l\epublic of tbe ~bilippines

i>uprttttt lourt
:fflanila

SECOND DIVISION

LAND BANK OF THE PHILIPPINES, G.R. No. 192371

Petitioner,

Present:

CARPIO, Chairperson,
-versus- BRION,
DEL CASTILLO,
PEREZ, and
PERLAS-BERNABE, JJ.

EMMANUEL ONATE, Promulgated:

Respondent. JAN 1 5 2014 c\.\\U\&l.b.t'1~~«ta
x----------------------------------------------------~:~~~~-~·-·

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari 1 assails the December 18, 2009
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 89346, which
affirmed with modification the May 31, 2006 Decision3 of the Regional Trial
Court (RTC), Branch 141, Makati City. The RTC dismissed the Complaint4 for
Sum of Money, which petitioner Land Bank of the Philippines (Land Bank) filed
against respondent Emmanuel C. Ofiate (Ofiate), and ordered Land Bank to return
the amount of 111,471,416.52 it unilaterally debited from his accounts. On
separate appeals by both parties, the CA affirmed the RTC Decision with
modification that Land Bank was further ordered to pay Ofiate the sums of
1!60,663,488.11 and US$3,210,222.85 representing the undocumented
withdrawals and drawings from his trust accounts with 12% per annum interest
compounded annually from June 21, 1991 until fully paid ~o&c'

1
Rollo, pp. 11-94.
2
CA rollo, pp. 484-511; penned by Associate Justice Jose Catral Mendoza (now a Member of this Court) and
concurred in by Associate Justices Myrna Dimaranan Vidal and Priscilla J. Baltazar-Padilla.
3
Records, Vol. IV, pp.1358-1387; penned by Judge Manuel D. Victorio.
4
Id., Vol. I, pp. 1-8.
 Decision 2 G.R. No. 192371

Also assailed is the CA’s May 27, 2010 Resolution5 denying Land Bank’s
Motion for Reconsideration.6

Factual Antecedents

Land Bank is a government financial institution created under Republic Act

No. 3844.7 From 1978 to 1980, Oñate opened and maintained seven trust
accounts with Land Bank, more particularly described as follows:

Trust Account No. Date Opened Beginning Balance

01-014 09.07.78 P 250,000.008
01-017 11.16.78 1,312,896.009
01-024 02.23.79 900,000.0010
01-075 10.08.79 500,000.0011
01-082 10.25.79 200,001.0012
01-089 03.18.80 43.9813
01-125 03.13.80 188,161.0014

Each trust account was covered by an Investment Management Account

(IMA) with Full Discretion15 and has a corresponding passbook where deposits
and withdrawals were recorded. Pertinent portions common to the IMAs read:

You [Land Bank] are appointed as my agent with full powers and
discretion, subject only to the following provisions:

1. You are authorized to hold, invest and reinvest the Fund and keep the
same invested, in your sole discretion, without distinction between principal and
income, in any assets which you deem advisable, without being restricted to
those of the character authorized for fiduciaries under any present or future law.

2. You shall have full power and authority:

(a) to treat all the Fund as one aggregate amount for purposes of
investment, and to deposit all or any part thereof with a reputable
bank including your own commercial banking department;
5
CA rollo, pp. 594-595; penned by Associate Justice Priscilla J. Baltazar-Padilla and concurred in by
Associate Justices Fernanda Lampas Peralta and Michael P. Elbinias.
6
Id. at 518-558.
7
AN ACT TO ORDAIN THE AGRICULTURAL LAND REFORM CODE AND TO INSTITUTE LAND
REFORMS IN THE PHILIPPINES, INCLUDING THE ABOLITION OF TENANCY AND THE
CHANNELING OF CAPITAL INTO INDUSTRY, PROVIDE FOR THE NECESSARY
IMPLEMENTING AGENCIES, APPROPRIATE FUNDS THEREFOR AND FOR OTHER PURPOSES.
Approved August 8, 1963.
8
See Passbook 1, Exhibit “D-31.”
9
See Passbook 2, Exhibit “F-3.”
10
See Passbook 7, Exhibit “C-3.”
11
See Passbook 5, Exhibit “B-3.”
12
See Passbook 4, Exhibit “A-3.”
13
See Passbook 3, Exhibit “E-3.”
14
See Passbook 6, Exhibit “G-3.”
15
Records, Vol. I, pp. 9-23.
 Decision 3 G.R. No. 192371

(b) to pay all costs, expenses and charges incurred in connection

with the administration, preservation, maintenance and
protection of the Fund and to charge the same to the Fund;

(c) to vote in person or by proxy on any stocks, bonds or other

securities held by you, for my/our account;

(d) to borrow money for the Fund (from your banking department or
from others) with or without giving securities from the Fund;

(e) to cause any asset of the Fund to be issued, held or registered in

your name or in the name of your nominee, or in such form that
title will pass by delivery, provided your records shall indicate
the true ownership of such assets;

(f) to hold the Fund in cash and to invest the same in fixed income
placements traded and sold by your own Money Market
Division; and

(g) to sign all documents pertinent to the transaction which you will
make in behalf of this Account.

3. All actions taken by you hereunder shall be for my account and risk.
Except for willful default or gross misconduct, you shall not be liable for any
loss or depreciation in the value of the assets of the Fund arising from any cause
whatsoever.

4. You shall maintain accurate records of all investments, receipts,

disbursements and other transactions of the Account. Records relating thereto
shall be open at all reasonable times to inspection and audit by me either
personally or through duly authorized representatives. Statements consisting of a
balance sheet, portfolio analysis, statement of income and expenses, and
summary of investment changes are to be sent to me/us quarterly.

I/We shall approve such accounting by delivering in writing to you a

statement to that effect or by failure to express objection to such accounting in
writing delivered to you within thirty (30) days from my receipt of the
accounting.

Upon your receipt of a written approval of the accounting, or upon the

passage of said period of time within which objections may be filed, without
written objections having been delivered to you, such accounting shall be
deemed to be approved, and you shall be released and discharged as to all items,
matters and things set forth in such accounting as if such accounting had been
settled and allowed by a decree of a court of competent jurisdiction, in an action
or proceeding in which you and I were parties.16 (Emphasis supplied)

In a letter17 dated October 8, 1981, however, Land Bank demanded from

Oñate the return of P4 million it claimed to have been inadvertently deposited to
Trust Account No. 01-125 as his additional funds but actually represents the total
16
Id.
17
Id. at 33.
 Decision 4 G.R. No. 192371

amount of the checks issued to Land Bank by its corporate borrowers as payment
for their pre-terminated loans. Oñate refused. To settle the matter, a meeting was
held, but the parties failed to reach an agreement. Since then, the issue of
“miscrediting” remained unsettled. Then on June 21, 1991, Land Bank
unilaterally applied the outstanding balance in all of Oñate’s trust accounts against
his resulting indebtedness by reason of the “miscrediting” of funds. Although it
exhausted the funds in all of Oñate’s trust accounts, Land Bank was able to debit
the amount of P1,528,583.48 only.18

Proceedings before the Regional Trial Court

To recoup the remaining balance of Oñate’s indebtedness, Land Bank filed

a Complaint19 for Sum of Money seeking to recover the amount of
P8,222,687.8920 plus interest at the legal rate of 12% per annum computed from
May 15, 1992 until fully paid. Pertinent portions of Land Bank’s Complaint
reads:

5. By virtue of the Deeds of Revocable Trust executed on January 9,

1989 [sic] and February 5, 198922 [sic] by Philippine Virginia Tobacco
21

Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB),

LANDBANK likewise became a Trustee of certain funds belonging to PVTA
and PVTB.

6. As authorized under the [Deeds] of Revocable Trust, on October 10,

1980, LANDBANK invested P4 Million of the trust accounts of PVTA and
PVTB, through a direct lending scheme to the following companies:

(a) Republic Telephone Company, Inc. (RETELCO), under

Promissory Note No. 1145 dated October 10, 1980, for P1,021,250.00
with maturity date on November 24, 1980, subject to automatic roll-over
up to October 10, 1981 at 17% interest per annum.

(b) Philippine Blooming Mills Company, Inc. (PBM), under

Promissory Note (unnumbered) dated October 10, 1980, for
P1,021,250.00, with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981, at 17% interest per annum;

(c) Cheng Ban Yek (CBY), under Promissory Note

(unnumbered) dated October 10, 1980, for P1,023,138.89, with maturity
18
As alleged in paragraph 14 of the Complaint, id. at 5-6. But per Annex “P” of the same Complaint, id. at
34-35, the total amount debited was P1,471,416.52.
19
Id. at 1-8.
20
Under paragraph 15 of the Complaint, Land Bank explained how it arrived at the amount of P8,222,687.89,
viz:
15. [Oñate’s] outstanding indebtedness to LANDBANK stands at P8,222,687.89 as of May 15, 1992,
which was computed on the basis of the more than P4 Million erroneously credited to [Oñate] multiplied by
12% interest per annum from the date of the erroneous crediting up to February 4, 1992, minus
P1,528,583.48 representing the balance standing in [Oñate’s] personal trust accounts which was applied as
payment by way of set-off. x x x (Id. at 6.)
21
Should be 1980.
22
Should be 1980.
 Decision 5 G.R. No. 192371

date on November 28, 1980, subject to automatic roll-over up to October

10, 1981, at 17% interest per annum;

(d) Philippine Tobacco Filters Corporation (PHILTOFIL),

under Promissory Note (unnumbered) dated October 10, 1980, for
P1,021,250.00, with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981, at 17% interest per annum.

xxxx

7. Pursuant to such direct loan transactions granted to the

aforementioned companies, LANDBANK issued four (4) cashier’s checks for
P1 Million each payable to RETELCO, PBM, CBY, and PHILTOFIL x x x

8. On or about November 24 and 28, 1980, the aforesaid borrowers

(RETELCO, PBM, CBY, AND PHILTOFIL), pre-terminated their
corresponding loans and paid their respective obligations in the form of checks
payable to LANDBANK and delivered by [Oñate’s] representative, Mr. Eduardo
Polonio.

9. When the checks were delivered, [Oñate] fraudulently

misrepresented to LANDBANK that they were [Oñate’s] additional capital
contribution to his personal trust account. On the basis of this misrepresentation,
LANDBANK credited the payments made by the aforementioned corporate
borrowers to [Oñate’s] Trust Account No. 01-125.

10. After the payments were credited to his personal trust account, Oñate
proceeded to withdraw the same, to the damage and prejudice of LANDBANK
as the owner thereof.23

In his Answer (With Compulsory Counterclaim),24 Oñate asserted that the

setoff was without legal and factual bases. He specifically denied any knowledge
or involvement in the transaction between Land Bank and its clients Philippine
Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board
(PVTB). He also denied that he made fraudulent misrepresentation to induce the
bank to deposit to his Trust Account No. 01-125 as his additional capital the
payments allegedly tendered by the bank’s corporate borrowers. He maintained
that all the funds in his accounts came from legitimate sources and that he was
totally unaware of and had nothing to do with the alleged “miscrediting.” While
Oñate admitted having received the October 8, 1981 demand letter, he argued that
he did not acquiesce thereto and, in fact, disputed the same during a meeting with
an officer of Land Bank. He also refuted Land Bank’s claim that it formally
demanded for the return of the disputed amount as the September 3, 1991 letter25
it alluded to is not a demand letter. It was sent in response to his counsel’s letter
requesting for an accounting of his trust accounts.

23
Records, Vol. I, pp. 2-5.
24
Id. at 138-152.
25
Id. at 34-35.
 Decision 6 G.R. No. 192371

By way of compulsory counterclaim, Oñate pointed out that per Balance

26
Sheets as of June 30, 1982 the funds in his trust accounts already totaled
P35,555,464.78. And as of January 1993, the accumulated balance of his accounts
reached P229,222,160.25 and $3,472,683.94 computed as follows:

With interest at the rate of eighteen percent (18%) compounded every

ninety (90) days from the third quarter of 1982 to January, 1993, the trustor’s
equity of P35,555,464.78 has earned interest in the amount of P193,666,695.47.
Adding the trustor’s equity to the aforesaid accrued interest thereon, [Oñate’s]
peso deposits [in] his trust accounts with plaintiff bank have an accumulated
balance of P229,222,160.25 as of January 1993.

But that is not all. [Oñate’s] dollar deposits to Trust Account No. 01-014
(which is for an “Undisclosed Principal”) from the period July-September, 1980
alone, already amounted to $1,690,943.78. x x x

With interest at the rate of six percent (6%) compounded every ninety
(90) days from the first quarter of 1981, the said dollar deposits have earned
interest of $1,781,740.16 up to January, 1993. Thus, [Oñate’s] dollar deposits
[in] Trust Account No. 01-014 have an aggregate balance of $3,472,683.94 as of
January 1993.27

Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is

deducted from the outstanding balance of his trust accounts as of January 1993,
the bank still owes him P220,999,472.36 on top of his dollar deposits amounting
to $3,472,683.94.

Oñate prayed that a judgment be issued dismissing the Complaint and

ordering Land Bank to pay him:

i) The sum of P220,999,472.36, representing the outstanding balance on

the peso deposits [of Oñate’s] various trust accounts as of January 1993, with
interest thereon from said date at the rate of eighteen percent (18%) compounded
every ninety (90) days, until the said amount is fully paid;

ii) The sum of $3,472,683.94, representing the aggregate balance as of

January 1993 on [Oñate’s] dollar deposits [in] Trust Account No. 01-014, with
interest thereon from said date at the rate of six percent (6%) compounded every
ninety (90) days, until the said amount is fully paid;

iii) The sum of P100,000,000.00 as and by way of moral damages;

iv) The sum of P50,000,000.00 as and by way of exemplary damages;

and

26
Id. at 153-159.
27
Id. at 144-145. Emphases in the original.
 Decision 7 G.R. No. 192371

v) The sum of P15,000,000.00, or 20% of all sums collected, whichever

is higher, as and for attorney's fees, the further sum of P3,000.00 as appearance
fee for each hearing attended, and such other sums that may be proved during the
trial as litigation expenses.28

Upon Oñate’s motion, the RTC issued an Order29 dated May 27, 1994,
creating a Board of Commissioners (the Board) for the purpose of examining the
records of Oñate’s seven trust accounts, as well as to determine the total amount of
deposits, withdrawals, funds invested, earnings, and expenses incurred. It was
composed of Atty. Engracio M. Escasinas, the Clerk of Court of the RTC of
Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab and Ms. Adeliza
M. Jaranilla representing Land Bank and Oñate, respectively, as members.

Initially, the Board submitted three reports.30 But for clarity, the trial court
ordered31 the Board to reconvene and to submit a consolidated report furnishing
copies of the same to both parties, who were given 10 days from receipt thereof to
file their respective comments thereto. The Board complied and on August 16,
2004 submitted its consolidated report.32 As summarized by the RTC, the said
consolidated report revealed that there were undocumented and over withdrawals
and drawings33 from Oñate’s trust accounts:

Thus, the Commissioners’ Report showed that the total amount of

drawings and withdrawals from each account without withdrawal slips are as
follows:

In Trust Account No. 01-014, there was a total withdrawals [sic] without
withdrawal slips but reflected in the passbook in the amount of P45,103,297.33
and this account showed a negative balance of P40,367,342.34. On the dollar
deposit under the same trust account, there was a total [withdrawal] without
withdrawal slips but reflected in the passbook in the amount of $3,210,222.85.

In Trust Account No. 01-017, there was a total withdrawal without

withdrawal slips in the amount of P2,682,088.58 and there was an over
withdrawal of P11,738,470.53 and $30,000.00.

In Trust Account No. 01-024, there was a total withdrawal without

withdrawal slips of P900,000.00 and over withdrawal of P13,310,328.01.

28
Id. at 151-152.
29
Id., Vol. II, pp. 409-410.
30
(i) Report of the Board of Commissioners dated September 24, 1999, id., Vol. V, pp. 1432-1441; (ii)
supplemental summary report dated January 27, 2000, id., Vol. III, pp. 790-797; (iii) second supplemental
report dated April 6, 2000, id. at 811-812.
31
See Order dated May 25, 2004, id., Vol. IV, p. 1216.
32
Id. at 1220-1228.
33
Per commissioners’ consolidated report dated August 16, 2004, id., “withdrawals” is defined as cash
outflow reflected on the passbooks of Oñate, while “drawings” is cash outflow from the capital contribution
of Oñate per his Letter of Instructions.
 Decision 8 G.R. No. 192371

In Trust Account No. 01-075, there was a total withdrawal of

P500,000.00 without withdrawal slips and there was a negative balance of
P33,342,132.64 and $286,399.34 on the dollar account.

In Trust Account No. 01-082, the total amount of withdrawal without

withdrawal slips but reflected in the passbook was P1,782,741.86 and there was
an over withdrawal of P14,031.63.

In Trust Account No. 01-089, there was a total withdrawal without

withdrawal slips in the amount of P5,054,809.00 but the report indicated that
there was a negative balance of P1,296,441.92.

In Trust Account No. 01-125, there was a total withdrawal without

withdrawal slips in the amount of P4,640,551.34 and there was a negative
balance of P58,327,459.23.34

On even date, the Board also submitted a Manifestation35 informing the

RTC that its findings as to the outstanding balance of each trust account may not
be accurate considering that it was not given ample opportunity to collate and sort
out the documents related to each trust account and that there may have been
double take up of accounts since the documents previously reviewed may have
been considered again in subsequent reports.

In his Comment,36 Oñate asserted that the undocumented withdrawals

mentioned in the consolidated report should not be considered as cash outflows.
Rather, they should be treated as unauthorized transactions and the amounts
subject thereof must be credited back to his accounts.

Land Bank did not file any comment or objection to the Board’s
consolidated comment.

During the pre-trial conference, the parties agreed that they would submit
the case for decision based on the reports of the Board after they have submitted
their respective memoranda. They also stipulated on the following issues for
resolution of the RTC:

1. Whether x x x Oñate could claim on Trust Account Nos. 01-014 and 01-017
which were opened for an undisclosed principal;

2. Whether x x x the undocumented withdrawals and drawings are considered

valid and regular and, conversely, if in the negative, whether x x x such
amounts shall be credited [back] to the accounts.37

34
Id. at 1380-1381.
35
Id. at 1229-1230.
36
See Comment (Re: Board of Commissioners’ Compliance dated 16 August 2004), id. at 1241-1245.
37
See Order dated June 10, 2005, id. at 1286.
 Decision 9 G.R. No. 192371

In his Memorandum38 filed on July 12, 2005, Oñate reiterated that Land
Bank should be held liable for the undocumented withdrawals and drawings. For
its part, Land Bank posited, inter alia, that Trust Account Nos. 01-014 and 01-017
should be excluded from the computation of Oñate’s counterclaim considering his
allegation that said accounts are owned by an undisclosed principal whom/which
he failed to join as indispensable party. Land Bank further theorized that Oñate
must answer for the negative balances as revealed by the Board’s reports.39

Thereafter, the case was submitted for decision.

Ruling of the Regional Trial Court

On May 31, 2006, the RTC rendered a Decision40 dismissing Land Bank’s
Complaint for its failure to establish that the amount of P4,086,888.89 allegedly
“miscredited” to Oñate’s Trust Account No. 01-125 actually came from the
investments of PVTA and PVTB. Hence, the RTC ordered Land Bank to restore
the total amount of P1,471,416.52 which the bank unilaterally debited from
Oñate’s five trust accounts.41

With regard to Oñate’s counterclaim for the recovery of P220,999,472.36,

as well as the alleged US$3,472,683.94 balance of his dollar deposits in Trust
Account No. 01-014, the RTC ruled that under the IMAs, Land Bank had the
authority to withdraw funds (as in fact it was at all times in possession of the
passbooks) from Oñate’s accounts even without a letter of instruction or
withdrawal slip coming from Oñate. It thus gave weight to the entries in the
passbooks since the same were made in the ordinary course of business. The RTC
also ruled that Oñate is deemed to have approved the entries in the statements of
account that were sent to him as he never interposed any objection thereto within
the period given him to do so.

Anent Land Bank’s claim for the negative balances, the RTC likewise
denied the same for Land Bank never sought them in its Complaint. Moreover,
being the manager of the funds and keeper of the records, the RTC held that Land
Bank should not have allowed further withdrawals if there were no more funds.

The RTC likewise debunked Land Bank’s argument that Oñate’s

counterclaim with respect to Trust Account Nos. 01-014 and 01-017 should be
dismissed for his failure to join his undisclosed principal. According to the RTC,
38
Id. at 1288-1307.
39
See Land Bank’s Memorandum dated August 5, 2005, id. at 1319-1345.
40
Id. at 1358-1387.
41
Broken down as follows: Trust Account No. 01-014, P170,172.91; Trust Account No. 01-017, P622,422.34;
Trust Account No. 01-082, P4,175.88; Trust Account No. 01-089, P148,298.79; and, Trust Account No. 01-
125, P526,346.61, for a total amount of P1,471,416.52.
Decision 10 G.R. No. 192371

Land Bank should have earlier invoked such defense when it filed its answer to
the counterclaim. Also, if it is true that said accounts are not owned by Oñate,
then the bank had no right to apply the funds in said accounts as payment for the
alleged personal indebtedness of Oñate.

The dispositive portion of the RTC’s Decision reads:

WHEREFORE, in view of all the foregoing, decision is hereby rendered

dismissing the complaint and ordering [Land Bank] to pay [Oñate] the total
amount of P1,471,416.52 representing the total amount of funds debited from the
five (5) trust accounts of the defendant with legal rate of interest of 12% per
annum, compounded yearly, effective on 21 June 1991 until fully paid.

No pronouncement as to costs.

SO ORDERED.42

Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July

11, 2006, however, the RTC denied the same.

Both parties appealed to the CA.

Ruling of the Court of Appeals

In its December 18, 2009 Decision,45 the CA denied Land Bank’s appeal
and granted that of Oñate. The CA affirmed the RTC’s ruling that Land Bank
failed to establish the source of the funds it claimed to have been erroneously
credited to Oñate’s account. With respect to Oñate’s appeal, the CA agreed that
he is entitled to the unaccounted withdrawals which, as found by the Board, stood
at P60,663,488.11 and $3,210,222.85.46 The CA’s ruling is anchored on the
42
Records, Vol. IV, p. 1387.
43
Id. at 1388-1399.
44
Id. at 1416-1417.
45
CA rollo, pp. 484-511.
46
Broken down as follows:
PESO ACCOUNTS
Trust Account No. Undocumented Withdrawals
01-014 P45,103,297.33
01-017 2,682,088.58
01-024 900,000.00
01-075 500,000.00
01-082 1,782,741.86
01-089 5,054,089.00
01-125 4,640,551.34
TOTAL P60,663,488.11
DOLLAR ACCOUNT
Trust Account No. Undocumented Withdrawals
01-014 $3,210,222.85
Decision 11 G.R. No. 192371

bank’s failure to observe Sections X401 and X425 of the Bangko Sentral ng
Pilipinas Manual of Regulation for Banks (MORB) requiring it to give full
disclosure of the services it offered and conduct its dealings with transparency, as
well as to render reports that would sufficiently apprise its clients of the significant
developments in the administration of their accounts. Aside from allowing
undocumented withdrawals, the CA likewise noted that Land Bank failed to keep
an accurate record and render an accounting of Oñate’s accounts. For the CA, the
entries in the passbooks are not sufficient because they do not specify where the
funds withdrawn from Oñate’s accounts were invested.

The dispositive portion of the CA’s Decision reads:

WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.

The appeal of defendant-appellant Emmanuel Oñate is hereby partially

GRANTED. Accordingly, the May 31, 2006 Decision of the Regional Trial
Court, Branch 141, Makati City is hereby MODIFIED in that, in addition to the
previous grant of P1,471,416.52 representing the total amount of funds debited
from defendant-appellant Oñate’s trust accounts, plaintiff-appellant Land Bank is
hereby ordered to pay defendant-appellant Oñate the sum of P60,663,488.11 and
$3,210,222.85 representing the undocumented withdrawals it debited from the
latter’s trust account with interest at the rate of 12% per annum, compounded
yearly from June 21, 1991 until fully paid.

SO ORDERED.47

Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated

May 27, 2010, however, the CA denied its motion. Hence, Land Bank filed the
instant Petition for Review on Certiorari based on the following issues:

Issues

1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY

LBP IN OÑATE’S TRUST ACCOUNT (EXPRESS TRUST) COVERED
BY AN INVESTMENT MANAGEMENT AGREEMENT (IMA) WITH
FULL DISCRETION ARE SUFFICIENT TO MEET THE “RULE ON
PRESUMPTION OF REGULARITY OF ENTRIES IN THE COURSE OF
BUSINESS” PROVIDED FOR UNDER SECTION 43, RULE 130 OF
THE RULES OF COURT.

2. WHETHER X X X OÑATE IS ENTITLED TO CLAIM FOR

P1,471,416.52 WHICH IS NOT PLEADED AS COUNTERCLAIM IN
HIS ANSWER PURSUANT TO SECTION 2, RULE 9 OF THE RULES
OF COURT.
47
CA rollo, pp. 510-511.
48
Id. at 518-558.
49
Id. at 594-595.
Decision 12 G.R. No. 192371

3. WHETHER X X X OÑATE IS ENTITLED TO THE AWARD OF

P60,663,488.11 AND $3,210,222.85 REPRESENTING THE ALLEGED
UNDOCUMENTED WITHDRAWALS DEBITED FROM HIS TRUST
ACCOUNTS ON THE GROUND OF LBP’S ALLEGED FAILURE TO
MEET THE STANDARDS SET FORTH UNDER THE 2008 MANUAL
ON REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.

4. WHETHER X X X OÑATE MAY SUE [ON] TRUST ACCOUNT NOS.

01-014 AND 01-017 OPENED FOR AN UNDISCLOSED PRINCIPAL
WITHOUT JOINING HIS UNDISCLOSED PRINCIPAL.

5. WHETHER X X X THE AWARD OF INTEREST TO OÑATE AT THE

RATE OF TWELVE PERCENT (12%) PER ANNUM, COMPOUNDED
YEARLY FROM JUNE 21, 1991 UNTIL FULLY PAID, IS VIOLATIVE
OF ARTICLE 1959 OF THE CIVIL CODE.50

Land Bank’s Arguments

Land Bank disputes the ruling of both lower courts that it failed to prove the
fact of “miscrediting” the amount of P4,086,888.89 to Oñate’s Trust Account No.
01-125 as the deposit slips pertaining thereto were not presented. Land Bank
maintains that in trust accounts the passbooks are always in the bank’s possession
so that it can record the cash inflows and outflows even without the corresponding
deposit or withdrawal slips. Citing Section 43, Rule 130 of the Rules of Court, it
asserts that the entries in the passbooks must be accepted as proof of the regularity
of the transactions reflected in the trust accounts, including the “miscrediting” of
P4,086,888.89, for they were made in the regular course of business. In addition,
said entries are supported by demand letters dated October 8, 198151 and
September 3, 1991,52 as well as a Statement of Account53 as of May 15, 1992.
Land Bank avers that Oñate never questioned the statements of account and the
reports it presented to him and, hence, he is deemed to have approved all of them.

Land Bank also imputes error on the lower courts in ordering the
restoration of the amount of P1,471,416.52 it debited from Oñate’s five trust
accounts because he never sought it in his Answer.

Petitioner bank vigorously argues that Oñate is not entitled to the

undocumented withdrawals amounting to P60,663,488.11 and $3,210,222.85.
According to Land Bank, in holding it liable for the said amounts, the CA
erroneously relied on the 2008 MORB which was not yet in existence at the time
the transactions subject of this case were made or even at the time when Land
Bank filed its Complaint. In any case, Land Bank insists that it made proper
accounting and apprised Oñate of the status of his investments in accordance with
50
Rollo, p. 465.
51
Records, Vol. I, p. 33.
52
Id. at 34-35.
53
Id. at 36.
Decision 13 G.R. No. 192371

the terms of the IMAs. In its demand letter54 dated September 3, 1991 Land Bank
made a full disclosure that the total outstanding balance of all the trust accounts
amounted to P1,471,416.52, but that the same was setoff to recoup the
“miscredited” funds. It faults Oñate for not interposing any objection as his
silence constitutes as his approval after 30 days from receipt thereof. Land Bank
asseverates that Oñate could have also inspected and audited the records of his
accounts at any reasonable time. But he never did.

Land Bank likewise faults the CA in treating the undocumented

withdrawals as unauthorized transactions as the Board’s reports do not state
anything to that effect. It claims that the CA’s reliance on the consolidated report
in awarding the extremely huge amounts of P60,663,488.11 and $3,210,222.85 is
a grievous mistake because the Board itself already manifested that said report
“may not be accurate.” Consequently too, Land Bank asserts that the reports of
the Board cannot prevail over the entries in the passbooks which were made in the
regular course of business.

Land Bank further states that as computed by the Board, the amount of
negative balances in Oñate’s accounts reached P131,747,487.02 and
$818,674.71.55 It thus proposes that if the CA awarded to Oñate the
undocumented withdrawals on the basis of the Board’s reports, then it should have
also awarded to Land Bank said negative balances or over withdrawals as
reflected in the same reports. After all, Oñate admitted in his Answer that all
withdrawals from his trust accounts were done in the ordinary course of business.

Furthermore, Land Bank claims that it argued before the CA that Oñate
cannot sue on Trust Account Nos. 01-014 and 01-017. While Oñate alleged that
said accounts were opened for an undisclosed principal, he did not, however, join
as an indispensable party said principal in violation of Section 3, Rule 3 of the
Rules of Court.56 Unfortunately, the CA sidestepped the issue and proceeded to
grant Oñate the unaccounted withdrawals from said accounts in the aggregate
amounts of P47,785,385.91 and $3,210,222.85. Following Quilatan v. Heirs of
Lorenzo Quilatan,57 Land Bank insists that this case should be remanded to the
trial court even if the issue of failure to implead an indispensable party was raised
for the first time in a Motion for Reconsideration of the trial court’s Decision.

54
Id. at 34-35.
55
See Memorandum dated October 4, 2011, rollo, pp. 443-528, 508.
56
SEC. 3. Representatives as parties. ‒ Where the action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the
case and shall be deemed to be the real party in interest. A representative may be a trustee of an express
trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An agent acting
in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal.
57
G.R. No. 183059, August 28, 2009, 597 SCRA 519.
Decision 14 G.R. No. 192371

Finally, Land Bank questions the ruling of the CA imposing 12% per
annum rate of interest. It contends that trust accounts are in the nature of “Express
Trust” and not in the nature of a regular deposit account where a debtor-creditor
relationship exists between the bank and its depositor. It was not indebted to
Oñate but merely held and managed his funds. There being no loan or
forbearance of money involved, in the absence of stipulation, the applicable rate of
interest is only 6% per annum. Land Bank claims that the CA further erred when
it compounded the 12% interest even in the absence of any such stipulation.

Oñate’s Arguments

In opposing the Petition, Oñate argues that the issues raised by Land Bank
involve factual matters not proper in a petition for review on certiorari. He posits
that the Petition does not fall under any of the exceptions where this Court could
review factual issues.

As to Land Bank’s allegation that he cannot claim the funds without

divulging and impleading as an indispensable party his undisclosed principal,
Oñate points out that in his Answer (With Compulsory Counterclaim) he alleged
that Trust Account Nos. 01-014 and 01-017 were opened for an “undisclosed
principal.” Yet Land Bank did not controvert his allegation. It is, therefore, too
late in the day for Land Bank to invoke non-joinder of principal as an
indispensable party. Besides, when he executed the IMAs, he was acting for
himself and on behalf of an undisclosed principal. Hence, he could claim and
recover the amounts owing not only to himself but also to his undisclosed
principal.

Oñate likewise asserts that Land Bank, as uniformly found by both lower
courts, failed to prove by preponderance of evidence the fact of “miscrediting.”
As to the demand letters adverted to by Land Bank, Oñate asserts that the lower
courts did not consider the same because they were not formally offered. Land
Bank also failed to present competent and sufficient evidence that he admitted his
indebtedness on account of the “miscrediting” of funds. Since Land Bank failed
to prove the fact of “miscrediting” it had no right to debit any amount from his
accounts and must restore whatever funds it had debited therefrom. Oñate also
denies having failed to seek the return of the funds debited from his account.

Oñate further claims that in 1982 his peso trust accounts had a total balance
of P35,555,464.78 while the dollar trust accounts had a balance of
US$1,690,943.78. Since then, however, he never received any report or update
regarding his accounts until the bank sent him financial reports dated June 30,
1991 indicating that the balances of his trust accounts had been unilaterally setoff.
According to Oñate, Land Bank’s failure to keep an accurate record of his
accounts and to make proper accounting violate several circulars of the Central
Decision 15 G.R. No. 192371

Bank.58 Hence, it is only proper to require the bank to return the undocumented
withdrawals which, as found by the Board, amount to P60,663,488.11 and
$3,210,222.82. In addition, Oñate points out Land Bank’s failure to keep an
accurate record of his accounts as shown by the huge amounts of unsupported
withdrawals and drawings which constitutes willful default if not gross
misconduct in violation of the IMAs which, in turn, makes the bank liable for its
actions.

Anent Land Bank’s invocation that the entries in the passbook made in the
ordinary course of business are presumed correct and regular, Oñate argues that
such presumption does not relieve the trustee, Land Bank in this case, from
presenting evidence that the undocumented withdrawals and drawings were
authorized. In any case, the presumption invoked by Land Bank does not lie as
one of its elements – that the entrant must be deceased or unable to testify – is
lacking. Land Bank cannot also excuse itself for failing to regularly submit to him
accounting reports as, anyway, he was free to inspect the records at any reasonable
day. Oñate emphasizes that it is the duty of the bank to keep him updated with
significant developments in his accounts.

In refutation of Land Bank’s claim to negative balances and over

withdrawals, Oñate posits that the bank cannot benefit from its own negligence in
mismanaging the trust accounts.

Lastly, Oñate defends the CA’s grant of 12% per annum rate of interest as
under BSP Circular No. 416, said rate shall be applied in cases where money is
transferred from one person to another and the obligation to return the same or a
portion thereof is adjudged. In any event, Land Bank is estopped from disputing
said rate for Land Bank itself applied the same 12% per annum rate of interest
when it sought to recover the amount allegedly “miscredited” to his account. As
to the compounding of interest, Oñate claims that the parties intended that interest
income shall be capitalized and shall form part of the principal.

Our Ruling

We deny the Petition.

The issues raised are factual and do not

involve questions of law.

From the very start the issues involved in this case are factual – the very
reason why the RTC created a Board of Commissioners to assist it in examining
the records pertaining to Oñate’s accounts and determine the respective cash
58
CBP Circular No. 824-81 dated September 17, 1981; Subsection 2415.1 of the 1982 Manual of Regulations
for Banks (MORB); and CBP Memorandum dated October 16, 1990 and the 1993 MORB.
Decision 16 G.R. No. 192371

inflows and outflows in said accounts. Thereafter, the parties agreed to submit the
case based on the Board’s reports. And when the controversy reached the CA, the
appellate court basically conducted an “assiduous assessment of the evidentiary
records.”59 No question of law was ever raised for determination of the lower
courts. Now, Land Bank practically beseeches us to assess the probative weight of
the documentary evidence on record to resolve the same basic issues of (i) whether
Land Bank “miscredited” P4,086,888.89 to Trust Account No. 01-125 and (ii)
“whether x x x the undocumented withdrawals and drawings are considered valid
and regular and, conversely, if in the negative, whether x x x such amounts shall
be credited to the accounts.”60

These issues could be resolved by consulting the evidence extant on

records, such as the IMAs, the passbooks, the letters of instructions, withdrawal
and deposit slips, statements of account, and the Board’s reports. Land Bank’s
heavy reliance on Section 43, Rule 130 of the Rules of Court61 also attests to the
factual nature of the issues involved in this case. “Well-settled is the rule that in
petitions for review on certiorari under Rule 45, only questions of law can be
raised.”62 In Velayo-Fong v. Spouses Velayo,63 we defined a question of law as
distinguished from a question of fact:

A question of law arises when there is doubt as to what the law is on a

certain state of facts, while there is a question of fact when the doubt arises as to
the truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed is one of
fact. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise, it is a
question of fact. (Italics supplied)

While there are recognized exceptions64 to this rule, none exists in this case.
59
CA rollo, p. 504.
60
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
61
See paragraph 7 of the Petition, rollo, p. 39.
62
Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc., G.R. No. 167545, August 17, 2011, 655
SCRA 625, 633.
63
539 Phil. 377, 386-387 (2006).
64
Section 4, Rule 3, The Internal Rules of the Supreme Court enumerates the following exceptions: (a) the
conclusion is a finding grounded entirely on speculation, surmise and conjecture; (b) the inference made is
manifestly mistaken; (c) there is grave abuse of discretion; (d) the judgment is based on a misapprehension
of facts; (e) the findings of fact are conflicting; (f) the collegial appellate courts went beyond the issues of
the case, and their findings are contrary to the admissions of both appellant and appellee; (g) the findings of
fact of the collegial appellate courts are contrary to those of the trial court; (h) said findings of fact are
conclusions without citation of specific evidence on which they are based; (i) the facts set forth in the
petition as well as in the petitioner’s main and reply briefs are not disputed by the respondents; (j) the
findings of fact of the collegial appellate courts are premised on the supposed evidence, but are contradicted
by the evidence on record; and, (k) all other similar and exceptional cases warranting a review of the lower
courts’ findings of fact.
Decision 17 G.R. No. 192371

Anent Land Bank’s contention that the determination of whether the CA

erred in retroactively applying the 2008 MORB poses a legal question, the same
deserves scant consideration. True, the CA included in its ratio decidendi a
discussion on the 2008 MORB to give emphasis to the duties of banks to keep an
accurate record and regularly apprise their clients of the status of their accounts.
But the issue of whether Land Bank failed to comply with those duties can be
resolved even without the MORB as the same duties are also imposed on Land
Bank by the IMAs, the contract that primarily governs the parties in this case. “As
a general rule, a contract is the law between the parties. Thus, ‘from the moment
the contract is perfected, the parties are bound not only to the fulfilment of what
has been expressly stipulated but also to all consequences which, according to
their nature, may be in keeping with good faith, usage and law.’ Also, ‘the
stipulations of the contract being the law between the parties, courts have no
alternative but to enforce them as they were agreed [upon] and written’ x x x.”65

Based on the factual milieu of this case even without touching on the
MORB, we found that Land Bank still failed to perform its bounden duties to keep
accurate records and render regular accounting. We also found no cogent reason
to disturb the other factual findings of the CA.

Land Bank failed to prove that the

“miscredited” funds came from the
proceeds of the pre-terminated loans of
its corporate borrowers.

Land Bank argues that the entries in the passbooks were made in the
regular course of business and should be accepted as prima facie evidence of the
facts stated therein. But before entries made in the course of business may qualify
under the exception to the hearsay rule and given weight, the party offering them
must establish that: (1) the person who made those entries is dead, outside the
country, or unable to testify; (2) the entries were made at, or near the time of the
transaction to which they refer; (3) the entrant was in a position to know the facts
stated therein; (4) the entries were made in the professional capacity or in the
course of duty of the entrant; and, (5) the entries were made in the ordinary or
regular course of business or duty.66

Here, Land Bank has neither identified the persons who made the entries in
the passbooks nor established that they are already dead or unable to testify as
required by Section 43,67 Rule 130 of the Rules of Court. Also, and as correctly
65
Valarao v. Court of Appeals, 363 Phil. 495, 506 (1999). Citations omitted.
66
Canque v. Court of Appeals, 365 Phil. 124, 131 (1999).
67
SEC. 43. Entries in the course of business. – Entries made at, or near the time of the transactions to which
they refer, by a person deceased, or unable to testify, who was in a position to know the facts therein stated,
may be received as prima facie evidence, if such person made the entries in his professional capacity or in
the performance of duty and in the ordinary or regular course of business or duty.
Decision 18 G.R. No. 192371

opined by the CA, “[w]hile the deposit entries in the bank’s passbook enjoy a
certain degree of presumption of regularity x x x,” the same do “not indicate or
explain the source of the funds being deposited or withdrawn from an individual
account.”68 They are mere prima facie proof of what are stated therein – the dates
of the transactions, the amounts deposited or withdrawn, and the outstanding
balances. They do not establish that the total amount of P4,086,888.89 deposited
in Oñate’s Trust Account No. 01-125 in November 1980 came from the proceeds
of the pre-terminated loans of Land Bank’s corporate borrowers. It would be too
presumptuous to immediately conclude that said amount came from the checks
paid to Land Bank by its corporate borrowers just because the maturity dates of
the loans coincided with the dates said total amount was deposited. There must be
proof showing an unbroken link between the proceeds of the pre-terminated loans
and the amount allegedly “miscredited” to Oñate’s Trust Account No. 01-125. As
a bank and custodian of records, Land Bank could have easily produced
documents showing that its borrowers pre-terminated their loans, the checks they
issued as payment for such loans, and the deposit slips used in depositing those
checks. But it did not.

Land Bank did not also bother to explain how Oñate or his representative,
Eduardo Polonio (Polonio), obtained possession of the checks when, according to
it, the corporate borrowers issued the checks in its name as payment for their
loans.69 Under paragraph 8 of its Complaint, Land Bank alleged that its corporate
borrowers “paid their respective obligations in the form of checks payable to
LANDBANK x x x”.70 If it is true, then why were the checks credited to Oñate’s
account? Unless subsequently endorsed to Oñate, said checks can only be
deposited in the account of the payee appearing therein. We cannot thus lend
credence to Land Bank’s excuse that the proximate cause of the alleged
“miscrediting” was the fraudulent representation of Polonio, for assuming that the
latter indeed employed fraudulent machinations, with the degree of prudence
expected of banks, Land Bank and its tellers could have easily detected that Oñate
was not the intended payee. In Traders Royal Bank v. Radio Philippines Network,
Inc.,71 we held that petitioner bank was remiss in its duty and obligation for
accepting and paying a check to a person other than the payee appearing on the
face of the check sans valid endorsement. Consequently, it was made liable for its
own negligence and in disregarding established banking rules and procedures.

We are also groping in the dark as to the number of checks allegedly

deposited by Polonio to Oñate’s Trust Account No. 01-125. According to Land
Bank, the entire amount of P4,086,888.89 represents the proceeds of the pre-
terminated loans of four of its clients, namely, RETELCO, PBM, CBY and
68
CA rollo, p. 504.
69
See Land Bank’s Memorandum dated October 13, 2011, rollo, pp. 443-528, 462.
70
Records, Vol. I, p. 4.
71
439 Phil. 475 (2002).
Decision 19 G.R. No. 192371

PHILTOFIL. But it could only point to two entries made on two separate dates in
the passbook as reproduced below:

Date WITHDRAWAL DEPOSIT BALANCE

xxx xxx P250,704.60
24NOV80 159,000.00 409,704.60
24NOV80 3,063,750.00CK 3,473,454.60
24NOV80 42,000.00 3,431,454.60
25NOV80 275,923.75 CK 3,707,378.35
25NOV 80 1,235,962.00 2,471,416.35
26NOV80 193,800.00 CK 2,665,216.35
26NOV80 250,000.00 CK 2,915,216.35
2,915,216.35
26NOV80 2,915,216.35
321,188.38 CK 3,236,404.73
26NOV80 1,373,167.00 1,863,237.73
27NOV80 1,021,250.00 CK 2,884,487.73
28NOV80 70,833.33 CK 2,955,321.06
27NOV80 919,300.00 2,036,021.06
28NOV80 1,023,138.89 CK 3,059,159.9572

Were there only two checks issued as payment for the separate loans of
these four different entities? These hanging questions only confirm the
correctness of the lower courts’ uniform conclusion that Land Bank failed to prove
that the amount allegedly “miscredited” to Oñate’s account came from the
proceeds of the pre-terminated loans of its clients. It is worth emphasizing that in
civil cases, the party making the allegations has the burden of proving them by
preponderance of evidence. Mere allegation is not sufficient.73

As a consequence of its failure to prove

the source of the claimed “miscredited”
funds, Land Bank had no right to debit
the total amount of P1,471,416.52 and
must, therefore, restore the same.

In view of the above, Land Bank’s argument that the lower courts erred in
ordering the return of the amount of P1,471,416.52 it debited from Oñate’s five
trust accounts since he did not seek such relief in his Answer as a counterclaim,
falls flat on its face. The order to restore the debited amount is consistent with the
lower courts’ ruling that Land Bank failed to prove that the amount of
P4,086,888.89 was “miscredited” to Oñate’s account and, hence, it had no right to
seek reimbursement or debit any amount from his accounts in payment therefor.
72
Passbook Under Account No. 101 5759-3 with Name of Depositor LBP ITF 01-125 marked as Exhibits “G-
18” to “G-19”.
73
Hyatt Elevators and Escalators Corporation v. Cathedral Heights Building Complex Association, Inc., G.R.
No. 173881, December 1, 2010, 636 SCRA 401, 412.
Decision 20 G.R. No. 192371

Without such right, Land Bank should return the amount of P1,471,416.52 it
debited from Oñate’s accounts in its attempt to recoup what it allegedly lost due to
“miscrediting.” Moreover, contrary to Land Bank’s assertion, Oñate contested the
bank’s application of the balance of his trust accounts in payment for the allegedly
“miscredited” amount in his Answer (With Compulsory Counterclaim) for being
“without any factual and legal [bases].”74

Land Bank was remiss in performing

its duties under the IMAs and as a
banking institution.

The contractual relation between Land Bank and Oñate in this case is
primarily governed by the IMAs. Paragraph 4 thereof expressly imposed on Land
Bank the duty to maintain accurate records of all his investments, receipts,
disbursements and other transactions relating to his accounts. It also obliged Land
Bank to provide Oñate with quarterly balance sheets, statements of income and
expenses, summary of investments, etc. Thus:

4. You shall maintain accurate records of all investments, receipts,

disbursements and other transactions of the Account. Records relating thereto
shall be open at all reasonable times to inspection and audit by me either
personally or through duly authorized representatives. Statements consisting of
a balance sheet, portfolio analysis, statement of income and expenses, and
summary of investment changes are to be sent to me/us quarterly.

I/We shall approve such accounting by delivering in writing to you a

statement to that effect or by failure to express objections to such accounting in
writing delivered to you within thirty (30) days from my receipt of the
accounting.

Upon your receipt of a written approval of the accounting, or upon the

passage of said period of time within which objections may be filed, without
written objections having been delivered to you, such accounting shall be
deemed to be approved, and you shall be released and discharged as to all items,
matters and things set forth in such accounting as if such accounting had been
settled and allowed by a decree of a court of competent jurisdiction, in an action
or proceeding in which you and I were parties.75 (Emphasis supplied)

These are the obligations of Land Bank which it should have faithfully
complied with in good faith.76 Unfortunately, Land Bank failed in its contractual
duties to maintain accurate records of all investments and to regularly furnish
74
Records, Vol. I, p. 143.
75
Id. at 9-23.
76
Article 1159 of the CIVIL CODE OF THE PHILIPPINES provides:
Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
Decision 21 G.R. No. 192371

Oñate with financial statements relating to his accounts. Had Land Bank kept an
accurate record there would have been no need for the creation of a Board of
Commissioners or at least the latter’s work would have been a lot easier and more
accurate. But because of Land Bank’s inefficient record keeping, the Board
performed the tedious task of trying to reconcile messy and incomplete records.
The lackadaisical attitude of Land Bank in keeping an updated record of Oñate’s
accounts is aggravated by its reluctance to accord the Board full and unrestricted
access to the records when it was conducting a review of the accounts upon the
orders of the trial court. Thus, in its Manifestation77 dated August 16, 2004, the
Board informed the trial court that its report pertaining to outstanding balances
may not be accurate because “the documents were then in the custody of Land
Bank and the documents to be reviewed by the Board at a designated hearing
depended on what was released by the then handling lawyer of Land Bank.” They
were “not given the opportunity to collate/sort-out the documents related to each
trust account”78 and “the folders being reviewed contained documents related to
different trust accounts.”79 As a result, “[t]here may have been double take up of
accounts since the documents previously reviewed may have been repeatedly
considered in the reports.”80

For its failure to faithfully comply with

its obligations under the IMAs and for
having agreed to submit the case on the
basis of the reports of the Board of
Commissioners, the latter’s findings are
binding on Land Bank.

Because of Land Bank’s failure to keep an updated and accurate record of

Oñate’s account, it would have been difficult, if not impossible, to determine with
some degree of accuracy the outstanding balances in Oñate’s accounts. Indeed,
the creation of a Board of Commissioners was a significant development in this
case as it facilitated the examination of the records and helped in the determination
of the balances in each of Oñate’s accounts. In a span of four years, the Board
held 60 meetings and scoured the voluminous and scattered records of subject
accounts. In the course thereof, it found several undocumented withdrawals and
over withdrawals. Thereafter, the Board submitted its consolidated report, to
which Land Bank did not file its comment despite having been given the
opportunity to do so. It did not question the result of the examinations conducted
by the Board, particularly the Board’s computation of the outstanding balance in
each account, the existence of undocumented and over withdrawals, and how
often the bank sent Oñate statements of account. In fact, during the pre-trial
77
See Manifestation dated August 16, 2004, Records, Vol. IV, pp. 1229-1230.
78
Id.
79
Id.
80
Id.
Decision 22 G.R. No. 192371

conference, Land Bank agreed to submit the case based on the reports of the
Board.

Consequently, we found no cogent reason to deviate from the same course

taken by the CA – give weight to the consolidated report of the Board and treat it
as competent and sufficient evidence of what are stated therein. After all, the
dearth of evidentiary documents that could have shed light on the alleged
unintended crediting and unexplained withdrawals was brought about by Land
Bank’s failure to maintain accurate records as required by the IMAs. In Simex
International (Manila), Inc. v. Court of Appeals,81 we elucidated on the nature of
banking business and the responsibility of banks:

The banking system is an indispensable institution in the modern world

and plays a vital role in the economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-earner
has not hesitated to entrust his life’s savings to the bank of his choice, knowing
that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account
for security and convenience in the settling of his monthly bills and the payment
of ordinary expenses. As for business entities like the petitioner, the bank is a
trusted and active associate that can help in the running of their affairs, not only
in the form of loans when needed but more often in the conduct of their day-to-
day transactions like the issuance or encashment of checks.

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. The bank must record every single transaction accurately, down to
the last centavo and as promptly as possible. This has to be done if the account
is to reflect at any given time the amount of money the depositor can dispose of
as he sees fit, confident that the bank will deliver it as and to whomever he
directs. x x x

The point is that as a business affected with public interest and because
of the nature of its functions, the bank is under obligations to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. x x x (Emphasis supplied)

As to the conceded inaccuracies in the reports, we cannot allow Land Bank

to benefit therefrom. Time and again, we have cautioned banks to spare no effort
in ensuring the integrity of the records of its clients.82 And in Philippine National
Bank v. Court of Appeals,83 we held that “as between parties where negligence is
imputable to one and not to the other, the former must perforce bear the
81
262 Phil. 387, 395-396 (1990).
82
Dycoco, Jr. v. Equitable PCI Bank, G.R. No. 188271, August 16, 2010, 628 SCRA 346, 353.
83
G.R. No. 97995, January 21, 1993, 217 SCRA 347, 358.
Decision 23 G.R. No. 192371

consequences of its neglect.” In this case, the Board could have submitted a more
accurate report had Land Bank faithfully complied with its duty of maintaining a
complete and accurate record of Oñate’s accounts. But the Board could not find
and present the corresponding slips for the withdrawals reflected in the passbooks.
In addition, and as earlier mentioned, Land Bank was less than cooperative when
the Board was examining the records of Oñate’s accounts. It did not give the
Board enough leeway to go over the records systematically or in orderly fashion.
Hence, we cannot allow Land Bank to benefit from possible inaccuracies in the
reports.

Neither does Oñate’s failure to exercise his rights to inspect the records and
audit his accounts excuse the bank from sending the required notices, for under the
IMAs it behooved upon Land Bank to keep him fully informed of the status of his
investments by sending him regular reports and statements. Oñate’s failure to
inspect the record of his accounts should neither be construed as his waiver to be
furnished with updates on his accounts nor authority for the bank to make
undocumented withdrawals. As aptly opined by the CA:

x x x The least that Land Bank could have done was to keep a detailed quarterly
report on [its] file. In this case, Land Bank did away with this procedure that
made [its] records a complete mess of voluminous and meaningless records of
numerous folders containing more than 7,600 leaves/pages and some 90
passbooks, with 1,355 leaves/pages of entries, corresponding to the seven (7)
Trust Accounts.

The passbook entries alone are insufficient compliance with Land

Bank’s duty to keep “accurate records of all investments, receipts, disbursements
and other transactions of the Account.” These passbooks do not inform what
investments were made on the funds withdrawn. Moreover, these passbook
entries do not show if the amounts purported to have been invested were indeed
received by the concerned entity, facility, or borrower. From these entries alone,
Oñate would have no way of knowing where his money went.84

But Land Bank next postulates that if Oñate is entitled to the undocumented
withdrawals on the basis of the reports of the Board, then it should also be entitled
to the negative balances or over withdrawals as reflected in the same reports.

We cannot agree for a number of reasons. First, as earlier discussed, Land

Bank is guilty of negligence while Oñate (at least insofar as over withdrawals are
concerned) is not. Had Land Bank maintained an accurate record, it would have
readily detected and prevented over withdrawals. But without any qualms, Land
Bank asks for the negative balances, unmindful that such claim is actually
detrimental to its cause because it amounts to an admission that it allowed over
withdrawals. As aptly observed by the CA:

84
CA rollo, p. 509.
Decision 24 G.R. No. 192371

Corollarily, the Court cannot allow Land Bank to recover the negative
balances from Oñate’s trust accounts. Examining the Commissioners’ Report,
the Court notes that the funds of Oñate’s trust accounts became seriously
depleted due to the unaccounted withdrawals that Land Bank charged against his
accounts. At any rate, those negative balances on Oñate’s accounts show Land
Bank’s inefficient performance in managing his trust accounts. Reasonable bank
practice and prudence [dictate] that Land Bank should not have authorized the
withdrawal of various sums from Oñate’s accounts if it would result to
overwithdrawals. x x x85

Second, Land Bank never prayed for the recovery of the negative balances
in its Complaint.

It is settled that courts cannot grant a relief not prayed for in the pleadings
or in excess of what is being sought by the party. x x x Due process
considerations require that judgments must conform to and be supported by the
pleadings and evidence presented in court. In Development Bank of the
Philippines v. Teston,86 this Court expounded that:

Due process considerations justify this requirement. It is

improper to enter an order which exceeds the scope of relief
sought by the pleadings, absent notice which affords the
opposing party an opportunity to be heard with respect to the
proposed relief. The fundamental purpose of the requirement that
allegations of a complaint must provide the measure of recovery
is to prevent surprise to the defendant.87

Last, during the pre-trial conference, the issue of the validity of

undocumented withdrawals was properly put into issue. The parties also agreed,
as a collateral issue, that should it appear that the bank was not authorized to make
the undocumented withdrawals, the next issue for consideration would be whether
the amount subject thereof should be credited back to Oñate’s accounts.88 The case
of negative balances as alluded to by Land Bank, however, is different. It was
never put into issue during the pre-trial conference. In Caltex (Philippines), Inc. v.
Court of Appeals,89 we held that “to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact which they
intend to raise at the trial, except such as may involve privileged or impeaching
matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal.” Land Bank interposed its claim to the
negative balances for the first time only when it filed its Memorandum with the
RTC.

85
Id. at 505.
86
G.R. No. 174966, February 14, 2008, 545 SCRA 422, 429.
87
Diona v. Balangue, G.R. No. 173559, January 7, 2013, 688 SCRA 22, 35-36.
88
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
89
G.R. No. 97753, August 10, 1992, 212 SCRA 448, 462.
Decision 25 G.R. No. 192371

Land Bank knew from the start and

admitted during trial that Trust
Account Nos. 01-014 and 01-017 do not
belong to Oñate; hence, it should not
have debited any amount therefrom to
compensate for the alleged personal
indebtedness of Oñate.

Land Bank claims that Oñate cannot sue on Trust Account Nos. 01-014 and
01-017 without joining as an indispensable party his undisclosed principal.

But if anyone in this case is guilty of failing to join an indispensable party,

it is Land Bank that first committed a violation. The IMAs covering Trust
Account Nos. 01-014 and 01-017 attached as Annexes “A”90 and “B,”91
respectively, of Land Bank’s Complaint clearly state that Oñate signed the same
“FOR: UNDISCLOSED PRINCIPAL.” As party to the said IMAs, Land Bank
knew and ought not to forget that Oñate is merely an agent and not the owner of
the funds in said accounts. Yet Land Bank garnished the total amount of
P792,595.25 from Trust Account Nos. 01-014 and 01-017 to answer for the
alleged personal indebtedness of Oñate. Worse, when Land Bank filed its
Complaint for Sum of Money, it did not implead said undisclosed principal or
inform the trial court thereof. Now that Oñate is seeking the restoration of the
amounts debited and withdrawn without withdrawal slips from said accounts,
Land Bank is invoking the defense of failure to implead an indispensable party.
We cannot allow Land Bank to do this. As aptly observed by the trial court:

Under the circumstances obtaining, it is highly unfair, unjust and

iniquitous, to dismiss the suit with respect to the two Trust Accounts after [Land
Bank] had garnished the balances of said accounts to pay the alleged
indebtedness of [Oñate] allegedly incurred by the erroneous crediting of P4
million to x x x Trust Account No. 01-125 which does not appear to be owned by
an undisclosed principal. Trust Account No. 01-125 is [Oñate’s] personal trust
account with plaintiff. Stated differently, [Land Bank] having now recognized
and admitted that Trust Account Nos. 01-014 and 01-017 were not owned by
[Oñate], it has perforce no right, nay unlawful for it, to apply the funds in said
accounts to pay the alleged indebtedness of [Oñate’s] personal account. Equity
and justice so demand that the funds be restored to Trust Account Nos. 01-014
and 01-017.92

Oñate protested the contents of the

statements of account at the earliest
opportunity.

90
Records, Vol. I, pp. 9-11.
91
Id. at 12-14.
92
Id., Vol. IV, p. 1387.
Decision 26 G.R. No. 192371

As to Land Bank’s insistence that Oñate is deemed to have accepted the

contents of the statements of account for his failure to manifest his objection
thereto within 30 days from receipt thereof, it should be recalled that from the time
the alleged “miscrediting” occurred in November 1980, the first communication
coming from Land Bank was its letter dated October 8, 1981.93 This, however,
was the subject of a failed negotiation between the parties. Besides, said letter can
hardly be considered as an statement that would apprise Oñate of the status of his
investments. It is not “a balance sheet, portfolio analysis, statement of income and
expenses or a summary of investment changes” as contemplated in paragraph 4 of
the IMAs. It is a demand letter seeking the return of the alleged “miscredited”
amount. The same goes true with Land Bank’s letter dated September 3, 1991.
As can be readily seen from its opening paragraph, said letter is in response to
Oñate’s “demand” for information regarding the offsetting,94 which Oñate
protested and is now one of the issues involved in this case. In fine, it cannot be
said that Oñate approved and adopted the outstanding balances in his accounts for
his failure to object to the contents of those letters within the 30-day period allotted
to him under the IMAs.

From what is available on the voluminous records of this case and as borne
out by the Board’s consolidated report dated August 16, 2004, the statements
which Land Bank sent to Oñate are only the following:

Based on the Annexes95 attached to Oñate’s Answer (With Compulsory

Counterclaim)

Balance Sheet Total Liabilities and

ITF No.
As of Trustor’s Equity
01-014 June 30, 1982 P 1,909,349.80
01-017 June 30, 1982 6,003,616.35
01-089 June 30, 1982 551,267.24
01-082 June 30, 1982 1,915.28
01-075 June 30, 1982 12,113,262.95
01-125 June 30, 1982 13,595,271.16
01-024 June 30, 1982 1,131,854.20

Based on the Consolidated Report

Last Date
ITF No. Report Details Balances
of Report
01-024 Schedule of Money Market Placement 03.31.82 P 453,140.69
01-075 Statement of Income and Expenses 03.31.90 0.00
Balance Sheet 03.31.90 1,207,501.69
01-014 Schedule of Money Market Placement 06.30.91 14,767.20
Statement of Income and Expenses 06.30.91 3,267.19
Balance Sheet 06.30.91 20,673.58
93
Id., Vol. 1, p. 33.
94
Id. at 34.
95
Id. at 153-159.
Decision 27 G.R. No. 192371

01-017 Schedule of Investment 06.30.91 38,502.06

Statement of Income and Expenses 06.30.91 10,437.22
Balance Sheet 06.30.91 39,659.56
01-082 Statement of Income and Expense 06.30.91 59.75
Balance Sheet 06.30.91 70.28
01-125 Schedule of Investment 06.30.91 44,055.72
Statement of Income and Expenses 06.30.91 10,079.16
Balance Sheet 06.30.91 60,920.42

The patent wide gap between the time Land Bank furnished Oñate with
Balance Sheets as of June 30, 1982 and the date it sent him an Statement of
Income and Expenses, as well as a Balance Sheet, on March 31, 1990 is a clear
and gross violation of the IMAs requiring it to furnish him with balance sheet,
portfolio analysis, statement of income and expenses and the like, quarterly. As to
the reports dated June 30, 1991 and letters subsequent thereto, it should be noted
that during those times Oñate had already interposed his objections to the
outstanding balances of his accounts.96

The proper rate of legal

interest.

Land Bank’s argument that the lower courts erred in imposing 12% per
annum rate of interest is likewise devoid of merit. The unilateral offsetting of
funds without legal justification and the undocumented withdrawals are
tantamount to forbearance of money. In the analogous case of Estores v.
Supangan,97 we held that “[the] unwarranted withholding of the money which
rightfully pertains to [another] amounts to forbearance of money which can be
considered as an involuntary loan.” Following Eastern Shipping Lines, Inc. v.
Court of Appeals,98 therefore, the applicable rate of interest in this case is 12% per
annum. Besides, Land Bank is estopped from assailing the award of 12% per
annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as
the outstanding indebtedness of Oñate by using the same 12% per annum rate of
interest. It was only after the lower courts rendered unfavorable decisions that
Land Bank started to insist that the applicable rate of interest is 6% per annum.

Of equal importance is the determination of when the said 12% per annum
rate of interest should commence. Recall that both the RTC and the CA reckoned
the running of the 12% per annum rate of interest from June 21, 1991, or the day
Land Bank unilaterally applied the outstanding balance in all of Oñate’s trust
accounts, until fully paid. The compounding of interest, on the other hand, was
based on the provision of the IMAs granting Land Bank “to hold, invest and
96
See Land Bank’s letter to Oñate’s counsel dated June 4, 1991, id. at 60 as well as the latter’s letter to
the former dated June 20, 1991, id. at 61-62.
97
G.R. No. 175139, April 18, 2012, 670 SCRA 95, 106.
98
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
Decision 28 G.R. No. 192371

reinvest the Fund and keep the same invested, in your sole discretion, without
distinction between principal and income.”

While we find sufficient basis for the compounding of interest, we find it

necessary however to modify the commencement date. In Eastern Shipping,99 it
was observed that the commencement of when the legal interest should start to run
varies depending on the factual circumstances obtaining in each case.100 As a rule
of thumb, it was suggested that “where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially
or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made101 (at which time the
quantification of damages may be deemed to have been reasonably
ascertained).”102

In the case at bench, while Oñate protested the setting off, no proof was
presented that he formally demanded for the return of the amount so debited prior
to the filing of the Complaint. Quite understandably so because at that time he
could not determine with some degree of certainty the outstanding balances of his
accounts as Land Bank neglected on its duty to keep him updated on the status of
his accounts. Land Bank even undertook to furnish him with “the exact
computation”103 of what remains in his accounts after the set off. But this never
happened until Land Bank initiated the Complaint on September 7, 1992. Oñate,
on the other hand, filed his Answer (With Compulsory Counterclaim) on May 26,
1993. In other words, we cannot reckon the running of the interest prior to the
filing of the Complaint or Oñate’s Counterclaim as no demand prior thereto was
made. Neither could the interest commence to run at the time of filing of any of
aforesaid pleadings (as to constitute judicial demand) since the undocumented
withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well as the
amount actually debited from all of Oñate’s accounts, were determined only after
the Board submitted its consolidated report on August 16, 2004 or more than 10
years after Land Bank and Oñate filed their Complaint and Answer, respectively.
Note too that while Oñate sought to recover the amount of undocumented
withdrawals before the RTC,104 the same was denied in the latter’s May 31, 2006
Decision. The RTC granted Oñate only the total amount of funds debited from his
trust accounts. It was only when the CA rendered its December 18, 2009 Decision
that Oñate was awarded the undocumented withdrawals. Hence, we find it just
and proper to reckon the running of the interest of 12% per annum, compounded
yearly, for the debited amount and undocumented withdrawals on different dates.
The debited amount of P1,471,416.52, shall earn interest beginning May 31,
2006 or the day the RTC rendered its Decision granting said amount to Oñate. As
99
Id.
100
Id. at 94-95.
101
Emphasis supplied.
102
Id. at 96.
103
See Letter dated June 4, 1991, Records, Vol. I, p. 60; Letter dated June 20, 1991, id.
104
See Comment (Re: Board of Commissioners’ Compliance dated 16 August 2004), id. at 1241-1245.
Decision 29 G.R. No. 192371

to the undocumented withdrawals of P60,663,488.11 and US$3,210,222.85, the

legal rate of interest should start to run the day the CA promulgated its Decision
on December 18, 2009.

During the pendency of this case, however, the Monetary Board issued
Resolution No. 796 dated May 16, 2013, stating that in the absence of express
stipulation between the parties, the rate of interest in loan or forbearance of any
money, goods or credits and the rate allowed in judgments shall be 6% per annum.
Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No. 799,
Series of2013, which took effect on July 1, 2013. Hence, the 12% annual interest
mentioned above shall apply only up to June 30, 2013. Thereafter, or starting July
1, 2013, the applicable rate of interest for both the debited amount and
undocumented withdrawals shall be 6% per annum, compounded annually, until
fully paid.

WHEREFORE, the Petition is hereby DENIED and the December 18,

2009 Decision of the Court of Appeals in CA-G.R. CV No. 89346 is
AFFIRMED with modification in that the interest of 12% per annum,
compounded annually, for the debited amount of Pl,471,416.52 shall commence
to run on May 31, 2006, while the same rate of interest shall apply to the
undocumented withdrawals in the amounts of P60,663,488.11 and
US$3,210,222.85 starting December 18, 2009. Beginning July 1, 2013, however,
the applicable rate of interest on all amounts awarded shall earn interest at the rate
of 6% per annum, compounded yearly, until fully paid.

SO ORDERED.

~µc~
MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

aruw~
ARTURO D. BRION PEREZ
Associate Justice
 r

Decision 30 G.R. No. 192371

l.L,N/
ESTELA _JJPERLAS-BERNABE
~v:J~ciate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

ChiefJustice