Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

88013 March 19, 1990 SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents. Don P. Porcuincula for petitioner. San Juan, Gonzalez, San Agustin & Sinense for private respondent. CRUZ, J.: We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts. The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. The dishonored checks are the following: 1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73: 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00; 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and 8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2 As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check

issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4 In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs. After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6 The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. It is this ruling that is faulted in the petition now before us. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not

appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00. Now for the exemplary damages. The pertinent provisions of the Civil Code are the following: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 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. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having

been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired. ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs. SO ORDERED.

Republic SUPREME Manila FIRST DIVISION

of

the

Philippines COURT

G.R. No. 69162 February 21, 1992 BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR CANLAS and VIVIENE CANLAS,respondents. Leonen, Ramirez & Associates for petitioner. L. Emmanuel B. Canilao for private respondents. GRIO-AQUINO, J.: In a decision dated September 3, 1984, the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A. Canlas, et al., PlaintiffAppellees vs. Commercial Bank and Trust Company of the Philippines, DefendantAppellant," reduced to P105,000 the P465,000 damage-award of the trial court to the private respondents for an error of a bank teller which resulted in the dishonor of two small checks which the private respondents had issued against their joint current account. This petition for review of that decision was filed by the Bank. The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account No. 210-520-73 on April 25, 1977 in the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account No. 210-442-41 in the same branch. When the respondent spouses opened their joint current account, the "new accounts" teller of the bank pulled out from the bank's files the old and existing signature card of respondent Arthur Canlas for Current Account No. 210-442-41 for use as I D and reference. By mistake, she placed the old personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was miscredited to Arthur's personal account (p. 9, Rollo). The spouses subsequently deposited other amounts in their joint account. However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to Mrs. Canlas' parents. On December 15, 1977, the private respondents filed a complaint for damages against CBTC in the Court of First Instance of Pampanga (p. 113, Rollo). On February 27, 1978, the bank filed a motion to dismiss the complaint for improper venue. The motion was denied.

During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged. As the surviving corporation under the merger agreement and under Section 80 (5) of the Corporation Code of the Philippines, BPI took over the prosecution and defense of any pending claims, actions or proceedings by and against CBTC. On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision against BPI, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered sentencing defendant to pay the plaintiff the following: 1. P 5,000.00 as actual damages; 2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for plaintiff Vivienne S. Canlas representing moral damages; 3. P 150.000.00 as exemplary damages; 4. P 10,000.00 as attorney's fees; and 5. Costs. (p. 36, Rollo). On appeal, the Intermediate Appellate Court deleted the actual damages and reduced the other awards. The dispositive portion of its decision reads: WHEREFORE, the judgment appealed from is hereby modified as follows: 1. The award of P50,000.00 in actual damages is herewith deleted. 2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees Arthur Canlas and Vivienne S. Canlas, not P50,000.00 each. 3. Exemplary damages is likewise reduced to the sum of P50,000.00 and attorney's fees to P5,000.00. Costs against the defendants appellant. (p. 40, Rollo.) Petitioner filed this petition for review alleging that the appellate court erred in holding that: 1. The venue of the case had been properly laid at Pampanga in the light of private respondents' earlier declaration that Quezon City is their true residence. 2. The petitioner was guilty of gross negligence in the handling of private respondents' bank account. 3. Private respondents are entitled to the moral and exemplary damages and attorney's fees adjudged by the respondent appellate court. On the question of venue raised by petitioner, it is evident that personal actions may be instituted in the Court of First Instance (now Regional Trial Court) of the province where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Section 2[b], Rule 4 of the Rules of Court). In this case, there was ample proof that the residence of the plaintiffs is B. Sacan, Porac, Pampanga (p. 117, Rollo). The city address of Mrs. Canlas' parents was placed by the private respondents in their application for a joint checking account, at the suggestion of the new accounts teller, presumably to facilitate mailing of the bank statements and communicating with the private respondents in case any problems should arise involving the account. No waiver of their provincial residence for purposes of determining the venue of an

action against the bank may be inferred from the so-called "misrepresentation" of their true residence. The appellate court based its award of moral and exemplary damages, and attorney's fees on its finding that the mistake committed by the new accounts teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said court further stressed that it cannot absolve the petitioner from liability for damages to the private respondents, even on the assumption of an honest mistake on its part, because of the embarrassment that even an honest mistake can cause its depositors (p. 31, Rollo). There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family. In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367), this Court stressed the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care. 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. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. . . . The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Apparently, the officials and employees tasked to do that did not perform their duties with due care, as may be gathered from the testimony of the bank's lone witness, Antonio Enciso, who casually declared that "the approving officer does not have to see the account numbers and all those things.Those are very petty things for the approving manager to look into " (p. 78, Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect account number that the bank teller wrote on the initial deposit slip for the newly-opened joint current account of the Canlas spouses, that sparked this half-a-million-peso damage suit against the bank. While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to the private

respondents for which they are entitled to recover reasonable moral damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is proper for the private respondents were compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the absence of malice and bad faith renders the award of exemplary damages improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778). WHEREFORE, the petition for review is granted. The appealed decision is MODIFIED by deleting the award of exemplary damages to the private respondents. In all other respects, the decision of the Intermediate Appellate Court, now Court of Appeals, is AFFIRMED. No costs. SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,[2] which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of money. Sdaad On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187[3] which he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757[4] dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side.[5] It appears that the check belonged to a certain Henry Chan who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondents presentation to the bank of his passbook. Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. [6] On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit check[7] because it was "not of the type or style of checks issued by Continental Bank International."[8] Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private respondents son, to inform his father that the check bounced.[9] Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondents son wrote to Reyes stating that the check had been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of town.[10] Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of his sons promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the banks lawyers for appropriate action to protect the banks interest.[11] This was followed by a letter of the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00. [12]

In reply, private respondent wrote petitioners counsel on April 20, 1985 [13] stating that he deposited the check "for clearing purposes" only to accommodate Chan. He added: "Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient. If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances. Scsdaad xxx......xxx......xxx." On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or costs of suit. Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance so that he could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with one of petitioners employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He claimed that petitioner had no one to blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" x x x "if not altogether due to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court. Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondents passbook. Thus, private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorneys fees of P5,000.00 plus P300.00 honorarium per appearance. Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it asserted that per paragraph 2 of the Rules and Regulations

governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on account of the draft or check deposited." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private respondents claim could be ventilat ed in another case. Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without prejudice. On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private respondent liable based on the checks face value alone. To so hold him liable "would render inutile the requirement of clearance from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latters account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner committed "clear gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents passbook and, before the check was cleared and in crediting the amount indicated therein in private respondents account. It stressed that the mere deposit of a check in private respondents account did not mean that the check was already private respondents property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the banks rules and regulations. Furthermore, petitioners contention that private respondent warranted the checks genuineness by endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank from deception or fraud. The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where this Court stated that a personal check is not legal tender or money, and held that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account. Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this petition for review on certiorari, raising the following issues: 1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON. 3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031): "SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course (a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b)......That the instrument is at the time of his indorsement, valid and subsisting. And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it." Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract. [15] In People v. Maniego,[16] this Court described the liabilities of an indorser as follows: Juris "Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right to enforce payment of the instrument for the full amount thereof against all parties liable thereon. Among the parties liable thereon is an indorser of the instrument, i.e., a person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some other capacity. Such an indorser who indorses without qualification, inter alia engages that on due presentment, * * (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any subsequent indorser who may be compelled to pay it. Maniego may also be deemed an accommodation party in the light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. As such, she is under the law liable

on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an accommodation party, although she has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them is in effect that of principal and surety, the accommodation party being the surety." It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.[17] However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands looking into the events that led to the encashment of the check. Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of privat e respondents son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being returned yet." [18] We hold, however, that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe. In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear: "4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may allow withdrawal by another upon the depositors written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositors savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank. 5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability). 6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner above provided, upon presentation of the depositors savings passbook and with the withdrawal form supplied by the Bank at the counter."[19] Scjuris Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up

withdrawal slip, and (b) the depositors passbook. Private respondent admits that he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private respondents two signatures affixed on the proper spaces is buttressed by petitioners allegation in the instant petition that had private respondent indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write any amount and to collect the same." [20] Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel should have been duly warned that Gayon, who was also employed in petitioners Buendia Ave. Extension branch,[21] was not the proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having signed such authority. However, considering petitioners clear admission that the withdrawal slip was a blank one except for private respondents signature, the unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private respondent and Gayon so as to render the former liable for the amount withdrawn. Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall be entered in the depositors passbook. The fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00.[22] In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus: "2.......All deposits will be received as current funds and will be repaid in the same manner; provided, however, that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only and credited to the account only upon receipt of the notice of final payment. Collection charges by the Banks foreign correspondent in effecting such collection shall be for the account

of the depositor. If the account has sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether or not the defective items can be returned to the depositor; and the Bank is hereby authorized to execute immediately the necessary corrections, amendments or changes in its record, as well as on the savings passbook at the first opportunity to reflect such cancellation." (Italics and underlining supplied.) Jurissc As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a managers check or ordinary check, is not legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondents account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Courts pronouncement that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements."[24] The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a managers check.[25] Misjuris In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank, the Philippine National Bank in New York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlanticos foreign department. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan. Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship."[27] As such, in dealing with its depositors, a bank should

exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care.[28] In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners detriment. As this Court once said on this matter: "Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that." [29] Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents account shows that before he deposited $2,500.00, private respondent had a balance of only $750.00.[30] Upon private respondents deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00.[31] On September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. [32] On November 19, 1984 the word "hold" was written beside the balance of $109.92. [33] That must have been the time when Reyes, petitioners branch manager, was informed unoffic ially of the fact that the check deposited was a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the following day, November 20, 1984. [34] According to Reyes, Wells Fargo Bank International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.[35] Jjlex From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. Reyes contention that after the lapse of the 35 -day period the

amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal,[36] is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system. While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." [37] The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED. SO ORDERED. Newmis

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents. DECISION CARPIO, J.:

The Case Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost of suit.

The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting. Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6. On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to

Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed. [4] PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez. The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000. In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused. On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint. L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the decision of the trial court. On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of this book shall raise the

presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally.[9] At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz. The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action. Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key.[10] When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned tr ansaction was now out of the lock and key and presumptively ready for a business transaction. [11] Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal. The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a managers check.

The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan. The dispositive portion of the decision of the trial court reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint. The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees. With costs against plaintiff. SO ORDERED.[12]

The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit: Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this chapter. The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered. 1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit; and 2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees. SO ORDERED.[13] Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank. The dispositive portion of the Resolution reads as follows: WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit. SO ORDERED.[15] Hence, this petition.

I.

II.

III.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]

The Ruling of the Court The petition is partly meritorious.

The Issues Solidbanks Fiduciary Duty under the Law Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. The law on quasidelict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisio ns concerning simple loan. There is a debtorcreditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[21] This fiduciary relationship means that the banks obligation to observe high 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. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on the bank a higher standard of integrity and performance in complying with its

obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is dema ndable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor. Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same. In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.[25] The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not agree with either court. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred.[26]Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent.[27] L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the

unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre. We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so. Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan: xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.) L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned

withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook.

SO ORDERED.

Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence.[30] We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability.[31] Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract. [32]

Mitigated Damages Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced. In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.

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

COURT

OF

DECISION CARPIO, J.: The Case Before us is a petition for review of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 34382 dated 10 December 1996 modifying the Decision [2] of the Regional Trial Court, Fourth Judicial Region, Assisting Court, Bian, 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[3] against petitioner Philippine Banking Corporation (BANK).[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 Pagsaligans 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 BANKs 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. 20-97983 dated 24 October 1983. Marcos bewailed the BANKs 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[5] has earned accumulated 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 BANKs 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 attor neys 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[7] as alleged in the complaint. The P764,897.67 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.[8] The BANK 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 cashiers 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, attorneys fees and cost of suit. On 15 December 1989, the trial court on motion of Marcos couns el 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.[9] The trial court also held that the answer is a mere scrap of paper because a copy was not 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 BANKs 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 BANKs 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 BANKs motion and directed the BANK to present its evidence. Trial then ensued. The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANKs 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 BANKs 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 attorneys 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 forP420,000. 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 BANKs 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.[11] Yet, after the time deposits had matured, the BANK 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,[12] the remaining time deposits after Marcos had executed the Deed of Assignment for P760,000. According to the trial court, a security of only P4,867.67[13] for a loan worth P595,875 (less 30% 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 cour t, an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager has such authority to grant.[14] Thus, the trial court held that the BANK could not have granted Marcos the loan covered by Promissory Note No. 20979-83 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 checks 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 BANKs 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 BANKs lapses to Pagsaligans scheme to defraud Marcos of his time deposits. The trial court also took note of Pagsaligans 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[15] and thus failed to attend the hearings without presenting proof of his physical condition. The trial court disregarded the BANKs 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 deductedP595,875, 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:

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 attorneys 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 BANKs 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 BANKs failure to serve a notice of the motion to Marcos is not a valid ground to deny the motion to crossexamine. 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 crossexamination. 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 theP664,897.67 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 ones 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.

1)

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 toP760,000.00.[17] (Emphasis supplied) 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 attorneys fees. It noted that the trial court failed to justify the award of attorneys 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.[18] (Emphasis supplied) The Issues The BANK anchors this petition on the following issues: 1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENTS 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 PETITIONERS 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 BANKs right to procedural due process when the trial court denied the BANKs 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 exparte 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.[20] Nevertheless, it is within the trial courts discretion to reopen the evidence submitted by the plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiffs witnesses or introducing countervailing evidence.[21] The 1964 Rules of Court, the rules then in effect at the time of the hearing of this case, recognized the trial courts exercise of this discretion. The 1997 Rules of Court retained this discretion.[22] Section 3, Rule 18 of the 1964 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 BANKs oral manifestation to grant its motion to cross-examine Marcos because there was no proof of service on Marcos. The BANKs 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 courts 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 crossexamine 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. [24] In a motion to crossexamine, 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 crossexamination. 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[25] to this case. The BANK could have easily re-filed the motion to crossexamine 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. [26] Clearly, the BANKs failure to cross-examine is imputable to the BANK when it lost this right[27] as it was in default and failed thereafter to exhaust the remedies to 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 BANKs 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 BANKs 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 redirect examination of Pagsaligan. The BANK postponed the hearings three times[29] because of its inability to secure Pagsaligans presence during the hearings. The BANK could have presented another witness or its other evidence but it obstinately insisted on the resetting of the hearing because of Pagsaligans absence allegedly due to illness. The BANKs propensity for postponements had long delayed the case. Its motion for postponement based on Pagsaligans 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 BANKs 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 BANKs 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 BANKs 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[31] requiring banks to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. [32] The Court reiterated this fiduciary duty of banks in subsequent cases. [33] Although RA No. 8791 took effect only in the year 2000, [34] 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. [35] This fiduciary relationship means that the banks obligation to observe high 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 BANKs 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[36] we pointed out the depositors reasonable expectations from a bank and the banks 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 BANKs 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 BANKs 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 BANKs negligence and inefficiency or Pagsaligans 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. [37] Thus, we held: 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. [39] 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.[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.[41] 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.[42] The absence of the original of the documentary evidence casts suspicion on the existence of Promissory Note No. 20-979-83 considering the BANKs 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.[43] What the BANK insists on in this petition is the trial courts violation of its right 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.[44] We uphold the finding of the Court of Appeals as to the amount of the time deposits as 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 lettercertification reflect the true nature of the transaction. Marcos is bound by the lettercertification 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[46] without, however, specifying the rate of interest. We, therefore, impose the legal interest of 12% per annum, the legal interest for the forbearance of money,[47] on each of the three trust receipts. Based on Marcos testimony[48] and the BANKs letter of demand,[49] the trust receipt agreements 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.[50] The BANKs letter of demand is dated 6 March 19 89. We 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[54] of P616,318.92 as of 6 March 1987.[55] Thus, Marcos total funds with the BANK amounted to P1,381,216.59 as of the maturity 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 comp laint with the trial court, is P211,622.96.[56] From 30 August 1989, the interest due on the accumulated interest of P211,622.96 should earn legal interest at 12% per annum pursuant to Article 2212[57] of the Civil Code. The BANKs dismal failure to account for Marcos money justifies the award of moral[58] and exemplary damages.[59] Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch manager which caused Marcos mental

anguish and serious anxiety.[60] Moral damages of P100,000 is 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. [62] The public relies on the banks fiduciary duty to 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 MarcosP500,404.11, 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 ODERED.

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS,respondents. DECISION TINGA, J.: Called to fore in the present petition is a classic textbook question if a bank pays out on a forged check, is it liable to reimburse the drawer from whose account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked tenuous reasoning to acquit the bank of liability. We reverse, applying time-honored principles of law. The salient facts follow. Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction), while based in Bian, Laguna, maintained a current account with defendant Far East Bank and Trust Company[1] (FEBTC) at the latters BelAir, Makati branch.[2] The sole signatory to Samsung Constructions account was Jong Kyu Lee (Jong), its Project Manager,[3] while the checks remained in the custody of the companys accountant, Kyu Yong Lee (Kyu). [4] On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel -Air, Makati. The check, payable to cash and drawn against Samsung Constructions current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Constructions account. After ascertaining there were enough funds to cover the check,[5] she compared the signature appearing on the check with the specimen signature of Jong as contained in the specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on the check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards.[6] At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked the signature on the check as against that on the signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III (Sempio), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga.

The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had not prepared such a check for Jongs signature, Kyu perused the checkbook and found that the last blank check was missing.[7] He reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check.[8] Jong proceeded to the police station and consulted with his lawyers.[9] Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court.[10] In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.[11] In response, FEBTC said that it was still conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, and attorneys fees. [12] The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court (RTC) of Manila, Branch 9.[13] During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs signature was forged. Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her examination, she concluded that Jongs signature had been forged on the check. On the other hand, FEBTC, which had sought the assistance of the Philippine National Police (PNP),[14] presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her findings showed that Jongs signature on the check was genuine.[15] Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jongs signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung Constructions account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest tolled from the time the complaint was filed, and attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00). FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of Appeals rendered a Decision,[16] reversing the RTC Decision and absolving FEBTC from any liability. The Court of Appeals held that the contradictory findings of the NBI and the PNP created doubt as to whether there was forgery. [17] Moreover, the appellate court also held that assuming there was forgery, it occurred due to the negligence of Samsung Construction, imputing blame on the accountant Kyu for lack of care and prudence in keeping the checks, which if observed would have prevented Sempio from gaining access thereto.[18] The Court of Appeals invoked the ruling in PNB v. National City Bank of New York[19] that, if a loss, which must be borne by one or two innocent

persons, can be traced to the neglect or fault of either, such loss would be borne by the negligent party, even if innocent of intentional fraud. [20] Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned the RTCs finding of forgery. It also contends that the appellate court erred in finding that it had been negligent in safekeeping the check, and in applying the equity principle enunciated in PNB v. National City Bank of New York. Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to examine the record to draw out the correct conclusions. Upon examination of the record, and based on the applicable laws and jurisprudence, we reverse the Court of Appeals. Section 23 of the Negotiable Instruments Law states: When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. (Emphasis supplied) The general rule is to the effect that a forged signature is wholly inoperative, and payment made through or under such signature is ineffectual or does not discharge the instrument.[21] If payment is made, the drawee cannot charge it to the drawers account. The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the makers signature and is expected to know and compare it.[22] The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance. [23] Brady, in his treatise The Law of Forged and Altered Checks, elucidates: When a person deposits money in a general account in a bank, against which he has the privilege of drawing checks in the ordinary course of business, the relationship between the bank and the depositor is that of debtor and creditor. So far as the legal relationship between the two is concerned, the situation is the same as though the bank had borrowed money from the depositor, agreeing to repay it on demand, or had bought goods from the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the same sense that any debtor owes money to his creditor. Added to this, in the case of bank and depositor, there is, of course, the banks obligation to pay checks drawn by the depositor in proper form and presented in due course. When the bank receives the deposit, it impliedly agrees to pay only upon the depositors order. When the bank pays a check, on which the depositors signature is a forgery, it has failed to comply with its contract in this respect. Therefore, the bank is held liable.

The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if a bank pays the check, it is paying out its own money and not the depositors. The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the loss. Even in a case where the forged check was drawn by the depositors partner, the loss was placed upon the bank. The case referred to is Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank for money which had been deposited to the plaintiffs credit and which the bank had paid out on checks bearing forgeries of the plaintiffs signature. xxx It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine months after discovering the forgery, before notifying the bank, did not, as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from holding the bank liable. xxx This rule of liability can be stated briefly in these words: A bank is bound to know its depositors signature. The rule is variously expressed in the many decisions in which the question has been considered. But they all sum up to the proposition that a bank must know the signatures of those whose general deposits it carries.[24] By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in his book Negotiable Instruments and Other Related Commercial Paper wrote, thus: The deposit contract between a payor bank and its customer determines who can draw against the customers account by specifying whose signature is necessary on checks that are chargeable against the customers account. Therefore, a check drawn against the account of an individual customer that is signed by someone other than the customer, and without authority from her, is not properly payable and is not chargeable to the customers account, inasmuch as any unauthorized signature on an instrument is ineffective as the signature of the person whose name is signed. [25] Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is forged.[26] On the premise that Jongs signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived.[27] The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check.[28] Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed to be genuine until it is proved to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be done by convincing testimony and effective illustrations.[29]

In ruling that forgery was not duly proven, the Court of Appeals held: [There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by handwriting experts from the NBI and the PNP, both agencies of the government. xxx These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by clear, positive and convincing evidence. This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponents expert witness to stand uncontradicted, thus the spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide which version to believe, and explain why or why not such version is more credible than the other. Reliance therefore cannot be placed merely on the fact that there are colliding opinions of two experts, both clothed with the presumption of official duty, in order to draw a conclusion, especially one which is extremely crucial. Doing so is tantamount to a jurisprudential cop-out. Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has long deferred to the appellate court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through the minutiae that scatters the factual field. In failing to thoroughly evaluate the evidence before it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves a stern rebuke. Yet, the appellate courts error in this case warrants special attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted as a governing standard by every court in the land, barely any actionable claim would prosper, defeated as it would be by the mere invocation of the existence of a contrary expert opinion. On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and explained its reason behind the conclusion: After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that the testimony of the NBI document examiner is more credible because the testimony of the PNP Crime Laboratory Services document examiner reveals that there are a lot of differences in the questioned signature as compared to the standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the manner of execution of the standard signatures used reveals that it is a free rapid continuous execution or stroke as shown by the tampering terminal stroke of the signatures whereas the questioned signature is a hesitating slow drawn execution stroke. Clearly, the person who executed the questioned signature was hesitant when the signature was made.[30]

During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that apparently, there [are] differences on that questioned signature and the standard signatures.[31] This Court, in examining the signatures, makes a similar finding. The PNP expert excused the noted differences by asserting that they were mere variations, which are normal deviations found in writing. [32] Yet the RTC, which had the opportunity to examine the relevant documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert as unconvincing. During the trial, she was confronted several times with apparent differences between strokes in the questioned signature and the genuine samples. Each time, she would just blandly assert that these differences were just variations,[33] as if the mere conjuration of the word would sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing alone, would be of little or no value unless supported by sufficiently cogent reasons which might amount almost to a demonstration.[34] The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward stroke in the signature, or the point to the short stroke of the terminal in the capital letter L, as referred to by the PNP examiner who had marked it in her comparison chart as point no. 6. To the plain eye, such upward final stroke consists of a vertical line which forms a ninety degree (90) angle with the previous stroke. Of the twenty one (21) other genuine samples examined by the PNP, at least nine (9) ended with an upward stroke. [35] However, unlike the questioned signature, the upward strokes of eight (8) of these signatures are looped, while the upward stroke of the seventh[36] forms a severe forty-five degree (45) with the previous stroke. The difference is glaring, and indeed, the PNP examiner was confronted with the inconsistency in point no. 6. Q: Now, in this questioned document point no. 6, the s stroke is directly upwards. A: Yes, sir. Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke s is pointing directly upwards? A: There is none in the standard signature, sir.[37] Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere variation,[38] the same excuse she proffered for the other marked differences noted by the Court and the counsel for petitioner. [39] There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as an expert witness. A document examiner for fifteen years, she had been promoted to the rank of Senior Document Examiner with the NBI, and had held that rank for twelve years prior to her testimony. She had placed among the top five examinees in the Competitive Seminar in Question Document Examination, conducted by the NBI Academy, which qualified her as a document examiner.[40] She had trained with the Royal Hongkong Police Laboratory and is a member of the International Association for Identification.[41] As of the time she testified, she had examined more than fifty to fifty-five thousand questioned documents, on an average of fifteen to twenty documents a day.[42] In comparison, PNP document examiner

Perez admitted to having examined only around five hundred documents as of her testimony.[43] In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method consisting of analysis, recognition, comparison and evaluation of the writing habits with the use of instruments such as a magnifying lense, a stereoscopic microscope, and varied lighting substances. She also prepared enlarged photographs of the signatures in order to facilitate the necessary comparisons.[44] She compared the questioned signature as against ten (10) other sample signatures of Jong. Five of these signatures were executed on checks previously issued by Jong, while the other five contained in business letters Jong had signed.[45] The NBI found that there were significant differences in the handwriting characteristics existing between the questioned and the sample signatures, as to manner of execution, link/connecting strokes, proportion characteristics, and other identifying details.[46] The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly demonstrate why such findings were more credible than those of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to examine the specimen signature card signed by Jong, which was relied upon by the employees of FEBTC in authenticating Jongs signature. The distinction is irrelevant in establishing forgery. Forgery can be established comparing the contested signatures as against those of any sample signature duly established as that of the persons whose signature was forged. FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature cards. The crucial fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged. At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the signature on the check was not his.[47] The assertion may seem self-serving at first blush, yet it cannot be ignored that Jong was in the best position to know whether or not the signature on the check was his. While his claim should not be taken at face value, any averments he would have on the matter, if adjudged as truthful, deserve primacy in consideration. Jongs testimony is supported by the findings of the NBI examiner. They are also backed by factual circumstances that support the conclusion that the assailed check was indeed forged. Judicial notice can be taken that is highly unusual in practice for a business establishment to draw a check for close to a million pesos and make it payable to cash or bearer, and not to order. Jong immediately reported the forgery upon its discovery. He filed the appropriate criminal charges against Sempio, the putative forger. [48] Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. The Court of Appeals concluded that Samsung Construction was negligent, and invoked the doctrines that where a loss must be borne by one of two innocent

person, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded[49] or who put into the power of the third person to perpetuate the wrong.[50] Applying these rules, the Court of Appeals determined that it was the negligence of Samsung Construction that allowed the encashment of the forged check. In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly stole the blank check and who presumably is responsible for its encashment through a forged signature of Jong Kyu Lee. Sempio was assistant to the Korean accountant who was in possession of the blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean accountant been more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to effect the forgery. Besides, Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the date the check was encashed, he was there to certify that it was a genuine check issued to purchase equipment for the company.[51] We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. [52] Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case. The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence on his part would have prevented the forgery. We cannot sustain this tar and feathering resorted to without any basis. The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such partys negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. The Courts pronouncement in PCI Bank v. Court of Appeals[53] applies in this case, to wit: [T]he mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.[54] Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the checks inside a safety box,[55] and no contrary version was presented by FEBTC. However, such testimony cannot prove that the checks were indeed kept in a safety box, as Jongs testimony on that point is hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the checks were kept.

Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung Constructions part. The presumption remains that every person takes ordinary care of his concerns,[56] and that the ordinary course of business has been followed.[57] Negligence is not presumed, but must be proven by him who alleges it.[58] While the complaint was lodged at the instance of Samsung Construction, the matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be required as well to prove that it was not negligent, because the legal presumption remains that ordinary care was employed. Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. While the payee, as in this case, may not have the personal knowledge as to the standard procedures observed by the drawer, it well has the means of disputing the presumption of regularity. Proving a negative fact may be a difficult office,[59] but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung Construction, hence we cannot agree with the Court of Appeals finding of negligence. The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part of the bank in its acceptance and payment of the forged check. However, the degree of diligence exercised by the bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under Section 23 by his own negligence. The rule of equity enunciated in PNB v. National City Bank of New York, [60] as relied upon by the Court of Appeals, deserves careful examination. The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the forged signature is held to bear the loss, because he has been negligent in failing to recognize that the handwriting is not that of his customer. But it follows obviously that if the payee, holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a negligence prior to that of the banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may lose his right to cast the loss upon the banker.[61] (Emphasis supplied) Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the opportunity, abstract some of the check blanks, forges the depositors signature and collect on the checks from the bank. [62] And for another, in point of fact Samsung Construction was not negligent at all since it reported the forgery almost immediately upon discovery.[63]

It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the drawer, but of indorsers. The same circumstance attends PNB v. Court of Appeals,[64] which was also cited by the Court of Appeals. It is accepted that a forged signature of the drawer differs in treatment than a forged signature of the indorser. The justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in a position to verify the drawers signature by comparison with one in his hands, but has ordinarily no opportunity to verify an indorsement.[65] Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the drawers signature or a forged indorsement. But the bank may, as a general rule, recover back the money which it has paid on a check bearing a forged indorsement, whereas it has not this right to the same extent with reference to a check bearing a forgery of the drawers signature. [66] The general rule imputing liability on the drawee who paid out on the forgery holds in this case. Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might as well comment on the banks performance of its duty. It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are several troubling circumstances that lead us to believe that the bank itself was remiss in its duty. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand pesos require only the approval of the teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer; and should the amount exceed one hundred thousand pesos, the concurrence of two bank officers is required.[67] In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer, instead of to the order of a specified person.[68] Moreover, the check was presented for payment by one Roberto Gonzaga, who was not designated as the payee of the check, and who did not carry with him any written proof that he was authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee of Samsung Construction.[69] These circumstances are already suspicious if taken independently, much more so if they are evaluated in concurrence. Given the shadiness attending Gonzagas presentment of the check, it was not sufficient for FEBTC to have merely complied with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority of Gonzaga to collect payment therefor. According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone to verify the check. [70] She added that

calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank, but an extra effort. [71] Even assuming that such personal verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the absence of any proof of verification from the drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at the bank at the time the check was presented. FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf of Samsung Construction. It was even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the phone over to Sempio.[72] However, the only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio personally,[73] and had met Sempio for the first time only on the day the check was encashed.[74] In fact, Velez had to inquire with the other officers of the bank as to whether Sempio was actually known to the employees of the bank.[75] Obviously, Velez had no personal knowledge as to the past relationship between FEBTC and Sempio, and any averments of her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air branch, including those who supposedly had transacted with Sempio before. Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest degree of care and diligence is required of banks. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.[76] Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the questionable check was his. Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor.[77] A bank is liable, irrespective of its good faith, in paying a forged check.[78]

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent. SO ORDERED.

Heirs of Manlapat v. Ca DECISION TINGA, J.: Before this Court is a Rule 45 petition assailing the Decision[1] dated 29 September 1994 of the Court of Appeals that reversed the Decision[2]dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No. T9327-P(M) as void ab initio and ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners predecessor-in-interest. The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located at Panghulo, Obando, Bulacan. The property had been originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise in 1916. It remained unregistered until 8 October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent issued in Eduardos name[3] that was entered in the Registry of Deeds of Meycauayan, Bulacan. [4] The subject lot is adjacent to a fishpond owned by one

Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).[5] On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an area of 553 square meters to Ricardo. The sale is evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo (Kasulatan)[6] which was signed by Eduardo himself as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez signing as witness. The deed was notarized by Notary Public Manolo Cruz.[7] On 4 April 1963, the Kasulatan was registered with the Register of Deeds of Bulacan.[8] On 18 March 1981, another Deed of Sale[9] conveying another portion of the subject lot consisting of 50 square meters as right of way was executed by Eduardo in favor of Ricardo in order to reach the portion covered by the first sale executed in 1954 and to have access to his fishpond from the provincial road.[10] The deed was signed by Eduardo himself and his wife Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.[11] In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo, executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag deposited the owners duplicate certificate of OCT No. P -153(M) with the bank. On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the name of Eduardo.[12] His heirs, the Cruzes, were not immediately aware of the consummated sale between Eduardo and Ricardo. Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about the sale and the issuance of the OCT in the name of Eduardo. Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners on the mortgage and obtain the surrender of the OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners were informed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for the purpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, were unwilling to surrender the OCT. [14]

Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went to RBSP which had custody of the owners duplicate certificate of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar), the Cruzes sought to borrow the owners duplicate certificate for the purpose of photocopying the same and thereafter showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to bring the owners duplicate certificate outside the bank premises when the latter showed theKasulatan.[15] The Cruzes returned the owners duplicate certificate on the same day after having copied the same. They then brought the copy of the OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same to him to secure his legal opinion as to how the Cruzes could legally protect their interest in the property and register the same.[16] Flores suggested the preparation of a subdivision plan to be able to segregate the area purchased by Ricardo from Eduardo and have the same covered by a separate title.[17] Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration Officer, Director III, Legal Affairs Department, Land Registration Authority at Quezon City, who agreed with the advice given by Flores.[18] Relying on the suggestions of Flores and Arandilla, the Cruzes hired two geodetic engineers to prepare the corresponding subdivision plan. The subdivision plan was presented to the Land Management Bureau, Region III, and there it was approved by a certain Mr. Pambid of said office on 21 July 1989. After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked for the owners duplicate certificate from Salazar. The Cruzes informed him that the presentation of the owners duplicate certificate was necessary, per advise of the Register of Deeds, for the cancellation of the OCT and the issuance in lieu thereof of two separate titles in the names of Ricardo and Eduardo in accordance with the approved subdivision plan. [19] Before giving the owners duplicate certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the latter a clearance to borrow the title. Atty. Santiago would give the clearance on the condition that only Cruzes put up a substitute collateral, which they did. [20] As a result, the Cruzes got hold again of the owners duplicate certificate. After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the subdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455 square meters in the name of Eduardo.[21] On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title they had earlier given as substitute collateral. After securing the new separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M) through the barangay captain and paid the real property tax for 1989.[22]

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector, Department III of the Central Bank of the Philippines, inquiring whether they committed any violation of existing bank laws under the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply letter advising the Cruzes, since the matter is between them and the bank, to get in touch with the bank for the final settlement of the case.[23] In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation. It was only then that he learned of the dealings of the Cruzes with the bank which eventually led to the subdivision of the subject lot and the issuance of two separate titles thereon. In exchange for the full payment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the name of Eduardo.[24] As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the issuance of the TCTs, to wit: (1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan; (2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz, et. [sic] al.; and (3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz and Consuelo Cruz, et al.[25] After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs of Eduardo, the dispositive portion of which reads: WHEREFORE, premised from the foregoing, judgment is hereby rendered: 1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as void ab initio and ordering the Register of Deeds, Meycauayan Branch to cancel said titles and to restore Original Certificate of Title No. P-153(M) in the name of plaintiffs predecessor-in-interest Eduardo Manlapat; 2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz and Rosalina

Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo Manlapat, jointly and severally, the following: a)P200,000.00 as moral damages; b)P50,000.00 as exemplary damages; c)P20,000.00 as attorneys fees; and d)the costs of the suit. 3.Dismissing the counterclaims. SO ORDERED.[26] The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this matter, it ruled that petitioners were bona fide mortgagors of an unclouded title bearing no annotation of any lien and/or encumbrance. This fact, according to the trial court, was confirmed by the bank when it accepted the mortgage unconditionally on 25 November 1981. It found that petitioners were complacent and unperturbed, believing that the title to their property, while serving as security for a loan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice, said title was subdivided into two portions, leaving them a portion of 455 square meters from the original total area of 1,058 square meters, all because of the fraudulent and negligent acts of respondents and RBSP. The trial court ratiocinated that even assuming that a portion of the subject lot was sold by Eduardo to Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes which eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of petitioners.[27] Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled that although the act of the Cruzes could be deemed fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of negligence in letting the Cruzes borrow the owners duplicate certificate of the OCT. Neither the bank nor its manager had business entrusting to strangers titles mortgaged to it by other persons for whatever reason. It was a clear violation of the mortgage and banking laws, the trial court concluded. The trial court also ruled that although Salazar was personally responsible for allowing the title to be borrowed, the bank could not escape liability for it was guilty of contributory negligence. The evidence showed that RBSPs legal counsel was sought for advice regarding respondents request. This could only mean that RBSP through its lawyer if not through its manager had known in advance of the Cruzes intention and still it did nothing to prevent the eventuality. Salazar was not even summarily dismissed by the bank if he was indeed the sole person to blame. Hence, the banks claim for damages must necessarily fail.[28]

The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of its declaration that reconveyance was in order. As to Flores, his work being ministerial as Deputy Register of the Bulacan Registry of Deeds, the trial court absolved him of any liability with a stern warning that he should deal with his future transactions more carefully and in the strictest sense as a responsible government official.[29] Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court of Appeals. The appellate court, however, reversed the decision of the RTC. The decretal text of the decision reads: THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costs against the appellees. SO ORDERED.[30] The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 or before the 1981 mortgage, Eduardo already sold to Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals noted, is even supported by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered with the Register of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the second time, Eduardo sold to Ricardo a separate area containing 50 square meters, as a road right-of-way.[31] Clearly, the OCT was issued only after the first sale. It also noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even of the banks counsel.[32] Hence, the imposition of damages cannot be justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misled the bank into accepting the entire area as a collateral since the 603-square meter portion did not anymore belong to him. The appellate court, however, concluded that there was no conspiracy between the bank and Salazar.[33] Hence, this petition for review on certiorari. Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a) can a mortgagor be compelled to receive from the mortgagee a smaller portion of the originally encumbered title partitioned during the subsistence of the mortgage, without the knowledge of, or authority derived from, the registered owner; (b) can the mortgagee question the veracity of the registered title of the mortgagor, as noted in the owners duplicate certificate, and thus, deliver the certificate to such third persons, invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor; (c) can an adverse prior claim against a registered title be noted, registered and entered without a competent court order; and (d) can belief of ownership justify the taking of property without due process of law?[34]

The kernel of the controversy boils down to the issue of whether the cancellation of the OCT in the name of the petitioners predecessor -in-interest and its splitting into two separate titles, one for the petitioners and the other for the Cruzes, may be accorded legal recognition given the peculiar factual backdrop of the case. We rule in the affirmative.

Private respondents (Cruzes) own the portion titled in their names Consonant with law and justice, the ultimate denouement of the property dispute lies in the determination of the respective bases of the warring claims. Here, as in other legal disputes, what is written generally deserves credence. A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of ownership over the portion of Lot No. 2204 with an area of 553 square meters. The duly notarized instrument of conveyance was executed in 1954 to which no less than Eduardo was a signatory. The execution of the deed of sale was rendered beyond doubt by Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.[35] These documents make the affirmance of the right of the Cruzes ineluctable. The apparent irregularity, however, in the obtention of the owners duplicate certificate fr om the bank, later to be presented to the Register of Deeds to secure the issuance of two new TCTs in place of the OCT, is another matter. Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of ownership based on the sale would not hold water. The Court is not persuaded. Registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly to bind third persons.[36] The principal purpose of registration is merely to notify other persons not parties to a contract that a transaction involving the property had been entered into. Where the party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him. [37] Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The conveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third persons having actual notice or knowledge thereof.[38] Not only are petitioners the heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required to bind the heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute mortgage over disputed portion The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz: ART. 2085. The following requisites are essential to the contracts of pledge and mortgage: (1) (2) (3) That they be constituted to secure the fulfillment of a principal obligation; That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

not become a salient issue in this case since the mortgagor was not the owner of the entire mortgaged property in the first place. Issuance of OCT No. P-153(M), improper It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of Eduardo, without any annotation of any prior disposition or encumbrance. However, the property was sufficiently shown to be not entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of the records is that the OCT was issued in 1976, long after the Kasulatan was executed way back in 1954. Thus, a portion of the property registered in Eduardos name arising from the grant of free patent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud cannot be accorded judicial sanction. Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not apply where fraud attended the issuance of the title, as was conclusively established in this case. The Torrens title does not furnish a shied for fraud.[47] Registration does not vest title. It is not a mode of acquiring ownership but is merely evidence of such title over a particular property. It does not give the holder any better right than what he actually has, especially if the registration was done in bad faith. The effect is that it is as if no registration was made at all. [48] In fact, this Court has ruled that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the landnot to the right of ownership thereofwhich was not annotated on the certificate of title issued thereon.[49] Issuance of TCT Nos. T-9326-P(M) and T-9327-P(M), Valid The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of the Cruzes and the other for the portion retained by petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No. 1529 or the Property Registration Decree. It provides: SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary instrument shall be registered by the Register of Deeds, unless the owners duplicate certificate is presented with such instrument, except in cases expressly provided for in this Decree or upon order of the court, for cause shown. The production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (emphasis supplied) For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article 2085 of the New Civil Code. [39] The mortgagor must be the owner, otherwise the mortgage is void. [40] In a contract of mortgage, the mortgagor remains to be the owner of the property although the property is subjected to a lien.[41] A mortgage is regarded as nothing more than a mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the possession of the property. [42] In this kind of contract, the property mortgaged is merely delivered to the mortgagee to secure the fulfillment of the principal obligation.[43] Such delivery does not empower the mortgagee to convey any portion thereof in favor of another person as the right to dispose is an attribute of ownership.[44] The right to dispose includes the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the property, cannot dispose of the whole or part thereof nor cause the impairment of the security in any manner without violating the foregoing rule. [45] The mortgagee only owns the mortgage credit, not the property itself. [46] Petitioners submit as an issue whether a mortgagor may be compelled to receive from the mortgagee a smaller portion of the lot covered by the originally encumbered title, which lot was partitioned during the subsistence of the mortgage without the knowledge or authority of the mortgagor as registered owner. This formulation is disingenuous, baselessly assuming, as it does, as an admitted fact that the mortgagor is the owner of the mortgaged property in its entirety. Indeed, it has

make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith. In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, any subsequent registration procured by the presentation of a forged duplicate certificate of title, or a forged deed or instrument, shall be null and void. (emphasis supplied) Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted that the provision speaks of forged duplicate certificate of title and forged deed or instrument. Neither instance obtains in this case. What the Cruzes presented before the Register of Deeds was the very genuine owners duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the instruments of conveyance are authentic, not forged. Section 53 has never been clearer on the point that as long as the owners duplicate certificate is presented to the Register of Deeds together with the instrument of conveyance, such presentation serves as conclusive authority to the Register of Deeds to issue a transfer certificate or make a memorandum of registration in accordance with the instrument. The records of the case show that despite the efforts made by the Cruzes in persuading the heirs of Eduardo to allow them to secure a separate TCT on the claimed portion, their ownership being amply evidenced by the Kasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the notion of separate titling. This prompted the Cruzes to approach the bank manager of RBSP for the purpose of protecting their property right. They succeeded in persuading the latter to lend the owners duplicate certificate. Despite the apparent irregularity in allowing the Cruzes to get hold of the owners duplicate certificate, the bank offic ers consented to the Cruzes plan to register the deeds of sale and secure two new separate titles, without notifying the heirs of Eduardo about it. Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the manner of acquiring the owners duplicate for purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central Bank officer, in rendering an opinion on the legal feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, and the same shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of

registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith. Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending of the owners duplicate certificate constitutes fraud within the ambit of the third paragraph of Section 53 which could nullify the eventual issuance of the TCTs. Yet we cannot subscribe to their position. Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where the property was mortgaged. Through its manager and legal officer, they were assured of recovery of the claimed parcel of land since they are the successors-in-interest of the real owner thereof. Relying on the bank officers opinion as to the legality of the means sought to be employed by them and the suggestion of the Central Bank officer that the matter could be best settled between them and the bank, the Cruzes pursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs. The Cruzes resorted to such means to protect their interest in the property that rightfully belongs to them only because of the bank officers acquiescence thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo without the banks approval. Banks, their business being impressed wit h public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands.[50] The highest degree of diligence is expected, and high standards of integrity and performance are even required of it.[51] Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title of the mortgagor as noted in the owners duplicate certificate, and, thus, he cannot deliver the certificate to such third persons invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor. The strength of this argument is diluted by the peculiar factual milieu of the case. A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking institutions. A mortgagee-bank must exercise due diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who the real owners thereof are. [52] Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be denied the protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and

good faith, as well as to mortgagees of the same character and description. [53] Thus, this Court clarified that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.[54] Bank Liable for Nominal Damages Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of the OCT to the Cruzes when the latter presented the instruments of conveyance as basis of their claim of ownership over a portion of land covered by the title. Simple rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property entrusted to it other than to those contractually and legally entitled to its possession. Although we cannot dismiss the banks acknowledgment of the Cruzes claim as legitimized by instruments of conveyan ce in their possession, we nonetheless cannot sanction how the bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the banks cooperative stance facilitated the issuance of the TCTs. To make matters worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is unthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized as legitimate owners of their portion of the property. Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the disputed TCTs. We cannot find fault on the part of the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly sanctioned by law. It is thus ministerial on the part of the Register of Deeds to issue TCT if the deed of conveyance and the original owners duplicate are presented to him as there appears on theface of the instruments no badge of irregularity or

nullity.[55] If there is someone to blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose manager and legal officer helped the Cruzes to facilitate the issuance of the TCTs. The bank should not have allowed complete strangers to take possession of the owners duplicate certificate even if the purpose is merely for photocopying for a danger of losing the same is more than imminent. They should be aware of the conclusive presumption in Section 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it liable for damages under Article 1170 and other relevant provisions of the Civil Code.[56] In the absence of evidence, the damages that may be awarded may be in the form of nominal damages. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[57] This award rests on the mortgagors right to rely on the banks observance of the highest diligence in the conduct of its business. The act of RBSP of entrusting to respondents the owners duplicate certificate entrusted to it by the mortgagor without even notifying the mortgagor and absent any prior investigation on the veracity of respondents claim and

character is a patent failure to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every b anks mandate to observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also the right to be afforded due process before deprivation or diminution of his property is effected as the OCT was still in the name of Eduardo. Notice and hearing are indispensable elements of this right which the bank miserably ignored. Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is appropriate. Five-Year Prohibition against alienation or encumbrance under the Public Land Act One vital point. Apparently glossed over by the courts below and the parties is an aspect which is essential, spread as it is all over the record and intertwined with the crux of the controversy, relating as it does to the validity of the dispositions of the subject property and the mortgage thereon. Eduardo was issued a title in 1976 on the basis of his free patent application. Such application implies the recognition of the public dominion character of the land and, hence, the five (5)-year prohibition imposed by the Public Land Act against alienation or encumbrance of the land covered by a free patent or homestead[58] should have been considered. The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March 1981 is obviously covered by the proscription, the free patent having been issued on 8 October 1976. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder. In Philippine National Bank v. De los Reyes,[59] this Court ruled squarely on the point, thus: While the law bars recovery in a case where the object of the contract is contrary to law and one or both parties acted in bad faith, we cannot here apply the doctrine of in pari delicto which admits of an exception, namely, that when the contract is merely prohibited by law, not illegal per se, and the prohibition is designed for the protection of the party seeking to recover, he is entitled to the relief prayed for whenever public policy is enhanced thereby. Under the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the homesteader that portion of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the Public Land Act was sold and not merely encumbered, within the prohibited period.[60]

The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two (22) years before the issuance of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such situation, neither the prohibition nor the rationale therefor which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him. The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few months past the period of prohibition. WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural Bank of San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in the approved plan covering the lot, marked as Exhibit A, and to issue a new title covering the said portion in the name of the petitioners at the expense of the petitioners. No costs. SO ORDERED.

PNB v Pike D E C I S I O N

CH I CO - NA ZA R IO , J .:

T hi s p e ti tio n fo r r e vi e w o n c e rt io ra r i u nd er R ul e 4 5 o f t he 1 9 9 7 R ul es o f C i vi l P r o ced ur e, a s a me n d ed , s ee ks to re ver s e t he Dec is io n [ 1 ] d ated 1 9 D e ce mb er 2 0 0 2 , a nd t he R eso l ut io n [ 2 ] d a ted 0 2 Ap r i l 2 0 0 3 , b o t h o f t h e Co ur t o f Ap p ea l s, i n C A - G . R. C V No . 5 9 3 8 9 , wh ic h a ffir med wi t h mo d i fi ca tio n t h e D eci sio n [ 3 ] re nd er ed b y th e Re gio n al T ria l Co u r t ( RT C) , B r a nc h 0 7 o f M a ni la, d a ted 1 0 J an ua r y 1 9 9 7 , i n C i vi l Ca se No . 9 4 -6 8 8 2 1 in fa vo r o f h ere i n r esp o nd e nt No r ma n P i ke ( P ik e) . T he ca s e ste m med fr o m a co mp la i nt [ 4 ] fi le d b y here i n r esp o nd e nt P i ke fo r d a ma g e s [ 5 ] a g ai n st P hi lip p in e Na ti o n al B a n k ( P NB ) o n 0 4 J a n uar y 1 9 9 4 . Co mp lai n a nt P i k e o f te n tr a ve led to a nd fro m J ap a n a s a ga y en ter ta i ner i n sa id co u nt r y. So me t i me i n 1 9 9 1 , he o p e ned U. S. Do l lar Sa v i n g s Ac co u nt No . 0 2 6 5 -7 0 4 5 9 1 -0 wi th her ei n p e ti tio ne r P NB B u e nd i a b r a nc h f o r wh i c h h e wa s is s u ed a co rre sp o nd i n g p as sb o o k. T he co mp lai n t a ll e ged i n s ub st a nce t ha t b e fo r e co mp la i na n t P ik e le f t fo r J ap a n o n 1 8 Mar c h 1 9 9 3 , he kep t t he afo r e me n tio n ed p a ssb o o k i n s id e a c ab i ne t u nd er lo c k a nd ke y, i n h i s ho me ; t ha t o n 1 9 Ap r i l 1 9 9 3 , a f e w h o ur s a fter h e arri ved fro m J ap an , he d i sco v er ed t ha t so me o f hi s v al u a b le s were mi s si n g in cl ud i n g t he p a s sb o o k; th at he i m med i at el y rep o rted t he i n cid e nt to th e p o li ce wh i c h l ed to th e ar r e st a nd p r o sec u t io n o f a c ert ai n Mr. J o y Ma n ue l Da v aso l; t ha t co mp l ai na n t P i ke a lso d i sco v ered t ha t Da va so l mad e t wo ( 2 ) u n a ut ho r iz ed wi t hd ra wa l s fro m h i s U.S . Do l lar S a vi n g s Acco u nt No . 0 2 6 5 -7 0 4 5 9 1 -0 , b o th ti me s at t h e P NB B ue nd ia b r a nc h o n t he f o llo wi n g d a te s : D AT E 3 1 Marc h 1 9 9 3 0 5 Ap ri l 1 9 9 3 T OT AL AMO U NT $ 3 ,5 0 0 .0 0 4 ,0 0 0 .0 0 $ 7 ,5 0 0 .0 0

th at o n se v era l o cc as i o n s, co mp la i na n t P i ke we nt to d e fe nd a nt P NB s B ue nd i a b ra nc h and verb all y p ro te st e d th e u n a ut ho r ized wi t h d ra wa l s a nd l i ke wi s e d e ma nd ed t h e r et ur n o f t he to t al wi t h d ra wn a mo u nt o f U .S. $ 7 ,5 0 0 .0 0 , o n t he g ro u nd t hat h e ne ve r au t ho ri zed a n yb o d y to wi t h d ra w fro m h i s ac co u nt a s t he si g n at ure s ap p ear i n g o n t h e s ub j e ct wi t hd ra wa l s lip s we re cle arl y fo r ger ie s ; th at d e fe nd a n t P NB refu s ed to cr ed i t sa i d a mo u n t b ac k to co mp la i na n t s U. S. Do llar Sa v i n gs Acco u n t wi t h o ut j u st i fiab l e rea so n, a nd i n st ead , d e fend a nt b a n k wro t e hi m t ha t it e xer ci sed d u e d ili g e nce i n t h e h a nd l i n g o f sa id a cco u n t; a nd t ha t o n 0 6 Ma y 1 9 9 3 , co mp la i na n t P i k e wro t e d e fe nd a nt P NB si mp l y to req ue st t h at t h e ho l d -ac co u nt b e l i ft ed so t ha t he ma y wi t h d ra w t he r e ma i ni n g b ala nc e l e ft i n h is U. S.$ Sa v i n gs Ac co u nt a nd n o th i n g e l se. O n t he o t he r h a nd , d e fe nd a n t P NB al le ged , i n i ts Mo tio n to Di s mi s s [ 6 ] o f 1 8 Ap ri l 1 9 9 4 , a co u n ter s tat e me n t o f fac t s. I ts fac t ua l all e gat io n s re ad : . . . On M arc h 1 5 , 1 9 9 3 at P NB B ue nd ia B ran c h, Mr. No r ma n Y . P i ke, to ge t her wi t h a c erta i n J o y Da va so l we n t to se e P NB AVP Mr. Lo r e n zo T . Val ( s ic), J r. p u rp o s el y to wi t hd r a w t he a mo u nt o f $ 2 ,0 0 0 .0 0 . Mr. P i ke al s o i n fo r med AVP Va l t h a t he is lea v i n g fo r ab ro ad (J ap a n) a nd mad e ve rb al in s tr uc tio n to ho no r a ll wi t h d ra wa l s to b e t ra n s mi t ted b y h is T ale nt Ma n a g er a nd C ho reo g rap her , J o y Da va so l wh o s h al l p rese n t p re - si g n ed wi t hd ra wa l sl ip s b ear i n g h is (P i ke s ) s i g nat ur e. . . O n Ap r il 1 9 , 1 9 9 3 , a cert ai n J o sep h i ne B al ma ced a, wh o c la i m ed to b e p la i nt i ffs si s ter ex ec ut ed a n a ffid a vi t . . . . s tat i n g t here i n t hat t he y d is co vered to d a y ( Ap r il 1 9 , 1 9 9 3 ) t h e lo s t ( si c) o f h er b ro t her s p a s sb o o k i s s ued b y P NB o n ac co u nt o f ro b b er y, co m mi tt ed i n t he re sid e nce /o ffice o f her b ro t her, p ro mp t l y r ep o r ti n g t he ma tter to t he p o lic e au t ho ri ti es a nd h er b ro t her ca n no t r ep o rt t he ma tter to th e B a n k b e ca u se he wa s c u rre nt l y i n J ap a n a nd th ere fo r e req ue st i n g t he B an k to is s ue a ho ld -o rd er o n her b ro t he r s p a ssb o o k . B ut a co p y o f a n al ar m (P o lic e) Rep o r t d a ted Ap ri l 1 9 , 1 9 9 3 . . . st at e d t ha t p lai n ti ff ( wh o was t he o ne wh o rep o rt ed t he mat ter) a ft er o n e mo nt h i n J ap an , he ( co mp l ai na n t) arri ved ye s terd a y. . .

O n Ap r il 2 6 , 1 9 9 3 , At t y. N at h a nie l I fur u n g wh o c lai ms to b e p la i n ti f f s co u n s el se n t a d e ma nd let ter to VP Vio le ta T . S uq ui la ( t he n VP a nd M an a ger o f P NB B ue nd ia B r a n ch) d e ma n d i n g t he b a n k to cred i t b ac k t he a mo u n t o f U S$ 7 ,5 0 0 .0 0 wh ic h were wi t h d ra wn o n Mar c h 3 1 , 1 9 9 3 a nd Ap r il 5 , 1 9 9 3 , b eca u se h i s c lie n t s si g na t ur e s wer e fo r ged a n d t he wi t h d ra wa l ma d e t her eo n wer e u na ut ho riz ed . . . O n Ma y 5 , 1 9 9 3 , Mr . No r ma n Y . P i ke ex ec ut ed a n a f fid a vi t o f lo s s ( s ic) Do ll ar Acco u nt P as sb o o k a nd r eq ue st ed t he P NB to r ep la ce t he sa me a nd al lo w h i m to ma k e wi t hd r a wa l s t here o n. He st ated t h at hi s p a ssb o o k wa s s to l e n to get h e r wi t h o th er va l uab le s wh i c h h e d i sco ver ed o nl y i n t h e earl y mo r n i n g o f Ap r i l 1 9 , 1 9 9 3 . . . O n Ma y 6 , 1 9 9 3 , p lai nt i f f No r ma n Y. P i k e wr o te a l et ter . . . ad d r e s sed to t he M a na ger o f P NB , B ue nd ia B r a nc h t he f ul l co n te nt s o f said let ter her eto q uo ted a s fo llo ws : Ma y 6 , 1 9 9 3 T he Ma n a ger P hi lip p i ne Nat io na l B a n k B ue nd ia B r a nc h P aseo d e Ro xa s co r . G il P u ya t S tre et Ma ka ti, Me tr o M a ni la Sir : I n co n ne ct io n wit h t he req u es t o f m y si s ter , Mr s. J o sep hi n e P . B al ma ced a fo r t he ho l d -o r d er o n m y d o llar sa v i n gs p a s sb o o k No . 2 6 5 7 0 4 5 9 1 -0 , I a m no w r eq u es ti n g yo u r go o d o f f ic e to l i ft t h e sa me so I c a n wi t h d r a w t h e r e mai n i n g b al a nce o f m y p as sb o o k wh i c h wa s r ep o rted lo s t so me ti me i n Mar c h o f t h is ye ar. I a lso p r o mi s e no t to ho ld resp o n sib le t he b a n k a nd it s o ffic er s fo r t h e wi t hd r a wal mad e o n m y d o ll ar sa v i n gs p a ssb o o k o n Mar c h 1 9 a nd Ap ri l 5 , 1 9 9 3 r e sp e ct i v el y a s a r es u lt o f t he lo st ( s ic) o f m y p as sb o o k.

S gd . NO RM AN Y. P I KE Dep o si to r P hi lip p i ne P as sp o rt No . H9 1 8 0 2 2 Is s ued at M a ni la o n Sep t. 1990 P lace Is s ua nc e 6, of

O n t he s a me d a y M a y 6 , 1 9 9 3 P l ai n ti ff No r ma n Y . P i ke wa s a llo wed b y d e fe nd a nt b a n k to wi t h d ra w t he re mai n i n g b ala nc e fro m hi s p a s sb o o k . A le tt er d at ed Ma y 1 8 , 1 9 9 3 wa s s e nt to P lai nt i ffs co u n se l b y P NB sta ti n g t h at t h e B an k reg ret s t ha t i t ca n no t ac ced e to s uc h req u e st i n a s mu c h as t he B a n k e xer ci sed d ue d i li g e nce o f a go o d fa t her to h is fa mi l y i n t h e h a n d li n g o f tra n s act io n s co ver i n g th e d ep o s it acco u n t o f Mr. P i ke . O n J u l y 2 , 1 9 9 3 , P la i nt i ffs co u ns el se n t a let ter to P NB Vic e P r es. S uq u il a d e n yi n g t h at h is cli e nt mad e a n y s uc h p r o mis e no t to ho ld re sp o n sib le th e b a n k a nd i t s o fficer s fo r t he wi t hd ra wa l mad e . A le tt er d a ted J ul y 2 9 , 1 9 9 3 wa s s e nt to P lai nt i ffs co u n sel b y VP S uq ui la sta ti n g t ha t p lai n ti ffs wi t hd ra wa l o f t he r e mai n i n g b a la n ce o f h is acco u nt wi t h t he B a n k e ffec ti v el y e sto p s h i m fro m cla i mi n g o n t he al le g ed u na u t ho ri zed wi t hd ra wal s.

T he tria l co urt , i n it s d eci sio n d a ted 1 0 J a n u ar y 1 9 9 7 , ma d e th e fo llo wi n g fi nd i n g s o f fact : . . . [T ]hat t he b a n k i s re sp o n sib le fo r s u c h u na u t ho ri zed wi t hd r a wa ls. T h e co urt i s no t i mp res sed

wi t h t he d e f e ns e p u t u p b y t he b a n k . It s co nt en tio n th at t he wi t hd r a wa l s we r e a ut ho r ized b y t he p l a in ti ff b eca u se t her e wa s a n a r r a n ge me n t b et wee n t he b a n k r ep re se nt ed b y it s As st. Vice P r e s id e nt Lo r e nz o B al, J r. a nd t he d ep o si to r No r ma n Y. P i ke to t h e e ffe ct th at p r e -s i g ned wi t hd r a wa l sl ip s, t ha t i s, wit h d ra wa l sl ip si g n ed b y t he d ep o si to r i n t h e p re s e nce o f Mr. B al wh ereb y it wo u ld b e mad e to ap p ear t h at i t wa s th e d ep o si to r hi ms e l f who p r e se n ted t he sa me t o th e b an k d esp it e t he f ac t t h at i t wa s a no t her p er so n wh o p res e nted t h e sa me s ho uld b e ho no red b y t h e b a n k ca n no t b e sa nc tio ne d b y t he co u r t. F irs tl y, t he co u rt is no t s at is f ied t ha t t her e wa s i nd eed s uc h a n arra n ge me n t. . . I t i s M r . B al s co n te n tio n t ha t s uc h an arr a n ge me n t al t ho u g h no t o r d i nar il y e n tered i nto i s st il l a l e gal p r o c ed ur e o f t he b a n k a nd is re so rted to acco m mo d ate t he d ep o s ito r s sp ec ial l y ho no re d and va l ued d ep o s ito r at t ha t . . . . T he co ur t co mp ar ed t he si g n at ur es i n t he q ue s tio ned wi t hd r a wa l sl ip s wi t h t h e k no wn si g n at ure s o f t h e d ep o si to r a nd i s co n vi n ced t h at t he si g n at ure s i n t he u na u t ho r ized wi t hd r a wa l s li p s d o no t co rre sp o nd to t he tr ue s i g na t ur e s o f t he d ep o si to r. Fro m t he e v id e nce t h at i t r e cei v ed , t he co ur t i s co n v i nced t h at t he b an k wa s ne gl i ge n t i n t he p er fo r ma nc e o f it s d u tie s s uc h t h at u na u t h o rized wi t h d ra wa l s we r e ma d e i n t he d ep o s it o f p l ai nt i ff No r ma n Y. P i k e. [ 7 ]

1. 2. 3. 4.

US$ 7 ,5 0 0 .0 0 p lu s i n tere s t t h ereo n at th e r ate o f 1 2 % p er a n n u m u n ti l t he fu ll a mo u nt i s p a id ; P 2 5 ,0 0 0 .0 0 fo r a nd a s atto r ne ys fe e s; P 5 0 ,0 0 0 .0 0 a s mo ral d a ma g e s a nd P 5 0 ,0 0 0 .0 0 as e xe mp lar y d a ma ge s ; a nd P l u s t he co s ts o f s u it. [ 8 ]

De fe nd a nt P NB s mo tio n fo r s ub seq ue n tl y d e nied b y th e co ur t a q u o . [ 9 ]

r eco n sid erat io n

wa s

O n ap p e al, t he Co urt o f Ap p ea l s i s s ued t he a ss a iled d ec is io n d ated 1 9 Dec e mb er 2 0 0 2 , a ffir mi n g t h e fi nd i n g s o f t h e RT C t h at ind eed d e fe nd a nt - ap p e ll an t P NB wa s n e g li ge n t i n e xerc i si n g t h e d ili g e nce req ui red o f a b u si n es s i mb ued wi t h p ub l ic i nt ere st s u c h a s th at o f t h e b a n ki n g i n d u str y, ho we ver , it m o d i fied t he ra te o f in ter es t a nd a wa rd fo r d a ma ge s, to wi t : W HE RE FO RE, p re mi s es co n sid e red , t he Dec is io n d a ted J a n u ar y 1 0 , 1 9 9 7 i s s ued b y t he Re g io na l T rial Co urt o f Ma n ila , B ra n c h 7 , i n C i vi l Ca se No . 9 4 -6 8 8 2 1 , is he reb y AF FI RME D wit h MOD IFI C AT I ON, a s fo l lo ws : 1. Ord eri n g ap p e lla n t, t he P h il ip p i n e Nat io na l B a n k, B u e nd ia B ra n c h, to refu n d ap p el lee t he a mo u nt of $ 7 ,5 0 0 .0 0 p l u s i n tere st o f 6 % p er an n u m to b e co mp ut ed fro m t h e d at e o f th e fil i n g o f t he co mp lai n t wh i c h in ter es t rat e s ha ll b e co me 1 2 % p er an n u m fro m t h e t i me t he j ud g me n t i n th i s c as e b e co me s fi na l a nd e x ec uto r y u nt il i ts s at is fac tio n ; T h e a ward fo r mo r al d a ma ge s red u ced to P 2 0 ,0 0 0 .0 0 ; and is

T he d i sp o si ti v e p o r t io n o f t he tr i al co urt s d eci s io n read s : 2. W HE RE FO RE a nd co n s id er i n g t he fo re go i n g, j ud g me nt i s h er eb y r e n d er ed i n fa vo r o f t h e p l ai nt i ff and a ga i n st t h e d e f e nd a nt a nd o r d er i n g t he d e fend a nt to p a y t he fo llo wi n g : 3.

T he a ward fo r ex e mp l ar y d a ma g e s i s li ke wi se red uc ed to P 2 0 , 0 0 0 .0 0 .

Co st s a g ai n s t ap p e ll a nt. [ 1 0 ]

T he ap p e ll at e co ur t he ld t hat : Ap p el la n t c la i ms t hat ap p e lle e p erso n al l y tal k ed to it s o f fi cer s to allo w J o y Ma n u el Da va so l to ma k e wi t hd r a wa l s. Ap p ell ee e v e n l e ft p r e - s ig n ed wi t h d ra wa l s lip s b e fo r e he we n t to J ap a n. Ho we v er, ap p el la nt co u ld ha ve t o ld ap p e ll ee to a u t ho ri ze t h e wi t h d ra wa l b y a r ep r e se nt at i ve b y i nd i ca ti n g t h e s a me at t h e sp ac e p r o v id ed at t he b a c k p o r tio n o f t he wi t h d ra wa l sl ip . T h is o p er at io na l fla w wa s o b s erv ed b y t he tri al co ur t, wh e n it r u led : T he co ur t ca n no t al so u nd er s ta nd wh y t he b an k d id no t req u ir e t he co r r ec t, p r o p er a nd t he u s ua l p r o ced u r e of r eq uir i n g a d ep o s ito r wh o i s wi thd r a wi n g t he mo ne y t h r o u g h a r ep r e s en ta ti ve to fil l up t h e b ac k p o r t io n o f th e wi t hd ra wa l sl ip s, wh i c h fo r m wa s i s s ued b y t he b an k it s el f. A p e r us al o f t he r e co r d s d i sc lo se s t ha t ap p el lee h ad p r e v io us l y au t ho r i zed wi t hd ra wa l s b y a rep re se nt at i ve. Ho we v er , t h es e wi t hd r a wa l s were p ro p erl y a cco mp a n ied b y a wi t hd ra wa l b y a rep re se nt at i ve fo r m a si d e fr o m a ha nd wr it te n r eq u es t b y ap p el le e to a llo w s uc h wi t hd r a wa l s b y h i s rep re se nt at i ve, o r a t yp e wr i tt e n l et ter -r eq ue st fo r wi t h d ra wa l b y a r ep r es en ta ti ve . C erta i nl y, ap p ell a nt lac ked t he d ue c ar e a nd ca ut io n r eq u ired o f ma na g er s and e mp lo yee s o f a f ir m e n ga ged i n so s e n si ti ve a nd d e ma nd i n g b u s i ne s s a s b an k i n g. In i t s d es ir e to b e e xo ner at ed fro m li ab i li t y, ap p el la nt ad v a nce s t h e ar g u me n t t h at, gra nt i n g ne g li g e nce o n it s p a r t, ap p e ll ee co nd o ned th i s ne g li g e nce a s s ho wn i n hi s le tt er d ated Ma y 6 , 1 9 9 3 , wh ere i n ap p e lle e p ur p o r ted l y u nd er to o k, no t t o ho ld th e b a n k a nd i ts o f f icer s r esp o n s ib le fo r t he u na u t ho ri zed wi t hd r a wal s fr o m h i s a cco u nt . W e d o no t a g r ee. I t s ho uld b e e mp ha siz ed t h at wh i le t he ap p el lee ad m itt ed s i g ni n g t h e le tt er d ated

Ma y 6 , 1 9 9 3 , he , ho we ver , d e n ied h a vi n g u nd erto o k (si c) to e xo ne ra t e t he a p p ell a nt fro m l iab il it y fo r th e u na u t ho ri zed wi t hd ra wal s. Ap p el lee q u es tio n ed t he seco nd p ara g rap h o f t he sa id le tter a s b ei n g s up er i mp o sed so t hat hi s s i g na t ure o ve rlap p ed t he te xt o f t h e s eco nd p ar a grap h o f sa id le tt er. A wa i v er o f ri g h t, i n o rd e r to b e va lid , s ho u ld b e i n a l a n g ua g e th at c lear l y ma ni fe st s h is d e sir e to d o so . I n t he in s ta n t c a se, ap p e ll ee s fil i n g o f t h e i ns ta n t act io n is in co n si st e nt wi t h ap p e l la nt s co nt e nt io n t ha t h e had wa i v ed h i s ri g ht to q u es tio n ap p e ll a nt s ne g li ge nt act o f al lo wi n g t he u na u t h o rized wi t hd r a wa l s fro m h i s acco u nt . [ 1 1 ]

De fe nd a nt -ap p el la n t P N B fi led a mo tio n fo r rec o n sid erat io n. In a Re so l u tio n d at ed 0 2 Ap r il 2 0 0 3 , t he Co urt o f Ap p ea l s d e nied sa id mo t io n. He nce , t h i s p e ti tio n. P etit io ner P NB no w se ek s t he re v ie w o f t he a fo req uo ted d eci sio n a nd re so l u tio n o f t h e Co urt o f Ap p ea ls p red i cat ed o n t h e fo llo wi n g i ss u es : I. W HET HE R O R NOT T HE P RIN CIP LE O F E ST OP P EL W AS NOT P R OP E R LY AP P LIE D I N T HIS C AS E; II. W HET HE R OR NO T RE SP ON DE NT H AVE SUB ST ANT I ALLY P RO VEN T H AT T HE SIG N AT U RE S AP P E ARI NG O N T HE T W O (2 ) QUE ST ION ED P RE - SI GNE D W IT HD R AW AL S LIP FO R MS ARE ALL F O RG E RIE S IN AC C O RD AN CE W IT H SE CT ION 2 2 , R U LE 1 3 2 O F T HE RE VIS ED RU LE S O F C OU RT ; a nd III. W HET HE R O R NOT MO R AL AN D EX EMP LAR Y D AM AG ES C AN B E AW AR DE D AG AI N ST A P ART Y I N G OO D F AIT H.

P etit io ner P NB co nt end s t ha t due to t he verb al in s tr uc tio n s [ 1 2 ] o f r esp o nd e n t P i k e, a va l ued d ep o s ito r, i t a llo wed th e wi t hd r a wa l b y a no t h er p er so n. P l us, th e fa ct t hat s aid r esp o nd e nt wi t hd r e w t he r e mai n i n g b a la nc e in h i s US Sa v i n g s Acco u n t a nd e x ec ut ed a wa i ver r e lea si n g p e ti ti o ner P NB fro m a n y liab il it y d ue to t h e lo s s o f t h e f u nd s s ho u ld ri g h tl y ne g ate a fi nd i n g o f n e gl i ge nc e o n it s p a r t. Acco r d i n gl y, p et it io ner P NB c la i ms t h at th e ap p e lla te co ur t, a s we l l a s t he tr ial co ur t e rred i n ho ld i n g t h at th e wi t hd ra wa ls i n q u e st io n wer e u n a ut ho r ize d a s t he si g na t ure s ap p ear i n g o n t h e s ub j ec t wi t hd r a wal sl ip s wer e fo r g erie s. P e ti tio ner P NB , t here fo r e, ar g ue s th at i t s ho u ld no t b e he ld li ab le fo r t he a mo u n t wi t hd ra wn f r o m t he a cco u nt o f r e sp o nd en t P i ke i n t h e s u m o f $ 7 ,5 0 0 .0 0 , a s w e ll as fo r mo r al a nd e x e mp l ar y d a ma ge s. A p r io ri , it i s q ui te e vid en t t h at t he p et it io n i s a nc ho r ed o n a p lea to re vi e w o r r e -e xa mi n e t he fac t ua l co n cl u sio n s rea c hed b y t h e tr ia l co ur t a nd a ffir med b y t h e Co ur t o f Ap p e al s , and fo r t h i s Co ur t to ho ld o t he r wi se . W he t her : 1 ) re sp o nd e nt P i ke s si g n at ur es ap p ear i n g o n th e p ert i ne n t wi t hd r a wal s lip s u s ed b y J o y Ma n ue l Da va so l [ 1 3 ] to wi t hd r a w t he a mo u n t o f $ 7 ,5 0 0 .0 0 , we re fo r ger ie s, a s fo u nd b y t h e tri al co ur t a nd affir me d b y t he Co ur t o f Ap p ea l s, o r wer e a u t he n ti c as cla i med b y p e ti tio ner b a n k; a nd 2 ) r esp o nd e nt P i ke i n f ac t e x ec ut ed a wa i v er ab so l vi n g p e ti tio ne r b an k fr o m any le gal resp o n sib il i t y d ue to t he u n a ut ho r iz ed wit hd ra wa ls, a s ma i nt ai n ed b y p e ti tio ner b a n k , o r t he p ar agr ap h co n ta i ni n g s aid wa i ver wa s i n ter cal at ed b y so m e o t he r p erso n, t h u s, a mo u nt i n g no wa i ver at al l, a s h e ld b y th e co ur t s a q u o .

up o n b y t he Co urt o f A p p eal s. [ 1 4 ] W he n t hi s C o ur t i s t as k ed to go o ver o nce mo re t h e e v id en ce p r es e nted b y b o t h p arti es , a nd a nal yz e, as se s s a nd we i g h t h e m to a scer ta i n i f t he tr ial co ur t a nd t h e ap p el lat e co ur t we re co rrect i n a cco rd i n g s up er io r cred it to t hi s o r th at p ie ce o f e v id e nc e o f o n e p ar t y o r t h e o t h er, t h e Co ur t ca n n o t and wi ll no t d o t he s a me . [ 1 5 ] S u c h t as k i s fo reclo sed b y t he r ul e en u n cia ted u nd er Sec tio n 1 o f R ule 4 5 [ 1 6 ] o f t he R ul e s o f Co urt : SE CT ION 1 . F il in g of p et it io n w it h S u p re me Co ur t. - . . . T he p et it io n s h al l ra is e o nl y q ue s tio n s o f l a w [ 1 7 ] whi c h mu s t b e d is ti n ct l y se t fo r t h.

W e ha ve o ft r u led t h at fac t ual fi nd i n g s o f th e Co ur t o f Ap p ea ls ar e co ncl u s i ve o n t he p art ie s a nd no t re vi e wa b le b y t h is Co ur t a nd t h e y carr y e ve n mo re we i g h t wh e n t he Co ur t o f Ap p ea ls affir ms t he fa ct ua l fi nd i n g s o f t h e tri al co urt , [ 1 8 ] a nd i n t h e ab se n ce o f a n y s ho wi n g t ha t t h e fi nd i n g s co mp l ai ned o f are to ta ll y d e vo id o f s up p o rt i n t he e vid e nc e o n re co rd , o r t ha t t h e y are so gl ari n g l y erro neo u s a s to co n st it u te se rio u s ab us e o f d i scr etio n, s uc h fi nd i n gs mu s t s ta nd . T he co urt s a q u o are i n a mu c h b et ter p o si tio n to ev al ua te p ro p erl y t he e v id e nce . Fi nd i n g no o t her al ter n ati v e b ut to a ffir m t h ei r fi nd i n g t ha t p eti tio n er P NB n e gl i ge nt l y a llo wed t h e u n a ut ho r ized wi t hd ra wa l s s ub j ect o f t he ca se at b ar, t h e i n st a nt p et it i o n fo r r e vi e w mu s t ne ce s sari l y fa il . At t h is j u nct u re, i t b e ars e mp h as iz i n g t ha t n eg li g e nce o f b an k i n g i n st it u tio n s s ho uld n e ver b e co u nte n a n ced . T he n e gl i ge nc e her e l ie s i n t he l ac kad ai sic al a tt it ud e e x hib it ed b y e mp lo ye e s o f p eti tio n er P NB i n t h eir trea t me n t o f r esp o nd e nt P i ke s US Do l lar Sa v i n gs Ac co u nt t ha t r es u lted i n t he u na u t ho r ized wi t hd ra wa l o f $ 7 ,5 0 0 .0 0 . Ne ver t he le s s, t ho u g h it s e mp lo yee s ma y b e t h e o n es ne g li g e nt, a b a n k s li ab ili t y a s a n o b l i go r i s n o t mere l y v ic ario u s b ut p r i ma r y, a s b a n k s ar e e xp ec ted to e xerc i se t he h i g he st d e g ree o f d ili g e nce in t he se lec tio n a nd s up er vi s io n of t he ir e mp lo ye es , [ 1 9 ] a nd ha v i n g s uc h o b li g at io n, t h i s Co ur t ca n no t i g no re th e c irc u ms t a nce s s urro u nd i n g t he ca se a t b ar ho w t he e mp lo ye e s o f p et it io ner P NB t ur ne d t he ir h ead s, na y, clo s ed t h eir e ye s to t h e s u sp ic io u s c irc u ms t a nce s e n fo ld i n g t he t wo wi t hd ra wa l s s u b j ect o f th e ca se at b ar. I t ma y e ve n b e s aid t h at t he y we nt o ut o f t he ir wa ys to d i sre gard s ta nd ard o p erat i n g p ro ced ur e s fo r m ul at ed to e n s ure t he sec u rit y o f e ac h a nd e ve r y acco u n t t h at t he y are ha nd li n g. P et i t io ner

ar e q ue s tio n s o f fa ct a n d no t o f l a w. I ne xo r ab l y, t he se i s s ue s ca ll fo r a n i nq u ir y i n to t h e fa ct s a nd e vid e nce o n r eco rd . T h i s, a s we ha v e so o ft e n he ld , we c an no t d o . Ele me n tar y i s t h e r u le t ha t t hi s Co urt i s no t t h e ap p ro p r ia te ve n u e to co n sid er a ne w th e fac t ua l i ss u es a s i t i s no t a tr ier o f fac t s, and , i t ge ner al l y d o e s n o t we i g h a n e w t he e v id en ce a lre ad y p a ss ed

P NB d o e s no t d e n y t ha t th e wi t hd r a wa l s lip s u se d we re i n b rea c h o f st a nd ard o p era ti n g p r o c ed ur e s o f b a n k s i n t h e o rd in ar y a nd u s ua l co ur s e o f b a n k i n g o p er a tio n s as te st i fied to b y o ne o f i ts wi t n e ss es , Mr . Lo re nzo T . B al, A s si st a nt V ic e P r es id e n t o f P et it io ner P NB s B ue nd ia b r a nc h, o n cr o s s -e x a mi na tio n [ 2 0 ] h e s ta t ed t h u s: Q: M r. Wi tn e s s, w h en th e o rig in a l o f Exh ib it B [ 2 1 ] wa s p re sen ted to yo u fo r a p p ro va l, h o w ma n y sig n a tu re s o f d ep o s ito r a p p ea r s th e reo n ? T wo (2 ) sig n a tu r e s a p p ea r s ( sic ) o n th e f a ce o f th e wi th d ra wa l sl ip . W h e n it ( si c) wa s ( s ic) p re se n ted t o yo u i m med iat el y?

Q: A: Q: A: Q:

Do yo u ha ve wr it te n ma n u a l o n t hi s p art i cu lar p ro ced ure, Mr. W it n es s? O f co urs e, t ha t i nc l ud e s i n t he R u le s a nd reg u la tio n s o f t he b a n k. A re yo u a re (s ic ) a re ve ry su re o f th a t? An d b a n k in g is a fa st t ra n sa c tio n b et w e en th e d ep o s ito r a n d th e b a n k. An d th en , i s th e u se o f th e b a ck p o r tio n o f th e wi th d ra wa l s lip wi th a h ea d in g o f a u th o r i za t io n ? No r mal l y, a d ep o si to r a nd t he b a n k a gr ees o n cert ai n t er ms t ha t i f yo u a llo w wi t hd r a wa l fro m h is a cco u n t, hi s o r her ac co u nt, i ts en o u g h th a t th e s ig n a tu r e o f th e d ep o s ito r a p p ea r s o n b o th sp a c es in th e f ro n t sid e o f th e wi th d ra wa l s lip . Ev en i f yo u d o n o t h a ve th e b a ck p o rt io n o f th e w ith d ra wa l s lip . Yo u are ver y s ure o f t ha t? Ye s, sir. An d t h at ha s b ee n d o n e wi t h t he o t her wi t h d ra wa l sl ip o f No r m an P i ke a s s ta ted o r a s s ho wn i n t he St ate me nt o f Acco u n t? Ye s, sir. T h at wi t hd ra wal mad e b y r ep re se n tat i ve? Ye s, sir.

A: Q: A: Q: A: Q: A: Q:

A: Ye s, sir . Are yo u s ur e o f t ha t? Y es , s ir . B e ca u se it wa s p r e si g n ed wi t hd ra wa l sl ip . Wh a t d o e s th e sig n a tu re a p p ea r , th e wo rd rec ip i en t mea n s? R ece ived . Q: S o , wh a t yo u a re sa y in g i s th a t, th e d ep o si to r h ere sig n ed th i s e ven b efo re rec eiv in g th e a mo u n t? A: A: B e ca u se b e fo r e t he wi t hd r a wa l wa s ma d e, Mr. P ik e, t h e d ep o si to r ca m e to t he b a n k wh e n he wi t h d r e w t h e $ 2 ,0 0 0 .0 0 a nd i n s tr uc ted me o r req u e sted u s e ve n t he s up er v i so r to ho no r a ll wi t h d r a wa l s lip . An d th i s i s a reg u la r p ro ced u re? Ye s, si r. Are yo u s ur e o f t ha t? Ye s, sir . Q: A: Q: A:

Q: A: Q: A:

Fro m t he fo r e go i n g, p eti tio n er P NB s wi t ne s s wa s ut ter l y re mi s s i n p ro tec ti n g t h e b a n k s cl ie nt , a s we l l a s t he b a n k it se l f, wh e n he al lo we d a n acc o u n t ho ld e r to ma ke it ap p ear as i f h e wa s th e o n e act u al l y wi t hd ra wi n g fro m a n acco u n t a n d ac t ual l y rec ei v i n g th e wi t hd r a wn a mo u n t . Ord i na ri l y, b a n k s al lo w wi t hd r a wa l b y so meo n e wh o i s no t t h e acco u nt ho ld er so lo n g a s t h e a cco u nt ho ld er

au t ho ri ze s h i s rep r e se n tat i ve to wi t hd r a w a n d recei v e fro m h is acco u nt b y si g n i n g o n th e sp a ce p r o v id ed p arti c ul arl y fo r s uc h tr a n sac tio n s, us u al l y f o u nd at t he b ac k o f wi t h d ra wa l s lip s. As f it ti n g l y fo u nd b y t he co u r t s a q u o , i f i nd e ed , re sp o nd e n t P i ke si g n ed t he wi t hd r a wa l sl ip s i n t he p r e se n ce o f Mr. Lo r e nzo B a l, p eti tio n er P NB s AVP at it s B u e nd ia b r a n c h, wh y d id he no t ca ll r esp o nd e nt P i ke s a tte n t io n a nd r e fer hi m to t he sp ace p ro v id ed fo r au t ho ri zi n g r ep re se n tat iv e s to wi t hd r a w fro m a nd rec ei ve t he p r o ceed s o f s uc h wi t hd r a wa l? Or , a t t he ver y lea st , si g n o r i n it ia l th e s a me so t ha t h e co uld id e n ti f y t h e p r e - si g ned wi t hd ra wa l sl ip s mad e b y Mr. P i k e? Q: A: Q: A: Q: A: Q: A: Q: Yo u ar e a lso s a y in g t h at o n Mar c h 1 5 , 1 9 9 3 , yo u li ke wi s e me t J o y M an u el Dab a so l? Ye s, sir .

Ex h ib i t C, Ind i vid ua l? A: Q: A: Q:

the

S a v in g s

Si g n at ure

Ca rd

W e d o no t lo o k at t hat , t ha t is kep t i n t he va u lt. Ye s o r no ? No , sir.

And Mr. wit n e s s, E x h ib i t C - 1 [ 2 2 ] wh ic h i s b ei n g kep t at yo ur v au lt, al so co n tai n s a p ict ur e? Ye s, sir. An d t h e p i ct ure o f t he d ep o s ito r? Ye s, sir. An d a r e yo u fa m ilia r w ith th e id en t it y o f th e d ep o s ito r No rma n Pik e? W ha t p ar ti c ul ar i d en ti t y? Hi s a p p ea ra n c e? He is g a y lo o k i n g fel lo w. fa mi l iar wi t h h is

A: An d yo u ( sic ) a l so sa yi n g o n M arc h 1 5 , 1 9 9 3 , yo u al so me t No r ma n P i ke, t he d ep o si to r, Ye s, sir . An d wh en d id yo u fi r st me t ( si c ) No r ma n Pike? Ma rch 1 5 wh en h e w ith d re w $ 2 ,0 0 0 .0 0 . A: Th a t wa s th e fi r st ti me? Q: F i rs t t im e, y e s. A: An d M r. No rma n Pike wa s a l r ea d y t ra n s a ctin g wi th yo u lo n g b efo re th a t d a y, i s th i s co rr ec t? Fo r h o w lo n g wa s h e t ra n sa c tin g w ith yo u ? Th a t wa s my fi r st tim e. Th a t wa s th e f ir s t t ime . Wh a t I m ea n i s, t h a t h e wa s t ra n sa ct in g w ith th e P NB, Bu en d ia Bra n ch lo n g b efo r e yo u me t h i m ? Ma yb e . Q: A: Q:

CO U RT : An s we r. Yo u are p h ys i cal ap p e ara nc e? A:

A: Q:

No t so mu ch . Beca u se th e re a r e so mu ch d ep o s ito r ( si c) in th e b a n k . [ 2 3 ] [E mp h as i s o ur s.]

A: Q:

And t he wi t hd r a wa l mad e o n Ap ri l 5 , 1 9 9 3 wh ic h yo u ap p r o v ed , yo u d id no t lo o k at

B y hi s o wn t es ti mo n y, th e wi t ne s s ne ga ted t h e ver y re aso n fo r t he b a n k s b i zarr e ac co m mo d a tio n o f th e a ll e ged v erb a l req u e st o f re sp o nd e n t P i ke t h at h e wa s a va l u ed cl ie n t. Fro m t he afo req uo t ed , i t ap p ear s th at t he wi t ne s s, Lo re n z o B al, wa s no t e v e n rea so nab l y fa mi li ar wi t h resp o nd e n t P i ke, ye t , h e wa s read y, wi ll i n g and ab l e to a cc o mmo d ate t h e ve rb a l req u e st of said

d ep o s ito r. W o r se s ti ll , t he wi t n es s s ti ll ap p r o ved t h e wi t hd ra wal tr a n sac tio n wi t ho u t a s k in g fo r a n y p r o o f o f i d en ti fic at io n fo r t he r ea so n t h at : 1 ) D a va so l wa s i n p o s s es s io n o f a p re - si g n ed wi t h d ra wa l s lip ; a nd 2 ) t he wi t ne s s r eco g ni ze d t he s i g na t ure o f r esp o nd e nt P i k e e v e n a fter ad mi tt i n g t hat h e d id no t b o t he r to co u n ter c h ec k t h e s i g na tu r e o n t he sl ip wi t h t h e sp e ci me n s i g nat ur e car d o f resp o nd e nt P i ke and t h at he me t r e sp o nd e n t P i ke j u s t o n ce so t h at he ca n no t s ee m to r ec all wh a t t h e la tt er lo o k s l i ke. T h e en s u i n g q uo ted t e sti mo n y o f t he sa me wi t ne s s will j us ti f y a fi nd i n g o f n e gl i ge nc e a mo u n ti n g to b ad f ai t h, to wi t : Q: A: Q: A: An d yo u al so me t J o y Ma n u el Dab a so l o n Marc h 1 5 ?

A: Q:

No , b eca u se th a t is su ff ici en t a l rea d y . An d i s th i s yo u r n o r ma l p ro ced u re, M r. wi tn e s s? Th i s p a r ti cu la r p ro c ed u r e th a t yo u co n d u cted ? I d o n t th in k so . M r. wi tn e s s, wh e n o n Ap r il 5 , 1 9 9 3 , wh en Jo y Da b a so l ca m e to th e o f fic e a n d a c co rd in g to yo u , yo u d o n o t r e memb er h im, i s th a t co r re ct? I ca n n o t re ca l l h i s fa ce. . . .

A: Q:

A: Ye s, sir . An d ca n yo u d e sc r ib e J o y M a n ue l D ab a so l? Q: I ca n no t r ec all h i s fac e b u t t he n h e i s a T alen t ma n a ger , b e ca u se t he r e ar e so ma n y d ep o si to r s in t he b a n k. . . . Q: Mr. wi t ne s s, yo u ar e sa yi n g t h at Mr . P i k e, t he d ep o s ito r ga ve yo u ve r b al a ut ho r it y to h o no r wi t h d r a wa l b y J o y Ma n u el Dab a so l? Ye s, sir . Wh y d id yo u n o t r eq u i re th en th a t M r. Pi ke in s tea d s ig n th e a u th o r i za t io n p o r tio n a n d th a t th e n a m e o f Jo y Ma n u el Da b a so l a p p ea r th e reo n wi th h is s ig n a tu re? . . . A: A: I req u ir ed M r. No rma n P ike to si g n th e wi th d ra wa l s lip o n th e fa ce o f th e w ith d ra wa l sl ip . Q: Q: Bu t n o t th e a u th o ri za tio n p o rt io n o f th e sa id wi th d ra wa l s lip ? . . . A: A: Q: A: Q: A: Q: A: Q:

An d h e j us t s ho we d yo u a wi t hd r a wa l sl ip , i s th i s co rr ec t? Ye s, o n Ap ri l 5 . Did yo u req u i re h im to Id en ti fi ca t io n Ca rd , y es o r n o ? No . An d h o w d id yo u kn o w th en th a t i t w a s Jo y Da b a so l wh o wa s ma ki n g th e wi th d ra wa l o n Ap r il 5 ? B eca u se th e p r e sig n ed wi th d ra wa l s lip wa s p re sen ted to m e. I s th a t a ll yo u r b a si s? Ye s, si r. Beca u se h is s ig n a tu re a p p ea rs. . . . Mr. wi t n es s, t h i s al le ged a u t ho ri t y g i v en to yo u b y No r ma n P i k e to ho no r wi t hd ra wa l b y J o y M a n ue l D ab a so l, wa s t h at i n wri ti n g? I t wa s verb a ll y re q ue s ted . p ro d u ce any

Q: A: Q: A:

An d t h a t i s SP O ( si c) o f P NB , B ue nd ia B ran c h to ac cep t ver b a l a u t ho r i t ie s? Ye s. I s t hat S ta nd ar d Op er a ti n g P r o ced ure? It i s no t SP O, b ut wh e n yo u k ne w t he cli e nt, Yo ur Ho no r , yo u ha v e t o ho no r a ls o t he tr us t and co n fid e nce . Le t u s s a y i f yo u A cco rd in g to yo u , yo u me t No rma n Pi ke o n ly o n Ma rch 1 5 , 1 9 9 3 a n d im med ia te ly yo u a llo wed h i m to w ith d ra w th ro u g h p re - s ig n ed wi th d ra wa l s lip ? Ye s, Yo u r Ho n o r. B eca u se a d e p o si to r req u e s ted yo u to h o n o r h is s ig n a tu r e, yo u h a v e to d o th a t o r el se wi ll a n d b e sid es th e req u e s t i s fo r p u rp o se o f exp ed ien c y, Yo u r Ho n o r. B ec a us e mo st o f te n t h a n t h at, h e i s o u t o f t he co u nt r y, i n J a p an . And hi s T al e nt Ma na ge r is t he o n e m an a gi n g t h e r ecr u it i n g ag e nc y. T h e mo ne y wi l l b e u sed i n t he o p er at i n g e xp e ns es . . . .

Q:

W it h b a n k s, t he d e gr ee o f d i li ge n ce req u ired , c o nt rar y to t h e p o si tio n o f p e ti tio n er P NB , i s mo r e th a n t hat o f a go o d fa t her o f a fa mi l y co ns id er i n g t ha t t heb u si n es s o f b a n ki n g i s i mb u ed wi t h p ub lic i n tere s t d ue to t h e na t ure o f t h eir fu nct io n s. T he s tab i li t y o f b an k s lar g el y d ep e nd s o n t h e co n fid e n ce o f t he p eo p l e i n t he ho ne s t y a nd e ffi cie n c y o f b a n ks . T h u s, t he la w i mp o se s o n b a n k s a hi g h d e gr ee o f o b li g at io n to tre at t h e a cco u n ts o f i ts d ep o si to r s wi t h me ti c ulo u s car e, al wa y s h a vi n g i n mi nd t h e fid uci ar y n at ur e o f b an k i n g. Sec tio n 2 o f R ep ub li c Ac t No . 8 7 9 1 , [ 2 5 ] wh i c h to o k e ffe ct o n 1 3 J u n e 2 0 0 0 , ma k es a c ate go r ic al d ecl ar atio n t ha t t he St at e reco g ni ze s t he fid uci ar y na t ure o f b a n ki n g t ha t req uir e s h i g h st a nd ard s o f i nt e gri t y a n d p er fo r ma n ce. [ 2 6 ] T ho u g h p as s ed lo n g a fter t h e u na u t ho ri zed wit hd ra wa ls i n th i s ca se, t he a fo req uo ted p ro vi sio n is a st at uto r y a ffir mat io n o f S up re me Co ur t d ec i si o n s alr ead y in e ss e a t th e ti me o f s uc h wi t h d ra wa l s. W e el uc id a ted i n t he 1 9 9 0 ca se o f S i mex In te rn a t io n a l, In c. v. C o u rt o f Ap p ea l s , [ 2 7 ] t ha t t h e b a n k i s u nd er o b li ga tio n to tre at t he acco u nt s o f it s d ep o s it o rs wi t h me t ic ulo u s care, a l wa ys h a vi n g in mi n d t h e fid uc iar y na t ure o f t h eir rela tio n s hip . [ 2 8 ] Li ke wi se, i n t he ca se o f Th e Co n so l id a t ed Ba n k a n d Tru s t Co rp o ra tio n v. Co u rt o f Ap p ea l s , [ 2 9 ] we c lari fie d t hat sa id fid uci ar y rela tio n s hip me a n s t hat t he b a n k s o b l i gat io n to o b ser v e h i g he st st a nd ard s o f i n te gri t y and p er fo r ma n ce is d ee med wr it te n i nto ev er y d ep o s it a gre e me nt b e t we e n a b a n k a n d it s d ep o si to r. T he fid uci ar y na t ure o f b a n ki n g req u ire s b a n k s to as s u me a d e gr ee o f d ili g e nce hi g h er t ha n t h at o f a go o d fat h er o f a fa mi l y. Art ic le 1 1 7 2 o f t he N e w C i v il Co d e st ate s t ha t t he d e gre e o f d i li ge n ce req uir ed o f a n o b l i go r [ 3 0 ] i s t hat p res crib ed b y la w o r co n tra ct, a nd ab se n t s uc h st ip ul at io n t h e n t h e d il i ge n ce o f a fa mi l y. In e ver y c as e, t he d ep o s ito r e xp ect s t he b an k to tre at h is acco u nt wi t h t h e u t mo st fid el it y, wh e t her s u c h a cco u nt s co n s is t o n l y o f a fe w h u n d red p e so s o r o f mi ll io ns o f p e so s. [ 3 1 ] An e nt t h e i s s ue o f t he p ro p riet y o f t he a ward o f d a ma g es i n th i s ca se , p et it io ner P N B as se ver at es t hat t her e was no e vid e n ce to p ro ve t h at re sp o nd e n t P ik e s u ffered a n g ui s h, e mb ar ra ss me nt a n d me n ta l s u ffer i n gs [ 3 2 ] d ue to i ts ac ts i n a ll o wi n g t h e a lle g ed u na u t ho ri zed wi t hd ra wa ls. And , ha v i n g re lied o n t he i n str uc tio n s o f a va l ued d ep o si to r, p et itio n er P NB li ke wi s e a ver s t h at i ts a ct io ns we re ma d e i n go o d fa it h, fo r t h i s rea so n, t h ere is no fac t ua l b a si s fo r sa id a ward .

A:

Q: A:

Yo u d id n o t even b o th e r to lo o k a t th e S a vin g s S ig n a tu re Ca rd I n d iv id u a l, ye s o r n o ? No , s ir . [ 2 4 ] [ E mp ha se s s up p lied .]

Ha vi n g ad mi tted t ha t p r e -s i g ned wi t hd ra wa l sl ip s d o no t co n s ti t ute t he no r ma l p r o ced ur e wi t h r e sp ect to wi t hd r a wa l s b y r ep r e se nt at i ve s s ho u ld h av e alr ead y p ut p e ti tio n er P NB s e mp lo ye es o n g u ard . Ra t her t ha n r ead i l y va lid at i n g a nd p er mi tt i n g sa id wi t h d ra wa l s, t h e y s ho u l d ha ve p r o ceed ed mo re ca ut io us l y. Cl ear l y, p eti tio n er b a n k s e mp l o ye e, Lo r e n zo T . B al, an As s is ta n t Vi ce P r esid e nt at t ha t, wa s e xce ed i n g l y car el es s in hi s trea t me n t o f r esp o nd e nt P i k e s s a vi n g s a cco u nt . Fro m t he fo r e go i n g, t h e e vid e nce cle arl y s ho we d t h at t he p eti tio n er b a n k d id no t ex er c is e t h e d e gr e e o f d ili g e nce t ha t i t o u g h t to ha ve e xer ci sed i n d e a li n g wi t h t h eir cl ie n ts.

P etit io ner P NB s a s ser t i o n s fa il to i mp re s s u s. T he a ward o f mo r al a n d ex e mp l ar y d a ma g e s i s l e ft to t he so u nd d is cre tio n o f t he co ur t , a nd i f s uc h d is cre tio n i s we l l ex er c is ed , a s i n t hi s ca s e, it wi ll no t b e d i st u rb ed o n ap p ea l. [ 3 3 ] In th e ca se o f Ph il ip p in e T eleg ra p h & T e lep h o n e C o rp o ra t io n v . Co u rt o f Ap p ea l s , [ 3 4 ] we had t he o cc as io n to r e iter at e t he co nd i tio n s to b e me t i n o rd er t h at mo r al d a ma ge s ma y b e r eco v er ed . I n sa id c a se we st ated : An a wa r d o f mo r al d a ma g e s wo uld r eq uir e, firs tl y, e v id e nc e o f b es mi r c h ed rep u ta ti o n, o r p h ys i cal , me n ta l o r p s y cho lo gi cal s u ffer i n g s us tai n ed b y t he c lai ma nt ; se co nd l y, a c u lp ab le ac t o r o m is s io n fa ct u al l y e s tab l i s hed ; t h ir d l y, p r o o f t ha t t he wr o n g fu l act o r o mi s sio n o f t h e d efe nd a nt is t h e p ro x i mat e ca us e o f t he d a ma ge s s u st ai ned b y t he cl ai ma n t; a nd fo ur t hl y, t h at t he ca s e i s p r ed ic at ed o n a n y o f t he in s ta nc es e xp r e s sed o r en v i sio n ed b y Artic le s 2 2 1 9 [ 3 5 ] a nd 2 2 2 0 [ 3 6 ] o f th e Ci v il Co d e.

Fi n all y, t he a fo re sta ted gra n t o f e xe mp lar y d a m ag es e n ti tle s resp o nd e nt P i ke t he a wa rd o f atto r ne y's fee s i n t he a mo u n t o f P 2 0 ,0 0 0 .0 0 a nd t h e a war d o f P 1 0 ,0 0 0 .0 0 fo r l it i g atio n e xp e n se s. [ 4 2 ] W HE RE FO RE, t he i n st a nt p e ti tio n i s DE NIED . T he as sa iled De ci s io n d a ted 1 9 D ece mb er 2 0 0 2 , and t h e Re so l u tio n d ated 0 2 Ap r il 2 0 0 3 , b o th o f t he Co ur t o f Ap p e a l s, i n C A - G. R. C V No . 5 9 3 8 9 , wh i c h a ffir med wi t h mo d i fica tio n t he D ec is io n re nd er ed b y t he Re g io nal T ri al C o ur t ( RT C), B ra n c h 0 7 o f Ma ni la, d ated 1 0 J an ua r y 1997, in C i vi l Ca se No . 9 4 -6 8 8 2 1 , ar e her eb y AF FI RM ED wi th t h e M ODI FI C AT IO N th at p et it io ner P NB is d ir ec ted to p a y resp o nd e nt P i ke ad d i t io n al 1 ) P 2 0 ,0 0 0 .0 0 rep re se nt i n g at to r ne y s fee s; a nd 2 ) P 1 0 , 0 0 0 .0 0 rep re s e nt i n g exp e ns e s o f l it i ga tio n. Co st s a g ai n s t p e tit io ner P NB . SO O RD ER ED.

Sp ec i fi ca ll y, i n cu lp a c o n tra ctu a l o r b rea c h o f co nt rac t, a s her e, mo ra l d a ma g e s ar e r eco ver ab le o nl y i f t h e d efe nd a n t h as act ed fr a u d ule n tl y o r i n b a d f ait h , [ 3 7 ] o r i s fo u nd g u il t y o f gro s s ne g li g e nce a mo u n ti n g to b ad f ai t h, [ 3 8 ] o r i n wa n to n d i sr e gard o f h is co n tr a ct ua l o b li g at io n s. [ 3 9 ] Ver il y, t he b reac h mu s t b e wa n to n, r ec kl es s, mal ic io us , o r i n b ad fa it h, o p p r e ss i ve o r ab us i ve. [ 4 0 ] T here i s no r e aso n to d is t ur b t he tr ia l co urt s fi nd i n g o f p eti tio n er b a n k s e mp l o ye es ne gl i ge n ce i n th eir tre at me n t o f r esp o nd e nt P i ke s a cco u nt . I n t he ca se o n ha nd , t he Co ur t o f Ap p ea ls s u st ai ned , a nd r i g ht l y so , t hat a n a war d o f mo ra l d a ma g es is wa rra n ted . Fo r, as fo u nd b y sa id ap p el la te c o ur t, ci ti n g t he c as e o f P ru d en tia l Ba n k v . Co u rt o f Ap p ea l s , [ 4 1 ] t he b an k s n e gl i ge nc e i s a r e s ul t o f l ac k o f d ue car e a nd ca ut io n r eq uir ed o f ma n a ge rs a nd e mp lo ye es o f a fir m en ga g ed i n so se n si ti ve a nd d e ma n d i n g b u si n es s, a s b a n ki n g, he n ce, t he a war d o f P 2 0 ,0 0 0 .0 0 a s mo ra l d a ma ge s, is p ro p er . T he a wa rd o f e x e mp l ar y d a ma ge s i s al so p ro p er as a wa r ni n g to p et it io ner P NB a nd al l co ncer n ed no t to r ec k l es sl y d is re gard t he ir o b li ga tio n to e xer ci se t he hi g h es t a nd str ic te st d il i ge n ce i n ser v i n g th eir d ep o si to rs .

Cadiz v. Ca DECISION TINGA, J.: Employees who abuse their position for fiduciary gain cannot be shielded from the consequences of their wrongdoing even on account of the banks operational laxities that may have provided the gateway for their shenanigans. Their misconduct provides the bank with cause for the termination of their employment.

by Bongkingki while sixteen (16) deposit slips were posted by Gloria. A verification of the deposit slips yielded findings of miscoded checks, forged signatures, nonvalidation of deposit slips by the tellers, wrongful deposit of second-endorsed checks into foreign currency deposit accounts, the deposit slips which do not bear the required approval of bank officers, and withdrawals made either on the day of deposit or the following banking day.[1] In view of such findings, show-cause memoranda[2] were served on petitioners, requiring them to explain within seventy-two (72) hours why no disciplinary action should

The facts follow. Petitioners Romeo Cadiz (Cadiz), Carlito Bongkingki (Bongkingki) and Prisco Gloria IV (Gloria) were employed as signature verifier, bookkeeper, and foreign currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch (MOB) of Philippine Commercial International Bank (respondent bank). The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a complaint with PCIB for the alleged non-receipt of a Six Hundred Dollar ($600.00) demand draft drawn against it which was purchased by her husband from Hongkong and Shanghai Banking Corporation. Upon verification, it was uncovered that the demand draft was deposited on 10 June 1988 with FCDU Savings Account (S/A) No. 1083-4, an account under the name of Sonia Alfiscar (Alfiscar). Further investigation revealed that the demand draft, together with four (4) other checks, was made to appear as only one deposit covered by HSBC Check No. 979120 for One Thousand Two Hundred Thirty-two Dollars (US$1,232.00). The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz, Bongkingki and Gloria allegedly verbally admitted their participation in a scheme to divert funds intended for other accounts using the Savings Account of Alfiscar. Subsequently, Cadiz allegedly paid Alqueza P12,690.00, the peso equivalent of US$600, but insisted that the corresponding receipt be issued in Alfiscars name instead. On account of these allegations, a special audit examination was conducted by the bank. On 31 January 1989, the internal auditors of the bank, headed by Lizza G. Baylon, submitted their findings in an official report. The auditors determined that as early as July 1987, petitioner Cadiz had reserved the savings account in the name of Sonia Alfiscar. The account was opened on 27 November 1987 and closed on 23 June 1988. Twenty-five (25) deposit slips involving the account were posted

be taken against them in connection with the results of the special audit examination. On 22 March 1989, petitioners submitted their written explanations.[3] Not satisfied with their explanations, respondent bank in memoranda[4] all dated 22 June 1989 dismissed petitioners from employment for violation of Article III Section 1 B-2 and Article III Section 1-C of the Code of Discipline. Petitioners lodged a complaint before the labor arbiter for illegal dismissal on 18 September 1989. Labor Arbiter Ernesto S. Dinopol adjudged that petitioners were illegally dismissed and ordered their reinstatement and payment of backwages. This conclusion was based on the notices of dismissal, which, to the mind of the labor arbiter, was couched in general terms and without explaining how the rules were violated. The labor arbiter also attributed petitioners acts in fraudulently coding several deposit slips as 1511 (immediately withdrawable) as mere procedural inadequacies, with the fault attributable to respondent bank for its laxity.[5]

However, if there are competing factual findings by the different triers of fact, such as those made in this case by the labor arbiter on one hand, and those of the NLRC and Court of Appeals on the other hand, this Court is compelled to go over the records of the case, as well as the submissions of the parties, and resolve the factual issues.[12] With this in mind, we shall now proceed to examine the decisions under review.

The general thesis as laid down by the NLRC and Court of Appeals is that petitioners had surreptitiously diverted funds deposited by depositors to S/A No. 1083-4 which was under their control and disposition. On the other hand, a perusal of the labor arbiters Decision reveals a different perspective from which the case was approached. While the labor arbiter conceded that petitioners Bongkingki and Gloria had miscoded several deposit slips, rendering them immediately withdrawable, he characterized the errors as mere procedural inadequacies which were preventable had management exercised greater control over its employees. [13] Far from petitioners thrust, the miscoding of deposit slips cannot be downplayed as mere procedural inadequacies. After all, it is such miscoding that precipitated the fraudulent withdrawals in the first place. The act operated as the first indispensable step towards the commission of fraud on the bank.

The labor arbiters Decision was reversed on appeal before the Second Division of the National Labor Relations Commission (NLRC), which, in aDecision[6] dated 30 June 1994, ordered the dismissal of the petition. In doing so, the NLRC departed from the labor arbiters finding of facts and concluded that petitioners were dismissed for just cause. Dismissing petitioners appeal, the Court of Appeals Ninth Division similarly determined on the basis of substantial evidence that petitioners were validly terminated in its own Decision[7] dated 13 July 2001. After the appellate court denied petitioners motion for reconsideration, the matter was brought before this Court in a Petition for Review on Certiorari.[8] The issues to be resolved are whether the Court of Appeals erred in not sustaining the findings of the labor arbiter and upholding those of the NLRC and whether the Court of Appeals erred in dismissing the petition by ignoring petitioners claims that they were dismissed without just cause and due process. [9] In its Comment,[10] respondent bank seeks to have the petition dismissed inasmuch as all the issues raised herein involve questions of fact. We note that as a general rule, only questions of law may be brought upon this Court in a petition for review on certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts, and as such is tasked to calibrate and assess the probative weight of evidence adduced by the parties during trial all over again.[11]

More disturbing though is the labor arbiters willingness to acquit petitioners of culpability on account of the purported negligence of the bank. It is similar to concluding that the bank guards, and not the burglars, bear primary culpability for a bank robbery. Whatever liability or responsibility was expected of the bank stands as an issue separate from the liability of the recreant bank employees. Even assuming that the bank observed less-than-ideal controls over the security of its operations, such laxity does not serve as the carte blanche signal for the bank employees to take advantage of safeguard control lapses and perpetrate chicanery on their employer. The labor arbiter also evaluated the banks claim that Cadiz had reimbursed the amount of $600 to the aggrieved depositor Alqueza while making it appear that it was Alfiscar who had actually made the refund. In disbelieving this claim, the Labor Arbiter concluded that it is unthinkable for a lowly bank employee to impose his will upon his high and mighty employer.[14] This pronouncement is revelatory of absurd logic. The notion that a lowly employee will never countermand the will or interests of the employer is sufficiently rebutted by any labor law casebook, any omnibus of our labor jurisprudence, and the evolution of the human experience that disquiets persons from unhesitatingly acceding to the presumptive good faith of others. It is an accepted premise of life and jurisprudence that persons are capable, upon impure motivations, of taking advantage of others, whether their social lessers, equals, or betters. The necessity of

punishment arises from this flaw of human nature. This philosophic stance of the labor arbiter actually obviates the nature of sin. Obviously, we are hard-pressed to accord high regard to the labor arbiters discernment as a trier of facts. Nonetheless, his claim that there were procedural flaws attending the dismissal of petitioners warrants some deliberation. The labor arbiter ruled that the notices of dismissal served on petitioners was insufficient as it failed to specifically delineate how petitioners had violated the internal rules of the bank. However, the notices do cite the rules which petitioners had violated and refer to the fact that such violations occurred relating to S/A No. 1083-4 account of Sonia Alfiscar and/or Rosalinda Alqueza. There is no demand that the notices of dismissal themselves be couched in the form and language of judicial or quasi-judicial decisions. What is required is that the employer conduct a formal investigation process, with notices duly served on the employees informing them of the fact of investigation, and subsequently, if warranted, a separate notice of dismissal.[15] Through the formal investigatory process, the employee must be accorded the right to present his/her side, which must be considered and weighed by the employer. The employee must be sufficiently apprised of the nature of the charge against him/her, so as to be able to intelligently defend against the charges. In the instant case, records show that respondent bank complied with the twonotice rule prescribed in Article 277(b) of the Labor Code. [16] Petitioners were given all avenues to present their side and disprove the allegations of respondent bank. An informal meeting was held between the branch manager of MOB, the three petitioners and Mr. Gener, the Vice-President of the PCIB Employees Union. As per report, petitioners admitted having used Alfiscars account to divert funds i ntended for other accounts. A special audit investigation was conducted to determine the extent of the fraudulent transactions. Based on the results of the investigation, respondent bank sent show-cause memoranda to petitioners, asking them to explain their lapses, under pain of disciplinary action. The memoranda, which constitute the first notice, specified the various questionable acts committed by petitioners. Afterwards, petitioners submitted their respective replies to the memoranda. This very well complies with the requirement for hearing, by which petitioners were afforded the opportunity to defend themselves. The second notice came in the form of the termination memoranda, informing petitioners of their dismissal from service. From the foregoing, it is clear that the required procedural due process for their termination was strictly complied with. All told, we hold that the factual appreciation and conclusions rendered by the labor arbiter are not worthy of adoption by this Court. In contrast, from the factual

determinations made by the NLRC and the Court of Appeals, we accept the following facts as proven: 1. 2. 3. 4. 5. 6. 7. 8. 9. Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on respondent banks new account register. Foreign denominated checks payable to other payees were diverted into the said account. The various deposit slips, covering the said checks, did not bear the machine validation of any of the tellers-in-charge. The signatures of the MOB officers appearing on the said deposit slips were in fact forged. The posting of said bank transactions bore the initials of petitioners Bongkingki or Gloria. The deposit slips were coded as 1511 or on-us check. Petitioner Cadiz agreed to pay Alqueza the equivalent amount of $600.00 but it was made to appear that Alfiscar paid the said amount. In view of these findings, petitioners were served with show-cause memoranda asking them to explain the lapses. Finding their explanations unsatisfactory, petitioners were terminated from employment.

It is from these established facts that we consider the arguments now presented by petitioners. In light of these facts, petitioners arguments hardly detract from the conclusion that their behavior in the course of the discharge of their duties is clearly malfeasant, and constitutes ground for their termination on account of just cause. First, petitioners insist that the show-cause memoranda served on them did not impute any fraudulent behavior, but merely lapses. We disagree. The show-cause memoranda were occasioned by the confidential report prepared by Sandig, as well as the findings of the special audit examination. The confidential report prepared by Sandig addressed to the Vice-President of respondent bank pertains to the discovery of fraudulent transactions on S/A No.1083-4 involving three employees of respondent bank. The report detailed how the events transpired, including the admissions of petitioners. From there, a special audit examination was conducted to make a thorough investigation of the questioned account. The examination yielded conspicuous findings that anomalous transactions had taken place involving petitioners. Moreover, the show-cause memoranda respectively served on petitioners clearly indicate that they were being made to answer questions pertaining to possible anomalous behavior on their part. For example, petitioners were asked to explain why they had posted the questioned deposits on the ledger, although there were no teller validations or teller stamps, and also on what basis they considered such transactions to be valid.[17] On the other hand, the show-cause memorandum to Cadiz

directly asks him to provide the personal details of Sonia Alfiscar, why he went out of his way to make a special arrangement for the mysterious Alfiscar, and other questions pertaining to the Alfiscar accounts. We thus cannot give credence to the averments of petitioners that the memoranda pertain to lapses, and not fraudulent transactions. The bank could not have been expected to conclude outright that petitioners were guilty of fraud, despite all the indicia that they indeed were. Certainly, the purpose of the show-cause memoranda was to afford petitioners the opportunity to acquit themselves of culpable responsibility. It would have been quite irresponsible for the bank to have premised the queries therein on irretractable conclusions that petitioners had been guilty of anomalous transactions. Second, petitioners contend that they should be relieved of any liability considering that respondent bank did not suffer a pecuniary loss. This claim must obviously fail. There is jurisprudential support, as noted by the Court of Appeals in citing University of the East v. NLRC[18] that lack of material or pecuniary damages would not in any way mitigate a persons liability nor obliterate the loss of trust and confidence. In the case of Etcuban v. Sulpicio Lines,[19]this Court definitively ruled that: . . . Whether or not the respondent bank was financially prejudiced is immaterial. Also, what matters is not the amount involved, be it paltry or gargantuan; rather the fraudulent scheme in which the petitioner was involved, which constitutes a clear betrayal of trust and confidence. . . . Moreover, it cannot be discounted that as bank employees, the responsibilities of petitioners are impressed with a high degree of public interest. Private persons entrust their fortunes to banks, and it would cause a breakdown of the financial order if the judicial system were to leave unsanctioned bank employees who treat depositors accounts as their own private kitty. Still, petitioners insist that respondent bank never lost trust and confidence in them as it did not place them under preventive suspension, and more tellingly, it even promoted them after the labor arbiter had ordered their reinstatement. Preventive suspension, which is never obligatory on the part of the employer, may be resorted to only when the continued employment of the employee poses a serious and imminent threat to the life or property of the employer or of his coworkers.[20] The bank points out that the Alfiscar account, through which the anomalous transactions were coursed, was no longer active at the time the fraud was discovered.[21] Clearly, the bank had reason to conclude that the imminence of the threat posed by the employees was not as vital as it would have been had the dubious account still been open.

As to the alleged promotions, the original employer, PCIB, admits that petitioners had been reinstated by reason of the Decision, but such act was by no means voluntary. PCIB however does not rebut the allegations that Bongkingki and Cadiz were assigned to sensitive positions within the bank after their compulsory reinstatement. This may be so, but the fact that PCIB lost no time in removing the employees from the plantilla after the NLRC reversed the labor arbiters Decision hardly evinces any continuing trust and confidence on the part of the bank, as maintained by petitioners. Moreover, considering that these reinstated employees were, for the meantime, regular employees of the bank, it is within the discretion of PCIB to reassign them as it sees fit, taking into account the circumstances. Moreover, it would simply be temerarious for the Court to sanction the reinstatement of bank employees who have clearly engaged in anomalous banking practices. The particular fiduciary responsibilities reposed on banks and its employees cannot be emphasized enough. The fiduciary nature of banking[22] is enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. [23] The bank must not only exercise high standards of integrity and performance, it must also ensure that its employees do likewise because this is the only way to ensure that the bank will comply with its fiduciary duty.[24] All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of trust and confidence is one of the just causes for termination by employer under Article 282 of the Labor Code. The breach of trust must be willful, meaning it must be done intentionally, knowingly, and purposely, without justifiable excuse.[25] Ideally, loss of confidence applies only to cases involving employees occupying positions of trust and confidence or to those situations where the employee is routinely charged with the care and custody of the employers money or property.[26] Utmost trust and confidence are deemed to have been reposed on petitioners by virtue of the nature of their work. The facts as established, as well as the need to assert the public interest in safeguarding against bank fraud, militate against the present petition.

FEBTC v. Pacilan DECISION WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners. SO ORDERED. Before the Court is the petition for review on certiorari filed by Far East Bank and Trust Company (now Bank of the Philippines Islands) seeking the reversal of the Decision[1]dated August 30, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 36627 which ordered it, together with its branch accountant, Roger Villadelgado, to pay respondent Themistocles Pacilan, Jr.[2] the total sum of P100,000.00 as moral and exemplary damages. The assailed decision affirmed with modification that of the Regional Trial Court (RTC) of Negros Occidental, Bacolod City, Branch 54, in Civil Case No. 4908. Likewise sought to be reversed and set aside is the Resolution dated January 17, 2003 of the appellate court, denying petitioner banks motion for reconsideration. The case stemmed from the following undisputed facts: Respondent Pacilan opened a current account with petitioner banks Bacolod Branch on May 23, 1980. His account was denominated as Current Account No. 53208 (0052-00407-4). The respondent had since then issued several postdated checks to different payees drawn against the said account. Sometime in March 1988, the respondent issued Check No. 2434886 in the amount of P680.00 and the same was presented for payment to petitioner bank on April 4, 1988. Upon its presentment on the said date, Check No. 2434886 was dishonored by petitioner bank. The next day, or on April 5, 1988, the respondent deposited to his current account the amount of P800.00. The said amount was accepted by petitioner bank; hence, increasing the balance of the respondents deposit to P1,051.43. Subsequently, when the respondent verified with petitioner bank about the dishonor of Check No. 2434866, he discovered that his current account was closed on the ground that it was improperly handled. The records of petitioner bank disclosed that between the period of March 30, CALLEJO, SR., J.:

1988 and April 5, 1988, the respondent issued four checks, to wit: Check No. 2480416 for P6,000.00; Check No. 2480419 for P50.00; Check No. 2434880 for P680.00 and; Check No. 2434886 for P680.00, or a total amount of P7,410.00. At the time, however, the respondents current account with petitioner bank only had a deposit of P6,981.43. Thus, the total amount of the checks presented for payment on April 4, 1988 exceeded the balance of the respondents deposit in his account. For this reason, petitioner bank, through its branch accountant, Villadelgado, closed the respondents current account effective the evening of April 4, 1988 as it then had an overdraft of P428.57. As a consequence of the overdraft, Check No. 2434886 was dishonored. On April 18, 1988, the respondent wrote to petitioner bank complaining that the closure of his account was unjustified. When he did not receive a reply from petitioner bank, the respondent filed with the RTC of Negros Occidental, Bacolod City, Branch 54, a complaint for damages against petitioner bank and Villadelgado. The case was docketed as Civil Case No. 4908. The respondent, as complainant therein, alleged that the closure of his current account by petitioner bank was unjustified because on the first banking hour of April 5, 1988, he already deposited an amount sufficient to fund his checks. The respondent pointed out that Check No. 2434886, in particular, was delivered to petitioner bank at the close of banking hours on April 4, 1988 and, following normal banking procedure, it

(petitioner bank) had until the last clearing hour of the following day, or on April 5, 1988, to honor the check or return it, if not funded. In disregard of this banking procedure and practice, however, petitioner bank hastily closed the respondents current account and dishonored his Check No. 2434886. The respondent further alleged that prior to the closure of his current account, he had issued several other postdated checks. The petitioner banks act of closing his current account allegedly preempted the deposits that he intended to make to fund those checks. Further, the petitioner banks act exposed him to criminal prosecution for violation of Batas Pambansa Blg. 22. According to the respondent, the indecent haste that attended the closure of his account was patently malicious and intended to embarrass him. He claimed that he is a Cashier of Prudential Bank and Trust Company, whose branch office is located just across that of petitioner bank, and a prominent and respected leader both in the civic and banking communities. The alleged malicious acts of petitioner bank besmirched the respondents reputation and caused him social humiliation, wounded feelings, insurmountable worries and sleepless nights entitling him to an award of damages. In their answer, petitioner bank and Villadelgado maintained that the respondents current account was subject to petitioner banks Rules and Regulations Governing the Establishment and Operation of Regular Demand

Deposits which provide that the Bank reserves the right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits and that the Bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for any reason. [3] They showed that the respondent had improperly and irregularly handled his current account. For example, in 1986, the respondents account was overd rawn 156 times, in 1987, 117 times and in 1988, 26 times. In all these instances, the account was overdrawn due to the issuance of checks against insufficient funds. The respondent had also signed several checks with a different signature from the specimen on file for dubious reasons. When the respondent made the deposit on April 5, 1988, it was obviously to cover for issuances made the previous day against an insufficiently funded account. When his Check No. 2434886 was presented for payment on April 4, 1988, he had already incurred an overdraft; hence, petitioner bank rightfully dishonored the same for insufficiency of funds. After due proceedings, the court a quo rendered judgment in favor of the respondent as it ordered the petitioner bank and Villadelgado, jointly and severally, to pay the respondent the amounts of P100,000.00 as moral damages and P50,000.00 as exemplary damages and costs of suit. In so ruling, the court a quo also cited petitioner banks rules and regulations which state that a charge of P10.00 shall be levied against the depositor for any check that is taken up as a returned item due to insufficiency of funds on the date of receipt from the clearing office even if said check is honored and/or covered by sufficient deposit the following banking day. The same rules and regulations also provide that a check returned for insufficiency of funds for any reason of similar import may be subsequently recleared for one more time only, subject to the same charges. According to the court a quo, following these rules and regulations, the respondent, as depositor, had the right to put up sufficient funds for a check that was taken as a returned item for insufficient funds the day following the receipt of said check from the clearing office. In fact, the said check could still be recleared for one more time. In previous instances, petitioner bank notified the respondent when he incurred an overdraft and he would then deposit sufficient funds the following day to cover the overdraft. Petitioner bank thus acted unjustifiably when it immediately closed the respondents account on April 4, 1988 and deprived him of the opportunity to reclear his check or deposit sufficient funds therefor the following day. As a result of the closure of his current account, several of the respondents checks were subsequently dishonored and because of this, the respondent was humiliated, embarrassed and lost his credit standing in the business community. The court a quo further ratiocinated that even granting arguendo that petitioner bank had the right to close the respondents account, the manner which attended the closure

constituted

an

abuse

of

the

said right. Citing Article 19 of the Civil Code of the Philippines which states that [e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith and Article 20 thereof which states that [e]very person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same, the court a quo adjudged petitioner bank of acting in bad faith. It held that, under the foregoing circumstances, the respondent is entitled to an award of moral and exemplary damages. The decretal portion of the court a quos decision reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: 1. Ordering the defendants [petitioner bank and Villadelgado], jointly and severally, to pay plaintiff [the respondent] the sum of P100,000.00 as moral damages; Ordering the defendants, jointly and severally, to pay plaintiff the sum of P50,000.00 as exemplary damages plus costs and expenses of the suit; and Dismissing [the] defendants counterclaim for lack of merit.

Echoing the reasoning of the court a quo, the CA declared that even as it may be conceded that petitioner bank had reserved the right to close an account for repeated overdrafts by the respondent, the exercise of that right must never be despotic or arbitrary. That petitioner bank chose to close the account outright and return the check, even after accepting a deposit sufficient to cover the said check, is contrary to its duty to handle the respondent s account with utmost fidelity. The exercise of the right is not absolute and good faith, at least, is required. The manner by which petitioner bank closed the account of the respondent runs afoul of Article 19 of the Civil Code which enjoins every person, in the exercise of his rights, to give every one his due, and observe honesty and good faith.

2.

3.

SO ORDERED.[4] On appeal, the CA rendered the Decision dated August 30, 2002, affirming with modification the decision of the court a quo. The appellate court substantially affirmed the factual findings of the court a quo as it held that petitioner bank unjustifiably closed the respondents account notwithstanding that its own rules and regulations allow that a check returned for insufficiency of funds or any reason of similar import, may be subsequently recleared for one more time, subject to standard charges. Like the court a quo, the appellate court observed that in several instances in previous years, petitioner bank would inform the respondent when he incurred an overdraft and allowed him to make a timely deposit to fund the checks that were initially dishonored for insufficiency of funds. However, on April 4, 1988, petitioner bank immediately closed the respondents account without even notifying him that he had incurred an overdraft. Even when they had already closed his account on April 4, 1988, petitioner bank still accepted the deposit that the respondent made on April 5, 1988, supposedly to cover his checks.

The CA concluded that petitioner banks precipitate and imprudent closure of the respondents account had caused him, a respected officer of several civi c and banking associations, serious anxiety and humiliation. It had, likewise, tainted his credit standing. Consequently, the award of damages is warranted. The CA, however, reduced the amount of damages awarded by the court a quo as it found the same to be excessive: We, however, find excessive the amount of damages awarded by the RTC. In our view the reduced amount of P75,000.00 as moral damages and P25,000.00 as exemplary damages are in order. Awards for damages are not meant to enrich the plaintiff-appellee [the respondent] at the expense of defendants-appellants [the petitioners], but to obviate the moral suffering he has undergone. The award is aimed at the restoration, within limits possible, of the status quo ante, and should be proportionate to the suffering inflicted.[5] The dispositive portion of the assailed CA decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION that the award of moral damages is reduced to P75,000.00 and the award of exemplary damages reduced to P25,000.00. SO ORDERED.[6] Petitioner bank sought the reconsideration of the said decision but in the assailed Resolution dated January 17, 2003, the appellate court denied its motion. Hence, the recourse to this Court. Petitioner bank maintains that, in closing the account of the respondent in the evening of April 4, 1988, it acted in good faith and in accordance with the rules and regulations governing the operation of a regular demand deposit which reserves to the bank the right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits. The same rules and regulations also provide that the depositor is not entitled, as a matter of right, to overdraw on this deposit and the bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for any reason. It cites the numerous instances that the respondent had overdrawn his account and those instances where he deliberately signed checks using a signature different from the specimen on file. Based on these facts, petitioner bank was constrained to

close the respondents account for improper and irregular handling and returned his Check No. 2434886 which was presented to the bank for payment on April 4, 1988. Petitioner bank further posits that there is no law or rule which gives the respondent a legal right to make good his check or to deposit the corresponding amount to cover said check within 24 hours after the same is dishonored or returned by the bank for having been drawn against insufficient funds. It vigorously denies having violated Article 19 of the Civil Code as it insists that it acted in good faith and in accordance with the pertinent banking rules and regulations. The petition is impressed with merit.

A perusal of the respective decisions of the court a quo and the appellate court show that the award of damages in the respondents favor was anchored mainly on Article 19 of the Civil Code which, quoted anew below, reads: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The elements of abuse of rights are the following: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.[7] Malice or bad faith is at the core of the said provision.[8] The law always presumes good faith and any person who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill-motive.[9] Good faith refers to the state of the mind which is manifested by the acts of the individual concerned. It consists of the intention to abstain from taking an unconscionable and unscrupulous advantage of another.[10] Bad faith does not simply connote bad judgment or simple negligence, dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty due to some motives or interest or ill-will that partakes of the nature of fraud.[11] Malice connotes ill-will or spite and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive.[12] Undoubtedly, petitioner bank has the right to close the account of the respondent based on the following provisions of its Rules and Regulations Governing the Establishment and Operation of Regular Demand Deposits: 10) The Bank reserves the right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits.

respondent issued four checks, all due on April 4, 1988, amounting toP7,410.00 when the balance of his current account deposit was only P6,981.43. Thus, he incurred an overdraft of P428.57 which resulted in the dishonor of his Check No. 2434886. Further, petitioner bank showed that in 1986, the current account of the respondent was overdrawn 156 times due to his issuance of checks against insufficient funds.[13] In 1987, the said account was overdrawn 117 times for the same

12) However, it is clearly understood that the depositor is not entitled, as a matter of right, to overdraw on this deposit and the bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for any other reason.

The facts, as found by the court a quo and the appellate court, do not establish that, in the exercise of this right, petitioner bank committed an abuse thereof. Specifically, the second and third elements for abuse of rights are not attendant in the present case. The evidence presented by petitioner bank negates the existence of bad faith or malice on its part in closing the respondents account on April 4, 1988 because on the said date the same was already overdrawn. The

reason.[14] Again, in 1988, 26 times.[15] There were also several instances when the respondent issued checks deliberately using a signature different from his specimen signature on file with petitioner bank.[16] All these circumstances taken together justified the petitioner banks closure of the respondents account on April 4, 1988 for improper handling. It is observed that nowhere under its rules and regulations is petitioner bank required to notify the respondent, or any depositor for that matter, of the closure of the account for frequently drawing checks against insufficient funds. No malice or bad faith could be imputed on petitioner bank for so acting since the records bear out that the respondent had indeed been improperly and irregularly handling his account not just a few times but hundreds of times. Under the circumstances, petitioner bank could not be faulted for exercising its right in accordance with the express rules and regulations governing the current accounts of its depositors. Upon the opening of his account, the respondent had agreed to be bound by these terms and conditions. Neither the fact that petitioner bank accepted the deposit made by the respondent the day following the closure of his account constitutes bad faith or malice on the part of petitioner bank. The same could be characterized as simple negligence by its personnel. Said act, by itself, is not constitutive of bad faith. The respondent had thus failed to discharge his burden of proving bad faith on the part of petitioner bank or that it was motivated by ill-will or spite in closing his account on April 4, 1988 and in inadvertently accepting his deposit on April 5, 1988. Further, it has not been shown that these acts were done by petitioner bank with the sole intention of prejudicing and injuring the respondent. It is conceded that the respondent may have suffered damages as a result of the closure of his current account. However, there is a material distinction between damages and injury. The Court had the occasion to explain the distinction between damages and injury in this wise: Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria. In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff a concurrence of injury to the plaintiff and legal

responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that the individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury.[17] Whatever damages the respondent may have suffered as a consequence, e.g., dishonor of his other insufficiently funded checks, would have to be borne by him alone. It was the respondents repeated improper and irregular handling of his account which constrained petitioner bank to close the same in accordance with the rules and regulations go verning its depositors current accounts. The respondents case is clearly one of damnum absque injuria. WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2002 and Resolution dated January 17, 2003 of the Court of Appeals in CA-G.R. CV No. 36627 are REVERSED AND SET ASIDE. SO ORDERED.

CITIBANK, N.A., Petitioner, vs. SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO CABAMONGAN, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari of the Decision1 dated January 26, 2001 and the Resolution2dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033. The factual background of the case is as follows: On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign currency time deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per cent interest per annum.3 Prior to maturity, or on November 10, 1993, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card.4 She filled up the necessary forms for pretermination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. 5Since the said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her.6 The release and waiver document7 was not notarized on that same day but the money was nonetheless given to the person withdrawing.8 The transaction lasted for about 40 minutes.9 After said person left, San Pedro realized that she left behind an identification card.10 Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the card picked up.11 Marites, the wife of Lito, received San Pedro's call and was stunned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that time.12 The Cabamongan spouses work and reside in California. Marites made an overseas call to Carmelita to inform her about what happened.13 The Cabamongan spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an unidentified person broke in at the couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box was missing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and identification cards were also missing.14 It was only then that the Cabamongan spouses realized that their passports and bank deposit certificates were lost.15 Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence. San Pedro told the spouses to submit the necessary documents to support their claim but Citibank concluded

nonetheless that Carmelita indeed preterminated her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through counsel, made a formal demand upon Citibank for payment of their preterminated deposit in the amount of $55,216.69 with legal interests.16 In a letter dated November 28, 1994, Citibank, through counsel, refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification and verification.17 On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC).18 In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject deposit was released to Carmelita only upon proper identification and verification.19 At the pre-trial conference the parties failed to arrive at an amicable settlement.20 Thus, trial on the merits ensued. For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents Examiner II of the Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was in California at the time of the incident.21 Negre testified that an examination of the questioned signature and the samples of the standard signatures of Carmelita submitted in the RTC showed a significant divergence. She concluded that they were not written by one and the same person.22 For the respondent, Citibank presented San Pedro and Cris Cabalatungan, VicePresident and In-Charge of Security and Management Division. Both San Pedro and Cabalatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper identification and verification.23 On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the dispositive portion of which reads, thus: WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following: 1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests from August 16, 1993 until fully paid; 2) Moral damages of P50,000.00; 3) Attorney's fees of P50,000.00; and 4) Cost of suit. SO ORDERED.24 The RTC reasoned that: xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by the handwriting expert. xxx Defendant bank was clearly remiss in its duty and obligations to treat plaintiff's account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation to treat the accounts of their depositors with meticulous care. This is the reason for their established procedure of requiring

several specimen signatures and recent picture from potential depositors. For every transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy.25 Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider the decision by praying for an increase of the amount of the damages awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dispositive portion of the decision as follows: From the foregoing, and considering all the evidence laid down by the parties, the dispositive portion of the court's decision dated July 1, 1997 is hereby amended and/or modified to read as follows: WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following: 1) the principal amount of their foreign currency deposit (Reference No. 6022214372) amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid. 2) moral damages in the amount of P200,000.00; 3) exemplary damages in the amount of P100,000.00; 4) attorney's fees of P100,000.00; 5) litigation expenses of P200,000.00; 6) cost of suit. SO ORDERED.28 Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033.29 On January 26, 2001, the CA rendered a decision sustaining the finding of the RTC that Citibank was negligent, ratiocinating in this wise: In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, California, had shown through her Certificate of Employment and her Daily Time Record from the [sic] January to December 1993 that she was in the United States at the time of the incident. Defendant Citibank, N.A., however, insists that Carmelita was the one who preterminated the deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident mentioned presented a valid passport and three (3) other identification cards. The attending account officer examined these documents and even interviewed said person. She was satisfied that the person presenting the documents was indeed Carmelita Cabamongan. However, such conclusion is belied by these following circumstances. First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor without having the said

document notarized on the flimsy excuse that another department of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At the very least, the conduct of the bank amounts to negligence. Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported that upon comparing the authentic signatures of Carmelita Cabamongan on file with the bank with the signatures made by the person claiming to be Cabamongan on the documents required for the termination of the deposit, she noticed that one letter in the latter [sic] signatures was different from that in the standard signatures. She requested said person to sign again and scrutinized the identification cards presented. Presumably, San Pedro was satisfied with the second set of signatures made as she eventually authorized the termination of the deposit. However, upon examination of the signatures made during the incident by the Philippine National Police (PNP) Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document Examiner Florenda Negre were established and she satisfactorily testified on her findings during the trial, we have no reason to doubt the validity of her findings. Again, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Undoubtedly, the bank could have done a better job. Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees could have been duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not resemble the pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not account for the disparity between the pictures and the actual appearance of the impostor. That said person was allowed to withdraw the money anyway is beyond belief. The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to check and countercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its employees despite established bank procedure involving a battery of personnel designed to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure when she did not have the waiver document notarized. She also openly courted disaster by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented, as well as the disparities between the signatures made during the transaction and those on file with the bank. But even if San Pedro was negligent, why must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and unrectified?30 The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date from which legal interest of 12% is to run, it should be counted

from September 16, 1994 when extrajudicial demand was made. As to moral damages, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads: WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal interest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation expenses amounting to P200,000.00 are deleted; and moral damages is reduced to P100,000.00. Costs against defendant. SO ORDERED.31 The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the decision.32 On July 30, 2001, the CA granted in part said motion and modified its decision as follows: 1. The actual damages in amount of $55,216.69, representing the amount of appellees' foreign currency time deposit shall earn an interest of 2.5625% for the period 16 August 1993 to 14 February 1994, as stipulated in the contract; 2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest at the legal rate of 12% per annum, and; 3. The award of moral damages is reduced to P50,000.00.33 Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001. 34 On the other hand, Citibank's petition was given due course by the Court per Resolution dated December 10, 2001 and the parties were required to submit their respective memoranda.35 Citibank poses the following errors for resolution: 1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS. 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD. 3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT.36 Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was negligent since the said courts failed to appreciate the extra diligence of a good father of a family exercised by Citibank thru San Pedro. As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral damages since moral damages can be awarded only in cases of

breach of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on account thereof, is not a ground for awarding moral damages. On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994 until full payment because as of said date there was no legal ground yet for the Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issued declaring that Citibank is obliged to return the principal amount of US$55,216.69 when the right to demand payment starts and legal interest starts to run. On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence. As to the interest rate, they submit that the stipulated interest of 2.5635% should apply for the 182-day contract period from August 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further contend that the RTC's award of exemplary damages of P100,000.00 should be maintained. They submit that the CA erred in treating the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in litigating their claim against Citibank. They also contend that the CA erred in reducing the award of moral damages in view of the degree of mental anguish and emotional fears, anxieties and nervousness suffered by them. 37 Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,38 wherein it posits that, assuming that it was negligent, the Cabamongan spouses were guilty of contributory negligence since they failed to notify Citibank that they had migrated to the United States and were residents thereat and after having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of the disappearance of the bank certificate, their passports and other identification cards, then the fraud would not have been perpetuated and the losses avoided. It further argues that since the Cabamongan spouses are guilty of contributory negligence, the doctrine of last clear chance is inapplicable. Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of the doctrine of last clear chance cannot pass muster since these contentions were raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said contention were neither pleaded in the petition for review and the memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed with the CA. To consider the alleged facts and arguments raised belatedly in a supplemental pleading to herein petition for review at this very late stage in the proceedings would amount to trampling on the basic principles of fair play, justice and due process.391avvphil.net The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence 40 is expected,41 and high standards of integrity and performance are even required, of it.42By the nature of its functions, a bank is "under obligation to treat the accounts of

its depositors with meticulous care,43 always having in mind the fiduciary nature of their relationship."44 In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The Court has held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged."45 Such principle equally applies here. Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving millions of pesos.46 By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 47 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.48 The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pretermination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages. As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies. The Court does not agree. The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand. The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals49 to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, 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). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.50 Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to February 14, 1994. For the period from the date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12% shall apply. As for the intervening period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing granted by Citibank shall apply since the time deposit provided for roll over upon maturity of the principal and interest.51 As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. 53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses' account despite the noted discrepancies in Carmelita's signature and photograph, the absence of the original certificate of time deposit and the lack of notarized waiver dormant,

constitutes gross negligence amounting to bad faith under Article 2220 of the Civil Code. There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive. 54 The amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as respondents are concerned considering that their petition for review had been denied by the Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234. Finally, Citibank contends that the award of attorney's fees should be deleted since such award appears only in the dispositive portion of the decision of the RTC and the latter failed to elaborate, explain and justify the same. Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.55 The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.56 They must be clearly explained and justified by the trial court in the body of its decision. Consequently, the award of attorney's fees should be deleted. WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution areAFFIRMED with MODIFICATIONS, as follows: 1. The interest shall be computed as follows: a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994; b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and the interest earned as of February 14, 1994 shall earn interest at the rate then prevailing granted by Citibank; c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the interest earned as of September 15, 1994, shall earn interest at the legal rate of 12% per annum; 2. The award of attorney's fees is DELETED. No pronouncement as to costs. SO ORDERED.

G.R. No. 156132

October 12, 2006

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing business under the name and style of FNCB Finance, petitioners, vs. MODESTA R. SABENIANO, respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the Revised Rules of Court, of the Decision2 of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and the Resolution, 3 dated 20 November 2002, of the same court which, although modifying its earlier Decision, still denied for the most part the Motion for Reconsideration of herein petitioners. Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation duly authorized and existing under the laws of the United States of America and licensed to do commercial banking activities and perform trust functions in the Philippines. Petitioner Investor's Finance Corporation, which did business under the name and style of FNCB Finance, was an affiliate company of petitioner Citibank, specifically handling money market placements for its clients. It is now, by virtue of a merger, doing business as part of its successor-in-interest, BPI Card Finance Corporation. However, so as to consistently establish its identity in the Petition at bar, the said petitioner shall still be referred to herein as FNCB Finance.4 Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Regrettably, the business relations among the parties subsequently went awry. On 8 August 1985, respondent filed a Complaint5 against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. Respondent claimed to have substantial deposits and money market placements with the petitioners, as well as money market placements with the Ayala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondent's accounts with petitioner Citibank. Respondent alleged that petitioners refused to return her deposits and the proceeds of her money market placements despite her repeated demands, thus, compelling respondent to file Civil Case No. 11336 against petitioners for "Accounting, Sum of Money and Damages." Respondent eventually filed an Amended Complaint6 on 9 October 1985 to include additional claims to deposits and money market placements inadvertently left out from her original Complaint. In their joint Answer7 and Answer to Amended Complaint,8 filed on 12 September 1985 and 6 November 1985, respectively, petitioners admitted that respondent had deposits and money market placements with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank, for

which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondent's outstanding loans with her deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed respondent Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and her counsel made repeated requests for the withdrawal of respondent's deposits and money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and attorney's fees. When the parties failed to reach a compromise during the pre-trial hearing,9 trial proper ensued and the parties proceeded with the presentation of their respective evidence. Ten years after the filing of the Complaint on 8 August 1985, a Decision10 was finally rendered in Civil Case No. 11336 on 24 August 1995 by the fourth Judge11who handled the said case, Judge Manuel D. Victorio, the dispositive portion of which reads WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows: (1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiff's [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; (2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October 1979; (3) Dismissing all other claims and counterclaims interposed by the parties against each other. Costs against the defendant Bank. All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned the findings of the RTC that she was still indebted to petitioner Citibank, as well as the failure of the RTC to order petitioners to render an accounting of respondent's deposits and money market placements with them. On the other hand, petitioners argued that petitioner Citibank validly compensated respondent's outstanding loans with her dollar

accounts with Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its favor. Petitioners also alleged that the RTC erred in not declaring respondent liable for damages and interest. On 26 March 2002, the Court of Appeals rendered its Decision 12 affirming with modification the RTC Decision in Civil Case No. 11336, dated 24 August 1995, and ruling entirely in favor of respondent in this wise Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is herebyAFFIRMED with MODIFICATION, as follows: 1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellant's dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; 2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual basis; 3. As defendants-appellants failed to account the following plaintiff-appellant's money market placements, savings account and current accounts, the former is hereby ordered to return the same, in accordance with the terms and conditions agreed upon by the contending parties as evidenced by the certificates of investments, to wit: (i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.; (ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.; (iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June 1977, P500,000.00 with 17% interest p.a.; (iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June 1977, P500,000.00 with 17% interest per annum; (v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded yearly, from 30 September 1976 until fully paid;

4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorney's fees. Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the other, made separate attempts to bring the aforementioned Decision of the Court of Appeals, dated 26 March 2002, before this Court for review. G.R. No. 152985 Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on 3 May 2002 a Motion for Extension of Time to File a Petition for Review,13 which, after payment of the docket and other lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion, respondent alleged that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to file her Petition for Review. Since she informed her counsel of her desire to pursue an appeal of the Court of Appeals Decision only on 29 April 2002, her counsel neither had enough time to file a motion for reconsideration of the said Decision with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state the exact extension period respondent was requesting for. Since this Court did not act upon respondent's Motion for Extension of Time to file her Petition for Review, then the period for appeal continued to run and still expired on 3 May 2002.14 Respondent failed to file any Petition for Review within the prescribed period for appeal and, hence, this Court issued a Resolution, 15 dated 13 November 2002, in which it pronounced that G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitioner failed to file the intended petition for review on certiorari within the period which expired on May 3, 2002, the Court Resolves to DECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of Court toINFORM the parties that the judgment sought to be reviewed has become final and executory. The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003. G.R. No. 156132 Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in CA-G.R. CV No. 51930, dated 26 March 2002. Acting upon the said Motion, the Court of Appeals issued the Resolution, 16dated 20 November 2002, modifying its Decision of 26 March 2002, as follows WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decision's dispositive portion is hereby ordered DELETED. The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.

Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002 and 20 November 2002, respectively, petitioners filed the present Petition, docketed as G.R. No. 156132. The Petition was initially denied17 by this Court for failure of the petitioners to attach thereto a Certification against Forum Shopping. However, upon petitioners' Motion and compliance with the requirements, this Court resolved18to reinstate the Petition. The Petition presented fourteen (14) assignments of errors allegedly committed by the Court of Appeals in its Decision, dated 26 March 2002, involving both questions of fact and questions of law which this Court, for the sake of expediency, discusses jointly, whenever possible, in the succeeding paragraphs. I The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the Decision of the Court of Appeals, dated 26 March 2002, final and executory, pertains to respondent Sabeniano alone. Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first the argument, persistently advanced by respondent in her pleadings on record, as well as her numerous personal and unofficial letters to this Court which were no longer made part of the record, that the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already become final and executory by virtue of the Resolution of this Court in G.R. No. 152985, dated 13 November 2002. G.R. No. 152985 was the docket number assigned by this Court to respondent's Motion for Extension of Time to File a Petition for Review. Respondent, though, did not file her supposed Petition. Thus, after the lapse of the prescribed period for the filing of the Petition, this Court issued the Resolution, dated 13 November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002, final and executory. It should be pointed out, however, that the Resolution, dated 13 November 2002, referred only to G.R. No. 152985, respondent's appeal, which she failed to perfect through the filing of a Petition for Review within the prescribed period. The declaration of this Court in the same Resolution would bind respondent solely, and not petitioners which filed their own separate appeal before this Court, docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part, should be bound by the findings of fact and law of the Court of Appeals, including the monetary amounts consequently awarded to her by the appellate court in its Decision, dated 26 March 2002; and she can no longer refute or assail any part thereof. 19 This Court already explained the matter to respondent when it issued a Resolution20 in G.R. No. 156132, dated 2 February 2004, which addressed her Urgent Motion for the Release of the Decision with the Implementation of the Entry of Judgment in the following manner [A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we resolved to grant the motion, reinstate the petition and require Sabeniano to file a comment thereto in our Resolution of June 23, 2003. Sabeniano filed a Comment dated July 17, 2003 to which Citibank and FNCB Finance filed a Reply dated August 20, 2003.

From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, the proceedings in G.R. No. 156132. She cannot feign ignorance of the proceedings therein and claim that the Decision of the Court of Appeals has become final and executory. More precisely, the Decision became final and executory only with regard to Sabeniano in view of her failure to file a petition for review within the extended period granted by the Court, and not to Citibank and FNCB Finance whose Petition for Reviewwas duly reinstated and is now submitted for decision. Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.) To sustain the argument of respondent would result in an unjust and incongruous situation wherein one party may frustrate the efforts of the opposing party to appeal the case by merely filing with this Court a Motion for Extension of Time to File a Petition for Review, ahead of the opposing party, then not actually filing the intended Petition.21The party who fails to file its intended Petition within the reglementary or extended period should solely bear the consequences of such failure. Respondent Sabeniano did not commit forum shopping. Another issue that does not directly involve the merits of the present Petition, but raised by petitioners, is whether respondent should be held liable for forum shopping. Petitioners contend that respondent committed forum shopping on the basis of the following facts: While petitioners' Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26 March 2002, was still pending before the Court of Appeals, respondent already filed with this Court on 3 May 2002 her Motion for Extension of Time to File a Petition for Review of the same Court of Appeals Decision, docketed as G.R. No. 152985. Thereafter, respondent continued to participate in the proceedings before the Court of Appeals in CA-G.R. CV No. 51930 by filing her Comment, dated 17 July 2002, to petitioners' Motion for Reconsideration; and a Rejoinder, dated 23 September 2002, to petitioners' Reply. Thus, petitioners argue that by seeking relief concurrently from this Court and the Court of Appeals, respondent is undeniably guilty of forum shopping, if not indirect contempt. This Court, however, finds no sufficient basis to hold respondent liable for forum shopping. Forum shopping has been defined as the filing of two or more suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.22 The test for determining forum shopping is whether in the two (or more) cases pending, there is an identity of parties, rights or causes of action, and relief sought.23 To guard against this deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes the following requirement SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced

any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed. Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as cause for administrative sanctions. Although it may seem at first glance that respondent was simultaneously seeking recourse from the Court of Appeals and this Court, a careful and closer scrutiny of the details of the case at bar would reveal otherwise. It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a Motion for Extension of Time within which to file her Petition for Review. For unexplained reasons, respondent failed to submit to this Court her intended Petition within the reglementary period. Consequently, this Court was prompted to issue a Resolution, dated 13 November 2002, declaring G.R. No. 152985 terminated, and the therein assailed Court of Appeals Decision final and executory. G.R. No. 152985, therefore, did not progress and respondent's appeal was unperfected. The Petition for Review would constitute the initiatory pleading before this Court, upon the timely filing of which, the case before this Court commences; much in the same way a case is initiated by the filing of a Complaint before the trial court. The Petition for Review establishes the identity of parties, rights or causes of action, and relief sought from this Court, and without such a Petition, there is technically no case before this Court. The Motion filed by respondent seeking extension of time within which to file her Petition for Review does not serve the same purpose as the Petition for Review itself. Such a Motion merely presents the important dates and the justification for the additional time requested for, but it does not go into the details of the appealed case. Without any particular idea as to the assignments of error or the relief respondent intended to seek from this Court, in light of her failure to file her Petition for Review, there is actually no second case involving the same parties, rights or causes of action, and relief sought, as that in CA-G.R. CV No. 51930. It should also be noted that the Certification against Forum Shopping is required to be attached to the initiatory pleading, which, in G.R. No. 152985, should have been respondent's Petition for Review. It is in that Certification wherein respondent

certifies, under oath, that: (a) she has not commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of her knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, that she is presenting a complete statement of the present status thereof; and (c) if she should thereafter learn that the same or similar action or claim has been filed or is pending, she shall report that fact within five days therefrom to this Court. Without her Petition for Review, respondent had no obligation to execute and submit the foregoing Certification against Forum Shopping. Thus, respondent did not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she mislead this Court as to the pendency of another similar case. Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002, essentially ruled in favor of respondent, does not necessarily preclude her from appealing the same. Granted that such a move is ostensibly irrational, nonetheless, it does not amount to malice, bad faith or abuse of the court processes in the absence of further proof. Again, it should be noted that the respondent did not file her intended Petition for Review. The Petition for Review would have presented before this Court the grounds for respondent's appeal and her arguments in support thereof. Without said Petition, any reason attributed to the respondent for appealing the 26 March 2002 Decision would be grounded on mere speculations, to which this Court cannot give credence. II As an exception to the general rule, this Court takes cognizance of questions of fact raised in the Petition at bar. It is already a well-settled rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals by virtue of Rule 45 of the Revised Rules of Court is limited to reviewing errors of law. Findings of fact of the Court of Appeals are conclusive upon this Court. There are, however, recognized exceptions to the foregoing rule, namely: (1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the interference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.24 Several of the enumerated exceptions pertain to the Petition at bar. It is indubitable that the Court of Appeals made factual findings that are contrary to those of the RTC,25 thus, resulting in its substantial modification of the trial court's Decision, and a ruling entirely in favor of the respondent. In addition, petitioners invoked in the instant Petition for Review several exceptions that would justify this Court's review of the factual findings of the Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact; findings of fact which went beyond the

issues raised on appeal before it; as well as findings of fact premised on the supposed absence of evidence and contradicted by the evidence on record. On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the evidence on record in order to settle questions of fact raised in the Petition at bar. The fact that the trial judge who rendered the RTC Decision in Civil Case No. 11336, dated 24 August 1995, was not the same judge who heard and tried the case, does not, by itself, render the said Decision erroneous. The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said case. In the course of its trial, the case was presided over by four (4) different RTC judges.26 It was Judge Victorio, the fourth judge assigned to the case, who wrote the RTC Decision, dated 24 August 1995. In his Decision,27 Judge Victorio made the following findings After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to believe the plaintiff's assertion that the promissory notes as well as the deeds of assignments of her FNCB Finance money market placements were simulated. The evidence is overwhelming that the plaintiff received the proceeds of the loans evidenced by the various promissory notes she had signed. What is more, there was not an iota of proof save the plaintiff's bare testimony that she had indeed applied for loan with the Development Bank of the Philippines. More importantly, the two deeds of assignment were notarized, hence they partake the nature of a public document. It makes more than preponderant proof to overturn the effect of a notarial attestation. Copies of the deeds of assignments were actually filed with the Records Management and Archives Office. Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with the defendant Bank in the total amount of P1,920,000.00 exclusive of interests and penalty charges (Exhibits "28", "31", "32", and "33"). In fine, this Court hereby finds that the defendants had established the genuineness and due execution of the various promissory notes heretofore identified as well as the two deeds of assignments of the plaintiff's money market placements with defendant FNCB Finance, on the strength of which the said money market placements were applied to partially pay the plaintiff's past due obligation with the defendant Bank. Thus, the total sum of P1,053,995.80 of the plaintiff's past due obligation was partially offset by the said money market placement leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit "34"). Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R. CV No. 51930, dated 26 March 2002, "that the ponente of the herein assailed Decision is not the Presiding Judge who heard and tried the case." 28 This brings us to the question of whether the fact alone that the RTC Decision was rendered by a judge other than the judge who actually heard and tried the case is sufficient justification for the appellate court to disregard or set aside the findings in the Decision of the court a quo? This Court rules in the negative.

What deserves stressing is that, in this jurisdiction, there exists a disputable the experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). presumption that the RTC Decision was rendered by the judge in the regular Further, the credibility of witnesses can also be assessed on the basis of the performance of his official duties. While the said presumption is only disputable, it is substance of their testimony and the surrounding circumstances (People v. satisfactory unless contradicted or overcame by other evidence.29 Encompassed in Gonzales, 210 SCRA 44 [1992]). A critical evaluation of the testimony of this presumption of regularity is the presumption that the RTC judge, in resolving the the prosecution witnesses reveals that their testimony accords with the case and drafting his Decision, reviewed, evaluated, and weighed all the evidence on aforementioned tests, and carries with it the ring of truth end perforce, must record. That the said RTC judge is not the same judge who heard the case and be given full weight and credit. received the evidence is of little consequence when the records and transcripts of Irrefragably, by reason alone that the judge who penned the RTC Decision was not stenographic notes (TSNs) are complete and available for consideration by the the same judge who heard the case and received the evidence therein would not former. render the findings in the said Decision erroneous and unreliable. While the conduct In People v. Gazmen,30 this Court already elucidated its position on such an issue and demeanor of witnesses may sway a trial court judge in deciding a case, it is not, Accused-appellant makes an issue of the fact that the judge who penned the and should not be, his only consideration. Even more vital for the trial court judge's decision was not the judge who heard and tried the case and concludes decision are the contents and substance of the witnesses' testimonies, as borne out by therefrom that the findings of the former are erroneous. Accused-appellant's the TSNs, as well as the object and documentary evidence submitted and made part argument does not merit a lengthy discussion. It is well-settled that the of the records of the case. decision of a judge who did not try the case is not by that reason alone This Court proceeds to making its own findings of fact. erroneous. Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 It is true that the judge who ultimately decided the case had not heard the March 2002, has become final and executory as to the respondent, due to her failure controversy at all, the trial having been conducted by then Judge Emilio L. to interpose an appeal therefrom within the reglementary period, she is already Polig, who was indefinitely suspended by this Court. Nonetheless, the bound by the factual findings in the said Decision. Likewise, respondent's failure to transcripts of stenographic notes taken during the trial were complete and file, within the reglementary period, a Motion for Reconsideration or an appeal of the were presumably examined and studied by Judge Baguilat before he Resolution of the Court of Appeals in the same case, dated 20 November 2002, rendered his decision. It is not unusual for a judge who did not try a case to which modified its earlier Decision by deleting paragraph 3(v) of its dispositive decide it on the basis of the record. The fact that he did not have the portion, ordering petitioners to return to respondent the proceeds of her money opportunity to observe the demeanor of the witnesses during the trial but market placement with AIDC, shall already bar her from questioning such merely relied on the transcript of their testimonies does not for that reason modification before this Court. Thus, what is for review before this Court is the alone render the judgment erroneous. Decision of the Court of Appeals, dated 26 March 2002, as modified by the (People vs. Jaymalin, 214 SCRA 685, 692 [1992]) Resolution of the same court, dated 20 November 2002. Although it is true that the judge who heard the witnesses testify is in a Respondent alleged that she had several deposits and money market placements with better position to observe the witnesses on the stand and determine by their petitioners. These deposits and money market placements, as determined by the demeanor whether they are telling the truth or mouthing falsehood, it does Court of Appeals in its Decision, dated 26 March 2002, and as modified by its not necessarily follow that a judge who was not present during the trial Resolution, dated 20 November 2002, are as follows cannot render a valid decision since he can rely on the transcript of Deposit/Placement stenographic notes taken during the trial as basis of his decision. Accused-appellant's contention that the trial judge did deposit not have Dollar withthe Citibank-Geneva opportunity to observe the conduct and demeanor of the witnesses since he was not the same judge who conducted the hearing is Money also untenable. While market placement with Citibank, evidenced by Promissory Note (PN) No. 23356 (which cancels and supersedes PN it is true that the trial judge who conducted the hearing would be in a better No. 22526), earning 14.5% interest per annum (p.a.) position to ascertain the truth and falsity of the testimonies of the witnesses, it does not necessarily follow that a judge who was not present during the Money market placement with Citibank, evidenced by PN No. 23357 (which cancels and supersedes PN No. 22528), earning trial cannot render a valid and just decision since the latter can also rely 14.5% interest p.a. on the transcribed stenographic notes taken during the trial as the basis of his Money market placement with FNCB Finance, evidenced by PN No. 5757 (which cancels and supersedes PN No. 4952), decision. earning 17% interest p.a. (People vs. De Paz, 212 SCRA 56, 63 [1992]) At any rate, the test to determine the value of the testimony of the witness is Money market placement with FNCB Finance, evidenced by PN No. 5758 (which cancels and supersedes PN No. 2962), whether or not such is in conformity with knowledge and consistent with

p.a. This Court is tasked to determine whether petitioners are indeed liable to return the foregoing amounts, together with the appropriate interests and penalties, to respondent. It shall trace respondent's transactions with petitioners, from her money market placements with petitioner Citibank and petitioner FNCB Finance, to her savings and current accounts with petitioner Citibank, and to her dollar accounts with Citibank-Geneva. Money market placements with petitioner Citibank The history of respondent's money market placements with petitioner Citibank began on 6 December 1976, when she made a placement of P500,000.00 as principal amount, which was supposed to earn an interest of 16% p.a. and for which PN No. 20773 was issued. Respondent did not yet claim the proceeds of her placement and, instead, rolled-over or re-invested the principal and proceeds several times in the succeeding years for which new PNs were issued by petitioner Citibank to replace the ones which matured. Petitioner Citibank accounted for respondent's original placement and the subsequent roll-overs thereof, as follows Date (mm/dd/yyyy) 12/06/1976 01/14/1977 02/09/1977 PN No. 20773 21686 22526 22528 23356 23357 Cancels PN No. None 20773 21686 21686 22526 22528

03/17/1977

Petitioner Citibank alleged that it had already paid to respondent the principal amounts and proceeds of PNs No. 23356 and 23357, upon their maturity. Petitioner Citibank further averred that respondent used theP500,000.00 from the payment of PNs No. 23356 and 23357, plus P600,000.00 sourced from her other funds, to open two time deposit (TD) accounts with petitioner Citibank, namely, TD Accounts No. 17783 and 17784. Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and 23357 it issued in favor of respondent for her money market placements. In fact, it admitted the genuineness and due execution of the said PNs, but qualified that they were no longer outstanding.31 In Hibberd v. Rohde and McMillian,32 this Court delineated the consequences of such an admission By the admission of the genuineness and due execution of an instrument, as provided in this section, is meant that the party whose signature it bears admits that he signed it or that it was

signed by another for him with his authority; that at the time it was signed it was in words and figures exactly as set out in the pleading of the party relying upon it; that the document was delivered; and that any formal requisites required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are waived by him. Hence, such defenses as that the signature is a forgery (Puritan Mfg. Co.vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it was unauthorized, as in the case of an agent signing for his principal, or one signing in behalf of a partnership (Country Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs.Lantz, 137 Mich., 441) or of a corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162 Mich., 509); or that, in the case of the latter, that the corporation authorized under itsInterest charter to sign the instrument Maturity Date was Amount International Banking(p.a.) Corporation, supra); or that (mm/dd/yyyy) (Merchant vs. (P) the party charged signed the instrument in some other capacity than that alleged in the pleading setting 01/13/1977 500,000.00 16% it out (Payne vs.National Bank, 16 Kan., 147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83; Elbring vs.Mullen, 4 Idaho, 02/08/1977 508,444.44 15% 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire Association of Philadelphia vs.Ruby, 03/16/1977 15-3/4% 60 Neb., 216)313,952.59 are cut off by the admission of its genuineness and due execution. 03/16/1977 200,000.00 15-3/4% The effect of the admission is such that in the case of a promissory note a prima facie case is made for the plaintiff which dispenses 04/20/1977 318,897.34 14-1/2% with the necessity of evidence on his part and entitles him to a judgment on the pleadings unless a special defense of new matter, 04/20/1977 203,150.00 14-1/2% such as payment, is interposed by the defendant (Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14 Phil. Rep., 222; Banco EspaolFilipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x x x Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested, respondent was able to establish prima facie that petitioner Citibank is liable to her for the amounts stated therein. The assertion of petitioner Citibank of payment of the said PNs is an affirmative allegation of a new matter, the burden of proof as to such resting on petitioner Citibank. Respondent having proved the existence of the obligation, the burden of proof was upon petitioner Citibank to show that it had been discharged.33 It has already been established by this Court that As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The

debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence as distinct from the general burden of proof shifts to the creditor, who is then under the duty of producing some evidence of non-payment.34 Reviewing the evidence on record, this Court finds that petitioner Citibank failed to satisfactorily prove that PNs No. 23356 and 23357 had already been paid, and that the amount so paid was actually used to open one of respondent's TD accounts with petitioner Citibank. Petitioner Citibank presented the testimonies of two witnesses to support its contention of payment: (1) That of Mr. Herminio Pujeda, 35 the officer-incharge of loans and placements at the time when the questioned transactions took place; and (2) that of Mr. Francisco Tan, 36 the former Assistant VicePresident of Citibank, who directly dealt with respondent with regard to her deposits and loans. The relevant portion37 of Mr. Pujeda's testimony as to PNs No. 23356 and 23357 (referred to therein as Exhibits No. "47" and "48," respectively) is reproduced below Atty. Mabasa: Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of several documents involving transactions between the plaintiff and the defendant. Now, were you able to make your own memorandum regarding all these transactions? A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological sequence of events. Court: Are you trying to say that you have personal knowledge or participation to these transactions? A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some of the documents bear my signature. Court: And this resume or summary that you have prepared is based on purely your recollection or documents? A Based on documents, your Honor. Court: Are these documents still available now? A Yes, your honor. Court: Better present the documents.

Atty. Mabasa: Yes, your Honor, that is why your Honor. Atty. Mabasa: Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your personal recollection about all the transactions involved between Modesta Sabeniano and defendant City Bank [sic] in this case. Now, would you tell us what happened to the money market placements of Modesta Sabeniano that you have earlier identified in Exhs. "47" and "48"? A The transactions which I said earlier were terminated and booked to time deposits. Q And you are saying time deposits with what bank? A With First National Citibank. Q Is it the same bank as Citibank, N.A.? A Yes, sir. Q And how much was the amount booked as time deposit with defendant Citibank? A In the amount of P500,000.00. Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. "47" and "48", were there other time deposits opened by Mrs. Modesta Sabeniano at that time. A Yes, she also opened another time deposit for P600,000.00. Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit placements with Citibank in the amount of P500,000.00 which is the proceeds of Exh. "47" and "48" and another P600,000.00, is it not? A Yes, sir. Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit with Citibank, N.A. came [sic] from? A She funded it directly. Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money coming from Mrs. Modesta Sabeneano [sic]? A That is right. In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and 23357 (referred to therein as Exhibits "E" and "F," respectively), as follows Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits "A" to "F", which are Exhibits of the plaintiff. Now, do I understand from you that the original amount is Five Hundred Thousand and thereafter renewed in the succeeding exhibits? Mr. Tan : Yes, Sir. Atty. Mabasa : Alright, after these Exhibits "E" and "F" matured, what happened thereafter? Mr. Tan : Split into two time deposits.

Atty. Mabasa : Exhibits "E" and "F"? Before anything else, it should be noted that when Mr. Pujeda's testimony before the RTC was made on 12 March 1990 and Mr. Tan's deposition in Hong Kong was conducted on 3 September 1990, more than a decade had passed from the time the transactions they were testifying on took place. This Court had previously recognized the frailty and unreliability of human memory with regards to figures after the lapse of five years. 38 Taking into consideration the substantial length of time between the transactions and the witnesses' testimonies, as well as the undeniable fact that bank officers deal with multiple clients and process numerous transactions during their tenure, this Court is reluctant to give much weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and 23357 and the use by respondent of the proceeds thereof for opening TD accounts. This Court finds it implausible that they should remember, after all these years, this particular transaction with respondent involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not give any reason as to why, from among all the clients they had dealt with and all the transactions they had processed as officers of petitioner Citibank, they specially remembered respondent and her PNs No. 23356 and 23357. Their testimonies likewise lacked details on the circumstances surrounding the payment of the two PNs and the opening of the time deposit accounts by respondent, such as the date of payment of the two PNs, mode of payment, and the manner and context by which respondent relayed her instructions to the officers of petitioner Citibank to use the proceeds of her two PNs in opening the TD accounts. Moreover, while there are documentary evidences to support and trace respondent's money market placements with petitioner Citibank, from the original PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357, there is an evident absence of any documentary evidence on the payment of these last two PNs and the use of the proceeds thereof by respondent for opening TD accounts. The paper trail seems to have ended with the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based their testimonies, not just on their memories but also on the documents on file, the supposed documents on which they based those portions of their testimony on the payment of PNs No. 23356 and 23357 and the opening of the TD accounts from the proceeds thereof, were never presented before the courts nor made part of the records of the case. Respondent's money market placements were of substantial amounts consisting of the principal amount of P500,000.00, plus the interest it should have earned during the years of placement and it is difficult for this Court to believe that petitioner Citibank would not have had documented the payment thereof. When Mr. Pujeda testified before the RTC on 6 February 1990,39 petitioners' counsel attempted to present in evidence a document that would supposedly support the claim of petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by respondent to open one of her two TD accounts in the amount ofP500,000.00. Respondent's counsel

objected to the presentation of the document since it was a mere "xerox" copy, and was blurred and hardly readable. Petitioners' counsel then asked for a continuance of the hearing so that they can have time to produce a better document, which was granted by the court. However, during the next hearing and continuance of Mr. Pujeda's testimony on 12 March 1990, petitioners' counsel no longer referred to the said document. As respondent had established a prima facie case that petitioner Citibank is obligated to her for the amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to present sufficient proof of payment of the said PNs and the use by the respondent of the proceeds thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are still outstanding and petitioner Citibank is still liable to respondent for the amounts stated therein. The significance of this Court's declaration that PNs No. 23356 and 23357 are still outstanding becomes apparent in the light of petitioners' next contentions that respondent used the proceeds of PNs No. 23356 and 23357, together with additional money, to open TD Accounts No. 17783 and 17784 with petitioner Citibank; and, subsequently, respondent preterminated these TD accounts and transferred the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB Finance for money market placements. While respondent's money market placements with petitioner FNCB Finance may be traced back with definiteness to TD Accounts No. 17783 and 17784, there is only flimsy and unsubstantiated connection between the said TD accounts and the supposed proceeds paid from PNs No. 23356 and 23357. With PNs No. 23356 and 23357 still unpaid, then they represent an obligation of petitioner Citibank separate and distinct from the obligation of petitioner FNCB Finance arising from respondent's money market placements with the latter. Money market placements with petitioner FNCB Finance According to petitioners, respondent's TD Accounts No. 17783 and 17784, in the total amount ofP1,100,000.00, were supposed to mature on 15 March 1978. However, respondent, through a letter dated 28 April 1977,40 preterminated the said TD accounts and transferred all the proceeds thereof to petitioner FNCB Finance for money market placement. Pursuant to her instructions, TD Accounts No. 17783 and 17784 were pre-terminated and petitioner Citibank (then still named First National City Bank) issued Manager's Checks (MC) No. 19925341 and 19925142 for the amounts of P500,000.00 and P600,00.00, respectively. Both MCs were payable to Citifinance (which, according to Mr. Pujeda,43 was one with and the same as petitioner FNCB Finance), with the additional notation that "A/C MODESTA R. SABENIANO." Typewritten on MC No. 199253 is the phrase "Ref. Proceeds of TD 17783," and on MC No. 199251 is a similar phrase, "Ref. Proceeds of TD 17784." These phrases purportedly established that the MCs were paid from the proceeds of respondent's preterminated TD accounts with petitioner Citibank. Upon receipt of the MCs, petitioner FNCB Finance deposited the same to its account with Feati Bank

and Trust Co., as evidenced by the rubber stamp mark of the latter found at the back of both MCs. In exchange, petitioner FNCB Finance booked the amounts received as money market placements, and accordingly issued PNs No. 4952 and 4962, for the amounts of P500,000.00 and P600,000.00, respectively, payable to respondent's savings account with petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1 June 1977. Once again, respondent rolled-over several times the principal amounts of her money market placements with petitioner FNCB Finance, as follows PN No. 4952 4962 5757 5758 8167 8169 Cancels PN No. None None 4952 4962 5757 5752 Maturity (mm/dd/yyyy) 06/01/1977 06/01/1977 08/31/1977 08/31/1977 08/25/1978 08/25/1978 Date Amount (P) 500,000.00 600,000.00 500,000.00 500,000.00 500,000.00 500,000.00

09/01/1978 09/05/1978

76961 77035

12,833.34 500,000.00

Interest payment on PN#08169 Full payment of principal on PN#08167 which is hereby cancelled Full payment of principal on PN#08169 which is hereby cancelled

09/05/ 1978

77034

500,000.00

As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts of her money market placements as she chose to receive the interest income therefrom. Petitioner FNCB Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00, matured on 1 June 1977, respondent received a partial payment of the principal which, together with the interest, amounted to P102,633.33;44 thus, only the amount of P500,000.00 from PN No. 4962 was rolled-over to PN No. 5758. Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity, were rolled over to PNs No. 8167 and 8169, respectively. PN No. 816745 expressly canceled and superseded PN No. 5757, while PN No. 816946 also explicitly canceled and superseded PN No. 5758. Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal amounts and interests covered by PNs No. 5757 and 5758 when these were already canceled and superseded. It is now incumbent upon this Court to determine what subsequently happened to PNs No. 8167 and 8169. Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts and interests of PNs No. 8167 and 8169 upon their maturity. All the checks were payable to respondent's savings account with petitioner Citibank, with the following details Date of Check Issuance No. (mm/dd/yyyy) 09/01/1978 76962 Amount (P) 12,833.34 Notation

Interest payment on PN#08167

Interest (p.a.) Checks No. 77035 and 77034 were later returned to petitioner FNCB Then again, Finance together with a memo,47 dated 6 September 1978, from Mr. Tan of petitioner 17% Citibank, to a Mr. Bobby Mendoza of petitioner FNCB Finance. According to the memo, the two checks, in the total amount of P1,000,000.00, were to be returned to 17% respondent's account with instructions to book the said amount in money market placements for one more year. Pursuant to the said memo, Checks No. 77035 and 17% 77034 were invested by petitioner FNCB Finance, on behalf of respondent, in money market17% placements for which it issued PNs No. 20138 and 20139. The PNs each covered P500,000.00, to earn 11% interest per annum, and to mature on 3 September 1979. 14% On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order 14% of "Citibank N.A. A/C Modesta Sabeniano," in the amount of P1,022,916.66, as full payment of the principal amounts and interests of both PNs No. 20138 and 20139 and, resultantly, canceling the said PNs. 48 Respondent actually admitted the issuance and existence of Check No. 100168, but with the qualification that the proceeds thereof were turned over to petitioner Citibank. 49 Respondent did not clarify the circumstances attending the supposed turn over, but on the basis of the allegations of petitioner Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was used by it to liquidate respondent's outstanding loans. Therefore, the determination of whether or not respondent is still entitled to the return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the resolution of the issues raised as to the existence of the loans and the authority of petitioner Citibank to use the proceeds of the said PNs, together with respondent's other deposits and money market placements, to pay for the same. Savings and current accounts with petitioner Citibank Respondent presented and submitted before the RTC deposit slips and bank statements to prove deposits made to several of her accounts with petitioner Citibank, particularly, Accounts No. 00484202, 59091, and 472-751, which would have amounted to a total of P3,812,712.32, had there been no withdrawals or debits from the said accounts from the time the said deposits were made. Although the RTC and the Court of Appeals did not make any definitive findings as to the status of respondent's savings and current accounts with petitioner Citibank, the Decisions of both the trial and appellate courts effectively recognized only the P31,079.14 coming from respondent's savings account which was used to off-set her alleged outstanding loans with petitioner Citibank.50 Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14 of respondent's savings account with petitioner Citibank, and that

respondent failed to move for reconsideration or to appeal this particular finding of fact by the trial and appellate courts, it is already binding upon this Court. Respondent is already precluded from claiming any greater amount in her savings and current accounts with petitioner Citibank. Thus, this Court shall limit itself to determining whether or not respondent is entitled to the return of the amount ofP31,079.14 should the off-set thereof by petitioner Citibank against her supposed loans be found invalid. Dollar accounts with Citibank-Geneva Respondent made an effort of preparing and presenting before the RTC her own computations of her money market placements and dollar accounts with CitibankGeneva, purportedly amounting to a total of United States (US) $343,220.98, as of 23 June 1985.51 In her Memorandum filed with the RTC, she claimed a much bigger amount of deposits and money market placements with Citibank-Geneva, totaling US$1,336,638.65.52 However, respondent herself also submitted as part of her formal offer of evidence the computation of her money market placements and dollar accounts with Citibank-Geneva as determined by the latter.53 Citibank-Geneva accounted for respondent's money market placements and dollar accounts as follows MODESTA ================== US$ + US$ - US$ US$ US$ + US$ - US$ US$ US$ + US$ US$ - US$ US$ 30'000.-339.06 95.-30'244.06 114'000.-1'358.50 41.17 115'317.33 145'561.39 11'381.31 156'942.70 149'632.99 7'309.71

- US$ US$

6'998.84 310.87

Transfer to Citibank Zuerich

various charges including closi

According to the foregoing computation, by 25 October 1979, respondent had a total of US$156,942.70, from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner Citibank in Manila, and was used by the latter to off-set respondent's outstanding loans. The balance of respondent's accounts with Citibank-Geneva, after the remittance to petitioner Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a transfer to another account with Citibank-Zuerich, in the amount of US$6,998.84, and by payment of various bank charges, including closing charges, in the amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave more credence to the computation of Citibank-Geneva as to the status of respondent's accounts with the said bank, rather than the one prepared by respondent herself, which was evidently self-serving. Once again, this Court shall limit itself to determining whether or not respondent is entitled to the return of the amount of US$149,632.99 should the off-set thereof by petitioner Citibank against her alleged outstanding loans be found invalid. Respondent cannot claim any greater amount since she did not perfect an appeal of the Decision of the Court of Appeals, SABENIANO &/ORthat she is entitled only to the return of the said dated 26 March 2002, which found amount, as far as her accounts with Citibank-Geneva is concerned. III Principal Fid. Placement Petitioner Citibank was able to establish by preponderance of evidence the existence of respondent's loans. Interest at 3,875% p.a. from 12.07. 25.10.79 Petitioners' version of events In sum, the following amounts were used by petitioner Citibank to liquidate Commission (minimum) respondent's purported outstanding loans Total proceeds on 25.10.1979 Description Principal Fid. Placement Interest at 4,125% p.a. from 12.07. 25.10.79 Commission Total proceeds on 25.10.1979 Principal and interests of PNs No. (money market placements with petitioner FNCB Finance) Savings account with petitioner Citibank 20138 and

Dollar remittance from Citibank-Geneva (peso equivalent of US$149,632.99

Total proceeds of both placements on 25.10.1979 Total total of both current accounts According to petitioner Citibank, respondent incurred her loans under the circumstances narrated below. Total funds available As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in the principal amount ofP200,000.00, for which she executed PN No. 54 Transfer to Citibank 31504. Manila onCitibank 26.10.1979 Petitioner extended to her several other loans in the succeeding (counter value of Pesos 1'102'944.78) months. Some of these loans were paid, while others were rolled-over or renewed. Significant to the Petition at bar are the loans which respondent obtained from July Balance in current accounts 1978 to January 1979, appropriately covered by PNs (first set). 55 The aggregate

principal amount of these loans was P1,920,000.00, which could be broken down as follows Date of Maturity (mm/dd/yyyy) 09/18/1978 12/12/1978 11/03/1978 01/15/1979 01/19/1979 01/18/1979 02/23/1979 03/09/1979 03/19/1979 03/30/1979 Principal Amount P 400,000.00 100,000.00 100,000.00 150,000.00 250,000.00 100,000.00 300,000.00 150,000.00 150,000.00 220,000.00 P 1,920,000.00 When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-over or renewed several times, necessitating the execution by respondent of new PNs in favor of petitioner Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second set),56 the principal amount of which remained atP1,920,000.00 PN No. 34510 34509 34534 34612 34741 35689 Date (mm/dd/yyyy) 01/01/1979 01/02/1979 01/09/1979 01/19/1979 01/26/1979 02/23/1979 of Issuance Date (mm/dd/yyyy) 03/02/1979 03/02/1979 03/09/1979 03/16/1979 03/12/1979 05/29/1979 Date of (mm/dd/yyyy) 07/20/1978 Unrecovered 10/19/1978 11/16/1978 11/21/1978 12/05/1978 12/26/1978 01/09/1979 01/17/1979 01/30/1979 Release

35694 35695 MC No. 356946 220701 35697

03/19/1979 03/19/1979 03/20/1979 03/30/1979

05/29/1979 05/29/1979 05/29/1979 05/29/1979

of Issuance /dd/yyyy)

0/1978

3/1978

9/1978

5/1978

1/1978

4/1978

6/1978

9/1979

7/1979

0/1979

Total 226285 All the PNs stated that the purpose of the loans covered thereby is "To liquidate existing obligation," except for PN No. 34534, which stated for its purpose "personal 226439 investment." Respondent secured her foregoing loans with petitioner Citibank by executing Deeds 226467 of Assignment of her money market placements with petitioner FNCB Finance. On 2 March 1978, respondent executed in favor of petitioner Citibank a Deed of 228057 Assignment57 of PN No. 8169, which was issued by petitioner FNCB Finance, to secure payment of the credit and banking facilities extended to her by petitioner 228203 Citibank, in the aggregate principal amount of P500,000.00. On 9 March 1978, respondent 228270 executed in favor of petitioner Citibank another Deed of Assignment,58 this time, of PN No. 8167, also issued by petitioner FNCB Finance, to 228357 secure payment of the credit and banking facilities extended to her by petitioner Citibank, in the aggregate amount of P500,000.00. When PNs No. 8167 and 8169, 228400 respondent's money market placements with petitioner FNCB Finance, representing matured and were rolled-over to PNs No. 20138 and 20139, respondent executed new Deeds of Assignment,59 in favor of petitioner Citibank, on 25 August 1978. According to the more recent Deeds, respondent assigned PNs No. 20138 and 20139, representing her rolled-over money market placements with petitioner FNCB Finance, to petitioner Citibank as security for the banking and credit facilities it extended to her, in the aggregate principal amount ofP500,000.00 per Deed. In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance, respondent also executed a Declaration of Pledge, 60 in which she supposedly pledged "[a]ll present and future fiduciary placements held in of Maturity my personal and/or joint Principal name with Citibank, Switzerland," to secure all claims the Amount petitioner Citibank may have or, in the future, acquire against respondent. The petitioners' copy of theP Declaration 400,000.00 of Pledge is undated, while that of the respondent, a copy certified by a Citibank-Geneva officer, bore the date 24 September 1979.61 100,000.00 When respondent failed to pay the second set of PNs upon their maturity, an exchange of letters ensued between respondent and/or her representatives, on one 150,000.00 hand, and the representatives of petitioners, on the other. The first letter62 was dated 150,000.00 5 April 1979, addressed to respondent and signed by Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that 100,000.00 Despite our repeated requests and follow-up, we regret you have not granted us with any response or payment. 300,000.00 We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other charges due and demandable. If you still fail to

settle this obligation by 4/27/79, we shall have no other alternative but to refer your account to our lawyers for legal action to protect the interest of the bank. Respondent sent a reply letter63 dated 26 April 1979, printed on paper bearing the letterhead of respondent's company, MC Adore International Palace, the body of which reads This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due. Pursuant to our representation with you over the telephone through Mr. F. A. Tan, you allow us to pay the interests due for the meantime. Please accept our Comtrust Check in the amount of P62,683.33. Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the Development Bank of the Philippines in the amount of P11-M. This loan has already been recommended for approval and would be submitted to the Board of Governors. In fact, to further facilitate the early release of this loan, we have presented and furnished Gov. J. Tengco a xerox copy of your letter. You will be doing our corporation a very viable service, should you grant us our request for a little more time. A week later or on 3 May 1979, a certain C. N. Pugeda, designated as "Executive Secretary," sent a letter64 to petitioner Citibank, on behalf of respondent. The letter was again printed on paper bearing the letterhead of MC Adore International Palace. The pertinent paragraphs of the said letter are reproduced below Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the interest and penalty charges on her loan in the aggregate amount of P1,920,000.00 with maturity date of all promissory notes at June 30, 1979. As she has personally discussed with you yesterday, this date will more or less assure you of early settlement. In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another check with amount resulting from the new computation. Also, to facilitate the processing of the same, may we request for another set of promissory notes for the signature of Mrs. Sabeniano and to cancel the previous ones she has signed and forwarded to you. This was followed by a telegram,65 dated 5 June 1979, and received by petitioner Citibank the following day. The telegram was sent by a Dewey G. Soriano, Legal Counsel. The telegram acknowledged receipt of the telegram sent by petitioner Citibank regarding the "re-past due obligation" of McAdore International Palace. However, it reported that respondent, the President and Chairman of MC Adore International Palace, was presently abroad negotiating for a big loan. Thus, he was requesting for an extension of the due date of the obligation until respondent's arrival on or before 31 July 1979. The next letter,66 dated 21 June 1979, was signed by respondent herself and addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote therein

Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million, both PNs will mature on 9/3/1979. This is to authorize you to release the accrued quarterly interests payment from my captioned placements and forward directly to Citibank, Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my outstanding loan with Citibank. Please note that the captioned two placements are continuously pledged/hypothecated to Citibank, Manila to support my personal outstanding loan. Therefore, please do not release the captioned placements upon maturity until you have received the instruction from Citibank, Manila. On even date, respondent sent another letter67 to Mr. Tan of petitioner Citibank, stating that Re: S/A No. 25-225928 and C/A No. 484-946 This letter serves as an authority to debit whatever the outstanding balance from my captioned accounts and credit the amount to my loan outstanding account with you. Unlike respondent's earlier letters, both letters, dated 21 June 1979, are printed on plain paper, without the letterhead of her company, MC Adore International Palace. By 5 September 1979, respondent's outstanding and past due obligations to petitioner Citibank totaledP2,123,843.20, representing the principal amounts plus interests. Relying on respondent's Deeds of Assignment, petitioner Citibank applied the proceeds of respondent's money market placements with petitioner FNCB Finance, as well as her deposit account with petitioner Citibank, to partly liquidate respondent's outstanding loan balance,68 as follows Respondent's outstanding obligation (principal and interest) Less: Proceeds from respondent's money market placements with petitioner FNCB Finance (principal and interest) Deposits in respondent's bank accounts with petitioner Citibank Balance of respondent's obligation Mr. Tan of petitioner Citibank subsequently sent a letter, 69 dated 28 September 1979, notifying respondent of the status of her loans and the foregoing compensation which petitioner Citibank effected. In the letter, Mr. Tan informed respondent that she still had a remaining past-due obligation in the amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the amount by 15 October 1979, then petitioner Citibank shall proceed to off-set the unpaid amount with respondent's other collateral, particularly, a money market placement in Citibank-Hongkong.

On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the letterhead of MC Adore International Palace, as regards the P1,920,000.00 loan account supposedly of MC Adore Finance & Investment, Inc., and requested for a statement of account covering the principal and interest of the loan as of 31 October 1979. She stated therein that the loan obligation shall be paid within 60 days from receipt of the statement of account. Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by the office of petitioner Citibank, with a letter, dated 9 October 1979, and printed on paper with the letterhead of MC Adore International Palace, which authorized the bearer thereof to represent the respondent in settling the overdue account, this time, purportedly, of MC Adore International Palace Hotel. The letter was signed by respondent as the President and Chairman of the Board. Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank, sent a letter to respondent, dated 31 October 1979, informing her that petitioner Citibank had effected an off-set using her account with CitibankGeneva, in the amount of US$149,632.99, against her "outstanding, overdue, demandable and unpaid obligation" to petitioner Citibank. Atty. Agcaoili claimed therein that the compensation or off-set was made pursuant to and in accordance with the provisions of Articles 1278 through 1290 of the Civil Code. He further declared that respondent's obligation to petitioner Citibank was now fully paid and liquidated. Unfortunately, on 7 October 1987, a fire gutted the 7 th floor of petitioner Citibank's building at Paseo de Roxas St., Makati, Metro Manila. Petitioners submitted a Certification70 to this effect, dated 17 January 1991, issued by the Chief of the Arson Investigation Section, Fire District III, Makati Fire Station, Metropolitan Police Force. The 7thfloor of petitioner Citibank's building housed its Control Division, which was in charge of keeping the necessary documents for cases in which it was involved. After compiling the documentary evidence for the present case, Atty. Renato J. Fernandez, internal legal counsel of petitioner Citibank, forwarded them to the Control Division. The original copies of the MCs, which supposedly represent the proceeds of the first set of PNs, as well as that of other documentary evidence related to the case, were among those burned in the said fire.71 Respondent's version of events Respondent disputed petitioners' narration of the circumstances surrounding her loans with petitioner Citibank and the alleged authority she gave for the off-set or compensation of her money market placements and deposit accounts with petitioners against her loan obligation. Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in particular). Although she admitted that she obtained several loans from petitioner Citibank, these only amounted to P1,150,000.00, and she had already paid them. She secured from petitioner Citibank two loans of P500,000.00 each. She executed in favor of petitioner Citibank the corresponding PNs for the loans and the Deeds of Assignment of her money market placements with petitioner FNCB Finance as security.72 To prove payment of these loans, respondent presented two provisional receipts of petitioner Citibank No. 19471,73 dated 11 August 1978, and No. 12723,74 dated 10 November 1978 both signed by Mr. Tan, and

acknowledging receipt from respondent of several checks in the total amount of P500,744.00 and P500,000.00, respectively, for "liquidation of loan." She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for which she executed PN No. 34534, on 9 January 1979. Thus, she admitted to receiving the proceeds of this loan via MC No. 228270. She invested the loan amount in another money market placement with petitioner FNCB Finance. In turn, she used the very same money market placement with petitioner FNCB Finance as security for her P150,000.00 loan from petitioner Citibank. When she failed to pay the loan when it became due, petitioner Citibank allegedly forfeited her money market placement with petitioner FNCB Finance and, thus, the loan was already paid.75 Respondent likewise questioned the MCs presented by petitioners, except for one (MC No. 228270 in particular), as proof that she received the proceeds of the loans covered by the first set of PNs. As recounted in the preceding paragraph, respondent admitted to obtaining a loan of P150,000.00, covered by PN No. 34534, and receiving MC No. 228270 representing the proceeds thereof, but claimed that she already paid the same. She denied ever receiving MCs No. 220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467 (for the loan of P250,000.00, covered by PN No. 34079), and pointed out that the checks did not bear her indorsements. She did not deny receiving all other checks but she interposed that she received these checks, not as proceeds of loans, but as payment of the principal amounts and/or interests from her money market placements with petitioner Citibank. She also raised doubts as to the notation on each of the checks that reads "RE: Proceeds of PN#[corresponding PN No.]," saying that such notation did not appear on the MCs when she originally received them and that the notation appears to have been written by a typewriter different from that used in writing all other information on the checks (i.e., date, payee, and amount). 76 She even testified that MCs were not supposed to bear notations indicating the purpose for which they were issued. As to the second set of PNs, respondent acknowledged having signed them all. However, she asserted that she only executed these PNs as part of the simulated loans she and Mr. Tan of petitioner Citibank concocted. Respondent explained that she had a pending loan application for a big amount with the Development Bank of the Philippines (DBP), and when Mr. Tan found out about this, he suggested that they could make it appear that the respondent had outstanding loans with petitioner Citibank and the latter was already demanding payment thereof; this might persuade DBP to approve respondent's loan application. Mr. Tan made the respondent sign the second set of PNs, so that he may have something to show the DBP investigator who might inquire with petitioner Citibank as to respondent's loans with the latter. On her own copies of the said PNs, respondent wrote by hand the notation, "This isa ( sic) simulated non-negotiable note, signed copy given to Mr. Tan., ( sic) per agreement to be shown to DBP representative. itwill (sic) be returned to me if the P11=M (sic) loan for MC Adore Palace Hotel is approved by DBP." 77 Findings of this Court as to the existence of the loans After going through the testimonial and documentary evidence presented by both sides to this case, it is this Court's assessment that respondent did indeed have

outstanding loans with petitioner Citibank at the time it effected the off-set or compensation on 25 July 1979 (using respondent's savings deposit with petitioner Citibank), 5 September 1979 (using the proceeds of respondent's money market placements with petitioner FNCB Finance) and 26 October 1979 (using respondent's dollar accounts remitted from Citibank-Geneva). The totality of petitioners' evidence as to the existence of the said loans preponderates over respondent's. Preponderant evidence means that, as a whole, the evidence adduced by one side outweighs that of the adverse party.78 Respondent's outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner Citibank. The second set of PNs is a mere renewal of the prior loans originally covered by the first set of PNs, except for PN No. 34534. The first set of PNs is supported, in turn, by the existence of the MCs that represent the proceeds thereof received by the respondent. It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the respondent specifically named as payee. MCs checks are drawn by the bank's manager upon the bank itself and regarded to be as good as the money it represents.79 Moreover, the MCs were crossed checks, with the words "Payee's Account Only." In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank which, in turn, must present it for payment against the drawee bank in the course of normal banking hours. The crossed check cannot be presented for payment, but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account.80 The effect of crossing a check was described by this Court in Philippine Commercial International Bank v. Court of Appeals81 [T]he crossing of a check with the phrase "Payee's Account Only" is a warning that the check should be deposited in the account of the payee. Thus, it is the duty of the collecting bank PCI Bank to ascertain that the check be deposited in payee's account only. It is bound to scrutinize the check and to know its depositors before it can make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed." The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts and cleared by the Clearing Office of the Central Bank of the Philippines, as evidenced by the stamp marks and notations on the said checks. The crossed MCs are already in the possession of petitioner Citibank, the drawee bank, which was ultimately responsible for the payment of the amount stated in the checks. Given that a check is more than just an instrument of credit used in commercial transactions for it also serves as a receipt or evidence for the drawee bank of the cancellation of the said check due to payment,82 then, the possession by petitioner Citibank of the said MCs, duly stamped "Paid" gives rise to the presumption that the said MCs were already paid out to the intended payee, who was in this case, the respondent. This Court finds applicable herein the presumptions that private transactions have been fair and regular,83 and that the ordinary course of business has been

followed.84 There is no question that the loan transaction between petitioner Citibank and the respondent is a private transaction. The transactions revolving around the crossed MCs from their issuance by petitioner Citibank to respondent as payment of the proceeds of her loans; to its deposit in respondent's accounts with several different banks; to the clearing of the MCs by an independent clearing house; and finally, to the payment of the MCs by petitioner Citibank as the drawee bank of the said checks are all private transactions which shall be presumed to have been fair and regular to all the parties concerned. In addition, the banks involved in the foregoing transactions are also presumed to have followed the ordinary course of business in the acceptance of the crossed MCs for deposit in respondent's accounts, submitting them for clearing, and their eventual payment and cancellation. The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence.85 Respondent, however, was unable to present sufficient and credible evidence to dispute these presumptions. It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to receiving one as proceeds of a loan (MC No. 228270), denied receiving two (MCs No. 220701 and 226467), and admitted to receiving all the rest, but not as proceeds of her loans, but as return on the principal amounts and interests from her money market placements. Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN No. 34534. Although the principal amount of the loan is P150,000.00, respondent only received P146,312.50, because the interest and handling fee on the loan transaction were already deducted therefrom. 86 Stamps and notations at the back of MC No. 228270 reveal that it was deposited at the Bank of the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-28.87 The check also bore the signature of respondent at the back.88 And, although respondent would later admit that she did sign PN No. 34534 and received MC No. 228270 as proceeds of the loan extended to her by petitioner Citibank, she contradicted herself when, in an earlier testimony, she claimed that PN No. 34534 was among the PNs she executed as simulated loans with petitioner Citibank.89 Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said checks were crossed for payee's account only, and that they were actually deposited, cleared, and paid, then the presumption would be that the said checks were properly deposited to the account of respondent, who was clearly named the payee in the checks. Respondent's bare allegations that she did not receive the two checks fail to convince this Court, for to sustain her, would be for this Court to conclude that an irregularity had occurred somewhere from the time of the issuance of the said checks, to their deposit, clearance, and payment, and which would have involved not only petitioner Citibank, but also BPI, which accepted the checks for deposit, and the Central Bank of the Philippines, which cleared the checks. It falls upon the respondent to overcome or dispute the presumption that the crossed checks were issued, accepted for deposit, cleared, and paid for by the banks involved following the ordinary course of their business. The mere fact that MCs No. 220701 and 226467 do not bear respondent's signature at the back does not negate deposit thereof in her account. The liability for the lack

of indorsement on the MCs no longer fall on petitioner Citibank, but on the bank who received the same for deposit, in this case, BPI Cubao Branch. Once again, it must be noted that the MCs were crossed, for payee's account only, and the payee named in both checks was none other than respondent. The crossing of the MCs was already a warning to BPI to receive said checks for deposit only in respondent's account. It was up to BPI to verify whether it was receiving the crossed MCs in accordance with the instructions on the face thereof. If, indeed, the MCs were deposited in accounts other than respondent's, then the respondent would have a cause of action against BPI.90 BPI further stamped its guarantee on the back of the checks to the effect that, "All prior endorsement and/or Lack of endorsement guaranteed." Thus, BPI became the indorser of the MCs, and assumed all the warranties of an indorser, 91 specifically, that the checks were genuine and in all respects what they purported to be; that it had a good title to the checks; that all prior parties had capacity to contract; and that the checks were, at the time of their indorsement, valid and subsisting.92 So even if the MCs deposited by BPI's client, whether it be by respondent herself or some other person, lacked the necessary indorsement, BPI, as the collecting bank, is bound by its warranties as an indorser and cannot set up the defense of lack of indorsement as against petitioner Citibank, the drawee bank.93 Furthermore, respondent's bare and unsubstantiated denial of receipt of the MCs in question and their deposit in her account is rendered suspect when MC No. 220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very same account in which MC No. 228270 (which respondent admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs No. 228203, 228357, and 228400 (which respondent admitted to receiving as proceeds from her money market placements) were deposited. Likewise, MC No. 226467 was deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which MCs No. 226285 and 226439 (which respondent admitted to receiving as proceeds from her money market placements) were deposited. It is an apparent contradiction for respondent to claim having received the proceeds of checks deposited in an account, and then deny receiving the proceeds of another check deposited in the very same account. Another inconsistency in respondent's denial of receipt of MC No. 226467 and her deposit of the same in her account, is her presentation of Exhibit "HHH," a provisional receipt which was supposed to prove that respondent turned over P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was split into three money market placements, and that MC No. 226467 represented the return on her investment from one of these placements.94Because of her Exhibit "HHH," respondent effectively admitted receipt of MC No. 226467, although for reasons other than as proceeds of a loan. Neither can this Court give credence to respondent's contention that the notations on the MCs, stating that they were the proceeds of particular PNs, were not there when she received the checks and that the notations appeared to be written by a typewriter different from that used to write the other information on the checks. Once more, respondent's allegations were uncorroborated by any other evidence. Her and her counsel's observation that the notations on the MCs appear to be written by a typewriter different from that used to write the other information on the checks

hardly convinces this Court considering that it constitutes a mere opinion on the appearance of the notation by a witness who does not possess the necessary expertise on the matter. In addition, the notations on the MCs were written using both capital and small letters, while the other information on the checks were written using capital letters only, such difference could easily confuse an untrained eye and lead to a hasty conclusion that they were written by different typewriters. Respondent's testimony, that based on her experience transacting with banks, the MCs were not supposed to include notations on the purpose for which the checks were issued, also deserves scant consideration. While respondent may have extensive experience dealing with banks, it still does not qualify her as a competent witness on banking procedures and practices. Her testimony on this matter is even belied by the fact that the other MCs issued by petitioner Citibank (when it was still named First National City Bank) and by petitioner FNCB Finance, the existence and validity of which were not disputed by respondent, also bear similar notations that state the reason for which they were issued. Respondent presented several more pieces of evidence to substantiate her claim that she received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans from petitioner Citibank, but as the return of the principal amounts and payment of interests from her money market placements with petitioners. Part of respondent's exhibits were personal checks95 drawn by respondent on her account with Feati Bank & Trust Co., which she allegedly invested in separate money market placements with both petitioners, the returns from which were paid to her via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only managed to establish respondent's issuance thereof, but there was nothing on the face of the checks that would reveal the purpose for which they were issued and that they were actually invested in money market placements as respondent claimed. Respondent further submitted handwritten notes that purportedly computed and presented the returns on her money market placements, corresponding to the amount stated in the MCs she received from petitioner Citibank. Exhibit "HHH-1"96 was a handwritten note, which respondent attributed to Mr. Tan of petitioner Citibank, showing the breakdown of her BPI Check for P500,000.00 into three different money market placements with petitioner Citibank. This Court, however, noticed several factors which render the note highly suspect. One, it was written on the reversed side of Provisional Receipt No. 12724 of petitioner Citibank which bore the initials of Mr. Tan acknowledging receipt of respondent's BPI Check No. 120989 for P500,000.00; but the initials on the handwritten note appeared to be that of Mr. Bobby Mendoza of petitioner FNCB Finance.97 Second, according to Provisional Receipt No. 12724, BPI Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements with petitioner Citibank for the period of 60 days. Since all these money market placements were made through one check deposited on the same day, 10 November 1978, it made no sense that the handwritten note at the back of Provisional Receipt No. 12724 provided for different dates of maturity for each of the money market placements ( i.e., 16 November 1978, 17 January 1979, and 21 November 1978), and such dates did not correspond to the 60 day placement period stated on the face of the provisional receipt. And third, the principal amounts of the money market placements as stated in the handwritten note

 P145,000.00, P145,000.00 andP242,000.00 totaled P532,000.00, and was obviously in excess of the P500,000.00 acknowledged on the face of Provisional Receipt No. 12724. Exhibits "III" and "III-1," the front and bank pages of a handwritten note of Mr. Bobby Mendoza of petitioner FNCB Finance,98 also did not deserve much evidentiary weight, and this Court cannot rely on the truth and accuracy of the computations presented therein. Mr. Mendoza was not presented as a witness during the trial before the RTC, so that the document was not properly authenticated nor its contents sufficiently explained. No one was able to competently identify whether the initials as appearing on the note were actually Mr. Mendoza's. Also, going by the information on the front page of the note, this Court observes that payment of respondent's alleged money market placements with petitioner FNCB Finance were made using Citytrust Checks; the MCs in question, including MC No. 228057, were issued by petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and petitioner Citibank may be affiliates of one another, they each remained separate and distinct corporations, each having its own financial system and records. Thus, this Court cannot simply assume that one corporation, such as petitioner Citibank or Citytrust, can issue a check to discharge an obligation of petitioner FNCB Finance. It should be recalled that when petitioner FNCB Finance paid for respondent's money market placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance issued its own checks. As a last point on this matter, if respondent truly had money market placements with petitioners, then these would have been evidenced by PNs issued by either petitioner Citibank or petitioner FNCB Finance, acknowledging the principal amounts of the investments, and stating the applicable interest rates, as well as the dates of their of issuance and maturity. After respondent had so meticulously reconstructed her other money market placements with petitioners and consolidated the documentary evidence thereon, she came surprisingly short of offering similar details and substantiation for these particular money market placements. Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it proceeds to analyze her evidence of payment thereof. In support of respondent's assertion that she had already paid whatever loans she may have had with petitioner Citibank, she presented as evidence Provisional Receipts No. 19471, dated 11 August 1978, and No. 12723, dated 10 November 1978, both of petitioner Citibank and signed by Mr. Tan, for the amounts of P500,744.00 andP500,000.00, respectively. While these provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank, received respondent's checks as payment for her loans, they failed to specifically identify which loans were actually paid. Petitioner Citibank was able to present evidence that respondent had executed several PNs in the years 1978 and 1979 to cover the loans she secured from the said bank. Petitioner Citibank did admit that respondent was able to pay for some of these PNs, and what it identified as the first and second sets of PNs were only those which remained unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were actually applied to the PNs in either the first or second set; a fact that, unfortunately, cannot be determined from the provisional receipts

submitted by respondent since they only generally stated that the checks received by Mr. Tan were payment for respondent's loans. Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the bank was made using checks, since the checks would still be subject to clearing. The purpose for the provisional receipts was merely to acknowledge the delivery of the checks to the possession of the bank, but not yet of payment.99This bank practice finds legitimacy in the pronouncement of this Court that a check, whether an MC or an ordinary check, is not legal tender and, therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc. v. Court of Appeals, 100 this Court elucidated that: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3). In the case at bar, the issuance of an official receipt by petitioner Citibank would have been dependent on whether the checks delivered by respondent were actually cleared and paid for by the drawee banks. As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different means. In her formal offer of exhibits, respondent submitted a deposit slip of petitioner Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No. 5785 for P150,000.00.101 In her Formal Offer of Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the presentation of the said deposit slip was to prove that she already paid her loan covered by PN No. 34534.102 In her testimony before the RTC three years later, on 28 November 1991, she changed her story. This time she narrated that the loan covered by PN No. 34534 was secured by her money market placement with petitioner FNCB Finance, and when she failed to pay the said PN when it became due, the security was applied to the loan, therefore, the loan was considered paid. 103 Given the foregoing, respondent's assertion of payment of PN No. 34534 is extremely dubious. According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere renewals of the unpaid PNs in the first set, which was why the PNs stated that they were for the purpose of liquidating existing obligations. PN No. 34534, however, which was part of the first set, was still valid and subsisting and so it was included in the second set without need for its renewal, and it still being the original PN for that particular loan, its stated purpose was for personal investment.104 Respondent essentially admitted executing the second set of PNs, but they were only meant to cover simulated loans. Mr. Tan supposedly convinced her that her pending loan application with DBP would have a greater chance of being

approved if they made it appear that respondent urgently needed the money because petitioner Citibank was already demanding payment for her simulated loans. Respondent's defense of simulated loans to escape liability for the second set of PNs is truly a novel one.1wphi1 It is regrettable, however, that she was unable to substantiate the same. Yet again, respondent's version of events is totally based on her own uncorroborated testimony. The notations on the second set of PNs, that they were non-negotiable simulated notes, were admittedly made by respondent herself and were, thus, self-serving. Equally self-serving was respondent's letter, written on 7 October 1985, or more than six years after the execution of the second set of PNs, in which she demanded return of the simulated or fictitious PNs, together with the letters relating thereto, which Mr. Tan purportedly asked her to execute. Respondent further failed to present any proof of her alleged loan application with the DBP, and of any circumstance or correspondence wherein the simulated or fictitious PNs were indeed used for their supposed purpose. In contrast, petitioner Citibank, as supported by the testimonies of its officers and available documentation, consistently treated the said PNs as regular loans accepted, approved, and paid in the ordinary course of its business. The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled out and signed, including the disclosure statement found at the back of the said PNs, in adherence to the Central Bank requirement to disclose the full finance charges to a loan granted to borrowers. Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he dealt directly with respondent; he facilitated the loans; and the PNs, at least in the second set, were signed by respondent in his presence. 105 Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the signatures on the PNs were verified against respondent's specimen signature with the bank.106 Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was responsible for booking respondent's loans. Booking the loans means recording it in the General Ledger. She explained the procedure for booking loans, as follows: The account officer, in the Marketing Department, deals directly with the clients who wish to borrow money from petitioner Citibank. The Marketing Department will forward a loan booking checklist, together with the borrowing client's PNs and other supporting documents, to the loan pre-processor, who will check whether the details in the loan booking checklist are the same as those in the PNs. The documents are then sent to Signature Control for verification of the client's signature in the PNs, after which, they are returned to the loan pre-processor, to be forwarded finally to the loan processor. The loan processor shall book the loan in the General Ledger, indicating therein the client name, loan amount, interest rate, maturity date, and the corresponding PN number. Since she booked respondent's loans personally, Ms. Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of petitioner Citibank requested her to prepare an accounting of respondent's loans, which she did, and which was presented as Exhibit "120" for the petitioners. The figures from the said exhibit were culled from the bookings in the General Ledger, a fact which respondent's counsel was even willing to stipulate.107

Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control Department of petitioner Citibank. She was presented by petitioner Citibank to expound on the microfilming procedure at the bank, since most of the copies of the PNs were retrieved from microfilm. Microfilming of the documents are actually done by people at the Operations Department. At the end of the day or during the day, the original copies of all bank documents, not just those pertaining to loans, are microfilmed. She refuted the possibility that insertions could be made in the microfilm because the microfilm is inserted in a cassette; the cassette is placed in the microfilm machine for use; at the end of the day, the cassette is taken out of the microfilm machine and put in a safe vault; and the cassette is returned to the machine only the following day for use, until the spool is full. This is the microfilming procedure followed everyday. When the microfilm spool is already full, the microfilm is developed, then sent to the Control Department, which double checks the contents of the microfilms against the entries in the General Ledger. The Control Department also conducts a random comparison of the contents of the microfilms with the original documents; a random review of the contents is done on every role of microfilm.108 Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially working as a secretary in the Personnel Group; then as a secretary to the Personnel Group Head; a Service Assistant with the Marketing Group, in 1972 to 1974, dealing directly with corporate and individual clients who, among other things, secured loans from petitioner Citibank; the Head of the Collection Group of the Foreign Department in 1974 to 1976; the Head of the Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit up to the early 1980s; and, thereafter, she established operations training for petitioner Citibank in the AsiaPacific Region responsible for the training of the officers of the bank. She testified on the standard loan application process at petitioner Citibank. According to Ms. Rubio, the account officer or marketing person submits a proposal to grant a loan to an individual or corporation. Petitioner Citibank has a worldwide policy that requires a credit committee, composed of a minimum of three people, which would approve the loan and amount thereof. There can be no instance when only one officer has the power to approve the loan application. When the loan is approved, the account officer in charge will obtain the corresponding PNs from the client. The PNs are sent to the signature verifier who would validate the signatures therein against those appearing in the signature cards previously submitted by the client to the bank. The Operations Unit will check and review the documents, including the PNs, if it is a clean loan, and securities and deposits, if it is collateralized. The loan is then recorded in the General Ledger. The Loans and Placements Department will not book the loans without the PNs. When the PNs are liquidated, whether they are paid or rolled-over, they are returned to the client.109 Ms. Rubio further explained that she was familiar with respondent's accounts since, while she was still the Head of the Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of respondent's outstanding obligations.110 She thus calculated respondent's outstanding loans, which was sent as an attachment to Mr. Tan's letter to respondent, dated 28 September 1979, and presented before the RTC as Exhibits "34-B" and "34-C."111

Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by other people working for respondent, had consistently recognized that respondent owed petitioner Citibank money. In consideration of the foregoing discussion, this Court finds that the preponderance of evidence supports the existence of the respondent's loans, in the principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled that the term "preponderance of evidence" should not be wholly dependent on the number of witnesses, there are certain instances when the number of witnesses become the determining factor The preponderance of evidence may be determined, under certain conditions, by the number of witnesses testifying to a particular fact or state of facts. For instance, one or two witnesses may testify to a given state of facts, and six or seven witnesses of equal candor, fairness, intelligence, and truthfulness, and equally well corroborated by all the remaining evidence, who have no greater interest in the result of the suit, testify against such state of facts. Then the preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.)112 Best evidence rule This Court disagrees in the pronouncement made by the Court of Appeals summarily dismissing the documentary evidence submitted by petitioners based on its broad and indiscriminate application of the best evidence rule. In general, the best evidence rule requires that the highest available degree of proof must be produced. Accordingly, for documentary evidence, the contents of a document are best proved by the production of the document itself, 113 to the exclusion of any secondary or substitutionary evidence.114 The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which reads SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original document itself, except in the following cases: (a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror; (b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice; (c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole; and (d) When the original is a public record in the custody of a public officer or is recorded in a public office. As the afore-quoted provision states, the best evidence rule applies only when the subject of the inquiry is the contents of the document. The scope of the rule is more extensively explained thus

But even with respect to documentary evidence, the best evidence rule applies only when the content of such document is the subject of the inquiry. Where the issue is only as to whether such document was actually executed, or exists, or on the circumstances relevant to or surrounding its execution, the best evidence rule does not apply and testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is likewise admissible without need for accounting for the original. Thus, when a document is presented to prove its existence or condition it is offered not as documentary, but as real, evidence. Parol evidence of the fact of execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al., 91 Phil 565). x x x 115 In Estrada v. Desierto,116 this Court had occasion to rule that It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however, violate the best evidence rule. Wigmore, in his book on evidence, states that: "Production of the original may be dispensed with, in the trial court's discretion, whenever in the case in hand the opponent does not bona fide dispute the contents of the document and no other useful purpose will be served by requiring production.24 "x x x x "In several Canadian provinces, the principle of unavailability has been abandoned, for certain documents in which ordinarily no real dispute arised. This measure is a sensible and progressive one and deserves universal adoption (post, sec. 1233). Its essential feature is that a copy may be used unconditionally, if the opponent has been given an opportunity to inspect it." (Emphasis supplied.) This Court did not violate the best evidence rule when it considered and weighed in evidence the photocopies and microfilm copies of the PNs, MCs, and letters submitted by the petitioners to establish the existence of respondent's loans. The terms or contents of these documents were never the point of contention in the Petition at bar. It was respondent's position that the PNs in the first set (with the exception of PN No. 34534) never existed, while the PNs in the second set (again, excluding PN No. 34534) were merely executed to cover simulated loan transactions. As for the MCs representing the proceeds of the loans, the respondent either denied receipt of certain MCs or admitted receipt of the other MCs but for another purpose. Respondent further admitted the letters she wrote personally or through her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she claimed that these letters were just meant to keep up the ruse of the simulated loans. Thus, respondent questioned the documents as to their existence or execution, or when the former is admitted, as to the purpose for which the documents were executed, matters which are, undoubtedly, external to the documents, and which had nothing to do with the contents thereof. Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by petitioners regarding the existence of respondent's loans, it

should be borne in mind that the rule admits of the following exceptions under Rule 130, Section 5 of the revised Rules of Court SEC. 5. When the original document is unavailable. When the original document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated. The execution or existence of the original copies of the documents was established through the testimonies of witnesses, such as Mr. Tan, before whom most of the documents were personally executed by respondent. The original PNs also went through the whole loan booking system of petitioner Citibank from the account officer in its Marketing Department, to the pre-processor, to the signature verifier, back to the pre-processor, then to the processor for booking.117 The original PNs were seen by Ms. Dondoyano, the processor, who recorded them in the General Ledger. Mr. Pujeda personally saw the original MCs, proving respondent's receipt of the proceeds of her loans from petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the bank's legal counsels, to reconstruct the records of respondent's loans. The original MCs were presented to Atty. Cleofe who used the same during the preliminary investigation of the case, sometime in years 1986-1987. The original MCs were subsequently turned over to the Control and Investigation Division of petitioner Citibank.118 It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it moved to a new office. Citibank did not make a similar contention; instead, it explained that the original copies of the PNs were returned to the borrower upon liquidation of the loan, either through payment or roll-over. Petitioner Citibank proffered the excuse that they were still looking for the documents in their storage or warehouse to explain the delay and difficulty in the retrieval thereof, but not their absence or loss. The original documents in this case, such as the MCs and letters, were destroyed and, thus, unavailable for presentation before the RTC only on 7 October 1987, when a fire broke out on the 7 th floor of the office building of petitioner Citibank. There is no showing that the fire was intentionally set. The fire destroyed relevant documents, not just of the present case, but also of other cases, since the 7th floor housed the Control and Investigation Division, in charge of keeping the necessary documents for cases in which petitioner Citibank was involved. The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies of the PNs, MCs, and letters by the petitioners as secondary evidence to establish the existence of respondent's loans, as an exception to the best evidence rule. The impact of the Decision of the Court of Appeals in the Dy case In its assailed Decision, the Court of Appeals made the following pronouncement Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15 January 1990, asdisturbing taking into consideration the similarities of the fraud, machinations, and deceits

employed by the defendant-appellant Citibank and its Account Manager Francisco Tan. Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of Francisco Tan in CA-G.R. CV No. 15934 were affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22 August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350. As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9) Promissory Notes were indeed executed with considerations, the doubts, coupled by the findings and conclusions of this Court in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be construed against herein defendants-appellants Citibank and FNCB Finance. What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed Decision to the Decision119 of its Third Division in CA-G.R. CV No. 15934 (or the Dy case), when there is an absolute lack of legal basis for doing such. Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the only connection between the Dy case and the one at bar. Not only did the Dy case tackle transactions between parties other than the parties presently before this Court, but the transactions are absolutely independent and unrelated to those in the instant Petition. In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank amounting toP7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband were unaware of the said loans and the mortgage of their properties. The transactions were carried out exclusively between Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan guilty of fraud for his participation in the questionable transactions, essentially because he allowed Caedo to take out the signature cards, when these should have been signed by the Dy spouses personally before him. Although the Dy spouses' signatures in the PNs and Third Party Real Estate Mortgage were forged, they were approved by the signature verifier since the signature cards against which they were compared to were also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally responsible for the forgeries, which, in the narration of the facts, were more likely committed by Caedo. In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved who could have perpetrated any fraud or forgery in her loan transactions. Although respondent attempted to raise suspicion as to the authenticity of her signatures on certain documents, these were nothing more than naked allegations with no corroborating evidence; worse, even her own allegations were replete with inconsistencies. She could not even establish in what manner or under what circumstances the fraud or forgery was committed, or how Mr. Tan could have been directly responsible for the same. While the Court of Appeals can take judicial notice of the Decision of its Third Division in the Dy case, it should not have given the said case much weight when it rendered the assailed Decision, since the former does not constitute a precedent. The

Court of Appeals, in the challenged Decision, did not apply any legal argument or principle established in the Dy case but, rather, adopted the findings therein of wrongdoing or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as against herein petitioners should be made based on the factual background and pieces of evidence submitted in this case, not those in another case. It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for the present case, but rather as evidence of similar acts committed by petitioner Citibank and Mr. Tan. A basic rule of evidence, however, states that, "Evidence that one did or did not do a certain thing at one time is not admissible to prove that he did or did not do the same or similar thing at another time; but it may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like." 120 The rationale for the rule is explained thus The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person has committed the same or similar acts at some prior time affords, as a general rule, no logical guaranty that he committed the act in question. This is so because, subjectively, a man's mind and even his modes of life may change; and, objectively, the conditions under which he may find himself at a given time may likewise change and thus induce him to act in a different way. Besides, if evidence of similar acts are to be invariably admitted, they will give rise to a multiplicity of collateral issues and will subject the defendant to surprise as well as confuse the court and prolong the trial.121 The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot be used to prove specific intent, knowledge, identity, plan, system, scheme, habit, custom or usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the present case. IV The liquidation of respondent's outstanding loans were valid in so far as petitioner Citibank used respondent's savings account with the bank and her money market placements with petitioner FNCB Finance; but illegal and void in so far as petitioner Citibank used respondent's dollar accounts with Citibank-Geneva. Savings Account with petitioner Citibank Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code provides Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary; (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. There is little controversy when it comes to the right of petitioner Citibank to compensate respondent's outstanding loans with her deposit account. As already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At the same time, respondent was the creditor of petitioner Citibank, as far as her deposit account was concerned, since bank deposits, whether fixed, savings, or current, should be considered as simple loan or mutuum by the depositor to the banking institution.122 Both debts consist in sums of money. By June 1979, all of respondent's PNs in the second set had matured and became demandable, while respondent's savings account was demandable anytime. Neither was there any retention or controversy over the PNs and the deposit account commenced by a third person and communicated in due time to the debtor concerned. Compensation takes place by operation of law,123 therefore, even in the absence of an expressed authority from respondent, petitioner Citibank had the right to effect, on 25 June 1979, the partial compensation or off-set of respondent's outstanding loans with her deposit account, amounting to P31,079.14. Money market placements with FNCB Finance Things though are not as simple and as straightforward as regards to the money market placements and bank account used by petitioner Citibank to complete the compensation or off-set of respondent's outstanding loans, which came from persons other than petitioner Citibank. Respondent's money market placements were with petitioner FNCB Finance, and after several roll-overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to these money market placements, respondent was the creditor and petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, would not apply since the first requirement for a valid compensation, that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other, was not met. What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's money market placements with petitioner FNCB Finance by virtue of the Deeds of Assignment executed by respondent in its favor. The Court of Appeals did not consider these Deeds of Assignment because of petitioners' failure to produce the original copies thereof in violation of the best evidence rule. This Court again finds itself in disagreement in the application of the best evidence rule by the appellate court. To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the presentation of the original copy of the document only when the context thereof is the subject of inquiry in the case. Respondent does not question the contents of the Deeds of Assignment. While she admitted the existence and execution of the Deeds of Assignment, dated 2 March 1978 and 9 March 1978,

covering PNs No. 8169 and 8167 issued by petitioner FNCB Finance, she claimed, as defense, that the loans for which the said Deeds were executed as security, were already paid. She denied ever executing both Deeds of Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139. These are again issues collateral to the contents of the documents involved, which could be proven by evidence other than the original copies of the said documents. Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of the Rules of Court provides that SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided by law, may be presented in evidence without further proof, the certificate of acknowledgement being prima facie evidence of the execution of the instrument or document involved. Significant herein is this Court's elucidation in De Jesus v. Court of Appeals,124 which reads On the evidentiary value of these documents, it should be recalled that the notarization of a private document converts it into a public one and renders it admissible in court without further proof of its authenticity ( Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a public document duly executed and entered in the proper registry is presumed to be valid and genuine until the contrary is shown by clear and convincing proof ( Asido vs. Guzman, 57 Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil 241 [1902];Favor vs. Court of Appeals, 194 SCRA 308 [1991]). As such, the party challenging the recital of the document must prove his claim with clear and convincing evidence (Diaz vs. Court of Appeals, 145 SCRA 346 [1986]). The rule on the evidentiary weight that must be accorded a notarized document is clear and unambiguous. The certificate of acknowledgement in the notarized Deeds of Assignment constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this presumption fell on respondent. She could have presented evidence of any defect or irregularity in the execution of the said documents 125 or raised questions as to the verity of the notary public's acknowledgment and certificate in the Deeds.126 But again, respondent admitted executing the Deeds of Assignment, dated 2 March 1978 and 9 March 1978, although claiming that the loans for which they were executed as security were already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978, with nothing more than her bare denial of execution thereof, hardly the clear and convincing evidence required to trounce the presumption of due execution of a notarized document. Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal copies thereof from the National Archives. 127 Mr. Renato Medua, an archivist, working at the Records Management and Archives Office of the National Library, testified that the copies of the Deeds presented before the RTC were certified literal copies of those contained in the Notarial Registries of the notary publics concerned, which were already in the possession of the National Archives. He also explained that he could not bring to the RTC the Notarial Registries containing the original copies of the Deeds of Assignment, because the Department

of Justice (DOJ) Circular No. 97, dated 8 November 1968, prohibits the bringing of original documents to the courts to prevent the loss of irreplaceable and priceless documents.128 Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority given by the respondent to petitioner Citibank to use as security for her loans her money her market placements with petitioner FNCB Finance, represented by PNs No. 8167 and 8169, later to be rolled-over as PNs No. 20138 and 20139. These Deeds of Assignment constitute the law between the parties, and the obligations arising therefrom shall have the force of law between the parties and should be complied with in good faith. 129 Standard clauses in all of the Deeds provide that The ASSIGNOR and the ASSIGNEE hereby further agree as follows: xxxx 2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the ASSIGNEE is fully authorized and empowered to collect and receive the PLACEMENT (or so much thereof as may be necessary) and apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and from time to time, upon request by the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all such further instruments and documents as may be necessary to effectuate this Assignment. xxxx 5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the PLACEMENT or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with terms and provisions hereof. 130 Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay for respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations through the application of the security given by the respondent for her loans. Although the pertinent documents were entitled Deeds of Assignment, they were, in reality, more of a pledge by respondent to petitioner Citibank of her credit due from petitioner FNCB Finance by virtue of her money market placements with the latter. According to Article 2118 of the Civil Code ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor. PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, so that petitioner Citibank collected from petitioner FNCB Finance the proceeds thereof, which included the principal amounts and interests earned by the money market placements, amounting to P1,022,916.66, and applied

the same against respondent's outstanding loans, leaving no surplus to be delivered to respondent. Dollar accounts with Citibank-Geneva Despite the legal compensation of respondent's savings account and the total application of the proceeds of PNs No. 20138 and 20139 to respondent's outstanding loans, there still remained a balance of P1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar accounts with Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of Pledge supposedly executed by respondent in its favor. Certain principles of private international law should be considered herein because the property pledged was in the possession of an entity in a foreign country, namely, Citibank-Geneva. In the absence of any allegation and evidence presented by petitioners of the specific rules and laws governing the constitution of a pledge in Geneva, Switzerland, they will be presumed to be the same as Philippine local or domestic laws; this is known as processual presumption.131 Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and irregular. First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner Citibank would take greater cautionary measures with the preparation and execution of the Declaration of Pledge because it involved respondent's "all present and future fiduciary placements" with a Citibank branch in another country, specifically, in Geneva, Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be notarized to be effective, even so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized documents, and petitioner Citibank must discharge the burden of proving due execution and authenticity of the Declaration of Pledge. Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated.132 It presented only a photocopy of the pledge because it already forwarded the original copy thereof to CitibankGeneva when it requested for the remittance of respondent's dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September 1979.133 Respondent, however, presented her passport and plane tickets to prove that she was out of the country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that the written document is truly dated.134 Since it is undeniable that respondent was out of the

country on 24 September 1979, then she could not have executed the pledge on the said date. Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted, however, that in the space which should have named the pledgor, the name of petitioner Citibank was typewritten, to wit The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction (for example current account, securities transactions, collections, credits, payments, documentary credits and collections) which gives rise thereto, and including principal, all contractual and penalty interest, commissions, charges, and costs. The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless, considering the value of such a document, the mistake as to a significant detail in the pledge could only be committed with gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge had passed through the hands of several bank officers in the country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring mistake. Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a forgery. When a document is assailed on the basis of forgery, the best evidence rule applies Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is admissible other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is especially true when the issue is that of forgery. As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of the person whose signature is theorized upon to have been forged. Without the original document containing the alleged forged signature, one cannot make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction of the document under controversy cannot produce reliable results.135 Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined by experts. Yet, despite several Orders by the RTC,136 petitioner Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the

original copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and resources to convince Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court that it had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner Citibank has nil probative value. 137In addition, even if this Court cannot make a categorical finding that respondent's signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the presentation of the original document, and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced.138 Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondent's dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other. Therefore, this Court declares that the remittance of respondent's dollar accounts from Citibank-Geneva and the application thereof to her outstanding loans with petitioner Citibank was illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to respondent the amount of US$149,632,99 from her CitibankGeneva accounts, or its present equivalent value in Philippine currency; and, at the same time, respondent continues to be obligated to petitioner Citibank for the balance of her outstanding loans which, as of 5 September 1979, amounted to P1,069,847.40. V The parties shall be liable for interests on their monetary obligations to each other, as determined herein. In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of her money market placements, represented by PNs No. 23356 and 23357, amounting to P318,897.34 and P203,150.00, respectively, earning an interest of 14.5% per annum as stipulated in the PNs,139 beginning 17 March 1977, the date of the placements. Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its equivalent in Philippine currency, which had been remitted from her Citibank-Geneva accounts. These dollar accounts, consisting of two fiduciary placements and current accounts with Citibank-Geneva shall continue earning their respective stipulated interests from 26 October 1979, the date of their

remittance by Citibank-Geneva to petitioner Citibank in Manila and applied against respondent's outstanding loans. As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which amounted to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as stipulated in the corresponding PNs, from the time of their respective maturity dates, since the supposed payment thereof using respondent's dollar accounts from Citibank-Geneva is deemed illegal, null and void, and, thus, ineffective. VI Petitioner Citibank shall be liable for damages to respondent. Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and attorney's fees in favor of respondent. They argued that the RTC did not award any damages, and respondent, in her appeal before the Court of Appeals, did not raise in issue the absence of such. While it is true that the general rule is that only errors which have been stated in the assignment of errors and properly argued in the brief shall be considered, this Court has also recognized exceptions to the general rule, wherein it authorized the review of matters, even those not assigned as errors in the appeal, if the consideration thereof is necessary in arriving at a just decision of the case, and there is a close inter-relation between the omitted assignment of error and those actually assigned and discussed by the appellant.140 Thus, the Court of Appeals did not err in awarding the damages when it already made findings that would justify and support the said award. Although this Court appreciates the right of petitioner Citibank to effect legal compensation of respondent's local deposits, as well as its right to the proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to partly extinguish respondent's outstanding loans, it finds that petitioner Citibank did commit wrong when it failed to pay and properly account for the proceeds of respondent's money market placements, evidenced by PNs No. 23356 and 23357, and when it sought the remittance of respondent's dollar accounts from CitibankGeneva by virtue of a highly-suspect Declaration of Pledge to be applied to the remaining balance of respondent's outstanding loans. It bears to emphasize that banking is impressed with public interest and its fiduciary character requires high standards of integrity and performance.141 A bank is under the obligation to treat the accounts of its depositors with meticulous care whether such accounts consist only of a few hundred pesos or of millions of pesos.142 The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible.143 Petitioner Citibank evidently failed to exercise the required degree of care and transparency in its transactions with respondent, thus, resulting in the wrongful deprivation of her property. Respondent had been deprived of substantial amounts of her investments and deposits for more than two decades. During this span of years, respondent had found herself in desperate need of the amounts wrongfully withheld from her. In her testimony144 before the RTC, respondent narrated

Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman, will you tell us again what are the businesses you are engaged into [sic]? A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am also the President and Chairman of the Board of Macador [sic] Co. and Business Inc. which operates the Macador [ sic] International Palace Hotel. I am also the President of the Macador [ sic] International Palace Hotel, and also the Treasures Home Industries, Inc. which I am the Chairman and president of the Board and also operating affiliated company in the name of Treasures Motor Sales engaged in car dealers [sic] like Delta Motors, we are the dealers of the whole Northern Luzon and I am the president of the Disto Company, Ltd., based in Hongkong licensed in Honkong [ sic] and now operating in Los Angeles, California. Q What is the business of that Disto Company Ltd.? A Disto Company, Ltd., is engaged in real estate and construction. Q Aside from those businesses are you a member of any national or community organization for social and civil activities? A Yes sir. Q What are those? A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an officer of the Chamber of Real Estate Business Association; I am also an officer of the Chatholic [sic] Women's League and I am also a member of the CMLI, I forgot the definition. Q How about any political affiliation or government position held if any? A I was also a candidate for Mayo last January 30, 1980. Q Where? A In Dagupan City, Pangasinan. Q What else? A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan. Q What happened to your businesses you mentioned as a result of your failure to recover you [sic] investments and bank deposits from the defendants? A They are not all operating, in short, I was hampered to push through the businesses that I have. A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and what remain inactive? A Of all the company [sic] that I have, only the Disto Company that is now operating in California. Q How about your candidacy as Mayor of Dagupan, [ sic] City, and later as Assemblywoman of Region I, what happened to this? A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still pending and because I don't have financial resources I was not able to push through the case. I just have it pending in the Comelec.

Q Now, do these things also affect your social and civic activities? A Yes sir, definitely. Q How? A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I was awarded as the most outstanding businesswoman of the year in 1976 but when this money was not given back to me I was not able to comply with the commitments that I have promised to these associations that I am engaged into [ sic], sir. For the mental anguish, serious anxiety, besmirched reputation, moral shock and social humiliation suffered by the respondent, the award of moral damages is but proper. However, this Court reduces the amount thereof toP300,000.00, for the award of moral damages is meant to compensate for the actual injury suffered by the respondent, not to enrich her.145 Having failed to exercise more care and prudence than a private individual in its dealings with respondent, petitioner Citibank should be liable for exemplary damages, in the amount of P250,000.00, in accordance with Article 2229146 and 2234147 of the Civil Code. With the award of exemplary damages, then respondent shall also be entitled to an award of attorney's fees.148Additionally, attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party.149 In this case, an award of P200,000.00 attorney's fees shall be satisfactory. In contrast, this Court finds no sufficient basis to award damages to petitioners.1wphi1 Respondent was compelled to institute the present case in the exercise of her rights and in the protection of her interests. In fact, although her Complaint before the RTC was not sustained in its entirety, it did raise meritorious points and on which this Court rules in her favor. Any injury resulting from the exercise of one's rights is damnum absque injuria.150 IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows 1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDEREDto return to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977; 2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondent's Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the same against respondent's outstanding loans with the latter, is DECLAREDillegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the

stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979; 3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorney's fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and 4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding PNs, from 5 September 1979 until payment thereof. SO ORDERED.

CHINA BANKING CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and JOSE "JOSEPH" GOTIANUY as substituted by ELIZABETH GOTIANUY LO, respondents.

DECISION CHICO-NAZARIO, J.: A Complaint for recovery of sums of money and annulment of sales of real properties and shares of stock docketed as CEB-21445 was filed by Jose "Joseph" Gotianuy against his son-in-law, George Dee, and his daughter, Mary Margaret Dee, before the Regional Trial Court (RTC) of Cebu City, Branch 58. Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other properties, US dollar deposits with Citibank N.A. amounting to not less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee received these amounts from Citibank N.A. through checks which she allegedly deposited at China Banking Corporation (China Bank). He likewise accused his son-in-law, George Dee, husband of his daughter, Mary Margaret, of transferring his real properties and shares of stock in George Dee's name without any consideration. Jose Gotianuy, died during the pendency of the case before the trial court. 1 He was substituted by his daughter, Elizabeth Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary Margaret Dee from his US dollar placement with Citibank. The details of the said checks are: 1) CITIBANK CHECK NO. 69003194405412 dated September 29 1997 in the amount of US$5,937.52 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; 2) CITIBANK CHECK NO. 69003194405296 dated September 29 1997 in the amount of US$7,197.59 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; 3) CITIBANK CHECK NO. 69003194405414 dated September 29 1997 in the amount of US$1,198.94 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; 4) CITIBANK CHECK NO. 69003194405413 dated September 29 1997 in the amount of US$989.04 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; 5) CITIBANK CHECK NO. 69003194405297 dated October 01 1997 in the amount of US$766,011.97 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; and 6) CITIBANK CHECK NO. 69003194405339 dated October 09 1997 in the amount of US$83,053.10 payable to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET.2

Upon motion of Elizabeth Gotianuy Lo, the trial court3 issued a subpoena to Cristota Labios and Isabel Yap, employees of China Bank, to testify on the case. The Order of the trial court dated 23 February 1999, states: Issue a subpoena ad testificandum requiring MS. ISABEL YAP and CRISTOTA LABIOS of China Banking Corporation, Cebu Main Branch, corner Magallanes and D. Jakosalem Sts., Cebu City, to appear in person and to testify in the hearing of the above entitled case on March 1, 1999 at 8:30 in the morning, with regards to Citibank Checks (Exhs. "AAA" to "AAA-5") and other matters material and relevant to the issues of this case. 4 China Bank moved for a reconsideration. Resolving the motion, the trial court issued an Order dated 16 April 1999 and held: The Court is of the view that as the foreign currency fund (Exhs. "AAA" to "AAA-5") is deposited with the movant China Banking Corporation, Cebu Main Branch, Cebu City, the disclosure only as to the name or in whose name the said fund is deposited is not violative of the law. Justice will be better served if the name or names of the depositor of said fund shall be disclosed because such a disclosure is material and important to the issues between the parties in the case at bar. Premises considered, the motion for reconsideration is denied partly and granted partly, in the sense that Isabel Yap and/or Cristuta Labios are directed to appear before this Court and to testify at the trial of this case on April 20, 1999, May 6 & 7, 1999 at 10:00 o'clock in the morning and only for the purpose of disclosing in whose name or names is the foreign currency fund (Exhs. "AAA" to "AAA-5") deposited with the movant Bank and not to other matters material and relevant to the issues in the case at bar.5 From this Order, China Bank filed a Petition for Certiorari6 with the Court of Appeals. In a Decision7 dated 29 October 1999, the Court of Appeals denied the petition of China Bank and affirmed the Order of the RTC. In justifying its conclusion, the Court of Appeals ratiocinated: From the foregoing, it is pristinely clear the law specifically encompasses only the money or funds in foreign currency deposited in a bank. Thus, the coverage of the law extends only to the foreign currency deposit in the CBC account where Mary Margaret Dee deposited the Citibank checks in question and nothing more. It has to be pointed out that the April 16, 1999 Order of the court of origin modified its previous February 23, 1999 Order such that the CBC representatives are directed solely to divulge "in whose name or names is the foreign currency fund (Exhs. "AAA" to "AAA-5") deposited with the movant bank." It precluded inquiry on "other materials and relevant to the issues in the case at bar." We find that the directive of the court below does not contravene the plain language of RA 6426 as amended by P.D. No. 1246. The contention of petitioner that the [prescription] on absolute confidentiality under the law in question covers even the name of the depositor and is beyond the compulsive process of the courts is palpably

untenable as the law protects only the deposits itself but not the name of the depositor. To uphold the theory of petitioner CBC is reading into the statute "something that is not within the manifest intention of the legislature as gathered from the statute itself, for to depart from the meaning expressed by the words, is to alter the statute, to legislate and not to interpret, and judicial legislation should be avoided. Maledicta expositio quae corrumpit textum It is a dangerous construction which is against the words. Expressing the same principle is the maxim: Ubi lex non distinguit nec nos distinguere debemos, which simply means that where the law does not distinguish, we should not make any distinction." (Gonzaga, Statutes and their Construction, p. 75.)8 From the Decision of the Court of Appeals, China Bank elevated the case to this Court based on the following issues: I THE HONORABLE COURT OF APPEALS HAS INTERPRETED THE PROVISION OF SECTION 8 OF R.A. 6426, AS AMENDED, OTHERWISE KNOWN AS THE FOREIGN CURRENCY DEPOSIT ACT, IN A MANNER CONTRARY TO THE LEGISLATIVE PURPOSE, THAT IS, TO PROVIDE ABSOLUTE CONFIDENTIALITY OF WHATEVER INFORMATION RELATIVE TO THE FOREIGN CURRENCY DEPOSIT. II PRIVATE RESPONDENT IS NOT THE OWNER OF THE QUESTIONED FOREIGN CURRENCY DEPOSIT. THUS, HE CANNOT INVOKE THE AID OF THE COURT IN COMPELLING THE DISCLOSURE OF SOMEONE ELSE'S FOREIGN CURRENCY DEPOSIT ON THE FLIMSY PRETEXT THAT THE CHECKS (IN FOREIGN CURRENCY) HE HAD ISSUED MAY HAVE ENDED UP THEREIN. III PETITIONER CAN RIGHTLY INVOKE THE PROVISION OF SEC. 8, R.A. 6426, IN BEHALF OF THE FOREIGN CURRENCY DEPOSITOR, OWING TO ITS SOLEMN OBLIGATION TO ITS CLIENT TO EXERCISE EXTRAORDINARY DILIGENCE IN THE HANDLING OF THE ACCOUNT.9 As amended by Presidential Decree No. 1246, the law reads: SEC. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process

of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977) (Emphasis supplied.) Under the above provision, the law provides that all foreign currency deposits authorized under Republic Act No. 6426, as amended by Sec. 8, Presidential Decree No. 1246, Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034 are considered absolutely confidential in nature and may not be inquired into. There is only one exception to the secrecy of foreign currency deposits, that is, disclosure is allowed upon the written permission of the depositor. This much was pronounced in the case of Intengan v. Court of Appeals,10 where it was held that the only exception to the secrecy of foreign currency deposits is in the case of a written permission of the depositor. It must be remembered that under the whereas clause of Presidential Decree No. 1246 which amended Sec. 8 of Republic Act No. 6426, the Foreign Currency Deposit System including the Offshore Banking System under Presidential Decree 1034 were intended to draw deposits from foreign lenders and investors, and we quote: Whereas, in order to assure the development and speedy growth of the Foreign Currency Deposit System and the Offshore Banking System in the Philippines, certain incentives were provided for under the two Systems such as confidentiality of deposits subject to certain exceptions and tax exemptions on the interest income of depositors who are nonresidents and are not engaged in trade or business in the Philippines; Whereas, making absolute the protective cloak of confidentiality over such foreign currency deposits, exempting such deposits from tax, and guaranteeing the vested rights of depositors would better encourage the inflow of foreign currency deposits into the banking institutions authorized to accept such deposits in the Philippines thereby placing such institutions more in a position to properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic development of the country. As to the deposit in foreign currencies entitled to be protected under the confidentiality rule, Presidential Decree No. 1034, 11 defines deposits to mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest.12 It is in this light that the court in the case of Salvacion v. Central Bank of the Philippines,13 allowed the inquiry of the foreign currency deposit in question mainly due to the peculiar circumstances of the case such that a strict interpretation of the letter of the law would result to rank injustice. Therein, Greg Bartelli y Northcott, an American tourist, was charged with criminal cases for serious illegal detention and rape committed against then 12 year-old Karen Salvacion. A separate civil case for damages with preliminary attachment was filed against Greg Bartelli. The trial court issued an Order granting the Salvacions' application for the issuance of a writ of preliminary attachment. A notice of garnishment was then served on China Bank

where Bartelli held a dollar account. China Bank refused, invoking the secrecy of bank deposits. The Supreme Court ruled: "In fine, the application of the law depends on the extent of its justice x x x It would be unthinkable, that the questioned law exempting foreign currency deposits from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever would be used as a device by an accused x x x for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.14 With the foregoing, we are now tasked to determine the single material issue of whether or not petitioner China Bank is correct in its submission that the Citibank dollar checks with both Jose Gotianuy and/or Mary Margaret Dee as payees, deposited with China Bank, may not be looked into under the law on secrecy of foreign currency deposits. As a corollary issue, sought to be resolved is whether Jose Gotianuy may be considered a depositor who is entitled to seek an inquiry over the said deposits. The Court of Appeals, in allowing the inquiry, considered Jose Gotianuy, a codepositor of Mary Margaret Dee. It reasoned that since Jose Gotianuy is the named co-payee of the latter in the subject checks, which checks were deposited in China Bank, then, Jose Gotianuy is likewise a depositor thereof. On that basis, no written consent from Mary Margaret Dee is necessitated. We agree in the conclusion arrived at by the Court of Appeals. The following facts are established: (1) Jose Gotianuy and Mary Margaret Dee are co-payees of various Citibank checks;15 (2) Mary Margaret Dee withdrew these checks from Citibank;16 (3) Mary Margaret Dee admitted in her Answer to the Request for Admissions by the Adverse Party sent to her by Jose Gotianuy17 that she withdrew the funds from Citibank upon the instruction of her father Jose Gotianuy and that the funds belonged exclusively to the latter; (4) these checks were endorsed by Mary Margaret Dee at the dorsal portion; and (5) Jose Gotianuy discovered that these checks were deposited with China Bank as shown by the stamp of China Bank at the dorsal side of the checks. Thus, with this, there is no issue as to the source of the funds. Mary Margaret Dee declared the source to be Jose Gotianuy. There is likewise no dispute that these funds in the form of Citibank US dollar Checks are now deposited with China Bank. As the owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, Jose Gotianuy has the right to inquire into the said deposits. A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of business, to be placed to his credit and subject to his check or the beneficiary of the funds held by the bank as trustee.18 On this score, the observations of the Court of Appeals are worth reiterating: Furthermore, it is indubitable that the Citibank checks were drawn against the foreign currency account with Citibank, NA. The monies subject of said checks originally came from the late Jose Gotianuy, the owner of the account. Thus, he also has legal rights and interests in the CBC account where said monies were deposited. More importantly, the Citibank checks (Exhibits "AAA" to "AAA-5") readily demonstrate (sic) that the late Jose Gotianuy is one of the payees of said checks. Being a co-payee thereof, then

he or his estate can be considered as a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account, then his request for the assailed subpoena is tantamount to an express permission of a depositor for the disclosure of the name of the account holder. The April 16, 1999 Order perforce must be sustained.19 (Emphasis supplied.) One more point. It must be remembered that in the complaint of Jose Gotianuy, he alleged that his US dollar deposits with Citibank were illegally taken from him. On the other hand, China Bank employee Cristuta Labios testified that Mary Margaret Dee came to China Bank and deposited the money of Jose Gotianuy in Citibank US dollar checks to the dollar account of her sister Adrienne Chu.20 This fortifies our conclusion that an inquiry into the said deposit at China Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is entitled to a hearing on the whereabouts of these funds. All things considered and in view of the distinctive circumstances attendant to the present case, we are constrained to render a limited pro hac vice ruling.21 Clearly it was not the intent of the legislature when it enacted the law on secrecy on foreign currency deposits to perpetuate injustice. This Court is of the view that the allowance of the inquiry would be in accord with the rudiments of fair play, 22 the upholding of fairness in our judicial system and would be an avoidance of delay and time-wasteful and circuitous way of administering justice.23 WHEREFORE, premises considered, the Petition is DENIED. The Decision of the Court of Appeals dated 29 October 1999 affirming the Order of the RTC, Branch 58, Cebu City dated 16 April 1999 is AFFIRMED and this case is ordered REMANDED to the trial court for continuation of hearing with utmost dispatch consistent with the above disquisition. No costs. SO ORDERED.

BPI v. Casa Montessori DECISION PANGANIBAN, J.: By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification. The Case Before us are two Petitions for Review[1] under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision[2] and the August 17, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows: WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)].[4] The assailed Resolution denied all the parties Motions for Reconsideration. The Facts The facts of the case are narrated by the CA as follows: On November 8, 1982, plaintiff CASA Montessori International [5] opened Current Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and amounts: Check No. Date Amount 1. 839700 April 24, 1990 P 43,400.00 2. 839459 Nov. 2, 1990 110,500.00 3. 839609 Oct. 17, 1990 47,723.00 4. 839549 April 7, 1990 90,700.00 5. 839569 Sept. 23, 1990 52,277.00 6. 729149 Mar. 22, 1990 148,000.00 7. 729129 Mar. 16, 1990 51,015.00 8. 839684 Dec. 1, 1990 140,000.00 9. 729034 Mar. 2, 1990 98,985.00 Total -P 782,600.00[6] It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks.

The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter. On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00[7] in the current and savings accounts of the plaintiff with interest at 6% per annum. On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff.[8] Ruling of the Court of Appeals Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The appellate court took into account CASAs contributory negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorneys fees and moral and exemplary damages. Hence, these Petitions.[9] Issues In GR No. 149454, Petitioner BPI submits the following issues for our consideration: I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery. II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery claim against BPI, specially taking into account the absence of any negligence on the part of BPI.[10] In GR No. 149507, Petitioner CASA submits the following issues: 1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys fees, moral damages and exemplary dama ges to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA]. 2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be apportioned between [CASA] and [BPI] x x x. [11] These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense? Third, should moral and exemplary damages, attorneys fees, and interest be awarded? The Courts Ruling The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious. First Issue: Forged Signature Wholly Inoperative

Section 23 of the NIL provides: Section 23. Forged signature; effect of. -- When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right x x x to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.[12] Under this provision, a forged signature is a real[13] or absolute defense,[14] and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it.[15] The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery.[16] In the present case, we hold that there was forgery of t he drawers signature on the check. First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawers signature and encashed the checks.[19] He never refuted these findings.[20] That he had been coerced into admission was not corroborated by any evidence on record. [21] Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said checks, [22] had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were not hers.[23] This conclusion was the same as that in the Report[24] that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters request. Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since these are supported by substantial evidence on record. [25] Voluntary Admission Not Violative of Constitutional Rights The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination. In the first place, he was not under custodial investigation. [26] His Affidavit was executed in private and before private individuals.[27] The mantle of protection under Section 12 of Article III of the 1987 Constitution[28] covers only the period from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody.[29] Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, with questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any information.[30] The said constitutional provision does not apply to spontaneous statements made in a voluntary manner[31] whereby an individual orally admits to authorship of a crime.[32] What the Constitution proscribes is the compulsory or coercive disclosure of incriminating facts.[33] Moreover, the right against self-incrimination[34] under Section 17 of Article [35] III of the Constitution, which is ordinarily available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, legislative

investigations,[36] and administrative proceedings that possess a criminal or penal aspect[37] -- but not to private investigations done by private individuals. Even in such government proceedings, this right may be waived, [38] provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made. [39] If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court. Under these two constitutional provisions, [t]he Bill of Rights[40] does not concern itself with the relation between a private individual and another individual. It governs the relationship between the individual and the State.[41] Moreover, the Bill of Rights is a charter of liberties for the individual and a limitation upon the power of the [S]tate.[42] These rights[43] are guaranteed to preclude the slightest coercion by the State that may lead the accused to admit something false, not prevent him from freely and voluntarily telling the truth. [44] Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights does not automatically entitle him to the constitutional protection. [45] When he freely and voluntarily executed[46]his Affidavit, the State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial investigation and against selfincrimination. Clear, Positive and Convincing Examination and Evidence The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing. Forgery cannot be presumed.[47] It must be established by clear, positive and convincing evidence.[48] Under the best evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in court.[49] But when, without bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced.[50] Without bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact [51] - Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed.[52] In such a situation, secondary evidence like microfilm copies may be introduced in court. The drawers signatures on the microfilm copies were compared with the standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. [53] Although no conclusive report could be issued in the absence of the original checks, [54] she affirmed that her findings were 90 percent conclusive. [55] According to her, even if the microfilm copies were the only basis of comparison, the differences were evident.[56] Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of

the original checks.[57] This explanation is valid; otherwise, no such report can ever be relied upon in court. Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document -- such as the drawers signature on a check -- is the subject of inquiry.[58] As to whether the document has been actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is admissible.[59] Carina Lebron herself, the drawers authorized signatory, testified many times that she had never signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is proved, not only through the courts comparison of the questioned handwritings and admittedly genuine specimens thereof,[60] but above all by her. The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of evidence[61] nor creates an unfavorable inference against it.[62] Such failure merely authorizes the introduction of secondary evidence[63] in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card containing the signatures with which those on the checks were compared.[64] Specimens of standard signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawers authentic signature may be resorted to.[65] Besides, that card was in the possession of BPI -- the adverse party. We have held that without the original document containing the allegedly forged signature, one cannot make a definitive comparison that would establish forgery;[66] and that a comparison based on a mere reproduction of the document under controversy cannot produce reliable results.[67] We have also said, however, that a judge cannot merely rely on a handwriting experts testimony,[68] but should also exercise independent judgment in evaluating the authenticity of a signature under scrutiny.[69] In the present case, both the RTC and the CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the Affidavit. The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met.[70] The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be inconclusive; [71] but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of evidence required in this case has been satisfied. [72] Second Issue: Negligence Attributable to BPI Alone Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense. Clear Negligence in Allowing Payment Under a Forged Signature

We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence[73] is expected,[74] and high standards of integrity and performance are even required, of it.[75] By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care,[76] always having in mind the fiduciary nature of their relationship.[77] BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required[78] of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.[79] In fact, BPI was the same bank involved when we issued this ruling seventy years ago. Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement The monthly statements issued by BPI to its clients contain a notice worded as follows: If no error is reported in ten (10) days, account will be correct. [80] Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the tenday period. This notice is a simple confirmation[81] or circularization -- in accounting parlance -- that requests client-depositors to affirm the accuracy of items recorded by the banks.[82] Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks.[83] Internal or external auditors of a bank use it as a basic audit procedure [84] -- the results of which its client-depositors are neither interested in nor privy to -- to test the details of transactions and balances in the banks records.[85] Evidential matter obtained from independent sources outside a bank only serves to provide greater assurance of reliability[86] than that obtained solely within it for purposes of an audit of its own financial statements, not those of its client-depositors. Furthermore, there is always the audit risk that errors would not be detected[87] for various reasons. One, materiality is a consideration in audit planning;[88] and two, the information obtained from such a substantive test is merely presumptive and cannot be the basis of a valid waiver. [89] BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right[90] it has never possessed.[91] Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement.[92] On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. Besides, the notice was a

measly request worded as follows: Please examine x x x and report x x x.[93] CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could -- as it did -- choose not to respond. Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation.[94] Our rules on evidence even make a juris et de jure presumption[95] that whenever one has, by ones own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth.[96] In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise.[97] A person who has no knowledge of or consent to a transaction may not be estopped by it.[98] Estoppel cannot be sustained by mere argument or doubtful inference x x x.[99] CASA is not barred from questioning BPIs error even after the lapse of the period given in the notice. Loss Borne by Proximate Source of Negligence For allowing payment[100] on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,[101] BPI can easily go after it and hold it liable for reimbursement.[102] It may not debit the drawers account[103] and is not entitled to indemnification from the drawer.[104] In both law and equity, when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong. [105] Proximate cause is determined by the facts of the case.[106] It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.[107] Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed, BPI is expected to use reasonable business prudence.[108] In the performance of that obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors.[109] Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without privity;[110] that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit[111] of the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks

presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable[112] for the negligence of its officers or agents when acting within the course and scope of their employment.[113] It must bear the loss. CASA Not Negligent in Its Financial Affairs In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception[114] to the general rule that a forged signature is wholly inoperative.[115] Contrary to BPIs claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense. Role of Independent Auditor The major purpose of an independent audit is to investigate and determine objectively if the financial statements submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting practices[116] of private entities. The relationship that arises therefrom is both legal and moral. [117] It begins with the execution of the engagement letter[118] that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical[119] and competent performance in all aspects of the audit.[120] The financial statements are representations of the client; but it is the auditor who has the responsibility for the accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion [121] expressed therein.[122] The auditor does not assume the role of employee or of management in the clients conduct of operations[123] and is never under the control or supervision[124] of the client. Yabut was an independent auditor[125] hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks. [126] In him was reposed the clients[127]trust and confidence[128] that he would perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing standards.[129] Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who perpetrated it. Cash Balances Open to Manipulation It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a reasonable time. Awareness is not equipollent with discernment. Besides, in the internal accounting control system prudently installed by CASA,[130] it was Yabut who should examine those documents in order to prepare the bank reconciliations.[131] He owned his working papers,[132] and his output consisted of his opinion as well as the clients financial statements and accompanying notes thereto. CASA had every right to rely solely upon his output -based on the terms of the audit engagement -- and could thus be unwittingly duped into believing that everything was in order. Besides, [g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary.[133]

Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt. Lebron personally received the December 1990 bank statement only in January 1991[134] -- when she was also informed of the forgery for the first time, after which she immediately requested a stop payment order. She cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence. There is also a cutoff period such that checks issued during a given month, but not presented for payment within that period, will not be reflected therein.[135] An experienced auditor with intent to defraud can easily conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record -- especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to negligence. Negligence is not presumed, but proven by whoever alleges it. [136] Its mere existence is not sufficient without proof that it, and no other cause,[137] has given rise to damages.[138] In addition, this fault is common to, if not prevalent among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public accountancy,[139] but also the registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of good governance[140] and a sworn statement on adequate and effective training.[141] The missing checks were certainly reported by the bookkeeper [142] to the accountant[143] -- her immediate supervisor -- and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured the bookkeeper that there were no irregularities. The bookkeeper[144] who had exclusive custody of the checkbooks[145] did not have to go directly to CASAs president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -- and management would still have no way to verify its cash accountabilities. Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable for breach of contract and negligence, [146] with all the more reason may they be charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be recovered,[147] and under such terms as the injured party may choose. Third Issue: Award of Monetary Claims Moral Damages Denied

We deny CASAs claim for moral damages. In the absence of a wrongful act or omission,[148] or of fraud or bad [149] faith, moral damages cannot be awarded.[150] The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.[151] While no proof of pecuniary loss is necessary therefor -- with the amount to be awarded left to the courts discretion[152] -- the claimant must nonetheless satisfactorily prove the existence of its factual basis[153] and causal relation[154] to the claimants act or omission.[155] Regrettably, in this case CASA was unable to identify the particular instance -enumerated in the Civil Code -- upon which its claim for moral damages is predicated.[156] Neither bad faith nor negligence so gross that it amounts to malice[157] can be imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or negligence;[158] it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. [159] As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having existence only in legal contemplation -- is not entitled to moral damages,[160] because it cannot experience physical suffering and mental anguish.[161] However, for breach of the fiduciary duty required of a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom. [162] CASA was unable to prove that BPI had debased the good reputation of,[163] and consequently caused incalculable embarrassment to, the former. CASAs mere allegation or supposition thereof, without any sufficient evidence on record,[164] is not enough. Exemplary Damages Also Denied We also deny CASAs claim for exemplary damages. Imposed by way of correction[165] for the public good,[166] exemplary damages cannot be recovered as a matter of right.[167] As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[168] The latter, having no right to moral damages, cannot demand exemplary damages.[169] Attorneys Fees Granted Although it is a sound policy not to set a premium on the right to litigate,[170] we find that CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable justification.[171] When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latters interest,[172] or where the court deems it just and equitable,[173] attorneys fees may be recovered. In the present case, BPI persistently denied the claim of CASA under the NIL to recredit the latters account for the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%) [174] of the total value adjudged to CASA as attorneys fees.

Interest Allowed For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing[175] of the Complaint.[176] Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum.[177] If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per annum.[178] The actual base for its computation shall be on the amount finally adjudged,[179] compounded[180] annually to make up for the cost of money[181] already lost to CASA. Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for breach of contract. [182] Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by the provisions of existing legislation or, in default thereof, by the rules of the law merchant.[183] Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law.[184] This law being silent, we look at Article 18 of the Civil Code, which states: In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified. WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No costs. SO ORDERED.

PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners, vs. THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its President & General Manager, respondents. HERMOSISIMA, JR., J.: Challenged in this petition for review is the Decision dated February 28, 1991 1 rendered by public respondent Court of Appeals which affirmed the Decision dated November 15, 1985 of the Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig City, in Civil Case No. 27288 entitled "Rommel's Marketing Corporation, etc. v. Philippine Bank of Commerce, now absorbed by Philippine Commercial and Industrial Bank." The case stemmed from a complaint filed by the private respondent Rommel's Marketing Corporation (RMC for brevity), represented by its President and General Manager Romeo Lipana, to recover from the former Philippine Bank of Commerce (PBC for brevity), now absorbed by the Philippine Commercial International Bank, the sum of P304,979.74 representing various deposits it had made in its current account with said bank but which were not credited to its account, and were instead deposited to the account of one Bienvenido Cotas, allegedly due to the gross and inexcusable negligence of the petitioner bank. RMC maintained two (2) separate current accounts, Current Account Nos. 53-019803 and 53-01748-7, with the Pasig Branch of PBC in connection with its business of selling appliances. In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or checks. The deposit slip has an upper portion or stub, which is detached and given to the depositor or his agent; the lower portion is retained by the bank. In some instances, however, the deposit slips are prepared in duplicate by the depositor. The original of the deposit slip is retained by the bank, while the duplicate copy is returned or given to the depositor. From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of depositing said funds in the current accounts of RMC with PBC. It turned out, however, that these deposits, on all occasions, were not credited to RMC's account but were instead deposited to Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise maintains an account with the same bank. During this period, petitioner bank had, however, been regularly furnishing private respondent with monthly statements showing its current accounts balances. Unfortunately, it had never been the practice of Romeo Lipana to check these monthly statements of account reposing complete trust and confidence on petitioner bank.

Irene Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of the deposit slip, an original and a duplicate. The original showed the name of her husband as depositor and his current account number. On the duplicate copy was written the account number of her husband but the name of the account holder was left blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp both the original and the duplicate of these deposit slips retaining only the original copy despite the lack of information on the duplicate slip. The second copy was kept by Irene Yabut allegedly for record purposes. After validation, Yabut would then fill up the name of RMC in the space left blank in the duplicate copy and change the account number written thereon, which is that of her husband's, and make it appear to be RMC's account number, i.e., C.A. No. 53-01980-3. With the daily remittance records also prepared by Ms. Yabut and submitted to private respondent RMC together with the validated duplicate slips with the latter's name and account number, she made her company believe that all the while the amounts she deposited were being credited to its account when, in truth and in fact, they were being deposited by her and credited by the petitioner bank in the account of Cotas. This went on in a span of more than one (1) year without private respondent's knowledge. Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its money, but as its demand went unheeded, it filed a collection suit before the Regional Trial Court of Pasig, Branch 160. The trial court found petitioner bank negligent and ruled as follows: WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Bank of Commerce, now absorbed by defendant Philippine Commercial & Industrial Bank, and defendant Azucena Mabayad to pay the plaintiff, jointly and severally, and without prejudice to any criminal action which may be instituted if found warranted: 1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest thereon at the legal rate from the filing of the complaint; 2. A sum equivalent to 14% thereof, as exemplary damages; 3. A sum equivalent to 25% of the total amount due, as and for attorney's fees; and 4. Costs. Defendants' counterclaim is hereby dismissed for lack of merit. 2 On appeal, the appellate court affirmed the foregoing decision with modifications, viz: WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the awards of exemplary damages and attorney's fees specified therein are eliminated and instead, appellants are ordered to pay plaintiff, in addition to the principal sum of P304,979.74 representing plaintiff's lost deposit plus legal interest thereon from the filing of the complaint, P25,000.00 attorney's fees and costs in the lower court as well as in this Court. 3 Hence, this petition anchored on the following grounds:

1) The proximate cause of the loss is the negligence of respondent Rommel Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest employee. 2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's statements of account with its own records during the entire period of more than one (1) year is the proximate cause of the commission of subsequent frauds and misappropriation committed by Ms. Irene Yabut. 3) The duplicate copies of the deposit slips presented by respondent Rommel Marketing Corporation are falsified and are not proof that the amounts appearing thereon were deposited to respondent Rommel Marketing Corporation's account with the bank, 4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover up her fraudulent acts against respondent Rommel Marketing Corporation, and not as records of deposits she made with the bank. 4 The petition has no merit. Simply put, the main issue posited before us is: What is the proximate cause of the loss, to the tune of P304,979.74, suffered by the private respondent RMC petitioner bank's negligence or that of private respondent's? Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC and Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. Irene Yabut. 5 According to them, it was impossible for the bank to know that the money deposited by Ms. Irene Yabut belong to RMC; neither was the bank forewarned by RMC that Yabut will be depositing cash to its account. Thus, it was impossible for the bank to know the fraudulent design of Yabut considering that her husband, Bienvenido Cotas, also maintained an account with the bank. For the bank to inquire into the ownership of the cash deposited by Ms. Irene Yabut would be irregular. Otherwise stated, it was RMC's negligence in entrusting cash to a dishonest employee which provided Ms. Irene Yabut the opportunity to defraud RMC. 6 Private respondent, on the other hand, maintains that the proximate cause of the loss was the negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the deposit slips, both original and duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact that one of the deposit slips was not completely accomplished. We sustain the private respondent. Our law on quasi-delicts states: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must

respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages incurred by the plaintiff. 7 In the case at bench, there is no dispute as to the damage suffered by the private respondent (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in ascribing fault or negligence which caused the damage where the parties point to each other as the culprit. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, 8 provides the test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that. Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was negligent in validating, officially stamping and signing all the deposit slips prepared and presented by Ms. Yabut, despite the glaring fact that the duplicate copy was not completely accomplished contrary to the self-imposed procedure of the bank with respect to the proper validation of deposit slips, original or duplicate, as testified to by Ms. Mabayad herself, thus: Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs. Mabayad your important duties and functions? A: I accept current and savings deposits from depositors and encashments. Q: Now in the handling of current account deposits of bank clients, could you tell us the procedure you follow? A: The client or depositor or the authorized representative prepares a deposit slip by filling up the deposit slip with the name, the account number, the date, the cash breakdown, if it is deposited for cash, and the check number, the amount and then he signs the deposit slip. Q: Now, how many deposit slips do you normally require in accomplishing current account deposit, Mrs. Mabayad? A: The bank requires only one copy of the deposit although some of our clients prepare the deposit slip in duplicate.

Q: Now in accomplishing current account deposits from your clients, what do you issue to the depositor to evidence the deposit made? A: We issue or we give to the clients the depositor's stub as a receipt of the deposit. Q: And who prepares the deposit slip? A: The depositor or the authorized representative sir? Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with the deposit slip? A: The depositor's stub is connected with the deposit slip or the bank's copy. In a deposit slip, the upper portion is the depositor's stub and the lower portion is the bank's copy, and you can detach the bank's copy from the depositor's stub by tearing it sir. Q: Now what do you do upon presentment of the deposit slip by the depositor or the depositor's authorized representative? A: We see to it that the deposit slip 9 is properly accomplished and then we count the money and then we tally it with the deposit slip sir. Q: Now is the depositor's stub which you issued to your clients validated? A: Yes, sir. 10 [Emphasis ours] Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the duplicate slip was not compulsorily required by the bank in accepting deposits should not relieve the petitioner bank of responsibility. The odd circumstance alone that such duplicate copy lacked one vital information that of the name of the account holder should have already put Ms. Mabayad on guard. Rather than readily validating the incomplete duplicate copy, she should have proceeded more cautiously by being more probing as to the true reason why the name of the account holder in the duplicate slip was left blank while that in the original was filled up. She should not have been so naive in accepting hook, line and sinker the too shallow excuse of Ms. Irene Yabut to the effect that since the duplicate copy was only for her personal record, she would simply fill up the blank space later on. 11 A "reasonable man of ordinary prudence" 12would not have given credence to such explanation and would have insisted that the space left blank be filled up as a condition for validation. Unfortunately, this was not how bank teller Mabayad proceeded thus resulting in huge losses to the private respondent. Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that, while he

ordered the investigation of the incident, he never came to know that blank deposit slips were validated in total disregard of the bank's validation procedures, viz: Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they validated the same with the machine, the fact that those deposit slips were unfilled up, is there any report similar to that? A: No, it was not the cashier but the teller. Q: The teller validated the blank deposit slip? A: No it was not reported. Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip? A: I am not aware of that. Q: It is only now that you are aware of that? A: Yes, sir. 13 Prescinding from the above, public respondent Court of Appeals aptly observed: xxx xxx xxx It was in fact only when he testified in this case in February, 1983, or after the lapse of more than seven (7) years counted from the period when the funds in question were deposited in plaintiff's accounts (May, 1975 to July, 1976) that bank manager Bonifacio admittedly became aware of the practice of his teller Mabayad of validating blank deposit slips. Undoubtedly, this is gross, wanton, and inexcusable negligence in the appellant bank's supervision of its employees. 14 It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller, which was the proximate cause of the loss suffered by the private respondent, and not the latter's act of entrusting cash to a dishonest employee, as insisted by the petitioners. Proximate cause is determined on the facts of each case upon mixed considerations of logic, common sense, policy and precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated in the case of Bank of the Phil. Islands v. Court of Appeals, 17 defines proximate cause as "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. . . ." In this case, absent the act of Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit slip, Ms. Irene Yabut would not have the facility with which to perpetrate her fraudulent scheme with impunity. Apropos, once again, is the pronouncement made by the respondent appellate court, to wit: . . . . Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by plaintiff, she would not have been able to deposit those funds in her husband's current account, and then make plaintiff believe that it was in the latter's accounts wherein she had deposited them, had it not been for bank teller

Mabayad's aforesaid gross and reckless negligence. The latter's negligence was thus the proximate, immediate and efficient cause that brought about the loss claimed by plaintiff in this case, and the failure of plaintiff to discover the same soon enough by failing to scrutinize the monthly statements of account being sent to it by appellant bank could not have prevented the fraud and misappropriation which Irene Yabut had already completed when she deposited plaintiff's money to the account of her husband instead of to the latter's accounts. 18 Furthermore, under the doctrine of "last clear chance" (also referred to, at times as "supervening negligence" or as "discovered peril"), petitioner bank was indeed the culpable party. This doctrine, in essence, states that where both parties are negligent, but the negligent act of one is appreciably later in time than that of the other, or when it is impossible to determine whose fault or negligence should be attributed to the incident, the one who had the last clear opportunity to avoid the impending harm and failed to do so is chargeable with the consequences thereof. 19 Stated differently, the rule would also mean that an antecedent negligence of a person does not preclude the recovery of damages for the supervening negligence of, or bar a defense against liability sought by another, if the latter, who had the last fair chance, could have avoided the impending harm by the exercise of due diligence. 20Here, assuming that private respondent RMC was negligent in entrusting cash to a dishonest employee, thus providing the latter with the opportunity to defraud the company, as advanced by the petitioner, yet it cannot be denied that the petitioner bank, thru its teller, had the last clear opportunity to avert the injury incurred by its client, simply by faithfully observing their self-imposed validation procedure. At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in dealing with their clients. The New Civil Code provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) In the case of banks, however, the degree of diligence required is more than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts of their clients with the highest degree of care. 21 As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 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 as he sees fit, confident that the bank

will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the failure to duly credit him his deposits as soon as they are made, can cause the depositor not a little embarrassment if not financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case before us, it is apparent that the petitioner bank was remiss in that duty and violated that relationship. Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's statements of account with its own records during the entire period of more than one (1) year is the proximate cause of the commission of subsequent frauds and misappropriation committed by Ms. Irene Yabut. We do not agree. While it is true that had private respondent checked the monthly statements of account sent by the petitioner bank to RMC, the latter would have discovered the loss early on, such cannot be used by the petitioners to escape liability. This omission on the part of the private respondent does not change the fact that were it not for the wanton and reckless negligence of the petitioners' employee in validating the incomplete duplicate deposit slips presented by Ms. Irene Yabut, the loss would not have occurred. Considering, however, that the fraud was committed in a span of more than one (1) year covering various deposits, common human experience dictates that the same would not have been possible without any form of collusion between Ms. Yabut and bank teller Mabayad. Ms. Mabayad was negligent in the performance of her duties as bank teller nonetheless. Thus, the petitioners are entitled to claim reimbursement from her for whatever they shall be ordered to pay in this case. The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise negligent in not checking its monthly statements of account. Had it done so, the company would have been alerted to the series of frauds being committed against RMC by its secretary. The damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to contributory negligence which shall mitigate the damages that may be awarded to the private respondent 23 under Article 2179 of the New Civil Code, to wit: . . . When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. In view of this, we believe that the demands of substantial justice are satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except the award of P25,000.00 attorney's fees, shall be borne by private respondent RMC; only

the balance of 60% needs to be paid by the petitioners. The award of attorney's fees shall be borne exclusively by the petitioners. WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the amount of actual damages private respondent is entitled to by 40%. Petitioners may recover from Ms. Azucena Mabayad the amount they would pay the private respondent. Private respondent shall have recourse against Ms. Irene Yabut. In all other respects, the appellate court's decision is AFFIRMED. Proportionate costs. SO ORDERED.

Phil Savings Bank v. Chowking DECISION REYES, R.T., J.: IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang isang kakatuwang katangian ng isang hangal ay punahin ang kamalian ng iba at kalimutan naman ang sa kanya. This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) reinstating the Decision of the Regional Trial Court (RTC), Manila, Branch 5. The RTCordered petitioner Philippine Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse respondent Chowking Food Corporation (Chowking) the amount corresponding to five (5) illegally encashed checks. The Facts Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of Chowking five (5) PSBank checks with the following numbers, dates and denominations: Check No. 017069 053528 074602 074631 017096 Amount P 44,120.00 P135,052.87 P160,138.12 P159,634.13 P 60,036.74 Date 15 March 1989 09 May 1989 08 August 1989 08 August 1989 10 August 1989[2]

The total amount of the subject checks reached P556,981.86. On the respective due dates of each check, Chowkings acting accounting manager, Rino T. Manzano, endorsed and encashed said checks with the Bustos branch of respondent PSBank.[3] All the five checks were honored by defendant Santos, even with only the endorsement of Manzano approving them. The signatures of the other authorized officers of respondent corporation were absent in the five (5) checks, contrary to usual banking practice.[4] Unexpectedly, Manzano absconded with and misappropriated the check proceeds.[5] When Chowking found out Manzanos scheme, it demanded reimbursement from PSBank.[6] When PSBank refused to pay, Chowking filed a complaint [7] for a

sum of money with damages before the RTC. Likewise impleaded were PSBanks president, Antonio S. Abacan, and Bustos branch head, Santos.[8] Both PSBank and Santos filed cross claims and third party complaints against Manzano.[9] Despite all diligent efforts, summonses were not served upon third party defendant Manzano. Santos did not take any further action and her third party complaint was archived.[10] Meanwhile, petitioner caused the service of its summons on the cross-claim and third party complaints through publication. On its subsequent motion, Manzano was declared in default for failure to file a responsive pleading.[11] Respondent filed a motion for summary judgment. Petitioner opposed the motion. On February 1, 1995, the trial court denied the motion via an order of even date.[12] In its Answer, petitioner did not controvert the foregoing facts, but denied liability to respondent for the encashed checks.[13] Petitioner bank maintained it exercised due diligence in the supervision of all its employees. It even dismissed defendant Santos after she was found guilty of negligence in the performance of her duties.[14] Defendant Santos, on the other hand, denied that she had been negligent in her job. She averred that she merely followed the banks practice of honoring respondents checks even if accompanied only by Manzanos endorsement. [15] Defendant Abacan likewise denied any liability to respondent. He alleged that, as president and officer of petitioner bank, he played no role in the transactions complained of.[16] Thus, respondent has no cause of action against him. Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from claiming reimbursement and damages since it was negligent in allowing Manzano to take hold, endorse, and encash its checks. Petitioner pointed out that the proximate cause of respondents loss was its own negligence. [17] RTC Disposition On August 24, 1998, the RTC rendered judgment in favor of respondent, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and as against defendant Philippine Savings Bank and Erlinda O. Santos ordering the said defendants to pay plaintiff, jointly and severally:

1.

2. 3. 4.

The amount of P556,981.86 plus interest at the rate of 12% per annum from August 15, 1989 until said amount shall have been paid; 20% of the total amount due plaintiff as attorneys fees; The sum of P100,000.00 as exemplary damages; The sum of P1,000,000.00 for plaintiffs unrealized profits.

The complaint with respect to defendant Antonio Abacan, Jr. as well as his counterclaim and cross claim are hereby DISMISSED. With respect to the cross claim of defendant PSBank against Erlinda Santos and its third-party complaint against Rino T. Manzano, both Santos and Manzano are hereby ordered to jointly and severally, reimburse defendant PSBank whatever amount the latter shall be constrained to pay plaintiff in connection with this case. SO ORDERED.[18] Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11, 1999, the RTC reversed its earlier ruling and held that it was respondents own negligence that was the proximate cause of the loss. The fallo of the amended RTC decision now reads: In light of the foregoing grounds and observations, the Decision of August 24, 1998, by this Court is accordingly modified as follows: 1. Ordering the dismissal of the complaint by the plaintiff Chowking Food Corporation against the defendants, Philippine Savings Bank (PSBank) and Erlinda Santos for lack of basis in fact and law; Ordering the third party defendant, Regino or Rino T. Manzano to pay the plaintiff Chowking Food Corporation, the following:

2.

a.

To reimburse the plaintiff the amount of P556,981.86 plus interest at the rate of 12% per annum from August 15, 1989, until said amount has been fully satisfied; To pay an attorneys fee equivalent to 20% of the total amount due the plaintiff; To pay an amount of P100,000.00 the plaintiff for actual and compensatory damages, plus the costs of this suit.

no more dispute on the negligent act of Santos in honoring the appellants checks, over the counter, despite the proper indorsements, the categorical finding of negligence against her, remaining unrebutted, is deemed established. This in effect warrants a finding that Santos is liable for damages to the appellant. The lower court therefore erred in dismissing the complaint against her.[21] Further, the CA held that: Contrary to PSBs contention that it should not be held liable because it neither consented to nor had knowledge of Santos (sic) violations, such liability of Santos is solidary with PSB pursuant to Article 2176 in relation to Article 2180 of the Civil Code which states: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.... Art. 2180. The obligation imposed by Art. 2176 is demandable not only for one's own acts or omissions but also for those of persons for whom one is responsible. xxxx Employers shall be liable for the damage caused by their employees and household helpers acting within the scope of their assigned tasks even though the former are not engaged in any business or activity. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. x x x However, with banks like PSB, the degree of diligence required is more than that of a good father of a family considering that the business of banking is imbued with public interest due to the nature of its functions. Highest degree of diligence is needed which PSB, in this case, failed to observe.

b.

c.

SO ORDERED.[19] Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA. CA Disposition In its appeal, respondent Chowking contended, inter alia, that the RTC erred in ruling that the proximate cause of the loss was its own negligence; and that its claim was barred byestoppel.

On January 31, 2007, the CA granted the appeal, disposing as follows: WHEREFORE, the instant appeal is GRANTED. The order appealed from is hereby SET ASIDE and the 24 August 1998 decision is consequently REINSTATED with modification that the awards of attorneys fees, exemplary damages, and alleged P1,000,000.00 unrealized profits of the appellant are DELETED. IT IS SO ORDERED.[20] The CA held that both petitioner PSBank and Santos should bear the loss. Said the appellate court: It is admitted that PSB cashed, over the counter, the checks of the appellant indorsed by Manzano alone. Since there is

x x x Its argument that it should no be held responsible for the negligent acts of Santos because those were independent acts x x x perpetrated without its knowledge and consent is without basis in fact and in law. Assuming that PSB did not err in hiring Santos for her position, its lack of supervision over her made it solidarily liable for the unauthorized encashment of the checks involved. In the supervision of employees, the employer must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for the breach thereof. The appellee, in this case, presented no evidence that it formulated rules/guidelines for the proper performance of functions of its employees and that it strictly implemented and monitored compliance therewith. x x x[22] The CA also disagreed with petitioners contention that respondents own negligence was the proximate cause of its loss. The CA opined that even assuming that respondent was also negligent in allowing Manzano to encash its checks, petitioner had the last clear chance to avert injury and loss to respondent. This could have been done if petitioner, throughSantos, faithfully and carefully observed its encashment rules and procedures. The CA ratiocinated: x x x Had Santos not been remiss in verifying the indorsements of the checks involved, she would not have cashed the same because Manzano, whose only signature appears therein, is apparently not an authorized signatory of the appellant x x x had every means to determine the validity of those indorsements but for one reason or another she was neglectful of her duty x x x as admitted by PSB, such over the counter encashments are not even sanctioned by its policies but Santos simply ignored the same. It appears clear that Santos let the opportunity slip by when an exercise of ordinary prudence expected of bank employees would have sufficed to prevent the loss.[23] Issues Petitioner has resorted to the present recourse and assigns to the CA the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT WAS ESTOPPED FROM ASSERTING ITS CLAIM AGAINST PETITIONER.

II THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT RESPONDENT'S NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS OWN LOSS. (Underscoring supplied) Our Ruling The doctrine of equitable estoppel or estoppel in pais finds no application in the present case. The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals:[24] Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.[25] The principle received further elaboration in Maneclang v. Baun:[26] In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the following requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive of the actual facts.[27] Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the doctrine must have been misled to ones prejudic e. That is the final and, in reality, most important of the elements of equitable estoppel. [28] It is this element that is lacking here. We agree with the CA that Chowking did not make any false representation or concealment of material facts in relation to the encashments of the previous checks. As adverted to earlier, respondent may have allowed Manzano to previously encash its checks, but it has always been accompanied with the endorsements of the

other authorized signatories. Respondent did not allow petitioner to have its checks encashed without the signature of all of its authorized signatories. The CA pointed out: We find at the back of those checks, whereon indorsement usually appears, the signature of Manzano together with other signature/signatures though mostly are illegible. It appears then that, assuming the appellant impliedly tolerated the act of Manzano in indorsing the checks, it did not allow Manzano alone to indorse its checks as what actually happened in this case because his previous indorsements werecoupled with other indorsements of the appellants signatories. There is, therefore, no sufficient evidence to sustain PSBs submission. On this score alone, the defense of estoppel must fail.[29](Underscoring and emphasis supplied) Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,[30] the Court enumerated the elements of estoppel in this wise: x x x As related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts in question; (2) reliance, in good faith, upon the conduct and statements of the party to be estopped; (3) action or inaction based thereon of such character as to change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice.[31] Here, the first two elements are wanting. Petitioner has knowledge of the truth and the means to it as to the proper endorsements necessary in encashing respondents checks. Respondent has an account with petitioner bank and, as such, is privy to the proper signatories to endorse respondents checks. Neither can petitioner claim good faith. It is elementary that estoppel cannot be sustained in doubtful inference. Absent the conclusive proof that its essential elements are present, estoppel must fail. Because estoppel, when misapplied, becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a mans mouth from speaking the truth.[32] Petitioner failed to prove that it has observed the due diligence required of banks under the law. Contrary to petitioners view, its negligence is the proximate cause of respondents loss.

It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family.[33] The highest degree of diligence is expected.[34]

In its declaration of policy, the General Banking Law of 2000 [35] requires of banks the highest standards of integrity and performance. Needless to say, a bank is under obligation to treat the accounts of its depositors with meticulous care.[36] The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.[37] Petitioner, through Santos, was clearly negligent when it honored respondents checks with the lone endorsement of Manzano. In the similar case of Philippine Bank of Commerce v. Court of Appeals,[38] an employee of Rommels Marketing Corporation (RMC) was able to illegally deposit in a different account the checks of the corporation. This Court found that it was the bank tellers failure to exercise extraordinary diligence to validate the deposit slips that caused the crime to be perpetrated. The Court held thus: Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that, while he ordered the investigation of the incident, he never came to know that blank deposit slips were validated in total disregard of the bank's validation procedures, viz.: Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they validated the same with the machine, the fact that those deposit slips were unfilled up, is there any report similar to that? No, it was not the cashier but the teller.

A:

Q: The teller validated the blank deposit slip? A: No it was not reported.

Q: A:

You did not know that any one in the bank tellers or cashiers validated the blank deposit slip? I am not aware of that.

internal banking rules and regulations that form part of the contract it enters into with its depositors. Unfortunately, it failed in that regard. x x x Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable for the negligence of its officers or agents when acting within the course and scope of their employment. It must bear the loss.[43] WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED.

Q: It is only now that you are aware of that? A: Yes, Sir. xxxx It was this negligence x x x coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller, which was the proximate cause of the loss suffered by private respondent, and not the latters act of entrusting cash to a dishonest employee, as insisted by the petitioners.[39] Proximate cause is determined by the facts of the case. It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. [40] Measured by the foregoing yardstick, the proximate cause of the loss is not respondents alleged negligence in allowing Manzano to take hold and encash respondents checks. The proximate cause is petitioners own negligence in the supervision of its employees when it overlooked the irregular practice of encashing checks even without the requisite endorsements. In Bank of the Philippine Islands v. Casa Montessori Internationale ,[41] this Court similarly held: For allowing payment on the checks to a wrongful and fictitious payee, BPI the drawee bank becomes liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for reimbursement. x x x In both law and equity, when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.[42] Further, the Court ruled: Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed, BPI is expected to use reasonable business prudence. In the performance of that obligation, it is bound by its

PNB v. Velasco DECISION REYES, R.T., J.: THIS is a tale of a bank officer-depositor clinging to his position after violating bank regulations and falsifying his passbook to cover up a false transaction. Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking the reversal of the Decision[1] and Resolution[2] of the Court of Appeals (CA). The appealed decision reversed those of the National Labor Relations Commission (NLRC)[3] and the Labor Arbiter[4] which dismissed the complaint for illegal dismissal and damages of Ramon Brigido L. Velasco against Philippine National Bank (PNB). The Facts

satisfied with the updated balance, as he thought that the US$15,000.00 in his account was the amount given by his brother. On different dates, Velasco made several inter-branch withdrawals from the dollar savings account, to wit: PNB Branch PNB Legaspi PNB Legaspi Cash Dept. Date November 7, 1995 November 13, 1995 November 23, 1995 Total Amount US$2,000.00 3,329.97 4,000.00 US$9,329.97

Mrs. Belen Velasco also withdrew several amounts on the dollar account, viz.: PNB Branch PNB CEPZ PNB Frisco Date December 6, 1995 January 2, 1996 Total Amount US$11,494.00 1,292.32 US$12,786.32

Subsequently, the dollar savings account of the spouses was closed. Ramon Brigido L. Velasco, a PNB audit officer, and his wife, Belen Amparo E. Velasco, maintained Dollar Savings Account No. 010-7146989[5] at PNB Escolta Branch. OnJune 30, 1995, while on official business at the Legazpi Branch, he went to the PNB Ligao, Albay Branch and withdrew US$15,000.00 from the dollar savings account. At that time, the account had a balance of US$15,486.07. The Ligao Branch is an off-line branch, i.e., one with no network connection or computer linkage with other PNB branches and the head office. The transaction was evidenced by an Interoffice Savings Account Withdrawal Slip, also known as the Ticket Exchange Center (TEC). [6] On July 10, 1995, PNB Escolta Branch received the TEC covering the withdrawal. It was included among the proofsheet entries of Cashier IV Ruben Francisco, Jr. The withdrawal was not, however, posted in the computer of the Escolta Branch when it received said advice. This means that the withdrawal was not recorded. Thus, the account of Velasco had an overstatement of US$15,000.00. Sometime in September 1995, while Velasco was on a provincial audit, he claimed calling through phone a kin in Manila who just arrived from abroad. This kin allegedly told him that his New York-based brother, Gregorio Velasco, sent him various checks through his kin totaling US$15,000.00 and that the checks would just be deposited in time in Velascos account. On October 6, 1995, Velasco updated his dollar savings account by depositing US$12.78, reflecting a balance of US$15,486.01. He was allegedly On February 6, 1996, in the course of conducting an audit at PNB Escolta Branch, Molina D. Salvador, a member of the Internal Audit Department (IAD) of PNB, discovered that the inter-branch withdrawal made on June 30, 1995 by Velasco at PNBLigao, Albay Branch in the amount of US$15,000.00 was not posted; and that no deposit of said amount had been credited to the dollar savings account. On February 7, 1996, Velasco was notified of the glitch when he reported at the IAD. He said it was only in the evening that he was able to verify from his kin that the latter was not able to deposit in his account the US$15,000.00. [7] The following day, or on February 8, 1996, Velasco went to Dolorita Donado, assistant vice president of the Internal Audit Department and team leader of the Escolta Task Force, and delivered three (3) checks in the amount of US$5,000.00 each or a total of US$15,000.00. However, Donato returned the checks to Velasco and instructed him that he should personally deposit the checks. On February 14, 1996, he deposited the checks and the amount was consequently applied to his unposted withdrawal of US$15,000.00. Meanwhile, on February 9, 1996, PNB vice president, B.C. Hermoso, required[8] Velasco to submit a written explanation concerning the incident.

On February 12, 1996, he submitted his sworn letter-explanation.[9] He described the inter-branch withdrawal at PNB Ligao, Albay Branch on June 30, 1995 as no-book, i.e., without the corresponding presentation to the bank teller of the savings passbook. He stated, among others, that his withdrawal was accommodated as the statement of account showed a balance of US$15,486.01, and that he is personally known to the officers and staff, being a former colleague at the PNB Ligao, Albay Branch. On February 27, 1996, PNB Ligao, Albay Branch division chief III, Rexor Quiambao, financial specialist II, Emma Gacer, and division chief II, Renato M. Letada, confirmed the no-book withdrawal.[10] On March 5, 1996, PNB formally charged Velasco with Dishonesty, Grave Misconduct, and/or Conduct Grossly Prejudicial to the Best Interest of the Service for the irregular handling of Dollar Savings Account No. 010-714698-9.[11] The administrative charge alleged that: (1) he transacted a no-book withdrawal against his Dollar Savings Account No.010-714698-9 at PNB Ligao, Albay Branch in violation of Section 1216 of the Manual of Regulations for Banks; (2) in transacting the no-book withdrawal, he failed to present any letter of introduction as required under General Circular 3-72/92; (3) the irregular inter-branch withdrawal was aggravated by the failure of Escolta Branch to post/enter the withdrawal into the computer upon receipt of the TEC advice, resulting in the overstatement of the account balance by US$15,000.00; and (4) since he was presumed to be fully aware that neither the deposit nor withdrawal of the US$15,000.00 was reflected on the passbook, he was able to appropriate the amount for his personal benefit, free of interest, to the damage and prejudice of PNB.[12] On April 8, 1996, PNB withheld his rice and sugar subsidy, dental/optical/outpatient medical benefits, consolidated medical benefits, commutation of hospitalization benefits, clothing allowance, longevity pay, anniversary bonus, Christmas bonus and cash gift, performance incentive award, and mid-year financial assistance.[13] On April 10, 1996, he was placed under preventive suspension for a period of ninety (90) days.[14] On May 2, 1996, Velasco submitted his sworn Answer[15] to the administrative charge against him. Unlike his previous answer, he here claimed that his withdrawal on June 30, 1995 was with passbook. As proof, he attached a copy of his passbook[16] bearing the withdrawal entry of

US$15,000.00 on June 30, 1995. Explaining the inconsistency with his sworn letterexplanation on February 12, 1996, he said his initial answer was made under pressing circumstances. He was unable to find his passbook which was then kept by his wife who could not be contacted at that moment. On October 2, 1996, the Administrative Adjudication Office (AAO) of PNB composed of Fernando R. Mangubat, Jr., Wilfredo S. Verzosa, Celso D. Benologa, and Jesse L. Figueroa exonerated Velasco of the charges of dishonesty and conduct prejudicial to the best interest of service. However, he was found guilty of grave misconduct, mitigated by length of service and absence of actual loss to PNB. Thus, he was meted the penalty of forced resignation with benefits.[17] On October 31, 1996, Velasco was formally notified of the findings of the AAO after its approval by the management. As of that time, he had been employed with PNB for eighteen (18) years, holding the position of Manager 1 of the IAD. He was earning P14,932.00 per month plus a monthly allowance of P3,940.00 or a total salary of P18,872.00 per month. On December 22, 1997, he filed a Complaint[18] against PNB for illegal suspension, illegal dismissal, and damages before the NLRC. Labor Arbiter, NLRC, and CA Dispositions On July 9, 1999, Labor Arbiter Pablo C. Espiritu gave judgment, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered as follows: 1. Dismissing the complaint for illegal dismissal against respondents for want of merit.

In his ruling, the Labor Arbiter opined that as an employee and officer of PNB for eighteen (18) years, Velasco is expected to know bank procedures, including the expected entries in a savings passbook. Even if it should be assumed that he presented his passbook when he withdrew US$15,000.00 at the PNB Ligao Branch on June 30, 1995, he should have known that there was something wrong with the amounts credited to his account when he made an update on October 6, 1995. Being an audit officer, and fully aware of his withdrawal of US$15,000.00, he should have made inquiries on the inconsistency of the entries in his passbook.[20] The Labor Arbiter also found as flimsy the argument that the additional US$15,000.00 was the amount given to Velasco by his brother from the United States. As early as October 6, 1995, when he updated his passbook, Velasco should have known that (1) his brothers checks in the amount of US$15,000.00 have not been deposited in his dollar savings account and (2) he appears to have been improperly credited with US$15,000.00. [21] Moreover, the Labor Arbiter held that the entry in the passbook purportedly reflecting the withdrawal of US$15,000.00 is a forgery. It was done to conform to the defense of Velasco that he presented his passbook on June 30, 1995.[22]

On the charge of illegal suspension, the Labor Arbiter held that the preventive suspension of Velasco was reasonable in view of the sensitive nature of his position. It was also necessary to protect the records of PNB. [23] It follows that the withholding of his company benefits is reasonable.[24] Nonetheless, he should be paid his salary from May 12, 1996 up to October 31, 1996.[25] His claim for damages and attorneys fees must be denied because PNB did not violate his rights.[26] Dissatisfied with the decision Velasco[27] and PNB[28] appealed to the NLRC. of the Labor Arbiter, both

2.

Ordering PNB to pay complainant unpaid wages for the period May 12, 1996 to October 31, 1996 in the amount of P103,796.00. Dismissing complainants claims for damages and other monetary claims for lack of merit.

On July 31, 2000, the NLRC affirmed with modification the Labor Arbiter decision, disposing, thus: WHEREFORE, the decision appealed from is hereby MODIFIED to the extent that the award of unpaid salaries is hereby REDUCED to the complainants salaries from May 27, 1996 to July 31, 1996. Other dispositions in the appealed decision stands (sic) affirmed.[29]

3.

SO ORDERED.[19]

In sustaining the Labor Arbiter, the NLRC held that Velascos lack of knowledge of the non-posting of his withdrawal is not credible. Even a cursory look at his passbook shows that no deposit of US$15,000.00 was ever made. That there was still a balance of more than US$15,000.00 in his account after the withdrawal he made on June 30, 1995 could only mean that the withdrawal was never posted. Worse, based also on the entries in his passbook, it is clear that the withdrawal on June 30, 1995 was a no-book

transaction. The withdrawal of US$15,000.00 was not taken into consideration in the determination of the balance of June 30, 1995 and the succeeding dates. Thus, it is clear that the entry in question was falsified. It was made merely to bolster his subsequent claim that he presented his passbook when he withdrew on June 30, 1995.[30] The NLRC concluded that the falsification of the passbook shows deceit on the part of Velasco. He took advantage of his position. The posting of the falsified entry could not have been made without, or was at least facilitated by, his being an employee of the bank. Thus, his subsequent withdrawals amounted to losses on the part of the bank. He made those withdrawals from his account with full knowledge that the balance of his passbook of more than US$15,000.00 was attributed to the non-posting of the June 30, 1995 withdrawal.[31] The NLRC also held that he had been preventively suspended for more than thirty (30) days as of May 27, 1996. Since he was paid his salaries from August 1, 1996 to October 31, 1996, he may recover only his salary from May 27, 1996 to July 31, 1996.[32] Like the Labor Arbiter, the NLRC held that Velasco may not recover damages. His dismissal was not done oppressively or in bad faith. Neither was he subjected to unnecessary embarrassment or humiliation.[33] His motion for reconsideration having been denied, Velasco elevated the matter to the CA by way of petition for review on certiorari under Rule 43 of the Rules of Court.[34] OnApril 22, 2004, the CA rendered the assailed decision, the fallo stating, thus: WHEREFORE, for the foregoing discussions, We REVERSE and SET ASIDE the findings of public respondent NLRC and Labor Arbiter and hereby enter a decision ordering PNB to pay petitioner a separation pay equivalent to halfmonth salary for every year of service, plus backwages from the time of his illegal termination up to the finality of this decision. SO ORDERED.[35] According to the CA, the failure of Velasco to present his passbook and a letter of introduction does not constitute misconduct. Assuming for the sake of argument that he committed a serious misconduct in not properly monitoring his account with ordinary diligence and prudence, the same may be said of PNB when it failed to make the necessary posting of his withdrawal.[36] Lastly, the alleged offense of Velasco is not work-related to constitute just cause for his dismissal.[37]

Issues PNB has filed the instant petition for review on certiorari, putting forth the following issues for Our resolution, viz.: I. WHETHER OR NOT THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN FINDING THAT RESPONDENT HAS BEEN ILLEGALLY DISMISSED BY THE PETITIONERS. II. WHETHER OR NOT THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN DIRECTING PNB TO PAY RESPONDENT SEPARATION PAY ANDBACKWAGES.[38] (Underscoring supplied) We add a third issue which was raised by PNB before the CA but was, however, left unresolved: whether Velasco took the correct recourse when he elevated the decision of the NLRC to the CA by way of petition for review on certiorari under Rule 43. Our Ruling I. Appeal does not lie from the decision of the NLRC.

We first address the procedural question on the propriety of the Rule 43 petition. Rule 43 provides for appeal from quasi-judicial agencies to the CA by way of petition for review. Petition for review on certiorari or appeal by certiorari is a recourse to the Supreme Court under Rule 45. The mode of appeal resorted to by Velasco is wrong because appeal is not the proper remedy in elevating to the CA the decision of the NLRC. Section 2, Rule 43 of the 1997 Rules of Civil Procedure is explicit that Rule 43 shall not apply to judgments or final orders issued under the Labor Code of the Philippines. The correct remedy that should have been availed of is the special civil action of certiorari under Rule 65. As this Court held in the case of Pure Foods Corporation v. NLRC,[39]the party may also seasonably avail of the special civil action for certiorari, where the tribunal, board or officer exercising judicial functions has acted without or in excess of its jurisdiction, or with grave abuse of discretion, and praying that judgment be rendered annulling or modifying the proceedings, as the law requires, of such tribunal, board or officer.[40] In any case, St. Martin Funeral Homes v. National Labor Relations Commission[41] settled any doubt as to the manner of elevating decisions of the NLRC to the CA by holding that the legislative intendment was that the special

civil action of certiorari was and still is the proper vehicle for judicial review of decisions of the NLRC.[42] That the decision of the NLRC is not subject to appeal could have been a ground for the CA to dismiss the appeal of Velasco. [43] But even assuming, arguendo, that his petition could be liberally treated as one for certiorari under Rule 65, the recourse should not have prospered. II. Velasco committed serious misconduct, hence, his dismissal is justified.

Measured by the foregoing yardstick, We rule that Velasco committed serious misconduct that warrants termination from employment. A. The misconduct is serious. Velasco violated bank rules when he transacted a no-book withdrawal by his failure to present his passbook to the PNB Ligao, Albay Branch onJune 30, 1995. Section 1216 of the Manual of Regulations for Banks and Other Financial Intermediaries state that [b]anks are prohibited from issuing/accepting withdrawal authority slips or any other similar instruments designed to effect withdrawals of savings deposits without following the usual practice of requiring the depositors concerned to present their passbooks and accomplishing the necessary withdrawal slips. Further, he failed to present any letter of introduction as mandated under General Circular 3-72-92 which requires that [b]efore going out-of-town, the Depositor secures a Letter of Introduction from the branch/office where his Peso Savings Account is maintained. The presentation of passbook and letter of introduction is not without a valid reason. As aptly stated by the IAD of PNB: Considering that the PNB Ligao, Albay Branch is an offline branch, it is a must that an LOI and the passbook be presented by the depositor before any withdrawal is allowed. This procedure is required in order for the negotiating branch to determine or ascertain the available balance and the specimen signature of the withdrawing party. Moreover, the maintaining branch upon issuance of the LOI shall place a hold on the account in the computer as an internal control procedure. [52] True, a strict reading of General Circular 3-72-92 would lead one to conclude that only persons with peso savings account are required to secure a letter of introduction. However, simple logic dictates that those maintaining dollar savings account are also included. No cogent reason would be served by the rule if only persons with peso savings account are required to get a letter of introduction. Otherwise, there can be a circumvention of the rule. Nemo potest facere per alium qud non potest facere per directum. No one is allowed to do indirectly what he is prohibited to do directly. Sinuman ay hindi pinapayagang gawin nang hindi tuwiran ang ipinagba bawal gawin nang tuwiran. As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and regulations, are strictly observed and applied by its officers in the day-to-day transactions. The banking system is an indispensable institution in the modern world. It plays a vital role in the economic life of every civilized nation. Whether banks act as mere passive entities for the safekeeping and saving of money, or as active instruments of business and

Article 282 of the Labor Code enumerates the just causes where an employer may terminate the services of an employee,[44] to wit: a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work; Gross and habitual neglect by the employee of his duties; Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative; Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and Other causes analogous to the foregoing.

b) c) d)

e)

In Austria v. National Labor Relations Commission ,[45] the Court defined misconduct as improper and wrongful conduct. It is the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, willful in character, and implies wrongful intent and not mere error in judgment.[46] In Camus v. Civil Service Board of Appeals,[47] misconduct was described as wrong or improper conduct.[48] It implies a wrongful intention and not a mere error of judgment.[49] Of course, ordinary misconduct would not justify the termination of the services of an employee. The law is explicit that the misconduct should be serious. It is settled that in order for misconduct to be serious, it must be of such grave and aggravated character and not merely trivial or unimportant. [50] As amplified by jurisprudence, the misconduct must (1) be serious; (2) relate to the performance of the employees duties; and (3) show that the employee has become unfit to continue working for the employer.[51]

commerce, they have become an ubiquitous presence among the citizenry, who have come to regard them with respect and even gratitude and, most of all, confidence.[53] The CA, however, opined that the failure of Velasco to abide by the rules is not serious misconduct because (1) from the admission of PNB itself, allowing bank personnel who are out-of-town to make a no-book transaction without a letter of introduction is considered a common practice, and (2) the approving officers of PNB Ligao Branch should have also been administratively charged considering that the no-book transaction could not have pushed through without their approval.[54] In Santos v. San Miguel Corporation,[55] petitioner, in his defense, cited the prolonged practice of payroll personnel, including persons in managerial levels, of encashing personal checks. Finding this argument unmeritorious, the Court held that [p]rolonged practice of encashing personal checks among respondents payroll personnel does not excuse or justify petitioners misdeeds. Her willful and deliberate acts were in gross violation of respondents policy against encashment of personal checks of its personnel, embodied in its Cash Department Memorandum dated September 6, 1989.[56] The Court even added that petitioner cannot feign ignorance of such memorandum as she is duty-bound to keep abreast of company policies related to financial matters within the corporation. [57] We apply the same principle here. Suffice it to state that the option of who to charge or punish belongs to PNB. As an employer, PNB is given the latitude to determine who among its erring employees should be punished, to what extent and what penalty to impose.[58] Too, by charging Velasco, PNB is not estopped from charging its other employees who might as well have been remiss with their job.

proven. Lest it be forgotten, the no-book withdrawal was confirmed by the concerned officers of PNB Ligao, Albay Branch, namely, Quiambao, Gacer, and Letada. These circumstances, taken together, lead to no other conclusion than that Velasco changed his explanation from no-book to with book transaction after realizing that he violated bank rules and regulations. Perez v. People,[59] is illustrative on this score. Perez, an acting municipal treasurer, submitted two contradicting answers explaining the location of the missing funds under his custody and control: the first, reiterating his previous verbal admission before the audit team that part of the money was used to pay for the loan of his late brother, another portion was spent for the food of his family, and the rest for his medicine; and the second, claiming that the alleged missing amount was in the possession and custody of his accountable personnel at the time of the audit examination. This Court held that the sudden turnaround of Perez was merely an afterthought. He only changed his story to exonerate himself, after realizing that his first Answer put him in a hole, so to speak.[60] Neither did the Court believe that his alleged sickness affected the preparation of his first Answer. Perez presented no convincing evidence that his disease at the time he formulated that Answer diminished his capacity to formulate a true, clear and coherent response to any query. In fact, its contents merely reiterated his verbal explanation to the auditing team on January 5, 1989 on how he disposed of the missing funds.[61] We find no cogent reason to depart from Our ruling in Perez. The claim of Velasco that his initial answer was made under pressing circumstances is too flimsy an excuse. It partakes of the nature of an alibi. As such, it constitutes a self-serving negative evidence which cannot he accorded greater evidentiary weight than the declaration of credible witnesses who testified on affirmative matters.[62] The Court has consistently frowned upon the defense of alibi, and received it with caution, not only because it is inherently weak and unreliable but also because it can be easily fabricated.[63] Also worth noting is that Velasco never imputed any ill motive on the part of Rexor, Gacer, and Letada who collectively narrated that the June 30, 1995 withdrawal was a no-book transaction. They confirmed his earlier version that he did not present his passbook when he withdrew the US$15,000.00 on June 30, 1995. In any case, the fact that he changed his stance puts his credibility in doubt. Was he lying when he submitted his sworn letter-explanation of February 12, 1996, or when he submitted his sworn Answer dated April 30, 1996? Allegans contraria non est audiendus. He is not to be heard who alleges things contradictory to each other. Hindi dapat pakinggan ang nagsasabi ng mga bagay na salungat saisatisa.

Of course, We are not unaware that Velasco had a change of heart. In his sworn Letter-Explanation February 12, 1996, he admitted that his June 30, 1995 withdrawal of US$15,000.00 was a no-book transaction. However, in his sworn Answer dated April 30, 1996, he claimed that he actually presented his passbook when he withdrew on June 30, 1995. To recall, he was charged with dishonesty, grave misconduct, and/or conduct grossly prejudicial to the best interest of the service for irregularly handling his dollar savings account. Thus, it is safe to assume that when he prepared his February 12, 1996 sworn Letter-Explanation, the circumstances surrounding his June 30, 1995 withdrawal at PNB Ligao, AlbayBranch were still fresh on his mind. The allegations against him were serious, which should have put him on guard from preparing a haphazard explanation. He should have been mindful that dire consequences would surely befall him should the charges against him be

Velasco did not only violate bank rules and regulations. What compounds his offense was his unusual silence. He never informed PNB about the huge overstatement of US$15,000.00 in his account. He updated his passbook on October 6, 1995 by depositing US$12.78. Thus, as early as that date, he should have known that something was wrong with the credited balance in his passbook and reported it immediately to the concerned officers of PNB. What he did, instead, was to keep mum until PNB discovered the incident and notified him on February 7, 1996, or almost eight (8) months after his no-book withdrawal on June 30, 1995. With his silence, he clearly intended to gain at the expense of PNB. The omission to report is not trivial or inconsequential because it gave him the opportunity to withdraw from his dollar savings account more than its real balance, as what he actually did. He took advantage of the overstatement of his account, instead of protecting the interest of the bank. It would be impossible for him not to detect the error at the time he deposited US$12.78 on October 6, 1995, because his account had a big balance despite the fact that no large amount of money was deposited. His claim that he was satisfied with the updated balance of US$15,486.01 on October 6, 1995, as he thought that the US$15,000.00 in his account was the amount given by his brother, is simply unbelievable. It is a desperate attempt at exculpation. The deposit of the money from his brother should have been reflected in the on-line computer of PNB. The deposit would have also been posted for update upon the presentation of the passbook on October 6, 1995. No deposit of US$15,000.00 was, however, reflected in the passbook. In Aboitiz Shipping Corporation v. Dela Serna,[64] Tiu v. National Labor Relations Commission,[65] Five J Taxi v. National Labor Relations Commission,[66] and Falguera v.Linsangan,[67] among other cases, this Court consistently held that factual findings of quasi-judicial agencies, which have acquired expertise in matters entrusted to their jurisdiction, are accorded not only respect but also finality if they are supported by substantial evidence. [68] Thus, in the absence of proof that the Labor Arbiter or the NLRC had gravely abused their discretion, this Court shall deem conclusive and will not overturn their particular factual findings.[69] The Labor Arbiter and the NLRC are in unison that Velasco transacted a no-book withdrawal and failed to present a letter of introduction at PNB Ligao, Albay Branch on June 30, 1995. He also forged his passbook to cover up his offense. Being duly supported by substantial evidence, We sustain said finding. Fitness for continued employment cannot be compartmentalized into tight little cubicles of aspects of character, conduct, and ability separate and independent

of each other. A service of irregularities, when combined, may constitute serious misconduct which is a just cause for dismissal.[70] B. The serious misconduct relates to the performance of duties. The CA ruled that the offense of Velasco was not work-related and does not warrant dismissal. It likewise held that there is no proof that his failure to be a good depositor affected his duties or performance as an employee of PNB.[71] At first glance, the acts committed by Velasco pertain only to his being a depositor of PNB. But he has a dual personality. He was a depositor and, at the same time, an officer of the bank. On one hand, he failed to present his passbook and a letter of introduction when he withdrew US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious misconduct was aggravated when he presented a falsified passbook to make it appear that he did not commit any misdeed. On the other hand, he worked for PNB for eighteen (18) long years, his last position having been as Manager 1 of the IAD. As such, he was involved in the examination of the books of account of PNB. Thus, when he violated bank rules and regulations and tried to cover up his infractions by falsifying his passbook, he was not only committing them as a depositor but also, or rather more so, as an officer of the bank. It is akin to falsification of time cards,[72] and circulation of fake meal tickets,[73] which this Court held as a just cause for terminating the services of an employee. C. Velasco has become unfit to continue working at PNB. Taken together, his acts render him unfit to remain in the employ of the bank. That it is his first offense is of no moment because he holds a managerial position. Employers are allowed wide latitude of discretion in terminating managerial employees who, by virtue of their position, require full trust and confidence in the performance of their duties.[74] Managerial employees like Velasco are tasked to perform key and sensitive functions and are bound by more exacting work ethics.[75] Indeed, not even his eighteen (18) years of service could exonerate him. As this Court held in Equitable PCIBank v. Caguioa:[76] The leniency sought by respondent on the basis of her 35 years of service to the bank must be weighed in conjunction with the other considerations raised by petitioners. As that service has been amply compensated, her plea for leniency cannot offset her dishonesty. Even government employees who are validly dismissed from the service by reason of timely discovered offenses are deprived of retirement benefits. Treating respondent in the same manner as the loyal and code-abiding employees, despite the timely discovery of her Code violations, may indeed have a demoralizing effect on the entire bank. Be it remembered that banks thrive on and endeavor to retain public

trust and confidence, every violation of which must thus be accompanied by appropriate sanctions.[77] III. The CA erred in directing PNB to pay Velasco separation pay and backwages. PNB has no other liability to Velasco, except his unpaid wages from May 27, 1996 to July 31, 1996. PNB was registered under the Corporation Code under SEC Reg. No. ASO 96005555 dated May 27, 1996.[78] Thus, on that day, employees of PNB came under the jurisdiction of the Labor Code, whose Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules state: Section 8. Preventive Suspension. The employer may place the worker concerned under preventive suspension if his continued employment poses a serious and imminent threat to the life or property of the employer or his co-workers. Section 9. No preventive suspension shall last longer than thirty (30) days. The employer shall thereafter reinstate the worker in his former or in a substantially equivalent position or the employer may extend the period of suspension provided that during the period of extension, he pays the wages and other benefits due to the worker. In such case, the worker shall not be bound to reimburse the amount paid to him during the extension if the employer decides, after completion of the hearing, to dismiss the worker. PNB has the right to preventively suspend Velasco during the pendency of the administrative case against him. It was obviously done as a measure of selfprotection. It was necessary to secure the vital records of PNB which, in view of the position of Velasco as internal auditor, are easily accessible to him. Velasco was preventively suspended for more than thirty (30) days as of May 27, 1996, while the records bear that Velasco was paid his salaries from August 1, 1996 to October 31, 1996.[79] Thus, the NLRC is correct in its holding that he may recover his salaries from May 27, 1996 to July 31, 1996. He is not entitled to separation and backwages because he was not illegally dismissed.[80] We note though that PNB was not at all insensitive to his plight, considering (1) his restitution of the amount akin to no actual loss to the bank, and (2) his length of service of eighteen (18) years. [81] As stated earlier, PNB imposed on Velasco the penalty of forced resignation with benefits, instead of dismissal. The records bear out that he was granted P542,110.75 as separation benefits[82] which was used to offset his loan in the bank, leaving an outstanding balance of P167,625.82 as of May 27, 1997.[83] We find that PNBacted humanely under the circumstances.

One last word. The law imposes great burdens on the employer. One needs only to look at the varied provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working man. The Labor Code is titled that way and not as Employer Code. As one American ruling puts it, the protection of labor is the highest office of our laws.[84] Corollary to this, however, is the right of the employer to expect from the employee no less than adequate work, diligence and good conduct. [85] As Mr. Justice Joseph McKenna of the United States Supreme Court said in Arizona Copper Co. v. Hammer,[86] [t]he difference between the position of the employer and the employee, simply considering the latter as economically weaker, is not a justification for the violation of the rights of the former.[87] WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED and SET ASIDE. The Decision of the National Labor Relations Commission isREINSTATED. SO ORDERED.

Gonzales v. PCIB DECISION VELASCO, JR., J.: The Case This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision[1] dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners appeal from the December 10, 2001 Decision[2] in Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for respondents dishonor of petitioners check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed in favor of respondent Philippine Commercial and International Bank (PCIB). The Facts Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda). In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement[3] (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB. On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes.[4] To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998

defaults and the subsequent accumulating periodic interest dues which were left still left unpaid. In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However, onOctober 13, 1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales. Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter[6] to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to Unson in cash. On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. [7] PCIB replied on March 22, 1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans.[8] On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.[9] PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson. The Ruling of the RTC After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The decretal portion reads: WHEREFORE, judgment is rendered as follows (a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the promissory notes, Exhibits A, B and C; (b) on the second issue, the Court finds that there is justification on part of the defendant Bank to dishonor the check, Exhibit H;

(c) on the third issue, plaintiff and defendants are not entitled to damages from each other. No pronouncement as to costs. SO ORDERED.[10] The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper considering that the credit line under the COHLA had already been terminated or revoked before the presentment of the check. Aggrieved, Gonzales appealed the RTC Decision before the CA. The Ruling of the CA On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales appeal and affirming in toto the RTC Decision. The fallo reads: WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto. SO ORDERED.[11] In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales was indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely exercising its rights under the contractual stipulations in the COHLA brought about by the outstanding past dues of the REM loan and interests for which Gonzales was solidarily liable with the spouses Panlilio to pay under the promissory notes. Thus, we have this petition.

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES (EXHIBITS A, B AND C, PETITIONER; EXHIBITS 1, 2 AND 3, RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK). II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY REFER TO DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72. III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.[12] The Courts Ruling The core issues can be summarized, as follows: first, whether Gonzales is liable for the three promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and second, whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank. The petition is partly meritorious. First Issue: Solidarily Liability on Promissory Notes A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three promissory notes. The promissory notes covering the PhP 1,800,000 loan show the following:

The Issues Gonzales, as before the CA, raises again the following assignment of errors:

(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995, for PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales;

(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995, for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and (3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for PhP 300,000 was signed by Gonzales and the spouses Panlilio .

Q: A:

How about this Mr. Rodolfo Noceda? As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he has been familiar with my account ever since its inception. So these two officers Ocampo and Noceda knew that this was actually the account of Mr. Panlilio and not your account? Yes, sir. In fact even if there is a change of account officer they are always informing me that the account will be debited to Mr. Panlilios account.[17]

Q: Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. Gonzales testified: ATTY. DE JESUS: Now in this case you filed against the bank you mentioned there was a loan also applied for by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how this came about? GONZALES: Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if he secures another P1.8 Million loan the release will be longer because it has to pass to XO. Q: A: After that what happened? So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the property I agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio. Who is actually the borrower of this P1.8 Million Pesos? Well, in paper me and Mr. Panlilio. Who received the proceeds of said loan? Mr. Panlilio. Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this P1.8 Million Pesos loan? A check was deposited in the account of Mr. Panlilio.[16] xxxx Q: A: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your name initially? Well it was actually suggested by the account officer at that time Edna Ocampo. A:

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP 1,800,000 loan despite not receiving any of the proceeds. Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio, thus: ATTY. DE JESUS: [on Cross-Examination] Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8 million loan was received by Mr. Panlilio? NOCEDA: Yes sir.[18] The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly duesis beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses. Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. In Ang v. Associated Bank,[19] quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.[20] The Court further explained: [A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as

Q: A: Q: A: Q: A:

maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation. As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and suretythe accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys liability to the creditor is immediate, primary and absolute; he isdirectly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.[21] Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes. Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, For value received, the undersigned (the BORROWER) jointly and severally promise to pay x x x. Solidary liability cannot be presumed but must be established by law or contract. [22] Article 1207 of the Civil Code pertinently states that there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good faith. [23] Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touch upon the question of whether it was proper for PCIB to dishonor the check issued by Gonzales against the credit line under the COHLA. We answer in the negative. As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.[24] The factual findings of the trial court, especially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.[25] The instant case falls within the exception. The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check issued by Gonzales against the credit line, because the credit line was already closed prior to the presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant to the stipulations in the promissory notes on the banks right to set off or apply all moneys of the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right to terminate the credit line on grounds of default by Gonzales. Gonzales argues otherwise, pointing out that he was not informed about the default of the spouses Panlilio and that the September 21, 1998 account statement of the credit line shows a balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs certification that he has USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee the PhP 250,000 check, dated September 30, 1998, he issued against the credit line. A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check. First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation party and as such only lent his name and credit to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a co-signatory of the promissory notes and of his solidary liability. We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party and was not personally interested in the loan. Thus, a meeting was set by Gonzales with the spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in SM Megamall on October 5,

1998. Unfortunately, the meeting did not push through due to the heavy traffic Noceda and Ocampo encountered. Such knowledge of the default by Gonzales was, however, not enough to properly apprise Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely informed to pay over a hundred thousand without being formally apprised of the exact aggregate amount and the corresponding dues pertaining to specific loans and the dates they became due. Gonzales testified that he was not duly notified about the outstanding interest dues of the loan: ATTY. DE JESUS: Now when Mr. Panlilios was encountering problems with the bank did the defendant bank [advise] you of any problem with the same account? GONZALES: They never [advised] me in writing. Q: A: How did you come to know that there was a problem? When my check bounced sir.[26]

able to withdraw more funds than the interest that the money he would be needed to update the interest.[27] From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB that Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the former PCIB employees to be self-serving and tenuous at best, for there was no proper written notice given by the bank. The record is bereft of any document showing that, indeed, Gonzales was formally informed by PCIB about the past due periodic interests. PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio and likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through their account[28] with PCIB, were paying the periodic interest dues and were the ones periodically informed by the bank of the debiting of the amounts for the periodic interest payments. Gonzales never paid any of the periodic interest dues. PCIBs Noceda admitted as much in his cross-examination: ATTY. DE JESUS: [on Cross-Examination] And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not, its always Mr. Panlilio who was paying the interest for this loan? NOCEDA: Yes sir.[29]

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified: ATTY. PADILLA: Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to him at the celphone? NEPOMUCENO: I just told him to update the interest so that we would not have to cancel the COH Line and he could withdraw the money that was in the deposit because technically, if an account is past due we are not allowed to let the client withdraw funds because they are allowed to offset funds so, just to help him get his money, just to update the interest so that we could allow him to withdraw. Q: Withdraw what? A: His money on the COH, whatever deposit he has with us. Q: A: Did you inform him that if he did not update the interest he would not be able to withdraw his money? Yes sir, we will be forced to hold on to any assets that he has with us so thats why we suggested just to update the interest because at the end of everything, he would be

Indeed, no evidence was presented tending to show that Gonzales was periodically sent notices or notified of the various periodic interest dues covering the three promissory notes. Neither do the records show that Gonzales was aware of amounts for the periodic interests and the payment for them. Such were serviced by the spouses Panlilio. Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest dues that were not paid starting July 1998. And such notification must be formal or in written form considering that the outstanding periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not only properly apprised but is given the opportunity to pay them being solidarily liable for the loans covered by the promissory notes. It is the bank which computes these periodic interests and such dues must be put into writing and formally served to Gonzales if he were asked to pay them, more so when the payments by the spouses Panlilio were charged through the

account of the spouses Panlilio where the interest dues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB, since he is only an accommodation party who has no personal interest in the PhP 1,800,000 loan. Without a clear and determinate demand through a formal written notice for the exact periodic interest dues for the loans, Gonzales cannot be expected to pay for them. In business, more so for banks, the amounts demanded from the debtor or borrower have to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that one must pay over a hundred thousand aggregate outstanding interest dues without clear and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the default and the exact outstanding periodic interest dues. Without being properly apprised, Gonzales was not given the opportunity to properly act on them. It was only through a letter[30] sent by PCIB dated October 2, 1998 but incongruously showing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it is not certain and the records do not show when the letter was sent and when Gonzales received it. What is clear is that such letter was belatedly sent by PCIB and received by Gonzales after the fact that the latters FCD was already frozen, his credit line under the COHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson was dishonored. And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal written notices sent to Gonzales were too late in the day for Gonzales to act properly on the delinquency and he already suffered the humiliation and embarrassment from the dishonor of his check drawn against the credit line. To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered by the three promissory notes was required to apprise Gonzales, an accommodation party. PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations, more so when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to do. Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA. The COHLA, in its effectivity clause, clearly provides: 4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing from the receipt by the

CLIENT of the COH checkbook issued by the BANK, subject to automatic renewals for same periods unless terminated by the BANK upon prior notice served on CLIENT.[31] (Emphasis ours.) It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA without giving Gonzales prior notice as required by the above stipulation in the COHLA. Noceda testified on cross-examination on the Offering Ticket[32] recommending the termination of the credit line, thus: ATTY. DE JESUS: [on Cross-Examination] This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it not? NOCEDA: No sir but verbally it was relayed to him. Q: A: Q: A: Q: A: Q: A: But you have no proof that Mr. Gonzales came to know about this Exhibit 8? It was relayed to him verbally. But there is no written proof? No sir. And it is only now that you claim that it was verbally relayed to him, its only now when you testified in Court? Before . . . To whom did you relay this information? It was during the time that we were going to Megamall, it was relayed by Liza that he has to pay his obligations or else it will adversely affect the status of the account.[33]

On the other hand, the testimony of Corazon Nepomuceno shows: ATTY. DE JESUS: [on Cross-Examination] Now we go to the other credit facility which is the credit on hand extended solely of course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand facility. Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the one who recommended the cancellation of this credit on hand facility?

NEPOMUCENO: It was recommended by the account officer and I supported it. Q: A: Q: A: him. Q: A: Q: A: And you approved it? Yes sir. Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility? As far as I know, it is the account officer who will inform But you have no record that he was informed? I dont recall and we have to look at the folder to determine if they were informed. If you will notice, this letter . . . what do you call this letter of yours? That is our letter advising them or reminding them of their unpaid interest and that if he is able to update his interest he can extend the promissory note or restructure the outstanding. Now, I call your attention madam witness, there is nothing in this letter to the clients advising them or Mr. Gonzales that his credit on hand facility was already cancelled? I dont know if there are other letters aside from this. So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on hand facility was already cancelled? No actually he can understand it from the last sentence. If you will be able to update your outstanding interest, we can apply the extention of your promissory note so in other words we are saying that if you dont, you cannot extend the promissory note. You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8 million is it not, as you can see from the letter? Okay? Ah . . . Okay. There is nothing there that will show that that also refers to the credit on hand facility which was being utilized by Mr. Gonzales is it not? But I dont know if there are other letters that are not presented to me now.[34] The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called cross default provisions, it may not with impunity ignore the rights of Gonzales under the COHLA. Indeed, the business of banking is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors.[35] In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients. Art. 19 of the New Civil Code clearly provides that [e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. This is the basis of the principle of abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).[36] In order for Art. 19 to be actionable, the following elements must be present: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. [37] We find that such elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales. Malice or bad faith is at the core of Art. 19. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[38] In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans[39] but failed to mention anything about the termination of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad faith.[40]Therefore, it is abundantly clear that this case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.

Q: A: Q: A:

Q: A: Q: A:

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the cross default provisions of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific circumstances, like in the instant case of an accommodation party. The promissory notes uniformly provide: The lender is hereby authorized, at its option and without notice, to set off or apply to the payment of this Note any and all moneys which may be in its hands on deposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the happening of any of the events of default, but without any obligation on the Lenders part should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which may be in the Lenders possession by public or private sale, and to apply the proceeds thereof to the payment of this Note; the Borrower, however, shall remain liable for any deficiency.[41] (Emphasis ours.)

has the right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the latter to act accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check drawn from the credit line or to replace any checks that had been issued. This, the bankwith gross negligencefailed to accord Gonzales, a valued client for more than 15 years. Fourth. We find the testimony[43] of Ocampo incredible on the point that the principal borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bank officers had special instructions to grant and that it was through the instructions of Gonzales that the payment of the periodic interest dues were debited from the account of the spouses Panlilio. For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as the principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the spouses Panlilio through the debiting of their bank account. It is incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was only an accommodation party. Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIBs gross negligence in not honoring its obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such termination, treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson. With banks, the degree of diligence required is more than that of a good father of the family considering that the business of banking is imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking.[44] Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of the check would have been avoided. Third Issue: Award of Damages

The above provisos are indeed qualified with the specific circumstance of an accommodation party who, as such, has not been servicing the payment of the dues of the loans, and must first be properly apprised in writing of the outstanding dues in order to answer for his solidary obligation. The same is true for the COHLA, which in its default clause provides: 16. DEFAULT The CLIENT shall be considered in default under the COH if any of the following events shall occur: 1. 2. xxx Violation of the terms and conditions of this Agreement or any contract of the CLIENT with the BANK or any bank, persons, corporations or entities for the payment of borrowed money, or any other event of default in such contracts.[42]

The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank

The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.[45] In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the testimonies of Gonzales witnesses, particularly those of Dominador Santos[46] and Freddy Gomez,[47] the embarrassment and humiliation Gonzales has to endure not only before his former close friend Unson but more from the members and families of his friends and associates in the PCA, which he continues to experience considering the confrontation he had with Unson and the consequent loss of standing and credibility among them from the fact of the apparent bouncing check he issued. Credit is very important to businessmen and its loss or impairment needs to be recognized and compensated.[48] The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it says, Any 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 damage. Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal damages. Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind x x x. [49] We further explained the nature of nominal damages in Almeda v. Cario: x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of nominal damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is proper.[50] (Emphasis Ours.) In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances.[51] In this case, the Court finds that the grant of PhP 50,000 as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,[52] failure to give prior notice when required, such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that [w]illful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Similarly, every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.[53] Evidently, Gonzales is entitled to recover moral damages. Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and humiliation.[54] Although incapable of pecuniary estimation, moral damages are certainly recoverable if they are the proximate result of the defendants wrongful act or omission. The factual antecedents bolstered by undisputed testimonies likewise show the mental anguish and anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit. The award of moral damages is aimed at a restoration within the limits of the possible, of the spiritual status quo anteit must always reasonably approximate the extent of injury and be proportional to the wrong committed. [55] Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which was the proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers. Furthermore, the initial carelessness of the banks omission in not properly informing Gonzales of the outstanding interest duesaggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the termination of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good. Finally, an award for attorneys fees is likewise called for from PCIBs negligence which compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorneys fees may be recovered when exemplary damages are awarded. We find that the amount of PhP 50,000 as attorneys fees is reasonable. WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is

hereby REVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees. No pronouncement as to costs. SO ORDERED.

Central Bank of PH v. City Trust banking DECISION CARPIO MORALES, J.: Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas. As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its officers authorized to sign checks and serve as drawers and indorsers for its account. And it provided petitioner with the list and corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was Rounceval Flores (Flores). On July 15, 1977, Flores presented for payment to petitioners Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by Citytrusts authorized signatory-drawers. After the checks were certified by petitioners Accounting Department, Iluminada verified them, prepared the cash transfer slip on which she affixed her signature, stamped the checks with the notation Received Payment and asked Flores to, as he did, sign on the space above such notation. Instead of signing his name, however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed to notice. Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash Department where an officer verified and compared the drawers signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order, approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from Citytrusts demand deposit account. More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the checks were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the demand, however. Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was convicted. Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of money with damages against petitioner which it

alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of Rosauro C. Cayabyab. By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and petitioner negligent and accordingly held them equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision[2] dated July 16, 1999, affirmed the trial courts decision, it holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they should equally share the loss in consonance with Article 2179[3] vis a vis Article 1172[4] of the Civil Code. In arriving at its Decision, the appellate court noted that while Citytrust failed to take adequate precautionary measures to prevent the fraudulent encashment of its checks, petitioner was not entirely blame -free in light of its failure to verify the signature of Citytrusts agent authorized to receive payment. Brushing aside petitioners contention that it cannot be sued, the appellate court held that petitioners Charter specifically clothes it with the power to sue and be sued. Also brushing aside petitioners assertion that Citytrusts reservation of the filing of a separate civil action against Flores precluded Citytrust from filing the civil action against it, the appellate court held that the action for the recovery of sum of money is separate and distinct and is grounded on a separate cause of action from that of the criminal case for estafa. Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the failure of its teller to properly verify his signature notwithstanding, petitioner contends that verification could be dispensed with, Flores having been known to be an authorized roving teller of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts) behalf for five years prior to the questioned transaction. Attributing negligence solely to Citytrust, petitioner harps on Citytrusts allowing Flores to steal the checks and failing to timely cancel them; allowing Flores to wear the issued identification card issued by it (petitioner); failing to report Flores absence from work on the day of the incident; and failing to explain the circumstances surrounding the supposed theft and cancellation of the checks. Drawing attention to Citytrusts considerable delay in demanding the restoration of the proceeds of the checks, petitioners argue that, assuming arguendo that its teller was negligent, Citytrusts negligence, which preceded that committed by the teller, was the proximate cause of the loss or fraud.

The petition is bereft of merit. Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse that Flores had had previous transactions with it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she would have readily been put on notice that Flores was affixing, not his but a fictitious signature. Given that petitioner is the government body mandated to supervise and regulate banking and other financial institutions, this Courts ruling in Consolidated Bank and Trust Corporation v. Court of Appeals[5] illumines: The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This fiduciary relationship means that the banks obligation to observe high 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. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791

prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791 . (Emphasis supplied) Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should mitigate petitioners liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered. In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust on a 60-40 ratio. WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio. SO ORDERED.

PHILIPPINE BANKING CORPORATION, Petitioner, vs. ARTURO DY, BERNARDO DY, JOSE DELGADO AND CIPRIANA DELGADO, Respondents. DECISION PERLAS-BERNABE, J.: This Petition for Review on Certiorari assails the January 30, 2008 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51672, which set aside the October 5, 1994 Decision2 of the Regional Trial Court of Cebu City, Branch 22 (RTC) and directed the Register of Deeds of Cebu City to cancel Transfer Certificate of Title (TCT) Nos. 517683 and 519014 in the names of respondents Arturo Dy and Bernardo Dy (Dys) and to issue the corresponding TCTs in the name of respondent Cipriana Delgado (Cipriana). The Factual Antecedents Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot, denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu, covered by TCT No. 18568. She and her husband, respondent Jose Delgado (Jose), entered into an agreement with a certain Cecilia Tan (buyer) for the sale of the said property for a consideration of P10.00/sq.m. It was agreed that the buyer shall make partial payments from time to time and pay the balance when Cipriana and Jose (Sps. Delgado) are ready to execute the deed of sale and transfer the title to her. At the time of sale, the buyer was already occupying a portion of the property where she operates a noodle (bihon) factory while the rest was occupied by tenants which Sps. Delgado undertook to clear prior to full payment. After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer demanded the execution of the deed, which was refused. Eventually, the buyer learned of the sale of the property to the Dys and its subsequent mortgage to petitioner Philippine Banking Corporation (Philbank), prompting the filing of the Complaint 5 for annulment of certificate of title, specific performance and/or reconveyance with damages against Sps. Delgado, the Dys and Philbank. In their Answer, Sps. Delgado, while admitting receipt of the partial payments made by the buyer, claimed that there was no perfected sale because the latter was not willing to pay their asking price of P17.00/sq.m. They also interposed a cross-claim against the Dys averring that the deeds of absolute sale in their favor dated June 28, 19826 and June 30, 19827 covering Lot No. 6966 and the adjoining Lot No. 4100-A (on which Sps. Delgado's house stands), were fictitious and merely intended to enable them (the Dys) to use the said properties as collateral for their loan application with Philbank and thereafter, pay the true consideration of P17.00/sq.m. for Lot No. 6966. However, after receiving the loan proceeds, the Dys reneged on their agreement, prompting Sps. Delgado to cause the annotation of an adverse claim on the Dys' titles and to inform Philbank of the simulation of the sale. Sps. Delgado, thus, prayed for the dismissal of the complaint, with a counterclaim for damages and a cross-claim against the Dys for the payment of the balance of the purchase price plus damages.

For their part, the Dys denied knowledge of the alleged transaction between crossclaimants Sps. Delgado and buyer. They claimed to have validly acquired the subject property from Sps. Delgado and paid the full consideration therefor as the latter even withdrew their adverse claim and never demanded for the payment of any unpaid balance. On the other hand, Philbank filed its Answer8 asserting that it is an innocent mortgagee for value without notice of the defect in the title of the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the damages that may be adjudged against it in the event they are declared seller and purchaser in bad faith, respectively. In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a mortgagee in good faith for having granted the loan and accepted the mortgage despite knowledge of the simulation of the sale to the Dys and for failure to verify the nature of the buyers physical possession of a p ortion of Lot No. 6966. They thereby prayed for the cancellation of the mortgage in Philbank's favor. Subsequently, Sps. Delgado amended their cross-claim against the Dys to include a prayer for the nullification of the deeds of absolute sale in the latter's favor and the corresponding certificates of title, and for the consequent reinstatement of Ciprianas title.9 The complaints against the Dys and Philbank were subsequently withdrawn. On the other hand, both the buyer and Sps. Delgado never presented any evidence in support of their respective claims. Hence, the RTC limited itself to the resolution of the claims of Sps. Delgado, Philbank and the Dys against one another. The RTC Ruling In the Decision10 dated October 5, 1994, the RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. It noted that other than Sps. Delgado's bare allegation of the Dys' supposed non-payment of the full consideration for Lot Nos. 6966 and 4100-A, they failed to adduce competent evidence to support their claim. On the other hand, the Dys presented a cash voucher11 dated April 6, 1983 duly signed by Sps. Delgado acknowledging receipt of the total consideration for the two lots. The RTC also observed that Sps. Delgado notified Philbank of the purported simulation of the sale to the Dys only after the execution of the loan and mortgage documents and the release of the loan proceeds to the latter, negating their claim of bad faith. Moreover, they subsequently notified the bank of the Dys' full payment for the two lots mortgaged to it. The CA Ruling However, on appeal, the CA set aside12 the RTC's decision and ordered the cancellation of the Dys' certificates of title and the reinstatement of Cipriana's title. It ruled that there were no perfected contracts of sale between Sps. Delgado and the Dys in view of the latter's admission that the deeds of sale were purposely executed to facilitate the latter's loan application with Philbank and that the prices indicated therein were not the true consideration. Being merely simulated, the contracts of sale were, thus, null and void, rendering the subsequent mortgage of the lots likewise void.

The CA also declared Philbank not to be a mortgagee in good faith for its failure to ascertain how the Dys acquired the properties and to exercise greater care when it conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots. The Petition In the present petition, Philbank insists that it is a mortgagee in good faith. It further contends that Sps. Delgado are estopped from denying the validity of the mortgage constituted over the two lots since they participated in inducing Philbank to grant a loan to the Dys. On the other hand, Sps. Delgado maintain that Philbank was not an innocent mortgagee for value for failure to exercise due diligence in transacting with the Dys and may not invoke the equitable doctrine of estoppel to conceal its own lack of diligence. For his part, Arturo Dy filed a Petition-in-Intervention13 arguing that while the deeds of absolute sale over the two properties were admittedly simulated, the simulation was only a relative one involving a false statement of the price. Hence, the parties are still bound by their true agreement. The same was opposed/objected to by both Philbank14 and Sps. Delgado15 as improper, considering that the CA judgment had long become final and executory as to the Dys who neither moved for reconsideration nor appealed the CA Decision. The Ruling of the Court The petition is meritorious. At the outset, the Court takes note of the fact that the CA Decision nullifying the questioned contracts of sale between Sps. Delgado and the Dys had become final and executory. Accordingly, the Petition-in-Intervention filed by Arturo Dy, which seeks to maintain the subject contracts' validity, can no longer be entertained. The cancellation of the Dys' certificates of title over the disputed properties and the issuance of new TCTs in favor of Cipriana must therefore be upheld. However, Philbank's mortgage rights over the subject properties shall be maintained. While it is settled that a simulated deed of sale is null and void and therefore, does not convey any right that could ripen into a valid title, 16it has been equally ruled that, for reasons of public policy,17 the subsequent nullification of title to a property is not a ground to annul the contractual right which may have been derived by a purchaser, mortgagee or other transferee who acted in good faith.18 The ascertainment of good faith or lack of it, and the determination of whether due diligence and prudence were exercised or not, are questions of fact19 which are generally improper in a petition for review on certiorari under Rule 45 of the Rules of Court (Rules) where only questions of law may be raised. A recognized exception to the rule is when there are conflicting findings of fact by the CA and the RTC, 20 as in this case. Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon. 21 In the case of banks and other financial institutions, however, greater care and due

diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof.22 The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.23 In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage,24 its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on the property. On the other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado). 1wphi1 In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were privies. Indeed, a finding of negligence must always be contextualized in line with the attendant circumstances of a particular case. As aptly held in Philippine National Bank v. Heirs of Estanislao Militar,25 "the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed."26 Thus, without diminishing the time-honored principle that nothing short of extraordinary diligence is required of banks whose business is impressed with public interest, Philbank's inconsequential oversight should not and cannot serve as a bastion for fraud and deceit. To be sure, fraud comprises "anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal duty or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another." 27 In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to Philbank's detriment. Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court accords Philbank the rights of a mortgagee in good faith whose lien to the securities posted must be respected and protected. In this regard, Philbank is entitled to have its mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties. WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED with MODIFICATION upholding the mortgage rights of petitioner Philippine Banking Corporation over the subject properties.

SO ORDERED.