THIRD DIVISION

RICARDO B. BANGAYAN, G.R. No. 149193

Petitioner,
Present:

CARPIO,*
CARPIO MORALES, J.,
- versus Chairperson,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

RIZAL COMMERCIAL BANKING Promulgated:

CORPORATION AND PHILIP SARIA,
April 4, 2011
Respondents,

x--------------------------------------------------x

DECISION
SERENO, J.:

Before this Court is a Rule 45 Petition[1] questioning the Court of Appeals

affirmance of a trial courts dismissal of a complaint for damages filed by a
depositor against a bank for the dishonor of seven checks and for the wrongful
disclosure of information regarding the depositors account contrary to the Bank
Secrecy Act (Republic Act No. 1405).[2]
The Facts
Petitioner Ricardo Bangayan had a savings account and a current account with one
of the branches of respondent Rizal Commercial Banking Corporation
(RCBC).[3] These two accounts had an automatic transfer condition wherein checks
issued by the depositor may be funded by any of the two accounts.[4]
On 26 June 1992, petitioner Bangayan purportedly signed a Comprehensive Surety
Agreement (the Surety Agreement)[5] with respondent RCBC in favor of nine
corporations.[6] Under the Surety Agreement, the funds in petitioner Bangayans
accounts with respondent RCBC would be used as security to guarantee any
existing and future loan obligations, advances, credits/increases and other
obligations, including any and all expenses that these corporations may incur with
respondent bank.
Petitioner Bangayan contests the veracity and due authenticity of the Surety
Agreement on the ground that his signature thereon was not genuine, and that the
agreement was not notarized.[7] Respondent RCBC refutes this claim, although it
admitted that it was exceptional for a perfected Surety Agreement of the bank to be
without a signature of the witness and to remain unnotarized. Mr. Eli Lao,
respondent banks Group Head of Account Management, however, explained that
the bank was still in the process of completing the Surety Agreement at that time.[8]
The following are the transactions of respondent RCBC in relation to the Surety
Agreement vis--vis the petitioner Bangayan.
On 26 June 1992 (the same day that the Surety Agreement was allegedly signed),
two of the corporations whose performance were guaranteed therein LBZ
Commercial and Peaks Marketing were issued separate commercial letters of
credit[9] by respondent RCBC for the importation of PVC resin from Korea. Three
days later or on 29 June 1992, respondent RCBC issued a third letter of credit[10] in
favor of another corporation, Final Sales Enterprise, whose obligations to
respondent bank were likewise secured by petitioner Bangayan under the Surety
Agreement. Mr. Lao claimed that respondent bank would not have extended the
letters of credit in favor of the three corporations without petitioner Bangayan
acting as surety.[11]
On 26 August 1992, a fourth letter of credit[12] was issued by respondent RCBC for
the importation of materials from Korea, this time by Lotec Marketing, another
corporation enumerated in the Surety Agreement. The Korea Exchange Bank was
designated as the advising bank for Lotec Marketings letter of credit.[13]
On 15 September 1992, after the arrival of the shipments of the first three
corporations from Korea, the Bureau of Customs (BOC) demanded via letter of the
same date from respondent RCBC, which facilitated the three letters of credit, the
remittance of import duties in the amount of thirteen million two hundred sixty-
five thousand two hundred twenty-five pesos (PhP13,265,225).[14]
Mr. Lao of respondent RCBC allegedly called petitioner Bangayan and informed
him of the BOCs demand for payment of import duties.[15] According to Mr. Lao,
petitioner allegedly replied that he understood the situation and assured Mr. Lao
that he was doing everything he could to solve the problem.[16]
Considering the BOCs demand, respondent RCBC decided to put on hold
the funds in petitioner Bangayans accounts by virtue of the authority given to it by
petitioner under the Surety Agreement.[17] Respondent RCBC reasoned that as the
collecting agent, it had to earmark sufficient funds in the account of petitioner
Bangayan (the surety) to satisfy the tax obligations of the three corporations, in the
event that they would fail to pay the same.[18] Thus, respondent bank refused
payments drawn from petitioner Bangayans deposits, unless there was an order
from the BOC.[19] Petitioner Bangayan, however, contests this action since
respondent bank did not present any writ of garnishment that would authorize the
freezing of his funds.[20]
On 18 September 1992, two of the seven checks that were drawn against petitioner
Bangayans Current Account No. 0109-8232-5 were presented for payment to
respondent RCBC, namely:

RCBC Check Date of Paid To Amount

No. Presentment
United Pacific
98799[21] 18 Sept 1992 PhP3,650,000
Enterprises
United Pacific
938000[22] 18 Sept 1992 PhP4,500,000
Enterprises
TOTAL PhP8,150,000

On the same day, the amounts of three million six hundred fifty thousand
pesos (PhP3,650,000) and four million five hundred thousand pesos
(PhP4,500,000)[23] were successively debited from the said current account, as
shown in petitioner Bangayans passbook for the current account.[24] Alongside
these two debit entries in the passbook was the transaction reference code DFT,
which apparently stands for debit fund transfer.[25]
On 21 September 1992, the same amounts in the two checks were
credited to petitioner Bangayans current account, under the transaction reference
code CM, that stands for credit memo.[26] Moreover, petitioner Bangayans Checks
Nos. 93799 and 93800 issued in favor of United Pacific Enterprises were also
returned by respondent RCBC with the notation REFER TO DRAWER.[27]
On the same day that the checks were referred to petitioner Bangayan by
respondent RCBC, United Pacific Enterprises, through Mr. Manuel Dente,
demanded from petitioner Bangayan the payment of eight million one hundred fifty
thousand pesos (PhP8,150,000), which corresponded to the amounts of the two
dishonored checks that were issued to it.[28] Nothing more has been alleged by
petitioner on this particular matter.
On 24 September 1992, the Korea Exchange Bank (the advising bank) informed
respondent RCBC through a telex that it had already negotiated the fourth letter of
credit for Lotec Marketings shipment, which amounted to seven hundred twelve
thousand eight hundred U.S. dollars (US$712,800) and, thereafter, claimed
reimbursement from respondent RCBC.[29]
This particular shipment by Lotec Marketing became the subject matter
of an investigation conducted by the Customs Intelligence & Investigation Service
of the BOC, according to respondent bank.[30] Both parties agreed that the BOC
likewise conducted an investigation covering the importation of the three
corporations LBZ Commercial, Peaks Marketing and Final Sales Enterprise - that
were opened through the letters of credit issued by respondent RCBC.[31]
On 09 October 1992, respondent Philip Saria, who was an Account
Officer of respondent banks Binondo Branch, signed and executed a Statement
before the BOC, with the assistance of Atty. Arnel Z. Dolendo of respondent RCBC,
on the banks letters of credit issued in favor of the three corporations. [32] Petitioner
Bangayan cited this incident as the basis for the allegation in the Complaint he
subsequently filed that respondent RCBC had disclosed to a third party (the BOC)
information concerning the identity, nature, transaction and deposits including
details of transaction related to and pertaining to his deposits with the said bank, in
violation of the Bank Secrecy Act.[33] It must be pointed out that the trial court
found that no evidence was introduced by (petitioner Bangayan) to substantiate his
claim that (respondent RCBC) gave any classified information in violation of the
Bank Secrecy Law.[34] Thus, the trial court considered the alleged disclosure of
confidential bank information by respondent RCBC as a non-issue.[35]
On the same date, when Lotec Marketings loan obligation under the
fourth letter of credit became due and demandable,[36] respondent RCBC issued an
advice that it would debit the amount of twelve million seven hundred sixty-two
thousand six hundred pesos (PhP12,762,600) from petitioner Bangayans current
account to partially satisfy the guaranteed corporations loan.[37] At that time,
petitioner Bangayans passbook for his current account showed that it had funds of
twelve million seven hundred sixty-two thousand six hundred forty-five and
64/100 pesos (PhP12,762,645.64).[38]
On 12 October 1992, the amount of twelve million seven hundred sixty-
two thousand and six hundred pesos (PhP12,762,600) was debited from petitioner
Bangayans current account, consequently reducing the funds to forty-five and
64/100 pesos (PhP45.64).[39] Respondent RCBC claimed that the former amount
was debited from petitioners account to partially pay Lotec Marketings outstanding
obligation which stood at eighteen million forty-seven thousand thirty-three and
60/100 pesos (PhP18,047,033.60).[40]Lotec Marketing, thereafter, paid the balance
of its obligation to respondent RCBC in the amount of five million three hundred
thirty-eight thousand eight hundred nineteen and 20/100 pesos
(PhP5,338,819.20)[41] under the fourth letter of credit.
On 13 October 2010, the three corporations earlier adverted to paid the
corresponding customs duties demanded by the BOC.[42] Receipts were
subsequently issued by the BOC for the corporations payments, copies of which
were received by Atty. Nelson Loyola, counsel of petitioner Bangayan in this
case.[43] The trial court considered this as payment by petitioner of the three
corporations obligations for custom duties.[44] Thereafter, respondent RCBC
released to the corporations the necessary papers for their PVC resin shipments
which were imported through the banks letters of credit.[45]
On 15 October 2010, five other checks of petitioner Bangayan were
presented for payment to respondent RCBC, namely:

RCBC Check Date of Paid To Amount

No. Presentment
938011[46] 15 Oct 1992 Simplex Merchandising PhP1,200,000
938012[47] 15 Oct 1992 Simplex Merchandising PhP1,260,000
938013[48] 15 Oct 1992 Simplex Merchandising PhP1,180,000
Hinomoto Trading
938014[49] 15 Oct 1992 PhP1,052,000
Company
Hinomoto Trading
938015[50] 15 Oct 1992 PhP982,000
Company
TOTAL AMOUNT PhP5,674,000

On 16 October 1992, these five checks were also dishonored by

respondent RCBC on the ground that they had been drawn against insufficient
funds (DAIF) and were subsequently returned.[51]
On 20 October 1992, Hinomoto Trading Company, one of the payees for
two of the dishonored checks,[52] demanded that petitioner Bangayan make good on
his payments.[53] On 21 October 1992, the other payee of the three other dishonored
checks,[54] Simplex Merchandising, likewise made a final demand on petitioner to
replace the dishonored instruments.[55]
On 23 October 1992, petitioner Bangayan, through counsel, demanded
that respondent bank restore all the funds to his account and indemnify him for
damages.[56]
On 30 October 1992, nineteen thousand four hundred twenty-seven and
15/100 pesos (PhP19,427.15) was credited in petitioner Bangayans current account,
with the transaction reference code INT referring to interest.[57] Petitioner explains
that even if the outstanding balance at that time was reduced, this interest was
earned based on the average daily balance of the account for the quarter and not
just on the balance at that time, which was forty-five and 64/100 pesos
(PhP45.64).[58]
The Case in the Trial Court
On 09 November 1992, petitioner Bangayan filed a complaint for
damages against respondent RCBC.[59] Subsequently, respondent RCBC filed an
Answer dated 02 December 1992 with compulsory counter-claims.[60] On 12
January 1993, respondent RCBC filed a Motion for Leave to File Attached Amended
Answer and Amended Answer.[61]
Petitioner Bangayan argues that at the time the dishonored checks were issued,
there were sufficient funds in his accounts to cover them;[62] that he was informed
by personnel of respondent RCBC that his accounts were garnished, but no notice
or writ of garnishment was ever shown to him;[63] and that his name and reputation
were tarnished because of the dishonor of checks that were issued in relation to his
automotive business.[64]
In its defense, respondent RCBC claims that petitioner Bangayan signed a Surety
Agreement in favor of several companies that defaulted in their payment of
customs duties that resulted in the imposition of a lien over the accounts,
particularly for the payment of customs duties assessed by the Bureau of
Customs.[65] Respondent bank further claimed that it had funded the letter of
credit[66] availed of by Lotec Marketing to finance the latters importation with the
account of petitioner Bangayan, who agreed to guarantee Lotec Marketings
obligations under the Surety Agreement; and, that respondent bank applied
petitioner Bangayans deposits to satisfy part of Lotec Marketings obligation in the
amount of twelve million seven hundred sixty-two thousand and six hundred pesos
(PhP12,762,600), which resulted in the depletion of the bank accounts.[67]
Petitioner Bangayan also alleged that respondent RCBC disclosed to a third party
(the BOC) classified information about the identity and nature of the transactions
and deposits, in violation of the Bank Secrecy Act. Respondent RCBC counters that
no confidential information on petitioners bank accounts was disclosed.
Availing himself of discovery proceedings in the lower court, petitioner Bangayan
filed a Request for Admission[68] and Request for Answer to Written
Interrogatories,[69] to which respondent RCBC filed the corresponding Answers and
Objections to Interrogatories[70] and Response to Request for Admission.[71]
During the presentation of complainants evidence, petitioner Bangayan,
Atty. Randy Rutaquio, respondent Saria and Manuel Dantes testified in open court.
Petitioner Bangayan thereafter filed a Formal Offer of Evidence.[72]
On the other hand, respondent RCBC presented Mr. Lao as its lone
defense witness. Before the termination of Mr. Laos direct examination, respondent
RCBC filed a Motion to Inhibit Presiding Judge Pedro Santiago,[73] who
subsequently denied the motion.[74] The Order denying the Motion to Inhibit was
the subject matter of petitions filed by respondent RCBC in the Court of
Appeals[75] and subsequently in this Court, which were all dismissed.
In the meantime, when respondent RCBCs witness (Mr. Lao) failed to
appear at the hearing, Judge Santiago ordered that Mr. Laos testimony be stricken
off the record despite respondent banks motion to have the case reset.[76] After the
appellate proceedings for respondent RCBCs Petition as regards the Motion to
Inhibit, however, Judge Santiago set aside his earlier Order and reinstated the
testimony of Mr. Lao, subject to cross-examination.[77] Petitioner Bangayan took
exception to the Order reinstating Mr. Laos testimony, but continued to conduct his
cross examination with a reservation to raise the Order in the appellate courts.[78]
Respondent RCBC thereafter filed its Formal Offer of Exhibits.[79]
On 17 October 1994, the trial court rendered a Decision, the dispositive
portion of which reads:

WHEREFORE, premises above considered, plaintiff not

having proved that defendant RCBC acted wrongly, maliciously
and negligently in dishonoring his 7 checks, nor has the bank given
any confidential informations against the plaintiff in violation of R.A.
1405 and the defendant bank having established on the contrary that
plaintiff has no sufficient funds for his said checks, the instant
complaint is hereby DISMISSED.[80] (Emphasis supplied)
 When his omnibus motion[81] to have the Decision reconsidered was
denied,[82] petitioner Bangayan filed a notice of appeal.[83]
The Ruling of the Court of Appeals
After petitioner Bangayan[84] and respondent RCBC[85] filed their
respective appeal briefs, the Court of Appeals affirmed the trial courts decision in
toto.[86] The appellate court found that the dishonor of the checks by respondent
RCBC was not without good reason, considering that petitioner Bangayans account
had been debited owing to his obligations as a surety in favor of several
corporations. Thus, the Court Appeals found there was no dishonest purpose, or
some moral obliquity, or conscious doing of wrong, or breach of a known duty, or
some motive or interest, or ill will that partakes (sic) nature of fraud that can be
attributed to respondent RCBC.[87] It likewise ruled that petitioner Bangayan
cannot raise the question as to the genuineness, authenticity and due execution of
the Surety Agreement for the first time on appeal.[88]
This Decision of the appellate court is the subject of the instant Petition
for Review on Certiorari filed by petitioner Bangayan under Rule 45 of the Rules of
Court.[89]
Assignment of Errors
Petitioner Bangayan makes the following assignment of errors:
A. THE COURT OF APPEALS ACTED WITH GROSS
ARBITRARINESS AND IN BLATANT VIOLATION OF
THE CONSTITUTIONAL RIGHTS OF THE PETITITONER TO DUE
PROCESS, AND A FAIR TRIAL:
(1) WHEN IT REINSTATED THE TESTIMONY OF ELI LAO
ALREADY STRICKEN OFF THE RECORDS UPON PRIOR
ORDER OF THE RTC AFFIRMED BY THE COURT
OFAPPEALS AND CONFIRMED BY THE SUPREME
COURT;
(2) WHEN IT SANCTIONED THE CAVALIER ACT OF
RESPONDENTS IN DEMEANING THE RULES ON
DISCOVERY PROCEDURE;
(3) WHEN IT RENDERED A DECISION WHICH IS
CONTRARY TO THE FACTS AND THE EVIDENCE
PRESENTED AT THE TRIAL; and
(4) WHEN IT REFUSED TO APPLY THE LAWS SQUARELY
IN POINT ON THE MATTER IN CONTROVERSY.
B. THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN
A WAY NOT IN ACCORD WITH THE APPLICABLE DECISIONS OF
THE HONORABLE SUPREME COURT;
C. THERE ARE SPECIAL AND IMPORTANT REASONS THAT
REQUIRE A REVIEW OF THE CA DECISION;
D. THE DECISION OF THE COURT OF APPEALS IS NEITHER JUST
NOR IN ACCORD WITH THE RULES OF LAW AND
JURISPRUDENCE NOR IS IT EQUITABLE AND IT IGNORES THE
 PREVIOUS RULINGS OF THE SUPREME COURT IN EARLIER
PRECEDENT CASES.[90]
The Issues
A. Whether respondent RCBC was justified in dishonoring the checks,
and, consequently, whether petitioner Bangayan is entitled to damages arising from
the dishonor.
B. Whether there was reversible error on the part of the lower court in
allowing the testimony of Mr. Lao, despite its earlier Order to strike off the
testimony.
C. Whether respondent RCBC violated the Bank Secrecy Act.
The Ruling of the Court

Preliminarily, petitioner Bangayan raises questions of fact[91] regarding

the authenticity of the Surety Agreement and the events leading up to the dishonor
of the seven checks. However, petitions for review on certiorari under Rule 45 are
limited only to pure questions of law[92] and, generally, questions of fact are not
reviewable[93] since this Court is not a trier of facts.[94] Although respondent RCBC
briefly treated this procedural matter,[95] the Court finds that the instant Petition is
indeed subject to dismissal because the determination of questions of fact is
improper in a Rule 45 proceeding.[96] In any case, even if procedural rules were to
be relaxed at this instance, the substantial merits of petitioner Bangayans cause is
nonetheless insufficient to reverse the decisions of the trial and appellate courts, as
will be discussed in detail below.
A. There was no malice or bad faith on the part of respondent RCBC in
the dishonor of the checks, since its actions were justified by petitioner
Bangayans obligations under the Surety Agreement.
The Court is unconvinced by petitioner Bangayans arguments that respondent
RCBC acted with malice or bad faith in dishonoring the seven checks, which would
entitle him to an award of damages.
At the heart of the controversy is the Surety Agreement that secured the obligations
of the nine corporations in favor of respondent RCBC.
Petitioner Bangayan denies the genuineness, authenticity and due
execution of the alleged agreement on the following grounds: (a) his signature on
the document is not genuine; (b) the Surety Agreement was never notarized; and
(c) the alleged accounts, being guaranteed, appear in a separate piece of paper that
does not bear his signature or conformity.[97]
Both the trial and the appellate courts gave credence to the Surety Agreement,
which categorically guaranteed the four corporations obligations to respondent
RCBC under the letters of credit. Petitioner Bangayan did not provide sufficient
reason for the Court to reverse these findings. The evidence on record supports the
conclusion arrived at by the lower court and the Court of Appeals.
First, aside from his bare allegations, petitioner Bangayan failed to establish how
his signature in the Surety Agreement was forged and therefore, not genuine.
Before a private document is offered as authentic, its due execution and
authenticity must be proved: (a) either by anyone who has seen the document
executed or written; or (b) by evidence of the genuineness of the signature or
handwriting of the maker.[98] As a rule, forgery cannot be presumed and must be
proved by clear, positive and convincing evidence.[99] The burden of proof rests on
the party alleging forgery.[100] Mere allegation of forgery is not evidence.[101]
Mr. Lao, witness for respondent RCBC, identified the Surety
Agreement[102] as well as the genuineness of petitioner Bangayans signature therein
using petitioners signature cards in his bank accounts.[103] The trial and the
appellate courts gave due credence to the identification and authentication of the
Surety Agreement made by Mr. Lao.[104]
In Deheza-Inamarga v. Alano,[105] the Court ruled that:
The question of forgery is one of fact. It is well-
settled that when supported by substantial evidence or borne
out by the records, the findings of fact of the Court of Appeals
are conclusive and binding on the parties and are not
reviewable by this Court.
It is a hornbook doctrine that the findings of fact of
trial courts are entitled to great weight on appeal and should
not be disturbed except for strong and valid reasons. It is not a
function of this Court to analyze and weigh evidence by the
parties all over again. Our jurisdiction is limited to reviewing
errors of law that might have been committed by the Court of
Appeals. Where the factual findings of the trial court
are affirmed in toto by the Court of Appeals as in this
case, there is great reason for not disturbing such
findings and for regarding them as not reviewable by
this Court. (Emphasis supplied)
Furthermore, petitioner Bangayan did not adduce any evidence to support his
claim of forgery, despite the opportunity to do so. Considering that there was
evidence on record of his genuine signature and handwriting (the signature card
and the dishonored checks themselves), nothing should have prevented petitioner
Bangayan from submitting the Surety Agreement for examination or comparison by
a handwriting expert.
Even respondent RCBC did not interpose any objection when the
possibility of forwarding the signature card and Surety Agreement forwarded to the
National Bureau of Investigation for examination was raised during the testimony
of Mr. Lao:
ATTY. LOYOLA
Considering the delicate nature or the significance of the
signatures in the signature cards and the risk of my admitting
the authenticity of a mere xerox copies [sic] and considering
further that it is our position that the surety agreement
as well as specimen signatures on the signature cards
must be submitted to the Court and later forwarded to
the NBI, Question Document Section, for examination,
I am in no position to admit now that the machine copies in the
signature cards are faithful reproduction. Accordingly, I am
hoping at this stage that the surety agreement and the
signature cards be forwarded to the NBI later on for
examination and in the mean time, the questioned
documents be entrusted to the custody of the Honorable Court.
ATTY. POBLADOR
 With respect to the manifestation of counsel that the
documents with the signatures should be submitted to
the NBI, we have no objection, but at this juncture, we are
only asking, Your Honor, if the xerox copies are faithful
reproduction of the original.[106] (Emphasis supplied)
Despite his intention to have the signatures in the Surety Agreement compared
with those in the signature cards, petitioner Bangayan did not have the questioned
document examined by a handwriting expert in rebuttal and simply relied on his
bare allegations. There is no clear, positive and convincing evidence to show that
his signature in the Surety Agreement was indeed forged. As petitioner failed to
discharge his burden of demonstrating that his signature was forged, there is no
reason to overturn the factual findings of the lower courts with respect to the
genuineness and due execution of the Surety Agreement.
Second, the mere absence of notarization does not necessarily render the Surety
Agreement invalid.
Notarization of a private document converts the document into a public
one, renders it admissible in court without further proof of its authenticity, and is
entitled to full faith and credit upon its face.[107] However, the irregular notarization
or, for that matter, the lack of notarization does not necessarily affect the validity of
the contract reflected in the document.[108]
On its face, the Surety Agreement is not notarized, even if respondent RCBCs
standard form for that agreement makes provisions for it. The non-completion of
the notarization form, however, does not detract from the validity of the agreement,
especially in this case where the genuineness and due authenticity of petitioner
Bangayans signature in the contract was not successfully assailed.
The failure to notarize the Surety Agreement does not invalidate
petitioner Bangayans consent to act as surety for the nine corporations obligations
to respondent RCBC. Contracts are obligatory in whatever form they may have been
entered into, provided all essential requisites are present[109] and the notarization
is not an essential requisite for the validity of a Surety Agreement.[110]
Third, that the annex of the Surety Agreement does not bear petitioner Bangayans
signature is not a sufficient ground to invalidate the main agreement altogether. As
the records will bear out, the Surety Agreement enumerated the names of the
corporation whose obligations petitioner Bangayan are securing. The annex to the
Surety Agreement enumerated not only the names of the corporations but their
respective addresses as well.[111] The corporations enumerated in the annex
correspond to the nine corporations enumerated in the main body of the Surety
Agreement. Ordinarily, the name and address of the principal borrower whose
obligation is sought to be assured by the surety is placed in the body of the
agreement, but in this case the addresses could not all fit in the body of the
document, thus, requiring that the address be written in an annex. The Surety
Agreement itself noted that the principal places of business and postal addresses of
the nine corporations were to be found in an attached document.
Fourth, petitioner Bangayan never contested the existence of the Surety Agreement
prior to the filing of the Complaint. When Mr. Lao informed him of the letter from
the BOC regarding the failure of the three corporations to pay the customs duties
under the letters of credit, the petitioner assured respondent bank that he is doing
everything he can to solve the problem.[112] If petitioner Bangayan purportedly
never signed the Surety Agreement, he would have been surprised or at least
perplexed that respondent RCBC would contact him regarding the three
corporations letters of credit, when, as he claims, he never agreed to act as their
surety. Instead, he acknowledged the situation and even offered to solve the
predicament of these borrower corporations. In fact, Atty. Loyola, petitioners
counsel in this case, even obtained copies of the BOC receipts after the three
corporations paid the customs duties for their importation under the letters of
credit giving a possible interpretation that petitioner was himself answering the
obligations of the three corporations for the unpaid customs duties.
It must be emphasized that petitioner Bangayan did not complain against the four
corporations which had benefitted from his bank account. He claims to have no
reasonable connection to these borrower corporations and denies having signed the
Surety Agreement. If true, nothing should have stopped him from taking these
corporations to court and demanding compensation as well as damages for their
unauthorized use of his bank account. Yet, these bank accounts were put on hold
and/or depleted by the letters of credit issued to the four entities. That petitioner
did not include them in the present suit strengthens the finding that he had indeed
consented to act as surety for those entities, and that there seems to be no arms
length relationship between petitioner and the three entities.
Whatever damage to petitioner Bangayans interest or reputation from
the dishonor of the seven checks was a consequence of his agreement to act as
surety for the corporations and their failure to pay their loan obligations, advances
and other expenses.
With respect to the first two dishonored checks, respondent RCBC had
already put on hold petitioner Bangayans account to answer for the customs duties
being demanded from the bank by the BOC. In fact, the trial court considered the
referral of these checks to petitioner Bangayan as an effort by respondent RCBC to
allow its depositor an opportunity to arrange his accounts and provide funds for his
checks.[113] It likewise appeared to the appellate court that the funds in petitioners
account served as the lien of the custom duties assessed; thus, the funds cannot be
considered as sufficient to cover future transactions.[114]
On the other hand, the five other checks were subsequently dishonored because
petitioner Bangayans account was by that time already depleted due to the partial
payment of Lotec Marketings loan obligation.[115] Although the lien earlier imposed
on petitioners account was lifted when the three corporations paid the customs
duties,[116] the account was almost completely depleted when the funds were
subsequently used to partially pay Lotec Marketings outstanding obligation under
the fourth letter of credit.[117]Respondent RCBC was compelled to fully debit the
funds to satisfy the main loan obligation of Lotec Marketing, which petitioner had
guaranteed in joint and several capacity.
What must be underscored in respondent RCBCs immediate action of
applying petitioner Bangayans account to the Lotec Marketing is the nature of the
loan instrument used in this case a letter of credit. In a letter of credit, the
engagement of the issuing bank (respondent RCBC in this instance) is to pay the
seller or beneficiary of the credit (or the advising bank, Korean Exchange Bank, in
this instance) once the draft and the required documents are presented to
it.[118] This independence principle in letters of credit assures the seller or the
beneficiary of prompt payment independent of any breach of the main contract
and precludes the issuing bank from determining whether the main contract is
actually accomplished or not.[119]
In this case, respondent RCBC, as the issuing bank for Lotec Marketings
letter of credit had to make prompt payment to Korea Exchange Bank (the
advising bank) when the obligation became due and demandable. Precisely because
of the independence principle in letters of credit and the need for prompt
payment,[120] respondent RCBC required a Surety Agreement from petitioner
Bangayan before issuing the letters of credit in favor of the four corporations,
including Lotec Marketing.
Under Articles 2199[121] and 2200[122] of the Civil Code, actual or
compensatory damages are those awarded in satisfaction of or in recompense for
loss or injury sustained.[123] They proceed from a sense of natural justice and are
designed to repair the wrong that has been done.[124]
In all seven dishonored checks, respondent RCBC properly exercised its
right as a creditor under the Surety Agreement to apply the petitioner Bangayans
funds in his accounts as security for the obligations of the four corporations under
the letters of credit. Thus, petitioner Bangayan cannot attribute any wrong or
misconduct to respondent RCBC since there was no malice or bad faith on the part
of respondent in dishonoring the checks. Any damage to petitioner arising from the
dishonor of those checks was brought about, not by the banks actions, but by the
corporations that defaulted on their obligations that petitioner had guaranteed to
pay. The trial and the appellate courts, therefore, committed no reversible error in
disallowing the award of damages to petitioner.
B. The trial court did not commit reversible error when it reinstated the
testimony of Mr. Lao and allowed petitioner Bangayan to cross-examine
him.
Petitioner Bangayan also assails the lower courts order that reinstated the direct
testimony of Mr. Lao, respondent RCBCs lone witness. Petitioner claims that Judge
Santiago acted with partiality by reinstating Mr. Laos testimony, because this Court
in another case had already sustained the lower courts earlier Order striking out the
testimony. Hence, petitioner says that the judges reinstatement of Mr. Laos
testimony was in violation of petitioners right to due process.
Petitioner Bangayans arguments are unmeritorious.
Discretionary power is generally exercised by trial judges in furtherance
of the convenience of the courts and the litigants, the expedition of business, and in
the decision of interlocutory matters on conflicting facts where one tribunal could
not easily prescribe to another the appropriate rule of procedure.[125] Thus, the
Court ruled:
In its very nature, the discretionary control conferred upon the
trial judge over the proceedings had before him implies the absence of
any hard-and-fast rule by which it is to be exercised, and in accordance
with which it may be reviewed. But the discretion conferred upon
the courts is not a willful, arbitrary, capricious and
uncontrolled discretion. It is a sound, judicial discretion which
should always be exercised with due regard to the rights of the
parties and the demands of equity and justice. As was said in the
case of The Styria vs. Morgan(186 U.S., 1, 9): The establishment of a
clearly defined rule of action would be the end of discretion, and yet
discretion should not be a word for arbitrary will or
inconsiderate action. So in the case of Goodwin vs. Prime (92 Me.,
355), it was said that discretion implies that in the absence of
positive law or fixed rule the judge is to decide by his view of
expediency or by the demands of equity and justice.
There being no positive law or fixed rule to guide the judge in the
court below in such cases, there is no positive law or fixed rule to guide a
court of appeals in reviewing his action in the premises, and such courts
will not therefore attempt to control the exercise of discretion
 by the court below unless it plainly appears that there was
inconsiderate action or the exercise of mere arbitrary will, or
in other words that his action in the premises amounted to an
abuse of discretion. But the right of an appellate court to review
judicial acts which lie in the discretion of inferior courts may properly be
invoked upon a showing of a strong and clear case of abuse of power to
the prejudice of the appellant, or that the ruling objected to rested on an
erroneous principle of law not vested in discretion.[126] (Emphasis
supplied)
Prior to a final judgment, trial courts have plenary control over the proceedings
including the judgment, and in the exercise of a sound judicial discretion, may take
such proper action in this regard as truth and justice may require.[127]
In the instant case, the trial court was within the exercise of its discretionary and
plenary control of the proceedings when it reconsidered motu propio its earlier
order striking out the testimony of Mr. Lao[128] and ordered it reinstated.[129] The
order of the judge cannot be considered as willful, arbitrary, capricious and
uncontrolled discretion, since his action allowed respondent bank to present its
case fully, especially considering that Mr. Lao was the sole witness for the defense.
Petitioner Bangayans reliance[130] on the Decisions of the Court of Appeals (CA-G.R.
SP No. 31865) and this Court (G.R. No. 115922) with respect to respondent RCBCs
Petition is misplaced. Contrary to his claim, what respondent RCBC questioned in
those cases was the denial by Judge Santiago of its Motion for Inhibition. [131] As
respondent pointed out, its Petitions to the Court of Appeals and the Court simply
prayed for the reversal of the denial of the Motion for Inhibition and did not
include the Order striking out the testimony of Mr. Lao. Even the appellate court
(CA-G.R. CV No. 48479) noted that what was resolved by the High Court was the
issue of Inhibition of the Judge and not the striking out of the testimony of Mr. Eli
Lao.[132]
Neither can petitioner Bangayan claim any deprivation of due process when the
trial court ordered the reinstatement of Mr. Laos testimony without any motion or
prayer from respondent RCBC. The right of a party to confront and cross-examine
opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in
proceedings before administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process.[133] This right, however, has always
been understood as requiring not necessarily an actual cross-examination but
merely an opportunity to exercise the right to cross-examine if desired.[134] What is
proscribed by statutory norm and jurisprudential precept is the absence of the
opportunity to cross-examine.[135]
In this case, petitioner Bangayans right to due process was not violated, as he was
given the freedom and opportunity to cross-examine and confront Mr. Lao on the
latters testimony. Even if respondent RCBC had not filed any motion, it was well
within the courts discretion to have Mr. Laos testimony reinstated in the interest of
substantial justice. The proceedings in the trial court in this civil case were
adversarial in nature insofar as the parties, in the process of attaining justice, were
made to advocate their respective positions in order to ascertain the truth. [136] The
truth-seeking function of the judicial system is best served by giving an opportunity
to all parties to fully present their case, subject to procedural and evidentiary rules.
Absent any blatant neglect or willful delay, both parties should be afforded equal
latitude in presenting the evidence and the testimonies of their witnesses in favor of
their respective positions, as well as in testing the credibility and the veracity of the
opposing partys claims through cross-examination.
 The Court finds no reversible error on the part of the trial court in
allowing the full presentation of the reinstated testimony of respondent RCBCs lone
witness, especially since the other party was afforded the occasion to cross-examine
the witness and in fact availed himself of the opportunity. Although he expressly
reserved his right to question the courts reinstatement of the testimony of the
witness, petitioner Bangayan did not satisfactorily offer convincing arguments to
overturn the trial courts order. That the court gave petitioner the opportunity to
cross-examine Mr. Lao a remedy that petitioner even fully availed himself of
negates the allegation of bias against the Judge.
The timing of petitioner Bangayans allegations of prejudice on the part of Judge
Santiago is suspect, since the latter had already rendered a Decision unfavorable to
petitioners cause.
A motion to inhibit shall be denied if filed after a member of the court
has already given an opinion on the merits of the case, the rationale being that a
litigant cannot be permitted to speculate on the action of the court . . . (only to)
raise an objection of this sort after the decision has been rendered.[137]

When respondent RCBC moved for Judge Santiagos inhibition,

petitioner even interposed an objection and characterized as unfounded respondent
banks charge of partiality.[138] It is now too late in the day to suddenly accuse Judge
Santiago of prejudice in the proceedings below, after he has already rendered an
unfavorable judgment against petitioner. If at all, the latters claim that Judge
Santiago was biased in favoring respondent RCBC is a mere afterthought that fails
to support a reversal by the Court.
C. Respondent RCBC did not violate the Bank Secrecy Act.
The Court affirms the trial courts findings which were likewise concurred with by
the Court of Appeals that the alleged violation of the Bank Secrecy Act was not
substantiated:
The Customss investigation with a subpoena/duces tecum sent to witness
Mr. Lao on the three companies, Final Sales Enterprises, Peak Marketing
and LBZ Commercial, guaranteed by plaintiff naturally raised an alarm.
Mr. Lao was asked to bring documents on the questioned importations.
The witness denied having given any statement in connection therewith.
No evidence was introduced by plaintiff to substantiate his claim that
defendant bank gave any classified information in violation of Republic
Act No. 1405. On this score, plaintiff has no cause of action for damages
against said defendant RCBC.[139]

In his Memorandum, petitioner Bangayan argues that there was a

wrongful disclosure by respondents RCBC and Philip Saria of confidential
information regarding his bank accounts in violation of the Bank Secrecy
Act.[140] However, petitioner failed to identify which confidential information
respondents divulged before the BOC that would make them liable under the said
law.
Section 2 of the Bank Secrecy Act provides:
All deposits of whatever nature with banks or banking institutions in
the Philippines including investments in bonds issued by the Government
of the Philippines, its political subdivisions and its instrumentalities, are
hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official,
bureau or office, except upon written permission of the depositor, or in
 cases of impeachment, or upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.
Petitioner Bangayan claims that respondent Saria divulged confidential
information through the Affidavit he submitted to the BOC.[141] However, nothing in
respondent Sarias Affidavit before the BOC showed that details of petitioner
Bangayans bank accounts with respondent bank was disclosed. If at all, respondent
Saria merely discussed his functions as an account officer in respondent bank and
identified petitioner as the one who had guaranteed the payment or obligations of
the importers under the Surety Agreement.
According to petitioner Bangayan, the responses of respondent RCBCs officers in
relation to the BOCs actions led to unsavory news reports that disparaged
petitioners good character and reputation and exposed him to public ridicule and
contempt.[142] However, as the appellate court correctly found, the humiliation and
embarrassment that petitioner Bangayan suffered in the business community was
not brought about by the alleged violation of the Bank Secrecy Act; it was due to the
smuggling charges filed by the Bureau of Customs which found their way in the
headlines of newspapers.[143]
Both the trial and appellate courts correctly found that petitioner
Bangayan did not satisfactorily introduce evidence to substantiate his claim that
defendant bank gave any classified information in violation of the Bank Secrecy
Act. Failing to adduce further evidence in the instant Petition with respect to the
banks purported disclosure of confidential information as regards his accounts,
petitioner cannot be awarded any damages arising from an unsubstantiated and
unproved violation of the Bank Secrecy Act.
Rules of Discovery
The Court finds that petitioner Bangayans argument as regards the banks
purported failure to comply with the rules of discovery is not substantive enough to
warrant further discussion by this Court. Petitioner has not alleged any different
outcome that would be generated if we were to agree with him on this point. If
petitioner is unsatisfied with respondent RCBCs responses, then his remedy is to
expose the falsity (if any) of the banks responses in the various modes of discovery
during the trial proper. He could have confronted respondent with contradictory
statements, testimonies or other countervailing evidence. The Court affirms the
findings of the appellate court that the rules of discovery were not treated lightly by
respondent RCBC.[144]
In summary, petitioner Bangayan failed to establish that the dishonor of
the seven checks by respondent RCBC entitled him to damages, since the dishonor
arose from his own voluntary agreement to act as surety for the four corporations
letters of credit. There was no bad faith or malice on the part of respondent bank,
as it merely acted within its rights as a creditor under the Surety Agreement.
IN VIEW OF THE FOREGOING, the instant Petition for Review on Certiorari
filed by Ricardo B. Bangayan is DENIED. The Decisions of the trial court and
appellate court dismissing the Complaint for damages filed by Bangayan against
respondents Rizal Commercial Banking Corporation and Philip Saria are
hereby AFFIRMED.
SO ORDERED.
 SECOND DIVISION

RIZAL COMMERCIAL BANKING G.R. No. 192413

CORPORATION,
Petitioner, Present:

CARPIO, J., Chairperson,

versus BRION,
PEREZ,
SERENO, and
HI-TRI DEVELOPMENT REYES, JJ.
CORPORATION and LUZ R.
BAKUNAWA, Promulgated:
Respondents.
June 13, 2012

x--------------------------------------------------x

DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorari filed by
petitioner Rizal Commercial Banking Corporation (RCBC) against respondents Hi-
Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa).
Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010
Resolution of the Court of Appeals (CA),[1] which reversed and set aside the 19 May
2008 Decision and 3 November 2008 Order of the Makati City Regional Trial Court
(RTC) in Civil Case No. 06-244.[2] The case before the RTC involved the Complaint
for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No.
3936, as amended by Presidential Decree No. 679 (P.D. 679), against certain
deposits, credits, and unclaimed balances held by the branches of various banks in
the Philippines. The trial court declared the amounts, subject of the special
proceedings, escheated to the Republic and ordered them deposited with the
Treasurer of the Philippines (Treasurer) and credited in favor of the
Republic.[3] The assailed RTC judgments included an unclaimed balance in the
amount of ₱1,019,514.29, maintained by RCBC in its Ermita Business Center
branch.
We quote the narration of facts of the CA[4] as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased
(Spouses Bakunawa) are registered owners of six (6) parcels of land
covered by TCT Nos. 324985 and 324986 of the Quezon City Register
of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the
Marikina Register of Deeds. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan (Millan), through her
representative, Jerry Montemayor, offered to buy said lots for
₱6,724,085.71, with the promise that she will take care of clearing
whatever preliminary obstacles there may[]be to effect a completion of
the sale. The Spouses Bakunawa gave to Millan the Owners Copies of
said TCTs and in turn, Millan made a down[]payment of ₱1,019,514.29
for the intended purchase. However, for one reason or another, Millan
was not able to clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her down[]payment
of ₱1,019,514.29. However, Millan refused to accept back the
₱1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa,
through their company, the Hi-Tri Development Corporation (Hi-Tri)
took out on October 28, 1991, a Managers Check from RCBC-Ermita in
the amount of ₱1,019,514.29, payable to Millans company Rosmil
Realty and Development Corporation (Rosmil) c/o Teresita Millan and
used this as one of their basis for a complaint against Millan and
Montemayor which they filed with the Regional Trial Court of Quezon
City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991],
praying that:
1. That the defendants Teresita Mil[l]an and Jerry
Montemayor may be ordered to return to plaintiffs
spouses the Owners Copies of Transfer Certificates of
Title Nos. 324985, 324986, 103724, 98827, 98828 and
98829;
2. That the defendant Teresita Mil[l]an be
correspondingly ordered to receive the amount of One
Million Nineteen Thousand Five Hundred Fourteen
Pesos and Twenty Nine Centavos (₱1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs
spouses moral damages in the amount of
₱2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs
attorneys fees in the amount of ₱50,000.00.
Being part and parcel of said complaint, and consistent with their
prayer in Civil Case No. Q-91-10719 that Teresita Mil[l]an be
correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine
[Centavos] (₱1,019,514.29)[], the Spouses Bakunawa, upon advice of
their counsel, retained custody of RCBC Managers Check No. ER
034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719,
especially during negotiations for a possible settlement of the case,
Millan was informed that the Managers Check was available for her
withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned
case and without the knowledge of [Hi-Tri and Spouses Bakunawa], x x
x RCBC reported the ₱1,019,514.29-credit existing in favor of Rosmil to
the Bureau of Treasury as among its unclaimed balances as of January
31, 2003. Allegedly, a copy of the Sworn Statement executed by
Florentino N. Mendoza, Manager and Head of RCBCs Asset
Management, Disbursement & Sundry Department (AMDSD) was
posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the
Solicitor General (OSG)], filed with the RTC the action below for
Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their
dispute with Rosmil and Millan. Instead of only the amount of
₱1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil and Millan
the amount of ₱3,000,000.00, [which is] inclusive [of] the amount of
[]₱1,019,514.29. But during negotiations and evidently prior to said
settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-
Ermita the availability of the ₱1,019,514.29 under RCBC Managers
Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however
dismayed when they were informed that the amount was already
subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x
x RCBC, viz:
We understand that the deposit corresponding to the
amount of Php 1,019,514.29 stated in the Managers Check is
currently the subject of escheat proceedings pending before
Branch 150 of the Makati Regional Trial Court.
Please note that it was our impression that the deposit would
be taken from [Hi-Tris] RCBC bank account once an order to
debit is issued upon the payees presentation of the Managers
Check. Since the payee rejected the negotiated Managers
Check, presentation of the Managers Check was never made.
Consequently, the deposit that was supposed to be allocated
for the payment of the Managers Check was supposed to
remain part of the Corporation[s] RCBC bank account,
which, thereafter, continued to be actively maintained and
operated. For this reason, We hereby demand your
confirmation that the amount of Php 1,019,514.29 continues
to form part of the funds in the Corporations RCBC bank
account, since pay-out of said amount was never ordered. We
wish to point out that if there was any attempt on the part of
RCBC to consider the amount indicated in the Managers
Check separate from the Corporations bank account, RCBC
would have issued a statement to that effect, and repeatedly
reminded the Corporation that the deposit would be
considered dormant absent any fund movement. Since the
Corporation never received any statements of account from
RCBC to that effect, and more importantly, never received
any single letter from RCBC noting the absence of fund
movement and advising the Corporation that the deposit
would be treated as dormant.
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x
x RCBC reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed
[Hi-Tri and Spouses Bakunawa] that:
The Banks Ermita BC informed Hi-Tri and/or its principals
regarding the inclusion of Managers Check No. ER034469 in
the escheat proceedings docketed as Civil Case No. 06-244,
as well as the status thereof, between 28 January 2008 and 1
February 2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the
Managers Check No. ER034469 does not form part of the
Banks own account. By simple operation of law, the funds
covered by the managers check in issue became a
 deposit/credit susceptible for inclusion in the escheat case
initiated by the OSG and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make
good the check, the Banks obligation to do so prescribed as
early as October 2001.
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008,
the trial court rendered its assailed Decision declaring the deposits, credits, and
unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic.
Among those included in the order of forfeiture was the amount of ₱1,019,514.29
held by RCBC as allocated funds intended for the payment of the Managers Check
issued in favor of Rosmil. The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the Republic. Respondents
claim that they were not able to participate in the trial, as they were not informed of
the ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June
2008, seeking the partial reconsideration of the RTC Decision insofar as it
escheated the fund allocated for the payment of the Managers Check. They asked
that they be included as party-defendants or, in the alternative, allowed to
intervene in the case and their motion considered as an answer-in-intervention.
Respondents argued that they had meritorious grounds to ask reconsideration of
the Decision or, alternatively, to seek intervention in the case. They alleged that the
deposit was subject of an ongoing dispute (Civil Case No. Q-91-10719) between
them and Rosmil since 1991, and that they were interested parties to that case.[5]
On 3 November 2008, the RTC issued an Order denying the motion of
respondents. The trial court explained that the Republic had proven compliance
with the requirements of publication and notice, which served as notice to all those
who may be affected and prejudiced by the Complaint for Escheat. The RTC also
found that the motion failed to point out the findings and conclusions that were not
supported by the law or the evidence presented, as required by Rule 37 of the Rules
of Court. Finally, it ruled that the alternative prayer to intervene was filed out of
time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the
19 May 2008 Decision and 3 November 2008 Order of the RTC. According to the
appellate court,[6] RCBC failed to prove that the latter had communicated with the
purchaser of the Managers Check (Hi-Tri and/or Spouses Bakunawa) or the
designated payee (Rosmil) immediately before the bank filed its Sworn Statement
on the dormant accounts held therein. The CA ruled that the banks failure to notify
respondents deprived them of an opportunity to intervene in the escheat
proceedings and to present evidence to substantiate their claim, in violation of their
right to due process. Furthermore, the CA pronounced that the Makati City RTC
Clerk of Court failed to issue individual notices directed to all persons claiming
interest in the unclaimed balances, as well as to require them to appear after
publication and show cause why the unclaimed balances should not be deposited
with the Treasurer of the Philippines. It explained that the jurisdictional
requirement of individual notice by personal service was distinct from the
requirement of notice by publication. Consequently, the CA held that the Decision
and Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the
main issues as follows:
I. Whether the Decision and Order of the RTC were void for
failure to send separate notices to respondents by personal
service
II. Whether petitioner had the obligation to notify respondents
immediately before it filed its Sworn Statement with the
Treasurer
III. Whether or not the allocated funds may be escheated in favor
of the Republic
Discussion
Petitioner bank assails[7]
the CA judgments insofar as they ruled that
notice by personal service upon respondents is a jurisdictional requirement in
escheat proceedings. Petitioner contends that respondents were not the owners of
the unclaimed balances and were thus not entitled to notice from the RTC Clerk of
Court. It hinges its claim on the theory that the funds represented by the Managers
Check were deemed transferred to the credit of the payee or holder upon its
issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the
rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of
such unclaimed balances, he shall commence an action or
actions in the name of the People of the Republic of
the Philippines in the Court of First Instance of the province
or city where the bank, building and loan association or trust
corporation is located, in which shall be joined as parties
the bank, building and loan association or trust
corporation and all such creditors or depositors. All or
any of such creditors or depositors or banks, building and loan
association or trust corporations may be included in one
action. Service of process in such action or actions shall
be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing
officer of each defendant bank, building and loan
association or trust corporation and by publication of a
copy of such summons in a newspaper of general
circulation, either in English, in Filipino, or in a local dialect,
published in the locality where the bank, building and loan
association or trust corporation is situated, if there be any, and
in case there is none, in the City of Manila, at such time as the
court may order. Upon the trial, the court must hear all
parties who have appeared therein, and if it be
determined that such unclaimed balances in any
defendant bank, building and loan association or trust
corporation are unclaimed as hereinbefore stated, then
the court shall render judgment in favor of the
Government of the Republic of the Philippines,
declaring that said unclaimed balances have escheated to the
Government of the Republic of the Philippines and
 commanding said bank, building and loan association or trust
corporation to forthwith deposit the same with the Treasurer
of the Philippines to credit of the Government of the Republic
of the Philippines to be used as the National Assembly may
direct.
At the time of issuing summons in the action above
provided for, the clerk of court shall also issue a
notice signed by him, giving the title and number of said
action, and referring to the complaint therein, and directed
to all persons, other than those named as defendants
therein, claiming any interest in any unclaimed
balance mentioned in said complaint, andrequiring
them to appear within sixty days after the
publication or first publication, if there are several, of such
summons, and show cause, if they have any, why the
unclaimed balances involved in said action should not
be deposited with the Treasurer of the Philippines as
in this Act provided and notifying them that if they do not
appear and show cause, the Government of the
Republic of the Philippines will apply to the court for
the relief demanded in the complaint. A copy of said
notice shall be attached to, and published with the copy of, said
summons required to be published as above, and at the end of
the copy of such notice so published, there shall be a statement
of the date of publication, or first publication, if there are
several, of said summons and notice. Any person interested
may appear in said action and become a party
thereto. Upon the publication or the completion of the
publication, if there are several, of the summons and
notice, and the service of the summons on the defendant
banks, building and loan associations or trust
corporations, the court shall have full and complete
jurisdiction in the Republic of the Philippines over the
said unclaimed balances and over the persons having
or claiming any interest in the said unclaimed
balances, or any of them, and shall have full and
complete jurisdiction to hear and determine the
issues herein, and render the appropriate judgment
thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by
delivery of a copy of the complaint and summons upon the president, cashier, or
managing officer of the defendant bank.[8] On the other hand, as to depositors or
other claimants of the unclaimed balances, service is made by publication
of a copy of the summons in a newspaper of general circulation in the locality where
the institution is situated.[9] A notice about the forthcoming escheat proceedings
must also be issued and published, directing and requiring all persons who may
claim any interest in the unclaimed balances to appear before the court and show
cause why the dormant accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the
issuance of individual notices upon respondents was a jurisdictional requirement,
and that failure to effect personal service on them rendered the Decision and the
Order of the RTC void for want of jurisdiction. Escheat proceedings are actions in
rem,[10] whereby an action is brought against the thing itself instead of the
person.[11] Thus, an action may be instituted and carried to judgment without
personal service upon the depositors or other claimants.[12] Jurisdiction is secured
by the power of the court over the res.[13] Consequently, a judgment of escheat is
conclusive upon persons notified by advertisement, as publication is considered a
general and constructive notice to all persons interested.[14]
Nevertheless, we find sufficient grounds to affirm the CA on the
exclusion of the funds allocated for the payment of the Managers Check in the
escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by
virtue of its sovereignty, steps in and claims abandoned, left vacant, or unclaimed
property, without there being an interested person having a legal claim
thereto.[15] In the case of dormant accounts, the state inquires into the status,
custody, and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or abandonment by
the depositor.[16] If after the proceedings the property remains without a lawful
owner interested to claim it, the property shall be reverted to the state to forestall
an open invitation to self-service by the first comers.[17] However, if interested
parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited
in favor of the state.[18] We emphasize that escheat is not a proceeding to penalize
depositors for failing to deposit to or withdraw from their accounts. It is a
proceeding whereby the state compels the surrender to it of unclaimed deposit
balances when there is substantial ground for a belief that they have been
abandoned, forgotten, or without an owner.[19]
Act No. 3936, as amended, outlines the proper procedure to be followed
by banks and other similar institutions in filing a sworn statement with the
Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and
within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines a
statement, under oath, of their respective managing
officers, of all credits and deposits held by them in
favor of persons known to be dead, or who have not
made further deposits or withdrawals during the
preceding ten years or more, arranged in alphabetical
order according to the names of creditors and depositors,
and showing:
(a) The names and last known place of residence or post
office addresses of the persons in whose favor such
unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed
balance and whether the same is in money or in security,
and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed
balance stands died, if known, or the date when he made
his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and
the amount thereof.
A copy of the above sworn statement shall be posted
in a conspicuous place in the premises of the bank,
 building and loan association, or trust corporation concerned
for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the
above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with
the person in whose favor the unclaimed balance
stands at his last known place of residence or post
office address.
It shall be the duty of the Treasurer of the Philippines to
inform the Solicitor General from time to time the existence of
unclaimed balances held by banks, building and loan
associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for
notifying depositors of unclaimed balances. This notification is meant to inform
them that their deposit could be escheated if left unclaimed. Accordingly, before
filing a sworn statement, banks and other similar institutions are under obligation
to communicate with owners of dormant accounts. The purpose of this initial notice
is for a bank to determine whether an inactive account has indeed been unclaimed,
abandoned, forgotten, or left without an owner. If the depositor simply does not
wish to touch the funds in the meantime, but still asserts ownership and dominion
over the dormant account, then the bank is no longer obligated to include the
account in its sworn statement.[20] It is not the intent of the law to force depositors
into unnecessary litigation and defense of their rights, as the state is only interested
in escheating balances that have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and
the unclaimed balances are eventually escheated to the Republic, the bank shall not
thereafter be liable to any person for the same and any action which may be
brought by any person against in any bank xxx for unclaimed balances so deposited
xxx shall be defended by the Solicitor General without cost to such
bank.[21] Otherwise, should it fail to comply with the legally outlined procedure to
the prejudice of the depositor, the bank may not raise the defense provided under
Section 5 of Act No. 3936, as amended.
Petitioner asserts[22] that the CA committed a reversible error when it
required RCBC to send prior notices to respondents about the forthcoming escheat
proceedings involving the funds allocated for the payment of the Managers Check.
It explains that, pursuant to the law, only those whose favor such unclaimed
balances stand are entitled to receive notices. Petitioner argues that, since the funds
represented by the Managers Check were deemed transferred to the credit of the
payee upon issuance of the check, the proper party entitled to the notices was the
payee Rosmil and not respondents. Petitioner then contends that, in any event, it is
not liable for failing to send a separate notice to the payee, because it did not have
the address of Rosmil. Petitioner avers that it was not under any obligation to
record the address of the payee of a Managers Check.
In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a
legal interest in the fund allocated for the payment of the Managers Check. They
reason that, since the funds were part of the Compromise Agreement between
respondents and Rosmil in a separate civil case, the approval and eventual
execution of the agreement effectively reverted the fund to the credit of
respondents. Respondents further posit that their ownership of the funds was
evidenced by their continued custody of the Managers Check.
An ordinary check refers to a bill of exchange drawn by a depositor
(drawer) on a bank (drawee),[24] requesting the latter to pay a person named therein
(payee) or to the order of the payee or to the bearer, a named sum of money. [25] The
issuance of the check does not of itself operate as an assignment of any part of the
funds in the bank to the credit of the drawer.[26] Here, the bank becomes liable only
after it accepts or certifies the check.[27] After the check is accepted for payment, the
bank would then debit the amount to be paid to the holder of the check from the
account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks.
These are bills of exchange drawn by the banks manager or cashier, in the name of
the bank, against the bank itself.[28] Typically, a managers or a cashiers check is
procured from the bank by allocating a particular amount of funds to be debited
from the depositors account or by directly paying or depositing to the bank the
value of the check to be drawn. Since the bank issues the check in its name, with
itself as the drawee, the check is deemed accepted in advance.[29] Ordinarily, the
check becomes the primary obligation of the issuing bank and constitutes its
written promise to pay upon demand.[30]
Nevertheless, the mere issuance of a managers check does not ipso
facto work as an automatic transfer of funds to the account of the payee. In case the
procurer of the managers or cashiers check retains custody of the instrument, does
not tender it to the intended payee, or fails to make an effective delivery, we find
the following provision on undelivered instruments under the Negotiable
Instruments Law applicable:[31]
Sec. 16. Delivery; when effectual; when
presumed. Every contract on a negotiable instrument
is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other
than a holder in due course, the delivery, in order to be
effectual, must be made either by or under the
authority of the party making, drawing, accepting, or
indorsing, as the case may be; and, in such case, the delivery
may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer
in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the
contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check was procured by respondents,
and that the amount to be paid for the check would be sourced from the deposit
account of Hi-Tri.[32] When Rosmil did not accept the Managers Check offered by
respondents, the latter retained custody of the instrument instead of cancelling it.
As the Managers Check neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the instrument.[33]
Since there was no delivery, presentment of the check to the bank for
payment did not occur. An order to debit the account of respondents was never
made. In fact, petitioner confirms that the Managers Check was never negotiated or
presented for payment to its Ermita Branch, and that the allocated fund is still held
by the bank.[34] As a result, the assigned fund is deemed to remain part of the
account of Hi-Tri, which procured the Managers Check. The doctrine that the
deposit represented by a managers check automatically passes to the payee is
inapplicable, because the instrument although accepted in advance remains
undelivered. Hence, respondents should have been informed that the deposit had
been left inactive for more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.
After a careful review of the RTC records, we find that it is no longer
necessary to remand the case for hearing to determine whether the claim of
respondents was valid. There was no contention that they were the procurers of the
Managers Check. It is undisputed that there was no effective delivery of the check,
rendering the instrument incomplete. In addition, we have already settled that
respondents retained ownership of the funds. As it is obvious from their foregoing
actions that they have not abandoned their claim over the fund, we rule that the
allocated deposit, subject of the Managers Check, should be excluded from the
escheat proceedings. We reiterate our pronouncement that the objective of escheat
proceedings is state forfeiture of unclaimed balances. We further note that there is
nothing in the records that would show that the OSG appealed the assailed CA
judgments. We take this failure to appeal as an indication of disinterest in pursuing
the escheat proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009
Decision and 27 May 2010 Resolution of the Court of Appeals in CA-G.R. SP No.
107261 are hereby AFFIRMED.
SO ORDERED.

SECOND DIVISION

SPS. MARIO & CORAZON G.R. No. 165661

VILLALVA,
Petitioners, Present:

PUNO, J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,
*CORONA,
AZCUNA, and
GARCIA, JJ.

RCBC SAVINGS BANK, Promulgated:

Respondent. August 28, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
PUNO, J.:
This case involves a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure which seeks to reverse the decision of the Seventh
Division of the Court of Appeals in CAG.R. SP No. 76574.
The facts.
In June 1993, petitioner spouses issued forty-eight (48) checks
totaling P547,392.00 to cover installment payments due on promissory notes
executed in favor of Toyota,Quezon Avenue (TQA) for the purchase of a 93 Toyota
Corolla.[1] The promissory notes were secured by a Chattel Mortgage executed by
the petitioner spouses on the vehicle in favor of TQA.[2] Under the Deed of Chattel
Mortgage, petitioner spouses were to insure the vehicle against loss or damage by
accident, theft and fire, and endorse and deliver the policies to the mortgagor, viz.:
The MORTGAGOR covenants and agrees that he/it
will cause the property(ies) hereinabove mortgaged to be
insured against loss or damage by accident, theft and fire for a
period of one year from date hereof with an insurance
company or companies acceptable to the MORTGAGEE in an
amount not less than the outstanding balance of the mortgage
obligations and that he/it will make all loss, if any, under such
policy or policies, payable to the MORTGAGEE or its assigns as
its interest may appear and deliver such policy to the
MORTGAGEE forthwith. The said MORTGAGOR further
covenants and agrees that in default of his/its effecting such
insurance and delivering the policies so endorsed to the
MORTGAGEE on the day of the execution of this mortgage, the
MORTGAGEE may at its option, but without any obligation to
do so, effect such insurance for the account of the
MORTGAGOR and that any money so disbursed by the
MORTGAGEE shall be added to the principal indebtedness,
hereby secured and shall become due and payable at the time
for the payment of the first installment to be due under the
note aforesaid after the date of such insurance and shall bear
interest and/or finance charge at the same rate as the principal
indebtedness. The MORTGAGOR hereby irrevocably
authorizes the MORTGAGEE or its assigns to procure for the
account of the MORTGAGOR the insurance coverage every
year thereafter until the mortgage obligation is fully paid and
any money so disbursed shall be payable and shall bear
interest and/or finance charge in the same manner as
stipulated in the next preceding sentence. It is understood that
MORTGAGEE has no obligation to carry out aforementioned
authority to procure insurance for the account of the
MORTGAGOR.[3]

On June 22, 1993, the promissory notes and chattel mortgage were
assigned to Rizal Commercial Banking Corporation (RCBC).[4] They were later
assigned by RCBC to RCBC Savings Bank.[5] In time, all forty-eight (48) checks
issued by the petitioner spouses were encashed by respondent RCBC Savings
Bank.[6]
The evidence shows that the petitioner spouses faithfully complied with
the obligation to insure the mortgaged vehicle from 1993 until 1996.[7] For the
period of August 14, 1996 to August 14, 1997,[8] petitioner spouses procured the
necessary insurance but did not deliver the same to the respondent until January
17, 1997.[9] As a consequence, respondent had the mortgaged vehicle insured for the
period of October 21, 1996 to October 21, 1997 and paid a P14,523.36 insurance
premium.[10] The insurance policy obtained by respondent was later cancelled due
to the insurance policy secured by petitioner spouses over the mortgaged vehicle,
and respondent bank was reimbursedP10,939.86 by Malayan Insurance
Company.[11] The premium paid by respondent bank exceeded the reimbursed
amount paid by Malayan Insurance Company by P3,583.50.
 On February 10, 1999, respondent sent a letter of demand to the
petitioners for P12,361.02 allegedly representing unpaid obligations on the
promissory notes and mortgage as of January 31, 1999. In lieu thereof, respondent
demanded that petitioner spouses surrender the mortgaged vehicle within five days
from notice.[12] The petitioner spouses ignored the demand letter.
On April 5, 1999, respondent, in order to get the 93 Toyota Corolla, filed
a complaint for Recovery of Possession with Replevin with
the Metropolitan Trial Court of PasayCity, which was raffled to Branch 45
thereof.[13] Two weeks later, or on April 19, 1999, the respondent caused the
enforcement of a writ of replevin and recovered possession of the mortgaged
vehicle.[14] On June 18, 1999, petitioner spouses filed their Answer with Compulsory
Counterclaim for moral damages, exemplary damages and attorneys
fees.[15] Petitioners asserted that they insured the mortgaged vehicle in compliance
with the Deed of Chattel Mortgage.
On June 28, 2002, the Metropolitan Trial Court rendered a decision in
favor of petitioners and ordered respondent to pay petitioner
spouses P100,000.00 in moral damages,P50,000.00 in exemplary
damages, P25,000.00 in attorneys fees, and the costs and expenses of
litigation.[16] Respondents Motion for Reconsideration was denied on September 16,
2002.[17]
Respondent appealed the decision to
the Regional Trial Court of Pasay City on October 3, 2002.[18] The case was raffled
to Branch 114. On March 21, 2003, the Regional Trial Court affirmed the judgment
of the Metropolitan Trial Court in toto.[19]
Undaunted, the respondent filed a petition for review with the Court of
Appeals, pursuant to Rule 42 of the 1997 Rules of Civil Procedure, assailing the
March 21, 2003 decision of the Regional Trial Court.[20] On July 8, 2004, the Court
of Appeals reversed the decision of the Regional Trial Court. It ordered petitioner
spouses to pay respondentP3,583.50 within thirty days of finality of the decision,
and issued a writ of replevin as regards the mortgaged vehicle.[21] Petitioners
Motion for Reconsideration was denied, hence, the present petition for certiorari.
The petitioners alleged that in ruling against them, the Court of Appeals
erred when it failed to consider two pieces of evidence: (1) an Acknowledgment
Receipt dated January 17, 1997, which shows that the premium for the second
insurance policy had been refunded to the respondent bank; and (2) an
Endorsement by the Malayan Insurance Company dated June 11, 1997, which
shows that petitioners handed the required insurance policy to the respondent. The
petitioners also point out that the respondent was furnished a copy of the insurance
policy on January 17, 1997.[22]
On the other hand, respondent contends that petitioners seek a review of
factual findings which the Supreme Court cannot do as it is not a trier of facts.[23] It
further argues that no reversible errors were made by the Court of Appeals, and to
set aside its decision would result in the unjust enrichment of the petitioners.[24]
We rule for the petitioners.
The key issue is whether petitioners failed to comply with their obligation
to insure the subject vehicle under the Deed of Chattel Mortgage. The Deed of
Chattel Mortgage requires that the petitioners (1) secure the necessary insurance
and (2) deliver the policies so endorsed to the respondent on the day of the
execution of this mortgage.
 We hold that petitioners did not default in the performance of their
obligation. As a rule, demand is required before a party may be considered in
default.[25] However, demand by a creditor is not necessary in order that delay may
exist: (1) when the obligation or the law expressly so declares; (2) when from the
nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or (3) when demand would
be useless, as when the obligor has rendered it beyond his power to perform. None
of the exceptions are present in this case. It is clear from the records that the first
and third exceptions are inapplicable. The second exception cannot also be applied
in light of our ruling in Servicewide Specialists, Incorporated v. Court of
Appeals.[26] In that case, this Court observed that the Deed of Chattel Mortgage
required that two conditions should be met before the mortgagee could secure the
required insurance: (1) default by the mortgagors in effecting renewal of the
insurance, and (2) failure to deliver the policy with endorsement to mortgagee. The
mortgagee contended that notice was not required due to the nature of the
obligation, and that it was entitled to renew the insurance for the account of the
mortgagors without notice to the latter should the mortgagors fail to renew the
insurance coverage. To substantiate its claim, the mortgagee relied on the Chattel
Mortgage provision that the car be insured at all times. This Court rebuffed the
mortgagees arguments:
If petitioner was aware that the insurance coverage
was inadequate, why did it not inform private respondent
about it? After all, since petitioner was under no obligation
to effect renewal thereof, it is but logical that it should relay to
private respondents any defect of the insurance coverage
before itself assuming the same.[27]
Due to the mortgagees failure to notify the mortgagors prior to
application of the latters payments to the insurance premiums, this Court held that
the mortgagors had not defaulted on their obligation to secure insurance over the
mortgaged vehicle, and affirmed the Regional Trial Courts decision dismissing the
mortgagees complaint for replevin.
In the case at bar, the respondent failed to demand that petitioners
comply with their obligation to secure insurance coverage for the mortgaged
vehicle. Following settled jurisprudence, we rule that the petitioners had not
defaulted on their obligation to insure the mortgaged vehicle and the condition sine
qua non for respondent to exercise its right to pay the insurance premiums over the
subject vehicle has not been established.
The respondent further contends that its payment of the insurance
premiums on behalf of the petitioners unjustly enriched the latter. Respondent
adverts to the provisions on quasi-contractual obligations in the New Civil
Code.[28] Enrichment consists of every patrimonial, physical or moral advantage, so
long as it is appreciable in money. It may also take the form of avoidance of
expenses and other indispensable reductions in the patrimony of a person. It may
also include the prevention of a loss or injury.[29] In the case at bar, petitioner
spouses were not enriched when respondent obtained insurance coverage for the
mortgaged vehicle as the petitioner spouses had already obtained the required
insurance coverage for the vehicle from August 14, 1996 to August 14, 1997.[30]
Finally, we are aware of the rule that findings of fact of the Court of
Appeals are given great weight by this Court. Nevertheless, it is this Courts duty to
carefully review factual findings where the appreciation of the appellate court and
the trial court differ from each other. In the case at bar, the findings of the appellate
court are clearly not borne out by the evidence of the parties and necessarily, we
have to reject to them.
IN VIEW WHEREOF, the petition is GRANTED. The decision of the
Seventh Division of the Court of Appeals promulgated on July 8, 2004 and its
resolution promulgated on September 28, 2004 are REVERSED and SET
ASIDE. The June 28, 2002 decision and September 16, 2002 resolution of the
Metropolitan Trial Court, Pasay City, Branch 45, as well as the March 21,
2003 decision of the Regional Trial Court, Pasay City, Branch 114,
are REINSTATED.
No costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 156294 November 29, 2006
MELVA THERESA ALVIAR GONZALES, Petitioner,
vs.
RIZAL COMMERCIAL BANKING CORPORATION, Respondent.
DECISION
GARCIA, J.:
An action for a sum of money originating from the Regional Trial Court (RTC) of
Makati City, Branch 61, thereat docketed as Civil Case No. 88-1502, was decided in
favor of therein plaintiff, now respondent Rizal Commercial Banking Corporation
(RCBC). On appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596, that
court, in a decision1 dated August 30, 2002, affirmed the RTC minus the award of
attorney’s fees. Upon the instance of herein petitioner Melva Theresa Alviar
Gonzales, the case is now before this Court via this petition for review on certiorari,
based on the following undisputed facts as unanimously found by the RTC and the
CA, which the latter summarized as follows:
Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as
New Accounts Clerk in the Retail Banking Department at its Head Office.
A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade
Medical Group with address at 569 Western Avenue, Los Angeles, California,
against the drawee bank Wilshire Center Bank, N.A., of Los Angeles, California,
U.S.A., and payable to Gonzales’ mother, defendant Eva Alviar (or Alviar). Alviar
then endorsed this check. Since RCBC gives special accommodations to its
employees to receive the check’s value without awaiting the clearing period,
Gonzales presented the foreign check to Olivia Gomez, the RCBC’s Head of Retail
Banking. After examining this, Olivia Gomez requested Gonzales to endorse it
which she did. Olivia Gomez then acquiesced to the early encashment of the check
and signed the check but indicated thereon her authority of "up to P17,500.00
only". Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC
employee Carlos Ramos and procure his signature. After inspecting the check,
Carlos Ramos also signed it with an "ok" annotation. After getting the said
signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the
Remittance section of the Foreign Department of the RCBC Head Office, who after
scrutinizing the entries and signatures therein authorized its encashment. Gonzales
then received its peso equivalent of P155,270.85.
RCBC then tried to collect the amount of the check with the drawee bank by the
latter through its correspondent bank, the First Interstate Bank of California, on
two occasions dishonored the check because of "END. IRREG" or irregular
indorsement. Insisting, RCBC again sent the check to the drawee bank, but this
time the check was returned due to "account closed". Unable to collect, RCBC
demanded from Gonzales the payment of the peso equivalent of the check that she
received. Gonzales settled the matter by agreeing that payment be made thru salary
deduction. This temporary arrangement for salary deductions was communicated
by Gonzales to RCBC through a letter dated November 27, 1987 xxx
xxx xxx xxx
The deductions was implemented starting October 1987. On March 7, 1988 RCBC
sent a demand letter to Alviar for the payment of her obligation but this fell on deaf
ears as RCBC did not receive any response from Alviar. Taking further action to
collect, RCBC then conveyed the matter to its counsel and on June 16, 1988, a letter
was sent to Gonzales reminding her of her liability as an indorser of the subject
check and that for her to avoid litigation she has to fulfill her commitment to settle
her obligation as assured in her said letter. On July 1988 Gonzales resigned from
RCBC. What had been deducted from her salary was only P12,822.20 covering ten
months.
It was against the foregoing factual backdrop that RCBC filed a complaint for a sum
of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the latter’s
husband Gino Gonzales. The spouses Gonzales filed an Answer with Counterclaim
praying for the dismissal of the complaint as well as payment of P10,822.20 as
actual damages, P20,000.00 as moral damages, P20,000.00 as exemplary
damages, and P20,000.00 as attorney’s fees and litigation expenses. Defendant Eva
Alviar, on the other hand, was declared in default for having filed her Answer out of
time.
After trial, the RTC, in its three-page decision,2 held two of the three defendants
liable as follows:
WHEREFORE, premises above considered and plaintiff having established its case
against the defendants as above stated, judgment is hereby rendered for plaintiff
and as against defendant EVA. P. ALVIAR as principal debtor and defendants
MELVA THERESA ALVIAR GONZLAES as guarantor as follows:
1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the
amount of P12,622.20, as salary deduction of [Gonzales]), representing
the outstanding obligation of the defendants with interest of 12% per
annum starting February 1987 until fully paid;
2. To pay the amount of P40,000.00 as and for attorney’s fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of attorney’s fees, affirmed the RTC
judgment.
Hence, this recourse by the petitioner on her submission that the CA erred ̶
XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO
A CHECK SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO
RCBC AS GUARANTOR;
XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC
EMPLOYEE, DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT
 ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY
FOR THE ENCASHMENT OF THE CHECK;
XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF
[THE PETITIONER].
The recourse is impressed with merit.
The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of
Ade Medical Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center
Bank N.A., was dishonored because of "End. Irregular," i.e., an irregular
endorsement. While the foreign drawee bank did not specifically state which among
the four signatures found on the dorsal portion of the check made the check
irregularly endorsed, it is absolutely undeniable that only the signature of Olivia
Gomez, an RCBC employee, was a qualified endorsement because of the phrase "up
to P17,500.00 only." There can be no other acceptable explanation for the dishonor
of the foreign check than this signature of Olivia Gomez with the phrase "up
to P17,500.00 only" accompanying it. This Court definitely agrees with the
petitioner that the foreign drawee bank would not have dishonored the check had it
not been for this signature of Gomez with the same phrase written by her.
The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of
this dollar-check drawn by Don Zapanta because of the defect introduced by RCBC,
through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if
returned in that state to its original payee, Eva Alviar.
There is no doubt in the mind of the Court that a subsequent party which caused
the defect in the instrument cannot have any recourse against any of the prior
endorsers in good faith. Eva Alviar’s and the petitioner’s liability to subsequent
holders of the foreign check is governed by the Negotiable Instruments Law as
follows:
Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course;
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of
the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be dishonored and
the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay
it.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are
the following:
(a) That the instrument is genuine and in all respects what it purports to
be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
Under Section 66, the warranties for which Alviar and Gonzales are liable as
general endorsers in favor of subsequent endorsers extend only to the state of the
instrument at the time of their endorsements, specifically, that the instrument is
genuine and in all respects what it purports to be; that they have good title thereto;
that all prior parties had capacity to contract; and that the instrument, at the time
of their endorsements, is valid and subsisting. This provision, however, cannot be
used by the party which introduced a defect on the instrument, such as respondent
RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers
liable on the instrument because it results in the absurd situation whereby a
subsequent party may render an instrument useless and inutile and let innocent
parties bear the loss while he himself gets away scot-free. It cannot be over-stressed
that had it not been for the qualified endorsement ("up to P17,500.00 only") of
Olivia Gomez, who is the employee of RCBC, there would have been no reason for
the dishonor of the check, and full payment by drawee bank therefor would have
taken place as a matter of course.
Section 66 of the Negotiable Instruments Law which further states that the general
endorser additionally engages that, on due presentment, the instrument shall be
accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will pay
the amount thereof to the holder, or to any subsequent endorser who may be
compelled to pay it, must be read in the light of the rule in equity requiring that
those who come to court should come with clean hands. The holder or subsequent
endorser who tries to claim under the instrument which had been dishonored for
"irregular endorsement" must not be the irregular endorser himself who gave cause
for the dishonor. Otherwise, a clear injustice results when any subsequent party to
the instrument may simply make the instrument defective and later claim from
prior endorsers who have no knowledge or participation in causing or introducing
said defect to the instrument, which thereby caused its dishonor.
Courts in this jurisdiction are not only courts of law but also of equity, and
therefore cannot unqualifiedly apply a provision of law so as to cause clear injustice
which the framers of the law could not have intended to so deliberately cause. In
Carceller v. Court of Appeals,4 this Court had occasion to stress:
Courts of law, being also courts of equity, may not countenance such grossly unfair
results without doing violence to its solemn obligation to administer fair and equal
justice for all.
RCBC, which caused the dishonor of the check upon presentment to the drawee
bank, through the qualified endorsement of its employee, Olivia Gomez, cannot
hold prior endorsers, Alviar and Gonzales in this case, liable on the instrument.
Moreover, it is a well-established principle in law that as between two parties, he
who, by his acts, caused the loss shall bear the same.5 RCBC, in this instance,
should therefore bear the loss.
Relative to the petitioner’s counterclaim against RCBC for the amount
of P12,822.20 which it admittedly deducted from petitioner’s salary, the Court must
order the return thereof to the petitioner, with legal interest of 12% per annum,
notwithstanding the petitioner’s apparent acquiescence to such an arrangement. It
must be noted that petitioner is not any ordinary client or depositor with whom
RCBC had this isolated transaction. Petitioner was a rank-and-file employee of
RCBC, being a new accounts clerk thereat. It is easy to understand how a vulnerable
Gonzales, who is financially dependent upon RCBC, would rather bite the bullet, so
to speak, and expectedly opt for salary deduction rather than lose her job and her
entire salary altogether. In this sense, we cannot take petitioner’s apparent
acquiescence to the salary deduction as being an entirely free and voluntary act on
her part. Additionally, under the obtaining facts and circumstances surrounding
the present complaint for collection of sum of money by RCBC against its
employee, which may be deemed tantamount to harassment, and the fact that
 RCBC itself was the one, acting through its employee, Olivia Gomez, which gave
reason for the dishonor of the dollar-check in question, RCBC may likewise be held
liable for moral and exemplary damages and attorney’s fees by way of damages, in
the amount of P20,000.00 for each.
WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED
and SET ASIDE and the Complaint in this case DISMISSED for lack of merit.
Petitioner’s counterclaim is GRANTED, ordering the respondent RCBC to
reimburse petitioner the amount P12,822.20, with legal interest computed from the
time of salary deduction up to actual payment, and to pay petitioner the total
amount of P60,000.00 as moral and exemplary damages, and attorney’s fees.
Costs against the respondent.
SO ORDERED.

Negotiable Instruments Case Digest: Gonzales V. RCBC (2006)

G.R. No. 156294 November 29, 2006

Lessons Applicable: Right of the holder (Negotiable Instruments Law)

FACTS:
 Gonzales, New Accounts Clerk in the Retail Banking Department
at RCBC Head Office
 Dr. Don Zapanta of the Ade Medical Group drew a foreign check of $7,500
against the drawee bank Wilshire Center Bank, LA, California payable to Eva
Alviar (Alviar), Gonzales mother.
 Alviar then endorsed this check.
 Since RCBC gives special accommodations to its employees to receive the
check’s value w/o awaiting the clearing period, Gonzales presented the foreign
check to Olivia Gomez, the RCBC’s Head of Retail Banking
 Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez
then acquiesced to the early encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00 only".
 Carlos Ramos signed it with an "ok" annotation.
 Presented the check to Rolando Zornosa, Supervisor of the Remittance section
of the Foreign Department of the RCBC Head Office, who after scrutinizing the
entries and signatures authorized its encashment.
 Gonzales received its peso equivalent P155,270.85
 RCBC tried to collect through its correspondent bank, the First Interstate Bank
of California but it was dishonored the check because:
 "END. IRREG" or irregular indorsemen
 "account closed"
 Unable to collect, RCBC demanded from Gonzales
 November 27, 1987: Through letter Gonzales agreed that the payment be made
thru salary deduction.
 October 1987: deductions started
 March 7, 1988: RCBC sent a demand letter to Alviar for the payment but she
did not respond
 June 16, 1988: a letter was sent to Gonzales reminding her of her liability as an
indorser
 July 1988: Gonzales resigned from RCBC paying only P12,822.20 covering 10
months
 RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa
Alviar-Gonzales and the latter’s husband Gino Gonzales
 CA Affirmed RTC: liable Eva Alviar as principal debtor and Melva Theresa
Alviar-Gonzales as guarantor

ISSUE: W/N Eva Alviar and Melva Theresa Alvia-Gonzales is liable as general
endorsers

HELD: NO. CA REVERSED. RCBC reimburse Gonzales

 Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course
1. The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section;
(a) That the instrument is genuine and in all respects what it purports to be
(b) That he has a good title to it
(c) That all prior parties had capacity to contract
2. That the instrument is, at the time of his indorsement, valid and subsisting
 In addition, he engages that, on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it

 Under Section 66, the warranties for which Alviar and Gonzales are liable as
general endorsers in favor of subsequent endorsers extend only to the state of
the instrument at the time of their endorsements,
 This provision cannot be used by the party which introduced a defect on the
instrument (RCBC) w/c qualifiedly endorsed it
 Had it not been for the qualified endorsement "up to P17,500.00 only" of Olivia
Gomez, who is the employee of RCBC, there would have been no reason for the
dishonor of the check
 The holder or subsequent endorser who tries to claim under the instrument
which had been dishonored for "irregular endorsement" must not be the
irregular endorser himself who gave cause for the dishonor.
 Otherwise, a clear injustice results when any subsequent party to the
instrument may simply make the instrument defective and later claim from
prior endorsers who have no knowledge or participation in causing or
introducing said defect to the instrument, which thereby caused its dishonor.

Negotiable Instruments Case Digest: Security Bank V. Rizal Commercial (2009)

G.R. No. 170984 January 30, 2009

Lessons Applicable: Consideration and Accommodation Party
(Negotiable Instruments law)

FACTS:

 January 9, 1981: Security Bank and Trust Company (SBTC) issued a manager’s
check for P 8M, payable to "CASH," as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC)
 deposited by Continental Manufacturing Corporation (CMC) in its Current
Account with Rizal Commercial Banking Corporation (RCBC)
 Immediately, RCBC honored the P8M check and allowed CMC to withdraw
 January 12, 1981: GCDC issued a "Stop Payment Order" to SBTC claiming that
the P 8M check was released to a 3rd party by mistake
 SBTC dishonored and returned the manager’s check to RCBC
 February 13, 1981: RCBC filed a complaint for damages against SBTC with CFI
then transferred to RTC
 Following the rules of the Philippine Clearing House, RCBC and SBTC stopped
returning the checks to each other.
 By way of a temporary arrangement pending resolution of the case, the P 8 M
check was equally divided between RCBC and SBTC
 May 9, 2000: RTC in favor of RCBC
 CA: affirmed with modification RTC decision by adding interest

ISSUE: W/N SBTC should be held liable for its manager's check

HELD: YES. CA affirmed.

 At the outset, it must be noted that the questioned check issued by SBTC is not
just an ordinary check but a manager’s check.
 manager’s check
 one drawn by a bank’s manager upon the bank itself
 same footing as a certified check which is deemed to have been accepted by the
bank that certified it
 As the bank’s own check, a manager’s check becomes the primary obligation of
the bank and is accepted in advance by the act of its issuance
 RCBC, in immediately crediting the amount of P8 million to CMC’s account,
relied on the integrity and honor of the check as it is regarded in commercial
transactions
 July 9, 1980 Memorandum: banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks, among
others
 important that banks should guard against injury attributable to negligence or
bad faith on its part
 banking business is impressed with public interest, the trust and confidence of
the public in it is of paramount importance
 highest degree of diligence is expected, and high standards of integrity and
performance are required of it

SECOND DIVISION

[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.

D EC I S I O N

MELO, J.:

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
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 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 cannot 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

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

(pp. 456-457, Record; Folder of Exhibits for MICO.)

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 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 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 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.