Case Summary (G.R. No. 192371)
Petitioner
Land Bank of the Philippines seeks review of the Court of Appeals’ affirmation, with modification, of the Regional Trial Court’s dismissal of its complaint and award in favor of OAate.
Respondent
Emmanuel C. OAate maintained seven express trust accounts with Land Bank and counterclaimed for restoration of debited funds and undocumented withdrawals, claiming breach of Land Bank’s fiduciary duties and contractual obligations under the IMAs.
Key Dates
• 1978–1980: OAate opened seven trust accounts.
• October 8, 1981: Land Bank demanded return of P4 million.
• June 21, 1991: Land Bank unilaterally set off account balances.
• September 7, 1992: Land Bank filed Complaint for Sum of Money.
• May 31, 2006: RTC dismissed complaint; ordered return of P1,471,416.52.
• December 18, 2009: CA affirmed dismissal and ordered payment of additional P60,663,488.11 and US$3,210,222.85.
• January 15, 2014: Supreme Court promulgated decision under the 1987 Constitution.
Applicable Law
• 1987 Philippine Constitution (due to decision date post-1990)
• Civil Code obligations and trust law
• Investment Management Agreements (IMAs)
• Section 43, Rule 130, Rules of Court (business entries)
• BSP Manual of Regulations for Banks (MORB) and subsequent Circulars
Factual Background
OAate’s seven trust accounts, each governed by an IMA with full discretionary power to Land Bank, required quarterly statements, accurate record-keeping, and client access to audit records. In late 1980, Land Bank credited P4 million to one account, later asserting it represented proceeds of pre-terminated borrower loans. OAate denied knowledge or receipt of such funds. After failed negotiations, Land Bank in 1991 set off total trust account balances—recovering only P1,528,583.48—and filed suit for the remaining P8,222,687.89 plus interest.
Proceedings Below
OAate answered with a compulsory counterclaim for account balances and damages. The RTC appointed a Board of Commissioners to audit the accounts, uncovering extensive undocumented withdrawals and over-drawings. The RTC dismissed Land Bank’s complaint for failure to prove miscrediting and ordered restoration of P1,471,416.52, but denied OAate’s counterclaim. The CA denied Land Bank’s appeal, granted OAate’s, and modified the RTC decision to award P60,663,488.11 and US$3,210,222.85 for undocumented withdrawals, plus P1,471,416.52, with 12% interest compounded annually from June 21, 1991.
Issues for Resolution
- Whether passbook entries satisfy the presumption of regularity under Section 43, Rule 130.
- Whether OAate’s failure to plead restitution in his answer precludes restoration of debited funds.
- Whether undocumented withdrawals are recoverable absent compliance with MORB standards.
- Whether OAate must join an undisclosed principal for accounts 01-014 and 01-017.
- Whether the award of 12% per annum compounded yearly violates Article 1959 of the Civil Code.
Ruling of the Supreme Court
The petition was denied. The Court held that all contested issues were factual and not reviewable under Rule 45. Land Bank failed to prove the source of the P4 million miscrediting, did not maintain accurate records or timely quarterly statements as required by the IMAs, and did not identify or justify
Case Syllabus (G.R. No. 192371)
Factual Background
- Land Bank of the Philippines (“Land Bank”) is a government financial institution created under Republic Act No. 3844.
- From 1978 to 1980, Emmanuel C. OAate opened and maintained seven trust accounts with Land Bank under Investment Management Agreements (IMAs) with full discretion.
- Each trust account had a passbook; deposits and withdrawals were recorded therein without distinction between principal and income.
- In October 1981, Land Bank claimed that checks representing loan pre-terminations by four corporate borrowers (RETELCO, PBM, CBY, PHILTOFIL) were miscredited to OAate’s Trust Account No. 01-125 in the amount of ₱4 million; OAate refused to return them.
- On June 21, 1991, Land Bank unilaterally applied the balances of all seven trust accounts against OAate’s alleged indebtedness and debited ₱1,528,583.48, leaving no further funds.
Investment Management Agreements (IMAs) – Key Provisions
- Land Bank was appointed agent with “full powers and discretion” to hold, invest, reinvest, and manage the fund as one aggregate amount.
- Bank bore no liability for loss or depreciation except in cases of willful default or gross misconduct.
- Bank was required to maintain accurate records of all transactions and to send quarterly statements (balance sheet, portfolio analysis, income and expense statement, summary of investment changes).
- Account statements would be deemed approved if no written objection was filed within 30 days of receipt.
Dispute Over Miscrediting and Set-off
- Land Bank filed on September 7, 1992 a Complaint for Sum of Money to recover ₱8,222,687.89, representing the alleged ₱4 million miscrediting plus 12% annual interest, offset by the ₱1,528,583.48 already debited.
- OAate denied any knowledge of or involvement in the miscrediting, maintained all funds were legitimate, and contested the bank’s set-off as lacking legal and factual basis.
- OAate filed a compulsory counterclaim seeking restoration of the set-off amounts and recovery of accrued balances with compounded interest, moral and exemplary damages, attorney’s fees, and other costs.
Proceedings in the Regional Trial Court (RTC)
- OAate moved for the appointment of a Board of Commissioners to examine seven trust-account records and determine total deposits, withdrawals, investments, earnings, and expenses.
- The Board held 60 meetings over four years, submitted several reports, and finally a consolidated report (August 16, 2004) identifying undocumented withdrawals and over-withdrawals across all accounts.
- Land Bank did not object to the consolidated report; OAate commented it should credit back unauthorized transactions.
Ruling of the Regional Trial Court
- The RTC (May 31, 2006) dismissed Land Bank’s complaint for failure to prove the source of the ₱4 million allegedly miscredited to Trust Account No. 01-125.
- Ordered Land Bank to restore ₱1,471,416.52 it had debited from five trust accounts (no costs).
- Denied OAate’s broader counterclaim for account balances and undocumented withdrawals, reasoning that entries in passbooks made in the ordinary course of business constituted prima facie evidence and that OAate had approved quarterly statements by his silence.
- Denied Land Bank’s motion for reconsideration (July 11, 2006).