G G.R. No.

88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

CRUZ, J.:

We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private
respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in
what amounts.

The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these
products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most
of its exports are purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao,
Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its
balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn
later that they had been dishonored for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00:

2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73:

3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00;

4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P42,906.00:

5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P12,953.00:

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45:

7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of
P4,385.02: and

2
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00.

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening
prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner.
Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on
June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified
check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also
deferred.

The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited
by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks
were paid after they were re-deposited. 4

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence."
This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private
respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees,
and costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the
circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the
amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6

The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was
nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May
25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now before us.

This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It
seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring
no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of
Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately
upon presentment.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error,
justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross
negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.

We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered
by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and
its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished.
Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss
in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business
standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks
and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should
bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and
reasonableness of the said claim.

We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have
suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private
respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial
evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their
nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof
of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is
why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according
to "the circumstances of each case."

From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of
preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the
checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in
it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a
collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was
ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable
entity that has no good name to protect.

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the
petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private
respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and,
most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and
criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at
bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that,
having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately
correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not
contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its
discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition
of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank
exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is
expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original
award of attorney's fees in the amount of P5,000.00, and costs.

SO ORDERED.
G.R. No. 127469 January 15, 2004

PHILIPPINE BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.

CARPIO, J.:

The Case

Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 34382 dated 10 December 1996
modifying the Decision2 of the Regional Trial Court, Fourth Judicial Region, Assisting Court, Bian, Laguna in Civil Case No. B-
3148 entitled "Leonilo Marcos v. Philippine Banking Corporation."

The Antecedent Facts

On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of Money with Damages 3 against
petitioner Philippine Banking Corporation ("BANK"). 4

Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of the officials of the BANK
and a close friend of Marcos, persuaded him to deposit money with the BANK. Marcos yielded to Pagsaligans persuasion and
claimed he made a time deposit with the BANK on two occasions. The first was on 11 March 1982 for P664,897.67. The BANK
issued Receipt No. 635734 for this time deposit. On 12 March 1982, Marcos claimed he again made a time deposit with the BANK
for P764,897.67. The BANK did not issue an official receipt for this time deposit but it acknowledged a deposit of this amount
through a letter-certification Pagsaligan issued. The time deposits earned interest at 17% per annum and had a maturity period of 90
days.

Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK would take care of the
certificates, interests and renewals. Marcos claimed that from the time of the deposit, he had not received the principal amount or its
interest.

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated interests to buy
materials for his construction business. However, the BANK through Pagsaligan convinced Marcos to keep his time deposits intact
and instead to open several domestic letters of credit. The BANK required Marcos to give a marginal deposit of 30% of the total
amount of the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the BANK
and Pagsaligan, he signed blank printed forms of the application for the domestic letters of credit, trust receipt agreements and
promissory notes.

Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as follows: (1) Trust Receipt No. CD 83.7 dated 8
March 1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10
dated 15 March 1983 for P251,250. Marcos deposited the required 30% marginal deposit for the trust receipt agreements. Marcos
claimed that his obligation to the BANK was therefore only P595,875 representing 70% of the letters of credit.

Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected the BANK to offset
automatically a portion of his time deposits and the accumulated interest with the amount covered by the three trust receipts
totalling P851,250 less the 30% marginal deposit that he had paid. Marcos argued that if only the BANK applied his time deposits and
the accumulated interest to his remaining obligation, which is 70% of the total amount of the letters of credit, he would have paid
completely his debt. Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements, the BANK
had no right to renew the same.

Marcos accused the BANK of unjustly demanding payment for the total amount of the trust receipt agreements without deducting the
30% marginal deposit that he had already made. He decried the BANKs unlawful charging of accumulated interest because he
claimed there was no agreement as to the payment of interest. The interest arose from numerous alleged extensions and penalties.
Marcos reiterated that there was no agreement to this effect because his time deposits served as the collateral for his remaining
obligation.
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25% per annum supposedly covered
by Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed the BANKs belated claim that his time deposits were
applied to this void promissory note on 12 March 1985.

In sum, Marcos claimed that:

(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has earned accumulated interest since March 1982 up to the
present in the total amount of P1,727,305.45 at the rate of 17% per annum so his total money with defendant (the BANK)
is P3,156,100.79 less the amount of P595,875 representing the 70% balance of the marginal deposit and/or balance of the trust
agreements;" and

(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance of P595,875, which the BANK should have
automatically deducted from his time deposits and accumulated interest, leaving the BANKs indebtedness to him at P2,560,025.79.

Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the BANK to pay the amount of his time
deposits with interest. He also sought the award of moral and exemplary damages as well as attorneys fees for P200,000 plus 25% of
the amount due.

On 18 September 1989, summons and a copy of the complaint were served on the BANK. 6

On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the allegations in the complaint. The BANK
believed that the suit was Marcos desperate attempt to avoid liability under several trust receipt agreements that were the subject of a
criminal complaint.

The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of Marcos was only P764,897.67 and
not P1,428,795.357 as alleged in the complaint. The P764,897.67 included the P664,897.67 that Marcos deposited on 11 March 1982.

The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue of the Deed of Assignment dated 2
June 1989. Marcos executed the Deed of Assignment to secure his various loan obligations. The BANK claimed that these loans are
covered by Promissory Note No. 20-756-82 dated 2 June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October
1983 for P500,000. The BANK stressed that these obligations are separate and distinct from the trust receipt agreements.

When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his time deposits and applied the same
to the obligation that is now considered fully paid. 8 The BANK insisted that the Deed of Assignment authorized it to apply the time
deposits in payment of Promissory Note No. 20-979-83.

In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan. Consolacion informed Pagsaligan that she
and her husband needed to finance the purchase of construction materials for their business, L.A. Marcos Construction Company.
Pagsaligan suggested the opening of the letters of credit and the execution of trust receipts, whereby the BANK would agree to
purchase the goods needed by the client through the letters of credit. The BANK would then entrust the goods to the client, as
entrustee, who would undertake to deliver the proceeds of the sale or the goods themselves to the entrustor within a specified time.

The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed to account for the goods
delivered or for the proceeds of the sale, the BANK filed a complaint for violation of Presidential Decree No. 115 or the Trust
Receipts Law. Instead of initiating negotiations for the settlement of the account, Marcos filed this suit.

The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory note is supported by
documentary evidence such as Marcos application for this loan and the microfilm of the cashiers check issued for the loan. The
BANK insisted that Marcos could not deny the agreement for the payment of interest and penalties under the trust receipt agreements.
The BANK prayed for the dismissal of the complaint, payment of damages, attorneys fees and cost of suit.

On 15 December 1989, the trial court on motion of Marcos counsel issued an order declaring the BANK in default for filing its
answer five days after the 15-day period to file the answer had lapsed. 9 The trial court also held that the answer is a mere scrap of
paper because a copy was not furnished to Marcos. In the same order, the trial court allowed Marcos to present his evidence ex parte
on 18 December 1989. On that date, Marcos testified and presented documentary evidence. The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with Compulsory Counterclaim.

On 29 December 1989, the BANK filed an opposition to Marcos motion to declare the BANK in default. On 9 January 1990, the
BANK filed a motion to lift the order of default claiming that it had only then learned of the order of default. The BANK explained
that its delayed filing of the Answer with Counterclaim and failure to serve a copy of the answer on Marcos was due to excusable
negligence. The BANK asked the trial court to set aside the order of default because it had a valid and meritorious defense.

On 7 February 1990, the trial court issued an order setting aside the default order and admitting the BANKs Answer with Compulsory
Counterclaim. The trial court ordered the BANK to present its evidence on 12 March 1990.

On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified during the ex-partehearing of 18
December 1989. On 12 March 1990, the trial court denied the BANKs motion and directed the BANK to present its evidence. Trial
then ensued.

The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANKs Cubao Branch since 1987, and Pagsaligan,
the Branch Manager of the same branch from 1982 to 1986.

On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material time, the trial court reset the
continuation of the cross-examination and presentation of other evidence. The succeeding hearings were postponed, specifically on 24,
27 and 28 of August 1990, because of the BANKs failure to produce its witness, Pagsaligan. The BANK on these scheduled hearings
also failed to present other evidence.

On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan could not attend the hearing because
of illness. The trial court denied the motion to postpone and on motion of Marcos counsel ruled that the BANK had waived its right
to present further evidence. The trial court considered the case submitted for decision. The BANK moved for reconsideration, which
the trial court denied.

On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK appealed to the Court of Appeals.

On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the amount of actual damages and
deleting the attorneys fees awarded to Marcos.

The Ruling of the Trial Court

The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and not only P764,897.67 as claimed by the
BANK. The trial court found that Marcos made a time deposit on two occasions. The first time deposit was made on 11 March 1982
for P664,897.67 as shown by Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as
acknowledged by Pagsaligan in a letter of certification. The two time deposits thus amounted to P1,429,795.34.

The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because the letter of certification was
sufficient. The trial court made a finding that the certification letter did not include the time deposit made on 11 March 1982. The 12
March 1982 deposit was in cash while the 11 March 1982 deposit was in checks which still had to clear. The checks were not included
in the certification letter since the BANK could not credit the amounts of the checks prior to clearing. The trial court declared that
even the Deed of Assignment acknowledged that Marcos made several time deposits as the Deed stated that the assigment was
charged against "various" time deposits.

The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos supposedly obtained from the
BANK on 28 May 1982 for P340,000 and on 2 June 1982 for P420,000. The two loans amounted to P760,000. On 2 June 1982, the
same day that he secured the second loan, Marcos executed a Deed of Assignment assigning to the BANK P760,000 of his time
deposits. The trial court concluded that obviously the two loans were immediately paid by virtue of the Deed of Assignment.

The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of interest instead of just withdrawing
his time deposits. The trial court saw no rhyme or reason why Marcos had to secure the loans from the BANK. The trial court was
convinced that Marcos did not know that what he had signed were loan applications and a Deed of Assignment in payment for his
loans. Nonetheless, the trial court recognized "the said loan of P760,000 and its corresponding payment by virtue of the Deed of
Assignment for the equal sum."10
If the BANKs claim is true that the time deposits of Marcos amounted only to P764,897.67 and he had already assigned P760,000 of
this amount, the trial court pointed out that what would be left as of 3 June 1982 would only be P4,867.67.11 Yet, after the time
deposits had matured, the BANK allowed Marcos to open letters of credit three times. The three letters of credit were all secured by
the time deposits of Marcos after he had paid the 30% marginal deposit. The trial court opined that if Marcos time deposit was
only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal deposit) was guaranteed by only P4,867.67,12 the
remaining time deposits after Marcos had executed the Deed of Assignment for P760,000.

According to the trial court, a security of only P4,867.6713 for a loan worth P595,875 (less 30% marginal deposit) is not only
preposterous, it is also comical. Worse, aside from allowing Marcos to have unsecured trust receipts, the BANK still claimed to have
granted Marcos another loan for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a
commercial bank engaged in the business of lending money. Allowing a loan of more than a million pesos without collateral is in the
words of the trial court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager has
such authority to grant." 14 Thus, the trial court held that the BANK could not have granted Marcos the loan covered by Promissory
Note No. 20-979-83 because it was unsecured by any collateral.

The trial court required the BANK to produce the original copies of the loan application and Promissory Note No. 20-979-83 so that it
could determine who applied for this loan. However, the BANK presented to the trial court only the "machine copies of the duplicate"
of these documents.

Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the following discrepancies: (1) Marcos
signature on the two documents are merely initials unlike in the other documents submitted by the BANK; (2) it is highly unnatural for
the BANK to only have duplicate copies of the two documents in its custody; (3) the address of Marcos in the documents is different
from the place of residence as stated by Marcos in the other documents annexed by the BANK in its Answer; (4) Pagsaligan made it
appear that a check for the loan proceeds of P470,588 less bank charges was issued to Marcos but the checks payee was one ATTY.
LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was not sure what branch of the BANK
issued the check for the loan proceeds. The trial court was convinced that Marcos did not execute the questionable documents
covering the P500,000 loan and Pagsaligan used these documents as a means to justify his inability to explain and account for the time
deposits of Marcos.

The trial court noted the BANKs "defective" documentation of its transaction with Marcos. First, the BANK was not in possession of
the original copies of the documents like the loan applications. Second, the BANK did not have a ledger of the accounts of Marcos or
of his various transactions with the BANK. Last, the BANK did not issue a certificate of time deposit to Marcos. Again, the trial court
attributed the BANKs lapses to Pagsaligans scheme to defraud Marcos of his time deposits.

The trial court also took note of Pagsaligans demeanor on the witness stand. Pagsaligan evaded the questions by giving unresponsive
or inconsistent answers compelling the trial court to admonish him. When the trial court ordered Pagsaligan to produce the documents,
he "conveniently became sick"15 and thus failed to attend the hearings without presenting proof of his physical condition.

The trial court disregarded the BANKs assertion that the time deposits were converted into a savings account at 14% or 10% per
annum upon maturity. The BANK never informed Marcos that his time deposits had already matured and these were converted into a
savings account. As to the interest due on the trust receipts, the trial court ruled that there is no basis for such a charge because the
documents do not stipulate any interest.

In computing the amount due to Marcos, the trial court took into account the marginal deposit that Marcos had already paid which is
equivalent to 30% of the total amount of the three trust receipts. The three trust receipts totalling P851,250 would then have a balance
of P595,875. The balance became due in March 1987 and on the same date, Marcos time deposits of P669,932.30 had already earned
interest from 1983 to 1987 totalling P569,323.21 at 17% per annum. Thus, the trial court ruled that the time deposits in 1987
totalled P1,239,115. From this amount, the trial court deducted P595,875, the amount of the trust receipts, leaving a balance on the
time deposits of P643,240 as of March 1987. However, since the BANK failed to return the time deposits of Marcos, which again
matured in March 1990, the time deposits with interest, less the amount of trust receipts paid in 1987, amounted to P971,292.49 as of
March 1990.

In the alternative, the trial court ruled that even if Marcos had only one time deposit of P764,897.67 as claimed by the BANK, the time
deposit would have still earned interest at the rate of 17% per annum. The time deposit of P650,163 would have increased
to P1,415,060 in 1987 after earning interest. Deducting the amount of the three trust receipts, Marcos time deposits still
totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:

WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of Plaintiff, directing Defendant
Bank as follows:

1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at the legal rate, until fully
restituted;

2) to pay attorneys fees of P200,000.00; [and]

3) [to pay the] cost of these proceedings.

IT IS SO ORDERED.16

The Ruling of the Court of Appeals

The Court of Appeals addressed the procedural and substantive issues that the BANK raised.

The appellate court ruled that the trial court committed a reversible error when it denied the BANKs motion to cross-examine
Marcos. The appellate court ruled that the right to cross-examine is a fundamental right that the BANK did not waive because the
BANK vigorously asserted this right. The BANKs failure to serve a notice of the motion to Marcos is not a valid ground to deny the
motion to cross-examine. The appellate court held that the motion to cross-examine is one of those non-litigated motions that do not
require the movant to provide a notice of hearing to the other party.

The Court of Appeals pointed out that when the trial court lifted the order of default, it had the duty to afford the BANK its right to
cross-examine Marcos. This duty assumed greater importance because the only evidence supporting the complaint is Marcos ex-
parte testimony. The trial court should have tested the veracity of Marcos testimony through the distilling process of cross-
examination. The Court of Appeals, however, believed that the case should not be remanded to the trial court because Marcos
testimony on the time deposits is supported by evidence on record from which the appellate court could make an intelligent judgment.

On the second procedural issue, the Court of Appeals held that the trial court did not err when it declared that the BANK had waived
its right to present its evidence and had submitted the case for decision. The appellate court agreed with the grounds relied upon by the
trial court in its Order dated 7 September 1990.

The Court of Appeals, however, differed with the finding of the trial court as to the total amount of the time deposits. The appellate
court ruled that the total amount of the time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found by the trial court.
The certification letter issued by Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for P764,897.67. The
certification letter shows that the amount mentioned in the letter was the aggregate or total amount of the time deposits of Marcos as
of that date. Therefore, the P764,897.67 already included the P664,897.67 time deposit made by Marcos on 11 March 1982.

The Court of Appeals further explained:

Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982 covering the sum of P664,987.67 time deposit
did not provide for a maturity date implying clearly that the amount covered by said receipt forms part of the total sum shown
in the letter-certification which contained a maturity date. Moreover, it taxes ones credulity to believe that appellee would
make a time deposit on March 12, 1982 in the sum of P764,897.67 which except for the additional sum of P100,000.00 is
practically identical (see underlined figures) to the sum of P664,897.67 deposited the day before March 11, 1982.

Additionally, We agree with the contention of the appellant that the lower court wrongly appreciated the testimony of Mr.
Pagsaligan. Our finding is strengthened when we consider the alleged application for loan by the appellee with the appellant
in the sum of P500,000.00 dated October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting to P760,000.00.17 (Emphasis supplied)

The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory Note No. 20-979-83 is void. There is no
evidence of a bank ledger or computation of interest of the loan. The appellate court blamed the BANK for failing to comply with the
orders of the trial court to produce the documents on the loan. The BANK also made inconsistent statements. In its Answer to the
Complaint, the BANK alleged that the loan was fully paid when it debited the time deposits of Marcos with the loan. However, in its
discussion of the assigned errors, the BANK claimed that Marcos had yet to pay the loan.

The appellate court deleted the award of attorneys fees. It noted that the trial court failed to justify the award of attorneys fees in the
text of its decision. The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment is hereby rendered ordering
the appellant bank to return to the appellee his time deposit in the sum of P764,897.67 with 17% interest within 90 days
from March 11, 1982 in accordance with the letter-certification and with legal interest thereafter until fully paid.
Costs against the appellant.

SO ORDERED.18 (Emphasis supplied)

The Issues

The BANK anchors this petition on the following issues:

1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENTS OUTSTANDING
OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?

1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN
REVISED RULES OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION ON THE
GENUINENESS AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE
PETITIONERS ANSWER?

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT HAS [sic]
DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED
THE CASE SUBMITTED FOR RESOLUTION? 19

The Ruling of the Court

The petition is without merit.

Procedural Issues

There was no violation of the BANKs right to procedural due process when the trial court denied the BANKs motion to cross-
examine Marcos. Prior to the denial of the motion, the trial court had properly declared the BANK in default. Since the BANK was in
default, Marcos was able to present his evidence ex-parte including his own testimony. When the trial court lifted the order of default,
the BANK was restored to its standing and rights in the action. However, as a rule, the proceedings already taken should not be
disturbed.20 Nevertheless, it is within the trial courts discretion to reopen the evidence submitted by the plaintiff and allow the
defendant to challenge the same, by cross-examining the plaintiffs witnesses or introducing countervailing evidence. 21 The 1964
Rules of Court, the rules then in effect at the time of the hearing of this case, recognized the trial courts exercise of this discretion.
The 1997 Rules of Court retained this discretion.22 Section 3, Rule 18 of the 1964 Rules of Court reads:

Sec. 3. Relief from order of default. A party declared in default may any time after discovery thereof and before judgment
file a motion under oath to set aside the order of default upon proper showing that his failure to answer was due to fraud,
accident, mistake or excusable neglect and that he has a meritorious defense. In such case the order of default may be set
aside on such terms and conditions as the judge may imposein the interest of justice. (Emphasis supplied)

The records show that the BANK did not ask the trial court to restore its right to cross-examine Marcos when it sought the lifting of
the default order on 9 January 1990. Thus, the order dated 7 February 1990 setting aside the order of default did not confer on the
BANK the right to cross-examine Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-examine Marcos.
During the 12 March 1990 hearing, the trial court denied the BANKs oral manifestation to grant its motion to cross-examine Marcos
because there was no proof of service on Marcos. The BANKs counsel pleaded for reconsideration but the trial court denied the plea
and ordered the BANK to present its evidence. Instead of presenting its evidence, the BANK moved for the resetting of the hearing
and when the trial court denied the same, the BANK informed the trial court that it was elevating the denial to the "upper court." 23
To repeat, the trial court had previously declared the BANK in default. The trial court therefore had the right to decide whether or not
to disturb the testimony of Marcos that had already been terminated even before the trial court lifted the order of default.

We do not agree with the appellate courts ruling that a motion to cross-examine is a non-litigated motion and that the trial court
gravely abused its discretion when it denied the motion to cross-examine. A motion to cross-examine is adversarial. The adverse party
in this case had the right to resist the motion to cross-examine because the movant had previously forfeited its right to cross-examine
the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party and to give him time to study and meet the
arguments.24 In a motion to cross-examine, the adverse party has the right not only to prepare a meaningful opposition to the motion
but also to be informed that his witness is being recalled for cross-examination. The proof of service was therefore indispensable and
the trial court was correct in denying the oral manifestation to grant the motion for cross-examination.

We find no justifiable reason to relax the application of the rule on notice of motions25 to this case. The BANK could have easily re-
filed the motion to cross-examine with the requisite notice to Marcos. It did not do so. The BANK did not make good its threat to
elevate the denial to a higher court. The BANK waited until the trial court rendered a judgment on the merits before questioning the
interlocutory order of denial.

While the right to cross-examine is a vital element of procedural due process, the right does not necessarily require an actual cross-
examination, but merely an opportunity to exercise this right if desired by the party entitled to it. 26Clearly, the BANKs failure to
cross-examine is imputable to the BANK when it lost this right 27 as it was in default and failed thereafter to exhaust the remedies to
secure the exercise of this right at the earliest opportunity.

The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve scant consideration.

The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The BANK even has the audacity to
fault the Court of Appeals for not ruling on this issue when it never raised this matter before the appellate court or before the trial
court. Obviously, this issue is only an afterthought. An issue raised for the first time on appeal and not raised timely in the proceedings
in the lower court is barred by estoppel.28

The BANK cannot claim that Marcos had admitted the due execution of the documents attached to its answer because the BANK filed
its answer late and even failed to serve it on Marcos. The BANKs answer, including the actionable documents it pleaded and attached
to its answer, was a mere scrap of paper. There was nothing that Marcos could specifically deny under oath. Marcos had already
completed the presentation of his evidence when the trial court lifted the order of default and admitted the BANKs answer. The
provision of the Rules of Court governing admission of actionable documents was not enacted to reward a party in default. We will
not allow a party to gain an advantage from its disregard of the rules.

As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the trial court correctly ruled that the
BANK had waived this right. The BANK cannot now claim that it was deprived of its right to conduct a re-direct examination of
Pagsaligan. The BANK postponed the hearings three times29 because of its inability to secure Pagsaligans presence during the
hearings. The BANK could have presented another witness or its other evidence but it obstinately insisted on the resetting of the
hearing because of Pagsaligans absence allegedly due to illness.

The BANKs propensity for postponements had long delayed the case. Its motion for postponement based on Pagsaligans illness was
not even supported by documentary evidence such as a medical certificate. Documentary evidence of the illness is necessary before
the trial court could rule that there is a sufficient basis to grant the postponement. 30

The BANKs Fiduciary Duty to its Depositor

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The existence of Promissory Note No.
20-979-83 could have been easily proven had the BANK presented the original copies of the promissory note and its supporting
evidence. In lieu of the original copies, the BANK presented the "machine copies of the duplicate" of the documents. These substitute
documents have no evidentiary value. The BANKs failure to explain the absence of the original documents and to maintain a record
of the offsetting of this loan with the time deposits bring to fore the BANKs dismal failure to fulfill its fiduciary duty to Marcos.

Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on banks when it declares
that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This statutory
declaration merely echoes the earlier pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of
Appeals31 requiring banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship."32 The Court reiterated this fiduciary duty of banks in subsequent cases.33

Although RA No. 8791 took effect only in the year 2000, 34 at the time that the BANK transacted with Marcos, jurisprudence had
already imposed on banks the same high standard of diligence required under RA No. 8791. 35This fiduciary relationship means that
the banks obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor.

The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the
BANKs fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman, who negligently
signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates.

The business of banking is imbued with public interest. The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. In Simex International (Manila) Inc. v. Court of Appeals 36 we pointed out the depositors reasonable
expectations from a bank and the banks corresponding duty to its depositor, as follows:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only
of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo,
and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

As the BANKs depositor, Marcos had the right to expect that the BANK was accurately recording his transactions with it. Upon the
maturity of his time deposits, Marcos also had the right to withdraw the amount due him after the BANK had correctly debited his
outstanding obligations from his time deposits.

By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory note and
the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed to
produce the original copies of these documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.

The BANK claims that it is a reputable banking institution and that it has no reason to forge Promissory Note No. 20-979-83. The trial
court and appellate court did not rule that it was the bank that forged the promissory note. It was Pagsaligan, the BANKs branch
manager and a close friend of Marcos, whom the trial court categorically blamed for the fictitious loan agreements. The trial court
held that Pagsaligan made up the loan agreement to cover up his inability to account for the time deposits of Marcos.

Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed that deprived Marcos of the amount due him will not
excuse the BANK from its obligation to return to Marcos the correct amount of his time deposits with interest. The duty to observe
"high standards of integrity and performance" imposes on the BANK that obligation. The BANK cannot also unjustly enrich itself by
keeping Marcos money.

Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos. We have held that a
bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for
acts outside the scope of their authority.37 Thus, we held:

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus
be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. 38

The Existence of Promissory Note No. 20-979-83 was not Proven

The BANK failed to produce the best evidence the original copies of the loan application and promissory note. The Best Evidence
Rule provides that the court shall not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long as
the original evidence can be had.39 Absent a clear showing that the original writing has been lost, destroyed or cannot be produced in
court, the photocopy must be disregarded, being unworthy of any probative value and being an inadmissible piece of evidence. 40
What the BANK presented were merely the "machine copies of the duplicate" of the loan application and promissory note. No
explanation was ever offered by the BANK for its inability to produce the original copies of the documentary evidence. The BANK
also did not comply with the orders of the trial court to submit the originals.

The purpose of the rule requiring the production of the best evidence is the prevention of fraud. 41 If a party is in possession of evidence
and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arises that the better evidence is
withheld for fraudulent purposes, which its production would expose and defeat. 42

The absence of the original of the documentary evidence casts suspicion on the existence of Promissory Note No. 20-979-83
considering the BANKs fiduciary duty to keep efficiently a record of its transactions with its depositors. Moreover, the circumstances
enumerated by the trial court bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The BANK has only itself to blame
for the dearth of competent proof to establish the existence of Promissory Note No. 20-979-83.

Total Amount Due to Marcos

The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total amount of time deposits that Marcos
placed with the BANK is only P764,897.67 and not P1,429,795.34 as found by the trial court. The BANK has always argued that
Marcos time deposits only totalled P764,897.67.43 What the BANK insists on in this petition is the trial courts violation of its right to
procedural due process and the absence of any obligation to pay or return anything to Marcos. Marcos, on the other hand, merely
prays for the affirmation of either the trial court or appellate court decision. 44 We uphold the finding of the Court of Appeals as to the
amount of the time deposits as such finding is in accord with the evidence on record.

Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos was only able to present the receipt
dated 11 March 1982 and the letter-certification dated 12 March 1982 to prove the total amount of his time deposits with the BANK.
The letter-certification issued by Pagsaligan reads:
March 12, 1982

Dear Mr. Marcos:

This is to certify that we are taking care in your behalf various Time Deposit Certificates with an aggregate value of PESOS:
SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100 (P764,897.67)
ONLY, issued today for 90 days at 17% p.a. with the interest payable at maturity on June 10, 1982.

Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982 is P764,897.67, inclusive of the
sum of P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is plainly seen from the use of the word "aggregate."

We are not swayed by Marcos testimony that the certification is actually for the first time deposit that he placed on 11 March 1982.
The letter-certification speaks of "various Time Deposits Certificates with an aggregate value of P764,897.67." If the amount stated
in the letter-certification is for a single time deposit only, and did not include the 11 March 1982 time deposit, then Marcos should
have demanded a new letter of certification from Pagsaligan. Marcos is a businessman. While he already made an error in judgment in
entrusting to Pagsaligan the certificates of time deposits, Marcos should have known the importance of making the letter-certification
reflect the true nature of the transaction. Marcos is bound by the letter-certification since he was the one who prodded Pagsaligan to
issue it.

We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The appellate court did not offset Marcos
outstanding debt with the BANK covered by the three trust receipt agreements even though Marcos admits his obligation under the
three trust receipt agreements. The total amount of the trust receipts is P851,250 less the 30% marginal deposit of P255,375 that
Marcos had already paid the BANK. This reduced Marcos total debt with the BANK to P595,875 under the trust receipts.

The trial and appellate courts found that the parties did not agree on the imposition of interest on the loan covered by the trust receipts
and thus no interest is due on this loan. However, the records show that the three trust receipt agreements contained stipulations for the
payment of interest but the parties failed to fill up the blank spaces on the rate of interest. Put differently, the BANK and Marcos
expressly agreed in writing on the payment of interest 46without, however, specifying the rate of interest. We, therefore, impose the
legal interest of 12% per annum, the legal interest for the forbearance of money, 47 on each of the three trust receipts.

Based on Marcos testimony48 and the BANKs letter of demand,49 the trust receipt agreements became due in March 1987. The
records do not show exactly when in March 1987 the obligation became due. In accordance with Article 2212 of the Civil Code, in
such a case the court shall fix the period of the duration of the obligation. 50 The BANKs letter of demand is dated 6 March 1989. We
hold that the trust receipts became due on 6 March 1987.

Marcos payment of the marginal deposit of P255,375 for the trust receipts resulted in the proportionate reduction of the three trust
receipts. The reduced value of the trust receipts and their respective interest as of 6 March 1987 are as follows:

1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was reduced to P210,618.75 with interest
of P101,027.76.51

2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was reduced to P210,618.75 with interest
of P100,543.04.52

3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 was reduced to P174,637.5 with interest
of P83,366.68. 53

When the trust receipts became due on 6 March 1987, Marcos owed the BANK P880,812.48. This amount included P595,875, the
principal value of the three trust receipts after payment of the marginal deposit, and P284,937.48, the interest then due on the three
trust receipts.

Upon maturity of the three trust receipts, the BANK should have automatically deducted, by way of offsetting, Marcos outstanding
debt to the BANK from his time deposits and its accumulated interest. Marcos time deposits of P764,897.67 had already earned
interest54 of P616,318.92 as of 6 March 1987.55 Thus, Marcos total funds with the BANK amounted to P1,381,216.59 as of the
maturity of the trust receipts. After deducting P880,812.48, the amount Marcos owed the BANK, from Marcos funds with the BANK
of P1,381,216.59, Marcos remaining time deposits as of 6 March 1987 is only P500,404.11. The accumulated interest on
this P500,404.11 as of 30 August 1989, the date of filing of Marcos complaint with the trial court, is P211,622.96.56 From 30 August
1989, the interest due on the accumulated interest of P211,622.96 should earn legal interest at 12% per annum pursuant to Article
221257 of the Civil Code.

The BANKs dismal failure to account for Marcos money justifies the award of moral 58 and exemplary damages.59Certainly, the
BANK, as employer, is liable for the negligence or the misdeed of its branch manager which caused Marcos mental anguish and
serious anxiety.60 Moral damages of P100,000 is reasonable and is in accord with our rulings in similar cases involving banks
negligence with regard to the accounts of their depositors. 61

We also award P20,000 to Marcos as exemplary damages. The law allows the grant of exemplary damages by way of example for the
public good.62 The public relies on the banks fiduciary duty to observe the highest degree of diligence. The banking sector is expected
to maintain at all times this high level of meticulousness.63

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Philippine Banking
Corporation is ordered to return to private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his time
deposits, with interest at 17% per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also
ordered to pay to private respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12% legal
interest per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is further ordered to
pay P100,000 by way of moral damages and P20,000 as exemplary damages to private respondent Leonilo Marcos.

Costs against petitioner.

SO ORDERED
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPAs, respondents.

DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11
May 1999. The assailed decision reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving petitioner
Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned
resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of
exemplary damages, attorneys fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and
Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-
16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip
for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to
deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt
of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to
make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. [3] Calapre went
back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre,
went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller
No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya
asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre
was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine
Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed.[4] PBC subsequently dishonored the
check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to
stop any transaction using the same passbook until L.C. Diaz could open a new account. [5]On the same day, Diaz formally wrote
Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day
before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal
slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon
Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal
case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial
Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing
the complaint.
 L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the
decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate
court, however, modified its decision by deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.

The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos
(P30,000.00) as attorneys fees.

With costs against plaintiff.

SO ORDERED.[12]

The Ruling of the Court of Appeals

 The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000
from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on
quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff;
(b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the
withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank
during trial, should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up
L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the
impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision
of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in
leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could
have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The
business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found
Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three
Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing
of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and
expenses of litigation as well as the cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees.

SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of
damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the Civil Code,
the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was
guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorneys fees was
also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on
Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of
exemplary damages and attorneys fees, expenses of litigation and cost of suit.

SO ORDERED.[15]
Hence, this petition.

The Issues
 Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE
BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE
SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK
TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG
AMOUNT IN A SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN
HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE
WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND
SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS
AND OTHER FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT
OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO
RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST
PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT
PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY. [16]

The Ruling of the Court

The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability
on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank
and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable
when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. [17] Article 1980
of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA
8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.[21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of
integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence [23] at the time of the withdrawal already imposed on banks
the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors
from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple
loan, and not a breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in complying
with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple
loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to
enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while
charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs
to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of
obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its
depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another
transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept
under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the
depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person
in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has
the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that
there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre
left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the
identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the
identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the
present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command
responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with its fiduciary duty.Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The
trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed
the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
 Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces
the injury and without which the result would not have occurred. [26] Proximate cause is determined by the facts of each case upon
mixed considerations of logic, common sense, policy and precedent. [27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook
while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it
gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took
possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure
to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is
no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C.
Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a
withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal
of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently
deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court
thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks
and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a
messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank
relies on the following statements in the Booking and Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited
in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at
Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel
Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a
trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who
processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does
not categorically state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

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

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

DECISION

TINGA, J.:

Before this Court is a Rule 45 petition assailing the Decision[1] dated 29 September 1994 of the Court of Appeals that
reversed the Decision[2] dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court
declared Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No. T-9327-P(M) as void ab initio and ordered the restoration of
Original Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners predecessor-in-interest.

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located at Panghulo, Obando,
Bulacan. The property had been originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise in 1916. It
remained unregistered until 8 October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent
issued in Eduardos name[3] that was entered in the Registry of Deeds of Meycauayan, Bulacan. [4] The subject lot is adjacent to a
fishpond owned by one

Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).[5]

On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an area of 553 square meters to
Ricardo. The sale is evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo
(Kasulatan)[6] which was signed by Eduardo himself as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez signing
as witness. The deed was notarized by Notary Public Manolo Cruz. [7] On 4 April 1963, the Kasulatan was registered with the Register
of Deeds of Bulacan.[8]

On 18 March 1981, another Deed of Sale[9] conveying another portion of the subject lot consisting of 50 square meters as
right of way was executed by Eduardo in favor of Ricardo in order to reach the portion covered by the first sale executed in 1954 and
to have access to his fishpond from the provincial road. [10] The deed was signed by Eduardo himself and his wife Engracia Aniceto,
together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July 1981 by Notary Public
Arsenio Guevarra.[11]

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo, executed a mortgage with the
Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag deposited the owners
duplicate certificate of OCT No. P-153(M) with the bank.

On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the name of
Eduardo.[12] His heirs, the Cruzes, were not immediately aware of the consummated sale between Eduardo and Ricardo.

Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse; and children, Patricio,
Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat. [13] Neither did the heirs of Eduardo (petitioners)
inform the Cruzes of the prior sale in favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about
the sale and the issuance of the OCT in the name of Eduardo.

Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners on the mortgage and obtain
the surrender of the OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the Bureau of Lands,
NCR Office, they brought the matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners
were informed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for the purpose of securing a
separate title to cover the interest of Ricardo. Petitioners, however, were unwilling to surrender the OCT. [14]

Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went to RBSP which had
custody of the owners duplicate certificate of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with RBSPs
manager, Jose Salazar (Salazar), the Cruzes sought to borrow the owners duplicate certificate for the purpose of photocopying the
same and thereafter showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to bring the owners duplicate
certificate outside the bank premises when the latter showed the Kasulatan.[15] The Cruzes returned the owners duplicate certificate on
the same day after having copied the same. They then brought the copy of the OCT to Register of Deeds Jose Flores (Flores) of
Meycauayan and showed the same to him to secure his legal opinion as to how the Cruzes could legally protect their interest in the
property and register the same.[16] Flores suggested the preparation of a subdivision plan to be able to segregate the area purchased by
Ricardo from Eduardo and have the same covered by a separate title. [17]

Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration Officer, Director III, Legal
Affairs Department, Land Registration Authority at Quezon City, who agreed with the advice given by Flores.[18] Relying on the
suggestions of Flores and Arandilla, the Cruzes hired two geodetic engineers to prepare the corresponding subdivision plan. The
subdivision plan was presented to the Land Management Bureau, Region III, and there it was approved by a certain Mr. Pambid of
said office on 21 July 1989.

After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked for the owners duplicate
certificate from Salazar. The Cruzes informed him that the presentation of the owners duplicate certificate was necessary, per advise
of the Register of Deeds, for the cancellation of the OCT and the issuance in lieu thereof of two separate titles in the names of Ricardo
and Eduardo in accordance with the approved subdivision plan. [19] Before giving the owners duplicate certificate, Salazar required the
Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the latter a clearance to borrow the title.
Atty. Santiago would give the clearance on the condition that only Cruzes put up a substitute collateral, which they did.[20] As a result,
the Cruzes got hold again of the owners duplicate certificate.

After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the subdivision plan, the
Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in
the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455 square meters in the name of Eduardo.[21]

On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo
and retrieved the title they had earlier given as substitute collateral. After securing the new separate titles, the Cruzes furnished
petitioners with a copy of TCT No. 9327-P(M) through the barangay captain and paid the real property tax for 1989. [22]

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector, Department III of the Central Bank
of the Philippines, inquiring whether they committed any violation of existing bank laws under the circumstances. A certain Zosimo
Topacio, Jr. of the Supervision Sector sent a reply letter advising the Cruzes, since the matter is between them and the bank, to get in
touch with the bank for the final settlement of the case.[23]

In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation. It was only then that
he learned of the dealings of the Cruzes with the bank which eventually led to the subdivision of the subject lot and the issuance of
two separate titles thereon. In exchange for the full payment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-
9327-P(M) in the name of Eduardo.[24]

As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the issuance of the TCTs, to wit:

(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapat
against Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his
capacity as Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;

(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by Rural Bank of San
Pascual, Inc. against the spouses Ricardo Cruz and Consuelo Cruz, et al. [25]

After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs of Eduardo, the dispositive
portion of which reads:

WHEREFORE, premised from the foregoing, judgment is hereby rendered:

1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as void ab

initio and ordering the Register of Deeds, Meycauayan Branch to cancel said titles and to restore Original
Certificate of Title No. P-153(M) in the name of plaintiffs predecessor-in-interest Eduardo Manlapat;

2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz and
Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo Manlapat, jointly and severally, the
following:
 a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.

3.Dismissing the counterclaims.

SO ORDERED.[26]

The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this matter, it ruled that petitioners
were bona fide mortgagors of an unclouded title bearing no annotation of any lien and/or encumbrance. This fact, according to the trial
court, was confirmed by the bank when it accepted the mortgage unconditionally on 25 November 1981. It found that petitioners were
complacent and unperturbed, believing that the title to their property, while serving as security for a loan, was safely vaulted in the
impermeable confines of RBSP. To their surprise and prejudice, said title was subdivided into two portions, leaving them a portion of
455 square meters from the original total area of 1,058 square meters, all because of the fraudulent and negligent acts of respondents
and RBSP. The trial court ratiocinated that even assuming that a portion of the subject lot was sold by Eduardo to Ricardo, petitioners
were still not privy to the transaction between the bank and the Cruzes which eventually led to the subdivision of the OCT into TCTs
No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of petitioners. [27]

Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled that although the act of the
Cruzes could be deemed fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of negligence
in letting the Cruzes borrow the owners duplicate certificate of the OCT. Neither the bank nor its manager had business entrusting to
strangers titles mortgaged to it by other persons for whatever reason. It was a clear violation of the mortgage and banking laws, the
trial court concluded.

The trial court also ruled that although Salazar was personally responsible for allowing the title to be borrowed, the bank
could not escape liability for it was guilty of contributory negligence. The evidence showed that RBSPs legal counsel was sought for
advice regarding respondents request. This could only mean that RBSP through its lawyer if not through its manager had known in
advance of the Cruzes intention and still it did nothing to prevent the eventuality. Salazar was not even summarily dismissed by the
bank if he was indeed the sole person to blame. Hence, the banks claim for damages must necessarily fail. [28]

The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of its declaration that reconveyance was
in order. As to Flores, his work being ministerial as Deputy Register of the Bulacan Registry of Deeds, the trial court absolved him of
any liability with a stern warning that he should deal with his future transactions more carefully and in the strictest sense as a
responsible government official.[29]

Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court of Appeals. The appellate
court, however, reversed the decision of the RTC. The decretal text of the decision reads:

THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costs
against the appellees.

SO ORDERED.[30]

The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 or before the 1981 mortgage,
Eduardo already sold to Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals noted, is
even supported by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered
with the Register of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the second time, Eduardo sold to
Ricardo a separate area containing 50 square meters, as a road right-of-way.[31] Clearly, the OCT was issued only after the first sale. It
also noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even of the banks counsel. [32] Hence, the
imposition of damages cannot be justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misled the
bank into accepting the entire area as a collateral since the 603-square meter portion did not anymore belong to him. The appellate
court, however, concluded that there was no conspiracy between the bank and Salazar. [33]

Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a) can a mortgagor be compelled to
receive from the mortgagee a smaller portion of the originally encumbered title partitioned during the subsistence of the mortgage,
without the knowledge of, or authority derived from, the registered owner; (b) can the mortgagee question the veracity of the
registered title of the mortgagor, as noted in the owners duplicate certificate, and thus, deliver the certificate to such third persons,
invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor; (c) can an adverse prior claim against a
registered title be noted, registered and entered without a competent court order; and (d) can belief of ownership justify the taking of
property without due process of law? [34]

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

Private respondents (Cruzes) own

the portion titled in their names

Consonant with law and justice, the ultimate denouement of the property dispute lies in the determination of the respective
bases of the warring claims. Here, as in other legal disputes, what is written generally deserves credence.

A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of ownership over the
portion of Lot No. 2204 with an area of 553 square meters. The duly notarized instrument of conveyance was executed in 1954 to
which no less than Eduardo was a signatory. The execution of the deed of sale was rendered beyond doubt by Eduardos admission in
his Sinumpaang Salaysay dated 24 April 1963.[35] These documents make the affirmance of the right of the Cruzes ineluctable. The
apparent irregularity, however, in the obtention of the owners duplicate certificate from the bank, later to be presented to the Register
of Deeds to secure the issuance of two new TCTs in place of the OCT, is another matter.

Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in 1976 in favor of Eduardo;
thus, the Cruzes claim of ownership based on the sale would not hold water. The Court is not persuaded.

Registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly
to bind third persons.[36] The principal purpose of registration is merely to notify other persons not parties to a contract that a
transaction involving the property had been entered into. Where the party has knowledge of a prior existing interest which is
unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of
registration as to him.[37]

Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The conveyance shall not
be valid against any person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third persons having actual
notice or knowledge thereof.[38] Not only are petitioners the heirs of Eduardo, some of them were actually parties to
the Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required
to bind the heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute

mortgage over disputed portion

The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:

ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (emphasis supplied)

For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article 2085 of
the New Civil Code.[39] The mortgagor must be the owner, otherwise the mortgage is void. [40] In a contract of mortgage, the mortgagor
remains to be the owner of the property although the property is subjected to a lien. [41] A mortgage is regarded as nothing more than a
mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the
possession of the property.[42] In this kind of contract, the property mortgaged is merely delivered to the mortgagee to secure the
fulfillment of the principal obligation.[43] Such delivery does not empower the mortgagee to convey any portion thereof in favor of
another person as the right to dispose is an attribute of ownership. [44] The right to dispose includes the right to donate, to sell, to pledge
or mortgage. Thus, the mortgagee, not being the owner of the property, cannot dispose of the whole or part thereof nor cause the
impairment of the security in any manner without violating the foregoing rule. [45] The mortgagee only owns the mortgage credit, not
the property itself.[46]

Petitioners submit as an issue whether a mortgagor may be compelled to receive from the mortgagee a smaller portion of the
lot covered by the originally encumbered title, which lot was partitioned during the subsistence of the mortgage without the
knowledge or authority of the mortgagor as registered owner. This formulation is disingenuous, baselessly assuming, as it does, as an
admitted fact that the mortgagor is the owner of the mortgaged property in its entirety. Indeed, it has not become a salient issue in this
case since the mortgagor was not the owner of the entire mortgaged property in the first place.

Issuance of OCT No. P-153(M), improper

It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of Eduardo, without any
annotation of any prior disposition or encumbrance. However, the property was sufficiently shown to be not entirely owned by
Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of the records is that the OCT was issued in 1976, long after
the Kasulatan was executed way back in 1954. Thus, a portion of the property registered in Eduardos name arising from the grant of
free patent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud cannot be accorded judicial
sanction.

Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not apply where fraud attended
the issuance of the title, as was conclusively established in this case. The Torrens title does not furnish a shied for
fraud.[47] Registration does not vest title. It is not a mode of acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually has, especially if the registration was done in bad faith. The
effect is that it is as if no registration was made at all.[48] In fact, this Court has ruled that a decree of registration cut off or
extinguished a right acquired by a person when such right refers to a lien or encumbrance on the landnot to the right of ownership
thereofwhich was not annotated on the certificate of title issued thereon. [49]

Issuance of TCT Nos. T-9326-P(M)

and T-9327-P(M), Valid

The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of the Cruzes and the other
for the portion retained by petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No. 1529 or the Property
Registration Decree. It provides:

SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary instrument shall be
registered by the Register of Deeds, unless the owners duplicate certificate is presented with such instrument, except
in cases expressly provided for in this Decree or upon order of the court, for cause shown.

The production of the owners duplicate certificate, whenever any voluntary instrument is presented
for registration, shall be conclusive authority from the registered owner to the Register of Deeds to enter a
new certificate or to make a memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in
favor of every purchaser for value and in good faith.

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application, any subsequent registration procured by the presentation of a
forged duplicate certificate of title, or a forged deed or instrument, shall be null and void. (emphasis supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No. 1529. The argument is
baseless. It must be noted that the provision speaks of forged duplicate certificate of title and forged deed or instrument. Neither
instance obtains in this case. What the Cruzes presented before the Register of Deeds was the very genuine owners duplicate
certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the instruments of conveyance are authentic,
not forged. Section 53 has never been clearer on the point that as long as the owners duplicate certificate is presented to the Register of
Deeds together with the instrument of conveyance, such presentation serves as conclusive authority to the Register of Deeds to issue a
transfer certificate or make a memorandum of registration in accordance with the instrument.

The records of the case show that despite the efforts made by the Cruzes in persuading the heirs of Eduardo to allow them to
secure a separate TCT on the claimed portion, their ownership being amply evidenced by the Kasulatan and Sinumpaang
Salaysay where Eduardo himself acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the notion of separate
titling. This prompted the Cruzes to approach the bank manager of RBSP for the purpose of protecting their property right. They
succeeded in persuading the latter to lend the owners duplicate certificate. Despite the apparent irregularity in allowing the Cruzes to
get hold of the owners duplicate certificate, the bank officers consented to the Cruzes plan to register the deeds of sale and secure two
new separate titles, without notifying the heirs of Eduardo about it.

Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the manner of acquiring the
owners duplicate for purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central Bank officer, in
rendering an opinion on the legal feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the
production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, and the same shall be
conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner
and upon all persons claiming under him, in favor of every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending of the owners duplicate
certificate constitutes fraud within the ambit of the third paragraph of Section 53 which could nullify the eventual issuance of the
TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where the property was
mortgaged. Through its manager and legal officer, they were assured of recovery of the claimed parcel of land since they are the
successors-in-interest of the real owner thereof. Relying on the bank officers opinion as to the legality of the means sought to be
employed by them and the suggestion of the Central Bank officer that the matter could be best settled between them and the bank, the
Cruzes pursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs.

The Cruzes resorted to such means to protect their interest in the property that rightfully belongs to them only because of the
bank officers acquiescence thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo without the banks
approval. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands.[50] The highest degree of diligence is expected, and high standards
of integrity and performance are even required of it. [51]

Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title of the mortgagor as noted in
the owners duplicate certificate, and, thus, he cannot deliver the certificate to such third persons invoking an adverse, prior, and
unregistered claim against the registered title of the mortgagor. The strength of this argument is diluted by the peculiar factual milieu
of the case.

A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking
institutions. A mortgagee-bank must exercise due diligence before entering into said contract. Judicial notice is taken of the standard
practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate
who the real owners thereof are.[52]

Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as
their business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard
against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be denied the
protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and good faith, as well as to
mortgagees of the same character and description. [53] Thus, this Court clarified that the rule that persons dealing with registered lands
can rely solely on the certificate of title does not apply to banks.[54]

Bank Liable for Nominal Damages

Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of the OCT to the Cruzes when the
latter presented the instruments of conveyance as basis of their claim of ownership over a portion of land covered by the title. Simple
rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property entrusted to it other than to
those contractually and legally entitled to its possession. Although we cannot dismiss the banks acknowledgment of the Cruzes claim
as legitimized by instruments of conveyance in their possession, we nonetheless cannot sanction how the bank was inveigled to do the
bidding of virtual strangers. Undoubtedly, the banks cooperative stance facilitated the issuance of the TCTs. To make matters worse,
the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is unthinkably negligent. However, the
aspect does not impair the right of the Cruzes to be recognized as legitimate owners of their portion of the property.

Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the disputed TCTs. We
cannot find fault on the part of the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly sanctioned by
law. It is thus ministerial on the part of the Register of Deeds to issue TCT if the deed of conveyance and the original owners duplicate
are presented to him as there appears on theface of the instruments no badge of irregularity or

nullity.[55] If there is someone to blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose manager and legal
officer helped the Cruzes to facilitate the issuance of the TCTs.

The bank should not have allowed complete strangers to take possession of the owners duplicate certificate even if the
purpose is merely for photocopying for a danger of losing the same is more than imminent. They should be aware of the conclusive
presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it liable for damages under
Article 1170 and other relevant provisions of the Civil Code. [56]

In the absence of evidence, the damages that may be awarded may be in the form of nominal damages. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[57] This award rests on the mortgagors right to rely
on the banks observance of the highest diligence in the conduct of its business. The act of RBSP of entrusting to respondents the
owners duplicate certificate entrusted to it by the mortgagor without even notifying the mortgagor and absent any prior investigation
on the veracity of respondents claim and

character is a patent failure to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act
runs afoul of every banks mandate to observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has
also the right to be afforded due process before deprivation or diminution of his property is effected as the OCT was still in the name
of Eduardo. Notice and hearing are indispensable elements of this right which the bank miserably ignored.

Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is appropriate.

Five-Year Prohibition against alienation

or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the parties is an aspect which is essential, spread as it is all
over the record and intertwined with the crux of the controversy, relating as it does to the validity of the dispositions of the subject
property and the mortgage thereon. Eduardo was issued a title in 1976 on the basis of his free patent application. Such application
implies the recognition of the public dominion character of the land and, hence, the five (5)-year prohibition imposed by the Public
Land Act against alienation or encumbrance of the land covered by a free patent or homestead[58] should have been considered.

The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March 1981 is obviously
covered by the proscription, the free patent having been issued on 8 October 1976. However, petitioners may recover the portion sold
since the prohibition was imposed in favor of the free patent holder. In Philippine National Bank v. De los Reyes,[59] this Court ruled
squarely on the point, thus:

While the law bars recovery in a case where the object of the contract is contrary to law and one or both parties
acted in bad faith, we cannot here apply the doctrine of in pari delicto which admits of an exception, namely, that
when the contract is merely prohibited by law, not illegal per se, and the prohibition is designed for the protection of
the party seeking to recover, he is entitled to the relief prayed for whenever public policy is enhanced thereby. Under
the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and
keep in the family of the homesteader that portion of public land which the State has gratuitously given to him, and
recovery is allowed even where the land acquired under the Public Land Act was sold and not merely encumbered,
within the prohibited period.[60]
 The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two (22) years before the
issuance of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent.
Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition nor the rationale therefor which is
to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him
from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the
government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few
months past the period of prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural Bank of
San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages. Respondents
Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent Register of Deeds of Meycauayan,
Bulacan is accordingly ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in the
approved plan covering the lot, marked as Exhibit A, and to issue a new title covering the said portion in the name of the petitioners at
the expense of the petitioners. No costs.

SO ORDERED.
G.R. No. 108555 December 20, 1994

RAMON TAN, petitioner,

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

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

Siguion Reyna, Montecillo & Ongsiako for private respondent.

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 25,3more 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 with the respondent bank's teller and it was negligence on RCBC's part not to have done so; 6

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

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. 13 Without 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 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 responsibilitybeyond 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. 60-45-23) 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 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, 22 involving 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-the-go.
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 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, 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.
OMENGAN V. CA
CORONA, J.

This petition for review on certiorari[1] seeks a review and reversal of the Court of Appeals (CA) decision [2] and resolution[3] in CA-
G.R. CV No. 71302.

In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved petitioners-spouses application for a
revolving credit line of P3 million. The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by Transfer
Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds of the Province of Kalinga-
Apayao, were in the name of Edgar[4] Omengan married to Dinah Omengan.

The first P2.5 million was released by Branch Manager Henry Montalvo on three separate dates. The release of the final half million
was, however, withheld by Montalvo because of a letter allegedly sent by Edgars sisters. It read:
Appas, Tabuk
Kalinga

7 November 1996

The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga

Sir:

This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan, which was mortgaged to [the]
Bank in the amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released
and received by our brother, Edgar.

In this connection, it is requested that the remaining unreleased balance of [half a million pesos] be held in abeyance
pending an understanding by the rest of the brothers and sisters of Edgar. Please be informed that the property
mortgaged, while in the name of Edgar Omengan, is owned in co-ownership by all the children of the late
Roberto and Elnora Omengan. The lawyer who drafted the document registering the subject property under
Edgars name can attest to this fact. We had a prior understanding with Edgar in allowing him to make use of
the property as collateral, but he refuses to comply with such arrangement. Hence, this letter. (emphasis ours)

Very truly yours,

(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao

(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]

Montalvo was eventually replaced as branch manager by Manuel Acierto who released the remaining half million pesos to petitioners
on May 2, 1997. Acierto also recommended the approval of a P2 million increase in their credit line to the Cagayan Valley Business
Center Credit Committee in Santiago City.

The credit committee approved the increase of petitioners credit line (from P3 million to P5 million), provided Edgars sisters gave
their conformity. Acierto informed petitioners of the conditional approval of their credit line.

But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed that the condition for its release was not part
of his credit line agreement with PNB because it was added without his consent. PNB denied his request.

On March 3, 1999, petitioners filed a complaint for breach of contract and damages against PNB with the Regional Trial Court (RTC),
Branch 25 in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
 Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is ordered]:

1) To release without delay in favor of [petitioners] the amount of P2,000,000.00 to complete

the P5,000,000.00 credit line agreement;

2) To pay [petitioners] the amount of P2,760,000.00 representing the losses and/or expected income of the
[petitioners] for three years;

3) To pay lawful interest, until the amount aforementioned on paragraphs 1 and 2 above are fully paid; and

4) To pay the costs.

SO ORDERED.[6]

The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April 21, 2001.[7]

Petitioners now contend that the CA erred when it did not sustain the finding of breach of contract by the RTC. [8]

The existence of breach of contract is a factual matter not usually reviewed in a petition filed under Rule 45. But since the RTC and
the CA had contradictory findings, we are constrained to rule on this issue.

Was there a breach of contract? There was none.

Breach of contract is defined as follows:

[It] is the failure without legal reason to comply with the terms of a contract. It is also defined as the [f]ailure,
without legal excuse, to perform any promise which forms the whole or part of the contract. [9]

In this case, the parties agreed on a P3 million credit line. This sum was completely released to petitioners who subsequently
applied[10] for an increase in their credit line. This was conditionally approved by PNBs credit committee. For all intents and purposes,
petitioners sought an additional loan.
The condition attached to the increase in credit line requiring petitioners to acquire the conformity of Edgars sisters was never
acknowledged and accepted by petitioners. Thus, as to the additional loan, no meeting of the minds actually occurred and no breach of
contract could be attributed to PNB. There was no perfected contract over the increase in credit line.

[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or
bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information] regarding its debtors. [11] Any
investigation previously conducted on the property offered by petitioners as collateral did not preclude PNB from considering new
information on the same property as security for a subsequent loan. The credit and property investigation for the original loan of P3
million did not oblige PNB to grant and release any additional loan. At the time the original P3 million credit line was approved, the
title to the property appeared to pertain exclusively to petitioners. By the time the application for an increase was considered, however,
PNB already had reason to suspect petitioners claim of exclusive ownership.

A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent
mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is
strictly applied to banking institutions. xxx

Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private
individuals, as their business is one affected with public interest. xxx Thus, this Court clarified that the rule
that persons dealing with registered lands can rely solely on the certificate of title does not apply to
banks.[12] (emphasis supplied)

Here, PNB had acquired information sufficient to induce a reasonably prudent person to inquire into the status of the title over the
subject property. Instead of defending their position, petitioners merely insisted that reliance on the face of the certificate of title (in
their name) was sufficient. This principle, as already mentioned, was not applicable to financial institutions like PNB.
 In truth, petitioners had every chance to turn the situation in their favor if, as they said, they really owned the subject property
alone, to the exclusion of any other owner(s). Unfortunately, all they offered were bare denials of the co-ownership claimed by Edgars
sisters.

PNB exercised reasonable prudence in requiring the above-mentioned condition for the release of the additional loan. If the
condition proved unacceptable to petitioners, the parties could have discussed other terms instead of making an obstinate and outright
demand for the release of the additional amount. If the alleged co-ownership in fact had no leg to stand on, petitioners could have
introduced evidence other than a simple denial of its existence.
Since PNB did not breach any contract and since it exercised the degree of diligence expected of it, it cannot be held liable
for damages.

WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,

vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS,
FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.

CONCEPION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the
amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank
of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner
and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent
Overseas Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to
execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank
of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in
favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage,
assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent
Central Bank in G.R. No. 29352.2

A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty
Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one
year with 6-% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank
of Manila.4On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel
M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of
Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by
respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises
supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to
exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of
all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas
Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its
Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view
of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila
continued up to 1968.7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by
petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to
the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest
Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during
that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central
Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila
as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired
through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner
Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former
insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R.
No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in
litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that
case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would
follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion
to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. 11

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972,
favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos.
1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of
its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent
Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to
desist from taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits,
adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner
and other depositors. 13

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest
from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly
supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created
when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said
collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of
proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of
these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank
in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper
party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit
in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been
accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there
should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of
respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of
depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit
are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent
Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach
of trust arising from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.
CENTRAL BANK V. CITYTRUST BANKING CORPORATION

CARPIO MORALES, J.:

Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking Corporation (Citytrust), formerly
Feati Bank, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.

As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its officers authorized to
sign checks and serve as drawers and indorsers for its account. And it provided petitioner with the list and corresponding signatures of
its roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security
identification cards to the roving tellers one of whom was Rounceval Flores (Flores).

On July 15, 1977, Flores presented for payment to petitioners Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust
checks of even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, both of which were
signed and indorsed by Citytrusts authorized signatory-drawers.

After the checks were certified by petitioners Accounting Department, Iluminada verified them, prepared the cash transfer
slip on which she affixed her signature, stamped the checks with the notation Received Payment and asked Flores to, as he did, sign on
the space above such notation. Instead of signing his name, however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed to
notice.

Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash Department where an officer verified and
compared the drawers signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order,
approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks
totaling P1,750,000 from Citytrusts demand deposit account.

More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the checks were already
cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit
account. Petitioner did not heed the demand, however.

Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was
convicted.

Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of money with
damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite
the lack of authority of Rosauro C. Cayabyab.

By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and petitioner negligent and
accordingly held them equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision[2] dated July 16,
1999, affirmed the trial courts decision, it holding that both parties contributed equally to the fraudulent encashment of the checks,
hence, they should equally share the loss in consonance with Article 2179 [3] vis a vis Article 1172[4] of the Civil Code.

In arriving at its Decision, the appellate court noted that while Citytrust failed to take adequate precautionary measures to
prevent the fraudulent encashment of its checks, petitioner was not entirely blame-free in light of its failure to verify the signature of
Citytrusts agent authorized to receive payment.

Brushing aside petitioners contention that it cannot be sued, the appellate court held that petitioners Charter specifically
clothes it with the power to sue and be sued.

Also brushing aside petitioners assertion that Citytrusts reservation of the filing of a separate civil action against Flores
precluded Citytrust from filing the civil action against it, the appellate court held that the action for the recovery of sum of money is
separate and distinct and is grounded on a separate cause of action from that of the criminal case for estafa.

Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller, Citytrust is bound by
his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the failure of its teller to properly
verify his signature notwithstanding, petitioner contends that verification could be dispensed with, Flores having been known to be an
authorized roving teller of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts) behalf for five years
prior to the questioned transaction.
 Attributing negligence solely to Citytrust, petitioner harps on Citytrusts allowing Flores to steal the checks and failing to
timely cancel them; allowing Flores to wear the issued identification card issued by it (petitioner); failing to report Flores absence
from work on the day of the incident; and failing to explain the circumstances surrounding the supposed theft and cancellation of the
checks.

Drawing attention to Citytrusts considerable delay in demanding the restoration of the proceeds of the checks, petitioners
argue that, assuming arguendo that its teller was negligent, Citytrusts negligence, which preceded that committed by the teller, was the
proximate cause of the loss or fraud.

The petition is bereft of merit.

Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse that Flores had had previous transactions with
it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was
signing, and to satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she
would have readily been put on notice that Flores was affixing, not his but a fictitious signature.

Given that petitioner is the government body mandated to supervise and regulate banking and other financial institutions, this
Courts ruling in Consolidated Bank and Trust Corporation v. Court of Appeals[5] illumines:

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple
loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic
Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature
of banking that requires high standards of integrity and performance. This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship.

This fiduciary relationship means that the banks obligation to observe high standards of integrity
and performance is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2
of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of
integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time of the
withdrawal already imposed on banks the same high standard of diligence required under RA No.
8791. (Emphasis supplied)
Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should
mitigate petitioners liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was
only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been recovered.

In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust on
a 60-40 ratio.

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with MODIFICATION, in
that petitioner and Citytrust should bear the loss on a 60-40 ratio.
SO ORDERED.
PHILIPPINE NATIONAL BANK, Petitioner, v. PABLO V. RAYMUNDO, Respondent.

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the Decision 1 dated
May 31, 2013 and the Resolution dated August 14, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 96760. The CA denied the
appeal of Philippine National Bank (PNB)2from the civil aspect of the Decision dated December 4, 2009 3 of the Regional Trial Court
(RTC) of San Pedro Laguna, Branch 93, which acquitted Pablo V. Raymundo of the charge of violation of Section 3(e) of Republic
Act (RA) No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, in Criminal Case No. 0414-SPL.

The CA summarized the facts as follows.4

On July 30, 1993, accused-appellee Pablo V. Raymundo (Raymundo), then Department Manager of PNB San Pedro Branch, approved
for deposit a foreign draft check dated June 23, 1993, in the amount of $172,549.00 issued by Solomon Guggenheim Foundation,
drawn against Morgan Guaranty Company of New York, payable to Merry May Juan (Ms. Juan) in the opening of the latter's
checking account with PNB San Pedro Branch. Consequent to the approval for deposit of the foreign draft check, Checking Account
No. 447-810168-1 and a check booklet were issued to Ms. Juan. On even date, Ms. Juan drew six (6) PNB Checks, five (5) of which
were made payable to C&T Global Futures and one (1) payable to "CASH", all in the aggregate amount of FOUR MILLION PESOS
(P4,000,000.00). The six (6) checks were negotiated by Ms. Juan and were approved for payment on the same day by Raymundo,
without waiting for the foreign draft check, intended to fund the issued check, to be cleared by the PNB Foreign Currency Clearing
Unit.

On August 2, 1993, the PNB Foreign Checks Unit and Clearing Services received the foreign draft check for negotiation with Morgan
Trust Company of New York, through PNB's correspondent bank in New York, the Banker's Trust Co. of New York (BTCNY for
brevity).

On August 6, 1993 and within the clearing period of twenty-one (21) days for foreign draft checks, the PNB received a telex message
from BTCNY that the foreign draft check was dishonored for being fraudulent. Subsequent to the said telex message, a letter dated
August 20, 1993 was sent by BTCNY to the PNB Corporate Auditor stating the same reason for such dishonor.

On September 9, 1993, Mr. Emerito Sapinoso, Department Manager II of the PNB Foreign Currency Clearing Unit, sent a
memorandum to Raymundo, as then Manager of PNB San Pedro, and informed the latter of the return and dishonor of the foreign
currency draft and the corresponding debit of the PNB's account to collect the proceeds of the erroneously paid foreign draft check.

For irregularly approving the payment of the six (6) checks issued by Ms. Juan, without waiting for the foreign draft check to be
cleared, Raymundo, as then Department Manager of PNB San Pedro Branch, was administratively charged by PNB for Conduct
Prejudicial to the Interest of the Service and/or Gross Violation of Bank's Rules and Regulations.

Accused Pablo V. Raymundo denied the allegations that he committed acts which defrauded the PNB of the sum of P4,000,000.00.
Outlining the procedure from the time the check was presented to the PNB San Pedro Laguna Branch where he worked as Branch
Manager up to the time it is paid or dishonored, he noted that the check will pass through the bookkeeper, Ms. Leonida Moredo, who
would determine if the check is funded or not. If the check is not funded, the bookkeeper will accomplish a check return slip and will
stamp the back and front of the check that it has no funds and thereafter give it to the accountant, Rodrigo Camello, to verify if indeed
the check is not funded. After the receipt of the check, the accountant will check the ledger and the circumstances of the return and
thereafter forward the same to the branch manager, or in his absence, the cashier. Upon receipt of the check deposit slip, the branch
manager, if there is no return slip, would automatically sign the check because the absence of a return slip is his guide that the check is
good. He noted that it is the duty of the bookkeeper to go over the records of the account of each particular client. When he came to
know that withdrawals had been made on a deposited check which had no funds, he immediately instructed bookkeeper Leonila
Moredo and accountant Rodrigo Camello to hold further withdrawals on the account. He likewise filed criminal charges against Merry
May Juan. The case was decided in his favor and the accused therein was made to pay him and the bank the amount of the check.
There was no actual payment made however.

In an Information dated September 27, 1996, the Office of the Ombudsman charged Raymundo with violation of Section 3(e) of RA
No. 3019, to wit:

That on or about August 3, 1993, or subsequent thereto, in San Pedro, Laguna, Philippines and within the jurisdiction of this
Honorable Court, accused Pablo V. Raymundo, then the Assistant Department Manager of PNB, San Pedro Branch, Laguna, and a
public officer, while in the performance and taking advantage of his official function as manager, with evident bad faith, manifest
partiality, and gross inexcusable negligence, did then and there willfully and unlawfully approve/allow the encashment of a total of six
(6) checks drawn against an uncleared foreign checks in complete disregard of existing banking regulations, that was subsequently
returned by the drawee bank as a fraudulent foreign check, thus causing undue injury to complainant PNB in the total sum of
P4,000,000.00.

CONTRARY TO LAW.

Upon arraignment, Raymundo entered a plea of not guilty to the charge. He waived his right to a pre-trial, and trial on the merits
ensued.

After trial, the RTC rendered the Decision dated December 4, 2009, the dispositive portion of which reads:

In light of the foregoing, it is very clear that the prosecution failed to establish the guilt of accused Pablo V. Raymundo beyond
reasonable doubt for the crime charged.

Consequently, accused Pablo V. Raymundo is hereby acquitted of the charge of Violation of Sec. 3(e), R.A. 3019.

No costs.

SO ORDERED.

The RTC held that it would be too harsh and inequitable to impose criminal liability upon Raymundo, who approved the withdrawal
because of his belief that the checks were funded, due to the absence of the stamp mark "Returned Check'' on the checks, and check
return slips. Considering that Raymundo's duties as Branch Manager entailed a lot of responsibility, the RTC found it almost
unreasonable to expect him to directly and personally check the books of accounts of each particular client every time a check is
presented to the bank for payment and for his approval. The RTC stressed that it has been established that the responsibility to go over
the account records of clients falls on the bookkeeper, and Raymundo's act of relying upon the bookkeeper's verification that the
checks were good cannot be deemed gross and inexcusable negligence.

Aggrieved, the PNB appealed from the civil aspect of the RTC Decision which acquitted Raymundo of the charge of violation of
Section 3(e) of R.A. No. 3019.

In a Decision dated May 31, 2013, the CA denied the PNB's appeal for lack of merit. In a Resolution dated August 14, 2013, it also
denied the PNB's motion for reconsideration for lack of merit. It ruled that Raymundo acted in good faith in relying upon his
subordinates, i.e., the bookkeeper and accountant, who were primarily assigned with the task of clearing the checks and ensuring that
they are sufficiently funded. It held that he has no duty to go beyond the verification of the documents submitted by the bookkeeper
and the accountant, and to personally authenticate the procedures taken. It added that considering that his duties as Branch Manager
entails a lot of responsibility, it is unreasonable to require him to accomplish and direct a personal examination of the records of the
account of each particular client before affixing his signature on the documents as approving authority.

Dissatisfied, the PNB filed this petition for review on certiorari, arguing that the CA committed serious errors, namely: (1) when it
ruled that the trial court aptly concluded that there was lack of malice or bad faith, nor negligence on the part of Raymundo in
approving the payment of the checks; (2) when it failed to consider Raymundo's negligence and entirely disregarded the testimonial
and documentary evidence of the PNB before the trial court; and (3) when it ruled that Raymundo is not civilly liable for the offense
charged.5

The petition is meritorious.

The Court explains the two kinds of acquittal recognized by law, as well their effects on the civil liability of the accused, thus:

Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused. First is an acquittal on the ground
that the accused is not the author of the act or omission complained of. This instance closes the door to civil liability, for a person who
has been found to be not the perpetrator of any act or omission cannot and can never be held liable for such act or omission. There
being no delict, civil liability ex delicto is out of the question, and the civil action, if any, which may be instituted must be based on
grounds other than the delict complained of. This is the situation contemplated in Rule 111 of the Rules of Court. The second instance
is an acquittal based on reasonable doubt on the guilt of the accused. In this case, even if the guilt of the accused has not been
satisfactorily established, he is not exempt from civil liability which may be proved by preponderance of evidence only.

The Rules of Court requires that in case of an acquittal, the judgment shall state "whether the evidence of the prosecution absolutely
failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either case, the judgment shall
determine if the act or omission from which the civil liability might arise did not exist." 6

In light of the foregoing, Raymundo can still be held civilly liable for the charge of violation of Section 3(e) of R.A. No. 3019 because
he was only acquitted for failure of the prosecution to establish his guilt beyond reasonable doubt, and the RTC and the CA
erroneously determined that no civil liability might arise from his act of relying on the bookkeeper's verification that the six (6) checks
amounting to P4,000,000.00 were all good, but later turned out to be drawn against uncollected deposit, i.e., the account has, on its
face, sufficient funds but not yet available to the drawer because the deposit, usually a check, had not yet been cleared.7

Factual findings of the appellate court generally are conclusive, and carry even more weight when said court affirms the findings of
the trial court, absent any showing that the findings are totally devoid of support in the records, or that they are so glaringly erroneous
as to constitute grave abuse of discretion.8 In this case, however, both the RTC and the CA totally ignored the testimonial and
documentary evidence of the PNB, showing Raymundo's gross negligence in approving the payment of six (6) checks negotiated by
Ms. Juan on August 3, 1993 and August 5, 1993, without waiting for the foreign draft check intended to fund the peso checking
account she opened on July 30, 1993, to be cleared by the PNB Foreign Currency Clearing Unit.

Despite their having been identified9 and formally offered10 by PNB, and admitted in evidence11 by the trial court, the RTC and the
CA failed to give due credence to Raymundo's affidavits, complaints and testimonies before the other trial courts in San Pedro,
Laguna, where he had filed separate criminal and civil cases against Ms. Juan and her cohorts in order to recover the value of the six
(6) checks which were encashed despite having been drawn against uncollected deposit. Contrary to Raymundo's claim, such extra-
judicial admissions do not violate his right against self incrimination, which simply proscribes the legal process of extracting from the
lips of the accused an admission of guilt. Suffice it to state that Raymundo's Complaints 12 and Affidavits13 in the civil and criminal
cases he filed against Ms. Juan contain his voluntary statements, which were subscribed and sworn to either before the Assistant
Provincial Prosecutor and the Judge or the Notary Public, whereas his testimonies 14 were given during hearings in the said cases.
Clearly, Raymundo is not being compelled to testify against himself. In the same vein, PNB cannot be faulted for merely using the
documentary and testimonial evidence he willingly proffered in the cases he had filed to recover the losses incurred by the bank due to
his unauthorized approval for payment of the six (6) checks drawn against the uncollected deposit.

The circumstances showing Raymundo's gross negligence can be gathered in the Complaint for sum of money he had filed against Ms.
Juan and her cohorts, to wit:

3. That on July 30, 1993, a group of persons composed of the above-named defendants [including Ms. Juan] who, for some time, have
been known to the plaintiff [Raymundo] as ranking and top executives of the herein defendant corporation [payee C&T Global
Futures, Inc.] engaged in the foreign currency trading business, came to the Office of herein plaintiff. They intimated their plan of
opening a current account with the said San Pedro Branch of the Philippine National Bank. They let it appear that this was in line with
C&T Global Futures, Inc.'s on-going contest which the said group wanted to win the first prize which was purportedly a round-trip
ticket to Hong Kong. For this purpose, they wanted the checking account to be opened immediately in the name of defendant Mary
May M. Juan with the amount of $172,549.00 (P4,778,744.55) embodied in a Morgan Guaranty and Trust Company of New York
Check No. 069748 as initial deposit. They further assured the herein plaintiff that some more dollars are coming in the near future if
this transaction would prosper;

4. That at first, plaintiff herein [Raymundo] was a bit hesitant to immediately accommodate the seemingly hasty manner of
opening a current account not only on the fact that the amount involved was quite big but also on account that he was dealing
with a foreign check. But when the group, particularly defendant "Cleo" Tan, showed to him the record of a just-concluded
overseas call confirming that the said Morgan Guaranty Company check was good, plaintiff allowed the issuance of six (6)
checks bearing different dates in the total amount of P4,000,000.00 all payable to herein defendant corporation upon the
undertaking of the group that the same would not be "traded" or negotiated until the said Morgan Guaranty Trust Co. check
has been finally cleared;

5. That in utter violation of the trust and confidence reposed in them by the herein plaintiff, defendants went on negotiating all those
six (6) checks until it was discovered that the said Morgan Guaranty Trust Company Check No. 069748 was "FRAUDULENT" and
from all indications, herein defendants are parts of the criminal syndicate; 15
Raymundo's gross negligence is likewise underscored in the Affidavit dated October 25, 1993 he had executed to support his
complaint for estafa against Ms. Juan and her cohorts, thus:

2. That on July 30, 1993, while I was at the office of PNB San Pedro, Laguna, Cleopatra Tan alias "Cleo", Josefina Resari, and Merry
May M. Juan, representing themselves as department manager, Vice President and employee, respectively of the C&T Global Futures,
Inc., and some persons whose identities are not yet known, by false pretenses and fraudulent acts, intimated to me their plan of
opening a current account with the Philippine National Bank San Pedro Branch;

3. That, they told me of their plan of opening a current account in line with the C&T Global Futures, Inc.'s on-going contest with the
end in view of winning its hefty first prize trip to Hong Kong and for that purpose they are ready to make an initial deposit of
US$172,549.00, embodied in a Morgan Guaranty Trust Company of New York [check];

4. That, because what was shown to me was a foreign check and involving as it does a huge amount of money, I was hesitant to
accommodate them and made further inquiries from them until Cleopatra Tan gave me a very strong and convincing
assurance that the Morgan Guaranty Check was good by way of telling me of a just-concluded overseas call confirming that
said check was good, which facts she further buttressed later by giving a copy of the bill of the detailed transaction x x x;

5. That, not knowing their dirty scheme and desirous to generate bigger bank deposits, I allowed them to make an initial deposit of
US$172,549.00 embodied as earlier stated in a Morgan Guaranty Trust Company of New York [check] dated June 29, 1993 bearing
No. 069748 with Merry May M. Juan as payee, xxx;

6. That, having been fully assured that the Morgan check is good and trusting on their respective representations that they are
top executives of the C&T Global Futures, Inc., I allowed the issuance of six (6) checks, as follows:

PAYEE AMOUNT CHECK NO. DATE

C&T Global Futures Inc. P1,000,000.00 004801 July 30, 1993

C&T Global Futures Inc. 350,000.00 004802 July 30, 1993
C&T Global Futures Inc. 350,000.00 004803 July 30, 1993
C&T Global Futures Inc. 1,000,000.00 004804 July 30, 1993
C&T Global Futures Inc. 1,000,000.00 004805 July 30, 1993
Cash 300,000.00 004806 August 5,
1993

with a total amount of P4,000,000.00, Philippine Currency x x x;

7. That I allowed the aforecited checks to be issued on the strong and collective undertaking of all the accused, that the same
would not be traded until after the Morgan Guaranty Check shall have been cleared;

8. That, in utter disregard of the trust and confidence I reposed on all of them, in violation of their undertaking, accused negotiated all
the six (6) checks until it was discovered that the Morgan Guaranty Check was fraudulent xxx as per memorandum of the Assistant
Department Manager II Clearing Services Group, Philippine National Bank dated September 9, 1993, x x x; 16

While his prompt filing of criminal and civil cases against Ms. Juan and her cohorts for the recovery of the money negates bad faith in
causing undue injury to the PNB, it incidentally revealed Raymundo's gross negligence (1) in allowing the peso conversion of the
foreign check to be credited to her newly-opened peso checking account,17 even before the lapse of the 21-day clearing period, and (2)
in issuing her a check booklet, all on the very same day the said account was opened on July 30, 1993. In his desire to secure bigger
bank deposits, Raymundo disregarded the bank's foreign check clearing policy, and risked his trust and confidence on Ms. Juan's and
her cohorts' assurance that the foreign check was good and that they would not negotiate any check until the former check is cleared.

Since their business and industry are imbued with public interest, banks are required to exercise extraordinary diligence, which is
more than that of a Roman pater familias or a good father of a family, in handling their transactions. 18 Banks are also expected to
exercise the highest degree of diligence in the selection and supervision of their employees.19 By the very nature of their work in
handling millions of pesos in daily transactions, the degree of responsibility, care and trustworthiness expected of bank employees and
officials is far greater than those of ordinary clerks and employees. 20

A bank's disregard of its own banking policy amounts to gross negligence, which is described as "negligence characterized by the
want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and
unintentionally with a conscious indifference to consequences insofar as other persons may be affected." 21 Payment of the amounts of
checks without previously clearing them with the drawee bank, especially so where the drawee bank is a foreign bank and the amounts
involved were large, is contrary to normal or ordinary banking practice. 22 Before the check shall have been cleared for deposit, the
collecting bank can only assume at its own risk that the check would be cleared and paid out. 23 As a bank Branch Manager, Raymundo
is expected to be an expert in banking procedures, and he has the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.

Raymundo's act of approving the deposit to Ms. Juan's newly-opened peso checking account of the peso conversion
[P4,752,689.65]24 of the foreign check prior to the lapse of the 21-day clearing period is the proximate cause why the six (6) checks
worth P4,000,000.00 were later encashed, thereby causing the PNB undue injury. Defined as that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not have
occurred, the proximate cause can be determined by asking a simple question: "If the event did not happen, would the injury have
resulted? If the answer is no, then the event is the proximate cause." 25cralawred If Raymundo did not disregard the bank's foreign
check clearing policy when he approved crediting of the peso conversion of Ms. Juan's foreign check in her newly-opened peso
checking account, the PNB would not have suffered losses due to the irregular encashment of the six (6) checks.

It is well settled that actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a
reasonable degree of certainty. To justify an award of actual damages, there must be competent proof of the actual amount of loss,
credence can be given only to claims which are duly supported by receipts, and courts cannot simply rely on speculation, conjecture or
guesswork in determining the fact and amount of damages. 26 While the PNB claims having suffered damages to the extent of
P4,000,000.00 due to the encashment of checks drawn against uncollected deposit, the testimonial and documentary evidence on
record show that it only incurred losses in the total sum of P2,100,882.87. Based on the accounts receivable ledger 27 and the PNB's
letter28 dated December 5, 1995, Raymundo's account receivable was reduced to P2,100,882.87 after the application of six (6) check
payments aggregating P1,725,172.03 on October 1, 1993.

Confirming the two documentary evidence, Jose Rodrigo Cabello, PNB's own witness and former accountant of its San Pedro Laguna
Branch, has testified that the bank's losses out of Raymundo's approval of the checks per its accounts receivable ledger, is around
P2,100,000.00:

[Atty. Reyes Geromo, counsel for PNB and for the prosecution]

Q. Mr. Witness, as of today do you know how much is still the bank loss out of the said approval of withdrawal by the accused?

xxx

[PNB Witness Jose Rodrigo Cabello]

A. Around P2,100,000.00, Sir. I think.

Q. And what was your basis Mr. Witness? Do you have evidence to show that amount Mr. Witness?

A. Yes, Sir.

Q. What particular document, Mr. Witness?

A. The Accounts receivable ledger, Sir.

 Q. When you said accounts receivable ledger, is this the document previously marked as Exhibit "P", Mr. Witness?

A. Yes, Sir.29

Cabello's testimony is corroborated by Victor Arapan, PNB's witness and accountant of its San Pedro Branch as of August 14, 2001,
who testified that per its books of account, the amount of P2,100,882.87 remained unpaid or uncollected by the bank, and is still
lodged as account receivable of "Merry May Juan c/o Pablo Raymundo," and that as of said date, the damages sustained due to the
fraudulent encashment of the foreign check is P5,524,023.57. 30 However, considering that it failed to formally offer in evidence or at
least attach to the record the statement of account in order to prove such higher amount of damages, PNB can only be awarded actual
damages in the amount of P2,100,882.87.

Since PNB was unduly deprived of its use of the P2,100,882.87 due to Raymundo's gross negligence, the Court also finds it proper to
impose on such forbearance of money the following legal interests on the damages awarded, sans an express contract as to such
interest rate, in line with current jurisprudence:31 (1) twelve percent (12%) per annum reckoned from the filing of the criminal
information on May 19, 1997 which is the making of judicial demand for his liability until June 30, 2013; 32 (2) the reduced interest
of six percent (6%) per annum from July 1, 201333 until finality of this Decision; and (3) the interest rate of 6% per annum from such
finality until fully paid.

WHEREFORE, premises considered, the petition is GRANTED, and the Decision dated May 31, 2013 and the Resolution dated
August 14, 2013 of the Court of Appeals in CA-G.R. CV No. 96760 are REVERSED and SET ASIDE. Accordingly, petitioner Pablo
V. Raymundo is ordered to pay the Philippine National Bank actual damages in the amount of P2,100,882.87 with the following legal
interest rates, in line with current jurisprudence:34 (1) twelve percent (12%) per annum, reckoned from the filing of the criminal
information on May 19, 1997 until June 30, 2013; and (2) six percent (6%) per annum from July 1, 2013 until finality of this Decision;
and (3) six percent (6%) per annum from such finality until fully paid.

SO ORDERED.

Velasco, Jr., (Chairperson), Perez, Reyes and Jardeleza, JJ., concur

PHILIPPINE NATIONAL BANK, Petitioner, v. JUAN F. VILA, Respondent.

DECISION

PEREZ, J.:

For resolution of the Court is the instant Petition for Review on Certiorari1 filed by petitioner Philippine National Bank (PNB),
seeking to reverse and set aside the Decision2 dated 18 December 2013 and Resolution3 dated 13 June 2014 of the Court of Appeals
(CA) in CA-G.R. CV No. 97612. The assailed decision and resolution affirmed the 22 June 2011 Decision4 of the Regional Trial-
Court (RTC) of Villasis, Pangasinan, Branch 50 which found that petitioner PNB is not a mortgagee in good faith.

The Facts

Petitioner PNB is a universal banking corporation duly authorized by Bangko Sentral ng Pilipinas (BSP) to engage in banking
business.

Sometime in 1986, Spouses Reynaldo Cormsta and Erlinda Gamboa Cornista (Spouses Cornista) obtained a loan from Traders Royal
Bank (Traders Bank).5 To secure the said obligation, the Spouses Cornista mortgaged to the bank a parcel of land with an area of 451
square meters designated as Lot 555-A-2 and registered under Transfer Certificate of Title (TCT) No. 131498 in their names by the
Register of Deeds of Pangasinan.

For failure of the Spouses Cornista to make good of their loan obligation after it has become due, Traders Bank foreclosed the
mortgage constituted on the security of the loan. After the notice and publication requirements were complied with, the subject
property was sold at the public auction on 23 December 1987. During the public sale, respondent Juan F. Vila (Vila) was declared as
the highest bidder after he offered to buy the subject property for P50,000.00. The Certificate of Sale dated 13 January 1988 was duly
recorded in TCT No. 131498 under Entry No. 623599.6c

To exercise his right of ownership, Vila immediately took possession of the subject property and paid the real estate taxes
corresponding thereon.

On 11 February 1989, a Certificate of Final Sale was issued to Vila after the one-year redemption period had passed without the
Spouses Cornista exercising their statutory right to redeem the subject property. He was, however, prevented from consolidating the
ownership of the property under his name because the owner's copy of the certificate of title was not turned over to him by the Sheriff.

Despite the lapse of the redemption period and the fact of issuance of a Certificate of Final Sale to Vila, the Spouses Cormsta were
nonetheless allowed to buy back the subject property by tendering the amount of P50,000.00. A Certificate of Redemption 7 dated 14
March 1989 was issued for this purpose and was duly annotated in the title under Entry No. 708261.

Claiming that the Spouses Cornista already lost their right to redeem the subject property, Vila filed an action for nullification of
redemption, transfer of title and damages against the Spouses Cornista and Alfredo Vega in his capacity as the Register of Deeds of
Pangasinan. The case was docketed as Civil Case No. V-0242 on 10 January 1992 and was raffled to Branch 50. A Notice of Lis
Pendens was issued for this purpose and was duly recorded in the certificate of title of the property on 19 October 1992 under Entry
No. 759302.8

On 3 February 1995, the RTC rendered a Decision9 in Civil Case No. V-0242 in favor of Vila thereby ordering the Register of Deeds
to cancel the registration of the certificate of redemption and the annotation thereof on TCT No. 131498. The said decision was
affirmed by the CA on 19 October 1997 in CA-G.R. CV No. 49463.10 The decision of the appellate court became final and executory
on 19 November 1997.

In order to enforce the favorable decision, Vila filed before the RTC a Motion for the Issuance of Writ of Execution which was
granted by the court. Accordingly, a Writ of Execution11 was issued by the RTC on 14 December 1997.

By unfortunate turn of events, the Sheriff could not successfully enforce the decision because the certificate of title covering the
subject property was no longer registered under the names of the Spouses Cornista. Hence, the judgment was returned unsatisfied as
shown in Sheriffs Return12 dated 13 July 1999.

Upon investigation it was found out that during the interregnum the Spouses Cornista were able to secure a loan from the PNB in the
amount of P532,000.00 using the same property subject of litigation as security. The Real Estate Mortgage (REM) was recorded on 28
September 1992 under Entry No. 75817113 or month before the Notice of Lis Pendens was annotated.

Eventually, the Spouses Cornista defaulted in the payment of their loan obligation with the PNB prompting the latter to foreclose the
property offered as security. The bank emerged as the highest bidder during the public sale as shown at the Certificate of Sale issued
by the Sheriff. As with the prior mortgage, the Spouses Cornista once again failed to exercise their right of redemption within the
required period allowing PNB to consolidate its ownership over the subject property. Accordingly, TCT No. 131498 14 in the name of
the Spouses Cornista was cancelled and a new one under TCT No. 216771 15 under the name of the PNB was issued.

The foregoing turn of events left Vila with no other choice but to commence another round of litigation against the Spouses Cornista
and PNB before the RTC of Viliasis, Pangasinan, Branch 50. In his Complaint docketed as Civil Case No. V-0567, Vila sought for the
nullification of TCT No. 216771 issued under the name of PNB and for the payment of damages.

To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith pointing the fact that at the time the subject
property was mortgaged to it, the same was still free from any liens and encumbrances and the Notice of Lis Pendens was registered
only a month after the REM was annotated on the title. PNB meant to say that at the time of the transaction, the Spouses Cornista were
still the absolute owners of the property possessing all the rights to mortgage the same to third persons. PNB also harped on the fact
that a close examination of title was conducted and nowhere was it shown that there was any cloud in the title of the Spouses Cornista,
the latter having redeemed the property after they have lost it in a foreclosure sale. 16chanrobleslaw

After the Pre-Trial Conference, trial on the merits ensued. The court a quo then proceeded to receive documentary and testimonial
evidence from the opposing parties. Thereafter, the parties submitted their respective memorandum and the case was submitted for
decision.

On 22 June 2011, the RTC rendered a Decision17 in favor of Vila and ruled that PNB is not a mortgagee in good faith. As a financial
institution, the trial court held that PNB is expected to observe a higher degree of diligence. In hastily granting the loan, the trial court
declared that PNB failed in this regard. Had the bank exercised due diligence, it could have easily discovered that the Spouses
Cornista were not the possessors of the subject property which could lead it to the fact that at the time the subject property was
mortgaged to it, a litigation involving the same was already commenced before the court. It was further ratiocinated by the RTC that
"[a] mortgagee cannot close his eyes to facts which should put a reasonable man upon his guard" in ascertaining the status of a
mortgaged property. The dispositive portion of the decision reads:

"WHEREFORE, judgment is hereby rendered:

1. Declaring the Real Estate Mortgage dated September 28, 1992, executed by the Spouses Reynaldo Cornista and Erlinda
Gamboa in favor of the Philippine National Bank, Tayug, Pangasinan Branch, over the parcel of land covered by TCT No.
131498 null and void;

2. Declaring the Deed of Sale dated September 27, 1996, in favor of the PNB null and void;

3. Ordering the nullification and cancellation of Transfer Certificate of Title No. 216771 in the name of PNB;

4. Ordering the Register of Deeds of Pangasinan to issue a new certificate of title covering the property subject matter of this
case in the name-of Juan F. Vila; and cralawlawlibrary

5. Ordering [the] defendant PNB to pay the plaintiff P50,000.00 moral damages, P50,000.00 exemplary damages and
P100,000.00 attorney's fees and litigation expenses.

Costs against defendant Philippine National Bank.

SO ORDERED."18chanroblesvirtuallawlibrary

In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its earlier decision and thereby denied the Motion for
Reconsideration interposed by PNB.

On appeal, the CA Decision20 dated 18 December 2013 affirmed the RTC ruling. In failing to exercise greater care and diligence in
approving the loan of the Spouses Cornista without first ascertaining if there were any defects in their title, the appellate court held
that PNB could not be afforded the status of a mortgagee in good faith. It went further by declaring that [a] bank whose business is
impressed with public interest is expected to exercise more care and prudence in its dealings than a private individual, even in cases
involving registered lands. A bank cannot assume that, simply because the title offered as security is on its face free of any
encumbrances of lien, it is relieved of the responsibility of taking further steps to verify the title and inspect the properties to be
mortgaged.21 The CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated June 22, 2011 and the Resolution dated August 11,
2011 of the Regional Trial Court of Villasis, Pangasinan, Branch 50, in Civil Case No, V-0567 are hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution23 denying the Motion for Reconsideration of the PNB prompting the bank to seek
recourse before the Court via instant Petition for Review on Certiorari. For Our resolution are the following issues:
The Issues

I. WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;

II. WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24chanroblesvirtuallawlibrary

The Court's Ruling

We resolve to deny the petition.

In general, the issue of whether a mortgagee is in good faith cannot be entertained in a Rule 45 petition. This is because the
ascertainment of good faith or the lack thereof, and the determination of negligence are factual matters which lay outside the scope of
a petition for review on certiorari. Good faith, or the lack of it, is a question of intention. In ascertaining intention, courts are
necessarily controlled by the evidence as to the conduct and outward facts by which alone the inward motive may, with safety, be
determined.25cralawred A recognized, exception to the rule is when there are conflicting findings of fact by the CA and the RTC. 26 In
the case at bar, RTC and the CA agreed on their findings.

The RTC, which possessed the first hand opportunity to observe the demeanor of the witnesses and admit the documentary evidence,
found that PNB accepted outright the collateral offered by the Spouses Cornista without making farther inquiry as to the real status of
the subject property. Had the bank been prudent and diligent enough in ascertaining the condition of the property, it could have
discovered that the same was in the possession of Vila who, at that time, possessed a colorable title thereon being a holder of a Final
Certificate of Sale. The RTC further exposed the frailty of PNB's claim by pointing to the fact that it was Vila who was paying the
realty tax on the property, a crucial information that the bank could have easily discovered had it exercised due diligence.

Resonating the findings of the RTC, the CA also declared that PNB fell short in exercising the degree of diligence expected from bank
and financial Institutions. We hereby quote with approval the disquisition of the appellate court:

Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of
the property offered for mortgage and to verify the genuineness of the title to determine the real owner thereof. The apparent purpose
of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim
thereon from a usurper who may have acquired a fraudulent certificate of title thereto. Here, [the] PNB has failed to exercise the
requisite due diligence in ascertaining the status and condition of the property being offered to it as security for the loan before it
approved the same. xxx.27chanroblesvirtuallawlibrary
Clearly, the PNB failed to observe the exacting standards required of banking institutions which are behooved by statutes and
jurisprudence to exercise greater care and prudence before entering into a mortgage contract.

No credible proof on the records could substantiate the claim of PNB that a physical inspection of the property was conducted. We
agree with, bbth the RTC and CA that if in fact it were true that ocular inspection was conducted, a suspicion could have been raised
as to the real status of property. By failing to uncover a crucial fact that the mortgagors were not the possessors of the subject property.
We could not lend credence to claim of the bank that an ocular inspection of the property was conducted. What further tramples upon
PNB's claim is the fact that, as shown on the records, it was Vila who was religiously paying the real property tax due on the property
from 1989 to 1996, another significant fact that could have raised a red flag as to the real ownership of the property. The failure of the
mortgagee to take precautionary steps would mean negligence on his part and would thereby preclude it from invoking that it is a
mortgagee in good faith.

Before approving a loan application, it is standard operating procedure for banks and financial institutions to conduct an ocular
inspection of the property offered for mortgage and to determine the real owner(s) thereof The apparent purpose of an ocular
inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a
usurper who may have acquired a fraudulent certificate of title thereto. 28chanrobleslaw

In this case, it was adjudged by the courts of competent jurisdiction in a final and executory decision that the Spouses Cornista's
reacquisition of the property after the lapse of the redemption period is fraudulent and the property used by the mortgagors as
collateral rightfully belongs to Vila, an innocent third party with a right, could have been protected if PNB only observed the degree
diligence expected from it.

In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted banks to exercise the highest degree of diligence in its
dealing with properties offered as securities for the loan obligation: When the purchaser or the mortgagee is a bank, the rule on
innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate
mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business-is impressed with public
interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they
cannot assume that, xxx the title offered as security is on its face free of any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of
the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of the bank's
operations. xxx. (Citations omitted)

We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the
country's economy in general.30 The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation.31Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence. 32 Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. 33chanrobleslaw

PNB clearly failed to observe the required degree of caution in readily approving the loan and accepting the collateral offered by the
Spouses Cornista without first ascertaining the real ownership of the property. It should not have simply relied on the face of title but
went furthef to physically ascertain the actual condition of the property. That the propprty offered as security was in the possession of
the person other than the lone applying for the loan and the taxes were declared not in their names could have raised a suspicion. A
person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is not an innocent
purchaser for value.34

Having laid down that the PNB is not in good faith, We are led to affirm the award of moral damages, exemplary damages,
attorney's fees and costs of litigation in favor of Vila. Moral damages are not awardecl to penalize the defendant but to compensate the
plaintiff for the injuries he may have suffered. 35 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. 36 In the instant case, we find that the award of moral
damages is proper.37 As for the award of exemplary damages, we deem that the same is proper for the PNB was remiss in its
obligation to inquire the real status of the subject property, causing damage to Vila. 38 Finally, we rule that the award of attorney's fees
and litigation expenses is valid since Vila was compelled to litigate and thus incur expenses in order to protect its rights over the
subject property.39c

WHEREFORE, premises considered, the petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED. Accordingly, the decision of the RTC dated 22 June 2011 STANDS as the final resolution of this
case.

SO ORDERED.
G.R. No. 202514

ANNA MARIE L. GUMABON, Petitioner

vs.
PHILIPPINE NATIONAL BANK, Respondent

DECISION

BRION, J.:

Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court filed by Anna Marie Gumabon (Anna
Marie) assailing the December 16, 2011 decision2 and June 26, 2012 resolution3 of the Court of Appeals (CA) in CA-G.R. CV. No.
96289. The CA reversed the Regional Trial Court (RTC)'s ruling4 in Civil Case No. Q-04-53432 favoring Anna Marie.

The Facts

On August 12, 2004, Anna Marie filed a complaint for recovery of sum of money and damages before the RTC against the Philippine
National Bank (PNB) and the PNB Delta branch manager Silverio Fernandez (Fernandez). The case stemmed from the PNBs refusal
to release Anna Maries money in a consolidated savings account and in two foreign exchange time deposits, evidenced by Foreign
Exchange Certificates of Time Deposit (FXCTD).

In 2001, Anna Marie, together with her mother Angeles and her siblings Anna Elena and Santiago, (the Gumabons) deposited with the
PNB Delta Branch $10,945.28 and $16,830.91, for which they were issued FXCTD Nos. A-9939025 and A-993992,6 respectively.

The Gumabons also maintained eight (8) savings accounts7 in the same bank. Anna Marie decided to consolidate the eight (8) savings
accounts and to withdraw 2,727,235.85 from the consolidated savings account to help her sisters financial needs.

Anna Marie called the PNB employee handling her accounts, Reino Antonio Salvoro (Salvoro), to facilitate the consolidation of the
savings accounts and the withdrawal. When she went to the bank on April 14, 2003, she was informed that she could not withdraw
from the savings accounts since her bank records were missing and Salvoro could not be contacted.

On April 15, 2003, Anna Marie presented her two FXCTDs, but was also unable to withdraw against them. Fernandez informed her
that the bank would still verify and investigate before allowing the withdrawal since Salvoro had not reported for work.

Thus, Anna Marie sent two demand letters8 dated April 23 and April 25, 2003 to the PNB.

After a month, the PNB finally consolidated the savings accounts and issued a passbook for Savings Account (SA) No.
6121200.9 The PNB also confirmed that the total deposits amounted to 2,734,207.36. Anna Marie, her mother, and the PNB executed
a Deed of Waiver and Quitclaim dated May 23, 200310 to settle all questions regarding the consolidation of the savings accounts. After
withdrawals, the balance of her consolidated savings account was 250,741.82.

On July 30, 2003, the PNB sent letters to Anna Marie to inform her that the PNB refused to honor its obligation under FXCTD Nos.
993902 and 993992,11 and that the PNB withheld the release of the balance of 250,741.82 in the consolidated savings
account.12 According to the PNB, Anna Marie pre-terminated, withdrew and/or debited sums against her deposits.

Thus, Anna Marie filed before the RTC a complaint for sum of money and damages against the PNB and Fernandez. 13

As to the two FXCTDs, Anna Marie contended that the PNBs refusal to pay her time deposits is contrary to law.1wphi1The PNB
cannot claim that the bank deposits have been paid since the certificates of the time deposits are still with Anna Marie. 14

As to the consolidated savings account, Anna Marie stated that the PNB had already acknowledged the accounts balance in the Deed
of Waiver and Quitclaim amounting to 2,734,207.36. As of January 26, 2004, the remaining balance was 250,741.82. PNB
presented no concrete proof that this amount had been withdrawn.
Anna Marie prayed that the PNB and Fernandez be held solidarily liable for actual, moral, and exemplary damages, as well as
attorneys fees, costs of suit, and legal interests because of the PNBs refusal to honor its obligations.

In its answer,15 the PNB argued that: (1) Anna Marie is not entitled to the balance of the consolidated savings account based
on solutio indebiti; (2) the PNB already paid the $10,058.01 covered by FXCTD No. 993902; (3) the PNB is liable to pay only
$10,718.87 of FXCTD No. 993992, instead of the full amount of $17,235.41; and (4) Anna Marie is guilty of contributory negligence.
The PNBs arguments are discussed below.

First, Anna Marie is not entitled to the alleged balance of 250,741.82. The PNBs investigation showed that Anna Marie withdrew a
total of 251,246.8116 from two of the eight savings accounts and she used this amount to purchase managers check No.
0000760633.17 Hence, 251,246.81 should be deducted from the sum agreed upon in the Deed of Waiver and Quitclaim. The PNB
offered photocopies of the PNBs miscellaneous ticket18 and the managers check as evidence to prove the withdrawals. The PNB
argued that unjust enrichment would result if Anna Marie would be allowed to collect 250,741.82 from the consolidated savings
account without deducting her previous withdrawal of 251,246.81.

Second, Anna Marie is not entitled to receive $10,058.01 covered by FXCTD No. 993902. Based on the PNBs records, Anna Marie
pre-terminated FXCTD No. 993902 on March 11, 2002, and used the deposit, together with another deposit covered by FXCTD No.
993914 (for $8,111.35), to purchase a foreign demand draft (FX Demand Draft No. 4699831) payable to Anna Rose/Angeles
Gumabon. The PNB presented a facsimile copy of Anna Roses Statement of Account (SOA)19 from the PNB Bank to prove that the
amount covered by FXCTD No. 993902 was already paid.

Third, Anna Marie is only entitled to receive $10,718.87 instead of the full amount of $17,235.41 covered by FXCTD No. 993992
because: (a) the amount of $1,950.00 was part of the money used by Anna Marie to purchase the managers check; (2) the amount of
$2,566.54 was credited to Current Account No. 227-810961-8 owned by Anna Maries aunt, Lolita Lim; and (3) the amount of
$2,000.00 was credited to Current Account No. 2108107498 of Anna Marie and Savings Account No. 212-5057333 of Anna Marie/or
Angeles or Santiago/or Elena (all surnamed Gumabon). Hence, these amounts should be deducted from the amount payable to Anna
Marie.

Finally, the PNB alleged that Anna Marie was guilty of contributory negligence in her bank dealings.

In her reply,20 Anna Marie argued that the best evidence of her withdrawals is the withdrawal slips duly signed by her and the
passbooks pertaining to the accounts. PNB, however, failed to show any of the withdrawal slips and/or passbooks, and also failed to
present sufficient evidence that she used her accounts funds.

The RTC Ruling

The RTC ruled in Anna Maries favour.21

The RTC held that the PNB had not yet paid the remaining balance of $10,058.01 under FXCTD No. 993902. Anna Maries
SOA,22 which the PNB relied upon, is a mere photocopy and does not satisfy the best evidence rule. Moreover, there is no indication
on the stated amounts in the SOA that the funds have come from FXCTD No. 993902.23 The PNB failed to obtain the deposition of a
PNC Bank officer or present any other evidence to show that the amounts stated in the SOA came from FXCTD No. 993902. The
RTC also held that the alleged pre-termination of FXCTD No. 993902 on March 11, 2002, is hard to believe since the certificate
shows that the last entry was made on March 24, 2003, with a reflected balance of $10,058.01.

On FXCTD No. 993992, the RTC held that the PNB failed to prove Anna Maries alleged withdrawals. These alleged withdrawals
are not reflected at the back of the certificate. Anna Maries ledger was also not presented as evidence to show that several
withdrawals had been made against FXCTD No. 993992.

On the consolidated savings account, the RTC held that the PNB failed to prove that Anna Marie withdrew the balance of
250,741.82. The RTC excluded PNBs evidence, i.e., photocopies of the miscellaneous ticket and managers check, to prove the
alleged withdrawals, since these documents were just photocopies and thus failed to satisfy the best evidence rule.

The RTC awarded damages to Anna Marie due to the PNBs mishandling of her account through its employee, Salvoro. The RTC also
held that the PNB failed to establish Anna Maries contributory negligence.
In conclusion, the RTC ordered the PNB to pay Anna Marie these amounts:

(1) Actual damages of:

(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;

(b) $20,244.42, as the outstanding balance of FXCTD No. 993992;and

(c) 250,741.82, as the outstanding balance of SA No. 6121200;

(2) 100,000.00 as moral damages;

(3) 50,000.00 as exemplary damages;

(4) 150,000.00 as attorneys fees; and

(5) Costs of suit.

From this ruling, the PNB appealed before the CA.

The CA Ruling

The CA reversed the RTCs ruling.24

The CA held that the PNB had paid the actual amounts claimed by Anna Marie in her complaint. The CA noted Anna Maries
suspicious and exclusive dealings with Salvoro and the Gumabons instruction to Salvoro to make unauthorized and unrecorded
withdrawals. Hence, there are no entries of withdrawals reflected in Anna Maries passbook.

The CA also considered Anna Roses SOA as proof that the PNB had paid the remaining balance of $10,058.01 on FXCTD No.
993902. The CA held that the PNB verified the SOA and it was corroborated by the affidavit25 of the PNB Branch Operations Officer
in New York. The CA stated that the RTC should have allowed the taking of the deposition of the PNB bank officer.

The CA also relied on the PNBs investigation and concluded that the PNB had already paid the amounts claimed by Anna Marie
under FXCTD Nos. 993902 and 993992.

As to Anna Maries consolidated savings account, the CA gave credence to the miscellaneous ticket and the managers check
presented by the PNB to prove that it had already paid the balance.

Anna Marie moved but failed to obtain reconsideration of the CAs decision; hence, the present petition. 26

The Petition

Anna Marie filed the present petition for review to question the CAs decision and resolution which reversed the RTCs ruling.

Anna Marie argues that: first, the CA should not have disregarded the RTCs conclusive findings; second, the CA erred in considering
the PNB New York bank officers affidavit because it was not formally offered as evidence; third, the CA erroneously relied on a
foreign demand draft27 to prove the PNBs payment of the amount due under FXCTD No. 993902; fourth, the CA erroneously
considered the miscellaneous ticket and the managers check because these documents are mere photocopies and inadmissible under
the best evidence rule; and fifth, the CAs conclusion about a purported "connivance" between Anna Marie and Salvoro has no
evidentiary basis.

In its comment, the PNB counters that: first, the CA can rectify the RTCs factual findings since the RTC committed errors in its
appreciation of the evidence; second, the RTC completely ignored the PNBs several evidence proving its payment of Anna Maries
FXCTDs; third, Anna Marie did not refute the PNBs allegations of payment; fourth, the CA has the right to review even those
exhibits which were excluded by the RTC; and fifth, the CA correctly ruled that the PNB should not be faulted about the unrecorded
transactions, and that the PNB had done its duty to its depositors when it conducted investigations and an internal audit of Anna
Maries accounts.

The Issues

The issue before this Court is whether Anna Marie is entitled to the payment of the following amounts:

(a) $10,058.01 or the outstanding balance under FXCTD No. 993902;

(b) $20,244.42 for FXCTD No. 993992;

(c) 250,741.82 for SA No. 6121200; and

(3) Damages.

Our Ruling

We grant the petition and reverse the CAs ruling.

The core issue raised in the present petition is a question of fact. As a general rule, a petition for review under Rule 45 of the Rules of
Court covers only questions of law. Questions of fact are not reviewable and cannot be passed upon by the Court in the exercise of its
power to review under Rule 45.28

There are, however, exceptions to the general rule. Questions of fact may be raised before this Court in any of these instances: (1)
when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record.29

The present case falls under two of the exceptions, particularly that the CAs findings are contrary to the RTCs findings, and that the
CAs findings of fact are premised on absent evidence and contradicted by the evidence on record.

We note that the CA considered pieces of evidence which are inadmissible under the Rules of Court, particularly the managers check
and the corresponding miscellaneous ticket, Anna Roses SOA, and the affidavit of the PNB New Yorks bank officer. The
inadmissibility of these documents is explained more fully in the following discussion.

PNB failed to establish the fact of

payment to Anna Marie in FXCTD
Nos. 993902 and 993992, and SA No. 6121200.

It is a settled rule in evidence that the one who alleges payment has the burden of proving it. 30 The burden of proving that the debt had
been discharged by payment rests upon the debtor once the debts existence has been fully established by the evidence on record.
When the debtor introduces some evidence of payment, the burden of going forward with the evidence as distinct from the burden of
proof shifts to the creditor. Consequently, the creditor has a duty to produce evidence to show non-payment.31

In the present case, both the CA and the RTC declared that the PNB has the burden of proving payment. The lower courts, however,
differed in resolving the question of whether the PNB presented sufficient evidence of payment to shift the burden of evidence to
Anna Marie. The RTC ruled that the PNB failed to do so, after excluding PNBs evidence, i.e., miscellaneous ticket, managers check,
and the affidavit of the PNB New Yorks bank officer, based on the rules of evidence. The CA, on the other hand, considered the
excluded evidence and found that the PNB presented sufficient proof of payment.
i. The PNBs alleged payment of
the amount covered by SA No.
6121200

The PNB alleged that it had already paid the balance of the consolidated savings account (SA No. 6121200) amounting to
P250,741.82. It presented the managers check to prove that Anna Marie purchased the check using the amounts covered by the
Gumabons two savings accounts which were later part of Anna Maries consolidated savings account. The PNB also presented the
miscellaneous ticket to prove Anna Maries withdrawal from the savings accounts.

The RTC denied the admission of the managers check and the miscellaneous ticket since the original copies were never
presented.32 The PNB moved to tender the excluded evidence and argued that even without the presentation of the original copies, the
photocopies are admissible because they have been identified by Fernandez. 33

Evidence, to be admissible, must comply with two qualifications: (a) relevance and (b) competence. Evidence is relevant if it has a
relation to the fact in issue as to induce a belief in its existence or nonexistence.34 On the other hand, evidence is competent if it is not
excluded by the law or by the Rules of Court.35

One of the grounds under the Rules of Court that determines the competence of evidence is the best evidence rule. Section 3, Rule 130
of the Rules of Court provides that the original copy of the document must be presented whenever the content of the document is
under inquiry.36

However, there are instances when the Court may allow the presentation of secondary evidence in the absence of the original
document. Section 3, Rule 130 of the Rules of Court enumerates these exceptions:

(a) when the original has been lost, or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;

(b) when the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to
produce it after reasonable notice;

(c) when the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time
and the fact sought to be established from them is only the general result of the whole; and

(d) when the original is a public record in the custody of a public officer or is recorded in a public office.

While the RTC cannot consider the excluded evidence to resolve the issues, such evidence may still be admitted on appeal provided
there has been tender of the excluded evidence under Section 40 of Rule 132 of the Rules of Court.37

The PNB cannot simply substitute the mere photocopies of the subject documents for the original copies without showing the court
that any of the exceptions under Section 3 of Rule 130 of the Rules of Court applies. The PNBs failure to give a justifiable reason for
the absence of the original documents and to maintain a record of Anna Maries transactions only shows the PNBs dismal failure to
fulfill its fiduciary duty to Anna Marie.38 The Court expects the PNB to "treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship."39 The Court explained in Philippine Banking Corporation v.
CA,40 the fiduciary nature of the banks relationship with its depositors, to wit:

The business of banking is imbued with public interest. The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. In Simex International (Manila) Inc. v. Court of Appeals we pointed out the depositors reasonable
expectations from a bank and the banks corresponding duty to its depositor, as follows:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose
of as he sees fit, confident that the bank will deliver it as and to whomever he directs. (emphasis and underscoring supplied)

Consequently, the CA should not have admitted the subject documents even if the PNB tendered the excluded evidence.
Notably, the PNB clearly admitted in the executed Deed of Waiver and Quitclaim that it owed Anna Marie 2,734,207.36 under the
consolidated savings account. After a number of uncontested transactions, the remaining balance of Anna Maries deposit
became 250,741.82. The inevitable conclusion is that PNBs obligation to pay 250,741.82 under SA No. 6121200 subsists.

ii. The PNBs alleged payment of

the amount covered by FXCTD No. 993902

The PNB claimed that it had already paid the amount of $10,058.01 covered by FXCTD No. 993902. It presented the foreign demand
draft dated March 11, 2002 which Anna Marie allegedly purchased with the funds of FXCTD No. 993902. In addition, the PNB also
presented Anna Roses SOA to show that there was a fund transfer involving the contested amount. To further support its claim, the
PNB annexed the affidavit of the PNB New Yorks branch officer about the fund transfer. The PNB, however, failed to formally offer
the affidavit as evidence.

Anna Marie moved for the exclusion of the photocopy of Anna Roses SOA for failing to conform to the best evidence rule. The RTC
granted her motion and denied its admission. When the case reached the CA, the CA stated that the RTC should have considered the
evidence in the light of the PNBs identification of the SOA as an exact copy of the original and the claim that it is corroborated by the
affidavit of the PNB New Yorks bank officer.

The PNB explained that its failure to present the original copy of Anna Roses SOA was because the original was not in the PNBs
possession.

We rule that the SOA is inadmissible because it fails to qualify as relevant evidence. As the RTC correctly stated, the SOA "does not
show which of the amount stated therein came from the funds of Certificate of Time Deposit No. A-993902."41

The affidavit of the PNB New Yorks bank officer is also inadmissible in the light of the following self-explanatory provision of
the Rules of Court:

"Sec. 34. Offer of evidence. The court shall consider no evidence which has not been formally offered. x x x." 42

Formal offer means that the offeror shall inform the court of the purpose of introducing its exhibits into evidence. Without a formal
offer of evidence, courts cannot take notice of this evidence even if this has been previously marked and identified.43

In Heirs of Pedro Pasag v. Parocha,44 we reiterated the importance of a formal offer of evidence. Courts are mandated to rest their
factual findings and their judgment only and strictly upon the evidence offered by the parties at the trial. The formal offer enables the
judge to know the purpose or purposes for which the proponent is presenting the evidence. It also affords the opposing parties the
chance to examine the evidence and to object to its admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.

In People v. Napat-a,45 People v. Mate,46 and Heirs of Romana Saves, et al. v. Escolastico Saves, et al.,47 we recognized the exceptions
from the requirement of a formal offer of evidence, namely: (a) the evidence must have been duly identified by testimony duly
recorded; and (b) the evidence must have been incorporated in the records of the case.

It is unmistakable that the PNB did not include the affidavit of the PNB New Yorks bank officer in its formal offer of evidence to
corroborate Anna Roses SOA. Although the affidavit was included in the records and identified by Fernandez, it remains
inadmissible for being hearsay. Jurisprudence dictates that an affidavit is merely hearsay evidence when its affiant or maker did not
take the witness stand.48

In the present case, Fernandez is not the proper party to identify the affidavit executed by the PNB New Yorks bank officer since he
is not the affiant. Therefore, the affidavit is inadmissible.

Thus, the PNB failed to present sufficient and admissible evidence to prove payment of the $10,058.01.This failure leads us to
conclude that the PNB is still liable to pay the amount covered by FXCTD No. 993902.

iii. The PNBs alleged payment of

the amount covered by FXCTD No. 993992
The PNB alleged that Anna Maries claim over FXCTD No. 993992 should only be limited to $5,857.79. It presented the managers
check, which admissibility we have heretofore discussed and settled, and the miscellaneous tickets.

We cannot absolve the PNB from liability based on these miscellaneous tickets alone. As the RTC correctly stated, the transactions
allegedly evidenced by these tickets were neither posted at the back of Anna Maries certificate, nor recorded on her ledger to show
that several withdrawals had been made on the account.

At this point, we remind the PNB of the negotiability of a certificate of deposit as it is a written acknowledgment by the bank of the
receipt of a sum of money on deposit which the bank promises to pay to the depositor, to the latters order, or to some other person or
the latters order.49 To discharge a debt, the bank must pay to someone authorized to receive the payment. 50 A bank acts at its peril
when it pays deposits evidenced by a certificate of deposit, without its production and surrender after proper indorsement. 51

Again, as the RTC had correctly stated, the PNB should not have allowed the withdrawals, if there were indeed any, without the
presentation of the covering foreign certificates of time deposit. There are no irregularities on Anna Maries certificates to justify the
PNBs refusal to pay the stated amounts in the certificates when it was presented for payment.

Therefore, the PNB is liable for Anna Maries claims since it failed to prove that it had already been discharged from its obligation.

PNB is liable to Anna Marie for actual, moral, and

exemplary damages as well as attorneys fees for its
negligent acts as a banking institution.

Since the PNB is clearly liable to Anna Marie for her deposits, the Court now determines PNBs liability for damages under existing
laws and jurisprudence.

Section 2 of Republic Act No. 8791,52 declares the States recognition of the "fiduciary nature of banking that requires high standards
of integrity and performance." It cannot be overemphasized that the banking business is impressed with public interest. The trust and
confidence of the public to the industry is given utmost importance.53Thus, the bank is under obligation to treat its depositors
accounts with meticulous care, having in mind the nature of their relationship.54 The bank is required to assume a degree of diligence
higher than that of a good father of a family. 55

As earlier settled, the PNB was negligent for its failure to update and properly handle Anna Maries accounts. This is patent from the
PNBs letter to Anna Marie, admitting the error and unauthorized withdrawals from her account. Moreover, Anna Marie was led to
believe that the amounts she has in her accounts would remain because of the Deed of Waiver and Quitclaim executed by her, her
mother, and PNB. Assuming arguendo that Anna Marie made the contested withdrawals, due diligence requires the PNB to record the
transactions in her passbooks.

The Court has established in a number of cases the standard of care required from banks, and the banks liability for the damages
sustained by the depositor. The bank is not absolved from liability by the fact that it was the banks employee who committed the
wrong and caused damage to the depositor.56 Article 2180 of the New Civil Code provides that the owners and managers of an
establishment are responsible for damages caused by their employees while performing their functions. 57

In addition, we held in PNB v. Pike,58 that although the banks employees are the ones negligent, a bank is primarily liable for the
employees acts because banks are expected to exercise the highest degree of diligence in the selection and supervision of their
employees.

Indeed, a great possibility exists that Salvoro was involved in the unauthorized withdrawals. Anna Marie entrusted her accounts to and
made her banking transactions only through him. Salvaros unexplained disappearance further confirms this Courts suspicions. The
Court is alarmed that he was able to repeatedly do these unrecorded transactions without the bank noticing it. This only shows that the
PNB has been negligent in the supervision of its employees.

As to contributory negligence, the Court agrees with the RTC that the PNB failed to substantiate its allegation that Anna Marie was
guilty of contributory negligence.
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which
falls below the standard to which he is required to conform for his own protection. 59 Whether contributory negligence transpired is a
factual matter that must be proven.

In the present case, Anna Marie cannot be held responsible for entrusting her account with Salvoro. As shown in the records, Salvoro
was the banks time deposit specialist. Anna Marie cannot thus be faulted if she engaged the banks services through Salvoro for
transactions related to her time deposits.

The Court also cannot accept the CAs conclusion that there was connivance between Anna Marie and Salvoro. This conclusion is
simply not supported by the records and is therefore baseless.

In these lights, we hold that Anna Marie is entitled to moral damages of 100,000.00. In cases of breach of contract, moral damages
are recoverable only if the defendant acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in
clear disregard of his contractual obligations.60 Anna Marie was able to establish the mental anguish and serious anxiety that she
suffered because of the PNBs refusal to honor its obligations.

Anna Marie is likewise entitled to exemplary damages of 50,000.00. Article 2229 of the New Civil Code imposes exemplary
damages by way of example or correction for the public good. To repeat, banks must treat the accounts of its depositors with
meticulous care and always have in mind the fiduciary nature of its relationship with them.61Having failed to observe these, the award
of exemplary damages is justified.

As exemplary damages are awarded herein62 and as Anna Marie was compelled to litigate to protect her interests, 63the award of
attorneys fees and expenses of litigation of 150,000.00 is proper.

Finally, we impose legal interest pursuant to the guidelines in Nacar v. Gallery Frames.64 We held in that case that for interest
awarded on actual and compensatory damages, the interest rate is imposed as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum [changed to 6% per
annumstarting July 1, 2013] to be computed from default, i.e., from extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest x x x shall be
6% per annum from such finality until its satisfaction. x x x

We note that pursuant to the Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, the legal interest rate is 6% per
annum effective July 1, 2013. The new rate is applicable prospectively; thus, the 12% per annum shall still apply until June 30, 2013.

In the present case, Anna Marie filed her complaint on August 12, 2004. PNB is therefore liable for legal interest of 12% per
annum from Augus t 12, 2004 until June 30, 2013, and 6% per annum from July 1, 2013, until its full satisfaction.

WHEREFORE, the petition is GRANTED. The assailed December 16, 2011 decision and June 26, 2012 resolution of the Court of
Appeals is hereby reversed. The October 26, 2010 decision of the Regional Trial Court is REINSTATED with
MODIFICATIONS. Thus, the Philippine National Bank is ORDERED to pay Anna Marie Gumabon the following:

(1) Actual damages of:

(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;

(b) $ 20,244.42, as the outstanding balance of FXCTD No. 993992; and

(c) 250,741.82, as the outstanding balance of SA No. 6121200;

(2) Legal interest of twelve percent (12%) per annum of the total actual damages from August 12, 2004 to June 30, 2013, and six
percent (6o/o) per annum from July 1, 2013 until full satisfaction;

(3) l00,000.00 as moral damages;

(4) 50,000.00 as exemplary damages;

(5) l50,000.00 as attorney's fees; and

(7) Costs of suit.

Let a copy of this Decision be furnished the Financial Consumers Protection Department of the Bangko Sentral ng Pilipinas, for
information and possible action in accordance with the Bangko Sentral ng Pilipinas' mandate to protect the banking public.

SO ORDERED.
G.R. No. 112392 February 29, 2000

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision1 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.

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-1873 which
he maintained in petitioner bank's Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 000147574 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 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 respondent's 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 check7 because it was "not of the type or style of checks issued by Continental Bank
International."8 Consequently, Mr. Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its
employees, Benjamin D. Napiza IV, who is private respondent's 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 respondent's son wrote to Reyes stating that the
check 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 respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded
private respondent of his son's promise and warned that should he fail to return that amount within seven (7) days, the matter would be
referred to the bank's lawyers for appropriate action to protect the bank's interest.11 This was followed by a letter of the bank's lawyer
dated April 8, 1985 demanding the return of the $2,500.00.12

In reply, private respondent wrote petitioner's counsel on April 20, 198513 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.1wphi1.nt

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.

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 draft's 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 petitioner's 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" . . . "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
attorney's fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondent's passbook. Thus, private
respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's 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, whenever 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 respondent's 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 check's 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 latter's 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.

On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner committed "clears gross
negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondent's passbook and, before the
check was cleared and in crediting the amount indicated therein in private respondent's account. It stressed that the mere deposit of a
check in private respondent's account did not mean that the check was already private respondent's property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations.
Furthermore, petitioner's contention that private respondent warranted the check's 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.

Sec. 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:

Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is
likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the
instrument for the full amount thereof against all parties liable thereon. Among the "parties liable thereon." Is an indorser of the
instrument, i.e., "a person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly
indicated by appropriate words his intention to be bound in some other capacity." Such an indorser "who indorses without
qualification," inter alia "engages that on due presentment, * * (the instrument) shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or any subsequent indorser who may be compelled to pay it." Maniego may also be deemed an "accommodation
party" in the light of the facts, i.e., a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value thereof, 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 respondent's 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 depositor's written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon
the presentation of the depositor's 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 withdrawal only in the manner above provided, upon presentation
of the depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter.19
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
depositor's passbook. Private respondent admits 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 respondent's two signatures affixed on the proper spaces is
buttressed by petitioner's 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, petitioner's personnel should have been duly
warned that Gayon, who was also employed in petitioner's 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
petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever
was allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between
private respondent and Gayon so as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should
accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given
mere lip service even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6
set out by petitioner so that, for the protection of the bank's interest and as a reminder to the depositor, the withdrawal shall be entered
in the depositor's passbook. The fact that private respondent's 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 accented as subject to collection only and credited to the account only upon receipt of the notice of
final payment. Collection charges by the Bank's 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. (Emphasis and underlining supplied.)

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 manager's 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 respondent's 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 Court's
pronouncement that "the collecting bank or last endorser generally suffers the loss because 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 manager's check.25

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 Atlantico's 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 General's denial of Banco Atlantico's 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 respondent's deposit, failed to exercise the diligence of a good
father of a family. In total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to
petitioner's detriment. As this Court once said on this matter:

Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-
year-old, yet still relevant, case of Picart v. Smith, provides that test by which to determine the existence of negligence in a particular
case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect
adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence
of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability
by that.29

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of
private respondent's dollar deposits that had yet to be cleared. The bank's ledger on private respondent's account shows that before he
deposited $2,500.00, private respondent had a balance of only $750.00.30 Upon private respondent's 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 $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, petitioner's branch manager, was informed unofficially of the fact
that the check deposited was a counterfeit, but petitioner's 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

From these facts on record, it is at once apparent that petitioner's 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 respondent's 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 petitioner's 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 proxim ate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner's part was its personnel's 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.1wphi1.nt

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.