VOL.

419, JANUARY 15, 2004

487

Philippine Banking Corporation vs. Court of Appeals

G.R. No. 127469. January 15, 2004.*

PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and LEONILO MARCOS,
respondents.

Remedial Law; Civil Procedure; It is within the trial court’s discretion to reopen the evidence submitted
by the plaintiff and allow the defendant to challenge the same by cross-examining the plaintiff’s
witnesses or introducing countervailing evidence.—There was no violation of the BANK’s right to
procedural due process when the trial court denied the BANK’s motion to cross-examine Marcos. Prior
to the denial of the motion, the trial court had properly declared the BANK in default. Since the BANK
was in default, Marcos was able to present his evidence ex-parte including his own testimony. When the
trial court lifted the order of default, the BANK was restored to its standing and rights in the action.
However, as a rule, the proceedings already taken should not be disturbed. Nevertheless, it is within the
trial court’s discretion to reopen the evidence submitted by the plaintiff and allow the defendant to
challenge the same, by cross-examining the plaintiff’s witnesses or introducing countervailing evidence.
The 1964 Rules of Court, the rules then in effect at the time of the hearing of this case, recognized the
trial court’s exercise of this discretion. The 1997 Rules of Court retained this discretion.

Same; Same; A motion to cross-examine is adversarial; The purpose of a notice of a motion is to avoid
surprises on the opposite party and to give him time to study and meet the arguments.—We do not
agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated motion and that
the trial court gravely abused its discretion when it denied the motion to cross-examine. A motion to
cross-examine is adversarial. The adverse party in this case had the right to resist the motion to cross-
examine because the movant had previously forfeited its right to cross-examine the witness. The
purpose of a notice of a motion is to avoid surprises on the opposite party and to give him time to study
and meet the arguments. In a motion to cross-examine, the adverse party has the right not only to
prepare a meaningful opposition to the motion but also to be informed that his witness is being recalled
for cross-examination. The proof of service was therefore indispensable and the trial court was correct
in denying the oral manifestation to grant the motion for cross-examination.

Same; Same; While the right to cross-examine is a vital element of procedural due process, the right
does not necessarily require an actual cross-examination but merely an opportunity to exercise this right
if desired by the party entitled to it.—While the right to cross-examine is a vital element of procedural
due process, the right does not necessarily require an actual cross-examination, but merely an
opportunity to exercise this right if desired by the party entitled to it. Clearly, the BANK’S failure to
cross-examine is imputable to the BANK when it lost this right as it was in default and failed thereafter
to exhaust the remedies to secure the exercise of this right at the earliest opportunity.

Same; Same; Appeals; Estoppel; An issue raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel.—The BANK raises for the very first time the issue
of judicial admission on the part of Marcos. The BANK even has the audacity to fault the Court of
Appeals for not ruling on this issue when it never raised this matter before the appellate court or before
the trial court. Obviously, this issue is only an afterthought. An issue raised for the first time on appeal
and not raised timely in the proceedings in the lower court is barred by estoppel.

Commercial Law; Banks; Banks required to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship.—Section 2 of Republic Act No. 8791
(General Banking Law of 2000) expressly imposes this fiduciary duty on banks when it declares that the
State recognizes the “fiduciary nature of banking that requires high standards of integrity and
performance.” This statutory declaration merely echoes the earlier pronouncement of the Supreme
Court in Simex International (Manila) Inc. v. Court of Appeals requiring banks to “treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.”
The Court reiterated this fiduciary duty of banks in subsequent cases.

Same; Same; The fiduciary relationship means that the bank’s obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a bank and its
depositor.—Although RA No. 8791 took effect only in the year 2000, at the time that the BANK
transacted with Marcos, jurisprudence had already imposed on banks the same high standard of
diligence required under RA No. 8791. This fiduciary relationship means that the bank’s obligation to
observe “high standards of integrity and performance” is deemed written into every deposit agreement
between a bank and its depositor.

Same; Same; A bank is liable for the wrongful acts of its officers done in the interest of the bank or in
their dealings as bank representatives but not for acts outside the scope of their authority.—Assuming
Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos.
We have held that a bank is liable for the wrongful acts of its officers done in the interest of the bank or
in their dealings as bank representatives but not for acts outside the scope of their authority.

Remedial Law; Best Evidence Rule; The Best Evidence Rule provides that the court shall not receive any
evidence that is merely substitutionary in its nature such as photocopies as long as the original evidence
can be had.—The BANK failed to produce the best evidence—the original copies of the loan application
and promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that
is merely substitutionary in its nature, such as photocopies, as long as the original evidence can be had.
Absent a clear showing that the original writing has been lost, destroyed or cannot be produced in court,
the photocopy must be disregarded, being unworthy of any probative value and being an inadmissible
piece of evidence.

Same; Same; The purpose of the rule requiring the production of the best evidence is the prevention of
fraud.—The purpose of the rule requiring the production of the best evidence is the prevention of fraud.
If a party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its
place, the presumption naturally arises that the better evidence is withheld for fraudulent purposes,
which its production would expose and defeat.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Noel S.R. Jose for petitioner.

     Edgardo M. Salandanan for private respondent.

CARPIO, J.:

The Case

Before us is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 34382
1 

dated 10 December 1996 modifying the Decision of the Regional Trial Court, Fourth Judicial Region,
2 

Assisting Court, Biñan, Laguna in Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine
Banking Corporation."

The Antecedent Facts

On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of
Money with Damages against petitioner Philippine Banking Corporation ("BANK ").
3  4

Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"),
one of the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with
the BANK. Marcos yielded to Pagsaligan’s persuasion and claimed he made a time deposit with the
BANK on two occasions. The first was on 11 March 1982 for P664,897.67. The BANK issued
Receipt No. 635734 for this time deposit. On 12 March 1982, Marcos claimed he again made a time
deposit with the BANK for P764,897.67. The BANK did not issue an official receipt for this time
deposit but it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued.
The time deposits earned interest at 17% per annum and had a maturity period of 90 days.

Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the
BANK would take care of the certificates, interests and renewals. Marcos claimed that from the time
of the deposit, he had not received the principal amount or its interest.

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the
accumulated interests to buy materials for his construction business. However, the BANK through
Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic
letters of credit. The BANK required Marcos to give a marginal deposit of 30% of the total amount of
the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since
Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the
domestic letters of credit, trust receipt agreements and promissory notes.

Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as follows: (1)
Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated
15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983
for P251,250. Marcos deposited the required 30% marginal deposit for the trust receipt agreements.
Marcos claimed that his obligation to the BANK was therefore only P595,875 representing 70% of
the letters of credit.

Marcos believed that he and the BANK became creditors and debtors of each other. Marcos
expected the BANK to offset automatically a portion of his time deposits and the accumulated
interest with the amount covered by the three trust receipts totalling P851,250 less the 30% marginal
deposit that he had paid. Marcos argued that if only the BANK applied his time deposits and the
accumulated interest to his remaining obligation, which is 70% of the total amount of the letters of
credit, he would have paid completely his debt. Marcos further pointed out that since he did not
apply for a renewal of the trust receipt agreements, the BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total amount of the trust receipt
agreements without deducting the 30% marginal deposit that he had already made. He decried the
BANK’s unlawful charging of accumulated interest because he claimed there was no agreement as
to the payment of interest. The interest arose from numerous alleged extensions and penalties.
Marcos reiterated that there was no agreement to this effect because his time deposits served as the
collateral for his remaining obligation.

Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at
25% per annum supposedly covered by Promissory Note No. 20-979-83 dated 24 October 1983.
Marcos bewailed the BANK’s belated claim that his time deposits were applied to this void
promissory note on 12 March 1985.

In sum, Marcos claimed that:

(1) his time deposit with the BANK "in the total sum of P1,428,795.34 has earned accumulated
5 

interest since March 1982 up to the present in the total amount of P1,727,305.45 at the rate of
17% per annum so his total money with defendant (the BANK) is P3,156,100.79 less the amount
of P595,875 representing the 70% balance of the marginal deposit and/or balance of the trust
agreements;" and

(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance
of P595,875, which the BANK should have automatically deducted from his time deposits and
accumulated interest, leaving the BANK’s indebtedness to him at P2,560,025.79.

Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the BANK
to pay the amount of his time deposits with interest. He also sought the award of moral and
exemplary damages as well as attorney’s fees for P200,000 plus 25% of the amount due.

On 18 September 1989, summons and a copy of the complaint were served on the BANK. 6

On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the allegations
in the complaint. The BANK believed that the suit was Marcos’ desperate attempt to avoid liability
under several trust receipt agreements that were the subject of a criminal complaint.

The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of Marcos
was only P764,897.67 and not P1,428,795.35 as alleged in the complaint. The P764,897.67
7 

included the P664,897.67 that Marcos deposited on 11 March 1982.

The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue of
the Deed of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to secure his
various loan obligations. The BANK claimed that these loans are covered by Promissory Note No.
20-756-82 dated 2 June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October
1983 for P500,000. The BANK stressed that these obligations are separate and distinct from the
trust receipt agreements.

When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his
time deposits and applied the same to the obligation that is now considered fully paid. The BANK
8 

insisted that the Deed of Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan.
Consolacion informed Pagsaligan that she and her husband needed to finance the purchase of
construction materials for their business, L.A. Marcos Construction Company. Pagsaligan suggested
the opening of the letters of credit and the execution of trust receipts, whereby the BANK would
agree to purchase the goods needed by the client through the letters of credit. The BANK would then
entrust the goods to the client, as entrustee, who would undertake to deliver the proceeds of the sale
or the goods themselves to the entrustor within a specified time.

The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed
to account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint for
violation of Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations
for the settlement of the account, Marcos filed this suit.

The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory
note is supported by documentary evidence such as Marcos’ application for this loan and the
microfilm of the cashier’s check issued for the loan. The BANK insisted that Marcos could not deny
the agreement for the payment of interest and penalties under the trust receipt agreements. The
BANK prayed for the dismissal of the complaint, payment of damages, attorney’s fees and cost of
suit.

On 15 December 1989, the trial court on motion of Marcos’ counsel issued an order declaring the
BANK in default for filing its answer five days after the 15-day period to file the answer had
lapsed. The trial court also held that the answer is a mere scrap of paper because a copy was not
9 

furnished to Marcos. In the same order, the trial court allowed Marcos to present his evidence ex
parte on 18 December 1989. On that date, Marcos testified and presented documentary evidence.
The case was then submitted for decision.

On 19 December 1989, Marcos received a copy of the BANK’s Answer with Compulsory
Counterclaim.

On 29 December 1989, the BANK filed an opposition to Marcos’ motion to declare the BANK in
default. On 9 January 1990, the BANK filed a motion to lift the order of default claiming that it had
only then learned of the order of default. The BANK explained that its delayed filing of the Answer
with Counterclaim and failure to serve a copy of the answer on Marcos was due to excusable
negligence. The BANK asked the trial court to set aside the order of default because it had a valid
and meritorious defense.

On 7 February 1990, the trial court issued an order setting aside the default order and admitting the
BANK’s Answer with Compulsory Counterclaim. The trial court ordered the BANK to present its
evidence on 12 March 1990.

On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified
during the ex-parte hearing of 18 December 1989. On 12 March 1990, the trial court denied the
BANK’s motion and directed the BANK to present its evidence. Trial then ensued.

The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANK’s Cubao
Branch since 1987, and Pagsaligan, the Branch Manager of the same branch from 1982 to 1986.

On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material time,
the trial court reset the continuation of the cross-examination and presentation of other evidence.
The succeeding hearings were postponed, specifically on 24, 27 and 28 of August 1990, because of
the BANK’s failure to produce its witness, Pagsaligan. The BANK on these scheduled hearings also
failed to present other evidence.

On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan
could not attend the hearing because of illness. The trial court denied the motion to postpone and on
motion of Marcos’ counsel ruled that the BANK had waived its right to present further evidence. The
trial court considered the case submitted for decision. The BANK moved for reconsideration, which
the trial court denied.

On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK
appealed to the Court of Appeals.

On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the
amount of actual damages and deleting the attorney’s fees awarded to Marcos.

The Ruling of the Trial Court

The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and not
only P764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit on
two occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by
Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as
acknowledged by Pagsaligan in a letter of certification. The two time deposits thus amounted
to P1,429,795.34.

The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because
the letter of certification was sufficient. The trial court made a finding that the certification letter did
not include the time deposit made on 11 March 1982. The 12 March 1982 deposit was in cash while
the 11 March 1982 deposit was in checks which still had to clear. The checks were not included in
the certification letter since the BANK could not credit the amounts of the checks prior to clearing.
The trial court declared that even the Deed of Assignment acknowledged that Marcos made several
time deposits as the Deed stated that the assigment was charged against "various" time deposits.

The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos
supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982
for P420,000. The two loans amounted to P760,000. On 2 June 1982, the same day that he secured
the second loan, Marcos executed a Deed of Assignment assigning to the BANK P760,000 of his
time deposits. The trial court concluded that obviously the two loans were immediately paid by virtue
of the Deed of Assignment.

The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of
interest instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why
Marcos had to secure the loans from the BANK. The trial court was convinced that Marcos did not
know that what he had signed were loan applications and a Deed of Assignment in payment for his
loans. Nonetheless, the trial court recognized "the said loan of  P760,000 and its corresponding
payment by virtue of the Deed of Assignment for the equal sum." 10

If the BANK’s claim is true that the time deposits of Marcos amounted only to P764,897.67 and he
had already assigned P760,000 of this amount, the trial court pointed out that what would be left as
of 3 June 1982 would only be P4,867.67. Yet, after the time deposits had matured, the BANK
11 

allowed Marcos to open letters of credit three times. The three letters of credit were all secured by
the time deposits of Marcos after he had paid the 30% marginal deposit. The trial court opined that if
Marcos’ time deposit was only P764,897.67, then the letters of credit totalling P595,875 (less 30%
marginal deposit) was guaranteed by only P4,867.67, the remaining time deposits after Marcos had
12 

executed the Deed of Assignment for P760,000.

According to the trial court, a security of only P4,867.67 for a loan worth P595,875 (less 30%
13 

marginal deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to
have unsecured trust receipts, the BANK still claimed to have granted Marcos another loan
for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a
commercial bank engaged in the business of lending money. Allowing a loan of more than a million
pesos without collateral is in the words of the trial court, "an impossibility and a gross violation of
Central Bank Rules and Regulations, which no Bank Manager has such authority to grant." Thus, 14 

the trial court held that the BANK could not have granted Marcos the loan covered by Promissory
Note No. 20-979-83 because it was unsecured by any collateral.

The trial court required the BANK to produce the original copies of the loan application and
Promissory Note No. 20-979-83 so that it could determine who applied for this loan. However, the
BANK presented to the trial court only the "machine copies of the duplicate" of these documents.

Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the
following discrepancies: (1) Marcos’ signature on the two documents are merely initials unlike in the
other documents submitted by the BANK; (2) it is highly unnatural for the BANK to only have
duplicate copies of the two documents in its custody; (3) the address of Marcos in the documents is
different from the place of residence as stated by Marcos in the other documents annexed by the
BANK in its Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588
less bank charges was issued to Marcos but the check’s payee was one ATTY. LEONILO MARCOS
and, as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was not sure what branch of
the BANK issued the check for the loan proceeds. The trial court was convinced that Marcos did not
execute the questionable documents covering the P500,000 loan and Pagsaligan used these
documents as a means to justify his inability to explain and account for the time deposits of Marcos.

The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the
BANK was not in possession of the original copies of the documents like the loan applications.
Second, the BANK did not have a ledger of the accounts of Marcos or of his various transactions
with the BANK. Last, the BANK did not issue a certificate of time deposit to Marcos. Again, the trial
court attributed the BANK’s lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits.

The trial court also took note of Pagsaligan’s demeanor on the witness stand. Pagsaligan evaded
the questions by giving unresponsive or inconsistent answers compelling the trial court to admonish
him. When the trial court ordered Pagsaligan to produce the documents, he "conveniently became
sick" and thus failed to attend the hearings without presenting proof of his physical condition.
15 

The trial court disregarded the BANK’s assertion that the time deposits were converted into a
savings account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that
his time deposits had already matured and these were converted into a savings account. As to the
interest due on the trust receipts, the trial court ruled that there is no basis for such a charge
because the documents do not stipulate any interest.

In computing the amount due to Marcos, the trial court took into account the marginal deposit that
Marcos had already paid which is equivalent to 30% of the total amount of the three trust receipts.
The three trust receipts totalling P851,250 would then have a balance of P595,875. The balance
became due in March 1987 and on the same date, Marcos’ time deposits of P669,932.30 had
already earned interest from 1983 to 1987 totalling P569,323.21 at 17% per annum. Thus, the trial
court ruled that the time deposits in 1987 totalled P1,239,115. From this amount, the trial court
deducted P595,875, the amount of the trust receipts, leaving a balance on the time deposits
of P643,240 as of March 1987. However, since the BANK failed to return the time deposits of
Marcos, which again matured in March 1990, the time deposits with interest, less the amount of trust
receipts paid in 1987, amounted to P971,292.49 as of March 1990.

In the alternative, the trial court ruled that even if Marcos had only one time deposit of P764,897.67
as claimed by the BANK, the time deposit would have still earned interest at the rate of 17% per
annum. The time deposit of P650,163 would have increased to P1,415,060 in 1987 after earning
interest. Deducting the amount of the three trust receipts, Marcos’ time deposits still
totalled P1,236,969.30 plus interest.

The dispositive portion of the decision of the trial court reads:

WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of

Plaintiff, directing Defendant Bank as follows:

1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest
thereon at the legal rate, until fully restituted;

2) to pay attorney’s fees of P200,000.00; [and]

3) [to pay the] cost of these proceedings.

IT IS SO ORDERED. 16

The Ruling of the Court of Appeals

The Court of Appeals addressed the procedural and substantive issues that the BANK raised.

The appellate court ruled that the trial court committed a reversible error when it denied the BANK’s
motion to cross-examine Marcos. The appellate court ruled that the right to cross-examine is a
fundamental right that the BANK did not waive because the BANK vigorously asserted this right. The
BANK’s failure to serve a notice of the motion to Marcos is not a valid ground to deny the motion to
cross-examine. The appellate court held that the motion to cross-examine is one of those non-
litigated motions that do not require the movant to provide a notice of hearing to the other party.

The Court of Appeals pointed out that when the trial court lifted the order of default, it had the duty to
afford the BANK its right to cross-examine Marcos. This duty assumed greater importance because
the only evidence supporting the complaint is Marcos’ ex-parte testimony. The trial court should
have tested the veracity of Marcos’ testimony through the distilling process of cross-examination.
The Court of Appeals, however, believed that the case should not be remanded to the trial court
because Marcos’ testimony on the time deposits is supported by evidence on record from which the
appellate court could make an intelligent judgment.

On the second procedural issue, the Court of Appeals held that the trial court did not err when it
declared that the BANK had waived its right to present its evidence and had submitted the case for
decision. The appellate court agreed with the grounds relied upon by the trial court in its Order dated
7 September 1990.

The Court of Appeals, however, differed with the finding of the trial court as to the total amount of the
time deposits. The appellate court ruled that the total amount of the time deposits of Marcos is
only P764,897.67 and not P1,429,795.34 as found by the trial court. The certification letter issued by
Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for P764,897.67. The
certification letter shows that the amount mentioned in the letter was the aggregate or total amount
of the time deposits of Marcos as of that date. Therefore, the P764,897.67 already included
the P664,897.67 time deposit made by Marcos on 11 March 1982.

The Court of Appeals further explained:

Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982 covering the
sum of P664,987.67 time deposit did not provide for a maturity date implying clearly that the
amount covered by said receipt forms part of the total sum shown in the letter-certification
which contained a maturity date. Moreover, it taxes one’s credulity to believe that appellee
would make a time deposit on March 12, 1982 in the sum of P764,897.67 which except for
the additional sum of P100,000.00 is practically identical (see underlined figures) to the sum
of P664,897.67 deposited the day before March 11, 1982.

Additionally, We agree with the contention of the appellant that the lower court wrongly
appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider
the alleged application for loan by the appellee with the appellant in the sum of P500,000.00
dated October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting
to P760,000.00. (Emphasis supplied)
17 

The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory Note
No. 20-979-83 is void. There is no evidence of a bank ledger or computation of interest of the loan.
The appellate court blamed the BANK for failing to comply with the orders of the trial court to
produce the documents on the loan. The BANK also made inconsistent statements. In its Answer to
the Complaint, the BANK alleged that the loan was fully paid when it debited the time deposits of
Marcos with the loan. However, in its discussion of the assigned errors, the BANK claimed that
Marcos had yet to pay the loan.

The appellate court deleted the award of attorney’s fees. It noted that the trial court failed to justify
the award of attorney’s fees in the text of its decision. The dispositive portion of the decision of the
Court of Appeals reads:

WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment
is hereby rendered ordering the appellant bank to return to the appellee his time deposit
in the sum of P764,897.67 with 17% interest within 90 days from March 11, 1982 in
accordance with the letter-certification and with legal interest thereafter until fully
paid. Costs against the appellant.

SO ORDERED. (Emphasis supplied)

18 

The Issues

The BANK anchors this petition on the following issues:

1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE

RESPONDENT’S OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT OF
TIME DEPOSITS?
 1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8
RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO AS
TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE
EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE
PETITIONER’S ANSWER?

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE

LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE WAIVED PRESENTATION
OF FURTHER EVIDENCE AND CONSIDERED THE CASE SUBMITTED FOR
RESOLUTION? 19

The Ruling of the Court

The petition is without merit.

Procedural Issues

There was no violation of the BANK’s right to procedural due process when the trial court denied the
BANK’s motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had
properly declared the BANK in default. Since the BANK was in default, Marcos was able to present
his evidence ex-parte including his own testimony. When the trial court lifted the order of default, the
BANK was restored to its standing and rights in the action. However, as a rule, the proceedings
already taken should not be disturbed. Nevertheless, it is within the trial court’s discretion to reopen
20 

the evidence submitted by the plaintiff and allow the defendant to challenge the same, by cross-
examining the plaintiff’s witnesses or introducing countervailing evidence. The 1964 Rules of Court,
21 

the rules then in effect at the time of the hearing of this case, recognized the trial court’s exercise of
this discretion. The 1997 Rules of Court retained this discretion. Section 3, Rule 18 of the 1964
22 

Rules of Court reads:

Sec. 3. Relief from order of default. — A party declared in default may any time after
discovery thereof and before judgment file a motion under oath to set aside the order of
default upon proper showing that his failure to answer was due to fraud, accident, mistake or
excusable neglect and that he has a meritorious defense. In such case the order of default
may be set aside on such terms and conditions as the judge may impose in the interest
of justice. (Emphasis supplied)

The records show that the BANK did not ask the trial court to restore its right to cross-examine
Marcos when it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7
February 1990 setting aside the order of default did not confer on the BANK the right to cross-
examine Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-examine
Marcos. During the 12 March 1990 hearing, the trial court denied the BANK’s oral manifestation to
grant its motion to cross-examine Marcos because there was no proof of service on Marcos. The
BANK’s counsel pleaded for reconsideration but the trial court denied the plea and ordered the
BANK to present its evidence. Instead of presenting its evidence, the BANK moved for the resetting
of the hearing and when the trial court denied the same, the BANK informed the trial court that it was
elevating the denial to the "upper court." 23

To repeat, the trial court had previously declared the BANK in default. The trial court therefore had
the right to decide whether or not to disturb the testimony of Marcos that had already been
terminated even before the trial court lifted the order of default.
We do not agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated
motion and that the trial court gravely abused its discretion when it denied the motion to cross-
examine. A motion to cross-examine is adversarial. The adverse party in this case had the right to
resist the motion to cross-examine because the movant had previously forfeited its right to cross-
examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party
and to give him time to study and meet the arguments. In a motion to cross-examine, the adverse
24 

party has the right not only to prepare a meaningful opposition to the motion but also to be informed
that his witness is being recalled for cross-examination. The proof of service was therefore
indispensable and the trial court was correct in denying the oral manifestation to grant the motion for
cross-examination.

We find no justifiable reason to relax the application of the rule on notice of motions to this case.
25 

The BANK could have easily re-filed the motion to cross-examine with the requisite notice to Marcos.
It did not do so. The BANK did not make good its threat to elevate the denial to a higher court. The
BANK waited until the trial court rendered a judgment on the merits before questioning the
interlocutory order of denial.

While the right to cross-examine is a vital element of procedural due process, the right does not
necessarily require an actual cross-examination, but merely an opportunity to exercise this right if
desired by the party entitled to it. Clearly, the BANK’s failure to cross-examine is imputable to the
26 

BANK when it lost this right as it was in default and failed thereafter to exhaust the remedies to
27 

secure the exercise of this right at the earliest opportunity.

The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve
scant consideration.

The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The
BANK even has the audacity to fault the Court of Appeals for not ruling on this issue when it never
raised this matter before the appellate court or before the trial court. Obviously, this issue is only an
afterthought. An issue raised for the first time on appeal and not raised timely in the proceedings in
the lower court is barred by estoppel. 28

The BANK cannot claim that Marcos had admitted the due execution of the documents attached to
its answer because the BANK filed its answer late and even failed to serve it on Marcos. The
BANK’s answer, including the actionable documents it pleaded and attached to its answer, was a
mere scrap of paper. There was nothing that Marcos could specifically deny under oath. Marcos had
already completed the presentation of his evidence when the trial court lifted the order of default and
admitted the BANK’s answer. The provision of the Rules of Court governing admission of actionable
documents was not enacted to reward a party in default. We will not allow a party to gain an
advantage from its disregard of the rules.

As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the
trial court correctly ruled that the BANK had waived this right. The BANK cannot now claim that it
was deprived of its right to conduct a re-direct examination of Pagsaligan. The BANK postponed the
hearings three times because of its inability to secure Pagsaligan’s presence during the hearings.
29 

The BANK could have presented another witness or its other evidence but it obstinately insisted on
the resetting of the hearing because of Pagsaligan’s absence allegedly due to illness.

The BANK’s propensity for postponements had long delayed the case. Its motion for postponement
based on Pagsaligan’s illness was not even supported by documentary evidence such as a medical
certificate. Documentary evidence of the illness is necessary before the trial court could rule that
there is a sufficient basis to grant the postponement. 30
 The BANK’s Fiduciary Duty to its Depositor

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The
existence of Promissory Note No. 20-979-83 could have been easily proven had the BANK
presented the original copies of the promissory note and its supporting evidence. In lieu of the
original copies, the BANK presented the "machine copies of the duplicate" of the documents. These
substitute documents have no evidentiary value. The BANK’s failure to explain the absence of the
original documents and to maintain a record of the offsetting of this loan with the time deposits bring
to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos.

Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary
duty on banks when it declares that the State recognizes the "fiduciary nature of banking that
requires high standards of integrity and performance." This statutory declaration merely echoes the
earlier pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of
Appeals requiring banks to "treat the accounts of its depositors with meticulous care, always having
31 

in mind the fiduciary nature of their relationship." The Court reiterated this fiduciary duty of banks in
32 

subsequent cases. 33

Although RA No. 8791 took effect only in the year 2000, at the time that the BANK transacted with
34 

Marcos, jurisprudence had already imposed on banks the same high standard of diligence required
under RA No. 8791. This fiduciary relationship means that the bank’s obligation to observe "high
35 

standards of integrity and performance" is deemed written into every deposit agreement between a
bank and its depositor.

The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of
accountability than that expected of Marcos, a businessman, who negligently signed blank forms
and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the
certificates.

The business of banking is imbued with public interest. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc.
v. Court of Appeals we pointed out the depositor’s reasonable expectations from a bank and the
36 

bank’s corresponding duty to its depositor, as follows:

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.

As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his
transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the
amount due him after the BANK had correctly debited his outstanding obligations from his time
deposits.

By the very nature of its business, the BANK should have had in its possession the original copies of
the disputed promissory note and the records and ledgers evidencing the offsetting of the loan with
the time deposits of Marcos. The BANK inexplicably failed to produce the original copies of these
documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no reason to forge
Promissory Note No. 20-979-83. The trial court and appellate court did not rule that it was the bank
that forged the promissory note. It was Pagsaligan, the BANK’s branch manager and a close friend
of Marcos, whom the trial court categorically blamed for the fictitious loan agreements. The trial court
held that Pagsaligan made up the loan agreement to cover up his inability to account for the time
deposits of Marcos.

Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived
Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the
correct amount of his time deposits with interest. The duty to observe "high standards of integrity and
performance" imposes on the BANK that obligation. The BANK cannot also unjustly enrich itself by
keeping Marcos’ money.

Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be
accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in
the interest of the bank or in their dealings as bank representatives but not for acts outside the scope
of their authority. Thus, we held:
37 

A bank holding out its officers and agents as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the course
of its business by an agent acting within the general scope of his authority even though, in
the particular case, the agent is secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person, for his own ultimate benefit. 38

The Existence of Promissory Note No. 20-979-83 was not Proven

The BANK failed to produce the best evidence — the original copies of the loan application and
promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that
is merely substitutionary in its nature, such as photocopies, as long as the original evidence can be
had. Absent a clear showing that the original writing has been lost, destroyed or cannot be
39 

produced in court, the photocopy must be disregarded, being unworthy of any probative value and
being an inadmissible piece of evidence. 40

What the BANK presented were merely the "machine copies of the duplicate" of the loan application
and promissory note. No explanation was ever offered by the BANK for its inability to produce the
original copies of the documentary evidence. The BANK also did not comply with the orders of the
trial court to submit the originals.

The purpose of the rule requiring the production of the best evidence is the prevention of fraud. If a
41 

party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its
place, the presumption naturally arises that the better evidence is withheld for fraudulent purposes,
which its production would expose and defeat. 42

The absence of the original of the documentary evidence casts suspicion on the existence of
Promissory Note No. 20-979-83 considering the BANK’s fiduciary duty to keep efficiently a record of
its transactions with its depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The BANK has only itself to
blame for the dearth of competent proof to establish the existence of Promissory Note No. 20-979-
83.
 Total Amount Due to Marcos

The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total amount of
time deposits that Marcos placed with the BANK is only P764,897.67 and not P1,429,795.34 as
found by the trial court. The BANK has always argued that Marcos’ time deposits only
totalled P764,897.67. What the BANK insists on in this petition is the trial court’s violation of its right
43 

to procedural due process and the absence of any obligation to pay or return anything to Marcos.
Marcos, on the other hand, merely prays for the affirmation of either the trial court or appellate court
decision. We uphold the finding of the Court of Appeals as to the amount of the time deposits as
44 

such finding is in accord with the evidence on record.

Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos
was only able to present the receipt dated 11 March 1982 and the letter-certification dated 12 March
1982 to prove the total amount of his time deposits with the BANK. The letter-certification issued by
Pagsaligan reads:

March 12, 1982

Dear Mr. Marcos:

This is to certify that we are taking care in your behalf various Time Deposit Certificates with
an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT
HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for 90 days at
17% p.a. with the interest payable at maturity on June 10, 1982.

Thank you.

Sgd. FLORENCIO B. PAGSALIGAN

Branch Manager 45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982
is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11
March 1982. This is plainly seen from the use of the word "aggregate."

We are not swayed by Marcos’ testimony that the certification is actually for the first time deposit that
he placed on 11 March 1982. The letter-certification speaks of "various Time Deposits Certificates
with an ‘aggregate value’ of P764,897.67." If the amount stated in the letter-certification is for a
single time deposit only, and did not include the 11 March 1982 time deposit, then Marcos should
have demanded a new letter of certification from Pagsaligan. Marcos is a businessman. While he
already made an error in judgment in entrusting to Pagsaligan the certificates of time deposits,
Marcos should have known the importance of making the letter-certification reflect the true nature of
the transaction. Marcos is bound by the letter-certification since he was the one who prodded
Pagsaligan to issue it.

We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The
appellate court did not offset Marcos’ outstanding debt with the BANK covered by the three trust
receipt agreements even though Marcos admits his obligation under the three trust receipt
agreements. The total amount of the trust receipts is P851,250 less the 30% marginal deposit
of P255,375 that Marcos had already paid the BANK. This reduced Marcos’ total debt with the BANK
to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the imposition of interest on the
loan covered by the trust receipts and thus no interest is due on this loan. However, the records
show that the three trust receipt agreements contained stipulations for the payment of interest but
the parties failed to fill up the blank spaces on the rate of interest. Put differently, the BANK and
Marcos expressly agreed in writing on the payment of interest without, however, specifying the rate
46 

of interest. We, therefore, impose the legal interest of 12% per annum, the legal interest for the
forbearance of money, on each of the three trust receipts.
47 

Based on Marcos’ testimony and the BANK’s letter of demand, the trust receipt agreements
48  49 

became due in March 1987. The records do not show exactly when in March 1987 the obligation
became due. In accordance with Article 2212 of the Civil Code, in such a case the court shall fix the
period of the duration of the obligation. The BANK’s letter of demand is dated 6 March 1989. We
50 

hold that the trust receipts became due on 6 March 1987.

Marcos’ payment of the marginal deposit of P255,375 for the trust receipts resulted in the
proportionate reduction of the three trust receipts. The reduced value of the trust receipts and their
respective interest as of 6 March 1987 are as follows:

1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was reduced
to P210,618.75 with interest of P101,027.76. 51

2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was reduced
to P210,618.75 with interest of P100,543.04. 52

3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 was reduced
to P174,637.5 with interest of P83,366.68.  53

When the trust receipts became due on 6 March 1987, Marcos owed the BANK P880,812.48. This
amount included P595,875, the principal value of the three trust receipts after payment of the
marginal deposit, and P284,937.48, the interest then due on the three trust receipts.

Upon maturity of the three trust receipts, the BANK should have automatically deducted, by way of
offsetting, Marcos’ outstanding debt to the BANK from his time deposits and its accumulated
interest. Marcos’ time deposits of P764,897.67 had already earned interest of P616,318.92 as of 6
54 

March 1987. Thus, Marcos’ total funds with the BANK amounted to P1,381,216.59 as of the maturity
55 

of the trust receipts. After deducting P880,812.48, the amount Marcos owed the BANK, from Marcos’
funds with the BANK of P1,381,216.59, Marcos’ remaining time deposits as of 6 March 1987 is
only P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the date of
filing of Marcos’ complaint with the trial court, is P211,622.96. From 30 August 1989, the interest
56 

due on the accumulated interest of P211,622.96 should earn legal interest at 12% per
annum pursuant to Article 2212 of the Civil Code.
57 

The BANK’s dismal failure to account for Marcos’ money justifies the award of moral and exemplary
58 

damages. Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch
59 

manager which caused Marcos mental anguish and serious anxiety. Moral damages of P100,000 is
60 

reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard
to the accounts of their depositors. 61

We also award P20,000 to Marcos as exemplary damages. The law allows the grant of exemplary
damages by way of example for the public good. The public relies on the banks’ fiduciary duty to
62 

observe the highest degree of diligence. The banking sector is expected to maintain at all times this
high level of meticulousness. 63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Philippine Banking Corporation is ordered to return to private respondent Leonilo
Marcos P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per
annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also
ordered to pay to private respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30
August 1989, plus 12% legal interest per annum from 30 August 1989 until full payment. Petitioner
Philippine Banking Corporation is further ordered to pay P100,000 by way of moral damages
and P20,000 as exemplary damages to private respondent Leonilo Marcos.

Costs against petitioner.

SO ORDERED.

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

Judgment affirmed with modification.

Note.—A bank is under obligation to treat the accounts of its depositors with meticulous care whether
such account consists only of a few hundred pesos or of millions of pesos. (Philippine National Bank vs.
Court of Appeals, 315 SCRA 309 [1999])

——o0o—— Philippine Banking Corporation vs. Court of Appeals, 419 SCRA 487, G.R. No. 127469
January 15, 2004