G.R. No. 167552 - Eurotech Industrial Technologies, Inc. vs. Cuizon

Case Summary (G.R. No. 167552)

Factual Background — Depository Relationship and Business Arrangement

Petitioner deposited an initial P12 million with PSBank. Castro, as branch manager, proposed that petitioner lend her deposit funds as interim or bridge financing to PSBank borrowers awaiting official loan releases; petitioner allegedly entrusted her passbook to Castro and was shown loan approvals before amounts were withdrawn and relent to borrowers. Under the arrangement petitioner would receive 4% monthly interest on loaned funds, with Castro receiving a 10% commission. Based on perceived profit, petitioner later obtained a P10 million credit line secured by a mortgage on her Ayala Alabang property; petitioner was to effect P2 million monthly payments beginning September 3, 1998.

Factual Background — Discrepancies, Suspicious Entries, and Foreclosure

Beginning September 1998, Castro ceased regular accounting to petitioner and delayed returning the passbook. When returned late January/early February 1999, the passbook showed erasures and alterations; the transaction history register reflected a credit of P4,491,250.00 on December 21, 1998 and withdrawals totaling P7 million on the same date, but these were not reflected in the passbook. Additional loan of P1,396,310.45 was shown as acquired January 5, 1999. PSBank sent collection letters in May and June 1999 demanding payment of the P4,491,250.00 and P1,396,310.45 obligations. Notice of extrajudicial sale for foreclosure was issued September 15, 1999, prompting petitioner’s suit for injunction and damages.

Positions of the Parties at Trial

Petitioner: Denied authorizing the P4.5 million loan and the P7 million withdrawal, asserted passbook alterations, and argued the bank and Castro failed to prove authorization (specifically the withdrawal slip). Sought damages and permanent injunctive relief against foreclosure.
Castro: Admitted an agency-type arrangement and collection of commissions; contended loans were distinct, properly applied for and executed by petitioner (producing promissory notes and release tickets bearing petitioner’s signature), and asserted withdrawals were made upon petitioner’s instruction or availability of funds. Admitted making alterations to the passbook to reconcile computer records but denied deceit.
PSBank: Contended the P10 million credit line and subsequent loans (P4.5 million and P1,396,310.45) were valid, evidenced by promissory notes and release tickets and secured by mortgage; maintained proper bank procedures were followed.

Trial and Appellate Decisions

RTC (March 30, 2010): Dismissed petitioner’s complaint, holding respondents not liable and upholding foreclosure, finding petitioner failed to controvert the bank’s claim of unpaid loans.
RTC (July 22, 2010 — upon reconsideration): Reversed prior dismissal, found petitioner’s denial of authorization for the P7 million withdrawal persuasive in the absence of withdrawal slips and unreconciled passbook entries, held PSBank failed to exercise utmost diligence, declared foreclosure improper and awarded actual, moral, exemplary damages and attorney’s fees, and made preliminary injunction permanent.
CA (October 25, 2013): Reversed the RTC’s July 22, 2010 order, reinstating the March 30, 2010 dismissal, finding petitioner admitted signing loan documents and promissory notes, and concluding respondents exercised extraordinary diligence. CA denied reconsideration.

Issues Presented to the Supreme Court

Whether the CA gravely erred in finding lack of compelling evidence of fraud in processing/release of the P4.5 million loan and the P7 million withdrawal.
Whether the CA erred in ruling there was no evidence that P7 million was debited without petitioner’s authorization.
Whether the CA erred in holding respondents treated petitioner’s account with extraordinary diligence.
Whether the CA erred in failing to hold respondents jointly and severally liable for damages.

Legal Characterization — Agency Relationship

The Court found an implied agency between petitioner and Castro. The pattern of dealings, petitioner entrusting her passbook, Castro’s role in securing loans and receiving commissions, and Castro’s representation that she would arrange loans for petitioner support a finding of agency inferable from conduct (consistent with New Civil Code Articles on agency). As agent, Castro was bound to act within the scope of authority; acts within scope bind the principal.

Loan Documents and Authorization for Loans

The Court concluded that the P4.5 million (Dec. 21, 1998) and P1,396,310.45 (Jan. 5, 1999) loans were validly obtained with petitioner’s authority. Promissory notes and release tickets bore petitioner’s signatures; petitioner failed to prove forgery. Accordingly, those loan obligations in the aggregate were recognized (totaling P5,888,149.33).

Unauthorized P7 Million Withdrawal — Evidence and Credibility

Although the Court accepted that the loans were authorized, it found no proof petitioner authorized the P7 million withdrawal. Castro’s trial testimony was inconsistent: a written judicial affidavit stated the withdrawal was “upon plaintiff’s instruction,” but during cross-examination Castro could not recall whether petitioner had directly instructed her or another officer to effect the withdrawal. Castro also admitted she could not produce the cash withdrawal slip for the P7 million and had made multiple alterations in petitioner’s passbook while it was under her control. The passbook showed missing entries for Dec. 17–27, 1998 while the transaction history register showed entries during those dates, and an entry on Dec. 28, 1998 appeared altered. The Court found these inconsistencies and alterations indicative that Castro exceeded her authority and likely manipulated the passbook to conceal the withdrawal.

Bank’s Duty — Utmost Diligence and Failure to Produce Withdrawal Slip

Applying established banking principles, the Court reiterated that banks owe depositors the highest degree of care and fidelity; withdrawals should be made only upon valid authorization. The critical documentary proof of authorization is the cash withdrawal slip signed by the depositor. PSBank conceded and its counsel manifested in trial that the withdrawal slip for the alleged P7 million transaction could not be located and was not produced despite subpoenas. Castro also had none to present. Given petitioner’s consistent denial of authorization and the respondents’ failure to produce the signed withdrawal slip or to present Lim (the alleged transferee) as a witness or documentary proof of transfer, the Court held PSBank failed to exercise the required diligence and was liable for the unauthorized withdrawal.

Burden of Proof and Shift of Burden

The Court applied the rule that the party alleging a fact bears the burden of proof; petitioner sufficiently established the unauthorized withdrawal through transaction history, passbook alterations, and testimonial denial, thereby shifting the burden to respondents to prove authorization. Respondents failed to discharge that burden (absence of withdrawal slip, absence of Lim’s testimony or cor

Case Syllabus (G.R. No. 167552)

Procedural History

Petition for review on certiorari filed in the Supreme Court seeking reversal and setting aside of the Court of Appeals Decision dated October 25, 2013 and CA Resolution dated September 12, 2014 in CA-G.R. CV No. 95656, which had reversed the Regional Trial Court (RTC), Branch 276, Muntinlupa City, Order dated July 22, 2010 in Civil Case No. 99-278 (case for injunction and damages).
Trial court (RTC) rendered an initial Decision on March 30, 2010 dismissing the complaint and lifting the writ of preliminary injunction; this Decision was the basis for Oliver’s motion for reconsideration.
RTC, upon reconsideration, issued an Order on July 22, 2010 reversing its March 30, 2010 Decision and awarding damages and making the preliminary injunction permanent.
Defendants Philippine Savings Bank (PSBank) and Lilia Castro appealed to the Court of Appeals; the CA on October 25, 2013 granted the appeal, reversed the RTC July 22, 2010 Order, and reinstated the RTC March 30, 2010 Decision. Reconsideration at the CA was denied by Resolution dated September 12, 2014.
Petitioner Oliver filed the present petition for review on certiorari to the Supreme Court, which granted relief and rendered final judgment on April 4, 2016.

Parties and Roles

Petitioner: Dra. Mercedes Oliver — depositor of PSBank, holder of account no. 2812-07991-6, owner of the Ayala Alabang house and lot covered by TCT No. 137796, mortgaged to secure banking credit line.
Respondent (bank): Philippine Savings Bank (PSBank) — financial institution that extended a P10 million credit line to Oliver and processed subsequent loans and withdrawals allegedly affecting Oliver’s account.
Respondent (individual): Lilia Castro — Assistant Vice President and Acting Branch Manager, PSBank San Pedro, Laguna; alleged agent in dealings between Oliver and PSBank, received commissions under the parties’ arrangement, later terminated by PSBank (October 19, 1999) for client accommodation problems and loss of confidence.

Factual Background — Business Arrangement and Account Use

In 1997 Oliver deposited P12 million into her PSBank account and entered into a business arrangement with Castro: Oliver would loan out her deposit as interim/bridge financing to PSBank borrowers awaiting release of their loan proceeds; Castro would show approved loan documents, withdraw needed amount from Oliver’s account, and upon PSBank’s actual release to the borrower, charge 4% per month interim interest; principal and interest would be re-deposited to Oliver’s account; Castro received a 10% commission on interest.
Due to frequent transactions and trust, Oliver entrusted her passbook to Castro to facilitate operations.
Encouraged by profits, Oliver applied for an additional P10 million credit line secured by a real estate mortgage (Ayala Alabang property); Oliver instructed Castro to pay P2 million monthly starting September 3, 1998 to fully pay the P10 million by January 3, 1999.

Putative Irregular Transactions and Discoveries

Beginning September 1998, Castro stopped rendering accounting; Oliver demanded return of passbook.
When returned late January or early February 1999, Oliver observed several erasures and superimpositions in her passbook, particularly suspicious entries relating to December 1998.
Transaction history register (computer printout) showed a credit entry of P4,491,250.00 on December 21, 1998 and total withdrawals of P7 million on the same date; Oliver denied applying for any additional P4.5 million loan or authorizing withdrawals of P7 million.
Another loan for P1,396,310.45 appeared recorded as issued on January 5, 1999, allegedly connected to the P10 million credit line.
Oliver’s passbook showed no entries from December 17, 1998 to December 27, 1998, whereas the transaction history register reflected transactions for those dates including the December 21 entries.
Both the P4,491,250.00 and P1,396,310.45 loans were shown to be secured by a real estate mortgage dated January 8, 1998 covering the same property.
Oliver received collection letters dated May 13, 1999 and June 18, 1999, demanding payment for the two loans; she protested non-involvement and maintained she had not authorized such loans or withdrawals, and that her P10 million credit line was already paid in full.
A final demand letter dated July 14, 1999 and a notice of sale dated September 15, 1999 (extrajudicial foreclosure/sale scheduled October 21, 1999) prompted the filing of the complaint for injunction and damages on October 5, 1999.

Oliver’s Allegations and Claim

Oliver alleged: (1) the P4.5 million loan and P1,396,310.45 loan were not availed by her; (2) P7 million was withdrawn from her account without her authorization; (3) erasures and superimpositions in her passbook indicated manipulation to conceal the transactions; (4) the bank’s foreclosure actions were wrongful because the unauthorized withdrawal deprived her ability to pay outstanding loans; (5) she sought injunctive relief and damages (actual, moral, exemplary, attorney’s fees).

Castro’s Defense and Assertions

Castro admitted the general arrangement that Oliver would lend to borrowers at 4–5% monthly, with Castro screening borrowers and earning 10% commission on interest; admitted being instructed to pay P2 million monthly to settle the P10 million credit line, with payments subject to availability of funds.
Castro claimed she made alterations and erasures in Oliver’s passbook to reconcile it with the bank’s computer printout, denied hiding the passbook intentionally and asserted she returned it in January 1999.
Castro contended the transactions were not interim financing but distinct loans; she asserted Oliver applied for a P4.5 million loan evidenced by a promissory note dated December 21, 1998, and a P1,396,310.45 loan evidenced by a promissory note dated January 5, 1999.
Castro initially stated in judicial affidavit that upon Oliver’s instruction P7 million was withdrawn and deposited to one Ben Lim’s PSBank account on December 21, 1998; on cross-examination she later could not remember whether Oliver specifically instructed her and testified she could not produce the cash withdrawal slip for the P7 million.
Castro claimed the P1,396,310.45 was also a separate personal loan obtained by her from Oliver, secured by a mortgage on her Camella Homes III property.

PSBank’s Defense and Assertions

PSBank maintained that Oliver applied for and was granted a P10 million credit line secured by a real estate mortgage; because Oliver failed to pay this loan, she obtained another loan of P4.5 million (promissory note) and later a P1,396,310.45 loan (promissory note), both secured by the January 8, 1998 mortgage; release tickets dated December 21, 1998 and January 5, 1999 evidenced proceeds issuance.
PSBank contended it exercised due diligence and had right to foreclose on mortgaged property for unpaid loans.

Documentary Evidence Before the Courts

Oliver’s passbook (exhibiting erasures, missing entries between December 17 and 27, 1998) and the bank’s transaction history register (showing credit of P4,491,250.00 and debiting of P7 million on December 21, 1998).
Promissory notes dated December 21, 1998 (P4.5 million) and January 5, 1999 (P1,396,310.45) bearing Oliver’s signatures.
Release tickets dated December 21, 1998 and January 5, 1999 purportedly showing issuance of proceeds.
Debit Credit Memo and Savings Account Check Deposit Slip presented by Castro to show prior transactions between Oliver and Ben Lim (offered to contest the P7 million claim).
Collection letters (May 13, 1999; June 18, 1999), a final demand letter (July 14, 1999), and a notice of extrajudicial sale (September 15, 1999).
Crucially absent in evidence: the cash wi