Union Bank of the Philippines vs. Sy Lian Teng

A bank is liable for the fraudulent acts of its branch manager committed within the apparent scope of his authority, even if the manager was secretly abusing his authority for his own benefit, where the bank held him out to the public as possessing power to solicit investments and transact with clients. The bank may not impute negligence on depositors who dealt in good faith with its duly authorized officer, nor shirk responsibility by claiming the agent exceeded his actual powers.

The Sylianteng and Tang families (respondents) were clients who invested substantial sums in money market placements with Union Bank of the Philippines through its Cubao-Aurora West Branch. Raymond Buñag, the branch manager, had previously served the Syliantengs at Urban Bank and was confirmed by Union Bank's Head Office as authorized to offer and quote rates for money market placements. The Tangs were introduced to Buñag through the Syliantengs, who assured them of Buñag's authority. The banking business is imbued with public interest, requiring the highest degree of diligence and fiduciary care, governed by the General Banking Act of 2000 and the Manual of Regulations for Banks.

The Sylianteng family — composed of spouses Sy Lian Teng and Emerenciana Sylianteng, their children Roberto and Cesar, and Roberto's wife Lorraine — and the Tang family — composed of spouses Roberto and Clarita Tang, their children Margaret, Patrick, and Frederick, Robert's brother Albert and his wife Helen, and Clarita's sister Gloria Lim — were depositors and investors who maintained money market placements with Union Bank of the Philippines. The Syliantengs first became acquainted with Raymond Buñag when he was a staff assistant at Urban Bank's Escolta Branch, where their money market placements were facilitated by him. When Buñag moved to Union Bank's Cubao-Aurora West Branch as branch manager in 1996, he persuaded the Syliantengs to invest with Union Bank. The Syliantengs inquired from Union Bank's Head Office and the Cubao-Aurora West Branch whether Buñag was authorized to offer and quote rates for money market placements, and both confirmed his authority. Relying on the bank's assurance and its reputation for financial stability, the Syliantengs, through Roberto and Lorraine, invested substantial funds in peso and US dollar money market placements from November 1996 to July 1999. These placements were evidenced by Certificates of Time Deposit, Certificates of Participation, and passbooks registered in the Syliantengs' names, and were successively rolled over upon maturity with the transactions facilitated by Buñag in his capacity as branch manager.

The Tangs were introduced to Buñag in 1998 through the Syliantengs, who assured Clarita that they had verified Buñag's authority from Union Bank's Head Office. Relying on such assurance, the Tangs, through Clarita, likewise invested in money market placements with Union Bank's Cubao-Aurora West Branch from December 1998 to June 1999, covered by Certificates of Time Deposit, Certificates of Participation, and passbooks in various amounts. As with the Syliantengs, the Tangs' placements were facilitated and rolled over by Buñag. According to respondents, it became a usual arrangement that maturing instruments were retrieved by Buñag or the bank's authorized messenger and replaced with current instruments.

Sometime in June and July 1999, Union Bank failed to pay the matured money market placements of both families. When Clarita inquired about discrepancies in interest computations, Buñag directed her to the Treasury Division at the Head Office, which informed her that the bank had no records of the bulk of the Tangs' placements, that the Certificates of Participation she held had been recalled five years earlier, and that Buñag had resigned. The Syliantengs likewise learned from a bank employee that the instruments issued to them were not officially issued by the bank and were not recorded in the Treasury Division's books. Respondents sent multiple demand letters to Union Bank seeking payment of their matured placements, but the bank refused, citing an ongoing investigation by the Presidential Anti-Organized Crime Task Force and suggesting respondents may have connived with Buñag.

Respondents subsequently discovered that Union Bank had filed criminal complaints for Qualified Theft and Economic Sabotage through bank swindling against Buñag. In its affidavits, Union Bank revealed that Buñag had stolen accountable forms — including booklets of Certificates of Participation that were confirmed to be among those issued to respondents — opened fictitious checking accounts in respondents' names without their knowledge or consent, forged their signatures on specimen signature cards, deposited the proceeds of maturing placements into these bogus accounts, and withdrew the funds for his own benefit. Despite respondents' cooperation with the investigation and their furnishing of character endorsements, Union Bank continued to refuse payment, prompting respondents to file a complaint for Recovery of Sum of Money with Damages on December 22, 2000. The RTC found Union Bank liable, crediting respondents' documentary evidence and finding the bank grossly remiss in its duty of diligence; the CA affirmed with modifications, deleting certain unsubstantiated deficiency claims and adjusting the interest computation.

• Ultra Vires Acts of Agent: Union Bank contended that it cannot be bound by the obligations entered into by Buñag who had exceeded his powers, asserting that the transactions were ultra vires and never sanctioned or ratified by the bank, and that the CA committed reversible error in declaring the bank liable for Buñag's fraudulent acts.
• Proximate Cause — Respondents' Negligence: Union Bank argued that respondents' own negligence was the proximate cause of their loss, asserting that respondents should have taken precautions any depositor would take in the regular course of business, such as having passbooks machine-validated, having transactions noted in passbooks, and transacting over-the-counter where proper verification would pass through at least two bank employees.
• Actionable Documents — Audit Committee Reports: Union Bank insisted that its Audit Committee Reports, which allegedly established the bank's overpayment of P37,781,717.57, are actionable documents entitled to full credence and should be deemed admitted for not having been specifically denied under oath.
• Compounded Interest: Union Bank averred that the CA erred in granting compounded interest on the maturity value of unredeemed placements, arguing that perpetual application of the stipulated interest rate is not provided for in the Certificates of Time Deposit and Certificates of Participation, especially since there is a specific maturity date stated in the certificates.
• Savings Deposit Interest Rate: Union Bank argued that the CA erred in granting interest at the savings deposit rate due to respondents' failure to prove their entitlement thereto before the trial court.
• Damages and Attorney's Fees: Union Bank alleged that the CA erred in awarding moral and exemplary damages and attorney's fees, contending that it did not act with malice, fraud, or bad faith in dealing with respondents and only acted within its legal rights in conducting an investigation.

• Apparent Authority: Respondents maintained that Union Bank is liable for the acts of Buñag as its agent under the well-entrenched doctrine of apparent authority applicable to banks, asserting that it was Union Bank's negligence and inexcusable lapses in its internal control system that facilitated the fraud.
• Bank's Degree of Diligence: Respondents argued that the bank, being engaged in a business affected with public interest, is required to exercise the highest degree of diligence in the performance of its fiduciary obligation and in the selection and supervision of its branch manager.
• Audit Committee Reports: Respondents countered that the Audit Committee Reports cannot be considered actionable documents since Union Bank failed to set forth their contents and attach copies to its Answer, and that even assuming they are actionable documents, they are grossly insufficient to show payment since they are flawed by erroneous and falsified entries as found by the RTC.
• Compounded Interest: Respondents echoed the CA's justification that the imposition of compounded interest is conformable with Eastern Shipping Lines vs. Court of Appeals and Nacar vs. Gallery Frames.
• Damages and Attorney's Fees: Respondents claimed entitlement to moral damages, exemplary damages, and attorney's fees, contending that Union Bank clearly acted with malice, fraud, and bad faith when, despite acknowledging that Buñag had defrauded respondents, it unjustifiably and maliciously refused to pay their investments.

• Apparent Authority: Whether an agent who exceeds his powers binds the principal, such that Union Bank is liable for the fraudulent acts of its branch manager Buñag.
• Contributory Negligence: Whether a person who personally and knowingly dealt with an agent acting beyond the scope of his powers is the proximate cause of his own damage and is consequently liable for his own negligence.
• Actionable Documents: Whether an actionable document not specifically denied under oath should be deemed admitted and duly considered by the court, particularly the Audit Committee Reports.
• Relief Not Supported by Evidence: Whether a court can award a relief not supported by evidence.
• Damages and Attorney's Fees: Whether a court can award moral and exemplary damages and attorney's fees in the absence of a finding of malice, fraud, and bad faith.

• Apparent Authority: Yes. Union Bank is bound by the obligations entered into by Buñag within the apparent scope of his authority as branch manager, pursuant to Articles 1910 and 1911 of the Civil Code and the doctrine of apparent authority as applied to banks.
• Contributory Negligence: No. Respondents were not negligent; Union Bank cannot impute negligence on depositors who dealt in good faith with its duly authorized officer, the bank having held Buñag out as possessing power to solicit investments and transact with clients.
• Actionable Documents: No. The Audit Committee Reports were not properly pleaded as actionable documents because their contents were not set forth in Union Bank's Answer and the original or copies were not attached thereto, and the reports themselves were flawed by erroneous and falsified entries.
• Relief Not Supported by Evidence: No. The monetary claims were supported by the Certificates of Time Deposit, Certificates of Participation, and passbooks still in respondents' possession, which remained unredeemed and not indorsed or delivered to Union Bank.
• Damages and Attorney's Fees: Yes. The award of moral and exemplary damages and attorney's fees was proper, Union Bank having acted in bad faith by giving respondents the runaround despite acknowledging Buñag's culpability and implying respondents' connivance without proof.

• Apparent Authority: Under Articles 1910 and 1911 of the Civil Code, the principal must comply with obligations contracted by the agent within the scope of his authority, and is solidarily liable even when the agent has exceeded his authority if the principal allowed the agent to act as though he had full powers. The doctrine of apparent authority, as laid down in Prudential Bank vs. Court of Appeals and elaborated in Citystate Savings Bank vs. Tobias, provides that a bank is liable for wrongful acts of its officers done in the course of its business by an agent acting within the general scope of his authority, even though the agent is secretly abusing his authority. The evidence established that Buñag, as branch manager, was held out as having the power to solicit investments and service marketed clients outside bank premises — a practice sanctioned by Union Bank, as admitted by its ranking employee Saldua. Respondents verified Buñag's authority with the Head Office before investing. The bank's failure to observe the MORB's joint custody requirement for accountable forms, the use of crossed checks that should have alerted other bank officers, and the years-long undetected embezzlement all demonstrated inexcusable lapses in the bank's internal control system. The obligation of observing the highest standards of integrity and performance devolves upon banks, not upon their clients.

• Contributory Negligence: As branch manager, Buñag is recognized as the general agent of the corporation with apparent authority commensurate with the ordinary business entrusted to him. The public has the right to rely on the trustworthiness of bank managers and their acts. In BPI Family Savings Bank vs. First Metro Investment Corp., the Court rejected the bank's contention that a client should have inquired whether a transaction was pursuant to internal procedures, holding that what transpires in the corporate board room is an internal matter. Union Bank cannot impute negligence on respondents who acted in good faith and in full trust in their dealings with the bank's duly authorized officer. The MORB is designed for the guidance of bank officers and employees, not for the public they serve.

• Actionable Documents: Under Section 7, Rule 8 of the 1997 Rules of Court, an actionable document must have its substance set forth in the pleading and the original or copy attached as an exhibit. Records reveal that the contents of the Audit Committee Reports were not set forth in Union Bank's Answer and no copies were attached. At any rate, the reports failed to prove payment or overpayment: the vouchers either did not state the purpose of disbursement or merely indicated "matured CP placement" with a reference number, bolstering respondents' claim that the manager's checks were payments for previous matured placements rather than full payment on a staggered basis. The witnesses presented by Union Bank admitted they had no personal knowledge of the reports' preparation, and the RTC found the reports flawed by erroneous and falsified entries. The burden of proving payment rests on the debtor; Union Bank failed to meet this burden, and the fact that the certificates remain in respondents' possession unredeemed substantiates their claim.

• Relief Not Supported by Evidence: The monetary claims were fully substantiated by the Certificates of Time Deposit, Certificates of Participation, and passbooks in respondents' possession, which specifically contained the agreed interest rate, agreed term, maturity date, interest earned, and maturity value. These instruments were not indorsed or delivered to Union Bank, negating the bank's claim of payment. The CA correctly deleted the deficiency amounts of P83,088.08 and US$256.62, as those placements were pre-terminated before maturity and the pre-termination rates prescribed by the Central Bank applied, justifying the reduced amounts paid by Union Bank.

• Damages and Attorney's Fees: In Prudential Bank vs. Court of Appeals, the Court ruled that a bank acted in bad faith when it denied a client's valid claim despite the irregularity having been committed by the bank's own personnel. Here, despite acknowledging Buñag's culpability through the criminal cases it filed, Union Bank gave respondents the runaround, refused payment, and impliedly charged them of connivance without proof. Respondents were forced to seek BSP intervention and eventually litigate. The huge amounts invested and the peril of non-recovery naturally subjected respondents to serious anxiety, mental anguish, sleepless nights, and besmirched reputation. The award of moral and exemplary damages and attorney's fees under Article 2208 of the Civil Code was therefore proper.

• Doctrine of Apparent Authority (Holding Out Theory) — A bank is liable for the wrongful acts of its officers done in the interest of the bank or in the course of dealings in their representative capacity, even if the officer is secretly abusing his authority for his own benefit. The power to affect legal relations arises from the principal's manifestations to third persons, such that liability extends to acts within the apparent scope of authority conferred, although no actual authority exists. A bank holding out its officers as worthy of confidence will not be permitted to profit by the frauds they perpetrate in the apparent scope of their employment, nor shirk its responsibility even though no benefit accrues to the bank. Applied here: Union Bank held out Buñag as branch manager with authority to solicit investments and service marketed clients outside bank premises; respondents verified this authority with the Head Office; the bank was estopped from denying such authority.

• Fiduciary Duty of Banks — The business of banking is imbued with public interest, requiring the highest degree of diligence and high standards of integrity and performance in all transactions. Banks must treat depositors' accounts with meticulous care, whether of a few hundred pesos or millions. The stability of banks depends on the confidence of the people in their honesty and efficiency. Applied here: Union Bank failed to meet the high standard of diligence required — it did not observe the MORB's joint custody requirement for accountable forms, other officers must have known about the crossed-check investments, and the years-long undetected embezzlement negated an effective audit mechanism.

• Rules on Imposition of Interest (Eastern Shipping Lines as modified by Nacar) — When an obligation consisting in the payment of a sum of money is breached, the interest due shall be that stipulated in writing, and the interest due shall itself earn legal interest from the time of judicial demand. In the absence of stipulation, the rate shall be 6% per annum computed from default. When the judgment becomes final and executory, the rate of legal interest shall be 6% per annum from finality until satisfaction. The 12% per annum rate applies until June 30, 2013; from July 1, 2013, the rate is 6% per annum pursuant to BSP-MB Circular No. 799. Applied here: The stipulated interest rate applied only for the agreed term up to the maturity date; no compounding was proper after maturity absent an express agreement; legal interest of 12% per annum was imposed from judicial demand on December 22, 2000 until June 30, 2013, then 6% per annum from July 1, 2013 until finality, and 6% per annum from finality until satisfaction.

• "A bank is liable to innocent third persons where the representation is made in the course of its normal business by an agent like Buñag as branch manager, even though such agent is abusing his authority. The representations of Buñag were evidently made in the course of Union Bank's normal business, and pursuant to his functions as a branch manager of one of Union Bank's branches." — This passage articulates the ratio decidendi on bank liability under the doctrine of apparent authority, establishing that the scope of the doctrine encompasses acts of branch managers abusing their authority within the course of normal banking business.

• "Clearly, the interest rates agreed upon by the parties as contained in the money market instruments were imposed for a specified time, that is, the agreed term or duration of the holding period of the investment. This is bolstered by the fact that each instrument contains a specific maturity date with specific and pre-determined maturity value." — This passage defines the temporal limitation of stipulated interest rates in money market instruments, establishing that agreed rates apply only for the agreed term and cannot be compounded after maturity absent express stipulation.

• "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." — This is the canonical formulation of the bank apparent authority doctrine frequently cited in subsequent jurisprudence, originally from Prudential Bank vs. Court of Appeals and reiterated here.

• Prudential Bank vs. Court of Appeals, 295 Phil. 399 (1993) — Controlling precedent on the doctrine of apparent authority as applied to banks; laid down the principle that a bank is liable for wrongful acts of its officers done in the course of its business and within the apparent scope of their authority, and that a bank may not profit from or shirk responsibility for frauds perpetrated by its officers in the apparent scope of employment. Also cited on the award of moral and exemplary damages where a bank acted in bad faith by denying a valid claim despite the irregularity being committed by its own personnel.

• Citystate Savings Bank vs. Tobias, 827 Phil. 430 (2018) — Followed and applied; further elucidated the doctrine of apparent authority, also referred to as the "holding out" theory or doctrine of ostensible agency, defining it as liability arising from the principal's manifestations to third persons that an agency relationship exists. Upheld the regularity of transactions made by a branch manager outside bank premises for valued clients.

• BPI Family Savings Bank, Inc. vs. First Metro Investment Corp., 472 Phil. 911 (2004) — Followed; held that what transpires in the corporate board room is an internal matter, and a bank may not impute negligence on a client's representative for failing to ascertain the scope of authority of the bank's branch manager. The public has the right to rely on the trustworthiness of bank managers and their acts.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, 304 Phil. 236 (1994) — Controlling precedent on the rules for imposition of interest in the concept of actual and compensatory damages; applied as modified by Nacar.

• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Controlling precedent modifying Eastern Shipping Lines to embody BSP-MB Circular No. 799, reducing the legal interest rate from 12% to 6% per annum effective July 1, 2013; applied to determine the proper legal interest rates on respondents' monetary claims.

• Article 1910, Civil Code — Provides that the principal must comply with all obligations which the agent may have contracted within the scope of his authority. Applied to establish Union Bank's liability for Buñag's acts as branch manager within the scope of his authority.

• Article 1911, Civil Code — Provides that even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Applied to hold Union Bank solidarily liable for Buñag's fraudulent acts, the bank having allowed him to operate as branch manager with apparent full powers.

• Article 1169, Civil Code — Provides that those obliged to deliver or do something incur in delay from the time the obligee judicially or extrajudicially demands fulfillment of the obligation. Applied to establish that Union Bank incurred in delay when it refused to pay respondents the maturity values of their matured placements upon demand.

• Article 2209, Civil Code — Provides that if the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest of 6% per annum. Applied to award compensatory interest for Union Bank's breach of its contractual obligation.

• Article 2208, Civil Code — Enumerates the instances when attorney's fees and expenses of litigation may be recovered, including when exemplary damages are awarded and when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just, and demandable claim. Applied to justify the award of attorney's fees.

• Section 7, Rule 8, 1997 Rules of Court — Governs actionable documents, requiring that the substance of a written instrument on which an action or defense is based be set forth in the pleading and the original or copy attached as an exhibit. Applied to reject Union Bank's Audit Committee Reports, which were not properly pleaded as actionable documents.

• Section X185.3(c)(2), Manual of Regulations for Banks — Requires that accountable forms be under joint custody, with processing in the presence of and under direct supervision of a second person, both equally accountable for physical protection. Applied to demonstrate Union Bank's negligence in failing to prevent Buñag's unauthorized use of accountable forms.

• Section X242.2, Manual of Regulations for Banks — Provides that a time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit earning interest at the applicable savings deposit rate from maturity to actual withdrawal or renewal. The Court rejected its application, holding that respondents immediately sought release upon maturity, so the matured placements could not be treated as savings deposits.

• BSP-MB Circular No. 799, Series of 2013 — Reduced the rate of legal interest from 12% to 6% per annum effective July 1, 2013. Applied prospectively, with 12% per annum prevailing until June 30, 2013 and 6% per annum from July 1, 2013.

Justices Leonen (Chairperson), Hernando, Inting, and J. Lopez concurred.