Philippine Banking Corporation vs. Court of Appeals and Leonilo Marcos

A bank, by reason of the fiduciary nature of banking, must treat depositors' accounts with meticulous care and a diligence higher than that of a good father of a family, and its failure to produce original loan documents and records renders an alleged offsetting loan unproven. Applied to time deposits offset against trust-receipt obligations, admitted principal is deductible with 12% legal interest where the parties agreed on interest but left the rate blank, while an unproven promissory note cannot diminish the depositor's recovery.

Leonilo Marcos was a businessman engaged in construction through L.A. Marcos Construction Company, and Philippine Banking Corporation was a commercial bank acting through Florencio B. Pagsaligan, its Cubao branch manager from 1982 to 1986 and a close friend of Marcos. Time deposits with 90-day maturity at 17% per annum, domestic letters of credit secured by 30% marginal deposits, trust receipt agreements under Presidential Decree No. 115, and deeds of assignment of deposit certificates as loan security formed the transactional setting. Banking was already jurisprudentially recognized as imbued with public interest and subject to high standards of integrity and performance later expressed in Republic Act No. 8791.

Marcos alleged that in 1982 Pagsaligan persuaded him to place money in time deposits with the BANK, and that he made a deposit on 11 March 1982 for P664,897.67 evidenced by Receipt No. 635734 and another on 12 March 1982 for P764,897.67 evidenced only by a Pagsaligan letter-certification, both at 17% per annum for 90 days. Pagsaligan retained the certificates on assurance the BANK would handle safekeeping, interest and renewals, and Marcos claimed he never received principal or interest. In March 1983, when Marcos wanted to withdraw to buy construction materials, Pagsaligan instead convinced him to keep the deposits and open domestic letters of credit with 30% marginal deposits, the time deposits to secure the 70% balance, and Marcos signed blank forms for applications, trust receipts and promissory notes.

Thereafter Marcos executed three trust receipts totaling P851,250, namely Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000, No. CD 83.9 dated 15 March 1983 for P300,000, and No. CD 83.10 dated 15 March 1983 for P251,250, and paid the 30% marginal deposits, leaving in his view only P595,875 due. According to Marcos, the BANK should have automatically offset that P595,875 against his deposits and accumulated interest, and had no right to renew the trust receipts or charge extension interest and penalties without agreement. He denied obtaining a P500,000 loan at 25% per annum under Promissory Note No. 20-979-83 dated 24 October 1983 and assailed the BANK's claim that his deposits were applied thereto on 12 March 1985.

The BANK, for its part, alleged Marcos had only P764,897.67 in various time deposits as of 12 March 1982, inclusive of the P664,897.67 deposited the day before. It claimed Marcos delivered the certificates under a Deed of Assignment dated 2 June 1982 to secure separate loans covered by Promissory Note No. 20-756-82 dated 2 June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000, distinct from the trust receipts, and that upon default on the latter note it debited the deposits as fully paid pursuant to the assignment. It maintained Marcos freely entered the trust receipts after his wife Consolacion sought financing advice, failed to account for goods or proceeds, and filed the civil suit to avoid criminal liability under the Trust Receipts Law. Trial courts found Pagsaligan evasive, inconsistent, and unable to produce originals, ledgers or certificates, and noted discrepancies in initials, addresses, payee designation as Atty. Leonilo Marcos though Marcos was not a lawyer, and uncertainty over the issuing branch.

• Outstanding Obligations Secured by Assignment: Petitioner argued that it proved Marcos' outstanding obligations secured by the assignment of time deposits, particularly the loans covered by the promissory notes distinct from the trust receipts, such that nothing remained to be returned after lawful offset.
• Judicial Admission of Actionable Documents: Petitioner argued that Section 8, Rule 10 of the then Revised Rules of Court applied to create a judicial admission on Marcos' part as to the genuineness and due execution of the actionable documents appended to its Answer for failure to specifically deny them under oath.
• Denial of Due Process on Evidence: Petitioner argued that it was deprived of due process when the lower court declared it to have waived presentation of further evidence, including re-direct examination of Pagsaligan, and considered the case submitted for resolution despite illness as ground for postponement.

• Time Deposits and Accumulated Interest: Respondent maintained that his time deposits totaling P1,428,795.34, later stated as P1,429,795.34, earned 17% per annum since March 1982 totaling P1,727,305.45, or P3,156,100.79 in all, less P595,875 representing the 70% trust-receipt balance, leaving P2,560,025.79 due him.
• Trust-Receipt Offset and Void Promissory Note: Respondent argued that his only debt was P851,250 less the 30% marginal deposit, which should have been automatically offset; that no interest or renewal was agreed; that the BANK unjustly demanded the gross amount with extensions and penalties; and that Promissory Note No. 20-979-83 for P500,000 was void and could not support the 12 March 1985 application of deposits.
• Damages: Respondent prayed for declaration of nullity of the promissory note, return of deposits with interest, plus moral and exemplary damages and attorney's fees of P200,000 plus 25% of the amount due.

• Outstanding Obligations and Assignment: Whether petitioner proved private respondent's outstanding obligations secured by the assignment of time deposits so as to extinguish liability.
• Judicial Admission: Whether Section 8, Rule 10 of the then Revised Rules of Court applies to deem admitted the genuineness and due execution of actionable documents appended to petitioner's Answer.
• Cross-Examination After Default: Whether denial of petitioner's motion to cross-examine Marcos, after lifting of default, violated procedural due process.
• Waiver of Further Evidence: Whether petitioner was deprived of due process when declared to have waived presentation of further evidence and the case was submitted for resolution.
• Fiduciary Duty and Fictitious Promissory Note: Whether the bank breached its fiduciary duty and failed to prove Promissory Note No. 20-979-83 and its offsetting against deposits.
• Total Amount Due: Whether the amount ordered returned should be modified to offset admitted trust-receipt liability with proper interest.

• Outstanding Obligations and Assignment: No. The alleged P500,000 loan was not proven by competent evidence, so no valid offset beyond admitted trust receipts was established.
• Judicial Admission: No. Raised for the first time on appeal and barred by estoppel; a late, unserved Answer in default was a mere scrap of paper admitting of no oath-bound denial.
• Cross-Examination After Default: No violation. Proceedings already taken need not be disturbed, and reopening for cross-examination is discretionary on terms imposed in the interest of justice.
• Waiver of Further Evidence: No deprivation. Repeated postponements without medical proof justified treating further presentation as waived.
• Fiduciary Duty and Fictitious Promissory Note: Liable. Failure to produce originals, ledgers and offset records breached the bank's heightened duty of meticulous care.
• Total Amount Due: Modified. Only P764,897.67 in deposits was proven, offset by P595,875 trust-receipt principal plus 12% legal interest from issuance to 6 March 1987 maturity.

• Outstanding Obligations and Assignment: The P500,000 loan rested only on machine copies of duplicates without explanation for absence of originals or compliance with production orders, with no ledger or interest computation and inconsistent positions on whether it was paid or still unpaid, while enumerated discrepancies supported fictitiousness.
• Judicial Admission: The issue was never raised before trial or appellate courts and faulting the Court of Appeals therefor was an afterthought barred by estoppel; because the Answer was filed late, unserved, and initially a nullity during default after Marcos had rested, the rule on specific denial under oath could not be weaponized to reward disregard of procedure.
• Cross-Examination After Default: Upon lifting default under Section 3, Rule 18 of the 1964 Rules of Court, now Section 3(b), Rule 9 of the 1997 Rules, restoration is on such terms as justice requires; the BANK never sought restoration of cross-examination in its 9 January 1990 motion, filed only on 2 March 1990 without proof of service, failed to refile with notice under Section 4, Rule 15, and waited until judgment to assail an interlocutory denial, forfeiting mere opportunity which satisfies due process.
• Waiver of Further Evidence: Three scheduled hearings in August 1990 were lost for failure to produce Pagsaligan, and the 7 September 1990 postponement invoked illness without medical certificate or alternative witness or evidence despite long delay, leaving no sufficient basis to grant further resetting.
• Fiduciary Duty and Fictitious Promissory Note: Section 2 of Republic Act No. 8791 merely echoed Simex International (Manila) Inc. vs. Court of Appeals and progeny requiring meticulous recording and high integrity; the BANK kept no originals, ledgers or offset computations, and whether through negligence or Pagsaligan's misdeed in apparent scope of employment, liability for the branch manager's acts and unjust enrichment attached.
• Total Amount Due: The 12 March 1982 certification of various certificates with aggregate value of P764,897.67, read with the 11 March 1982 receipt lacking maturity and the near-identical figures differing by P100,000, proved a single aggregate; with blank interest-rate spaces constituting written agreement on interest under Article 1956, 12% legal interest ran to the fixed 6 March 1987 maturity, yielding P880,812.48 due against P1,381,216.59 in deposits plus straight 17% interest, leaving P500,404.11 plus P211,622.96 interest to 30 August 1989.

• Fiduciary nature of banking — Banks must treat depositors' accounts with meticulous care, recording every transaction accurately and promptly, under a diligence higher than that of a good father of a family and high standards of integrity and performance deemed written into every deposit agreement. The BANK's failure to keep originals, ledgers and offset records breached this duty despite Marcos' own negligence in signing blanks and entrusting certificates.
• Bank liability for acts of officers — A bank holding out officers as worthy of confidence is liable for wrongful acts done in the interest of the bank or in dealings as bank representatives within apparent scope, even if secretly abusing authority for personal benefit. Pagsaligan's fabrication to cover unaccounted deposits, as branch manager, thus bound the BANK.
• Effect of default and relief therefrom — A party in default forfeits standing, allowing ex-parte reception, but may move under oath before judgment on fraud, accident, mistake or excusable neglect with meritorious defense; lifting is on such terms as the judge imposes, and prior proceedings need not be disturbed. Reopening plaintiff's terminated testimony for cross-examination was therefore discretionary, not automatic.
• Right to cross-examination as opportunity — While vital to due process, the right requires only opportunity, not actual cross-examination, and is lost by default and failure to exhaust timely remedies. The BANK's defective notice motion and delayed challenge defeated its claim.
• Notice of adversarial motions — A motion to cross-examine after forfeiture is adversarial, requiring proof of service to avoid surprise and allow opposition and preparation of the witness. Denial for lack of notice was correct, without need to relax Section 4, Rule 15.
• Best Evidence Rule and presumption from withholding — Substitutionary photocopies are inadmissible while originals can be had, absent clear showing of loss, destruction or inability to produce, to prevent fraud; withholding better evidence raises presumption it would expose fraud. Machine copies of duplicates, unexplained and in breach of production orders, had no probative value to prove the promissory note.
• Issues raised first time on appeal — An issue never timely raised below is barred by estoppel and deserves scant consideration. Judicial admission under Section 8, Rule 10 could not be invoked first before the Supreme Court.
• Interest where rate left blank and interest on interest — Where writing expressly agrees on interest but leaves the rate blank, legal interest of 12% for forbearance applies; interest due earns 12% legal interest from judicial demand. The trust receipts thus bore 12% to maturity, and accumulated deposit interest bore 12% from filing on 30 August 1989, with straight non-compounded 17% deposit interest absent proof of capitalization practice.

• "In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions." — States the depositor's reasonable expectation grounding the bank's duty of utmost fidelity and accurate, prompt recording.
• "A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114)." — Canonical formulation for holding the bank liable for Pagsaligan's acts within apparent authority.
• "While the right to cross-examine is a vital element of procedural due process, the right does not necessarily require an actual cross-examination, but merely an opportunity to exercise this right if desired by the party entitled to it." — Defines why denial of the defective motion after default was not a due-process violation.
• "If a party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arises that the better evidence is withheld for fraudulent purposes, which its production would expose and defeat." — Justifies disregarding machine copies and suspecting the promissory note's existence.

• Simex International (Manila) Inc. vs. Court of Appeals, G.R. No. 88013, 19 March 1990, 183 SCRA 360 — Controlling precedent establishing banks' duty to treat accounts with meticulous care given fiduciary nature; reiterated and applied to impose heightened accountability.
• Prudential Bank vs. Court of Appeals, G.R. No. 108957, 14 June 1993, 223 SCRA 350 — Followed for bank liability for officers' wrongful acts within apparent scope; also cited for exemplary damages.
• The Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 138569, 11 September 2003 — Followed to confirm high diligence predated RA No. 8791, to deny compounding absent proof, and to support moral damages for employer liability.
• Fulgado vs. Court of Appeals, G.R. No. 61570, 12 February 1990, 182 SCRA 81 — Cited for the principle that cross-examination opportunity satisfies due process.
• Caltex (Philippines), Inc. vs. Court of Appeals, G.R. No. 97753, 10 August 1992, 212 SCRA 448 — Cited to bar the judicial-admission issue raised first time on appeal by estoppel.
• San Pedro vs. Court of Appeals, 333 Phil. 597 (1996) — Cited for Best Evidence Rule rejecting photocopies without showing originals lost or unproducible.
• IBM Philippines, Inc. vs. National Labor Relations Commission, 365 Phil. 137 (1999) — Cited for purpose of best-evidence rule as fraud prevention and presumption from withholding.
• Bank of the Philippine Islands vs. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408; Citytrust Banking Corporation vs. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994, 232 SCRA 559; Tan vs. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310; Metropolitan Bank & Trust Co. vs. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Philippine Bank of Commerce vs. Court of Appeals, 336 Phil. 667 (1997); Firestone vs. Court of Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601 — Cited as reiterations of bank fiduciary duty.
• Philippine National Bank vs. Court of Appeals, G.R. No. 126152, 28 September 1999, 315 SCRA 309; Prudential Bank vs. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264 — Cited to justify moral and exemplary damages for bank negligence.

• Section 2, Republic Act No. 8791 (General Banking Law of 2000) — Declares State recognition of fiduciary nature requiring high standards of integrity and performance; applied as statutory echo of pre-existing jurisprudence to hold BANK to heightened diligence.
• Section 3, Rule 18, 1964 Rules of Court, now Section 3(b), Rule 9, 1997 Rules of Court — Allows setting aside default on fraud, accident, mistake or excusable neglect with meritorious defense on terms judge imposes; applied to sustain discretion not to reopen terminated testimony.
• Section 4, Rule 15, 1964 Rules of Court — Requires notice and proof of service of motions; applied to deny adversarial motion to cross-examine lacking service.
• Article 1956, Civil Code of the Philippines — Requires interest to be expressly stipulated in writing; applied where trust receipts agreed on interest but left rate blank, warranting legal interest.
• Article 2212, Civil Code of the Philippines — Invoked to fix duration when maturity date uncertain, fixing trust-receipt maturity on 6 March 1987, and to make interest due earn legal interest from judicial demand on 30 August 1989.
• Best Evidence Rule — Mandates production of originals over substitutionary copies; applied to disregard machine copies of duplicates of loan application and promissory note.
• Presidential Decree No. 115 (Trust Receipts Law) — Basis of BANK's criminal complaint for failure to account for goods or proceeds; background to Marcos' civil suit characterized as avoidance attempt.

Davide, Jr., C.J. (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.