PBC v.

CA January 15, 2004  The time deposits earned interest at 17% per annum and had a
PHILIPPINE BANKING CORPORATION, Petitioner, vs. COURT OF APPEALS maturity period of 90 days.
and LEONILO MARCOS, Respondents  Marcos alleged that Pagsaligan kept the various time deposit
Carpio, J. certificates on the assurance that PBC would take care of the
certificates, interests, and renewals and that from the time of
NATURE: Petition for review of a CA decision the deposit, he had not received the principal amount or its
SUMMARY: Leonilo Marcos made 2 time deposits with Philippine Banking interest.
Corporation (PBC). Marcos then later opened several domestic letters of credit,  Sometime in March 1983, Marcos wanted to withdraw from PBC
part of which was secured by his earlier time deposits, and several trust receipt
his time deposits and the accumulated interests to buy materials
agreements. PBC then demanded payment for the total amount of the trust
receipt agreements, later charging accumulated interest. PBC also applied
for his construction business, but PBC, through Pagsaligan
Marcos’ time deposits to an alleged loan from PBC for P500,000 with interest at convinced Marcos to keep his time deposits intact and instead
25% per annum. Marcos then filed with the RTC a Complaint for Sum of Money open several domestic letters of credit.
with Damages against PBC. The RTC later ruled for Marcos and the CA modified o PBC required Marcos to give a marginal deposit of 30%
the RTC’s decision by reducing the amount of actual damages and deleting of the total amount of the letters of credit as the time
the attorney’s fees awarded to Marcos. After PBC filed the present petition for deposits would secure 70% of the letters of credit.
review with the SC, the SC ruled that PBC wasn’t able to prove Marcos’ o Marcos signed blank printed forms of the application for
outstanding obligations secured by the assignment of time deposits, that there the domestic letters of credit, trust receipt agreements,
was no judicial admission on the genuineness and due execution of the
and promissory notes.
actionable documents appended to PBC’s Answer, and that PBC wasn’t
deprived of due process when the lower court declared PBC to have waived
 Marcos executed 3 Trust Receipt Agreements
presentation of further evidence and considered the case submitted for totalling P851,250: (1) Trust Receipt CD 83.7 for P300,000; (2) Trust
resolution. Receipt CD 83.9 for P300,000; and (3) Trust Receipt CD 83.10
DOCTRINES (related to topic): for P251,250.
 Although RA 8791 took effect only in 2000, when PBC transacted  Marcos deposited the required 30% marginal deposit for the
with Marcos, jurisprudence had already imposed on banks the trust receipt agreements and claimed that his obligation to PBC
same high standard of diligence required under RA 8791. was only P595,875, representing 70% of the letters of credit.
 The fiduciary nature of banking requires banks to assume a  Marcos believed that he and PBC became creditors and
degree of diligence higher than that of a good father of a family. debtors of each other, expecting PBC to automatically offset a
FACTS: portion of his time deposits and the accumulated interest with
 August 30, 1989: Leonilo Marcos filed with the RTC a Complaint the amount covered by the trust receipts less the 30% marginal
for Sum of Money with Damages against Philippine Banking deposit he had paid.
Corporation (PBC).  Marcos argued that if only PBC applied his time deposits and
 Marcos alleged that sometime in 1982, PBC, through Florencio the accumulated interest to his remaining obligation, which was
Pagsaligan, one of PBC’s officials and a close friend of Marcos, 70% of the total amount of the letters of credit, he would have
persuaded him to deposit money with PBC. completely paid his debt.
 Marcos yielded to Pagsaligan’s persuasion and claimed he  Marcos also argued that since he did not apply for a renewal of
made 2 time deposits with PBC: the trust receipt agreements, PBC had no right to renew the
o The 1st was on March 11, 1982 for P664,897.67 and PBC same.
issued Receipt 635734 for this time deposit.  Marcos accused PBC of unjustly demanding payment for the
o The 2nd was on March 12, 1982 for P764,897.67, but PBC total amount of the trust receipt agreements without deducting
did not issue an official receipt for this time deposit, the 30% marginal deposit he had already made and decried
instead acknowledging the deposit through a letter- PBC’s unlawful charging of accumulated interest because he
certification Pagsaligan issued. claimed there was no agreement as to the payment of interest.
 Marcos also denied that he obtained another loan from PBC
for P500,000 with interest at 25% per annum supposedly covered
 by Promissory Note 20-979-83, complaining that PBC’s belated materials for their business, L.A. Marcos Construction
claim that his time deposits were applied to this void promissory Company, Pagsaligan suggested the opening of letters of
note. credit and the execution of trust receipts.
 In sum, Marcos claimed that:  PBC claimed that Marcos freely entered into the trust receipt
o His time deposit with PBC in the total sum agreements.
of P1,428,795.34 has earned accumulated interest since  When Marcos failed to account for the goods delivered or for
March 1982 in the total amount of P1,727,305.45 at the the proceeds of the sale, PBC filed a complaint for violation of
rate of 17% per annum, so his total money with PBC PD 115 or the Trust Receipts Law and instead of initiating
is P3,156,100.79 less P595,875 representing the 70% negotiations for the settlement of the account, Marcos filed this
balance of the marginal deposit and/or balance of the suit.
trust agreements; and  PBC denied falsifying Promissory Note 20-979-83, claiming that
o His indebtedness was only P851,250 less the 30% paid as the promissory note is supported by documentary evidence,
marginal deposit or a balance of P595,875, which PBC such as Marcos application for this loan and the microfilm of the
should have automatically deducted from his time cashier’s check issued for the loan.
deposits and accumulated interest, leaving PBC’s  PBC prayed for the dismissal of the complaint, payment of
indebtedness to him at P2,560,025.79. damages, attorney’s fees, and the cost of suit.
 Marcos prayed that the RTC declare the promissory note void  The RTC, upon motion of Marcos’ counsel, initially issued an
and that it order PBC to pay the amount of his time deposits with order declaring PBC in default for filing its Answer 5 days after
interest, also seeking the award of moral and exemplary the 15-day period to file it had lapsed, also holding that the
damages and attorney’s fees. Answer is a mere scrap of paper because a copy was not
 PBC filed its Answer with Counterclaim, denying the allegations furnished to Marcos. The RTC LAO allowed Marcos to present his
in the complaint. evidence ex parte.
o PBC believed that the suit was Marcos’ attempt to avoid  Marcos later testified and presented documentary evidence
liability under several trust receipt agreements that were and the case was submitted for decision.
the subject of a criminal complaint.  Marcos later received a copy of PBC’s Answer with Compulsory
 PBC alleged that as of March 12, 1982, the total amount of Counterclaim.
Marcos’ time deposits was only P764,897.67,  PBC filed an opposition to Marcos’ motion to declare PBC in
not P1,428,795.35 as alleged in the complaint. default and then filed a motion to lift the order of default.
o The P764,897.67 included the P664,897.67 that Marcos  The RTC set aside the default order and admitted PBC’s Answer
deposited on March 11, 1982. with Compulsory Counterclaim.
 PBC argued that Marcos delivered to PBC the time deposit  PBC then filed a motion, praying to cross-examine Marcos, who
certificates by a Deed of Assignment, executing the Deed of had testified during the ex-parte hearing.
Assignment to secure his various loan obligations.  The RTC denied PBC’s motion and directed PBC to present its
o PBC claimed that these loans are covered by Promissory evidence.
Note 20-756-82 for P420,000 and Promissory Note 20-979-  After PBC presented 2 witnesses, Rodolfo Sales, PBC’s Cubao
83 for P500,000, stating that these obligations are Branch Manager since 1987, and Pagsaligan, the PBC’s Cubao
separate and distinct from the trust receipt agreements. Branch Manager from 1982 to 1986.
 When Marcos defaulted in the payment of Promissory Note 20-  On April 24, 1990, Marcos’ counsel cross-examined Pagsaligan,
979-83, PBC debited his time deposits and applied the same to but due to lack of material time, the RTC reset the continuation
the obligation now considered fully paid, insisting that the Deed of the cross-examination and presentation of other evidence.
of Assignment authorized it to apply the time deposits in  The succeeding hearings were postponed because of PBC’s
payment of Promissory Note 20-979-83. failure to produce its witness, Pagsaligan, and PBC also failed to
 In March 1982, after Marcos’ wife told Pagsaligan that she and present other evidence during said hearings.
Marcos needed to finance the purchase of construction
  On September 7, 1990, PBC moved to postpone the hearing as deemed written into every deposit agreement between
Pagsaligan could not attend the hearing because of illness, a bank and its depositor.
but the RTC denied the motion to postpone and, on motion of  The fiduciary nature of banking requires banks to assume a
Marcos’ counsel, ruled that PBC had waived its right to present degree of diligence higher than that of a good father of a family.
further evidence, considering the case submitted for decision.  Thus, PBC’s fiduciary duty imposes upon it a higher level of
o PBC moved for reconsideration, which RTC denied. accountability than that expected of Marcos, a businessman,
 The RTC ruled in favor of Marcos who negligently signed blank forms and entrusted his
 PBC then appealed to the CA, which modified the RTC’s certificates of time deposits to Pagsaligan without retaining
decision by reducing the amount of actual damages and copies of the certificates.
deleting the attorney’s fees awarded to Marcos.  The business of banking is imbued with public interest and the
 PBC then filed the present petition for review of the CA’s stability of banks largely depends on the confidence of the
decision. people in the honesty and efficiency of banks.
ISSUE #1 (MAIN):  Simex International (Manila) Inc. v. CA [on depositors’
 W/N PBC was able to prove Marcos’ outstanding obligations reasonable expectations from a bank and PBC’s corresponding
secured by the assignment of time deposits (NO) duty to its depositor]:
RATIO #1: o In every case, the depositor expects the bank to treat his
PBC’s fiduciary duty to its depositor account with the utmost fidelity, whether such account
 PBC is liable to Marcos for offsetting his time deposits with a consists only of a few hundred pesos or of millions.
fictitious promissory note. o The bank must record every single transaction
 The existence of Promissory Note 20-979-83 could have been accurately, down to the last centavo, and as promptly
easily proven had PBC presented the original copies of the as possible.
promissory note and its supporting evidence, but PBC presented o This has to be done if the account is to reflect at any
the machine copies of the duplicate of the documents. given time the amount of money the depositor can
o These substitute documents have no evidentiary value. dispose of as he sees fit, confident that the bank will
 PBC’s failure to explain the absence of the original documents deliver it as and to whomever he directs.
and to maintain a record of the offsetting of this loan with the  As PBC’s depositor, Marcos had the right to expect that PBC was
time deposits show PBC’s failure to fulfill its fiduciary duty to accurately recording his transactions with it.
Marcos.  Upon the maturity of his time deposits, Marcos also had the right
 RA 8791 (General Banking Law of 2000), Sec. 2 expressly imposes to withdraw the amount due him after PBC had correctly
this fiduciary duty on banks when it declares that the State debited his outstanding obligations from his time deposits.
recognizes the fiduciary nature of banking that requires high  By the nature of its business, PBC should have had in its
standards of integrity and performance. possession the original copies of the disputed promissory note
o This statutory declaration merely echoes the SC’s earlier and the records and ledgers evidencing the offsetting of the
pronouncement of the Supreme Court in Simex loan with the time deposits of Marcos.
International (Manila) Inc. v. CA requiring banks to treat  PBC failed to produce the original copies of these documents,
the accounts of its depositors with meticulous care, so PBC failed to treat the account of Marcos with meticulous
always having in mind the fiduciary nature of their care.
relationship.  The RTC and CA did not rule that it was PBC that forged the
 Although RA 8791 took effect only in 2000, when PBC transacted promissory note. It was Pagsaligan, PBC’s branch manager and
with Marcos, jurisprudence had already imposed on banks the Marcos’ close friend, whom the RTC categorically blamed for
same high standard of diligence required under RA 8791. the fictitious loan agreements.
o This fiduciary relationship means that PBC’s obligation to o The RTC held that Pagsaligan made up the loan
observe high standards of integrity and performance is agreement to cover up his inability to account for the
time deposits of Marcos.
  Whether it was PBC’s negligence and inefficiency or o Moreover, the circumstances enumerated by the RTC
Pagsaligan’s misdeed that deprived Marcos of the amount due bolster the conclusion that Promissory Note 20-979-83 is
him will not excuse PBC from its obligation to return to Marcos bogus.
the correct amount of his time deposits with interest.
o The duty to observe high standards of integrity and Total amount due to Marcos
performance imposes on PBC that obligation.  PBC and Marcos do not dispute the CA’s ruling that the total
 Assuming Pagsaligan was behind the spurious promissory note, amount of time deposits that Marcos placed with PBC is
PBC would still be accountable to Marcos as the SC has held only P764,897.67 and not P1,429,795.34, as found by the RTC.
that a bank is liable for the wrongful acts of its officers done in  What PBC insists on in this petition is the RTC’s violation of its right
the interest of the bank or in their dealings as bank to procedural due process and the absence of any obligation
representatives, but not for acts outside the scope of their to pay or return anything to Marcos, while Marcos, on the other
authority. hand, merely prays for the affirmation of either the RTC or CA
decision.
The Existence of Promissory Note 20-979-83 was not Proven  The SC, thus, upholds the CA’s finding as to the amount of the
 PBC failed to produce the best evidence the original copies of time deposits as such finding is in accord with the evidence on
the loan application and promissory note. record.
 The Best Evidence Rule provides that the court shall not receive  Marcos claimed that the certificates of time deposit were with
any evidence that is merely substitutionary in its nature, such as Pagsaligan for safekeeping.
photocopies, as long as the original evidence can be had.  Marcos was only able to present the March 11, 1982 receipt and
o Absent a clear showing that the original writing has been the March 12, 1982 letter-certification to prove the total amount
lost, destroyed or cannot be produced in court, the of his time deposits with PBC.
photocopy must be disregarded, being unworthy of any  Letter-certification issued by Pagsaligan1
probative value and being an inadmissible piece of  The foregoing certification is clear that the total amount of time
evidence. deposits of Marcos as of March 12, 1982 is P764,897.67, inclusive
 What PBC presented were merely the machine copies of the of P664,987.67 that Marcos placed in a time deposit on March
duplicate of the loan application and promissory note and no 11, 1982.
explanation was offered by PBC for not producing the original o This is seen from the use of the word “aggregate.”
copies of the documentary evidence.  The SC did not agree with Marcos’ testimony that the
 PBC also did not comply with the orders of the RTC to submit the certification is actually for the 1st time deposit that he placed.
originals. o If the amount stated in the letter-certification is for a
 The absence of the original of the documentary evidence casts single time deposit only, then Marcos should have
suspicion on the existence of Promissory Note 20-979-83, demanded a new letter of certification from Pagsaligan.
considering PBC’s fiduciary duty to efficiently keep a record of o Marcos is a businessman, so while he already made a
its transactions with its depositors. mistake in entrusting to Pagsaligan the certificates of
time deposits, Marcos should have known the

1 March 12, 1982 HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for 90 days at 17%
p.a. with the interest payable at maturity on June 10, 1982.
Dear Mr. Marcos:
Thank you.
This is to certify that we are taking care in your behalf various Time Deposit Certificates
with an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager
 importance of making the letter-certification reflect the Marcos’ total funds with PBC amounted to P1,381,216.59
true nature of the transaction. as of the maturity of the trust receipts.
o Marcos is bound by the letter-certification since he was  After deducting P880,812.48, the amount Marcos owed PBC,
the one who had Pagsaligan to issue it. from Marcos’ funds with PBC of P1,381,216.59, Marcos remaining
 The SC thus modifies the amount that the CA ordered PBC to time deposits as of March 6, 1987 is only P500,404.11.
return to Marcos.  The accumulated interest on this P500,404.11 as of August 30,
o The CA did not offset Marcos’ outstanding debt with 1989, the date of filing of Marcos’ complaint with the RTC,
PBC, which was covered by the 3 trust receipt is P211,622.96.
agreements, even though Marcos admits his obligation  From August 30, 1989, the interest due on the accumulated
under the 3 trust receipt agreements. interest of P211,622.96 should earn legal interest at 12% per
o The total amount of the trust receipts is P851,250 less the annum, pursuant to NCC, Art. 2212.
30% marginal deposit of P255,375 that Marcos had  PBCs failure to account for Marcos money justifies the award of
already paid PBC, reducing Marcos total debt with PBC moral and exemplary damages.
to P595,875 under the trust receipts. o PBC, as employer, is liable for the negligence or the
 The 3 trust receipt agreements contained stipulations for the misdeed of its branch manager, which caused Marcos
payment of interest, but the parties failed to fill up the blank mental anguish and serious anxiety.
spaces on the rate of interest, so PBC and Marcos expressly o Moral damages of P100,000 is reasonable and is in
agreed in writing on the payment of interest without, however, accord with the SC’s rulings in similar cases.
specifying the rate of interest.  The SC also awarded P20,000 to Marcos as exemplary
 The SC thus imposes the legal interest of 12% per annum, the damages.
legal interest for the forbearance of money, on each of the 3 o The public relies on PBCs fiduciary duty to observe the
trust receipts. highest degree of diligence.
 Based on Marcos testimony’ and PBC’s letter of demand, the o The banking sector is expected to maintain at all times
trust receipt agreements became due in March 1987. this high level of meticulousness.
 The records do not show exactly when in March 1987 the SUB-ISSUE #1:
obligation became due, so under NCC Art. 2212, in such a case,  W/N Revised ROC, Rule 10, Sec. 8 may be applied so as to
the court shall fix the period of the duration of the obligation. create a judicial admission on the genuineness and due
 PBC’s letter of demand is dated March 6, 1989, so the SC holsd execution of the actionable documents appended to PBC’s
that the trust receipts became due on that date. Answer (NO)
 Marcos’ payment of the marginal deposit of P255,375 for the SUB-RATIO #1:
trust receipts resulted in the proportionate reduction of the 3  PBC raises for the 1st time before the SC the issue of judicial
trust receipts. admission on by Marcos.
 When the trust receipts became due on March 6, 1987, Marcos  An issue raised for the 1st time on appeal and not timely raised
owed PBC P880,812.48, which included P595,875, the principal in the proceedings in the lower court is barred by estoppel.
value of the 3 trust receipts after payment of the marginal  PBC cannot claim that Marcos had admitted the due execution
deposit, and P284,937.48, the interest then due on the 3 trust of the documents attached to its Answer because PBC filed its
receipts. answer late and even failed to serve it on Marcos.
 Upon maturity of the 3 trust receipts, PBC should have  There was nothing that Marcos could specifically deny under
automatically deducted, by way of offsetting, Marcos’ oath.
outstanding debt to PBC from his time deposits and its  Marcos had already completed the presentation of his
accumulated interest. evidence when the RTC lifted the order of default and admitted
o Marcos time deposits of P764,897.67 had already PBC’s Answer.
earned interest of P616,318.92 as of March 6, 1987, so  The ROC’s provision governing admission of actionable
documents was not enacted to reward a party in default.
ISSUE #2:  In a motion to cross-examine, the adverse party has the right to
 W/N PBC was deprived of due process when the lower court not only prepare a meaningful opposition to the motion, but to
declared PBC to have waived presentation of further evidence also be informed that his witness is being recalled for cross-
and considered the case submitted for resolution (NO) examination.
RATIO #2:  The proof of service was indispensable and the RTC was correct
 There was no violation of PBC’s right to procedural due process in denying the oral manifestation to grant the motion for cross-
when the RTC denied PBCs motion to cross-examine Marcos. examination.
 Prior to the denial of the motion, the RTC had properly declared  There was no reason to relax the application of the rule on
PBC in default and since PBC was in default, Marcos was able notice of motions to this case.
to present his evidence ex-parte, including his own testimony. o PBC could have easily re-filed the motion to cross-
 When the RTC lifted the order of default, PBC was restored to its examine with the requisite notice to Marcos, but it did
standing and rights in the action, but, as a rule, the proceedings not.
already taken should not be disturbed. o PBC also waited until the RTC ruled on the merits before
 Nevertheless, it is within the RTC’s discretion to reopen the questioning the interlocutory order of denial.
evidence submitted by the plaintiff and allow the defendant to  While the right to cross-examine is a vital element of procedural
challenge the same by cross-examining the plaintiff’s witnesses due process, the right does not require an actual cross-
or introducing countervailing evidence. examination, but merely an opportunity to exercise this right, if
o The 1964 ROC, the rules then in effect at the time of the desired by the party entitled to it.
hearing of this case, recognized the RTC’s exercise of this o PBC’s failure to cross-examine is imputable to PBC when
discretion. The 1997 ROC retained this discretion. it lost this right as it was in default and failed thereafter to
 The records show that PBC did not ask the RTC to restore its right exhaust the remedies to secure the exercise of this right
to cross-examine Marcos when it sought the lifting of the default at the earliest opportunity.
order.  The RTC and CA correctly ruled that PBC had waived its right
 Thus, the order setting aside the order of default did not confer present additional evidence.
on PBC the right to cross-examine Marcos.  PBC cannot now claim that it was deprived of its right to
 The RTC also later denied PBC’s oral manifestation to grant its conduct a re-direct examination of Pagsaligan.
motion to cross-examine Marcos because there was no proof of o PBC postponed the hearings 3 times because of its
service on Marcos, also denying PBC’s plea for reconsideration inability to secure Pagsaligan’s presence during the
and ordering PBC to present its evidence. hearings.
o Instead of presenting its evidence, PBC moved for the o PBC could have presented another witness or its other
resetting of the hearing and when the RTC denied that, evidence, but it insisted on the resetting of the hearing
PBC informed the RTC that it was elevating the denial to because of Pagsaligan’s absence allegedly due to
the CA. illness.
 However, the CA’s ruling that a motion to cross-examine is a  PBC’s motion for postponement based on Pagsaligan’s illness
non-litigated motion and that the RTC gravely abused its was not even supported by documentary evidence.
discretion when it denied the motion to cross-examine is wrong. o Documentary evidence of the illness is necessary before
 A motion to cross-examine is adversarial. the RTC could rule that there is a sufficient basis to grant
 The adverse party in this case had the right to resist the motion the postponement.
to cross-examine because the movant had previously forfeited DISPOSITION
its right to cross-examine the witness.  The CA’s Decision is affirmed with modification.
 The purpose of a notice of a motion is to avoid surprises on the
opposite party and to give him time to study and meet the
arguments.