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Republic of the Philippines

G.R. No. 154469
December 6, 2006
RENATO D. CABILZO, respondent.
Before this Court is a Petition for Review on Certiorari, filed by petitioner
Metropolitan Bank and Trust Company (Metrobank) seeking to reverse and
set aside the Decision1 of the Court of Appeals dated 8 March 2002 and its
Resolution dated 26 July 2002 affirming the Decision of the Regional Trial
Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive
portion of the Court of Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorneys fees are hereby deleted.
Petitioner Metrobank is a banking institution duly organized and existing as
such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobanks clients who
maintained a current account with Metrobank Pasong Tamo Branch. 3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988,
payable to "CASH" and postdated on 24 November 1994 in the amount of
One Thousand Pesos (P1,000.00). The check was drawn against Cabilzos
Account with Metrobank Pasong Tamo Branch under Current Account No.
618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales
Subsequently, the check was presented to Westmont Bank for payment.
Westmont Bank, in turn, indorsed the check to Metrobank for appropriate
clearing. After the entries thereon were examined, including the availability of
funds and the authenticity of the signature of the drawer, Metrobank cleared
the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.


On 16 November 1994, Cabilzos representative was at Metrobank Pasong

Tamo Branch to make some transaction when he was asked by a bank
personnel if Cabilzo had issued a check in the amount of P91,000.00 to
which the former replied in the negative. On the afternoon of the same date,
Cabilzo himself called Metrobank to reiterate that he did not issue a check in
the amount of P91,000.00 and requested that the questioned check be
returned to him for verification, to which Metrobank complied. 5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No.
985988 which he issued on 12 November 1994 in the amount of P1,000.00
was altered to P91,000.00 and the date 24 November 1994 was changed to
14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit the amount
of P91,000.00 to his account. Metrobank, however, refused reasoning that it
has to refer the matter first to its Legal Division for appropriate action.
Repeated verbal demands followed but Metrobank still failed to re-credit the
amount of P91,000.00 to Cabilzos account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand 8 to
Metrobank for the payment of P90,000.00, after deducting the original value
of the check in the amount of P1,000.00. Such written demand
notwithstanding, Metrobank still failed or refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against
Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed
as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and
Trust Company,Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be awarded
in his favor.9
For its part, Metrobank countered that upon the receipt of the said check
through the PCHC on 14 November 1994, it examined the genuineness and
the authenticity of the drawers signature appearing thereon and the technical
entries on the check including the amount in figures and in words to
determine if there were alterations, erasures, superimpositions or
intercalations thereon, but none was noted. After verifying the authenticity
and propriety of the aforesaid entries, including the indorsement of the
collecting bank located at the dorsal side of the check which stated that, "all
prior indorsements and lack of indorsement guaranteed," Metrobank cleared
the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last
indorser, Westmont Bank should be held liable for the value of the check.
Westmont Bank indorsed the check as the an unqualified indorser, by virtue
of which it assumed the liability of a general indorser, and thus, among
others, warranted that the instrument is genuine and in all respect what it
purports to be.


In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in

leaving spaces on the check, which, made the fraudulent insertion of the
amount and figures thereon, possible. On account of his negligence in the
preparation and issuance of the check, which according to Metrobank, was
the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by
virtue of the doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount
of P100,000.00 which represents the cost of litigation and attorneys fees, for
allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint 12 against
Westmont Bank on account of its unqualified indorsement stamped at the
dorsal side of the check which the former relied upon in clearing what turned
out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed
by Westmont bank because another case involving the same cause of action
was pending before a different court. The said case arose from an action for
reimbursement filed by Metrobank before the Arbitration Committee of the
PCHC against Westmont Bank, and now the subject of a Petition for Review
before the RTC of Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to
Dismiss the Third-Party Complaint on the ground of litis pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and
thereby ordered Metrobank to pay the sum of P90,000.00, the amount of the
check. In stressing the fiduciary nature of the relationship between the bank
and its clients and the negligence of the drawee bank in failing to detect an
apparent alteration on the check, the trial court ordered for the payment of
exemplary damages, attorneys fees and cost of litigation. The dispositive
portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant
Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo
the sum of P90,000 with legal interest of 6 percent per annum from
November 16, 1994 until payment is made plus P20,000 attorneys
fees, exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals
reiterating its previous argument that as the last indorser, Westmont Bank
shall bear the loss occasioned by the fraudulent alteration of the check.
Elaborating, Metrobank maintained that by reason of its unqualified
indorsement, Westmont Bank warranted that the check in question is
genuine, valid and subsisting and that upon presentment the check shall be
accepted according to its tenor.


Even more, Metrobank argued that in clearing the check, it was not remiss in
the performance of its duty as the drawee bank, but rather, it exercised the
highest degree of diligence in accordance with the generally accepted
banking practice. It further insisted that the entries in the check were regular
and authentic and alteration could not be determined even upon close
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with
modification the Decision of the court a quo,similarly finding Metrobank liable
for the amount of the check, without prejudice, however, to the outcome of
the case between Metrobank and Westmont Bank which was pending before
another tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with the modifications (sic) that the awards for exemplary
damages and attorneys fees are hereby deleted. 18
Similarly ill-fated was Metrobanks Motion for Reconsideration which was
also denied by the appellate court in its Resolution 19 issued on 26 July 2002,
for lack of merit.
Metrobank now poses before this Court this sole issue:
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the instrument. It
means that an unauthorized change in an instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of words
or numbers or other change to an incomplete instrument relating to the
obligation of a party.20 In other words, a material alteration is one which
changes the items which are required to be stated under Section 1 of the
Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand or at a fixed determinable future
(d) Must be payable to order or to bearer; and


(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument Law
which states:
Section 125. What constitutes material alteration. Any alteration
which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased
from P1,000.00 to P91,000.00 and the date was changed from 24 November
1994 to 14 November 1994. Apparently, since the entries altered were
among those enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.
Now, having laid the premise that the present petition is a case of material
alteration, it is now necessary for us to determine the effect of a materially
altered instrument, as well as the rights and obligations of the parties
thereunder. The following provision of the Negotiable Instrument Law will
shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has
himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor.
(Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration.
Neither did he assent to the alteration by his express or implied acts. There is
no showing that he failed to exercise such reasonable degree of diligence
required of a prudent man which could have otherwise prevented the loss. As
correctly ruled by the appellate court, Cabilzo was never remiss in the
preparation and issuance of the check, and there were no indicia of evidence
that would prove otherwise. Indeed, Cabilzo placed asterisks before and after


the amount in words and figures in order to forewarn the subsequent holders
that nothing follows before and after the amount indicated other than the one
specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his
tasks and the performance of his duties has been faithfully complied with by
Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces
between and after the amounts, not only those stated in words, but also
those in numerical figures, in order to prevent any fraudulent insertion, but
unfortunately, the check was still successfully altered, indorsed by the
collecting bank, and cleared by the drawee bank, and encashed by the
perpetrator of the fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of equitable
estoppel when the facts on record are bare of evidence to support such
conclusion. The doctrine of equitable estoppel states that when one of the
two innocent persons, each guiltless of any intentional or moral wrong, must
suffer a loss, it must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury.21 Metrobanks reliance on
this dictum, is misplaced. For one, Metrobanks representation that it is an
innocent party is flimsy and evidently, misleading. At the same time,
Metrobank cannot asseverate that Cabilzo was negligent and this negligence
was the proximate cause22 of the loss in the absence of even a scintilla proof
to buttress such claim. Negligence is not presumed but must be proven by
the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He
was just an ordinary businessman who, in order to facilitate his business
transactions, entrusted his money with a bank, not knowing that the latter
would yield a substantial amount of his deposit to fraud, for which Cabilzo
can never be faulted.
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the countrys economy in
general. 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. 24
Thus, even the humble wage-earner does not hesitate 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 a businessman like the respondent, the bank is a trusted
and active associate that can help in the running of his 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. 25
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.26
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 appropriate degree of diligence required of a
bank must be a high degree of diligence, if not the utmost diligence. 27
In the present case, it is obvious that Metrobank was remiss in that duty and
violated that relationship. As observed by the Court of Appeals, there are
material alterations on the check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure
in the shape of the number "2". The appellants employees who
examined the said check should have likewise been put on guard as
to why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said
phrase, there is none, even as 4 asterisks have been placed before
and after the word "CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS ONLY" have
noticeably been erased with typing correction paper, leaving white
marks, over which the word "NINETY" was superimposed. The same
can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of
the asterisk which was deleted to insert the said figure. The
appellants employees should have again noticed why only 2
asterisks were placed before the amount in figures, while 3 asterisks
were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words
"ONE THOUSAND PESOS ONLY." The letters of the word "NINETY"
are likewise a little bigger when compared with the letters of the
Surprisingly, however, Metrobank failed to detect the above alterations which
could not escape the attention of even an ordinary person. This negligence


was exacerbated by the fact that, as found by the trial court, the check in
question was examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment against drawers
accounts.29 Obviously, the employee allowed by Metrobank to examine the
check was not verse and competent to handle such duty. These factual
findings of the trial court is conclusive upon this court especially when such
findings was affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the very nature of their work the
degree of responsibility, care and trustworthiness expected of their
employees and officials is far better than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence
in the selection and supervision of their employees. 31
In addition, the bank on which the check is drawn, known as the drawee
bank, is under strict liability to pay to the order of the payee in accordance
with the drawers instructions as reflected on the face and by the terms of the
check. Payment made under materially altered instrument is not payment
done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty to charge its clients account only for bona
fide disbursements he had made. Since the drawee bank, in the instant case,
did not pay according to the original tenor of the instrument, as directed by
the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the
drawers account which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully
examined: The date of the instrument, the amount in words and figures, as
well as the drawers signature, which after verification, were found to be
proper and authentic and was thus cleared. We are not persuaded.
Metrobanks negligence consisted in the omission of that degree of diligence
required of a bank owing to the fiduciary nature of its relationship with its
client. Article 1173 of the Civil Code provides:
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. x x x.
Beyond question, Metrobank failed to comply with the degree required by the
nature of its business as provided by law and jurisprudence. If indeed it was
not remiss in its obligation, then it would be inconceivable for it not to detect
an evident alteration considering its vast knowledge and technical expertise


in the intricacies of the banking business. This Court is not completely

unaware of banks practices of employing devices and techniques in order to
detect forgeries, insertions, intercalations, superimpositions and alterations in
checks and other negotiable instruments so as to safeguard their authenticity
and negotiability. Metrobank cannot now feign ignorance nor claim diligence;
neither can it point its finger at the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last
indorser, shall bear the loss. Without ruling on the matter between the
drawee bank and the collecting bank, which is already under the jurisdiction
of another tribunal, we find that Metrobank cannot rely on such indorsement,
in clearing the questioned check. The corollary liability of such indorsement,
if any, is separate and independent from the liability of Metrobank to Cabilzo.

Court of Appeals are AFFIRMED with modification that exemplary damages

in the amount of P50,000.00 be awarded. Costs against the petitioner.

The reliance made by Metrobank on Westmont Banks indorsement is clearly

inconsistent, if not totally offensive to the dictum that being impressed with
public interest, banks should exercise the highest degree of diligence, if not
utmost diligence in dealing with the accounts of its own clients. It owes the
highest degree fidelity to its clients and should not therefore lightly rely on the
judgment of other banks on occasions where its clients money were involve,
no matter how small or substantial the amount at stake.
Metrobanks contention that it relied on the strength of collecting banks
indorsement may be merely a lame excuse to evade liability, or may be
indeed an actual banking practice. In either case, such act constitutes a
deplorable banking practice and could not be allowed by this Court bearing in
mind that the confidence of public in general is of paramount importance in
banking business.
What is even more deplorable is that, having been informed of the alteration,
Metrobank did not immediately re-credit the amount that was erroneously
debited from Cabilzos account but permitted a full blown litigation to push
through, to the prejudice of its client. Anyway, Metrobank is not left with no
recourse for it can still run after the one who made the alteration or with the
collecting bank, which it had already done. It bears repeating that the records
are bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately reimburse his
account. Such ineptness comes within the concept of wanton manner
contemplated under the Civil Code which warrants the imposition of
exemplary damages, "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 stern
warning in order to deter the repetition of similar acts of negligence, lest the
confidence of the public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The
Decision dated 8 March 2002 and the Resolution dated 26 July 2002 of the




[G.R. No. 155206. October 28, 2003]


EDUARDO M. SANTIAGO, substituted by his widow ROSARIO

The Certificate of Sale dated August 14, 1974 had been annotated and
inscribed in TCT Nos. 26105, 37177 and 50356, with the following notations:
(T)he following lots which form part of this title (TCT No. 26105) are not
covered by the mortgage contract due to sale to third parties and donation to
the government: 50-H-5-C-9-J-65-H-8, 50-H-5-C-9J-M-7; 50-H-5-C-9-J-65-H5; 1 lots Nos. 1 to 13, Block No. 1 -6,138 sq.m. 2. Lots Nos. 1 to 11, Block
No. 2 4,660 sq.m. 3. Lot No. 15, Block No. 3 487 sq.m. 4. Lot No. 17, Block
No. 4 263 sq.m. 5. Lot No. 1, Block No. 7 402 sq.m. 6. Road Lots Nos. 1, 2,
3, & 4 2,747 sq.m.


Before the Court is the petition for review on certiorari filed by the
Government Service Insurance System (GSIS), seeking to reverse and set
aside the Decision[1] dated February 22, 2002 of the Court of Appeals (CA) in
CA-G.R. CV No. 62309 and its Resolution dated September 5, 2002 denying
its motion for reconsideration.

The antecedent facts of the case, as culled from the assailed CA

decision and that of the trial court, are as follows:
Deceased spouses Jose C. Zulueta and Soledad Ramos obtained various
loans from defendant GSIS for (the) period September, 1956 to October,
1957 in the total amount of P3,117,000.00 secured by real estate mortgages
over parcels of land covered by TCT Nos. 26105, 37177 and 50365. The
Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed
the real estate mortgages dated September 25, 1956, March 6, 1957, April 4,
1957 and October 15, 1957.

On August 14, 1974, the mortgaged properties were sold at public auction by
defendant GSIS submitting a bid price of P5,229,927.84. Not all lots covered
by the mortgaged titles, however, were sold. Ninety-one (91) lots were
expressly excluded from the auction since the lots were sufficient to pay for
all the mortgage debts. A Certificate of Sale (Annex F, Records, Vol. I, pp. 2328) was issued by then Provincial Sheriff Nicanor D. Salaysay.


In another NOTE: The following lots in the Antonio Subdivision were already
released by the GSIS and therefore are not included in this sale,
namely: LOT NO. 1, 6, 7, 8, 9, 10, and 13 (Old Plan) Block I; 1, 3, 4, 5, 7, 8
and 10 (Old Plan) Block II; 3, 10, 12 and 13 (New Plan) Block I (Old Plan)
Block III; 7, 14 and 20 (New Plan) Block III (Old Plan) Block V; 13 and 20
(New Plan) Block IV (Old Plan) Block VI; 1, 2, 3 and 10 (New Plan) Block V
(Old Plan) Block VII; 1, 5, 8, 15, 26 and 27 (New Plan) Block VI (Old Plan)
Block VIII; 7, 12 and 20 (New Plan) Block VII (Old Plan) Block II; 1, 4 and 6
(New Plan) Block VIII (Old Plan) Block X; 5 (New Plan) Block X (Old Plan)
Block ZXII; 6 (New Plan) Block XI (Old Plan) Block XII; 1, Block 9; 12 Block
1; 11 Block 2; 19 Block 1; 10 Block 6; 23 Block 3.
NO. 6 Block 4; 2 Block 2; 5 Block 5; 1, 2 and 3 Block 11, 1, 2, 3 and 4 Block
10; 5 Block 11 (New); 1 Block 3; 5 Block 1; 15 Block 7; 11 Block 9; 13 Block
5; 12 Block 5; 3 Block 10; 6.

On November 25, 1975, an Affidavit of Consolidation of Ownership (Annex

G, Records, Vol. I, pp. 29-31) was executed by defendant GSIS over
Zuluetas lots, including the lots, which as earlier stated, were already
excluded from the foreclosure.

On March 6, 1980, defendant GSIS sold the foreclosed properties to

Yorkstown Development Corporation which sale was disapproved by the


Office of the President of the Philippines. The sold properties were returned
to defendant GSIS.

The Register of Deeds of Rizal cancelled the land titles issued to Yorkstown
Development Corporation. On July 2, 1980, TCT No. 23552 was issued
cancelling TCT No. 21926; TCT No. 23553 cancelled TCT No. 21925; and
TCT No. 23554 cancelling TCT No. 21924, all in the name of defendant

After defendant GSIS had re-acquired the properties sold to Yorkstown

Development Corporation, it began disposing the foreclosed lots including
the excluded ones.

After due trial, the RTC rendered judgment against the petitioner
ordering it to reconvey to the respondent, Rosario Enriquez Vda. de
Santiago, in substitution of her deceased husband Eduardo, the seventyeight lots excluded from the foreclosure sale. The dispositive portion of the
RTC decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

the defendant:
1. Ordering defendant to reconvey to plaintiff the seventy-eight (78) lots
released and excluded from the foreclosure sale including the additional
exclusion from the public sale, namely:
a. Lot Nos. 1, 6, 7, 8, 0, 10, 13, Block I (Old Plan).
b. Lot Nos. 1, 3, 4, 5, 7, 8 and 10, Block II (Old

On April 7, 1990, representative Eduardo Santiago and then plaintiff Antonio

Vic Zulueta executed an agreement whereby Zulueta transferred all his rights
and interests over the excluded lots.Plaintiff Eduardo Santiagos lawyer, Atty.
Wenceslao B. Trinidad, wrote a demand letter dated May 11, 1989 (Annex H,
Records, Vol. I, pp. 32-33) to defendant GSIS asking for the return of the
eighty-one (81) excluded lots.[2]

c. Lot Nos. 3, 10, 12, and 13, Block I (New Plan),

Block III (Old Plan),
d. Lot Nos. 7, 14 and 20, Block III (New Plan), Block
V (Old Plan).
e. Lot Nos. 13 and 20, Block IV (New Plan), Block VI
(Old Plan).

On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M.

Santiago, filed with the Regional Trial Court (RTC) of Pasig City, Branch 71, a
complaint for reconveyance of real estate against the GSIS. Spouses Alfeo
and Nenita Escasa, Manuel III and Sylvia G. Urbano, and Marciana P.
Gonzales and the heirs of Mamerto Gonzales moved to be included as
intervenors and filed their respective answers in intervention. Subsequently,
the petitioner, as defendant therein, filed its answer alleging inter alia that the
action was barred by the statute of limitations and/or laches and that the
complaint stated no cause of action. Subsequently, Zulueta was substituted
by Santiago as the plaintiff in the complaint a quo. Upon the death
of Santiago on March 6, 1996, he was substituted by his widow, Rosario
Enriquez Vda. de Santiago, as the plaintiff.

f. Lot Nos. 1, 2, 3 and 10, Block V (New Plan), Block

VII (Old Plan).
g. Lot Nos. 1, 5, 8, 15, 26 and 27, Block VI (New
Plan), Block VIII (Old Plan).
h. Lot Nos. 7 and 12, Block VII (New Plan), Block II
(Old Plan).
i. Lot Nos. 1, 4 and 6, Block VIII (New Plan), Block X
(Old Plan).
j. Lot 5, Block X (New Plan), Block XII (Old Plan).



k. Lot 6, Block XI (New Plan), Block XII (Old Plan).

l. Lots 2, 5, 12 and 15, Block I.

5. Costs of suit.[3]

m. Lots 6, 9 and 11, Block 2.

n. Lots 1, 5, 6, 7, 16 and 23, Block 3.
o. Lot 6, Block 4.

The petitioner elevated the case to the CA which rendered the assailed
decision affirming that of the RTC. The dispositive portion of the assailed
decision reads:

p. Lots 5, 12, 13 and 24, Block 5.

q. Lots 10 and 16, Block 6.
r. Lots 6 and 15, Block 7.

WHEREFORE, premises considered, the herein appeal is DISMISSED for

lack of merit. The Decision of December 17, 1997 of Branch 71 of
the Regional Trial Court of Pasig City is hereby AFFIRMED.[4]

s. Lots 13, 24, 28 and 29, Block 8.

t. Lots 1, 11, 17 and 22, Block 9.
u. Lots 1, 2, 3 and 4, Block 10.

The petitioner moved for a reconsideration of the aforesaid decision but

the same was denied in the assailed CA Resolution of September 5, 2002.
The petitioner now comes to this Court alleging that:

v. Lots 1, 2, 3 and 5 (New), Block 11.

2. Ordering defendant to pay plaintiff, if the seventy-eight (78) excluded lots

could not be reconveyed, the fair market value of each of said lots.

3. Ordering the Registry of Deeds of Pasig City to cancel the land titles
covering the excluded lots in the name of defendant or any of its successorsin-interest including all derivative titles therefrom and to issue new land titles
in plaintiffs name.

4. Ordering the Registry of Deeds of Pasig City to cancel the Notices of Lis
Pendens inscribed in TCT No. PT-80342 under Entry No. PT-12267/T-23554;
TCT No. 81812 under Entry No. PT-12267/T-23554; and TCT No. PT-84913
under Entry No. PT-12267/T-23554.




In its petition, the petitioner maintains that it did not act in bad faith when
it erroneously included in its certificate of sale, and subsequently
consolidated the titles in its name over the seventy-eight lots (subject lots)
that were excluded from the foreclosure sale. There was no proof of bad faith
nor could fraud or malice be attributed to the petitioner when it erroneously
caused the issuance of certificates of title over the subject lots despite the
fact that these were expressly excluded from the foreclosure sale.


The petitioner asserts that the action for reconveyance instituted by the
respondent had already prescribed after the lapse of ten years
from November 25, 1975 when the petitioner consolidated its ownership over
the subject lots. According to the petitioner, an action for reconveyance
based on implied or constructive trust prescribes in ten years from the time of
its creation or upon the alleged fraudulent registration of the property. In this
case, when the action was instituted on May 7, 1990, more than fourteen
years had already lapsed. Thus, the petitioner contends that the same was
already barred by prescription as well as laches.

The petitioner likewise takes exception to the holding of the trial court
and the CA that it (the petitioner) failed to apprise or return to the Zuluetas,
the respondents predecessors-in-interest, the seventy-eight lots excluded
from the foreclosure sale because the petitioner had no such obligation
under the pertinent loan and mortgage agreement.

The acts of defendant-appellant GSIS in concealing from the Zuluetas [the

respondents predecessors-in-interest] the existence of these lots, in failing to
notify or apprise the spouses Zulueta about the excluded lots from the time it
consolidated its titles on their foreclosed properties in 1975, in failing to
inform them when it entered into a contract of sale of the foreclosed
properties to Yorkstown Development Corporation in 1980 as well as when
the said sale was revoked by then President Ferdinand E. Marcos during the
same year demonstrated a clear effort on its part to defraud the spouses
Zulueta and appropriate for itself the subject properties. Even if titles over the
lots had been issued in the name of the defendant-appellant, still it could not
legally claim ownership and absolute dominion over them because
indefeasibility of title under the Torrens system does not attach to titles
secured by fraud or misrepresentation. The fraud committed by defendantappellant in the form of concealment of the existence of said lots and failure
to return the same to the real owners after their exclusion from the
foreclosure sale made defendant-appellant holders in bad faith. It is wellsettled that a holder in bad faith of a certificate of title is not entitled to the
protection of the law for the law cannot be used as a shield for fraud. [7]

The petitioners arguments fail to persuade.

At the outset, it bears emphasis that the jurisdiction of this Court in a
petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, is limited to reviewing only errors of law. This Court is not a trier of
facts. Case law has it that the findings of the trial court especially when
affirmed by the CA are binding and conclusive upon this Court. Although
there are exceptions to the said rule, we find no reason to deviate therefrom.
By assailing the findings of facts of the trial court as affirmed by the CA,
that it acted in bad faith, the petitioner thereby raised questions of facts in its

Nonetheless, even if we indulged the petition and delved into the factual
issues, we find the petition barren of merit.
That the petitioner acted in bad faith in consolidating ownership and
causing the issuance of titles in its name over the subject lots,
notwithstanding that these were expressly excluded from the foreclosure sale
was the uniform ruling of the trial court and appellate court. As declared by
the CA:


The Court agrees with the findings and conclusion of the trial court and
the CA. The petitioner is not an ordinary mortgagee. It is a government
financial institution and, like banks, is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. [8] The
Courts ruling in Rural Bank of Compostela v. CA[9] is apropos:

Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, for their business is one affected
with public interest, keeping in trust money belonging to their depositors,
which they should guard against loss by not committing any act of negligence
which amounts to lack of good faith by which they would be denied the
protective mantle of land registration statute, Act [No.] 496, extended only to
purchasers for value and in good faith, as well as to mortgagees of the same
character and description.[10]


Due diligence required of banks extend even to persons, or institutions

like the petitioner, regularly engaged in the business of lending money
secured by real estate mortgages.[11]

In this case, the petitioner executed an affidavit in consolidating its

ownership and causing the issuance of titles in its name over the subject lots
despite the fact that these were expressly excluded from the foreclosure
sale. By so doing, the petitioner acted in gross and evident bad faith. It
cannot feign ignorance of the fact that the subject lots were excluded from
the sale at public auction. At the least, its act constituted gross negligence
amounting to bad faith. Further, as found by the CA, the petitioners acts of
concealing the existence of these lots, its failure to return them to the
Zuluetas and even its attempt to sell them to a third party is proof of the
petitioners intent to defraud the Zuluetas and appropriate for itself the subject

On the issue of prescription, generally, an action for reconveyance of

real property based on fraud prescribes in four years from the discovery of
fraud; such discovery is deemed to have taken place upon the issuance of
the certificate of title over the property. Registration of real property is a
constructive notice to all persons and, thus, the four-year period shall be
counted therefrom.[12] On the other hand, Article 1456 of the Civil Code

Art. 1456. If property is acquired through mistake or fraud, the person

obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes.

An action for reconveyance based on implied or constructive trust

prescribes in ten years from the alleged fraudulent registration or date of
issuance of the certificate of title over the property.[13]

10 | B A N K I N G L A W S

The petitioners defense of prescription is untenable. As held by the CA,

the general rule that the discovery of fraud is deemed to have taken place
upon the registration of real property because it is considered a constructive
notice to all persons does not apply in this case. The CA correctly cited the
cases of Adille v. Court of Appeals[14] and Samonte v. Court of Appeals,
where this Court reckoned the prescriptive period for the filing of the action
for reconveyance based on implied trust from the actual discovery of fraud.

In ruling that the action had not yet prescribed despite the fact that more
than ten years had lapsed between the date of registration and the institution
of the action for reconveyance, the Court in Adille ratiocinated:
It is true that registration under the Torrens system is constructive notice of
title, but it has likewise been our holding that the Torrens title does not furnish
a shield for fraud. It is therefore no argument to say that the act of
registration is equivalent to notice of repudiation, assuming there was one,
notwithstanding the long-standing rule that registration operates as a
universal notice of title.

For the same reason, we cannot dismiss private respondents claims

commenced in 1974 over the estate registered in 1955. While actions to
enforce a constructive trust prescribes in ten years, reckoned from the date
of the registration of the property, we, as we said, are not prepared to count
the period from such a date in this case. We note the petitioners sub
rosa efforts to get hold of the property exclusively for himself beginning with
his fraudulent misrepresentation in his unilateral affidavit of extrajudicial
settlement that he is the only heir and child of his mother Feliza with the
consequence that he was able to secure title in his name
[alone]. Accordingly, we hold that the right of the private respondents
commenced from the time they actually discovered the petitioners act of
defraudation. According to the respondent Court of Appeals, they came to
know [of it] apparently only during the progress of the litigation. Hence,
prescription is not a bar.[16]
The above ruling was reiterated in the more recent case of Samonte. In
this case, as established by the CA, the respondent actually discovered the
fraudulent act of the petitioner only in 1989:


... [T]he prescriptive period of the action is to be reckoned from the time
plaintiff-appellee (then Eduardo M. Santiago) had actually discovered the
fraudulent act of defendant-appellant which was, as borne out by the records,
only in 1989. Plaintiff-appellee Eduardo M. Santiago categorically testified
(TSN of July 11, 1995, pp. 14-15) that he came to know that there were 91
excluded lots in Antonio Village which were foreclosed by the GSIS and
included in its consolidation of ownership in 1975 when, in 1989, he and
Antonio Vic Zulueta discussed it and he was given by Zulueta a special
power of attorney to represent him to recover the subject properties from
GSIS. The complaint for reconveyance was filed barely a year from the
discovery of the fraud.[17]

Following the Courts pronouncements in Adille and Samonte, the

institution of the action for reconveyance in the court a quo in 1990 was thus
well within the prescriptive period. Having acted in bad faith in securing titles
over the subject lots, the petitioner is a holder in bad faith of certificates of
title over the subject lots. The petitioner is not entitled to the protection of the
law for the law cannot be used as a shield for frauds. [18]

Contrary to its claim, the petitioner unarguably had the legal duty to
return the subject lots to the Zuluetas. The petitioners attempts to justify its
omission by insisting that it had no such duty under the mortgage contract is
obviously clutching at straw. Article 22 of the Civil Code explicitly provides
that every person who, through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to

WHEREFORE, the petition is DENIED for lack of merit. The assailed

Decision dated February 22, 2002 and Resolution dated September 5, 2002
of the Court of Appeals in CA-G.R. CV No. 62309 are AFFIRMED IN
TOTO. Costs against the petitioner.


11 | B A N K I N G L A W S

Petitioners, Present:
Working Chairperson,
- v e r s u s - CORONA,
Respondents. Promulgated:
January 23, 2007
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
This petition for review on certiorari [1] seeks a review and reversal of the
Court of Appeals (CA) decision[2] and resolution[3] in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3
million. The loan was secured by two residential lots in Tabuk, KalingaApayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and
12112. The certificates of title, issued by the Registry of Deeds of the
Province of Kalinga-Apayao, were in the name of Edgar [4] Omengan married
to Dinah Omengan.


The first P2.5 million was released by Branch Manager Henry Montalvo on
three separate dates. The release of the final half million was, however,
withheld by Montalvo because of a letter allegedly sent by Edgars sisters. It
Appas, Tabuk
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
This refers to the land at Appas, Tabuk in the name of our
brother, Edgar Omengan, which was mortgaged to [the]
Bank in the amount of Three Million Pesos (P3,000,000.00),
the sum of [P2.5 Million] had already been released and
received by our brother, Edgar.
In this connection, it is requested that the remaining
unreleased balance of [half a million pesos] be held in
abeyance pending an understanding by the rest of the
brothers and sisters of Edgar. Please be informed that the
Edgar Omengan, is owned in co-ownership by all the
children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject
property under Edgars name can attest to this fact. We
had a prior understanding with Edgar in allowing him to
make use of the property as collateral, but he refuses to
comply with such arrangement. Hence, this letter.
(emphasis ours)

Montalvo was
Manuel Acierto who released the remaining half million pesos to petitioners
on May 2, 1997. Acierto also recommended the approval of a P2 million
increase in their credit line to the Cagayan Valley Business Center Credit
Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3
to P5
conformity. Acierto informed petitioners of the conditional approval of their
credit line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put
on hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2
million. He claimed that the condition for its release was not part of his credit
line agreement with PNB because it was added without his consent. PNB
denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and
damages against PNB with the Regional Trial Court (RTC), Branch 25
in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of
[petitioners.] [PNB is ordered]:
To release without delay in favor of [petitioners]
of P2,000,000.00
the P5,000,000.00 credit line agreement;
To pay [petitioners] the amount of P2,760,000.00
representing the losses and/or expected income of the
[petitioners] for three years;
To pay lawful interest, until the amount
aforementioned on paragraphs 1 and 2 above are fully
paid; and

To pay the costs.

Very truly yours,

(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]
The CA, however, on June 18, 2003, reversed and set aside the
RTC decision dated April 21, 2001.[7]

12 | B A N K I N G L A W S


Petitioners now contend that the CA erred when it did not sustain the finding
of breach of contract by the RTC. [8]
The existence of breach of contract is a factual matter not usually reviewed in
a petition filed under Rule 45. But since the RTC and the CA had
contradictory findings, we are constrained to rule on this issue.

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. xxx 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.[12]
(emphasis supplied)

Was there a breach of contract? There was none.

Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the
terms of a contract. It is also defined as the [f]ailure, without
legal excuse, to perform any promise which forms the whole
or part of the contract.[9]
In this case, the parties agreed on a P3 million credit line. This sum was
completely released to petitioners who subsequently applied [10] for an
increase in their credit line. This was conditionally approved by PNBs credit
committee. For all intents and purposes, petitioners sought an additional
The condition attached to the increase in credit line requiring petitioners to
acquire the conformity of Edgars sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional loan, no meeting of the
minds actually occurred and no breach of contract could be attributed to
PNB. There was no perfected contract over the increase in credit line.
[T]he business of a bank is one affected with public interest, for which reason
the bank should guard against loss due to negligence or bad faith. In
approving the loan of an applicant, the bank concerns itself with proper
[information] regarding its debtors.[11] Any investigation previously conducted
on the property offered by petitioners as collateral did not preclude PNB from
considering new information on the same property as security for a
subsequent loan. The credit and property investigation for the original loan
of P3 million did not oblige PNB to grant and release any additional loan. At
the time the original P3 million credit line was approved, the title to the
property appeared to pertain exclusively to petitioners. By the time the
application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.

Here, PNB had acquired information sufficient to induce a reasonably

prudent person to inquire into the status of the title over the subject
property. Instead of defending their position, petitioners merely insisted that
reliance on the face of the certificate of title (in their name) was
sufficient. This principle, as already mentioned, was not applicable to
financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their
favor if, as they said, they really owned the subject property alone, to the
exclusion of any other owner(s). Unfortunately, all they offered were bare
denials of the co-ownership claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the abovementioned condition for the release of the additional loan. If the condition
proved unacceptable to petitioners, the parties could have discussed other
terms instead of making an obstinate and outright demand for the release of
the additional amount. If the alleged co-ownership in fact had no leg to stand
on, petitioners could have introduced evidence other than a simple denial of
its existence.
Since PNB did not breach any contract and since it exercised the
degree of diligence expected of it, it cannot be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CAG.R. CV No. 71302 are hereby AFFIRMED.
Costs against petitioners.

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. xxx

13 | B A N K I N G L A W S


Republic of the Philippines

G.R. No. 142668

August 31, 2004


ONGSIAPCO, petitioners,
RUBEN E. BASCO, respondent.
This is a petition for review on certiorari assailing the Decision 1 of the Court
of Appeals dated March 30, 2000, affirming, with modifications, the
Decision2 of the Regional Trial Court (RTC), Makati City, Branch 146, which
found the petitioner bank liable for payment of damages and attorney's fees.
The Case for the Respondent
Respondent Ruben E. Basco had been employed with the petitioner United
Coconut Planters Bank (UCPB) for seventeen (17) years. 3 He was also a
stockholder thereof and owned 804 common shares of stock at the par value
of P1.00.4 He likewise maintained a checking account with the bank at its Las
Pias Branch under Account No. 117-001520-6.5 Aside from his employment
with the bank, the respondent also worked as an underwriter at the United
Coconut Planters Life Association (Coco Life), a subsidiary of UCPB since
December, 1992.6 The respondent also solicited insurance policies from
UCPB employees.
On June 19, 1995, the respondent received a letter from the UCPB informing
him of the termination of his employment with the bank for grave abuse of
discretion and authority, and breach of trust in the conduct of his job as Bank
Operations Manager of its Olongapo Branch. The respondent thereafter filed

14 | B A N K I N G L A W S


a complaint for illegal dismissal, non-payment of salaries, and damages

against the bank in the National Labor Relations Commission (NLRC),
docketed as NLRC Cases Nos. 00-09-05354-92 and 00-09-05354-93.
However, the respondent still frequented the UCPB main office in Makati City
to solicit insurance policies from the employees thereat. He also discussed
the complaint he filed against the bank with the said employees. 7
The respondent was also employed by All-Asia Life Insurance Company as
an underwriter. At one time, the lawyers of the UCPB had an informal
conference with him at the head office of the bank, during which the
respondent was offered money so that the case could be amicably settled.
The respondent revealed the incident to some of the bank employees. 8
On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President,
Human Resource Division, issued a Memorandum to Jesus Belanio, the
Vice-President of the Security Department, informing him that the
respondent's employment had been terminated as of June 19, 1995, that the
latter filed charges against the bank and that the case was still on-going.
Ongsiapco instructed Belanio not to allow the respondent access to all bank
premises.9Attached to the Memorandum was a passport-size picture of the
respondent. The next day, the security guards on duty were directed to
strictly impose the security procedure in conformity with Ongsiapco's
On December 7, 1995, the respondent, through counsel, wrote Ongsiapco,
requesting that such Memorandum be reconsidered, and that he be allowed
entry into the bank premises.11 His counsel emphasized that
In the meantime, we are more concerned with your denying Mr.
Basco "access to all bank premises." As you may know, he is
currently connected with Cocolife as insurance agent. Given his 17year tenure with your bank, he has established good relationships
with many UCPB employees, who comprise the main source of his
solicitations. In thecourse of his work as insurance agent, he needs
free access to your bank premises, within reason, to add the
unnecessary. Your memorandum has effectively curtailed his
livelihood and he is once again becoming a victim of another "illegal
termination," so to speak. And Shakespeare said: "You take his life
when you do take the means whereby he lives."
Mr. Basco's work as an insurance agent directly benefits UCPB,
Cocolife's mother company. He performs his work in your premises
peacefully without causing any disruption of bank operations. To
deny him access to your premises for no reason except the

15 | B A N K I N G L A W S

pendency of the labor case, the outcome of which is still in doubt

his liability, if any, certainly has not been proven is a clear abuse of
right in violation of our client's rights. Denying him access to the
bank, which is of a quasi-public nature, is an undue restriction on his
freedom of movement and right to make a livelihood, comprising
gross violations of his basic human rights. (This is Human Rights
Week, ironically).
We understand that Mr. Basco has been a stockholder of record of
804 common shares of the capital stock of UCPB since July 1983.
As such, he certainly deserves better treatment than the one he has
been receiving from your office regarding property he partly owns.
He is a particle of corporate sovereignty. We doubt that you can
impose the functional equivalent of the penalty of destierro on our
client who really wishes only to keep his small place in the sun, to
survive and breathe. No activity can be more legitimate than to toil
for a living. Let us live and let live. 12
In his reply dated December 12, 1995, Ongsiapco informed the respondent
that his request could not be granted:
As you understand, we are a banking institution; and as such, we
deal with matters involving confidences of clients. This is among the
many reasons why we, as a matter of policy, do not allow nonemployees to have free access to areas where our employees work.
Of course, there are places where visitors may meet our officers and
employees to discuss business matters; unfortunately, we have
limited areas where our officers and employees can entertain nonofficial matters.
Furthermore, in keeping with good business practices, the Bank
prohibits solicitation, peddling and selling of goods, service and other
commodities within its premises as it disrupts the efficient
performance and function of the employees.
Please be assured that it is farthest from our intention to discriminate
against your client. In the same vein, it is highly improper for us to
carve exceptions to our policies simply to accommodate your client's
business ventures.13
The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went
to the office of Junne Cacay, the Assistant Manager of the Makati Branch.
Cacay was then having a conference with Bong Braganza, an officer of the
UCPB Sucat Branch. Cacay entertained the respondent although the latter


did have an appointment. Cacay even informed him that he had a friend who
wanted to procure an insurance policy.14 Momentarily, a security guard of the
bank approached the respondent and told him that it was already past office
hours. He was also reminded not to stay longer than he should in the bank
premises.15 Cacay told the guard that the respondent would be leaving
shortly.16 The respondent was embarrassed and told Cacay that he was
already leaving.17
At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati
Branch to receive a check from Rene Jolo, a bank employee, and to deposit
money with the bank for a friend.18 He seated himself on a sofa fronting the
teller's booth19 where other people were also seated.20 Meanwhile, two
security guards approached the respondent. The guards showed him the
Ongsiapco's Memorandum and told him to leave the bank premises. The
respondent pleaded that he be allowed to finish his transaction before
leaving. One of the security guards contacted the management and was told
to allow the respondent to finish his transaction with the bank.
Momentarily, Jose Regino Casil, an employee of the bank who was in the
7th floor of the building, was asked by Rene Jolo to bring a check to the
respondent, who was waiting in the lobby in front of the teller's booth. 21 Casil
agreed and went down to the ground floor of the building, through the
elevator. He was standing in the working area near the Automated Teller
Machine (ATM) Section22 in the ground floor when he saw the respondent
standing near the sofa23 near the two security guards.24 He motioned the
respondent to come and get the check, but the security guard tapped the
respondent on the shoulder and prevented the latter from approaching Casil.
The latter then walked towards the respondent and handed him the check
from Jolo.
Before leaving, the respondent requested the security guard to log his
presence in the logbook. The guard did as requested and the respondent's
presence was recorded in the logbook.25
On March 11, 1996, the respondent filed a complaint for damages against
the petitioners UCPB and Ongsiapco in the RTC of Manila, alleging inter alia,
12. It is readily apparent from this exchange of correspondence that
defendant bank'' acknowledged reason for barring plaintiff from its
premises - the pending labor case is a mere pretense for its real
vindictive and invidious intent: to prevent plaintiff, and plaintiff alone,
from carrying out his trade as an insurance agent among defendant
bank's employees, a practice openly and commonly allowed and

16 | B A N K I N G L A W S

tolerated (encouraged even, for some favored proverbial sacred

cows) in the bank premises, now being unjustly denied to plaintiff on
spurious grounds.
13. Defendants, to this day, have refused to act on plaintiff's claim to
be allowed even in only the "limited areas where [the bank's] officers
and employees can entertain non-official matters" and have
maintained the policy banning plaintiff from all bank premises. As he
had dared exercised his legal right to question his dismissal, he is
being penalized with a variation of destierro, available in criminal
cases where the standard however, after proper hearing, is much
more stringent and based on more noble grounds than mere pique or
14. This appallingly discriminatory policy resulted in an incident on
January 31, 1996 at 1:30 p.m. at defendant bank's branch located at
its head office, which caused plaintiff tremendous undeserved
humiliation, embarrassment, and loss of face.26

15. Defendants' memorandum and the consequent acts of

defendants' security guards, together with defendant Ongsiapco's
disingenuous letter of December 12, 1995, are suggestive of malice
and bad faith in derogation of plaintiff's right and dignity as a human
being and citizen of this country, which acts have caused him
considerable undeserved embarrassment. Even if defendants, for
the sake of argument, may be acting within their rights, they cannot
exercise same abusively, as they must, always, act with justice and
in good faith, and give plaintiff his due.27
The respondent prayed that, after trial, judgment be rendered in his favor, as
WHEREFORE, it is respectfully prayed that judgment issue ordering
1. To rescind the directive to its agents barring plaintiff from all bank
premises as embodied in the memorandum of November 15, 1995,
and allow plaintiff access to the premises of defendant bank,
including all its branches, which are open to members of the general
public, during reasonable hours, to be able to conduct lawful
business without being subject to invidious discrimination; and


2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as

exemplary damages, and P50,000.00 by way of attorney's fees.

the bank, including alleged offers by management of a monetary

settlement for his "illegal dismissal."

Plaintiff likewise prays for costs, interest, the disbursements of this

action, and such other further relief as may be deemed just and
equitable in the premises.28

11. Defendants acted to protect the bank's interest by preventing

plaintiff's access to the bank's offices, and at the same time informing
him of that decision.

In their Answer to the complaint, the petitioners interposed the following

affirmative defenses:
9. Plaintiff had been employed as Branch Operations Officer,
Olongapo Branch, of defendant United Coconut Planters Bank.
In or about the period May to June 1992, he was, together with other
fellow officers and employees, investigated by the bank in connection
with various anomalies. As a result of the investigation, plaintiff was
recommended terminated on findings of fraud and abuse of
discretion in the performance of his work. He was found by the
bank's Committee on Employee Discipline to have been guilty of
committing or taking part in the commission of the following:
a. Abuse of discretion in connection with actions taken
beyond or outside the limits of his authority.
b. Borrowing money from a bank client.
c. Gross negligence or dereliction of duty in the
implementation of bank policies or valid orders from
d. Direct refusal or willful failure to perform, or delay in
performing, an assigned task.
e. Fraud or willful breach of trust in the conduct of his work.
f. Falsification or forgery of bank records/documents.
10. Plaintiff thereafter decided to contest his termination by filing an
action for illegal dismissal against the bank.
Despite the pendency of this litigation, plaintiff was reported visiting
employees of the bank in their place of work during work hours, and
circulating false information concerning the status of his case against

17 | B A N K I N G L A W S

Plaintiff purported to insist on seeing and talking to the bank's

employees despite this decision, claiming he needed to do this in
connection with his insurance solicitation activities, but the bank has
not reconsidered.
12. The complaint states, and plaintiff has, no cause of action against
The petitioners likewise interposed compulsory counterclaims for damages.
The Case for the Petitioners
The petitioners adduced evidence that a day or so before November 15,
1995, petitioner Ongsiapco was at the 10thfloor of the main office of the bank
where the training room of the Management Development Training Office
was located. Some of the bank's management employees were then
undergoing training. The bank also kept important records in the said floor.
When Ongsiapco passed by, he saw the respondent talking to some of the
trainees. Ongsiapco was surprised because non-participants in the training
were not supposed to be in the premises.30Besides, the respondent had been
dismissed and had filed complaints against the bank with the NLRC.
Ongsiapco was worried that bank records could be purloined and employees
could be hurt.
The next day, Ongsiapco contacted the training supervisor and inquired why
the respondent was in the training room the day before. The supervisor
replied that he did not know why.31 Thus, on November 15, 1995, Ongsiapco
issued a Memorandum to Belanio, the Vice-President for Security Services,
directing the latter not to allow the respondent access to the bank premises
near the working area.32 The said Memorandum was circulated by the Chief
of Security to the security guards and bank employees.
At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a
substitute for the regular guard who was on leave, noticed the respondent
seated on the sofa in front of the teller's booth. 33 Caspe notified his superior
of the respondent's presence, and was instructed not to confront the


respondent if the latter was going to make a deposit or withdrawal. 34 Caspe

was also instructed not to allow the respondent to go to the upper floors of
the building.35The respondent went to the teller's booth and, after a while,
seated himself anew on the sofa. Momentarily, Caspe noticed Casil, another
employee of the bank who was at the working section of the Deposit Service
Department (DSD), motioning to the respondent to get the check. The latter
stood up and proceeded in the direction of Casil's workstation. After the
respondent had taken about six to seven paces from the sofa, Caspe and the
company guard approached him. The guards politely showed Ongsiapco's
Memorandum to the respondent and told the latter that he was not allowed to
enter the DSD working area; it was lunch break and no outsider was allowed
in that area.36The respondent looked at the Memorandum and complied.
On May 29, 1998, the trial court rendered judgment in favor of the
respondent. The fallo of the decision reads:
WHEREFORE, premises considered, defendants are hereby
adjudged liable to plaintiff and orders them to rescind and set-aside
the Memorandum of November 15, 1995 and orders them to pay
plaintiff the following:

4.2 Did the appellants abuse their right when Basco was asked to
leave the bank premises, in implementation of the Memorandum, on
21 December 1995?
4.3. Did the appellants abuse their right when Basco was asked to
leave the bank premises, in implementation of the Memorandum, on
31 January 1995?
4.4. Is Basco entitled to moral and exemplary damages and
attorney's fees?
4.5. Are the appellants entitled to their counterclaim? 38
The CA rendered a Decision on March 30, 2000, affirming the decision of the
RTC with modifications. The CA deleted the awards for moral and exemplary
damages, but ordered the petitioner bank to pay nominal damages on its
finding that latter abused its right when its security guards stopped the
respondent from proceeding to the working area near the ATM section to get
the check from Casil. The decretal portion of the decision reads:

1) the amount of P100,000.00 as moral damages;

WHEREFORE, the Decision of the Regional Trial Court dated May

29, 1998 is hereby MODIFIED as follows:

2) the amount of P50,000.00 as exemplary damages;

1. The awards for moral and exemplary damages are deleted;

3) P50,000.00 for and as attorney's fees;

2. The award for attorney's fees is deleted;

4) Cost of suit.

3. The order rescinding Memorandum dated November 15, 1995 is

set aside; and

Defendants' counterclaim is dismissed for lack of merit.

The trial court held that the petitioners abused their right; hence, were liable
to the respondent for damages under Article 19 of the New Civil Code.
The petitioners appealed the decision to the Court of Appeals and raised the
following issues:
4.1 Did the appellants abuse their right when they issued the

18 | B A N K I N G L A W S

4. UCPB is ordered to pay nominal damages in the amount

of P25,000.00 to plaintiff-appellee.
Costs de oficio.39
The Present Petition
The petitioners now raise the following issues before this Court:
I. Whether or not the appellate court erred when it found that UCPB
excessively exercised its right to self-help to the detriment of Basco
as a depositor, when on January 31, 1996, its security personnel


stopped respondent from proceeding to the area restricted to

UCPB's employees.
II. Whether or not the appellate court erred when it ruled that
respondent is entitled to nominal damages.
III. Whether or not the appellate court erred when it did not award the
petitioners' valid and lawful counterclaim.40
The core issues are the following: (a) whether or not the petitioner bank
abused its right when it issued, through petitioner Ongsiapco, the
Memorandum barring the respondent access to all bank premises; (b)
whether or not petitioner bank is liable for nominal damages in view of the
incident involving its security guard Caspe, who stopped the respondent from
proceeding to the working area of the ATM section to get the check from
Casil; and (c) whether or not the petitioner bank is entitled to damages on its
The Ruling of the Court
On the first issue, the petitioners aver that the petitioner bank has the right to
prohibit the respondent from access to all bank premises under Article 429 of
the New Civil Code, which provides that:
Art. 429. The owner or lawful possessor of a thing has the right to
exclude any person from the enjoyment and disposal thereof. For
this purpose, he may use such force as may be reasonably
necessary to repel or prevent an actual or threatened unlawful
physical invasion or usurpation of his property.
The petitioners contend that the provision which enunciates the principle of
self-help applies when there is a legitimate necessity to personally or through
another, prevent not only an unlawful, actual, but also a threatened unlawful
aggression or usurpation of its properties and records, and its personnel and
customers/clients who are in its premises. The petitioners assert that
petitioner Ongsiapco issued his Memorandum dated November 15, 1995
because the respondent had been dismissed from his employment for varied
grave offenses; hence, his presence in the premises of the bank posed a
threat to the integrity of its records and to the persons of its personnel.
Besides, the petitioners contend, the respondent, while in the bank premises,
conversed with bank employees about his complaint for illegal dismissal
against the petitioner bank then pending before the Labor Arbiter, including
negotiations with the petitioner bank's counsels for an amicable settlement of
the said case.

19 | B A N K I N G L A W S

The respondent, for his part, avers that Article 429 of the New Civil Code
does not give to the petitioner bank the absolute right to exclude him, a
stockholder and a depositor, from having access to the bank premises,
absent any clear and convincing evidence that his presence therein posed an
imminent threat or peril to its property and records, and the persons of its
We agree with the respondent bank that it has the right to exclude certain
individuals from its premises or to limit their access thereto as to time, to
protect, not only its premises and records, but also the persons of its
personnel and its customers/clients while in the premises. After all, by its very
nature, the business of the petitioner bank is so impressed with public trust;
banks are mandated to exercise a higher degree of diligence in the handling
of its affairs than that expected of an ordinary business enterprise. 41 Banks
handle transactions involving millions of pesos and properties worth
considerable sums of money. The banking business will thrive only as long
as it maintains the trust and confidence of its customers/clients. Indeed, the
very nature of their work, the degree of responsibility, care and
trustworthiness expected of officials and employees of the bank is far greater
than those of ordinary officers and employees in the other business
firms.42 Hence, no effort must be spared by banks and their officers and
employees to ensure and preserve the trust and confidence of the general
public and its customers/clients, as well as the integrity of its records and the
safety and well being of its customers/clients while in its premises. For the
said purpose, banks may impose reasonable conditions or limitations to
access by non-employees to its premises and records, such as the exclusion
of non-employees from the working areas for employees, even absent any
imminent or actual unlawful aggression on or an invasion of its properties or
usurpation thereof, provided that such limitations are not contrary to the
It bears stressing that property rights must be considered, for many
purposes, not as absolute, unrestricted dominions but as an aggregation of
qualified privileges, the limits of which are prescribed by the equality of rights,
and the correlation of rights and obligations necessary for the highest
enjoyment of property by the entire community of proprietors. 44 Indeed,
in Rellosa vs. Pellosis,45 we held that:
Petitioner might verily be the owner of the land, with the right to enjoy
and to exclude any person from the enjoyment and disposal thereof,
but the exercise of these rights is not without limitations. The abuse
of rights rule established in Article 19 of the Civil Code requires every
person to act with justice, to give everyone his due; and to observe
honesty and good faith. When right is exercised in a manner which


discards these norms resulting in damage to another, a legal wrong

is committed for which the actor can be held accountable.
Rights of property, like all other social and conventional rights, are subject to
such reasonable limitations in their enjoyment and to such reasonable
restraints established by law.46

For your compliance.

(Signature) 11/16/95

In this case, the Memorandum of the petitioner Ongsiapco dated November

15, 1995, reads as follows:
Vice President
Security Department

On its face, the Memorandum barred the respondent, a stockholder of the

petitioner bank and one of its depositors, from gaining access to all bank
premises under all circumstances. The said Memorandum is all-embracing
and admits of no exceptions whatsoever. Moreover, the security guards were
enjoined to strictly implement the same.

D A T E : 15 November 1995
Please be advised that Mr. Ruben E. Basco was terminated for a
cause by the Bank on 19 June 1992. He filed charges against the
bank and the case is still on-going.
In view of this, he should not be allowed access to all bank premises.


First Vice President
Human Resource Division

16 November 1995



We agree that the petitioner may prohibit non-employees from entering the
working area of the ATM section. However, under the said Memorandum,
even if the respondent wished to go to the bank to encash a check drawn
and issued to him by a depositor of the petitioner bank in payment of an
obligation, or to withdraw from his account therein, or to transact business
with the said bank and exercise his right as a depositor, he could not do so
as he was barred from entry into the bank. Even if the respondent wanted to
go to the petitioner bank to confer with the corporate secretary in connection
with his shares of stock therein, he could not do so, since as stated in the
Memorandum of petitioner Ongsiapco, he would not be allowed access to all
the bank premises. The said Memorandum, as worded, violates the right of
the respondent as a stockholder or a depositor of the petitioner bank, for
being capricious and arbitrary.
The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of
the Code of Ethics issued by the petitioner bank itself, which provides that
one whose employment had been terminated by the petitioner bank may,
nevertheless, be allowed access to bank premises, thus:
4.1 As a client of the Bank in the transaction of a regular bank-client
4.2 When the offending party is on official business concerning his
employment with the Bank with the prior approval and supervision of
the Head of HRD or of the Division Head, or of the Branch Head in
case of branches.48

Strictly adhere/impose Security Procedure RE: Admission to Bank


20 | B A N K I N G L A W S


For another, the Memorandum, as worded, is contrary to the intention of the

petitioners. Evidently, the petitioners did not intend to bar the respondent
from access to all bank premises under all circumstances. When he testified,
petitioner Ongsiapco admitted that a bank employee whose services had
been terminated may be allowed to see an employee of the bank and may be
allowed access to the bank premises under certain conditions, viz:
So the permission you are referring to is merely a permission
to be granted by the security guard?
No, sir, not the security guard. The security will call the office
where they are going. Because this is the same procedure they do
for visitors. Anybody who wants to see anybody in the bank before
they are allowed access or entry, they call up the department or the
So I want to clarify, Mr. Witness. Former bank employees are
not allowed within the bank premises until after the security guard
call, which ever department they are headed for, and that they give
the permission and they tell the security guard to allow the person?
Yes, Sir, that is the usual procedure.
If an employee resigned from the bank, same treatment?
Yes, Sir.
If an employee was terminated by the bank for cause, same
Yes, Sir.
Outsiders who are not employees or who were never
employees of the bank also must ask permission?
Yes, Sir. Because there is a security control at the lobby.
You mentioned that this is a general rule?
Yes, Sir.
Is this rule written down in black and white anywhere?
I think this is more of a security procedure.
But being a huge financial institution, we expect Cocobank has
its procedure written down in black and white?
Your Honor, objection. Argumentative, Your Honor.
There is no question posed at all, Your Honor.
Answer. Is there any guideline?
There must be a guideline of the security.
But you are not very familiar about the security procedures?
Yes, Sir.

21 | B A N K I N G L A W S

Mr. Ongsiapco, the agency that you hired follows certain
Yes, Sir.
Which of course are under the direct control and supervision of
the bank?
Yes, Sir.
And did the security agency have any of this procedure written
It will be given to them by the Security Department, because
they are under the Security Department.
But if an employee is only entering the ground floor bank area,
where customers of the bank are normally allowed, whether
depositors or not, they don't need to ask for express permission, is
that correct?
Yes, if they are client.
Even if they are not client, but let us say they have to encash a
check paid to them by someone?
He is a client then.
But he is not yet a client when he enters the bank premises.
He only becomes you know because you do not all these people,
you do not know every client of the bank so you just allow them
inside the bank?
Yes, the premises.49
Petitioner Ongsiapco also testified that a former employee who is a
customer/client of the petitioner bank also has access to the bank
premises, except those areas reserved for its officers and employees,
such as the working areas:
So Mr. Witness, just for the sake of clarity. The ground floor
area is where the regular consumer banking services are held? What
do you call this portion?
That is the Deposit Servicing Department.
Where the .
Where the people transact business.
They are freely allowed in this area?
Yes, Sir.
This is the area where there are counters, Teller, where a
person would normally go to let us say open a bank account or to
request for manager's check, is that correct?
Yes, Sir.
So, in this portion, no, I mean beyond this portion, meaning the
working areas and second floor up, outsiders will have to ask
express permission from the security guard?
Yes, Sir.


And you say that the security guards are instructed to verify
the purpose of every person who goes into this area?
As far as I know, sir.50
It behooved the petitioners to revise such Memorandum to conform to its
Code of Ethics and their intentions when it was issued, absent facts and
circumstances that occurred pendente lite which warrant the retention of the
Memorandum as presently worded.

humiliation, there was no breach of duty committed by the petitioner bank

since its security guards politely asked the respondent not to proceed to the
working area of the ATM section because they merely acted pursuant to the
Memorandum of petitioner Ongsiapco, and accordingly, under Article 429 of
the New Civil Code, this is a case of damnum absque injuria;52 and (d) the
respondent staged the whole incident so that he could create evidence to file
suit against the petitioners.
We rule in favor of the petitioners.

On the second issue, the Court of Appeals ruled that the petitioner bank is
liable for nominal damages to the respondent despite its finding that the
petitioners had the right to issue the Memorandum. The CA ratiocinated that
the petitioner bank should have allowed the respondent to walk towards the
restricted area of the ATM section until they were sure that he had entered
such area, and only then could the guards enforce the Memorandum of
petitioner Ongsiapco. The Court of Appeals ruled that for such failure of the
security guards, the petitioner bank thereby abused its right of self-help and
violated the respondent's right as one of its depositors:
With respect, however, to the second incident on January 31, 1996, it
appears that although according to UCPB security personnel they
tried to stop plaintiff-appellee from proceeding to the stairs leading to
the upper floors, which were limited to bank personnel only (TSN, pp.
6-9, June 4, 1997), the said act exposed plaintiff-appellee to
humiliation considering that it was done in full view of other bank
customers. UCPB security personnel should have waited until they
were sure that plaintiff-appellee had entered the restricted areas and
then implemented the memorandum order by asking him to leave the
premises. Technically, plaintiff-appellee was still in the depositing
area when UCPB security personnel approached him. In this case,
UCPB's exercise of its right to self-help was in excess and abusive to
the detriment of the right of plaintiff-appellee as depositor of said
Bank, hence, warranting the award of nominal damages in favor of
plaintiff-appellee. Nominal damages are adjudicated in order that a
right of a plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized and not for the purpose
of indemnifying any loss suffered by him (Japan Airlines vs. Court of
Appeals, 294 SCRA 19).51
The petitioners contend that the respondent is not entitled to nominal
damages and that the appellate court erred in so ruling for the following
reasons: (a) the respondent failed to prove that the petitioner bank violated
any of his rights; (b) the respondent did not suffer any humiliation because of
the overt acts of the security guards; (c) even if the respondent did suffer

22 | B A N K I N G L A W S

The evidence on record shows that Casil was in the working area of the ATM
section on the ground floor when he motioned the respondent to approach
him and receive the check. The respondent then stood up and walked
towards the direction of Casil. Indubitably, the respondent was set to enter
the working area, where non-employees were prohibited entry; from there,
the respondent could go up to the upper floors of the bank's premises
through the elevator or the stairway. Caspe and the company guard had no
other recourse but prevent the respondent from going to and entering such
working area. The security guards need not have waited for the respondent
to actually commence entering the working area before stopping the latter.
Indeed, it would have been more embarrassing for the respondent to have
started walking to the working area only to be halted by two uniformed
security guards and disallowed entry, in full view of bank customers. It bears
stressing that the security guards were polite to the respondent and even
apologized for any inconvenience caused him. The respondent could have
just motioned to Casil to give him the check at the lobby near the teller's
booth, instead of proceeding to and entering the working area himself, which
the respondent knew to be an area off-limits to non-employees. He did not.
The respondent failed to adduce evidence other than his testimony that
people in the ground floor of the petitioner bank saw him being stopped from
proceeding to the working area of the bank. Evidently, the respondent did not
suffer embarrassment, inconvenience or discomfort which, however,
partakes of the nature of damnum absque injuria, i.e. damage without injury
or damage inflicted without injustice, or loss or damage without violation of
legal rights, or a wrong due to a pain for which the law provides no
remedy.53 Hence, the award of nominal damages by the Court of Appeals
should be deleted.
On the third issue, we now hold that the petitioner bank is not entitled to
damages and attorney's fees as its counterclaim. There is no evidence on
record that the respondent acted in bad faith or with malice in filing his
complaint against the petitioners. Well-settled is the rule that the
commencement of an action does not per se make the action wrongful and


subject the action to damages, for the law could not have meant to impose a
penalty on the right to litigate.
We reiterate case law that if damages result from a party's exercise of a right,
it is damnum absque injuria.54
assailed Decision of the Court of Appeals is REVERSED and SET ASIDE.
The complaint of the respondent in the trial court and the counterclaims of
the petitioners are DISMISSED.
No costs.

[G.R. No. 129015. August 13, 2004]

AND COURT OF APPEALS, respondents.
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

23 | B A N K I N G L A W S


with defendant Far East Bank and Trust Company[1] (FEBTC) at the latters
Bel-Air, 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

24 | B A N K I N G L A W S

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.
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 Complainton 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. 9261506 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,
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
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

25 | B A N K I N G L A W S

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.
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 wellentrenched 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.

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.
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


26 | B A N K I N G L A W S


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
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]

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
A: There is none in the standard signature, sir.[37]

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

27 | B A N K I N G L A W S

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
the NBI Academy, which qualified her as a document examiner. 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.
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
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

28 | B A N K I N G L A W S

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

29 | B A N K I N G L A W S

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
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
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.
(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

30 | B A N K I N G L A W S

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.
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.

Republic of the Philippines

Supreme Court


31 | B A N K I N G L A W S

G.R. No. 155033



- versus -



December 19, 2007
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision[1] of the Court of Appeals (CA) in CAG.R. CV No. 62404 promulgated on August 27, 2002, which affirmed with
modification the Decision of the Regional Trial Court (RTC) of Pasig City,
Branch 158, in Civil Case No. 65146 dated December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs' [petitioners] evidence that
Arturo [respondent] is the elder brother of Alice [petitioner]
and Rosita [petitioner], Benjamin [petitioner] and Patricia
[petitioner] are Arturo's nephew and niece. Arturo and his
wife Evelyn [respondent] are residents of the United States.
In October 1993, Arturo leased from Dr. Borja a
Gilmore Townhomes located
at Granada
St., Quezon City. The lease was for the benefit of Benjamin
who is the occupant of the unit.The rentals were paid by
Ignacio. The term of the lease is for one (1) year and will
expire on October 15, 1994. It appears that Arturo was
intending to renew the lease contract. As he had to leave for
the U.S., Arturo drew up a check, UCPB Check No. GRH560239 and wrote on it the name of the payee, Dr.
Manuel Borja, but left blank the date and amount.He signed

32 | B A N K I N G L A W S

the check. The check was intended as payment for the

renewal of the lease. The date and the amount were left
blank because Arturo does not know when it will be renewed
and the new rate of the lease. The check was left with
Arturo's sister-in-law, who was instructed to deliver or give it
to Benjamin.
The check later came to the possession of Alice who felt that
Arturo cheated their sister in the amount of three million
pesos (P3,000,000.00). She believed that Arturo and Rosita
had a joint and/or money market placement in the amount of
P3 million with the UCPB branch at Ortigas Ave., San
Juan and that Ignacio preterminated the placement and ran
away with it, which rightfully belonged to Rosita. Alice then
inquired from UCPB Greenhills branch if Arturo still has an
account with them. On getting a confirmation, she together
with Rosita drew up a scheme to recover the P3 million from
Arturo. Alice filled up the date of the check with March 17,
1995 and the amount with three million only.Alice got her
driver, Kudera, to stand as the payee of the check, Dr. Borja.
Alice and Rosita came to SBC[2] Greenhills Branch together
with a man (Kudera) who[m] they introduced as Dr. Borja to
the then Assistant Cashier Luis. After introducing the said
man as Dr. Borja, Rosita, Alice and the man who was later
identified as Kudera opened a Joint Savings Account No.
271-410554-7. As initial deposit for the Joint Savings
Account, Alice, Rosita and Kudera deposited the check. No
ID card was required of Mr. Kuderabecause it is an internal
policy of the bank that when a valued client opens an
account, an identification card is no longer required (TSN,
April 21, 1997, pp. 15-16). SBC also allowed the check to be
impostor Kudera. SBC officials stamped on the dorsal
portion of the check endorsement/lack of endorsement
guaranteed and sent the check for clearing to the Philippine
Clearing House Corporation.
On 21 March 1995, after the check had already been cleared
by the drawer bank UCPB, Rosita withdrew P1 million from
Joint Savings Account and deposited said amount to the
current account of Alice with SBC Greenhills Branch. On the
same date, Alice caused the transfer of P2 million from the
Joint Savings Account to two (2) Investment Savings
Account[s] in the names of Alice, Rosita and/or Patricia. ...


On April 4, 1995, a day after Evelyn and Atty. Sanz inquired

about the identity of the persons and the circumstances
surrounding the deposit and withdrawal of the check, the
three million pesos in the two investment savings account[s]
and in the current account just opened with SBC were
withdrawn by Alice and Rosita.[3]
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed
a verified complaint for recovery of a sum of money and damages against
Security Bank and Trust Company (SBTC) and its officers, namely: Rene
Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint
also impleaded herein petitioner Benjamin A.I. Espiritu (Benjamin), a John
Doe, representing himself as Manuel N. Borja; and a Jane Doe.
On November
additionally impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita
A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who
filed their respective answers and counterclaims.
After trial, the RTC rendered judgment dated December 18, 1998 with the
following dispositive portion:
WHEREFORE, in view of the foregoing, judgment is
rendered in favor of plaintiffs as against defendants Security
Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice
A.I. Sandejas and Rosita A.I. Cusi, ordering them to pay
jointly and severally the plaintiffs the following amounts:
(1) P3,000,000.00 plus legal interest on it from March 17,
1995 until the entire amount is fully paid;
(2) P500,000.00 as moral damages;
(3) P200,000.00 as exemplary damages;
(4) P300,000.00 as attorney's fees; plus
(5) the cost of suit.
In turn, plaintiffs are directed to pay Benjamin
A.I. Espiritu the
of P100,000.00 as
damages, P50,000.00 as exemplary damages and
another P50,000.00 as attorney's fees.
The counterclaims of Patricia A.I. Sandejas are dismissed.

Both parties appealed the RTC Decision to the CA.

On August 14, 1999, during the pendency of the appeal with the CA, herein
respondent Arturo Ignacio, Jr. (Arturo) died.[5]
On August 27, 2002, the CA promulgated the presently assailed Decision,
disposing as follows:
WHEREFORE, in view of the foregoing, the assailed
decision of the trial court is hereby AFFIRMED with the
MODIFICATION that the judgment shall read as follows:
The defendants-appellants Security Bank and Trust
Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice
A.I. Sandejas, and Rosita A.I. Cusi, are hereby ordered to
jointly and severally pay the plaintiffs the following amounts:
1. P3,000,000.00 plus legal interest computed from March
17, 1995 until the entire amount is fully paid;
2. P200,000.00 as moral damages;
3. P100,000.00 as exemplary damages;
4. P50,000.00 as attorney's fees; plus
5. the costs of suit.
The award of moral damages, exemplary damages, and
attorney's fees in favor of Benjamin Espiritu is DELETED.
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their
respective petitions for review before this Court.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R.
No. 155038, was denied in a Resolution[7] issued by this Court on November
20, 2002, for their failure to properly verify the petition, submit a valid
certification of non-forum shopping, and attach to the petition the duplicate
original or certified true copy of the assailed CA Decision. Said
Resolution became final and executory on April 9, 2003.[8]


33 | B A N K I N G L A W S


On the other hand, the instant petition was given due course. Petitioners
enumerated the following grounds in support of their petition:

34 | B A N K I N G L A W S


Petitioners argue that the CA overlooked and ignored vital pieces of evidence
showing that the encashment of the subject check was not fraudulent and, on
the contrary, was justified under the circumstances; and that such
encashment did not amount to an actionable tort and that it merely called for
the application of the civil law rule on pari delicto.
In support of these arguments, petitioners contend that the principal
adversaries in the present case are full blooded siblings; that the law
recognizes the solidarity offamily which is why it is made a condition that
earnest efforts towards a compromise be exerted before one family member


can institute a suit against the other; that even if Arturo previously defrauded
Rosita and deprived her of her lawful share in the sale of her property,
petitioners Rosita and Alice did not precipitately file suit against him and
instead took extra-legal measures to protect Rosita's property rights and at
the same time preserve the solidarity of their family and save it from public
embarrassment. Petitioners also aver that Rosita's and Alice's act
of encashing the subject check is not fraudulent because they did not have
any unlawful intent and that they merely took from Arturo what rightfully
belonged to Rosita. Petitioners contend that even granting that the act of
Rosita and Alice amounted to an actionable tort, they could not be adjudged
liable to return the amount to respondents or to pay damages in their favor,
because the civil law rule on pari delicto dictates that, when both parties are
at fault, neither of them could expect positive relief from courts of justice and,
instead, are left in the state where they were at the time of the filing of the
Petitioners also contend that the CA erred in failing to award damages to
Patricia even if the appellate court sustained the trial court's finding that she
was not a party to the fraudulent acts committed by Rosita and
Alice. Petitioners argue that even if Patricia did not bother to know the details
of the cases against her and left everything to her mother, she did not even
know the nature of the case against her, or her superiors in the bank where
she worked did not know whether she was the plaintiff or defendant, these
were not reasons to deny her award of damages. The fact remains that she
had been maliciously dragged into the case, and that the suit had adversely
affected her work and caused her mental worries and anguish, besmirched
reputation, embarrassment and humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the award
of damages and attorney's fees in his favor. Petitioners assert that the trial
court found that Benjamin suffered mental anguish, wounded feelings and
moral shock as a result of the filing of the present case. Citing the credentials
and social standing of Benjamin, petitioners claim that the award of damages
and attorney's fees in his favor should be increased.
Lastly, petitioners contend that the award of damages and attorney's fees to
respondents should be deleted for their failure to establish malice or bad faith
on the part of petitioners Alice and Rosita in recovering
the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who is
entitled to damages and attorney's fees for Arturo's failure and refusal to give
her share in the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues raised by
petitioners are factual in nature and that the settled rule is that questions of
fact are not subject to review by the Supreme Court in a petition for review

35 | B A N K I N G L A W S

on certiorari under Rule 45 of the Rules of Court. While there are exceptions
to this rule, respondents assert that petitioners failed to show that the instant
case falls under any of these exceptions.
The Courts Ruling
The Court finds the petition bereft of merit. There is no compelling reason for
the Court to disturb the findings of facts of the lower courts.
The trial court's findings are as follows: (1) Rosita failed to establish that
there is an agreement between her and Arturo that the latter will give her
one-third of the proceeds of the sale of the Morayta property; (2) petitioners
were not able to establish by clear and sufficient evidence that
the P3,000,000.00 which they took from Arturo when they encashed the
subject check was part of the proceeds of the sale of the Morayta property;
(3) Rosita's counterclaim is permissive and she failed to pay the full docket
and filing fees for her counterclaim.[10]
Petitioners challenge the findings of the RTC and insist that they should not
be held liable for encashing the subject check because Arturo defrauded
Rosita and that he committed deceitful acts which deprived her of her rightful
share in the sale of her building in Morayta; that the amount
of P3,000,000.00 represented by the check which they encashed formed part
of the proceeds of the said sale; that Alice and Rosita were merely moved by
their desire to recover from Arturo, Rosita's supposed share in the sale of her
However, the Court agrees with respondents that only questions of law are
entertained in petitions for review on certiorari under Rule 45 of the Rules of
Court.[11]The trial courts findings of fact, which the Court of Appeals affirmed,
are generally binding and conclusive upon this court. [12] There are recognized
exceptions to this rule, among which are: (1) the conclusion is grounded on
speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of facts are
conflicting; (6) there is no citation of specific evidence on which the factual
findings are based; (7) the finding of absence of facts is contradicted by the
presence of evidence on record; (8) the findings of the CA are contrary to the
findings of the trial court; (9) the CA manifestly overlooked certain relevant
and undisputed facts that, if properly considered, would justify a different
conclusion; (10) the findings of the CA are beyond the issues of the case;
and (11) such findings are contrary to the admissions of both parties. [13] In the
instant case, petitioners failed to demonstrate that their petition falls under
any one of the above exceptions.


Petitioners' assignments of errors boil down to the basic issue of whether or

not Alice and Rosita are justified in encashing the subject check given the
factual circumstances established in the present case.
Petitioners' posture is not sanctioned by law. If they truly believe that Arturo
took advantage of and violated the rights of Rosita, petitioners should have
sought redress from the courts and should not have simply taken the law into
their own hands. Our laws are replete with specific remedies designed to
provide relief for the violation of one's rights. In the instant case, Rosita could
have immediately filed an action for the nullification of the sale of the building
she owns in light of petitioners' claim that the document bearing her
conformity to the sale of the said building was taken by Arturo from her
without her knowledge and consent. Or, in the alternative, as the CA correctly
held, she could have brought a suit for the collection of a sum of money to
recover her share in the sale of her property in Morayta. In a civilized society
such as ours, the rule of law should always prevail. To allow otherwise would
be productive of nothing but mischief, chaos and anarchy. As a lawyer, who
has sworn to uphold the rule of law, Rosita should know better. She must go
to court for relief.
It is true that Article 151 of the Family Code requires that earnest efforts
towards a compromise be made before family members can institute suits
against each other.However, nothing in the law sanctions or allows the
commission of or resort to any extra-legal or illegal measure or remedy in
order for family members to avoid the filing of suits against another family
member for the enforcement or protection of their respective rights.
Petitioners invoke the rule of pari delicto to support their contention that
respondents do not deserve any relief from the courts.

Petitioners also question the trial court's ruling that their counterclaim is
permissive. This Court has laid down the following tests to determine
whether a counterclaim is compulsory or not, to wit: (1) Are the issues of fact
or law raised by the claim and the counterclaim largely the same? (2)
Would res judicata bar a subsequent suit on defendants claims, absent the
compulsory counterclaim rule? (3) Will substantially the same evidence
support or refute plaintiffs claim as well as the defendants
counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the respective claims
of the parties would entail a substantial duplication of effort and time by the
parties and the court?[18]
Tested against the above-mentioned criteria, this Court agrees with the view
of the RTC that Rosita's counterclaim for the recovery of her alleged share in
the sale of the Morayta property is permissive in nature. The evidence
needed to prove respondents' claim to recover the amount
of P3,000,000.00 from petitioners is different from that required to establish
Rosita's demands for the recovery of her alleged share in the sale of the
subject Morayta property. The recovery of respondents' claim is not
contingent or dependent upon the establishment of Rosita's counterclaim
such that conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,[19] this Court laid down the
rules on the payment of filing fees, to wit:

The principle of pari delicto provides that when two parties are equally at
fault, the law leaves them as they are and denies recovery by either one of
them.[14] Indeed, one who seeks equity and justice must come to court with
clean hands.[15] However, in the present case, petitioners were not able to
establish that respondents are also at fault. Thus, the principle
of pari delicto cannot apply.

1. It is not simply the filing of the complaint or appropriate

initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the
initiatory pleading is not accompanied by payment of the
docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable
prescriptive or reglementary period.

In any case, the application of the pari delicto principle is not absolute, as
there are exceptions to its application.[16] One of these exceptions is where
the application of the pari delicto rule would violate well-established public
policy.[17] The prevention of lawlessness and the maintenance of peace and
order are established public policies. In the instant case, to deny respondents
relief on the ground of pari delicto would put a premium on the illegal act of
petitioners in taking from respondents what the former claim to be rightfully

2. The same rule applies to permissive counterclaims, thirdparty claims and similar pleadings, which shall not be
considered filed until and unless the filing fee
prescribed thereforis paid. The court may allow payment of
said fee within a reasonable time but also in no case beyond
its applicable prescriptive or reglementary period.

36 | B A N K I N G L A W S


3. Where the trial court acquires jurisdiction over a claim by

the filing of the appropriate pleading and payment of the
prescribed filing fee but, subsequently, the judgment awards
a claim not specified in the pleading, or if specified the same
has been left for determination by the court, the additional
filing fee therefor shall constitute a lien on the judgment. It
shall be the responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and
collect the additional fee.[20]
In order for the trial court to acquire jurisdiction over her permissive
counterclaim, Rosita is bound to pay the prescribed docket fees. [21] Since it is
not disputed that Rosita never paid the docket and filing fees, the RTC did
not acquire jurisdiction over her permissive counterclaim. Nonetheless, the
trial court ruled on the merits of Rosita's permissive counterclaim by
dismissing the same on the ground that she failed to establish that there is a
sharing agreement between her and Arturo with respect to the proceeds of
the sale of the subject Morayta property and that the amount
of P3,000,000.00 represented by the check which Rosita and
Alice encashedformed part of the proceeds of the said sale.
It is settled that any decision rendered without jurisdiction is a total nullity and
may be struck down at any time, even on appeal before this Court. [22]
In the present case, considering that the trial court did not acquire jurisdiction
over the permissive counterclaim of Rosita, any proceeding taken up by the
trial court and any ruling or judgment rendered in relation to such
counterclaim is considered null and void. In effect, Rosita may file a separate
action against Arturo for recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are compulsory as
they necessarily arise as a result of the filing by respondents of their
complaint. Being compulsory in nature, payment of docket fees is not
required.[23] Nonetheless, since petitioners are found to be liable to return to
respondents the amount of P3,000,000.00 as well as to pay moral and
exemplary damages and attorney's fees, it necessarily follows that Rosita's
counterclaim for damages and attorney's fees should be dismissed as
correctly done by the RTC and affirmed by the CA.
As to Patricia's entitlement to damages, this Court has held that while no
proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court, it is
nevertheless essential that the claimant should satisfactorily show the
existence of the factual basis of damages and its causal connection to
defendants acts.[24] This is so because moral damages, though incapable of

37 | B A N K I N G L A W S

pecuniary estimation, are in the category of an award designed to

compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.[25] Moreover, additional facts must be pleaded and
proven to warrant the grant of moral damages under the Civil Code, these
being, social humiliation, wounded feelings, grave anxiety, etc. that resulted
from the act being complained of. [26] In the present case, both the RTC and
the CA were not convinced that Patricia is entitled to damages. Quoting the
RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the
details of the case against her, she left everything to the
hands of her mother Alice. Her attitude towards the case
appears weird, she being a banker who seems so concerned
of her reputation.
Aside from the parties to this case, her immediate superiors
in the BPI knew that she is involved in a case. They did not
however know whether she is the plaintiff or the defendant in
the case. Further, they did not know the nature of the case
that she is involved in. It appears that Patricia has not
suffered any of the injuries enumerated in Article 2217 of the
Civil Code, thus, she is not entitled to moral damages and
attorney's fees.[27]
This Court finds no cogent reason to depart from the above-quoted findings
as Patricia failed to satisfactorily show the existence of the factual basis for
granting her moral damages and the causal connection of such fact to the act
of respondents in filing a complaint against her.
In addition, and with respect to Benjamin, the Court agrees with the CA that
in the absence of a wrongful act or omission, or of fraud or bad faith, moral
damages cannot be awarded.[28] The adverse result of an action does not per
se make the action wrongful, or the party liable for it. [29] One may err, but
error alone is not a ground for granting such damages. [30] In the absence of
malice and bad faith, the mental anguish suffered by a person for having
been made a party in a civil case is not the kind of anxiety which would
warrant the award of moral damages.[31]
A resort to judicial processes is not, per se, evidence of ill will upon which a
claim for damages may be based.[32]
In China Banking Corporation v. Court of Appeals,[33] this Court held:
Settled in our jurisprudence is the rule that moral damages
cannot be recovered from a person who has filed a


complaint against another in good faith, or without malice or

bad faith (Philippine National Bank v. Court of Appeals, 159
SCRA 433 [1988]; R & B Surety and Insurance v.
Intermediate Appellate Court, 129 SCRA 736 [1984]). If
damage results from the filing of the complaint, it
is damnum absque injuria (Ilocos Norte Electrical Company
v. Court of Appeals, 179 SCRA 5 [1989]).[34]
In the present case, the Court agrees with the RTC and the CA that
petitioners failed to establish that respondents were moved by bad faith or
malice in impleadingPatricia and Benjamin. Hence, Patricia and Benjamin
are not entitled to damages.
The Court sustains the award of moral and exemplary damages as well as
attorney's fees in favor of respondents.
As to moral damages, Article 20 of the Civil Code provides that every person
who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same. In addition, Article 2219 (10) of the Civil
Code provides that moral damages may be recovered in acts or actions
referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same
Code. More particularly, Article 21 of the said Code provides that 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 the
damage. In the present case, the act of Alice and Rosita in
fraudulently encashing the subject check to the prejudice of respondents is
certainly a violation of law as well as of the public policy that no one should
put the law into his own hands. As to SBTC and its officers, their negligence
is so gross as to amount to a willfull injury to respondents. 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. [35] Whether as
mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, 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. [36] For this reason, banks
should guard against injury attributable to negligence or bad faith on its part.

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.[38]The yardstick should be that it is not palpably and
scandalously excessive.[39] Moreover, the social standing of the aggrieved
party is essential to the determination of the proper amount of the award.
Otherwise, the goal of enabling him to obtain means, diversions, or
amusements to restore him to the status quo ante would not be achieved.

38 | B A N K I N G L A W S


In the present case, the Court finds no cogent reason to modify the
amount of moral damages granted by the CA.
Likewise, the Court finds no compelling reason to disturb the modifications
made by the CA on the award of exemplary damages and attorney's fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages. In the instant case,
the award of exemplary damages in favor of respondents is in order for the
purpose of deterring those who intend to enforce their rights by taking
measures or remedies which are not in accord with law and public policy. On
the part of respondent bank, the public relies on a bank's sworn profession of
diligence and meticulousness in giving irreproachable service. [42] Hence, the
level of meticulousness must be maintained at all times by the banking
sector.[43] In the present case the award of exemplary damages is justified by
the brazen acts of petitioners Rosita and Alice in violating the law coupled
with the gross negligence committed by respondent bank and its officers in
allowing the subject check to be deposited which later paved the way for its
As to attorney's fees, Article 2208 of the same Code provides, among others,
that attorney's fees may be recovered when exemplary damages are
awarded or when the defendant's act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.


G.R. No. 170984





TINGA, and



G.R. No. 170987

PREMISES CONSIDERED, the Court renders judgment in favor

of plaintiff [RCBC] and finds defendant SBTC justly liable to
[RCBC] and sentences [SBTC] to pay [RCBC] the amount of:

- versus Promulgated:
January 30, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Before us are opposing parties petitions for review of the
Decision[1] dated March 29, 2005 and Resolution[2] dated December 12, 2005 of
the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are herein
consolidated as they stem from the same set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a
managers check for P8 million, payable to CASH, as proceeds of the loan granted to
Guidon Construction and Development Corporation (GCDC). On the same day,
the P8-million check, along with other checks, was deposited by Continental
Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal
Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8million check and allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop
Payment Order to SBTC, claiming that the P8-million check was released to a
third party by mistake. Consequently, SBTC dishonored and returned the
managers check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each banks
clearing balance.[4]
On February 13, 1981, RCBC filed a complaint[5] for damages against
SBTC with the then Court of First Instance of Rizal, Branch XXII. Said case was
docketed as Civil Case No. 1081 and later transferred to the Regional Trial Court
(RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC
and SBTC stopped returning the checks to each other. By way of a temporary
arrangement pending resolution of the case, the P8-million check was equally
divided between, and credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a
Decision[7] in favor of RCBC. The dispositive portion of the decision reads:

39 | B A N K I N G L A W S

PhP4,000,000.00 as and for actual damages;

PhP100,000.00 as and for attorneys fees;
the costs.
On appeal, the Court of Appeals affirmed with modification the above Decision, to
is AFFIRMED with MODIFICATION. Appellant Security Bank and
Trust Co. shall pay appellee Rizal Commercial Banking
Corporation not only the principal amount of P4,000,000.00 but
also interest thereon at (6%) per annum covering appellees
unearned income on interest computed from the time of filing of the
complaint on February 13, 1981 to the date of finality of this
Decision. For lack of factual and legal basis, the award of attorneys
fees is DELETED.
Now for our resolution are the opposing parties petitions for review on
certiorari of the abovecited decision. On its part, SBTC alleges the following to
support its petition:





40 | B A N K I N G L A W S


RCBC [SIC].[10]
On RCBCs part, the following issues are submitted for resolution:
Simply stated, we find that in these consolidated petitions, the legal issues for our
resolution are: (1) Is SBTC liable to RCBC for the remaining P4 million? and (2)
Is SBTC liable to pay for lost interest income on the remaining P4 million,
exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially
as good as the money it represents because by its peculiar character, its
issuance has the effect of an advance acceptance. RCBC claims that it is a
holder in due course when it credited the P8-million managers check to CMCs
account. Accordingly, RCBC asserts that SBTCs refusal to honor its obligation
justifies RCBC claim for lost interest income, exemplary damages and attorneys
On the other hand, SBTC contends that RCBC violated Monetary Board
Resolution No. 2202 of the Central Bank of the Philippines mandating all banks
to verify the genuineness and validity of all checks before allowing drawings of
the same. SBTC insists that RCBC should bear the consequences of allowing
CMC to withdraw the amount of the check before it was cleared.[12]
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is
not just an ordinary check but a managers check. A managers check is one drawn by
a banks manager upon the bank itself. It stands on the same footing as a certified
check,[13] which is deemed to have been accepted by the bank that certified it. [14] As
the banks own check, a managers check becomes the primary obligation of the bank
and is accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to
CMCs account, relied on the integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check, which was payable to Cash,
appeared regular on its face, and the bank found nothing unusual in the transaction,


as the drawer usually issued checks in big amounts made payable to cash, RCBC
cannot be faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking
Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting
drawings against uncollected deposits. For we must point out that the Central
Bank at that time issued a Memorandum dated July 9, 1980, which interpreted
said Monetary Board Resolution No. 2202. In its pertinent portion, said
Memorandum reads:
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution
No. 2202 dated December 31, 1979 prohibiting, as a matter of
policy, drawing against uncollected deposit effective July 1,
1980, uncollected deposits representing managers cashiers/
treasurers checks, treasury warrants, postal money orders and
duly funded on us checks which may be permitted at the
discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits. [17]
Thus, it is clear from the July 9, 1980 Memorandum that banks were
given the discretion to allow immediate drawings on uncollected deposits of
managers checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject managers check, only exercised a
prerogative expressly granted to it by the Monetary Board.

confidence. In this connection, it is important that banks should guard against

injury attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public interest, the
trust and confidence of the public in it is of paramount importance. Consequently,
the highest degree of diligence is expected, and high standards of integrity and
performance are required of it. SBTC having failed in this respect, the award of
exemplary damages to RCBC in the amount of P50,000.00 is warranted.[21]
Pursuant to current jurisprudence, with the finding of liability for
exemplary damages, attorneys fees in the amount of P25,000.00[22] must also be
awarded against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and
Resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No.
67387 is hereby AFFIRMED with MODIFICATION. Security Bank and Trust
Company is ordered to pay Rizal Commercial Banking Corporation: (1) the
remaining P4,000,000.00, with legal interest thereon at six percent (6%) per
annum from the time of filing of the complaint on February 13, 1981 to the date of
finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys
fees of P25,000.00.
No pronouncement as to costs.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the managers check and
the relative rights of the parties thereto. SBTCs liability as drawer remains the
same by drawing the instrument, it admits the existence of the payee and his
then capacity to indorse; and engages that on due presentment, the instrument
will be accepted, or paid, or both, according to its tenor.[18]
Concerning RCBCs claim for lost interest income on the remaining P4
million, this is already covered by the amount of damages in the form of legal
interest of 6%, based on Article 2200 [19] and 2209[20] of the Civil Code of the
Philippines, as awarded by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages,
we also find merit in the need to award exemplary damages in order to set an
example for the public good. 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. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks
have attained an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, above all, trust and

41 | B A N K I N G L A W S

[G.R. No. 112392. February 29, 2000]
APPEALS and BENJAMIN C. NAPIZA, respondents.


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

42 | B A N K I N G L A W S

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
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"
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 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.

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.

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.

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 ventilated in another case.

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

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

43 | B A N K I N G L A W S


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
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:
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

44 | B A N K I N G L A W S

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 private 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).

45 | B A N K I N G L A W S

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
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
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

46 | B A N K I N G L A W S

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.

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 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."[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.
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

47 | B A N K I N G L A W S

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 unofficially 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.



Republic of the Philippines

G.R. No. 81262 August 25, 1989
HENDRY, petitioners,
TOBIAS, respondents.
Atencia & Arias Law Offices for petitioners.
Romulo C. Felizmena for private respondent.

Private respondent Restituto M. Tobias was employed by petitioner Globe
Mackay Cable and Radio Corporation (GLOBE MACKAY) in a dual capacity
as a purchasing agent and administrative assistant to the engineering
operations manager. In 1972, GLOBE MACKAY discovered fictitious
purchases and other fraudulent transactions for which it lost several
thousands of pesos.
According to private respondent it was he who actually discovered the
anomalies and reported them on November 10, 1972 to his immediate
superior Eduardo T. Ferraren and to petitioner Herbert C. Hendry who was

48 | B A N K I N G L A W S


then the Executive Vice-President and General Manager of GLOBE

On November 11, 1972, one day after private respondent Tobias made the
report, petitioner Hendry confronted him by stating that he was the number
one suspect, and ordered him to take a one week forced leave, not to
communicate with the office, to leave his table drawers open, and to leave
the office keys.
On November 20, 1972, when private respondent Tobias returned to work
after the forced leave, petitioner Hendry went up to him and called him a
"crook" and a "swindler." Tobias was then ordered to take a lie detector test.
He was also instructed to submit specimen of his handwriting, signature, and
initials for examination by the police investigators to determine his complicity
in the anomalies.
On December 6,1972, the Manila police investigators submitted a laboratory
crime report (Exh. "A") clearing private respondent of participation in the
Not satisfied with the police report, petitioners hired a private investigator,
retired Col. Jose G. Fernandez, who on December 10, 1972, submitted a
report (Exh. "2") finding Tobias guilty. This report however expressly stated
that further investigation was still to be conducted.
Nevertheless, on December 12, 1972, petitioner Hendry issued a
memorandum suspending Tobias from work preparatory to the filing of
criminal charges against him.
On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief
Document Examiner, after investigating other documents pertaining to the
alleged anomalous transactions, submitted a second laboratory crime report
(Exh. "B") reiterating his previous finding that the handwritings, signatures,
and initials appearing in the checks and other documents involved in the
fraudulent transactions were not those of Tobias. The lie detector tests
conducted on Tobias also yielded negative results.
Notwithstanding the two police reports exculpating Tobias from the anomalies
and the fact that the report of the private investigator, was, by its own terms,

49 | B A N K I N G L A W S

not yet complete, petitioners filed with the City Fiscal of Manila a complaint
for estafa through falsification of commercial documents, later amended to
just estafa. Subsequently five other criminal complaints were filed against
Tobias, four of which were for estafa through Falsification of commercial
document while the fifth was for of Article 290 of' the Revised Penal Code
(Discovering Secrets Through Seizure of Correspondence).lwph1.t Two
of these complaints were refiled with the Judge Advocate General's Office,
which however, remanded them to the fiscal's office. All of the six criminal
complaints were dismissed by the fiscal. Petitioners appealed four of the
fiscal's resolutions dismissing the criminal complaints with the Secretary of
Justice, who, however, affirmed their dismissal.
In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F")
from petitioners that his employment has been terminated effective
December 13, 1972. Whereupon, Tobias filed a complaint for illegal
dismissal. The labor arbiter dismissed the complaint. On appeal, the National
Labor Relations Commission (NLRC) reversed the labor arbiter's decision.
However, the Secretary of Labor, acting on petitioners' appeal from the NLRC
ruling, reinstated the labor arbiter's decision. Tobias appealed the Secretary
of Labor's order with the Office of the President. During the pendency of the
appeal with said office, petitioners and private respondent Tobias entered into
a compromise agreement regarding the latter's complaint for illegal
Unemployed, Tobias sought employment with the Republic Telephone
Company (RETELCO). However, petitioner Hendry, without being asked by
RETELCO, wrote a letter to the latter stating that Tobias was dismissed by
GLOBE MACKAY due to dishonesty.
Private respondent Tobias filed a civil case for damages anchored on alleged
unlawful, malicious, oppressive, and abusive acts of petitioners. Petitioner
Hendry, claiming illness, did not testify during the hearings. The Regional
Trial Court (RTC) of Manila, Branch IX, through Judge Manuel T. Reyes
rendered judgment in favor of private respondent by ordering petitioners to
pay him eighty thousand pesos (P80,000.00) as actual damages, two
hundred thousand pesos (P200,000.00) as moral damages, twenty thousand
pesos (P20,000.00) as exemplary damages, thirty thousand pesos
(P30,000.00) as attorney's fees, and costs. Petitioners appealed the RTC
decision to the Court of Appeals. On the other hand, Tobias appealed as to


the amount of damages. However, the Court of Appeals, an a decision dated

August 31, 1987 affirmed the RTC decision in toto. Petitioners' motion for
reconsideration having been denied, the instant petition for review
on certiorari was filed.
The main issue in this case is whether or not petitioners are liable for
damages to private respondent.
Petitioners contend that they could not be made liable for damages in the
lawful exercise of their right to dismiss private respondent.
On the other hand, private respondent contends that because of petitioners'
abusive manner in dismissing him as well as for the inhuman treatment he
got from them, the Petitioners must indemnify him for the damage that he
had suffered.
One of the more notable innovations of the New Civil Code is the codification
of "some basic principles that are to be observed for the rightful relationship
between human beings and for the stability of the social order." [REPORT
PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect
of the old Code which merely stated the effects of the law, but failed to draw
out its spirit, incorporated certain fundamental precepts which were
"designed to indicate certain norms that spring from the fountain of good
conscience" and which were also meant to serve as "guides for human
conduct [that] should run as golden threads through society, to the end that
law may approach its supreme ideal, which is the sway and dominance of
justice" (Id.) Foremost among these principles is that pronounced in Article
19 which provides:
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.
This article, known to contain what is commonly referred to as the principle of
abuse of rights, sets certain standards which must be observed not only in
the exercise of one's rights but also in the performance of one's duties.
These standards are the following: to act with justice; to give everyone his
due; and to observe honesty and good faith. The law, therefore, recognizes a

50 | B A N K I N G L A W S

primordial limitation on all rights; that in their exercise, the norms of human
conduct set forth in Article 19 must be observed. A right, though by itself legal
because recognized or granted by law as such, may nevertheless become
the source of some illegality. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But while Article 19 lays down a rule of
conduct for the government of human relations and for the maintenance of
social order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be proper.
Article 20, which pertains to damage arising from a violation of law, provides
Art. 20. Every person who contrary to law, wilfully or
negligently causes damage to another, shall indemnify the
latter for the same.
However, in the case at bar, petitioners claim that they did not violate any
provision of law since they were merely exercising their legal right to dismiss
private respondent. This does not, however, leave private respondent with no
relief because Article 21 of the Civil Code provides that:
Art. 21. Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.
This article, adopted to remedy the "countless gaps in the statutes, which
leave so many victims of moral wrongs helpless, even though they have
actually suffered material and moral injury" [Id.] should "vouchsafe adequate
legal remedy for that untold number of moral wrongs which it is impossible
for human foresight to provide for specifically in the statutes" [Id. it p. 40; See
also PNB v. CA, G.R. No. L-27155, May 18,1978, 83 SCRA 237, 247].
In determining whether or not the principle of abuse of rights may be invoked,
there is no rigid test which can be applied. While the Court has not hesitated
to apply Article 19 whether the legal and factual circumstances called for its
application [See for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100 Phil. 186
(1956); PNB v. CA, supra; Grand Union Supermarket, Inc. v. Espino, Jr., G.R.


No. L-48250, December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No. L46558, July 31,1981,106 SCRA 391; United General Industries, Inc, v. Paler
G.R. No. L-30205, March 15,1982,112 SCRA 404; Rubio v. CA, G.R. No.
50911, August 21, 1987, 153 SCRA 183] the question of whether or not the
principle of abuse of rights has been violated resulting in damages under
Article 20 or Article 21 or other applicable provision of law, depends on the
circumstances of each case. And in the instant case, the Court, after
examining the record and considering certain significant circumstances, finds
that all petitioners have indeed abused the right that they invoke, causing
damage to private respondent and for which the latter must now be
The trial court made a finding that notwithstanding the fact that it was private
respondent Tobias who reported the possible existence of anomalous
transactions, petitioner Hendry "showed belligerence and told plaintiff (private
respondent herein) that he was the number one suspect and to take a one
week vacation leave, not to communicate with the office, to leave his table
drawers open, and to leave his keys to said defendant (petitioner Hendry)"
[RTC Decision, p. 2; Rollo, p. 232]. This, petitioners do not dispute. But
regardless of whether or not it was private respondent Tobias who reported
the anomalies to petitioners, the latter's reaction towards the former upon
uncovering the anomalies was less than civil. An employer who harbors
suspicions that an employee has committed dishonesty might be justified in
taking the appropriate action such as ordering an investigation and directing
the employee to go on a leave. Firmness and the resolve to uncover the truth
would also be expected from such employer. But the high-handed treatment
accorded Tobias by petitioners was certainly uncalled for. And this
reprehensible attitude of petitioners was to continue when private respondent
returned to work on November 20, 1972 after his one week forced leave.
Upon reporting for work, Tobias was confronted by Hendry who said. "Tobby,
you are the crook and swindler in this company." Considering that the first
report made by the police investigators was submitted only on December 10,
1972 [See Exh. A] the statement made by petitioner Hendry was baseless.
The imputation of guilt without basis and the pattern of harassment during
the investigations of Tobias transgress the standards of human conduct set
forth in Article 19 of the Civil Code. The Court has already ruled that the right
of the employer to dismiss an employee should not be confused with the
manner in which the right is exercised and the effects flowing therefrom. If
the dismissal is done abusively, then the employer is liable for damages to

51 | B A N K I N G L A W S

the employee [Quisaba v. Sta. Ines-Melale Veneer and Plywood Inc., G.R.
No. L-38088, August 30, 1974, 58 SCRA 771; See also Philippine Refining
Co., Inc. v. Garcia, G.R. No. L-21871, September 27,1966, 18 SCRA 107]
Under the circumstances of the instant case, the petitioners clearly failed to
exercise in a legitimate manner their right to dismiss Tobias, giving the latter
the right to recover damages under Article 19 in relation to Article 21 of the
Civil Code.
But petitioners were not content with just dismissing Tobias. Several other
tortious acts were committed by petitioners against Tobias after the latter's
termination from work. Towards the latter part of January, 1973, after the
filing of the first of six criminal complaints against Tobias, the latter talked to
Hendry to protest the actions taken against him. In response, Hendry cut
short Tobias' protestations by telling him to just confess or else the company
would file a hundred more cases against him until he landed in jail. Hendry
added that, "You Filipinos cannot be trusted." The threat unmasked
petitioner's bad faith in the various actions taken against Tobias. On the other
hand, the scornful remark about Filipinos as well as Hendry's earlier
statements about Tobias being a "crook" and "swindler" are clear violations of
'Tobias' personal dignity [See Article 26, Civil Code].
The next tortious act committed by petitioners was the writing of a letter to
RETELCO sometime in October 1974, stating that Tobias had been
dismissed by GLOBE MACKAY due to dishonesty. Because of the letter,
Tobias failed to gain employment with RETELCO and as a result of which,
Tobias remained unemployed for a longer period of time. For this further
damage suffered by Tobias, petitioners must likewise be held liable for
damages consistent with Article 2176 of the Civil Code. Petitioners, however,
contend that they have a "moral, if not legal, duty to forewarn other
employers of the kind of employee the plaintiff (private respondent herein)
was." [Petition, p. 14; Rollo, p. 15]. Petitioners further claim that "it is the
accepted moral and societal obligation of every man to advise or warn his
fellowmen of any threat or danger to the latter's life, honor or property. And
this includes warning one's brethren of the possible dangers involved in
dealing with, or accepting into confidence, a man whose honesty and
integrity is suspect" [Id.]. These arguments, rather than justify petitioners' act,
reveal a seeming obsession to prevent Tobias from getting a job, even after
almost two years from the time Tobias was dismissed.


Finally, there is the matter of the filing by petitioners of six criminal complaints
against Tobias. Petitioners contend that there is no case against them for
malicious prosecution and that they cannot be "penalized for exercising their
right and prerogative of seeking justice by filing criminal complaints against
an employee who was their principal suspect in the commission of forgeries
and in the perpetration of anomalous transactions which defrauded them of
substantial sums of money" [Petition, p. 10, Rollo, p. 11].
While sound principles of justice and public policy dictate that persons shall
have free resort to the courts for redress of wrongs and vindication of their
rights [Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to
institute criminal prosecutions can not be exercised maliciously and in bad
faith [Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA 5871.]
Hence, in Yutuk V. Manila Electric Co., G.R. No. L-13016, May 31, 1961, 2
SCRA 337, the Court held that the right to file criminal complaints should not
be used as a weapon to force an alleged debtor to pay an indebtedness. To
do so would be a clear perversion of the function of the criminal processes
and of the courts of justice. And in Hawpia CA, G.R. No. L-20047, June 30,
1967. 20 SCRA 536 the Court upheld the judgment against the petitioner for
actual and moral damages and attorney's fees after making a finding that
petitioner, with persistence, filed at least six criminal complaints against
respondent, all of which were dismissed.
To constitute malicious prosecution, there must be proof that the prosecution
was prompted by a design to vex and humiliate a person and that it was
initiated deliberately by the defendant knowing that the charges were false
and groundless [Manila Gas Corporation v. CA, G.R. No. L-44190, October
30,1980, 100 SCRA 602]. Concededly, the filing of a suit by itself, does not
render a person liable for malicious prosecution [Inhelder Corporation v. CA,
G.R. No. 52358, May 301983122 SCRA 576]. The mere dismissal by the
fiscal of the criminal complaint is not a ground for an award of damages for
malicious prosecution if there is no competent evidence to show that the
complainant had acted in bad faith [Sison v. David, G.R. No. L-11268,
January 28,1961, 1 SCRA 60].
In the instant case, however, the trial court made a finding that petitioners
acted in bad faith in filing the criminal complaints against Tobias, observing

52 | B A N K I N G L A W S

Defendants (petitioners herein) filed with the Fiscal's Office
of Manila a total of six (6) criminal cases, five (5) of which
were for estafa thru falsification of commercial document and
one for violation of Art. 290 of the Revised Penal Code
"discovering secrets thru seizure of correspondence," and all
were dismissed for insufficiency or lack of evidence." The
dismissal of four (4) of the cases was appealed to the
Ministry of Justice, but said Ministry invariably sustained the
dismissal of the cases. As above adverted to, two of these
cases were refiled with the Judge Advocate General's Office
of the Armed Forces of the Philippines to railroad plaintiffs
arrest and detention in the military stockade, but this was
frustrated by a presidential decree transferring criminal
cases involving civilians to the civil courts.
To be sure, when despite the two (2) police reports
embodying the findings of Lt. Dioscoro Tagle, Chief
Document Examiner of the Manila Police Department,
clearing plaintiff of participation or involvement in the
fraudulent transactions complained of, despite the negative
results of the lie detector tests which defendants compelled
plaintiff to undergo, and although the police investigation was
"still under follow-up and a supplementary report will be
submitted after all the evidence has been gathered,"
defendants hastily filed six (6) criminal cases with the city
Fiscal's Office of Manila, five (5) for estafa thru falsification of
commercial document and one (1) for violation of Art. 290 of
the Revised Penal Code, so much so that as was to be
expected, all six (6) cases were dismissed, with one of the
investigating fiscals, Asst. Fiscal de Guia, commenting in
one case that, "Indeed, the haphazard way this case was
investigated is evident. Evident likewise is the flurry and
haste in the filing of this case against respondent Tobias,"
there can be no mistaking that defendants would not but be


motivated by malicious and unlawful intent to harass,

oppress, and cause damage to plaintiff.
[RTC Decision, pp. 5-6; Rollo, pp. 235-236].
In addition to the observations made by the trial court, the Court finds it
significant that the criminal complaints were filed during the pendency of the
illegal dismissal case filed by Tobias against petitioners. This explains the
haste in which the complaints were filed, which the trial court earlier noted.
But petitioners, to prove their good faith, point to the fact that only six
complaints were filed against Tobias when they could have allegedly filed
one hundred cases, considering the number of anomalous transactions
committed against GLOBE MACKAY. However, petitioners' good faith is
belied by the threat made by Hendry after the filing of the first complaint that
one hundred more cases would be filed against Tobias. In effect, the possible
filing of one hundred more cases was made to hang like the sword of
Damocles over the head of Tobias. In fine, considering the haste in which the
criminal complaints were filed, the fact that they were filed during the
pendency of the illegal dismissal case against petitioners, the threat made by
Hendry, the fact that the cases were filed notwithstanding the two police
reports exculpating Tobias from involvement in the anomalies committed
against GLOBE MACKAY, coupled by the eventual dismissal of all the cases,
the Court is led into no other conclusion than that petitioners were motivated
by malicious intent in filing the six criminal complaints against Tobias.
Petitioners next contend that the award of damages was excessive. In the
complaint filed against petitioners, Tobias prayed for the following: one
hundred thousand pesos (P100,000.00) as actual damages; fifty thousand
pesos (P50,000.00) as exemplary damages; eight hundred thousand pesos
(P800,000.00) as moral damages; fifty thousand pesos (P50,000.00) as
attorney's fees; and costs. The trial court, after making a computation of the
damages incurred by Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 1541551, awarded him the following: eighty thousand pesos (P80,000.00) as
actual damages; two hundred thousand pesos (P200,000.00) as moral
damages; twenty thousand pesos (P20,000.00) as exemplary damages;
thirty thousand pesos (P30,000.00) as attorney's fees; and, costs. It must be
underscored that petitioners have been guilty of committing several

53 | B A N K I N G L A W S

actionable tortious acts, i.e., the abusive manner in which they dismissed
Tobias from work including the baseless imputation of guilt and the
harassment during the investigations; the defamatory language heaped on
Tobias as well as the scornful remark on Filipinos; the poison letter sent to
RETELCO which resulted in Tobias' loss of possible employment; and, the
malicious filing of the criminal complaints. Considering the extent of the
damage wrought on Tobias, the Court finds that, contrary to petitioners'
contention, the amount of damages awarded to Tobias was reasonable under
the circumstances.
Yet, petitioners still insist that the award of damages was improper, invoking
the principle of damnum absque injuria. It is argued that "[t]he only probable
actual damage that plaintiff (private respondent herein) could have suffered
was a direct result of his having been dismissed from his employment, which
was a valid and legal act of the defendants-appellants (petitioners
herein).lwph1.t " [Petition, p. 17; Rollo, p. 18].
According to the principle of damnum absque injuria, damage or loss which
does not constitute a violation of a legal right or amount to a legal wrong is
not actionable [Escano v. CA, G.R. No. L-47207, September 25, 1980, 100
SCRA 197; See also Gilchrist v. Cuddy 29 Phil, 542 (1915); The Board of
Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987].
This principle finds no application in this case. It bears repeating that even
granting that petitioners might have had the right to dismiss Tobias from
work, the abusive manner in which that right was exercised amounted to a
legal wrong for which petitioners must now be held liable. Moreover, the
damage incurred by Tobias was not only in connection with the abusive
manner in which he was dismissed but was also the result of several other
quasi-delictual acts committed by petitioners.
Petitioners next question the award of moral damages. However, the Court
has already ruled in Wassmer v. Velez, G.R. No. L-20089, December 26,
1964, 12 SCRA 648, 653, that [p]er express provision of Article 2219 (10) of
the New Civil Code, moral damages are recoverable in the cases mentioned
in Article 21 of said Code." Hence, the Court of Appeals committed no error in
awarding moral damages to Tobias.
Lastly, the award of exemplary damages is impugned by petitioners.
Although Article 2231 of the Civil Code provides that "[i]n quasi-delicts,


exemplary damages may be granted if the defendant acted with gross

negligence," the Court, in Zulueta v. Pan American World Airways, Inc., G.R.
No. L- 28589, January 8, 1973, 49 SCRA 1, ruled that if gross negligence
warrants the award of exemplary damages, with more reason is its imposition
justified when the act performed is deliberate, malicious and tainted with bad
faith. As in the Zulueta case, the nature of the wrongful acts shown to have
been committed by petitioners against Tobias is sufficient basis for the award
of exemplary damages to the latter.

54 | B A N K I N G L A W S

WHEREFORE, the petition is hereby DENIED and the decision of the Court
of Appeals in CA-G.R. CV No. 09055 is AFFIRMED.