Ong Bun vs. Bank of the Philippine Islands

When the existence of a debt is fully established by the evidence, the burden of proving that it has been extinguished by payment devolves upon the debtor; a bank’s mere assertion that no certificates remain outstanding in its books does not discharge that burden, and possession of custodian certificates is material where the instruments state they cease to have force and effect upon payment.

Jose T. Ong Bun and his wife, Ma. Lourdes Ong, held three silver custodian certificates issued by Far East Bank & Trust Company in 1989, representing Silver Certificates of Deposit held in custody by FEBTC’s Trust Investments Group. FEBTC later merged with Bank of the Philippine Islands, which thereby assumed the records and obligations of the merged bank. The dispute concerns whether the underlying deposits remained outstanding after the certificates’ stated maturity periods and whether BPI could be compelled to pay their value. The case also implicates the Civil Code provisions on payment, prescription, and damages, as well as Rule 45’s limitation to questions of law.

In 1989, Ma. Lourdes Ong, the wife of petitioner Jose T. Ong Bun, purchased three silver custodian certificates in the Spouses’ name from the Far East Bank & Trust Company. The certificates were: Custodian Certificate No. 131157 dated June 9, 1989 in the name of Jose Ong Bun or Ma. Lourdes Ong for One Hundred Thousand Pesos; Custodian Certificate No. 131200 dated July 25, 1989 in the name of Jose Ong Bun or Ma. Lourdes Ong for Five Hundred Thousand Pesos; and Custodian Certificate No. 224826 dated November 8, 1989 in the name of Jose or Ma. Lourdes Ong Bun for One Hundred Fifty Thousand Pesos. The three certificates shared common provisions: they were transferable only in the books of the Custodian by the holder, or in the event of transfer, by the transferee or buyer in person or by a duly authorized attorney-in-fact upon surrender of the instrument together with an acceptable deed of assignment; the holder or transferee could withdraw at anytime during office hours his or her Silver Certificate of Deposit held in custody; and the instrument would not be valid unless duly signed by the authorized signatories of the Bank and would cease to have force and effect upon payment under the terms thereof.

Thereafter, FEBTC merged with BPI after about eleven years since the certificates were purchased. After Ma. Lourdes Ong died in December 2002, petitioner discovered that the three certificates bought from FEBTC were still in the safety vault of his deceased wife and had not been surrendered to FEBTC. Petitioner sent a letter dated August 12, 2003 to BPI, through the manager of its Trust Department Asset Management, to advise him on the procedure for claiming the certificates. BPI replied that upon its merger with FEBTC in 2000, there were no Silver Certificates of Deposit outstanding, which meant that the certificates were fully paid on their respective participation’s maturity dates, which did not go beyond 1991. Further written communications were exchanged, but BPI still refused to pay petitioner’s claim because his certificates were no longer outstanding in its records. Petitioner, with the assistance of counsel, made a final written demand for payment, to no avail.

After about three years from his discovery of the certificates, petitioner filed a complaint for collection of sum of money and damages against BPI on March 7, 2006 with the Regional Trial Court, Branch 33, Iloilo City, docketed as Civil Case No. 06-28822. He prayed that BPI be ordered to pay him ₱750,000.00 for the three certificates, legal interest, ₱175,000.00 for attorney’s fees, ₱100,000.00 for moral damages, an unspecified amount for exemplary damages, and the cost of suit. In its Answer, BPI insisted that as early as 1991, all the Silver Certificates of Deposits, including those issued to petitioner and his wife, were already paid. It claimed that the certificates had terms of only 25 months and that by the year 2000, when it merged with FEBTC and when the Trust and Investments Group of FEBTC was no longer in existence, there were no longer any outstanding certificates in its books. It had checked and double-checked its records as well as those of FEBTC. It also claimed that FEBTC had fully paid all of its silver certificates of time deposit on their maturity dates. According to BPI, contrary to petitioner’s assertion, the presentation or surrender of the certificates was not a condition precedent for payment by FEBTC. It also argued that petitioner filed his claim for the first time only on August 12, 2003, or 12 years after the maturity of the certificates, and that under Article 1144 of the Civil Code, actions based on a written contract must be brought within 10 years from the time the right accrues. In this case, petitioner’s right accrued upon the maturity of the certificates in 1991, and the same had prescribed by the time he filed his claim. As a counterclaim, BPI prayed that petitioner be ordered to pay it ₱75,000.00 as attorney’s fees, ₱2,000.00 per court appearance, at least ₱20,000.00 for litigation expenses, and ₱1,000,000.00 for exemplary damages. It further prayed that the complaint be dismissed and that petitioner be ordered to pay for the cost of the suit.

After trial on the merits, the RTC found in favor of petitioner. It ordered BPI to pay ₱100,000.00 for the Custodian Certificate dated June 9, 1989 bearing Serial CC No. 13115; ₱500,000.00 for the Custodian Certificate dated July 25, 1989 bearing Serial CC No. 131200; and ₱150,000.00 for the Custodian Certificate dated November 8, 1989 bearing Serial CC No. 224826, including their respective interests for twenty-five months under the terms and conditions of the Silver Certificate of Deposit entrusted for custody to BPI by petitioner, plus legal interest thereon as regular savings deposit of the investments and their accrued interests from the time of their respective maturity up to the time of payment. It also ordered BPI to pay ₱100,000.00 for moral damages, another ₱100,000.00 as exemplary damages, ₱75,000.00 as attorney’s fees, plus costs of the suit. BPI elevated the case to the CA, which granted the appeal, reversed and set aside the RTC decision, and dismissed the complaint. The CA ruled that petitioner failed to prove that the deposits he claimed to be unpaid were still outstanding. According to the appellate court, the custodian certificates, standing alone, did not prove an outstanding deposit with the bank, but merely certified that FEBTC had in its custody for and in behalf of either petitioner or his late wife the corresponding Silver Certificates of Deposit and nothing more. The CA further ruled that the surrender of the custodian certificates was not required for the withdrawal of the certificates of deposits themselves or for the payment of the Silver Certificates of Deposit, hence, even if the holder had possession of the said custodian certificates, this did not ipso facto mean that he was an unpaid depositor of the bank.

• Custodian Certificates as Evidence of Indebtedness: Petitioner insisted that the custodian certificates are evidence that the Silver Certificates of Deposit in his name in varying amounts are in the possession of the Trust Investments Group of FEBTC and constitute an outstanding obligation of BPI, with whom FEBTC merged.
• Possession as Unrebutted Proof: Petitioner added that since it was proved that the custodian certificates remained in his possession and had not been controverted or shown to be non-existing, the certificates remained incontrovertible and unrebutted evidence of indebtedness because they openly admitted that the Silver Certificates of Deposit owned by petitioner were in the bank’s possession and had not been discharged by payment.
• Erroneous CA Conclusion: Petitioner argued that the CA erred in concluding that the custodian certificates in his possession do not prove an outstanding deposit simply because the certificates are not the Certificates of Deposit themselves.

• Payment and No Outstanding Certificates: BPI insisted that as early as 1991, all the Silver Certificates of Deposits, including those issued to petitioner and his wife, were already paid; the certificates had terms of only 25 months, and by the year 2000, when it merged with FEBTC and the Trust and Investments Group of FEBTC was no longer in existence, there were no longer any outstanding certificates in its books.
• Full Payment by FEBTC: BPI claimed that it had checked and double-checked its records as well as those of FEBTC, and that FEBTC had fully paid all of its silver certificates of time deposit on their maturity dates.
• No Condition Precedent of Surrender: BPI argued that the presentation or surrender of the certificates is not a condition precedent for payment by FEBTC.
• Prescription: BPI argued that petitioner filed his claim for the first time only on August 12, 2003, or 12 years after the maturity of the certificates, and that under Article 1144 of the Civil Code, actions based on a written contract must be brought within 10 years from the time the right accrues; petitioner’s right accrued upon maturity in 1991 and had prescribed.
• Confirmation of Participation: In its Comment, BPI argued that the certificates should be accompanied by a Confirmation of Participation providing the details of each participant, and that petitioner did not present the Confirmation of Participation which should have been attached to his Custodian Certificates.
• Counterclaim: BPI prayed as counterclaim that petitioner be ordered to pay ₱75,000.00 as attorney’s fees, ₱2,000.00 per court appearance, at least ₱20,000.00 for litigation expenses, ₱1,000,000.00 for exemplary damages, and the cost of suit.

• Review of Conflicting Factual Findings: Whether the Supreme Court may review the factual findings of the RTC and the CA.
• Custodian Certificates as Proof of Outstanding Deposit: Whether the CA erred in holding that the custodian certificates in petitioner’s possession do not prove an outstanding deposit with BPI because they are not the Silver Certificates of Deposit themselves.
• Burden of Proving Payment: Whether BPI, as debtor, failed to prove that the Silver Certificates of Deposit represented by the custodian certificates had been extinguished by payment.
• Surrender of Custodian Certificates: Whether the surrender of the custodian certificates is required for payment or withdrawal, such that petitioner’s possession thereof is material evidence of non-payment.
• Prescription and Laches: Whether BPI may raise prescription and laches before the Supreme Court when these issues were not passed upon by the CA and BPI did not appeal.
• Moral and Exemplary Damages; Attorney’s Fees: Whether the awards of moral damages, exemplary damages, and attorney’s fees are proper.

• Review of Conflicting Factual Findings: Yes. Although Rule 45 generally limits review to questions of law and factual findings of appellate courts are conclusive when supported by substantial evidence, review is proper because the findings of the RTC and the CA are in contrast, which is a recognized exception.
• Custodian Certificates as Proof of Outstanding Deposit: Yes, the CA erred. The custodian certificates are proof that the Silver Certificates of Deposits are in the custody of FEBTC; possession of the certificates proves an outstanding deposit because the certificates state the Silver Certificates are held in custody and cease to have force and effect upon payment.
• Burden of Proving Payment: No, BPI failed to prove payment. When the existence of a debt is fully established, the burden of proving extinguishment by payment devolves on the debtor; BPI presented no acknowledgment or proof of full payment, only a pronouncement that no certificates remained outstanding.
• Surrender of Custodian Certificates: Yes, surrender is material. The certificates’ terms state they are transferable upon surrender and cease to have force and effect upon payment; it is inconceivable that the bank would pay without requiring surrender.
• Prescription and Laches: No. These issues were not passed upon by the CA and cannot be raised before the Supreme Court unless respondent appealed and raised them.
• Moral and Exemplary Damages; Attorney’s Fees: No. The awards must be deleted; petitioner failed to prove bad faith or wanton, fraudulent, reckless, oppressive, or malevolent conduct, and attorney’s fees lacked factual, legal, and equitable justification under Article 2208.

• Review of Conflicting Factual Findings: Rule 45 requires that only questions of law should be raised in petitions filed under the Rules of Court. The Supreme Court is not a trier of facts and will not entertain questions of fact because the factual findings of the appellate courts are final, binding, or conclusive on the parties and upon the Court when supported by substantial evidence. In Chessman vs. Intermediate Appellate Court, the Court distinguished a question of law from a question of fact: there is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, while there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts. The rules admit exceptions, and at present there are 10 recognized exceptions first listed in Medina vs. Mayor Assistor, Jr., including when the findings of the Court of Appeals are contrary to those of the trial court. Because the findings of fact of the RTC and the CA were apparently in contrast, the Court deemed it proper to rule on the issues raised.

• Custodian Certificates as Proof of Outstanding Deposit: It was undisputed that petitioner was in possession of three custodian certificates from FEBTC: Custodian Certificate of Silver Certificate of Deposit No. 131157 issued on June 9, 1989 for ₱100,000.00; Custodian Certificate of Silver Certificate of Deposit No. 131200 issued on July 25, 1989 for ₱500,000.00; and Custodian Certificate of Silver Certificate of Deposit No. 224826 issued on November 8, 1989 for ₱150,000.00. The certificates are proof that Silver Certificates of Deposits are in the custody of a custodian, in this case FEBTC. The CA therefore erred in suggesting that petitioner’s possession of the certificates does not prove an outstanding deposit because the certificates are not the certificates of deposit themselves. What proves the deposits are the Silver Certificates of Deposits that were admitted by the Trust Investments Group of FEBTC to be in its custody, as shown by the wording of the custodian certificates. Custodian Certificate No. 131200 stated: “This is to certify that the TRUSTS INVESTMENTS GROUP of FAR EAST BANK AND TRUST COMPANY (Custodian) has in its custody for and in behalf of * JOSE ONG BUN OR MA. LOURDES ONG *** (Holder) the Silver Certificate of Deposit in the amount of PESOS: Php500,000.00.” The other two custodian certificates were of the same tenor.

• Burden of Proving Payment: BPI argued that upon its merger with FEBTC, there were no longer any outstanding Silver Certificates of Deposits; that the certificates had a term or maturity of 25 months from issuance, or in 1991; and that they should have been accompanied by a Confirmation of Participation, which petitioner did not present. Such an argument does not prove that petitioner had already been paid or that his deposits had already been returned. There was no proof or evidence that petitioner or his late wife withdrew the Silver Certificates of Deposit. When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Even where it is the plaintiff who alleges non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. An obligation may be extinguished by payment, but two requisites must concur: identity of the prestation and its integrity. The first means that the very thing due must be delivered or released; the second means that the prestation be fulfilled completely. No acknowledgment nor proof of full payment was presented by BPI, but merely a pronouncement that there are no longer any outstanding Silver Certificates of Deposits in its books. Thus, the RTC did not err in finding that the bank’s claim of payment was unsupported by credible evidence and that it was inconceivable that the bank would make payment without requiring surrender of the custodian certificates.

• Surrender of Custodian Certificates: The CA ruled that the surrender of the custodian certificates is not required for the withdrawal of the certificates of deposit themselves or for the payment of the Silver Certificates of Deposit, hence even if the holder has possession of the certificates, this does not ipso facto mean that he is an unpaid depositor of the bank. Such a conclusion is illogical because the very wording contained in the certificates suggests otherwise: the instrument is transferable only in the books of the Custodian by the holder, or in the event of transfer, by the transferee or buyer in person or by a duly authorized attorney-in-fact upon surrender of the instrument together with an acceptable deed of assignment; the holder or transferee can withdraw at anytime during office hours his or her Silver Certificate of Deposit held in custody; and the instrument shall not be valid unless duly signed by the authorized signatories of the Bank, and shall cease to have force and effect upon payment under the terms thereof. Furthermore, the surrender of such certificates would have promoted the protection of the bank and would have been more in line with the high standards expected of any banking institution. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings. The conclusion that the Silver Certificates of Deposit may have been withdrawn by petitioner or his wife although they failed to surrender the custodian certificates is speculative and replete with lack of proof or evidence.

• Prescription and Laches: As to the issues of prescription and laches raised by BPI in its Comment, the same were not passed upon by the CA and cannot be raised before the Supreme Court unless an appeal was filed by BPI raising such issues.

• Moral and Exemplary Damages; Attorney’s Fees: The award of moral and exemplary damages must be deleted for failure of petitioner to show that BPI was in bad faith or acted in any wanton, fraudulent, reckless, oppressive, or malevolent manner in its dealings with petitioner. The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence, for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, or serious anxiety as the result of the actuations of the other party; invariably such action must be shown to have been willfully done in bad faith or with ill motive. In contracts and quasi-contracts, the Court has the discretion to award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. In this case, it appears that BPI had an honest belief that before its merger with FEBTC, the subject custodian certificates were already paid and cleared from its books, belying any claim that it acted in any manner that would warrant the grant of moral and exemplary damages. The award of attorney’s fees must also be omitted. An award of attorney’s fees under Article 2208 demands factual, legal, and equitable justification to avoid speculation and conjecture surrounding the grant thereof. Due to the special nature of the award, a rigid standard is imposed on the courts before these fees could be granted; they must clearly and distinctly set forth in their decisions the basis for the award, and it is not enough that they merely state the amount of the grant in the dispositive portion. The award of attorney’s fees is an exception rather than the general rule; there must be compelling legal reason to bring the case within the exceptions provided under Article 2208. In this case, the RTC merely justified the grant of attorney’s fees on the reasoning that petitioner was forced to litigate, and thus the case does not fall within the exception provided under Article 2208.

• Burden of Proof of Payment — When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Even where the plaintiff alleges non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. Payment extinguishes an obligation only when two requisites concur: identity of the prestation and its integrity. The Court applied this doctrine by holding that BPI’s mere pronouncement that no Silver Certificates of Deposits remained outstanding in its books did not prove payment or return of the deposits.

• Custodian Certificates as Evidence of Outstanding Deposit — A custodian certificate certifies that the custodian bank holds the underlying Silver Certificate of Deposit for and in behalf of the holder. Its terms—that it is transferable upon surrender, that the holder may withdraw the Silver Certificate of Deposit during office hours, and that it ceases to have force and effect upon payment—make possession of the custodian certificate material evidence that the underlying deposit has not been paid. The Court applied this doctrine by holding that petitioner’s possession of the three custodian certificates proved the Silver Certificates of Deposits were in FEBTC’s custody and remained outstanding.

• Banks’ Duty of Care and Fidelity — Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, and a bank owes great fidelity to the public it deals with. The Court applied this doctrine by reasoning that the surrender of the custodian certificates would have promoted the bank’s protection and was more in line with the high standards expected of a banking institution; the failure to require surrender made the claim of payment doubtful.

• Review of Factual Findings under Rule 45 — A petition for review on certiorari under Rule 45 generally raises only questions of law, and the Supreme Court is not a trier of facts; factual findings of appellate courts are final, binding, or conclusive when supported by substantial evidence. Exceptions exist, including when the findings of the Court of Appeals are contrary to those of the trial court. The Court applied this doctrine because the RTC and CA findings were in contrast, justifying review.

• Damages and Attorney’s Fees — Moral damages require proof of bad faith by clear and convincing evidence, as the law presumes good faith; mere sleepless nights, mental anguish, or serious anxiety are insufficient. Exemplary damages in contracts and quasi-contracts may be awarded only if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Attorney’s fees under Article 2208 are an exception rather than the general rule and require factual, legal, and equitable justification clearly set forth in the decision. The Court applied these doctrines by deleting the awards of moral damages, exemplary damages, and attorney’s fees.

• Issues Not Raised Below — Issues not passed upon by the Court of Appeals cannot be raised before the Supreme Court unless an appeal was filed by the party raising such issues. The Court applied this doctrine by refusing to resolve BPI’s arguments on prescription and laches, which were not passed upon by the CA and were raised only in BPI’s Comment.

• "When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor." — This passage states the ratio decidendi on the burden of proof of payment, which the Court used to hold that BPI failed to prove the deposits had been paid.
• "This is to certify that the TRUSTS INVESTMENTS GROUP of FAR EAST BANK AND TRUST COMPANY (Custodian) has in its custody for and in behalf of * JOSE ONG BUN OR MA. LOURDES ONG *** (Holder) the Silver Certificate of Deposit in the amount of PESOS: Php500,000.00." — This is the wording of Custodian Certificate No. 131200, which the Court relied on to hold that the custodian certificates proved the Silver Certificates of Deposits were in FEBTC’s custody.
• "The fact that the plaintiff still has [a] copy of the Custodian Certificate of the Silver Certificates of Time Deposit is material, contrary to the stance of defendant, as it is inconceivable that the bank would make payment without requiring the surrender thereof." — This passage, quoted from the RTC, supports the Court’s conclusion that possession of the custodian certificates is material evidence of non-payment.
• "The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith." — This passage states the standard for moral damages, which the Court applied to delete the award because petitioner failed to prove bad faith.

• Chessman vs. Intermediate Appellate Court, 271 Phil. 89 (1991) — Cited to distinguish a question of law from a question of fact in the context of Rule 45.
• Medina vs. Mayor Assistor, Jr., 269 Phil. 225 (1990) — Cited for the 10 recognized exceptions to the rule that factual findings of appellate courts are conclusive, including conflicting findings of the RTC and CA.
• BPI vs. Sps. Royeca, 581 Phil. 188 (2008) — Cited for the rule that the burden of proving payment rests on the debtor when the existence of the debt is fully established.
• Cham vs. Atty. Paita-Moya, 578 Phil. 566 (2008) — Cited together with BPI vs. Sps. Royeca for the general rule that the defendant must prove payment even where the plaintiff alleges non-payment.
• Alonzo vs. San Juan, 491 Phil. 232 (2005) — Cited for the two requisites of payment: identity of the prestation and its integrity.
• Consolidated Rural Bank, Inc. vs. CA, 489 Phil. 320 (2005) — Cited for the doctrine that banks are expected to exercise more care and prudence than private individuals.
• Philippine Commercial Industrial Bank vs. Cabrera, 494 Phil. 735 (2005) — Cited for the doctrine that a bank owes great fidelity to the public it deals with.
• Francisco vs. Ferrer, Jr., 405 Phil. 741 (2001) — Cited for the rule that moral damages require proof of bad faith by clear and convincing evidence.
• Sulpicio Lines, Inc. vs. Sesante, G.R. No. 172682, July 27, 2016, 798 SCRA 459 — Cited for the rule on exemplary damages in contracts and quasi-contracts under Article 2232 of the Civil Code.
• Philippine National Construction Corporation vs. APAC Marketing Corporation, 710 Phil. 389 (2013) — Cited for the requirement that attorney’s fees under Article 2208 demand factual, legal, and equitable justification.
• Espino vs. Spouses Bulut, 664 Phil. 702 (2011) — Cited for the rule that attorney’s fees are an exception rather than the general rule and require a compelling legal reason.

• Rule 45, Section 1, Rules of Court — Only questions of law may be raised in a petition for review on certiorari. The Court applied this provision by initially noting that it is not a trier of facts, but proceeded to review the factual findings because the RTC and CA findings were in conflict, a recognized exception.
• Article 1231, Civil Code — Provides that obligations are extinguished by payment. The Court cited this provision in framing payment as the mode of extinguishment invoked by BPI.
• Article 1144, Civil Code — Provides that actions based on a written contract must be brought within 10 years from the time the right of action accrues. BPI invoked this provision to argue prescription, but the Court did not resolve the issue because it was not passed upon by the CA and was raised only in BPI’s Comment.
• Article 2208, Civil Code — Provides that attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation except in enumerated cases. The Court applied this provision by deleting the award of attorney’s fees because the RTC merely reasoned that petitioner was forced to litigate, which did not fall within the exceptions.
• Article 2232, Civil Code — Provides that in contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The Court applied this provision by deleting exemplary damages because BPI had an honest belief that the certificates had already been paid and cleared from its books.

Carpio, Acting C.J., (Chairperson), Perlas-Bernabe, Caguioa, and Reyes, Jr., JJ., concur.