ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs.

VICENTE HENRY
TAN, respondent.
While banks are granted by law the right to debit the value of a dishonored check from a
depositors account, they must do so with the highest degree of care, so as not to prejudice the
depositor unduly.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January
27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as
follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No.
892-AF is hereby AFFIRMED. Costs against the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the
Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to
him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby
making his balance in the amount of P297,000.00, as of October 1, 1990, from his original
deposit ofP196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00
check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew
the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the
amount of P50,000.00 making his existing balance in the amount of P107,793.45, because he
has issued several checks to his business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00

However, his suppliers and business partners went back to him alleging that the checks he
issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK
to take positive steps regarding the matter for he has adequate and sufficient funds to pay the
amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology
regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on
December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region,
docketed as Civil Case No. 892-AF, against the BANK, as defendant.
In his [C]complaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased in number for lack of trust. As he has been in
the business community for quite a time and has established a good record of reputation and
probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation,
mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent]
further averred that he continuously lost profits in the amount of P250,000.00. [Respondent]
therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum
of P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as
attorneys fees plus 25% of the amount claimed including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied
for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20,
1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no
banking institution would give an assurance to any of its client/depositor that the check
deposited by him had already been cleared and backed up by sufficient funds but it could only
presume that the same has been honored by the drawee bank in view of the lapse of time that
ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that on October 2,

1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the
amount of P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00
to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action
against it and argued that it has all the right to debit the account of the [respondent] by reason of
the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositors collecting agent subject to actual payment
by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the
amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00
per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the affairs/properties of the
BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially
his allegations in the original complaint, except that the name of the previous defendant
ASSOCIATED BANK is now WESTMONT BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of
the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum
of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as
attorneys fees, plus the costs of this suit. In making said ruling, it was shown that [respondent]
was not officially informed about the debiting of the P101,000.00 [from] his existing balance and
that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for
accommodation because the BANK considered him as one of its valued clients. The trial court
ruled that the bank manager was negligent in handling the particular checking account of the
[respondent] stating that such lapses caused all the inconveniences to the [respondent]. The trial
court also took into consideration that [respondents] mother was originally maintaining with the x
BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his mother
made a deposit, the same was not credited in her favor but in the name of another.[4]
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting
bank, to debit the account of its client for a dishonored check; and whether it had informed
respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of
the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to
treat respondents account with meticulous care, the bank violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his account before
unilaterally debiting the amount of P101,000.Without such notice, it is estopped from blaming
him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent would have had sufficient
funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by
petitioner to him is the proximate cause of his business woes and shame, for which it is liable for
damages. Because of the banks negligence, the CA awarded respondent moral damages
of P100,000. It also granted him exemplary damages ofP75,000 and attorneys fees of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is
acting as a collecting bank, has the right to debit the account of its client for a check deposit
which was dishonored by the drawee bank.[6]
The Courts Ruling The Petition has no merit.
Sole Issue: Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of facts were
misappreciated by the CA. It insists that its right to debit the amount of the dishonored check
from the account of respondent is clear and unmistakable. Even assuming that it did not give
him notice that the check had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by respondent
on September 17, 1990, expressly stipulated that the bank was obligating itself merely as the

depositors collecting agent and -- until such time as actual payment would be made to it -- it was
reserving the right to charge against the depositors account any amount previously
credited. Respondent was allowed to withdraw the amount of the check prior to clearing, merely
as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the CA
are not subject to review by this Court.[7] As petitioner itself takes no issue with those findings,
we need only to determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any
withdrawals on the part of a depositor.[8] The right of a collecting bank to debit a clients account
for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that [f]ixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan.
Hence, the relationship between banks and depositors has been held to be that of creditor
and debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil Code may take place
when all the requisites mentioned in Article 1279 are present,[11] as follows:
(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.[12]
Nonetheless, the real issue here is not so much the right of petitioner to debit respondents
account but, rather, the manner in which it exercised such right. The Court has held that even
while the right of setoff is conceded, separate is the question of whether that remedy has
properly been exercised.[13]
The liability of petitioner in this case ultimately revolves around the issue of whether it
properly exercised its right of setoff. The determination thereof hinges, in turn, on the banks role
and obligations, first, as respondents depositary bank; and second, as collecting agent for the
check in question.
Obligation as Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is
impressed with public interest. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are even required of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with meticulous care.
[15]

Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of
Appeals[16] has held that the degree of diligence required of banks is more than that of a good
father of a family where the fiduciary nature of their relationship with their depositors is
concerned.[17] Indeed, the banking business is vested with the trust and confidence of the public;
hence the appropriate standard of diligence must be very high, if not the highest, degree of
diligence.[18] The standard applies, regardless of whether the account consists of only a few
hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now 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.
Did petitioner treat respondents account with the highest degree of care? From all
indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a
valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to
its clearing. That act certainly disregarded the clearance requirement of the banking
system. Such a practice is unusual, because a check is not legal tender or money; [21] and its
value can properly be transferred to a depositors account only after the check has been cleared
by the drawee bank.[22]

Under ordinary banking practice, after receiving a check deposit, a

bank either immediately credit the amount to a depositors account; orinfuse value to that
account only after the drawee bank shall have paid such amount.[23] Before the check shall have
been cleared for deposit, the collecting bank can only assume at its own risk -- as herein
petitioner did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner should not
have authorized the withdrawal by respondent ofP240,000 on October 1, 1990, as this amount
was over and above his outstanding cleared balance of P196,793.45.[24] Hence, the lower courts
correctly appreciated the evidence in his favor.
Obligation as Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent,
assuming no responsibility beyond carefulness in selecting correspondents, and until such time
as actual payments shall have come to its possession, this Bank reserves the right to charge
back to the Depositors account any amounts previously credited whether or not the deposited
item is returned. x x x."[25]
However, this reservation is not enough to insulate the bank from any liability. In the past,
we have expressed doubt about the binding force of such conditions unilaterally imposed by a
bank without the consent of the depositor.[26] It is indeed arguable that in signing the deposit slip,
the depositor does so only to identify himself and not to agree to the conditions set forth at the
back of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain
obligations as respondents agent, consonant with the well-settled rule that the relationship
between the payee or holder of a commercial paper and the collecting bank is that of principal
and agent.[28]Under Article 1909[29] of the Civil Code, such bank could be held liable not only for
fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its
officers or agents within the course and scope of their employment.[30] Due to the very nature of
their business, banks are expected to exercise the highest degree of diligence in the selection
and supervision of their employees.[31] Jurisprudence has established that the lack of diligence of
a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the
former proximately results in an injury to a third person;[32] in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically
admitted that she and the employees under her control had breached bank policies. They
admittedly breached those policies when, without clearance from the drawee bank in Baguio,
they allowed respondent to withdraw on October 1, 1990, the amount of the check
deposited. Santiago testified that respondent was not officially informed about the debiting of
the P101,000 from his existing balance of P170,000 on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly acted within the scope of her authority in
authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what
remains to be determined is whether her actions proximately caused respondents
injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken by any
efficient intervening cause --produces the injury, and without which the result would not have
occurred.[34]
Let us go back to the facts as they unfolded. It is undeniable that the banks premature
authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid
succession and in a natural sequence -- the debiting of his account, the fall of his account
balance to insufficient levels, and the subsequent dishonor of his own checks for lack of
funds. The CA correctly noted thus:
[T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was
already cleared. Without such advice, [respondent] would not have withdrawn the sum
of P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed
[respondent] to withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had
the P101,000.00 not [been] debited, the subject checks would not have been
dishonored. Hence, we can say that [respondents] injury arose from the dishonor of his wellfunded checks. x x x.[35]

Aggravating matters, petitioner failed to show that it had immediately and duly informed
respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was
discernible from his act of depositing P50,000 on October 2, 1990, to augment his account and
allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers account,
respondent was considered a valued client whose checks had always been sufficiently funded
from 1987 to 1990,[36] until the October imbroglio. Thus, he deserved nothing less than an official
notice of the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a
general indorser[37] and the procedure for a notice of dishonor,[38] it was incumbent on the bank to
give proper notice to respondent. In Gullas v. National Bank,[39] the Court emphasized:
[A] general endorser of a negotiable instrument engages that if the instrument the check in this
case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay
the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that
notice of dishonor is necessary to charge an indorser and that the right of action against him
does not accrue until the notice is given.
The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without
waiting for any action by Gullas, the bank made use of the money standing in his account to
make good for the treasury warrant. At this point recall that Gullas was merely an endorser and
had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of
a check drawn by him in favor of a third party, it has been held that he has a right of action
against the bank for its refusal to pay such a check in the absence of notice to him that the bank
has applied the funds so deposited in extinguishment of past due claims held against
him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an
indorser the situation is different, and notice should actually have been given him in order that
he might protect his interests.[40]
Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully
subscribe to the CAs observations that it was not unusual for a well-reputed businessman like
him, who ordinarily takes note of the amount of money he takes and releases, to immediately
deposit money in his current account to answer for the postdated checks he had issued. [41]
Damages Inasmuch as petitioner does not contest the basis for the award of damages and
attorneys fees, we will no longer address these matters. WHEREFORE, the Petition
is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK) vs. HON.
COURT OF APPEALS AND FRANKLIN VIVES
This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked
private respondent to deposit in a bank a certain amount of money in the bank account of
Sterela for purposes of its incorporation. She assured private respondent that he could withdraw
his money from said account within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs request. 3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check in
the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private
respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers
Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to
deposit the check. They had with them an authorization letter from Doronilla authorizing

Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for
Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives.4
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant
manager, who informed them that part of the money in Savings Account No. 10-1567 had been
withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that
Mrs. Vives could not withdraw said remaining amount because it had to answer for some
postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez
opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for
Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts
necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567
because he was the sole proprietor of Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve
Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on September 15, 1979 but when the
latter presented the check, it was again dishonored.6
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was
docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated
its Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.
Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives
jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until the
same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
25, 1991, the appellate court affirmed in toto the decision of the RTC.9 It likewise denied with
finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that
I.THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS
ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS
BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN
DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A

CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF

NATURAL JUSTICE;
III.THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS
OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS
THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED
DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF
AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE
LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE
WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto
on September 25, 1995. The Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in
furnishing private respondent with copy of the reply12 and several substitutions of counsel on the
part of private respondent.13 On January 17, 2001, the Court resolved to give due course to the
petition and required the parties to submit their respective memoranda.14 Petitioner filed its
memorandum on April 16, 2001 while private respondent submitted his memorandum on March
22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by
private respondent to Doronilla was money, a consumable thing; and second, the transaction
was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterelas bank account.15 Moreover, the fact that private respondent sued his good
friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was
not merely gratuitous but "had a business angle" to it. Hence, petitioner argues that it cannot be
held liable for the return of private respondents P200,000.00 because it is not privy to the
transaction between the latter and Doronilla.16
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to
the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not
contain any authorization for these two to withdraw from said account. Hence, the authority to
withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela,
and who alone had legal title to the savings account.17 Petitioner points out that no evidence
other than the testimonies of private respondent and Mrs. Vives was presented during trial to
prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to withdraw
from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since
the findings of fact therein were not accord with the evidence presented by petitioner during trial
to prove that the transaction between private respondent and Doronilla was a mutuum, and that
it committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable
for the actual damages suffered by private respondent, and neither may it be held liable for
moral and exemplary damages as well as attorneys fees.20
Private respondent, on the other hand, argues that the transaction between him and Doronilla is
not a mutuum but an accommodation,21 since he did not actually part with the ownership of

his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so
that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over his money through
his wife who was made a signatory to the savings account and in whose possession the savings
account passbook was given.22
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager,
connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the
opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings
account with petitioner for said company, as well as the approval of the authority to debit
Sterelas savings account to cover any overdrawings in its current account. 23
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for
review filed with this Court. The Court has repeatedly held that it is not its function to analyze
and weigh all over again the evidence presented by the parties during trial.24 The Courts
jurisdiction is in principle limited to reviewing errors of law that might have been committed by
the Court of Appeals.25 Moreover, factual findings of courts, when adopted and confirmed by the
Court of Appeals, are final and conclusive on this Court unless these findings are not supported
by the evidence on record.26 There is no showing of any misapprehension of facts on the part of
the Court of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of Appeals and
the trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect
examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.27 In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.28
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for
the purpose of making it appear "that said firm had sufficient capitalization for incorporation, with
the promise that the amount shall be returned within thirty (30) days."29 Private respondent
merely "accommodated" Doronilla by lending his money without consideration, as a favor to his

good friend Sanchez. It was however clear to the parties to the transaction that the money would
not be removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representing
interest on the mutuum, did not convert the transaction from a commodatum into a mutuum
because such was not the intent of the parties and because the additional P12,000.00
corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code
expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not
its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest
accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between
Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum
or a commodatum, has no bearing on the question of petitioners liability for the return of private
respondents money because the factual circumstances of the case clearly show that petitioner,
through its employee Mr. Atienza, was partly responsible for the loss of private respondents
money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his written
authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except
upon the production of the depositor savings bank book in which will be entered by the Bank the
amount deposited or withdrawn."30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives),
not just once, but several times. Both the Court of Appeals and the trial court found that Atienza
allowed said withdrawals because he was party to Doronillas "scheme" of defrauding private
respondent:
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of
the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the
commission of the fraud but he likewise helped in devising the means by which it can be done in
such manner as to make it appear that the transaction was in accordance with banking
procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza
was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be
deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that
it must be in defendants branch in Makati for "it will be easier for them to get a certification". In
fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to
the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings
account for Sterela in the amount of P200,000.00, as "per coordination with Mr. Rufo Atienza,
Assistant Manager of the Bank x x x" (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the inception of the scheme. Significantly,
there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo
Mirasol, a friend and business associate of Doronilla.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination" between
Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to
Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia
Vives that the money belonged to her and her husband and the deposit was merely to
accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the
only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In
the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia
Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that
withdrawals of savings deposits could only be made by persons whose authorized signatures
are in the signature cards on file with the bank. He, however, said that this procedure was not
followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full
authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza.
In the first place, he was all the time aware that the money came from Vives and did not belong
to Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so that
a certification can be issued to the effect that Sterela had a deposit of so much amount to be
sued in the incorporation of the firm. In the second place, the signature of Doronilla was not
authorized in so far as that account is concerned inasmuch as he had not signed the signature
card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an
accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires
the presentation of the passbook. In this case, such recognized practice was dispensed with.
The transfer from the savings account to the current account was without the submission of the
passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand
in the execution of this certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her.
Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to
withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that
Atienzas active participation in the perpetration of the fraud and deception that caused the loss.
The records indicate that this account was opened three days later after the P200,000.00 was
deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted
regarding the opening of the current account considering that Doronilla was all the while in
"coordination" with him. That it was he who facilitated the approval of the authority to debit the
savings account to cover any overdrawings in the current account (Exh. 2) is not hard to
comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x
x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship
exists, and that the employee was acting within the scope of his assigned task when the act
complained of was committed.32 Case law in the United States of America has it that a
corporation that entrusts a general duty to its employee is responsible to the injured party for
damages flowing from the employees wrongful act done in the course of his general authority,
even though in doing such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager
when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in

which account private respondents money was deposited, and in transferring the money
withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioners interests 34 even
though in the process, Atienza violated some of petitioners rules such as those stipulated in its
savings account passbook.35 It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the cause of private
respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and
Dumagpi for the return of theP200,000.00 since it is clear that petitioner failed to prove that it
exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account,
and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error
was committed by the appellate court in the award of actual, moral and exemplary damages,
attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
SO ORDERED.

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko,

Sr., Petitioner, vs. UNITED COCONUT PLANTERS BANK, MANGO AVENUE
BRANCH, Respondent.
We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr.,
administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision 2 dated February 20,
2007 and the resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No.
00257 affirming the decision4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil
Case No. CEB-22277. The RTC dismissed the petitioners complaint for recovery of sum money
against United Coconut Planters Bank, Mango Avenue Branch (UCPB).
The Factual Antecedents
In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00)
with Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his
illegitimate family presented conflicting claims to PALII for the release of the investment. Pending
the investigation of the conflicting claims, PALII deposited the proceeds of the investment with
UCPB on October 29, 19965 under the name "Phil Asia: ITF (In Trust For) The Heirs of Joseph
Goyanko, Sr." (ACCOUNT). On September 27, 1997, the deposit under the ACCOUNT was
P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB

refused the demand to restore the amount withdrawn plus legal interest from December 11,
1997, the petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB
admitted, among others, the opening of the ACCOUNT under the name "ITF (In Trust For) The
Heirs of Joseph Goyanko, Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.
The RTC Ruling
In its August 27, 2003 decision, the RTC dismissed the petitioners complaint and awarded
UCPB attorneys fees, litigation expenses and the costs of the suit. 6 The RTC did not consider
the words "ITF HEIRS" sufficient to charge UCPB with knowledge of any trust relation between
PALII and Goyankos heirs (HEIRS). It concluded that UCPB merely performed its duty as a
depository bank in allowing PALII to withdraw from the ACCOUNT, as the contract of deposit
was officially only between PALII, in its own capacity, and UCPB. The petitioner appealed his
case to the CA.
The CAs Ruling
Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a
trust by which it was the "trustee" and the HEIRS are the "trustors-beneficiaries;" thus,
UCPB should be liable for allowing the withdrawal.
The CA partially granted the petitioners appeal. It affirmed the August 27, 2003 decision of the
RTC, but deleted the award of attorneys fees and litigation expenses. The CA held that no
express trust was created between the HEIRS and PALII. For a trust to be established, the law
requires, among others, a competent trustor and trustee and a clear intention to create a trust,
which were absent in this case. Quoting the RTC with approval, the CA noted that the contract of
deposit was only between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were
insufficient to establish the existence of a trust. The CA concluded that as no trust existed,
expressly or impliedly, UCPB is not liable for the amount withdrawn.7
In its July 31, 2007 resolution,8 the CA denied the petitioners motion for reconsideration. Hence,
the petitioners present recourse.
The Petition
The petitioner argues in his petition that: first, an express trust was created, as clearly shown by
PALIIs March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence, the petitioner
emphasizes that from the established definition of a trust,10 PALII is clearly the trustor as it
created the trust; UCPB is the trustee as it is the party in whom confidence is reposed as
regards the property for the benefit of another; and the HEIRS are the beneficiaries as they are
the persons for whose benefit the trust is created.11 Also, quoting Development Bank of the
Philippines v. Commission on Audit,12 the petitioner argues that the naming of the cestui que
trust is not necessary as it suffices that they are adequately certain or identifiable.13
Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire
into the nature of the ACCOUNT.14 The petitioner maintains that the surrounding facts, the
testimony of UCPBs witness, and UCPBs own records showed that: (1) UCPB was aware of
the trust relation between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust
capacity. Finally, the CA erred in affirming the RTCs dismissal of his case for lack of cause of
action. The petitioner insists that since an express trust clearly exists, UCPB, the trustee, should
not have allowed the withdrawal.
The Case for UCPB
UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between
PALII and UCPB only, which created a debtor-creditor relationship obligating UCPB to return the
proceeds to the account holder-PALII. Thus, it was not negligent in handling the ACCOUNT
when it allowed the withdrawal. The mere designation of the ACCOUNT as "ITF" is insufficient to
establish the existence of an express trust or charge it with knowledge of the relation between
PALII and the HEIRS.
UCPB also argues that the petitioner changed the theory of his case. Before the CA, the
petitioner argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here,
the petitioner maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the

beneficiaries. Contrary to the petitioners assertion, the records failed to show that PALII and
UCPB executed a trust agreement, and PALIIs letters made it clear that PALII, on its own,
intended to turn-over the proceeds of the ACCOUNT to its rightful owners.
The Courts Ruling
The issue before us is whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened
the ACCOUNT with UCPB.
We rule in the negative.
We first address the procedural issues. We stress the settled rule that a petition for review
on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not questions of
fact.15 A question, to be one of law, must not examine the probative value of the evidence
presented by the parties;16 otherwise, the question is one of fact.17 Whether an express trust
exists in this case is a question of fact whose resolution is not proper in a petition under Rule
45. Reinforcing this is the equally settled rule that factual findings of the lower tribunals are
conclusive on the parties and are not generally reviewable by this Court,18 especially when, as
here, the CA affirmed these findings. The plain reason is that this Court is not a trier of
facts.19 While this Court has, at times, permitted exceptions from the restriction,20 we find that
none of these exceptions obtain in the present case.
Second, we find that the petitioner changed the theory of his case. The petitioner argued before
the lower courts that an express trust exists between PALII as the trustee and the HEIRS as the
trustor-beneficiary.21 The petitioner now asserts that the express trust exists between PALII as
the trustor and UCPB as the trustee, with the HEIRS as the beneficiaries.22 At this stage of the
case, such change of theory is simply not allowed as it violates basic rules of fair play, justice
and due process. Our rulings are clear - "a party who deliberately adopts a certain theory upon
which the case was decided by the lower court will not be permitted to change [it] on
appeal";23 otherwise, the lower courts will effectively be deprived of the opportunity to decide the
merits of the case fairly.24 Besides, courts of justice are devoid of jurisdiction to resolve a
question not in issue.25 For these reasons, the petition must fail. Independently of these, the
petition must still be denied.
No express trust exists; UCPB exercised the required diligence in handling the
ACCOUNT; petitioner has no cause of action against UCPB
A trust, either express or implied,26 is the fiduciary relationship "x x x between one person having
an equitable ownership of property and another person owning the legal title to such property,
the equitable ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter."27Express or direct trusts are created by the direct and
positive acts of the trustor or of the parties.28 No written words are required to create an express
trust. This is clear from Article 1444 of the Civil Code,29 but, the creation of an express trust must
be firmly shown; it cannot be assumed from loose and vague declarations or circumstances
capable of other interpretations.30
In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express trust
will be recognized:
Basically, these elements include a competent trustor and trustee, an ascertainable
trust res, and sufficiently certain beneficiaries. xxx each of the above elements is
required to be established, and, if any one of them is missing, it is fatal to the trusts (sic).
Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is
essential, too, that the purpose be an active one to prevent trust from being executed into a legal
estate or interest, and one that is not in contravention of some prohibition of statute or rule of
public policy. There must also be some power of administration other than a mere duty to
perform a contract although the contract is for a thirdparty beneficiary. A declaration of
terms is essential, and these must be stated with reasonable certainty in order that the
trustee may administer, and that the court, if called upon so to do, may enforce, the trust.

Under these standards, we hold that no express trust was created. First, while an ascertainable
trust res and sufficiently certain beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal
with or given any power of administration over it. On the contrary, it was PALII that undertook the
duty to hold the title to the ACCOUNT for the benefit of the HEIRS.Third, PALII, as the trustor,
did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms by which
UCPB is to administer the ACCOUNT was not shown with reasonable certainty. While we agree
with the petitioner that a trusts beneficiaries need not be particularly identified for a trust to
exist, the intention to create an express trust must first be firmly established, along with
the other elements laid above; absent these, no express trust exists. Contrary to the petitioners
contention, PALIIs letters and UCPBs records established UCPBs participation as a mere
depositary of the proceeds of the investment. In the March 28, 1996 letter, PALII manifested its
intention to pursue an active role in and up to the turnover of those proceeds to their rightful
owners,32 while in the November 15, 1996 letter, PALII begged the petitioner to trust it with the
safekeeping of the investment proceeds and documents.33 Had it been PALIIs intention to create
a trust in favor of the HEIRS, it would have relinquished any right or claim over the proceeds in
UCPBs favor as the trustee. As matters stand, PALII never did.
UCPBs records and the testimony of UCPBs witness34 likewise lead us to the same conclusion.
While the words "ITF HEIRS" may have created the impression that a trust account was created,
a closer scrutiny reveals that it is an ordinary savings account.35 We give credence to UCPBs
explanation that the word "ITF" was merely used to distinguish the ACCOUNT from PALIIs other
accounts with UCPB. A trust can be created without using the word "trust" or "trustee," but the
mere use of these words does not automatically reveal an intention to create a trust. 36If at all,
these words showed a trustee-beneficiary relationship between PALII and the HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by the mere opening of the
ACCOUNT.1wphi1
While this may seem to be the case, by reason of the fiduciary nature of the banks relationship
with its depositors,37 this fiduciary relationship does not "convert the contract between the bank
and its depositors from a simple loan to a trust agreement, whether express or implied."38 It
simply means that the bank is obliged to observe "high standards of integrity and performance"
in complying with its obligations under the contract of simple loan.39 Per Article 1980 of the Civil
Code,40 a creditor-debtor relationship exists between the bank and its depositor.41 The savings
deposit agreement is between the bank and the depositor;42 by receiving the deposit, the bank
impliedly agrees to pay upon demand and only upon the depositors order.43
Since the records and the petitioners own admission showed that the ACCOUNT was opened
by PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its demand and
only upon its order. Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was
merely performing its contractual obligation under their savings deposit agreement. No
negligence or bad faith44 can be imputed to UCPB for this action. As far as UCPB was
concerned, PALII is the account holder and not the HEIRS. As we held in Falton Iron Works Co.
v. China Banking Corporation.45 the banks duty is to its creditor-depositor and not to third
persons. Third persons, like the HEIRS here, who may have a right to the money deposited,
cannot hold the bank responsible unless there is a court order or garnishment.46 The petitioners
recourse is to go before a court of competent jurisdiction to prove his valid right over the money
deposited.
In these lights, we find the third assignment of error mooted. A cause of action requires that
there be a right existing in favor of the plaintiff, the defendants obligation to respect that right,
and an act or omission of the defendant in breach of that right.47 We reiterate that UCPBs
obligation was towards PALII as its creditor-depositor. While the HEIRS may have a valid claim
over the proceeds of the investment, the obligation to turn-over those proceeds lies with PALII.
Since no trust exists the petitioners complaint was correctly dismissed and the CA did not

commit any reversible error in affirming the RTC decision. One final note, the burden to prove
the existence of an express trust lies with the petitioner.48 For his failure to discharge this burden,
the petition must fail.
WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the
decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of Appeals
in CA-G.R. CV. No. 00257. Costs against the petitioner.
SO ORDERED:
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COURT OF APPEALS, ANNABELLE A.
SALAZAR, and JULIO R. TEMPLONUEVO, Respondents
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the
Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.
The facts3 are as follows: A.A. Salazar Construction and Engineering Services filed an action for
a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The
complaint was later amended by substituting the name of Annabelle A. Salazar as the real party
in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven
Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her
account. She likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party
defendant and herein also a private respondent, demanded from the former payment of the
amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were
allegedly payable to him, but which were deposited with the petitioner bank to private
respondent Salazars account (Account No. 0203-1187-67) without his knowledge and
corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 02010588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this account was already closed by
private respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but they did not
arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum
of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference
between the value of the checks (P267,692.50) and the amount actually debited from her
account (P267,707.70) represented bank charges in connection with the issuance of a cashiers
check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him ofP267,692.50 and argued that said payment was to correct the malicious
deposit made by private respondent Salazar to her private account, and that petitioner banks
negligence and tolerance regarding the matter was violative of the primary and ordinary rules of
banking. He likewise contended that the debiting or taking of the reimbursed amount from the
account of private respondent Salazar by petitioner BPI was a matter exclusively between said
parties and may be pursuant to banking rules and regulations, but did not in any way affect him.
The debiting from another account of private respondent Salazar, considering that her other
account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to
pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of
merit.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise
DISMISSED for lack of factual basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent
Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT Construction and Trading5 actually belonged
to Salazar and would be deposited to her account, with petitioner acquiescing to the
arrangement.6
Petitioner therefore filed this petition on these grounds:
I.The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable
Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
II.The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22,
1278 and 1290 of the Civil Code in favor of BPI.
III.The Court of Appeals committed a reversible error in holding, based on a misapprehension of
facts, that the account from which BPI debited the amount of P267,707.70 belonged to a
corporation with a separate and distinct personality.
IV.The Court of Appeals committed a reversible error in holding, based entirely on speculations,
surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO
that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal
account and that BPI was privy to this agreement.
V.The Court of Appeals committed reversible error in holding, based entirely on speculation,
surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her
business standing was eroded.
VI.The Court of Appeals erred in affirming instead of reversing the decision of the lower court
against BPI and dismissing SALAZARs complaint.
VII.The Honorable Court erred in affirming the decision of the lower court dismissing the thirdparty complaint of BPI.7
The issues center on the propriety of the deductions made by petitioner from private respondent
Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor,
have the authority to withdraw unilaterally from such depositors account the amount it had
previously paid upon certain unendorsed order instruments deposited by the depositor to
another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in the possession of a person who is
neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have
presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable
Instruments Law,8 as the latter applies only to a holder defined under Section 191of the same. 9
2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite
her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and
that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject
amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and
exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business.
4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper
even though the value of the checks had been originally credited to the personal account of Salazar because A.A.

Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and
distinct personality from Salazar.
5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners
third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the
proceeds of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA.
The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and
Engineering Services were improper stemmed from its finding that there was no ineffective
payment to Salazar which would call for the exercise of petitioners right to set off against the
formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the
evidence adduced during trial and upon the admissions and stipulations of fact made during the
pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount
ofP154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT
Construction and Trading, the name and style under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit
the checks in her personal savings account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in
1990; and
(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one
year from the date of the last check.10

Petitioner concedes that when it credited the value of the checks to the account of private
respondent Salazar, it made a mistake because it failed to notice the lack of endorsement
thereon by the designated payee. The CA, however, did not lend credence to this claim and
concluded that petitioners actions were deliberate, in view of its admission that the "mistake"
was committed three times on three separate occasions, indicating acquiescence to the internal
arrangement between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not indorsed.
Three times she deposited them to her account and three times the amounts borne by these
checks were credited to the same. And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither did the bank question her as to why
she was depositing the checks to her account considering that she was not the payee thereof,
thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for
deposit on three separate times nary any question. Banks are most finicky over accepting
checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate
to accept indorsed checks for deposit if the depositor is not one they know very well.11
The CA likewise sustained Salazars position that she received the checks from Templonuevo
pursuant to an internal arrangement between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the
third and last check was deposited that he demanded for the refund of the total amount of
P267,692.50.
A prudent man knowing that payment is due him would have demanded payment by his debtor
from the moment the same became due and demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every person, at the very moment he learns that
he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He
would not have waited for a year within which to do so. It is most inconceivable that
Templonuevo did not do this.12

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the
Rules of Court.13Factual findings of the CA are entitled to great weight and respect, especially
when the CA affirms the factual findings of the trial court.14 Such questions on whether certain
items of evidence should be accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are questions of fact. The same holds true for
questions on whether or not the body of proofs presented by a party, weighed and analyzed in
relation to contrary evidence submitted by the adverse party may be said to be strong, clear and
convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity
as to justify refusing to give said proofs weight all these are issues of fact which are not
reviewable by the Court.15
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the
inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of
discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case
and the same are contrary to the admissions of both appellant and appellee; g) when the
findings of the CA are contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are based; i) when the finding of
fact of the CA is premised on the supposed absence of evidence but is contradicted by the
evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a different conclusion.16
In the present case, the records do not support the finding made by the CA and the trial court
that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazars entitlement to the value of the
instruments is based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the indorsement is actually made. 17
It bears stressing that the above transaction is an equitable assignment and the transferee
acquires the instrument subject to defenses and equities available among prior parties. Thus, if
the transferor had legal title, the transferee acquires such title and, in addition, the right to have
the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal
action against the maker or acceptor or other party liable to the transferor. The underlying
premise of this provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since
they are neither payees nor indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself conclusively establish either the
right of the possessor to receive payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in the absence
of any other facts from which the authority to receive payment may be inferred.18
The CA and the trial court surmised that the subject checks belonged to private respondent
Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To the Courts mind, however, such
period of delay is not of such unreasonable length as to estop Templonuevo from asserting

ownership over the checks especially considering that it was readily apparent on the face of the
instruments19 that these were crossed checks.
In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus:
(1) that the check may not be encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank; and (3) that the act of
crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose so that such holder must inquire if the check has been received pursuant to that
purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars
possession of the checks, it cannot be said that the presumption of ownership in Templonuevos
favor as the designated payee therein was sufficiently overcome. This is consistent with the
principle that if instruments payable to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and entitled to receive payment in
their own right.21
The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument
was given for a sufficient consideration will not inure to the benefit of Salazar because the term
"given" does not pertain merely to a transfer of physical possession of the instrument. The
phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in
which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to
one person or another in such a manner as to constitute the transferee the holderthereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the
indorsement completed by delivery."22 The present case involves checks payable to order. Not
being a payee or indorsee of the checks, private respondent Salazar could not be
a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the instrument
without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and
to prior holders to require possessors to prove without the aid of an initial presumption in their
favor, that they came into possession by virtue of a legitimate transaction with the last
holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to
Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit
the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the
back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed,"
thereby making the assurance that it had ascertained the genuineness of all prior endorsements.
Having assumed the liability of a general indorser, petitioners liability to the designated payee
cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the
value of the checks it previously credited in her favor. It is of no moment that the account debited
by petitioner was different from the original account to which the proceeds of the check were
credited because both admittedly belonged to Salazar, the former being the account of the sole
proprietorship which had no separate and distinct personality from her, and the latter being her
personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account
for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all
the requisites mentioned in Article 1279 are present," as follows:

(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.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an
entirely different matter.25 As businesses affected with public interest, and because of the nature
of their functions, banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.26 In this regard,
petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times on
three separate occasions. This negates petitioners claim that it merely made a mistake in
crediting the value of the checks to Salazars account and instead bolsters the conclusion of the
CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in
paying the same, contrary to ordinary banking policy and practice. It must be emphasized that
the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct.27The taking and collection of a check without the
proper indorsement amount to a conversion of the check by the bank.28
More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in
the name of the sole proprietorship of Salazar without even serving due notice upon her. This
ran contrary to petitioners assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy between her and Templonuevo.29 In
this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior
Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her
that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-058848 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time
that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R.
Templonuevo of the J.R.T. Construction and Trading for the sum ofP267,692.50 (Exhibit "8") and
debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be
frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several checks drawn
against the account of A.A. Salazar Construction and Engineering Services prior to any notice of
deduction being served. The CA sustained private respondent Salazars claim of damages in
this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of
A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn against the said account. As
can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991
(Exhibits "D", "E" and "F" respectively)30
These checks, it must be emphasized, were subsequently dishonored, thereby causing private
respondent Salazar undue embarrassment and inflicting damage to her standing in the business
community. Under the circumstances, she was clearly not given the opportunity to protect her

interest when petitioner unilaterally withdrew the above amount from her account without
informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of damages granted by
the CA against petitioner. This whole incident would have been avoided had petitioner adhered
to the standard of diligence expected of one engaged in the banking business. A depositor has
the right to recover reasonable moral damages even if the banks negligence may not have been
attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The
award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is

proper where exemplary damages are awarded. It is proper where depositors are compelled to
litigate to protect their interest.32
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998
and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the
amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET
ASIDE. In all other respects, the same are AFFIRMED.
No costs.