G.R. No. L-66826 August 19, 1988 Costs against defendant COMTRUST.

BANK OF THE PHILIPPINE ISLANDS, petitioner, SO ORDERED. [Rollo, pp. 47-48.]

vs. Undaunted, the bank comes to this Court praying that it be totally absolved
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents. from any liability to Zshornack. The latter not having appealed the Court of
Pacis & Reyes Law Office for petitioner. Appeals decision, the issues facing this Court are limited to the bank's liability
Ernesto T. Zshornack, Jr. for private respondent. with regard to the first and second causes of action and its liability for
damages.
CORTES, J.: 1. We first consider the first cause of action, On the dates material to this
The original parties to this case were Rizaldy T. Zshornack and the Commercial case, Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in
Bank and Trust Company of the Philippines [hereafter referred to as COMTRUST, Quezon City Branch, a dollar savings account and a peso current
"COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter referred account.
to as BPI absorbed COMTRUST through a corporate merger, and was On October 27, 1975, an application for a dollar draft was accomplished by
substituted as party to the case. Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City,
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the
of First Instance of Rizal — Caloocan City a complaint against COMTRUST application, Garcia indicated that the amount was to be charged to Dollar
alleging four causes of action. Except for the third cause of action, the CFI Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges
ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate for commission, documentary stamp tax and others totalling P17.46 were to
Court which modified the CFI decision absolving the bank from liability on the be charged to Current Acct. No. 210465-29, again, the current account of the
fourth cause of action. The pertinent portions of the judgment, as modified, Zshornacks. There was no indication of the name of the purchaser of the
read: dollar draft.
IN VIEW OF THE FOREGOING, the Court renders judgment as follows: On the same date, October 27,1975, COMTRUST, under the signature of
1. Ordering the defendant COMTRUST to restore to the dollar savings account Virgilio V. Garcia, issued a check payable to the order of Leovigilda D. Dizon
of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975 in the sum of US $1,000 drawn on the Chase Manhattan Bank, New York, with
to earn interest together with the remaining balance of the said account at an indication that it was to be charged to Dollar Savings Acct. No. 25-4109.
the rate fixed by the bank for dollar deposits under Central Bank Circular 343; When Zshornack noticed the withdrawal of US$1,000.00 from his account, he
2. Ordering defendant COMTRUST to return to the plaintiff the amount of demanded an explanation from the bank. In answer, COMTRUST claimed that
U.S. $3,000.00 immediately upon the finality of this decision, without interest the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr.,
for the reason that the said amount was merely held in custody for brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with
safekeeping, but was not actually deposited with the defendant COMTRUST COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
because being cash currency, it cannot by law be deposited with plaintiffs Corporation payable to Ernesto.
dollar account and defendant's only obligation is to return the same to Upon consideration of the foregoing facts, this Court finds no reason to
plaintiff upon demand; disturb the ruling of both the trial court and the Appellate Court on the first
xxx xxx xxx cause of action. Petitioner must be held liable for the unauthorized
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 withdrawal of US$1,000.00 from private respondent's dollar account.
as damages in the concept of litigation expenses and attorney's fees suffered In its desperate attempt to justify its act of withdrawing from its depositor's
by plaintiff as a result of the failure of the defendant bank to restore to his savings account, the bank has adopted inconsistent theories. First, it still
(plaintiffs) account the amount of U.S. $1,000.00 and to return to him maintains that the peso value of the amount withdrawn was given to Atty.
(plaintiff) the U.S. $3,000.00 cash left for safekeeping. Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's
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Check. At the same time, the bank claims that the withdrawal was made DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.
pursuant to an agreement where Zshornack allegedly authorized the bank to Received by:
withdraw from his dollar savings account such amount which, when (Sgd.) VIRGILIO V. GARCIA
converted to pesos, would be needed to fund his peso current account. If It was also alleged in the complaint that despite demands, the bank refused
indeed the peso equivalent of the amount withdrawn from the dollar account to return the money.
was credited to the peso current account, why did the bank still have to pay In its answer, COMTRUST averred that the US$3,000 was credited to
Ernesto? Zshornack's peso current account at prevailing conversion rates.
At any rate, both explanations are unavailing. With regard to the first It must be emphasized that COMTRUST did not deny specifically under oath
explanation, petitioner bank has not shown how the transaction involving the the authenticity and due execution of the above instrument.
cashier's check is related to the transaction involving the dollar draft in favor During trial, it was established that on December 8, 1975 Zshornack indeed
of Dizon financed by the withdrawal from Rizaldy's dollar account. The two delivered to the bank US $3,000 for safekeeping. When he requested the
transactions appear entirely independent of each other. Moreover, Ernesto return of the money on May 10, 1976, COMTRUST explained that the sum
Zshornack, Jr., possesses a personality distinct and separate from Rizaldy was disposed of in this manner: US$2,000.00 was sold on December 29, 1975
Zshornack. Payment made to Ernesto cannot be considered payment to and the peso proceeds amounting to P14,920.00 were deposited to
Rizaldy. Zshornack's current account per deposit slip accomplished by Garcia; the
As to the second explanation, even if we assume that there was such an remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds
agreement, the evidence do not show that the withdrawal was made amounting to P8,350.00 were deposited to his current account per deposit
pursuant to it. Instead, the record reveals that the amount withdrawn was slip also accomplished by Garcia.
used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund Aside from asserting that the US$3,000.00 was properly credited to
the current account of the Zshornacks. There is no proof whatsoever that Zshornack's current account at prevailing conversion rates, BPI now posits
peso Current Account No. 210-465-29 was ever credited with the peso another ground to defeat private respondent's claim. It now argues that the
equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar contract embodied in the document is the contract of depositum (as defined
Savings Account No. 25-4109. in Article 1962, New Civil Code), which banks do not enter into. The bank
2. As for the second cause of action, the complaint filed with the trial court alleges that Garcia exceeded his powers when he entered into the
alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru transaction. Hence, it is claimed, the bank cannot be liable under the contract,
Garcia, US $3,000.00 cash (popularly known as greenbacks) for safekeeping, and the obligation is purely personal to Garcia.
and that the agreement was embodied in a document, a copy of which was Before we go into the nature of the contract entered into, an important point
attached to and made part of the complaint. The document reads: which arises on the pleadings, must be considered.
Makati Cable Address: The second cause of action is based on a document purporting to be signed
Philippines "COMTRUST" by COMTRUST, a copy of which document was attached to the complaint. In
COMMERCIAL BANK AND TRUST COMPANY short, the second cause of action was based on an actionable document. It
of the Philippines was therefore incumbent upon the bank to specifically deny under oath the
Quezon City Branch due execution of the document, as prescribed under Rule 8, Section 8, if it
December 8, 1975 desired: (1) to question the authority of Garcia to bind the corporation; and
MR. RIZALDY T. ZSHORNACK (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v.
&/OR MRS SHIRLEY E. ZSHORNACK International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer
Sir/Madam: denying the due execution of the document in question, or questioning the
We acknowledged (sic) having received from you today the sum of US authority of Garcia to bind the bank, or denying the bank's capacity to enter
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into the contract, was ever filed. Hence, the bank is deemed to have admitted Having determined that Garcia's act of entering into the contract binds the
not only Garcia's authority, but also the bank's power, to enter into the corporation, we now determine the correct nature of the contract, and its
contract in question. legal consequences, including its enforceability.
In the past, this Court had occasion to explain the reason behind this The document which embodies the contract states that the US$3,000.00 was
procedural requirement. received by the bank for safekeeping. The subsequent acts of the parties also
The reason for the rule enunciated in the foregoing authorities will, we think, show that the intent of the parties was really for the bank to safely keep the
be readily appreciated. In dealing with corporations the public at large is dollars and to return it to Zshornack at a later time, Thus, Zshornack
bound to rely to a large extent upon outward appearances. If a man is found demanded the return of the money on May 10, 1976, or over five months
acting for a corporation with the external indicia of authority, any person, not later.
having notice of want of authority, may usually rely upon those appearances; The above arrangement is that contract defined under Article 1962, New Civil
and if it be found that the directors had permitted the agent to exercise that Code, which reads:
authority and thereby held him out as a person competent to bind the Art. 1962. A deposit is constituted from the moment a person receives a thing
corporation, or had acquiesced in a contract and retained the benefit belonging to another, with the obligation of safely keeping it and of returning
supposed to have been conferred by it, the corporation will be bound, the same. If the safekeeping of the thing delivered is not the principal purpose
notwithstanding the actual authority may never have been granted of the contract, there is no deposit but some other contract.
... Whether a particular officer actually possesses the authority which he Note that the object of the contract between Zshornack and COMTRUST was
assumes to exercise is frequently known to very few, and the proof of it foreign exchange. Hence, the transaction was covered by Central Bank
usually is not readily accessible to the stranger who deals with the Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions,
corporation on the faith of the ostensible authority exercised by some of the promulgated on December 9, 1949, which was in force at the time the parties
corporate officers. It is therefore reasonable, in a case where an officer of a entered into the transaction involved in this case. The circular provides:
corporation has made a contract in its name, that the corporation should be xxx xxx xxx
required, if it denies his authority, to state such defense in its answer. By this 2. Transactions in the assets described below and all dealings in them of
means the plaintiff is apprised of the fact that the agent's authority is whatever nature, including, where applicable their exportation and
contested; and he is given an opportunity to adduce evidence showing either importation, shall NOT be effected, except with respect to deposit accounts
that the authority existed or that the contract was ratified and approved. included in sub-paragraphs (b) and (c) of this paragraph, when such deposit
[Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).] accounts are owned by and in the name of, banks.
Petitioner's argument must also be rejected for another reason. The practical (a) Any and all assets, provided they are held through, in, or with banks or
effect of absolving a corporation from liability every time an officer enters banking institutions located in the Philippines, including money, checks,
into a contract which is beyond corporate powers, even without the proper drafts, bullions bank drafts, deposit accounts (demand, time and savings), all
allegation or proof that the corporation has not authorized nor ratified the debts, indebtedness or obligations, financial brokers and investment houses,
officer's act, is to cast corporations in so perfect a mold that transgressions notes, debentures, stocks, bonds, coupons, bank acceptances, mortgages,
and wrongs by such artificial beings become impossible [Bissell v. Michigan pledges, liens or other rights in the nature of security, expressed in foreign
Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no currencies, or if payable abroad, irrespective of the currency in which they are
right to do unauthorized acts is only to put forth a very plain truism but to say expressed, and belonging to any person, firm, partnership, association,
that such bodies have no power or capacity to err is to impute to them an branch office, agency, company or other unincorporated body or corporation
excellence which does not belong to any created existence with which we are residing or located within the Philippines;
acquainted. The distinction between power and right is no more to be lost (b) Any and all assets of the kinds included and/or described in subparagraph
sight of in respect to artificial than in respect to natural persons." [Ibid.] (a) above, whether or not held through, in, or with banks or banking
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institutions, and existent within the Philippines, which belong to any person, 281, Regulations on Foreign Exchange, promulgated on November 26, 1969
firm, partnership, association, branch office, agency, company or other by limiting its coverage to Philippine residents only. Section 6 provides:
unincorporated body or corporation not residing or located within the SEC. 6. All receipts of foreign exchange by any resident person, firm, company
Philippines; or corporation shall be sold to authorized agents of the Central Bank by the
(c) Any and all assets existent within the Philippines including money, checks, recipients within one business day following the receipt of such foreign
drafts, bullions, bank drafts, all debts, indebtedness or obligations, financial exchange. Any resident person, firm, company or corporation residing or
securities commonly dealt in by bankers, brokers and investment houses, located within the Philippines, who acquires foreign exchange shall not,
notes, debentures, stock, bonds, coupons, bank acceptances, mortgages, unless authorized by the Central Bank, dispose of such foreign exchange in
pledges, liens or other rights in the nature of security expressed in foreign whole or in part, nor receive less than its full value, nor delay taking
currencies, or if payable abroad, irrespective of the currency in which they ownership thereof except as such delay is customary; Provided, That, within
are expressed, and belonging to any person, firm, partnership, association, one business day upon taking ownership or receiving payment of foreign
branch office, agency, company or other unincorporated body or corporation exchange the aforementioned persons and entities shall sell such foreign
residing or located within the Philippines. exchange to the authorized agents of the Central Bank.
xxx xxx xxx As earlier stated, the document and the subsequent acts of the parties show
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank that they intended the bank to safekeep the foreign exchange, and return it
by those authorized to deal in foreign exchange. All receipts of foreign later to Zshornack, who alleged in his complaint that he is a Philippine
exchange by any person, firm, partnership, association, branch office, agency, resident. The parties did not intended to sell the US dollars to the Central
company or other unincorporated body or corporation shall be sold to the Bank within one business day from receipt. Otherwise, the contract of
authorized agents of the Central Bank by the recipients within one business depositum would never have been entered into at all.
day following the receipt of such foreign exchange. Any person, firm, Since the mere safekeeping of the greenbacks, without selling them to the
partnership, association, branch office, agency, company or other Central Bank within one business day from receipt, is a transaction which is
unincorporated body or corporation, residing or located within the not authorized by CB Circular No. 20, it must be considered as one which falls
Philippines, who acquires on and after the date of this Circular foreign under the general class of prohibited transactions. Hence, pursuant to Article
exchange shall not, unless licensed by the Central Bank, dispose of such 5 of the Civil Code, it is void, having been executed against the provisions of
foreign exchange in whole or in part, nor receive less than its full value, nor a mandatory/prohibitory law. More importantly, it affords neither of the
delay taking ownership thereof except as such delay is customary; Provided, parties a cause of action against the other. "When the nullity proceeds from
further, That within one day upon taking ownership, or receiving payment, of the illegality of the cause or object of the contract, and the act constitutes a
foreign exchange the aforementioned persons and entities shall sell such criminal offense, both parties being in pari delicto, they shall have no cause
foreign exchange to designated agents of the Central Bank. of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy
xxx xxx xxx is one on behalf of the State to prosecute the parties for violating the law.
8. Strict observance of the provisions of this Circular is enjoined; and any We thus rule that Zshornack cannot recover under the second cause of action.
person, firm or corporation, foreign or domestic, who being bound to the 3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in
observance thereof, or of such other rules, regulations or directives as may the concept of litigation expenses and attorney's fees to be reasonable. The
hereafter be issued in implementation of this Circular, shall fail or refuse to award is sustained.
comply with, or abide by, or shall violate the same, shall be subject to the WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is
penal sanctions provided in the Central Bank Act. ordered to restore to the dollar savings account of private respondent the
xxx xxx xxx amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. fixed by the bank for dollar savings deposits. Petitioner is further ordered to
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pay private respondent the amount of P8,000.00 as damages. The other foregoing document, but on account of the principal, and denied that there
causes of action of private respondent are ordered dismissed. had been any agreement as to an extension of the time for payment and the
SO ORDERED. 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
G.R. No. 4015 August 24, 1908 contained therein.
ANGEL JAVELLANA, plaintiff-appellee, As a counterclaim, the defendants alleged that they had paid to the plaintiff
vs. sums which, together with the P1,102.16 acknowledged in the complaint,
JOSE LIM, ET AL., defendants-appellants. aggregated the total sum of P5,602.16, and that, deducting therefrom the
R. Zaldarriaga for appellants.
B. Montinola for appellee. total sum of P2,686.58 stated in the document transcribed in the complaint,
TORRES, J.: the plaintiff still owed the defendants P2,915.58; therefore, they asked that
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of judgment be entered absolving them, and sentencing the plaintiff to pay
October, 1906, with the Court of First Instance of Iloilo, praying that the them the sum of P2,915.58 with the costs.
defendants, Jose Lim and Ceferino Domingo Lim, he sentenced to jointly and Evidence was adduced by both parties and, upon their exhibits, together with
severally pay the sum of P2,686.58, with interest thereon at the rate of 15 an account book having been made of record, the court below rendered
per cent per annum from the 20th of January, 1898, until full payment should judgment on the 15th of January, 1907, in favor of the plaintiff for the
be made, deducting from the amount of interest due the sum of P1,102.16, recovery of the sum of P5,714.44 and costs.
and to pay the costs of the proceedings. The defendants excepted to the above decision and moved for a new trial.
Authority from the court having been previously obtained, the complaint was This motion was overruled and was also excepted to by them; the bill of
amended on the 10th of January, 1907; it was then alleged, on the 26th of exceptions presented by the appellants having been approved, the same was
May, 1897, the defendants executed and subscribed a document in favor of in due course submitted to this court.
the plaintiff reading as follows: The document of indebtedness inserted in the complaint states that the
We have received from Angel Javellana, as a deposit without interest, the sum plaintiff left on deposit with the defendants a given sum of money which they
of two thousand six hundred and eighty-six cents of pesos fuertes, which we were jointly and severally obliged to return on a certain date fixed in the
will return to the said gentleman, jointly and severally, on the 20th of January, document; but that, nevertheless, when the document appearing as Exhibits
1898. — Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed: Ceferino 2, written in the Visayan dialect and followed by a translation into Spanish
Domingo Lim. was executed, it was acknowledged, at the date thereof, the 15th of
That, when the obligation became due, the defendants begged the plaintiff November, 1902, that the amount deposited had not yet been returned to
for an extension of time for the payment thereof, building themselves to pay the creditor, whereby he was subjected to losses and damages amounting to
interest at the rate of 15 per cent on the amount of their indebtedness, to 830 pesos since the 20th of January, 1898, when the return was again
which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid stipulated with the further agreement that the amount deposited should
on account of interest due the sum of P1,000 pesos, with the exception of bear interest at the rate of 15 per cent per annum, from the aforesaid date
either capital or interest, had thereby been subjected to loss and damages. of January 20, and that the 1,000 pesos paid to the depositor on the 15th of
A demurrer to the original complaint was overruled, and on the 4th of May, 1900, according to the receipt issued by him to the debtors, would be
January, 1907, the defendants answered the original complaint before its included, and that the said rate of interest would obtain until the debtors on
amendment, setting forth that they acknowledged the facts stated in Nos. 1 the 20th of May, 1897, it is called a deposit consisted, and they could have
and 2 of the complaint; that they admitted the statements of the plaintiff accomplished the return agreed upon by the delivery of a sum equal to the
relative to the payment of 1,102.16 pesos made on the 15th of November, one received by them. For this reason it must be understood that the debtors
1902, not, however, as payment of interest on the amount stated in the were lawfully authorized to make use of the amount deposited, which they
5
have done, as subsequent shown when asking for an extension of the time convinced that the said Jose Lim was perfectly aware of and authorized his
for the return thereof, inasmuch as, acknowledging that they have subjected joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on
the letter, their creditor, to losses and damages for not complying with what account thereof, and to execute the aforesaid document No. 2. A true
had been stipulated, and being conscious that they had used, for their own ratification of the original document of deposit was thus made, and not the
profit and gain, the money that they received apparently as a deposit, they least proof is shown in the record that Jose Lim had ever paid the whole or
engaged to pay interest to the creditor from the date named until the time any part of the capital stated in the original document, Exhibit 1.
when the refund should be made. Such conduct on the part of the debtors is If the amount, together with interest claimed in the complaint, less 1,000
unquestionable evidence that the transaction entered into between the pesos appears as fully established, such is not the case with the defendant's
interested parties was not a deposit, but a real contract of loan. counterclaim for P5,602.16, because the existence and certainty of said
Article 1767 of the Civil Code provides that — indebtedness imputed to the plaintiff has not been proven, and the
The depository can not make use of the thing deposited without the express defendants, who call themselves creditors for the said amount have not
permission of the depositor. proven in a satisfactory manner that the plaintiff had received partial
Otherwise he shall be liable for losses and damages. payments on account of the same; the latter alleges with good reason, that
Article 1768 also provides that — they should produce the receipts which he may have issued, and which he did
When the depository has permission to make use of the thing deposited, the issue whenever they paid him any money on account. The plaintiffs allegation
contract loses the character of a deposit and becomes a loan or bailment. that the two amounts of 400 and 1,200 pesos, referred to in documents
The permission shall not be presumed, and its existence must be proven. marked "C" and "D" offered in evidence by the defendants, had been received
When on one of the latter days of January, 1898, Jose Lim went to the office from Ceferino Domingo Lim on account of other debts of his, has not been
of the creditor asking for an extension of one year, in view of the fact the contradicted, and the fact that in the original complaint the sum of 1,102.16
money was scare, and because neither himself nor the other defendant were pesos, was expressed in lieu of 1,000 pesos, the only payment made on
able to return the amount deposited, for which reason he agreed to pay account of interest on the amount deposited according to documents No. 2
interest at the rate of 15 per cent per annum, it was because, as a matter of and letter "B" above referred to, was due to a mistake.
fact, he did not have in his possession the amount deposited, he having made Moreover, for the reason above set forth it may, as a matter of course, be
use of the same in his business and for his own profit; and the creditor, by inferred that there was no renewal of the contract deposited converted into
granting them the extension, evidently confirmed the express permission a loan, because, as has already been stated, the defendants received said
previously given to use and dispose of the amount stated as having been amount by virtue of real loan contract under the name of a deposit, since the
deposited, which, in accordance with the loan, to all intents and purposes so-called bailees were forthwith authorized to dispose of the amount
gratuitously, until the 20th of January, 1898, and from that dated with deposited. This they have done, as has been clearly shown.
interest at 15 per cent per annum until its full payment, deducting from the The original joint obligation contracted by the defendant debtor still exists,
total amount of interest the sum of 1,000 pesos, in accordance with the and it has not been shown or proven in the proceedings that the creditor had
provisions of article 1173 of the Civil Code. released Joe Lim from complying with his obligation in order that he should
Notwithstanding that it does not appear that Jose Lim signed the document not be sued for or sentenced to pay the amount of capital and interest
(Exhibit 2) executed in the presence of three witnesses on the 15th of together with his codebtor, Ceferino Domingo Lim, because the record offers
November, 1902, by Ceferino Domingo Lim on behalf of himself and the satisfactory evidence against the pretension of Jose Lim, and it further
former, nevertheless, the said document has not been contested as false, appears that document No. 2 was executed by the other debtor, Ceferino
either by a criminal or by a civil proceeding, nor has any doubt been cast upon Domingo Lim, for himself and on behalf of Jose Lim; and it has also been
the authenticity of the signatures of the witnesses who attested the proven that Jose Lim, being fully aware that his debt had not yet been settled,
execution of the same; and from the evidence in the case one is sufficiently took steps to secure an extension of the time for payment, and consented to
6
pay interest in return for the concession requested from the creditor. cross-action against Guillermo Baron in which the defendant claimed
In view of the foregoing, and adopting the findings in the judgment appealed compensation for damages alleged to have Ben suffered by him by reason of
from, it is our opinion that the same should be and is hereby affirmed with the alleged malicious and false statements made by the plaintiff against the
the costs of this instance against the appellant, provided that the interest defendant in suing out an attachment against the defendant's property soon
agreed upon shall be paid until the complete liquidation of the debt. So after the institution of the action. In the same cross-action the defendant also
ordered. sought compensation for damages incident to the shutting down of the
defendant's rice mill for the period of one hundred seventy days during which
G.R. Nos. L-26948 and L-26949 October 8, 1927 the above-mentioned attachment was in force. The trial judge disallowed
SILVESTRA BARON, plaintiff-appellant, these claims for damages, and from this feature of the decision the defendant
vs. appealed. We are therefore confronted with five distinct appeals in this
PABLO DAVID, defendant-appellant. record.
And Prior to January 17, 1921, the defendant Pablo David has been engaged in
GUILLERMO BARON, plaintiff-appellant, running a rice mill in the municipality of Magalang, in the Province of
vs. Pampanga, a mill which was well patronized by the rice growers of the vicinity
PABLO DAVID, defendant-appellant. and almost constantly running. On the date stated a fire occurred that
Jose Gutierrez David for plaintiff-appellant in case of No. 26948. 
Gregorio destroyed the mill and its contents, and it was some time before the mill
Perfecto for defendant-appellant in both cases. 
Francisco, Lualhati & Lopez could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in
and Jose Gutierrez David for plaintiff-appellant in case No. 26949. the first of the actions before us, is an aunt of the defendant; while Guillermo
Baron, the plaintiff in the other action; is his uncle. In the months of March,
STREET, J.: April, and May, 1920, Silvestra Baron placed a quantity of palay in the
These two actions were instituted in the Court of First Instance of the defendant's mill; and this, in connection with some that she took over from
Province of Pampanga by the respective plaintiffs, Silvestra Baron and Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During
Guillermo Baron, for the purpose of recovering from the defendant, Pablo approximately the same period Guillermo Baron placed other 1,865 cavans
David, the value of palay alleged to have been sold by the plaintiffs to the and 43 kilos of palay in the mill. No compensation has ever been received by
defendant in the year 1920. Owing to the fact that the defendant is the same Silvestra Baron upon account of the palay delivered by Guillermo Baron, he
in both cases and that the two cases depend in part upon the same facts, the has received from the defendant advancements amounting to P2,800; but
cases were heard together in the trial court and determined in a single apart from this he has not been compensated. Both the plaintiffs claim that
opinion. The same course will accordingly be followed here. the palay which was delivered by them to the defendant was sold to the
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave defendant; while the defendant, on the other hand, claims that the palay was
judgment for her to recover of the defendant the sum of P5,238.51, with deposited subject to future withdrawal by the depositors or subject to some
costs. From this judgment both the plaintiff and the defendant appealed. future sale which was never effected. He therefore supposes himself to be
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court relieved from all responsibility by virtue of the fire of January 17, 1921,
gave judgment for him to recover of the defendant the sum of P5,734.60, already mentioned.
with costs, from which judgment both the plaintiff and the defendant also The plaintiff further say that their palay was delivered to the defendant at his
appealed. In the same case the defendant interposed a counterclaim in which special request, coupled with a promise on his part to pay for the same at the
he asked credit for the sum of P2,800 which he had advanced to the plaintiff highest price per cavan at which palay would sell during the year 1920; and
Guillermo Baron on various occasions. This credit was admitted by the they say that in August of that year the defendant promised to pay them
plaintiff and allowed by the trial court. But the defendant also interposed a severally the price of P8.40 per cavan, which was about the top of the market
7
for the season, provided they would wait for payment until December. The its value. In this connection we wholly reject the defendant's pretense that
trial judge found that no such promise had been given; and the incredulity of the palay delivered by the plaintiffs or any part of it was actually consumed
the court upon this point seems to us to be justified. A careful examination of in the fire of January, 1921. Nor is the liability of the defendant in any wise
the proof, however, leads us to the conclusion that the plaintiffs did, some affected by the circumstance that, by a custom prevailing among rice millers
time in the early part of August, 1920, make demand upon the defendant for in this country, persons placing palay with them without special agreement
a settlement, which he evaded or postponed leaving the exact amount due as to price are at liberty to withdraw it later, proper allowance being made
to the plaintiffs undetermined. for storage and shrinkage, a thing that is sometimes done, though rarely.
It should be stated that the palay in question was place by the plaintiffs in the In view of what has been said it becomes necessary to discover the price
defendant's mill with the understanding that the defendant was at liberty to which the defendant should be required to pay for the plaintiffs' palay. Upon
convert it into rice and dispose of it at his pleasure. The mill was actively this point the trial judge fixed upon P6.15 per cavan; and although we are not
running during the entire season, and as palay was daily coming in from many exactly in agreement with him as to the propriety of the method by which he
customers and as rice was being constantly shipped by the defendant to arrived at this figure, we are nevertheless of the opinion that, all things
Manila, or other rice markets, it was impossible to keep the plaintiffs' palay considered, the result is approximately correct. It appears that the price of
segregated. In fact the defendant admits that the plaintiffs' palay was mixed palay during the months of April, May, and June, 1920, had been excessively
with that of others. In view of the nature of the defendant's activities and the high in the Philippine Islands and even prior to that period the Government
way in which the palay was handled in the defendant's mill, it is quite certain of the Philippine Islands had been attempting to hold the price in check by
that all of the plaintiffs' palay, which was put in before June 1, 1920, been executive regulation. The highest point was touched in this season was
milled and disposed of long prior to the fire of January 17, 1921. Furthermore, apparently about P8.50 per cavan, but the market began to sag in May or
the proof shows that when the fire occurred there could not have been more June and presently entered upon a precipitate decline. As we have already
than about 360 cavans of palay in the mill, none of which by any reasonable stated, the plaintiffs made demand upon the defendant for settlement in the
probability could have been any part of the palay delivered by the plaintiffs. early part of August; and, so far as we are able to judge from the proof, the
Considering the fact that the defendant had thus milled and doubtless sold price of P6.15 per cavan, fixed by the trial court, is about the price at which
the plaintiffs' palay prior to the date of the fire, it result that he is bound to the defendant should be required to settle as of that date. It was the date of
account for its value, and his liability was not extinguished by the occurence the demand of the plaintiffs for settlement that determined the price to be
of the fire. In the briefs before us it seems to have been assumed by the paid by the defendant, and this is true whether the palay was delivered in the
opposing attorneys that in order for the plaintiffs to recover, it is necessary character of sale with price undetermined or in the character of deposit
that they should be able to establish that the plaintiffs' palay was delivered subject to use by the defendant. It results that the plaintiffs are respectively
in the character of a sale, and that if, on the contrary, the defendant should entitle to recover the value of the palay which they had placed with the
prove that the delivery was made in the character of deposit, the defendant defendant during the period referred to, with interest from the date of the
should be absolved. But the case does not depend precisely upon this explicit filing of their several complaints.
alternative; for even supposing that the palay may have been delivered in the As already stated, the trial court found that at the time of the fire there were
character of deposit, subject to future sale or withdrawal at plaintiffs' about 360 cavans of palay in the mill and that this palay was destroyed. His
election, nevertheless if it was understood that the defendant might mill the Honor assumed that this was part of the palay delivered by the plaintiffs, and
palay and he has in fact appropriated it to his own use, he is of course bound he held that the defendant should be credited with said amount. His Honor
to account for its value. Under article 1768 of the Civil Code, when the therefore deducted from the claims of the plaintiffs their respective
depository has permission to make use of the thing deposited, the contract proportionate shares of this amount of palay. We are unable to see the
loses the character of mere deposit and becomes a loan or a commodatum; propriety of this feature of the decision. There were many customers of the
and of course by appropriating the thing, the bailee becomes responsible for defendant's rice mill who had placed their palay with the defendant under
8
the same conditions as the plaintiffs, and nothing can be more certain than care of a deputy. Operations were not resumed until September 13, 1924,
that the palay which was burned did not belong to the plaintiffs. That palay when the attachment was dissolved by an order of the court and the
without a doubt had long been sold and marketed. The assignments of error defendant was permitted to resume control. At the time the attachment was
of each of the plaintiffs-appellants in which this feature of the decision is levied there were, in the bodega, more than 20,000 cavans of palay belonging
attacked are therefore well taken; and the appealed judgments must be to persons who held receipts therefor; and in order to get this grain away
modified by eliminating the deductions which the trial court allowed from the from the sheriff, twenty-four of the depositors found it necessary to submit
plaintiffs' claims. third-party claims to the sheriff. When these claims were put in the sheriff
The trial judge also allowed a deduction from the claim of the plaintiff notified the plaintiff that a bond in the amount of P50,000 must be given,
Guillermo Baron of 167 cavans of palay, as indicated in Exhibit 12, 13, 14, and otherwise the grain would be released. The plaintiff, being unable or unwilling
16. This was also erroneous. These exhibits relate to transactions that to give this bond, the sheriff surrendered the palay to the claimants; but the
occurred nearly two years after the transactions with which we are here attachment on the rice mill was maintained until September 13, as above
concerned, and they were offered in evidence merely to show the character stated, covering a period of one hundred seventy days during which the mill
of subsequent transactions between the parties, it appearing that at the time was idle. The ground upon which the attachment was based, as set forth in
said exhibits came into existence the defendant had reconstructed his mill the plaintiff's affidavit was that the defendant was disposing or attempting to
and that business relations with Guillermo Baron had been resumed. The dispose of his property for the purpose of defrauding the plaintiff. That this
transactions shown by these exhibits (which relate to palay withdrawn by the allegation was false is clearly apparent, and not a word of proof has been
plaintiff from the defendant's mill) were not made the subject of controversy submitted in support of the assertion. On the contrary, the defendant
in either the complaint or the cross-complaint of the defendant in the second testified that at the time this attachment was secured he was solvent and
case. They therefore should not have been taken into account as a credit in could have paid his indebtedness to the plaintiff if judgment had been
favor of the defendant. Said credit must therefore be likewise of course be rendered against him in ordinary course. His financial conditions was of
without prejudice to any proper adjustment of the rights of the parties with course well known to the plaintiff, who is his uncle. The defendant also states
respect to these subsequent transactions that they have heretofore or may that he had not conveyed away any of his property, nor had intended to do
hereafter effect. so, for the purpose of defrauding the plaintiff. We have before us therefore a
The preceding discussion disposes of all vital contentions relative to the case of a baseless attachment, recklessly sued out upon a false affidavit and
liability of the defendant upon the causes of action stated in the complaints. levied upon the defendant's property to his great and needless damage. That
We proceed therefore now to consider the question of the liability of the the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps
plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R. also indicated in the circumstance that the attachment was finally dissolved
G. No. 26949. In this cross-action the defendant seek, as the stated in the upon the motion of the plaintiff himself.
third paragraph of this opinion, to recover damages for the wrongful suing The defendant testified that his mill was accustomed to clean from 400 to 450
out of an attachment by the plaintiff and the levy of the same upon the cavans of palay per day, producing 225 cavans of rice of 57 kilos each. The
defendant's rice mill. It appears that about two and one-half months after price charged for cleaning each cavan rice was 30 centavos. The defendant
said action was begun, the plaintiff, Guillermo Baron, asked for an attachment also stated that the expense of running the mill per day was from P18 to P25,
to be issued against the property of the defendant; and to procure the and that the net profit per day on the mill was more than P40. As the mill was
issuance of said writ the plaintiff made affidavit to the effect that the not accustomed to run on Sundays and holiday, we estimate that the
defendant was disposing, or attempting the plaintiff. Upon this affidavit an defendant lost the profit that would have been earned on not less than one
attachment was issued as prayed, and on March 27, 1924, it was levied upon hundred forty work days. Figuring his profits at P40 per day, which would
the defendant's rice mill, and other property, real and personal. 1awph!l.net appear to be a conservative estimate, the actual net loss resulting from his
Upon attaching the property the sheriff closed the mill and placed it in the failure to operate the mill during the time stated could not have been less
9
than P5,600. The reasonableness of these figures is also indicated in the fact the cross-action cannot be maintained, for the reason that the affidavit in
that the twenty-four customers who intervened with third-party claims took question was used in course of a legal proceeding for the purpose of obtaining
out of the camarin 20,000 cavans of palay, practically all of which, in the a legal remedy, and it is therefore privileged. But though the affidavit is not
ordinary course of events, would have been milled in this plant by the actionable as a libelous publication, this fact in no obstacle to the
defendant. And of course other grain would have found its way to this mill if maintenance of an action to recover the damage resulting from the levy of
it had remained open during the one hundred forty days when it was closed. the attachment.
But this is not all. When the attachment was dissolved and the mill again Before closing this opinion a word should be said upon the point raised in the
opened, the defendant found that his customers had become scattered and first assignment of error of Pablo David as defendant in case R. G. No. 26949.
could not be easily gotten back. So slow, indeed, was his patronage in In this connection it appears that the deposition of Guillermo Baron was
returning that during the remainder of the year 1924 the defendant was able presented in court as evidence and was admitted as an exhibit, without being
to mill scarcely more than the grain belonging to himself and his brothers; actually read to the court. It is supposed in the assignment of error now under
and even after the next season opened many of his old customers did not consideration that the deposition is not available as evidence to the plaintiff
return. Several of these individuals, testifying as witnesses in this case, stated because it was not actually read out in court. This connection is not well
that, owing to the unpleasant experience which they had in getting back their founded. It is true that in section 364 of the Code of Civil Procedure it is said
grain from the sheriff to the mill of the defendant, though they had previously that a deposition, once taken, may be read by either party and will then be
had much confidence in him. deemed the evidence of the party reading it. The use of the word "read" in
As against the defendant's proof showing the facts above stated the plaintiff this section finds its explanation of course in the American practice of trying
submitted no evidence whatever. We are therefore constrained to hold that cases for the most part before juries. When a case is thus tried the actual
the defendant was damaged by the attachment to the extent of P5,600, in reading of the deposition is necessary in order that the jurymen may become
profits lost by the closure of the mill, and to the extent of P1,400 for injury to acquainted with its contents. But in courts of equity, and in all courts where
the good-will of his business, making a total of P7,000. For this amount the judges have the evidence before them for perusal at their pleasure, it is not
defendant must recover judgment on his cross-complaint. necessary that the deposition should be actually read when presented as
The trial court, in dismissing the defendant's cross-complaint for damages evidence.
resulting from the wrongful suing out of the attachment, suggested that the From what has been said it result that judgment of the court below must be
closure of the rice mill was a mere act of the sheriff for which the plaintiff was modified with respect to the amounts recoverable by the respective plaintiffs
not responsible and that the defendant might have been permitted by the in the two actions R. G. Nos. 26948 and 26949 and must be reversed in
sheriff to continue running the mill if he had applied to the sheriff for respect to the disposition of the cross-complaint interposed by the defendant
permission to operate it. This singular suggestion will not bear a moment's in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the
criticism. It was of course the duty of the sheriff, in levying the attachment, plaintiff Silvestra Baron will recover of the Pablo David the sum of P6,227.24,
to take the attached property into his possession, and the closure of the mill with interest from November 21, 1923, the date of the filing of her complaint,
was a natural, and even necessary, consequence of the attachment. For the and with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will
damage thus inflicted upon the defendant the plaintiff is undoubtedly recover of the defendant Pablo David the sum of P8,669.75, with interest
responsible. from January 9, 1924. In the same case the defendant Pablo David, as plaintiff
One feature of the cross-complaint consist in the claim of the defendant in the cross-complaint, will recover of Guillermo Baron the sum of P7,000,
(cross-complaint) for the sum of P20,000 as damages caused to the defendant without costs. So ordered.
by the false and alleged malicious statements contained in the affidavit upon
which the attachment was procured. The additional sum of P5,000 is also
claimed as exemplary damages. It is clear that with respect to these damages
10
 G.R. No. L-60705 June 28, 1989 with defendant OBM in the amount of P 500,000.00. (Exhibit-10 OBM) and
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, was issued a Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit
vs. D). Under date 6 February 1967 defendant Raul L. Santos also made a time
PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. deposit with defendant OBM in the amount of P 200,000.00 (Exhibit 11 OBM
COURT OF APPEALS, respondents. and was issued certificate of Time Deposit No. 2367 (Exhibit 2 Santos, Exhibit
G.R. No. L-60907 June 28, 1989 E).
OVERSEAS BANK OF MANILA, petitioner, Under date 9 February 1967 defendant IRC thru its President-defendant Raul
vs. L. Santos, applied for a loan and/or credit line (Exhibit A) in the amount of P
COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L. 700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L.
SANTOS, respondents. Santos executed on August 11, 1967 a Deed of Assignment (Exhibit C) of the
two time deposits (Exhibits 1-Santos and 2 Santos, also Exhibits D and E) in
REGALADO, J.: favor of plaintiff. Defendant OBM gave its conformity to the assignment thru
In these petitions for review on certiorari, Integrated Realty Corporation and letter dated 11 August 1967 (Exhibit F). On the same date, defendant IRC thru
Raul Santos (G.R. No. 60705), and Overseas Bank of Manila (G.R. No. 60907) its President Raul L. Santos, also executed a Deed of Conformity to Loan
appeal from the decision of the Court of Appeals, 1 the decretal portion of Conditions (Exhibit G).
which states: The defendant OBM after the due dates of the time deposit certificates, did
WHEREFORE, with the modification that appellee Overseas Bank of Manila is not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and
ordered to pay to the appellant Raul Santos the sum of P 700,000.00 due Raul L. Santos (Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC
under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) and Raul L. Santos replied that the obligation (loan) of defendant IRC was
interest per annum from date of issue until fully paid, the appealed decision deemed paid with the irrevocable assignment of the time deposit certificates
is affirmed in all other respects. (Exhibits 5 Santos, 6 Santos and 7 Santos).
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos
and Raul L. Santos (hereafter, Santos) seek the dismissal of the complaint filed the loan of P 700,000.00 with interest as well as attomey's fees. It impleaded
by the Philippine National Bank (hereafter, PNB), or in the event that they be OBM as a defendant to compel it to redeem and pay to it Santos' time deposit
held liable thereunder, to revive and affirm that portion of the decision of the certificates with interest, plus exemplary and corrective damages, attorney's
trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and fees, and cost.
Santos whatever amounts the latter will pay to PNB, with interest from the In their answer to the complaint, IRC and Santos alleged that PNB has no
date of payment. 2 cause of action against them because their obligation to PNB was fully paid
On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision or extinguished upon the' irrevocable' assignment of the time deposit
of respondent court insofar as it holds OBM liable for interest on the time certificates, and that they are not answerable for the insolvency of OBM They
deposit with it of Santos corresponding to the period of its closure by order filed a counterclaim for damages against PNB and a cross-claim against OBM
of the Central Bank. 3 alleging that OBM acted fraudulently in refusing to pay the time deposit
In its assailed decision, the respondent Court of Appeals, quoting from the certificates to PNB resulting in the filing of the suit against them by PNB, and
decision of the lower court, 4 narrated the antecedents of this case in this that, therefore, OBM should pay them whatever amount they may be
wise: ordered by the court to pay PNB with interest. They also asked that OBM be
The facts of this case are not seriously disputed by any of the parties. They ordered to pay them compensatory, moral, exemplary and corrective
are set forth in the decision of the trial court as follows: damages.
Under date 11 January 1967 defendant Raul L. Santos made a time deposit In its answer to the complaint, OBM denied knowledge of the time deposit
11
certificates because the alleged time deposit of Santos 'does not appear in its 5. The third-party complaint and cross-claim dismissed;
books of account. 6. The defendant Overseas Bank of Manila to pay the costs.
Whereupon, IRC and Santos, with leave of court, filed a third-party complaint SO ORDERED. 5
against Emerito B. Ramos, Jr., president of OBM and Rodolfo R. Sunico, IRC Santos and OBM all appealed to the respondent Court of Appeals. As
treasurer of said bank, who allegedly received the time deposits of Santos stated in limine, on March 16, 1982 respondent court promulgated its
and issued the certificates therefor. appealed decision, with a modification and the deletion of that portion of the
Answering the third-party complaint, Ramos and Sunico alleged that IRC and judgment of the trial court ordering OBM to pay IRC and Santos whatever
Santos have no cause of action against them because they received and amounts they will pay to PNB with interest from the date of payment.
signed the time deposit certificates as officers of OBM that the time deposits Therein defendants-appellants, through separate petitions, have brought the
are recorded in the subsidiary ledgers of the bank and are 'civil liabilities of said decision to this Court for review.
the defendant OBM 1. The first issue posed before us for resolution is whether the liability of IRC
On November 18, 1970, OBM filed an amended or supplemental answer to and Santos with PNB should be deemed to have been paid by virtue of the
the complaint, acknowledging the certificates of time deposit that it issued to deed of assignment made by the former in favor of PNB, which reads:
Santos, and admitting its failure to pay the same due to its distressed financial KNOW ALL MEN BY THESE PRESENTS;
situation. As affirmative defenses, it alleged that by reason of its state of I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at
insolvency its operations have been suspended by the Central Bank since 661 Richmond St., Mandaluyong, Rizal for and in consideration of certain
August 1, 1968; that the time deposits ceased to earn interest from that date; loans, overdrafts and other credit accommodations granted or those that
that it may not give preference to any depositor or creditor; and that payment may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK, have
of the plaintiffs claim is prohibited. assigned, transferred and conveyed and by these presents, do hereby assign,
On January 30, 1976, the lower court rendered judgment for the plaintiff, the transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK
dispositive portion of which reads as foIlows its successors and assigns the following Certificates of Time Deposit issued by
WHEREFORE, judgment is hereby rendered, ordering: the OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967,
1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the hereto enclosed as Annex ' A', in favor of RAUL L. SANTOS and/or NORA S.
plaintiff, jointly and solidarily, the total amount of P 700,000.00 plus interest SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY
at the rate of 9% per annum from maturity dates of the two promissory notes (P 700,000.00), Philippine Currency, ....
on January 11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ xxx xxx xxx
2% additional interest effective February 28, 1968 and additional penalty It is also understood that the herein Assignor/s shall remain hable for any
interest of 1% per annum of the Id amount of P 700,000.00 from the time of outstanding balance of his/their obligation if the Bank is unable to actually
maturity of Id loan up to the time the said amount of P 700,000.00 is actually receive or collect the above assigned sums , monies or properties resulting
paid to the plaintiff; from any agreements, orders or decisions of the court or for any other cause
2. The defendants topay l0% of the amount of P 700,000.00 as and for whatsoever. 6
attorney's fees; xxx xxx xxx
3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Respondent Court of Appeals did not consider the aforesaid assignment as
Realty Corporation and Raul L. Santos whatever amounts the latter will pay payment, thus:
to the plaintiff with interest from date of payment; The contention of IRC and Santos that the irrevocable assignment of the time
4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated deposit certificates to PNB constituted payment' of their obligation to the
Realty Corporation and Raul L. Santos the amount of P 10,000.00 as and for latter is not well taken.
attorney's fees; Where a certificate of deposit in a bank, payable at a future day, was handed
12
over by a debtor to his creditor, it was not payment, unless there was an his surety. In return for the undertaking of Philamgen under the surety bond,
express agreement on the part of the creditor to receive it as such, and the Lopez executed on the same day not only an indemnity agreement but also a
question whether there was or was not such an agreement, was one of facts stock assignment.
to be decided by the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; The indemnity agreement and stock assignment must be considered together
See also Michie, Vol. 5-B Banks and Banking, p. 200). 7 as related transactions because in order to judge the intention of the
We uphold respondent court on this score. contracting parties, their contemporaneous and subsequent acts shall be
In Lopez vs. Court of appeals, et al., 8 petitioner Benito Lopez obtained a loan principally considered. (Article 1371, New Civil Code). Thus, considering that
for P 20,000.00 from the Prudential Bank and Trust Company. On the same the indemnity agreement connotes a continuing obligation of Lopez towards
day, he executed a promissory note in favor of the bank and, in addition, he Philamgen while the stock assignment indicates a complete discharge of the
executed a surety bond in which he, as principal, and Philippine American same obligation, the existence of the indemnity agreement whereby Lopez
General Insurance Co., Inc. (Philamgen), as surety, bound themselves jointly had to pay a premium of P l,000.00 for a period of one year and agreed at all
and severally in favor of the bank for the payment of the loan. On the same times to indemnify Philamgen of any and all kinds of losses which the latter
occasion, Lopez also executed in favor of Philamgen an indemnity agreement might sustain by reason of it becoming a surety, is inconsistent with the
whereby he agreed to indemnify the company against any damages which theory of an absolute sale for and in consideration of the same undertaking
the latter may sustain in consequence of having become a surety upon the of Philamgen. There would have been no necessity for the execution of the
bond. At the same time, Lopez executed a deed of assignment of his shares indemnity agreement if the stock assignment was really intended as an
of stock in the Baguio Military Institute, Inc. in favor of Philamgen. When absolute conveyance. ...
Lopez' obligation matured without being settled, Philamgen caused the Along the same vein, in the case at bar it would not have been necessary on
transfer of the shares of stocks to its name in order that it may sell the same the part of IRC and Santos to execute promissory notes in favor of PNB if the
and apply the proceeds thereof in payment of the loan to the bank. However, assignment of the time deposits of Santos was really intended as an absolute
when no payment was still made by the principal debtor or surety, the bank conveyance.
filed a complaint which compelled Philamgen to pay the bank. Thereafter, There are cogent reasons to conclude that the parties intended said deed of
Philamgen filed an action to recover the amount of the loan against Lopez. assignment to complement the promissory notes. In declaring that the deed
The trial court therein held that the obligation of Lopez was deemed paid of assignment did not operate as payment of the loan so as to extinguish the
when his shares of stocks were transferred in the name of Philamgen. On obligations of IRC and Santos with PNB, the trial court advanced several valid
appeal, the Court of Appeals ruled that Lopez was still liable to Philamgen bases, to wit:
because, pending payment, Philamgen was merely holding the stock as a. It is clear from the Deed of Assignment that it was only by way of security;
security for the payment of Lopez' obligation. xxx xxx xxx
In upholding the finding therein of the Court of Appeals, We held that: b. The promissory notes (Exhibits H and I) were executed on August 16, 1967.
Notwithstanding the express terms of the 'Stock Assignment Separate from If defendants IRC and Raul L. Santos, upon executing the Deed of Assignment
Certificate', however, We hold and rule that the transaction should not be on August 11, 1967 had already paid their loan of P 700,000.00 or otherwise
regarded as an absolute conveyance in view of the circumstances obtaining extinguished the same, why were the promissory notes made on August 16,
at the time of the execution thereof. 1967 still executed by IRC and signed by Raul L. Santos as President?
It should be remembered that on June 2, 1959, the day Lopez obtained a loan c. In the application for a credit line (Exhibit A),the time deposits were offered
of P 20,000.00 from Prudential Bank, Lopez executed a promissory note for P as collateral. 9
20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor For all intents and purposes, the deed of assignment in this case is actually a
of said Bank. He likewise posted a surety bond to secure his full and faithful pledge. Adverting again to the Court's pronouncements in Lopez, supra, we
performance of his obligation under the promissory note with Philamgen as quote therefrom:
13
The character of the transaction between the parties is to be determined by was done in accordance with ordinary banking procedures. Not only did IRC
their intention, regardless of what language was used or what the form of the and Santos fail to overcome the presumption of regularity of business
transfer was. If it was intended to secure the payment of money, it must be transactions, but they are likewise estopped from questioning the validity
construed as a pledge; but if there was some other intention, it is not a thereof for the first time in this petition. There is nothing in the records to
pledge. However, even though a transfer, if regarded by itself, appears to show that they raised this issue during the trial by presenting countervailing
have been absolute, its object and character might still be qualified and evidence. What was merely touched upon during the proceedings in the court
explained by a contemporaneous writing declaring it to have been a deposit below was the alleged lack of notice to them of the board resolution, but not
of the property as collateral security. It has been said that a transfer of the veracity or validity thereof.
property by the debtor to a creditor, even if sufficient on its face to make an 3. On the issue of whether OBM should be held liable for interests on the time
absolute conveyance, should be treated as a pledge if the debt continues in deposits of IRC and Santos from the time it ceased operations until it resumed
existence and is not discharged by the transfer, and that accordingly, the use its business, the answer is in the negative.
of the terms ordinarily importing conveyance, of absolute ownership will not We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony
be given that effect in such a transaction if they are also commonly used in D. Tapia, 13 that:
pledges and mortgages and therefore do not unqualifiedly indicate a transfer It is a matter of common knowledge, which We take judicial notice of, that
of absolute ownership, in the absence of clear and unambiguous language or what enables a bank to pay stipulated interest on money deposited with it is
other circumstances excluding an intent to pledge. 10 that thru the other aspects of its operation it is able to generate funds to
The facts and circumstances leading to the execution of the deed of cover the payment of such interest. Unless a bank can lend money, engage in
assignment, as found by the court a quo and the respondent court, yield said international transactions, acquire foreclosed mortgaged properties or their
conclusion that it is in fact a pledge. The deed of assignment has satisfied the proceeds and generally engage in other banking and financing activities from
requirements of a contract of pledge (1) that it be constituted to secure the which it can derive income, it is inconceivable how it can carry on as a
fulfillment of a principal obligation; (2) that the pledgor be the absolute depository obligated to pay stipulated interest. Conventional wisdom
owner of the thing pledged; (3) that the persons constituting the pledge have dictated; this inexorable fair and just conclusion. And it can be said that all
the free disposal of their property, and in the absence thereof, that they be who deposit money in banks are aware of such a simple economic proposition
legally authorized for the purpose. 11 The further requirement that the thing petition. Consequently, it should be deemed read into every contract of
pledged be placed in the possession of the creditor, or of a third person by deposit with a bank that the obligation to pay interest on the deposit ceases
common agreement 12 was complied with by the execution of the deed of the moment the operation of the bank is completely suspended by the duly
assignment in favor of PNB. constituted authority, the Central Bank.
It must also be emphasized that Santos, as assignor, made an express We consider it of trivial consequence that the stoppage of the bank's
undertaking that he would remain liable for any outstanding balance of his operation by the Central Bank has been subsequently declared illegal by the
obligation should PNB be unable to actually receive or collect the assigned Supreme Court, for before the Court's order, the bank had no alternative
sums resulting from any agreements, orders or decisions of the court or for under the law than to obey the orders of the Central Bank. Whatever be the
any other cause whatsoever. The term "for any cause whatsoever" is broad juridical significance of the subsequent action of the Supreme Court, the
enough to include the situation involved in the present case. stubborn fact remained that the petitioner was totally crippled from then on
Under the foregoing circumstances and considerations, the unavoidable from earning the income needed to meet its obligations to its depositors. If
conclusion is that IRC and Santos should be held liable to PNB for the amount such a situation cannot, strictly speaking, be legally denominated as 'force
of the loan with the corresponding interest thereon. majeure', as maintained by private respondent, We hold it is a matter of
2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) simple equity that it be treated as such.
imposed by PNB pursuant to the resolution of its Board which presumably The Court further adjured that:
14
Parenthetically, We may add for the guidance of those who might be ceased to do business because it was declared in a state of liquidation, we
concerned, and so that unnecessary litigations be avoided from further hold that the said interest should not be paid.
clogging the dockets of the courts, that in the light of the considerations The Court of Appeals considered this ruling inapplicable to the instant case,
expounded in the above opinion, the same formula that exempts petitioner precisely because, as contended by private respondent, the said Apothecaries
from the payment of interest to its depositors during the whole period of case had in fact in contemplation a valid order of liquidation of the bank
factual stoppage of its operations by orders of the Central Bank, modified in concerned, whereas here, the order of the Central Bank of August 13, 1968
effect by the decision as well as the approval of a formula of rehabilitation by completely forbidding herein petitioner to do business preparatory to its
this Court, should be, as a matter of consistency, applicable or followed in liquidation was first restrained and then nullified by this Supreme Court. In
respect to all other obligations of petitioner which could not be paid during other words, as far as private respondent is concerned, it is the legal reason
the period of its actual complete closure. for cessation of operations, not the actual cessation thereof, that matters and
We cannot accept the holding of the respondent Court of Appeals that the is decisive insofar as his right to the continued payment of the interest on his
above-cited decisions apply only where the bank is in a state of liquidation. In deposit during the period of cessation is concerned.
the very case aforecited, this issue was likewise raised and We resolved: In the light of the peculiar circumstances of this particular case, We disagree.
Thus, Our task is narrowed down to the resolution of the legal problem of It is Our considered view, after mature deliberation, that it is utterly unfair to
whether or not, for purposes of the payment of the interest here in question, award private respondent his prayer for payment of interest on his deposit
stoppage of the operations of a bank by a legal order of liquidation may be during the period that petitioner bank was not allowed by the Central Bank
equated with actual cessation of the bank's operation, not different, factually to operate.
speaking, in its effects, from legal liquidation the factual cessation having 4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever
been ordered by the Central Bank. amounts they may be adjudged to pay PNB by way of compensation for
In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, damages incurred, pursuant to Articles 1170 and 2201 of the Civil Code.
65 Phil. 395, this Court held: It appears that as early as April, 1967, the financial situation of OBM had
As to the second assignment of error, this Court, in G.R. No. 43682, In re already caused mounting concern in the Central Bank. 14 On December 5,
Liquidation of the Mercantile Bank of China, Tan Tiong Tick, claimant and 1967, new directors and officers drafted from the Central Bank (CB) itself, the
appellant vs. American Apothecaries, C., et al., claimants and appellees, Philippine National Bank (PNB) and the Development Bank of the Philippines
through Justice Imperial, held the following: (DBP) were elected and installed and they took over the management and
4. The court held that the appellant is not entitled to charge interest on the control of the Overseas Bank. 15 However, it was only on July 31, 1968 when
amounts of his claims, and this is the object of the second assignment of OBM was excluded from clearing with the CB under Monetary Board
error, Upon this point a distinction must be made between the interest which Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to
the deposits should earn from their existence until the bank ceased to Resolution No. 1290 of the CB OBM's operations were suspended. 16 These
operate, and that which they may earn from the time the bank's operations CB resolutions were eventually annulled and set aside by this Court on
were stopped until the date of payment of the deposits. As to the first-class, October 4, 1971 in the decision rendered in the herein cited case of Ramos.
we hold that it should be paid because such interest has been earned in the Thus, when PNB demanded from OBM payment of the amounts due on the
ordinary course of the bank's businesses and before the latter has been two time deposits which matured on January 11, 1968 and February 6, 1968,
declared in a state of liquidation. Moreover, the bank being authorized by law respectively, there was as yet no obstacle to the faithful compliance by OBM
to make use of the deposits with the limitation stated, to invest the same in of its liabilities thereunder. Consequently, for having incurred in delay in the
its business and other operations, it may be presumed that it bound itself to performance of its obligation, OBM should be held liable for damages. 17
pay interest to the depositors as in fact it paid interest prior to the dates of When respondent Santos invested his money in time deposits with OBM they
the Id claims. As to the interest which may be charged from the date the bank entered into a contract of simple loan or mutuum, 18 not a contract of deposit.
15
While it is true that under Article 1956 of the Civil Code no interest shall be Besides, IRC and Santos are not without fault. They likewise acted in bad faith
due unless it has been expressly stipulated in writing, this applies only to when they refuse to comply with their obligations under the promissory
interest for the use of money. It does not comprehend interest paid as notes, thus incurring liability for all damages reasonably attributable to the
damages. 19 OBM contends that it had agreed to pay interest only up to the non-payment of said obligations. 24
dates of maturity of the certificates of time deposit and that respondent WHEREFORE, judgment is hereby rendered, ordering:
Santos is not entitled to interest after the maturity dates had expired, unless 1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National
the contracts are renewed. This is true with respect to the stipulated interest, Bank, jointly and severally, the total amount of seven hundred thousand
but the obligations consisting as they did in the payment of money, under pesos (P 700,000.00), with interest thereon at the rate of nine percent (9%)
Article 1108 of the Civil Code he has the right to recover damages resulting per annum from the maturity dates of the two promissory notes on January
from the default of OBM and the measure of such damages is interest at the 11 and February 6, 1968, respectively, plus one and one-half percent (1-1/2%)
legal rate of six percent (6%) per annum on the amounts due and unpaid at additional interest per annum effective February 28, 1968 and additional
the expiration of the periods respectively provided in the contracts. In fine, penalty interest of one percent (1%) per annum of the said amount of seven
OBM is being required to pay such interest, not as interest income stipulated hundred thousand pesos (P 700,000.00) from the time of maturity of said loan
in the certificates of time deposit, but as damages for failure and delay in the up to the time the said amount of seven hundred thousand pesos (P
payment of its obligations which thereby compelled IRC and Santos to resort 700,000.00) is fully paid to Philippine National Bank.
to the courts. 2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine
The applicable rule is that legal interest, in the nature of damages for non- National Bank ten percent (10%) of the amount of seven hundred thousand
compliance with an obligation to pay a sum of money, is recoverable from the pesos (P 700,000.00) as and for attorney's fees.
date judicial or extra-judicial demand is made, 20 Which latter mode of 3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L.
demand was made by PNB, after the maturity of the certificates of time Santos the sum of seven hundred thousand pesos (P 700,000.00) due under
deposit, on March 1, 1968. 21 The measure of such damages, there being no Time Deposit Certificates Nos. 2308 and 2367, with interest thereon of six
stipulation to the contrary, shall be the payment of the interest agreed upon and one-half percent (6-1/2%) per annum from their dates of issue on January
in the certificates of deposit 22 Which is six and onehalf percent (6-1/2%). Such 11, 1967 and February 6, 1967, respectively, until the same are fully paid,
interest due or accrued shall further earn legal interest from the time of except that no interest shall be paid during the entire period of actual
judicial demand. 23 cessation of operations by Overseas Bank of Manila;
We reject the proposition of IRC and Santos that OBM should reimburse them 4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L.
the entire amount they may be adjudged to pay PNB. It must be noted that Santos six and one-half per cent (6-1/2%) interest in the concept of damages
their liability to pay the various interests of nine percent (9%) on the principal on the principal amounts of said certificates of time deposit from the date of
obligation, one and one-half percent (1-1/2%) additional interest and one extrajudicial demand by PNB on March 1, 1968, plus legal interest of six
percent (1%) penalty interest is an offshoot of their failure to pay under the percent (6%) on said interest from April 6, 1968, until fifth payment thereof,
terms of the two promissory notes executed in favor of PNB. OBM was never except during the entire period of actual cessation of operations of said bank.
a party to Id promissory notes. There is, therefore, no privity of contract 5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L.
between OBM and PNB which will justify the imposition of the aforesaid Santos ten thousand pesos (P l0,000.00) as and for attorney's fees.
interests upon OBM whose liability should be strictly confined to and within SO ORDERED.
the provisions of the certificates of time deposit involved in this case. In fact,
as noted by respondent court, when OBM assigned as error that portion of
the judgment of the court a quo requiring OBM to make the disputed
reimbursement, IRC and Santos did not dispute that objection of OBM
16
 G.R. No. L-43191 November 13, 1935 applied the outstanding balances of your current accounts with us to the part
PAULINO GULLAS, plaintiff-appellant, payment of the foregoing check", namely, Mr. Paulino Gullas P509. On the
vs. return of Attorney Gullas to Cebu on August 31, 1933, notice of dishonor was
THE PHILIPPINE NATIONAL BANK, defendant-appellant. received and the unpaid balance of the United States Treasury warrant was
Gullas, Lopez, Tuaño and Leuterio for plaintiff-appellant.
Jose Delgado for immediately paid by him.
defendant-appellant. As a consequence of these happenings, two occurrences transpired which
inconvenienced Attorney Gullas. In the first place, as above indicated, checks
MALCOLM, J.: including one for his insurance were not paid because of the lack of funds
Both parties to this case appealed from a judgment of the Court of First standing to his credit in the bank. In the second place, periodicals in the
Instance of Cebu, which sentenced the defendant to return to the account of vicinity gave prominence to the news to the great mortification of
the plaintiff the sum of P5098, with legal interest and costs, the plaintiff to Gullas.lawphil.net
secure damages in the amount of P10,000 more or less, and the defendant to A variety of incidental questions have been suggested on the record which it
be absolved totally from the amended complaint. As it is conceded that the can be taken for granted as having been adversely disposed of in this opinion.
plaintiff has already received the sum represented by the United States The main issues are two, namely, (1) as to the right of Philippine National
treasury, warrant, which is in question, the appeal will thus determine the Bank, and to apply a deposit to the debt of depositor to the bank and (2) as
amount, if any, which should be paid to the plaintiff by the defendant. to the amount damages, if any, which should be awarded Gullas.
The parties to the case are Paulino Gullas and the Philippine National Bank. The Civil Code contains provisions regarding compensation (set off) and
The first named is a member of the Philippine Bar, resident in the City of Cebu. deposit. (Articles 1195 et seq., 1758 et seq. The portions of Philippine law
The second named is a banking corporation with a branch in the same city. provide that compensation shall take place when two persons are
Attorney Gullas has had a current account with the bank. reciprocally creditor and debtor of each other (Civil Code, article 1195). In his
It appears from the record that on August 2, 1933, the Treasurer of the United connection, it has been held that the relation existing between a depositor
States for the United States Veterans Bureau issued a Warrant in the amount and a bank is that of creditor and debtor. (Fulton Iron Works Co. vs. China
of $361, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas Banking Corporation [1933], 59 Phil., 59.)
and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed The Negotiable Instruments Law contains provisions establishing the liability
by the Philippine National Bank. Subsequently the treasury warrant was of a general indorser and giving the procedure for a notice of dishonor. The
dishonored by the Insular Treasurer. general indorser of negotiable instrument engages that if he be dishonored
At that time the outstanding balance of Attorney Gullas on the books of the and the, necessary proceedings of dishonor be duly taken, he will pay the
bank was P509. Against this balance he had issued certain cheeks which could amount thereof to the holder. (Negotiable Instruments Law, sec. 66.) In this
not be paid when the money was sequestered by the On August 20, 1933, connection, it has been held a long line of authorities that notice of dishonor
Attorney Gullas left his residence for Manila. is in order to charge all indorser and that the right of action against him does
The bank on learning of the dishonor of the treasury warrant sent notices by not accrue until the notice is given. (Asia Banking Corporation vs. Javier [1923]
mail to Mr. Gullas which could not be delivered to him at that time because 44 Phil., 777; 5 Uniform Laws Annotated.)
he was in Manila. In the bank's letter of August 21, 1933, addressed to As a general rule, a bank has a right of set off of the deposits in its hands for
Messrs. Paulino Gulla and Pedro Lopez, they were informed that the United the payment of any indebtedness to it on the part of a depositor. In Louisiana,
States Treasury warrant No. 20175 in the name of Francisco Sabectoria Bacos however, a civil law jurisdiction, the rule is denied, and it is held that a bank
for $361 or P722, the payment for which had been received has been has no right, without an order from or special assent of the depositor to retain
returned by our Manila office with the notation that the payment of his check out of his deposit an amount sufficient to meet his indebtedness. The basis
has been stopped by the Insular Treasurer. "In view of this therefore we have of the Louisiana doctrine is the theory of confidential contracts arising from
17
irregular deposits, e. g., the deposit of money with a banker. With freedom against which Gullas had no means of protection, and have finally determined
of selection and after full preference to the minority rule as more in harmony that the amount should be P250.
with modern banking practice. (1 Morse on Banks and Banking, 5th ed., sec. Agreeable to the foregoing, the errors assigned by the parties will in the main
324; Garrison vs. Union Trust Company [1905], 111 A.S.R., 407; Louisiana Civil be overruled, with the result that the judgment of the trial court will be
Code Annotated, arts. 2207 et seq.; Gordon & Gomila vs. Muchler [1882], 34 modified by sentencing the defendant to pay the plaintiff the sum of P250,
L. Ann., 604; 8 Manresa, Comentarios al Codigo Civil Español, 4th ed., 359 et and the costs of both instances.
seq., 11 Manresa pp. 694 et seq.)
Starting, therefore, from the premise that the Philippine National Bank had G.R. No. L-60033 April 4, 1984
with respect to the deposit of Gullas a right of set off, we next consider if that TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS,
remedy was enforced properly. The fact we believe is undeniable that prior petitioners,
to the mailing of notice of dishonor, and without waiting for any action by vs.
Gullas, the bank made use of the money standing in his account to make good THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY
for the treasury warrant. At this point recall that Gullas was merely an FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
indorser and had issued in good faith.
As to a depositor who has funds sufficient to meet payment of a check drawn MAKASIAR, Actg. C.J.:ñé+.£ªwph!1
by him in favor of a third party, it has been held that he has a right of action This is a petition for prohibition and injunction with a prayer for the
against the bank for its refusal to pay such a check in the absence of notice to immediate issuance of restraining order and/or writ of preliminary injunction
him that the bank has applied the funds so deposited in extinguishment of filed by petitioners on March 26, 1982.
past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 On March 31, 1982, by virtue of a court resolution issued by this Court on the
Ann. Cas., 203.) The decision cited represents the minority doctrine, for on same date, a temporary restraining order was duly issued ordering the
principle it would seem that notice is not necessary to a maker because the respondents, their officers, agents, representatives and/or person or persons
right is based on the doctrine that the relationship is that of creditor and acting upon their (respondents') orders or in their place or stead to refrain
debtor. However this may be, as to an indorser the situation is different, and from proceeding with the preliminary investigation in Case No. 8131938 of
notice should actually have been given him in order that he might protect his the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983,
interests. private respondent Clement David filed a motion to lift restraining order
We accordingly are of the opinion that the action of the bank was prejudicial which was denied in the resolution of this Court dated May 18, 1983.
to Gullas. But to follow up that statement with others proving exact damages As can be gleaned from the above, the instant petition seeks to prohibit public
is not so easy. For instance, for alleged libelous articles the bank would not respondents from proceeding with the preliminary investigation of I.S. No.
be primarily liable. The same remark could be made relative to the loss of 81-31938, in which petitioners were charged by private respondent Clement
business which Gullas claims but which could not be traced definitely to this David, with estafa and violation of Central Bank Circular No. 364 and related
occurrence. Also Gullas having eventually been reimbursed lost little through regulations regarding foreign exchange transactions principally, on the
the actual levy by the bank on his funds. On the other hand, it was not ground of lack of jurisdiction in that the allegations of the charged, as well as
agreeable for one to draw checks in all good faith, then, leave for Manila, and the testimony of private respondent's principal witness and the evidence
on return find that those checks had not been cashed because of the action through said witness, showed that petitioners' obligation is civil in nature.
taken by the bank. That caused a disturbance in Gullas' finances, especially For purposes of brevity, We hereby adopt the antecedent facts narrated by
with reference to his insurance, which was injurious to him. All facts and the Solicitor General in its Comment dated June 28,1982, as
circumstances considered, we are of the opinion that Gullas should be follows:têñ.£îhqwâ£
awarded nominal damages because of the premature action of the bank On December 23,1981, private respondent David filed I.S. No. 81-31938 in the
18
Office of the City Fiscal of Manila, which case was assigned to respondent know his total investments; that all transactions with David were recorded
Lota for preliminary investigation (Petition, p. 8). except the sum of US$15,000.00 which was a personal loan of Santos; that
In I.S. No. 81-31938, David charged petitioners (together with one Robert David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar
Marshall and the following directors of the Nation Savings and Loan account because NSLA did not have one, that a draft of US$30,000.00 was
Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, placed in the name of one Paz Roces because of a pending transaction with
Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and her; that the Philippine Deposit Insurance Corporation had already
one John Doe) with estafa and violation of Central Bank Circular No. 364 and reimbursed David within the legal limits; that majority of the stockholders of
related Central Bank regulations on foreign exchange transactions, allegedly NSLA had filed Special Proceedings No. 82-1695 in the Court of First Instance
committed as follows (Petition, Annex "A"):têñ.£îhqw⣠to contest its (NSLA's) closure; that after NSLA was placed under receivership,
"From March 20, 1979 to March, 1981, David invested with the Nation Martin executed a promissory note in David's favor and caused the transfer
Savings and Loan Association, (hereinafter called NSLA) the sum of to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits P510,000.00; and, that the liabilities of NSLA to David were civil in nature."
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated
US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 the following:têñ.£îhqwâ£
under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David "That he had no hand whatsoever in the transactions between David and
was induced into making the aforestated investments by Robert Marshall an NSLA since he (Guingona Jr.) had resigned as NSLA president in March 1978,
Australian national who was allegedly a close associate of petitioner or prior to those transactions; that he assumed a portion o; the liabilities of
Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive NSLA to David because of the latter's insistence that he placed his
Vice-President of NSLA and petitioner Santos, then NSLA General Manager; investments with NSLA because of his faith in Guingona, Jr.; that in a
that on March 21, 1981 N LA was placed under receivership by the Central Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.)
Bank, so that David filed claims therewith for his investments and those of his bound himself to pay David the sums of P668.307.01 and US$37,500.00 in
sister; that on July 22, 1981 David received a report from the Central Bank stated installments; that he (Guingona, Jr.) secured payment of those
that only P305,821.92 of those investments were entered in the records of amounts with second mortgages over two (2) parcels of land under a deed of
NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated Second Real Estate Mortgage (Petition, Annex "E") in which it was provided
the balance of the investments, at the same time violating Central Bank that the mortgage over one (1) parcel shall be cancelled upon payment of
Circular No. 364 and related Central Bank regulations on foreign exchange one-half of the obligation to David; that he (Guingona, Jr.) paid P200,000.00
transactions; that after demands, petitioner Guingona Jr. paid only and tendered another P300,000.00 which David refused to accept, hence, he
P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First Instance of
and US$75,000.00." Rizal at Quezon City, to effect the release of the mortgage over one (1) of the
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' two parcels of land conveyed to David under second mortgages."
B') in which they stated the following.têñ.£îhqw⣠At the inception of the preliminary investigation before respondent Lota,
"That Martin became President of NSLA in March 1978 (after the resignation petitioners moved to dismiss the charges against them for lack of jurisdiction
of Guingona, Jr.) and served as such until October 30, 1980, while Santos was because David's claims allegedly comprised a purely civil obligation which was
General Manager up to November 1980; that because NSLA was urgently in itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
need of funds and at David's insistence, his investments were treated as But, after the presentation of David's principal witness, petitioners filed the
special- accounts with interest above the legal rate, an recorded in separate instant petition because: (a) the production of the Promisory Notes, Banker's
confidential documents only a portion of which were to be reported because Acceptance, Certificates of Time Deposits and Savings Account allegedly
he did not want the Australian government to tax his total earnings (nor) to showed that the transactions between David and NSLA were simple loans,
19
i.e., civil obligations on the part of NSLA which were novated when Guingona, Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to
Jr. and Martin assumed them; and (b) David's principal witness allegedly divide the said indebtedness, and petitioner Guingona executed another
testified that the duplicate originals of the aforesaid instruments of promissory note antedated to June 17, 1981 whereby he personally
indebtedness were all on file with NSLA, contrary to David's claim that some acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
of his investments were not record (Petition, pp. 8-9). US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25,
Petitioners alleged that they did not exhaust available administrative rec.). The aforesaid promissory notes were executed as a result of deposits
remedies because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.]. made by Clement David and Denise Kuhne with the Nation Savings and Loan
As correctly pointed out by the Solicitor General, the sole issue for resolution Association.
is whether public respondents acted without jurisdiction when they Furthermore, the various pleadings and documents filed by private
investigated the charges (estafa and violation of CB Circular No. 364 and respondent David, before this Court indisputably show that he has indeed
related regulations regarding foreign exchange transactions) subject matter invested his money on time and savings deposits with the Nation Savings and
of I.S. No. 81-31938. Loan Association.
There is merit in the contention of the petitioners that their liability is civil in It must be pointed out that when private respondent David invested his
nature and therefore, public respondents have no jurisdiction over the charge money on nine. and savings deposits with the aforesaid bank, the contract
of estafa. that was perfected was a contract of simple loan or mutuum and not a
A casual perusal of the December 23, 1981 affidavit. complaint filed in the contract of deposit. Thus, Article 1980 of the New Civil Code provides
Office of the City Fiscal of Manila by private respondent David against that:têñ.£îhqwâ£
petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos, Article 1980. Fixed, savings, and current deposits of-money in banks and
together with one Robert Marshall and the other directors of the Nation similar institutions shall be governed by the provisions concerning simple
Savings and Loan Association, will show that from March 20, 1979 to March, loan.
1981, private respondent David, together with his sister, Denise Kuhne, In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119
invested with the Nation Savings and Loan Association the sum of [1975], We said:têñ.£îhqwâ£
P1,145,546.20 on time deposits covered by Bankers Acceptances and It should be noted that fixed, savings, and current deposits of money in banks
Certificates of Time Deposits and the sum of P13,531.94 on savings account and similar institutions are hat true deposits. are considered simple loans
deposits covered by passbook nos. 6-632 and 29-742, or a total of and, as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation
P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66
David, together with his sister, made investments in the aforesaid bank in the Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375;
amount of US$75,000.00 (p. 17, rec.). Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific
Moreover, the records reveal that when the aforesaid bank was placed under Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery
receivership on March 21, 1981, petitioners Guingona and Martin, upon the vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
request of private respondent David, assumed the obligation of the bank to This Court also declared in the recent case of Serrano vs. Central Bank of the
private respondent David by executing on June 17, 1981 a joint promissory Philippines (96 SCRA 102 [1980]) that:têñ.£îhqwâ£
note in favor of private respondent acknowledging an indebtedness of Bank deposits are in the nature of irregular deposits. They are really 'loans
Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was based because they earn interest. All kinds of bank deposits, whether fixed, savings,
on the statement of account as of June 30, 1981 prepared by the private or current are to be treated as loans and are to be covered by the law on
respondent (p. 81, rec.). The amount of indebtedness assumed appears to be loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current
bigger than the original claim because of the added interest and the inclusion and saving deposits, are loans to a bank because it can use the same. The
of other deposits of private respondent's sister in the amount of P116,613.20. petitioner here in making time deposits that earn interests will respondent
20
Overseas Bank of Manila was in reality a creditor of the respondent Bank and equal amount of the same kind and quality."
not a depositor. The respondent Bank was in turn a debtor of petitioner. It can be readily noted from the above-quoted provisions that in simple loan
Failure of the respondent Bank to honor the time deposit is failure to pay its (mutuum), as contrasted to commodatum the borrower acquires ownership
obligation as a debtor and not a breach of trust arising from a depositary's of the money, goods or personal property borrowed Being the owner, the
failure to return the subject matter of the deposit (Emphasis supplied). borrower can dispose of the thing borrowed (Article 248, Civil Code) and his
Hence, the relationship between the private respondent and the Nation act will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA
Savings and Loan Association is that of creditor and debtor; consequently, the 30, 34 [1979]; Emphasis supplied).
ownership of the amount deposited was transmitted to the Bank upon the But even granting that the failure of the bank to pay the time and savings
perfection of the contract and it can make use of the amount deposited for deposits of private respondent David would constitute a violation of
its banking operations, such as to pay interests on deposits and to pay paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any
withdrawals. While the Bank has the obligation to return the amount incipient criminal liability was deemed avoided, because when the aforesaid
deposited, it has, however, no obligation to return or deliver the same money bank was placed under receivership by the Central Bank, petitioners
that was deposited. And, the failure of the Bank to return the amount Guingona and Martin assumed the obligation of the bank to private
deposited will not constitute estafa through misappropriation punishable respondent David, thereby resulting in the novation of the original
under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise contractual obligation arising from deposit into a contract of loan and
to civil liability over which the public respondents have no- jurisdiction. converting the original trust relation between the bank and private
WE have already laid down the rule that:têñ.£îhqw⣠respondent David into an ordinary debtor-creditor relation between the
In order that a person can be convicted under the above-quoted provision, it petitioners and private respondent. Consequently, the failure of the bank or
must be proven that he has the obligation to deliver or return the some petitioners Guingona and Martin to pay the deposits of private respondent
money, goods or personal property that he received Petitioners had no such would not constitute a breach of trust but would merely be a failure to pay
obligation to return the same money, i.e., the bills or coins, which they the obligation as a debtor.
received from private respondents. This is so because as clearly as stated in Moreover, while it is true that novation does not extinguish criminal liability,
criminal complaints, the related civil complaints and the supporting sworn it may however, prevent the rise of criminal liability as long as it occurs prior
statements, the sums of money that petitioners received were loans. to the filing of the criminal information in court. Thus, in Gonzales vs. Serrano
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil ( 25 SCRA 64, 69 [1968]) We held that:têñ.£îhqwâ£
Code.têñ.£îhqw⣠As pointed out in People vs. Nery, novation prior to the filing of the criminal
"Art. 1933. — By the contract of loan, one of the parties delivers to another, information — as in the case at bar — may convert the relation between the
either something not consumable so that the latter may use the same for a parties into an ordinary creditor-debtor relation, and place the complainant
certain time- and return it, in which case the contract is called a in estoppel to insist on the original transaction or "cast doubt on the true
commodatum; or money or other consumable thing, upon the condition that nature" thereof.
the same amount of the same kind and quality shall he paid in which case the Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578,
contract is simply called a loan or mutuum. 580-581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA
"Commodatum is essentially gratuitous. 244 [1964] ), declaring that:têñ.£îhqwâ£
"Simple loan may be gratuitous or with a stipulation to pay interest. The novation theory may perhaps apply prior to the filling of the criminal
"In commodatum the bailor retains the ownership of the thing loaned while information in court by the state prosecutors because up to that time the
in simple loan, ownership passes to the borrower. original trust relation may be converted by the parties into an ordinary
"Art. 1953. — A person who receives a loan of money or any other fungible creditor-debtor situation, thereby placing the complainant in estoppel to
thing acquires the ownership thereof, and is bound to pay to the creditor an insist on the original trust. But after the justice authorities have taken
21
cognizance of the crime and instituted action in court, the offended party may account because the bank did not have a dollar account. Immediately after
no longer divest the prosecution of its power to exact the criminal liability, as the bank draft was cleared, petitioner Guingona authorized Nation Savings
distinguished from the civil. The crime being an offense against the state, only and Loan Association to withdraw the same in order to be utilized by the bank
the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. for its operations.
Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620). 2. It is safe to assume that the U.S. dollars were converted first into Philippine
It may be observed in this regard that novation is not one of the means pesos before they were accepted and deposited in Nation Savings and Loan
recognized by the Penal Code whereby criminal liability can be extinguished; Association, because the bank is presumed to have followed the ordinary
hence, the role of novation may only be to either prevent the rise of criminal course of the business which is to accept deposits in Philippine currency only,
liability or to cast doubt on the true nature of the original basic transaction, and that the transaction was regular and fair, in the absence of a clear and
whether or not it was such that its breach would not give rise to penal convincing evidence to the contrary (see paragraphs p and q, Sec. 5, Rule 131,
responsibility, as when money loaned is made to appear as a deposit, or other Rules of Court).
similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs. 3. Respondent David has not denied the aforesaid contention of herein
Villareal, 27 Phil. 481). petitioners despite the fact that it was raised. in petitioners' reply filed on
In the case at bar, there is no dispute that petitioners Guingona and Martin May 7, 1982 to private respondent's comment and in the July 27, 1982 reply
executed a promissory note on June 17, 1981 assuming the obligation of the to public respondents' comment and reiterated in petitioners' memorandum
bank to private respondent David; while the criminal complaint for estafa was filed on October 30, 1982, thereby adding more support to the conclusion
filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that the US$75,000.00 were really converted into Philippine currency before
that novation occurred long before the filing of the criminal complaint with they were accepted and deposited into Nation Savings and Loan Association.
the Office of the City Fiscal. Considering that this might adversely affect his case, respondent David
Consequently, as aforestated, any incipient criminal liability would be should have promptly denied petitioners' allegation.
avoided but there will still be a civil liability on the part of petitioners In conclusion, considering that the liability of the petitioners is purely civil in
Guingona and Martin to pay the assumed obligation. nature and that there is no clear showing that they engaged in foreign
Petitioners herein were likewise charged with violation of Section 3 of Central exchange transactions, We hold that the public respondents acted without
Bank Circular No. 364 and other related regulations regarding foreign jurisdiction when they investigated the charges against the petitioners.
exchange transactions by accepting foreign currency deposit in the amount Consequently, public respondents should be restrained from further
of US$75,000.00 without authority from the Central Bank. They contend proceeding with the criminal case for to allow the case to continue, even if
however, that the US dollars intended by respondent David for deposit were the petitioners could have appealed to the Ministry of Justice, would work
all converted into Philippine currency before acceptance and deposit into great injustice to petitioners and would render meaningless the proper
Nation Savings and Loan Association. administration of justice.
Petitioners' contention is worthy of belief for the following reasons: While as a rule, the prosecution in a criminal offense cannot be the subject of
1. It appears from the records that when respondent David was about to prohibition and injunction, this court has recognized the resort to the
make a deposit of bank draft issued in his name in the amount of extraordinary writs of prohibition and injunction in extreme cases,
US$50,000.00 with the Nation Savings and Loan Association, the same had to thus:têñ.£îhqwâ£
be cleared first and converted into Philippine currency. Accordingly, the bank On the issue of whether a writ of injunction can restrain the proceedings in
draft was endorsed by respondent David to petitioner Guingona, who in turn Criminal Case No. 3140, the general rule is that "ordinarily, criminal
deposited it to his dollar account with the Security Bank and Trust Company. prosecution may not be blocked by court prohibition or injunction."
Petitioner Guingona merely accommodated the request of the Nation Savings Exceptions, however, are allowed in the following instances:têñ.£îhqwâ£
and loan Association in order to clear the bank draft through his dollar "1. for the orderly administration of justice;
22
"2. to prevent the use of the strong arm of the law in an oppressive and G.R. No. 116792 March 29, 1996
vindictive manner; BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,
"3. to avoid multiplicity of actions; vs.
"4. to afford adequate protection to constitutional rights; COURT OF APPEALS and EDVIN F. REYES, respondents.
"5. in proper cases, because the statute relied upon is unconstitutional or was
held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93 SCRA PUNO, J.:p
462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and Petitioners seek a review of the Decision1 of respondent Court of Appeals in
Hernandez vs. Albano, 19 SCRA 95, 96 [1967]). CA-G.R. CV No. 41543 reversing the Decision2 of the Regional Trial Court of
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), Quezon City, Branch 79, and ordering petitioners to credit private
We held that:têñ.£îhqw⣠respondent's Savings Account No. 3185-0172-56 with P10,556,00 plus
The writs of certiorari and prohibition, as extraordinary legal remedies, are in interest.
the ultimate analysis, intended to annul void proceedings; to prevent the The facts reveal that on September 25, 1985, private respondent Edvin F.
unlawful and oppressive exercise of legal authority and to provide for a fair Reyes opened Savings Account No. 3185-0172-56 at petitioner Bank of the
and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR"
Phil. 385, We took cognizance of a petition for certiorari and prohibition account with his wife, Sonia S. Reyes.
although the accused in the case could have appealed in due time from the Private respondent also held a joint "AND/OR" Savings Account No. 3185-
order complained of, our action in the premises being based on the public 0128-82 with his grandmother, Emeteria M. Fernandez, opened on February
welfare policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 11, 1986 at the same BPI branch. He regularly deposited in this account the
Phil. 304, We also admitted a petition to restrain the prosecution of certain U.S. Treasury Warrants payable to the order of Emeteria M. Fernandez as her
chiropractors although, if convicted, they could have appealed. We gave due monthly pension.
course to their petition for the orderly administration of justice and to avoid Emeteria M. Fernandez died on December 28, 1989 without the knowledge
possible oppression by the strong arm of the law. And in Arevalo vs. of the U.S. Treasury Department. She was still sent U.S. Treasury Warrant No.
Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the trial 21667302 dated January 1, 1990 in the amount of U.S. $377.003 or
court's action admitting an amended information was sustained despite the P10,556.00. On January 4, 1990, private respondent deposited the said U.S.
availability of appeal at the proper time. treasury check of Fernandez in Savings Account No. 3185-0128-82. The U.S.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY Veterans Administration Office in Manila conditionally cleared the check.4
RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS The check was then sent to the United States for further clearing.5
AGAINST THE PRIVATE RESPONDENT. Two months after or on March 8, 1990, private respondent closed Savings
SO ORDERED. Account No. 3185-0128-82 and transferred its funds amounting to
P13,112.91 to Savings Account No. 3185-0172-56, the joint account with his
wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as
it was discovered that Fernandez died three (3) days prior to its issuance. The
U.S. Department of Treasury requested petitioner bank for a refund.6 For the
first time petitioner bank came to know of the death of Fernandez.
On February 19, 1991, private-respondent received a PT&T urgent telegram
from petitioner bank requesting him to contact Manager Grace S. Romero or
Assistant Manager Carmen Bernardo. When he called up the bank, he was
23
informed that the treasury check was the subject of a claim by Citibank NA, PETITIONER BANK HAS LEGAL RIGHT TO APPLY THE DEPOSIT OF RESPONDENT
correspondent of petitioner bank. He assured petitioners that he would drop REYES TO HIS OUTSTANDING OBLIGATION TO PETITIONER BANK BROUGHT
by the bank to look into the matter. He also verbally authorized them to debit ABOUT BY THE RETURN OF THE U.S. TREASURY WARRANT HE EARLIER
from his other joint account the amount stated in the dishonored U.S. DEPOSITED UNDER THE PRINCIPLE OF "LEGAL COMPENSATION."
Treasury Warrant.7 On the same day, petitioner bank debited the amount of III
P10,556.00 from private respondent's Savings Account No. 3185-0172-56. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING
On February 21, 1991, private respondent with his lawyer Humphrey CORRECTLY THE PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN THE
Tumaneng visited the petitioner bank and the refund documents were shown CASE OF GULLAS V. PNB, 62 PHIL. 519.
to them. Surprisingly, private respondent demanded from petitioner bank IV.
restitution of the debited amount. He claimed that because of the debit, he RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPRECIATING
failed to withdraw his money when he needed them. He then filed a suit for THE FACT THAT THE MONEY DEBITED BY PETITIONER BANK WAS THE SAME
Damages8 against petitioners before the Regional Trial Court of Quezon City, MONEY TRANSFERRED BY RESPONDENT REYES FROM HIS JOINT "AND/OR"
Branch 79. ACCOUNT WITH HIS GRANDMOTHER TO HIS JOINT "AND/OR" ACCOUNT
Petitioners contested the complaint and counter claimed, for moral and WITH HIS WIFE.12
exemplary damages. By way of Special and Affirmative Defense, they averred We find merit in the petition.
that private respondent gave them his express verbal authorization to debit The first issue for resolution is whether private respondent verbally
the questioned amount. They claimed that private respondent later refused authorized petitioner bank to debit his joint account with his wife for the
to execute a written authority.9 amount of the returned U.S. Treasury Warrant. We find that petitioners were
In a Decision dated January 20, 1993, the trial court dismissed the complaint able to prove this verbal authority by preponderance of evidence. The
of private respondent for lack of cause of action.10 testimonies of Bernardo and Romero deserve credence. Bernardo testified:
Private respondent appealed to the respondent Court of Appeals. On August xxx xxx xxx
16, 1994, the Sixteenth Division of respondent court in AC-G.R. CV No. 41543 Q After that, what happened?
reversed the impugned decision, viz: A . . . Dr. Reyes Called me up and I informed him about the return of the U.S.
WHEREFORE, the judgement appealed from is set aside, and another one Treasury Warrant and we are requested to reimburse for the amount.
entered ordering defendant (petitioner) to credit plaintiff's (private Q What was his response if any?
respondent's) S.A. No. 3185-0172-56 with P10,556.00 plus interest at the A Don't you worry about it, there is no personal problem.
applicable rates for express teller savings accounts from February 19, 1991, xxx xxx xxx
until compliance herewith. The claim and counterclaim for damages are Q And so what was his response?
dismissed for lack of merit. A He said that don' t you worry about.
SO ORDERED.11 xxx xxx xxx
Petitioners now contend that respondent Court of Appeals erred: Q You said that you asked him the advice and he did not answer, what advice
I are you referring to?
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT A In our conversation, he promised me that he will give me written
RESPONDENT REYES GAVE EXPRESS AUTHORITY TO PETITIONER BANK TO confirmation or authorization.13
DEBIT HIS JOINT ACCOUNT WITH HIS WIFE FOR THE VALUE OF THE RETURNED The conversation was promptly relayed to Romero who testified:
U.S. TREASURY WARRANT. xxx xxx xxx
II Q . . . Was there any opportunity where in said Mrs. Bernardo was able to
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT convey to you the contents of their conversation?
24
A This was immediately relayed to me as manager of the Bank of the same time a principal creditor of the other;
Philippine Islands, sir. (2) That both debts consist in a sum of money, or if the things due are
Q What, any was the content of her conversation, if you know? consumable, they be of the same kind, and also of the same quality if the
A Mr. Reyes instructed Mrs. Bernardo to debit his account with the bank. His latter has been stated;
account was maintained jointly with his wife then he promised to drop by to (3) That the two debts be due;
give us a written confirmation, sir. (4) That they be liquidated and demandable;
xxx xxx xxx (5) That over neither of them there be any retention or controversy,
Q You said that you authorized the debiting of the account on February 19, commenced by third persons and communicated in due time to the debtor.
1991, is that correct? The elements of legal compensation are all present in the case at bar. The
A I did not authorize, we merely followed the instruction of Mr. Reyes, sir.14 obligors bound principally are at the same time creditors of each other.
We are not disposed to believe private respondent's allegation that he did Petitioner bank stands as a debtor of the private respondent, a depositor. At
not give any verbal authorization. His testimony is uncorroborated. Nor does the same time, said bank is the creditor of the private respondent with
he inspire credence. His past and fraudulent conduct is an evidence against respect to the dishonored U.S. Treasury Warrant which the latter illegally
him.15 He concealed from petitioner bank the death of Fernandez on transferred to his joint account. The debts involved consist of a sum of
December 28, 1989. 16 As of that date, he knew that Fernandez was no longer money. They are due, liquidated, and demandable. They are not claimed by
entitled to receive any pension. Nonetheless, he-still received the U.S. a third person.
Treasury Warrant of Fernandez, and on January 4, 1990 deposited the same It is true that the joint account of private respondent and his wife was debited
in Savings Account No. 3185-0128-82. To pre-empt a refund, private in the case at bar. We hold that the presence of private respondent's wife
respondent closed his joint account with Fernandez (Savings Account No. 31- does not negate the element of mutuality of parties, i.e., that they must be
85-0128-82) on March 8, 1990 and transferred its balance to his joint account creditors and debtors of each other in their own right. The wife of private
with his wife (Savings Account No. 3185-0172-56). Worse, private respondent respondent is not a party in the case at bar. She never asserted any right to
declared under the penalties of perjury in the withdrawal slip 17 dated March the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to
8, 1990 that his co-depositor, Fernandez, is still living. By his acts, private make the debit is clear and cannot be doubted. To frustrate the application
respondent has stripped himself of credibility. of legal compensation on the ground that the parties are not all mutually
More importantly, the respondent court erred when it failed to rule that legal obligated would result in unjust enrichment on the part of the private
compensation is proper. Compensation shall take place when two persons, in respondent and his wife who herself out of honesty has not objected to the
their own right, are creditors and debtors of each other.18 Article 1290 of the debit. The rule as to mutuality is strictly applied at law. But not in equity,
Civil Code provides that "when all the requisites mentioned in Article 1279 where to allow the same would defeat a clear right or permit irremediable
are present, compensation takes effect by operation of law, and extinguishes injustice.22
both debts to the concurrent amount, even though the creditors and debtors In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV
are not aware of the compensation." Legal compensation operates even No. 41543 dated August 16, 1994 is ANNULLED and SET ASIDE and the
against the will of the interested parties and even without the consent of Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993
them. 19 Since this compensation takes place ipso jure, its effects arise on the is REINSTATED. Costs against private respondent.
very day on which all its requisites concur. 20 When used as a defense, it SO ORDERED.
retroacts to the date when its requisites are fulfilled.21
Article 1279 states that in order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he be at the
25
 G.R. No. 159794 December 19, 2006 with the proper LBP branch from which they could withdraw the IRAs.6
MACLARING M. LUCMAN, in his capacity as the Manager of the LAND After the failed 12 May 1997 elections, respondents attempted to open their
BANK OF THE PHILIPPINES, Marawi City, petitioner, respective barangays' IRA bank accounts but were refused by petitioner
vs. because respondents needed to show their individual certifications showing
ALIMATAR MALAWI, ABDUL-KHAYER PANGCOGA, SALIMATAR SARIP, their right to continue serving as Barangay Chairmen and the requisite
LOMALA CADAR, ALIRIBA S. MACARAMBON and ABDUL USMAN, Municipal Accountant's Advice giving respondents the authority to withdraw
respondents. IRA deposits.7 The requirement for the Accountant's Advice stemmed from
Commission on Audit Circular No. 94-004.8
DECISION Respondents were eventually allowed to open accounts for their barangays
except for Lomala Cadar and Abdul Usman of barangays Mapantao-Ingud and
TINGA, J.: Rangiran, respectively, because the accounts for these barangays were
This is a petition for review challenging the decision of the trial court, affirmed previously opened by two persons who presented themselves as the duly
by the Court of Appeals, granting the petition for mandamus filed by herein proclaimed Barangay Chairmen for these same barangays.9
respondents, Barangay Chairmen (or Punong Barangay) of several barangays In any event, all respondents were not allowed to withdraw the IRA funds
in the province of Lanao del Sur. from the opened accounts, owing to the absence of the requisite
The petition for mandamus filed by respondents before the trial court is Accountant's Advice.10
rooted in their claim that they were deprived of their Internal Revenue Then on 4 August 1997, five (5) other persons presented themselves before
Allotment (IRA) for the 2nd and 3rd quarters of 1997. Respondents further petitioner as the newly proclaimed Punong Barangays of the five barangays
alleged that these same funds were released by petitioner as Manager of concerned,11 each of them presenting a certification of his election as Punong
Land Bank of the Philippines (LBP), the depositary bank, to third persons. Barangay issued by the provincial director of the DILG-ARMM and another
There were originally six (6) petitioners when the Petition for Mandamus with Certification issued by the Local Government Operations Officer attesting,
Prayer for Writ of Preliminary Mandatory Injunction was filed by now among others, to the revocation of the certification previously issued to
respondents before the court of origin. They were Alimatar Malawi, respondents.12 Without verifying the authenticity of the certifications
Abdulkhayr Pangcoga, Salimatar Sarip, Lomala Cadar, Aliriba S. Macarambon presented by these third persons, petitioner proceeded to release the IRA
and Abdul Usman who were the incumbent barangay chairmen of Bubong funds for the 2nd and 3rd quarters of 1997 to them.13
Ngingir (Kabasaran), Ilian, Linindingan, Mapantao-Ingod, Paigoay and Respondents thus filed on 11 August 1997 a special civil action for Mandamus
Rangiran, respectively, all from the Municipality of Pagayawan, Lanao del with Application for Preliminary Mandatory Injunction docketed as Civil Case
Sur.1 All of them were the incumbent barangay chairmen of their respective No. 11-106, to compel petitioner to allow them to open and maintain deposit
barangays prior to the 12 May 1997 barangay elections. The elections on 12 accounts covering the IRAs of their respective barangays and to withdraw
May 1997 in the aforesaid barangays resulted in a failure of elections. therefrom.14 The case was raffled to the Regional Trial Court (RTC) of Lanao
Thereafter, the special elections held in these barangays likewise resulted in del Sur, Branch 11.15
a failure of elections.2 Consequently, respondents remained in office in a At the trial respondents Sarip, Cadar, Pangcoga and Usman testified that they
holdover capacity pursuant to the provisions of Sec. 1 of R.A. No. 66793 and were duly elected chairpersons of their respective barangays and continued
Comelec Resolution No. 2888 dated February 5, 1997.4 as such in a holdover capacity until their re-election on 30 August 1997. They
Beginning with the second quarter of 1997, LBP was selected as the testified further that despite presenting the corresponding documents,
government depository bank for the IRAs of the abovementioned barangays.5 petitioner refused to allow the withdrawal of the funds.16
Being a new government depositary bank for the IRA funds, the authorized Respondent Macarambon testified that he was the incumbent chairperson of
public officials had to open new accounts in behalf of their government units Barangay Paigoay prior to the 12 May 1997 elections and that due to the
26
failure of elections, he continued to occupy his position in a holdover capacity term of office shall have expired.
until he was succeeded by his wife upon the latter's election to the same post. SO ORDERED.24
He testified on petitioner's refusal to release the money to him despite his The RTC gave no credence to petitioner's assertion of payment to the rightful
submission of the Accountant's Advice.17 barangay officers, there having been no testimonial or documentary evidence
For failure to appear at the scheduled hearing on 20 April 1999, petitioner proferred in substantiation thereof.25 It considered petitioner's refusal to
was held as in default and respondents were allowed to present evidence ex present evidence as a "silence" that equates to an admission of respondents'
parte. Petitioner's Motion for Reconsideration of the Order declaring him as allegations.26 Furthermore, the RTC relied on the testimonies and
in default was granted.18 certifications adduced by respondents in holding that they were occupying
After failing again to appear on the given time for him to adduce evidence, their positions in a holdover capacity27and that by virtue thereof, they had
another Order was issued wherein petitioner was deemed to have waived his "the perfect right to continue performing the duties and functions of their
right to present evidence. The Order was lifted on petitioner's Motion for positions including the withdrawal of funds of their respective barangays."28
Reconsideration. Instead of presenting evidence, petitioner filed on 10 The Court of Appeals29 affirmed the RTC's Decision in toto. Hence, this
November 1999 a Motion to Dispense or Waive Presentation of Evidence petition.
wherein he represented that the prayers in the complaint had already been Petitioner argues that respondents have no cause of action against him since
complied with.19 The RTC granted petitioner's motion through an Order dated they failed to present valid certifications showing their respective right to
24 September 1999.20 continue serving as Punong Barangay as well as the requisite Municipal
Thereafter, the RTC rendered a Decision21 dated 8 October 1999 commanding Accountant's Advice. Petitioner also asserts that the LBP Marawi Branch had
petitioner to pay respondents, except respondent Alimatar Malawi who already released the contested IRAs to the Barangay Treasurers who were
failed to testify, the IRAs of their respective barangays "even without the acting in conjunction with the duly recognized Punong Barangays, thereby
Accountant's Advice."22 The dispositive portion of the Decision reads, to wit: making the petition for mandamus moot and academic.30 These are factual
WHEREFORE, premises all considered, the instant petition is hereby granted. issues that are generally beyond the review of this Court.
Accordingly, Mr. Maclaring M. Lucman, Manager of the Land Bank of the Petitioner adds that respondents have no legal personality to institute the
Philippines, Marawi City branch, is hereby ordered to pay the following:23 petition for mandamus in their own names since the IRAs rightfully belong to
1. Aliriba Macarambon, the 2nd Quarter IRA of Paigoay, Pagayawan in the sum the respective barangays and not to them and that their respective barangays
of P48,200.00; already received the claimed IRAs in this instant case.31
2. Salimatar Sarip of Linindingan the For the proper adjudication of the present petition, two related core issues
2nd Quarter IRA - - - P54,220.00 have to be resolved. First, what is the cause of action alleged in the initiatory
3rd Quarter IRA - - - P54,220.00 pleading filed by respondents before the trial court? Second, are there
3. Lomala S. Cadar of Mapantao the indispensable parties which were not impleaded?
2nd Quarter IRA - - - P54,320.00 Although the pleading filed before the lower court was denominated as a
3rd Quarter IRA - - - P54,320.00 Petition for Mandamus With Prayer For Writ of Preliminary Injunction, the
4. Abdulkhay Pangcoga of Ilian the allegations thereof indicate that it is an action for specific performance,
2nd Quarter IRA - - - P53, 361.00 particularly to compel petitioner to allow withdrawal of funds from the
3rd Quarter IRA - - - P53,361.00 accounts of the barangays headed by respondents with the LBP, Marawi
5. Abdul Usman of Rangiran the Branch. Thus, the Petition alleged:
2nd Quarter IRA - - - P51,185.00 "12. Despite the opening of deposit accounts for the barangays mentioned in
3rd Quarter IRA - - - P51,185.00 the preceding paragraph, respondent, without any valid or lawful cause,
even without the Accountant's Advice and the subsequent IRAs until their failed and refused, and still fails and refuses, to allow the withdrawal of the
27
funds or IRA of the said barangays as evidenced by the WITHDRAWAL CHECKS questions cannot be resolved with finality without the involvement of the
(attached as Annexes "D" to "D-3" hereof) of said barangays which were barangays. After all, these controversies involve funds rightfully belonging to
refused payment when presented to the Land Bank on August 4, 1997."32 the barangays. Hence, the barangays are indispensable parties in this case.
From the records of the case, it appears that the shares of the barangays in An indispensable party is defined as parties-in-interest without whom there
the IRA had already been remitted by the Department of Budget and can be no final determination of an action.38 The nature of an indispensable
Management (DBM) to the LBP Marawi Branch where they were kept in the party was thoroughly discussed in Arcelona v. Court of Appeals,39 to quote:
accounts opened in the names of the barangays. An indispensable party is a party who has such an interest in the controversy
By virtue of the deposits, there exists between the barangays as depositors or subject matter that a final adjudication cannot be made, in his absence,
and LBP a creditor-debtor relationship. Fixed, savings, and current deposits without injuring or affecting that interest, a party who has not only an interest
of money in banks and similar institutions are governed by the provisions in the subject matter of the controversy, but also has an interest of such
concerning simple loan.33 In other words, the barangays are the lenders while nature that a final decree cannot be made without affecting his interest or
the bank is the borrower. leaving the controversy in such a condition that its final determination may
This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of be wholly inconsistent with equity and good conscience. It has also been
Manila, et al.,34 citing Serrano v. Central Bank of the Philippines,35 thus: considered that an indispensable party is a person in whose absence there
Bank deposits are in the nature of irregular deposits. They are really loans cannot be a determination between the parties already before the court
because they earn interest. All kinds of bank deposits, whether fixed, which is effective, complete, or equitable. Further, an indispensable party is
savings, or current are to be treated as loans and are to be covered by the one who must be included in an action before it may properly go forward.
law on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519). A person is not an indispensable party, however, if his interest in the
Current and savings deposits are loans to a bank because it can use the same. controversy or subject matter is separable from the interest of the other
The petitioner here in making time deposits that earn interest with parties, so that it will not necessarily be directly or injuriously affected by a
respondent Overseas Bank of Manila was in reality a creditor of the decree which does complete justice between them. Also, a person is not an
respondent Bank and not a depositor. The respondent Bank was in turn a indispensable party if his presence would merely permit complete relief
debtor of petitioner. Failure of the respondent Bank to honor the time between him and those already parties to the action, or if he has no interest
deposit is failure to pay its obligation as a debtor and not a breach of trust in the subject matter of the action. It is not a sufficient reason to declare a
arising from a depository's failure to return the subject matter of the deposit. person to be an indispensable party that his presence will avoid multiple
(Emphasis supplied.)36 litigation.40
The relationship being contractual in nature, mandamus is therefore not an In Arcelona, the Court also dwelt on the consequences of failure to include
available remedy since mandamus does not lie to enforce the performance indispensable parties in a case, categorically stating that the presence of
of contractual obligations.37 indispensable parties is a condition for the exercise of juridical power41 and
This brings us to the second core issue. when an indispensable party is not before the court, the action should be
The IRA funds for which the bank accounts were created belong to the dismissed.42 The absence of an indispensable party renders all subsequent
barangays headed by respondents. The barangays are the only lawful actions of the court null and void for want of authority to act, not only as to
recipients of these funds. Consequently, any transaction or claim involving the absent parties but even as to those present.43
these funds can be done only through the proper authorization from the The joinder of indispensable parties is mandatory. Without the presence of
barangays as juridical entities. indispensable parties to the suit, the judgment of the court cannot attain real
The determination, therefore, of whether or not the IRA funds were finality. Strangers to a case are not bound by the judgment rendered by the
unlawfully withheld or improperly released to third persons can only be court.44
determined if the barangays participated as parties to this action. These Clearly, this case was not initiated by the barangays themselves. Neither did
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the barangay chairmen file the suit in representation of their respective Use of moneys appropriated solely for the specific purpose for which
barangays. Nothing from the records shows otherwise. On this score alone, appropriated, and for no other, except when authorized by law or by a
the case in the lower court should have been dismissed. corresponding appropriating body.
Even if the barangays themselves had filed the case, still it would not prosper. b) Approval of claim or expenditure by head of office or his duly authorized
The case involves government funds and as such, any release therefrom can representative.
only be done in accordance with the prevailing rules and procedures. c) Documents to establish validity of claim. – Submission of documents and
The Government Accounting and Auditing Manual (GAAM) provides that the other evidences to establish the validity and correctness of the claim for
local treasurers shall maintain the depositary accounts in the name of their payment.
respective local government units with banks.45 Under the Local Government d) Conformity of the expenditure to existing laws and regulations.
Code, the treasurer is given the power, among others, to: (1) keep custody of e) Proper accounting treatment.49
barangay funds and properties; and (2) disburse funds in accordance with the This prescribed legal framework governing the release and disbursement of
financial procedures provided by the Local Government Code.46 The same IRA funds to the respective barangays disabuses from the notion that a
manual defines disbursements as constituting all cash paid out during a given barangay chairman, relying solely on his authority as a local executive, has
period either in currency or by check.47 the right to demand physical possession of the IRA funds allocated by the
Sec. 344 of the Local Government Code further provides for the following national government to the barangay. The right to demand for the funds
requirements in cases of disbursements, to wit: belongs to the local government itself through the authorization of their
Sec. 344. No money shall be disbursed unless the local budget officer certifies Sanggunian.50
to the existence of appropriation that has been legally made for the purpose, One final note. There is no conclusive proof from the records showing that
the local accountant has obligated said appropriation, and the local treasurer the IRA funds for the 2nd and 3rd quarters of the barangays concerned
certifies to the availability of funds for the purpose. Vouchers and payrolls remitted by the DBM had already been withdrawn from the LBP Marawi
shall be certified to and approved by the head of the department or office Branch. Considering the implications of this action of possibly depriving
who has administrative control of the fund concerned, as to the validity, several local government units of their IRAs, the Court took the initiative to
propriety, and legality of the claim involved. Except in cases of disbursements request the COMELEC to issue certifications on who were the duly elected
involving regularly recurring administrative expenses xxx approval of the chairmen of the barangays concerned. The COMELEC issued to this Court a
disbursement voucher by the local chief executive himself shall be required list of the elected barangay chairmen which confirmed the re-election of
whenever local funds are disbursed. respondents as barangay chairmen of their respective barangays.51 If
Thus, as a safeguard against unwarranted disbursements, certifications are withdrawals were indeed made, whether by the respondents or by
required from: (a) the local budget officer as to the existence and validity of impostors, the matter deserves to be investigated since public funds are
the appropriation; (b) the local accountant as to the legal obligation incurred involved. Accordingly, we refer the matter to the Department of Interior and
by the appropriation; (c) the local treasurer as to the availability of funds; and Local Government (DILG) for investigation and appropriate action.
(d) the local department head as to the validity, propriety and legality of the WHEREFORE, premises considered, the petition is GRANTED. The assailed Decisions of the Court of
Appeals and the Regional Trial Court are REVERSED and SET ASIDE. The Petition for Mandamus filed
claim against the appropriation.48 before the Regional Trial Court is ordered DISMISSED.
Further, the GAAM provides for the basic requirements applicable to all The alleged withdrawals of deposits representing the Internal Revenue Allotments for the 2 nd and
classes of disbursements that shall be complied with, to wit: 3rd Quarters of 1997 of the barangays concerned from the Land Bank of the Philippines, Marawi
a) Certificate of Availability of Fund.–Existence of lawful appropriation, the Branch, are referred to the DILG for investigation and appropriate action. The DILG is hereby
DIRECTED to INFORM the Court of the result of its investigation within thirty (30) days from the
unexpended balance of which, free from other obligations, is sufficient to completion thereof.
cover the expenditure, certified as available by an accounting officer or any No pronouncement as to costs.
other official required to accomplish the certificate. SO ORDERED.

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