G.R. No. 186983 February 22, 2012
Whether or not the CA erred in finding that Philam Plans approval
MA. LOURDES S. FLORENDO vs. PHILAM PLANS, INC.,
PERLA ABCEDE and MA. CELESTE ABCEDE
This case is about an insureds alleged concealment in his pension plan
application of his true state of health and its effect on the life insurance
portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for
comprehensive pension plan with respondent Philam Plans, Inc. (Philam
Plans) after some convincing by respondent Perla Abcede. The plan had a
pre-need price of P997,050.00, payable in 10 years, and had a maturity
value of P2,890,000.00 after 20 years. [1] Manuel signed the application
and left to Perla the task of supplying the information needed in the
application.[2] Respondent Ma. Celeste Abcede, Perlas daughter, signed
the application as sales counselor.[3]
Aside from pension benefits, the comprehensive pension plan also
provided life insurance coverage to Florendo.[4] This was covered by a
Group Master Policy that Philippine American Life Insurance Company
(Philam Life) issued to Philam Plans. [5] Under the master policy, Philam
Life was to automatically provide life insurance coverage, including
accidental death, to all who signed up for Philam Plans comprehensive
pension plan.[6] If the plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take
care of any unpaid premium until the pension plan matured, entitling the
beneficiary to the maturity value of the pension plan. [7]
On October 30, 1997 Philam Plans issued Pension Plan Agreement
PP43005584[8] to Manuel, with petitioner Ma. Lourdes S. Florendo, his
wife, as beneficiary. In time, Manuel paid his quarterly premiums.[9]
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the
payment of the benefits under her husbands plan. [10] Because Manuel
died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam
Life.[11]
On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her
claim. Philam Life found that Manuel was on maintenance medicine for
his heart and had an implanted pacemaker. Further, he suffered from
diabetes mellitus and was taking insulin. Lourdes renewed her demand
for payment under the plan[13] but Philam Plans rejected it,[14]prompting
her to file the present action against the pension plan company before
the Regional Trial Court (RTC) of Quezon City.[15]
On March 30, 2006 the RTC rendered judgment, [16] ordering Philam Plans,
Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husbands pension plan, namely: P997,050.00, the proceeds of his term
insurance, and P2,890,000.00 lump sum pension benefit upon maturity of
his plan; P100,000.00 as moral damages; and to pay the costs of the
suit. The RTC ruled that Manuel was not guilty of concealing the state of
his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
decision,[17] holding that insurance policies are traditionally
contracts uberrimae fidae or contracts of utmost good faith. As such, it
required Manuel to disclose to Philam Plans conditions affecting the risk
of which he was aware or material facts that he knew or ought to know. [18]
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of concealing his
illness when he kept blank and did not answer questions in his pension
plan application regarding the ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the
failure of respondents Perla and Ma. Celeste to declare the condition of
Manuels health in the pension plan application; and
3.
of Manuels pension plan application and acceptance of his premium
payments precluded it from denying Lourdes claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuels
pension plan application relating to his medical history, Philam Plans
should have returned it to him for completion. Since Philam Plans
chose to approve the application just as it was, it cannot cry
concealment on Manuels part. Further, Lourdes adds that Philam
Plans never queried Manuel directly regarding the state of his
health. Consequently, it could not blame him for not mentioning it. [19]
But Lourdes is shifting to Philam Plans the burden of putting on the
pension plan application the true state of Manuels health. She
forgets that since Philam Plans waived medical examination for
Manuel, it had to rely largely on his stating the truth regarding his
health in his application. For, after all, he knew more than anyone
that he had been under treatment for heart condition and diabetes
for more than five years preceding his submission of that
application. But he kept those crucial facts from Philam Plans.
Besides, when Manuel signed the pension plan application, he
adopted as his own the written representations and declarations
embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam
Plans. The pertinent portion of his representations and declarations
read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or any
other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal
otherwise, please give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.[20] (Emphasis supplied)
Since Manuel signed the application without filling in the details
regarding his continuing treatments for heart condition and diabetes,
the assumption is that he has never been treated for the said
illnesses in the last five years preceding his application. This is
implicit from the phrase If your answer to any of the statements
above (specifically, the statement: I have never been treated for
heart condition or diabetes) reveal otherwise, please give details in
the space provided for. But this is untrue since he had been on
Coumadin, a treatment for venous thrombosis, [21] and insulin, a drug
used in the treatment of diabetes mellitus, at that time. [22]
Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on
his chest in the 70s or about 20 years before he signed up for the
pension plan.[23] But by its tenor, the responsibility for preparing the
application belonged to Manuel. Nothing in it implies that someone
else may provide the information that Philam Plans needed. Manuel
cannot sign the application and disown the responsibility for having
it filled up. If he furnished Perla the needed information and
1
delegated to her the filling up of the application, then she acted on his
instruction, not on Philam Plans instruction.
Lourdes next points out that it made no difference if Manuel failed to
reveal the fact that he had a pacemaker implant in the early 70s since
this did not fall within the five-year timeframe that the disclosure
contemplated.[24] But a pacemaker is an electronic device implanted into
the body and connected to the wall of the heart, designed to provide
regular, mild, electric shock that stimulates the contraction of the heart
muscles and restores normalcy to the heartbeat. [25] That Manuel still had
his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat
within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his
heart condition and diabetes when he submitted his pension plan
application. These clearly fell within the five-year period. More, even if
Perlas knowledge of Manuels pacemaker may be applied to Philam Plans
under the theory of imputed knowledge,[26] it is not claimed that Perla
was aware of his two other afflictions that needed medical
treatments. Pursuant to Section 27[27] of the Insurance Code, Manuels
concealment entitles Philam Plans to rescind its contract of insurance
with him.
Two. Lourdes contends that the mere fact that Manuel signed the
application in blank and let Perla fill in the required details did not make
her his agent and bind him to her concealment of his true state of
health. Since there is no evidence of collusion between them, Perlas fault
must be considered solely her own and cannot prejudice Manuel.[28]
But Manuel forgot that in signing the pension plan application, he
certified that he wrote all the information stated in it or had someone do
it under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan
Program described herein in accordance with the General Provisions set
forth in this application and hereby certify that the date and other
information stated herein are written by me or under my
direction. x x x.[29] (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is
still bound by what it contains since he certified that he authorized her
action. Philam Plans had every right to act on the faith of that
certification.
Lourdes could not seek comfort from her claim that Perla had assured
Manuel that the state of his health would not hinder the approval of his
application and that what is written on his application made no difference
to the insurance company. But, indubitably, Manuel was made aware
when he signed the pension plan application that, in granting the same,
Philam Plans and Philam Life were acting on the truth of the
representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on
the truth of the foregoing representations and is subject to the
provisions of the Group Life Insurance Policy issued by THE PHILIPPINE
AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.[30] (Emphasis
supplied)
As the Court said in New Life Enterprises v. Court of Appeals:[31]
It may be true that x x x insured persons may accept policies without
reading them, and that this is not negligence per se. But, this is not
without any exception. It is and was incumbent upon petitioner Sy to
read the insurance contracts, and this can be reasonably expected of him
considering that he has been a businessman since 1965 and the contract
concerns indemnity in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was
precisely the reason for his procuring the same. [32]
The same may be said of Manuel, a civil engineer and manager of a
construction company.[33] He could be expected to know that one
must read every document, especially if it creates rights and
obligations affecting him, before signing the same. Manuel is not
unschooled that the Court must come to his succor. It could
reasonably be expected that he would not trifle with something that
would provide additional financial security to him and to his wife in
his twilight years.
Three. In a final attempt to defend her claim for benefits under
Manuels pension plan, Lourdes points out that any defect or
insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been
approved, the policy has been issued, and the premiums have been
collected. [34]
The Court cannot agree. The comprehensive pension plan that
Philam Plans issued contains a one-year incontestability period. It
states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can
no longer contest for health reasons any claim for insurance under
this Agreement, except for the reason that installment has not been
paid (lapsed), or that you are not insurable at the time you bought
this pension program by reason of age. If this Agreement lapses but
is reinstated afterwards, the one (1) year contestability period shall
start again on the date of approval of your request for reinstatement.
[35]
The above incontestability clause precludes the insurer from
disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the
insured after a year of its issuance.
Since Manuel died on the eleventh month following the issuance of
his plan,[36] the one year incontestability period has not yet set
in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands
pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the
Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.
G.R. No. 132362. June 28, 2001]
PIO BARRETTO REALTY DEVELOPMENT CORPORATION, petitioner, vs.
COURT OF APPEALS, JUDGE PERFECTO A. S. LAGUIO, JR., RTC-Branch
18, Manila, and HONOR P. MOSLARES, respondents.
This petition for review on certiorari assails the Decision dated
30 June 1997 of the Court of Appeals in CA-G.R. SP No. 33982, "Pio
Barretto Realty Development Corporation v. Hon. Perfecto A. Laguio,
et al.," which dismissed the special civil action for certiorari filed by
petitioner, as well as its Resolution dated 14 January 1998 denying
reconsideration.
On 2 October 1984 respondent Honor P. Moslares instituted an
action for annulment of sale with damages before the Regional Trial
Court of Manila against the Testate Estate of Nicolai Drepin
represented by its Judicial Administrator Atty. Tomas Trinidad and
petitioner Pio Barretto Realty Development Corporation. Moslares
alleged that the Deed of Sale over four (4) parcels of land of the
Drepin Estate executed in favor of the Barretto Realty was null and
void on the ground that the same parcels of land had already been
sold to him by the deceased Nicolai Drepin. The case was docketed
as Civil Case No. 84-27008 and raffled to respondent Judge
Perfecto A. S. Laguio, Jr., RTC-Br. 18, Manila.
2
 On 2 May 1986 the parties, to settle the case, executed
a Compromise Agreement pertinent portions of which are quoted
hereunder -
1. The Parties agree to sell the Estate, subject matter of the instant case,
which is composed of the following real estate properties, to wit:
a. Three (3) titled properties covered by TCT Nos. 50539, 50540 and
50541[1] of the Registry of Deeds for the Province of Rizal, with a total
area of 80 hectares, more or less, and
b. Untitled Property, subject matter of (a) Land Registration Case No.
1602 of the Regional Trial Court, Pasig, Metro Manila, with an area of 81
hectares, more or less,
subject to the following situations and conditions, to wit:
a. If plaintiff Honor P. Moslares x x x buys the property, he is under
obligation, as follows:
1. To reimburse and pay Defendant Pio Barretto Realty Development
Corporation, represented by Anthony Que, its capital investment of
Three Million Pesos (P3,000,000.00), Philippine Currency, and
2. To pay the Estate of Nicolai Drepin, represented by the Judicial
Administrator, Atty. Tomas Trinidad, the sum of One Million Three Hundred
Fifty Thousand (P1,350,000.00) Pesos, Philippine Currency
b. If defendant Pio Barretto Realty Development Corporation, represented
by Mr. Anthony Que x x x continue[s] to buy the property, it shall pay for
the interests of plaintiff Honor P. Moslares:
1. The sum of One Million (P1,000.000.00) Pesos, Philippine Currency to
plaintiff Honor P. Moslares personally and
2. Pay to the Estate of Nicolai Drepin, through the Judicial Administrator,
Atty. Tomas Trinidad, the balance of the agreed purchase price subject to
negotiation and verification of payments already made.
2. In the event that plaintiff Honor P. Moslares buys the Estate and pays
in full the amount of Three Million (P3,000,000.00) Philippine Currency to
defendant Pio Barretto Realty Development Corporation, and the full sum
of One Million Three Hundred Fifty Thousand (P1,350,000.00) Pesos,
Philippine Currency, to the Estate of Nicolai Drepin, through Atty. Tomas
Trinidad, defendant Pio Barretto shall execute the corresponding Deed of
Conveyance in favor of plaintiff Honor P. Moslares and deliver to him all
the titles and pertinent papers to the Estate.
IN WITNESS WHEREOF, the parties hereto hereby sign this Compromise
Agreement at Manila, Philippines, this 2nd day of May 1986 x x x x x x x
xxxxx
On 24 July 1986 the trial court rendered a decision approving
the Compromise Agreement.[2] However, subsequent disagreements
arose on the question of who bought the properties first.
It must be noted that the Compromise Agreement merely gave
Moslares and Barretto Realty options to buy the disputed lots thus
implicitly recognizing that the one who paid first had priority in
right. Moslares claimed that he bought the lots first on 15 January 1990
by delivering to Atty. Tomas Trinidad two (2) PBCom checks, one (1) in
favor of Barretto Realty for P3 million, and the other, in favor of the
Drepin Estate for P1.35 million.
But petitioner Barretto Realty denied receiving the check. Instead, it
claimed that it bought the properties
on 7 March 1990 by tendering a Traders Royal Bank Manager's Check
for P1million to Moslares, and a Far East Bank and Trust Company
Cashier's Check for P1 million and a Traders Royal Bank Manager's
Check for P350,000.00 to Atty. Tomas Trinidad as Judicial
Administrator of the Estate. However, Moslares and Atty. Trinidad
refused to accept the checks.
Consequently, Barretto Realty filed a motion before the trial
court alleging that it complied with its monetary obligations under
the Compromise Agreement but that its offers of payment were
refused, and prayed that a writ of execution be issued to compel
Moslares and Atty. Trinidad to comply with the Compromise
Agreement and that the latter be directed to turn over the owner's
duplicate certificates of title over the lots.
On 10 May 1990[3] Judge Laguio, Jr. ordered that "a writ of
execution be issued for the enforcement of the decision of this Court
for the parties to deposit with this Court, thru the City Treasurer's
Office of Manila, their respective monetary obligations under the
compromise agreement that had been executed by them x x x x"
Reacting to the order, Atty. Trinidad for the Estate filed an
urgent motion to hold the execution in abeyance on the ground that
there was another case involving the issue of ownership over subject
lots pending before the Regional Trial Court of Antipolo City. Moslares
in turn filed a motion for reconsideration while Barretto Realty moved
to amend the order since the lower court did not exactly grant what
it prayed for.
On 14 June 1990, ruling on the three (3) motions, Judge Laguio,
Jr., issued his Order -
Considering Defendant Judicial Administrator's urgent motion to hold
in abeyance x x x the plaintiff's motion for reconsideration, and the
Defendant Pio Barretto Realty Development, Inc.'s opposition to both
motions x x x this Court finds the two motions without merit and are
accordingly, denied.
As regards Pio Barretto Realty Development, Inc.'s ex-parte motion
to amend order x x x the same is hereby granted and the deputy
sheriff of this Court is allowed to deliver to the parties concerned
thru their counsels the bank certified checks mentioned in par. 2 of
the motion (underscoring ours).[4]
On 20 June 1990 Deputy Sheriff Apolonio L. Golfo of the RTC-Br.
18, Manila, implemented the order by personally delivering the
checks issued by Barretto Realty in favor of Moslares and the Estate
to Atty. Pedro S. Ravelo, counsel for Moslares, and to Atty. Tomas
Trinidad, respectively, as recorded in a Sheriff's Return dated 25 June
1990.[5]
However, on 17 September 1993, or more than three (3) years
later, Moslares filed a Motion for Execution alleging that he bought
the lots subject of the Compromise Agreement on 15 January 1990
and that he paid the amounts specified as payment therefor. He
asked that Barretto Realty be directed to execute a deed of
conveyance over subject lots in his favor. In a Supplement to his
motion Moslares contended that the previous tender of the checks
by Barretto Realty did not produce the effect of payment because
checks, according to jurisprudence, were not legal tender.
Respondent Judge granted Moslares' Motion for
Execution. Consequently, on 8 November 1993 Barretto Realty was
ordered to execute a deed of conveyance over the subject lots in
favor of Moslares.
Aggrieved, Barretto Realty moved for reconsideration alleging
that respondent Judge could no longer grant Moslares' motion since
3
the prior sale of subject lots in its favor had already been recognized
when the court sheriff was directed to deliver, and did in fact deliver, the
checks it issued in payment therefor to Moslares and Atty. Trinidad.
On 7 December 1993 respondent Judge granted the motion of
Barretto Realty for reconsideration and ruled -
Considering the motion for reconsideration and to quash writ of execution
filed by defendant Pio Barretto Realty Corporation, Inc., dated 16
November 1993, together with the plaintiff's comment and/or opposition
thereto, dated 18 November 1993, and the movant's reply to the
opposition etc., dated 20 November 1993, this Court finds the motion
well taken. The record shows that on 10 May 1990, a writ of execution
was issued by this Court for the parties to deposit with the Court, thru the
City Treasurer's Office of Manila, their respective monetary obligations
under the compromise agreement that they had executed, and that it
was only defendant Pio Barretto Realty Corporation Inc. that had
complied therewith, per the return of this Court's deputy sheriff, Apolonio
L. Golfo, dated June 25, 1990. Such being the case, Defendant Pio
Barretto Realty Corporation Inc., is the absolute owner of the real
properties in question and the issue on such ownership is now a closed
matter.
WHEREFORE, Defendant Pio Barretto Realty Corporation Inc.'s motion for
reconsideration etc., dated November 16, 1993, is hereby granted; this
Court's order, dated November 8, 1993, is reconsidered and set aside,
and the writ of execution of the same date against Defendant Pio
Barretto Realty Corporation Inc. is ordered quashed (underscoring ours).[6]
Within a reglementary period Moslares moved to reconsider
insisting that Barretto Realty's payment by check was not valid because
(a) the check was not delivered personally to him but to his counsel Atty.
Pedro Ravelo, (b) the check was not encashed hence did not produce the
effect of payment; and, (c) the check was not legal tender per judicial
pronouncements. Barretto Realty opposed the motion, but to no avail. On
11 February 1994 respondent Judge granted the motion for
reconsideration and set aside his Order of 7 December 1993. Judge
Laguio ruled that Barretto Realty's payment through checks was not valid
because "a check is not legal tender and it cannot produce the effect of
payment until it is encashed x x x x the check in question has neither
been negotiated nor encashed by the plaintiff." [7] At the same time,
however, Moslares' alleged payment of P3,000,000.00 on 15 January
1990 intended for Barretto Realty but delivered to Atty. Tomas Trinidad
was likewise decreed as not valid because the latter was not authorized
to accept payment for Barretto Realty.
Invoking interest of justice and equity, respondent Judge resolved
to: (a) set aside its ruling contained in its order of 7 December 1993
that "(d)efendant Pio Barretto Realty Corporation, Inc., is the absolute
owner of the property in question and the issue on such ownership is now
a closed matter;" (b) order the plaintiff (should he desire to exercise his
option to buy the real property in question) to pay defendant Pio Barretto
Realty Corporation, Inc., the sum of P3,000,000.00 within five (5) days
from notice thereof by way of reimbursement of the latter's capital
investment; and, (c) order defendant Pio Barretto Realty Development
Corporation, Inc., to pay the plaintiff (in the event the latter should fail to
exercise his said option and the former would want to buy the real
property in question) the sum of P1,000,000.00.
But Moslares failed to exercise his option and pay the amount within
the five (5)-day period granted him. Instead, he filed a Supplemental
Motion to Pay praying that he be given additional seven (7) days within
which to do so. Barretto Realty opposed and invoked par. 3 of the Order
of 11 February 1994 granting it the option to buy the lots in the event
that Moslares should fail to pay within the period given him. Barretto
Realty prayed that the P1 million cashier's check still in Moslares'
possession be considered as sufficient compliance with the pertinent
provision of the court's order. Later, Barretto Realty offered to exchange
the check with cash. When Moslares did not appear however at the
designated time for payment on 10 March 1994 before the Branch
Clerk of Court, Barretto Realty filed a motion for consignation praying
that it be allowed to deposit the P1,000,000.00 payment with the
cashier of the Office of the Clerk of Court.
Respondent Judge however failed to act on the motion as he
went on vacation leave. For reasons which do not clearly appear in
the record, Judge Rosalio G. dela Rosa, Executive Judge of the RTC,
Manila, acted on the motion and granted the prayer of Barretto
Realty.[8] Upon the return of respondent Judge Laguio from his
vacation, petitioner Barretto Realty immediately filed a motion for his
inhibition on the ground that he had already lost the cold neutrality
of an impartial judge as evident from his "seesaw" orders in the
case. On 28 March 1994 respondent Judge denied the motion for his
inhibition. Moslares for his part moved for reconsideration of
Executive Judge dela Rosa's Order of 10 March 1994.
On 15 April 1994, in a Consolidated Order, respondent Judge
Laguio set aside the questioned order of Executive Judge dela Rosa
on the ground that the motion for consignation should have been
referred to the pairing judge of Branch 18, Judge Zenaida Daguna of
Branch 19. Respondent Judge further ruled that the questioned order
was premature since there were pending motions, namely,
Moslares' Supplemental Motion to Pay dated 1 March 1994,
and Motion to Deposit dated 9 March 1994 which were both filed
earlier than Barretto Realty's Motion for Consignation which however
remained unresolved.
Respondent Judge Laguio found Moslares' motions meritorious
and granted them. Moslares was thus given a non-extendible grace
period of three (3) days within which to pay the P3,000,000.00 to
Barretto Realty.Moslares then deposited the amount with the Branch
Clerk of Court of Br. 18 within two (2) days from receipt of the order
of respondent Judge, and on 25 April 1994 filed a motion for the
Clerk of Court to be authorized to execute the necessary deed of
conveyance in his favor.
On 2 May 1994 Barretto Realty filed a petition for certiorari and
prohibition with prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals assailing the Orders
of respondent Judge dated 28 March 1994 and 15 April 1994 on the
ground that they were issued with grave abuse of discretion.
Meanwhile, on 12 October 1994 or during the pendency of the
petition, respondent Judge granted Moslares' motion and authorized
the Clerk of Court to execute the deed of conveyance in his
favor. The implementation of the order however was enjoined by the
Court of Appeals on 9 December 1994 when it issued a writ of
preliminary injunction barring the issuance of the writ until further
orders from the court.
In its Petition and Memorandum petitioner specifically alleged
that respondent Judge's Orders of 8 November 1993, [9] 11 February
1994,[10] 15 April 1994,[11] and 12 October 1994[12] were all issued
with grave abuse of discretion as the trial court had no more
jurisdiction to issue such orders since the Compromise Agreement of
2 May 1986 which was the basis of the decision of 24 July 1986 had
already been executed and implemented in its favor way back on 20
June 1990.
Petitioner likewise contended that the Order of 28 March
1994[13] denying petitioner's motion for inhibition was void because it
did not state the legal basis thereof; that respondent Judge displayed
obvious bias and prejudice when he issued "seesaw" orders in the
case; and, that the bias in favor of Moslares was apparent when
respondent Judge granted the former another three (3)-day period
within which to pay the P3 million notwithstanding the fact that
Moslares failed to comply with the original five (5)-day period given
him. With respect to Executive Judge dela Rosa's Order of 10 March
4
1994, petitioner contended that there was no rule of procedure
prohibiting the Executive Judge from acting on an urgent motion even if
the pairing judge of the judge to whom the case was raffled was present.
The Court of Appeals dismissed the petition. It ruled that the denial
by respondent Judge of the motion for his inhibition was not tainted with
grave abuse of discretion correctible by certiorari. Aside from the fact
that judges are given a wide latitude of discretion in determining whether
to voluntarily recuse themselves from a case, which is not lightly
interfered with, the appellate court however observed that the orders
and resolutions issued by respondent Judge in the five (5) years he had
been presiding over Civil Case No. 84-27008 indicated that they were not
uniformly issued in favor of one or the other party. As petitioner itself
aptly described, respondent Judge's actuations in the case "seesawed"
between the parties.
On the matter of the validity of Judge dela Rosa's Order of 10 March
1994 granting petitioner's motion for consignation, the Court of Appeals
ruled that the order was precipitate and unauthorized not only because
the motion did not comply with the requisites for litigated motions but
also because Judge dela Rosa had no judicial authority to act on the
case. His duties as Executive Judge were purely administrative and did
not include acting on a case assigned to another judge.
With respect to the two (2) writs of execution, one dated 10 May
1990 in favor of petitioner, and the other dated 11 February 1994 in favor
of respondent, the Court of Appeals ruled -
Lastly, anent the existence of two writs of execution, first one for
petitioner and the second for Moslares which the former has repeatedly
cited as capricious and whimsical exercise of judicial discretion by
respondent Judge, the records reveal that on 10 May 1990 a writ of
execution was issued in favor of the petitioner upon its motion. For
reasons of its own, petitioner did not pursue its effective and fruitful
implementation in accordance with the decision based on a compromise
agreement, spelling out the respective monetary obligations of petitioner
and Moslares. Hence, after the lapse of at least one year, Moslares filed a
motion for execution of the same decision x x x x [I]t cannot be said that
respondent Judge issued two conflicting orders sans any legal
basis. What really happened was that the matter of the first order
granting execution in favor of petitioner was repeatedly put at issue until
the order of the court dated 11 February 1994 x x x x Observedly, the
said order was never elevated by petitioner to the appellate
courts. Instead, he agreed with it by filing a "Manifestation and Motion on
01 March 1994 praying that the P1 Million Cashier's Check still in the
possession of Moslares be considered compliance with paragraph 3 of
that order x x x x
On 14 January 1998 petitioner's motion for reconsideration was
denied; hence, this petition.
Petitioner contends that the Court of Appeals erred (a) in concluding
that petitioner did not pursue the effective and fruitful implementation of
the writ of execution dated 10 May 1990 in its favor, (b) in not setting
aside Judge Laguio's Orders dated 11 February 1994, 15 April 1994 and
12 October 1994 as patent nullities, and, (c) in disregarding
jurisprudence declaring that cashier's or manager's checks are deemed
cash or as good as the money they represent.
We grant the petition. Final and executory decisions, more so with
those already executed, may no longer be amended except only to
correct errors which are clerical in nature. They become the law of the
case and are immutable and unalterable regardless of any claim of error
or incorrectness.[14] Amendments or alterations which substantially affect
such judgments as well as the entire proceedings held for that purpose
are null and void for lack of jurisdiction. [15] The reason lies in the fact that
public policy dictates that litigations must be terminated at some definite
time and that the prevailing party should not be denied the fruits of his
victory by some subterfuge devised by the losing party.[16]
It is not disputed, and in fact borne by the records, that
petitioner bought the disputed lots of the Drepin Estate subject
matter of the Compromise Agreement ahead of Moslares and that
the checks issued in payment thereof were even personally delivered
by the Deputy Sheriff of the RTC-Br. 18, Manila, upon Order of
respondent Judge dated 14 June 1990 after tender was refused by
Moslares and the Drepin Estate. Respondent Moslares never raised
the invalidity of the payment through checks either through a motion
for reconsideration or a timely appeal. Hence, with the complete
execution and satisfaction of the Decision dated 24 July 1986 which
approved the Compromise Agreement, Civil Case No. 84-27008
became closed and terminated leaving nothing else to be done by
the trial court with respect thereto. [17] As petitioner correctly
contended, the Court of Appeals erred when it concluded that
petitioner did not pursue the fruitful and effective implementation of
the writ of execution in its favor. As already stated petitioner paid for
the lots through the court-sanctioned procedure outlined
above. There was no more need for the Drepin Estate, owner of the
lots, to execute a deed of conveyance in petitioner's favor because it
had already done so on 10 October 1980. In fact the disputed lots
were already registered in petitioner's name under TCT Nos. 50539,
50540 and 50541 as a consequence thereof. That was also why in
the penultimate paragraph of the Compromise Agreement it was
provided that in the event respondent Moslares bought the lots
ahead of petitioner Barretto Realty the latter, not the Drepin Estate,
was to execute the corresponding deed of conveyance and deliver all
the titles and pertinent papers to respondent Moslares. There was
therefore nothing more to be done by way of fruitful and effective
implementation.
Clearly then respondent Judge Laguio no longer had any
jurisdiction whatsoever to act on, much less grant, the motion for
execution and supplement thereto filed by Moslares on 17
September 1993 or more than three (3) years later, claiming that he
had already bought the lots. The fact that the check paid to him by
Barretto Realty was never encashed should not be invoked against
the latter. As already stated, Moslares never questioned the tender
done three (3) years earlier. Besides, while delivery of a check
produces the effect of payment only when it is encashed, the rule is
otherwise if the debtor was prejudiced by the creditor's unreasonable
delay in presentment. Acceptance of a check implies an undertaking
of due diligence in presenting it for payment. If no such presentment
was made, the drawer cannot be held liable irrespective of loss or
injury sustained by the payee. Payment will be deemed effected and
the obligation for which the check was given as conditional payment
will be discharged.[18]
Considering the foregoing, respondent Judge Laguio's Order
dated 8 November 1993 which granted private respondent's motion
for execution thus nullifying the 1990 sale in favor of petitioner after
he had in effect approved such sale in his Order of 14 June 1990 and
after such order had already become final and executory, amounted
to an oppressive exercise of judicial authority, a grave abuse of
discretion amounting to lack of jurisdiction, for which reason, all
further orders stemming therefrom are also null and void and
without effect.[19]
The principle of laches does not attach when the judgment is
null and void for want of jurisdiction.[20] The fact that petitioner
invoked par. 3 of the Order of 11 February 1994 praying that
its P1,000,000.00 check still in Moslares' possession be considered
sufficient payment of the disputed lots, could not be cited against
it. For one thing, petitioner from the very start had always
consistently questioned and assailed the jurisdiction of the trial court
to entertain respondent's motion for execution filed three (3) years
after the case had in fact been executed. Secondly, estoppel being
an equitable doctrine cannot be invoked to perpetuate an injustice.
[21]
5
 WHEREFORE, the questioned Decision and Resolution of the Court
of Appeals dated 30 June 1997 and 14 January 1998, respectively,
are REVERSED and SET ASIDE. The Order of respondent Judge Perfecto A.
S. Laguio Jr. dated 11 February 1994 in Civil Case No. 84-27008, setting
aside his earlier ruling of 7 December 1993 which had declared petitioner
Pio Barretto Realty Development Corporation as the absolute owner of
the real properties in question, and all subsequent proceedings
culminating in the Order of 12 October 1994 authorizing the Clerk of
Court, RTC-Manila, to execute a deed of conveyance over subject
properties in favor of respondent Honor P. Moslares, are declared NULL
and VOID for want of jurisdiction.
Consequently, petitioner Pio Barretto Realty Development
Corporation is declared the absolute owner of the disputed properties
subject matter of the Compromise Agreement dated 2 May 1986 as fully
implemented by the Deputy Sheriff, RTC-Br. 18, Manila, pursuant to the
final and executory Order dated 14 June 1990 of its Presiding Judge
Perfecto A. S. Laguio, Jr.
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., vs. COURT OF APPEALS and SECURITY BANK
AND TRUST COMPANY,
This petition for review on certiorari impugns and seeks the reversal of
the decision promulgated by respondent court on March 8, 1991 in CA-
G.R. CV No. 23615 1 affirming with modifications, the earlier decision of
the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the
complaint filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows: (Joint
Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
annum, moral and exemplary damages as well as attorney's
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to
herein plaintiff in connection with his purchased of fuel products from
the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, that he lost all the certificates of
time deposit in dispute. Mr. Tiangco advised said depositor to
execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered
to defendant bank the required Affidavit of Loss (Defendant's
Exhibit 281). On the basis of said affidavit of loss, 280
replacement CTDs were issued in favor of said depositor
(Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained
a loan from defendant bank in the amount of Eight Hundred
Seventy Five Thousand Pesos (P875,000.00). On the same date,
said depositor executed a notarized Deed of Assignment of Time
Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated
time deposits from and after date" of the assignment and
further authorizes said bank to pre-terminate, set-off and "apply
the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN,
February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat
branch and presented for verification the CTDs declared lost by
Angel dela Cruz alleging that the same were delivered to herein
plaintiff "as security for purchases made with Caltex Philippines,
Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally informing
it of its possession of the CTDs in question and of its decision to
pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz"
as well as "the details of Mr. Angel dela Cruz" obligation against
which plaintiff proposed to apply the time deposits (Defendant's
Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand
and claim for payment of the value of the CTDs in a letter dated
February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter set-
off and applied the time deposits in question to the payment of
the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower
court's dismissal of the complaint, hence this petition wherein
petitioner faults respondent court in ruling (1) that the subject
certificates of deposit are non-negotiable despite being clearly
negotiable instruments; (2) that petitioner did not become a holder
in due course of the said certificates of deposit; and (3) in
disregarding the pertinent provisions of the Code of Commerce
relating to lost instruments payable to bearer. 4
6
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of
this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
5 witness:
AUTHORIZED SIGNATURES
Respondent court ruled that the CTDs in question are non-negotiable
instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly
in the CTDs issued, it is important to note that after the word
"BEARER" stamped on the space provided supposedly for the name
of the depositor, the words "has deposited" a certain amount follows.
The document further provides that the amount deposited shall be
"repayable to said depositor" on the period indicated. Therefore, the
text of the instrument(s) themselves manifest with clarity that they
are payable, not to whoever purports to be the "bearer" but only to
the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the
person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that
the CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite
(d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security
Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these
certificates of time deposit insofar as the bank is concerned?
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-
negotiability of an instrument is determined from the writing, that is,
from the face of the instrument itself. 9 In the construction of a bill or
note, the intention of the parties is to control, if it can be legally
ascertained. 10 While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the
writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain, not what
the parties may have secretly intended as contradistinguished from
what their words express, but what is the meaning of the words they
have used. What the parties meant must be determined by what
they said. 11
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited
shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not
say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are
to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that
fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor
"insofar as the bank is concerned," but obviously other parties not
privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence,
the situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for
resort to extrinsic evidence is what is sought to be avoided by the
7
Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs.
This time, the answer is in the negative. The records reveal that Angel de
la Cruz, whom petitioner chose not to implead in this suit for reasons of
its own, delivered the CTDs amounting to P1,120,000.00 to petitioner
without informing respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products.
Any doubt as to whether the CTDs were delivered as payment for the fuel
products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative
himself.
In a letter dated November 26, 1982 addressed to respondent Security
Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Emphasis ours.) 13 This
admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon. 14 A
party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of
evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as
security, petitioner's credit manager could have easily said so, instead of
using the words "to guarantee" in the letter aforequoted. Besides, when
respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff,
be required to aver with sufficient definiteness or particularity (a) the due
date or dates of payment of the alleged indebtedness of Angel de la Cruz
to plaintiff and (b) whether or not it issued a receipt showing that the
CTDs were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18Had it
produced the receipt prayed for, it could have proved, if such truly was
the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption
that evidence willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
The character of the transaction between the parties is to be
determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there
was some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in
such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and
unambiguous language or other circumstances excluding an
intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, 21 and a
holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for
obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases
of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner
only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of
the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment
of the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on
the instrument arising from contract, he is deemed a holder for value
to the extent of his lien. 23 As such holder of collateral security, he
would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the Negotiable Instruments Law,
shall be governed by the Civil Code provisions on pledge of
incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if
a description of the thing pledged and the date of the pledge do
not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at the start
of this opinion show that petitioner failed to produce any document
evidencing any contract of pledge or guarantee agreement between
it and Angel de la Cruz. 25 Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any right effective against and
binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the
mode whereby proof may be made of the date of a pledge contract,
but a rule of substantive law prescribing a condition without which
the execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied in a public
instrument. 27 With regard to this other mode of transfer, the Civil
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce
no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement.
Contrarily, petitioner, whether as purchaser, assignee or lien holder
of the CTDs, neither proved the amount of its credit or the extent of
its lien nor the execution of any public instrument which could affect
or bind private respondent. Necessarily, therefore, as between
8
petitioner and respondent bank, the latter has definitely the better right
over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the requirements
of the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to
raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of
alleged negligence of private respondent was not included in the
stipulation of the parties and in the statement of issues submitted by
them to the trial court. 29 The issues agreed upon by them for resolution
in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered
by the CTDs against the depositor's loan by virtue of the assignment
(Annex "C").
3. Whether or not there was legal compensation or set off involving
the amount covered by the CTDs and the depositor's outstanding
account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate
the CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees
and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the
issue of negligence on the part of respondent bank. An issue raised for
the first time on appeal and not raised timely in the proceedings in the
lower court is barred by estoppel. 30 Questions raised on appeal must be
within the issues framed by the parties and, consequently, issues not
raised in the trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to
the disposition of a case are properly raised. Thus, to obviate the element
of surprise, parties are expected to disclose at a pre-trial conference all
issues of law and fact which they intend to raise at the trial, except such
as may involve privileged or impeaching matters. The determination of
issues at a pre-trial conference bars the consideration of other questions
on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its right to
preterminate and receive the proceeds of the CTDs would be tantamount
to saying that petitioner could raise on appeal any issue. We agree with
private respondent that the broad ultimate issue of petitioner's
entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of
which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation
of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in
the court below, petitioner still cannot have the odds in its favor. A close
scrutiny of the provisions of the Code of Commerce laying down the rules
to be followed in case of lost instruments payable to bearer, which it
invokes, will reveal that said provisions, even assuming their applicability
to the CTDs in the case at bar, are merely permissive and not mandatory.
The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it
may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends due
or about to become due, be not paid a third person, as well as in
order to prevent the ownership of the instrument that a
duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed owner"
to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision
reads "may," this word shows that it is not mandatory but
discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity,
permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles
548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established,
on the one hand, a right of recourse in favor of a dispossessed owner
or holder of a bearer instrument so that he may obtain a duplicate of
the same, and, on the other, an option in favor of the party liable
thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions
cited by petitioner categorically restricts or prohibits the issuance a
duplicate or replacement instrument sans compliance with the
procedure outlined therein, and none establishes a mandatory
precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition
is DENIED and the appealed decision is hereby AFFIRMED.
[G.R. No. 75908. October 22, 1999]
FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O.
BORROMEO, INC, petitioners vs. AMANCIO SUN and the COURT OF
APPEALS, respondents.
At bar is a Petition for review on Certiorari under Rule 45 of the
Revised Rules of Court seeking to set aside the Resolution of the
then Intermediate Appellate Court[1], dated March 13, 1986, in AC-
G.R. CV NO. 67988, which reversed its earlier Decision dated
February 12, 1985, setting aside the Decision of the former Court of
the First Instance of Rizal, Branch X, in Civil Case No. 19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court
of the First Instance of Rizal, Branch X, an action against Lourdes O.
Borromeo (in her capacity as corporate secretary), Federico O.
Borromeo and Federico O. Borromeo (F.O.B.), Inc., to compel the
transfer to his name in the books of F.O.B., Inc., 23,223 shares of
stock registered in the name of Federico O. Borromeo, as evidenced
by a Deed of Assignment dated January 16, 1974.
Private respondent averred[2] that all the shares of stock of
F.O.B. Inc. registered in the name of Federico O. Borromeo belong to
him, as the said shares were placed in the name of Federico O.
Borromeo only to give the latter personality and importance in the
business world.[3] According to the private respondent, on January 16,
1974 Federico O. Borromeo executed in his favor a Deed of
Assignment with respect to the said 23,223 shares of stock.
On the other hand, petitioner Federico O. Borromeo disclaimed
any participation in the execution of the Deed of Assignment,
theorizing that his supposed signature thereon was forged.
9
 After trial, the lower court of origin came out with a decision
declaring the questioned signature on subject Deed of Assignment, dated
January 16, 1974, as the genuine signature of Federico O. Borromeo;
ratiocinating thus:
After considering the testimonies of the two expert witnesses for the
parties and after a careful and judicious study and analysis of the
questioned signature as compared to the standard signatures, the Court
is not in a position to declare that the questioned signature in Exh. A is a
forgery. On the other hand, the Court is of the opinion that the
questioned signature is the real signature of Federico O. Borromeo
between the years 1954 to 1957 but definitely is not his signature in
1974 for by then he has changed his signature. Consequently, to the
mind of the Court Exhibit A was signed by defendant Federico O.
Borromeo between the years 1954 to 1957 although the words in the
blank were filled at a much later date.[4]
On appeal by petitioners, the Court of Appeals adjudged as forgery
the controverted signature of Federico O. Borromeo; disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of
action dated March 12, 1980 is hereby reversed and set aside and a new
judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the
latter:
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
3. Ordering plaintiff-appellee to pay the costs.[5]
On March 29, 1985, Amancio Sun interposed a motion for
reconsideration of the said decision, contending that Segundo
Tabayoyong, petitioners expert witness, is not a credible witness as found
and concluded in the following disposition by this Court in Cesar vs.
Sandigan Bayan[6]:
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of
which is cited on pages 19-23 of the petition, shows admissions which
are summarized by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any
degree in physics or chemistry. He was a mere trainee in the NBI
laboratory. He said he had gone abroad only once-to Argentina which,
according to him is the only one country in the world that gives this
degree (?) People go there where they obtain this sort of degree (?)
where they are authorized to practice (sic) examination of questioned
documents.
His civil service eligibility was second grade (general clerical). His
present position had to be re-classified confidential in order to qualify him
to it. He never passed any Board Examination.
He has never authored any book on the subject on which he claimed to
be an expert. Well, he did write a so-called pamphlet pretentiously called
Fundamentals of Questioned Documents Examination and Forgery
Detection. In that pamphlet, he mentioned some references (some) are
Americans and one I think is a British, sir, like in the case of Dr. Wilson
Harrison, a British (he repeated with emphasis). Many of the theories
contained in his pamphlet were lifted body and soul from those
references, one of them being Albert Osborn. His pamphlet has
neither quotations nor footnotes, although he was too aware of the
crime committed by many an author called plagiarism. But that did
not deter him, nor bother him in the least. He has never been a
member of any professional organization of experts in his supposed
field of expertise, because he said there is none locally. Neither is he
on an international level.[7]
Acting on the aforesaid motion for reconsideration, the Court of
Appeals reconsidered its decision of February 12, 1985
aforementioned. Thereafter, the parties agreed to have subject Deed
of Assignment examined by the Philippine Constabulary (PC) Crime
Laboratory, which submitted a Report on January 9, 1986, the
pertinent portion of which, stated:
1. Comparative examination and analysis of the questioned
and the standard signature reveal significant similarities in
the freedom of movement, good quality of lines, skills and
individual handwriting characteristics.
2. By process of interpolation the questioned signature fits in
and can be bracketed in time with the standard signatures
written in the years between 1956 to 1959. Microscopic
examination of the ink used in the questioned signature
and the standard signature in document dated 30 July 1959
marked Exh. E indicate gallotanic ink.
xxx
1. The questioned signature FEDERICO O. BORROMEO marked
Q appearing in the original Deed of Assignment dated 16
January 1974 and the submitted standard signatures of
Federico O. Borromeo marked S-1 to S-49 inclusive were
written BY ONE AND THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked
Q COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN
1950-1957.[8]
After hearing the arguments the lawyers of record advanced on
the said Report of the PC Crime Laboratory, the Court of Appeals
resolved:
"xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime
Laboratory on the Deed of Assignment in evidence, without
prejudice to the parties assailing the credibility of said
Report;
2) to GIVE both parties a non-extendible period of FIVE (5)
DAYS from February 27, 1986, within which to file
simultaneous memoranda.[9]
On March 13, 1986, the Court of Appeals reversed its decision
of February 12, 1985, which affirmed in toto the decision of the trial
court of origin; resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious, We
hereby set aside our Decision, dated February 12, 1985 and in its
stead a new judgment is hereby rendered affirming in toto the
decision of the trial Court, dated March 12, 1980, without
pronouncement as to costs.
SO ORDERED.[10]
10
Therefrom, petitioners found their way to this court via the present
Petition; theorizing that:
I. THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN
PETITIONER AGREED TO THE SUGGESTION OF RESPONDENT COURT TO
HAVE THE QUESTIONED DOCUMENT EXAMINED BY THE PC CRIME
LABORATORY THEY COULD NO LONGER QUESTION THE COMPETENCY OF
THE DOCUMENT.
II THE COURT OF APPEALS ERRED IN HOLDING THAT THE
QUESTIONED DOCUMENT WAS SIGNED IN 1954 BUT WAS DATED IN 1974.
III THE COURT OF APPEALS ERRED IN HOLDING THAT THE
SIGNATURE OF FEDERICO O. BORROMEO IN THE DEED OF ASSIGNMENT
(EXHIBIT A ) IS A GENUINE SIGNATURE CIRCA 1954-1957.
The Petition is barren of merit.
Well-settled is the rule that factual finding of the Court of Appeals
are conclusive on the parties and not reviewable by the Supreme Court
and they carry even more weight when the Court of Appeals affirms the
factual findings of the trial court. [11]
In the present case, the trial court found that the signature in
question is the genuine signature of Federico O. Borromeo between the
years 1954 to 1957 although the words in the blank space of the
document in question were written on a much later date. The same
conclusion was arrived at by the Court of Appeals on the basis of the
Report of the PC crime Laboratory corroborating the findings of Col. Jose
Fernandez that the signature under controversy is genuine.
It is significant to note that Mr. Tabayoyong, petitioners expert
witness, limited his comparison of the questioned signature with the
1974 standard signature of Federico O. Borromeo. No comparison of the
subject signature with the 1950 - 1957 standard signature was ever
made by Mr. Tabayoyong despite his awareness that the expert witness
of private respondent, Col. Jose Fernandez, made a comparison of said
signatures and notwithstanding his (Tabayoyongs) access to such
signatures as they were all submitted to the lower Court. As correctly
ratiocinated[12] by the Court of origin, the only conceivable reason why Mr.
Tabayoyong avoided making such a comparison must have been, that
even to the naked eye, the questioned signature affixed to the Deed of
Assignment, dated January 16, 1974, is strikingly similar to the 1950 to
1954 standard signature of Federico O. Borromeo, such that if a
comparison thereof was made by Mr. Tabayoyong, he would have found
the questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the
questioned signature was found to be circa 1954-1957, and not that of
1974, is of no moment. It does not necessarily mean, that the deed is a
forgery.Pertinent records reveal that the subject Deed of Assignment is
embodied in a blank form for the assignment of shares with authority to
transfer such shares in the books of the corporation. It was clearly
intended to be signed in blank to facilitate the assignment of shares from
one person to another at any future time. This is similar to Section 14 of
the Negotiable Instruments Law where the blanks may be filled up by the
holder, the signing in blank being with the assumed authority to do
so. Indeed, as the shares were registered in the name of Federico O.
Borromeo just to give him personality and standing in the business
community, private respondent had to have a counter evidence of
ownership of the shares involve. Thus the execution of the deed of
assignment in blank, to be filled up whenever needed. The same explains
the discrepancy between the date of the deed of assignment and the
date when the signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O.
Borromeo is to the naked eye dissimilar to his questioned signature circa
1954-1957, which could have been caused by sheer lapse of time, Col.
Jose Fernandez, respondents expert witness, found the said signatures
similar to each other after subjecting the same to stereomicroscopic
examination and analysis because the intrinsic and natural
characteristic of Federico O. Borromeos handwriting were present in
all the exemplar signatures used by both Segundo Tabayoyong and
Col. Jose Fernandez.
It is therefore beyond cavil that the findings of the Court of
origin affirmed by the Court of Appeals on the basis of the
corroborative findings of the Philippine Constabulary Crime
Laboratory confirmed the genuineness of the signature of Federico
O. Borromeo in the Deed of Assignment dated January 16, 1974.
Petitioners, however, question the Report of the document
examiner on the ground that they were not given an opportunity to
cross-examine the Philippine Constabulary document examiner;
arguing that they never waived their right to question the
competency of the examiner concerned. While the Court finds merit
in the contention of petitioners, that they did not actually waived
their right to cross-examine on any aspect of subject Report of the
Philippine Constabulary Crime Laboratory, the Court discerns no
proper basis for deviating from the findings of the Court of Appeals
on the matter. It is worthy to stress that courts may place whatever
weight due on the testimony of an expert witness. [13] Conformably, in
giving credence and probative value to the said Report of the
Philippine Constabulary Crime Laboratory, corroborating the findings
of the trial Court, the Court of Appeals merely exercised its
discretion. There being no grave abuse in the exercise of such
judicial discretion, the findings by the Court of Appeals should not be
disturbed on appeal.
Premises studiedly considered, the Court is of the irresistible
conclusion, and so holds, that the respondent court erred not in
affirming the decision of the Regional Trial Court a quo in Civil Case
No. 19466.
WHEREFORE, the Petition is DISMISSED for lack of merit and
the assailed Resolution, dated March 13, 1986, AFFIRMED. No
pronouncement as to costs
[G.R. No. 138588. August 23, 2001]
FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY
INC., respondent.
For a valid tender of payment, it is necessary that there be a
fusion of intent, ability and capability to make good such offer, which
must be absolute and must cover the amount due. Though a check is
not legal tender, and a creditor may validly refuse to accept it if
tendered as payment, one who in fact accepted a fully funded check
after the debtors manifestation that it had been given to settle an
obligation is estopped from later on denouncing the efficacy of such
tender of payment.
The Case
The foregoing principle is used by this Court in resolving the
Petition for Review[1] on Certiorari before us, challenging the January
26, 1999 Decision[2] of the Court of Appeals[3] (CA) in CA-GR CV No.
45349. The dispositive portion of the assailed Decision reads as
follows:
WHEREFORE, the judgment appealed from is hereby MODIFIED, to
read as follows:
WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING:
11
1. The plaintiffs to pay Far East Bank & Trust Company the principal sum
of P1,067,000.00 plus interests thereon computed at 12% per annum
from July 9, 1988 until fully paid;
2. The parties to negotiate for a new lease over the subject premises;
and
3. The defendant to pay the plaintiff the sum of fifteen thousand
(P15,000.00) pesos as and for attorneys fees plus the costs of litigation.
All other claims of the parties against each other are DENIED.[4]
[5]
Likewise assailed is the May 4, 1999 CA Resolution, which denied
petitioners Motion for Reconsideration.
The Facts
The court a quo summarized the antecedents of the case as follows:
Sometime in August 1973, Diaz and Company got a loan from the former
PaBC [Pacific Banking Corporation] in the amount of P720,000.00, with
interest at 12% per annum, later increased to 14%, 16%, 18% and
20%.The loan was secured by a real estate mortgage over two parcels of
land owned by the plaintiff Diaz Realty, both located in Davao City. In
1981, Allied Banking Corporation rented an office space in the building
constructed on the properties covered by the mortgage contract, with the
conformity of mortgagee PaBC, whereby the parties agreed that the
monthly rentals shall be paid directly to the mortgagee for the lessors
account, either to partly or fully pay off the aforesaid mortgage
indebtedness. Pursuant to such contract, Allied Bank paid the monthly
rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the Central
Bank closed PaBC, placed it under receivership, and appointed Renan
Santos as its liquidator. Sometime in December 1986, appellant FEBTC
purchased the credit of Diaz & Company in favor of PaBC, but it was not
until March 23, 1988 that Diaz was informed about it.
According to the plaintiff as alleged in the complaint and testified to by
Antonio Diaz (President of Diaz & Company and Vice-President of Diaz
Realty), on March 23, 1988, he went to office of PaBC which by then
housed FEBTC and was told that the latter had acquired PaBC; that
Cashier Ramon Lim told him that as of such date, his loan
was P1,447,142.03; that he (Diaz) asked the defendant to make an
accounting of the monthly rental payments made by Allied Bank; that on
December 14, 1988,[6] Diaz tendered to FEBTC the amount
of P1,450,000.00 through an Interbank check, in order to prevent the
imposition of additional interests, penalties and surcharges on its loan;
that FEBTC did not accept it as payment; that instead, Diaz was asked to
deposit the amount with the defendants Davao City Branch Office,
allegedly pending the approval of Central Bank Liquidator Renan Santos;
that in the meantime, Diaz wrote the defendant, asking that the interest
rate be reduced from 20% to 12% per annum, but no reply was ever
made; that subsequently, the defendant told him to change
the P1,450,000.00 deposit into a money market placement, which he did;
that the money market placement expired on April 14, 1989; that when
there was still no news from the defendant whether or not it [would]
accept his tender of payment, he filed this case at the Regional Trial
Court of Davao City.
In its responsive pleading, the defendant set up the following
special/affirmative defenses: that sometime in December 1986, FEBTC
purchased from the PaBC the account of the plaintiffs for a total
consideration of P1,828,875.00; that despite such purchase, PaBC Davao
Branch continued to collect interests and penalty charges on the loan
from January 6, 1987 to July 8, 1988; that it was therefore not FEBTC
which collected the interest rates mentioned in the complaint, but PaBC;
that it is not true that FEBTC was trying to impose [exorbitant] rates of
interest; that as a matter of fact, after the transfer of plaintiffs account, it
sought to negotiate with the plaintiffs, and in fact, negotiations were
made for a settlement and possible reduction of charges; that FEBTC has
no knowledge of the rates of interest imposed and collected by PaBC
prior to the purchase of the account from the latter, hence it could not be
held responsible for those transactions which transpired prior to the
purchase; and that the defendant acted at the opportune time for
the settlement of the account, albeit exercising prudence in the
handling of such account. The rest of the affirmative defenses are
bare denials.
After trial, the court a quo rendered judgment on August 6, 1993, the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. The plaintiff and defendant shall jointly compute the interest due
on the P1,057,000.00 loan from April 18, 1985 until November 14,
1988 at 12% per annum (IBAA Salazar Case Supra).
2. That the parties shall then add the result of the joint computation
mentioned in paragraph one of the dispositive portion to
the P1,057,000.00 principal.
3. The result of the addition of the P1,057,000.00 principal and the
interests arrived at shall then be compared with the P1,450,000.00
deposit and if P1,450,000.00 is not enough, then the plaintiff shall
pay the difference/deficiency between the P1,450,000.00 deposit
and what the parties jointly computed[;] conversely, if
the P1,450,000.00 is more than what the parties have arrived [at]
after the computation, the defendant shall return the difference or
the excess to the plaintiffs.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the Lease Contract between Allied Bank and
the plaintiffs in which the defendants predecessor, Pacific Banking
gave its conformity (Exh. H) is hereby cancelled, so that the rental
should now be paid to the plaintiffs.
6. The defendant shall pay the plaintiffs the sums:
6-A. Fifteen thousand pesos as attorneys fees.
6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary
damages.
6-C. The cost of suit.
SO ORDERED.
Upon a motion for reconsideration filed by defendant FEBTC and
after due notice and hearing, the court a quo issued an order on
October 12, 1993, modifying the aforequoted decision, such that its
dispositive portion as amended would now read as follows:
IN VIEW WHEREOF, the decision rendered last August 6, is modified,
accordingly, to wit:
1. The plaintiff and defendant shall jointly compute the interest due
on the P1,167,000.00 loan from April 18, 1985 until November 14,
1988 at 12% per annum.
2. That the parties shall then add the result of the joint computation
mentioned in paragraph one above to the P1,067,000.00 principal.
3. The result of the addition of the P1,067,000.00 principal and the
interests arrived at shall then be compared with
the P1,450,000.00 money market placement put up by the plaintiff
12
with the defendant bank if the same is still existing or has not yet
matured.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the lease contract between Allied Bank and the
plaintiff in which the defendant[s predecessor], Pacific Banking gave its
conformity (Exh. H) is hereby cancelled and deleted, so that the rental
should now be paid to the plaintiff.
6. The defendant shall pay the plaintiff the sums:
6.A Fifteen [t]housand [p]esos as attorneys fees;
6.B Cost of suit.[7]
The CA Ruling
The CA sustained the trial courts finding that there was a valid
tender of payment in the sum of P1,450,000, made by Diaz Realty Inc. in
favor of Far East Bank and Trust Company. The appellate court reasoned
that petitioner failed to effectively rebut respondents evidence that it so
tendered the check to liquidate its indebtedness, and that petitioner had
unilaterally treated the same as a deposit instead.
The CA further ruled that in the computation of interest charges, the
legal rate of 12 percent per annum should apply, reckoned from July 9,
1988, until full and final payment of the whole indebtedness. It explained
that while petitioners purchase of respondents account from Pacific
Banking Corporation (PaBC) was valid, the 20 percent interest stipulated
in the Promissory Note should not apply, because the account transfer
was without the knowledge and the consent of respondent-obligor.
The appellate court, however, sustained petitioners assertion that
the trial court should not have cancelled the real estate mortgage
contract, inasmuch as the principal obligation upon which it was
anchored was yet to be extinguished. As to the lease contract, the CA
held that the same was subject to renegotiation by the parties.
Lastly, the court a quo upheld the trial courts award of attorneys
fees, pointing to petitioners negligence in not immediately informing
respondent of the purchase and transfer of its credit, and in failing to
negotiate in order to avoid litigation.
Issues
Petitioner submits for our resolution the following issues:
A. Whether or not the Court of Appeals correctly ruled that the
validity of the tender of payment was not properly raised in the trial court
and could not thus be raised in the appeal.
B. Whether or not the Court of Appeals erred in failing to apply
settled jurisprudential principles militating against the private
respondents contention that a valid tender of payment had been made
by it.
C. Whether or not the Court of Appeals correctly found that the
transaction between petitioner and PaBC was an ineffective novation and
that the consent of private respondent was necessary therefor.
D. Whether or not the Court of Appeals erred in refusing to apply
the rate of interest freely stipulated upon by the parties to the
respondents obligation.
E. Whether or not the Court of Appeals committed an irreconcilable
error in ordering the parties to re-negotiate the terms of the contract
while finding at the same time that the mortgage contract containing
the lease was valid.
F. Whether or not the petition, as argued by private
respondent, raises questions of fact not reviewable by certiorari. [8]
In the main, the Court will determine (1) the efficacy of the
alleged tender of payment made by respondent, (2) the effect of the
transfer to petitioner of respondents account with PaBC, (3) the
interest rate applicable, and (4) the status of the Real Estate
Mortgage.
The Courts Ruling
The Petition[9] is not meritorious.
First Issue: Tender of Payment
Petitioner resolutely argues that the CA erred in upholding the
validity of the tender of payment made by respondent. What the
latter had tendered to settle its outstanding obligation, it points out,
was a check which could not be considered legal tender.
We disagree. The records show that petitioner bank purchased
respondents account from PaBC in December 1986, and that the
latter was notified of the transaction only on March 23,
1988. Thereafter, Antonio Diaz, president of respondent corporation,
inquired from petitioner on the status and the amount of its
obligation. He was informed that the obligation summed up
to P1,447,142.03. On November 14, 1988, petitioner received from
respondent Interbank Check No. 81399841 dated November 13,
1988, bearing the amount of P1,450,000, with the notation Re: Full
Payment of Pacific Bank Account now turn[ed] over to Far East Bank.
[10]
The check was subsequently cleared and honored by Interbank,
as shown by the Certification it issued on January 20, 1992. [11]
True, jurisprudence holds that, in general, a check does not
constitute legal tender, and that a creditor may validly refuse it. [12] It
must be emphasized, however, that this dictum does not prevent a
creditor from accepting a check as payment. In other words, the
creditor has the option and the discretion of refusing or accepting it.
In the present case, petitioner bank did not refuse respondents
check. On the contrary, it accepted the check which, it insisted, was
a deposit. As earlier stated, the check proved to be fully funded and
was in fact honored by the drawee bank. Moreover, petitioner was in
possession of the money for several months.
In further contending that there was no valid tender of
payment, petitioner emphasizes our pronouncement in Roman
Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court,[13] as
follows:
Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the obligee
for the formers obligation and demanding that the latter accept the
same.
xxxxxxxxx
Thus, tender of payment cannot be presumed by a mere inference
from surrounding circumstances. At most, sufficiency of available
funds is only affirmative of the capacity or ability of the obligor to
fulfill his part of the bargain. But whether or not the obligor avails
himself of such funds to settle his outstanding account remains to be
proven by independent and credible evidence. Tender of payment
presupposes not only that the obligor is able, ready, and willing, but
13
more so, in the act of performing his obligation. Ab posse ad actu non
vale illatio. A proof that an act could have been done is no proof that it
was actually done.
In other words, tender of payment is the definitive act of offering
the creditor what is due him or her, together with the demand that the
creditor accept the same. More important, there must be a fusion
of intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due.[14]
That respondent intended to settle its obligation with petitioner is
evident from the records of the case. After learning that its loan balance
was P1,447,142.03, it presented to petitioner a check in the amount
of P1,450,000, with the specific notation that it was for full payment of its
Pacific Bank account that had been purchased by petitioner. The latter
accepted the check, even if it now insists that it considered the same as
a mere deposit. The check was sufficiently funded, as in fact it was
honored by the drawee bank. When petitioner refused to release the
mortgage, respondent instituted the present case to compel the bank to
acknowledge the tender of payment, accept payment and cancel the
mortgage. These acts demonstrate respondents intent, ability and
capability to fully settle and extinguish its obligation to petitioner.
That respondent subsequently withdrew the money from petitioner-
bank is of no moment, because such withdrawal would not affect the
efficacy or the legal ramifications of the tender of payment made on
November 14, 1988. As already discussed, the tender of payment to
settle respondents obligation as computed by petitioner was accepted,
the check given in payment thereof converted into money, and the
money kept in petitioners possession for several months.
Finally, petitioner points out that, in any case, tender of payment
extinguishes the obligation only after proper consignation, which
respondent did not do.
The argument does not persuade. For a consignation to be
necessary, the creditor must have refused, without just cause, to accept
the debtors payment.[15] However, as pointed out earlier,
petitioner acceptedrespondents check.
To iterate, the tender was made by respondent for the purpose of
settling its obligation. It was incumbent upon petitioner to refuse, or
accept it as payment. The latter did not have the right or the option to
accept and treat it as a deposit. Thus, by accepting the tendered
check and converting it into money, petitioner is presumed to have
accepted it as payment. To hold otherwise would be inequitable and
unfair to the obligor.
Second Issue: Nature of the Transfer of Respondents Account
Petitioner bewails the CAs characterization of the transfer of
respondents account from Pacific Banking Corporation to petitioner as an
ineffective novation. Petitioner contends that the transfer was an
assignment of credit.
Indeed, the transfer of respondents credit from PaBC to petitioner
was an assignment of credit. Petitioners acquisition of respondents credit
did not involve any changes in the original agreement between PaBC and
respondent; neither did it vary the rights and the obligations of the
parties. Thus, no novation by conventional subrogation could have taken
place.
An assignment of credit is an agreement by virtue of which the
owner of a credit (known as the assignor), by a legal cause -- such as
sale, dation in payment, exchange or donation -- and without the need of
the debtors consent, transfers that credit and its accessory rights to
another (known as the assignee), who acquires the power to enforce it, to
the same extent as the assignor could have enforced it against the
debtor.[16]
In the present case, it is undisputed that petitioner purchased
respondents loan from PaBC. In doing so, the former acquired all of
the latters rights against respondent. Thus, petitioner had the right
to collect the full value of the credit from respondent, subject to the
terms as originally agreed upon in the Promissory Note.
Third Issue: Applicable Interest Rate
Petitioner bank, as assignee of respondents credit, is entitled to
the interest rate of 20 percent in the computation of the debt of
private respondent, as stipulated in the August 26, 1983 Promissory
Note executed by the latter in favor of PaBC. [17]
However, because there was a valid tender of payment made
on November 14, 1988, the accrual of interest based on the
stipulated rate should stop on that date. Thus, respondent should
pay petitioner-bank its principal obligation in the amount
of P1,067,000 plus accrued interest thereon at 20 percent per
annum until November 14, 1988, less interest payments given to
PaBC from December 1986 to July 8, 1988.[18] Thereafter, the interest
shall be computed at 12 percent per annum until full payment.
Fourth Issue: Status of Mortgage Contract
The Real Estate Mortgage executed between respondent and
PaBC to secure the formers principal obligation, as well as the
provision in the Contract of Lease between respondent and Allied
Bank with regard to the application of rent payment to the formers
indebtedness, should subsist until full and final settlement of such
obligation pursuant to the guidelines set forth in this
Decision. Thereafter, the parties are free to negotiate a renewal of
either or both contracts, or to end any and all of their contractual
relations.
WHEREFORE, the Petition is hereby DENIED. The assailed
Decision of the Court of Appeals is AFFIRMED with the following
modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far
East Bank and Trust Co. its principal loan obligation in the amount
of P1,067,000, with interest thereon computed at 20 percent per
annum until November 14, 1988, less any interest payments made
to PaBC, petitioners assignor.Thereafter, interest shall be computed
at 12 percent per annum until fully paid.
[G.R. No. 117857. February 2, 2001]
LUIS S. WONG, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES,
For review on certiorari is the decision dated October 28, 1994
of the Court of Appeals in C.A. G.R. CR 11856[1] which affirmed the
decision of the Regional Trial Court of Cebu City, Branch 17,
convicting petitioner on three (3) counts of Batas Pambansa Blg. 22
(the Bouncing Checks Law) violations, and sentencing him to
imprisonment of four (4) months for each count, and to pay private
respondent the amounts of P5,500.00, P6,410.00 and P3,375.00,
respectively, corresponding to the value of the checks involved, with
the legal rate of interest from the time of filing of the criminal
charges, as well as to pay the costs.
The factual antecedents of the case are as follows:
Petitioner Wong was an agent of Limtong Press Inc. (LPI), a
manufacturer of calendars. LPI would print sample calendars, then
give them to agents to present to customers. The agents would get
14
the purchase orders of customers and forward them to LPI. After printing
the calendars, LPI would ship the calendars directly to the customers.
Thereafter, the agents would come around to collect the payments.
Petitioner, however, had a history of unremitted collections, which he
duly acknowledged in a confirmation receipt he co-signed with his wife.
[2]
Hence, petitioners customers were required to issue postdated checks
before LPI would accept their purchase orders.
In early December 1985, Wong issued six (6) postdated checks
totaling P18,025.00, all dated December 30, 1985 and drawn payable to
the order of LPI, as follows:
(1) Allied Banking Corporation (ABC) Check No. 660143464-C for
P6,410.00 (Exh. B);
(2) ABC Check No. 660143460-C for P 540.00 (Exh. C);
(3) ABC Check No. PA660143451-C for P5,500.00 (Exh. D);
(4) ABC Check No. PA660143465-C for P1,100.00 (Exh. E);
(5) ABC Check No. PA660143463-C for P3,375.00 (Exh. F);
(6) ABC Check No. PA660143452-C for P1,100.00 (Exh. G).
These checks were initially intended to guarantee the calendar
orders of customers who failed to issue post-dated checks. However,
following company policy, LPI refused to accept the checks as
guarantees. Instead, the parties agreed to apply the checks to the
payment of petitioners unremitted collections for 1984 amounting
to P18,077.07.[3] LPI waived the P52.07 difference.
Before the maturity of the checks, petitioner prevailed upon LPI not
to deposit the checks and promised to replace them within 30
days. However, petitioner reneged on his promise. Hence, on June 5,
1986, LPI deposited the checks with Rizal Commercial Banking
Corporation (RCBC). The checks were returned for the reason account
closed. The dishonor of the checks was evidenced by the RCBC return
slip.
On June 20, 1986, complainant through counsel notified the
petitioner of the dishonor. Petitioner failed to make arrangements for
payment within five (5) banking days.
On November 6, 1987, petitioner was charged with three (3) counts
of violation of B.P. Blg. 22[4] under three separate Informations for the
three checks amounting to P5,500.00, P3,375.00, and P6,410.00.[5]
The Information in Criminal Case No. CBU-12055 reads as follows: [6]
That on or about the 30th day of December, 1985 and for sometime
subsequent thereto, in the City of Cebu, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, knowing at the
time of issue of the check she/he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its
presentment, with deliberate intent, with intent of gain and of causing
damage, did then and there issue, make or draw Allied Banking
Corporation Check No. 660143451 dated 12-30-85 in the amount of
P5,500.00 payable to Manuel T. Limtong which check was issued in
payment of an obligation of said accused, but when the said check was
presented with said bank, the same was dishonored for reason ACCOUNT
CLOSED and despite notice and demands made to redeem or make good
said check, said accused failed and refused, and up to the present time
still fails and refuses to do so, to the damage and prejudice of said
Manuel T. Limtong in the amount of P5,500.00 Philippine Currency.
Contrary to law.
Petitioner was similarly charged in Criminal Case No. 12057 for
ABC Check No. 660143463 in the amount of P3,375.00, and in
Criminal Case No. 12058 for ABC Check No. 660143464
for P6,410.00. Both cases were raffled to the same trial court.
Upon arraignment, Wong pleaded not guilty. Trial ensued.
Manuel T. Limtong, general manager of LPI, testified on behalf
of the company. Limtong averred that he refused to accept the
personal checks of petitioner since it was against company policy to
accept personal checks from agents. Hence, he and petitioner simply
agreed to use the checks to pay petitioners unremitted collections to
LPI. According to Limtong, a few days before maturity of the checks,
Wong requested him to defer the deposit of said checks for lack of
funds. Wong promised to replace them within thirty days, but failed
to do so. Hence, upon advice of counsel, he deposited the checks
which were subsequently returned on the ground of account closed.
The version of the defense is that petitioner issued the six (6)
checks to guarantee the 1985 calendar bookings of his customers.
According to petitioner, he issued the checks not as payment for any
obligation, but to guarantee the orders of his customers. In fact, the
face value of the six (6) postdated checks tallied with the total
amount of the calendar orders of the six (6) customers of the
accused, namely, Golden Friendship Supermarket, Inc. (P6,410.00),
New Society Rice and Corn Mill (P5,500.00), Cuesta Enterprises
(P540.00), Pelrico Marketing (P1,100.00), New Asia Restaurant
(P3,375.00), and New China Restaurant (P1,100.00). Although these
customers had already paid their respective orders, petitioner
claimed LPI did not return the said checks to him.
On August 30, 1990, the trial court issued its decision,
disposing as follows:[7]
Wherefore, premises considered, this Court finds the accused Luis S.
Wong GUILTY beyond reasonable doubt of the offense of Violations of
Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is
hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for
each count; to pay Private Complainant Manuel T. Limtong the sums
of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four
Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred
Seventy-Five (P3,375.00) Pesos corresponding to the amounts
indicated in Allied Banking Checks Nos. 660143451, 66[0]143464
and 660143463 all issued on December 30, 1985 together with the
legal rate of interest from the time of the filing of the criminal
charges in Court and pay the costs.[8]
Petitioner appealed his conviction to the Court of Appeals. On
October 28, 1994, it affirmed the trial courts decision in toto.[9]
Hence, the present petition.[10] Petitioner raises the following
questions of law -[11]
May a complainant successfully prosecute a case under BP 22 ---
if there is no more consideration or price or value -- ever the
binding tie that it is in contracts in general and in negotiable
instruments in particular -- behind the checks? -- if even before
he deposits the checks, he has ceased to be a holder for value
because the purchase orders (PO's) guaranteed by the checks
were already paid?
Given the fact that the checks lost their reason for being, as
above stated, is it not then the duty of complainant -- knowing
he is no longer a holder for value -- to return the checks and
not to deposit them ever? Upon what legal basis then may such
a holder deposit them and get paid twice?
15
 Is petitioner, as the drawer of the guarantee checks which lost
their reason for being, still bound under BP 22 to maintain his
account long after 90 days from maturity of the checks?
May the prosecution apply the prima
facie presumption of knowledge of lack of funds against the
drawer if the checks were belatedly deposited by the complainant
157 days after maturity, or will it be then necessary for the
prosecution to show actual proof of lack of funds during the 90-
day term?
Petitioner insists that the checks were issued as guarantees for the
1985 purchase orders (POs) of his customers. He contends that private
respondent is not a holder for value considering that the checks were
deposited by private respondent after the customers already paid their
orders. Instead of depositing the checks, private respondent should have
returned the checks to him. Petitioner further assails the credibility of
complainant considering that his answers to cross-examination questions
included: I cannot recall, anymore and We have no more record.
In his Comment,[12] the Solicitor General concedes that the checks
might have been initially intended by petitioner to guarantee payments
due from customers, but upon the refusal of LPI to accept said personal
checks per company policy, the parties had agreed that the checks would
be used to pay off petitioners unremitted collections. Petitioners
contention that he did not demand the return of the checks because he
trusted LPIs good faith is contrary to human nature and sound business
practice, according to the Solicitor General.
The issue as to whether the checks were issued merely as
guarantee or for payment of petitioners unremitted collections is a
factual issue involving as it does the credibility of witnesses. Said factual
issue has been settled by the trial court and Court of Appeals. Although
initially intended to be used as guarantee for the purchase orders of
customers, they found the checks were eventually used to settle the
remaining obligations of petitioner with LPI. Although Manuel Limtong
was the sole witness for the prosecution, his testimony was found
sufficient to prove all the elements of the offense charged. [13] We find no
cogent reason to depart from findings of both the trial and appellate
courts. In cases elevated from the Court of Appeals, our review is
confined to alleged errors of law. Its findings of fact are generally
conclusive. Absent any showing that the findings by the respondent court
are entirely devoid of any substantiation on record, the same must stand.
[14]
The lack of accounting between the parties is not the issue in this
case. As repeatedly held, this Court is not a trier of facts.[15] Moreover,
in Llamado v. Court of Appeals,[16] we held that [t]o determine the reason
for which checks are issued, or the terms and conditions for their
issuance, will greatly erode the faith the public reposes in the stability
and commercial value of checks as currency substitutes, and bring about
havoc in trade and in banking communities. So what the law punishes is
the issuance of a bouncing check and not the purpose for which it was
issued nor the terms and conditions relating to its issuance. The mere act
of issuing a worthless check is malum prohibitum. Nothing herein
persuades us to hold otherwise.
The only issue for our resolution now is whether or not the
prosecution was able to establish beyond reasonable doubt all the
elements of the offense penalized under B.P. Blg. 22.
There are two (2) ways of violating B.P. Blg. 22: (1) by making or
drawing and issuing a check to apply on account or for value knowing at
the time of issue that the check is not sufficiently funded; and (2) by
having sufficient funds in or credit with the drawee bank at the time of
issue but failing to keep sufficient funds therein or credit with said bank
to cover the full amount of the check when presented to the drawee bank
within a period of ninety (90) days.[17]
The elements of B.P. Blg. 22 under the first situation, pertinent to
the present case, are:[18]
(1) The making, drawing and issuance of any check to apply for
account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and
(3) The subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment.
Petitioner contends that the first element does not exist
because the checks were not issued to apply for account or for
value. He attempts to distinguish his situation from the usual cut-
and-dried B.P. 22 case by claiming that the checks were issued as
guarantee and the obligations they were supposed to guarantee
were already paid. This flawed argument has no factual basis, the
RTC and CA having both ruled that the checks were in payment for
unremitted collections, and not as guarantee. Likewise, the
argument has no legal basis, for what B.P. Blg. 22 punishes is the
issuance of a bouncing check and not the purpose for which it was
issued nor the terms and conditions relating to its issuance.[19]
As to the second element, B.P. Blg. 22 creates a
presumption juris tantum that the second element prima facie exists
when the first and third elements of the offense are present. [20] Thus,
the makers knowledge is presumed from the dishonor of the check
for insufficiency of funds.[21]
Petitioner avers that since the complainant deposited the
checks on June 5, 1986, or 157 days after the December 30, 1985
maturity date, the presumption of knowledge of lack of funds under
Section 2 of B.P. Blg. 22 should not apply to him. He further claims
that he should not be expected to keep his bank account active and
funded beyond the ninety-day period.
Section 2 of B.P. Blg. 22 provides:
Evidence of knowledge of insufficient funds. -- The making, drawing
and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the check, shall
be prima facie evidence of knowledge of such insufficiency of funds
or credit unless such maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days after receiving
notice that such check has not been paid by the drawee.
An essential element of the offense is knowledge on the part of
the maker or drawer of the check of the insufficiency of his funds in
or credit with the bank to cover the check upon its presentment.
Since this involves a state of mind difficult to establish, the statute
itself creates a prima facie presumption of such knowledge where
payment of the check is refused by the drawee because of
insufficient funds in or credit with such bank when presented within
ninety (90) days from the date of the check. To mitigate the
harshness of the law in its application, the statute provides that such
presumption shall not arise if within five (5) banking days from
receipt of the notice of dishonor, the maker or drawer makes
arrangements for payment of the check by the bank or pays the
holder the amount of the check.[22]
Contrary to petitioners assertions, nowhere in said provision
does the law require a maker to maintain funds in his bank account
for only 90 days. Rather, the clear import of the law is to establish
a prima faciepresumption of knowledge of such insufficiency of funds
under the following conditions (1) presentment within 90 days from
16
date of the check, and (2) the dishonor of the check and failure of the
maker to make arrangements for payment in full within 5 banking days
after notice thereof. That the check must be deposited within ninety (90)
days is simply one of the conditions for the prima facie presumption of
knowledge of lack of funds to arise. It is not an element of the offense.
Neither does it discharge petitioner from his duty to maintain sufficient
funds in the account within a reasonable time thereof. Under Section 186
of the Negotiable Instruments Law, a check must be presented for
payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the
delay. By current banking practice, a check becomes stale after more
than six (6) months,[23] or 180 days. Private respondent herein deposited
the checks 157 days after the date of the check. Hence said checks
cannot be considered stale. Only the presumption of knowledge of
insufficiency of funds was lost, but such knowledge could still be proven
by direct or circumstantial evidence. As found by the trial court, private
respondent did not deposit the checks because of the reassurance of
petitioner that he would issue new checks. Upon his failure to do so, LPI
was constrained to deposit the said checks. After the checks were
dishonored, petitioner was duly notified of such fact but failed to make
arrangements for full payment within five (5) banking days thereof. There
is, on record, sufficient evidence that petitioner had knowledge of the
insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks. And despite petitioners insistent plea of
innocence, we find no error in the respondent courts affirmance of his
conviction by the trial court for violations of the Bouncing Checks Law.
However, pursuant to the policy guidelines in Administrative
Circular No. 12-2000, which took effect on November 21, 2000, the
penalty imposed on petitioner should now be modified to a fine of not
less than but not more than double the amount of the checks that were
dishonored.
WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is
found liable for violation of Batas Pambansa Blg. 22 but the penalty
imposed on him is hereby MODIFIED so that the sentence of
imprisonment is deleted. Petitioner is ORDERED to pay a FINE of
(1) P6,750.00, equivalent to double the amount of the check involved in
Criminal Case No. CBU-12057, (2) P12,820.00, equivalent to double the
amount of the check involved in Criminal Case No. CBU-12058, and
(3) P11,000.00, equivalent to double the amount of the check involved in
Criminal Case No. CBU-12055, with subsidiary imprisonment [24] in case of
insolvency to pay the aforesaid fines. Finally, as civil indemnity, petitioner
is also ordered to pay to LPI the face value of said checks
totaling P18,025.00 with legal interest thereon from the time of filing the
criminal charges in court, as well as to pay the costs.
[G.R. No. 132560. January 30, 2002]
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), vs. EUGENE
ONG,
This is a petition for review of the decision [1] dated January 13,
1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the
petitioner to pay respondent P1,754,787.50 plus twelve percent (12%)
interest per annum computed from October 7, 1977, the date of the first
extrajudicial demand, plus damages.
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with
petitioner, formerly the Associated Banking Corporation, but now known
as Westmont Bank. Sometime in May 1976, he sold certain shares of
stocks through Island Securities Corporation. To pay Ong, Island
Securities purchased two (2) Pacific Banking Corporation managers
checks,[2] both dated May 4, 1976, issued in the name of Eugene Ong as
payee. Before Ong could get hold of the checks, his friend Paciano
Tanlimco got hold of them, forged Ongs signature and deposited these
with petitioner, where Tanlimco was also a depositor. Even though Ongs
specimen signature was on file, petitioner accepted and credited
both checks to the account of Tanlimco, without verifying the
signature indorsements appearing at the back thereof. Tanlimco then
immediately withdrew the money and absconded.
Instead of going straight to the bank to stop or question the
payment, Ong first sought the help of Tanlimcos family to recover
the amount. Later, he reported the incident to the Central Bank,
which like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from
discovery of the fraud, did Ong cry foul and demanded in his
complaint that petitioner pay the value of the two checks from the
bank on whose gross negligence he imputed his loss. In his suit, he
insisted that he did not deliver, negotiate, endorse or transfer to any
person or entity the subject checks issued to him and asserted that
the signatures on the back were spurious.[3]
The bank did not present evidence to the contrary, but simply
contended that since plaintiff Ong claimed to have never received
the originals of the two (2) checks in question from Island Securities,
much less to have authorized Tanlimco to receive the same, he never
acquired ownership of these checks. Thus, he had no legal
personality to sue as he is not a real party in interest.The bank then
filed a demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial
Court of Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for
the plaintiff and against the defendant, and orders the defendant to
pay the plaintiff:
1. The sum of P1,754,787.50 representing the total face value
of the two checks in question, exhibits A and B, respectively,
with interest thereon at the legal rate of twelve percent (12%)
per annum computed from October 7, 1977 (the date of the first
extrajudicial demand) up to and until the same shall have been
paid in full;
2. Moral damages in the amount of P250,000.00;
3. Exemplary or corrective damages in the sum of P100,000.00
by way of example or correction for the public good;
4. Attorneys fees of P50,000.00 and costs of suit.
Defendants counterclaims are dismissed for lack of merit.
SO ORDERED.[4]
Petitioner elevated the case to the Court of Appeals without
success. In its decision, the appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is
AFFIRMED in toto.[5]
Petitioner now comes before this Court on a petition for review,
alleging that the Court of Appeals erred:
I ... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT
RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER.
17
II ... IN AFFIRMING THE TRIAL COURTS DECISION FINDING
PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE LATTER
MAY RECOVER DIRECTLY FROM THE FORMER; AND
III ... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN
NOT ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not
respondent Ong has a cause of action against petitioner Westmont Bank;
and (2) whether or not Ong is barred to recover the money from
Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical
possession of the two (2) checks of the Island Securities nor did he
authorize Tanlimco or any of the latters representative to demand, accept
and receive the same. For this reason, petitioner argues, respondent
cannot sue petitioner because under Section 51 of the Negotiable
Instruments Law[6] it is only when a person becomes a holder of a
negotiable instrument can he sue in his own name. Conversely, prior to
his becoming a holder, he had no right or cause of action under such
negotiable instrument.Petitioner further argues that since Section
191[7] of the Negotiable Instruments Law defines a holder as the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof,
in order to be a holder, it is a requirement that he be in possession of the
instrument or the bearer thereof. Simply stated, since Ong never had
possession of the checks nor did he authorize anybody, he did not
become a holder thereof hence he cannot sue in his own name.[8]
Petitioner also cites Article 1249 [9] of the Civil Code explaining that a
check, even if it is a managers check, is not legal tender. Hence, the
creditor cannot be compelled to accept payment thru this means. [10] It is
petitioners position that for all intents and purposes, Island Securities has
not yet tendered payment to respondent Ong, thus, any action by Ong
should be directed towards collecting the amount from Island
Securities. Petitioner claims that Ongs cause of action against it has not
ripened as of yet. It may be that petitioner would be liable to the drawee
bank - - but that is a matter between petitioner and drawee-bank, Pacific
Banking Corporation.[11]
For its part, respondent Ong leans on the ruling of the trial court
and the Court of Appeals which held that the suit of Ong against the
petitioner bank is a desirable shortcut to reach the party who ought in
any event to be ultimately liable.[12] It likewise cites the ruling of the
courts a quo which held that according to the general rule, a bank who
has obtained possession of a check upon an unauthorized or forged
indorsement of the payees signature and who collects the amount of the
check from the drawee is liable for the proceeds thereof to the
payee. The theory of said rule is that the collecting banks possession of
such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals [14] which
held that the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements. The collecting bank is also made liable because it is privy
to the depositor who negotiated the check. The bank knows him, his
address and history because he is a client. Hence, it is in a better position
to detect forgery, fraud or irregularity in the indorsement.[15]
Anent Article 1249 of the Civil Code, Ong points out that bank
checks are specifically governed by the Negotiable Instruments Law
which is a special law and only in the absence of specific provisions or
deficiency in the special law may the Civil Code be invoked. [16]
Considering the contentions of the parties and the evidence on
record, we find no reversible error in the assailed decisions of the
appellate and trial courts, hence there is no justifiable reason to grant the
petition.
Petitioners claim that respondent has no cause of action
against the bank is clearly misplaced. As defined, a cause of action is
the act or omission by which a party violates a right of another.
[17]
The essential elements of a cause of action are: (a) a legal right
or rights of the plaintiff, (b) a correlative obligation of the defendant,
and (c) an act or omission of the defendant in violation of said legal
right.[18]
The complaint filed before the trial court expressly alleged
respondents right as payee of the managers checks to receive the
amount involved, petitioners correlative duty as collecting bank to
ensure that the amount gets to the rightful payee or his order, and
a breach of that duty because of a blatant act of negligence on the
part of petitioner which violated respondents rights. [19]
Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged
to make it appear that he had made an indorsement in favor of the
forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein
respondent, should therefore be allowed to recover from the
collecting bank.
The collecting bank is liable to the payee and must bear the
loss because it is its legal duty to ascertain that the payees
endorsement was genuine before cashing the check.[20] As a general
rule, a bank or corporation who has obtained possession of a check
upon an unauthorized or forged indorsement of the payees signature
and who collects the amount of the check from the drawee, is liable
for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from
whom the check was obtained.[21]
The theory of the rule is that the possession of the check on the
forged or unauthorized indorsement is wrongful, and when the
money had been collected on the check, the bank or other person or
corporation can be held as for moneys had and received, and the
proceeds are held for the rightful owners who may recover
them. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check
and collected the money without indorsement at all and the act of
the bank amounts to conversion of the check.[22]
Petitioners claim that since there was no delivery yet and
respondent has never acquired possession of the checks,
respondents remedy is with the drawer and not with petitioner
bank.Petitioner relies on the view to the effect that where there is no
delivery to the payee and no title vests in him, he ought not to be
allowed to recover on the ground that he lost nothing because he
never became the owner of the check and still retained his claim of
debt against the drawer. [23] However, another view in certain cases
holds that even if the absence of delivery is considered, such
consideration is not material. The rationale for this view is that in
said cases the plaintiff uses one action to reach, by a desirable short
cut, the person who ought in any event to be ultimately liable as
among the innocent persons involved in the transaction. In other
words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to
the payee or not.[24]
18
 Considering the circumstances in this case, in our view, petitioner
could not escape liability for its negligent acts. Admittedly, respondent
Eugene Ong at the time the fraudulent transaction took place was a
depositor of petitioner bank. Banks are engaged in a business impressed
with public interest, and it is their duty to protect in return their many
clients and depositors who transact business with them. [25] They have the
obligation to treat their clients account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more than that of a good father
of a family.[26] In the present case, petitioner was held to be grossly
negligent in performing its duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to
Paciano Tanlimcos account by defendant bank, defendant bank,
admittedly had in its files specimen signatures of plaintiff who
maintained a current account with them (Exhibits L-1 and M-1; testimony
of Emmanuel Torio). Given the substantial face value of the two checks,
totalling P1,754,787.50, and the fact that they were being deposited by a
person not the payee, the very least defendant bank should have done,
as any reasonable prudent man would have done, was to verify the
genuineness of the indorsements thereon. The Court cannot help but
note that had defendant conducted even the most cursory comparison
with plaintiffs specimen signatures in its files (Exhibit L-1 and M-1) it
would have at once seen that the alleged indorsements were falsified
and were not those of the plaintiff-payee.However, defendant apparently
failed to make such a verification or, what is worse did so but, chose to
disregard the obvious dissimilarity of the signatures. The first omission
makes it guilty of gross negligence; the second of bad faith. In either
case, defendant is liable to plaintiff for the proceeds of the checks in
question.[27]
These findings are binding and conclusive on the appellate and the
reviewing courts.
On the second issue, petitioner avers that respondent Ong is barred
by laches for failing to assert his right for recovery from the bank as soon
as he discovered the scam. The lapse of five months before he went to
seek relief from the bank, according to petitioner, constitutes laches.
In turn, respondent contends that petitioner presented no evidence
to support its claim of laches. On the contrary, the established facts of
the case as found by the trial court and affirmed by the Court of Appeals
are that respondent left no stone unturned to obtain relief from his
predicament.
On the matter of delay in reporting the loss, respondent calls
attention to the fact that the checks were issued on May 4, 1976, and on
the very next day, May 5, 1976, these were already credited to the
account of Paciano Tanlimco and presented for payment to Pacific
Banking Corporation. So even if the theft of the checks were discovered
and reported earlier, respondent argues, it would not have altered the
situation as the encashment of the checks was consummated within
twenty four hours and facilitated by the gross negligence of the
petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable
and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled thereto has either abandoned or
declined to assert it.[29] It concerns itself with whether or not by reason of
long inaction or inexcusable neglect, a person claiming a right should be
barred from asserting the same, because to allow him to do so would be
unjust to the person against whom such right is sought to be enforced. [30]
In the case at bar, it cannot be said that respondent sat on his
rights. He immediately acted after knowing of the forgery by proceeding
to seek help from the Tanlimco family and later the Central Bank, to
remedy the situation and recover his money from the forger, Paciano
Tanlimco. Only after he had exhausted possibilities of settling the
matter amicably with the family of Tanlimco and through the CB,
about five months after the unlawful transaction took place, did he
resort to making the demand upon the petitioner and eventually
before the court for recovery of the money value of the two
checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be
barred by laches is clearly a vain attempt to deflect responsibility for
its negligent act. As explained by the appellate court, it is petitioner
which had the last clear chance to stop the fraudulent encashment
of the subject checks had it exercised due diligence and followed the
proper and regular banking procedures in clearing checks. [31] As we
had earlier ruled, the one who had the last clear opportunity to avoid
the impending harm but failed to do so is chargeable with the
consequences thereof.[32]
WHEREFORE, the instant petition is DENIED for lack of
merit. The assailed decision of the Court of Appeals, sustaining the
judgment of the Regional Trial Court of Manila, is AFFIRMED.
Costs against petitioner.
[G.R. NO. 163720 : December 16, 2004]
GENEVIEVE LIM, v. FLORENCIO SABAN,
Before the Court is a Petition for Review on Certiorari assailing
the Decision1 dated October 27, 2003 of the Court of Appeals,
Seventh Division, in CA-G.R. V No. 60392. 2
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square
meter lot in Cebu City (the "lot"), entered into an Agreement and
Authority to Negotiate and Sell (Agency Agreement) with respondent
Florencio Saban (Saban) on February 8, 1994. Under the Agency
Agreement, Ybaez authorized Saban to look for a buyer of the lot
for Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as
Saban's commission for the sale.3
Through Saban's efforts, Ybaez and his wife were able to sell the
lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin
and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is Two Hundred
Thousand Pesos (P200,000.00).4 It appears, however, that the
vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim remitted to Saban
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos (P50,000.00) as broker's
commission.5 Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand
Seven Hundred Forty Three Pesos (P236,743.00). These checks were
Bank of the Philippine Islands (BPI) Check No. 1112645 dated June
12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19,
1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994
for P25,000.00; and Equitable PCI Bank Check No. 021491B dated
June 20, 1994 for P168,000.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed
to Lim. In the letter Ybaez asked Lim to cancel all the checks
issued by her in Saban's favor and to "extend another partial
payment" for the lot in his (Ybaez's) favor. 6
19
After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages
against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City
on August 3, 1994.7 The case was assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to
purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the
total purchase price of P600,000.00, P200,000.00 went to
Ybaez, P50,000.00 allegedly went to Lim's agent, and P113,257.00
was given to Saban to cover taxes and other expenses incidental to the
sale. Lim also issued four (4) postdated checks 8 in favor of Saban for the
remaining P236,743.00.9
Saban alleged that Ybaez told Lim that he (Saban) was not entitled to
any commission for the sale since he concealed the actual selling price of
the lot from Ybaez and because he was not a licensed real estate
broker. Ybaez was able to convince Lim to cancel all four checks.
Saban further averred that Ybaez and Lim connived to deprive him of
his sales commission by withholding payment of the first three checks.
He also claimed that Lim failed to make good the fourth check which was
dishonored because the account against which it was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him and
because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders
for the three checks because Ybaez requested her to pay the purchase
price directly to him, instead of coursing it through Saban. She also
alleged that she agreed with Ybaez that the purchase price of the lot
was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against him
without any objection from the other parties.10
On May 14, 1997, the RTC rendered its Decision11 dismissing Saban's
complaint, declaring the four (4) checks issued by Lim as stale and non-
negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial court's Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated
its Decision12 reversing the trial court's ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybaez's revocation of his contract of
agency with Saban was invalid because the agency was coupled with an
interest and Ybaez effected the revocation in bad faith in order to
deprive Saban of his commission and to keep the profits for himself. 14
The appellate court found that Ybaez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban the
amount of the purchase price of the lot corresponding to his commission
because she issued the four checks knowing that the total amount
thereof corresponded to Saban's commission for the sale, as the agent of
Ybaez. The appellate court further ruled that, in issuing the checks in
payment of Saban's commission, Lim acted as an accommodation party.
She signed the checks as drawer, without receiving value therefor, for
the purpose of lending her name to a third person. As such, she is liable
to pay Saban as the holder for value of the checks. 15
Lim filed a Motion for Reconsideration of the appellate
court's Decision, but her Motion was denied by the Court of Appeals
in a Resolution dated May 6, 2004.16
Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly
to Ybaez.17
She further contends that she is not liable for Ybaez's debt to
Saban under the Agency Agreement as she is not privy thereto, and
that Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybaez and not moving for his
substitution by his heirs.18
Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybaez and that she
connived with the latter to deprive Saban of his commission.19
Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of
one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20
In his Comment, Saban maintains that Lim agreed to purchase the
lot for P600,000.00, which consisted of the P200,000.00 which would
be paid to Ybaez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other expenses incidental
to the sale and Saban's commission as broker for Ybaez.
According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly
deprive him of his commission from the negotiation of the sale.21
The issues for the Court's resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.
The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.
The Court affirms the appellate court's finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaez's agent when, through his
(Saban's) efforts, Ybaez executed the Deed of Absolute Sale of
the lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybaez and the transfer taxes and other
incidental expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a
broker to his commission for finding a suitable buyer for the seller's
property even though the seller himself consummated the sale with
the buyer.24 The Court held that it would be in the height of injustice
to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of
the broker's efforts.
20
In Infante v. Cunanan, et al., 25 the Court upheld the right of the brokers to
their commissions although the seller revoked their authority to act in his
behalf after they had found a buyer for his properties and negotiated the
sale directly with the buyer whom he met through the brokers' efforts.
The Court ruled that the seller's withdrawal in bad faith of the brokers'
authority cannot unjustly deprive the brokers of their commissions as the
seller's duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable
to the present case, especially considering that Saban had completely
performed his obligations under his contract of agency with Ybaez by
finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybaez and Lim and her co-vendees. Moreover, the contract of agency
very clearly states that Saban is entitled to the excess of the mark-up of
the price of the lot after deducting Ybaez's share of P200,000.00 and
the taxes and other incidental expenses of the sale.
However, the Court does not agree with the appellate court's
pronouncement that Saban's agency was one coupled with an interest.
Under Article 1927 of the Civil Code, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed as
one coupled with an interest where it is established for the mutual
benefit of the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked by the principal
so long as the interest of the agent or of a third person subsists. In an
agency coupled with an interest, the agent's interest must be in the
subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation. When an
agent's interest is confined to earning his agreed compensation, the
agency is not one coupled with an interest, since an agent's interest in
obtaining his compensation as such agent is an ordinary incident of the
agency relationship.26
Saban's entitlement to his commission having been settled, the Court
must now determine whether Lim is the proper party against whom
Saban should address his claim.
Saban's right to receive compensation for negotiating as broker for
Ybaez arises from the Agency Agreement between them. Lim is not a
party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot
at P200,000.00 and that the P600,000.00 the price agreed upon by her
and Saban was more than the amount set by Ybaez because it
included the amount for payment of taxes and for Saban's commission as
broker for Ybaez.
According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00
directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two
Hundred Fifty Seven Pesos (P563,257.00).27 Lim, on the other hand,
claims that on March 10, 1994, the date of execution of the Deed of
Absolute Sale, she paid directly to Ybaez the amount of One Hundred
Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for
payment of taxes and P50,000.00 as his commission,28 and One Hundred
Thirty Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total of
Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-
vendees paid him P400,000.00 which he said was the full amount for the
sale of the lot.30 It thus appears that he received P100,000.00 on March
10, 1994, acknowledged receipt (through Saban) of the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received the
balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00
went directly to Ybaez. Apparently, although the amount actually paid
by Lim was P393,257.00, Ybaez rounded off the amount
to P400,000.00 and waived the difference.
Lim's act of issuing the four checks amounting to P236,743.00 in
Saban's favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks
which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybaez), P50,000.00 (commission), and
the P113,257.00 (taxes). The only logical conclusion is that Lim
changed her mind about agreeing to purchase the lot at P600,000.00
after talking to Ybaez and ultimately realizing that Saban's
commission is even more than what Ybaez received as his share
of the purchase price as vendor. Obviously, this change of mind
resulted to the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim and her co-
vendees. This the Court cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed willingness
to purchase the properties. Cunanan and Mijares thereafter
introduced Noche to Infante. However, the latter told Cunanan and
Mijares that she was no longer interested in selling the property and
asked them to sign a document stating that their written authority to
act as her agents for the sale of the properties was already
cancelled. Subsequently, Infante sold the properties directly to
Noche for Thirty One Thousand Pesos (P31,000.00). The Court
upheld the right of Cunanan and Mijares to their commission,
explaining that'
'[Infante] had changed her mind even if respondent had found a
buyer who was willing to close the deal, is a matter that would not
give rise to a legal consequence if [Cunanan and Mijares] agreed to
call off the transaction in deference to the request of [Infante]. But
the situation varies if one of the parties takes advantage of the
benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad
faith. This act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation in which
[Cunanan and Mijares] were placed by [Infante]. [Infante] took
advantage of the services rendered by [Cunanan and Mijares], but
believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of
cancellation' .This act of subversion cannot be sanctioned and
cannot serve as basis for [Infante] to escape payment of the
commission agreed upon.31
The appellate court therefore had sufficient basis for concluding that
Ybaez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.
Considering the circumstances surrounding the case, and the
undisputed fact that Lim had not yet paid the balance
of P200,000.00 of the purchase price of P600,000.00, it is just and
proper for her to pay Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total of P230,000.00 from
Lim, or an excess of P30,000.00 from his asking price
of P200,000.00, Saban may claim such excess from Ybaez's
estate, if that remedy is still available, 32 in view of the trial court's
dismissal of Saban's complaint as against Ybaez, with Saban's
express consent, due to the latter's demise on November 11, 1994. 33
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party.
21
Section 29 of the Negotiable Instruments Law defines an accommodation
party as a person "who has signed the negotiable instrument as maker,
drawer, acceptor or indorser, without receiving value therefor, for the
purpose of lending his name to some other person." The accommodation
party is liable on the instrument to a holder for value even though the
holder at the time of taking the instrument knew him or her to be merely
an accommodation party. The accommodation party may of course seek
reimbursement from the party accommodated. 34
As gleaned from the text of Section 29 of the Negotiable Instruments
Law, the accommodation party is one who meets all these three
requisites, viz: (1) he signed the instrument as maker, drawer, acceptor,
or indorser; (2) he did not receive value for the signature; and (3) he
signed for the purpose of lending his name to some other person. In the
case at bar, while Lim signed as drawer of the checks she did not satisfy
the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at
the outset that Lim issued the checks in question on account of her
transaction, along with the other purchasers, with Ybaez which was a
sale and, therefore, a reciprocal contract. Specifically, she drew the
checks in payment of the balance of the purchase price of the lot subject
of the transaction. And she had to pay the agreed purchase price in
consideration for the sale of the lot to her and her co-vendees. In other
words, the amounts covered by the checks form part of the cause or
consideration from Ybaez's end, as vendor, while the lot represented
the cause or consideration on the side of Lim, as vendee.35 Ergo, Lim
received value for her signature on the checks.
Neither is there any indication that Lim issued the checks for the purpose
of enabling Ybaez, or any other person for that matter, to obtain credit
or to raise money, thereby totally debunking the presence of the third
requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
G.R. No. 170912 April 19, 2010
ROBERT DINO, vs . MARIA LUISA JUDAL-LOOT
The Case
This is a petition for review[1] of the 16 August 2005 Decision[2] and 30
November 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No.
57994. The Court of Appeals affirmed the decision of the Regional Trial
Court, 7th Judicial Region, Branch 56, Mandaue City (trial court), with the
deletion of the award of interest, moral damages, attorneys fees and
litigation expenses. The trial court ruled that respondents Maria Luisa
Judal-Loot and Vicente Loot are holders in due course of Metrobank Check
No. C-MA 142119406 CA and ordered petitioner Robert Dino as drawer,
together with co-defendant Fe Lobitana as indorser, to solidarily pay
respondents the face value of the check, among others.
The Facts
Sometime in December 1992, a syndicate, one of whose members posed
as an owner of several parcels of land situated in Canjulao, Lapu-lapu
City, approached petitioner and induced him to lend the
group P3,000,000.00 to be secured by a real estate mortgage on the
properties. A member of the group, particularly a woman pretending to
be a certain Vivencia Ompok Consing, even offered to execute a Deed of
Absolute Sale covering the properties, instead of the usual mortgage
contract.[4] Enticed and convinced by the syndicates offer, petitioner
issued three Metrobank checks totaling P3,000,000.00, one of which is
Check No. C-MA-142119406-CA postdated 13 February 1993 in the
amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe
Lobitana.[5]
Upon scrutinizing the documents involving the properties, petitioner
discovered that the documents covered rights over government
properties. Realizing he had been deceived,petitioner advised Metrobank
to stop payment of his checks. However, only the payment of Check
No. C-MA- 142119406-CA was ordered stopped. The other two
checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA-
142119406-CA to respondents in exchange for cash in the sum
of P948,000.00, which respondents borrowed from Metrobank and
charged against their credit line. Before respondents accepted the
check, they first inquired from the drawee bank, Metrobank, Cebu-
Mabolo Branch which is also their depositary bank, if the subject
check was sufficiently funded, to which Metrobank answered in the
positive. However, when respondents deposited the check with
Metrobank, Cebu-Mabolo Branch, the same was dishonored by the
drawee bank for reason PAYMENT STOPPED.
Respondents filed a collection suit[6] against petitioner and Lobitana
before the trial court. In their Complaint, respondents alleged,
among other things, that they are holders in due course and for
value of Metrobank Check No. C-MA-142119406-CA and that they
had no prior information concerning the transaction between
defendants.
In his Answer, petitioner denied respondents allegations that on the
face of the subject check, no condition or limitation was imposed and
that respondents are holders in due course and for value of the
check. For her part, Lobitana denied the allegations in the complaint
and basically claimed that the transaction leading to the issuance of
the subject check is a sale of a parcel of land by Vivencia Ompok
Consing to petitioner and that she was made a payee of the check
only to facilitate its discounting.
The trial court ruled in favor of respondents and declared them due
course holders of the subject check, since there was no privity
between respondents and defendants. The dispositive portion of the
14 March 1996 Decision of the trial court reads:
In summation, this Court rules for the Plaintiff and against the
Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the amount
of P1,000,000.00 representing the face value of subject Metrobank
check;
2.) to pay to Plaintiff herein, jointly and severally, the sum
of P101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral damages in
the amount of P100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum
of P200,000.00 for attorneys fees; and
5.) to pay to Plaintiff, jointly and severally, litigation expenses
in the sum of P10,000.00 and costs of the suit.
SO ORDERED.[7]
Only petitioner filed an appeal. Lobitana did not appeal the trial
courts judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial courts finding that
respondents are holders in due course of Metrobank Check No. C-MA-
142119406-CA. The Court of Appeals pointed out that petitioners
own admission that respondents were never parties to the
transaction among petitioner, Lobitana, Concordio Toring, Cecilia
Villacarlos, and Consing, proved respondents lack of knowledge of
any infirmity in the instrument or defect in the title of the person
negotiating it. Moreover, respondents verified from Metrobank
whether the check was sufficiently funded before they accepted it.
Therefore, respondents must be excluded from the ambit of
petitioners stop payment order.
22
The Court of Appeals modified the trial courts decision by deleting the
award of interest, moral damages, attorneys fees and litigation
expenses. The Court of Appeals opined that petitioner was only
exercising (although incorrectly), what he perceived to be his right to
stop the payment of the check which he rediscounted. The Court of
Appeals ruled that petitioner acted in good faith in ordering the stoppage
of payment of the subject check and thus, he must not be made liable for
those amounts.
In its 16 August 2005 Decision, the Court of Appeals affirmed the trial
courts decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible error in the
decision of the lower court, WE hereby DISMISS the appeal and AFFIRM
the decision of the court a quo with modifications that the award of
interest, moral damages, attorneys fees and litigation expenses be
deleted.
No pronouncement as to costs.
SO ORDERED.[8]
In its 30 November 2005 Resolution, the Court of Appeals denied
petitioners motion for reconsideration.
In denying the petitioners motion for reconsideration, the Court of
Appeals noted that petitioner raised the defense that the check is a
crossed check for the first time on appeal (particularly in the motion for
reconsideration). The Court of Appeals rejected such defense
considering that to entertain the same would be offensive to the basic
rules of fair play, justice, and due process.
Hence, this petition.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
RESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT THAT
METROBANK CHECK NO. 142119406 IS A CROSSED CHECK CONSTITUTES
SUFFICIENT WARNING TO THE RESPONDENTS TO EXERCISE
EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF THE
INDORSER.
II. THE COURT OF APPEALS ERRED IN DENYING PETITIONERS
MOTION FOR RECONSIDERATION UPON THE GROUND THAT THE
ARGUMENTS RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST
TIME. EQUITY DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE
MADE AN EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST
WRONG AND INJUSTICE UPON THE PETITIONER. [9]
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense that Metrobank
Check No. C-MA-142119406-CA is a crossed check for the first time in his
motion for reconsideration before the Court of Appeals. Respondents
insist that issues not raised during the trial cannot be raised for the first
time on appeal as it would be offensive to the elementary rules of fair
play, justice and due process. Respondents further assert that a change
of theory on appeal is improper.
In his Answer, petitioner specifically denied, among others, (1) Paragraph
4 of the Complaint, concerning the allegation that on the face of the
subject check, no condition or limitation was imposed, and (2) Paragraph
8 of the Complaint, regarding the allegation that respondents were
holders in due course and for value of the subject check. In his Special
Affirmative Defenses, petitioner claimed that for want or lack of the
prestation, he could validly stop the payment of his check, and that by
rediscounting petitioners check, respondents took the risk of what might
happen on the check. Essentially, petitioner maintained that respondents
are not holders in due course of the subject check, and as such,
respondents could not recover any liability on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or raise
during the trial that Metrobank Check No. C-MA-142119406-CA is a
crossed check. It must be stressed, however, that petitioner
consistently argues that respondents are not holders in due course
of the subject check, which is one of the possible effects of crossing
a check. The act of crossing a check serves as a warning to the
holder that the check has been issued for a definite purpose so that
the holder thereof must inquire if he has received the check
pursuant to that purpose; otherwise, he is not a holder in due course.
[10]
Contrary to respondents view, petitioner never changed his
theory, that respondents are not holders in due course of the subject
check, as would violate fundamental rules of justice, fair play, and
due process. Besides, the subject check was presented and admitted
as evidence during the trial and respondents did not and in fact
cannot deny that it is a crossed check.
In any event, the Court is clothed with ample authority to entertain
issues or matters not raised in the lower courts in the interest of
substantial justice.[11] In Casa Filipina Realty v. Office of the
President,[12] the Court held:
[T]he trend in modern-day procedure is to accord the courts broad
discretionary power such that the appellate court may consider
matters bearing on the issues submitted for resolution which the
parties failed to raise or which the lower court ignored. Since rules of
procedure are mere tools designed to facilitate the attainment of
justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial
justice, must always be avoided. Technicality should not be allowed
to stand in the way of equitably and completely resolving the rights
and obligations of the parties.[13]
Having disposed of the procedural issue, the Court shall now
proceed to the merits of the case. The main issue is whether
respondents are holders in due course of Metrobank Check No. C-MA
142119406 CA as to entitle them to collect the face value of the
check from its drawer or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a holder in
due course, thus:
A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it has been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title of the
person negotiating it.
In the case of a crossed check, as in this case, the following
principles must additionally be considered: A crossed check (a) may
not be encashed but only deposited in the bank; (b) may be
negotiated only once to one who has an account with a bank; and (c)
warns the holder that it has been issued for a definite purpose so
that the holder thereof must inquire if he has received the check
pursuant to that purpose; otherwise, he is not a holder in due course.
[14]
Based on the foregoing, respondents had the duty to ascertain the
indorsers, in this case Lobitanas, title to the check or the nature of
her possession. This respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not
amount to determination of Lobitanas title to the check. Failing in
this respect, respondents are guilty of gross negligence amounting to
legal absence of good faith,[15] contrary to Section 52(c) of the
Negotiable Instruments Law. Hence, respondents are not deemed
holders in due course of the subject check. [16]
23
 State Investment House v. Intermediate Appellate Court [17] squarely
applies to this case. There, New Sikatuna Wood Industries, Inc. sold at a
discount to State Investment House three post-dated crossed checks,
issued by Anita Pea Chua naming as payee New Sikatuna Wood
Industries, Inc. The Court found State Investment House not a holder in
due course of the checks. The Court also expounded on the effect of
crossing a check, thus:
Under usual practice, crossing a check is done by placing two parallel
lines diagonally on the left top portion of the check. The crossing may be
special wherein between the two parallel lines is written the name of a
bank or a business institution, in which case the drawee should pay only
with the intervention of that bank or company, or crossing may be
general wherein between two parallel diagonal lines are written the
words and Co. or none at all as in the case at bar, in which case the
drawee should not encash the same but merely accept the same for
deposit.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable
Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive
payment on his behalf x x x As to who the holder or authorized person
will be depends on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally
and issued payable to New Sikatuna Wood Industries, Inc. which could
only mean that the drawer had intended the same for deposit only by the
rightful person, i.e., the payee named therein. Apparently, it was not the
payee who presented the same for payment and therefore, there was no
proper presentment, and the liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become
liable. Consequently, no right of recourse is available to petitioner
against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
In this case, there is no question that the payees of the check, Lobitana
or Consing, were not the ones who presented the check for
payment. Lobitana negotiated and indorsed the check to respondents in
exchange for P948,000.00. It was respondents who presented the subject
check for payment; however, the check was dishonored for reason
PAYMENT STOPPED. In other words, it was not the payee who presented
the check for payment; and thus, there was no proper presentment. As a
result, liability did not attach to the drawer. Accordingly, no right of
recourse is available to respondents against the drawer of the check,
petitioner herein, since respondents are not the proper party authorized
to make presentment of the subject check.
However, the fact that respondents are not holders in due course does
not automatically mean that they cannot recover on the check. [18] The
Negotiable Instruments Law does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument. The
only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.
[19]
Among such defenses is the absence or failure of consideration,
[20]
which petitioner sufficiently established in this case. Petitioner issued
the subject check supposedly for a loan in favor of Consings group, who
turned out to be a syndicate defrauding gullible individuals.Since there is
in fact no valid loan to speak of, there is no consideration for the
issuance of the check. Consequently, petitioner cannot be obliged to pay
the face value of the check.
Respondents can collect from the immediate indorser,[21] in this case
Lobitana. Significantly, Lobitana did not appeal the trial courts decision,
finding her solidarily liable to pay, among others, the face value of the
subject check. Therefore, the trial courts judgment has long become final
and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August
2005 Decision and 30 November 2005 Resolution of the Court of Appeals
in CA-G.R. CV No. 57994.
G.R. No. 138074. August 15, 2003]
CELY YANG, petitioner, vs. HON. COURT OF APPEALS,
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST
BANK & TRUST CO., EQUITABLE BANKING CORPORATION,
PREM CHANDIRAMANI and FERNANDO DAVID, respondents.
For review on certiorari is the decision[1] of the Court of
Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which
affirmed with modification the joint decision of the Regional Trial
Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil
Cases Nos. 5479[2] and 5492.[3] The trial court dismissed the
complaint against herein respondents Far East Bank & Trust
Company (FEBTC), Equitable Banking Corporation (Equitable), and
Philippine Commercial International Bank (PCIB) and ruled in favor of
respondent Fernando David as to the proceeds of the two cashiers
checks, including the earnings thereof pendente lite. Petitioner Cely
Yang was ordered to pay David moral damages of P100,000.00 and
attorneys fees also in the amount of P100,000.00.
The facts of this case are not disputed, to wit:
On or before December 22, 1987, petitioner Cely Yang and
private respondent Prem Chandiramani entered into an agreement
whereby the latter was to give Yang a PCIB managers check in the
amount of P4.2 million in exchange for two (2) of Yangs managers
checks, each in the amount of P2.087 million, both payable to the
order of private respondent Fernando David. Yang and Chandiramani
agreed that the difference of P26,000.00 in the exchange would be
their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the former
would secure from FEBTC a dollar draft in the amount of
US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2,
which Chandiramani would exchange for another dollar draft in the
same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the
following:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum
of P2,087,000.00, dated December 22, 1987, payable to the
order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount
of P2,087,000.00, dated December 22, 1987, likewise payable to
the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New
York, in the amount of US$200,000.00, dated December 22,
1987, payable to PCIB FCDU Account No. 4195-01165-2.
At about one oclock in the afternoon of the same day, Yang
gave the aforementioned cashiers checks and dollar drafts to her
business associate, Albert Liong, to be delivered to Chandiramani by
Liongs messenger, Danilo Ranigo. Ranigo was to meet Chandiramani
at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila
where he would turn over Yangs cashiers checks and dollar draft to
Chandiramani who, in turn, would deliver to Ranigo a PCIB managers
check in the sum of P4.2 million and a Hang Seng Bank dollar draft
for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo
allegedly lost the two cashiers checks and the dollar draft bought by
petitioner. Ranigo reported the alleged loss of the checks and the
dollar draft to Liong at half past four in the afternoon of December
22, 1987. Liong, in turn, informed Yang, and the loss was then
reported to the police.
24
 It transpired, however, that the checks and the dollar draft were not
lost, for Chandiramani was able to get hold of said instruments, without
delivering the exchange consideration consisting of the PCIB managers
check and the Hang Seng Bank dollar draft.
At three oclock in the afternoon or some two (2) hours after
Chandiramani and Ranigo were to meet in Makati City, Chandiramani
delivered to respondent Fernando David at China Banking Corporation
branch in San Fernando City, Pampanga, the following: (a) FEBTC
Cashiers Check No. 287078, dated December 22, 1987, in the sum
of P2.087 million; and (b) Equitable Cashiers Check No. CCPS 14-009467,
dated December 22, 1987, also in the amount of P2.087 million. In
exchange, Chandiramani got US$360,000.00 from David, which
Chandiramani deposited in the savings account of his wife, Pushpa
Chandiramani; and his mother, Rani Reynandas, who held FCDU Account
No. 124 with the United Coconut Planters Bank branch in Greenhills, San
Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No.
4771, dated December 22, 1987, drawn upon the Chemical Bank, New
York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the
same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment
on the instruments she believed to be lost. Both banks complied with her
request, but upon the representation of PCIB, FEBTC subsequently lifted
the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling
the holder of PCIB FCDU Account No. 4195-01165-2 to receive the
amount of US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a
Complaint[4] for injunction and damages against Equitable, Chandiramani,
and David, with prayer for a temporary restraining order, with the
Regional Trial Court of Pasay City. The Complaint was docketed as Civil
Case No. 5479. The Complaint was subsequently amended to include a
prayer for Equitable to return to Yang the amount of P2.087 million, with
interest thereon until fully paid.[5]
On January 12, 1988, Yang filed a separate case for injunction and
damages, with prayer for a writ of preliminary injunction against FEBTC,
PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as
Civil Case No. 5492. This complaint was later amended to include a
prayer that defendants therein return to Yang the amount of P2.087
million, the value of FEBTC Dollar Draft No. 4771, with interest at 18%
annually until fully paid.[6]
On February 9, 1988, upon the filing of a bond by Yang, the trial
court issued a writ of preliminary injunction in Civil Case No. 5479. A writ
of preliminary injunction was subsequently issued in Civil Case No. 5492
also.
Meanwhile, herein respondent David moved for dismissal of the
cases against him and for reconsideration of the Orders granting the writ
of preliminary injunction, but these motions were denied. David then
elevated the matter to the Court of Appeals in a special civil action for
certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the
appellate court.
As Civil Cases Nos. 5479 and 5492 arose from the same set of facts,
the two cases were consolidated. The trial court then conducted pre-trial
and trial of the two cases, but the proceedings had to be suspended after
a fire gutted the Pasay City Hall and destroyed the records of the courts.
After the records were reconstituted, the proceedings resumed and
the parties agreed that the money in dispute be invested in Treasury Bills
to be awarded in favor of the prevailing side. It was also agreed by the
parties to limit the issues at the trial to the following:
1. Who, between David and Yang, is legally entitled to the proceeds
of Equitable Banking Corporation (EBC) Cashiers Check No. CCPS 14-
009467 in the sum of P2,087,000.00 dated December 22, 1987,
and Far East Bank and Trust Company (FEBTC) Cashiers Check
No. 287078 in the sum of P2,087,000.00 dated December 22,
1987, together with the earnings derived therefrom pendente
lite?
2. Are the defendants FEBTC and PCIB solidarily liable to Yang
for having allowed the encashment of FEBTC Dollar Draft No.
4771, in the sum of US$200,000.00 plus interest thereon despite
the stop payment order of Cely Yang?[7]
On July 4, 1995, the trial court handed down its decision in Civil
Cases Nos. 5479 and 5492, to wit:
WHEREFORE, the Court renders judgment in favor of defendant
Fernando David against the plaintiff Cely Yang and declaring the
former entitled to the proceeds of the two (2) cashiers checks,
together with the earnings derived therefrom pendente lite; ordering
the plaintiff to pay the defendant Fernando David moral damages in
the amount of P100,000.00; attorneys fees in the amount
of P100,000.00 and to pay the costs. The complaint against Far East
Bank and Trust Company (FEBTC), Philippine Commercial
International Bank (PCIB) and Equitable Banking Corporation (EBC) is
dismissed. The decision is without prejudice to whatever action
plaintiff Cely Yang will file against defendant Prem Chandiramani for
reimbursement of the amounts received by him from defendant
Fernando David.
SO ORDERED.[8]
In finding for David, the trial court ratiocinated:
The evidence shows that defendant David was a holder in due
course for the reason that the cashiers checks were complete on
their face when they were negotiated to him. They were not yet
overdue when he became the holder thereof and he had no notice
that said checks were previously dishonored; he took the cashiers
checks in good faith and for value. He parted some $200,000.00 for
the two (2) cashiers checks which were given to defendant
Chandiramani; he had also no notice of any infirmity in the cashiers
checks or defect in the title of the drawer. As a matter of fact, he
asked the manager of the China Banking Corporation to inquire as to
the genuineness of the cashiers checks (tsn, February 5, 1988, p. 21,
September 20, 1991, pp. 13-14). Another proof that defendant David
is a holder in due course is the fact that the stop payment order on
[the] FEBTC cashiers check was lifted upon his inquiry at the head
office (tsn, September 20, 1991, pp. 24-25). The apparent reason for
lifting the stop payment order was because of the fact that FEBTC
realized that the checks were not actually lost but indeed reached
the payee defendant David.[9]
Yang then moved for reconsideration of the RTC judgment, but
the trial court denied her motion in its Order of September 20, 1995.
In the belief that the trial court misunderstood the concept of a
holder in due course and misapprehended the factual milieu, Yang
seasonably filed an appeal with the Court of Appeals, docketed as
CA-G.R. CV No. 52398.
On March 25, 1999, the appellate court decided CA-G.R. CV No.
52398 in this wise:
WHEREFORE, this court AFFIRMS the judgment of the lower court
with modification and hereby orders the plaintiff-appellant to pay
defendant-appellant PCIB the amount of Twenty-Five
Thousand Pesos (P25,000.00).
SO ORDERED.[10]
25
 In affirming the trial courts judgment with respect to herein
respondent David, the appellate court found that:
In this case, defendant-appellee had taken the necessary precautions to
verify, through his bank, China Banking Corporation, the genuineness of
whether (sic) the cashiers checks he received from Chandiramani. As no
stop payment order was made yet (at) the time of the inquiry, defendant-
appellee had no notice of what had transpired earlier between the
plaintiff-appellant and Chandiramani. All he knew was that the checks
were issued to Chandiramani with whom he was he had (sic) a
transaction. Further on, David received the checks in question in due
course because Chandiramani, who at the time the checks were
delivered to David, was acting as Yangs agent.
David had no notice, real or constructive, cogent for him to make further
inquiry as to any infirmity in the instrument(s) and defect of title of the
holder. To mandate that each holder inquire about every aspect on how
the instrument came about will unduly impede commercial transactions,
Although negotiable instruments do not constitute legal tender,
they often take the place of money as a means of payment.
The mere fact that David and Chandiramani knew one another for a long
time is not sufficient to establish that they connived with each other to
defraud Yang. There was no concrete proof presented by Yang to support
her theory.[11]
The appellate court awarded P25,000.00 in attorneys fees to PCIB
as it found the action filed by Yang against said bank to be clearly
unfounded and baseless. Since PCIB was compelled to litigate to protect
itself, then it was entitled under Article 2208 [12] of the Civil Code to
attorneys fees and litigation expenses.
Hence, the instant recourse wherein petitioner submits the following
issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY
PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM
CHANDIRAMANI AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY
BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;
c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI
US$360,000.00 OR JUST A FRACTION OF THE AMOUNT REPRESENTING
HIS SHARE OF THE LOOT;
d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE
ENTITLED TO DAMAGES AND ATTORNEYS FEES.[13]
At the outset, we must stress that this is a petition for review under
Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions
for review under Rule 45, the jurisdiction of this Court is limited to
reviewing questions of law, questions of fact are not entertained absent a
showing that the factual findings complained of are totally devoid of
support in the record or are glaringly erroneous. [14] Given the facts in the
instant case, despite petitioners formulation, we find that the following
are the pertinent issues to be resolved:
a) Whether the Court of Appeals erred in holding herein respondent
Fernando David to be a holder in due course; and
b) Whether the appellate court committed a reversible error in awarding
damages and attorneys fees to David and PCIB.
On the first issue, petitioner Yang contends that private respondent
Fernando David is not a holder in due course of the checks in question.
While it is true that he was named the payee thereof, David failed to
inquire from Chandiramani about how the latter acquired possession of
said checks. Given his failure to do so, it cannot be said that David was
unaware of any defect or infirmity in the title of Chandiramani to the
checks at the time of their negotiation. Moreover, inasmuch as the
checks were crossed, then David should have, pursuant to our ruling
in Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, G.R. No.
93048, March 3, 1994, 230 SCRA 643, been put on guard that the
checks were issued for a definite purpose and accordingly, made
inquiries to determine if he received the checks pursuant to that
purpose. His failure to do so negates the finding in the proceedings
below that he was a holder in due course.
Finally, the petitioner argues that there is no showing
whatsoever that David gave Chandiramani any consideration of
value in exchange for the aforementioned checks.
Private respondent Fernando David counters that the evidence
on record shows that when he received the checks, he verified their
genuineness with his bank, and only after said verification did he
deposit them. David stresses that he had no notice of previous
dishonor or any infirmity that would have aroused his suspicions, the
instruments being complete and regular upon their face. David
stresses that the checks in question were cashiers checks. From the
very nature of cashiers checks, it is highly unlikely that he would
have suspected that something was amiss. David also stresses
negotiable instruments are presumed to have been issued for
valuable consideration, and he who alleges otherwise must
controvert the presumption with sufficient evidence. The petitioner
failed to discharge this burden, according to David. He points out
that the checks were delivered to him as the payee, and he took
them as holder and payee thereof. Clearly, he concludes, he should
be deemed to be their holder in due course.
We shall now resolve the first issue.
Every holder of a negotiable instrument is deemed prima
facie a holder in due course. However, this presumption arises only
in favor of a person who is a holder as defined in Section 191 of the
Negotiable Instruments Law,[15] meaning a payee or indorsee of a bill
or note, who is in possession of it, or the bearer thereof.
In the present case, it is not disputed that David was the payee
of the checks in question. The weight of authority sustains the view
that a payee may be a holder in due course. [16] Hence, the
presumption that he is a prima facie holder in due course applies in
his favor. However, said presumption may be rebutted. Hence, what
is vital to the resolution of this issue is whether David took
possession of the checks under the conditions provided for in Section
52[17] of the Negotiable Instruments Law. All the requisites provided
for in Section 52 must concur in Davids case, otherwise he cannot be
deemed a holder in due course.
We find that the petitioners challenge to Davids status as a
holder in due course hinges on two arguments: (1) the lack of proof
to show that David tendered any valuable consideration for the
disputed checks; and (2) Davids failure to inquire from Chandiramani
as to how the latter acquired possession of the checks, thus resulting
in Davids intentional ignorance tantamount to bad faith. In sum,
petitioner posits that the last two requisites of Section 52 are
missing, thereby preventing David from being considered a holder in
due course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.
First, with respect to consideration, Section 24 of the
Negotiable Instruments Law creates a presumption that every party
to an instrument acquired the same for a consideration or for value.
[
Thus, the law itself creates a presumption in Davids favor that he
gave valuable consideration for the checks in question. In alleging
otherwise, the petitioner has the onus to prove that David got hold of
the checks absent said consideration. In other words, the petitioner
must present convincing evidence to overthrow the presumption.
26
Our scrutiny of the records, however, shows that the petitioner failed to
discharge her burden of proof. The petitioners averment that David did
not give valuable consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it. Note that both
the trial court and the appellate court found that David did not receive
the checks gratis, but instead gave Chandiramani US$360,000.00 as
consideration for the said instruments. Factual findings of the Court of
Appeals are conclusive on the parties and not reviewable by this Court;
they carry great weight when the factual findings of the trial court are
affirmed by the appellate court.[21]
Second, petitioner fails to point any circumstance which should
have put David on inquiry as to the why and wherefore of the possession
of the checks by Chandiramani. David was not privy to the transaction
between petitioner and Chandiramani. Instead, Chandiramani and David
had a separate dealing in which it was precisely Chandiramanis duty to
deliver the checks to David as payee. The evidence shows that
Chandiramani performed said task to the letter. Petitioner admits that
David took the step of asking the manager of his bank to verify from
FEBTC and Equitable as to the genuineness of the checks and only
accepted the same after being assured that there was nothing wrong
with said checks. At that time, David was not aware of any stop payment
order. Under these circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the latters title to the
checks was, if any, or the nature of his possession. Thus, we cannot hold
him guilty of gross neglect amounting to legal absence of good faith,
absent any showing that there was something amiss about
Chandiramanis acquisition or possession of the checks. David did not
close his eyes deliberately to the nature or the particulars of a fraud
allegedly committed by Chandiramani upon the petitioner, absent any
knowledge on his part that the action in taking the instruments
amounted to bad faith.[22]
Belatedly, and we say belatedly since petitioner did not raise this
matter in the proceedings below, petitioner now claims that David should
have been put on alert as the instruments in question were crossed
checks. Pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of
Appeals, David should at least have inquired as to whether he was
acquiring said checks for the purpose for which they were issued,
according to petitioners submission.
Petitioners reliance on the Bataan Cigar case, however, is
misplaced. The facts in the present case are not on all fours with Bataan
Cigar. In the latter case, the crossed checks were negotiated and sold at
a discount by the payee, while in the instant case, the payee did not
negotiate further the checks in question but promptly deposited them in
his bank account.
The Negotiable Instruments Law is silent with respect to crossed
checks, although the Code of Commerce [23] makes reference to such
instruments. Nonetheless, this Court has taken judicial cognizance of the
practice that a check with two parallel lines in the upper left hand corner
means that it could only be deposited and not converted into cash. [24] The
effects of crossing a check, thus, relates to the mode of payment,
meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. In Bataan Cigar, the
rediscounting of the check by the payee knowingly violated the avowed
intention of crossing the check. Thus, in accepting the cross checks and
paying cash for them, despite the warning of the crossing, the
subsequent holder could not be considered in good faith and thus, not a
holder in due course. Our ruling in Bataan Cigar reiterates that in De
Ocampo & Co. v. Gatchalian
The factual circumstances in De Ocampo and in Bataan Cigar are
not present in this case. For here, there is no dispute that the crossed
checks were delivered and duly deposited by David, the payee named
therein, in his bank account. In other words, the purpose behind the
crossing of the checks was satisfied by the payee.
Proceeding to the issue of damages, petitioner merely argues
that respondents David and PCIB are not entitled to damages,
attorneys fees, and costs of suit as both acted in bad faith towards
her, as shown by her version of the facts which gave rise to the
instant case.
Respondent David counters that he was maliciously and
unceremoniously dragged into this suit for reasons which have
nothing to do with him at all, but which arose from petitioners failure
to receive her share of the profit promised her by Chandiramani.
Moreover, in filing this suit which has lasted for over a decade now,
the petitioner deprived David of the rightful enjoyment of the two
checks, to which he is entitled, under the law, compelled him to hire
the services of counsel to vindicate his rights, and subjected him to
social humiliation and besmirched reputation, thus harming his
standing as a person of good repute in the business community of
Pampanga. David thus contends that it is but proper that moral
damages, attorneys fees, and costs of suit be awarded him.
For its part, respondent PCIB stresses that it was established by
both the trial court and the appellate court that it was needlessly
dragged into this case. Hence, no error was committed by the
appellate court in declaring PCIB entitled to attorneys fees as it was
compelled to litigate to protect itself.
We have thoroughly perused the records of this case and find
no reason to disagree with the finding of the trial court, as affirmed
by the appellate court, that:
[D]efendant David is entitled to [the] award of moral damages as he
has been needlessly and unceremoniously dragged into this case
which should have been brought only between the plaintiff and
defendant Chandiramani.
A careful reading of the findings of facts made by both the trial
court and appellate court clearly shows that the petitioner, in
including David as a party in these proceedings, is barking up the
wrong tree. It is apparent from the factual findings that David had no
dealings with the petitioner and was not privy to the agreement of
the latter with Chandiramani. Moreover, any loss which the petitioner
incurred was apparently due to the acts or omissions of
Chandiramani, and hence, her recourse should have been against
him and not against David. By needlessly dragging David into this
case all because he and Chandiramani knew each other, the
petitioner not only unduly delayed David from obtaining the value of
the checks, but also caused him anxiety and injured his business
reputation while waiting for its outcome. Recall that under Article
2217[27] of the Civil Code, moral damages include mental anguish,
serious anxiety, besmirched reputation, wounded feelings, social
humiliation, and similar injury. Hence, we find the award of moral
damages to be in order.
The appellate court likewise found that like David, PCIB was
dragged into this case on unfounded and baseless grounds. Both
were thus compelled to litigate to protect their interests, which
makes an award of attorneys fees justified under Article 2208 (2)
[28]
of the Civil Code. Hence, we rule that the award of attorneys fees
to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. The assailed
decision of the Court of Appeals, dated March 25, 1999, in CA-G.R.
CV No. 52398 is AFFIRMED. Costs against the petitioner.
G.R. No. 139130 November 27, 2002
RAMON K. ILUSORIO, vs. HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION,
27
This petition for review seeks to reverse the decision 1 promulgated on
January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942,
affirming the decision of the then Court of First Instance of Rizal, Branch
XV (now the Regional Trial Court of Makati, Branch 138) dismissing Civil
Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to this
case, was the Managing Director of Multinational Investment
Bancorporation and the Chairman and/or President of several other
corporations. He was a depositor in good standing of respondent bank,
the Manila Banking Corporation, under current Checking Account No. 06-
09037-0. As he was then running about 20 corporations, and was going
out of the country a number of times, petitioner entrusted to his
secretary, Katherine2 E. Eugenio, his credit cards and his checkbook with
blank checks. It was also Eugenio who verified and reconciled the
statements of said checking account.3
Between the dates September 5, 1980 and January 23, 1981, Eugenio
was able to encash and deposit to her personal account about seventeen
(17) checks drawn against the account of the petitioner at the
respondent bank, with an aggregate amount of P119,634.34. Petitioner
did not bother to check his statement of account until a business partner
apprised him that he saw Eugenio use his credit cards. Petitioner fired
Eugenio immediately, and instituted a criminal action against her for
estafa thru falsification before the Office of the Provincial Fiscal of Rizal.
Private respondent, through an affidavit executed by its employee, Mr.
Dante Razon, also lodged a complaint for estafa thru falsification of
commercial documents against Eugenio on the basis of petitioners
statement that his signatures in the checks were forged. 4 Mr. Razons
affidavit states:
That I have examined and scrutinized the following checks in accordance
with prescribed verification procedures with utmost care and diligence by
comparing the signatures affixed thereat against the specimen
signatures of Mr. Ramon K. Ilusorio which we have on file at our said
office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank
in favor of its client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN, an
executive secretary of MR. RAMON K. ILUSORIO in said Investment
Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending
verifier when she personally encashed the above-mentioned checks at
our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning
his signature appearing on the checks further alleged to have not
authorized the issuance and encashment of the same. 5
Petitioner then requested the respondent bank to credit back and restore
to its account the value of the checks which were wrongfully encashed
but respondent bank refused. Hence, petitioner filed the instant case. 6
At the trial, petitioner testified on his own behalf, attesting to the truth of
the circumstances as narrated above, and how he discovered the alleged
forgeries. Several employees of Manila Bank were also called to the
witness stand as hostile witnesses. They testified that it is the banks
standard operating procedure that whenever a check is presented for
encashment or clearing, the signature on the check is first verified
against the specimen signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of
Investigation (NBI) in determining the genuineness of the signatures
appearing on the checks. However, in a letter dated March 25, 1987,
the NBI informed the trial court that they could not conduct the
desired examination for the reason that the standard specimens
submitted were not sufficient for purposes of rendering a definitive
opinion. The NBI then suggested that petitioner be asked to submit
seven (7) or more additional standard signatures executed before or
about, and immediately after the dates of the questioned checks.
Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo
rendered judgment on May 12, 1994 with the following dispositive
portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein
against defendant bank, in the light of the foregoing considerations
and established facts, this case would have to be, as it is hereby
DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient
basis.
SO ORDERED.7
Aggrieved, petitioner elevated the case to the Court of Appeals by
way of a petition for review but without success. The appellate court
held that petitioners own negligence was the proximate cause of his
loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs
against the appellant.
SO ORDERED.8
Before us, petitioner ascribes the following errors to the Court of
Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT
THERE WAS NO FORGERY OF THE SIGNATURES OF THE PETITIONER
IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL
COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL
DOCUMENTS AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT
OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS
PART OF THE AFFIDAVIT-COMPLAINT.9
B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23,
NEGOTIABLE INSTRUMENTS LAW.10
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF
PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE
DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT
WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
EMPLOYEES.11
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE
MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE
EUGENIO ESTEBAN.12
Essentially the issues in this case are: (1) whether or not petitioner
has a cause of action against private respondent; and (2) whether or
not private respondent, in filing an estafa case against petitioners
secretary, is barred from raising the defense that the fact of forgery
was not established.
Petitioner contends that Manila Bank is liable for damages for its
negligence in failing to detect the discrepant checks. He adds that as
28
a general rule a bank which has obtained possession of a check upon an
unauthorized or forged endorsement of the payees signature and which
collects the amount of the check from the drawee is liable for the
proceeds thereof to the payee. Petitioner invokes the doctrine of
estoppel, saying that having itself instituted a forgery case against
Eugenio, Manila Bank is now estopped from asserting that the fact of
forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did
not depart from the accepted and usual course of judicial proceedings,
hence there is no reason for the reversal of its ruling. Manila Bank
additionally points out that Section 23 13 of the Negotiable Instruments
Law is inapplicable, considering that the fact of forgery was never
proven. Lastly, the bank negates petitioners claim of estoppel. 14
On the first issue, we find that petitioner has no cause of action against
Manila Bank. To be entitled to damages, petitioner has the burden of
proving negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent upon
petitioner to establish the fact of forgery, i.e., by submitting his specimen
signatures and comparing them with those on the questioned checks.
Curiously though, petitioner failed to submit additional specimen
signatures as requested by the National Bureau of Investigation from
which to draw a conclusive finding regarding forgery. The Court of
Appeals found that petitioner, by his own inaction, was precluded from
setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the
plaintiffs evidence on the alleged forgery is not convincing enough. The
burden to prove forgery was upon the plaintiff, which burden he failed to
discharge. Aside from his own testimony, the appellant presented no
other evidence to prove the fact of forgery. He did not even submit his
own specimen signatures, taken on or about the date of the questioned
checks, for examination and comparison with those of the subject
checks. On the other hand, the appellee presented specimen signature
cards of the appellant, taken at various years, namely, in 1976, 1979 and
1981 (Exhibits "1", "2", "3" and "7"), showing variances in the appellants
unquestioned signatures. The evidence further shows that the appellee,
as soon as it was informed by the appellant about his questioned
signatures, sought to borrow the questioned checks from the appellant
for purposes of analysis and examination (Exhibit "9"), but the same was
denied by the appellant. It was also the former which sought the
assistance of the NBI for an expert analysis of the signatures on the
questioned checks, but the same was unsuccessful for lack of sufficient
specimen signatures.15
Moreover, petitioners contention that Manila Bank was remiss in the
exercise of its duty as drawee lacks factual basis. Consistently, the CA
and the RTC found that Manila Bank employees exercised due diligence in
cashing the checks. The banks employees in the present case did not
have a hint as to Eugenios modus operandi because she was a regular
customer of the bank, having been designated by petitioner himself to
transact in his behalf. According to the appellate court, the employees of
the bank exercised due diligence in the performance of their duties. Thus,
it found that:
The evidence on both sides indicates that TMBCs employees exercised
due diligence before encashing the checks. Its verifiers first verified the
drawers signatures thereon as against his specimen signature cards, and
when in doubt, the verifier went further, such as by referring to a more
experienced verifier for further verification. In some instances the verifier
made a confirmation by calling the depositor by phone. It is only after
taking such precautionary measures that the subject checks were given
to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a
mistake in failing to detect any forgery -- if indeed there was. However, a
mistake is not equivalent to negligence if they were honest mistakes. In
the instant case, we believe and so hold that if there were mistakes,
the same were not deliberate, since the bank took all the
precautions.16
As borne by the records, it was petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. 17 In the
present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and
possession of cancelled checks and reconciliation of accounts. Said
the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for
purposes of reconciliation of his account, through a letter dated July
14, 1980 (Exhibit "8"). Thus, the said secretary became a familiar
figure in the bank. What is worse, whenever the bank verifiers call
the office of the appellant, it is the same secretary who answers and
confirms the checks.
The trouble is, the appellant had put so much trust and confidence in
the said secretary, by entrusting not only his credit cards with her
but also his checkbook with blank checks. He also entrusted to her
the verification and reconciliation of his account. Further adding to
his injury was the fact that while the bank was sending him the
monthly Statements of Accounts, he was not personally checking the
same. His testimony did not indicate that he was out of the country
during the period covered by the checks. Thus, he had all the
opportunities to verify his account as well as the cancelled checks
issued thereunder -- month after month. But he did not, until his
partner asked him whether he had entrusted his credit card to his
secretary because the said partner had seen her use the same. It
was only then that he was minded to verify the records of his
account. 18
The abovecited findings are binding upon the reviewing court. We
stress the rule that the factual findings of a trial court, especially
when affirmed by the appellate court, are binding upon us 19 and
entitled to utmost respect20 and even finality. We find no palpable
error that would warrant a reversal of the appellate courts
assessment of facts anchored upon the evidence on record.
Petitioners failure to examine his bank statements appears as the
proximate cause of his own damage. Proximate cause is that cause,
which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which
the result would not have occurred. 21 In the instant case, the bank
was not shown to be remiss in its duty of sending monthly bank
statements to petitioner so that any error or discrepancy in the
entries therein could be brought to the banks attention at the
earliest opportunity. But, petitioner failed to examine these bank
statements not because he was prevented by some cause in not
doing so, but because he did not pay sufficient attention to the
matter. Had he done so, he could have been alerted to any anomaly
committed against him. In other words, petitioner had sufficient
opportunity to prevent or detect any misappropriation by his
secretary had he only reviewed the status of his accounts based on
the bank statements sent to him regularly. In view of Article 2179 of
the New Civil Code,22 when the plaintiffs own negligence was the
immediate and proximate cause of his injury, no recovery could be
had for damages.
Petitioner further contends that under Section 23 of the Negotiable
Instruments Law a forged check is inoperative, and that Manila Bank
had no authority to pay the forged checks. True, it is a rule that when
a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative. No
29
right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through or
under such signature. However, the rule does provide for an exception,
namely: "unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority." In the
instant case, it is the exception that applies. In our view, petitioner is
precluded from setting up the forgery, assuming there is forgery, due to
his own negligence in entrusting to his secretary his credit cards and
checkbook including the verification of his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals 23 and
Philippine Bank of Commerce vs. CA 24 to buttress his contention that
respondent Manila Bank as the collecting or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements is misplaced. In the cited cases, the fact of forgery
was not in issue. In the present case, the fact of forgery was not
established with certainty. In those cited cases, the collecting banks were
held to be negligent for failing to observe precautionary measures to
detect the forgery. In the case before us, both courts below uniformly
found that Manila Banks personnel diligently performed their duties,
having compared the signature in the checks from the specimen
signatures on record and satisfied themselves that it was petitioners.
On the second issue, the fact that Manila Bank had filed a case for estafa
against Eugenio would not estop it from asserting the fact that forgery
has not been clearly established. Petitioner cannot hold private
respondent in estoppel for the latter is not the actual party to the
criminal action. In a criminal action, the State is the plaintiff, for the
commission of a felony is an offense against the State. 25 Thus, under
Section 2, Rule 110 of the Rules of Court the complaint or information
filed in court is required to be brought in the name of the "People of the
Philippines." 26
Further, as petitioner himself stated in his petition, respondent bank filed
the estafa case against Eugenio on the basis of petitioners own
affidavit,27 but without admitting that he had any personal knowledge of
the alleged forgery. It is, therefore, easy to understand that the filing of
the estafa case by respondent bank was a last ditch effort to salvage its
ties with the petitioner as a valuable client, by bolstering the estafa case
which he filed against his secretary.
All told, we find no reversible error that can be ascribed to the Court of
Appeals.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV
No. 47942, is AFFIRMED.
Costs against petitioner.
G.R. No. 138510 October 10, 2002
TRADERS ROYAL BANK, vs. RADIO PHILIPPINES NETWORK, INC.,
INTERCONTINENTAL BROADCASTING CORPORATION and
BANAHAW BROADCASTING CORPORATION, through the BOARD OF
ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY,
Petitioner seeks the review and prays for the reversal of the Decision 1 of
April 30, 1999 of Court of Appeals in CA-G.R. CV No. 54656, the
dispositive portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED with modification in the
sense that appellant SBTC is hereby absolved from any liability. Appellant
TRB is solely liable to the appellees for the damages and costs of suit
specified in the dispositive portion of the appealed decision. Costs
against appellant TRB.
SO ORDERED.2
As found by the Court of Appeals, the antecedent facts of the case
are as follows:
On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed
plaintiffs Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the taxable years 1978
to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent
a letter to the BIR requesting settlement of plaintiffs tax obligations.
The BIR granted the request and accordingly, on June 26, 1986,
plaintiffs purchased from defendant Traders Royal Bank (TRB) three
(3) managers checks to be used as payment for their tax liabilities,
to wit:
Check Number Amount
30652 P4,155.835.00
30650 3,949,406.12
30796 1,685,475.75
Defendant TRB, through Aida Nuez, TRB Branch Manager at
Broadcast City Branch, turned over the checks to Mrs. Vera who was
supposed to deliver the same to the BIR in payment of plaintiffs
taxes.
Sometime in September, 1988, the BIR again assessed plaintiffs for
their tax liabilities for the years 1979-82. It was then they discovered
that the three (3) managers checks (Nos. 30652, 30650 and 30796)
intended as payment for their taxes were never delivered nor paid to
the BIR by Mrs. Vera. Instead, the checks were presented for
payment by unknown persons to defendant Security Bank and Trust
Company (SBTC), Taytay Branch as shown by the banks routing
symbol transit number (BRSTN 01140027) or clearing code stamped
on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the
BIR issued warrants of levy, distraint and garnishment against them.
Thus, they were constrained to enter into a compromise and paid BIR
P18,962,225.25 in settlement of their unpaid deficiency taxes.
Thereafter, plaintiffs sent letters to both defendants, demanding that
the amounts covered by the checks be reimbursed or credited to
their account. The defendants refused, hence, the instant suit.3
On February 17, 1985, the trial court rendered its decision, thus:
WHEREFORE, in view of the foregoing considerations, judgment is
hereby rendered in favor of the plaintiffs and against the defendants
by :
a) Condemning the defendant Traders Royal Bank to pay actual
damages in the sum of Nine Million Seven Hundred Ninety Thousand
and Seven Hundred Sixteen Pesos and Eighty-Seven Centavos
(P9,790,716.87) broken down as follows:
1) To plaintiff RPN-9 - P4,155,835.00
2) To Plaintiff IBC-13 - P3,949,406.12
3) To Plaintiff BBC-2 - P1,685,475.72
plus interest at the legal rate from the filing of this case in court.
b) Condemning the defendant Security Bank and Trust Company,
being collecting bank, to reimburse the defendant Traders Royal
30
Bank, all the amounts which the latter would pay to the aforenamed
plaintiffs;
c) Condemning both defendants to pay to each of the plaintiffs the sum
of Three Hundred Thousand (P300,000.00) Pesos as exemplary damages
and attorneys fees equivalent to twenty-five percent of the total amount
recovered; and
d) Costs of suit.
SO ORDERED.4
Defendants Traders Royal Bank and Security Bank and Trust Company,
Inc. both appealed the trial courts decision to the Court of Appeals.
However, as quoted in the beginning hereof, the appellate court absolved
defendant SBTC from any liability and held TRB solely liable to
respondent networks for damages and costs of suit.
In the instant petition for review on certiorari of the Court of Appeals
decision, petitioner TRB assigns the following errors: (a) the Honorable
Court of Appeals manifestly overlooked facts which would justify the
conclusion that negligence on the part of RPN, IBC and BBC bars them
from recovering anything from TRB, (b) the Honorable Court of Appeals
plainly erred and misapprehended the facts in relieving SBTC of its
liability to TRB as collecting bank and indorser by overturning the trial
courts factual finding that SBTC did endorse the three (3) managers
checks subject of the instant case, and (c) the Honorable Court of
Appeals plainly misapplied the law in affirming the award of exemplary
damages in favor of RPN, IBC and BBC.
In reply, respondents RPN, IBC, and BBC assert that TRBs petition raises
questions of fact in violation of Rule 45 of the 1997 Revised Rules on Civil
Procedure which restricts petitions for review on certiorari of the
decisions of the Court of Appeals on pure questions of law. RPN, IBC and
BBC maintain that the issue of whether or not respondent networks had
been negligent were already passed upon both by the trial and appellate
courts, and that the factual findings of both courts are binding and
conclusive upon this Court.
Likewise, respondent SBTC denies liability on the ground that it had no
participation in the negotiation of the checks, emphasizing that the
BRSTN imprints at the back of the checks cannot be considered as proof
that respondent SBTC accepted the disputed checks and presented them
to Philippine Clearing House Corporation for clearing.
Setting aside the factual ramifications of the instant case, the threshold
issue now is whether or not TRB should be held solely liable when it paid
the amount of the checks in question to a person other than the payee
indicated on the face of the check, the Bureau of Internal Revenue.
"When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or
under such signature."5 Consequently, if a bank pays a forged check, it
must be considered as paying out of its funds and cannot charge the
amount so paid to the account of the depositor.
In the instant case, the 3 checks were payable to the BIR. It was
established, however, that said checks were never delivered or paid to
the payee BIR but were in fact presented for payment by some unknown
persons who, in order to receive payment therefor, forged the name of
the payee. Despite this fraud, petitioner TRB paid the 3 checks in the
total amount of P9,790,716.87.
Petitioner ought to have known that, where a check is drawn payable to
the order of one person and is presented for payment by another and
purports upon its face to have been duly indorsed by the payee of the
check, it is the primary duty of petitioner to know that the check was duly
indorsed by the original payee and, where it pays the amount of the
check to a third person who has forged the signature of the payee, the
loss falls upon petitioner who cashed the check. Its only remedy is
against the person to whom it paid the money. 6
It should be noted further that one of the subject checks was
crossed. The crossing of one of the subject checks should have put
petitioner on guard; it was duty-bound to ascertain the indorsers
title to the check or the nature of his possession. Petitioner should
have known the effects of a crossed check: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank and (c)
the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. 7
By encashing in favor of unknown persons checks which were on
their face payable to the BIR, a government agency which can only
act only through its agents, petitioner did so at its peril and must
suffer the consequences of the unauthorized or wrongful
endorsement.8 In this light, petitioner TRB cannot exculpate itself
from liability by claiming that respondent networks were themselves
negligent.
A bank is engaged in a business impressed with public interest and it
is its duty to protect its many clients and depositors who transact
business with it. It is under the obligation to treat the accounts of the
depositors and clients with meticulous care, whether such accounts
consist only of a few hundreds or millions of pesos. 9
Petitioner argues that respondent SBTC, as the collecting bank and
indorser, should be held responsible instead for the amount of the
checks.
The Court of Appeals addressed exactly the same issue and made
the following findings and conclusions:
As to the alleged liability of appellant SBTC, a close examination of
the records constrains us to deviate from the lower courts finding
that SBTC, as a collecting bank, should similarly bear the loss.
"A collecting bank where a check is deposited and which indorses
the check upon presentment with the drawee bank, is such an
indorser. So even if the indorsement on the check deposited by the
banks client is forged, the collecting bank is bound by his warranties
as an indorser and cannot set up the defense of forgery as against
the drawee bank."
To hold appellant SBTC liable, it is necessary to determine whether it
is a party to the disputed transactions.
Section 3 of the Negotiable Instruments Law reads:
"SECTION 63. When person deemed indorser. - A person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity."
Upon the other hand, the Philippine Clearing House Corporation
(PCHC) rules provide:
"Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC
shall bear the guarantee affixed thereto by the Presenting
Bank/Branch which shall read as follows:
"Cleared thru the Philippine Clearing House Corporation. All prior
endorsements and/or lack of endorsement guaranteed. NAME OF
BANK/BRANCH BRSTN (Date of clearing)."
Here, not one of the disputed checks bears the requisite
endorsement of appellant SBTC. What appears to be a guarantee
31
stamped at the back of the checks is that of the Philippine National Bank,
Buendia Branch, thereby indicating that it was the latter Bank which
received the same.
It was likewise established during the trial that whenever appellant SBTC
receives a check for deposit, its practice is to stamp on its face the
words, "non-negotiable". Lana Echevarrias testimony is relevant:
"ATTY. ROMANO: Could you tell us briefly the procedure you follow in
receiving checks?
"A: First of all, I verify the check itself, the place, the date, the amount in
words and everything. And then, if all these things are in order and
verified in the data sheet I stamp my non-negotiable stamp at the face of
the check."
Unfortunately, the words "non-negotiable" do not appear on the face of
either of the three (3) disputed checks.
Moreover, the aggregate amount of the checks is not reflected in the
clearing documents of appellant SBTC. Section 19 of the Rules of the
PCHC states:
"Section 19 Regular Item Procedure:
Each clearing participant, through its authorized representatives, shall
deliver to the PCHC fully qualified MICR checks grouped in 200 or less
items to a batch and supported by an add-list, a batch control slip, and a
delivery statement.
It bears stressing that through the add-list, the PCHC can countercheck
and determine which checks have been presented on a particular day by
a particular bank for processing and clearing. In this case, however, the
add-list submitted by appellant SBTC together with the checks it
presented for clearing on August 3, 1987 does not show that Check No.
306502 in the sum of P3,949,406.12 was among those that passed for
clearing with the PCHC on that date. The same is true with Check No.
30652 with a face amount of P4,155,835.00 presented for clearing on
August 11, 1987 and Check No. 30796 with a face amount of
P1,685,475.75.
The foregoing circumstances taken altogether create a serious doubt on
whether the disputed checks passed through the hands of appellant
SBTC."10
We subscribe to the foregoing findings and conclusions of the Court of
Appeals.
A collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held
liable therefor. However, it is doubtful if the subject checks were ever
presented to and accepted by SBTC so as to hold it liable as a collecting
bank, as held by the Court of Appeals.
Since TRB did not pay the rightful holder or other person or entity
entitled to receive payment, it has no right to reimbursement. Petitioner
TRB was remiss in its duty and obligation, and must therefore suffer the
consequences of its own negligence and disregard of established banking
rules and procedures.
We agree with petitioner, however, that it should not be made to pay
exemplary damages to RPN, IBC and BBC because its wrongful act was
not done in bad faith, and it did not act in a wanton, fraudulent, reckless
or malevolent manner.11
We find the award of attorneys fees, 25% of P10 million, to be manifestly
exorbitant.12 Considering the nature and extent of the services rendered
by respondent networks counsel, however, the Court deems it
appropriate to award the amount of P100,000 as attorneys fees.
WHEREFORE, the appealed decision is MODIFIED by deleting the
award of exemplary damages. Further, respondent networks are
granted the amount of P100,000 as attorneys fees. In all other
respects, the Court of Appeals decision is hereby AFFIRMED.
SO ORDERED.
G.R. No. 126568 April 30, 2003
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO
GONZALES and EUFEMIA GONZALES, vs. THE COURT OF APPEALS
(CA) and REPUBLIC PLANTERS BANK,
In the expansion of its logging business, petitioner Quirino Gonzales
Logging Concessionaire (QGLC), through its proprietor, general
manager co-petitioner Quirino Gonzales, applied on October 15,
1962 for credit accommodations1 with respondent Republic Bank (the
Bank), later known as Republic Planters Bank.
The Bank approved QGLC's application on December 21, 1962,
granting it a credit line of P900,000.00 2 broken into an overdraft line
of P500,000.00 which was later reduced to P450,000.00 and a Letter
of Credit (LC) line of P400,000.00.3
Pursuant to the grant, the Bank and petitioners QGLC and the
spouses Quirino and Eufemia Gonzales executed ten documents: two
denominated "Agreement for Credit in Current Account," 4 four
denominated "Application and Agreement for Commercial Letter of
Credit,"5 and four denominated "Trust Receipt."6
Petitioners' obligations under the credit line were secured by a real
estate mortgage on four parcels of land: two in Pandacan, Manila,
one in Makati (then part of Rizal), and another in Diliman, Quezon
City.7
In separate transactions, petitioners, to secure certain advances
from the Bank in connection with QGLC's exportation of logs,
executed a promissory note in 1964 in favor of the Bank. They were
to execute three more promissory notes in 1967.
In 1965, petitioners having long defaulted in the payment of their
obligations under the credit line, the Bank foreclosed the mortgage
and bought the properties covered thereby, it being the highest
bidder in the auction sale held in the same year. Ownership over the
properties was later consolidated in the Bank on account of which
new titles thereto were issued to it.8
On January 27, 1977, alleging non-payment of the balance of QGLC's
obligation after the proceeds of the foreclosure sale were applied
thereto, and non-payment of the promissory notes despite repeated
demands, the Bank filed a complaint for "sum of money" (Civil Case
No. 106635) against petitioners before the Regional Trial Court (RTC)
of Manila.
The complaint listed ten causes of action. The first concerns the
overdraft line under which the Bank claimed that petitioners
withdrew amounts (unspecified) at twelve percent per annum which
were unpaid at maturity and that after it applied the proceeds of the
foreclosure sale to the overdraft debt, there remained an unpaid
balance of P1,224,301.56.
The Bank's second to fifth causes of action pertain to the LC line
under which it averred that on the strength of the LCs it issued, the
beneficiaries thereof drew and presented sight drafts to it which it all
paid after petitioners' acceptance; and that it delivered the tractors
and equipment subject of the LCs to petitioners who have not paid
either the full or part of the face value of the drafts.
32
Specifically with respect to its second cause of action, the Bank alleged
that it issued LC No. 63-0055D on January 15, 1963 in favor of Monark
International Incorporated9 covering the purchase of a tractor10 on which
the latter allegedly drew a sight draft with a face value of
P71,500.00,11 which amount petitioners have not, however, paid in full.
Under its third cause of action, the Bank charged that it issued LC No. 61-
1110D on December 27, 1962 also in favor of Monark International
covering the purchase of another tractor and other equipment; 12 and that
Monark International drew a sight draft with a face value of
P80,350.00,13 and while payments for the value thereof had been made
by petitioners, a balance of P68,064.97 remained.
Under the fourth cause of action, the Bank maintained that it issued LC
No. 63-0182D on February 11, 1963 in favor of J.B.L. Enterprises,
Inc.14 covering the purchase of two tractors, 15 and J.B.L. Enterprises drew
on February 13, 1963 a sight draft on said LC in the amount of
P155,000.00 but petitioners have not paid said amount.
On its fifth cause of action, the Bank alleged that it issued LC No. 63-
0284D on March 14, 1963 in favor of Super Master Auto Supply (SMAS)
covering the purchase of "Eight Units GMC (G.I.) Trucks"; that on March
14, 1963, SMAS drew a sight draft with a face value of P64,000.00 16 on
the basis of said LC; and that the payments made by petitioners for the
value of said draft were deficient by P45,504.74.
The Bank thus prayed for the settlement of the above-stated obligations
at an interest rate of eleven percent per annum, and for the award of
trust receipt commissions, attorney's fees and other fees and costs of
collection.
The sixth to ninth causes of action are anchored on the promissory notes
issued by petitioners allegedly to secure certain advances from the Bank
in connection with the exportation of logs as reflected above. 17 The notes
were payable 30 days after date and provided for the solidary liability of
petitioners as well as attorney's fees at ten percent of the total amount
due18 in the event of their non-payment at maturity.
The note dated June 18, 1964, subject of the sixth cause of action, has a
face value of P55,000.00 with interest rate of twelve percent per
annum;19 that dated July 7, 1967 subject of the seventh has a face value
of P20,000.00;20 that dated July 18, 1967 subject of the eighth has a face
value of P38,000.00;21 and that dated August 23, 1967 subject of the
ninth has a face value of P11,000.00.22 The interest rate of the last three
notes is pegged at thirteen percent per annum.23
On its tenth and final cause of action, the Bank claimed that it has
accounts receivable from petitioners in the amount of P120.48.
In their Answer24 of March 3, 1977, petitioners admit the following: having
applied for credit accommodations totaling P900,000.00 to secure which
they mortgaged real properties; opening of the LC/Trust Receipt Line; the
issuance by the Bank of the various LCs; and the foreclosure of the real
estate mortgage and the consolidation of ownership over the mortgaged
properties in favor of the Bank. They deny, however, having availed of
the credit accommodations and having received the value of the
promissory notes, as they do deny having physically received the tractors
and equipment subject of the LCs.
As affirmative defenses, petitioners assert that the complaint states no
cause of action, and assuming that it does, the same is/are barred by
prescription or null and void for want of consideration.
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the
preferred shares of stocks of the spouses Quirino and Eufemia Gonzales
with the Bank with a total par value of P414,000.00.
Finding for petitioners, the trial court rendered its Decision of April
22, 1992 the dispositive portion of which reads:
WHEREFORE, judgment is rendered as follows:
1. All the claims of plaintiff particularly those described in the first
to the tenth causes of action of its complaint are denied for the
reasons earlier mentioned in the body of this decision;
2. As regards the claims of defendants pertaining to their
counterclaim (Exhibits "1", "2" and "3"), they are hereby given ten
(10) years from the date of issuance of the torrens title to plaintiff
and before the transfer thereof in good faith to a third party buyer
within which to ask for the reconveyance of the real properties
foreclosed by plaintiff,
3. The order of attachment which was issued against the preferred
shares of stocks of defendants-spouses Quirino Gonzales and
Eufemia Gonzales with the Republic Bank now known as Republic
Planters Bank dated March 21, 1977 is hereby dissolved and/or
lifted, and
4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as
and for attorney's fees, with costs against plaintiff.
SO ORDERED.
In finding for petitioners, the trial court ratiocinated:25
Art. 1144 of the Civil Code states that an action upon a written
contract prescribes in ten (10) years from the time the right of
action accrues. Art. 1150 states that prescription starts to run from
the day the action may be brought. The obligations allegedly
created by the written contracts or documents supporting
plaintiff's first to the sixth causes of action were demandable at
the latest in 1964. Thus when the complaint was filed on January
27, 1977 more than ten (10) years from 1964 [when the causes of
action accrued] had already lapsed. The first to the sixth causes of
action are thus barred by prescription. . . .
As regards the seventh and eight causes of action, the authenticity
of which documents were partly in doubt in the light of the
categorical and uncontradicted statements that in 1965,
defendant Quirino Gonzales logging concession was terminated
based on the policy of the government to terminate logging
concessions covering less than 20,000 hectares. If this is the case,
the Court is in a quandary why there were log exports in 1967?
Because of the foregoing, the Court does not find any valid ground
to sustain the seventh and eight causes of action of plaintiff's
complaint.
As regards the ninth cause of action, the Court is baffled why
plaintiff extended to defendants another loan when defendants
according to plaintiff's records were defaulting creditors? The
above facts and circumstances has (sic) convinced this Court to
give credit to the testimony of defendants' witnesses that the
Gonzales spouses signed the documents in question in blank and
that the promised loan was never released to them. There is
therefore a total absence of consent since defendants did not give
their consent to loans allegedly procured, the proceeds of which
were never received by the alleged debtors, defendants
herein. . . .
Plaintiff did not present evidence to support its tenth cause of
action. For this reason, it must consequently be denied for lack of
evidence.
33
 On the matter of [the] counterclaims of defendants, they seek the
return of the real and personal properties which they have given in
good faith to plaintiff. Again, prescription may apply. The real
properties of defendants acquired by plaintiff were foreclosed in 1965
and consequently, defendants had one (1) year to redeem the property
or ten (10) years from issuance of title on the ground that the
obligation foreclosed was fictitious.
xxx xxx xxx
On appeal,26 the Court of Appeals (CA) reversed the decision of the trial
court by Decision27 of June 28, 1996 which disposed as follows:28
WHEREFORE, premises considered, the appealed decision (dated April
22, 1992) of the Regional Trial Court (Branch 36) in Manila in Civil Case
No. 82-4141 is hereby REVERSED and let the case be remanded back
to the court a quo for the determination of the amount(s) to be awarded
to the [the Bank]-appellant relative to its claims against the appellees.
SO ORDERED.
With regard to the first to sixth causes of action, the CA upheld the
contention of the Bank that the notices of foreclosure sale were
"tantamount" to demand letters upon the petitioners which interrupted
the running of the prescriptive period.29
As regards the seventh to ninth causes of action, the CA also upheld the
contention of the Bank that the written agreements-promissory notes
prevail over the oral testimony of petitioner Quirino Gonzales that the
cancellation of their logging concession in 1967 made it unbelievable for
them to secure in 1967 the advances reflected in the promissory notes. 30
With respect to petitioners' counterclaim, the CA agreed with the Bank
that:31
Certainly, failure on the part of the trial court to pass upon and
determine the authenticity and genuineness of [the Bank's]
documentary evidence [the trial court having ruled on the basis of
prescription of the Bank's first to sixth causes of action] makes it
impossible for the trial court' to eventually conclude that the obligation
foreclosed (sic) was fictitious. Needless to say, the trial court's ruling
averses (sic) the well-entrenched rule that 'courts must render verdict
on their findings of facts." (China Banking Co. vs. CA, 70 SCRA 398)
Furthermore, the defendants-appellees' [herein petitioners']
counterclaim is basically an action for the reconveyance of their
properties, thus, the trial court's earlier ruling that the defendants-
appellees' counterclaim has prescribed is itself a ruling that the
defendants-appellees' separate action for reconveyance has also
prescribed.
The CA struck down the trial court's award of attorney's fees for lack of
legal basis.32
Hence, petitioners now press the following issues before this Court by the
present petition for review on certiorari:
1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING
THAT RESPONDENT-APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S]
FIRST, SECOND, THIRD, FOURTH, FIFTH AND SIXTH CAUSES OF ACTION
HAVE NOT PRESCRIBED CONTRARY TO THE FINDINGS OF THE LOWER
COURT, RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE
ALREADY PRESCRIBED.
2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING
THAT RESPODNENT-APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S]
SEVENTH, EIGHT AND NINTH CAUSES OF ACTION APPEARS (SIC.) TO BE
IMPRESSED WITH MERIT CONTRARY TO THE FINDINGS OF THE LOWER
COURT RTC BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID
GROUND TO SUSTAIN [THEM] AND FOR LACK OF EVIDENCE.
3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING
THE FINDINGS OF THE REGIONAL TRIAL COURT BRANCH 36 OF
MANILA THAT PETITIONERS-APPELLANT (SIC.) MAY SEEK THE
RETURN OF THE REAL AND PERSONAL PROPERTIES WHICH THEY
MAY HAVE GIVEN IN GOOD FAITH AS THE SAME IS BARRED BY
PRESCRIPTION AND THAT PETITIONERS-APPELLANT (SIC.) HAD ONE
(1) YEAR TO REDEEM THE PROPERTY OR TEN (10) YEARS FROM
ISSUANCE OF THE TITLE ON THE GROUND THAT THE OBLIGATION
FORECLOSED WAS FICTITIOUS.
4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING
THAT PEITIONERS-APPELLANTS [SIC] ARE NOT ENTITLED TO AN
AWARD OF ATTORNEY'S FEES.
The petition is partly meritorious.
On the first issue. The Civil Code provides that an action upon
written contract, an obligation created by law, and a judgment must
be brought within ten years from the time the right of action
accrues.33
The finding of the trial court that more than ten years had elapsed
since the right to bring an action on the Bank's first to sixth causes
had arisen34 is not disputed. The Bank contends, however, that "the
notices of foreclosure sale in the foreclosure proceedings of 1965 are
tantamount to formal demands upon petitioners for the payment of
their past due loan obligations with the Bank, hence, said notices of
foreclosure sale interrupted/forestalled the running of the
prescriptive period."35
The Bank's contention does not impress. Prescription of actions is
interrupted when they are filed before the court, when there is a
written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor. 36
The law specifically requires a written extrajudicial demand by the
creditors which is absent in the case at bar. The contention that the
notices of foreclosure are "tantamount" to a written extrajudicial
demand cannot be appreciated, the contents of said notices not
having been brought to light.
But even assuming arguendo that the notices interrupted the
running of the prescriptive period, the argument would still not lie for
the following reasons:
With respect to the first to the fifth causes of action, as gleaned from
the complaint, the Bank seeks the recovery of the deficient amount
of the obligation after the foreclosure of the mortgage. Such suit is in
the nature of a mortgage action because its purpose is precisely to
enforce the mortgage contract.37 A mortgage action prescribes after
ten years from the time the right of action accrued.38
The law gives the mortgagee the right to claim for the deficiency
resulting from the price obtained in the sale of the property at public
auction and the outstanding obligation at the time of the foreclosure
proceedings.39 In the present case, the Bank, as mortgagee, had the
right to claim payment of the deficiency after it had foreclosed the
mortgage in 1965.40 In other words, the prescriptive period started to
run against the Bank in 1965. As it filed the complaint only on
January 27, 1977, more than ten years had already elapsed, hence,
the action on its first to fifth causes had by then prescribed. No other
conclusion can be reached even if the suit is considered as one upon
a written contract or upon an obligation to pay the deficiency which
is created by law, 41 the prescriptive period of both being also ten
years.42
34
As regards the promissory note subject of the sixth cause of action, its
period of prescription could not have been interrupted by the notices of
foreclosure sale not only because, as earlier discussed, petitioners'
contention that the notices of foreclosure are tantamount to written
extra-judicial demand cannot be considered absent any showing of the
contents thereof, but also because it does not appear from the records
that the said note is covered by the mortgage contract.
Coming now to the second issue, petitioners seek to evade liability under
the Bank's seventh to ninth causes of action by claiming that petitioners
Quirino and Eufemia Gonzales signed the promissory notes in blank; that
they had not received the value of said notes, and that the credit line
thereon was unnecessary in view of their money deposits, they citing
"Exhibits 2 to 2-B,"43 in, and unremitted proceeds on log exports from, the
Bank. In support of their claim, they also urge this Court to look at
Exhibits "B" (the Bank's recommendation for approval of petitioners'
application for credit accommodations), "P" (the "Application and
Agreement for Commercial Letter of Credit" dated January 16, 1963) and
"T" (the "Application and Agreement for Commercial Letter of Credit"
dated February 14, 1963).
The genuineness and due execution of the notes had, however, been
deemed admitted by petitioners, they having failed to deny the same
under oath.44 Their claim that they signed the notes in blank does not
thus lie.
Petitioners' admission of the genuineness and due execution of the
promissory notes notwithstanding, they raise want of
consideration45 thereof. The promissory notes, however, appear to be
negotiable as they meet the requirements of Section 1 46 of the
Negotiable Instruments Law. Such being the case, the notes are prima
facie deemed to have been issued for consideration. 47 It bears noting that
no sufficient evidence was adduced by petitioners to show otherwise.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim
that the credit line on the notes was unnecessary because they had
deposits in, and remittances due from, the Bank deserve scant
consideration. Said exhibits are merely claims by petitioners under their
then proposals for
a possible settlement of the case dated February 3, 1978.
Parenthetically, the proposals were not even signed by petitioners but by
certain Attorneys Osmundo R. Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in
blank as Section 1448 of the Negotiable Instruments Law concedes
the prima facie authority of the person in possession of negotiable
instruments, such as the notes herein, to fill in the blanks.
As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed
to show the relevance thereof to the seventh up to the ninth causes of
action of the Bank.
On the third issue, petitioners asseverate that with the trial court's
dismissal of the Bank's complaint and the denial of its first to sixth
causes of action, it is but fair and just that the real properties which were
mortgaged and foreclosed be returned to them.49 Such, however, does
not lie. It is not disputed that the properties were foreclosed under Act
No. 3135 (An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages), as amended. Though
the Bank's action for deficiency is barred by prescription, nothing
irregular attended the foreclosure proceedings to warrant the
reconveyance of the properties covered thereby.
As for petitioners' prayer for moral and exemplary damages, it not having
been raised as issue before the courts below, it can not now be
considered. Neither can the award of attorney's fees for lack of legal
basis.
WHEREFORE, the CA Decision is hereby AFFIRMED with
MODIFICATION.
Republic Bank's Complaint with respect to its first to sixth causes of
action is hereby DISMISSED. Its complaint with respect to its seventh
to ninth causes of action is REMANDED to the court of origin, the
Manila Regional Trial Court, Branch 36, for it to determine the
amounts due the Bank thereunder.
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA), vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., vs. COURT OF APPEALS and CITIBANK, N.A.
and PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., vs. CITIBANK, N.A., PHILIPPINE
COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS,
These consolidated petitions involve several fraudulently negotiated
checks.
The original actions a quo were instituted by Ford Philippines to
recover from the drawee bank, CITIBANK, N.A. (Citibank) and
collecting bank, Philippine Commercial International Bank (PCIBank)
[formerly Insular Bank of Asia and America], the value of several
checks payable to the Commissioner of Internal Revenue, which
were embezzled allegedly by an organized syndicate.1wphi1.nt
G.R. Nos. 121413 and 121479 are twin petitions for review of the
March 27, 1995 Decision1 of the Court of Appeals in CA-G.R. CV No.
25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular
Bank of Asia and America (now Philipppine Commercial International
Bank), and the August 8, 1995 Resolution, 2 ordering the collecting
bank, Philippine Commercial International Bank, to pay the amount
of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October
15, 1996 Decision3 of the Court of Appeals and its March 5, 1997
Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs.
Citibank, N.A. and Philippine Commercial International Bank,"
affirming in toto the judgment of the trial court holding the
defendant drawee bank, Citibank, N.A., solely liable to pay the
amount of P12,163,298.10 as damages for the misapplied proceeds
of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the
Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its
Citibank Check No. SN-04867 in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as payment of
plaintiff;s percentage or manufacturer's sales taxes for the third
quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now
PCIBank) and was subsequently cleared at the Central Bank. Upon
presentment with the defendant Citibank, the proceeds of the
check was paid to IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never
paid to or received by the payee thereof, the Commissioner of
Internal Revenue.
35
As a consequence, upon demand of the Bureau and/or Commissioner
of Internal Revenue, the plaintiff was compelled to make a second
payment to the Bureau of Internal Revenue of its
percentage/manufacturers' sales taxes for the third quarter of 1977
and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the
transactions in question, plaintiff had been maintaining a checking
account with defendant Citibank; that Citibank Check No. SN-04867
which was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed check in that, on its
face were two parallel lines and written in between said lines was the
phrase "Payee's Account Only"; and that defendant Citibank paid the
full face value of the check in the amount of P4,746,114.41 to the
defendant IBAA.
It has been duly established that for the payment of plaintiff's
percentage tax for the last quarter of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt No. 18747002, dated October 20,
1977, designating therein in Muntinlupa, Metro Manila, as the
authorized agent bank of Metrobanl, Alabang branch to receive the tax
payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867,
together with the Revenue Tax Receipt No. 18747002, was deposited
with defendant IBAA, through its Ermita Branch. The latter accepted
the check and sent it to the Central Clearing House for clearing on the
samd day, with the indorsement at the back "all prior indorsements
and/or lack of indorsements guaranteed." Thereafter, defendant IBAA
presented the check for payment to defendant Citibank on same date,
December 19, 1977, and the latter paid the face value of the check in
the amount of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff's account with the defendant
Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-
04867 in the amount of P4,746,114.41 was not paid to the
Commissioner of Internal Revenue. Hence, in separate letters dated
October 26, 1979, addressed to the defendants, the plaintiff notified
the latter that in case it will be re-assessed by the BIR for the payment
of the taxes covered by the said checks, then plaintiff shall hold the
defendants liable for reimbursement of the face value of the same.
Both defendants denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of
Internal Revenue addressed to the plaintiff - supposed to be Exhibit
"D", the latter was officially informed, among others, that its check in
the amount of P4, 746,114.41 was not paid to the government or its
authorized agent and instead encashed by unauthorized persons,
hence, plaintiff has to pay the said amount within fifteen days from
receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on
March 11, 1982, paid to the Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of plaintiff's percentage tax for
the third quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the
payment it had made for the second time to the BIR of its percentage
taxes, plaintiff filed on January 20, 1983 its original complaint before
this Court.
On December 24, 1985, defendant IBAA was merged with the
Philippine Commercial International Bank (PCI Bank) with the latter as
the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's
Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in
due course"; it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that "all prior
indorsements and/or lack of indorsements guaranteed"; and the
proximate cause of plaintiff's injury is the gross negligence of
defendant IBAA in indorsing the plaintiff's Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of
plaintiff's Citibank Check No. SN-048867 was paid to defendant
IBAA as collecting bank, plaintiff was maintaining a checking
account with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by
the National Bureau of Investigation (NBI) revealed that Citibank
Check No. SN-04867 was recalled by Godofredo Rivera, the General
Ledger Accountant of Ford. He purportedly needed to hold back the
check because there was an error in the computation of the tax due
to the Bureau of Internal Revenue (BIR). With Rivera's instruction,
PCIBank replaced the check with two of its own Manager's Checks
(MCs). Alleged members of a syndicate later deposited the two MCs
with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial
court impleading Pacific Banking Corporation (PBC) and Godofredo
Rivera, as third party defendants. But the court dismissed the
complaint against PBC for lack of cause of action. The course
likewise dismissed the third-party complaint against Godofredo
Rivera because he could not be served with summons as the NBI
declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank),
jointly and severally, to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's Citibank
Check No. SN-04867, with interest thereon at the legal rate
starting January 20, 1983, the date when the original complaint
was filed until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim: ordering the cross-
defendant IBAA (now PCI Bank) to reimburse defendant Citibank
for whatever amount the latter has paid or may pay to the plaintiff
in accordance with next preceding paragraph;
"3. The counterclaims asserted by the defendants against the
plaintiff, as well as that asserted by the cross-defendant against
the cross-claimant are dismissed, for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and
PCIBank, elevated their respective petitions for review on certiorari
to the Courts of Appeals. On March 27, 1995, the appellate court
issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the
appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as
defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff
the amount of P4,746,114.41 representing the face value of
plaintiff's Citibank Check No. SN-04867, with interest thereon at
the legal rate starting January 20, 1983, the date when the original
complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants
against the plaintiff as well as that asserted by the cross-
defendant against the cross-claimant, for lack of merits.
36
 Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of
Appeals, while Ford filed a "Motion for Partial Reconsideration." Both
motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review
by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and
resolution of the Twelfth Division of the Court of Appeals contending that
it merely acted on the instruction of Ford and such casue of action had
already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner
acted on the check drawn by respondent Ford on the said respondent's
instructions, it nevertheless found the petitioner liable to the said
respondent for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in favor
of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479,
questioning the same decision and resolution of the Court of Appeals,
and praying for the reinstatement in toto of the decision of the trial court
which found both PCIBank and Citibank jointly and severally liable for the
loss.
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as
the drawer of the subject check and a depositor of respondent
Citibank, an absolute and contractual duty to pay the proceeds of
the subject check only to the payee thereof, the Commissioner of
Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with
respect to the subject check, which was crossed and payable to
"Payee's Account Only."
3. Respondent Citibank raises an issue for the first time on appeal;
thus the same should not be considered by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross
negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the
proceeds of the subject check to a person other than the payee
named therein, the Commissioner of the Bureau of Internal Revenue;
thus, PCIBank's only obligation is to deliver the proceeds to the
Commissioner of the Bureau of Internal Revenue. 10
2. PCIBank which affixed its indorsement on the subject check ("All
prior indorsement and/or lack of indorsement guaranteed"), is liable
as collecting bank.11
3. PCIBank is barred from raising issues of fact in the instant
proceedings.12
4. Petitioner Ford's cause of action had not prescribed. 13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks
intended, this time, to settle Ford's percentage taxes appertaining to
the second quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the
amount of P5,851,706.37 representing the percentage tax due for
the second quarter of 1978 payable to the Commissioner of Internal
Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for
the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508
in the amount of P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and payable to the
Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt
No. A-1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on
its upper corner between, which were written the words "payable to
the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated
February 28, 1980, the BIR, Region 4-B, demanded for the said tax
payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax
Receipts were considered "fake and spurious". This anomaly was
confirmed by the NBI upon the initiative of the BIR. The findings
forced Ford to pay the BIR a new, while an action was filed against
Citibank and PCIBank for the recovery of the amount of Citibank
Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case,
made its findings on the modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff
FORD as its General Ledger Accountant. As such, he prepared the
plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for
payment to the BIR. Instead, however, fo delivering the same of
the payee, he passed on the check to a co-conspirator named
Remberto Castro who was a pro-manager of the San Andres
Branch of PCIB.* In connivance with one Winston Dulay, Castro
himself subsequently opened a Checking Account in the name of a
fictitious person denominated as 'Reynaldo reyes' in the Meralco
Branch of PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro
deposited a worthless Bank of America Check in exactly the same
amount as the first FORD check (Exh. "A", P5,851,706.37) while
this worthless check was coursed through PCIB's main office
enroute to the Central Bank for clearing, replaced this worthless
check with FORD's Exhibit 'A' and accordingly tampered the
accompanying documents to cover the replacement. As a result,
Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious
deposit account of 'Reynaldo Reyes' was credited at the PCIB
Meralco Branch with the total amount of the FORD check Exhibit
'A'. The same method was again utilized by the syndicate in
profiting from Exh. 'B' [Citibank Check No. SN-16508] which was
subsequently pilfered by Alexis Marindo, Rivera's Assistant at
FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks
distributing the sahres of the other participating conspirators
namely (1) CRISANTO BERNABE, the mastermind who formulated
the method for the embezzlement; (2) RODOLFO R. DE LEON a
customs broker who negotiated the initial contact between
37
 Bernabe, FORD's Godofredo Rivera and PCIB's Remberto Castro; (3)
JUAN VASTILLO who assisted de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD's accountant who passed on the first
check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-
manager at San Andres who performed the switching of checks in the
clearing process and opened the fictitious Reynaldo Reyes account at
the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant
Manager at its Meralco Branch, who assisted Castro in switching the
checks in the clearing process and facilitated the opening of the
fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's
Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8)
ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and
spurious revenue tax receipts to make it appear that the BIR had
received FORD's tax payments.
Several other persons and entities were utilized by the syndicate as
conduits in the disbursements of the proceeds of the two checks, but
like the aforementioned participants in the conspiracy, have not been
impleaded in the present case. The manner by which the said funds
were distributed among them are traceable from the record of checks
drawn against the original "Reynaldo Reyes" account and indubitably
identify the parties who illegally benefited therefrom and readily
indicate in what amounts they did so." 14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held
drawee-bank, Citibank, liable for the value of the two checks while
adsolving PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant
CITIBANK to reimburse plaintiff FORD the total amount of
P12,163,298.10 prayed for in its complaint, with 6% interest thereon
from date of first written demand until full payment, plus P300,000.00
attorney's fees and expenses litigation, and to pay the defendant, PCIB
(on its counterclaim to crossclaim) the sum of P300,000.00 as
attorney's fees and costs of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which
affirmed, in toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion
of the Court of Appeals decision and its resolution dated March 5, 1997,
with respect to the dismissal of the complaint against PCIBank and
holding Citibank solely responsible for the proceeds of Citibank Check
Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73
respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint
against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise
the diligence required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in
the selection and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the
loss or damage resulting to the plaintiff Ford as a consequence of the
substitution of the check consistent with Section 5 of Central Bank
Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or
negotiate in due course the subject checks, it is liable, under Article
2154 of the Civil Code, to return the money which it admits having
received, and which was credited to it its Central bank account. 16
The main issue presented for our consideration by these petitions could
be simplified as follows: Has petitioner Ford the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of
the checks intended as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee
bank, but the title of the person negotiating the same was allegedly
defective because the instrument was obtained by fraud and
unlawful means, and the proceeds of the checks were not remitted
to the payee. It was established that instead of paying the checks to
the CIR, for the settlement of the approprite quarterly percentage
taxes of Ford, the checks were diverted and encashed for the
eventual distribution among the mmbers of the syndicate. As to the
unlawful negotiation of the check the applicable law is Section 55 of
the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an
instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud,
duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under
such circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is
made by the perpetator in breach of faith amounting to fraud. The
person negotiating the checks must have gone beyond the authority
given by his principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up the
personal defense to escape liability and recover from other parties
who. Though their own negligence, alowed the commission of the
crime.
In this case, we note that the direct perpetrators of the offense,
namely the embezzlers belonging to a syndicate, are now fugitives
from justice. They have, even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left only with the
task of determining who of the present parties before us must bear
the burden of loss of these millions. It all boils down to thequestion
of liability based on the degree of negligence among the parties
concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty
of the "imputed contributory negligence" that would defeat its claim
for reimbursement, bearing ing mind that its employees, Godofredo
Rivera and Alexis Marindo, were among the members of the
syndicate.
Citibank points out that Ford allowed its very own employee,
Godofredo Rivera, to negotiate the checks to his co-conspirators,
instead of delivering them to the designated authorized collecting
bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the
fact that Ford was remiss in the supervision and control of its own
employees, inasmuch as it only discovered the syndicate's activities
through the information given by the payee of the checks after an
unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized
Godofredo Rivera to divert the proceeds of Citibank Check No. SN-
04867, instead of using it to pay the BIR. As to the subsequent run-
around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank
claims that the proximate cause of the damge to Ford lies in its own
officers and employees who carried out the fradulent schemes and
the transactions. These circumstances were not checked by other
officers of the company including its comptroller or internal auditor.
PCIBank contends that the inaction of Ford despite the enormity of
the amount involved was a sheer negligence and stated that, as
between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible, by
his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its
duties. It avers that there was no evidence presented before the trial
court showing lack of diligence on the part of Ford. And, citing the
case of Gempesaw vs. Court of Appeals, 17 Ford argues that even if
38
there was a finding therein that the drawer was negligent, the drawee
bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to
make any representation in its behalf, specifically, to divert the proceeds
of the checks. It adds that Citibank raised the issue of imputed
negligence against Ford for the first time on appeal. Thus, it should not
be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of
employer in a master-servant relationship is instructive. Since a master
may be held for his servant's wrongful act, the law imputes to the master
the act of the servant, and if that act is negligent or wrongful and
proximately results in injury to a third person, the negligence or wrongful
conduct is the negligence or wrongful conduct of the master, for which he
is liable.18 The general rule is that if the master is injured by the
negligence of a third person and by the concuring contributory
negligence of his own servant or agent, the latter's negligence is imputed
to his superior and will defeat the superior's action against the third
person, asuming, of course that the contributory negligence was
the proximate cause of the injury of which complaint is made.19
Accordingly, we need to determine whether or not the action of
Godofredo Rivera, Ford's General Ledger Accountant, and/or Alexis
Marindo, his assistant, was the proximate cause of the loss or damage.
AS defined, proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause produces the
injury and without the result would not have occurred. 20
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not
the proximate cause of encashing the checks payable to the CIR. The
degree of Ford's negligence, if any, could not be characterized as the
proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of
Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was
not in theordinary course of business which could have prompted
PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it
was established that these checks were made payable to the CIR. Both
were crossed checks. These checks were apparently turned around by
Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was
committed by a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for perpertrating the fraud and
imposing the forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of some circumstance
raising estoppel against the drawer. 21 This rule likewise applies to the
checks fraudulently negotiated or diverted by the confidential employees
who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three
checks involved, separately, the trial courts found variations between the
negotiation of Citibank Check No. SN-04867 and the misapplication of
total proceeds of Checks SN-10597 and 16508. Therefore, we have to
scrutinize, separately, PCIBank's share of negligence when the syndicate
achieved its ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its
Ermita Branch. It was coursed through the ordinary banking transaction,
sent to Central Clearing with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed," and was
presented to Citibank for payment. Thereafter PCIBank, instead of
remitting the proceeds to the CIR, prepared two of its Manager's checks
and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to
negotiate the checks. The neglect of PCIBank employees to verify
whether his letter requesting for the replacement of the Citibank
Check No. SN-04867 was duly authorized, showed lack of care and
prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect
the payment of taxpayers in behalf of the BIR. As an agent of BIR,
PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent. As aptly
stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA
[now PCIBank], which claimed to be a depository/collecting bank of
BIR, it has the responsibility to make sure that the check in
question is deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check), defendant IBAA
should receive instructions only from its principal BIR and not from
any other person especially so when that person is not known to
the defendant. It is very imprudent on the part of the defendant
IBAA to just rely on the alleged telephone call of the one
Godofredo Rivera and in his signature considering that the plaintiff
is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or
holder of commercial paper and the bank to which it is sent for
collection is, in the absence of an argreement to the contrary, that of
principal and agent.22 A bank which receives such paper for
collection is the agent of the payee or holder.23
Even considering arguendo, that the diversion of the amount of a
check payable to the collecting bank in behalf of the designated
payee may be allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the diversion can be
justified only by proof of authority from the drawer, or that the
drawer has clothed his agent with apparent authority to receive the
proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at
the back of the questioned checks stating that ALL PRIOR
INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED
should render PCIBank liable because it made it pass through the
clearing house and therefore Citibank had no other option but to pay
it. Thus, Citibank had no other option but to pay it. Thus, Citibank
assets that the proximate cause of Ford's injury is the gross
negligence of PCIBank. Since the questione dcrossed check was
deposited with PCIBank, which claimed to be a depository/collecting
bank of the BIR, it had the responsibility to make sure that the check
in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account
Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of the collecting bank PCIBank
to ascertain that the check be deposited in payee's account only.
Therefore, it is the collecting bank (PCIBank) which is bound to
scruninize the check and to know its depositors before it could make
the clearing indorsement "all prior indorsements and/or lack of
indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking
Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full
accord with the ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the
defendant made an express guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the checks are the
defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
39
 LACK OF ENDORSEMENTS GUARANTEED. Without such warranty,
plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of
defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the
falsity of its representation." 25
Lastly, banking business requires that the one who first cashes and
negotiates the check must take some percautions to learn whether or not
it is genuine. And if the one cashing the check through indifference or
othe circumstance assists the forger in committing the fraud, he should
not be permitted to retain the proceeds of the check from the drawee
whose sole fault was that it did not discover the forgery or the defect in
the title of the person negotiating the instrument before paying the
check. For this reason, a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were afterwards
diverted to the hands of a third party. In such cases the drawee bank has
a right to believe that the cashing bank (or the collecting bank) had, by
the usual proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which had
been forged or diverted and in turn received payment thereon from the
drawee, is guilty of negligence which proximately contributed to the
success of the fraud practiced on the drawee bank. The latter may
recover from the holder the money paid on the check.26
Having established that the collecting bank's negligence is the proximate
cause of the loss, we conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check No. SN-04867.
A bank holding out its officers and agents as worthy of confidence
will not be permitted to profit by the frauds these officers or agents
were enabled to perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank
therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within
the course and apparent scope of his employment or authority. 29 And
if an officer or employee of a bank, in his official capacity, receives
money to satisfy an evidence of indebetedness lodged with his bank
for collection, the bank is liable for his misappropriation of such
sum.30
Moreover, as correctly pointed out by Ford, Section 5 31 of Central
Bank Circular No. 580, Series of 1977 provides that any theft
affecting items in transit for clearing, shall be for the account of
sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on
PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was
likewise negligent in the performance of its duties. Citibank failed to
establish that its payment of Fords checks was made in due course
and legally in order. In its defense, Citibank claims the genuineness
and due execution of said checks, considering that Citibank (1) has
no knowledge of any infirmity in the issuance of the checks in
question (2) coupled by the fact that said checks were sufficiently
funded and (3) the endorsement of the Payee or lack thereof was
guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.

G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no
official act in the ordinary course of business that would attribute to it the
case of the embezzlement of Citibank Check Numbers SN-10597 and
16508, because PCIBank did not actually receive nor hold the two Ford
checks at all. The trial court held, thus:
For its part, Ford contends that Citibank as the drawee bank owes to
Ford an absolute and contractual duty to pay the proceeds of the
subject check only to the payee thereof, the CIR. Citing Section
6232 of the Negotiable Instruments Law, Ford argues that by
accepting the instrument, the acceptor which is Citibank engages
that it will pay according to the tenor of its acceptance, and that it
will pay only to the payee, (the CIR), considering the fact that here
the check was crossed with annotation "Payees Account Only."

"Neither is there any proof that defendant PCIBank contributed any

As ruled by the Court of Appeals, Citibank must likewise answer for
official or conscious participation in the process of the embezzlement.
the damages incurred by Ford on Citibank Checks Numbers SN
This Court is convinced that the switching operation (involving the
10597 and 16508, because of the contractual relationship existing
checks while in transit for "clearing") were the clandestine or hidden
between the two. Citibank, as the drawee bank breached its
actuations performed by the members of the syndicate in their own
contractual obligation with Ford and such degree of culpability
personl, covert and private capacity and done without the knowledge
contributed to the damage caused to the latter. On this score, we
of the defendant PCIBank"27
agree with the respondent court's ruling.

In this case, there was no evidence presented confirming the conscious

Citibank should have scrutinized Citibank Check Numbers SN 10597
participation of PCIBank in the embezzlement. As a general rule,
and 16508 before paying the amount of the proceeds thereof to the
however, a banking corporation is liable for the wrongful or tortuous acts
collecting bank of the BIR. One thing is clear from the record: the
and declarations of its officers or agents within the course and scope of
clearing stamps at the back of Citibank Check Nos. SN 10597 and
their employment.28 A bank will be held liable for the negligence of its
16508 do not bear any initials. Citibank failed to notice and verify
officers or agents when acting within the course and scope of their
the absence of the clearing stamps. Had this been duly examined,
employment. It may be liable for the tortuous acts of its officers even as
the switching of the worthless checks to Citibank Check Nos. 10597
regards that species of tort of which malice is an essential element. In
and 16508 would have been discovered in time. For this reason,
this case, we find a situation where the PCIBank appears also to be the
Citibank had indeed failed to perform what was incumbent upon it,
victim of the scheme hatched by a syndicate in which its own
which is to ensure that the amount of the checks should be paid only
management employees had participated.
to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, constitutes
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, negligence in carrying out the bank's duty to its depositors. The
received Citibank Check Numbers SN-10597 and 16508. He passed the point is that as a business affected with public interest and because
checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco of the nature of its functions, the bank is under obligation to treat
Branch, who helped Castro open a Checking account of a fictitious person the accounts of its depositors with meticulous care, always having in
named "Reynaldo Reyes." Castro deposited a worthless Bank of America mind the fiduciary nature of their relationship.33
Check in exactly the same amount of Ford checks. The syndicate
tampered with the checks and succeeded in replacing the worthless
Thus, invoking the doctrine of comparative negligence, we are of the
checks and the eventual encashment of Citibank Check Nos. SN 10597
view that both PCIBank and Citibank failed in their respective
and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator
obligations and both were negligent in the selection and supervision
Assistant Manager apparently performed their activities using facilities in
of their employees resulting in the encashment of Citibank Check
their official capacity or authority but for their personal and private gain
Nos. SN 10597 AND 16508. Thus, we are constrained to hold them
or benefit.
equally liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR.
40
Time and again, we have stressed that banking business is so impressed
with public interest where the trust and confidence of the public in
general is of paramount importance such that the appropriate standard
of diligence must be very high, if not the highest, degree of diligence. 34 A
bank's liability as obligor is not merely vicarious but primary, wherein the
defense of exercise of due diligence in the selection and supervision of its
employees is of no moment.35
Banks handle daily transactions involving millions of pesos. 36 By the very
nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of
ordinary clerks and employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their
employees.38
On the issue of prescription, PCIBank claims that the action of Ford had
prescribed because of its inability to seek judicial relief seasonably,
considering that the alleged negligent act took place prior to December
19, 1977 but the relief was sought only in 1983, or seven years
thereafter.
The statute of limitations begins to run when the bank gives the
depositor notice of the payment, which is ordinarily when the check is
returned to the alleged drawer as a voucher with a statement of his
account,39 and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing. 40
Our laws on the matter provide that the action upon a written contract
must be brought within ten year from the time the right of action
accrues.41 hence, the reckoning time for the prescriptive period begins
when the instrument was issued and the corresponding check was
returned by the bank to its depositor (normally a month thereafter).
Applying the same rule, the cause of action for the recovery of the
proceeds of Citibank Check No. SN 04867 would normally be a month
after December 19, 1977, when Citibank paid the face value of the check
in the amount of P4,746,114.41. Since the original complaint for the
cause of action was filed on January 20, 1984, barely six years had
lapsed. Thus, we conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was seasonably filed within the
period provided by law.
Finally, we also find that Ford is not completely blameless in its failure to
detect the fraud. Failure on the part of the depositor to examine its
passbook, statements of account, and cancelled checks and to give
notice within a reasonable time (or as required by statute) of any
discrepancy which it may in the exercise of due care and diligence find
therein, serves to mitigate the banks' liability by reducing the award of
interest from twelve percent (12%) to six percent (6%) per annum. As
provided in Article 1172 of the Civil Code of the Philippines, responsibility
arising from negligence in the performance of every kind of obligation is
also demandable, but such liability may be regulated by the courts,
according to the circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages that he may
recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank, know
formerly as Insular Bank of Asia and America, id declared solely
responsible for the loss of the proceeds of Citibank Check No SN 04867 in
the amount P4,746,114.41, which shall be paid together with six percent
(6%) interest thereon to Ford Philippines Inc. from the date when the
original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of Appeals in CA-G.R.
No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged
liable for and must share the loss, (concerning the proceeds of Citibank
Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-
fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the
complaint was filed until full payment of said amount.1wphi1.nt
Costs against Philippine Commercial International Bank and Citibank N.A.
[G.R. No. 152720. February 17, 2005]
SOLIDBANK CORPORATION, vs. Spouses TEODULFO and CARMEN
ARRIETA
A banks gross negligence in dishonoring a well-funded check,
aggravated by its unreasonable delay in repairing the error, calls for
an award of moral and exemplary damages. The resulting injury to
the check writers reputation and peace of mind needs to be
recognized and compensated.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of
Court, seeking to reverse and set aside the March 28, 2001
Decision[2] and the February 5, 2002 Resolution [3] of the Court of
Appeals (CA) in CA-GR CV No. 55002. The assailed Decision disposed
as follows:
WHEREFORE, the appeal is DISMISSED, with costs against
defendant-appellant.[4]
The CA denied reconsideration in its February 5, 2002
Resolution.
The Facts
The facts are summarized by the CA as follows:
Carmen Arrieta is a bank depositor of Solidbank Corporation under
Checking Account No. 123-1996. On March 1990, Carmen issued SBC
Check No. 0293984 (Exh. A) in the amount of P330.00 in the name of
Lopues Department Store in payment of her purchases from said
store. When the check was deposited by the store to its account, the
same was dishonored due to Account Closed (Exh. B) despite the
fact that at the time the check was presented for payment, Carmens
checking account was still active and backed up by a deposit
of P1,275.20.
As a consequence of the checks dishonor, Lopues Department Store
sent a demand letter to Carmen (Exh. C) threatening her with
criminal prosecution unless she redeemed the check within five (5)
days. To avoid criminal prosecution, Carmen paid P330.00 in cash to
the store, plus a surcharge of P33.00 for the bouncing check, or a
total of P363.00 (Exh. F).
Thereupon, Carmen filed a complaint against Solidbank Corporation
for damages alleging that the bank, by its carelessness and
recklessness in certifying that her account was closed despite the
fact that it was still very much active and sufficiently funded, had
destroyed her good name and reputation and prejudiced not only
herself but also her family in the form of mental anguish, sleepless
nights, wounded feelings and social humiliation. She prayed that she
be awarded moral and exemplary damages as well as attorneys fees.
In its answer, the bank claimed that Carmen, contrary to her
undertaking as a depositor, failed to maintain the required balance
of at least P1,000.00 on any day of the month. Moreover, she did not
handle her account in a manner satisfactory to the bank. In view of
her violations of the general terms and conditions governing the
establishment and operation of a current account, Carmens account
was recommended for closure. In any event, the bank claimed good
faith in declaring her account closed since one of the clerks, who
substituted for the regular clerk, committed an honest mistake when
he thought that the subject account was already closed when the
ledger containing the said account could not be found.
41
After trial, the lower court rendered its decision holding that Solidbank
Corporation was grossly negligent in failing to check whether or not
Carmens account was still open and viable at the time the transaction in
question was made. Hence, the bank was liable to Carmen for moral and
exemplary damages, as well as attorneys fees. It held that the bank was
remiss in its duty to treat Carmens account with the highest degree of
care, considering the fiduciary nature of their relationship. The dispositive
portion of the decision reads:
WHEREFORE, the Court hereby renders judgment in favor of the plaintiff
as against the defendant-bank, and defendant-bank is ordered to pay
moral damages of P150,000.00; exemplary damages of P50,000.00; and
attorneys fees of P20,000.00, plus costs.
SO ORDERED.[5]
Ruling of the Court of Appeals
The CA debunked the contention of the bank that the latter was not
liable. According to petitioner, the dishonor of the check by reason of
Account Closed was an honest mistake of its employee. The appellate
court held that the error committed by the bank employee was imputable
to the bank. Banks are obliged to treat the accounts of their depositors
with meticulous care, regardless of the amount of the deposit. Failing in
this duty, petitioner was found grossly negligent. The failure of the bank
to immediately notify Respondent Carmen Arrieta of its unilateral closure
of her account manifested bad faith, added the CA.
The appellate court likewise affirmed the award of moral damages.
It held that the banks wrongful act was the proximate cause of Carmens
moral suffering. The CA ruled that the lack of malice and bad faith on the
part of petitioner did not suffice to exculpate the latter from liability; the
banks gross negligence amounted to a wilful act. The trial courts award
of exemplary damages and attorneys fees was sustained in view of
respondents entitlement to moral damages.
Hence, this Petition.[6]
Issues
Petitioner raises the following issues for our consideration:
I. Whether or not x x x respondents are entitled to recovery of
moral and exemplary damages and attorneys fees.
II. Whether or not the award of moral and exemplary damages and
attorneys fees is excessive, arbitrary and contrary to prevailing
jurisprudence.[7]
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Petitioners Liability for Damages
Petitioner contends that the award of moral damages was erroneous
because of the failure of Respondent Carmen to establish that the
dishonor of Check No. 0293984 on March 30, 1990 was the direct and
only cause of the social humiliation, extreme mental anguish, sleepless
nights, and wounded feelings suffered by [her]. It referred to an occasion
fifteen days before, on March 15, 1990, during which another check
(Check No. 0293983) she had issued had likewise been dishonored.
According to petitioner, highly illogical was her claim that
extreme mental anguish and social humiliation resulted from the
dishonor of Check No. 0293984, as she claimed none from that of
her prior Check No. 0293983, which had allegedly been deposited by
mistake by the payees wife. Given the circumstances, petitioner
adds that the dishonor of the check -- subject of the present case --
did not really cause respondent mental anguish, sleepless nights and
besmirched reputation; and that her institution of this case was
clearly motivated by opportunism.
We are not persuaded.
The fact that another check Carmen had issued was previously
dishonored does not necessarily imply that the dishonor of a
succeeding check can no longer cause moral injury and personal
hurt for which the aggrieved party may claim damages. Such prior
occurrence does not prove that respondent does not have a good
reputation that can be besmirched.[8]
The reasons for and the circumstances surrounding the previous
issuance and eventual dishonor of Check No. 0293983 are totally
separate -- the payee of the prior check was different -- from that of
Check No. 0293984, subject of present case. Carmen had issued the
earlier check to accommodate a relative,[9] and the succeeding one to
pay for goods purchased from Lopues Department Store. That she
might not have suffered damages as a result of the first dishonored
check does not necessarily hold true for the second. In the light of
sufficient evidence showing that she indeed suffered damages as a
result of the dishonor of Check No. 0293984, petitioner may not be
exonerated from liability.
Case law[10] lays out the following conditions for the award of
moral damages: (1) there is an injury -- whether physical, mental or
psychological -- clearly sustained by the claimant; (2) the culpable
act or omission is factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award of damages is
predicated on any of the cases stated in Article 2219 [11] of the Civil
Code.
In the instant case, all four requisites have been
established. First, these were the findings of the appellate court:
Carmen Arrieta is a bank depositor of Solidbank Corporation of long
standing. She works with the Central Negros Electric Cooperative,
Inc. (CENECO), as an executive secretary and later as department
secretary. She is a deaconess of the Christian Alliance Church in
Bacolod City. These are positions which no doubt elevate her social
standing in the community. Understandably -- and as sufficiently
proven by her testimony -- she suffered mental anguish, serious
anxiety, besmirched reputation, wounded feelings and social
humiliation; and she suffered thus when the people she worked with
-- her friends, her family and even her daughters classmates --
learned and talked about her bounced check.
Second, it is undisputed that the subject check was adequately
funded, but that petitioner wrongfully dishonored it.
Third, Respondent Carmen was able to prove that petitioners
wrongful dishonor of her check was the proximate cause of her
embarrassment and humiliation in her workplace, in her own home,
and in the church where she served as deaconess.
Proximate cause has been defined as any cause which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the result complained of and without
which would not have occurred x x x.[12] It is determined from the
facts of each case upon combined considerations of logic, common
sense, policy and precedent.[13] Clearly, had the bank accepted and
honored the check, Carmen would not have had to face the
42
questions of -- and explain her predicament to -- her office mates, her
daughters, and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial court in ruling
that her injury arose from the gross negligence of petitioner in
dishonoring her well-funded check.
Unanimity of the CA and the trial court in their factual
ascertainment of this point bars us from supplanting their finding and
substituting it with our own. Settled is the doctrine that the factual
determinations of the lower courts are conclusive and binding upon this
Court.[14] Verily, the review of cases brought before the Supreme Court
from the Court of Appeals is limited to errors of law. [15] None of the
recognized exceptions to this principle has been shown to exist.
Fourth, treating Carmens account as closed, merely because the
ledger could not be found was a reckless act that could not simply be
brushed off as an honest mistake. We have repeatedly emphasized that
the banking industry is impressed with public interest. Consequently, the
highest degree of diligence is expected, and high standards of integrity
and performance are even required of it. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its
relationship with them. [16]
Petitioners negligence here was so gross as to amount to a wilful
injury to Respondent Carmen. Article 21 of the Civil Code states that any
person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the
latter for the damage. Further, Article 2219 provides for the recovery of
moral damages for acts referred to in the aforementioned Article 21.
Hence, the bank is liable for moral damages to respondent. [17]
The foregoing notwithstanding, we find the sum of P150,000
awarded by the lower courts excessive. Moral damages are not intended
to enrich the complainant at the expense of the defendant. [18] Rather,
these are awarded only to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral suffering
that resulted by reason of the defendants culpable action. [19] The purpose
of such damages is essentially indemnity or reparation, not punishment
or correction.[20] In other words, the award thereof is aimed at a
restoration within the limits of the possible, of the spiritual status quo
ante;[21] therefore, it must always reasonably approximate the extent of
injury and be proportional to the wrong committed. [22]
Accordingly, the award of moral damages must be reduced
to P20,000,[23] an amount commensurate with the alleviation of the
suffering caused by the dishonored check that was issued for the amount
of P330.
The law allows the grant of exemplary damages to set an example
for the public good. [24] The business of a bank is affected with public
interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. [25] For this reason, the
bank should guard against injury attributable to negligence or bad faith
on its part.[26] The banking sector must at all times maintain a high level
of meticulousness. The grant of exemplary damages is justified [27] by the
initial carelessness of petitioner, aggravated by its lack of promptness in
repairing its error. It was only on August 30, 1990, or a period of five
months from the erroneous dishonor of the check, when it wrote Lopues
Department Store a letter acknowledging the banks mistake. [28] In our
view, however, the award of P50,000 is excessive and should accordingly
be reduced to P20,000.[29]
The award of attorneys fees in the amount of P20,000 is proper, for
respondents were compelled to litigate to protect their rights.[30]
WHEREFORE, the Petition is PARTLY GRANTED and the
assailed Decision MODIFIED. Petitioners are ORDERED to pay
respondents P20,000 as moral damages, P20,000 as exemplary
damages, and P20,000 as attorneys fees.
G.R. No. 167330 September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., vs. COMMISSIONER OF
INTERNAL REVENUE,
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health
of the people and instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make
essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The
State shall endeavor to provide free medical care to paupers.[
For resolution are a motion for reconsideration and supplemental
motion for reconsideration dated July 10, 2008 and July 14, 2008,
respectively, filed by petitioner Philippine Health Care Providers, Inc.
[2]
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is [t]o
establish, maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance organization to
take care of the sick and disabled persons enrolled in the health care
plan and to provide for the administrative, legal, and financial
responsibilities of the organization. Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services
provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health
delivery system at a hospital or clinic owned, operated or accredited
by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue
[CIR] sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and
1997 in the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was
imposed on petitioners health care agreement with the members
of its health care program pursuant to Section 185 of the 1997 Tax
Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February
23, 2000. As respondent did not act on the protest, petitioner filed
a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive
portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to
PAY the deficiency VAT amounting to P22,054,831.75 inclusive of
43
 25% surcharge plus 20% interest from January 20, 1997 until fully paid
for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until fully paid for
the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED
AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the
said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)]
insofar as it cancelled the DST assessment. He claimed that petitioners
health care agreement was a contract of insurance subject to DST
under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that
petitioners health care agreement was in the nature of a non-life
insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the
Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment and ordered
petitioner to desist from collecting the same is REVERSED and SET
ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996
and 1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence,
petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and
affirmed the CAs decision. We held that petitioners health care
agreement during the pertinent period was in the nature of non-life
insurance which is a contract of indemnity, citing Blue Cross Healthcare,
Inc. v. Olivares[3] and Philamcare Health Systems, Inc. v. CA.[4] We also
ruled that petitioners contention that it is a health maintenance
organization (HMO) and not an insurance company is irrelevant because
contracts between companies like petitioner and the beneficiaries under
their plans are treated as insurance contracts. Moreover, DST is not a tax
on the business transacted but an excise on the privilege, opportunity or
facility offered at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting
the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997
is imposed only on a company engaged in the business of fidelity bonds
and other insurance policies. Petitioner, as an HMO, is a service provider,
not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank,
affirmed in effect the CAs disposition that health care services are not in
the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items
subject to DST is clear, especially in the light of the amendments made in
the DST law in 2002.
(e) Assuming arguendo that petitioners agreements are contracts of
indemnity, they are not those contemplated under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health
insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase other branch of
insurance mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA [5] 9480 for
the taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.[6]
Oral arguments were held in Baguio City on April 22, 2009. The
parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time
that it availed of a tax amnesty under RA 9480[7] (also known as the
Tax Amnesty Act of 2007) by fully paying the amount
of P5,127,149.08 representing 5% of its net worth as of the year
ending December 31, 2005.[8]
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the
Securities and Exchange Commission on June 30, 1987.[9] It is
engaged in the dispensation of the following medical services to
individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health
problems, family planning counseling, consultation and advices on
diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations,
x-rays, urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other
remedial and therapeutic processes in the event of an injury or
sickness on the part of the enrolled member.[10]
Individuals enrolled in its health care program pay an annual
membership fee. Membership is on a year-to-year basis. The medical
services are dispensed to enrolled members in a hospital or clinic
owned, operated or accredited by petitioner, through physicians,
medical and dental practitioners under contract with it. It negotiates
with such health care practitioners regarding payment schemes,
financing and other procedures for the delivery of health
services. Except in cases of emergency, the professional services are
to be provided only by petitioner's physicians, i.e. those directly
employed by it[11] or whose services are contracted by it. [12] Petitioner
also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities
and general nursing care. [13] If and when a member avails of the
benefits under the agreement, petitioner pays the participating
physicians and other health care providers for the services rendered,
at pre-agreed rates.[14]
To avail of petitioners health care programs, the individual members
are required to sign and execute a standard health care agreement
embodying the terms and conditions for the provision of the health
care services. The same agreement contains the various health care
services that can be engaged by the enrolled member, i.e.,
preventive, diagnostic and curative medical services. Except for the
curative aspect of the medical service offered, the enrolled member
may actually make use of the health care services being offered by
petitioner at any time.
HEALTH MAINTENANCE ORGANIZATIONS ARE NOT ENGAGED IN THE
INSURANCE BUSINESS
We said in our June 12, 2008 decision that it is irrelevant that
petitioner is an HMO and not an insurer because its agreements are
treated as insurance contracts and the DST is not a tax on the
business but an excise on the privilege, opportunity or facility used
in the transaction of the business.[15]
Petitioner, however, submits that it is of critical importance to
characterize the business it is engaged in, that is, to determine
whether it is an HMO or an insurance company, as this distinction is
44
indispensable in turn to the issue of whether or not it is liable for DST on
its health care agreements.[16]
A second hard look at the relevant law and jurisprudence convinces the
Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of
1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On
all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance
of the duties of any office or position, for the doing or not doing of
anything therein specified, and on all obligations guaranteeing the
validity or legality of any bond or other obligations issued by any
province, city, municipality, or other public body or organization, and on
all obligations guaranteeing the title to any real estate, or guaranteeing
any mercantile credits, which may be made or renewed by any such
person, company or corporation, there shall be collected a documentary
stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or
fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause,
sentence, provision or part of a statute shall be considered surplusage or
superfluous, meaningless, void and insignificant. To this end, a
construction which renders every word operative is preferred over that
which makes some words idle and nugatory. [17] This principle is expressed
in the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute its every
word.[18]
From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must be
a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business
of accident, fidelity, employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or The National Health
Insurance Act of 1995), an HMO is an entity that provides, offers or
arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium.[19] The payments do not vary with
the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of
insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD [20] 1460 (otherwise known as the Insurance Code)
enumerates what constitutes doing an insurance business or transacting
an insurance business:
a) making or proposing to make, as insurer, any
insurance contract;
b) making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent
to any of the foregoing in a manner designed to evade the provisions of
this Code.
In the application of the provisions of this Code, the fact that no
profit is derived from the making of insurance contracts, agreements
or transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance
business.
Various courts in the United States, whose jurisprudence has a
persuasive effect on our decisions,[21] have determined that HMOs
are not in the insurance business. One test that they have applied is
whether the assumption of risk and indemnification of loss (which
are elements of an insurance business) are the principal object and
purpose of the organization or whether they are merely incidental to
its business. If these are the principal objectives, the business is that
of insurance. But if they are merely incidental and service is the
principal purpose, then the business is not insurance.
Applying the principal object and purpose test, [22] there is significant
American case law supporting the argument that a corporation (such
as an HMO, whether or not organized for profit), whose main object
is to provide the members of a group with health services, is not
engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health
Association[23] wherein the Court of Appeals of the District of
Columbia Circuit held that Group Health Association should not be
considered as engaged in insurance activities since it was created
primarily for the distribution of health care services rather than the
assumption of insurance risk.
xxx Although Group Healths activities may be considered in one
aspect as creating security against loss from illness or accident more
truly they constitute the quantity purchase of well-rounded,
continuous medical service by its members. xxx The functions of
such an organization are not identical with those of
insurance or indemnity companies. The latter are concerned
primarily, if not exclusively, with risk and the consequences of its
descent, not with service, or its extension in kind, quantity or
distribution; with the unusual occurrence, not the daily routine of
living. Hazard is predominant. On the other hand, the
cooperative is concerned principally with getting service
rendered to its members and doing so at lower prices made
possible by quantity purchasing and economies in operation.
Its primary purpose is to reduce the cost rather than the risk
of medical care; to broaden the service to the individual in
kind and quantity; to enlarge the number receiving it; to
regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than
merely protecting against the financial loss caused by
extraordinary and unusual occurrences, such as death,
disaster at sea, fire and tornado. It is, in this instance, to take
care of colds, ordinary aches and pains, minor ills and all the
temporary bodily discomforts as well as the more serious and
unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the
bringing of physician and patient together, the preventive
features, the regularization of service as well as payment,
the substantial reduction in cost by quantity purchasing in
short, getting the medical job done and paid for; not, except
incidentally to these features, the indemnification for cost
after the services is rendered. Except the last, these are not
distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the
contingency that it be needed, and contracting merely to stand its
cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be
present should not outweigh all other factors. If attention is focused
only on that feature, the line between insurance or indemnity and
other types of legal arrangement and economic function becomes
faint, if not extinct. This is especially true when the contract is for
the sale of goods or services on contingency. But obviously it was not
45
the purpose of the insurance statutes to regulate all arrangements for
assumption or distribution of risk. That view would cause them to engulf
practically all contracts, particularly conditional sales and contingent
service agreements. The fallacy is in looking only at the risk
element, to the exclusion of all others present or their
subordination to it. The question turns, not on whether risk is
involved or assumed, but on whether that or something else to
which it is related in the particular plan is its principal object
purpose.[24] (Emphasis supplied)
In California Physicians Service v. Garrison,[25] the California court felt
that, after scrutinizing the plan of operation as a whole of the
corporation, it was service rather than indemnity which stood as its
principal purpose.
There is another and more compelling reason for holding that the service
is not engaged in the insurance business. Absence or presence of
assumption of risk or peril is not the sole test to be applied in
determining its status. The question, more broadly, is whether,
looking at the plan of operation as a whole, service rather than
indemnity is its principal object and purpose.Certainly the objects
and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social
service. Probably there is no more impelling need than that of
adequate medical care on a voluntary, low-cost basis for persons
of small income. The medical profession unitedly is endeavoring
to meet that need. Unquestionably this is service of a high order
and not indemnity.[26] (Emphasis supplied)
American courts have pointed out that the main difference between an
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and
Blue Shield of New Jersey[27] is clear on this point:
The basic distinction between medical service corporations and ordinary
health and accident insurers is that the former undertake to provide
prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an
undertaking to provide physicians who will render services to subscribers
on a prepaid basis. Hence, if there are no physicians participating
in the medical service corporations plan, not only will the
subscribers be deprived of the protection which they might
reasonably have expected would be provided, but the
corporation will, in effect, be doing business solely as a health
and accident indemnity insurer without having qualified as such and
rendering itself subject to the more stringent financial requirements of
the General Insurance Laws.
A participating provider of health care services is one who agrees in
writing to render health care services to or for persons covered by a
contract issued by health service corporation in return for which the
health service corporation agrees to make payment directly to
the participating provider.[28] (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override
the primary purpose of the business to provide medical services as
needed, with payment made directly to the provider of these services.
[29]
In short, even if petitioner assumes the risk of paying the cost of these
services even if significantly more than what the member has prepaid, it
nevertheless cannot be considered as being engaged in the insurance
business.
By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by non-participating health
providers would still be incidental to petitioners purpose of providing and
arranging for health care services and does not transform it into an
insurer. To fulfill its obligations to its members under the
agreements, petitioner is required to set up a system and the
facilities for the delivery of such medical services. This indubitably
shows that indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers
preventive and diagnostic medical services intended to keep
members from developing medical conditions or diseases.[30] As an
HMO, it is its obligation to maintain the good health of its
members. Accordingly, its health care programs are designed
to prevent or to minimize thepossibility of any assumption of
risk on its part. Thus, its undertaking under its agreements is not
to indemnify its members against any loss or damage arising from a
medical condition but, on the contrary, to provide the health and
medical services needed to prevent such loss or damage. [31]
Overall, petitioner appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these
are incidental to the principal activity of providing them medical
care. The insurance-like aspect of petitioners business is miniscule
compared to its noninsurance activities. Therefore, since it
substantially provides health care services rather than insurance
services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the principal purpose
test used in the above-quoted U.S. cases, we are not saying that
petitioners operations are identical in every respect to those of the
HMOs or health providers which were parties to those cases. What
we are stating is that, for the purpose of determining what doing an
insurance business means, we have to scrutinize the operations of
the business as a whole and not its mere components. This is of
course only prudent and appropriate, taking into account the
burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance
business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually
engaged in insurance activities.[32]
Lastly, it is significant that petitioner, as an HMO, is not part of the
insurance industry. This is evident from the fact that it is not
supervised by the Insurance Commission but by the Department of
Health.[33] In fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the
insurance business. This determination of the commissioner must be
accorded great weight. It is well-settled that the interpretation of an
administrative agency which is tasked to implement a statute is
accorded great respect and ordinarily controls the interpretation of
laws by the courts. The reason behind this rule was explained
in Nestle Philippines, Inc. v. Court of Appeals:[34]
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of
experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular
statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,
[35]
the Court stressed that executive officials are presumed to have
familiarized themselves with all the considerations pertinent to the
meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon.
The courts give much weight to the government agency officials
charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that
they frequently are the drafters of the law they interpret.[36]
A HEALTH CARE AGREEMENT IS NOT AN INSURANCE
CONTRACT CONTEMPLATED UNDER SECTION 185 OF THE
NIRC OF 1997
Section 185 states that DST is imposed on all policies of insurance or
obligations of the nature of indemnity for loss, damage, or liability. In
46
our decision dated June 12, 2008, we ruled that petitioners health care
agreements are contracts of indemnity and are therefore insurance
contracts:
It is incorrect to say that the health care agreement is not based on loss
or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including
physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent
event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from
liability by paying for expenses arising from the stipulated contingencies
belies its claim that its services are prepaid. The expenses to be incurred
by each member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for the costs of the
services even if they are significantly and substantially more than what
the member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing
a similar risk, that is, among all the other members of the health care
program. This is insurance.[37]
We reconsider. We shall quote once again the pertinent portion of
Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance
policies. On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed
by any person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that
tax statutes are strictly construed against the taxing authority. [38] This is
because taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a portion
of their property for the support of the government. [39] Hence, tax laws
may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not
specifically provided.[40]
We are aware that, in Blue Cross and Philamcare, the Court pronounced
that a health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. However, those cases did not involve
the interpretation of a tax provision. Instead, they dealt with the liability
of a health service provider to a member under the terms of their health
care agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this
reason, we reconsider our ruling that Blue Cross and Philamcare are
applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing a
similar risk and
5. In consideration of the insurers promise, the insured pays a
premium.[41]
Do the agreements between petitioner and its members possess all
these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has
pointed out that, even if a contract contains all the elements of an
insurance contract, if its primary purpose is the rendering of service,
it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all
the four elements mentioned above would be an insurance
contract. The primary purpose of the parties in making the
contract may negate the existence of an insurance contract.
For example, a law firm which enters into contracts with clients
whereby in consideration of periodical payments, it promises to
represent such clients in all suits for or against them, is not engaged
in the insurance business. Its contracts are simply for the purpose of
rendering personal services. On the other hand, a contract by which
a corporation, in consideration of a stipulated amount, agrees at its
own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed
as engaged in the business of insurance. Unlike the lawyers retainer
contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage
resulting from the defense of actions for malpractice. [42] (Emphasis
supplied)
Second. Not all the necessary elements of a contract of insurance
are present in petitioners agreements. To begin with, there is no loss,
damage or liability on the part of the member that should be
indemnified by petitioner as an HMO. Under the agreement, the
member pays petitioner a predetermined consideration in exchange
for the hospital, medical and professional services rendered by the
petitioners physician or affiliated physician to him. In case of
availment by a member of the benefits under the
agreement, petitioner does not reimburse or indemnify the member
as the latter does not pay any third party. Instead, it is the petitioner
who pays the participating physicians and other health care
providers for the services rendered at pre-agreed rates. The member
does not make any such payment.
In other words, there is nothing in petitioner's agreements that
gives rise to a monetary liability on the part of the member to any
third party-provider of medical services which might in turn
necessitate indemnification from petitioner. The terms indemnify or
indemnity presuppose that a liability or claim has already been
incurred. There is no indemnity precisely because the member
merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage
of the bulk of the benefits anytime, e.g. laboratory services, x-ray,
routine annual physical examination and consultations, vaccine
administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the
member who receives care from a non-participating physician or
hospital. However, this is only a very minor part of the list of services
available. The assumption of the expense by petitioner is not
confined to the happening of a contingency but includes incidents
even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care
Program, Inc.,[43] although the health care contracts called for the
defendant to partially reimburse a subscriber for treatment received
47
from a non-designated doctor, this did not make defendant an insurer.
Citing Jordan, the Court determined that the primary activity of the
defendant (was) the provision of podiatric services to subscribers in
consideration of prepayment for such services. [44] Since indemnity of the
insured was not the focal point of the agreement but the extension of
medical services to the member at an affordable cost, it did not partake
of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is
not necessarily true that risk alone is sufficient to establish it. Almost
anyone who undertakes a contractual obligation always bears a certain
degree of financial risk. Consequently, there is a need to distinguish
prepaid service contracts (like those of petitioner) from the usual
insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers
to provide health services: the risk that it might fail to earn a reasonable
return on its investment. But it is not the risk of the type peculiar only to
insurance companies. Insurance risk, also known as actuarial risk, is the
risk that the cost of insurance claims might be higher than the premiums
paid. The amount of premium is calculated on the basis of assumptions
made relative to the insured.[45]
However, assuming that petitioners commitment to provide medical
services to its members can be construed as an acceptance of the risk
that it will shell out more than the prepaid fees, it still will not qualify as
an insurance contract because petitioners objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members
leads us to conclude that it is not an insurance contract within the
context of our Insurance Code.
THERE WAS NO LEGISLATIVE INTENT TO IMPOSE DST ON HEALTH
CARE AGREEMENTS OF HMOS
Furthermore, militating in convincing fashion against the imposition of
DST on petitioners health care agreements under Section 185 of the NIRC
of 1997 is the provisions legislative history. The text of Section 185 came
into U.S. law as early as 1904 when HMOs and health care agreements
were not even in existence in this jurisdiction. It was imposed under
Section 116, Article XI of Act No. 1189 (otherwise known as the Internal
Revenue Law of 1904)[46] enacted on July 2, 1904 and became effective
on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of
1997 is a verbatim reproduction of the pertinent portion of Section 116,
to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect
to the several bonds, debentures, or certificates of stock and
indebtedness, and other documents, instruments, matters, and things
mentioned and described in this section, or for or in respect to the
vellum, parchment, or paper upon which such instrument, matters, or
things or any of them shall be written or printed by any person or
persons who shall make, sign, or issue the same, on and after January
first, nineteen hundred and five, the several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of
the nature of indemnity for loss, damage, or liability made or
renewed by any person, association, company, or corporation
transacting the business of accident, fidelity, employers liability,
plate glass, steam boiler, burglar, elevator, automatic sprinkle, or
other branch of insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914)
was enacted revising and consolidating the laws relating to internal
revenue. The aforecited pertinent portion of Section 116, Article XI of
Act No. 1189 was completely reproduced as Section 30 (l), Article III
of Act No. 2339. The very detailed and exclusive enumeration of
items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was
again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the
pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act
No. 466 (the NIRC of 1939), which codified all the internal revenue
laws of the Philippines. In an amendment introduced by RA 40 on
October 1, 1946, the DST rate was increased but the provision
remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST
rate was reproduced in PD 1158 (NIRC of 1977) as Section
234. Under PDs 1457 and 1959, enacted on June 11, 1978 and
October 10, 1984 respectively, the DST rate was again increased.
Effective January 1, 1986, pursuant to Section 45 of PD 1994,
Section 234 of the NIRC of 1977 was renumbered as Section 198.
And under Section 23 of EO[47] 273 dated July 25, 1987, it was again
renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended
but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977
by RA 8424 (or the NIRC of 1997), the subject legal provision was
retained as the present Section 185. In 2004, amendments to the
DST provisions were introduced by RA 9243[48] but Section 185 was
untouched.
On the other hand, the concept of an HMO was introduced in the
Philippines with the formation of Bancom Health Care Corporation in
1974. The same pioneer HMO was later reorganized and renamed
Integrated Health Care Services, Inc. (or Intercare). However, there
are those who claim that Health Maintenance, Inc. is the HMO
industry pioneer, having set foot in the Philippines as early as 1965
and having been formally incorporated in 1991. Afterwards, HMOs
proliferated quickly and currently, there are 36 registered HMOs with
a total enrollment of more than 2 million.[49]
We can clearly see from these two histories (of the DST on the one
hand and HMOs on the other) that when the law imposing the DST
was first passed, HMOs were yet unknown in the
Philippines. However, when the various amendments to the DST law
were enacted, they were already in existence in the Philippines and
the term had in fact already been defined by RA 7875. If it had been
the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It
had many opportunities to do so. But it did not. The fact that the
NIRC contained no specific provision on the DST liability of health
care agreements of HMOs at a time they were already known as
such, belies any legislative intent to impose it on them. As a matter
of fact, petitioner was assessed its DST liability only on
January 27, 2000, after more than a decade in the business
as an HMO.[50]
Considering that Section 185 did not change since 1904 (except for
the rate of tax), it would be safe to say that health care agreements
were never, at any time, recognized as insurance contracts or
deemed engaged in the business of insurance within the context of
the provision.
THE POWER TO TAX IS NOT THE POWER TO DESTROY
As a general rule, the power to tax is an incident of sovereignty and
is unlimited in its range, acknowledging in its very nature no limits,
48
so that security against its abuse is to be found only in the responsibility
of the legislature which imposes the tax on the constituency who is to
pay it.[51] So potent indeed is the power that it was once opined that the
power to tax involves the power to destroy. [52]
Petitioner claims that the assessed DST to date which amounts to P376
million[53] is way beyond its net worth of P259 million.[54] Respondent
never disputed these assertions.Given the realities on the ground,
imposing the DST on petitioner would be highly oppressive. It is not the
purpose of the government to throttle private business. On the contrary,
the government ought to encourage private enterprise.[55] Petitioner, just
like any concern organized for a lawful economic activity, has a right to
maintain a legitimate business.[56]As aptly held in Roxas, et al. v. CTA, et
al.:[57]
The power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the hen that lays the golden egg. [58]
Legitimate enterprises enjoy the constitutional protection not to be taxed
out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately
subversive of the nations thrust towards a better economy which will
ultimately benefit the majority of our people.[59]
PETITIONERS TAX LIABILITY WAS EXTINGUISHED UNDER THE
PROVISIONS OF RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment
for taxable years 1996 and 1997 became moot and academic [60] when it
availed of the tax amnesty under RA 9480 on December 10, 2007. It
paid P5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax
amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from
payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended,
arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years.[61]
Far from disagreeing with petitioner, respondent manifested in its
memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a
taxpayer to immunity from payment of the tax involved, including the
civil, criminal, or administrative penalties provided under the 1997
[NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without
conceding the merits of this case as discussed above, respondent
concedes that such tax amnesty extinguishes the tax liabilities
of petitioner. This admission, however, is not meant to preclude a
revocation of the amnesty granted in case it is found to have been
granted under circumstances amounting to tax fraud under Section 10 of
said amnesty law.[62] (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes
covered by the tax amnesty program under RA 9480. [63] There is no other
conclusion to draw than that petitioners liability for DST for the taxable
years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.
IS THE COURT BOUND BY A MINUTE RESOLUTION IN ANOTHER
CASE?
Petitioner raises another interesting issue in its motion for
reconsideration: whether this Court is bound by the ruling of the
CA[64] in CIR v. Philippine National Bank[65] that a health care agreement of
Philamcare Health Systems is not an insurance contract for purposes of
the DST.
In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680).[66] Petitioner argues that the dismissal of
G.R. No. 148680 by minute resolution was a judgment on the merits;
hence, the Court should apply the CA ruling there that a health care
agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our
dismissal of the petition was a disposition of the merits of the case.
When we dismissed the petition, we effectively affirmed the CA
ruling being questioned. As a result, our ruling in that case has
already become final.[67] When a minute resolution denies or
dismisses a petition for failure to comply with formal and substantive
requirements, the challenged decision, together with its findings of
fact and legal conclusions, are deemed sustained. [68] But what is its
effect on other cases?
With respect to the same subject matter and the same issues
concerning the same parties, it constitutes res judicata.[69] However,
if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding
precedent. Thus, in CIR v. Baier-Nickel,[70] the Court noted that a
previous case, CIR v. Baier-Nickel[71] involving the same parties
and the same issues, was previously disposed of by the Court thru
a minute resolution dated February 17, 2003 sustaining the ruling of
the CA. Nonetheless, the Court ruled that the previous case ha(d)
no bearing on the latter case because the two cases involved
different subject matters as they were concerned with the taxable
income of different taxable years.[72]
Besides, there are substantial, not simply formal, distinctions
between a minute resolution and a decision. The constitutional
requirement under the first paragraph of Section 14, Article VIII of
the Constitution that the facts and the law on which the judgment is
based must be expressed clearly and distinctly applies only to
decisions, not to minute resolutions. A minute resolution is signed
only by the clerk of court by authority of the justices, unlike a
decision. It does not require the certification of the Chief
Justice. Moreover, unlike decisions, minute resolutions are not
published in the Philippine Reports. Finally, the proviso of Section
4(3) of Article VIII speaks of a decision. [73] Indeed, as a rule, this
Court lays down doctrines or principles of law which constitute
binding precedent in a decision duly signed by the members of the
Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and
since petitioners liability for DST on its health care agreement was
not the subject matter of G.R. No. 148680, petitioner cannot
successfully invoke the minute resolution in that case (which is not
even binding precedent) in its favor. Nonetheless, in view of the
reasons already discussed, this does not detract in any way from the
fact that petitioners health care agreements are not subject to DST.
A FINAL NOTE
Taking into account that health care agreements are clearly not
within the ambit of Section 185 of the NIRC and there was never any
legislative intent to impose the same on HMOs like petitioner, the
same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need
for adequate medical services at a cost which the average wage
earner can afford. HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a more efficient
and inexpensive health care system made possible by quantity
purchasing of services and economies of scale. They offer
advantages over the pay-for-service system (wherein individuals are
charged a fee each time they receive medical services), including
the ability to control costs. They protect their members from
exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy.Accordingly, they
play an important role in society as partners of the State in achieving
its constitutional mandate of providing its citizens with affordable
health services.
49
 The rate of DST under Section 185 is equivalent to 12.5% of the
premium charged.[74] Its imposition will elevate the cost of health care
services. This will in turn necessitate an increase in the membership fees,
resulting in either placing health services beyond the reach of the
ordinary wage earner or driving the industry to the ground. At the end of
the day, neither side wins, considering the indispensability of the
services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August
16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency
DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA
TRINOS,
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a
health care coverage with petitioner Philamcare Health Systems, Inc. In
the standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver
disease, asthma or peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care
and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning
March 9, 1990. While her husband was in the hospital, respondent tried
to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the Health Care Agreement was
void. According to petitioner, there was a concealment regarding Ernanis
medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was constrained
to bring him back to the Chinese General Hospital where he died on the
same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-
53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in
favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of
P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of
suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial
court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioners motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an
insurance contract; hence the "incontestability clause" under the
Insurance Code6 does not apply.1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one
year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where
the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar
risk; and
5. In consideration of the insurers promise, the insured pays a
premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of
himself. Section 10 provides:
50
 Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or illness might
delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained
herein and in any addendum annexed to this application are full,
complete and true and bind all parties in interest under the Agreement
herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application
and the full Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed
Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing
in the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in or addition
to this application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has any
record or knowledge of my health and/or that of __________ to give to
the PhilamCare Health Systems, Inc. any and all information relative to
any hospitalization, consultation, treatment or any other medical
advice or examination. This authorization is in connection with the
application for health care coverage only. A photographic copy of this
authorization shall be as valid as the original. 12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material information by
the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare
shall be limited to return of all Membership Fees paid. An
undisclosed or misrepresented information is deemed material if
its revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondents
husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy
if there is no actual fraud in inducing the acceptance of the risk, or
its acceptance at a lower rate of premium, and this is likewise the
rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement, but
is obligated to make further inquiry. There is a clear distinction
between such a case and one in which the insured is fraudulently
and intentionally states to be true, as a matter of expectation or
belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract. 16 Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on
the contract.17 In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on
which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from
non-compliance with his obligation.19 Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer. 20 By
reason of the exclusive control of the insurance company over the
terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the
51
insured, especially to avoid forfeiture. 21 This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital
service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be strictly construed
against the provider.22
Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership of
the patient if he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment
or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the expenses.
It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the
attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED
G.R. No. 159590 October 18, 2004
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, vs.
CECILIA DIEZ CATALAN,
G.R. No. 159591 October 18, 2004
HSBC INTERNATIONAL TRUSTEE LIMITED vs. CECILIA DIEZ CATALAN,
Before us are two petitions for review on certiorari under Rule 45 of the
Rules of Court separately filed by the Hongkong and Shanghai Banking
Corporation Limited (HSBANK) and HSBC International Trustee Limited
(HSBC TRUSTEE). They seek the reversal of the consolidated
Decision,1 dated August 14, 2003, of the Court of Appeals (CA) in CA-G.R.
SP Nos. 75756 and 75757, which dismissed the petitions for certiorari of
herein petitioners assailing the Order, dated May 15, 2002, of the
Regional Trial Court, Branch 44, Bacolod City (RTC) in Civil Case No. 01-
11372 that denied their respective motions to dismiss the amended
complaint of respondent Cecilia Diez Catalan.
The factual antecedents are as follows:
On January 29, 2001, respondent filed before the RTC, a complaint for a
sum of money with damages against petitioner HSBANK, docketed as
Civil Case No. 01-11372, due to HSBANKs alleged wanton refusal to
pay her the value of five HSBANK checks issued by Frederick Arthur
Thomson (Thomson) amounting to HK$3,200,000.00. 2
On February 7, 2001, summons was served on HSBANK at the Enterprise
Center, Tower I, Ayala Avenue corner Paseo de Roxas St., Makati
City.3 HSBANK filed a Motion for Extension of Time to File Answer or
Motion to Dismiss dated February 21, 2001.4 Then, it filed a Motion to
Dismiss, dated March 8, 2001, on the grounds that (a) the RTC has no
jurisdiction over the subject matter of the complaint; (b) the RTC has not
acquired jurisdiction for failure of the plaintiff to pay the correct filing or
docket fees; (c) the RTC has no jurisdiction over the person of HSBANK;
(d) the complaint does not state a cause of action against HSBANK;
and (e) plaintiff engages in forum-shopping.5
On September 10, 2001, Catalan filed an Amended Complaint
impleading petitioner HSBC TRUSTEE as co-defendant and invoking
Article 19 of the Civil Code as basis for her cause of action. 6
The Amended Complaint alleges:
Defendants HSBANK and HSBC TRUSTEE, doing business in the
Philippines, are corporations duly organized under the laws of the
British Virgin Islands with head office at 1 Grenville Street, St.
Helier Jersey, Channel Islands and with branch offices at Level 12,
1 Queens Road Central, Hongkong and may be served with
summons and other court processes through their main office in
Manila with address at HSBC, the Enterprise Center, Tower 1, Ayala
Avenue corner Paseo de Roxas Street, Makati City.
Sometime in March 1997, Thomson issued five HSBANK checks
payable to Catalan, to wit:
CHECK NO. DATE AMOUNT
807852 Mar. 15, 1997 $600,000.00
807853 Mar. 17, 1997 800,000.00
807854 Mar. 17, 1997 600,000.00
807855 Mar. 22, 1997 600,000.00
807856 Mar. 23, 1997 600,000.00
TOTAL $3,200,000.00
The checks when deposited were returned by HSBANK purportedly
for reason of "payment stopped" pending confirmation, despite the
fact that the checks were duly funded. On March 18, 1997, Thomson
wrote a letter to a certain Ricky Sousa 7 of HSBANK confirming the
checks he issued to Catalan and requesting that all his checks be
cleared. On March 20, 1997, Thomson wrote another letter to Sousa
of HSBANK requesting an advice in writing to be sent to the
Philippine National Bank, through the fastest means, that the checks
he previously issued to Catalan were already cleared. Thereafter,
Catalan demanded that HSBANK make good the checks issued by
Thomson. On May 16, 1997, Marilou A. Lozada, personal secretary
and attorney-in-fact of Thomson, wrote a letter to Sousa of HSBANK
informing him that HSBANKs failure to clear all the checks had
saddened Thomson and requesting that the clearing of the checks
be facilitated. Subsequently, Thomson died and Catalan forwarded
her demand to HSBC TRUSTEE. Catalan sent photocopies of the
returned checks to HSBC TRUSTEE. Not satisfied, HSBC TRUSTEE
through deceit and trickery, required Catalan, as a condition for the
acceptance of the checks, to submit the original copies of the
returned checks, purportedly, to hasten payment of her claim. HSBC
TRUSTEE succeeded in its calculated deception because on April 21,
1999, Catalan and her former counsel went to Hongkong at their own
expense to personally deliver the originals of the returned checks to
the officers of HSBC TRUSTEE, anxious of receiving the money value
of the checks but HSBC TRUSTEE despite receipt of the original
checks, refused to pay Catalans claim. Having seen and received
the original of the checks, upon its request, HSBC TRUSTEE is
deemed to have impliedly accepted the checks. Moreover, the
refusal of HSBANK and HSBC TRUSTEE to pay the checks is
equivalent to illegal freezing of ones deposit. On the assurance of
HSBC TRUSTEE that her claim will soon be paid, as she was made to
believe that payments of the checks shall be made by HSBC
TRUSTEE "upon sight," the unsuspecting Catalan left the originals of
the checks with HSBC TRUSTEE and was given only an
acknowledgment receipt. Catalan made several demands and after
several more follow ups, on August 16, 1999, Phoenix Lam, Senior
Vice President of HSBC TRUSTEE, in obvious disregard of her valid
52
claim, informed Catalan that her claim is disapproved. No reason or
explanation whatsoever was made why her claim was disapproved,
neither were the checks returned to her. Catalan appealed for fairness
and understanding, in the hope that HSBC TRUSTEE would act fairly and
justly on her claim but these demands were met by a stonewall of
silence. On June 9, 2000, Catalan through counsel sent a last and final
demand to HSBC TRUSTEE to remit the amount covered by the checks
but despite receipt of said letter, no payment was made. Clearly, the act
of the HSBANK and HSBC TRUSTEE in refusing to honor and pay the
checks validly issued by Thomson violates the abuse of rights principle
under Article 19 of the Civil Code which requires that everyone must act
with justice, give everyone his due and observe honesty and good faith.
The refusal of HSBANK and HSBC TRUSTEE to pay the checks without any
valid reason is intended solely to prejudice and injure Catalan. When they
declined payment of the checks despite instructions of the drawer,
Thomson, to honor them, coupled with the fact that the checks were duly
funded, they acted in bad faith, thus causing damage to Catalan. A
person may not exercise his right unjustly or in a manner that is not in
keeping with honesty or good faith, otherwise he opens himself to liability
for abuse of right.8
Catalan prays that HSBANK and HSBC TRUSTEE be ordered to
pay P20,864,000.00 representing the value of the five checks at the rate
of P6.52 per HK$1 as of January 29, 2001 for the acts of HSBANK and
HSBC TRUSTEE in refusing to pay the amount justly due her, in addition
to moral and exemplary damages, attorneys fees and litigation
expenses.9
On October 2, 2001, HSBANK filed a Motion to Dismiss Amended
Complaint on the grounds that: (a) the RTC has no jurisdiction over the
subject matter of the complaint since the action is a money claim for a
debt contracted by Thomson before his death which should have been
filed in the estate or intestate proceedings of Thomson; (b) Catalan
engages in forum shopping by filing the suit and at the same time filing a
claim in the probate proceeding filed with another branch of the RTC; (c)
the amended complaint states no cause of action against HSBANK since
it has no obligation to pay the checks as it has not accepted the checks
and Catalan did not re-deposit the checks or make a formal protest; (d)
the RTC has not acquired jurisdiction over the person of HSBANK for
improper service of summons; and, (e) it did not submit to the
jurisdiction of the RTC by filing a motion for extension of time to file a
motion to dismiss.10
Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was
tendered to the In House Counsel of HSBANK (Makati Branch) at the
Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas, Makati.
Without submitting itself to the jurisdiction of the RTC, HSBC TRUSTEE
filed a Special Appearance for Motion to Dismiss Amended Complaint,
dated October 29, 2001, questioning the jurisdiction of the RTC over
it.11 HSBC TRUSTEE alleges that tender of summons through HSBANK
Makati did not confer upon the RTC jurisdiction over it because: (a) it is a
corporation separate and distinct from HSBANK; (b) it does not hold office
at the HSBANK Makati or in any other place in the Philippines; (c) it has
not authorized HSBANK Makati to receive summons for it; and, (d) it has
no resident agent upon whom summons may be served because it does
not transact business in the Philippines.
Subsequently, HSBC TRUSTEE filed a Submission, dated November 15,
2001, attaching the Affidavit executed in Hongkong by Phoenix Lam,
Senior Vice-President of HSBC TRUSTEE, attesting to the fact that: 1)
HSBC TRUSTEE has not done nor is it doing business in the Philippines; 2)
it does not maintain any office in Makati or anywhere in the Philippines;
3) it has not appointed any agent in Philippines; and 4) HSBANK Makati
has no authority to receive any summons or court processes for HSBC
TRUSTEE.12
On May 15, 2002, the RTC issued an Order denying the two motions to
dismiss.13 The RTC held that it has jurisdiction over the subject matter of
the action because it is an action for damages under Article 19 of the
Civil Code for the acts of unjustly refusing to honor the checks issued by
Thomson and not a money claim against the estate of Thomson; that
Catalan did not engage in forum-shopping because the elements thereof
are not attendant in the case; that the question of cause of action should
be threshed out or ventilated during the proceedings in the main action
and after the plaintiff and defendants have adduced evidence in their
favor; that it acquired jurisdiction over the person of defendants
because the question of whether a foreign corporation is doing
business or not in the Philippines cannot be a subject of a Motion to
Dismiss but should be ventilated in the trial on the merits; and
defendants voluntarily submitted to the jurisdiction of the RTC
setting up in their Motions to Dismiss other grounds aside from lack
of jurisdiction.
HSBANK and HSBC TRUSTEE filed separate motions for
reconsideration14 but both proved futile as they were denied by the
RTC in an Order dated December 20, 2002.15
On February 21, 2003, Catalan moved to declare HSBANK and HSBC
TRUSTEE in default for failure to file their answer to the amended
complaint.
On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate
petitions for certiorari and/or prohibition with the CA, docketed as
CA-G.R. SP Nos. 7575616 and 75757,17 respectively.
Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC
separate Answers ad cautelam, both dated March 18, 2003, as a
"precaution against being declared in default and without prejudice
to the separate petitions for certiorari and/or prohibition then
pending with the CA."18
Meanwhile, the two petitions for certiorari before the CA were
consolidated and after responsive pleadings were filed, the cases
were deemed submitted for decision.
In a consolidated Decision dated August 14, 2003, the CA dismissed
the two petitions for certiorari.19 The CA held that the filing of
petitioners answers before the RTC rendered moot and academic
the issue of the RTCs lack of jurisdiction over the person of the
petitioners; that the RTC has jurisdiction over the subject matter
since it is one for damages under Article 19 of the Civil Code for the
alleged unjust acts of petitioners and not a money claim against the
estate of Thomson; and, that the amended complaint states a cause
of action under Article 19 of the Civil Code which could merit a
favorable judgment if found to be true. The CA noted that Catalan
may have prayed for payment of the value of the checks but
ratiocinated that she merely used the value as basis for the
computation of the damages.
Hence, the present petitions.
In G.R. No. 159590, HSBANK submits the following assigned errors:
I. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
HOLDING THAT THE COURT A QUO, ACTING AS AN (SIC) REGULAR
COURT, HAS JURISDICTION OVER THE AMENDED COMPLAINT
SEEKING TO ORDER HSBC TRUSTEE, THE EXECUTOR OF THE
DECEASED FREDERICK ARTHUR THOMSON, TO PAY SUBJECT
CHECKS ISSUED BY THE LATE FREDERICK ARTHUR THOMSON,
ADMITTEDLY IN PAYMENT OF HIS INDEBTEDNESS TO CATALAN.
II. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
HOLDING THAT THE AMENDED COMPLAINT DOES NOT SEEK TO
ORDER HSBANK AND HSBC INTERNATIONAL TRUSTEE LIMITED TO
PAY THE OBLIGATION OF THE (SIC) FREDERICK ARTHUR THOMSON
AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR DAMAGES
EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OF THE
CHECKS BECAUSE THE DEFENDANTS FAILED TO COMPLY WITH THE
MANDATES OF ARTICLE 19 OF THE NEW CIVIL CODE.
III. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
HOLDING THAT ALLEGATIONS IN THE AMENDED COMPLAINT MAKE
OUT A CAUSE OF ACTION WHICH COULD MERIT A FAVORABLE
JUDGMENT IF FOUND TO BE TRUE, OR IN NOT HOLDING THAT THE
AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST
HSBANK, AS DRAWEE BANK.
53
 IV. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
DISREGARDING THE FACT THAT CATALAN ENGAGED IN FORUM
SHOPPING BY FILING THE AMENDED COMPLAINT WHILE HER PETITION
FOR THE PROBATE OF THE SUPPOSED WILL OF THE DECEASED
FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER BRANCH
OF THE COURT A QUO.
V. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
HOLDING THAT HSBANK HAD SUBMITTED TO THE JURISDICTION OF THE
COURT A QUO BY SUBMITTING AN ANSWER TO THE AMENDED
COMPLAINT.20
In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first,
second and fifth errors as its own.21 In addition, it claims that:
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT
ORDERING THE DISMISSAL OF THE AMENDED COMPLAINT AGAINST
HSBC TRUSTEE DESPITE THE FACT IT HAS NOT BEEN DULY SERVED
WITH SUMMONS.22
HSBANK and HSBC TRUSTEE contend in common that Catalan has no
cause of action for abuse of rights under Article 19 of the Civil Code; that
her complaint, under the guise of a claim for damages, is actually a
money claim against the estate of Thomson arising from checks issued
by the latter in her favor in payment of indebtedness.
HSBANK claims that the money claim should be dismissed on the ground
of forum-shopping since Catalan also filed a petition for probate of the
alleged last will of Thomson before RTC, Branch 48, Bacolod City,
docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes error
upon the CA in holding that by filing an answer to the amended
complaint, petitioners are estopped from questioning the jurisdiction of
the RTC.
HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it
for improper service of summons.
In her Comment, Catalan insists that her complaint is one for damages
under Article 19 of the Civil Code for the wanton refusal to honor and pay
the value of five checks issued by the Thomson amounting to
HK$3,200,000.00. She argues that the issue of jurisdiction has been
rendered moot by petitioners participation in the proceedings before the
RTC.
Succinctly, the issues boil down to the following:
1) Does the complaint state a cause of action?
2) Did Catalan engage in forum-shopping by filing the complaint for
damages when she also filed a petition for probate of the alleged last
will of Thomson with another branch of the RTC? and,
3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
Corollary thereto, did the filing of the answer before the RTC render the
issue of lack of jurisdiction moot and academic?
We shall resolve the issue in seriatim.
Does the complaint state a cause of action against HSBANK and HSBC
TRUSTEE?
The elementary test for failure to state a cause of action is whether the
complaint alleges facts which if true would justify the relief demanded.
Stated otherwise, may the court render a valid judgment upon the facts
alleged therein?23 The inquiry is into the sufficiency, not the veracity of
the material allegations.24 If the allegations in the complaint furnish
sufficient basis on which it can be maintained, it should not be dismissed
regardless of the defense that may be presented by the defendants. 25
Catalan anchors her complaint for damages on Article 19 of the Civil
Code. It speaks of the fundamental principle of law and human
conduct that a person "must, in the exercise of his rights and in the
performance of his duties, act with justice, give every one his due,
and observe honesty and good faith." It sets the standards which
may be observed not only in the exercise of ones rights but also in
the performance of ones duties. When a right is exercised in a
manner which does not conform with the norms enshrined in Article
19 and results in damage to another, a legal wrong is thereby
committed for which the wrongdoer must be held responsible. 26 But
a right, though by itself legal because recognized or granted by law
as such, may nevertheless become the source of some illegality. A
person should be protected only when he acts in the legitimate
exercise of his right, that is, when he acts with prudence and in good
faith; but not when he acts with negligence or abuse. 27 There is an
abuse of right when it is exercised for the only purpose of prejudicing
or injuring another. The exercise of a right must be in accordance
with the purpose for which it was established, and must not be
excessive or unduly harsh; there must be no intention to injure
another.28
Thus, in order to be liable under the abuse of rights principle, three
elements must concur, to wit: (a) that there is a legal right or duty;
(b) which is exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another.29
In this instance, after carefully examining the amended complaint,
we are convinced that the allegations therein are in the nature of an
action based on tort under Article 19 of the Civil Code. It is evident
that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and
willful refusal to pay the value of the checks.
HSBANK is being sued for unwarranted failure to pay the checks
notwithstanding the repeated assurance of the drawer Thomson as
to the authenticity of the checks and frequent directives to pay the
value thereof to Catalan. Her allegations in the complaint that the
gross inaction of HSBANK on Thomsons instructions, as well as its
evident failure to inform Catalan of the reason for its continued
inaction and non-payment of the checks, smack of insouciance on its
part, are sufficient statements of clear abuse of right for which it
may be held liable to Catalan for any damages she incurred resulting
therefrom. HSBANKs actions, or lack thereof, prevented Catalan
from seeking further redress with Thomson for the recovery of her
claim while the latter was alive.
HSBANK claims that Catalan has no cause of action because under
Section 189 of the Negotiable Instruments Law, "a check of itself
does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the
holder unless and until it accepts or certifies it." However, HSBANK is
not being sued on the value of the check itself but for how it acted in
relation to Catalans claim for payment despite the repeated
directives of the drawer Thomson to recognize the check the latter
issued. Catalan may have prayed that she be paid the value of the
checks but it is axiomatic that what determines the nature of an
action, as well as which court has jurisdiction over it, are the
allegations of the complaint, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted
therein.30
Anent HSBC TRUSTEE, it is being sued for the baseless rejection of
Catalans claim. When Catalan parted with the checks as a
requirement for the processing of her claim, even going to the extent
of traveling to Hongkong to deliver personally the checks, HSBC
TRUSTEE summarily disapproved her claim with nary a reason. HSBC
TRUSTEE gave no heed to Catalans incessant appeals for an
explanation. Her pleas fell on deaf and uncaring corporate ears.
Clearly, HSBC TRUSTEEs acts are anathema to the prescription for
human conduct enshrined in Article 19 of the Civil Code.
Did Catalan engage in forum-shopping?
It has been held that forum-shopping exists where a litigant sues the
same party against whom another action or actions for the alleged
54
violation of the same right and the enforcement of the same relief is/are
still pending, the defense of litis pendentia in one case is a bar to the
others; and, a final judgment in one would constitute res judicata and
thus would cause the dismissal of the rest. 31
Thus, there is forum-shopping when there exist: a) identity of parties, or
at least such parties as represent the same interests in both actions, b)
identity of rights asserted and relief prayed for, the relief being founded
on the same facts, and c) the identity of the two preceding particulars is
such that any judgment rendered in the pending case, regardless of
which party is successful would amount to res judicata in the other. 32
Applying the foregoing requisites to the case before us in relation to
Spec. Proc No. 00-892, the probate proceeding brought by Catalan before
RTC, Branch 48, Bacolod City, it is obvious that forum-shopping does not
exist.
There is no identity of parties. HSBANK is not a party in the probate
proceeding. HSBC TRUSTEE is only a party in the probate proceeding
because it is the executor and trustee named in the Hongkong will of
Thomson. HSBC TRUSTEE is representing the interest of the estate of
Thomson and not its own corporate interest.
With respect to the second and third requisites, a scrutiny of the entirety
of the allegations of the amended complaint in this case reveals that the
rights asserted and reliefs prayed for therein are different from those
pleaded in the probate proceeding, such that a judgment in one case
would not bar the prosecution of the other case. Verily, there can be no
forum-shopping where in one proceeding a party raises a claim for
damages based on tort and, in another proceeding a party seeks the
allowance of an alleged last will based on ones claim as an heir. After all,
the merits of the action for damages is not to be determined in the
probate proceeding and vice versa. Undeniably, the facts or evidence as
would support and establish the two causes of action are not the
same.33 Consequently, HSBANKs reliance on the principle of forum-
shopping is clearly misplaced.
Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
The Rules of Court provides that a court generally acquires jurisdiction
over a person through either a valid service of summons in the manner
required by law or the persons voluntary appearance in court.34
In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE,
the RTC held that both voluntarily submitted to the jurisdiction of the
court by setting up in their Motions to Dismiss other grounds aside from
lack of jurisdiction. On the other hand, the CA ruled that HSBANK and
HSBC TRUSTEE are estopped from challenging the jurisdiction of the RTC
because they filed their respective answers before the RTC.
We find that both lower courts overlooked Section 20 of Rule 14 of the
1997 Rules of Civil Procedure which provides that "the inclusion in a
motion to dismiss of other grounds aside from lack of jurisdiction over the
person of the defendant shall not be deemed a voluntary appearance."
Nonetheless, such omission does not aid HSBANKs case.
It must be noted that HSBANK initially filed a Motion for Extension of
Time to File Answer or Motion to Dismiss.35HSBANK already invoked the
RTCs jurisdiction over it by praying that its motion for extension of time
to file answer or a motion to dismiss be granted. The Court has held that
the filing of motions seeking affirmative relief, such as, to admit answer,
for additional time to file answer, for reconsideration of a default
judgment, and to lift order of default with motion for reconsideration, are
considered voluntary submission to the jurisdiction of the
court.36Consequently, HSBANKs expressed reservation in its Answer ad
cautelam that it filed the same "as a mere precaution against being
declared in default, and without prejudice to the Petition for Certiorari
and/or Prohibition xxx now pending before the Court of Appeals" 37 to
assail the jurisdiction of the RTC over it is of no moment. Having earlier
invoked the jurisdiction of the RTC to secure affirmative relief in its
motion for additional time to file answer or motion to dismiss, HSBANK,
effectively submitted voluntarily to the jurisdiction of the RTC and is
thereby estopped from asserting otherwise, even before this Court.
In contrast, the filing by HSBC TRUSTEE of a motion to dismiss
cannot be considered a voluntary submission to the jurisdiction of
the RTC. It was a conditional appearance, entered precisely to
question the regularity of the service of summons. It is settled that a
party who makes a special appearance in court challenging the
jurisdiction of said court, e.g., invalidity of the service of summons,
cannot be considered to have submitted himself to the jurisdiction of
the court.38 HSBC TRUSTEE has been consistent in all its pleadings in
assailing the service of summons and the jurisdiction of the RTC over
it. Thus, HSBC TRUSTEE cannot be declared in estoppel when it filed
an Answer ad cautelam before the RTC while its petition for certiorari
was pending before the CA. Such answer did not render the petition
for certiorari before the CA moot and academic. The Answer of HSBC
TRUSTEE was only filed to prevent any declaration that it had by its
inaction waived the right to file responsive pleadings.
Admittedly, HSBC TRUSTEE is a foreign corporation, organized and
existing under the laws of the British Virgin Islands. For proper
service of summons on foreign corporations, Section 12 of Rule 14 of
the Revised Rules of Court provides:
SEC. 12. Service upon foreign private juridical entity. When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or if
there be no such agent, on the government official designated by
law to that effect, or on any of its officers or agents within the
Philippines.
In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, 39 we had
occasion to rule that it is not enough to merely allege in the
complaint that a defendant foreign corporation is doing business. For
purposes of the rule on summons, the fact of doing business must
first be "established by appropriate allegations in the complaint" and
the court in determining such fact need not go beyond the
allegations therein.40
The allegations in the amended complaint subject of the present
cases did not sufficiently show the fact of HSBC TRUSTEEs doing
business in the Philippines. It does not appear at all that HSBC
TRUSTEE had performed any act which would give the general public
the impression that it had been engaging, or intends to engage in its
ordinary and usual business undertakings in the country. Absent
from the amended complaint is an allegation that HSBC TRUSTEE
had performed any act in the country that would place it within the
sphere of the courts jurisdiction.
We have held that a general allegation, standing alone, that a party
is doing business in the Philippines does not make it so; a conclusion
of fact or law cannot be derived from the unsubstantiated assertions
of parties notwithstanding the demands of convenience or dispatch
in legal actions, otherwise, the Court would be guilty of sorcery;
extracting substance out of nothingness.41
Besides, there is no allegation in the amended complaint that
HSBANK is the domestic agent of HSBC TRUSTEE to warrant service
of summons upon it. Thus, the summons tendered to the In House
Counsel of HSBANK (Makati Branch) for HSBC TRUSTEE was clearly
improper.
There being no proper service of summons, the RTC cannot take
cognizance of the case against HSBC TRUSTEE for lack of jurisdiction
over it. Any proceeding undertaken by the RTC is therefore null and
void.42 Accordingly, the complaint against HSBC TRUSTEE should
have been dismissed for lack of jurisdiction over it.
WHEREFORE, the petition in G.R. No. 159590 is DENIED. The
Decision of the Court of Appeals, dated August 14, 2003, in CA-G.R.
SP No. 75757 dismissing the petition for certiorari of the Hongkong
and Shanghai Banking Corporation Limited is AFFIRMED.
55
The petition in G.R. No. 159591 is GRANTED. The Decision of the Court
of Appeals, dated August 14, 2003, in CA-G.R. SP No. 75756 dismissing
the petition for certiorari of the HSBC International Trustee Limited
is REVERSED and SET ASIDE. The Regional Trial Court, Branch 44,
Bacolod City is declared without jurisdiction to take cognizance of Civil
Case No. 01-11372 against the HSBC International Trustee Limited, and
all its orders and issuances with respect to the latter are
hereby ANNULLED and SET ASIDE. The said Regional Trial Court is
hereby ORDERED to DESIST from maintaining further proceedings
against the HSBC International Trustee Limited in the case aforestated.
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, VS, THE
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks
to reverse and set aside the November 26, 2004 Decision [1] of the Court
of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of
the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as
Creditor Group Life Policy No. P-1920[2]with petitioner Eternal Gardens
Memorial Park Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon
the existing balance of the purchased burial lots. The policy was to be
effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65
years of age, is indebted to the Assured for the unpaid balance of his
loan with the Assured, and is accepted for Life Insurance coverage by the
Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for
all Lot Purchasers as part of the application. The Company reserves the
right to require further evidence of insurability satisfactory to the
Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the
sum of P100,000.00, whichever is smaller. Such benefit shall be paid to
the Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date
he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.[3]
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant petition, Eternal
complied by submitting a letter dated December 29, 1982, [4] containing a
list of insurable balances of its lot buyers for October 1982. One of those
included in the list as new business was a certain John Chuang. His
balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which
served as an insurance claim for Chuangs death. Attached to the
claim were the following documents: (1) Chuangs Certificate of
Death; (2) Identification Certificate stating that Chuang is a
naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate
of Attending Physician; and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,
[6]
requiring Eternal to submit the following documents relative to its
insurance claim for Chuangs death: (1) Certificate of Claimant (with
form attached); (2) Assureds Certificate (with form attached); (3)
Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the
unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter
dated November 14, 1984,[7] which was received by Philamlife
on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any
reply to the latters insurance claim. This prompted Eternal to
demand from Philamlife the payment of the claim for PhP 100,000
on April 25, 1986.[8]
In response to Eternals demand, Philamlife denied Eternals insurance
claim in a letter dated May 20, 1986,[9] a portion of which reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in October
1982 for the total maximum insurable amount of P100,000.00 each.
No application for Group Insurance was submitted in our office prior
to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under
Evidence of Insurability provision, a declaration of good health shall
be required for all Lot Purchasers as party of the application. We cite
further the provision on Effective Date of Coverage under the policy
which states that there shall be no insurance if the application is not
approved by the Company. Since no application had been submitted
by the Insured/Assured, prior to his death, for our approval but was
submitted instead on November 15, 1984, after his death, Mr. John
Uy Chuang was not covered under the Policy. We wish to point out
that Eternal Gardens being the Assured was a party to the Contract
and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote
our approval per se of the insurance coverage but are held by us in
trust for the payor until the prerequisites for insurance coverage
shall have been met. We will however, return all the premiums which
have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional
Trial Court (RTC) for a sum of money against Philamlife, docketed as
Civil Case No. 14736. The trial court decided in favor of Eternal, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering
the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus legal
rate of interest, until fully paid; and, to pay the sum of P10,000.00 as
attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for
insurance which he accomplished before his death, as testified to by
Eternals witness and evidenced by the letter dated December 29,
1982, stating, among others: Encl: Phil-Am Life Insurance Application
Forms & Cert.[10] It further ruled that due to Philamlifes inaction from
56
the submission of the requirements of the group insurance on December
29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes
acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuangs application. The RTC said that since
the contract is a group life insurance, once proof of death is submitted,
payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil
Case No. 57810 is REVERSED and SET ASIDE, and the complaint
is DISMISSED. No costs.
SO ORDERED.[11]
The CA based its Decision on the factual finding that Chuangs application
was not enclosed in Eternals letter dated December 29, 1982. It further
ruled that the non-accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA concluded, there
being no application form, Chuang was not covered by Philamlifes
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way
not in accord with law or with the applicable jurisprudence, in holding
that:
I. The application for insurance was not duly submitted
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the [CA] went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings
[of the CA] are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the
Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a
different conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the
CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance
application of Chuang before his death. In Eternals letter
dated December 29, 1982, a list of insurable interests of buyers for
October 1982 was attached, including Chuang in the list of new
businesses. Eternal added it was noted at the bottom of said letter that
the corresponding Phil-Am Life Insurance Application Forms & Cert. were
enclosed in the letter that was apparently received by Philamlife
on January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and
executed before his death.
On the other hand, Philamlife claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuangs insurance
application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for
the attached list of burial lot buyers were attached to the letter. Such
stamp of receipt has the effect of acknowledging receipt of the letter
together with the attachments. Such receipt is an admission by
Philamlife against its own interest.[13] The burden of evidence has
shifted to Philamlife, which must prove that the letter did not contain
Chuangs insurance application. However, Philamlife failed to do so;
thus, Philamlife is deemed to have received Chuangs insurance
application.
To reiterate, it was Philamlifes bounden duty to make sure that
before a transmittal letter is stamped as received, the contents of
the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility
and reliability due to inconsistencies is groundless. The trial court is
in the best position to determine the reliability and credibility of the
witnesses, because it has the opportunity to observe firsthand the
to
witnesses demeanor, conduct, and attitude. Findings of the trial
court on such matters are binding and conclusive on the appellate
court, unless some facts or circumstances of weight and substance
have been overlooked, misapprehended, or misinterpreted,[14] that, if
considered, might affect the result of the case.[15]
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and
value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the
testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in
case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up
two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second
copy is remained or retained with the marketing department
of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is
merely asking for the location and does not [ask] for the number of
copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I
submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals
are attached therein.[16]
57
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel
Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled out
the application form, these are minor inconsistencies that do not affect
the credibility of the witnesses. Thus, we ruled in People v.
Paredes that minor inconsistencies are too trivial to affect the credibility
of witnesses, and these may even serve to strengthen their credibility as
these negate any suspicion that the testimonies have been rehearsed. [17]
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecutions evidence as a whole or reflect on the
witnesses honesty. The test is whether the testimonies agree on essential
facts and whether the respective versions corroborate and substantially
coincide with each other so as to make a consistent and coherent whole.
[18]
In the present case, the number of copies of the insurance application
that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk
of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December
10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date
he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.
An examination of the above provision would show ambiguity between its
two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon
contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latters interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:
Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations.[19] (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against
the party which prepared the contract, the insurer. By reason of the
exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.[20]
Clearly, the vague contractual provision, in Creditor Group Life Policy
No. P-1920 dated December 10, 1980, must be construed in favor of
the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a partys purchase of a memorial lot
on installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding
until terminated by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group Life Policy No. P-
1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit
and unambiguous.
As a final note, to characterize the insurer and the insured as
contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More
often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing
if at all understandable to laypersons, that are imposed on those
who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the
rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance
applicants, insurance companies must be obligated to act with haste
upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.[21]
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138
is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per
annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on
June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%)
per annum of PhP 100,000 from June 17, 1996 until full payment of
this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
June 5, 2009 G.R. No. 181132
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse
VICENTA PANGILINAN MARAMAG, vs. EVA VERNA DE GUZMAN
MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE
GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE
ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION
This is a petition[1] for review on certiorari under Rule 45 of the Rules,
seeking to reverse and set aside the Resolution [2] dated January 8,
2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948,
dismissing petitioners appeal for lack of jurisdiction.
The case stems from a petition [3] filed against respondents with the
Regional Trial Court, Branch 29, for revocation and/or reduction of
58
insurance proceeds for being void and/or inofficious, with prayer for a
temporary restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and
children of Loreto Maramag (Loreto), while respondents were Loretos
illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine
of Loreto and a suspect in the killing of the latter, thus, she is disqualified
to receive any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular)[4] and Great Pacific Life Assurance
Corporation (Grepalife);[5] (3) the illegitimate children of LoretoOdessa,
Karl Brian, and Trisha Angeliewere entitled only to one-half of the legitime
of the legitimate children, thus, the proceeds released to Odessa and
those to be released to Karl Brian and Trisha Angelie were inofficious and
should be reduced; and (4) petitioners could not be deprived of their
legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction,
petitioners alleged, among others, that part of the insurance proceeds
had already been released in favor of Odessa, while the rest of the
proceeds are to be released in favor of Karl Brian and Trisha Angelie, both
minors, upon the appointment of their legal guardian. Petitioners also
prayed for the total amount of P320,000.00 as actual litigation expenses
and attorneys fees.
In answer,[6] Insular admitted that Loreto misrepresented Eva as his
legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his
legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies; that when it ascertained that Eva was
not the legal wife of Loreto, it disqualified her as a beneficiary and
divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as
the remaining designated beneficiaries; and that it released Odessas
share as she was of age, but withheld the release of the shares of minors
Karl Brian and Trisha Angelie pending submission of letters of
guardianship. Insular alleged that the complaint or petition failed to state
a cause of action insofar as it sought to declare as void the designation of
Eva as beneficiary, because Loreto revoked her designation as such in
Policy No. A001544070 and it disqualified her in Policy No. A001693029;
and insofar as it sought to declare as inofficious the shares of Odessa,
Karl Brian, and Trisha Angelie, considering that no settlement of Loretos
estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the
insurance policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer[7] with compulsory counterclaim, Grepalife alleged that
Eva was not designated as an insurance policy beneficiary; that the
claims filed by Odessa, Karl Brian, and Trisha Angelie were denied
because Loreto was ineligible for insurance due to a misrepresentation in
his application form that he was born on December 10, 1936 and, thus,
not more than 65 years old when he signed it in September 2001; that
the case was premature, there being no claim filed by the legitimate
family of Loreto; and that the law on succession does not apply where the
designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were
not known to petitioners, summons by publication was resorted to. Still,
the illegitimate family of Loreto failed to file their answer. Hence, the trial
court, upon motion of petitioners, declared them in default in its Order
dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved
that the issues raised in their respective answers be resolved first. The
trial court ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and
Grepalife was purely legal whether the complaint itself was proper or not
and that the designation of a beneficiary is an act of liberality or a
donation and, therefore, subject to the provisions of Articles 752 [8] and
772[9] of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance
proceeds belong exclusively to the designated beneficiaries in the
policies, not to the estate or to the heirs of the insured. Grepalife also
reiterated that it had disqualified Eva as a beneficiary when it
ascertained that Loreto was legally married to Vicenta Pangilinan
Maramag.
On September 21, 2004, the trial court issued a Resolution, the
dispositive portion of which reads
WHEREFORE, the motion to dismiss incorporated in the answer of
defendants Insular Life and Grepalife is granted with respect to
defendants Odessa, Karl Brian and Trisha Maramag. The action shall
proceed with respect to the other defendants Eva Verna de Guzman,
Insular Life and Grepalife.
SO ORDERED.[10]
In so ruling, the trial court ratiocinated thus
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided
for in such special laws shall be regulated by this Code. The principal
law on insurance is the Insurance Code, as amended. Only in case of
deficiency in the Insurance Code that the Civil Code may be resorted
to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to
whom the insurance proceeds shall be paid. It is very clear under
Sec. 53 thereof that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for
whose benefit it is made, unless otherwise specified in the
policy. Since the defendants are the ones named as the primary
beneficiary (sic) in the insurances (sic) taken by the deceased Loreto
C. Maramag and there is no showing that herein plaintiffs were also
included as beneficiary (sic) therein the insurance proceeds shall
exclusively be paid to them.This is because the beneficiary has a
vested right to the indemnity, unless the insured reserves the right
to change the beneficiary. (Grecio v. Sunlife Assurance Co. of
Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the
rules on testamentary succession in order to defeat the right of
herein defendants to collect the insurance indemnity. The beneficiary
in a contract of insurance is not the donee spoken in the law of
donation. The rules on testamentary succession cannot apply here,
for the insurance indemnity does not partake of a donation. As such,
the insurance indemnity cannot be considered as an advance of the
inheritance which can be subject to collation (Del Val v. Del Val, 29
Phil. 534). In the case of Southern Luzon Employees Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the
following pronouncements[:]
With the finding of the trial court that the proceeds to the Life
Insurance Policy belongs exclusively to the defendant as his
individual and separate property, we agree that the proceeds of an
insurance policy belong exclusively to the beneficiary and not to the
estate of the person whose life was insured, and that such proceeds
are the separate and individual property of the beneficiary and not of
the heirs of the person whose life was insured, is the doctrine in
America. We believe that the same doctrine obtains in
these Islands by virtue of Section 428 of the Code of Commerce x x
x.
In [the] light of the above pronouncements, it is very clear that the
plaintiffs has (sic) no sufficient cause of action against defendants
Odessa, Karl Brian and Trisha Angelie Maramag for the reduction
and/or declaration of inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of the late Loreto C.
Maramag.
However, herein plaintiffs are not totally bereft of any cause of
action. One of the named beneficiary (sic) in the insurances (sic)
taken by the late Loreto C. Maramag is his concubine Eva Verna De
Guzman.Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance
policy of the person who cannot make any donation to him,
59
according to said article (Art. 2012, Civil Code). If a concubine is made
the beneficiary, it is believed that the insurance contract will still remain
valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming
of the improper beneficiary. In such case, the action for the declaration of
nullity may be brought by the spouse of the donor or donee, and the guilt
of the donor and donee may be proved by preponderance of evidence in
the same action (Comment of Edgardo L. Paras, Civil Code of
the Philippines, page 897). Since the designation of defendant Eva Verna
de Guzman as one of the primary beneficiary (sic) in the insurances (sic)
taken by the late Loreto C. Maramag is void under Art. 739 of the Civil
Code, the insurance indemnity that should be paid to her must go to the
legal heirs of the deceased which this court may properly take
cognizance as the action for the declaration for the nullity of a void
donation falls within the general jurisdiction of this Court.[11]
Insular[12] and Grepalife[13] filed their respective motions for
reconsideration, arguing, in the main, that the petition failed to state a
cause of action. Insular further averred that the proceeds were divided
among the three children as the remaining named
beneficiaries. Grepalife, for its part, also alleged that the premiums paid
had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and
posited that whether the complaint may be dismissed for failure to state
a cause of action must be determined solely on the basis of the
allegations in the complaint, such that the defenses of Insular and
Grepalife would be better threshed out during trial.
On June 16, 2005, the trial court issued a Resolution, disposing, as
follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for
Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated
21 September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET
ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.[14]
In granting the motions for reconsideration of Insular and Grepalife, the
trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a
beneficiary in the other policy such that the entire proceeds would be
paid to the illegitimate children of Loreto with Eva pursuant to Section 53
of the Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the estate of the
insured. As to the claim that the proceeds to be paid to Loretos
illegitimate children should be reduced based on the rules on legitime,
the trial court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of the Civil
Code are irrelevant and inapplicable. With respect to the Grepalife policy,
the trial court noted that Eva was never designated as a beneficiary, but
only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal
of the case as to the illegitimate children. It further held that the matter
of Loretos misrepresentation was premature; the appropriate action may
be filed only upon denial of the claim of the named beneficiaries for the
insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it
dismissed the appeal for lack of jurisdiction, holding that the decision of
the trial court dismissing the complaint for failure to state a cause of
action involved a pure question of law. The appellate court also noted
that petitioners did not file within the reglementary period a motion for
reconsideration of the trial courts Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure
to state a cause of action, may the Court consider matters which were
not alleged in the Complaint, particularly the defenses put up by the
defendants in their Answer?
b. In granting a motion for reconsideration of a motion to
dismiss for failure to state a cause of action, did not the Regional
Trial Court engage in the examination and determination of what
were the facts and their probative value, or the truth thereof, when it
premised the dismissal on allegations of the defendants in their
answer which had not been proven?
c. x x x (A)re the members of the legitimate family
entitled to the proceeds of the insurance for the concubine? [15]
In essence, petitioners posit that their petition before the trial court
should not have been dismissed for failure to state a cause of action
because the finding that Eva was either disqualified as a beneficiary
by the insurance companies or that her designation was revoked by
Loreto, hypothetically admitted as true, was raised only in the
answers and motions for reconsideration of both Insular and
Grepalife. They argue that for a motion to dismiss to prosper on that
ground, only the allegations in the complaint should be
considered. They further contend that, even assuming Insular
disqualified Eva as a beneficiary, her share should not have been
distributed to her children with Loreto but, instead, awarded to them,
being the legitimate heirs of the insured deceased, in accordance
with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial courts
finding that the petition failed to state a cause of action, as provided
in Rule 16, Section 1(g), of the Rules of Court, which reads
SECTION 1. Grounds. Within the time for but before filing the answer
to the complaint or pleading asserting a claim, a motion to dismiss
may be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a
right of another.[16] A complaint states a cause of action when it
contains the three (3) elements of a cause of action(1) the legal right
of the plaintiff; (2) the correlative obligation of the defendant; and
(3) the act or omission of the defendant in violation of the legal
right. If any of these elements is absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure to state a
cause of action.[17]
When a motion to dismiss is premised on this ground, the ruling
thereon should be based only on the facts alleged in the
complaint. The court must resolve the issue on the strength of such
allegations, assuming them to be true. The test of sufficiency of a
cause of action rests on whether, hypothetically admitting the facts
alleged in the complaint to be true, the court can render a valid
judgment upon the same, in accordance with the prayer in the
complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such
that there is no hypothetical admission of the veracity of the
allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in
evidence;
4. by the record or document in the pleading, the
allegations appear unfounded; or
60
5. there is evidence which has been presented to the court by
stipulation of the parties or in the course of the hearings related to the
case.[18]
In this case, it is clear from the petition filed before the trial court that,
although petitioners are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife. The basis of petitioners claim is that Eva, being a concubine of
Loreto and a suspect in his murder, is disqualified from being designated
as beneficiary of the insurance policies, and that Evas children with
Loreto, being illegitimate children, are entitled to a lesser share of the
proceeds of the policies. They also argued that pursuant to Section 12 of
the Insurance Code,[19] Evas share in the proceeds should be forfeited in
their favor, the former having brought about the death of Loreto. Thus,
they prayed that the share of Eva and portions of the shares of Loretos
illegitimate children should be awarded to them, being the legitimate
heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not
entitled to a favorable judgment in light of Article 2011 of the Civil Code
which expressly provides that insurance contracts shall be governed by
special laws, i.e., the Insurance Code. Section 53 of the Insurance Code
states
SECTION 53. The insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary,
if the insured is already deceased, upon the maturation of the policy.
[20]
The exception to this rule is a situation where the insurance contract
was intended to benefit third persons who are not parties to the same in
the form of favorable stipulations or indemnity. In such a case, third
parties may directly sue and claim from the insurer. [21]
Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over
the insurance proceeds to petitioners. The revocation of Eva as a
beneficiary in one policy and her disqualification as such in another are of
no moment considering that the designation of the illegitimate children
as beneficiaries in Loretos insurance policies remains valid. Because no
legal proscription exists in naming as beneficiaries the children of illicit
relationships by the insured,[22] the shares of Eva in the insurance
proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers
themselves for reasons based on the insurance contracts, must be
awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary,[23] or when the designated beneficiary is
disqualified by law to receive the proceeds, [24] that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court
should be upheld. In the same light, the Decision of the CA dated January
8, 2008 should be sustained. Indeed, the appellate court had no
jurisdiction to take cognizance of the appeal; the issue of failure to state
a cause of action is a question of law and not of fact, there being no
findings of fact in the first place.[25]
WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS,
INC., respondents.
[G.R. No. 128834. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, petitioners, vs. COURT OF
APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY
GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU & SONS,
INC. respondent.
The issues relevant to the herein three consolidated petitions revolve
around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU)
with petitioner Malayan Insurance Company, Inc. (MICO) in
connection with the mortgage contracts entered into by and
between Rizal Commercial Banking Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the
total amount of P74,040,518.58, plus 37% interest per annum
commencing July 27, 1992. RCBC was ordered to pay actual and
compensatory damages in the amount of P5,000,000.00. MICO and
RCBC were held solidarily liable to pay GOYU P1,500,000.00 as
exemplary damages and P1,500,000.00 for attorneys fees. GOYUs
obligation to RCBC was fixed at P68,785,069.04 as of April 1992,
without any interest, surcharges, and penalties. RCBC and MICO
appealed separately but, in view of the common facts and issues
involved, their individual petitions were consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at
its Binondo Branch. After due evaluation, RCBC Binondo Branch,
through its key officers, petitioners Uy Chun Bing and Eli D. Lao,
recommended GOYUs application for approval by RCBCs executive
committee. A credit facility in the amount of P30 million was initially
granted. Upon GOYUs application and Uys and Laos
recommendation, RCBCs executive committee increased GOYUs
credit facility to P50 million, then to P90 million, and finally to P117
million.
As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC, which
were registered with the Registry of Deeds at Valenzuela, Metro
Manila. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance
company approved by RCBC, and subsequently, to endorse and
deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from
MICO. In February 1992, Alchester Insurance Agency, Inc., the
insurance agent where GOYU obtained the Malayan insurance
policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was
gutted by fire. Consequently, GOYU submitted its claim for indemnity
on account of the loss insured against. MICO denied the claim on the
ground that the insurance policies were either attached pursuant to
writs of attachments/garnishments issued by various courts or that
the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a
complaint for specific performance and damages which was
docketed at the Regional Trial Court of the National Capital Judicial
Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of
the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were
also denied for the same reasons that MICO denied GOYUs claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-
312), the Regional Trial Court of Manila (Branch 3), confirmed that
GOYUs other creditors, namely, Urban Bank, Alfredo Sebastian, and
Philippine Trust Company obtained their respective writs of
attachments from various courts, covering an aggregate amount of
P14,938,080.23, and ordered that the proceeds of the ten insurance
policies be deposited with the said court minus the aforementioned
61
P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the
amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by
another Manila RTC sala (Branch 28) for the amount of P8,696,838.75
(Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered judgment in favor of
GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, Malayan Insurance Company, Inc. and Rizal
Commercial Banking Corporation, ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of
P74,040,518.58 less the amount of P50,000,000.00 which is deposited
with this Court;
b. To pay the plaintiff damages by way of interest for the duration of the
delay since July 27, 1992 (ninety days after defendant insurers receipt of
the required proof of loss and notice of loss) at the rate of twice the
ceiling prescribed by the Monetary Board, on the following amounts:
1) P50,000,000.00 from July 27, 1992 up to the time said amount was
deposited with this Court on January 7, 1994;
2) P24,040,518.58 from July 27, 1992 up to the time when the writs of
attachments were received by defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the amount
of P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorneys fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay
its loan obligations with defendant RCBC in the amount of
P68,785,069.04, as of April 27, 1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is
hereby ordered to release immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by defendant Malayan, together
with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals. GOYU
was unsatisfied with the amounts awarded in its favor. MICO and RCBC
disputed the trial courts findings of liability on their part. The Court of
Appeals partly granted GOYUs appeal, but sustained the findings of the
trial court with respect to MICO and RCBCs liabilities, thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is
hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No.
3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said amount
at the rate of thirty-seven (37%) percent per annum which is twice the
ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a) To pay the plaintiff actual and compensatory damages in the
amount of P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL
COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorneys fees.
4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons,
Inc. to pay its loan obligation with RCBC in the amount of
P68,785,069.04 as of April 27, 1992 without any interest, surcharges
and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby
ordered to immediately release to Goyu & Sons, Inc. the amount of
P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866,
respectively, seeking review and consequent reversal of the above
dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A.
G.R. No. CV-48376, which case, by virtue of the Court of Appeals
resolution dated August 7, 1996, was consolidated with C.A. G.R. No.
CV-46162 (subject of herein G.R. No. 128833). At issue in said
petition is RCBCs right to intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the debtor), where the subject
insurance policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two
courts below in relation to the pertinent and applicable laws, we find
merit in the submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to
several related issues which are now submitted in the petitions
before us. This Court, however, discerns one primary and central
issue, and this is, whether or not RCBC, as mortgagee, has any right
over the insurance policies taken by GOYU, the mortgagor, in case of
the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by
RCBC to GOYU, the latter executed several mortgage contracts in
favor of RCBC. It was expressly stipulated in these mortgage
contracts that GOYU shall insure the mortgaged property with any of
the insurance companies acceptable to RCBC. GOYU indeed insured
the mortgaged property with MICO, an insurance company
acceptable to RCBC. Based on their stipulations in the mortgage
contracts, GOYU was supposed to endorse these insurance policies in
favor of, and deliver them, to RCBC.Alchester Insurance Agency, Inc.,
MICOs underwriter from whom GOYU obtained the subject insurance
policies, prepared the nine endorsements (see Exh. 1-Malayan to 9-
Malayan; also Exh. 51-RCBC to 59-RCBC), copies of which were
delivered to GOYU, RCBC, and MICO. However, because these
endorsements do not bear the signature of any officer of GOYU, the
trial court, as well as the Court of Appeals, concluded that the
endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such
that each one of them may insure the same property for his own sole
benefit. There is no question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the present case, although
it appears that GOYU obtained the subject insurance policies naming
62
itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in favor
of any particular beneficiary or payee other than the insured had not
such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely
took the insurance policies from MICO, a sister company of RCBC, and not
just from any other insurance company. Alchester would not have found
out that the subject pieces of property were mortgaged to RCBC had not
such information been voluntarily disclosed by GOYU itself. Had it not
been for GOYU, Alchester would not have known of GOYUs intention of
obtaining insurance coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verily, Alchester would not have
endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court
is constrained to rule in favor of mortgagor RCBC. The basis and purpose
of the doctrine was explained in Philippine National Bank vs. Court of
Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one
to whom they were directed and who reasonably relied thereon. The
doctrine of estoppel springs from equitable principles and the equities in
the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by this
Court wherever and whenever special circumstances of a case so
demand. (p. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February 11,
1992 the nine endorsement documents for GOYUs nine insurance policies
in favor of RCBC. The original copies of each of these nine endorsement
documents were sent to GOYU, and the others were sent to RCBC and
MICO, while the fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from
Alchester the originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it as
this was only pursuant to the stipulation in the mortgage contracts. We
find such reliance to be justified under the circumstances of the
case. GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured against,
it was too late for GOYU to disown the endorsements for any imagined or
contrived lack of authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied ratification of
said endorsements by virtue of GOYUs inaction in this case, GOYU is at
the very least estopped from assailing their operative effects. To permit
GOYU to capitalize on its non-confirmation of these endorsements while it
continued to enjoy the benefits of the credit facilities of RCBC which
believed in good faith that there was due endorsement pursuant to their
mortgage contracts, is to countenance grave contravention of public
policy, fair dealing, good faith, and justice. Such an unjust situation, the
Court cannot sanction. Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBCs right to the proceeds of the
insurance policies if not for the actual endorsement of the policies, at
least on the basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit the insurance
policies were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the
subject of mortgage contracts entered into between RCBC and GOYU
in consideration of and for securing GOYUs credit facilities from
RCBC. The mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the mortgaged
property properly covered against any loss by an insurance company
acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the
mortgaged property from MICO, no less than a sister company of
RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICOs underwriter,
Alchester Insurance Agency, Inc., and copies thereof were sent to
GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity
of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the
benefits of the credit facilities extended by RCBC which was
conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies
of the endorsement documents prepared by Alchester, GOYU,
despite the absence of its written conformity thereto, obviously
considered said endorsement to be sufficient compliance with its
obligation under the mortgage contracts since RCBC accordingly
continued to extend the benefits of its credit facilities and GOYU
continued to benefit therefrom. Just as plain too is the intention of
the parties to constitute RCBC as the beneficiary of the various
insurance policies obtained by GOYU. The intention of the parties will
have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC,
which under the factual circumstances of the case, is truly the
person or entity for whose benefit the policies were clearly intended.
Moreover, the laws evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article
2127 of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it
passes into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies
subject of this case, only 8 of them appear to have been subject of
the endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:
INSURANCE POLICY PARTICULARS ENDORSEMENT
a. Policy Number : F-114-07795 None Issue Date : March 18,
1992 Expiry Date : April 5, 1993 Amount : P9,646,224.92
b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan
Issue Date : January 18, 1992 Expiry Date : February 9, 1993
Amount : P4,307,217.54
c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan
Issue Date : January 18, 1992 Expiry Date : February 15, 1993
Amount : P6,603,586.43
d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan
63
Issue Date : January 18, 1992 Expiry Date : (not legible)
Amount : P6,603,586.43
e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan
Issue Date : January 18, 1992 Expiry Date : February 9, 1993
Amount : P9,457,972.76
f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
Issue Date : January 13, 1992 Expiry Date : January 13, 1993
Amount : P24,750,000.00
g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan
Issue Date : May 29, 1991 Expiry Date : June 27, 1992
Amount : P6,000,000.00
h. Policy Number : CI/F-128-03341 None
Issue Date : May 3, 1991 Expiry Date : May 3, 1992
Amount : P10,000,000.00
i. Policy Number : F-114-07402 Exhibit 8-Malayan
Issue Date : September 16, 1991 Expiry Date : October 19, 1992
Amount : P32,252,125.20
j. Policy Number : F-114-07525 Exhibit 9-Malayan
Issue Date : November 20, 1991 Expiry Date : December 5, 1992
Amount : P6,603,586.43
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact
was admitted by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p.
25). Likewise, the record shows no endorsement for Policy Number CI/F-
128-03341 [(h) above]. Also, one of the endorsement documents,
Exhibit 5-Malayan, refers to a certain insurance policy number ACIA-F-
07066, which is not among the insurance policies involved in the
complaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the
force and effect of an endorsement by GOYU itself, these 8 policies can
not be attached by GOYUs other creditors up to the extent of the GOYUs
outstanding obligation in RCBCs favor. Section 53 of the Insurance Code
ordains that the insurance proceeds of the endorsed policies shall be
applied exclusively to the proper interest of the person for whose benefit
it was made. In this case, to the extent of GOYUs obligation with RCBC,
the interest of GOYU in the subject policies had been transferred to RCBC
effective as of the time of the endorsement. These policies may no longer
be attached by the other creditors of GOYU, like Alfredo Sebastian in the
present G.R. No. 128834, which may nonetheless forthwith be dismissed
for being moot and academic in view of the results reached herein. Only
the two other policies amounting to P19,646,224.92 may be validly
attached, garnished, and levied upon by GOYUs other creditors. To the
extent of GOYUs outstanding obligation with RCBC, all the rest of the
other insurance policies above-listed which were endorsed to RCBC, are,
therefore, to be released from attachment, garnishment, and levy by the
other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the
extent of GOYUs outstanding obligation with RCBC which the proceeds of
the 8 insurance policies will discharge and liquidate, or put differently,
the actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court
finding that GOYUS total obligation to RCBC was only P68,785,060.04 as
of April 27, 1992, thus sanctioning the trial courts exclusion of
Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91)
and Promissory Note No. 420-92 (renewal of Promissory Note No.
952-91) on the ground that their execution is highly questionable for
not only are these dated after the fire, but also because the
signatures of either GOYU or any its representative are conspicuously
absent. Accordingly, the Court of Appeals speculated thusly:
Hence, this Court is inclined to conclude that said promissory notes
were pre-signed by plaintiff in blank terms, as averred by plaintiff, in
contemplation of the speedy grant of future loans, for the same
practice of procedure has always been adopted in its previous
dealings with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire
does not necessarily mean that the documents are spurious, for it is
presumed that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222
SCRA 486 [1993]). The obligor and not the holder of the negotiable
instrument has the burden of proof of showing that he no longer
owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals,
210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private
transactions, receipt of the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the
testimony of Go Song Hiap when he answered the queries of the trial
court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you
received all the amounts stated therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-
RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I
asked which is correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is
correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all
the proceeds of the 29 promissory notes as hereinabove quoted,
GOYU also offered and admitted to RCBC that its obligation be fixed
at P116,301,992.60 as shown in its letter dated March 9, 1993,
which pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay
the current past due account of this company in the amount of
P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10,
and 18, p. 13 of your affidavits of Third Party Claims in the Urban
case at Makati, Metro Manila and in the Zamboanga case at
64
Zamboanga city, respectively, less the total of P8,851,519.71 paid from
the Seaboard and Equitable insurance companies and other legitimate
deductions. We accept and confirm this amount of P116,301,992.60 as
stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact that
the excluded promissory notes are dated after the fire. It failed to
consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to
the fact that Promissory Notes No. 420-92 and 421-92 are
mere renewals of Promissory Notes No. 908-91 and 952-91, loans already
availed of by GOYU.
The two courts below erred in failing to see that the promissory notes
which they ruled should be excluded for bearing dates which are after
that of the fire, are mere renewals of previous ones.The proceeds of the
loan represented by these promissory notes were admittedly received by
GOYU. There is ample factual and legal basis for giving GOYUs judicial
admission of liability in the amount of P116,301,992.60 full force and
effect
It should, however, be quickly added that whatever amount RCBC may
have recovered from the other insurers of the mortgaged property will,
nonetheless, have to be applied as payment against GOYUs
obligation. But, contrary to the lower courts findings, payments effected
by GOYU prior to January 21, 1993 should no longer be deducted. Such
payments had obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it admitted that its past
due account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to
P107,246,887.90 as of January 21, 1993, to wit:
Total Obligation as admitted by GOYU as of January 21,
1993: P116,301,992.60
Broken down as follows
Principal[1] Interest
Regular 80,535,946.32
FDU 7,548,025.17
____________ _____________
Total: 108,083,971.49 8,218,021.11[2]
LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
9,055,104.70[3]
NET AMOUNT as of January 21, 1993: P 107,246,887.90
The need for the payment of interest due upon the principal amount of
the obligation, which is the cost of money to RCBC, the primary end and
the ultimate reason for RCBCs existence and being, was duly recognized
by the trial court when it ruled favorably on RCBCs counterclaim,
ordering GOYU to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27,1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges
and penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p.
479). Inexplicably, the Court of Appeals, without even laying down
the factual or legal justification for its ruling, modified the trial courts
ruling and ordered GOYU to pay the principal amount of
P68,785,069.04 without any interest, surcharges and penalties
(Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and
with much uncertainty deleted the payment of additional interest,
penalties, and charges, in this manner:
Regarding defendant RCBCs commitment not to charge additional
interest, penalties and surcharges, the same does not require that it
be embodied in a document or some form of writing to be binding
and enforceable. The principle is well known that generally a verbal
agreement or contract is no less binding and effective than a written
one. And the existence of such a verbal agreement has been amply
established by the evidence in this case. In any event, regardless of
the existence of such verbal agreement, it would still be unjust and
inequitable for defendant RCBC to charge the plaintiff with
surcharges and penalties considering the latters pitiful situation.
(Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of
money is separate and distinct from that of surcharges and
penalties. What may justify a court in not allowing the creditor to
charge surcharges and penalties despite express stipulation therefor
in a valid agreement, may not equally justify non-payment of
interest. The charging of interest for loans forms a very essential and
fundamental element of the banking business, which may truly be
considered to be at the very core of its existence or being. It is
inconceivable for a bank to grant loans for which it will not charge
any interest at all. We fail to find justification for the Court of Appeals
outright deletion of the payment of interest as agreed upon in the
respective promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to RCBC, the
following rules of thumb laid down by this Court in Eastern Shipping
Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to
wit:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in
writing.Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
65
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest
shall begin to run only from the date of the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each
specific promissory note as summarized and tabulated by the trial court
in its decision (pp.470 and 471, Record) such agreed interest rates must
be followed. This is very clear from paragraph II, sub-paragraph 1 quoted
above.
On the issue of payment of surcharges and penalties, we partly agree
that GOYUs pitiful situation must be taken into account. We do not agree,
however, that payment of any amount as surcharges and penalties
should altogether be deleted. Even assuming that RCBC, through its
responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may
have relayed its assurance for assistance to GOYU immediately after the
occurrence of the fire, we cannot accept the lower courts finding that
RCBC had thereby ipso facto effectively waived collection of any
additional interests, surcharges, and penalties from GOYU. Assurances of
assistance are one thing, but waiver of additional interests, surcharges,
and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of
default partake of the nature of liquidated damages, covered by Section
4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or
penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each
case. It should be stressed that the Court will not make any sweeping
ruling that surcharges and penalties imposed by banks for non-payment
of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one case,
may be totally just and equitable in another. This provision of law will
have to be applied to the established facts of any given case. Given the
circumstances under which GOYU found itself after the occurrence of the
fire, the Court rules the surcharges rates ranging anywhere from 9% to
27%, plus the penalty charges of 36%, to be definitely iniquitous and
unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYUs offer to pay the amount
of P116,301,992.60 to RCBC as March 1993 (See: Exhibit BB), which
RCBC refused, we find it more in keeping with justice and equity for RCBC
not to charge additional interest, surcharges, and penalties from that
time onward.
Given the factual milieu spread hereover, we rule that it was error to hold
MICO liable in damages for denying or withholding the proceeds of the
insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements
of the insurance policies, RCBC has the right to claim the insurance
proceeds, in substitution of the property lost in the fire. Having assigned
its rights, GOYU lost its standing as the beneficiary of the said insurance
policies.
Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must
be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs.
CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an
insurer may in good faith and honesty entertain a difference of opinion as
to its liability. Accordingly, the statutory penalty for vexatious refusal
of an insurer to pay a claim should not be inflicted unless the
evidence and circumstances show that such refusal was willful and
without reasonable cause as the facts appear to a reasonable and
prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53,
70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65
Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW
47, 45 ALR 189). The case at bar does not show that MICO wantonly
and in bad faith delayed the release of the proceeds. The problem in
the determination of who is the actual beneficiary of the insurance
policies, aggravated by the claim of various creditors who wanted to
partake of the insurance proceeds, not to mention the importance of
the endorsement to RCBC, to our mind, and as now borne out by the
outcome herein, justified MICO in withholding payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals
said that RCBC cannot avail itself of two simultaneous remedies in
enforcing the claim of an unpaid creditor, one for specific
performance and the other for foreclosure. In doing so, said the
appellate court, the second action is deemed barred, RCBC having
split a single cause of action (Rollo, pp. 195-199). The Court of
Appeals was too accommodating in giving due consideration to this
argument of GOYU, for the foreclosure suit is still pending appeal
before the same Court of Appeals in CA G.R CV No. 46247, the case
having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth
Division of the Court of Appeals pre-empted the resolution of said
foreclosure case which is not before it. This is plain reversible error if
not grave abuse of discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to
merely set aside the questioned orders of the trial court for having
been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner from entering in and
interfering with the use or occupation and enjoyment of petitioners
(now private respondent) residential house and compound, the
appellate court in effect, precipitately resolved with finality the case
for injunction that was yet to be heard on the merits by the lower
court. Elevated to the appellate court, it might be stressed, were
mere incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA
69, we ruled that the Court of Appeals would have no jurisdiction in
a certiorari proceeding involving an incident in a case to rule on the
merits of the main case itself which was not on appeal before it.
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before
the Zamboanga Regional Trial Court, since it has been determined
that RCBC has the right to the insurance proceeds, the subject
matter of intervention is rendered moot and academic. Respondent
Sebastian must, however, yield to the preferential right of RCBC over
the MICO insurance policies. It is basic and fundamental that the first
mortgagee has superior rights over junior mortgagees or attaching
creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil.
271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision
and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV
No. 46162 are hereby REVERSED and SET ASIDE, and a new one
entered:
1. Dismissing the Complaint of private respondent GOYU in Civil Case
No. 93-65442 before Branch 3 of the Manila Regional Trial Court for
lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal
Commercial Banking Corporation the proceeds of the insurance
policies in the amount of P51,862,390.94 (per report of adjuster
66
Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60
including the interests earned to Rizal Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal
Commercial Banking Corporation in the principal amount of
P107,246,887.90, with interest at the respective rates stipulated in each
promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9,
1993, minus payments made by Malayan Insurance Company, Inc. and
the proceeds of the amount deposited with the trial court and its earned
interest. The total amount due RCBC at the time of the finality of this
judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the
respondent Court in CA-GR CV 48376 is DISMISSED for being moot and
academic in view of the results herein arrived at.Respondent Sebastians
right as attaching creditor must yield to the preferential rights of Rizal
Commercial Banking Corporation over the Malayan insurance policies as
first mortgagee.
SO ORDERED.
G.R. No. 184300 July 11, 2012
MALAYAN INSURANCE CO., INC., vs. PHILIPPINES FIRST
INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES,
INC.,
Before the Court is a petitiOn for review on certiorari filed by petitioner
Malayan Insurance Co., lnc. (Malayan) assailing the Decision 1 dated
February 29, 2008 and Resolution2 dated August 28, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification
the decision of the Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable
Forwarder Services, Inc. (Reputable) had been annually executing a
contract of carriage, whereby the latter undertook to transport and
deliver the formers products to its customers, dealers or salesmen. 3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797
(Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. Philippines
First thereby insured Wyeths nutritional, pharmaceutical and other
products usual or incidental to the insureds business while the same
were being transported or shipped in the Philippines. The policy covers all
risks of direct physical loss or damage from any external cause, if by
land, and provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage
with Reputable. It turned out, however, that the contract was not signed
by Wyeths representative/s.4 Nevertheless, it was admittedly signed by
Reputables representatives, the terms thereof faithfully observed by the
parties and, as previously stated, the same contract of carriage had been
annually executed by the parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with
respect to the goods and shall be liable to the COMPANY (Wyeth), for the
loss, destruction, or damage of the goods/products due to any and all
causes whatsoever, including theft, robbery, flood, storm, earthquakes,
lightning, and other force majeure while the goods/products are in transit
and until actual delivery to the customers, salesmen, and dealers of the
COMPANY".6
The contract also required Reputable to secure an insurance policy on
Wyeths goods.7 Thus, on February 11, 1994, Reputable signed a Special
Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount
of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and
SR Policy, Reputable received from Wyeth 1,000 boxes of Promil
infant formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the
same date, the truck carrying Wyeths products was hijacked by
about 10 armed men. They threatened to kill the truck driver and
two of his helpers should they refuse to turn over the truck and its
contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and
adjustment, and pursuant to the Marine Policy, paid Wyeth
P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the
rights of Wyeth by virtue of the payment. The latter, however,
ignored the demand.
Consequently, Philippines First instituted an action for sum of money
against Reputable on August 12, 1996.8 In its complaint, Philippines
First stated that Reputable is a "private corporation engaged in the
business of a common carrier." In its answer,9 Reputable claimed
that it is a private carrier. It also claimed that it cannot be made
liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeths representative and that the cause of the
loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party
defendant in an effort to collect the amount covered in the SR Policy.
According to Reputable, "it was validly insured with Malayan for
P1,000,000.00 with respect to the lost products under the latters
Insurance Policy No. SR-0001-02577 effective February 1, 1994 to
February 1, 1995" and that the SR Policy covered the risk of robbery
or hijacking.10
Disclaiming any liability, Malayan argued, among others, that under
Section 5 of the SR Policy, the insurance does not cover any loss or
damage to property which at the time of the happening of such loss
or damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.
After trial, the RTC rendered its Decision 11 finding Reputable liable to
Philippines First for the amount of indemnity it paid to Wyeth, among
others. In turn, Malayan was found by the RTC to be liable to
Reputable to the extent of the policy coverage. The dispositive
portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered
finding [Reputable] liable for the loss of the Wyeth products and
orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by
Philippines First to Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid
by Philippines First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the
insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective
appeals from the RTC decision.
67
Reputable asserted that the RTC erred in holding that its contract of
carriage with Wyeth was binding despite Wyeths failure to sign the
same. Reputable further contended that the provisions of the contract
are unreasonable, unjust, and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not
cover any loss or damage to property which at the time of the happening
of such loss or damage is insured by or would but for the existence of this
policy, be insured by any Fire or Marine policy or policies except in
respect of any excess beyond the amount which would have been
payable under the Fire or Marine policy or policies had this insurance not
been effected.
Malayan argued that inasmuch as there was already a marine policy
issued by Philippines First securing the same subject matter against loss
and that since the monetary coverage/value of the Marine Policy is more
than enough to indemnify the hijacked cargo, Philippines First alone must
bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In
the alternative, it prayed that it be held liable for no more than
P468,766.70, its alleged pro-rata share of the loss based on the amount
covered by the policy, subject to the provision of Section 12 of the SR
Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage
happening to any property hereby insured, there be any other subsisting
insurance or insurances, whether effected by the insured or by any other
person or persons, covering the same property, the company shall not be
liable to pay or contribute more than its ratable proportion of such loss or
damage.
On February 29, 2008, the CA rendered the assailed decision sustaining
the ruling of the RTC, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29
September 2000, as modified in the Order dated 21 July 2001, is
AFFIRMED with MODIFICATION in that the award of attorneys fees in
favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from
assailing the validity of the contract of carriage on the ground of lack of
signature of Wyeths representative/s; (2) Reputable is liable under the
contract for the value of the goods even if the same was lost due to
fortuitous event; and (3) Section 12 of the SR Policy prevails over Section
5, it being the latter provision; however, since the ratable proportion
provision of Section 12 applies only in case of double insurance, which is
not present, then it should not be applied and Malayan should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00. 14
On March 14, 2008, Malayan moved for reconsideration of the assailed
decision but it was denied by the CA in its Resolution dated August 28,
2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the
"statutory limitations on the liability of common carriers" and the
"difference between an other insurance clause and an over insurance
clause."
Malayan also contends that the CA erred when it held that Reputable is a
private carrier and should be bound by the contractual stipulations in the
contract of carriage. This argument is based on its assertion that
Philippines First judicially admitted in its complaint that Reputable is a
common carrier and as such, Reputable should not be held liable
pursuant to Article 1745(6) of the Civil Code. 16 Necessarily, if Reputable is
not liable for the loss, then there is no reason to hold Malayan liable to
Reputable.
Further, Malayan posits that there resulted in an impairment of
contract when the CA failed to apply the express provisions of
Section 5 (referred to by Malayan as over insurance clause) and
Section 12 (referred to by Malayan as other insurance clause) of its
SR Policy as these provisions could have been read together there
being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for
acts committed by thieves/robbers who act with grave or irresistible
threat whether it is a common carrier or a private/special carrier. It,
however, maintains the correctness of the CA ruling that Malayan is
liable to Philippines First for the full amount of its policy coverage
and not merely a ratable portion thereof under Section 12 of the SR
Policy.
Finally, Philippines First contends that the factual finding that
Reputable is a private carrier should be accorded the highest degree
of respect and must be considered conclusive between the parties,
and that a review of such finding by the Court is not warranted under
the circumstances. As to its alleged judicial admission that Reputable
is a common carrier, Philippines First proffered the declaration made
by Reputable that it is a private carrier. Said declaration was
allegedly reiterated by Reputable in its third party complaint, which
in turn was duly admitted by Malayan in its answer to the said third-
party complaint. In addition, Reputable even presented evidence to
prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy,
Philippines First reiterated the ruling of the CA. Philippines First,
however, prayed for a slight modification of the assailed decision,
praying that Reputable and Malayan be rendered solidarily liable to it
in the amount of P998,000.00, which represents the balance from
the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy. 17
Issues
The liability of Malayan under the SR Policy hinges on the following
issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its
contract of carriage with Wyeth, such that it should be liable for any
risk of loss or damage, for any cause whatsoever, including that due
to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5
and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan
for the amount of P998,000.00 due to Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private
carrier. Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respect and considered
conclusive between the parties, save for certain exceptional and
meritorious circumstances, none of which are present in this case. 18
Malayan relies on the alleged judicial admission of Philippines First in
its complaint that Reputable is a common carrier.19 Invoking Section
4, Rule 129 of the Rules on Evidence that "an admission verbal or
written, made by a party in the course of the proceeding in the same
case, does not require proof," it is Malayans position that the RTC
and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article
1745(6) of the Civil Code, the liability of Reputable for the loss of
Wyeths goods should be dispensed with, or at least diminished.
68
It is true that judicial admissions, such as matters alleged in the
pleadings do not require proof, and need not be offered to be considered
by the court. "The court, for the proper decision of the case, may and
should consider, without the introduction of evidence, the facts admitted
by the parties."20 The rule on judicial admission, however, also states that
such allegation, statement, or admission is conclusive as against the
pleader,21 and that the facts alleged in the complaint are deemed
admissions of the plaintiff and binding upon him. 22 In this case, the
pleader or the plaintiff who alleged that Reputable is a common carrier
was Philippines First. It cannot, by any stretch of imagination, be made
conclusive as against Reputable whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy
between Wyeth and Reputable; rather, it is a mere subrogee to the right
of Wyeth to collect from Reputable under the terms of the contract of
carriage. Philippines First is not in any position to make any admission,
much more a definitive pronouncement, as to the nature of Reputables
business and there appears no other connection between Philippines First
and Reputable which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines
First was essentially disputed by Reputable when it stated in paragraphs
2, 4, and 11 of its answer that it is actually a private or special
carrier.23 In addition, Reputable stated in paragraph 2 of its third-party
complaint that it is "a private carrier engaged in the carriage of
goods."24 Such allegation was, in turn, admitted by Malayan in paragraph
2 of its answer to the third-party complaint. 25 There is also nothing in the
records which show that Philippines First persistently maintained its
stance that Reputable is a common carrier or that it even contested or
proved otherwise Reputables position that it is a private or special
carrier.
Hence, in the face of Reputables contrary admission as to the nature of
its own business, what was stated by Philippines First in its complaint is
reduced to nothing more than mere allegation, which must be proved for
it to be given any weight or value. The settled rule is that mere allegation
is not proof.26
More importantly, the finding of the RTC and CA that Reputable is a
special or private carrier is warranted by the evidence on record,
primarily, the unrebutted testimony of Reputables Vice President and
General Manager, Mr. William Ang Lian Suan, who expressly stated in
open court that Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of carrying
or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public. On the other hand, a
private carrier is one wherein the carriage is generally undertaken by
special agreement and it does not hold itself out to carry goods for the
general public.28 A common carrier becomes a private carrier when it
undertakes to carry a special cargo or chartered to a special person
only.29 For all intents and purposes, therefore, Reputable operated as a
private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of
carriage.
The extent of a private carriers obligation is dictated by the stipulations
of a contract it entered into, provided its stipulations, clauses, terms and
conditions are not contrary to law, morals, good customs, public order, or
public policy. "The Civil Code provisions on common carriers should not
be applied where the carrier is not acting as such but as a private carrier.
Public policy governing common carriers has no force where the public at
large is not involved."30
Thus, being a private carrier, the extent of Reputables liability is fully
governed by the stipulations of the contract of carriage, one of which is
that it shall be liable to Wyeth for the loss of the goods/products due to
any and all causes whatsoever, including theft, robbery and other force
majeure while the goods/products are in transit and until actual delivery
to Wyeths customers, salesmen and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance
clause" and to Section 12 as a "modified other insurance
clause".32 In rendering inapplicable said provisions in the SR Policy,
the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the
other insurance would be sufficient to cover the entire amount of the
loss, it is in direct conflict with Sec. 12 which provides only for a pro-
rated contribution between the two insurers. Being the later
provision, and pursuant to the rules on interpretation of contracts,
Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given
effect as against the wordings of Sec. 12 of their contract, as it was
intended by the parties to operate only in case of double insurance,
or where the benefits of the policies of both plaintiff-appellee and
Malayan should pertain to Reputable alone. But since the court a quo
correctly ruled that there is no double insurance in this case
inasmuch as Reputable was not privy thereto, and therefore did not
stand to benefit from the policy issued by plaintiff-appellee in favor
of Wyeth, then Malayans stand should be rejected.
To rule that Sec. 12 operates even in the absence of double
insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not stand to
benefit. Plainly, this unfair situation could not have been the
intention of both Reputable and Malayan in signing the insurance
contract in question.33
In questioning said ruling, Malayan posits that Sections 5 and 12 are
separate provisions applicable under distinct circumstances. Malayan
argues that "it will not be completely absolved under Section 5 of its
policy if it were the assured itself who obtained additional insurance
coverage on the same property and the loss incurred by Wyeths
cargo was more than that insured by Philippines Firsts marine policy.
On the other hand, Section 12 will not completely absolve Malayan if
additional insurance coverage on the same cargo were obtained by
someone besides Reputable, in which case Malayans SR policy will
contribute or share ratable proportion of a covered cargo loss." 34
Malayans position cannot be countenanced.
Section 5 is actually the other insurance clause (also called
"additional insurance" and "double insurance"), one akin to Condition
No. 3 in issue in Geagonia v. CA,35 which validity was upheld by the
Court as a warranty that no other insurance exists. The Court ruled
that Condition No. 336 is a condition which is not proscribed by law as
its incorporation in the policy is allowed by Section 75 of the
Insurance Code. It was also the Courts finding that unlike the other
insurance clauses, Condition No. 3 does not absolutely declare void
any violation thereof but expressly provides that the condition "shall
not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.00."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does
not provide for the nullity of the SR Policy but simply limits the
liability of Malayan only up to the excess of the amount that was not
covered by the other insurance policy. In interpreting the "other
insurance clause" in Geagonia, the Court ruled that the prohibition
applies only in case of double insurance. The Court ruled that in
order to constitute a violation of the clause, the other insurance
must be upon same subject matter, the same interest therein, and
the same risk. Thus, even though the multiple insurance policies
involved were all issued in the name of the same assured, over the
same subject matter and covering the same risk, it was ruled that
there was no violation of the "other insurance clause" since there
was no double insurance.
69
Section 12 of the SR Policy, on the other hand, is the over insurance
clause. More particularly, it covers the situation where there is over
insurance due to double insurance. In such case, Section 15 provides that
Malayan shall "not be liable to pay or contribute more than its ratable
proportion of such loss or damage." This is in accord with the principle of
contribution provided under Section 94(e) of the Insurance Code, 37 which
states that "where the insured is over insured by double insurance, each
insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable
under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double
insurance. The pivotal question that now arises is whether there is double
insurance in this case such that either Section 5 or Section 12 of the SR
Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double
insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in
order for double insurance to arise are as follows:38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR
Policy were both issued over the same subject matter, i.e. goods
belonging to Wyeth, and both covered the same peril insured against, it
is, however, beyond cavil that the said policies were issued to two
different persons or entities. It is undisputed that Wyeth is the recognized
insured of Philippines First under its Marine Policy, while Reputable is the
recognized insured of Malayan under the SR Policy. The fact that
Reputable procured Malayans SR Policy over the goods of Wyeth
pursuant merely to the stipulated requirement under its contract of
carriage with the latter does not make Reputable a mere agent of Wyeth
in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance
contracts is also different and distinct from that of Reputables. The
policy issued by Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the other hand, what
was issued by Malayan to Reputable was over the latters insurable
interest over the safety of the goods, which may become the basis of the
latters liability in case of loss or damage to the property and falls within
the contemplation of Section 15 of the Insurance Code.39
Therefore, even though the two concerned insurance policies were issued
over the same goods and cover the same risk, there arises no double
insurance since they were issued to two different persons/entities having
distinct insurable interests. Necessarily, over insurance by double
insurance cannot likewise exist. Hence, as correctly ruled by the RTC and
CA, neither Section 5 nor Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the
controversial provisions of the SR Policy against Malayan.1wphi1 This is
in keeping with the rule that:
"Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double
insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it
was not a party to and much less, from which it did not stand to
benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation
so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the
Court ruled that:
Where the insurance contract provides for indemnity against liability
to third persons, the liability of the insurer is direct and such third
persons can directly sue the insurer. The direct liability of the insurer
under indemnity contracts against third party[- ]liability does not
mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being
held liable under different obligations. The liability of the insured
carrier or vehicle owner is based on tort, in accordance with the
provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy: 43 (Citation omitted and
emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities
arose from different obligations- Malayan's is based on the SR Policy
while Reputable's is based on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to
be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The
Decision dated February 29, 2008 and Resolution dated August 28,
2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby
AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc
G.R. No. 136914 January 25, 2002
COUNTRY BANKERS INSURANCE CORPORATION,
vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC.,
Before us is a petition for review on certiorari of the Decision 1 of the
Court of Appeals2 dated December 29, 1998 in CA-G.R. CV Case No.
36902 affirming in toto the Decision3 dated December 26, 1991 of
the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil
Case No. L-518 which ordered petitioner Country Bankers Insurance
Corporation to fully pay the insurance claim of respondent Lianga
Bay and Community Multi-Purpose Cooperative, Inc., under Fire
Insurance Policy No. F-1397, for loss sustained as a result of the fire
that occurred on July 1, 1989 in the amount of Two Hundred
Thousand Pesos (P200,000.00), with interest at twelve percent (12%)
per annum from the date of filing of the complaint until fully paid, as
well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty
Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand
Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos
(P10,000.00) as attorneys fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the
insurance business wherein it undertakes, for a consideration, to
indemnify another against loss, damage or liability from an unknown
or contingent event including fire while the respondent is a duly
registered cooperative judicially declared insolvent and represented
by the elected assignee, Cornelio Jamero.
70
It appears that sometime in 1989, the petitioner and the respondent
entered into a contract of fire insurance. Under Fire Insurance Policy No.
F-1397, the petitioner insured the respondents stocks-in-trade against
fire loss, damage or liability during the period starting from June 20, 1989
at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred
Thousand Pesos (P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondents building located
at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and
reduced to ashes, resulting in the total loss of the respondents stocks-in-
trade, pieces of furnitures and fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the
petitioner under its Fire Insurance Policy No. F-1397, submitting: (a) the
Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989;
(b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement
of Ernesto Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that,
based on the submitted documents, the building was set on fire by two
(2) NPA rebels who wanted to obtain canned goods, rice and medicines
as provisions for their comrades in the forest, and that such loss was an
excepted risk under paragraph No. 6 of the policy conditions of Fire
Insurance Policy No. F-1397, which provides:
This insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly, of any of the following
occurrences, namely:
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion,
revolution, military or usurped power.
Any loss or damage happening during the existence of abnormal
conditions (whether physical or otherwise) which are occasioned by or
through or in consequence, directly or indirectly, of any of said
occurrences shall be deemed to be loss or damage which is not covered
by this insurance, except to the extent that the Insured shall prove that
such loss or damage happened independently of the existence of such
abnormal conditions.
Finding the denial of its claim unacceptable, the respondent then
instituted in the trial court the complaint for recovery of "loss, damage or
liability" against petitioner. The petitioner answered the complaint and
reiterated the ground it earlier cited to deny the insurance claim, that is,
that the loss was due to NPA rebels, an excepted risk under the fire
insurance policy.
In due time, the trial court rendered its Decision dated December 26,
1991 in favor of the respondent, declaring that:
Based on its findings, it is therefore the considered opinion of this Court,
as it so holds, that the defenses raised by defendant-Country Bankers
has utterly crumbled on account of its inherent weakness, incredibility
and unreliability, and after applying those helpful tools like common
sense, logic and the Courts honest appraisal of the real and actual
situation obtaining in this area, such defenses remains (sic) unimpressive
and unconvincing, and therefore, the defendant-Country Bankers has to
be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent
Cooperative, represented in this action by its Assignee, Cornelio Jamero,
and thus, ordering said defendant-Country Bankers to pay the plaintiff-
Insolvent Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff
sustained as a result of the fire under its Fire Insurance Policy No. F-1397
in its full face value of P200,000.00 with interest of 12% per annum from
date of filing of the complaint until the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in
the total sum of P50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum
of P50,000.00;
4. To pay in the concept of litigation expenses the sum of P5,000.00;
5. To pay by way of reimbursement the attorneys fees in the sum
of P10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the
"counterclaim" is dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On
December 29, 1998, the appellate court affirmed the challenged
decision of the trial court in its entirety. Petitioner now comes before
us via the instant petition anchored on three (3) assigned errors, 4 to
wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO
APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF
PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT
OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENTS STOCK-
IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN
EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE
FACE VALUE OF THE POLICY FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY
DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND
COST OF SUIT.
A party is bound by his own affirmative allegations. This is a well-
known postulate echoed in Section 1 of Rule 131 of the Revised
Rules of Court. Each party must prove his own affirmative allegations
by the amount of evidence required by law which in civil cases, as in
this case, is preponderance of evidence, to obtain a favorable
judgment.5
In the instant case, the petitioner does not dispute that the
respondents stocks-in-trade were insured against fire loss, damage
or liability under Fire Insurance Policy No. F- 1397 and that the
respondent lost its stocks-in-trade in a fire that occurred on July 1,
1989, within the duration of said fire insurance. The petitioner,
however, posits the view that the cause of the loss was an excepted
risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures
against other perils or hazards, loss from such a risk constitutes a
defense which the insurer may urge, since it has not assumed that
risk, and from this it follows that an insurer seeking to defeat a claim
because of an exception or limitation in the policy has the burden of
proving that the loss comes within the purview of the exception or
limitation set up. If a proof is made of a loss apparently within a
contract of insurance, the burden is upon the insurer to prove that
the loss arose from a cause of loss which is excepted or for which it
is not liable, or from a cause which limits its liability. 6 Stated else
wise, since the petitioner in this case is defending on the ground of
non-coverage and relying upon an exemption or exception clause in
the fire insurance policy, it has the burden of proving the facts upon
which such excepted risk is based, by a preponderance of
evidence.7 But petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and
Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V.
Juarbal dated July 1, 1989, more particularly the following statement
therein:
xxx investigation revealed by Jose Lomocso that those armed men
wanted to get can goods and rice for their consumption in the forest
71
PD investigation further disclosed that the perpetrator are member (sic)
of the NPA PD end x x x
A witness can testify only to those facts which he knows of his personal
knowledge, which means those facts which are derived from his
perception.8 Consequently, a witness may not testify as to what he
merely learned from others either because he was told or read or heard
the same. Such testimony is considered hearsay and may not be
received as proof of the truth of what he has learned. Such is the hearsay
rule which applies not only to oral testimony or statements but also to
written evidence as well.9
The hearsay rule is based upon serious concerns about the
trustworthiness and reliability of hearsay evidence inasmuch as such
evidence are not given under oath or solemn affirmation and, more
importantly, have not been subjected to cross-examination by opposing
counsel to test the perception, memory, veracity and articulateness of
the out-of-court declarant or actor upon whose reliability on which the
worth of the out-of-court statement depends. 10
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are
inadmissible in evidence, for being hearsay, inasmuch as they did not
take the witness stand and could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in
official records.11 To be admissible in evidence, however, three (3)
requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person
specially enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties,
or by such other person in the performance of a duty specially enjoined
by law; and
(c) that the public officer or other person had sufficient knowledge of the
facts by him stated, which must have been acquired by him personally or
through official information.12
The third requisite was not met in this case since no investigation,
independent of the statements gathered from Jose Lomocso, was
conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed
out, citing the testimony of Pfc. Arturo Juarbal,13 the latters Spot Report
"was based on the personal knowledge of the caretaker Jose Lomocso
who witnessed every single incident surrounding the facts and
circumstances of the case." This argument undeniably weakens the
petitioners defense, for the Spot Report of Pfc. Arturo Juarbal relative to
the statement of Jose Lomocso to the effect that NPA rebels allegedly set
fire to the respondents building is inadmissible in evidence, for the
purpose of proving the truth of the statements contained in the said
report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of
the testimony of Pfc. Arturo V. Juarbal since he himself took the witness
stand and was available for cross-examination. The portions of his Spot
Report which were of his personal knowledge or which consisted of his
perceptions and conclusions are not hearsay. The rest of the said report
relative to the statement of Jose Lomocso may be considered as
independently relevant statements gathered in the course of Juarbals
investigation and may be admitted as such but not necessarily to prove
the truth thereof.14
The petitioners evidence to prove its defense is sadly wanting and thus,
gives rise to its liability to the respondent under Fire Insurance Policy No.
F-1397. Nonetheless, we do not sustain the trial courts imposition of
twelve percent (12%) interest on the insurance claim as well as the
monetary award for actual and exemplary damages, litigation expenses
and attorneys fees for lack of legal and valid basis.
Concerning the application of the proper interest rates, the following
guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals
and Mercantile Insurance Co., Inc.:15
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts, is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
In the said case of Eastern Shipping, the Court further observed that
a "forbearance" in the context of the usury law is a "contractual
obligation of lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay a loan or debt
then due and payable."
Considering the foregoing, the insurance claim in this case is
evidently not a forbearance of money, goods or credit, and thus the
interest rate should be as it is hereby fixed at six percent (6%)
computed from the date of filing of the complaint.
We find no justification for the award of actual damages of Fifty
Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that
actual, compensatory and consequential damages must be proved,
and cannot be presumed.16That part of the dispositive portion of the
Decision of the trial court ordering the petitioner to pay actual
damages of Fifty Thousand Pesos (P50,000.00) has no basis at all.
The justification, if any, for such an award of actual damages does
not appear in the body of the decision of the trial court. Neither is
there any testimonial and documentary evidence on the alleged
actual damages of Fifty Thousand Pesos (P50,000.00) to warrant
such an award. Thus, the same must be deleted.
Concerning the award of exemplary damages for Fifty Thousand
Pesos (P50,000.00), we likewise find no legal and valid basis for
granting the same. Article 2229 of the New Civil Code provides that
exemplary damages may be imposed by way of example or
correction for the public good. Exemplary damages are imposed not
to enrich one party or impoverish another but to serve as a deterrent
against or as a negative incentive to curb socially deleterious
actions. They are designed to permit the courts to mould behavior
that has socially deleterious consequences, and its imposition is
72
required by public policy to suppress the wanton acts of an offender.
However, it cannot be recovered as a matter of right. It is based entirely
on the discretion of the court. We find no cogent and valid reason to
award the same in the case at bar.
With respect to the award of litigation expenses and attorneys fees,
Article 2208 of the New Civil Code 17enumerates the instances where such
may be awarded and, in all cases, it must be reasonable, just and
equitable if the same were to be granted. Attorneys fees as part of
damages are not meant to enrich the winning party at the expense of the
losing litigant. They are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to
litigate.18 The award of attorneys fees is the exception rather than the
general rule. As such, it is necessary for the court to make findings of
facts and law that would bring the case within the exception and justify
the grant of such award. We find none in this case to warrant the award
by the trial court of litigation expenses and attorneys fees in the
amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos
(P10,000.00), respectively, and therefore, the same must also be deleted.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest
on the adjudged principal amount of Two Hundred Thousand Pesos
(P200,000.00) shall be six percent (6%) per annum computed from the
date of filing of the Complaint in the trial court. The awards in the
amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty
Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand
Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos
(P10,000.00) as attorneys fees are hereby DELETED. Costs against the
petitioner.
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC.
vs. THE HON. COURT OF APPEALS and AMERICAN HOME
ASSURANCE CORPORATION,
Before us is a petition for review on certiorari of the Decision 1 of the
Court of Appeals in CA-G.R. CV No. 39836 promulgated on June 17, 1996,
reversing the decision of the Regional Trial Court of Makati City, Branch
137, ordering petitioner to pay private respondent the sum of Five Million
Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven
Centavos (P5,096,635.57) and costs and the Resolution 2 dated January
21, 1997 which denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a
contract of affreightment with the petitioner, Delsan Transport Lines, Inc.,
for a period of one year whereby the said common carrier agreed to
transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to
different parts of the country. Under the contract, petitioner took on
board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of
Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The
shipment was insured with the private respondent, American Home
Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga
City. Unfortunately, the vessel sank in the early morning of August 16,
1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel
oil.
Subsequently, private respondent paid Caltex the sum of Five Million
Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven
Centavos (P5,096,635.67) representing the insured value of the lost
cargo. Exercising its right of subrogation under Article 2207 of the New
Civil Code, the private respondent demanded of the petitioner the same
amount it paid to Caltex.1wphi1.nt
Due to its failure to collect from the petitioner despite prior demand,
private respondent filed a complaint with the Regional Trial Court of
Makati City, Branch 137, for collection of a sum of money. After the trial
and upon analyzing the evidence adduced, the trial court rendered a
decision on November 29, 1990 dismissing the complaint against herein
petitioner without pronouncement as to cost. The trial court found that
the vessel, MT Maysum, was seaworthy to undertake the voyage as
determined by the Philippine Coast Guard per Survey Certificate Report
No. M5-016-MH upon inspection during its annual dry-docking and
that the incident was caused by unexpected inclement weather
condition or force majeure, thus exempting the common carrier
(herein petitioner) from liability for the loss of its cargo. 3
The decision of the trial court, however, was reversed, on appeal, by
the Court of Appeals. The appellate court gave credence to the
weather report issued by the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAGASA for brevity) which
showed that from 2:00 oclock to 8:oo oclock in the morning on
August 16, 1986, the wind speed remained at 10 to 20 knots per
hour while the waves measured from .7 to two (2) meters in height
only in the vicinity of the Panay Gulf where the subject vessel sank,
in contrast to herein petitioners allegation that the waves were
twenty (20) feet high. In the absence of any explanation as to what
may have caused the sinking of the vessel coupled with the finding
that the same was improperly manned, the appellate court ruled that
the petitioner is liable on its obligation as common carrier 4 to herein
private respondent insurance company as subrogee of Caltex. The
subsequent motion for reconsideration of herein petitioner was
denied by the appellate court.
Petitioner raised the following assignments of error in support of the
instant petition,5 to wit:
I THE COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE REGIONAL TRIAL COURT.
II THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN
REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT
"MAYSUN" WAS SEAWORTHY.
III THE COURT OF APPEALS ERRED IN NOT APPLYING THE
DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME
INSURANCE CORPORATION V. COURT OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of
Section 113 of the Insurance Code of the Philippines, which states
that in every marine insurance upon a ship or freight, or freightage,
or upon any thin which is the subject of marine insurance there is an
implied warranty by the shipper that the ship is seaworthy.
Consequently, the insurer will not be liable to the assured for any
loss under the policy in case the vessel would later on be found as
not seaworthy at the inception of the insurance. It theorized that
when private respondent paid Caltex the value of its lost cargo, the
act of the private respondent is equivalent to a tacit recognition that
the ill-fated vessel was seaworthy; otherwise, private respondent
was not legally liable to Caltex due to the latters breach of implied
warranty under the marine insurance policy that the vessel was
seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling
that MT Maysun was not seaworthy on the ground that the marine
officer who served as the chief mate of the vessel, Francisco Berina,
was allegedly not qualified. Under Section 116 of the Insurance Code
of the Philippines, the implied warranty of seaworthiness of the
vessel, which the private respondent admitted as having been
fulfilled by its payment of the insurance proceeds to Caltex of its lost
cargo, extends to the vessels complement. Besides, petitioner avers
that although Berina had merely a 2 nd officers license, he was
qualified to act as the vessels chief officer under Chapter IV(403),
Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and
Regulations. In fact, all the crew and officers of MT Maysun were
exonerated in the administrative investigation conducted by the
Board of Marine Inquiry after the subject accident. 6
In any event, petitioner further avers that private respondent failed,
for unknown reason, to present in evidence during the trial of the
instant case the subject marine cargo insurance policy it entered into
with Caltex. By virtue of the doctrine laid down in the case of Home
Insurance Corporation vs. CA,7 the failure of the private respondent
to present the insurance policy in evidence is allegedly fatal to its
73
claim inasmuch as there is no way to determine the rights of the parties
thereto.
Hence, the legal issues posed before the Court are:
I Whether or not the payment made by the private respondent to
Caltex for the insured value of the lost cargo amounted to an admission
that the vessel was seaworthy, thus precluding any action for recovery
against the petitioner.
II Whether or not the non-presentation of the marine insurance
policy bars the complaint for recovery of sum of money for lack of cause
of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the
lost cargo operates as waiver of its (private respondent) right to enforce
the term of the implied warranty against Caltex under the marine
insurance policy. However, the same cannot be validly interpreted as an
automatic admission of the vessels seaworthiness by the private
respondent as to foreclose recourse against the petitioner for any liability
under its contractual obligation as a common carrier. The fact of payment
grants the private respondent subrogatory right which enables it to
exercise legal remedies that would otherwise be available to Caltex as
owner of the lost cargo against the petitioner common carrier. 8 Article
2207 of the New civil Code provides that:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote
and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice and good
conscience ought to pay.9 It is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment by the insurance company of the insurance
claim.10 Consequently, the payment made by the private respondent
(insurer) to Caltex (assured) operates as an equitable assignment to the
former of all the remedies which the latter may have against the
petitioner.
From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of passengers transported by
them, according to all the circumstance of each case. 11 In the event of
loss, destruction or deterioration of the insured goods, common carriers
shall be responsible unless the same is brought about, among others, by
flood, storm, earthquake, lightning or other natural disaster or
calamity.12 In all other cases, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence.13
In order to escape liability for the loss of its cargo of industrial fuel oil
belonging to Caltex, petitioner attributes the sinking of MT Maysun to
fortuitous even or force majeure. From the testimonies of Jaime Jarabe
and Francisco Berina, captain and chief mate, respectively of the ill-fated
vessel, it appears that a sudden and unexpected change of weather
condition occurred in the early morning of August 16, 1986; that at
around 3:15 oclock in the morning a squall ("unos") carrying strong
winds with an approximate velocity of 30 knots per hour and big waves
averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT
Maysun causing it to tilt, take in water and eventually sink with its
cargo.14 This tale of strong winds and big waves by the said officers of the
petitioner however, was effectively rebutted and belied by the weather
report15 from the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA), the independent government agency
charged with monitoring weather and sea conditions, showing that
from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986,
the wind speed remained at ten (10) to twenty (20) knots per hour
while the height of the waves ranged from .7 to two (2) meters in the
vicinity of Cuyo East Pass and Panay Gulf where the subject vessel
sank. Thus, as the appellate court correctly ruled, petitioners vessel,
MT Maysun, sank with its entire cargo for the reason that it was not
seaworthy. There was no squall or bad weather or extremely poor
sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners
witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief
mate, respectively, of the said vessel, could not be expected to
testify against the interest of their employer, the herein petitioner
common carrier.
Neither may petitioner escape liability by presenting in evidence
certificates16 that tend to show that at the time of dry-docking and
inspection by the Philippine Coast Guard, the vessel MT Maysun, was
fit for voyage. These pieces of evidence do not necessarily take into
account the actual condition of the vessel at the time of the
commencement of the voyage. As correctly observed by the Court of
appeals:
At the time of dry-docking and inspection, the ship may have
appeared fit. The certificates issued, however, do not negate the
presumption of unseaworthiness triggered by an unexplained
sinking. Of certificates issued in this regard, authorities are likewise
clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the
granting of classification or the issuance of certificates established
seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of
seaworthiness does not satisfy the vessel owners obligation. Also
securing the approval of the shipper of the cargo, or his surveyor, of
the condition of the vessel or her stowage does not establish due
diligence if the vessel was in fact unseaworthy, for the cargo owner
has no obligation in relation to seaworthiness. (Ibid.)17
Additionally, the exoneration of MT Maysuns officers and crew by
the Board of Marine Inquiry merely concerns their respective
administrative liabilities. It does not in any way operate to absolve
the petitioner common carrier from its civil liabilities. It does not in
any way operate to absolve the petitioner common carrier from its
civil liability arising from its failure to observe extraordinary diligence
in the vigilance over the goods it was transporting and for the
negligent acts or omissions of its employees, the determination of
which properly belongs to the courts. 18 In the case at bar, petitioner
is liable for the insured value of the lost cargo of industrial fuel oil
belonging to Caltex for its failure to rebut the presumption of fault or
negligence as common carrier19 occasioned by the unexplained
sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the
presentation in evidence of the marine insurance policy is not
indispensable in this case before the insurer may recover from the
common carrier the insured value of the lost cargo in the exercise of
its subrogatory right. The subrogation receipt, by itself, is sufficient
to establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of
industrial fuel oil, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.20
The presentation of the insurance policy was necessary in the case
of Home Insurance Corporation v. CA 21 (a case cited by petitioner)
because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First,
from the shipper to the port of departure; second, from the port of
departure to the M/S Oriental Statesman; third, from the M/S Oriental
74
Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific
Conveyor to the port or arrival; fifth, from the port of arrival to the
arrastre operator; sixth, from the arrastre operator to the hauler,
Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly,
from the hauler to the consignee. We emphasized in that case that in the
absence of proof of stipulations to the contrary, the hauler can be liable
only for any damage that occurred from the time it received the cargo
until it finally delivered it to the consignee. Ordinarily, it cannot be held
responsible for the handling of the cargo before it actually received it.
The insurance contract, which was not presented in evidence in that case
would have indicated the scope of the insurers liability, if any, since no
evidence was adduced indicating at what stage in the handling process
the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said
case of Home Insurance Corporation is not applicable to the case at bar.
In contrast, there is no doubt that the cargo of industrial fuel oil
belonging to Caltex, in the case at bar, was lost while on board
petitioners vessel, MT Maysun, which sank while in transit in the vicinity
of Panay Gulf and Cuyo East Pass in the early morning of August 16,
1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17,
1996 of the Court of Appeals in CA-G.R. CV No. 39836
is AFFIRMED. Costs against the petitioner.
G.R. No. 200784 August 7, 2013
MALAYAN INSURANCE COMPANY, INC.,
vs. PAP CO., LTD. (PHIL. BRANCH),
Challenged in this petition for review on certiorari under Rule 45 of the
Rules of Court is the October 27, 2011 Decision 1 of the Court of Appeals
(CA), which affirmed with modification the September 17, 2009
Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its
February 24, 2012 Resolution3 denying the motion for reconsideration
filed by petitioner Malayan Insurance Company., Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the
CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire
Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the
latters machineries and equipment located at Sanyo Precision Phils.
Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building).
The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and
effective for a period of one (1) year, was procured by PAP Co. for Rizal
Commercial Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment.
After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-
000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to
May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy,
the insured machineries and equipment were totally lost by fire. Hence,
PAP Co. filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the
ground that, at the time of the loss, the insured machineries and
equipment were transferred by PAP Co. to a location different from that
indicated in the policy. Specifically, that the insured machineries were
transferred in September 1996 from the Sanyo Building to the Pace
Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace
Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid
liability as it was informed of the transfer by RCBC, the party duty-bound
to relay such information. However, Malayan reiterated its denial of PAP
Co.s claim. Distraught, PAP Co. filed the complaint below against
Malayan.4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering
Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss
under the fire insurance policy as well as for attorneys fees. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff. Defendant is hereby ordered:
a) To pay plaintiff the sum of FIFTEEN MILLION PESOS
(P15,000,000.00) as and for indemnity for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum
from the time of loss on October 12, 1997 until fully paid;
b) To pay plaintiff the sum of FIVE HUNDRED THOUSAND
PESOS (PhP500,000.00) as and by way of attorneys fees; [and,]
c) To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the
loss under the subject fire insurance policy because, although there
was a change in the condition of the thing insured as a result of the
transfer of the subject machineries to another location, said
insurance company failed to show proof that such transfer resulted
in the increase of the risk insured against. In the absence of proof
that the alteration of the thing insured increased the risk, the
contract of fire insurance is not affected per Article 169 of the
Insurance Code.
The RTC further stated that PAPs notice to Rizal Commercial Banking
Corporation (RCBC) sufficiently complied with the notice requirement
under the policy considering that it was RCBC which procured the
insurance. PAP acted in good faith in notifying RCBC about the
transfer and the latter even conducted an inspection of the
machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA
basically arguing that the trial court erred in ordering it to indemnify
PAP for the loss of the subject machineries since the latter, without
notice and/or consent, transferred the same to a location different
from that indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which
affirmed the RTC decision but deleted the attorneys fees. The
decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified,
Malayan Insurance Company must indemnify PAP Co. Ltd the amount
of Fifteen Million Pesos (PhP15,000,000.00) for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum
from the time of loss on October 12, 1997 until fully paid. However,
the Five Hundred Thousand Pesos (PhP500,000.00) awarded to PAP
Co., Ltd. as attorneys fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a
prohibition on the transfer of the insured properties during the
efficacy of the insurance policy. Malayan also failed to show that its
contractual consent was needed before carrying out a transfer of the
insured properties. Despite its bare claim that the original and the
renewed insurance policies contained provisions on transfer
limitations of the insured properties, Malayan never cited the specific
provisions.
The CA further stated that even if there was such a provision on
transfer restrictions of the insured properties, still Malayan could not
escape liability because the transfer was made during the
subsistence of the original policy, not the renewal policy. PAP
transferred the insured properties from the Sanyo Factory to the Pace
75
Pacific Building (Pace Factory) sometime in September 1996. Therefore,
Malayan was aware or should have been aware of such transfer when it
issued the renewal policy on May 14, 1997. The CA opined that since an
insurance policy was a contract of adhesion, any ambiguity must be
resolved against the party that prepared the contract, which, in this case,
was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the
insured properties increased the risk of the loss. It, thus, could not use
such transfer as an excuse for not paying the indemnity to PAP. Although
the insurance proceeds were payable to RCBC, PAP could still sue
Malayan to enforce its rights on the policy because it remained a party to
the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for
review anchored on the following
GROUNDS
I THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER
NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF
THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT AND THUS RULING IN THE QUESTIONED DECISION AND
RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE
INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER
MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE
FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE
IS AN AFFIRMATIVE WARRANTY OR A REPRESENTATION MADE BY THE
INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO
BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL
POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES
WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT
LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS
DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED.
THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED
OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE
INSURANCE CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT
COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF AN
AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED
PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN
TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED
IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE
CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE
REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE
BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE
CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE
FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE
WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF
THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS
UNREBUTTED BY RESPONDENT PAP CO.
II THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY,
THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE COURT
WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%)
INTEREST FROM THE TIME OF THE LOSS UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY
IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH
ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF
TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE
CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS
BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER
MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF
THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE
POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III THE COURT OF APPEALS HAS DECIDED THE CASE IN A
MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT AGREED WITH THE
TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO
RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE
CLAUSE IN THE INSURANCE POLICY.
IV THE COURT OF APPEALS ERRED AND DEPARTED FROM
ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE
QUESTIONED DECISION AND RESOLUTION THAT THE
INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE
ADOPTED.7
Malayan basically argues that it cannot be held liable under the
insurance contract because PAP committed concealment,
misrepresentation and breach of an affirmative warranty under the
renewal policy when it transferred the location of the insured
properties without informing it. Such transfer affected the correct
estimation of the risk which should have enabled Malayan to decide
whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayans ability to control the
risk by guarding against the increase of the risk brought about by
the change in conditions, specifically the change in the location of
the risk.
Malayan claims that PAP concealed a material fact in violation of
Section 27 of the Insurance Code 8 when it did not inform Malayan of
the actual and new location of the insured properties. In fact, before
the issuance of the renewal policy on May 14, 1997, PAP even
informed it that there would be no changes in the renewal policy.
Malayan also argues that PAP is guilty of breach of warranty under
the renewal policy in violation of Section 74 of the Insurance
Code9 when, contrary to its affirmation in the renewal policy that the
insured properties were located at the Sanyo Factory, these were
already transferred to the Pace Factory. Malayan adds that PAP is
guilty of misrepresentation upon a material fact in violation of
Section 45 of the Insurance Code10 when it informed Malayan that
there would be no changes in the original policy, and that the
original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of
proving that the transfer of the insured properties under the
insurance policy was with its knowledge and consent. Granting that
PAP informed RCBC of the transfer or change of location of the
insured properties, the same is irrelevant and does not bind Malayan
considering that RCBC is a corporation vested with separate and
distinct juridical personality. Malayan did not consent to be the
principal of RCBC. RCBC did not also act as Malayans representative.
With regard to the alleged increase of risk, Malayan insists that there
is evidence of an increase in risk as a result of the unilateral transfer
of the insured properties. According to Malayan, the Sanyo Factory
was occupied as a factory of automotive/computer parts by the
assured and factory of zinc & aluminum die cast and plastic gear for
copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449%
under 6.1.2 A, while Pace Factory was occupied as factory that
repacked silicone sealant to plastic cylinders with a rate of 0.657%
under 6.1.2 A.
PAPs position
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On the other hand, PAP counters that there is no evidence of any
misrepresentation, concealment or deception on its part and that its
claim is not fraudulent. It insists that it can still sue to protect its rights
and interest on the policy notwithstanding the fact that the proceeds of
the same was payable to RCBC, and that it can collect interest at the rate
of 12% per annum on the proceeds of the policy because its claim for
indemnity was unduly delayed without legal justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held
liable for the loss of the insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13,
1996, PAP obtained a ?15,000,000.00 fire insurance policy from Malayan
covering its machineries and equipment effective for one (1) year or until
May 13, 1997; that the policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6,
Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was
renewed11 on an "as is" basis for another year or until May 13, 1998; that
the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal
policy, a fire broke out at the Pace Factory which totally burned the
insured properties.
The policy forbade the removal of the insured properties unless
sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to
attach as regards the property affected unless the insured, before the
occurrence of any loss or damage, obtains the sanction of the company
signified by endorsement upon the policy, by or on behalf of the
Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other than in
that which is herein stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the
removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the
insurers consent, would free the latter from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan
regarding the removal
The records are bereft of any convincing and concrete evidence that
Malayan was notified of the transfer of the insured properties from the
Sanyo factory to the Pace factory. The Court has combed the records and
found nothing that would show that Malayan was duly notified of the
transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it
relayed the fact of transfer to RCBC, the entity which made the referral
and the named beneficiary in the policy. Malayan and RCBC might have
been sister companies, but such fact did not make one an agent of the
other. The fact that RCBC referred PAP to Malayan did not clothe it with
authority to represent and bind the said insurance company. After the
referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006
hearing,13 its counsel stipulated in open court that it was Malayans
authorized insurance agent, Rodolfo Talusan, who procured the original
policy from Malayan, not RCBC. This was the reason why Talusans
testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005, 14 PAPs
hostile witness, Alexander Barrera, Administrative Assistant of Malayan,
testified that he was the one who procured Malayans renewal policy, not
RCBC, and that RCBC merely referred fire insurance clients to Malayan.
He stressed, however, that no written referral agreement exists between
RCBC and Malayan. He also denied that PAP notified Malayan about the
transfer before the renewal policy was issued. He added that PAP,
through Maricar Jardiniano (Jardiniano), informed him that the fire
insurance would be renewed on an "as is basis." 15
Granting that any notice to RCBC was binding on Malayan, PAPs
claim that it notified RCBC and Malayan was not indubitably
established. At best, PAP could only come up with the hearsay
testimony of its principal witness, Branch Manager Katsumi Yoneda
(Mr. Yoneda), who testified as follows:
Q What did you do as Branch Manager of Pap Co. Ltd.?
A What I did I instructed my Secretary, because these
equipment was bank loan and because of the insurance I told my
secretary to notify.
Q To notify whom?
A I told my Secretary to inform the bank.
Q You are referring to RCBC?
A Yes, sir.
xxxx
Q After the RCBC was informed in the manner you stated,
what did you do regarding the new location of these properties at
Pace Pacific Bldg. insofar as Malayan Insurance Company is
concerned?
A After that transfer, we informed the RCBC about the transfer
of the equipment and also Malayan Insurance but we were not able
to contact Malayan Insurance so I instructed again my secretary to
inform Malayan about the transfer.
Q Who was the secretary you instructed to contact Malayan
Insurance, the defendant in this case?
A Dory Ramos.
Q How many secretaries do you have at that time in your
office?
A Only one, sir.
Q Do you know a certain Maricar Jardiniano?
A Yes, sir.
Q Why do you know her?
A Because she is my secretary.
Q So how many secretaries did you have at that time?
A Two, sir.
Q What happened with the instruction that you gave to your
secretary Dory Ramos about the matter of informing the defendant
Malayan Insurance Co of the new location of the insured properties?
A She informed me that the notification was already given to
Malayan Insurance.
Q Aside from what she told you how did you know that the
information was properly relayed by the said secretary, Dory Ramos,
to Malayan Insurance?
A I asked her, Dory Ramos, did you inform Malayan Insurance
and she said yes, sir.
Q Now after you were told by your secretary, Dory Ramos,
that she was able to inform Malayan Insurance Company about the
transfer of the properties insured to the new location, do you know
what happened insofar this information was given to the defendant
Malayan Insurance?
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A I heard that someone from Malayan Insurance came over to our
company.
Q Did you come to know who was that person who came to your
place at Pace Pacific?
A I do not know, sir.
Q How did you know that this person from Malayan Insurance
came to your place?
A It is according to the report given to me.
Q Who gave that report to you?
A Dory Ramos.
Q Was that report in writing or verbally done?
A Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously
had no personal knowledge of the notice to either Malayan or RCBC. PAP
should have presented his secretaries, Dory Ramos and Maricar
Jardiniano, at the witness stand. His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that
the insured properties were transferred to a different location only after
the renewal of the fire insurance policy.
COURT
Q When did you transfer the machineries and equipments before
the renewal or after the renewal of the insurance?
A After the renewal.
COURT
Q You understand my question?
A Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAPs position that the subject properties were already
transferred to the Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the
risk.
The courts below held that even if Malayan was not notified thereof, the
transfer of the insured properties to the Pace Factory was insignificant as
it did not increase the risk.
Malayan argues that the change of location of the subject properties from
the Sanyo Factory to the Pace Factory increased the hazard to which the
insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was
occupied as factory of automotive/computer parts by the assured, and
factory of zinc & aluminum die cast, plastic gear for copy machine by
Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under
Pace Pacific Mfg. Corporation this was occupied as factory that repacks
silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
Hence, there was an increase in the hazard as indicated by the increase
in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory
exposed the properties to a hazardous environment and negatively
affected the fire rating stated in the renewal policy. The increase in tariff
rate from 0.449% to 0.657% put the subject properties at a greater risk
of loss. Such increase in risk would necessarily entail an increase in the
premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very
crucial point. Despite the importance of the issue, PAP failed to
refute Malayans argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis,"
it follows that the renewal policy carried with it the same stipulations
and limitations. The terms and conditions in the renewal policy
provided, among others, that the location of the risk insured against
is at the Sanyo factory in PEZA. The subject insured properties,
however, were totally burned at the Pace Factory. Although it was
also located in PEZA, Pace Factory was not the location stipulated in
the renewal policy. There being an unconsented removal, the
transfer was at PAPs own risk. Consequently, it must suffer the
consequences of the fire. Thus, the Court agrees with the report of
Cunningham Toplis Philippines, Inc., an international loss adjuster
which investigated the fire incident at the Pace Factory, which opined
that "[g]iven that the location of risk covered under the policy is not
the location affected, the policy will, therefore, not respond to this
loss/claim."19
It can also be said that with the transfer of the location of the subject
properties, without notice and without Malayans consent, after the
renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26 of
the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and
ought to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is
entitled to rescind the insurance contract in case of an alteration in
the use or condition of the thing insured. Section 168 of the
Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured
from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance
contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss. 20
In the case at bench, all these circumstances are present. It was
clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of
the location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals
is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the
insured machineries and equipment suffered by PAP Co., Ltd.
78