Case Digest: Land Bank of the Philippines v. Onate, G.R. No. 192371, January 15, 2014, 713 SCRA 678

 Commercial Law | Forbearance

Facts: 

• Emmanuel C. Oñate opened and maintained seven trust accounts with Land Bank of the Philippines from 1978 to 1980.
• Each trust account had a beginning balance ranging from ₱43.98 to ₱1,312,896.00.
• The trust accounts were covered by Investment Management Accounts (IMAs) with Full Discretion, giving Land Bank authority to hold, invest, and reinvest the funds.
• On October 8, 1981, Land Bank demanded the return of ₱4 million it claimed was inadvertently deposited to one of Oñate's trust accounts, which he refused.
• 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.
• On September 7, 1992, Land Bank filed a Complaint seeking to recover the the amount of P8,222,687.89 plus interest at the legal rate of 12% per annum computed from May 15, 1992 until fully paid.

Allegations:

• Land Bank became a Trustee of certain funds belonging to Philippine Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB) through Deeds of Revocable Trust.
• Land Bank invested ₱4 million from PVTA and PVTB's trust accounts in a direct lending scheme to four companies: Republic Telephone Company, Inc. (RETELCO), Philippine Blooming Mills Company, Inc. (PBM), Cheng Ban Yek (CBY), and Philippine Tobacco Filters Corporation (PHILTOFIL).
• Land Bank issued four cashier’s checks for ₱1 million each payable to RETELCO, PBM, CBY, and PHILTOFIL.
• On November 24 and 28, 1980, RETELCO, PBM, CBY, and PHILTOFIL pre-terminated their loans and paid their obligations to Land Bank in the form of checks.
• Oñate's representative, Mr. Eduardo Polonio, delivered the checks to Land Bank. He fraudulently misrepresented to Land Bank that these payments were his additional capital contribution to his personal trust account (Trust Account No. 01-125).
• Land Bank credited the payments made by the corporate borrowers to Oñate's Trust Account No. 01-125.
• Oñate proceeded to withdraw the credited payments, causing damage and prejudice to Land Bank as the owner of the funds.

Oñate's Answer:

• Oñate denied any involvement or knowledge in the transaction between Land Bank and its clients PVTA and PVTB.
• He refuted the claim of fraudulent misrepresentation to induce the bank to deposit payments into his Trust Account No. 01-125.
• Oñate asserted that the setoff was without legal and factual bases and maintained that the funds in his trust accounts totaled ₱35,555,464.78 as of June 30, 1982, and reached ₱229,222,160.25 and $3,472,683.94 as of January 1993, with interest.

Board of Commissioners Report:

• RTC created a Board of Commissioners to examine the records of Oñate’s trust accounts and determine the total amount of deposits, withdrawals, funds invested, earnings, and expenses incurred.
• The Board submitted a consolidated report revealing undocumented withdrawals and over withdrawals from Oñate’s trust accounts.
• Oñate argued that the undocumented withdrawals should be treated as unauthorized transactions and the amounts credited back to his accounts.
• Land Bank did not file any comment or objection to the Board’s consolidated report.
• During the pre-trial conference, the parties agreed to submit the case for decision based on the Board's reports.

RTC-Makati: Dismissed Land Bank’s Complaint for its failure to establish that the amount of ₱4,086,888.89 allegedly "miscredited" to Oñate’s Trust Account No. 01-125 actually came from the investments of PVTA and PVTB.

• Ordered Land Bank to pay Oñate the total amount of ₱1,471,416.52 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.

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.
• The CA’s ruling is anchored on the 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. 
• Land Bank also failed to keep an accurate record and render an accounting of Oñate’s accounts. The entries in the passbooks are not sufficient because they do not specify where the funds withdrawn from Oñate’s accounts were invested.
• Land Bank is hereby ordered to pay defendant-appellant Oñate the sum of ₱60,663,488.11 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.

Issue: 

• Whether the imposition of interest is proper. YES

Land Bank’s Arguments:

• Land Bank challenges the 12% per annum interest rate imposed by the CA, arguing trust accounts differ from regular deposits and should incur only 6% per annum in the absence of stipulation, with no compounding.

Oñate’s Arguments:

• 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. 
• 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.

Held:

We deny the Petition.

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, 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, 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 ₱8,222,687.89 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 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, 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.

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 made (at which time the quantification of damages may be deemed to have been reasonably ascertained)." 

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" 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 ₱60,663,488.11 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, 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 ₱1,471,416.52, shall earn interest beginning May 31, 2006 or the day the RTC rendered its Decision granting said amount to Oñate. As to the undocumented withdrawals of ₱60,663,488.11 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 of 2013, 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 ₱1,471,416.52 shall commence to run on May 31, 2006, 
• to the undocumented withdrawals in the amounts of ₱60,663,488.11 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.

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Other Ruling:

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 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." 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" ₱4,086,888.89 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."

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 Court 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." In Velayo-Fong v. Spouses Velayo, 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.

While there are recognized exceptions to this rule, none exists in this case.

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."

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.

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, Rule 130 of the Rules of Court. Also, and as correctly 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."

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 ₱4,086,888.89 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. 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".

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., 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 ₱4,086,888.89 represents the proceeds of the pre-terminated loans of four of its clients, namely, RETELCO, PBM, CBY and PHILTOFIL. But it could only point to two entries made on two separate dates in the passbook.

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.

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 ₱1,471,416.52 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 ₱1,471,416.52 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 ₱4,086,888.89 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.

Without such right, Land Bank should return the amount of ₱1,471,416.52 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]." 

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. 

These are the obligations of Land Bank which it should have faithfully complied with in good faith. Unfortunately, Land Bank failed in its contractual duties to maintain accurate records of all investments and to regularly furnish 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 Manifestation 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" and "the folders being reviewed contained documents related to different trust accounts." 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."

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 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,  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. And in Philippine National Bank v. Court of Appeals, we held that "as between parties where negligence is imputable to one and not to the other, the former must perforce bear the 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. 

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:

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 x 

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,  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. 

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 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,  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.

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 ₱792,595.25 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 ₱4 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.

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. 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.

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.