FIRST DIVISION

future trading business as soon as a favorable opportunity

presented itself.[3]

[G.R. No. 141011. July 19, 2001]

CITYTRUST BANKING CORPORATION (now Bank of
the
Philippine
Islands), petitioner,
vs. ISAGANI C. VILLANUEVA, respondent.
[G.R. No. 141028. July 19, 2001]
ISAGANI C. VILLANUEVA, petitioner, vs. CITYTRUST
BANKING CORPORATION, respondent.
DECISION
DAVIDE, JR., C.J.:
In these consolidated cases, the Court is called upon
to determine whether the repeated dishonor of a check
drawn against a well-funded account but bearing the
account number of another depositor with the same name
and surname as the drawer would entitle the drawer to
compensatory and moral damages and to attorneys fees.
The antecedent facts are as follows:
Sometime in February 1984, Isagani C. Villanueva
(hereafter VILLANUEVA) opened a savings account and a
current account with Citytrust Banking Corporation
(hereafter the BANK), which were assigned account
numbers 1-033-02337-1 and 33-00977-5, respectively,
with an automatic transfer arrangement.
On 21 May 1986, VILLANUEVA deposited some
money in his savings account with the BANKs Legaspi
Village Branch in Makati, Metro Manila. Realizing that he
had run out of blank checks, VILLANUEVA requested a new
checkbook from one of the BANKs customer service
representatives. He then filled up a checkbook requisition
slip with the obligatory particulars, except for his current
account number which he could not remember. He
expressed his predicament to a lady customer service
representative of the BANK, who in turn assured him that
she could supply the information from the BANKs account
records. After signing the requisition slip, he gave it to her.
[1]

Pia
Rempillo,
another
customer
service
representative of the BANK, saw VILLANUEVAs checkbook
requisition slip. She took it and proceeded to check the
BANKs checkbook register which contained all the names
and account numbers of the BANKs clients who were
issued checkbooks. Upon seeing the name Isagani
Villanueva -- Account No. 33-00446-3 in the checkbook
register, Rempillo copied the aforesaid account number on
the space intended for it in VILLANUEVAs requisition slip. [2]
On 17 June 1986, VILLANUEVA received from the
BANK his requested checkbook. On the same day, he
immediately signed Check No. 396701 bearing the
amount of P50,000 payable to the order of Kingly
Commodities Traders and Multi Resources, Inc. (hereafter
Kingly Commodities). VILLANUEVA thereafter delivered the
check to Helen Chu, his investment consultant at Kingly
Commodities, with his express instruction to use said
check in placing a trading order at Kingly Commodities

Two days later, or on 19 June 1986, VILLANUEVA

received a call from Helen Chu, informing him that she
had already placed a trading order in his behalf and
delivered the check to Kingly Commodities. The check was
deposited with the China Banking Corporation. The next
day, he deposited P31,600 in cash to his savings account
to cover the full amount of the check he issued. His
deposits in both accounts totalled P51,304.91.[4]
However, on 23 June 1986, VILLANUEVAs Check No.
396701 was dishonored due to insufficiency of funds and
disparity in the signature. VILLANUEVA called Kingly
Commodities and explained that there was a mistake in
the dishonor of the check because he had sufficient
funds. Forthwith on the same day, VILLANUEVA called up
the BANKs Legaspi Village Branch Operations Manager,
Maritess Gamboa, and inquired about the dishonor of his
well-funded check. Gamboa promised to look into the
matter and instructed VILLANUEVA to advise his payee,
Kingly Commodities, to re-deposit the check. Gamboa
assured VILLANUEVA that the check would be honored
after the sufficiency of the funds was ascertained.[5]
On 26 June 1986 at about 4:00 p.m., VILLANUEVA
learned that his check was again dishonored due to
insufficiency of funds and a stop- payment order he
allegedly issued. Dismayed by the turn of events,
VILLANUEVA called up the BANK and inquired from
Gamboa the reason for the dishonor of his well-funded
check and the alleged stop-payment order which he never
issued. Gamboa promised to investigate the matter and to
call VILLANUEVA in fifteen (15) minutes. [6] In the
meantime, she advised VILLANUEVA to re-deposit the
check.
VILLANUEVA then requested Lawrence Chin of Kingly
Commodities to give him until 5:30 p.m. that same day to
make good his P50,000 check. He then proceeded to the
BANKs Legaspi Village Branch Office, together with his
investment consultant and his trading partner, to
personally inquire into the matter. They were met by
Marilou Genuino, the BANKs Branch Manager. There he
complained that his trading order was rejected because of
the dishonor of the check and that Kingly Commodities
threatened to close his trading account unless his check
payment would be made good before 5:30 p.m. that
day. After making the necessary investigation, Genuino
related to VILLANUEVA that the reason for the dishonor of
the check was that the account number assigned to his
new checkbook was the account number of another
depositor also named Isagani Villanueva but with a
different middle initial.[7]
To resolve the matter, Genuino promised to send to
Kingly Commodities a managers check for P50,000 before
5:30 p.m., the deadline given to VILLANUEVA. She also
personally called Kingly Commodities and explained the
reason for the dishonor of the check. [8]
On 30 June 1986, VILLANUEVA sent a letter [9] to the
BANK addressed to the President, Jose Facundo,
demanding indemnification for alleged losses and
damages suffered by him as a result of the dishonor of his
well-funded check. He demanded the amount of P70,000

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as indemnification for actual damages in the form of lost

profits and P2 Million for moral and other damages.
On 10 July 1986, in answer to VILLANUEVAs letter,
Gregorio Anonas III, the BANKs Senior Vice-President,
apologized for the unfortunate oversight, but reminded
VILLANUEVA that the dishonor of his check was due to his
failure to state his current account number in his
requisition slip. Anonas further stated that as soon as the
mistake was discovered, the BANK promptly sent a
managers check to Kingly Commodities before 5:30 p.m.
on 26 June 1986 to avoid any damage the dishonor of the
check might have caused.[10]
Failing to obtain from the BANK a favorable action on
his demand for indemnification, VILLANUEVA filed on 27
August 1986 a complaint for damages based on breach of
contract and/or quasi-delict before the Regional Trial Court
of Makati City. The case was docketed as Civil Case No.
14749 and was raffled to Branch 63 thereof.
VILLANUEVA alleged in his complaint that the BANK
breached its contractual obligation to him as a depositor
because of its repeated dishonor of his valid and wellfunded check. The breach arose from the BANKs gross
negligence and culpable recklessness in supplying the
wrong account number. As a consequence, he suffered
and sustained (1) actual damages consisting of loss of
profits in the amount of at least P240,000, for he was not
allowed to trade by Kingly Commodities; and (2) P2 Million
as moral damages because of the intolerable physical
inconvenience,
discomfort,
extreme
humiliation,
indignities, etc., that he had borne before his peers and
colleagues in the firm, his trading partners, and the
officers of Kingly Commodities. He prayed for an additional
award of P500,000 for exemplary damages, attorneys
fees, litigation expenses and costs of the suit.[11]
In its answer, the BANK alleged that VILLANUEVA
suffered no actionable injury, much less damages,
considering his blatant irresponsibility in not remembering
his current account number and in failing to bring his
checkbook re-order slip form on which his account number
was inscribed when he requested a new set of checks. His
negligence in verifying the account number of the new set
of checks issued to him also contributed to the dishonor of
his check. The BANK claimed that it acted in good faith
when it twice dishonored the check. It further asserted
that VILLANUEVAs negligence was the proximate cause of
his self-proclaimed injury; and the alleged losses and
damages could not likewise be deemed the natural and
probable consequences of the BANKs breach of obligation,
had there been any.Finally, it claimed that VILLANUEVA
acted with malice in filing the case, and interposed
counterclaims
of P500,000
as
exemplary
damages; P250,000 as attorneys fees; and actual
damages as may be determined by the court.[12]
After due proceedings, the trial court rendered on 3
July 1992 a decision[13] dismissing the complaint and the
compulsory counterclaim for lack of merit. To the trial
court, the basic issue was whether it was VILLANUEVAs or
the BANKs negligence which was the proximate cause of
the formers alleged injury. After an evaluation of the
respective allegations and evidence of the parties, the trial
court found that VILLANUEVAs negligence set the chain of
events which resulted in his alleged losses and
damages. His negligence consisted in his failure to (a)
indicate his current account number when he filled up his
requisition slip for a new set of checks; (b) remember his

account number; (c) bring the used checkbook to which

was attached the pre-order requisition slip on which the
account number was pre-indicated; (d) give the requisition
slip to the care and custody of a BANK officer or employee
instead of leaving the requisition slip on top of one of the
tables of the BANK; and (e) verify the account number of
the new set of checks when it was delivered to him. These
omissions directly resulted in the dishonor of his check
drawn from an account bearing the account number of
another BANK client whose name and surname were
similar to his. VILLANUEVA then must bear the consequent
damages and losses he allegedly suffered.
The trial court conceded, however, that the BANK
was negligent when it failed to supply VILLANUEVAs
correct account number despite its promise to do so; but
its negligence was merely contributory, which would have
reduced the damages recoverable by VILLANUEVA had the
latter proved his claims for actual, moral and exemplary
damages, and attorneys fees.
Likewise, the trial court doubted that VILLANUEVA
sustained actual damages in the amount of P240,000 due
to loss of profits as averred in the complaint considering
that his initial claim against the BANK for actual loss was
merely P70, 000[14] and the evidence presented in support
thereof was hearsay, unreliable and not the best evidence.
VILLANUEVA appealed to the Court of Appeals. The
appeal was docketed as CA-G.R. CV No. 40931.
In his appeal, VILLANUEVA maintained that the BANK
was guilty of gross or culpable negligence amounting to
bad faith when its customer service representative
furnished an erroneous account number. He further
contended that the same was the proximate cause of the
repeated dishonor of his check. He should, therefore, be
entitled to an award of actual, moral and exemplary
damages, including attorneys fees and costs of the suit.
The Court of Appeals, in its decision of 2 February
1999,[15] ruled that when the BANK voluntarily processed
the requisition slip without the requisite account number
being supplied by the applicant, it in effect took upon itself
the obligation to supply the correct account number. Thus,
when the new checkbook was released to VILLANUEVA on
17 June 1986, the BANK was deemed to have waived any
defect in the requisition slip and estopped from putting the
blame on VILLANUEVAs failure to indicate his account
number. VILLANUEVA had every right to assume that
everything was in order in his application for a new
checkbook; for, after all, he was banking with a world class
universal bank. The banking industry is imbued with public
interest and is mandated by law to serve its clients with
extraordinary care and diligence.
The Court of Appeals also considered the BANKs
voluntary processing of the requisition slip as the cause
which in the natural and continuous sequence, unbroken
by any efficient intervening cause, produced the injury
and without which the result would not have occurred.
[16]
However, although it conceded that the BANKs
negligence was not attended with malice and bad faith, it
nonetheless awarded moral damages in the amount
of P100,000. It also awarded attorneys fees in the amount
of P50,000, since VILLANUEVA was compelled to incur
expenses to protect his interests by reason of the
unjustified act or omission of the BANK. However, it
rejected VILLANUEVAs claim for compensatory damages
and affirmed the trial courts finding thereon.
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Page 2 of 40

Upon the denial[17] of their respective motions for

reconsideration, both VILLANUEVA and the BANK appealed
to us by way of petition for review.
In its petition, the BANK ascribes to the Court of
Appeals as reversible errors its (1) reversal of the court a
quos decision; (2) declaration that the proximate and
efficient cause of the injury allegedly suffered by
VILLANUEVA was the BANKs processing of the checkbook
and assigning an erroneous account number, and not the
negligent act of VILLANUEVA in leaving the checkbook
requisition slip on top of one of the desks with the account
number entry blank; and (3) award of moral damages and
attorneys fees despite the absence of a finding of bad
faith on the part of the BANK.
In his petition, VILLANUEVA asserts that the Court of
Appeals erred in holding that his actual losses in the
amount of P234,059.04 was not sufficiently proved with
reasonable certainty. Had his fully-funded check not been
dishonored twice, his four trading orders with Kingly
Commodities consisting of two (2) open sell positions on
17 and 18 of June 1986 and two (2) settle buy orders on
26 June 1986 would have earned him profits in the amount
he claimed. He emphatically maintains that the loss had
been satisfactorily proved by the testimony of Helen Chu,
his investment consultant. Ms. Chus testimony was not
controverted; hence, it should have been considered and
admitted as factually true. Considering that his claim for
actual damages has been adequately established and that
the BANK committed gross negligence amounting to bad
faith, his concomitant demand for exemplary damages
should likewise be awarded.
The issue of whether VILLANUEVA suffered actual or
compensatory damages in the form of loss of profits is
factual. Both the Court of Appeals and the trial court have
ascertained that VILLANUEVA was unable to prove his
demand for compensatory damages arising from loss. His
evidence thereon was found inadequate, uncorroborated,
speculative, hearsay and not the best evidence. Basic is
the jurisprudential principle that in determining actual
damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend
on competent proof and on the best obtainable evidence
of the actual amount of the loss. [18] Actual damages cannot
be presumed but must be duly proved with reasonable
certainty.[19]
It must also be stressed that the unanimity on the
factual ascertainment on this point by the trial court and
the Court of Appeals bars us from supplanting their finding
and substituting it with our own assessment. Wellentrenched in our jurisprudence is the doctrine that the
factual determinations of the lower courts are conclusive
and binding upon appellate courts and hence should not
be disturbed. None of the recognized exceptions to said
principle exists in this case to warrant a reexamination of
such finding. Besides, our jurisdiction in cases brought
before us from the Court of Appeals is limited to the
review of errors of law.[20]
Nonetheless, is VILLANUEVA entitled to the moral
damages and attorneys fees granted by the Court of
Appeals?
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and
similar
injury.[21] Although
incapable
of
pecuniary

computation, moral damages may be recovered if they are

the proximate result of the defendants wrongful act or
omission.[22] Thus, case law establishes the requisites for
the award of moral damages, viz: (1) there must be an
injury, whether physical, mental or psychological, clearly
sustained by the claimant; (2) there must be a culpable
act or omission factually established; (3) the wrongful act
or omission of the defendant is the proximate cause of the
injury sustained by the claimant; and (4) the award of
damages is predicated on any of the cases stated in
Article 2219 of the Civil Code.[23]
It is beyond cavil that VILLANUEVA had sufficient
funds for the check. Had his account number been correct,
the check would not have been dishonored. Hence, we can
say that VILLANUEVAs injury arose from the dishonor of his
well-funded check. We have already ruled that the
dishonor of the check does not entitle him to
compensatory damages. But, could the dishonor result in
his alleged intolerable physical inconvenience and
discomfort, extreme humiliation, indignities, etc, which he
had borne before his peers, trading partners and officers
of Kingly Commodities? True, we find that under the
circumstances of this case, VILLANUEVA might have
suffered some form of inconvenience and discomfort as a
result of the dishonor of his check. However, the same
could not have been so grave or intolerable as he
attempts to portray or impress upon us.
Further, it is clear from the records that the BANK
was able to remedy the caveat of Kingly Commodities to
VILLANUEVA that his trading account would be closed at
5:30 p.m. on 26 June 1986. The BANK was able to issue a
managers check in favor of Kingly Commodities before the
deadline. It was able to likewise explain to Kingly
Commodities
the
circumstances
surrounding
the
unfortunate situation. Verily, the alleged embarrassment
or inconvenience caused to VILLANUEVA as a result of the
incident was timely and adequately contained, corrected,
mitigated, if not entirely eradicated. VILLANUEVA, thus,
failed to support his claim for moral damages. In short,
none of the circumstances mentioned in Article 2219 of
the Civil Code exists to sanction the award for moral
damages.
The award of attorneys fees should likewise be
deleted. The general rule is that attorneys fees cannot be
recovered as part of damages because of the policy that
no premium should be placed on the right to litigate. They
are not to be awarded every time a party wins a suit. The
power of the court to award attorneys fees under Article
2208 of the Civil Code demands factual, legal and
equitable justification.Even when a claimant is compelled
to litigate with third persons or to incur expenses to
protect his rights, still attorneys fees may not be awarded
where there is no sufficient showing of bad faith in the
parties persistence of a case other than an erroneous
conviction of the righteousness of his cause.[24]
In view of the foregoing discussion, we need not
deliberate on the dispute as to whether it was the BANKs
or VILLANUEVAs negligence which was the proximate
cause of the latters injury because, in the first place, he
did not sustain any compensable injury. If any damage had
been suffered at all, it could be equivalent to damnum
absque injuria, i.e., damage without injury or damage or
injury inflicted without injustice, or loss or damage without
violation of a legal right, or a wrong done to a man for
which the law provides no remedy.[25]

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WHEREFORE, the decision of the Court of Appeals in

CA-G.R. CV No. 40931 is hereby REVERSED, and the
judgment of the Regional Trial Court of Makati City, Branch
63, in Civil Case No. 14749 dismissing the complaint and
the counterclaim is hereby REINSTATED.
No costs.
SO ORDERED.

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FIRST DIVISION
[G.R. No. 112392. February 29, 2000]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.
COURT OF APPEALS and BENJAMIN C.
NAPIZA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the
Decision[1] of the Court of Appeals in CA-G.R. CV No. 37392
affirming in toto that of the Regional Trial Court of Makati,
Branch 139,[2] which dismissed the complaint filed by
petitioner Bank of the Philippine Islands against private
respondent Benjamin C. Napiza for sum of money. Sdaad
On September 3, 1987, private respondent deposited in
Foreign Currency Deposit Unit (FCDU) Savings Account No.
028-187[3] which he maintained in petitioner banks
Buendia Avenue Extension Branch, Continental Bank
Managers Check No. 00014757[4] dated August 17, 1984,
payable to "cash" in the amount of Two Thousand Five
Hundred Dollars ($2,500.00) and duly endorsed by private
respondent on its dorsal side.[5] It appears that the check
belonged to a certain Henry Chan who went to the office
of private respondent and requested him to deposit the
check in his dollar account by way of accommodation and
for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as
the check is cleared, both of them would go to the bank to
withdraw the amount of the check upon private
respondents presentation to the bank of his passbook.
Using the blank withdrawal slip given by private
respondent to Chan, on October 23, 1984, one Ruben
Gayon, Jr. was able to withdraw the amount of $2,541.67
from FCDU Savings Account No. 028-187. Notably, the
withdrawal slip shows that the amount was payable to
Ramon A. de Guzman and Agnes C. de Guzman and was
duly initialed by the branch assistant manager, Teresita
Lindo.[6]
On November 20, 1984, petitioner received
communication from the Wells Fargo Bank International of
New York that the said check deposited by private
respondent was a counterfeit check[7] because it was "not
of the type or style of checks issued by Continental Bank
International."[8] Consequently, Mr. Ariel Reyes, the
manager of petitioners Buendia Avenue Extension Branch,
instructed one of its employees, Benjamin D. Napiza IV,
who is private respondents son, to inform his father that
the check bounced.[9] Reyes himself sent a telegram to
private respondent regarding the dishonor of the check. In
turn, private respondents son wrote to Reyes stating that
the check had been assigned "for encashment" to Ramon
A. de Guzman and/or Agnes C. de Guzman after it shall
have been cleared upon instruction of Chan. He also said
that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of
town.[10]
Private respondents son undertook to return the amount of
$2,500.00 to petitioner bank. On December 18, 1984,
Reyes reminded private respondent of his sons promise
and warned that should he fail to return that amount

within seven (7) days, the matter would be referred to the

banks lawyers for appropriate action to protect the banks
interest.[11] This was followed by a letter of the banks
lawyer dated April 8, 1985 demanding the return of the
$2,500.00.[12]
In reply, private respondent wrote petitioners counsel on
April 20, 1985[13] stating that he deposited the check "for
clearing purposes" only to accommodate Chan. He added:
"Further, please take notice that said
check was deposited on September 3,
1984 and withdrawn on October 23,
1984, or a total period of fifty (50) days
had elapsed at the time of withdrawal.
Also, it may not be amiss to mention here
that I merely signed an authority to
withdraw said deposit subject to its
clearing, the reason why the transaction
is not reflected in the passbook of the
account. Besides, I did not receive its
proceeds as may be gleaned from the
withdrawal slip under the captioned
signature of recipient.
If at all, my obligation on the transaction
is moral in nature, which (sic) I have been
and is (sic) still exerting utmost and
maximum efforts to collect from Mr.
Henry Chan who is directly liable under
the circumstances. Scsdaad
xxx......xxx......xxx."
On August 12, 1986, petitioner filed a complaint against
private respondent, praying for the return of the amount
of $2,500.00 or the prevailing peso equivalent plus legal
interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as
attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he
indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be
withdrawn only after the check in question has been
cleared. He likewise alleged that he instructed the party to
whom he issued the signed blank withdrawal slip to return
it to him after the bank drafts clearance so that he could
lend that party his passbook for the purpose of
withdrawing the amount of $2,500.00. However, without
his knowledge, said party was able to withdraw the
amount of $2,541.67 from his dollar savings account
through collusion with one of petitioners employees.
Private respondent added that he had "given the Plaintiff
fifty one (51) days with which to clear the bank draft in
question." Petitioner should have disallowed the
withdrawal because his passbook was not presented. He
claimed that petitioner had no one to blame except itself
"for being grossly negligent;" in fact, it had allegedly
admitted having paid the amount in the check "by
mistake" x x x "if not altogether due to collusion and/or
bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank
procedures," by way of counterclaim, private respondent
prayed for moral damages of P100,000.00, exemplary
damages of P50,000.00 and attorneys fees of 30% of
whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.

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Private respondent also filed a motion for admission of a

third party complaint against Chan. He alleged that "thru
strategem and/or manipulation," Chan was able to
withdraw the amount of $2,500.00 even without private
respondents passbook. Thus, private respondent prayed
that third party defendant Chan be made to refund to him
the amount withdrawn and to pay attorneys fees of
P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court
to admit the third party complaint, wherein it asserted
that per paragraph 2 of the Rules and Regulations
governing BPI savings accounts, private respondent alone
was liable "for the value of the credit given on account of
the draft or check deposited." It contended that private
respondent was estopped from disclaiming liability
because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed
for the denial of the said motion so as not to unduly delay
the disposition of the main case asserting that private
respondents claim could be ventilated in another case.
Private respondent replied that for the parties to obtain
complete relief and to avoid multiplicity of suits, the
motion to admit third party complaint should be granted.
Meanwhile, the trial court issued orders on August 25,
1987 and October 28, 1987 directing private respondent
to actively participate in locating Chan. After private
respondent failed to comply, the trial court, on May 18,
1988, dismissed the third party complaint without
prejudice.
On November 4, 1991, a decision was rendered dismissing
the complaint. The lower court held that petitioner could
not hold private respondent liable based on the checks
face value alone. To so hold him liable "would
render inutile the requirement of clearance from the
drawee bank before the value of a particular foreign check
or draft can be credited to the account of a depositor
making such deposit." The lower court further held that "it
was incumbent upon the petitioner to credit the value of
the check in question to the account of the private
respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal
from the latters account of the value or proceeds of the
check." Having admitted that it committed a "mistake" in
not waiting for the clearance of the check before
authorizing the withdrawal of its value or proceeds,
petitioner should suffer the resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts
decision. The appellate court held that petitioner
committed "clear gross negligence" in allowing Ruben
Gayon, Jr. to withdraw the money without presenting
private respondents passbook and, before the check was
cleared and in crediting the amount indicated therein in
private respondents account. It stressed that the mere
deposit of a check in private respondents account did not
mean that the check was already private respondents
property. The check still had to be cleared and its proceeds
can only be withdrawn upon presentation of a passbook in
accordance with the banks rules and regulations.
Furthermore, petitioners contention that private
respondent warranted the checks genuineness by
endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of
presentation of a passbook to ascertain the propriety of
the accounting reflected would be a meaningless exercise.
After all, these requirements are designed to protect the
bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic

Bishop of Malolos, Inc. v. IAC, [14] where this Court stated
that a personal check is not legal tender or money, and
held that the check deposited in this case must be cleared
before its value could be properly transferred to private
respondent's account.
Without filing a motion for the reconsideration of the Court
of Appeals Decision, petitioner filed this petition for review
on certiorari, raising the following issues:
1.......WHETHER OR NOT RESPONDENT
NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER.
2.......WHETHER OR NOT A CONTRACT OF
AGENCY WAS CREATED BETWEEN
RESPONDENT NAPIZA AND RUBEN
GAYON.
3.......WHETHER OR NOT PETITIONER
WAS GROSSLY NEGLIGENT IN ALLOWING
THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed
his signature at the dorsal side of the check, should be
liable for the amount stated therein in accordance with the
following provision of the Negotiable Instruments Law (Act
No. 2031):
"SEC. 66. Liability of general
indorser. Every indorser who indorses
without qualification, warrants to all
subsequent holders in due course
(a)......The matters and things mentioned
in subdivisions (a), (b), and (c) of the next
preceding section; and
(b)......That the instrument is at the time
of his indorsement, valid and subsisting.
And, in addition, he engages that on due
presentment, it shall be accepted or paid,
or both, as the case may be, according to
its tenor, and that if it be dishonored, and
the necessary proceedings on dishonor
be duly taken, he will pay the amount
thereof to the holder, or to any
subsequent indorser who may be
compelled to pay it."
Section 65, on the other hand, provides for the following
warranties of a person negotiating an instrument by
delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports
to be; (b) that he has a good title to it, and (c) that all prior
parties had capacity to contract. [15] In People v. Maniego,
[16]
this Court described the liabilities of an indorser as
follows: Juris
"Appellants contention that as mere
indorser, she may not be liable on
account of the dishonor of the checks
indorsed by her, is likewise untenable.
Under the law, the holder or last indorsee
of a negotiable instrument has the right
to enforce payment of the instrument for
BANKING for MT

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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).
6.......Deposits shall not be subject to
withdrawal by check, and may be
withdrawn only in the manner above
provided, upon presentation of the
depositors savings passbook and with the
withdrawal form supplied by the Bank at
the counter."[19] Scjuris
Under these rules, to be able to withdraw from the savings
account deposit under the Philippine foreign currency
deposit system, two requisites must be presented to
petitioner bank by the person withdrawing an amount: (a)
a duly filled-up withdrawal slip, and (b) the depositors
passbook. Private respondent admits that he signed a
blank withdrawal slip ostensibly in violation of Rule No. 6
requiring that the request for withdrawal must name the
payee, the amount to be withdrawn and the place where
such withdrawal should be made. That the withdrawal slip
was in fact a blank one with only private respondents two
signatures affixed on the proper spaces is buttressed by
petitioners allegation in the instant petition that had
private respondent indicated therein the person
authorized to receive the money, then Ruben Gayon, Jr.
could not have withdrawn any amount. Petitioner
contends that "(i)n failing to do so (i.e., naming his
authorized agent), he practically authorized any possessor
thereof to write any amount and to collect the same." [20]
Such contention would have been valid if not for the fact
that the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A. de
Guzman &/or Agnes C. de Guzman." Such being the case,
petitioners personnel should have been duly warned that
Gayon, who was also employed in petitioners Buendia Ave.
Extension branch,[21] was not the proper payee of the
proceeds of the check. Otherwise, either Ramon or Agnes
de Guzman should have issued another authority to Gayon
for such withdrawal. Of course, at the dorsal side of the
withdrawal slip is an "authority to withdraw" naming
Gayon the person who can withdraw the amount indicated
in the check. Private respondent does not deny having
signed such authority. However, considering petitioners
clear admission that the withdrawal slip was a blank one
except for private respondents signature, the unavoidable
conclusion is that the typewritten name of "Ruben C.
Gayon, Jr." was intercalated and thereafter it was signed
by Gayon or whoever was allowed by petitioner to
withdraw the amount. Under these facts, there could not
have been a principal-agent relationship between private
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respondent and Gayon so as to render the former liable for

the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning
that states: "This receipt must be signed and presented
with the corresponding foreign currency savings passbook
by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority
at the back." The requirement of presentation of the
passbook when withdrawing an amount cannot be given
mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is
clear from Rule No. 6 set out by petitioner so that, for the
protection of the banks interest and as a reminder to the
depositor, the withdrawal shall be entered in the
depositors passbook. The fact that private respondents
passbook was not presented during the withdrawal is
evidenced by the entries therein showing that the last
transaction that he made with the bank was on September
3, 1984, the date he deposited the controversial check in
the amount of $2,500.00.[22]
In allowing the withdrawal, petitioner likewise overlooked
another rule that is printed in the passbook. Thus:
"2.......All deposits will be received as
current funds and will be repaid in the
same manner; provided, however,
that deposits of drafts, checks, money
orders, etc. will be accepted as subject to
collection only and credited to the
account only upon receipt of the notice of
final payment. Collection charges by the
Banks foreign correspondent in effecting
such collection shall be for the account of
the depositor. If the account has sufficient
balance, the collection shall be debited
by the Bank against the account. If, for
any reason, the proceeds of the
deposited checks, drafts, money orders,
etc., cannot be collected or if the Bank is
required to return such proceeds, the
provisional entry therefor made by the
Bank in the savings passbook and its
records shall be deemed automatically
cancelled regardless of the time that has
elapsed, and whether or not the defective
items can be returned to the depositor;
and the Bank is hereby authorized to
execute immediately the necessary
corrections, amendments or changes in
its record, as well as on the savings
passbook at the first opportunity to
reflect such cancellation." (Italics and
underlining supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the
check in his name, private respondent did not become the
outright owner of the amount stated therein. Under the
above rule, by depositing the check with petitioner,
private respondent was, in a way, merely designating
petitioner as the collecting bank. This is in consonance
with the rule that a negotiable instrument, such as a
check, whether a managers check or ordinary check, is
not legal tender.[23] As such, after receiving the deposit,
under its own rules, petitioner shall credit the amount in
private respondents account or infuse value thereon only
after the drawee bank shall have paid the amount of the
check or the check has been cleared for deposit. Again,
this is in accordance with ordinary banking practices and
with this Courts pronouncement that "the collecting bank

or last endorser generally suffers the loss because it has

the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the
party making the presentment has done its duty to
ascertain the genuineness of the endorsements." [24] The
rule finds more meaning in this case where the check
involved is drawn on a foreign bank and therefore
collection is more difficult than when the drawee bank is a
local one even though the check in question is a managers
check.[25] Misjuris
In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a
commercial bank in Madrid, Spain, paid the amounts
represented in three (3) checks to Virginia Boncan, the
finance officer of the Philippine Embassy in Madrid. The
bank did so without previously clearing the checks with
the drawee bank, the Philippine National Bank in New
York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlanticos foreign
department. The Court held that the encashment of the
checks without prior clearance is "contrary to normal or
ordinary banking practice specially so where the drawee
bank is a foreign bank and the amounts involved were
large." Accordingly, the Court approved the Auditor
Generals denial of Banco Atlanticos claim for payment of
the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking
business is affected with public interest. By the nature of
its functions, a bank is under obligation to treat the
accounts of its depositors "with meticulous care, always
having in mind the fiduciary nature of their
relationship."[27] As such, in dealing with its depositors, a
bank should exercise its functions not only with the
diligence of a good father of a family but it should do so
with the highest degree of care.[28]
In the case at bar, petitioner, in allowing the withdrawal of
private respondents deposit, failed to exercise the
diligence of a good father of a family. In total disregard of
its own rules, petitioners personnel negligently handled
private respondents account to petitioners detriment. As
this Court once said on this matter:
"Negligence is the omission to do
something which a reasonable man,
guided by those considerations which
ordinarily regulate the conduct of human
affairs, would do, or the doing of
something which a prudent and
reasonable man would do. The seventyeight (78)-year-old, yet still relevant, case
of Picart v. Smith, provides the test by
which to determine the existence of
negligence in a particular case which may
be stated as follows: Did the defendant in
doing the alleged negligent act use that
reasonable care and caution which an
ordinarily prudent person would have
used in the same situation? If not, then
he is guilty of negligence. The law here in
effect adopts the standard supposed to
be supplied by the imaginary conduct of
the discreet pater-familias of the Roman
law. The existence of negligence in a
given case is not determined by
reference to the personal judgment of the
actor in the situation before him. The law
considers what would be reckless,
blameworthy, or negligent in the man of
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Page 8 of 40

ordinary intelligence and prudence and

determines liability by that."[29]
SECOND DIVISION
Petitioner violated its own rules by allowing the withdrawal
of an amount that is definitely over and above the
aggregate amount of private respondents dollar deposits
that had yet to be cleared. The banks ledger on private
respondents account shows that before he deposited
$2,500.00, private respondent had a balance of only
$750.00.[30] Upon private respondents deposit of $2,500.00
on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total
balance of $3,250.00.[31] On September 10, 1984, the
amount of $600.00 and the additional charges of $10.00
were indicated therein as withdrawn thereby leaving a
balance of $2,640.00. On September 30, 1984, an interest
of $11.59 was reflected in the ledger and on October 23,
1984, the amount of $2,541.67 was entered as withdrawn
with a balance of $109.92.[32] On November 19, 1984 the
word "hold" was written beside the balance of $109.92.
[33]
That must have been the time when Reyes, petitioners
branch manager, was informed 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.
SO ORDERED.

[G.R. No. 125536. March 16, 2000]

PRUDENTIAL BANK, petitioner, vs. COURT OF
APPEALS and LETICIA TUPASI-VALENZUELA joined by
husband Francisco Valenzuela, respondents. Ed-pmis
DECISION
QUISUMBING, J.:
This appeal by certiorari under Rule 45 of the Rules of
Court seeks to annul and set aside the Decision dated
January 31, 1996, and the Resolution dated July 2, 1997, of
the Court of Appeals in CA G.R. CV No. 35532, which
reversed the judgment of the Regional Trial Court of
Valenzuela, Metro Manila, Branch 171, in Civil Case No.
2913-V-88, dismissing the private respondent's complaint
for damages.[1]
In setting aside the trial court's decision, the Court of
Appeals disposed as follows:
"WHEREFORE, the appealed decision is
hereby REVERSED and SET ASIDE and,
another rendered ordering the appellee
bank to pay appellant the sum of
P100,000.00 by way of moral damages;
P50,000.00 by way of exemplary
damages, P50,000.00 for and as
attorney's fees; and to pay the costs. Jjs-c
SO ORDERED."[2]
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened
Savings Account No. 5744 and Current Account No. 010163 in the Valenzuela Branch of petitioner Prudential Bank,
with automatic transfer of funds from the savings account
to the current account.
On June 1, 1988, herein private respondent deposited in
her savings account Check No. 666B (104561 of even
date) the amount of P35,271.60, drawn against the
Philippine Commercial International Bank (PCIB). Taking
into account that deposit and a series of withdrawals,
private respondent as of June 21, 1988 had a balance of
P35,993.48 in her savings account and P776.93 in her
current account, or total deposits of P36,770.41, with
petitioner. Sc-jj
Thereafter, private respondent issued Prudential Bank
Check No. 983395 in the amount of P11,500.00 post-dated
June 20, 1988, in favor of one Belen Legaspi. It was issued
to Legaspi as payment for jewelry which private
respondent had purchased. Legaspi, who was in jewelry
trade, endorsed the check to one Philip Lhuillier, a
businessman also in the jewelry business. When Lhuillier
deposited the check in his account with the PCIB, Pasay
Branch, it was dishonored for being drawn against
insufficient funds. Lhuillier's secretary informed the
secretary of Legaspi of the dishonor. The latter told the
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former to redeposit the check. Legaspi's secretary tried to

contact private respondent but to no avail.

DAMAGES IN THE AMOUNT OF

P100,000.00.

Upon her return from the province, private respondent was

surprised to learn of the dishonor of the check. She went
to the Valenzuela Branch of Prudential Bank on July 4,
1988, to inquire why her check was dishonored. She
approached one Albert Angeles Reyes, the officer in
charge of current account, and requested him for the
ledger of her current account. Private respondent
discovered a debit of P300.00 penalty for the dishonor of
her Prudential Check No. 983395. She asked why her
check was dishonored when there were sufficient funds in
her account as reflected in her passbook. Reyes told her
that there was no need to review the passbook because
the bank ledger was the best proof that she did not have
sufficient funds. Then, he abruptly faced his typewriter
and started typing. S-jcj

III. WHETHER OR NOT THE RESPONDENT

COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION, WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND
BY THE TRIAL COURT, AWARDED
P50,000.00 BY WAY OF EXEMPLARY
DAMAGES. Co-urt

Later, it was found out that the check in the amount of

P35,271.60 deposited by private respondent on June 1,
1988, was credited in her savings account only on June 24,
1988, or after a period of 23 days. Thus the P11,500.00
check was redeposited by Lhuillier on June 24, 1988, and
properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private
respondent by explaining to Legaspi and Lhuillier that the
bank was at fault. Since this was not the first incident
private respondent had experienced with the bank, private
respondent was unmoved by the bank's apologies and she
commenced the present suit for damages before the RTC
of Valenzuela.
After trial, the court rendered a decision on August 30,
1991, dismissing the complaint of private respondent, as
well as the counterclaim filed by the defendant, now
petitioner.
Undeterred, private respondent appealed to the Court of
Appeals. On January 31, 1996, respondent appellate court
rendered a decision in her favor, setting aside the trial
court's decision and ordering herein petitioner to pay
private respondent the sum of P100,000.00 by way of
moral damages; P50,000.00 exemplary damages;
P50,000.00 for and as attorney's fees; and to pay the
costs.[3]
Petitioner filed a timely motion for reconsideration but it
was denied. Hence, this petition, raising the following
issues:
I. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION IN DEVIATING
FROM ESTABLISHED JURISPRUDENCE IN
REVERSING THE DISMISSAL JUDGMENT
OF THE TRIAL COURT AND INSTEAD
AWARDED MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEY'S FEES. Supreme
II. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND
BY THE TRIAL COURT, AWARDED MORAL

IV. WHETHER OR NOT THE RESPONDENT

COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION WHERE EVEN IN
THE ABSENCE OF EVIDENCE, AWARDED
ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent court
erred and gravely abused its discretion in awarding moral
and exemplary damages and attorney's fees to be paid by
petitioner to private respondent.
Petitioner claims that generally the factual findings of the
lower courts are final and binding upon this Court.
However, there are exceptions to this rule. One is where
the trial court and the Court of Appeals had arrived at
diverse factual findings.[4] Petitioner faults the respondent
court from deviating from the basic rule that finding of
facts by the trial court is entitled to great weight, because
the trial court had the opportunity to observe the
deportment of witness and the evaluation of evidence
presented during the trial. Petitioner contends that the
appellate court gravely abused its discretion when it
awarded damages to the plaintiff, even in the face of lack
of evidence to prove such damages, as found by the trial
court.
Firstly, petitioner questions the award of moral damages.
It claims that private respondent did not suffer any
damage upon the dishonor of the check. Petitioner avers it
acted in good faith. It was an honest mistake on its part,
according to petitioner, when misposting of private
respondent's deposit on June 1, 1988, happened. Further,
petitioner contends that private respondent may not
"claim" damages because the petitioner's manager and
other employee had profusely apologized to private
respondent for the error. They offered to make restitution
and apology to the payee of the check, Legaspi, as well as
the alleged endorsee, Lhuillier. Regrettably, it was private
respondent who declined the offer and allegedly said, that
there was nothing more to it, and that the matter had
been put to rest.[5]Jle-xj
Admittedly, as found by both the respondent appellate
court and the trial court, petitioner bank had committed a
mistake. It misposted private respondent's check deposit
to another account and delayed the posting of the same to
the proper account of the private respondent. The mistake
resulted to the dishonor of the private respondent's check.
The trial court found "that the misposting of plaintiffs
check deposit to another account and the delayed posting
of the same to the account of the plaintiff is a clear proof
of lack of supervision on the part of the defendant
bank."[6] Similarly, the appellate court also found that
"while it may be true that the bank's negligence in
dishonoring the properly funded check of appellant might
not have been attended with malice and bad faith, as
appellee [bank] submits, nevertheless, it is the result of
lack of due care and caution expected of an employee of a
BANKING for MT

Page 10 of 40

firm engaged in so sensitive and accurately demanding

task as banking."[7]
In Simex International (Manila), Inc, vs. Court of Appeals,
183 SCRA 360, 367 (1990), and Bank of Philippine Islands
vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court
had occasion to stress the fiduciary nature of the
relationship between a bank and its depositors and the
extent of diligence expected of the former in handling the
accounts entrusted to its care, thus: Lex-juris
"In every case, the depositor expects the
bank to treat his account with the utmost
fidelity, whether such account consists
only of a few hundred pesos or of
millions. The bank must record every
single transaction accurately, down to the
last centavo, and as promptly as possible.
This has to be done if the account is to
reflect at any given time the amount of
money the depositor can dispose of as he
sees fit, confident that the bank will
deliver it as and to whomever he directs.
A blunder on the part of bank, such as the
dishonor of a check without good reason,
can cause the depositor not a little
embarrassment if not also financial loss
and perhaps even civil and criminal
litigation.
The point is that as a business affected
with public interest and because of the
nature of its functions, the bank is under
obligation to treat the account of its
depositors with meticulous care, always
having in mind the fiduciary nature of
their relationship. x x x"
In the recent case of Philippine National Bank vs. Court of
Appeals,[8] we held that "a bank is under obligation to treat
the accounts of its depositors with meticulous care
whether such account consists only of a few hundred
pesos or of millions of pesos. Responsibility arising from
negligence in the performance of every kind of obligation
is demandable. While petitioner's negligence in this case
may not have been attended with malice and bad faith,
nevertheless, it caused serious anxiety, embarrassment
and humiliation". Hence we ruled that the offended party
in said case was entitled to recover reasonable moral
damages.

The law allows the grant of exemplary damages by way of

example for the public good.[10] The public relies on the
banks' sworn profession of diligence and meticulousness
in giving irreproachable service. The level of
meticulousness must be maintained at all times by the
banking sector. Hence, the Court of Appeals did not err in
awarding exemplary damages. In our view, however, the
reduced amount of P20,000.00 is more appropriate. Jj-juris
The award of attorney's fees is also proper when
exemplary damages are awarded and since private
respondent was compelled to engage the services of a
lawyer and incurred expenses to protect her interest.
[11]
The standards in fixing attorney's fees are: (1) the
amount and the character of the services rendered; (2)
labor, time and trouble involved; (3) the nature and
importance of the litigation and business in which the
services were rendered; (4) the responsibility imposed; (5)
the amount of money and the value of the property
affected by the controversy or involved in the
employment; (6) the skill and the experience called for in
the performance of the services; (7) the professional
character and the social standing of the attorney; (8) the
results secured, it being a recognized rule that an attorney
may properly charge a much larger fee when it is
contingent than when it is not. [12] In this case, all the
aforementioned weighed, and considering that the amount
involved in the controversy is only P36,770.41, the total
deposit of private respondent which was misposted by the
bank, we find the award of respondent court of P50,000.00
for attorney's fees, excessive and reduce the same to
P30,000.00.
WHEREFORE, the assailed DECISION of the Court of
Appeals is hereby AFFIRMED, with MODIFICATION. The
petitioner is ordered to pay P100,000.00 by way of moral
damages in favor of private respondent Leticia T.
Valenzuela. It is further ordered to pay her exemplary
damages in the amount of P20,000.00 and P30,000.00,
attorney's fees. Jksm
Costs against petitioner.
SO ORDERED.

Even if malice or bad faith was not sufficiently proved in

the instant case, the fact remains that petitioner has
committed a serious mistake. It dishonored the check
issued by the private respondent who turned out to have
sufficient funds with petitioner. The bank's negligence was
the result of lack of due care and caution required of
managers and employees of a firm engaged in so
sensitive and demanding business as banking.
Accordingly, the award of moral damages by the
respondent Court of Appeals could not be said to be in
error nor in grave abuse of its discretion. Juri-smis
There is no hard-and-fast rule in the determination of what
would be a fair amount of moral damages since each case
must be governed by its own peculiar facts. The yardstick
should be that it is not palpably and scandalously
excessive. In our view, the award of P100,000.00 is
reasonable, considering the reputation and social standing
of private respondent Leticia T. Valenzuela.[9]
BANKING for MT

Page 11 of 40

SECOND DIVISION
G.R. No. 121413
January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK
(formerly INSULAR BANK OF ASIA AND
AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC.
and CITIBANK, N.A., respondents.
G.R. No. 121479
January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents.
G.R. No. 128604
January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL
INTERNATIONAL BANK and COURT OF
APPEALS, respondents.
QUISUMBING, J.:

The aforesaid check was deposited with the

degendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon
presentment with the defendant Citibank, the
proceeds of the check was paid to IBAA as
collecting or depository bank.
The proceeds of the same Citibank check of the
plaintiff was never paid to or received by the
payee thereof, the Commissioner of Internal
Revenue.
As a consequence, upon demand of the Bureau
and/or Commissioner of Internal Revenue, the
plaintiff was compelled to make a second
payment to the Bureau of Internal Revenue of its
percentage/manufacturers' sales taxes for the
third quarter of 1977 and that said second
payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of
Internal Revenue.

The original actions a quo were instituted by Ford

Philippines to recover from the drawee bank, CITIBANK,
N.A. (Citibank) and collecting bank, Philippine Commercial
International Bank (PCIBank) [formerly Insular Bank of Asia
and America], the value of several checks payable to the
Commissioner of Internal Revenue, which were embezzled
allegedly by an organized syndicate.1wphi1.nt

It is further admitted by defendant Citibank that

during the time of the transactions in question,
plaintiff had been maintaining a checking account
with defendant Citibank; that Citibank Check No.
SN-04867 which was drawn and issued by the
plaintiff in favor of the Commissioner of Internal
Revenue was a crossed check in that, on its face
were two parallel lines and written in between
said lines was the phrase "Payee's Account Only";
and that defendant Citibank paid the full face
value of the check in the amount of
P4,746,114.41 to the defendant IBAA.

G.R. Nos. 121413 and 121479 are twin petitions for review
of the March 27, 1995 Decision1 of the Court of Appeals in
CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs.
Citibank, N.A. and Insular Bank of Asia and America (now
Philipppine Commercial International Bank), and the
August 8, 1995 Resolution,2 ordering the collecting bank,
Philippine Commercial International Bank, to pay the
amount of Citibank Check No. SN-04867.

It has been duly established that for the payment

of plaintiff's percentage tax for the last quarter of
1977, the Bureau of Internal Revenue issued
Revenue Tax Receipt No. 18747002, dated
October 20, 1977, designating therein in
Muntinlupa, Metro Manila, as the authorized agent
bank of Metrobanl, Alabang branch to receive the
tax payment of the plaintiff.

In G.R. No. 128604, petitioner Ford Philippines assails the

October 15, 1996 Decision3 of the Court of Appeals and its
March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled
"Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto the
judgment of the trial court holding the defendant drawee
bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds
of the plaintiff's Citibanl Check Numbers SN-10597 and
16508.

On December 19, 1977, plaintiff's Citibank Check

No. SN-04867, together with the Revenue Tax
Receipt No. 18747002, was deposited with
defendant IBAA, through its Ermita Branch. The
latter accepted the check and sent it to the
Central Clearing House for clearing on the samd
day, with the indorsement at the back "all prior
indorsements and/or lack of indorsements
guaranteed." Thereafter, defendant IBAA
presented the check for payment to defendant
Citibank on same date, December 19, 1977, and
the latter paid the face value of the check in the
amount of P4,746,114.41. Consequently, the
amount of P4,746,114.41 was debited in plaintiff's
account with the defendant Citibank and the
check was returned to the plaintiff.

These consolidated petitions involve several fraudulently

negotiated checks.

I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as accepted
by the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and
issued its Citibank Check No. SN-04867 in the
amount of P4,746,114.41, in favor of the
Commissioner of Internal Revenue as payment of
plaintiff;s percentage or manufacturer's sales
taxes for the third quarter of 1977.

Upon verification, plaintiff discovered that its

Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner
of Internal Revenue. Hence, in separate letters
dated October 26, 1979, addressed to the
defendants, the plaintiff notified the latter that in
case it will be re-assessed by the BIR for the
payment of the taxes covered by the said checks,
then plaintiff shall hold the defendants liable for
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reimbursement of the face value of the same.

Both defendants denied liability and refused to
pay.
In a letter dated February 28, 1980 by the Acting
Commissioner of Internal Revenue addressed to
the plaintiff - supposed to be Exhibit "D", the
latter was officially informed, among others, that
its check in the amount of P4, 746,114.41 was not
paid to the government or its authorized agent
and instead encashed by unauthorized persons,
hence, plaintiff has to pay the said amount within
fifteen days from receipt of the letter. Upon advice
of the plaintiff's lawyers, plaintiff on March 11,
1982, paid to the Bureau of Internal Revenue, the
amount of P4,746,114.41, representing payment
of plaintiff's percentage tax for the third quarter of
1977.
As a consequence of defendant's refusal to
reimburse plaintiff of the payment it had made for
the second time to the BIR of its percentage
taxes, plaintiff filed on January 20, 1983 its
original complaint before this Court.
On December 24, 1985, defendant IBAA was
merged with the Philippine Commercial
International Bank (PCI Bank) with the latter as
the surviving entity.
Defendant Citibank maintains that; the payment it
made of plaintiff's Citibank Check No. SN-04867 in
the amount of P4,746,114.41 "was in due course";
it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA
that "all prior indorsements and/or lack of
indorsements guaranteed"; and the proximate
cause of plaintiff's injury is the gross negligence
of defendant IBAA in indorsing the plaintiff's
Citibank check in question.
It is admitted that on December 19, 1977 when
the proceeds of plaintiff's Citibank Check No. SN048867 was paid to defendant IBAA as collecting
bank, plaintiff was maintaining a checking
account with defendant Citibank." 5
Although it was not among the stipulated facts, an
investigation by the National Bureau of Investigation (NBI)
revealed that Citibank Check No. SN-04867 was recalled
by Godofredo Rivera, the General Ledger Accountant of
Ford. He purportedly needed to hold back the check
because there was an error in the computation of the tax
due to the Bureau of Internal Revenue (BIR). With Rivera's
instruction, PCIBank replaced the check with two of its
own Manager's Checks (MCs). Alleged members of a
syndicate later deposited the two MCs with the Pacific
Banking Corporation.
Ford, with leave of court, filed a third-party complaint
before the trial court impleading Pacific Banking
Corporation (PBC) and Godofredo Rivera, as third party
defendants. But the court dismissed the complaint against
PBC for lack of cause of action. The course likewise
dismissed the third-party complaint against Godofredo
Rivera because he could not be served with summons as
the NBI declared him as a "fugitive from justice".

On June 15, 1989, the trial court rendered its decision, as

follows:
"Premises considered, judgment is hereby
rendered as follows:
"1. Ordering the defendants Citibank and
IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount
of P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN04867, with interest thereon at the legal
rate starting January 20, 1983, the date
when the original complaint was filed
until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim:
ordering the cross-defendant IBAA (now
PCI Bank) to reimburse defendant
Citibank for whatever amount the latter
has paid or may pay to the plaintiff in
accordance with next preceding
paragraph;
"3. The counterclaims asserted by the
defendants against the plaintiff, as well
as that asserted by the cross-defendant
against the cross-claimant are dismissed,
for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants,
Citibank and PCIBank, elevated their respective petitions
for review on certiorari to the Courts of Appeals. On March
27, 1995, the appellate court issued its judgment as
follows:
"WHEREFORE, in view of the foregoing, the court
AFFIRMS the appealed decision with
modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case
No. 49287 insofar as defendant Citibank
N.A. is concerned;
2. Ordering the defendant IBAA now PCI
Bank to pay the plaintiff the amount of
P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN04867, with interest thereon at the legal
rate starting January 20, 1983, the date
when the original complaint was filed
until the amount is fully paid;
3. Dismissing the counterclaims asserted
by the defendants against the plaintiff as
well as that asserted by the crossdefendant against the cross-claimant, for
lack of merits.
Costs against the defendant IBAA (now
PCI Bank).
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IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision
of the Court of Appeals, while Ford filed a "Motion for
Partial Reconsideration." Both motions were denied for
lack of merit.
Separately, PCIBank and Ford filed before this Court,
petitions for review by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the
decision and resolution of the Twelfth Division of the Court
of Appeals contending that it merely acted on the
instruction of Ford and such casue of action had already
prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding
that the petitioner acted on the check drawn by
respondent Ford on the said respondent's
instructions, it nevertheless found the petitioner
liable to the said respondent for the full amount of
the said check.
II. Did the respondent court err when it did not
find prescription in favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R.
No. 121479, questioning the same decision and resolution
of the Court of Appeals, and praying for the
reinstatement in toto of the decision of the trial court
which found both PCIBank and Citibank jointly and
severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following
propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford
considering that:
1. As drawee bank, respondent Citibank
owes to petitioner Ford, as the drawer of
the subject check and a depositor of
respondent Citibank, an absolute and
contractual duty to pay the proceeds of
the subject check only to the payee
thereof, the Commissioner of Internal
Revenue.

1. There were no instructions from

petitioner Ford to deliver the proceeds of
the subject check to a person other than
the payee named therein, the
Commissioner of the Bureau of Internal
Revenue; thus, PCIBank's only obligation
is to deliver the proceeds to the
Commissioner of the Bureau of Internal
Revenue.10
2. PCIBank which affixed its indorsement
on the subject check ("All prior
indorsement and/or lack of indorsement
guaranteed"), is liable as collecting
bank.11
3. PCIBank is barred from raising issues of
fact in the instant proceedings.12
4. Petitioner Ford's cause of action had
not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds
of checks intended, this time, to settle Ford's percentage
taxes appertaining to the second quarter of 1978 and the
first quarter of 1979.
The facts as narrated by the Court of Appeals are as
follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978
in the amount of P5,851,706.37 representing the
percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. A BIR
Revenue Tax Receipt No. 28645385 was issued for the said
purpose.
On April 20, 1979, Ford drew another Citibank Check No.
SN-16508 in the amount of P6,311,591.73, representing
the payment of percentage tax for the first quarter of
1979 and payable to the Commissioner of Internal
Revenue. Again a BIR Revenue Tax Receipt No. A-1697160
was issued for the said purpose.
Both checks were "crossed checks" and contain two
diagonal lines on its upper corner between, which were
written the words "payable to the payee's account only."

2. Respondent Citibank failed to observe

its duty as banker with respect to the
subject check, which was crossed and
payable to "Payee's Account Only."

The checks never reached the payee, CIR. Thus, in a letter

dated February 28, 1980, the BIR, Region 4-B, demanded
for the said tax payments the corresponding periods
above-mentioned.

3. Respondent Citibank raises an issue for

the first time on appeal; thus the same
should not be considered by the
Honorable Court.

As far as the BIR is concernced, the said two BIR Revenue

Tax Receipts were considered "fake and spurious". This
anomaly was confirmed by the NBI upon the initiative of
the BIR. The findings forced Ford to pay the BIR a new,
while an action was filed against Citibank and PCIBank for
the recovery of the amount of Citibank Check Numbers
SN-10597 and 16508.

4. As correctly held by the trial court,

there is no evidence of gross negligence
on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering
that:

The Regional Trial Court of Makati, Branch 57, which tried

the case, made its findings on the modus operandi of the
syndicate, as follows:

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"A certain Mr. Godofredo Rivera was employed by

the plaintiff FORD as its General Ledger
Accountant. As such, he prepared the plaintiff's
check marked Ex. 'A' [Citibank Check No. Sn10597] for payment to the BIR. Instead, however,
fo delivering the same of the payee, he passed on
the check to a co-conspirator named Remberto
Castro who was a pro-manager of the San Andres
Branch of PCIB.* In connivance with one Winston
Dulay, Castro himself subsequently opened a
Checking Account in the name of a fictitious
person denominated as 'Reynaldo reyes' in the
Meralco Branch of PCIBank where Dulay works as
Assistant Manager.
After an initial deposit of P100.00 to validate the
account, Castro deposited a worthless Bank of
America Check in exactly the same amount as the
first FORD check (Exh. "A", P5,851,706.37) while
this worthless check was coursed through PCIB's
main office enroute to the Central Bank for
clearing, replaced this worthless check with
FORD's Exhibit 'A' and accordingly tampered the
accompanying documents to cover the
replacement. As a result, Exhibit 'A' was cleared
by defendant CITIBANK, and the fictitious deposit
account of 'Reynaldo Reyes' was credited at the
PCIB Meralco Branch with the total amount of the
FORD check Exhibit 'A'. The same method was
again utilized by the syndicate in profiting from
Exh. 'B' [Citibank Check No. SN-16508] which was
subsequently pilfered by Alexis Marindo, Rivera's
Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew
various checks distributing the sahres of the other
participating conspirators namely (1) CRISANTO
BERNABE, the mastermind who formulated the
method for the embezzlement; (2) RODOLFO R.
DE LEON a customs broker who negotiated the
initial contact between Bernabe, FORD's
Godofredo Rivera and PCIB's Remberto Castro; (3)
JUAN VASTILLO who assisted de Leon in the initial
arrangements; (4) GODOFREDO RIVERA, FORD's
accountant who passed on the first check (Exhibit
"A") to Castro; (5) REMERTO CASTRO, PCIB's promanager at San Andres who performed the
switching of checks in the clearing process and
opened the fictitious Reynaldo Reyes account at
the PCIB Meralco Branch; (6) WINSTON DULAY,
PCIB's Assistant Manager at its Meralco Branch,
who assisted Castro in switching the checks in the
clearing process and facilitated the opening of the
fictitious Reynaldo Reyes' bank account; (7)
ALEXIS MARINDO, Rivera's Assistant at FORD, who
gave the second check (Exh. "B") to Castro; (8)
ELEUTERIO JIMENEZ, BIR Collection Agent who
provided the fake and spurious revenue tax
receipts to make it appear that the BIR had
received FORD's tax payments.
Several other persons and entities were utilized
by the syndicate as conduits in the disbursements
of the proceeds of the two checks, but like the
aforementioned participants in the conspiracy,
have not been impleaded in the present case. The
manner by which the said funds were distributed
among them are traceable from the record of
checks drawn against the original "Reynaldo
Reyes" account and indubitably identify the

parties who illegally benefited therefrom and

readily indicate in what amounts they did so." 14
On December 9, 1988, Regional Trial Court of Makati,
Branch 57, held drawee-bank, Citibank, liable for the value
of the two checks while adsolving PCIBank from any
liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered
sentencing defendant CITIBANK to reimburse
plaintiff FORD the total amount of P12,163,298.10
prayed for in its complaint, with 6% interest
thereon from date of first written demand until full
payment, plus P300,000.00 attorney's fees and
expenses litigation, and to pay the defendant,
PCIB (on its counterclaim to crossclaim) the sum
of P300,000.00 as attorney's fees and costs of
litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals
which affirmed, in toto, the decision of the trial court.
Hence, this petition.
Petitioner Ford prays that judgment be rendered setting
aside the portion of the Court of Appeals decision and its
resolution dated March 5, 1997, with respect to the
dismissal of the complaint against PCIBank and holding
Citibank solely responsible for the proceeds of Citibank
Check Numbers SN-10597 and 16508 for P5,851,706.73
and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing
the complaint against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when
it failed to exercise the diligence required to be
exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the
diligence required in the selection and supervision
of its officers and employees.
III. Defendant PCIBank was, due to its negligence,
clearly liable for the loss or damage resulting to
the plaintiff Ford as a consequence of the
substitution of the check consistent with Section 5
of Central Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did
not accept, endorse or negotiate in due course
the subject checks, it is liable, under Article 2154
of the Civil Code, to return the money which it
admits having received, and which was credited
to it its Central bank account.16
The main issue presented for our consideration by these
petitions could be simplified as follows: Has petitioner Ford
the right to recover from the collecting bank (PCIBank)
and the drawee bank (Citibank) the value of the checks
intended as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action already
prescribed?
Note that in these cases, the checks were drawn against
the drawee bank, but the title of the person negotiating
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the same was allegedly defective because the instrument

was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It
was established that instead of paying the checks to the
CIR, for the settlement of the approprite quarterly
percentage taxes of Ford, the checks were diverted and
encashed for the eventual distribution among the mmbers
of the syndicate. As to the unlawful negotiation of the
check the applicable law is Section 55 of the Negotiable
Instruments Law (NIL), which provides:
"When title defective -- The title of a person who
negotiates an instrument is defective within the
meaning of this Act when he obtained the
instrument, or any signature thereto, by fraud,
duress, or fore and fear, or other unlawful means,
or for an illegal consideration, or when he
negotiates it in breach of faith or under such
circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the
negotiation is made by the perpetator in breach of faith
amounting to fraud. The person negotiating the checks
must have gone beyond the authority given by his
principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up
the personal defense to escape liability and recover from
other parties who. Though their own negligence, alowed
the commission of the crime.
In this case, we note that the direct perpetrators of the
offense, namely the embezzlers belonging to a syndicate,
are now fugitives from justice. They have, even if
temporarily, escaped liability for the embezzlement of
millions of pesos. We are thus left only with the task of
determining who of the present parties before us must
bear the burden of loss of these millions. It all boils down
to thequestion of liability based on the degree of
negligence among the parties concerned.
Foremost, we must resolve whether the injured party,
Ford, is guilty of the "imputed contributory negligence"
that would defeat its claim for reimbursement, bearing ing
mind that its employees, Godofredo Rivera and Alexis
Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own
employee, Godofredo Rivera, to negotiate the checks to
his co-conspirators, instead of delivering them to the
designated authorized collecting bank (MetrobankAlabang) of the payee, CIR. Citibank bewails the fact that
Ford was remiss in the supervision and control of its own
employees, inasmuch as it only discovered the syndicate's
activities through the information given by the payee of
the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly
authorized Godofredo Rivera to divert the proceeds of
Citibank Check No. SN-04867, instead of using it to pay
the BIR. As to the subsequent run-around of unds of
Citibank Check Nos. SN-10597 and 16508, PCIBank claims
that the proximate cause of the damge to Ford lies in its
own officers and employees who carried out the fradulent
schemes and the transactions. These circumstances were
not checked by other officers of the company including its
comptroller or internal auditor. PCIBank contends that the
inaction of Ford despite the enormity of the amount
involved was a sheer negligence and stated that, as
between two innocent persons, one of whom must suffer

the consequences of a breach of trust, the one who made

it possible, by his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the
performance of its duties. It avers that there was no
evidence presented before the trial court showing lack of
diligence on the part of Ford. And, citing the case
of Gempesaw vs. Court of Appeals,17 Ford argues that even
if there was a finding therein that the drawer was
negligent, the drawee bank was still ordered to pay
damages.
Furthermore, Ford contends the Godofredo rivera was not
authorized to make any representation in its behalf,
specifically, to divert the proceeds of the checks. It adds
that Citibank raised the issue of imputed negligence
against Ford for the first time on appeal. Thus, it should
not be considered by this Court.
On this point, jurisprudence regarding the imputed
negligence of employer in a master-servant relationship is
instructive. Since a master may be held for his servant's
wrongful act, the law imputes to the master the act of the
servant, and if that act is negligent or wrongful and
proximately results in injury to a third person, the
negligence or wrongful conduct is the negligence or
wrongful conduct of the master, for which he is
liable.18 The general rule is that if the master is injured by
the negligence of a third person and by the concuring
contributory negligence of his own servant or agent, the
latter's negligence is imputed to his superior and will
defeat the superior's action against the third person,
asuming, of course that the contributory negligence was
the proximate cause of the injury of which complaint is
made.19
Accordingly, we need to determine whether or not the
action of Godofredo Rivera, Ford's General Ledger
Accountant, and/or Alexis Marindo, his assistant, was the
proximate cause of the loss or damage. AS defined,
proximate cause is that which, in the natural and
continuous sequence, unbroken by any efficient,
intervening cause produces the injury and without the
result would not have occurred.20
It appears that although the employees of Ford initiated
the transactions attributable to an organized syndicate, in
our view, their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree of
Ford's negligence, if any, could not be characterized as the
proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm
the request of Godofredo Rivera to recall Citibank Check
No. SN-04867. Rivera's instruction to replace the said
check with PCIBank's Manager's Check was not in
theordinary course of business which could have
prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597
and 16508, it was established that these checks were
made payable to the CIR. Both were crossed checks.
These checks were apparently turned around by Ford's
emploees, who were acting on their own personal
capacity.
Given these circumstances, the mere fact that the forgery
was committed by a drawer-payor's confidential employee
or agent, who by virtue of his position had unusual
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facilities for perpertrating the fraud and imposing the

forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of
some circumstance raising estoppel against the
drawer.21 This rule likewise applies to the checks
fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment
of the three checks involved, separately, the trial courts
found variations between the negotiation of Citibank
Check No. SN-04867 and the misapplication of total
proceeds of Checks SN-10597 and 16508. Therefore, we
have to scrutinize, separately, PCIBank's share of
negligence when the syndicate achieved its ultimate
agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank
through its Ermita Branch. It was coursed through the
ordinary banking transaction, sent to Central Clearing with
the indorsement at the back "all prior indorsements and/or
lack of indorsements guaranteed," and was presented to
Citibank for payment. Thereafter PCIBank, instead of
remitting the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to encash
the same.
On record, PCIBank failed to verify the authority of Mr.
Rivera to negotiate the checks. The neglect of PCIBank
employees to verify whether his letter requesting for the
replacement of the Citibank Check No. SN-04867 was duly
authorized, showed lack of care and prudence required in
the circumstances.
Furthermore, it was admitted that PCIBank is authorized to
collect the payment of taxpayers in behalf of the BIR. As
an agent of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted instructions given by
the payor or its agent. As aptly stated by the trial court, to
wit:
"xxx. Since the questioned crossed check was
deposited with IBAA [now PCIBank], which
claimed to be a depository/collecting bank of BIR,
it has the responsibility to make sure that the
check in question is deposited in Payee's account
only.
xxx

xxx

xxx

As agent of the BIR (the payee of the check),

defendant IBAA should receive instructions only
from its principal BIR and not from any other
person especially so when that person is not
known to the defendant. It is very imprudent on
the part of the defendant IBAA to just rely on the
alleged telephone call of the one Godofredo
Rivera and in his signature considering that the
plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the
payee or holder of commercial paper and the bank to
which it is sent for collection is, in the absence of an
argreement to the contrary, that of principal and
agent.22 A bank which receives such paper for collection is
the agent of the payee or holder.23

Even considering arguendo, that the diversion of the

amount of a check payable to the collecting bank in behalf
of the designated payee may be allowed, still such
diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by
proof of authority from the drawer, or that the drawer has
clothed his agent with apparent authority to receive the
proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp
appearing at the back of the questioned checks stating
that ALL PRIOR INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GURANTEED should render PCIBank liable
because it made it pass through the clearing house and
therefore Citibank had no other option but to pay it. Thus,
Citibank had no other option but to pay it. Thus, Citibank
assets that the proximate cause of Ford's injury is the
gross negligence of PCIBank. Since the questione dcrossed
check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the
responsibility to make sure that the check in questions is
deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's
Account Only," is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the
duty of the collecting bank PCIBank to ascertain that the
check be deposited in payee's account only. Therefore, it is
the collecting bank (PCIBank) which is bound to scruninize
the check and to know its depositors before it could make
the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable
Banking Corporation,24 we ruled:
"Anent petitioner's liability on said instruments,
this court is in full accord with the ruling of the
PCHC's Board of Directors that:
'In presenting the checks for clearing and for
payment, the defendant made an express
guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the
checks are the defedant's clear warranty: ALL
PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such
warranty, plaintiff would not have paid on the
checks.'
No amount of legal jargon can reverse the clear
meaning of defendant's warranty. As the warranty
has proven to be false and inaccurate, the
defendant is liable for any damage arising out of
the falsity of its representation."25
Lastly, banking business requires that the one who first
cashes and negotiates the check must take some
percautions to learn whether or not it is genuine. And if
the one cashing the check through indifference or othe
circumstance assists the forger in committing the fraud,
he should not be permitted to retain the proceeds of the
check from the drawee whose sole fault was that it did not
discover the forgery or the defect in the title of the person
negotiating the instrument before paying the check. For
this reason, a bank which cashes a check drawn upon
another bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when
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the proceeds of the checks were afterwards diverted to

the hands of a third party. In such cases the drawee bank
has a right to believe that the cashing bank (or the
collecting bank) had, by the usual proper investigation,
satisfied itself of the authenticity of the negotiation of the
checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon
from the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on the
drawee bank. The latter may recover from the holder the
money paid on the check.26
Having established that the collecting bank's negligence is
the proximate cause of the loss, we conclude that PCIBank
is liable in the amount corresponding to the proceeds of
Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that
PCIBank had no official act in the ordinary course of
business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597 and
16508, because PCIBank did not actually receive nor hold
the two Ford checks at all. The trial court held, thus:
"Neither is there any proof that defendant
PCIBank contributed any official or conscious
participation in the process of the embezzlement.
This Court is convinced that the switching
operation (involving the checks while in transit for
"clearing") were the clandestine or hidden
actuations performed by the members of the
syndicate in their own personl, covert and private
capacity and done without the knowledge of the
defendant PCIBank"27
In this case, there was no evidence presented confirming
the conscious particiapation of PCIBank in the
embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and
scope of their employment.28 A bank will be held liable for
the negligence of its officers or agents when acting within
the course and scope of their employment. It may be
liable for the tortuous acts of its officers even as regards
that species of tort of which malice is an essential
element. In this case, we find a situation where the
PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management
employees had particiapted.
The pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers SN10597 and 16508. He passed the checks to a coconspirator, an Assistant Manager of PCIBank's Meralco
Branch, who helped Castro open a Checking account of a
fictitious person named "Reynaldo Reyes." Castro
deposited a worthless Bank of America Check in exactly
the same amount of Ford checks. The syndicate tampered
with the checks and succeeded in replacing the worthless
checks and the eventual encashment of Citibank Check
Nos. SN 10597 and 16508. The PCIBank Ptro-manager,
Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in
their official capacity or authority but for their personal
and private gain or benefit.

A bank holding out its officers and agents as worthy of

confidence will not be permitted to profit by the frauds
these officers or agents were enabled to perpetrate in the
apparent course of their employment; nor will t be
permitted to shirk its responsibility for such frauds, even
though no benefit may accrue to the bank therefrom. For
the general rule is that a bank is liable for the fraudulent
acts or representations of an officer or agent acting within
the course and apparent scope of his employment or
authority.29 And if an officer or employee of a bank, in his
official capacity, receives money to satisfy an evidence of
indebetedness lodged with his bank for collection, the
bank is liable for his misappropriation of such sum. 30
Moreover, as correctly pointed out by Ford, Section 5 31 of
Central Bank Circular No. 580, Series of 1977 provides that
any theft affecting items in transit for clearing, shall be for
the account of sending bank, which in this case is
PCIBank.
But in this case, responsibility for negligence does not lie
on PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee
bank was likewise negligent in the performance of its
duties. Citibank failed to establish that its payment of
Ford's checjs were made in due course and legally in
order. In its defense, Citibank claims the genuineness and
due execution of said checks, considering that Citibank (1)
has no knowledge of any informity in the issuance of the
checks in question (2) coupled by the fact that said checks
were sufficiently funded and (3) the endorsement of the
Payee or lack thereof was guaranteed by PCI Bank
(formerly IBAA), thus, it has the obligation to honor and
pay the same.
For its part, Ford contends that Citibank as the drawee
bank owes to Ford an absolute and contractual duty to pay
the proceeds of the subject check only to the payee
thereof, the CIR. Citing Section 6232 of the Negotiable
Instruments Law, Ford argues that by accepting the
instrument, the acceptro which is Citibank engages that it
will pay according to the tenor of its acceptance, and that
it will pay only to the payee, (the CIR), considering the fact
that here the check was crossed with annotation "Payees
Account Only."
As ruled by the Court of Appeals, Citibank must likewise
answer for the damages incurred by Ford on Citibank
Checks Numbers SN 10597 and 16508, because of the
contractual relationship existing between the two.
Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability
contributed to the damage caused to the latter. On this
score, we agree with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers
SN 10597 and 16508 before paying the amount of the
proceeds thereof to the collecting bank of the BIR. One
thing is clear from the record: the clearing stamps at the
back of Citibank Check Nos. SN 10597 and 16508 do not
bear any initials. Citibank failed to notice and verify the
absence of the clearing stamps. Had this been duly
examined, the switching of the worthless checks to
Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed
failed to perform what was incumbent upon it, which is to
ensure that the amount of the checks should be paid only
to its designated payee. The fact that the drawee bank did
not discover the irregularity seasonably, in our view,
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consitutes negligence in carrying out the bank's duty to its

depositors. 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.33
Thus, invoking the doctrine of comparative negligence, we
are of the view that both PCIBank and Citibank failed in
their respective obligations and both were negligent in the
selection and supervision of their employees resulting in
the encashment of Citibank Check Nos. SN 10597 AND
16508. Thus, we are constrained to hold them equally
liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR.
Time and again, we have stressed that banking business is
so impressed with public interest where the trust and
confidence of the public in general is of paramount
umportance such that the appropriate standard of
diligence must be very high, if not the highest, degree of
diligence.34 A bank's liability as obligor is not merely
vicarious but primary, wherein the defense of exercise of
due diligence in the selection and supervision of its
employees is of no moment.35
Banks handle daily transactions involving millions of
pesos.36 By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their
employees and officials is far greater than those of
ordinary clerks and employees.37 Banks are expected to
exercise the highest degree of diligence in the selection
and supervision of their employees. 38
On the issue of prescription, PCIBank claims that the
action of Ford had prescribed because of its inability to
seek judicial relief seasonably, considering that the
alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven
years thereafter.
The statute of limitations begins to run when the bank
gives the depositor notice of the payment, which is
ordinarily when the check is returned to the alleged
drawer as a voucher with a statement of his
account,39 and an action upon a check is ordinarily
governed by the statutory period applicable to
instruments in writing.40
Our laws on the matter provide that the action upon a
written contract must be brought within ten year from the
time the right of action accrues. 41 hence, the reckoning
time for the prescriptive period begins when the
instrument was issued and the corresponding check was
returned by the bank to its depositor (normally a month
thereafter). Applying the same rule, the cause of action for
the recovery of the proceeds of Citibank Check No. SN
04867 would normally be a month after December 19,
1977, when Citibank paid the face value of the check in
the amount of P4,746,114.41. Since the original complaint
for the cause of action was filed on January 20, 1984,
barely six years had lapsed. Thus, we conclude that Ford's
cause of action to recover the amount of Citibank Check
No. SN 04867 was seasonably filed within the period
provided by law.
Finally, we also find thet Ford is not completely blameless
in its failure to detect the fraud. Failure on the part of the
depositor to examine its passbook, statements of account,

and cancelled checks and to give notice within a

reasonable time (or as required by statute) of any
discrepancy which it may in the exercise of due care and
diligence find therein, serves to mitigate the banks'
liability by reducing the award of interest from twelve
percent (12%) to six percent (6%) per annum. As provided
in Article 1172 of the Civil Code of the Philippines,
respondibility arising from negligence in the performance
of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the
circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages that
he may recover.42
WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 25017
are AFFIRMED. PCIBank, know formerly as Insular Bank of
Asia and America, id declared solely responsible for the
loss of the proceeds of Citibank Check No SN 04867 in the
amount P4,746,114.41, which shall be paid together with
six percent (6%) interest thereon to Ford Philippines Inc.
from the date when the original complaint was filed until
said amount is fully paid.
However, the Decision and Resolution of the Court of
Appeals in CA-G.R. No. 28430 are MODIFIED as follows:
PCIBank and Citibank are adjudged liable for and must
share the loss, (concerning the proceeds of Citibank Check
Numbers SN 10597 and 16508 totalling P12,163,298.10)
on a fifty-fifty ratio, and each bank is ORDERED to pay
Ford Philippines Inc. P6,081,649.05, with six percent (6%)
interest thereon, from the date the complaint was filed
until full payment of said amount.1wphi1.nt
Costs against Philippine Commercial International Bank
and Citibank N.A.
SO ORDERED.
SECOND DIVISION
[G.R. No. 113236. March 5, 2001]
FIRESTONE TIRE & RUBBER COMPANY OF THE
PHILIPPINES, petitioner,
vs., COURT
OF
APPEALS
and
LUZON
DEVELOPMENT
BANK, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision[1] dated December
29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546,
which affirmed the judgment[2] of the Regional Trial Court
of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestones complaint for damages.
The facts of this case, adopted by the CA and based
on findings by the trial court, are as follows:
[D]efendant is a banking corporation. It operates under a
certificate of authority issued by the Central Bank of the
Philippines, and among its activities, accepts savings and
time deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company (Fojas-Arca
for brevity). Fojas-Arca maintaining a special savings
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account with the defendant, the latter authorized and

allowed withdrawals of funds therefrom through the
medium of special withdrawal slips. These are supplied by
the defendant to Fojas-Arca.

above-two special withdrawal slips. Under such situation,

plaintiff averred that the pecuniary losses it suffered is
caused by and directly attributable to defendants gross
negligence.

In January 1978, plaintiff and Fojas-Arca entered into a

Franchised Dealership Agreement (Exh. B) whereby FojasArca has the privilege to purchase on credit and sell
plaintiffs products.

On September 25, 1979, counsel of plaintiff served a

written demand upon the defendant for the satisfaction of
the damages suffered by it. And due to defendants refusal
to pay plaintiffs claim, plaintiff has been constrained to file
this complaint, thereby compelling plaintiff to incur
litigation expenses and attorneys fees which amount are
recoverable from the defendant.

On January 14, 1978 up to May 15, 1978. Pursuant to the

aforesaid Agreement, Fojas-Arca purchased on credit
Firestone products from plaintiff with a total amount of
P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn
upon the defendant. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of
them were honored and paid by the defendant. This
singular circumstance made plaintiff believe [sic] and
relied [sic] on the fact that the succeeding special
withdrawal slips drawn upon the defendant would be
equally sufficiently funded. Relying on such confidence
and belief and as a direct consequence thereof, plaintiff
extended to Fojas-Arca other purchases on credit of its
products.
On the following dates Fojas-Arca purchased Firestone
products on credit (Exh. M, I, J, K) and delivered to plaintiff
the corresponding special withdrawal slips in payment
thereof drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80

Controverting the foregoing asseverations of plaintiff,

defendant asserted, inter alia that the transactions
mentioned by plaintiff are that of plaintiff and Fojas-Arca
only, [in] which defendant is not involved; Vehemently, it
was denied by defendant that the special withdrawal slips
were honored and treated as if it were checks, the truth
being that when the special withdrawal slips were received
by defendant, it only verified whether or not the
signatures therein were authentic, and whether or not the
deposit level in the passbook concurred with the savings
ledger, and whether or not the deposit is sufficient to
cover the withdrawal; if plaintiff treated the special
withdrawal slips paid by Fojas-Arca as checks then plaintiff
has to blame itself for being grossly negligent in treating
the withdrawal slips as check when it is clearly stated
therein that the withdrawal slips are non-negotiable; that
defendant is not a privy to any of the transactions
between Fojas-Arca and plaintiff for which reason
defendant is not duty bound to notify nor give notice of
anything to plaintiff. If at first defendant had given notice
to plaintiff it is merely an extension of usual bank courtesy
to a prospective client; that defendant is only dealing with
its depositor Fojas-Arca and not the plaintiff. In
summation, defendant categorically stated that plaintiff
has no cause of action against it (pp. 1-3, Dec.; pp. 368370, id).[3]

July 15, 1978 42128 940,190.00

Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current
account with Citibank and in turn the Citibank forwarded it
[sic] to the defendant for payment and collection, as it had
done in respect of the previous special withdrawal
slips. Out of these four (4) withdrawal slips only
withdrawal slip No. 42130 in the amount of P981,500.00
was honored and paid by the defendant in October
1978. Because of the absence for a long period coupled
with the fact that defendant honored and paid withdrawal
slips No. 42128 dated July 15, 1978, in the amount of
P981,500.00 plaintiffs belief was all the more
strengthened that the other withdrawal slips were likewise
sufficiently funded, and that it had received full value and
payment of Fojas-Arcas credit purchased then outstanding
at the time. On this basis, plaintiff was induced to continue
extending to Fojas-Arca further purchase on credit of its
products as per agreement (Exh. B).
However, on December 14, 1978, plaintiff was informed by
Citibank that special withdrawal slips No. 42127 dated
June 15, 1978 for P1,198,092.80 and No. 42129 dated
August 15, 1978 for P880,000.00 were dishonored and not
paid for the reason NO ARRANGEMENT. As a consequence,
the Citibank debited plaintiffs account for the total sum of
P2,078,092.80 representing the aggregate amount of the

Petitioners complaint[4] for a sum of money and

damages with the Regional Trial Court of Pasay City,
Branch 113, docketed as Civil Case No. 29546, was
dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of
Appeals. It averred that respondent Luzon Development
Bank was liable for damages under Article 2176 [5] in
relation to Articles 19[6] and 20[7] of the Civil Code. As
noted by the CA, petitioner alleged the following tortious
acts on the part of private respondent: 1) the acceptance
and payment of the special withdrawal slips without the
presentation of the depositors passbook thereby giving
the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special
withdrawal slips the general appearance of checks; and 3)
the failure of respondent bank to seasonably warn
petitioner that it would not honor two of the four special
withdrawal slips.
On December 29, 1993, the Court of Appeals
promulgated its assailed decision. It denied the appeal
and affirmed the judgment of the trial court. According to
the appellate court, respondent bank notified the
depositor to present the passbook whenever it received a
collection note from another bank, belying petitioners
claim that respondent bank was negligent in not requiring
a passbook under the subject transaction. The appellate
court also found that the special withdrawal slips in
question were not purposely given the appearance of
BANKING for MT

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checks, contrary to petitioners assertions, and thus should

not have been mistaken for checks. Lastly, the appellate
court ruled that the respondent bank was under no
obligation to inform petitioner of the dishonor of the
special withdrawal slips, for to do so would have been a
violation of the law on the secrecy of bank deposits.

It bears stressing that Citibank could not have missed

the non-negotiable nature of the withdrawal slips. The
essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate
freely as a substitute for money. [12] The withdrawal slips in
question lacked this character.

Hence, the instant petition, alleging the following

assignment of error:

A bank is under obligation to treat the accounts of its

depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions of
pesos.[13] The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for
Citibank to presume that subsequent slips would be
honored and paid immediately. By doing so, it failed in its
fiduciary duty to treat the accounts of its clients with the
highest degree of care.[14]

25. The CA grievously erred in holding that

the [Luzon Development] Bank was free
from any fault or negligence regarding
the dishonor, or in failing to give fair
and timely advice of the dishonor, of
the two intermediate LDB Slips and in
failing to award damages to Firestone
pursuant to Article 2176 of the New
Civil Code.[8]
The issue for our consideration is whether or not
respondent bank should be held liable for damages
suffered by petitioner, due to its allegedly belated notice
of non-payment of the subject withdrawal slips.
The initial transaction in this case was between
petitioner and Fojas-Arca, whereby the latter purchased
tires from the former with special withdrawal slips drawn
upon Fojas-Arcas special savings account with respondent
bank. Petitioner in turn deposited these withdrawal slips
with Citibank. The latter credited the same to petitioners
current account, then presented the slips for payment to
respondent bank. It was at this point that the bone of
contention arose.
On December 14, 1978, Citibank informed petitioner
that special withdrawal slips Nos. 42127 and 42129 dated
June 15, 1978 and August 15, 1978, respectively, were
refused payment by respondent bank due to insufficiency
of Fojas-Arcas funds on deposit. That information came
about six months from the time Fojas-Arca purchased tires
from petitioner using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips from
petitioners account, causing the alleged pecuniary
damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the
withdrawal slips in question were non-negotiable. [9] Hence,
the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this
case.[10] Petitioner itself concedes this point. [11] Thus,
respondent bank was under no obligation to give
immediate notice that it would not make payment on the
subject withdrawal slips.Citibank should have known that
withdrawal slips were not negotiable instruments. It could
not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent
bank could not be expected immediately, in contrast to
the situation involving checks.
In the case at bar, it appears that Citibank, with the
knowledge that respondent Luzon Development Bank, had
honored and paid the previous withdrawal slips,
automatically credited petitioners current account with the
amount of the subject withdrawal slips, then merely
waited for the same to be honored and paid by respondent
bank. It presumed that the withdrawal slips were good.

In the ordinary and usual course of banking

operations, current account deposits are accepted by the
bank on the basis of deposit slips prepared and signed by
the depositor, or the latters agent or representative, who
indicates therein the current account number to which the
deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the
amount of the deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners
current account with Citibank were not checks, as
petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank and
petitioner as account-holder must bear the risks attendant
to the acceptance of these instruments. Petitioner and
Citibank could not now shift the risk and hold private
respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the
decision of the Court of Appeals in CA-G.R. CV No. 29546
is AFFIRMED. Costs against petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. No. 126152. September 28, 1999]
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT
OF APPEALS and LILY S. PUJOL, respondents.
DECISION
BELLOSILLO, J.:
PHILIPPINE NATIONAL BANK filed this petition for
review on certiorari under Rule 45 of the Rules of Court
assailing the Decision of the Court of Appeals [1] which
affirmed the award of damages by the Regional Trial Court,
Branch 154, Pasig City in favor of private respondent Lily
S. Pujol.[2]
Sometime prior to 23 October 1990 private
respondent Lily S. Pujol opened with petitioner Philippine
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National Bank, Mandaluyong Branch (PNB for brevity), an

account denominated as "Combo Account," a combination
of Savings Account and Current Account in private
respondent's business name "Pujol Trading," under which
checks drawn against private respondents checking
account could be charged against her Savings Account
should the funds in her Current Account be insufficient to
cover the value of her checks. Hence, private respondent
was issued by petitioner a passbook on the front cover of
which was typewritten the words "Combo Deposit Plan."
On 23 October 1990, private respondent issued a
check in the amount of P30,000.00 in favor of her
daughter-in-law, Dr. Charisse M. Pujol. When issued and
presented for payment, private respondent had sufficient
funds in her Savings Account. However, petitioner
dishonored her check allegedly for insufficiency of funds
and debited her account with P250.00 as penalty charge.
On 24 October 1990 private respondent issued
another check in the amount of P30,000.00 in favor of her
daughter, Ms. Venus P. De Ocampo. When issued and
presented for payment petitioner had sufficient funds in
her Savings Account. But, this notwithstanding, petitioner
dishonored her check for insufficiency of funds and
debited her account with P250.00 as penalty charge. On 4
November 1990, after realizing its mistake, petitioner
accepted and honored the second check for P30,000.00
and
re-credited
to
private
respondents
account
the P250.00 previously debited as penalty.
Private respondent Lily S. Pujol filed with the Regional
Trial Court of Pasig City a complaint for moral and
exemplary damages against petitioner for dishonoring her
checks despite sufficiency of her funds in the bank.
Petitioner admitted in its answer that private
respondent Pujol opened a "Combo Account," a
combination of Savings Account and Current Account, with
its Mandaluyong branch. It however justified the dishonor
of the two (2) checks by claiming that at the time of their
issuance private respondent Pujols account was not yet
operational due to lack of documentary requirements, to
wit: (a) Certificate of Business Registration; (b) Permit to
Operate Business; (c) ID Card; and, (d) Combination
Agreement. Petitioner further alleged that despite the noncompliance with such requirements petitioner placed the
sign "Combo Flag" on respondent Pujols account out of
courtesy and generosity. Petitioner also admitted that it
later honored private respondent's second check, debited
the amount stated therein from her account and recredited the amount of P250.00 initially charged as
penalty.
On 27 September 1994 the trial court rendered a
decision ordering petitioner to pay private respondent
Pujol moral damages of P100,000.00 and attorneys fees
of P20,000.00. It found that private respondent suffered
mental anguish and besmirched reputation as a result of
the dishonor of her checks, and that being a former
member of the judiciary who was expected to be the
embodiment of integrity and good behavior, she was
subjected to embarrassment due to the erroneous
dishonor of her checks by petitioner.
The Court of Appeals affirmed in toto the decision of
the trial court. Hence, petitioner comes to this Court
alleging that the appellate court erred (a) in holding that
petitioner was estopped from denying the existence of a
"Combo Account" and the fact that it was operational at

the time of the issuance of the checks because respondent

Pujol was issued a Savings Account passbook bearing the
printed words "Combo Deposit Plan;" and, (b) in not
holding that the award by the trial court of moral damages
of P100,000.00 and attorneys fees of P20,000.00 was
inordinately disproportionate and unconscionable.
We cannot sustain petitioner. Findings of fact and
conclusions of the lower courts are entitled to great weight
on appeal and will not be disturbed except for strong and
cogent reasons, and for that matter, the findings of the
Court of Appeals especially when they affirm the trial
court, and which are supported by substantial evidence,
are almost beyond the power of review by the Supreme
Court.[3]
Petitioner does not dispute the fact that private
respondent Pujol maintained a Savings Account as well as
a Current Account with its Mandaluyong Branch and that
private respondent applied for a "Combination Deposit
Plan" where checks issued against the Current Account of
the drawer shall be charged automatically against the
latters Savings Account if her funds in the Current Account
be insufficient to cover her checks. There was also no
question that the Savings Account passbook of respondent
Pujol contained the printed words "Combo Deposit Plan"
without qualification or condition that it would take effect
only after submission of certain requirements. Although
petitioner presented evidence before the trial court to
prove that the arrangement was not yet operational at the
time respondent Pujol issued the two (2) checks, it failed
to prove that she had actual knowledge that it was not yet
operational at the time she issued the checks considering
that the passbook in her Savings Account already
indicated the words "Combo Deposit Plan." Hence,
respondent Pujol had justifiable reason to believe, based
on the description in her passbook, that her accounts were
effectively covered by the arrangement during the
issuance of the checks. Either by its own deliberate act, or
its negligence in causing the "Combo Deposit Plan" to be
placed in the passbook, petitioner is considered estopped
to deny the existence of and perfection of the combination
deposit agreement with respondent Pujol. Estoppel in
pais or equitable estoppel arises when one, by his acts,
representations or admissions, or by his silence when he
ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to
exist and such other rightfully relies and acts on such
belief so that he will be prejudiced if the former is
permitted to deny the existence of such facts.[4]
As found by the Court of Appeals, petitioner knew it
committed a mistake in dishonoring the checks of
respondent Pujol. This was based on the testimony of
Pedro Lopez, petitioners employee, that after the second
check was dishonored, petitioner examined respondent
Pujols account and learned that there was sufficient funds
in the Savings Account, and that only after the second
check was dishonored did petitioner rectify its error. [5] The
appellate court also found that respondent Pujol, who is a
retired judge and community leader, issued the first check
dated 23 October 1990 to her daughter-in-law, Dr.
Charisse Pujol, who in turn indorsed the check to her
mother. The latter needed the money to refloat two (2) of
their vessels which sank during a typhoon. When the
check was dishonored for insufficient funds, private
respondents daughter-in-law confronted the former which
subjected
her
to
embarrassment
and
humiliation. Petitioner issued the second check dated 24
October 1990 to daughter Venus de Ocampo as payment
for the expenses of her round trip ticket to the United
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States which were shouldered by her son-in-law, husband

of Venus de Ocampo. When the second check was initially
dishonored for insufficiency of funds, she again suffered
serious anxiety and mental anguish that her son-in-law
would no longer hold her in high esteem.[6]
This Court has ruled that a bank is under obligation to
treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred
pesos or of millions of pesos.Responsibility arising from
negligence in the performance of every kind of obligation
is demandable. While petitioners negligence in this case
may not have been attended with malice and bad faith,
nevertheless, it caused serious anxiety, embarrassment
and humiliation to private respondent Lily S. Pujol for
which she is entitled to recover reasonable moral
damages.[7] In the case of Leopoldo Araneta v. Bank of
America[8] we held that it can hardly be possible that a
customers check can be wrongfully refused payment
without some impeachment of his credit which must in
fact be an actual injury, although he cannot, from the
nature of the case, furnish independent and distinct proof
thereof.
Damages are not intended to enrich the complainant
at the expense of the defendant, and there is no hard-andfast rule in the determination of what would be a fair
amount of moral damages since each case must be
governed by its own peculiar facts. The yardstick should
be that it is not palpably and scandalously excessive. In
this case, the award of P100,000.00 is reasonable
considering the reputation and social standing of private
respondent Pujol and applying our rulings in similar cases
involving banks negligence with regard to the accounts of
their depositors.[9] The award of attorneys fees in the
amount of P20,000.00 is proper for respondent Pujol was
compelled to litigate to protect her interest. [10]
WHEREFORE, the petition is DENIED and the
Decision of the Court of Appeals which affirmed the award
by the Regional Trial Court of Pasig City of moral damages
of P100,000.00 and attorneys fees of P20,000.00 in favor
of private respondent Lily S. Pujol is AFFIRMED. Costs
against petitioner.
SO ORDERED.
THIRD DIVISION

G.R. No. 112576 October 26, 1994

(CA-GR CV No. 26571)
METROPOLITAN BANK AND TRUST
COMPANY, petitioner,
vs.
THE HON. COURT OF APPEALS, RURAL BANK OF
PADRE GARCIA, INC. and ISABEL R.
KATIGBAK, respondents.
Makalintal, Barot, Torres & Ibarra for petitioner.
Fornier, Lava & Fornier for private respondents.

ROMERO, J.:
This petition for certiorari seeks to annul the decision of
respondent Court of Appeals dated October 29, 1992 in CA
GR CV No. 26571 affirming the decision of the Regional
Trial Court of Lipa, Batangas Branch XIII for damages,
and the Resolution dated November 11, 1993 denying
petitioner's motion for reconsideration of the aforesaid
decision.
The case emanated from a dispute between the Rural
Bank of Padre Garcia, Inc. (RBPG) and Metropolitan Bank
and Trust Company (MBTC) relative to a credit
memorandum dated April 5, 1982 from the Central Bank in
the amount of P304,000.00 in favor of RBPG.
The records show that Isabel Katigbak is the president and
director of RBPG, owning 65% of the shares thereof.
Metropolitan Bank and Trust Company (MBTC) is the rural
bank's depository bank, where Katigbak maintains current
accounts with MBTC's main office in Makati as well as its
Lipa City branch.
On April 6, 1982, MBTC received from the Central Bank a
credit memo dated April 5, 1982 that its demand deposit
account was credited with P304,000.00 for the account of
RBPG, representing loans granted by the Central Bank to
RBPG. On the basis of said credit memo, Isabel Katigbak
issued several checks against its account with MBTC in the
total amount of P300,000.00, two (2) of which (Metrobank
Check Nos. 0069 and 0070) were payable to Dr. Felipe C.
Roque and Mrs. Eliza Roque for P25,000.00 each. Said
checks issued to Dr. and Mrs. Roque were deposited by the
Roques with the Philippine Banking Corporation,
Novaliches Branch in Quezon City. When these checks
were forwarded to MBTC on April 12, 1982 for payment
(six (6) days from receipt of the Credit Memo), the checks
were returned by MBTC with the annotations "DAIF TNC"
(Drawn Against Insufficient Funds Try Next Clearing) so
they were redeposited on April 14, 1982. These
were however again dishonored and returned unpaid for
the following reason: "DAIF TNC NO ADVICE FROM
CB."
After the second dishonor of the two (2) checks, Dr. Felipe
Roque, a member of the Board of Directors of Philippine
Banking Corporation, allegedly went to the Office of
Antonio Katigbak, an officer of RBPG, chiding him for the
bouncing checks. In order to appease the doctor, RBPG
paid Dr. Roque P50,000.00 in cash to replace the aforesaid
checks.
On April 13, 1982, Isabel Katigbak who was in Hongkong
on a
business-vacation trip together with her sons Alfredo and
Antonio, both of whom were also officers of RBPG,
received overseas phone calls from Mrs. Maris KatigbakSan Juan at her residence in San Lorenzo Village, Makati,
informing Isabel Katigbak that a certain Mr. Rizal Dungo,
Assistant Cashier of MBTC insisted on talking to her (Mrs.
San Juan), berating her about the checks which bounced,
saying "Nag-issue kayo ng tseke, wala namang pondo,"
even if it was explained to Mr. Dungo that Mrs. San Juan
was not in any way connected with RBPG.
Mrs. Katigbak testified that she informed Mrs. San Juan to
request defendant MBTC to check and verify the records
regarding the aforementioned Central Bank credit memo
for P304,000.00 in favor of RBPG as she was certain that
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the checks were sufficiently covered by the CB credit

memo as early as April 6, 1994, but the following day, Mrs.
San Juan received another insulting call from Mr. Dungo
("Bakit kayo nag-issue ng tseke na wala namang
pondo, Three Hundred Thousand na.") 1 When Mrs. San
Juan explained to him the need to verify the records
regarding the Central Bank memo, he merely brushed it
aside, telling her sarcastically that he was very sure that
no such credit memo existed. Mrs. San Juan was
constrained to place another long distance call to Mrs.
Katigbak in Hongkong that evening. Tense and angered,
the Katigbaks had to cut short their Hongkong stay with
their respective families and flew back to Manila, catching
the first available flight on April 15, 1982.
Immediately upon arrival, Mrs. Katigbak called up MBTC,
through a
Mr. Cochico, for a re-examination of the records of MBTC
regarding the Central Bank credit memo dated April 5,
1982 for P304,000.00. Mr. Dungo, to whom Cochico
handed over the phone, allegedly arrogantly said: "Bakit
kayo magagalit, wala naman kayong pondo?" These
remarks allegedly so shocked Mrs. Katigbak that her blood
pressure rose to a dangerous level and she had to undergo
medical treatment at the Makati Medical Center for two (2)
days.
Metrobank not only dishonored the checks issued by
RBPG, the latter was issued four (4) debit memos
representing service and penalty charges for the returned
checks.
RBPG and Isabel Katigbak filed Civil Case No. V-329 in the
RTC of Lipa, Batangas Branch XIII against the
Metropolitan Bank and Trust Company for damages on
April 26, 1983.
The ultimate facts as alleged by the defendant MBTC in its
answer are as follows: that on April 6, 1982, its
messenger, Elizer Gonzales, received from the Central
Bank several credit advices on rural bank accounts, which
included that of plaintiff RBPG in the amount of
P304,000.00; that due to the inadvertence of said
messenger, the credit advice issued in favor of plaintiff
RBPG was not delivered to the department in charge of
processing the same; consequently, when MBTC received
from the clearing department the checks in question, the
stated balance in RBPG's account was only P5,498.58
which excluded the unprocessed credit advice of
P304,000.00 resulting in the dishonor of the
aforementioned checks; that as regards the P304,000.00
which was
a re-discounting loan from the Central Bank, the same was
credited only on April 15, 1982 after the Central Bank
finally confirmed that a credit advice was indeed issued in
favor of RBPG; that after the confirmation, MBTC credited
the amount of the credit advice to plaintiff RBPG's account
and thru its officers, allegedly conveyed personally on two
occasions its apologies to plaintiffs to show that the bank
and its officers acted with no deliberate intent on their
part to cause injury or damage to plaintiffs, explaining the
circumstances that gave rise to the bouncing checks
situation. Metrobank's negligence arising from their
messenger's misrouting of the credit advice resulting in
the return of the checks in question, despite daily
reporting of credit memos and a corresponding daily radio
message confirmation, (as shown by Exhibit "I," the
Investigation Report of the bank's Mr. Valentino Elevado)
and Mr. Dungo's improper handling of clients led to the
messenger's dismissal from service and Mr. Dungo's
transfer from Metro Manila to Mindoro.

The threshold issue was whether or not, under the facts

and circumstances of the case, plaintiff may be allowed to
recover actual, moral and exemplary damages, including
attorney's fees, litigation expenses and the costs of the
suit. On August 25, 1989, the RTC of Lipa City rendered a
decision 2 in favor of plaintiffs and against the defendant
MBTC, ordering the latter to:
1. pay plaintiff Isabel Katigbak
P50,000.00 as temperate damages;
2. pay P500,000.00 as moral damages,
considering that RBPG's credit standing
and business reputation were damaged
by the wrongful acts of defendant's
employees, coupled with the rude
treatment received by Isabel Katigbak at
the hands of Mr. Dungo, all of which
impelled her to seek medical treatment;
3. pay P100,000.00 as attorney's fees
and litigation expenses; and.
4. pay the costs of suit.
The lower court did not award actual damages in the
amount of P50,000.00 representing the amount of the two
(2) checks payable to Dr. Felipe C. Roque and Mrs. Elisa
Roque for P25,000 each, as it found no showing that Mr.
Antonio Katigbak who allegedly paid the amount was
actually reimbursed by plaintiff RBPG. Moreover, the court
held that no actual damages could have been suffered by
plaintiff RBPG because on April 15, 1982, the Central Bank
credit advice in the amount of P304,000 which included
the two (2) checks issued to the Roque spouses in the sum
of P50,000.00 were already credited to the account of
RBPG and the service, as well as penalty charges, were all
reversed.
MBTC appealed from the decision to the Court of Appeals
in CA GR CV No. 26571, alleging that the trial court
erred in awarding temperate and moral damages, as well
as attorney's fees, plus costs and expenses of litigation
without factual or legal basis therefor.
On October 29, 1992, the Court of Appeals rendered a
decision 3 affirming that of the trial court, except for the
deletion of the award of temperate damages, the
reduction of moral damages from P500,000.00 to
P50,000.00 in favor of RBPG and P100,000.00 for Isabel
Katigbak and P50,000.00, as attorney's fees. Plaintiffsappellees filed a motion for reconsideration of the
decision, questioning the deletion of the award of
temperate damages and the reduction of the award of
moral damages and attorney's fees. The motion was
denied.
MBTC filed this petition, presenting the following issues for
resolution:
1. whether or not private respondents
RBPG and Isabel Rodriguez are legally
entitled to moral damages and attorney's
fees, and
2. assuming that they are so entitled,
whether or not the amounts awarded are
excessive and unconscionable.
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The petition is devoid of merit.

The case at bench was instituted to seek damages caused
by the dishonor through negligence of respondent bank's
checks which were actually sufficiently funded, and the
insults from petitioner bank's officer directed against
private respondent Isabel R. Katigbak. The presence of
malice and the evidence of besmirched reputation or loss
of credit and business standing, as well as a reappraisal of
its probative value, involves factual matters which, having
been already thoroughly discussed and analyzed in the
courts below, are no longer reviewable here. While this
rule admits of exceptions, this case does not fall under any
of these.
There is no merit in petitioner's argument that it should
not be considered negligent, much less be held liable for
damages on account of the inadvertence of its bank
employee as Article 1173 of the Civil Code only requires it
to exercise the diligence of a good pater familias.
As borne out by the records, the dishonoring of the
respondent's checks committed through negligence by the
petitioner bank on April 6, 1982 was rectified only on April
15, 1992 or nine (9) days after receipt of the credit memo.
Clearly, petitioner bank was remiss in its duty and
obligation to treat private respondent's account with the
highest degree of care, considering the fiduciary nature of
their relationship. The bank is under obligation to treat the
accounts of its depositors with meticulous care, whether
such account consists only of a few hundred pesos or of
millions. It must bear the blame for failing to discover the
mistake of its employee despite the established procedure
requiring bank papers to pass through bank personnel
whose duty it is to check and countercheck them for
possible errors. 4 Responsibility arising from negligence in
the performance of every kind of obligation is
demandable. 5 While the bank's negligence may not have
been attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment and humiliation to
private respondents for which they are entitled to recover
reasonable moral damages. 6
As the records bear out, insult was added to injury by
petitioner bank's issuance of debit memoranda
representing service and penalty charges for the returned
checks, not to mention the insulting remarks from its
Assistant Cashier.
In the case of Leopoldo Araneta v. Bank of America, 7 we
held that:
The financial credit of a businessman is a
prized and valuable asset, it being a
significant part of the foundation of his
business. Any adverse reflection thereon
constitutes some financial loss to him. As
stated in the case of Atlanta National
Bank vs. Davis, 96 Ga 334, 23 SE 190,
citing 2 Morse Banks, Sec. 458, "it can
hardly be possible that a customer's
check can be wrongfully refused payment
without some impeachment of his credit,
which must in fact be an actual injury,
though he cannot, from the nature of the
case, furnish independent, distinct proof
thereof".

It was established that when Mrs. Katigbak learned that

her checks were not being honored and Mr. Dungo
repeatedly made the insulting phone calls, her wounded
feelings and the mental anguish suffered by her caused
her blood pressure to rise beyond normal limits,
necessitating medical attendance for two (2) days at a
hospital.
The damage to private respondents' reputation and social
standing entitles them to moral damages. Moral damages
include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injury. 8 Temperate or
moderate damages which are more than nominal but less
than compensatory damages, may be recovered when the
court finds that some pecuniary loss has been suffered but
its amount cannot, from the nature of the case, be proved
with certainty. 9 Temperate damages may be allowed in
cases where from the nature of the case, definite proof of
pecuniary loss cannot be adduced, although the court is
convinced that there has been such loss. The appellate
court, however, justified its deletion when MBTC reasoned
out that the amount of P50,000.00 is not part of the relief
prayed for in the complaint, aside from the fact that the
amount allegedly suffered by Mrs. Katigbak is susceptible
of proof. 10
Moral and temperate damages which are not susceptible
of pecuniary estimation are not awarded to penalize the
petitioner but to compensate the respondents for injuries
suffered as a result of the former's fault and negligence,
taking into account the latter's credit and social standing
in the banking community, particularly since this is the
very first time such humiliation has befallen private
respondents. The amount of such losses need not be
established with exactitude, precisely due to their
nature. 11
The carelessness of petitioner bank, aggravated by the
lack of promptness in repairing the error and the arrogant
attitude of the bank officer handling the matter, justifies
the grant of moral damages, which are clearly not
excessive and unconscionable.
Moreover, considering the nature and extent of the
services rendered by private respondent's counsel, both in
the trial and appellate courts, the Court deems it just and
equitable that attorney's fees in the amount of P50,000.00
be awarded.
WHEREFORE, the decision of respondent Court of Appeals
is AFFIRMED in all respects.
SO ORDERED.

FIRST DIVISION

G.R. No. 108555 December 20, 1994

RAMON TAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and RIZAL
COMMERCIAL BANKING CORPORATION, respondents.

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Yulo, Quisumbing, Torres, Ali & Bello Law Offices for

petitioner.

with the respondent bank's teller and it was negligence on

RCBC's part not to have done so; 6

Siguion Reyna, Montecillo & Ongsiako for private

respondent.

Second, that RCBC had been remiss in the performance of

its obligation to the petitioner when it "missent" the
cashier's check to the Central Bank knowing, as it should,
that the source of the check, PCIB, Puerto Princesa Branch,
is not included in the areas required to be cleared by the
Central Bank, a fact known to the banking world and
surely to the respondent bank; 7

KAPUNAN, J.:
This petition seeks to set aside the decision of the Court of
Appeals dated January 12, 1993 in CA-G.R. CV No. 31083,
entitled Ramon Tan, plaintiff-appellee, vs. Rizal
Commercial Banking Corporation, defendant-appellant,
reversing the decision of the Regional Trial Court dated
December 28, 1990 ordering respondent bank Rizal
Commercial Banking Corporation (RCBC), Binondo Branch,
to pay petitioner damages and attorney's fees in the
amount of ONE MILLION THIRTY FIVE THOUSAND
(P1,035,000.00) PESOS.
The following are the uncontroverted facts:
Petitioner Ramon Tan, a trader-businessman and
community leader in Puerto Princesa, had maintained
since 1976 Current Account No. 109058068 with
respondent bank's Binondo branch. On March 11, 1988, to
avoid carrying cash while enroute to Manila, he secured a
Cashier's Check No. L 406000126 from the Philippine
Commercial Industrial Bank (PCIB), Puerto Princesa
branch, in the amount of Thirty Thousand (P30,000.00)
Pesos, payable to his order. He deposited the check in his
account with RCBC Binondo on March 15. On the same
day, RCBC erroneously sent the same cashier's check for
clearing to the Central Bank which was returned for having
been "missent" or "misrouted." 1 The next day, March 16,
RCBC debited the amount covered by the same cashier's
check from the account of the petitioner. Respondent bank
at this time had not informed the petitioner of its action
which the latter claims he learned of only 42 days after,
specifically on March 16, when he received the bank's
debit memo.2 Relying on the common knowledge that a
cashier's check was as good as cash, that the usual
banking practice that local checks are cleared within three
(3) working days and regional checks within seven (7)
working days, and the fact that the cashier's check was
accepted, petitioner issued two (2) personal checks both
dated March 18. Check No. 040719 in the name of Go Lac
for Five Thousand Five Hundred (P5,5000.00) Pesos was
presented on April 25, 3 more than 30 days from
petitioner's deposit date of the cashier's check. Check
No. 040718 in the name of MS Development Trading
Corporation for Six Thousand Fifty-Three Pesos and
Seventy Centavos (P6,053.70) was returned twice on
March 24, nine (9) days from his deposit date and again
on April 26, twenty-two days after the day the cashier's
check was deposited for insufficiency of funds. 4
Petitioner, alleging to have suffered humiliation and loss of
face in the business sector due to the bounced checks,
filed a complaint against RCBC for damages in the
Regional Trial Court of Palawan and Puerto Princesa,
Branch 47, docketed as Civil Case No. 2101. 5
During the trial, petitioner sought to prove:
First, that it was RCBC's responsibility to call his attention
there and then that he had erroneously filled the wrong
deposit slip at the time he deposited the cashier's check

Third, that RCBC upon knowing of its error in "missending"

the cashier's check to the Central Bank did not attempt to
rectify its "misclearing" error by clearing it seasonably
with PCIB, Puerto Princesa, thru its own RCBC Puerto
Princesa Branch with whom it had direct radio contact; 8
Fourth, that as an old client, with twelve (12) years of
good standing then, RCBC should have given him more
consideration by exerting greater diligence in clearing the
check with PCIB, Puerto Princesa, to protect its client's
interest; 9
Fifth, that RCBC failed to inform petitioner promptly that
the check had not been cleared, despite its debiting
without delay the amount covered by the check from the
account of the petitioner and hastily charging the latter
service fees immediately after the return of the "missent
checks"; 10 and
Finally, that the bounced checks resulting from RCBC's
"misclearing" had put in doubt his credibility among his
business peers and sullied his reputation as a community
leader which he had painstakingly cultivated for years. His
community standing as a business-socio-civic leader was a
source of pride for him in his old age of 70. He cited being
Chairman of Palawan Boy Scout Council, 2-term President
of the Rotary Club of Puerto Princesa, member of Palawan
Chamber of Commerce and Industry, member of the
Monitoring Team of the Palawan Integrated Area
Development Project, member of Lion's Club, Philippine
Rifle Pistol Association and the Saturday Health Club to
justify his claim for moral damages. 11
In its defense, RCBC disowning any negligence, put the
blame for the "misrouting" on the petitioner for using the
wrong check deposit slip. It insisted that the misuse of a
local check deposit slip, instead of a regional check
deposit slip, triggered the "misrouting" by RCBC of the
cashier's check to the Central Bank and it was petitioner's
negligent "misuse" of a local deposit slip which was the
proximate cause of the "misrouting," thus he should bear
the consequence. 12
RCBC alleged that it complied strictly with accepted
banking practice when it debited the amount of
P30,000.00 against petitioner's account since under
Resolution No. 2202 dated December 21, 1979 of the
Monetary Board, it is a matter of policy to prohibit the
drawing against uncollected deposits (DAUDS) except
when the drawings are made against uncollected deposits
representing bank manager's/cashier's/treasurer's checks,
treasury warrants, postal money orders and duly funded
"on us" checks which may be permitted at the discretion
of each bank. 13Without crediting the P30,000.00 deposit,
petitioner's balance before and after was Two Thousand
Seven Hundred
Ninety-Two Pesos and the (P2,792.88) Eighty-Eight
Centavos. 14 Thus, it dishonored the two (2) checks
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amounting to P11,553.70 since they were drawn against

insufficient funds. RCBC added that petitioner had no bills
purchase (BP) line which allows a depositor to receive or
draw from proceeds of a check without waiting it to be
cleared. Besides, RCBC maintained, had it forwarded the
Cashier's Check to PCIB Puerto Princesa, Palawan, it would
take at least twenty (20) working days for the cashier's
check to be cleared and it would take the same length of
time to clear the two (2) personal checks of Tan. 15
RCBC further asseverated it was merely acting as
petitioner's collecting agent and it assumed no
responsibility beyond care in selecting correspondents
under the theory that where a check is deposited with a
collecting bank the relationship created is that of agency
and not creditor-debtor, thus it cannot be liable. 16
Finally, respondent claimed that serious attempts were
made to contact petitioner through the telephone
numbers in the signature specimen card of petitioner but
to no avail. 17 The Assistant Branch Accountant of RCBC
Binondo Branch testified that the first telephone number
in the card had been deleted from the phone company's
list and that when RCBC tried to contact petitioner's
daughter Evelyn Tan-Banzon thru a certain telephone
number and when they asked for Evelyn Tan, they were
told there was no such person. 18
The trial court rendered a decision on December 28, 1990
in petitioner's favor, the dispositive portion 19 of which
reads:
WHEREFORE, premises considered,
plaintiff having proven the allegations of
his verified complaint by preponderance
of evidence, the court hereby renders
judgment ordering defendant bank,
Binondo Branch, Manila, to pay him
damages and attorney's fees in the total
amount of P1,035,000.00 Philippine
Currency, broken down as follows:
P700,000.00 as moral damages,
P200,000.00 as exemplary damages;
P135,000.00 which is 15% of the sum
herein awarded to plaintiff, as attorney's
fees and to pay costs of suit.
For having failed to prove by any receipt
or writing to underpin it, plaintiff's claim
for actual damage is denied for lack of
merit.
IT IS SO ORDERED.
RCBC appealed to the Court of Appeals contending that
the trial court erred in holding RCBC liable to petitioner on
account of its alleged negligence and in awarding
petitioner moral and exemplary damages and attorney's
fees.
The Court of Appeals on January 12, 1993 rendered a
decision 20 with the following decretal portion:
WHEREFORE, and upon all the foregoing,
the decision of the court below is
REVERSED and this complaint is
DISMISSED without pronouncement as to
cost.

The Court of Appeals' decision is based on the following

findings: 21
What appeared to have caused the
unfortunate incident was that the plaintiff
filled up the wrong deposit slip which led
to the sending of the check to the Central
Bank when the clearing should have been
made elsewhere.
But the claim of the plaintiff that he was
not advised that the Cashier's check was
missent does not seem to be correct. The
evidence indicated that the defendant
bank thru its personnel had called him up
thru telephone in the number (No. 60-4523) which he gave in his specimen
signature card. But it came out, that said
telephone number was no longer active
or was already deleted from the list of
telephone numbers.
There was an instruction on the part of
the plaintiff for the bank to contact his
daughter, Mrs. Evelyn Tan Banzon and
according to the plaintiff, she too, was not
contacted as per his instruction. The
evidence, however, indicated that Ms.
Evelyn Tan also could not be contacted at
the number supposed to pertain to her as
appeared in the specimen signature card.
In other words while there was
compliance with the instructions given by
the plaintiff but said instructions were
faulty. The plaintiff as a customer of the
bank is under obligation to inform the
defendant of any changes in the
telephone numbers to be contacted in the
event of any exigency.
All in all, the facts indicate that the
refusal of RCBC to credit the amount of
P30,000.00 to the plaintiff's current
account is consistent with the accepted
banking practice. As the defendant bank
had claimed, under Resolution No. 2202
dated December 21, 1979 of the
Monetary Board, it had been emphatically
declared as a matter of policy that no
drawings should be made against
uncollected deposits except when the
drawings are made against uncollected
deposits representing bank
manager's/cashier's/treasurer's checks,
treasury warrants, postal money orders,
and duly funded "on-us" checks as may
be permitted at the discretion of each
bank.
It is clear that immediate payment
without awaiting clearance of a cashier's
check is discretionary with the bank to
whom the check is presented and such
being the case, the refusal to allow it as
in this case is not to be equated with
negligence in the basic perception that
discretion is not demandable as a right. In
the instant case, prior to the deposit of
P30,000.00, the plaintiff's account
appeared to be only in the amount of
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Page 27 of 40

P2,792.98. So the two (2) checks issued

by the plaintiff amounting to P11,553.70
had to be dishonored since they were
drawn against insufficient funds.
What the plaintiff should have done,
before issuing the two (2) checks, was to
await the clearance of the Cashier's
check and his failure to do so is a fault
not ascribable to the defendant who
appeared under the circumstance merely
to have followed the usual banking
practice.
Petitioner now seeks to reverse the decision of the Court
of Appeals and affirm that of the lower court. He raises the
following errors:
1. THE HONORABLE COURT OF APPEALS
COMMITTED GROSS AND MANIFEST
ERROR IN CONCLUDING THAT THE
NEGLIGENCE WAS ASCRIBABLE TO
HEREIN PETITIONER.
2. THE HONORABLE COURT OF APPEALS
GRAVELY ABUSED ITS DISCRETION IN
FINDING THAT THE RESPONDENT BANK
HAD NOT BEEN REMISS IN THE
PERFORMANCE OF ITS OBLIGATIONS TO
HEREIN PETITIONER.
3. THE HONORABLE COURT OF APPEALS
COMMITTED GROSS AND MANIFEST
ERROR AND GRAVE ABUSE OF
DISCRETION IN REVERSING THE AWARD
OF MORAL AND EXEMPLARY DAMAGES TO
THE PETITIONER.
4. THE HONORABLE COURT OF APPEALS
COMMITTED GROSS AND MANIFEST
ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT AWARDING
ATTORNEY'S FEES TO PETITIONER.
In a most recent case decided by this Court, City Trust
Corporation v. The Intermediate Appellate
Court, 22involving damages against City Trust Banking
Corporation, the depositor, instead of stating her correct
account number 29000823 inaccurately wrote 2900823.
Because of this error, six postdated checks amounting to
P20,209.00 she issued were dishonored for insufficiency of
funds. The Regional Trial Court dismissed the complaint for
lack of merit. The Court of Appeals, however, found the
appeal meritorious and ordered the bank to pay nominal
damages of P2,000.00, temperate and moderate damages
of P5,000.00 and attorney's fees of P4,000.00. Upon
review, this Court quoted with favor the disquisition of the
appellate court:
We cannot uphold the position of
defendant. For, even if it be true that
there was error on the part of the plaintiff
in omitting a zero in her account number,
yet, it is a fact that her name, Emma E.
Herrero, is clearly written on said deposit
slip (Exh. B). This is controlling in
determining in whose account the deposit
is made or should be posted. This is so
because it is not likely to commit an error

in one's name that merely relying on

numbers which are difficult to remember,
especially a number with eight (8) digits
as the account numbers of defendant's
depositors. We view the use of numbers
as simply for the convenience of the bank
but was never intended to disregard the
real name of its depositors. The bank is
engaged in business impressed with
public interests, and it is its duty to
protect in return its many clients and
depositors who transact business with it.
It should not be a matter of the bank
alone receiving deposits, lending out
money and collecting interests. It is also
its obligation to see to it that all funds
invested with it are properly accounted
for and duly posted in its ledgers.
In the case before Us, we are not
persuaded that defendant bank was not
free from blame for the fiasco. In the first
place, the teller should not have accepted
plaintiff's deposit without correcting the
account number on the deposit slip
which, obviously, was erroneous because,
as pointed out by defendant, it contained
only seven (7) digits instead of eight (8).
Second, the complete name of plaintiff
depositor appears in bold letters on the
deposit slip (Exh. B). There could be no
mistaking in her name, and that the
deposit was made in her name, Emma E.
Herrero. In fact, defendant's teller should
not have fed her deposit slip to the
computer knowing that her account
number written thereon was wrong as it
contained only seven (7) digits. As it
happened, according to defendant,
plaintiff's deposit had to be consigned to
the suspense accounts pending
verification. This, indeed, could have
been avoided at the first instance had the
teller of defendant bank performed her
duties efficiently and well. For then she
could have readily detected that the
account number in the name of Emma E.
Herrero was erroneous and would be
rejected by the computer. That is, or
should be, part of the training and
standard operating procedure of the
bank's employees. On the other hand,
the depositors are not concerned with
banking procedure. That is the
responsibility of the bank and its
employees. Depositors are only
concerned with the facility of depositing
their money, earning interest thereon, if
any, and withdrawing therefrom,
particularly businessmen, like plaintiff,
who are supposed to be always on-thego. Plaintiff's account is a current account
which should immediately be posted.
After all, it does not earn interest. At
least, the forbearance should be
commensurated with prompt, efficient
and satisfactory service.
Bank clients are supposed to rely on the
services extended by the bank, including
the assurance that their deposits will be
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duly credited them as soon as they are

made. For, any delay in crediting their
account can be embarrassing to them as
in the case of plaintiff.
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. (Emphasis supplied).
In the light of the above-cited case, the respondent bank
cannot exculpate itself from liability by claiming that its
depositor "impliedly instructed" the bank to clear his
check with the Central Bank by filling a local check deposit
slip. Such posture is disingenuous, to say the least. First,
why would RCBC follow a patently erroneous act born of
ignorance or inattention or both. Second, bank
transactions pass through a succession of bank personnel
whose duty is to check and countercheck transactions for
possible errors. In the instant case, the teller should not
have accepted the local deposit slip with the cashier's
check that on its face was clearly a regional check without
calling the depositor's attention to the mistake at the very
moment this was presented to her. Neither should
everyone else down the line who processed the same
check for clearing have allowed the check to be sent to
Central Bank. Depositors do not pretend to be past master
of banking technicalities, much more of clearing
procedures. As soon as their deposits are accepted by the
bank teller, they wholly repose trust in the bank
personnel's mastery of banking, their and the bank's
sworn profession of diligence and meticulousness in giving
irreproachable service.
We do not subscribe to RCBC's assertion that petitioner's
use of the wrong deposit slip was the proximate cause of
the clearing fiasco and so, petitioner must bear the
consequence. In Pilipinas Bank, v. CA, 23 this Court said:
The bank is not expected to be infallible
but, as correctly observed by respondent
Appellate Court, in this instance, it must
bear the blame for not discovering the
mistake of its teller despite the
established procedure requiring the
papers and bank books to pass through a
battery of bank personnel whose duty it is
to check and countercheck them for
possible errors. Apparently, the officials
and employees tasked to do that did not
perform their duties with due care, . . .
So it is in the instance case, where the conclusion is
inevitable that respondent RCBC had been remiss in the
performance of its duty and obligation to its client, as well
as to itself. We draw attention to the fact that the two
dishonored checks issued by petitioner, Check No. 040719
and Check
No. 040718 were presented for payment 24 more than 45
days from the day the cashier's check was deposited. This
gave RCBC more than ample time to have cleared the
cashier's check had it corrected its "missending" the same
upon return from Central Bank using the correct slip this
time so it can be cleared properly. Instead, RCBC promptly
debited the amount of P30,000.00 against petitioner's
account and left it at that.

We observe, likewise, that RCBC inquired about an Evelyn

Tan but no Evelyn Tan-Banzon as specifically instructed in
the same signature card. (Emphasis supplied) 25
RCBC insists that immediate payment without awaiting
clearance of a cashier's check is discretionary with the
bank to whom the check is presented and such being the
case, its refusal to immediately pay the cashier's check in
this case is not to be equated with negligence on its part.
We find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an
amount of money. There is an element of certainty or
assurance that it will be paid upon presentation that is
why it is perceived as a convenient substitute for currency
in commercial and financial transactions. The basis of the
perception being confidence. Any practice that destroys
that confidence will impair the usefulness of the check as
a currency substitute and create havoc in trade circles and
the banking community. 26
Now, what was presented for deposit in the instant cases
was not just an ordinary check but a cashier's check
payable to the account of the depositor himself. A
cashier's check is a primary obligation of the issuing bank
and accepted in advance by its mere issuance. 27 By its
very nature, a cashier's check is the bank's order to pay
drawn upon itself, committing in effect its total resources,
integrity and honor behind the check. A cashier's check by
its peculiar character and general use in the commercial
world is regarded substantially to be as good as the
money which it represents.28 In this case, therefore, PCIB
by issuing the check created an unconditional credit in
favor of any collecting bank.
All these considered, petitioner's reliance on the layman's
perception that a cashier's check is as good as cash is not
entirely misplaced, as it is rooted in practice, tradition, and
principle. We see no reason thus why this so-called
discretion was not exercised in favor of petitioner,
specially since PCIB and RCBC are members of the same
clearing house group relying on each other's solvency.
RCBC could surely rely on the solvency of PCIB when the
latter issued its cashier's check.
On the third and fourth issue, RCBC contends that moral
damages cannot be recovered in an action for breach of
contract since under Article 2219 of the New Civil Code,
the instant case is not among those enumerated. For an
award of moral damages in a breach of contract, it is
imperative that the party acted in bad faith or fraudulently
as provided for in Art. 2220 of the Civil Code, to wit:
Art. 2220. Willful injury to property may
be a legal ground for awarding moral
damages if the court should find that,
under the circumstances, such damages
are justly due. The same rule applies to
breaches of contract where the defendant
acted fraudulently or in bad faith.
In the absence of moral damages, RCBC argues,
exemplary damages cannot be awarded under Art. 2225
of the same Code which states:
Exemplary damages or corrective
damages are imposed, by way of
example or correction for the public good,

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in addition to the moral, temperate,

liquidated or compensatory damages.
We hold that petitioner has the right to recover moral
damages even if the bank's negligence may not have
been attended with malice and bad faith. In American
Express International, Inc. v. IAC, 29 we held:
While petitioner was not in bad faith, its
negligence caused the private
respondent to suffer mental anguish,
serious anxiety, embarrassment and
humiliation, for which he is entitled to
recover, reasonable moral damages (Art.
2217, Civil Code).
In Zenith Insurance Corporation v. CA, 30 we also said that
moral damages are not meant to enrich a complainant at
the expense of defendant. It is only intended to alleviate
the moral suffering he has undergone. In the instant case,
we find the award of P700,000.00 as moral damages
excessive and, accordingly, reduce it to one hundred
thousand (P100,000.00) pesos. We find the award of
exemplary damages of P200,000.00 unjustified in the
absence of malice, bad faith or gross negligence. 31 The
award of reasonable attorney's fees is proper for the
petitioner was compelled to litigate to protect his
interest. 32
IN VIEW WHEREOF, we REVERSE the decision of
respondent Court of Appeals and hereby order private
respondent RCBC, Binondo Branch, to pay petitioner the
amount of one hundred thousand (P100,000.00) pesos as
moral damages and the sum of fifty thousand
(P50,000.00) pesos as attorney's fees, plus costs.
SO ORDERED.
FIRST DIVISION

G.R. No. 116181 April 17, 1996

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and CARMELO H.
FLORES, respondents.

KAPUNAN, J.:p
This is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court assailing the decision and
resolution of the respondent Court of Appeals in CA-G.R.
CV No. 38281 dated 31 January 1994 and 5 July 1994,
respectively, which affirmed the decision of the Regional
Trial Court in Civil Case No. Q-89-4033 declaring Philippine
National Bank liable to Carmelo H. Flores for damages.
The facts of the case are as follows:
On 11 July 1989, private respondent Carmelo H. Flores
(Flores) purchased from petitioner at its Manila Pavilion
Hotel unit, two (2) manager's checks worth P500,000.00

each, paying a total of P1,000,040.00, including the

service charge. 1 A receipt for said amount was issued by
the petitioner. 2
On 12 July 1989, Flores presented these checks at the
Baguio Hyatt Casino unit of petitioner. Petitioner refused to
encash the checks but after a lengthy discussion, it agreed
to encash one (1) of the checks. 3 However, it deferred the
payment of the other check until after Flores agreed that it
be broken down to five (5) manager's checks of
P100,000.00 each. Furthermore, petitioner refused to
encash one of the five checks until after it is cleared by
the Manila Pavilion Hotel unit. 4 Having no other option,
Flores agreed to such an arrangement. However, upon his
return to Manila, he made representations to petitioner
through its Malate Branch so that the check may be
encashed but to no avail. 5 Flores, thereafter, wrote a
letter to his counsel informing the latter of the
aforementioned events. 6 A Formal Demand was made by
private respondent's counsel but petitioner persisted in its
refusal to honor the check. 7
Left with no other choice, Flores filed a case with the
Regional Trial Court of Quezon City, Branch 100, docketed
as Civil Case No. Q-89- 4033. 8
In its Answer with Compulsory Counterclaim, petitioner
insisted that only P900,000.00 and P40.00 bank charges
were actually paid by Flores when he purchased the two
(2) manager's checks worth P1,000,000.00. It alleged that
due to Flores' "demanding attitude and temper,"
petitioner's money counter, Rowena Montes, who, at that
time was still new at her job, made an error in good faith
in issuing the receipt for P1,000,040.00. 9 The actuations
of Flores allegedly distracted the personnel manning the
unit. 10
After trial, the court rendered its decision on 5 May 1992,
the dispositive portion of which states:
WHEREFORE, premises considered,
judgment is hereby rendered in favor of
the plaintiff and against the defendant
Philippine National Bank as follows:
a) ordering the defendant to pay plaintiff
the sum of P100,000.00 representing the
amount of the check dishonored with
interest thereon at the legal rate per
annum from November 16, 1989 until
fully paid;
b) ordering defendant to pay plaintiff for
the embarrassment caused him the
amount of P1,000,000.00 as moral
damages;
c) ordering defendant to pay plaintiff the
amount of P1,000,000.00 as exemplary
damages brought about by the
malevolent and malicious acts of the
former;
d) ordering defendant to pay plaintiff the
sum of P50,000.00 as attorney's fees;
and

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e) ordering defendant to pay the costs of

the suit.
SO ORDERED.

11

THE PNB CASINO UNIT P900,040 OR

P1,000,040 IN PURCHASING THE TWO
MANAGER'S CHECKS EACH WORTH
P500,000 IS THE RECEIPT FOR
P1,000,040.

Petitioner interposed an appeal with the respondent court,

docketed as CA-G.R. CV No. 38281 assigning the following
errors, to wit:
I
THE TRIAL COURT ERRED IN HOLDING ON
THE BASIS OF THE RECEIPT MARKED EXH.
"A" THAT IN PURCHASING THE TWO
MANAGER'S CHECKS ON JULY 11, 1989,
APPELLEE FLORES PAID PNB
P1,000,000.40 DESPITE (1) THAT THE
SAID RECEIPT DOES NOT SHOW, OR
AFFORD THE BEST PROOF OF THE
CORRECT AMOUNT PAID BY FLORES TO
PNB AND (2) THAT AS SHOWN BY
PREPONDERANT AND CONCLUSIVE
EVIDENCE, APPELLEE PAID PNB P900,040
ONLY IN ONE MANAGER'S CHECK AND
MONETARY BILLS.
II
THE TRIAL COURT ERRED IN AWARDING
FLORES P1 MILLION MORAL DAMAGES, P1
MILLION EXEMPLARY DAMAGES, AND
P500,000 (sic) ATTORNEY'S FEES DESPITE
(1) THAT PNB'S REFUSAL TO ENCASH THE
P100,000 MANAGER'S CHECK (EXH. "B")
WAS JUSTIFIED, AS FLORES WAS NEVER
ENTITLED TO THE MONEY; (2) THAT
THERE IS ABJECT ABSENCE OF EVIDENCE
THAT PNB ACTED FRAUDULENTLY OR
MALICIOUSLY, EVEN AS GOOD FAITH IS
PRESUMED; AND (3) THAT FLORES'
ALLEGED EMBARRASSMENT FOR HIS
FAILURE TO PURCHASE A HOUSE AND LOT
DUE TO PNB'S REFUSAL TO ENCASH THE
WHOLE P1 MILLION 1S UNFOUNDED. 12
On 31 January 1994, the Court of Appeals rendered the
questioned decision, the dispositive portion of which
reads:
WHEREFORE, the appealed decision of
the lower court in Civil Case No. Q-894033 is hereby AFFIRMED by the Court.
Costs against defendant-appellant.
SO ORDERED.

13

A motion for reconsideration was filed but it was likewise

denied in a resolution dated 5 July 1994, 14 thus, the
present action with petitioner raising the following issues,
to wit:
I
WHETHER OR NOT THE CA ERRED IN LAW
IN HOLDING THAT, THE BEST EVIDENCE
TO SHOW WHETHER MR. FLORES PAID

II
WHETHER OR NOT PNB CAN PRESENT
COMPETENT AND RELEVANT EVIDENCE
TO SUPPORT ITS ALLEGATION IN THE
ANSWER THAT MR. FLORES ACTUALLY
PAID P900,040 AND NOT P1,000,040 FOR
THE SUBJECT MANAGER'S CHECKS.
III
WHETHER OR NOT THE AWARD FOR P1
MILLION MORAL DAMAGES, P1 MILLION
EXEMPLARY DAMAGES, AND P50,000
ATTORNEY'S FEES, AS COMPARED TO THE
ACTUAL CLAIM OF P100,000 IS
DISPROPORTIONATE AND
UNCONSCIONABLE. 15
We shall deal with the first and second issues raised by
petitioner together as they are interrelated.
Petitioner concedes that it issued the subject receipt for
P1,000,040.00 to Flores; yet, in the same breath, it
immediately counters that said receipt is not the best
evidence to prove how much money Flores actually paid
for the purchase of petitioner's manager's checks.
Further, petitioner insists that the issue in the instant case
is not the contents of the subject receipt but the exact
amount of money Flores paid to PNB, an inquiry which,
petitioner avers, allows the presentation of
evidence aliunde.
Petitioner's contentions are unmeritorious.
A "receipt" is defined as:
A written and signed acknowledgment
that money has been paid or goods have
been delivered. A receipt is merely
presumptive evidence and is not
conclusive.
A written acknowledgment that money or
a thing of value has been received. Since
a receipt is a mere acknowledgment of
payment, it may be subject to
explanation or contradiction. A receipt
may be used as evidence against one just
as any other declaration or admission. A
simple receipt not under seal is
presumptive evidence only and may be
rebutted or explained by other evidence
of mistake in giving it, or of non-payment
or of the circumstances under which it
was given. 16 (Emphasis ours.)
Although a receipt is not conclusive evidence, in the case
at bench, an exhaustive review of the records fails to
disclose any other evidence sufficient and strong enough
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to overturn the acknowledgment embodied in petitioner's

own receipt (as to the amount of money it actually
received).
Petitioner contends that it offered in court evidence of the
particulars or the actual denominations of the money it
received from Flores in exchange for its managerial
checks. However, aside from the self-serving testimonies
of petitioner's witnesses, we fail to discover any such
evidence in the records. In the words of the trial court:
After having thoroughly evaluated the
evidences (sic) on record, the Court finds
and so believes that plaintiff indeed paid
defendant the amount of P1,000,040.00
when he purchased the two (2)
manager's checks worth (sic)
P1,000,000.00. This is clearly manifested
from the receipt issued by the defendant
wherein it explicitly admits that the
amount stated therein is what plaintiff
actually paid. While the defendant does
not dispute the receipt it issued to the
plaintiff, it endeavored to prove that the
actual amount involved in the entire
transaction is only P900,000.00 that is
P450,000.00 manager's check and
P450,000.00 cash by submitting in
evidence, the application forms filled up
by the plaintiff, Exhibits "1, 2, 3 and
4". As may be readily seen, these
application forms relied upon by the
defendant have no probative value for
they do not yield any direct proof of
payment. Besides defendant even failed
to adduce concrete evidence showing
that these forms which were crumpled
and retrieved from the waste basket were
made the basis of the approval of the
purchased (sic) made. At any rate, the
Court finds such pieces of evidence not
only unconvincing but also self-defeating
in the light of the receipt, the accuracy,
correctness and due execution of which
was indubitably established. It is a
cardinal rule in the law on evidence that
the best proof of payment is the
receipt. 17 (Emphasis ours.)
In Monfort v. Aguinaldo, 18 the receipts of payment,
although not exclusive, were deemed to be the best
evidence. Thus:
That the best evidence for proving
payment is by the evidence of receipts
showing the same is also admitted. What
respondents claim is that there is no rule
which provides that payment can only be
proved by receipts. While receipts are
deemed to be the best evidence, they are
not exclusive. Other evidence may be
presented in lieu thereof if they are not
available, as in case of loss, destruction
or disappearance. The fact of payment
may be established not only by
documentary evidence, but also by parol
evidence (48 C.J. 727; Greenleaf, Law of
Evidence, Vol. II, p. 486; Jones on
Evidence [1913] Vol. II, p. 193), specially
in civil cases where preponderance of
evidence is the rule. Here respondents

presented documentary as well as oral

evidence which the Court of Appeals
found to be sufficient, and this finding is
final.
In the instant case, petitioner's contention that Flores paid
P900,000.00 only instead of P1,000,000.00 (exclusive of
bank charges) in the following denominations: a
manager's check worth P450,000.00; P430,000.00 in
P100.00 bills; and P20,000.00 in P500.00 bills, was based
solely on the testimonies of petitioner's bank employees
the very ones involved in the fiasco, 19 and not on any
other independent evidence. Hence, having failed to
adduce sufficient rebuttal evidence, petitioner is bound by
the contents of the receipt it issued to Flores. The subject
receipt remains to be the primary or best evidence or
"that which affords the greatest certainty of the fact in
question. 20
On the issue of damages, we concur with the findings of
the trial court and the Court of Appeals, respectively:
Since there is no doubt as to the fact that
the plaintiff purchased from the
defendant bank two (2) manager's check
worth P500,000.00 each as this was
evidenced by an official receipt (Exhibit
"A"), then, following the above
jurisprudential ruling, the existence of the
manager's check (sic) created as (sic)
fiduciary relationship between the
defendant bank and the plaintiff and
therefore any breach thereof must be
borne by the negligent party. In this case,
the money counter who, among her other
duties, is in charge of counting the money
received from a client purchasing a
manager's check did not perform her
duty with diligence and due care. This
may be gathered from her testimony that
she did not wait for the counting machine
to finish counting the money for the
plaintiff is a VIP client and he was in a
hurry as he was tapping the window (p.
37, T.S.N., August 28, 1990). Equally
negligent is Reynaldo Castor for not doing
anything when he noticed that their
money counters who entertained the
plaintiff were rattled. From these unfolded
facts, the so-called honest mistake
pleaded is therefore misplaced and
perforced, defendant must suffer the
consequences of its own negligent acts.
The records further show that plaintiff is a
prominent businessman, licensed and
engaged in the real estate business,
buying and selling houses and lots under
the business name and style CMS
Commercial. He is at the same time a
consultant of Dizon-Esguerra Real Estate
Company. Defendant treated him as a
valued and VIP client. Because of the
bank's refusal to encash the entire one
million face amount of his manager's
checks, he was so embarrassed for he
was not able to purchase a house and lot
in Monterroza Subdivision, Baguio City.
Significantly, the foregoing undisputed
facts made even more untenable
defendant's implicit supposition that the
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subject manager's checks were not

intended for the purchase of a house or
for any business transaction but for
gambling.

reputation, wounded
feelings, moral shock,
social humiliation and
similar injury, are
incapable of pecuniary
estimation.

Finally, since plaintiff was compelled to

litigate to protect its interest due to the
non-compliance of defendant's obligation,
he is therefore entitled to attorney's fees
(par. 5, article 2208, Civil Code of the
Philippines). 21

As to exemplary
damages, Article 2229 of
the Civil Code provides
that such damages may
be imposed by way of
example or correction for
the public good. While
exemplary damages
cannot be recovered as
a matter of right, they
need not be proved,
although plaintiff must
show that he is entitled
to moral, temperate or
compensatory damages
before the court may
consider the question of
whether or not
exemplary damages
should be awarded. 22

xxx xxx xxx

Appellee Flores narrated his woes to the
lower court when appellant bank refused
to honor his Manager's Checks worth P1
Million because of the alleged shortage in
appellee's payment to the effect that he
had to go back and forth the bank to
encash said checks (pp. 16-18, t.s.n., July
2, 1990), and that he lost a deal of (sic) a
house for sale in Baguio City worth P1
Million as he could not produce said
amount withheld by the appellant bank
(p. 22, Id.,) Appellee Flores further
testified as to the effect of the incident on
his integrity as a businessman as follows:
Yes, my integrity and
dependability as a
businessman is highly
doubted in Baguio
because of the PNB
refusal to honor the two
(2) manager's checks
inspite of them issuing
me the receipt. So,
whenever I make a deal
in house and they would
now even doubt whether
I have the money to buy
the house that I am
buying, it greatly
affected my integrity as
a businessman in
Baguio. (p. 25, t.s.n., Id.)
In the case of Makabali v. C.A., 157 SCRA
253, the Supreme Court reiterated the
doctrine on the grant of moral and
exemplary damages, as follows:
To begin with, 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 circumstances.
Article 2217 of the Civil
Code recognizes that
moral damages which
include physical
suffering, mental
anguish, fright, serious
anxiety, besmirched

However, we give consideration to petitioner's allegation

that the award of P1,000,000.00 moral damages and
P1,000,000.00 exemplary damages in addition to Flores'
actual claim of P100,000.00 is "inordinately
disproportionate and unconscionable." 23
Under the circumstances obtaining in the case at bench,
we rule that the award of moral and exemplary damages
is patently excessive and should be reduced to a
reasonable amount. We take into consideration the
following factors:
First, Flores' contention that he lost the opportunity to
purchase a house and lot in Baguio City due to petitioner's
gross negligence is based solely on his own testimony and
a mere general statement at that. The broker he named
during his cross-examination on 10 July 1990, a Mr. Nick
Buendia was not even presented to confirm the
aforementioned allegation:
xxx xxx xxx
Q. You also stated that this amount was
intended for the purchase of the real estate
property in Baguio, is that right?
A. Yes.
Q. Can you tell this Honorable Court where is
this specific property located in Baguio?
A. It is located in Monterosa Subdivision.
Q. Can you tell us the number of the street?
A. It is within the Monterosa.
Q. Can you identify the name of the person
with whom you transacted?
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A. Your Honor, I have the papers and during

the next hearing I will bring it.
ATTY. D. VALDEZ:
Is that meant, Your Honor that we are
continuing the cross examination on the
next hearing considering that he will show a
certain document.
Q. Can you not reveal to us the name of the
person with whom you transacted?
A. As I have said I could not be guessing
because it was coursed through another
broker.
And, this broker usually did not tell you who
is the owner.
Q. What I am asking you is the person whom
you transacted and not necessarily the
owner? We are supposed to know, Your
Honor.
COURT:
The name of the broker.
A. The name of the broker, Your Honor is
Nick Buendia.
Q. Do you know what subsequently
happened if there was anything happened to
that property that was being sold?
A. It was sold.
Q. To someone else?
A. Yes.
Q. At the time you were purchasing the
manager's checks for one (1M) million you
intended this as a payment for the property?
A. Yes.

24

xxx xxx xxx

Second, the award of moral damages in the amount of
P1,000,000.00 is obviously not proportionate to the actual
losses of P100,000.00 sustained by Flores. In RCPI
v. Rodriguez, 25 we ruled thus:
. . . . Nevertheless, we find the award of
P100,000.00 as moral damages in favor
of respondent Rodriguez excessive and
unconscionable. In the case
of Prudenciado v. Alliance Transport
System, Inc. (148 SCRA 440 [1987]) we
said: ". . . [I]t is undisputed that the trial
courts are given discretion to determine
the amount of moral damages (Alcantara
v. Surro, 93 Phil. 472) and that the Court

of Appeals can only modify or change the

amount awarded when they are palpably
and scandalously excessive "so as to
indicate that it was the result of passion,
prejudice or corruption on the part of the
trial court" (Gellada v. Warner Barnes &
Co., Inc., 57 O.G. [4] 7347, 7358; Sadie v.
Bachrach Motors Co., Inc., 57 O.G. [4] 636
and Adone v. Bachrach Motor Co., Inc., 57
O.G. 656). But in more recent cases
where the awards of moral and
exemplary damages are far too excessive
compared to the actual losses sustained
by the aggrieved party, this Court ruled
that they should be reduced to more
reasonable amounts. . . . . (Emphasis
ours.)
In other words, the moral damages awarded must be
commensurate with the loss or injury suffered.
Similarly, we have consistently declared that:
Moral damages though incapable of
pecuniary estimations, 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 (San Andres v. Court of
Appeals, 116 SCRA 85 [1982] cited in
Prudenciado v. Alliance Transport System,
Inc. supra). 26
We, likewise, take this opportunity to stress that:
. . . [M]oral damages are emphatically not
intended to enrich a complainant at the
expense of the defendant. They are
awarded only to enable the injured party
to obtain means, diversion or
amusements that will serve to obviate
the moral suffering he has undergone, by
reason of the defendant's culpable action.
Its award is aimed at the restoration,
within the limits of the possible, of the
spiritual status quo ante, and it must be
proportional to the suffering
inflicted. 27 (Emphasis ours.)
It is because of the foregoing reasons that we have had to
constantly remind the courts to desist from awarding
excessive damages disproportionate to the peculiar
circumstances of the case. "Judicial discretion granted to
the courts in the assessment of damages must always be
exercised with balanced restraint and measured
objectivity." 28
Finally, we find petitioner's act of issuing the manager's
checks and corresponding receipt before payment thereof
was completely counted reckless and grossly negligent. It
is an appalling breach of bank procedures and must never
be repeated.
In Bautista v. Mangaldan Rural Bank, Inc.,
thus:.

29

we stated,

The banking system has become an

indispensable institution in the modern
world and plays a vital role in the
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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
unbiquitous presence among the people,
who have come to regard them with
respect and even gratitude and, most of
all, confidence. (Simex International
[Manila], Inc. vs. Court of Appeals, G.R.
No. 88013, March 19, 1990, 183 SCRA
360).
However, the award of P1,000,000.00 exemplary damages
is also far too excessive and should likewise be reduced to
an equitable level. Exemplary damages are imposed not to
enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb
socially deleterious actions. 30
Therefore, based on the foregoing discussion, the award of
moral damages is reduced to P100,000.00 and the
exemplary damages is likewise reduced to P25,000.00.
We see no reason to disturb the award of attorney's fees
in the amount of P50,000.00. We concur with the findings
of the Court of Appeals on this matter:
As for the award of attorney's fees, We
find the same in order considering that
"defendant acted in gross and evident
bad faith in refusing to satisfy the
plaintiffs plainly valid, just and
demandable claim" (Art. 2208 [5], New
Civil Code), and it is just and equitable to
award plaintiff-appellee his attorney's
fees (Art. 2208 [11], id.). 31
WHEREFORE, premises considered, the assailed decision is
hereby MODIFIED as follows:
1. The award of moral damages is reduced from
P1,000,000.00 to P100,000.00; and
2. The award of exemplary damages is reduced from
P1,000,000.00 to P25,000.00.
In all other respects, the assailed decision is hereby
AFFIRMED.
SO ORDERED.

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FIRST DIVISION

G.R. No. 97626 March 14, 1997

PHILIPPINE BANK OF COMMERCE, now absorbed by
PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
ROGELIO LACSON, DIGNA DE LEON, MARIA
ANGELITA PASCUAL, et al., petitioners,

vs.

THE COURT OF APPEALS, ROMMEL'S MARKETING

CORP., represented by ROMEO LIPANA, its President
& General Manager, respondents.

HERMOSISIMA, JR., J.:

Challenged in this petition for review is the Decision dated
February 28, 1991 1 rendered by public respondent Court
of Appeals which affirmed the Decision dated November
15, 1985 of the Regional Trial Court, National Capital
Judicial Region, Branch CLX (160), Pasig City, in Civil Case
No. 27288 entitled "Rommel's Marketing Corporation, etc.
v. Philippine Bank of Commerce, now absorbed by
Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private
respondent Rommel's Marketing Corporation (RMC for
brevity), represented by its President and General
Manager Romeo Lipana, to recover from the former
Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank,
the sum of P304,979.74 representing various deposits it
had made in its current account with said bank but which
were not credited to its account, and were instead
deposited to the account of one Bienvenido Cotas,
allegedly due to the gross and inexcusable negligence of
the petitioner bank.
RMC maintained two (2) separate current accounts,
Current Account Nos. 53-01980-3 and 53-01748-7, with
the Pasig Branch of PBC in connection with its business of
selling appliances.
In the ordinary and usual course of banking operations,
current account deposits are accepted by the bank on the
basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who
indicates therein the current account number to which the
deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the
amount of the deposit either in cash or checks. The
deposit slip has an upper portion or stub, which is
detached and given to the depositor or his agent; the
lower portion is retained by the bank. In some instances,
however, the deposit slips are prepared in duplicate by the
depositor. The original of the deposit slip is retained by the
bank, while the duplicate copy is returned or given to the
depositor.

From May 5, 1975 to July 16, 1976, petitioner Romeo

Lipana claims to have entrusted RMC funds in the form of
cash totalling P304,979.74 to his secretary, Irene Yabut,
for the purpose of depositing said funds in the current
accounts of RMC with PBC. It turned out, however, that
these deposits, on all occasions, were not credited to
RMC's account but were instead deposited to Account No.
53-01734-7 of Yabut's husband, Bienvenido Cotas who
likewise maintains an account with the same bank. During
this period, petitioner bank had, however, been regularly
furnishing private respondent with monthly statements
showing its current accounts balances. Unfortunately, it
had never been the practice of Romeo Lipana to check
these monthly statements of account reposing complete
trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She
would accomplish two (2) copies of the deposit slip, an
original and a duplicate. The original showed the name of
her husband as depositor and his current account number.
On the duplicate copy was written the account number of
her husband but the name of the account holder was left
blank. PBC's teller, Azucena Mabayad, would, however,
validate and stamp both the original and the duplicate of
these deposit slips retaining only the original copy despite
the lack of information on the duplicate slip. The second
copy was kept by Irene Yabut allegedly for record
purposes. After validation, Yabut would then fill up the
name of RMC in the space left blank in the duplicate copy
and change the account number written thereon, which is
that of her husband's, and make it appear to be RMC's
account number, i.e., C.A. No. 53-01980-3. With the daily
remittance records also prepared by Ms. Yabut and
submitted to private respondent RMC together with the
validated duplicate slips with the latter's name and
account number, she made her company believe that all
the while the amounts she deposited were being credited
to its account when, in truth and in fact, they were being
deposited by her and credited by the petitioner bank in
the account of Cotas. This went on in a span of more than
one (1) year without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded
from petitioner bank the return of its money, but as its
demand went unheeded, it filed a collection suit before
the Regional Trial Court of Pasig, Branch 160. The trial
court found petitioner bank negligent and ruled as follows:
WHEREFORE, judgment is hereby
rendered sentencing defendant Philippine
Bank of Commerce, now absorbed by
defendant Philippine Commercial &
Industrial Bank, and defendant Azucena
Mabayad to pay the plaintiff, jointly and
severally, and without prejudice to any
criminal action which may be instituted if
found warranted:
1. The sum of P304,979.72, representing
plaintiffs lost deposit, plus interest
thereon at the legal rate from the filing of
the complaint;
2. A sum equivalent to 14% thereof, as
exemplary damages;

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3. A sum equivalent to 25% of the total

amount due, as and for attorney's fees;
and
4. Costs.
Defendants' counterclaim is hereby
dismissed for lack of merit. 2
On appeal, the appellate court affirmed the foregoing
decision with modifications, viz:
WHEREFORE, the decision appealed from
herein is MODIFIED in the sense that the
awards of exemplary damages and
attorney's fees specified therein are
eliminated and instead, appellants are
ordered to pay plaintiff, in addition to the
principal sum of P304,979.74
representing plaintiff's lost deposit plus
legal interest thereon from the filing of
the complaint, P25,000.00 attorney's fees
and costs in the lower court as well as in
this Court. 3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the
negligence of respondent Rommel
Marketing Corporation and Romeo Lipana
in entrusting cash to a dishonest
employee.
2) The failure of respondent Rommel
Marketing Corporation to cross-check the
bank's statements of account with its own
records during the entire period of more
than one (1) year is the proximate cause
of the commission of subsequent frauds
and misappropriation committed by Ms.
Irene Yabut.
3) The duplicate copies of the deposit
slips presented by respondent Rommel
Marketing Corporation are falsified and
are not proof that the amounts appearing
thereon were deposited to respondent
Rommel Marketing Corporation's account
with the bank,
4) The duplicate copies of the deposit
slips were used by Ms. Irene Yabut to
cover up her fraudulent acts against
respondent Rommel Marketing
Corporation, and not as records of
deposits she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is
the proximate cause of the loss, to the tune of
P304,979.74, suffered by the private respondent RMC
petitioner bank's negligence or that of private
respondent's?

entrusting cash to a dishonest employee in the person of

Ms. Irene Yabut. 5 According to them, it was impossible for
the bank to know that the money deposited by Ms. Irene
Yabut belong to RMC; neither was the bank forewarned by
RMC that Yabut will be depositing cash to its account.
Thus, it was impossible for the bank to know the
fraudulent design of Yabut considering that her husband,
Bienvenido Cotas, also maintained an account with the
bank. For the bank to inquire into the ownership of the
cash deposited by Ms. Irene Yabut would be irregular.
Otherwise stated, it was RMC's negligence in entrusting
cash to a dishonest employee which provided Ms. Irene
Yabut the opportunity to defraud RMC. 6
Private respondent, on the other hand, maintains that the
proximate cause of the loss was the negligent act of the
bank, thru its teller Ms. Azucena Mabayad, in validating
the deposit slips, both original and duplicate, presented by
Ms. Yabut to Ms. Mabayad, notwithstanding the fact that
one of the deposit slips was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission
causes damage to another, there being
fault or negligence, is obliged to pay for
the damage done. Such fault or
negligence, if there is no pre-existing
contractual relation between the parties,
is called a quasi-delict and is governed by
the provisions of this Chapter.
There are three elements of a quasi-delict: (a) damages
suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must
respond; and (c) the connection of cause and effect
between the fault or negligence of the defendant and the
damages incurred by the plaintiff. 7
In the case at bench, there is no dispute as to the damage
suffered by the private respondent (plaintiff in the trial
court) RMC in the amount of P304,979.74. It is in ascribing
fault or negligence which caused the damage where the
parties point to each other as the culprit.
Negligence is the omission to do something which a
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable
man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, 8 provides the test by
which to determine the existence of negligence in a
particular case which may be stated as follows: Did the
defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then
he is guilty of negligence. The law here in effect adopts
the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law.
The existence of negligence in a given case is not
determined by reference to the personal judgment of the
actor in the situation before him. The law considers what
would be reckless, blameworthy, or negligent in the man
of ordinary intelligence and prudence and determines
liability by that.

Petitioners submit that the proximate cause of the loss is

the negligence of respondent RMC and Romeo Lipana in
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Applying the above test, it appears that the bank's teller,

Ms. Azucena Mabayad, was negligent in validating,
officially stamping and signing all the deposit slips
prepared and presented by Ms. Yabut, despite the glaring
fact that the duplicate copy was not completely
accomplished contrary to the self-imposed procedure of
the bank with respect to the proper validation of deposit
slips, original or duplicate, as testified to by Ms. Mabayad
herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will
you please tell us Mrs. Mabayad your
important duties and functions?
A: I accept current and savings deposits
from depositors and encashments.
Q: Now in the handling of current account
deposits of bank clients, could you tell us
the procedure you follow?
A: The client or depositor or the authorized
representative prepares a deposit slip by
filling up the deposit slip with the name,
the account number, the date, the cash
breakdown, if it is deposited for cash, and
the check number, the amount and then he
signs the deposit slip.
Q: Now, how many deposit slips do you
normally require in accomplishing current
account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the
deposit although some of our clients
prepare the deposit slip in duplicate.
Q: Now in accomplishing current account
deposits from your clients, what do you
issue to the depositor to evidence the
deposit made?
A: We issue or we give to the clients the
depositor's stub as a receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized
representative sir?
Q: Where does the depositor's stub comes
(sic) from Mrs. Mabayad, is it with the
deposit slip?
A: The depositor's stub is connected with
the deposit slip or the bank's copy. In a
deposit slip, the upper portion is the
depositor's stub and the lower portion is
the bank's copy, and you can detach the
bank's copy from the depositor's stub by
tearing it sir.
Q: Now what do you do upon presentment
of the deposit slip by the depositor or the
depositor's authorized representative?

A: We see to it that the deposit slip 9 is

properly accomplished and then we count
the money and then we tally it with the
deposit slip sir.
Q: Now is the depositor's stub which you
issued to your clients validated?
A: Yes, sir.

10

[Emphasis ours]

Clearly, Ms. Mabayad failed to observe this very

important procedure. The fact that the duplicate
slip was not compulsorily required by the bank in
accepting deposits should not relieve the
petitioner bank of responsibility. The odd
circumstance alone that such duplicate copy
lacked one vital information that of the name of
the account holder should have already put Ms.
Mabayad on guard. Rather than readily validating
the incomplete duplicate copy, she should have
proceeded more cautiously by being more probing
as to the true reason why the name of the
account holder in the duplicate slip was left blank
while that in the original was filled up. She should
not have been so naive in accepting hook, line
and sinker the too shallow excuse of Ms. Irene
Yabut to the effect that since the duplicate copy
was only for her personal record, she would
simply fill up the blank space later on. 11 A
"reasonable man of ordinary prudence" 12 would
not have given credence to such explanation and
would have insisted that the space left blank be
filled up as a condition for validation.
Unfortunately, this was not how bank teller
Mabayad proceeded thus resulting in huge losses
to the private respondent.
Negligence here lies not only on the part of Ms. Mabayad
but also on the part of the bank itself in its lackadaisical
selection and supervision of Ms. Mabayad. This was
exemplified in the testimony of Mr. Romeo Bonifacio, then
Manager of the Pasig Branch of the petitioner bank and
now its Vice-President, to the effect that, while he ordered
the investigation of the incident, he never came to know
that blank deposit slips were validated in total disregard of
the bank's validation procedures, viz:
Q: Did he ever tell you that one of your
cashiers affixed the stamp mark of the
bank on the deposit slips and they
validated the same with the machine, the
fact that those deposit slips were unfilled
up, is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit
slip?
A: No it was not reported.
Q: You did not know that any one in the
bank tellers or cashiers validated the blank
deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
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A: Yes, sir.

13

Prescinding from the above, public respondent Court of

Appeals aptly observed:
xxx xxx xxx
It was in fact only when he testified in
this case in February, 1983, or after the
lapse of more than seven (7) years
counted from the period when the funds
in question were deposited in plaintiff's
accounts (May, 1975 to July, 1976) that
bank manager Bonifacio admittedly
became aware of the practice of his teller
Mabayad of validating blank deposit slips.
Undoubtedly, this is gross, wanton, and
inexcusable negligence in the appellant
bank's supervision of its employees. 14
It was this negligence of Ms. Azucena Mabayad, coupled
by the negligence of the petitioner bank in the selection
and supervision of its bank teller, which was the proximate
cause of the loss suffered by the private respondent, and
not the latter's act of entrusting cash to a dishonest
employee, as insisted by the petitioners.

as "discovered peril"), petitioner bank was indeed the

culpable party. This doctrine, in essence, states that where
both parties are negligent, but the negligent act of one is
appreciably later in time than that of the other, or when it
is impossible to determine whose fault or negligence
should be attributed to the incident, the one who had the
last clear opportunity to avoid the impending harm and
failed to do so is chargeable with the consequences
thereof. 19 Stated differently, the rule would also mean
that an antecedent negligence of a person does not
preclude the recovery of damages for the supervening
negligence of, or bar a defense against liability sought by
another, if the latter, who had the last fair chance, could
have avoided the impending harm by the exercise of due
diligence. 20 Here, assuming that private respondent RMC
was negligent in entrusting cash to a dishonest employee,
thus providing the latter with the opportunity to defraud
the company, as advanced by the petitioner, yet it cannot
be denied that the petitioner bank, thru its teller, had the
last clear opportunity to avert the injury incurred by its
client, simply by faithfully observing their self-imposed
validation procedure.
At this juncture, it is worth to discuss the degree of
diligence ought to be exercised by banks in dealing with
their clients.
The New Civil Code provides:

Proximate cause is determined on the facts of each case

upon mixed considerations of logic, common sense, policy
and precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated
in the case of Bank of the Phil. Islands v. Court of
Appeals, 17 defines proximate cause as "that cause, which,
in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and
without which the result would not have occurred. . . ." In
this case, absent the act of Ms. Mabayad in negligently
validating the incomplete duplicate copy of the deposit
slip, Ms. Irene Yabut would not have the facility with which
to perpetrate her fraudulent scheme with impunity.
Apropos, once again, is the pronouncement made by the
respondent appellate court, to wit:
. . . . Even if Yabut had the fraudulent
intention to misappropriate the funds
entrusted to her by plaintiff, she would
not have been able to deposit those
funds in her husband's current account,
and then make plaintiff believe that it
was in the latter's accounts wherein she
had deposited them, had it not been for
bank teller Mabayad's aforesaid gross and
reckless negligence. The latter's
negligence was thus the proximate,
immediate and efficient cause that
brought about the loss claimed by
plaintiff in this case, and the failure of
plaintiff to discover the same soon
enough by failing to scrutinize the
monthly statements of account being
sent to it by appellant bank could not
have prevented the fraud and
misappropriation which Irene Yabut had
already completed when she deposited
plaintiff's money to the account of her
husband instead of to the latter's
accounts. 18
Furthermore, under the doctrine of "last clear chance"
(also referred to, at times as "supervening negligence" or

Art. 1173. The fault or negligence of the

obligor consists in the omission of that
diligence which is required by the nature
of the obligation and corresponds with
the circumstances of the persons, of the
time and of the place. When negligence
shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of
a good father of a family shall be
required. (1104a)
In the case of banks, however, the degree of diligence
required is more than that of a good father of a family.
Considering the fiduciary nature of their relationship with
their depositors, banks are duty bound to treat the
accounts of their clients with the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court
of Appeals, 22 in every case, the depositor expects the
bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of
millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at
any given time the amount of money the depositor can
dispose as he sees fit, confident that the bank will deliver
it as and to whomever he directs. A blunder on the part of
the bank, such as the failure to duly credit him his
deposits as soon as they are made, can cause the
depositor not a little embarrassment if not financial loss
and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary
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nature of their relationship. In the case before us, it is

apparent that the petitioner bank was remiss in that duty
and violated that relationship.

which shall mitigate the damages that may be awarded to

the private respondent 23 under Article 2179 of the New
Civil Code, to wit:

Petitioners nevertheless aver that the failure of

respondent RMC to cross-check the bank's statements of
account with its own records during the entire period of
more than one (1) year is the proximate cause of the
commission of subsequent frauds and misappropriation
committed by Ms. Irene Yabut.

. . . When the plaintiff's own negligence

was the immediate and proximate cause
of his injury, he cannot recover damages.
But if his negligence was only
contributory, the immediate and
proximate cause of the injury being the
defendant's lack of due care, the plaintiff
may recover damages, but the courts
shall mitigate the damages to be
awarded.

We do not agree.
While it is true that had private respondent checked the
monthly statements of account sent by the petitioner bank
to RMC, the latter would have discovered the loss early on,
such cannot be used by the petitioners to escape liability.
This omission on the part of the private respondent does
not change the fact that were it not for the wanton and
reckless negligence of the petitioners' employee in
validating the incomplete duplicate deposit slips
presented by Ms. Irene Yabut, the loss would not have
occurred. Considering, however, that the fraud was
committed in a span of more than one (1) year covering
various deposits, common human experience dictates that
the same would not have been possible without any form
of collusion between Ms. Yabut and bank teller Mabayad.
Ms. Mabayad was negligent in the performance of her
duties as bank teller nonetheless. Thus, the petitioners are
entitled to claim reimbursement from her for whatever
they shall be ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied that,
indeed, private respondent was likewise negligent in not
checking its monthly statements of account. Had it done
so, the company would have been alerted to the series of
frauds being committed against RMC by its secretary. The
damage would definitely not have ballooned to such an
amount if only RMC, particularly Romeo Lipana, had
exercised even a little vigilance in their financial affairs.
This omission by RMC amounts to contributory negligence

In view of this, we believe that the demands of

substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the
damage awarded by the respondent appellate
court, except the award of P25,000.00 attorney's
fees, shall be borne by private respondent RMC;
only the balance of 60% needs to be paid by the
petitioners. The award of attorney's fees shall be
borne exclusively by the petitioners.
WHEREFORE, the decision of the respondent Court of
Appeals is modified by reducing the amount of actual
damages private respondent is entitled to by 40%.
Petitioners may recover from Ms. Azucena Mabayad the
amount they would pay the private respondent. Private
respondent shall have recourse against Ms. Irene Yabut. In
all other respects, the appellate court's decision is
AFFIRMED.
Proportionate costs.
SO ORDERED.

BANKING for MT

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