: Is it indicated there? A: Yes, Your Honor, it.is. Q: All right, go over the checks. A: There is one check, Your Honor. It is a China Banking Corporation check in the amount of P69,850.00 (Witness referring to Exhibit "Z"). Q: Now, why do you say that the current checking account or current account was opened by Mr. Dick Ong himself. A: Because he is the drawer of the check, Your Honor.(emphasis supplied) Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks were either issued or indorsed by the accused-appellant. In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-appellant, who only negotiated the check drawn by another, guilty of estafa. This case of People v. Isleta, et al. was relied upon by the trial court in its order dated April 3, 1990, which denied the accused-appellant's motion for reconsideration based on the same defense. The trial court erred in doing so. It must have overlooked the ratio decidendi of the aforementioned case. We held the accused-appellant therein guilty of estafa because he "had guilty knowledge of the fact that (the drawer) had no funds in the bank when he negotiated the (subject) check" (at p. 334). In the present case, the prosecution failed to prove that the accused-appellant had such knowledge with respect to the subject checks that he indorsed. In applying Our decisions, it is not enough that courts take into account only the facts and the dispositive portions thereof. It is imperative that the rationale of these decisions be read and comprehended thoroughly. It goes without saying that with respect to the subject checks wherein the accused-appellant was the issuer/drawer, the first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is applicable. However, this statement will lose its significance in Our next discussion. Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code, the accused-appellant alleges that when he deposited the subject checks in his savings account, it was clearly not in payment of an obligation to the Bank. The Office of the Solicitor General misses this point of the accused-appenant. This single argument of the accused-appellant spells tilting the scale to his advantage. In several cases, We were categorical that bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated loans and are to be covered by the law on loans. Current and savings deposits are loans to a bank because it can use the same (Serrano v. Central Bank of the Philippines, et al., G.R. No. 30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central Bank of the Philippines v Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SC 114; Guingona, Jr., et al. v. The City Fiscal of Manila, et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577). The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third person. Aside from the elements that We have discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit and damage are essential elements of the offense and have to be established with satisfactory proof to warrant conviction (U.S v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al., G.R No. 74053-54, January 20, 1988,157 SCRA 154; Buaya v. Polo etc., et al., G.R. No. 75079, January 26, 1989, 169 SCRA 471).

In this connection, the Office of the Solicitor General advances the view that by reason of the accused-appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof before clearing by the drawee banks, which checks were later honored and paid by the drawee banks, he was able to gain the trust and confidence of the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and confidence of the Bank, he issued and deposited the subject checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks. This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved that the Bank on its own accorded him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions on his part (pp. 7-8,supra). Moreover, this privilege was not only for the subject checks, but for other past transactions. Fernando Esguerra and Felix Hocson even testified that in some instances prior to July 1, 1980, especially where the depositor is an important client, the Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits, and allowed such depositor to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accused-appellant was one of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in fact acted fraudulently, he could not have done so without the active cooperation of the Banks employees. Therefore, since Lucila Talabis and Ricardo Villaran were declared innocent of the crimes charged against them, the same should be said for the accused-appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank suffered damage in the amount of P575,504.00 but the accused-appellant's liability thereon is only civil. One additional statement made by the trial court in its decision requires correction. It said that "[t]he circumstances that the drawer of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its issuance and he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa" (p. 23, Rollo). This statement is no longer controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885 has eliminated the requirement under the old provision for the drawer to inform the payee that he had no funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check. We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315, paragraph 2(d) of the Revised Penal Code has not been proven beyond reasonable doubt. However, We find him civilly liable to the bank in the amount of P575,504.00, less the balance remaining in his savings account with it (p. 26, Rollo), with legal interest from the date of the filing of this case until full payment. ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused-appellant is ACQUITTED of the crime charged against him but ordered to pay the aforementioned amount. No costs. SO ORDERED. Narvasa, C.J. (Chairman), Cruz, Feliciano and Griño-Aquino, JJ., concur.

# Footnotes * SECTION 66. Liability of general indorser. — Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall accepted or paid, or both, as the case may be, according to its tenor and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to a subsequent indorser who may be compelled to pay it. FIRST DIVISION EQUITABLE PCI BANK, AIMEE YU and BEJAN LIONEL APAS, Petitioners,
*

G.R. No. 171545

Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA and LEONARDO-DE CASTRO, JJ.

-versus-

NG SHEUNG NGOR doing business under the name and style “KEN MARKETING,” KEN APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents.

**

Promulgated:

December 19, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x DECISION CORONA, J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution denying reconsideration.
[4]

[1]

[2]

[3]

On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City.
[6] [5]

They claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates so they accepted Equitable's proposal and signed

[7]

the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware that the documents contained identical escalation clauses granting Equitable authority to increase interest rates without their consent.
[8]

Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the promissory notes. In fact, they continuously availed of and benefited from Equitable's credit facilities for five years.
[10]

[9]

After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents' loans amounting to US$228,200 andP1,000,000.
[11]

The trial court, however, invalidated the escalation clause contained therein because it violated the principle of mutuality of contracts.
[13]

[12]

Nevertheless, it took

judicial notice of the steep depreciation of the peso during the intervening period

and declared the existence of extraordinary deflation.
[15]

[14]

Consequently, the RTC ordered the

use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans. damaged when Equitable froze their accounts,
[16]

Lastly, because the business reputation of respondents was (allegedly) severely
[17]

the trial court awarded moral and exemplary damages to them.
[18]

The dispositive portion of the February 5, 2004 RTC decision provided: WHEREFORE, premises considered, judgment is hereby rendered: A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold status; B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as moral damages;

C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as exemplary damages; D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary damages; E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents'] attorney's fees in the sum of P300,000; litigation expenses in the sum of P50,000 and the cost of suit; Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal obligation for the peso loan as well as the unpaid obligation for the dollar denominated loan;

F)

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows: 1) 2) 12% per annum for the peso loans; 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the conversion rate of P26.50 per dollar availed of at the time of incurring of the obligation in accordance with Article 1250 of the Civil Code of the Philippines;

H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan obligations and interest.

SO ORDERED.

[19]

Equitable and respondents filed their respective notices of appeal.

[20]

In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents “failed to submit proof that they paid their respective appeal fees.”
[21]

WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-entitled case is DENIED due course. As of February 27, 2004, the Decision dated February 5, 2004, is considered final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are [22] concerned. (emphasis supplied)

Equitable moved for the reconsideration of the March 1, 2004 order of the RTC prayed for the issuance of a writ of execution.
[24]

[23]

on the ground that it did in fact pay the appeal fees. Respondents, on the other hand,

On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit favor of respondents. appeal),
[27] [26]

[25]

and ordered the issuance of a writ of execution in

According to the RTC, because respondents did not move for the reconsideration of the previous order (denying due course to the parties’ notices of
[28]

the February 5, 2004 decision became final and executory as to both parties and a writ of execution against Equitable was in order.
[29] [30]

A writ of execution was thereafter issued

and three real properties of Equitable were levied upon.

On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order.

[31]

It, however, withdrew that petition on March 30, 2004
[33]

[32]

and instead

filed a petition for certiorari with an application for an injunction in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus order.
[34]

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly issued.

Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them.
[35]

On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA.
[36]

On October 28, 2005, the CA dismissed the petition for certiorari. several hours before withdrawing its petition for relief in the RTC.
[38]

[37]

It found Equitable guilty of forum shopping because the bank filed its petition for certiorari in the CA

Moreover, Equitable failed to disclose, both in the statement of material dates and certificate of non-forum
[39]

shopping (attached to its petition for certiorari in the CA), that it had a pending petition for relief in the RTC.
[40] [41]

Equitable moved for reconsideration

but it was denied.

Thus, this petition.
[42]

Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on the same day the petition for certiorari was filed.

It likewise

avers that its petition for certiorari was meritorious because the RTC committed grave abuse of discretion in issuing the March 24, 2004 omnibus order which was based on an erroneous assumption. The March 1, 2004 order denying its notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required fees.
[43]

Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable from appealing the patently wrong February 5, 2004 decision.

[44]

This petition is meritorious.

EQUITABLE WAS NOT GUILTY OF FORUM SHOPPING

Forum shopping exists when two or more actions involving the same transactions, essential facts and circumstances are filed and those actions raise identical issues, subject matter and causes of action.
[45]

The test is whether, in two or more pending cases, there is identity of parties, rights or causes of actions and reliefs.

[46]

Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action. The petition for relief from the denial of its notice of appeal was based on the RTC’s judgment or final order preventing it from taking an appeal by “fraud, accident, mistake or excusable negligence.”
[47]

On the other hand, its
[48]

petition for certiorari in the CA, a special civil action, sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC.

In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty minutes after) it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a pending petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by withdrawing the petition for relief just a few hours after it filed its petition for certiorari in the CA ― a clear indication that it had no intention of maintaining the two actions at the same time.

THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN ISSUING ITS MARCH 1, 2004 AND MARCH 24, 2004 ORDERS

Section 1, Rule 65 of the Rules of Court provides: Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial function has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certificate of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.

There are two substantial requirements in a petition for certiorari. These are: 1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in excess of his or its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.

2.

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that the public respondent patently and grossly abused his discretion and that abuse amounted to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law or to act at all in contemplation of law, as where the power was exercised in an arbitrary and despotic manner by reason of passion or hostility.
[49]

The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents. However, it declared that the February 5, 2004 decision was final and executory only with respect to Equitable.
[50]

As expected, the March 24, 2004 omnibus order denied Equitable's motion for reconsideration and granted
[51]

respondents'motion for the issuance of a writ of execution.

The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in rendering those orders.

With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of law, we hold that there was none. The RTC denied due course to its notice of appeal in the March 1, 2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way Equitable could have possibly appealed the February 5, 2004 decision.
[52]

Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain, speedy and adequate remedy in the ordinary course of law. petition for relief under Rule 38 is an equitable remedy allowed only in exceptional circumstances or where there is no other available or adequate remedy.
[54]

[53]

A

Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.

EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS PETITION

FOR

REVIEW

The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.

[55]

There is a question of law “when the doubt or controversy concerns the correct

application of law or jurisprudence to a certain set of facts; or when the issue does not call for the probative value of the evidence presented, the truth or falsehood of facts being admitted.”
[56]

Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the nullity of the RTC’s February 5, 2004 decision. Equitable points out that that decision was patently erroneous, specially the exorbitant award of damages, as it was inconsistent with existing law and jurisprudence.
[57]

THE PROMISSORY NOTES WERE VALID

The RTC upheld the validity of the promissory notes despite respondents’ assertion that those documents were contracts of adhesion.
[58]

A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. his “adhesion” to the contract.
[59]

The participation of the other party is limited to affixing his signature or
[60]

For this reason, contracts of adhesion are strictly construed against the party who drafted it.

It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes void only when the dominant party takes advantage of the weakness of the other party, completely depriving the latter of the opportunity to bargain on equal footing.
[61]

That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five long years.

While the RTC categorically found that respondents had outstanding dollar- and peso-denominated loans with Equitable, it, however, failed to ascertain the total amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial court did not explain how it arrived at the amounts of US$228,200 and P1,000,000. Transit Corporation v. D.M. Consunji, present in this case.
[64] [63] [62]

In Metro Manila

we reiterated that this Court is not a trier of facts and it shall pass upon them only for compelling reasons which unfortunately are not
[65]

Hence, we ordered the partial remand of the case for the sole purpose of determining the amount of actual damages.

ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF MUTUALITY OF CONTRACTS

Escalation clauses are not void per se. However, one “which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement” is void. Clauses of that nature violate the principle of mutuality of contracts. 1308
[67] [66]

Article

of the Civil Code holds that a contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

[68]

For this reason, we have consistently held that a valid escalation clause provides: 1. 2. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary Board; and that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de[69] escalation clause).

The RTC found that Equitable's promissory notes uniformly stated: If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be determined by the bank.
[70]

Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for validity, that is, it neither provided that the rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
[71]

With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank

we held that, because the escalation clause was annulled, the

principal amount of the loan was subject to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12% per annum.
[72]

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.

THERE WAS NO EXTRAORDINARY DEFLATION

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse situation.
[73]

Article 1250 of the Civil Code provides:

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven: [74] 1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP); 2. 3. that the obligation was contractual in nature;
[75]

and
[76]

that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.

Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation).
[77]

The RTC never mentioned that there was a such stipulation either in the
[78]

promissory note or loan agreement. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity.

THE AWARD OF MORAL AND EXEMPLARY DAMAGES LACKED

BASIS

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered, not to impose a penalty to the wrongdoer. to moral damages, a claimant must prove:

[79]

To be entitled

1. 2. 3. 4.

That he or she suffered besmirched reputation, or physical, mental or psychological suffering sustained by the claimant; That the defendant committed a wrongful act or omission; That the wrongful act or omission was the proximate cause of the damages the claimant sustained; The case is predicated on any of the instances expressed or envisioned by Article 2219
[80]

and 2220

[81] [82]

.

In culpa contractual or breach of contract, moral damages are recoverable only if the defendant acted fraudulently or in bad faith or in wanton disregard of his contractual obligations.
[83]

The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.

[84]

The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any month thereafter prior to the maturity of the loan) due (principal plus interest) due on July 9, 2001.
[86]

[85]

or the amount

Consequently, Equitable applied respondents' deposits to their loans upon maturity.
[87]

The relationship between a bank and its depositor is that of creditor and debtor. of a depositor's indebtedness.
[88]

For this reason, a bank has the right to set-off the deposits in its hands for the payment

Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable acted “fraudulently or in bad faith or in wanton disregard” of its contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage respondents sustained was purely the consequence of their failure to pay their loans. There was therefore absolutely no basis for the award of moral damages to them.

Neither was there reason to award exemplary damages. Since respondents were not entitled to moral damages, neither should they be awarded exemplary damages.
[89]

And if respondents were not entitled to moral and exemplary damages, neither could they be awarded attorney's fees and litigation expenses.

[90]

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course.

The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:

1.

ordering respondents Ng Sheung Ngor, doing business under the name and style of “Ken Marketing,” Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank the principal amount of their dollar- and peso-denominated loans;

2.

ordering respondents Ng Sheung Ngor, doing business under the name and style of “Ken Marketing,” Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank interest at: a) b) c) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9, 2001; 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9, 2001; pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,
[92] [91]

the total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from

the time petitioner Equitable PCI Bank demanded payment, whether judicially or extra-judicially; and d) 3. after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until full satisfaction; all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing business under the name and style of “Ken Marketing,” Ken Appliance Division and Benjamin E. Go.

SO ORDERED.

RENATO C. CORONA Associate Justice

WE CONCUR:

REYNATO S. PUNO Chief Justice Chairperson

ANGELINA SANDOVAL-GUTIERREZ Associate Justice

ADOLFO S. AZCUNA Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO Chief Justice

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

CONCEPCION, JR., J.: Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent 1 Overseas Bank of Manila to protect depositors and the general public. Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or 2 transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court. Undisputed pertinent facts are: On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the 3 respondent Overseas Bank of Manila. Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos 4 (P200,000.00) with the same respondent Overseas Bank of Manila.

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with 5 respondent Overseas Bank of Manila. Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to 6 March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of 7 respondent Overseas Bank of Manila continued up to 1968. Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such 8 action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution 9 was being salvaged by the respondent Central Bank. Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money, including that of the petitioner and 10 Concepcion Maneja. In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, 11 motion to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit: WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from 12 taking action in violation therefor. Costs against respondent Central Bank of the Philippines.

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and 13 other depositors. By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished a long time ago. Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money. Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be 14 treated as loans and are to be covered by the law on loans. Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner. SO ORDERED. Antonio, Abad Santos, JJ., concur. Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino. Separate Opinions AQUINO, J., concurring: The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust properties for the benefit of the petitioner and other depositors.

The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually available against any tribunal, board, corporation or person exercising judicial or ministerial functions. Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central Bank vs. Morfe, L38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Separate Opinions AQUINO, J., concurring: The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust properties for the benefit of the petitioner and other depositors. The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually available against any tribunal, board, corporation or person exercising judicial or ministerial functions. Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central Bank vs. Morfe, L38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-14832 January 28, 1961

NG CHO CIO ET AL., plaintiffs-appellants, vs. NG DIONG, defendant-appellant. C. N. HODGES, ET AL., defendants-appellees. BAUTISTA, ANGELO, J.: This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian King and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels of land situated in the City of Iloilo which were sold by Ng Diong as manager of the commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had sold four of those parcels of land to Jose C. Tayengco and the other three parcels to Julian Go, and for that reason these two were included as party defendants. As the original plaintiffs sold their rights, title and interest in said partnership to Ng Be Chuat and Ng Feng Tuan, the latter two were allowed to intervene as plaintiffs. Since Jose C. Tayengco had mortgaged three of the lands which he purchased from C. N. Hodges in favor of the Bank of the Philippine Islands, the complaint was amended so as to include the Bank also as party defendant. On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs were order to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and Jose C. Tayengco answered the complaint separately setting up certain special defenses and counterclaims. In substance, they refuted the allegations set forth in the complaint and prayed for its dismissal. The parties submitted a partial Stipulation of facts on many points covered by the pleadings thus simplifying the trial of the case while at the same time they introduced additional evidence in amplification of the fact stipulated, Thereupon, the trial court, after a thorough evaluation of the evidence, rendered decision dismissing the complaint with costs. Plaintiffs interposed the present appeal on purely questions of law. The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a contract of general co-partnership under the name NG CHIN BENG HERMANOS. The partnership was to exist for a period of 10 years from May 23, 1925 and Ng Diong was named as managing partner. On May 10, 1935, the articles of co-partnership were amended by extending its life to 16 years more to be counted from May 23, 1925, or up to May 23, 1941. On January 5, 1938, the partnership obtained from the National Loan and Investment Board a loan in the amount of P30,000.00, and to guarantee its payment it executed in its favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo. On the same date, the partnership also obtained from the same entity another loan in the amount of P50,000.00 to secure which it also executed in its favor a mortgage on Lots Nos. 386, 829 and 237 of the same cadastral survey. Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in, Special Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino Melocoton was elected as assignee. As a consequence, on June 21, 1939, the titles to the seven parcels of land abovementioned were issued in his name as assignee. In due time, the creditors filed their claims in said proceeding which totalled P192,901.12. On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and the partners of the firm, acting thru counsel, entered into a composition agreement whereby it was agreed that said creditors would receive 20% of the amount of their claims in full payment thereof. Prior to this agreement, however, defendant Julian Go had already acquired the rights of 24 of the creditors of the insolvent whose total claims amounted to P139,323.10. Said composition agreement was approved by the insolvency court. On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the National Loan and Investment Board assigned its rights and interests in the loans obtained from it by the partnership in the aggregate amount of P80,000.00 in favor of C.N. Hodges, together with the right and interest in the mortgage executed to secure the loans.

Since said loans became due and no payment was forthcoming, Hodges asked permission from the insolvency court to file a complaint against the assignee to foreclose he mortgage executed to secure the same in a separate proceeding, and permission having been granted, Hodges filed a complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed that the assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per annum thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and charges. Meanwhile, war broke out and nothing appears to have been done in the insolvency proceedings. The court records were destroyed. However, they were reconstituted later and given due course. On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of the claims of the creditors, filed a petition with the insolvency court praying at the insolvency proceedings be closed or terminated cause the composition agreement the creditors had submitted relative to the settlement of the claims had already been approved on October 10, 1940. And on October 6, 1946, the court, acting favorably on the petition, ordered, closure of the proceedings directing the assignee to turn and reconvey all the properties of the partnership back to the latter as required by law. In accordance with this order of the court, the assignee executed a deed of reconveyance of the properties to the partnership on April 2, 1946 and by virtue thereof, the register of deeds cancelled the titles issued in the name of the assignee and issued new ones in lieu thereof in the name of the partnership. As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which was the subject of the foreclosure proceedings in a separate case was P103,883.34. In order to pay off the same and raise necessary funds to pay the other obligations of the partnership, it was deemed proper and wise by Ng Diong, who continued to be the manager of the partnership, to sell all its properties mortgaged to Hodges in order that the excess may be applied to the Payment of said other obligations, and to that effect Ng Diong executed on April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of P124,580.00. Out of this price; the sum of P103,883.34 was applied to the payment of the debt of the partnership to Hodges and the balance was paid to the other creditors of the partnership. On the same date, Hodges executed another contract giving the partnership the right to repurchase Lots Nos. 237, 386 and 829 in installments for the sum of P26,000.00 within three years with interest the rate of 1% Per annum, Payable monthly. On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he amount of P24,864.62 under the composition agreement, nor did it have any money to repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the partnership, transferred the right of the latter to repurchase the same from Hodges to Julian Go in full payment of the partnership's indebtedness to him. And having Julian Go exercised the option January 6, 1948, Hodges executed a deed of sale of the properties in his favor, and pursuant thereto the register of deeds issued new titles' in his name covering said lots. On May 29, 1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco mortgaged said lots, together with three other lots of his, to the Bank of the Philippine Islands to secure a loan of P126,000.00 to be used in the construction of a commercial building on said lots. Appellants make in their brief six assignments of errors, which, reduced to bare essentials, may be boiled down to the following points: (1) the sale made by Ng Diong in behalf of the partnership NG CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N. Hodges on April 2, 1946 is null and void because at that time said parcels were still in the custody of the assignee of the insolvency proceedings, or in custodia legis, and, hence, the same is null and void; (2) said sale is also null and void "because of the disparity, irrationality and unreasonableness between the consideration and the real value of the properties when sold"; and (3) the lower court erred in not finding that the two deeds of mortgage executed by he partnership in favor of the National Loan and Investment Board which were later assigned to C. N. Hodges can no longer be enforced because the action to foreclose the same has already prescribed. Anent the first issue, it would be well to state the following facts by way of clarification: It should be recalled that on August 8, 1940 the majority of the creditors of the partnership, as well as the representatives of the latter, submitted to the court taking cognizance of the insolvency proceedings a composition agreement whereby it was agreed that said creditors would receive 20% of the amount of their claims in full payment thereof. This agreement was approved on October 10, 1940 which, in contemplation of law, has the effect of putting an end to the insolvency proceedings. However, no further step was taken thereon because of the outbreak of the war. Later, the record of the case was reconstituted and the parties on August 15, 1945 filed a petition with the court praying for the dismissal and closure of the proceedings in view of the approval of the aforesaid composition agreement, and acting favorably thereon, the court on October 6, 1945, issued an order declaring the proceedings terminated and ordering the assignee to return and reconvey the properties the partnership. The actual reconveyance was done by a assignee on April 2, 1946.

It would, therefore, appear that for legal and practical purposes the insolvency ended on said date. Since then partnership became, restored to its status quo. It again reacquired its personality as such with Ng Diong as its general manager. From that date on its properties ceased to be in custodia legis. Such being the case, it is obvious that when Ng Diong as manager of the partnership sold the seven parcels of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale acknowledged before a notary public on April 6, 1946, the properties were already was at liberty to do what it may deem convenient and proper to protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the power granted to him by the partnership in its articles of co-partnership. We do not, therefore, find anything irregular in this actuation of Ng Diong. Since at the time of the sale the life of the partnership had already expired, the question may be fixed: Who shall wind up it business affairs? May its manager still execute the sale of its properties to C. N. Hodges as was done by Ng Diong? The answer to this question cannot but be in the affirmative because Ng Diong was still the managing partner of the partnership and he had the necessary authority to liquidate its affairs under its articles of co-partnership. And considering that war had intervened and the affairs of the partnership were placed under receivership up to October 6, 1945, we are of the opinion that Ng Diong could still exercise his power as liquidator when he executed the sale in 1 question in favor of C. N. Hodges. This is sanctioned by Article 228 of the Code of Commerce which was the law in force at the time. With regard to the second issue, it is contended that the trial court should have declared the sale of the lots made to C. N. Hodges null and void "because of the disparity, irrationality and unreasonableness between the consideration and real value of the properties when sold." In stressing his point, counsel contends that the lands in question, which are located in a commercial section of the City of Iloilo, were frittered away only for a "pittance of P124,580.00" when, borrowing his words they could have been sold like hot cakes to any resident of the city of regular financial standing upon proper approaches and representations, because at that time those properties were fairly worth one-half of a million pesos." This claim may be true, but the same is unsupported. Appellants have failed to introduce any evidence to show that they could have secured better offers for the properties if given a chance to do so and that they advance now is a mere speculation or conjecture which had no place in our judicial system. Since every claim must be substantiated by sufficient evidence, and this appellants have failed to do, their pretense cannot be entertained. Neither can we give any value to the claim that the action for the foreclosure of the mortgage executed by the partnership in favor of C. N. Hodges has already prescribed not only because the same is immaterial but because it is an issue that appellants are raising for the first time in this appeal. Such issue has never been raised in their pleadings, nor in the trial court. Verily, this claim has no merit. With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is that the trial court failed to adjudicate to the partnership the properties which were bought by Julian Go from C. N. Hodges, suffice it to say that the same could not be done, firstly, because no such claim was made by them in their pleadings in the trial court, and, secondly, because the evidence shows that said properties were bought by Julian Go by virtue of the option given to him by the partnership for a valuable consideration in full payment of the credits assigned to him by a good number of creditors of said partnership. There is no evidence that he promised to reconvey the same to the partnership. WHEREFORE, the decision appealed from is affirmed, with costs against appellants. Paras, C.J., Bengzon, Labrador, Concepcion, Reyes, J.B.L. Barrera, Gutierrez David, Paredes and Dizon, JJ.,concur. Padilla, J., took no part.