PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and RORY W. LIM, respondents.
Facts:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ 24212467 in the
amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money was
to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private respondent's account at the
said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding receipt dated March 13, 1986 [T/T No.
284]1 which contained the assailed provision, to wit:
AGREEMENT
In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of
the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of message by telegraph or
cable companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all
risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable Bank checks 2 to
his suppliers in different amounts as payment for the merchandise that he obtained from them. When the checks were presented for
payment, five of them bounced for insufficiency of funds, 3 while the remaining three were held overnight for lack of funds upon
presentment.4 Consequent to the dishonor of these checks, Equitable Bank charged and collected the total amount of P1,100.00
from private respondent. The dishonor of the checks came to private respondent's attention only on April 2, 1986, when Equitable
Bank notified him of the penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the
dishonor of the checks he issued.
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his telegraphic
transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact,
petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the purchase of the
telegraphic transfer on March 13, 1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting damage that he suffered
due to petitioner's failure to make the timely transfer of funds which led to the dishonor of his checks.
Petitioner refused to heed private respondent's demand prompting the latter to file a complaint for damages with the Regional Trial
Court of Gingoog City. In his complaint, private respondent alleged that as a result of petitioner's total disregard and gross violation
of its contractual obligation to remit and deliver the sum of Two Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to
Equitable Banking Corporation, Cagayan de Oro Branch, private respondent's checks were dishonored for insufficient funds thereby
causing his business and credit standing to suffer considerably for which petitioner should be ordered to pay damages.
Answering the complaint, petitioner denied any liability to private respondent and interposed as special and affirmative defense the
lack of privity between it and private respondent as it was not private respondent himself who purchased the telegraphic transfer
from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the stipulation in the telegraphic
transfer application/form receipt
In its decision, the RTC of Gingoog City held petitioner liable for breach of contract and struck down the aforecited provision found in
petitioner's telegraphic transfer application form/receipt exempting it from any liability and declared the same to be invalid and
unenforceable. As found by the trial court, the provision amounted to a contract of adhesion wherein the objectionable portion was
unilaterally inserted by petitioner in all its application forms without giving any opportunity to the applicants to question the same and
express their conformity thereto
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with modifications the judgment of the trial court.
Issue: Whether or not the stipulation embodied in the standard application form/receipt furnished by petitioner for the purchase of a
telegraphic transfer which relieves it of any liability resulting from loss caused by errors or delays in the course of the discharge of its
services is valid. (NO)
Ruling:
A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party
may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party
merely affixes his signature or his "adhesion" thereto, 7 giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing. 18 Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely. 19 It is equally important to stress, though, that the Court
is not precluded from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be
ignored for being obviously too one-sided. 20
On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for being
subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. And when it
has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of the contract, or one
whose stature is such that he is expected to be more prudent and cautious with respect to his transactions, such party cannot later
on be heard to complain for being ignorant or having been forced into merely consenting to the contract.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its wrongful
acts on account of the assailed provision exempting it from any liability.
In Geraldez vs. Court of Appeals, it was unequivocally declared that notwithstanding the enforceability of a contractual limitation,
responsibility arising from a fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of
the Civil Code is quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the damage". Freedom of contract is subject to the
limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not
binding and will not be enforced.
The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be ratified or waived by
a contracting party. Article 1409 of the Civil Code states:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. The use of
telegraphic transfers have now become commonplace among businessmen because it facilitates commercial transactions. Any
attempt to completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault or
negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and therefore contrary to public policy.
Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the award of moral and exemplary damages
were proper.
Ruling for digest:
Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for the damage". Freedom of contract is subject
to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is
not binding and will not be enforced.
Article 1409 of the Civil Code states:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
In this case, the agreement providing non-liability on petitioner's part in case of loss caused by errors or delays despite its
recklessness and negligence is void for being contrary to public policy and interest. Resultingly, there being no dispute that
petitioner acted fraudulently and in bad faith, the award of moral and exemplary damages were proper
