Bantay, CME

PHIL. BANKING CORP. V. COURT OF APPEALS and MARCOS He accused the BANK of unjustly demanding payment for the total amount of the trust receipt
GR No. 127469, January 15, 2004, CARPIO, J. agreements without deducting the 30% marginal deposit that he had already made.

- Marcos reiterated that there was no agreement to this effect because his time
deposits served as the collateral for his remaining obligation.
FACTS: On 30 August 1989, Leonilo Marcos filed with the trial court a Complaint for Sum of
Money with Damages against petitioner Philippine Banking Corporation.
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at
25% per annum supposedly covered by Promissory Note No. 20-97983 dated 24 October 1983.
Sometime in 1982, the BANK through Florencio B. Pagsaligan, one of the officials of the BANK
and a close friend of Marcos, persuaded him to deposit money with the BANK.

- Marcos yielded to Pagsaligan's persuasion and claimed he made a time deposit with the
BANK on two occasions.
SUMMARY OF MARCOS’ CONTENTIONS:
- The first was on 11 March 1982 for P664,897.67.
o The BANK issued Receipt No. 635734 for this time deposit.
- On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for
P764,897.67.
o The BANK did not issue an official receipt for this time deposit but it acknowledged
(1) his time deposit with the BANK "in the total sum of P1,428,795.34 has earned
a deposit of this amount through a letter-certification Pagsaligan issued.
accumulated interest since March 1982 up to the present in the total amount of
P1,727,305.45 at the rate of 17% per annum so his total money with defendant (the
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the BANK) is P3,156,100.79 less the amount of P595,875 representing the 70%
accumulated interests to buy materials for his construction business.
balance of the marginal deposit and/or balance of the trust agreements;" and
(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or
- However, the BANK through Pagsaligan convinced Marcos to keep his time a balance of P595,875, which the BANK should have automatically deducted from his
deposits intact and instead to open several domestic letters of credit.
time deposits and accumulated interest, leaving the BANK's indebtedness to him
- The BANK required Marcos to give a marginal deposit of 30% of the total amount of the
letters of credit. at P2,560,025.79.
- The time deposits of Marcos would secure 70% of the letters of credit.
- Since Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the
application for the domestic letters of credit, trust receipt agreements and
promissory notes.
BANK’s contentions: it believed that the suit was Marcos' desperate attempt to avoid liability under
Marcos executed three Trust Receipt Agreements totalling P851,250. several trust receipt agreements that were the subject of a criminal complaint.

- Marcos deposited the required 30% marginal deposit for the trust receipt agreements. - The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of
- Marcos claimed that his obligation to the BANK was therefore only P595,875 representing Marcos was only P764,897.67 and not P1,428,795.35 7 as alleged in the complaint.
70% of the letters of credit.
The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue
Marcos’ contention: he and the BANK became creditors and debtors of each other. of the Deed of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to
secure his various loan obligations.

- He expected the BANK to offset automatically a portion of his time deposits and the
accumulated interest with the amount covered by the three trust receipts totalling P851,250 - The BANK claimed that these loans are covered by Promissory Note No. 20-756-82 dated 2
less the 30% marginal deposit, that he had paid. June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for
- If only the BANK applied his time deposits and the accumulated interest to his remaining P500,000.
obligation, which is 70% of the total amount of the letters of credit, he would have paid - The BANK stressed that these obligations are separate and distinct from the
completely his debt. trust receipt agreements.
- Since he did not apply for a renewal of the trust receipt agreements, the BANK had no right
to renew the same.
Bantay, CME
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK - Thus, the trial court held that the BANK could not have granted Marcos the loan
debited his time deposits and applied the same to the obligation that is now covered by Promissory Note No. 20-979-83 because it was unsecured by any
considered fully paid. collateral.

- The Deed of Assignment authorized it to apply the time deposits in payment of Based on the "machine copies of the duplicate" of the two documents (original copies of the loan
Promissory Note No. 20-979-83. application and Promissory Note No. 20-979-83), the trial court noticed the following
discrepancies:
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan.
(1) Marcos' signature on the two documents are merely initials unlike in the other documents
submitted by the BANK;
- Consolacion informed Pagsaligan that she and her husband needed to finance the
(2) it is highly unnatural for the BANK to only have duplicate copies of the two documents in
purchase of construction materials for their business, L.A. Marcos Construction
its custody;
Company.
(3) the address of Marcos in the documents is different from the place of residence as stated by
- Pagsaligan suggested the opening of the letters of credit and the execution of trust
Marcos in the other documents annexed by the BANK in its Answer;
receipts, whereby the BANK would agree to purchase the goods needed by the client
(4) Pagsaligan made it appear that a check for the loan proceeds of P470,588 less bank charges
through the letters of credit.
was issued to Marcos but the check's payee was one ATTY. LEONILO MARCOS and, as the
- The BANK would then entrust the goods to the client, as entrustee, who would undertake to
trial court noted, Marcos is not a lawyer; and
deliver the proceeds of the sale or the goods themselves to the entrustor within a specified
(5) Pagsaligan was not sure what branch of the BANK issued the check for the loan proceeds.
time.

The trial court was convinced that Marcos did not execute the questionable documents
The BANK claimed that Marcos freely entered into the trust receipt agreements.
covering the P500,000 loan and Pagsaligan used these documents as a means to
justify his inability to explain and account for the time deposits of Marcos.
- When Marcos failed to account for the goods delivered or for the proceeds of the sale, the
BANK filed a complaint for violation of Presidential Decree No. 115 or the
The trial court noted the BANK's "defective" documentation of its transaction with Marcos.
Trust Receipts Law.
- Instead of initiating negotiations for the settlement of the account, Marcos filed this suit.
(1) the BANK was not in possession of the original copies of the documents like the loan
applications.
TC ruling: ruled in favor of Marcos. (2) the BANK did not have a ledger of the accounts of Marcos or of his various transactions
with the BANK.
The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of (3) the BANK did not issue a certificate of time deposit to Marcos.
interest instead of just withdrawing his time deposits.
Again, the trial court attributed the BANK's lapses to Pagsaligan's scheme to defraud Marcos of his
- The trial court saw no rhyme or reason why Marcos had to secure the loans from the BANK. time deposits.
- The trial court was convinced that Marcos did not know that what he had signed
were loan applications and a Deed of Assignment in payment for his loans. The trial court also took note of Pagsaligan's demeanor on the witness stand. Pagsaligan evaded the
- Nonetheless, the trial court recognized "the said loan of P760,000 and its corresponding questions by giving unresponsive or inconsistent answers compelling the trial court to admonish
payment by virtue of the Deed of Assignment for the equal sum." him.

A security' of only P4,867.67 13 for a loan worth P595,875 (less 30% marginal deposit) is not only - When the trial court ordered Pagsaligan to produce the documents, he "conveniently
preposterous, it is also comical. became sick"and thus failed to attend the hearings without presenting proof of his physical
condition.
- Worse, aside from allowing Marcos to have unsecured trust receipts, the BANK still claimed
to have granted Marcos another loan for P500,000 on 25 October 1983 covered by ORDERED the BANK to:
Promissory Note No. 20-979-83.
- The BANK is a commercial bank engaged in the business of lending money.
- Allowing a loan of more than a million pesos without collateral is in the words of the trial (1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at the
court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which legal rate, until fully restituted;
no Bank Manager has such authority to grant." (2) to pay attorney's fees of P200,000.00; [and]
(3) [to pay the] cost of these proceedings.
Bantay, CME
Court of Appeals ruling: PROCEDURAL ISSUES: Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes
this fiduciary duty on banks when it declares that the State recognizes the "fiduciary
nature of banking that requires high standards of integrity and performance."
(1) The BANK's failure to serve a notice of the motion to Marcos is not a valid ground to deny
the motion to cross-examine. The appellate court held that the motion to cross-examine is
one of those non-litigated motions that do not require the movant to provide a notice of - This statutory declaration merely echoes the earlier pronouncement of the Supreme Court
hearing to the other party. in Simex International (Manila) Inc. v. Court of Appeals requiring banks to "treat the
(2) The trial court did not err when it declared that the BANK had waived its right to present its accounts of its depositors with meticulous care, always having in mind the
evidence and had submitted the case for decision. fiduciary nature of their relationship."
(3) The trial court erred in the AMOUNT of deposits: The appellate court ruled that the total - The Court reiterated this fiduciary duty of banks in subsequent cases.
amount of the time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found
by the trial court. The certification letter issued by Pagsaligan showed that Marcos made a
Although RA No. 8791 took effect only in the year 2000, at the time that the BANK
time deposit on 12 March 1982 for P764,897.67. The certification letter shows that the
transacted with Marcos, jurisprudence had already imposed on banks the same high
amount mentioned in the letter was the aggregate or total amount of the time deposits of
standard of diligence required under RA No. 8791.
Marcos as of that date. Therefore, the P764,897.67 already included the P664,897.67 time
deposit made by Marcos on 11 March 1982.
(4) Sustained the factual findings of the trial court in ruling that Promissory Note No. 20-979- - This fiduciary relationship means that the bank's obligation to observe "high standards of
83 is void. integrity and performance" is deemed written into every deposit agreement between a bank
and its depositor.
ISSUE: WON the BANK is liable to Marcos.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family.
HELD: YES. The BANK is liable to Marcos for offsetting his time deposits with a fictitious
promissory note.
- Thus, the BANK's fiduciary duty imposes upon it a higher level of accountability
than that expected of Marcos, a businessman, who negligently signed blank
RATIO: PROCEDURAL ISSUES:
forms and entrusted his certificates of time deposits to Pagsaligan without
retaining copies of the certificates.
(1) There was no violation of the BANK's right to procedural due process when the trial court
denied the BANK's motion to cross-examine Marcos.
The business of banking is imbued with public interest. The stability of banks largely
(2) The BANK raises for the very first time the issue of judicial admission on the part of
depends on the confidence of the people in the honesty and efficiency of banks.
Marcos. An issue raised for the first time on appeal and not raised timely in the proceedings
in the lower court is barred by estoppel.
(3) The BANK cannot claim that Marcos had admitted the due execution of the documents - As the BANK's depositor, Marcos had the right to expect that the BANK was
attached to its answer because the BANK filed its answer late and even failed to serve it on accurately recording his transactions with it.
Marcos. - Upon the maturity of his time deposits, Marcos also had the right to withdraw the
(4) As to the issue of its right to present additional evidence, we agree with the Court of amount due him after the BANK had correctly debited his outstanding obligations from his
Appeals that the trial court correctly ruled that the BANK had waived this right. The BANK time deposits.
cannot now claim that it was deprived of its right to conduct a re-direct examination of
Pagsaligan.
By the very nature of its business, the BANK should have had in its possession the
original copies of the disputed promissory note and the records and ledgers
The BANK's Fiduciary Duty to its Depositor: The BANK is liable to Marcos for offsetting his evidencing the offsetting of the loan with the time deposits of Marcos.
time deposits with a fictitious promissory note.
- The BANK inexplicably failed to produce the original copies of these documents.
- The existence of Promissory Note No. 20-979-83 could have been easily proven had the - Clearly, the BANK failed to treat the account of Marcos with meticulous care.
BANK presented the original copies of the promissory note and its supporting evidence.
- In lieu of the original copies, the BANK presented the "machine copies of the duplicate" of
Whether it was the BANK's negligence and inefficiency or Pagsaligan's misdeed that deprived
the documents.
Marcos of the amount due him will not excuse the BANK from its obligation to return to
- These substitute documents have no evidentiary value.
Marcos the correct amount of his time deposits with interest.
- The BANK's failure to explain the absence of the original documents and to maintain a
record of the offsetting of this loan with the time deposits bring to fore the BANK's dismal
failure to fulfill its fiduciary duty to Marcos. - The duty to observe "high standards of integrity and performance" imposes on the BANK
that obligation.
Bantay, CME
- The BANK cannot also unjustly enrich itself by keeping Marcos' money. - The banking sector is expected to maintain at all times this high level of
meticulousness.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be
accountable to Marcos. CONCLUSION: decision appealed from is AFFIRMED with MODIFICATION.

- We have held that a bank is liable for the wrongful acts of its officers done in the (1) Petitioner Philippine Banking Corporation is ordered to return to private respondent
interest of the bank or in their dealings as bank representatives but not for Leonilo Marcos P500,404.11, the remaining principal amount of his time deposits,
acts outside the scope of their authority. with interest at 17% per annum from 30 August 1989 until full payment.
(2) Petitioner Philippine Banking Corporation is also ordered to pay to private respondent
Leonilo Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12%
The Existence of Promissory Note No. 20-979-83 was not Proven: The BANK failed to
legal interest per annum from 30 August 1989 until full payment.
produce the best evidence — the original copies of the loan application and promissory note.
(3) Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by way of
moral damages and
- The Best Evidence Rule provides that the court shall not receive any evidence that is merely P20,000 as exemplary damages to private respondent Leonilo Marcos.
substitutionary in its nature, such as photocopies, as long as the original evidence can be
had.
- Absent a clear showing that the original writing has been lost, destroyed or cannot be
produced in court, the photocopy must be disregarded, being unworthy of any probative
value and being an inadmissible piece of evidence.

Total Amount Due to Marcos: The total amount of time deposits of Marcos as of 12 March 1982
is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on
11 March 1982.

- This is plainly seen from the use of the word "aggregate."

- Marcos' time deposits of P764,897.67 had already earned interest 54 of P616,318.92 as of 6

RE MORAL AND EXEMPLARY DAMAGES: The BANK's dismal failure to account for Marcos'
money justifies the award of moral and exemplary damages.

- Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch
manager which caused Marcos mental anguish and serious anxiety.
- MORAL DAMAGES OF P100,000 is reasonable and is in accord with our rulings in
similar cases involving banks' negligence with regard to the accounts of their depositors.
- We also award P20,000 to Marcos as EXEMPLARY DAMAGES.
- The law allows the grant of exemplary damages by way of example for the public good.
- The public relies on the banks' fiduciary duty to observe the highest degree of
diligence.