Philippine National Bank vs. Giron-Roque

An extrajudicial foreclosure is void where it is based on a loan that is void because the check representing it was forged and the person who obtained it was not authorized, and where the bank failed to exercise the extraordinary diligence required of banking institutions; the valid remaining loan obligation may still be settled.

Felina Giron-Roque, a Filipino resident of the United States, maintained a credit line with Philippine National Bank secured by a real estate mortgage over property covered by Transfer Certificate of Title No. T-45548. Dr. Gloria M. Apostol and her husband Dr. Edward Apostol were impleaded in connection with Gloria's alleged role in obtaining a further availment under that credit line. The controversy implicated the banking industry's public-interest character and the diligence required in handling negotiable instruments and loan accommodations.

On April 7, 1995, Felina Giron-Roque, a Filipino resident of the United States of America, obtained a credit line from Philippine National Bank in the amount of P230,000.00, secured by a real estate mortgage over a real property registered under Transfer Certificate of Title No. T-45548. On February 10, 1997, she availed of a P50,000.00 loan (first loan) from the credit line, evidenced by a promissory note of even date and due on August 9, 1997. While she was in the United States sometime between April and August 1997, she purportedly filed, through Dr. Gloria M. Apostol, a stand-by application for further availment of the credit line in the amount of P120,000.00 (second loan). Felina subsequently discovered that Gloria withdrew from her PNB account a check (subject check) for the second loan in the amount of P119,820.00.

PNB demanded payment of both loans. Instead of paying, Felina requested an in-depth investigation of the second loan. As of September 15, 1998, PNB's Statement of Account showed Felina's outstanding balance, inclusive of interests and penalties, as P14,565.58 for the first loan and P148,608.33 for the second loan, or a total of P163,173.91. On December 10, 1998, Felina sent PNB a letter enclosing a cashier's check in the amount of P16,000.00 as full payment of the first loan; PNB received the letter and check on December 21, 1998. By letter dated December 22, 1998, PNB returned the cashier's check, stating that it was insufficient to cover the amount, interests, and penalties of both loans. PNB then proceeded with the extrajudicial foreclosure of Felina's real property.

Claiming that her signature on the subject check was forged and that Gloria was not authorized to withdraw from her PNB account, Felina filed a complaint for annulment of foreclosure sale and reinstatement of unused credit accommodation with damages before the RTC against PNB and Spouses Apostol. She prayed that the second loan of P120,000.00, together with interests and penalties, be declared null and void; that the P16,000.00 be declared valid payment of her only availment of the credit arrangement; and that the extrajudicial foreclosure over her property be declared null and void. In defense, Spouses Apostol maintained that Gloria was duly authorized by Felina to withdraw from the latter's credit line. PNB claimed that it had exercised the required due diligence before allowing the withdrawal, and added that there was no valid tender of payment of the first loan because it was tendered one day before the foreclosure date and the amount was not enough to cover interest and penalty. PNB also filed a cross-claim averring that if Felina's claim were sustained, Spouses Apostol should be ordered to reimburse the amount of P119,820.00 which the latter received from it.

The RTC found that the subject check was forged because Felina could not have executed it while she was in the United States, and upon comparison with the promissory note dated February 10, 1997, her alleged signature on the subject check was found not to have been written by the same person. It concluded that PNB was remiss in the diligence required of banking institutions in allowing the withdrawal and encashment of the forged check in favor of Gloria, who was not proven to be duly authorized by Felina. The RTC made no pronouncement as to the validity of Felina's tender of payment in relation to the first loan. The CA likewise made no pronouncement on that tender.

• Due Diligence: PNB claimed that it had exercised the required due diligence before allowing the withdrawal.
• Tender of Payment: PNB added that there was no valid tender of payment of the first loan, as it was tendered one day before the foreclosure date and the amount was not enough to cover interest and penalty.
• Cross-Claim for Reimbursement: PNB averred that if Felina's claim were sustained, Spouses Apostol should be ordered to reimburse the amount of P119,820.00 which the latter received from it.

• Forgery and Lack of Authority (Felina): Felina claimed that her signature in the subject check was forged and that Gloria was not authorized to withdraw from her PNB account.
• Nullity of Second Loan and Foreclosure (Felina): Felina sought to have the second loan of P120,000.00, together with interests and penalties, declared null and void, and the extrajudicial foreclosure over her property declared null and void.
• Validity of Tender (Felina): Felina prayed that the P16,000.00 cashier's check be declared valid payment of her only availment of the credit arrangement.
• Authority to Withdraw (Spouses Apostol): Spouses Apostol maintained that Gloria was duly authorized by Felina to withdraw from the latter's credit line.

• Nullification of Extrajudicial Foreclosure: Whether the CA correctly affirmed the nullification of the extrajudicial foreclosure proceedings covering Felina's real property subject of the real estate mortgage.

• Nullification of Extrajudicial Foreclosure: Yes. The CA correctly affirmed the nullification because the second loan was void—the subject check was forged and Gloria was not authorized—and PNB failed to exercise the extraordinary diligence required of a banking institution. The foreclosure was without basis, but the valid first loan remained outstanding and Felina was given sixty days to settle P14,565.58 plus interests and penalties from September 15, 1998 to December 21, 1998, without prejudice to PNB's remedies.

• Nullification of Extrajudicial Foreclosure: PNB commenced extrajudicial foreclosure on the ground of Felina's non-payment of the first and second loans, inclusive of interests and penalties, which per PNB's Statement of Account amounted to P14,565.58 for the first loan and P148,608.33 for the second loan, or P163,173.91 total. The courts a quo unanimously found that (a) Felina did not avail of the second loan because her signature on the subject check was forged; (b) Gloria was not duly authorized to obtain the second loan from PNB; and (c) PNB was remiss in the diligence required of a banking institution in allowing the withdrawal and encashment of the subject check representing the second loan. Absent any cogent reason to overturn these findings, the Court upheld them. Because the second loan was void, Felina's outstanding balance was reduced to the first loan plus interests and penalties, P14,565.58. Felina had tried to fully settle that amount by tendering a P16,000.00 cashier's check, which PNB refused on the notion that it was insufficient to cover her total obligations, including the second loan that had not yet been judicially nullified. The remaining first-loan balance thus remained outstanding, due, and demandable, but without fault of Felina because she had already tendered the cashier's check through her December 10, 1998 letter, which PNB received on December 21, 1998. In the interest of substantial justice, the Court gave Felina a reasonable opportunity to fully settle P14,565.58 plus interests and penalties from September 15, 1998 to December 21, 1998. The annulment of the extrajudicial foreclosure was affirmed, without prejudice to PNB's availment of proper remedies should Felina fail to settle.

• Extraordinary Diligence of Banking Institutions — Banking institutions are imbued with public interest and must exercise extraordinary diligence in handling transactions. The Court upheld the finding that PNB was remiss in the diligence required of a banking institution in allowing the withdrawal and encashment of the forged check representing the second loan.
• Nullity of a Loan Obtained Through a Forged Check and by an Unauthorized Person — A loan is void where the check representing it was forged and the person who obtained it was not duly authorized. Because the extrajudicial foreclosure was predicated on non-payment of both loans, including the void second loan, the foreclosure had no basis.
• Finality of Factual Findings Confirmed by the Court of Appeals — When the factual findings of the trial court are confirmed by the CA, they are final and conclusive on the Supreme Court unless not supported by the evidence on record. The Court applied this rule to uphold the findings of forgery, lack of authority, and PNB's lack of diligence.
• Substantial Justice in Settling a Valid Obligation — In the interest of substantial justice, a debtor may be given a reasonable opportunity to settle the remaining valid obligation where the bank refused the tender because it included a void loan in the total obligation. The Court gave Felina sixty days to settle P14,565.58 plus interests and penalties from September 15, 1998 to December 21, 1998, without prejudice to PNB's remedies.

• "In view of the nullity of the second loan, Felina's outstanding balance to PNB has been significantly reduced to the value of the first loan, plus interests and penalties, amounting to P14,565.58." — This states the effect of the void second loan on the foreclosure basis and identifies the remaining valid obligation.
• "In this light, and in the interest of substantial justice, the Court deems it prudent to give Felina a reasonable opportunity to fully settle her remaining obligation to PNB, in the amount of P14,565.58, plus interests and penalties from the date of the Statement of Account on September 15, 1998 until the date of PNB's receipt of the cashier's check on December 21, 1998." — This is the ratio for allowing settlement and affirming the annulment without prejudice.
• "It emphasized that, for being in an industry imbued with public interest, PNB should have exercised extraordinary diligence in handling the transaction." — This captures the banking-diligence standard that the Supreme Court upheld.
• "It is settled that when the factual findings of the trial court are confirmed by the CA, said facts are final and conclusive on the Court, unless the same are not supported by the evidence on record." — This states the standard of review applied to uphold the findings of forgery, lack of authority, and PNB's lack of diligence.

• Gatan vs. Vinarao, G.R. No. 205912, October 18, 2017, 842 SCRA 602, 618 — Cited for the rule that factual findings of the trial court confirmed by the CA are final and conclusive on the Court unless not supported by evidence.
• Bank of the Philippine Islands vs. Leobrera, 461 Phil. 461, 469 (2003) — Cited in Gatan vs. Vinarao as authority for the same rule on finality of factual findings.

Justices Jardeleza and Carandang concurred. Chief Justice Bersamin (Chairperson) and Justice Gesmundo were on official leave.