1. Simex International (Manila), Inc. v.

CA
FIRST DIVISION
[G.R. No. 88013. March 19, 1990.]
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE
HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porciuncula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.
SYLLABUS
1. CIVIL LAW; DAMAGES; CARELESSNESS AMOUNTING TO GROSS
NEGLIGENCE WARRANTS AWARD OF MORAL DAMAGES. — 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.
2. ID.; ID.; DETERMINATION AS TO THE AMOUNT OF MORAL DAMAGES
LEFT TO THE SOUND DISCRETION OF THE COURT. — 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."
3. ID.; ID.; INJURY TO PLAINTIFF'S BUSINESS STANDING OR
COMMERCIAL CREDIT WARRANTS AWARD OF ACTUAL OR
COMPENSATORY DAMAGES. — 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."
4. ID.; ID.; CORPORATION NOT ENTITLED TO MORAL DAMAGES AS A
RULE; EXCEPTION. — 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.
5. ID.; ID.; AWARD OF NOMINAL DAMAGES NOT WARRANTED IN CASE
AT BAR. — The petitioner did suffer injury because of the private respondent's
negligence the 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. 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.
6. ID.; ID.; BANK'S NEGLIGENCE IN THEIR DUTIES TOWARDS THEIR
CLIENTS WARRANTS AWARD OF EXEMPLARY DAMAGES; REASON
THEREOF. — 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 indifference that has been displayed here, lest the
confidence of the public in the banking system be further impaired.
DECISION
CRUZ, J p:
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. LLphil
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 surprised 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 Pedreño in the
amount of P7,080.00:
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the
amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount
of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a
letter of demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good. It also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future payments
be made by it in cash or certified check. Meantime, action on the pending orders of
the petitioner with the other suppliers whose checks were dishonored was also
deferred. cdrep
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. Serquiña rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However, observing
that the plaintiffs 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. llcd
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." LexLib
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 the 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. LexLib
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. prcd
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 indifference that has been displayed here, lest the
confidence of the public in the banking system be further impaired. LLpr
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.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
Footnotes
1. Rollo, p. 4.
2. Exhibits 1-a to 1-h.
3. Rollo, p. 6.
4. Ibid., pp. 6-7.
5. Id., p. 24.
6. Victor, J., with Ejercito and Pe, JJ., concurring.
7. Cerrano v. Tan Chuco, 38 Phil. 392.
8. Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713; San
Andres v. Court of Appeals, 116 SCRA 81.
9. Mambulao Lumber Co. v. Philippine National Bank, 22 SCRA 359.
10. Rollo, pp. 38-41.

C o p y r i g h t 1 9 9 4 - 1 9 9 9 C D T e c h n o l o g i e s A s i a, I n c.
 2. Fidelity Savings and Mortgage Bank v. Cenzon
SECOND DIVISION
[G.R. No. L-46208. April 5, 1990.]
FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. PEDRO D.
CENZON, in his capacity as Presiding Judge of the Court of First Instance of Manila
(Branch XL) and SPOUSES TIMOTEO AND OLIMPIA SANTIAGO, respondents.
Agapito S. Fajardo and Marino E. Eslao for petitioner.
Leovillo C. Agustin Law Offices for private respondents.
SYLLABUS
1. CENTRAL BANK ACT; BANK DECLARED INSOLVENT AND ORDERED
CLOSED; NOT LIABLE TO PAY INTEREST ON BANK DEPOSITS WHICH
ACCRUED DURING THE PERIOD WHEN THE BANK IS ACTUALLY CLOSED
AND NON-OPERATIONAL. — It is settled jurisprudence that a banking institution
which has been declared insolvent and subsequently ordered closed by the Central Bank
of the Philippines cannot be held liable to pay interest on bank deposits which accrued
during the period when the bank is actually closed and non-operational. In The Overseas
Bank of Manila vs. Court of Appeals and Tony D. Tapia, we held that: "It is a matter of
common knowledge, which We take Judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru the other aspects of its operation
it is able to generate funds to cover the payment of such interest. Unless a bank can lend
money, engage in international transactions, acquire foreclosed mortgaged properties or
their proceeds and generally engage in other banking and financing activities from which
it can derive income, it is inconceivable how it can carry on as a depository obligated to
pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of such a
simple economic proposition. Consequently, it should be deemed read into every contract
of deposit with a bank that the obligation to pay interest on the deposit ceases the moment
the operation of the bank is completely suspended by the duly constituted authority, the
Central Bank."
2. ID.; ID.; NOT LIABLE FOR MORAL AND EXEMPLARY DAMAGES, IN
THE ABSENCE OF FRAUD; BAD FAITH, MALICE, AND WANTON ATTITUDE. —
The trial court found, and it is not disputed, that there was no fraud or bad faith on the
part of petitioner bank and the other defendants in accepting the deposits of private
respondents. Petitioner bank could not even be faulted in not immediately returning the
amount claimed by private respondents considering that the demand to pay was made and
Civil Case No. 84800 was filed in the trial court several months after the Central Bank
had ordered petitioner's closure. By that time, petitioner bank was no longer in a position
to comply with its obligations to its creditors, including herein private respondents. Even
the trial court had to admit that petitioner bank failed to pay private respondents because
it was already insolvent. Further, this case is not one of the specified or analogous
cases wherein moral damages may be recovered. There is no valid basis for the
award of exemplary damages which is supposed to serve as a warning to other
banks from dissipating their assets in anomalous transactions. It was not proven by
private respondents, and neither was there a categorical finding made by the trial court,
that petitioner bank actually engaged in anomalous real estate transactions. The same
were raised only during the testimony of the bank examiner of the Central Bank, but no
documentary evidence was ever presented in support thereof. Hence, it was error for the
lower court to impose exemplary damages upon petitioner bank since, in contracts, such
sanction requires that the offending party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. Neither does this case present the situation where
attorney's fees may be awarded. In the absence of fraud, bad faith, malice or wanton
attitude, petitioner bank may, therefore, not be held responsible for damages which may
be reasonably attributed to the non-performance of the obligation.
3. ID.; ID.; ID.; NOT VIOLATIVE OF THE PROVISION ON PREFERENCE AND
CONCURRENCE OF CREDITS. — We do not believe that the decision rendered in the
instant case would be violative of the legal provisions on preference and concurrence of
credits. As the trial court puts it: ". . . But this order of payment should not be understood
as raising these deposits to the category of preferred credits of the defendant Fidelity
Savings and Mortgage Bank but shall be paid in accordance with the Bank Liquidation
Rules and Regulations embodied in the Order of the Court of First Instance of Manila,
Branch XIII dated October 3, 1972 (Exh. 3) . . ."
DECISION
REGALADO, J p:
The instant petition seeks the review, on pure questions of law, of the decision rendered
by the Court of First Instance of Manila (now Regional Trial Court), Branch XL, on
December 3, 1976 in Civil Case No. 84800, 1 ordering herein petitioner to pay private
respondents the following amounts:
"(a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully
paid;
(b) P30,000.00 as exemplary damages; and
(c) P10,000.00 as and for attorney's fees.
"The payment by the defendant Fidelity Savings and Mortgage Bank of the
aforementioned sums of money shall be subject to the Bank Liquidation Rules and
Regulations embodied in the Order of the Court of First Instance of Manila, Branch XIII,
dated October 3, 1972, Civil Case No. 86005, entitled, 'IN RE: Liquidation of the Fidelity
Savings Bank versus Central Bank of the Philippines, Liquidator.'
"With costs against the defendant Fidelity Savings and Mortgage Bank.
"SO ORDERED."
Private respondents instituted this present action for a sum of money with damages
against Fidelity Savings and Mortgage Bank, Central Bank of the Philippines, Eusebio
Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr., Bibiana E. Lacuna, Jose C.
Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. On motion of herein
private respondents, as plaintiffs, the amended complaint was dismissed without
prejudice against defendants Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and
Ernani A. Pacana. 2 In its aforesaid decision of December 3, 1976, the court a quo
dismissed the complaint as against defendants Central Bank of the Philippines, Eusebio
Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna.
Back on August 10, 1973, the plaintiffs (herein private respondents) and the defendants
Fidelity Savings and Mortgage Bank (petitioner herein), Central Bank of the Philippines
and Bibiana E. Lacuna had filed in said case in the lower court a partial stipulation of
facts, as follows: cdrep
"COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and OLIMPIA R.
SANTIAGO, herein defendants FIDELITY SAVINGS AND MORTGAGE BANK and
the CENTRAL BANK OF THE PHILIPPINES, and herein defendant BIBIANA E.
LACUNA, through their respective undersigned counsel, and before this Honorable
Court most respectfully submit the following Partial Stipulation of Facts:
"1. That herein plaintiffs are husband and wife, both of legal age, and presently
residing at No. 480 C. de la Paz Street, Sta. Elena, Marikina, Rizal;
"2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation duly
organized and existing under and by virtue of the laws of the Philippines; that defendant
Central Bank of the Philippines is a corporation duly organized and existing under and by
virtue of the laws of the Philippines;
"3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of No. 42
East Lawin Street, Philamlife Homes, Quezon City; said defendant was an Assistant
Vice-President of the defendant Fidelity Savings and Mortgage Bank;
"4. That sometime on May 16, 1968, herein plaintiffs deposited with the defendant
Fidelity Savings Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under
Savings Account No. 160536; that likewise, sometime on July 6, 1968, herein plaintiffs
deposited with the defendant Fidelity Savings and Mortgage Bank the amount of FIFTY
THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No. 0210; that the
aggregate amount of deposits of the plaintiffs with the defendant Fidelity Savings and
Mortgage Bank is ONE HUNDRED THOUSAND PESOS (P100,000.00);
"5. That on February 18, 1969, the Monetary Board, after finding the report of the
Superintendent of Banks, that the condition of the defendant Fidelity Savings and
Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350 deciding,
among others, as follows:
'1) To forbid the Fidelity Savings Bank to do business in the Philippines;
2) To instruct the Acting Superintendent of Banks to take charge, in the name of the
Monetary Board, of the Bank's assets;'
"6. That pursuant to the above-cited instructions of the Monetary Board, the
Superintendent of Banks took charge in the name of the Monetary Board, of the assets of
defendant Fidelity Savings Bank on February 19, 1969; and that since that date up to this
date, the Superintendent of Banks (now designated as Director, Department of
Commercial and Savings Banks) has been taking charge of the assets of defendant
Fidelity Savings and Mortgage Bank;
"7. That sometime on October 10, 1969 the Philippine Deposit Insurance Corporation
paid the plaintiffs the amount of TEN THOUSAND PESOS (P10,000.00) on the
aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a
deposit balance of P90,000.00;
"8. That on December 9, 1969, the Monetary Board issued its Resolution No. 2124
directing the liquidation of the affairs of defendant Fidelity Savings Bank;
"9. That on January 25, 1972, the Solicitor General of the Philippines filed a 'Petition
for Assistance and Supervision in Liquidation' of the affairs of the defendant Fidelity
Savings and Mortgage Bank with the Court of First Instance of Manila, assigned to
Branch XIII and docketed as Civil Case No. 86005;
"10. That on October 3, 1972, the Liquidation Court promulgated the Bank Rules and
Regulations to govern the liquidation of the affairs of defendant Fidelity Savings and
Mortgage Bank, prescribing the rules on the conversion of the Bank's assets into money,
processing of claims against it and the manner and time of distributing the proceeds from
the assets of the Bank;
"11. That the liquidation proceedings has not been terminated and is still pending up to
the present;
"12. That herein plaintiffs, through their counsel, sent demand letters to herein
defendants, demanding the immediate payment of the aforementioned savings and time
deposits.
"WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of Facts be
approved by this Honorable Court, without prejudice to the presentation of additional
documentary or testimonial evidence by herein parties.
"Manila, Philippines, August 10, 1973." 3
Assigning error in the judgment of the lower court quoted ab antecedente, petitioner
raises two questions of law, to wit:
1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank
may be adjudged to pay interest on unpaid deposits even after its closure by the Central
Bank by reason of insolvency without violating the provisions of the Civil Code on
preference of credits; and
2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank
may be adjudged to pay moral and exemplary damages, attorney's fees and costs when
the insolvency is caused by the anomalous real estate transactions without violating the
provisions of the Civil Code on preference of credits.
There is merit in the petition.
It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable
to pay interest on bank deposits which accrued during the period when the bank is
actually closed and non-operational. LLjur
In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we held that:
"It is a matter of common knowledge, which We take Judicial notice of, that what enables
a bank to pay stipulated interest on money deposited with it is that thru the other aspects
of its operation it is able to generate funds to cover the payment of such interest. Unless a
bank can lend money, engage in international transactions, acquire foreclosed mortgaged
properties or their proceeds and generally engage in other banking and financing
activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest. Conventional wisdom dictates this
inexorable fair and just conclusion. And it can be said that all who deposit money in
banks are aware of such a simple economic proposition. Consequently, it should be
deemed read into every contract of deposit with a bank that the obligation to pay interest
on the deposit ceases the moment the operation of the bank is completely suspended by
the duly constituted authority, the Central Bank."
This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon.
Court of Appeals and Julian R. Cordero, 5 and in the recent cases of Integrated Realty
Corporation, et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila
vs. Court of Appeals, et al. 6
From the aforecited authorities, it is manifest that petitioner cannot be held liable for
interest on bank deposits which accrued from the time it was prohibited by the Central
Bank to continue with its banking operations, that is, when Resolution No. 350 to that
effect was issued on February 18, 1969.
The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank
allowing the claims of depositors and creditors to earn interest up to the date of its closure
on February 18, 1969, 7 is in line with the doctrine laid down in the jurisprudence above
cited.
Although petitioner's formulation of the second issue that it poses is slightly inaccurate
and defective, we likewise find the awards of moral and exemplary damages and
attorney's fees to be erroneous. cdrep
The trial court found, and it is not disputed, that there was no fraud or bad faith on the
part of petitioner bank and the other defendants in accepting the deposits of private
respondents. Petitioner bank could not even be faulted in not immediately returning the
amount claimed by private respondents considering that the demand to pay was made and
Civil Case No. 84800 was filed in the trial court several months after the Central Bank
had ordered petitioner's closure. By that time, petitioner bank was no longer in a position
to comply with its obligations to its creditors, including herein private respondents. Even
the trial court had to admit that petitioner bank failed to pay private respondents because
it was already insolvent. 8 Further, this case is not one of the specified or analogous
cases wherein moral damages may be recovered. 9
There is no valid basis for the award of exemplary damages which is supposed to serve as
a warning to other banks from dissipating their assets in anomalous transactions. It was
not proven by private respondents, and neither was there a categorical finding made by
the trial court, that petitioner bank actually engaged in anomalous real estate transactions.
The same were raised only during the testimony of the bank examiner of the Central
Bank, 10 but no documentary evidence was ever presented in support thereof. Hence, it
was error for the lower court to impose exemplary damages upon petitioner bank since, in
contracts, such sanction requires that the offending party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. 11 Neither does this case present the situation
where attorney's fees may be awarded. 12
In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may,
therefore, not be held responsible for damages which may be reasonably attributed to the
non-performance of the obligation. 13 Consequently, we reiterate that under the premises
and pursuant to the aforementioned provisions of law, it is apparent that private
respondents are not justifiably entitled to the payment of moral and exemplary damages
and attorney's fees. cdrep
While we tend to agree with petitioner bank that private respondents' claims should have
been filed in the liquidation proceedings in Civil Case No. 86005, entitled "In Re:
Liquidation of the Fidelity Savings and Mortgage Bank," pending before Branch XIII of
the then Court of First Instance of Manila, we do not believe that the decision rendered in
the instant case would be violative of the legal provisions on preference and concurrence
of credits. As the trial court puts it:
". . . But this order of payment should not be understood as raising these deposits to the
category of preferred credits of the defendant Fidelity Savings and Mortgage Bank but
shall be paid in accordance with the Bank Liquidation Rules and Regulations embodied
in the Order of the Court of First Instance of Manila, Branch XIII dated October 3, 1972
(Exh. 3) . . ." 14
WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity
Savings and Mortgage Bank is hereby declared liable to pay private respondents Timoteo
and Olimpia Santiago the sum of P90,000.00, with accrued interest in accordance with
the terms of Savings Account Deposit No. 16-0536 (Exhibit A) and Certificate of Time
Deposit No. 0210 (Exhibit B) until February 18, 1969. The awards for moral and
exemplary damages, and attorney's fees are hereby DELETED. No costs.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
1. Annex A, Petition; Rollo, 42-67.
2. Rollo, 46.
3. Ibid., 52-53.
4. 105 SCRA 49 (1981).
5. 113 SCRA 778 (1982).
6. G.R. Nos. 60705 and 60907, jointly decided on June 28, 1989.
7. Rollo, 33.
8. Ibid., 61-64.
9. Art. 2219, Civil Code.
10. Ibid., 57.
11. Art. 2232, Civil Code.
12. Art. 2208. id.
13. Art. 2201, id.
14. Rollo, 65.
3. Prudential Bank v. CA
SECOND DIVISION
[G.R. No. 125536. March 16, 2000.]
PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA TUPASI-
VALENZUELA joined by husband Francisco Valenzuela, respondents.
Magno & Associates for petitioner.
Eduardo V. Cruz for private respondents.
SYNOPSIS
Private respondent opened a savings account and a current account in the Valenzuela
branch of petitioner Prudential Bank, with automatic transfer of funds from savings
account to current account. Thereafter, private respondent issued a post-dated check in
the amount of P11,500.00 in favor of one Belen Legaspi. It was issued to Legaspi as
payment for jewelry, which the private respondent had purchased. When the check was
deposited in PCI Bank, it was dishonored for being drawn against insufficient fund. Upon
her return from the province, private respondent was surprised to learn of the dishonor of
the check. She went to the Valenzuela Branch of Prudential Bank to inquire why her
check was dishonored. She approached one Albert Reyes, the officer-in-charge of the
current account, to ask why her check bounced, but Reyes told her that there was no need
to review the passbook because the bank ledger was the best proof that she did not have
sufficient funds. Later, it was found out that the check in the amount of P35,271.00
deposited by the private respondent prior to the dishonor was credited only in her savings
account after a period of 23 days. Thus, the P11,500.00 check was redeposited, and this
time properly cleared by the bank. Because of this incident, the bank tried to mollify
private respondent by admitting their mistake. Since this was not the first incident,
private respondent was unmoved by the bank's apologies and she commenced a suit for
damages before the Regional Trial Court of Valenzuela. After trial, the lower court
rendered a decision on August 30, 1991 dismissing the complaint of private respondent as
well as the counterclaim filed by the petitioner. On appeal, the appellate court rendered a
decision reversing the lower court and ordering herein petitioner to pay private
respondent the sum of P100,000.00 by way of moral damages, P50,000.00 as exemplary
damages and P50,000.00 as attorney's fees. Petitioner filed a motion for reconsideration,
but the same was denied. Hence, this appeal by certiorari. SCEDAI
The Court found the petition devoid of merit. The Court ruled that even if malice or bad
faith was not sufficiently proved in the instant case, the fact remains that petitioner had
committed a serious mistake. It dishonored the check issued by private respondent who
turned out to have sufficient funds with petitioner. The bank's negligence was the result of
lack of due care and caution required of managers and employees of a firm engaged in so
sensitive and demanding business as banking. Accordingly, the award of moral and
exemplary damages including the attorney's fees by the respondent Court of Appeals
could not be said to be neither in error nor in grave abuse of discretion. However, the
Court ruled that although the appellate court did not err in granting exemplary damages
and attorney's fees, said awards must be reduced to P20,000.00 and P30,000.00
respectively, for being excessive.
SYLLABUS
1. CIVIL LAW; OBLIGATION AND CONTRACTS; EXTENT OF DILIGENCE
REQUIRED OF A BANK. — In Simex International (Manila), Inc. vs. Court of Appeals,
183 SCRA 360, 367 (1990), and Bank of Philippine Islands vs. IAC, et al., 206 SCRA
408, 412-413 (1992), this Court had occasion to stress the fiduciary nature of the
relationship between a bank and its depositors and the extent of diligence expected of the
former in handling the accounts entrusted to its care, thus: "In every case, the depositor
expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he
directs. A blunder on the part of bank, such as the dishonor of a check without good
reason, can cause the depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation. The point is that as a business affected with
public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. . . ."
2. ID.; ID.; ID.; A BANK IS UNDER OBLIGATION TO TREAT THE ACCOUNTS
OF ITS DEPOSITORS WITH METICULOUS CARE WHETHER SUCH ACCOUNT
CONSISTS ONLY A FEW HUNDRED PESOS OR OF MILLIONS OF PESOS. — In
the recent case of Philippine National Bank vs. Court of Appeals, we held that "a bank is
under obligation to treat the accounts of its depositors with meticulous care whether such
account consists only of a few hundred pesos or of millions of pesos. Responsibility
arising from negligence in the performance of every kind of obligation is demandable.
While petitioner's negligence in this case may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation." Hence
we ruled that the offended party in said case was entitled to recover reasonable moral
damages.
3. ID.; EXEMPLARY DAMAGES; THE LAW ALLOWS THE GRANT OF
EXEMPLARY DAMAGES BY WAY OF EXAMPLE TO PUBLIC GOOD. — The law
allows the grant of exemplary damages by way of example for the public good. The
public relies on the bank's sworn profession of diligence and meticulousness in giving
irreproachable service. The level of meticulousness must be maintained at all times by the
banking sector. Hence, the Court of Appeals did not err in awarding exemplary damages.
In our view, however, the reduced amount of P20,000.00 is more appropriate.
4. ID.; ATTORNEYS FEES; STANDARDS; AWARD THEREOF PROPER BUT
REDUCED TO P30,000.000. — The award of attorney's fees is also proper when
exemplary damages are awarded and since private respondent was compelled to engage
the services of a lawyer and incurred expenses to protect her interest. The standards in
fixing attorney's fees are: (1) the amount and the character of the services rendered; (2)
labor, time and trouble involved; (3) the nature and importance of the litigation and
business in which the services were rendered; (4) the responsibility imposed; (5) the
amount of money and the value of the property affected by the controversy or involved in
the employment; (6) the skill and the experience called for in the performance of the
services; (7) the professional character and the social standing of the attorney; (8) the
results secured, it being a recognized rule that an attorney may properly charge a much
larger fee when it is contingent than when it is not. In this case, all the aforementioned
weighed, and considering that the amount involved in the controversy is only P36,770.41,
the total deposit of private respondent which was misposted by the bank, we find the
award of respondent court of P50,000.00 for attorney's fees, excessive and reduce the
same to P30,000.00. HIAESC
DECISION
QUISUMBING, J p:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside
the Decision dated January 31, 1996, and the Resolution dated July 2, 1997, of the Court
of Appeals in CA G.R. CV No. 35532, which reversed the judgment of the Regional Trial
Court of Valenzuela, Metro Manila, Branch 171, in Civil Case No. 2913-V-88, dismissing
the private respondent's complaint for damages. 1
In setting aside the trial court's decision, the Court of Appeals disposed as follows:
"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and,
another rendered ordering the appellee bank to pay appellant the sum of P100,000.00 by
way of moral damages; P50,000.00 by way of exemplary damages, P50,000.00 for and as
attorney's fees; and to pay the costs. LLjur
SO ORDERED." 2
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and
Current Account No. 01016-3 in the Valenzuela Branch of petitioner Prudential Bank,
with automatic transfer of funds from the savings account to the current account.
On June 1, 1988, herein private respondent deposited in her savings account Check No.
666B (104561 of even date) the amount of P35,271.60, drawn against the Philippine
Commercial International Bank (PCIB). Taking into account that deposit and a series of
withdrawals, private respondent as of June 21, 1988 had a balance of P35,993.48 in her
savings account and P776.93 in her current account, or total deposits of P36,770.41, with
petitioner.
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount
of P11,500.00 post-dated June 20, 1988, in favor of one Belen Legaspi. It was issued to
Legaspi as payment for jewelry which private respondent had purchased. Legaspi, who
was in jewelry trade, endorsed the check to one Philip Lhuillier, a businessman also in the
jewelry business. When Lhuillier deposited the check in his account with the PCIB, Pasay
Branch, it was dishonored for being drawn against insufficient funds. Lhuillier's secretary
informed the secretary of Legaspi of the dishonor. The latter told the former to redeposit
the check. Legaspi's secretary tried to contact private respondent but to no avail. cdtai
Upon her return from the province, private respondent was surprised to learn of the
dishonor of the check. She went to the Valenzuela Branch of Prudential Bank on July 4,
1988, to inquire why her check was dishonored. She approached one Albert Angeles
Reyes, the officer in charge of current account, and requested him for the ledger of her
current account. Private respondent discovered a debit of P300.00 penalty for the
dishonor of her Prudential Check No. 983395. She asked why her check was dishonored
when there were sufficient funds in her account as reflected in her passbook. Reyes told
her that there was no need to review the passbook because the bank ledger was the best
proof that she did not have sufficient funds. Then, he abruptly faced his typewriter and
started typing.
Later, it was found out that the check in the amount of P35,271.60 deposited by private
respondent on June 1, 1988, was credited in her savings account only on June 24, 1988,
or after a period of 23 days. Thus the P11,500.00 check was redeposited by Lhuillier on
June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to
Legaspi and Lhuillier that the bank was at fault. Since this was not the first incident
private respondent had experienced with the bank, private respondent was unmoved by
the bank's apologies and she commenced the present suit for damages before the RTC of
Valenzuela.
After trial, the court rendered a decision on August 30, 1991, dismissing the complaint of
private respondent, as well as the counterclaim filed by the defendant, now petitioner.
cdtai
Undeterred, private respondent appealed to the Court of Appeals. On January 31, 1996,
respondent appellate court rendered a decision in her favor, setting aside the trial court's
decision and ordering herein petitioner to pay private respondent the sum of P100,000.00
by way of moral damages; P50,000.00 exemplary damages; P50,000.00 for and as
attorney's fees; and to pay the costs. 3
Petitioner filed a timely motion for reconsideration but it was denied. Hence, this petition,
raising the following issues:
I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DEVIATING FROM ESTABLISHED JURISPRUDENCE IN
REVERSING THE DISMISSAL JUDGMENT OF THE TRIAL COURT AND
INSTEAD AWARDED MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEY'S FEES.
II. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION
WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL
COURT, AWARDED MORAL DAMAGES IN THE AMOUNT OF P100,000.00.
III. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION,
WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL
COURT, AWARDED P50,000.00 BY WAY OF EXEMPLARY DAMAGES.
IV. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED
WITH GRAVE ABUSE OF DISCRETION WHERE EVEN IN THE ABSENCE OF
EVIDENCE, AWARDED ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent court erred and gravely abused its
discretion in awarding moral and exemplary damages and attorney's fees to be paid by
petitioner to private respondent. cdrep
Petitioner claims that generally the factual findings of the lower courts are final and
binding upon this Court. However, there are exceptions to this rule. One is where the trial
court and the Court of Appeals had arrived at diverse factual findings. 4 Petitioner faults
the respondent court from deviating from the basic rule that finding of facts by the trial
court is entitled to great weight, because the trial court had the opportunity to observe the
deportment of witness and the evaluation of evidence presented during the trial.
Petitioner contends that the appellate court gravely abused its discretion when it awarded
damages to the plaintiff, even in the face of lack of evidence to prove such damages, as
found by the trial court.
Firstly, petitioner questions the award of moral damages. It claims that private
respondent did not suffer any damage upon the dishonor of the check. Petitioner avers it
acted in good faith. It was an honest mistake on its part, according to petitioner, when
misposting of private respondent's deposit on June 1, 1988, happened. Further, petitioner
contends that private respondent may not "claim" damages because the petitioner's
manager and other employees had profusely apologized to private respondent for the
error. They offered to make restitution and apology to the payee of the check, Legaspi, as
well as the alleged endorsee, Lhuillier. Regrettably, it was private respondent who
declined the offer and allegedly said, that there was nothing more to it, and that the matter
had been put to rest. 5
Admittedly, as found by both the respondent appellate court and the trial court, petitioner
bank had committed a mistake. It misposted private respondent's check deposit to another
account and delayed the posting of the same to the proper account of the private
respondent. The mistake resulted to the dishonor of the private respondent's check. The
trial court found "that the misposting of plaintiff's check deposit to another account and
the delayed posting of the same to the account of the plaintiff is a clear proof of lack of
supervision on the part of the defendant bank." 6 Similarly, the appellate court also found
that "while it may be true that the bank's negligence in dishonoring the properly funded
check of appellant might not have been attended with malice and bad faith, as appellee
[bank] submits, nevertheless, it is the result of lack of due care and caution expected of an
employee of a firm engaged in so sensitive and accurately demanding task as banking." 7
In Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, 367 (1990),
and Bank of Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court
had occasion to stress the fiduciary nature of the relationship between a bank and its
depositors and the extent of diligence expected of the former in handling the accounts
entrusted to its care, thus:
"In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. A blunder on the part of bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation. LLphil
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 recent case of Philippine National Bank vs. Court of Appeals, 8 we held that "a
bank is under obligation to treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the performance of every kind of obligation is
demandable. While petitioner's negligence in this case may not have been attended with
malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation." Hence we ruled that the offended party in said case was entitled to
recover reasonable moral damages.
Even if malice or bad faith was not sufficiently proved in the instant case, the fact
remains that petitioner has committed a serious mistake. It dishonored the check issued
by the private respondent who turned out to have sufficient funds with petitioner. The
bank's negligence was the result of lack of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business as banking.
Accordingly, the award of moral damages by the respondent Court of Appeals could not
be said to be in error nor in grave abuse of its discretion.
There is no hard-and-fast rule in the determination of what would be a fair amount of
moral damages since each case must be governed by its own peculiar facts. The yardstick
should be that it is not palpably and scandalously excessive. In our view, the award of
P100,000.00 is reasonable, considering the reputation and social standing of private
respondent Leticia T. Valenzuela. 9
The law allows the grant of exemplary damages by way of example for the public good.
10 The public relies on the banks' sworn profession of diligence and meticulousness in
giving irreproachable service. The level of meticulousness must be maintained at all
times by the banking sector. Hence, the Court of Appeals did not err in awarding
exemplary damages. In our view, however, the reduced amount of P20,000.00 is more
appropriate. cdrep
The award of attorney's fees is also proper when exemplary damages are awarded and
since private respondent was compelled to engage the services of a lawyer and incurred
expenses to protect her interest. 11 The standards in fixing attorney's fees are: (1) the
amount and the character of the services rendered; (2) labor, time and trouble involved;
(3) the nature and importance of the litigation and business in which the services were
rendered; (4) the responsibility imposed; (5) the amount of money and the value of the
property affected by the controversy or involved in the employment; (6) the skill and the
experience called for in the performance of the services; (7) the professional character
and the social standing of the attorney; (8) the results secured, it being a recognized rule
that an attorney may properly charge a much larger fee when it is contingent than when it
is not. 12 In this case, all the aforementioned weighed, and considering that the amount
involved in the controversy is only P36,770.41, the total deposit of private respondent
which was misposted by the bank, we find the award of respondent court of P50,000.00
for attorney's fees, excessive and reduce the same to P30,000.00.
WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED,
with MODIFICATION. The petitioner is ordered to pay P100,000.00 by way of moral
damages in favor of private respondent Leticia T. Valenzuela. It is further ordered to pay
her exemplary damages in the amount of P20,000.00 and P30,000.00, attorney's fees.
Costs against petitioner. cdtai
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Footnotes
1. Rollo, p. 65.
2. Id. at 72.
3. Supra, note 2.
4. Cang vs. Court of Appeals, 296 SCRA 128, 145 (1998).
5. Rollo, pp. 21-24.
6. Id. at 62.
 7. Id. at 70.
8. G.R. No. 126152, September 28, 1999, citing the cases of Metropolitan Bank and
Trust Company vs. Court of Appeals, 237 SCRA 761 (1994) and Leopoldo Araneta vs.
Bank of America, 40 SCRA 144 (1971).
9. Cf . Philippine National Bank vs. Court of Appeals, G.R. No. 126152, September
28, 1999, p. 7; Tan vs. Court of Appeals, 239 SCRA 310, 324 (1994).
10. See CIVIL CODE, Article 2229.
11. See CIVIL CODE, Article 2208.
12. Pascual v. Court of Appeals, 300 SCRA 214, 233 (1998).
4. BPI v. CA
FIRST DIVISION
[G.R. No. 112392. February 29, 2000.]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and
BENJAMIN C. NAPIZA, respondents.
Benedicto Tale & Associates for petitioner.
Renato M. Coronado for private respondent.
SYNOPSIS
By way of accommodation and only for the purpose of clearing, Benjamin Napiza
(private respondent herein), deposited a check in the amount of $2,500.00 in his dollar
deposit with the petitioner Bank of the Philippine Islands. This check belongs to Henry
Chan. Napiza delivered 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.
However, using the same blank withdrawal slip, a bank employee was able to withdraw
the amount of $2,541.67, which was made payable to Ramon A. de Guzman and Agnes
C. de Guzman. Later, the bank received a communication that the deposited check was a
counterfeit. The bank informed respondent Napiza that the check bounced, hence, the
latter tried to locate Chan. Since Napiza was unable to locate Chan, the bank demanded
payment from him. Napiza refused to pay on the ground that the check was deposited for
clearing purposes only to accommodate Chan. As a result, petitioner bank filed a
complaint against private respondent for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus interest, attorney's fees, and litigation costs. The lower
court dismissed the complaint. The lower court held that having committed a mistake of
not waiting for the clearance of the check before authorizing the withdrawal of its value,
petitioner should suffer the resultant loss. The Court of Appeals affirmed the lower court's
decision and stressed that the mere deposit of the check did not mean that it was already
the property of the depositor. The check 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. Hence, this petition. SCaITA
The Supreme Court denied the petition. The Court of Appeals correctly held that in
depositing the check in his name, private respondent did not become the outright owner
of the amount stated therein. Under petitioner bank's own rule, by depositing the check,
private respondent was merely designating petitioner as the collecting bank. This is in
consonance with the rule that a negotiable instrument, such as a check, is not a legal
tender.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; WARRANTIES
OF A PERSON NEGOTIATING AN INSTRUMENT; APPLICATION IN CASE AT
BAR. — Section 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument
is genuine and in all respects what it purports to be; (b) that he has a good title to it; and
(c) that all prior parties had capacity to contract. In People vs. Maniego, 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 therefor, and for the purpose of lending his name to some other person.'
As such, she is under the law 'liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew ** (her) to be only
an accommodation party,' although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated, 'since the relation between them is in
effect that of principal and surety, the accommodation party being the surety.'" It is thus
clear that ordinarily private respondent may be held liable as an indorser of the check or
even as an accommodation party. 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.
2. ID.; ID.; CHECK DEPOSIT; COLLECTING BANK OR LAST ENDORSER
SUFFERS THE LOSS, AS A GENERAL RULE; RATIONALE; CASE AT BAR. — 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. 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 it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of
the endorsements." 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. 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."
EcIaTA
3. CIVIL LAW; QUASI-DELICTS; NEGLIGENCE; DEFINED; WHEN
PRESENT; CASE AT BAR. — As such, in dealing with its depositors, a bank should
exercise its functions not only with the diligence of a good father of a family but it should
do so with the highest degree of care. In the case at bar, petitioner, in allowing the
withdrawal of private 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 vs. Smith, provides the test by which
to determine the existence of negligence in a particular case which may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the same situation? If not,
then he is guilty of negligence. The law here in effect adopts the standard supposed to be
supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that."
4. ID.; ID.; ID.; PROXIMATE CAUSE, DEFINED; PRESENCE THEREOF IN
CASE AT BAR. — 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." The proximate 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.
DECISION
YNARES-SANTIAGO, J p:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals in CA-
G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch
139, 2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands
against Benjamin C. Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187 3 which he maintained in petitioner bank's
Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 00014757 4
dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred
Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. 5 It
appears that the check belonged to a certain Henry Chan who went to the office of private
respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded,
and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that
as soon as the check is cleared, both of them would go to the bank to withdraw the
amount of the check upon private 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 check 7 because it was "not of the type or style of checks issued by
Continental Bank International." 8 Consequently, Mr. Ariel Reyes, the manager of
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 had been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it
shall have been cleared upon instruction of Chan. He also said that upon learning of the
dishonor of the check, his father immediately tried to contact Chan but the latter was out
of town. 10
Private 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, 1985 13 stating that he
deposited the check "for clearing purposes" only to accommodate Chan. He added:
"Further, please take notice that said check was deposited on September 3, 1984 and
withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the
time of withdrawal. Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the reason why the transaction
is not reflected in the passbook of the account. Besides, I did not receive its proceeds as
may be gleaned from the withdrawal slip under the captioned signature of recipient.
"If at all, my obligation on the transaction is moral in nature, which (sic) I have been and
is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is
directly liable under the circumstances.
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 statagem 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, wherein it asserted that per paragraph 2 of the Rules and Regulations
governing BPI savings accounts, private respondent alone was liable "for the value of the
credit given on account of the draft or check deposited." It contended that private
respondent was estopped from disclaiming liability because he himself authorized the
withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial
of the said motion so as not to unduly delay the disposition of the main case asserting that
private 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 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 "clear 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):
"SECTION 66. Liability of general indorser. — Every indorser who indorses
without qualification, warrants to all subsequent holders in due course —
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it."
Section 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument
is genuine and in all respects what it purports to be; (b) that he has 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 a 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 maker, drawer or acceptor ** unless he clearly
indicated by appropriate words his intention to be bound in some other capacity.' Such an
indorser 'who indorses without qualification,' inter alia 'engages that on due presentment,
** (the instrument) shall be accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or any subsequent indorser who may
be compelled to pay it.' Maniego may also be deemed an 'accommodation party' in the
light of the facts, i.e., a person 'who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to
some other person.' As such, she is under the law 'liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew ** (her) to
be only an accommodation party,' although she has the right, after paying the holder, to
obtain reimbursement from the party accommodated, 'since the relation between them is
in effect that of principal and surety, the accommodation party being the surety."
It is thus clear that ordinarily private respondent may be held liable as an indorser of the
check or even as an accommodation party. 17 However, to hold private respondent liable
for the amount of the check he deposited by the strict application of the law and without
considering the attending circumstances in the case would result in an injustice and in the
erosion of the public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the
opportunity for the withdrawal of the amount in question." Petitioner relied "on the
genuine signature on the withdrawal slip, the personality of private 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 travelers checks and in
pesos. Withdrawals in the form of notes/bills are allowed subject however, to their
(availability).
6. Deposits shall not be subject to withdrawal by check, and may be withdrawn only
in the manner above provided, upon presentation of the 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 that he signed a blank withdrawal
slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must
name the payee, the amount to be withdrawn and the place where such withdrawal should
be made. That the withdrawal slip was in fact a blank one with only private 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
accepted 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
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 it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of
the endorsements." 24 The rule finds more meaning in this case where the check involved
is drawn on a foreign bank and therefore collection is more difficult than when the
drawee bank is a local one even though the check in question is a 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 the test by which to
determine the existence of negligence in a particular case which may be stated as follows:
Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he
is guilty of negligence. The law here in effect adopts the standard supposed to be supplied
by the imaginary conduct of the discreet pater-familias of the Roman law. The existence
of negligence in a given case is not determined by reference to the personal judgment of
the actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that." 29
Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private 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 of $2,640.00.
On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October
23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92.
32 On November 19, 1984 the word "hold" was written beside the balance of $109.92. 33
That must have been the time when Reyes, 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 proximate 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.
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.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.
Footnotes
1. Penned by Associate Justice Jainal D. Rasul and concurred in by Associate
Justices Gloria C. Paras and Ramon Mabutas, Jr.
2. The decision of the RTC was penned by Assisting Judge Jose R. Bautista per
Administrative Order No. 109-91 dated October 3, 1991.
3. Exh. B.
4. Exh. C.
5. Exh. C-1.
6. TSN, September 14, 1989, p. 16.
7. Exh. E.
8. Exh. E-1.
9. Exh. F.
10. Ibid.
11. Exh. H.
12. Exh. I.
13. Exh. 3.
14. G.R. No. 72110, 191 SCRA 411 (1990).
15. Sec. 65, Negotiable Instruments Law.
16. L-30910, 148 SCRA 30, 35 (1987).
17. In Town Savings and Loan Bank, Inc. v. Court of Appeals, G.R. No. 106011, 223
SCRA 459 (1993), the Court held that the accommodation parties to a promissory note
are liable for the amount of the loan notwithstanding that they were not the actual
beneficiaries of such loan as they merely signed the promissory note in order that the
party accommodated could be granted the full amount of the loan.
18. Petition, p. 7.
19. Exh. G or 1.
20. Petition, p. 6.
21. TSN, September 5, 1989, p. 20.
22. Exh. 2-a.
23. Philippine Airlines, Inc. v. Court of Appeals, L-49188, 181 SCRA 557, 568 (1990)
citing Sec. 189 of the Negotiable Instruments Law; Art. 1249, Civil Code; Bryan Landon
Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44 and 21 R.C.L. 60, 61.
24. Associated Bank v. Court of Appeals, 322 Phil. 677, 699-700 citing Bank of the
Philippine Islands v. Court of Appeals, G.R. No. 102383, 216 SCRA 51, 63 (1992),
Banco de Oro v. Equitable Banking Corporation, G.R. 74917, 157 SCRA 188 (1988) and
Great Eastern Life Insurance Co. v. Hongkong and Shanghai Banking Corporation, 43
Phil. 678.
25. A manager's check is like a cashier's check which, in the commercial world, is
regarded substantially to be as good as the money it represents (Tan v. Court of Appeals,
G.R. No. 108555, 239 SCRA 310, 322 (1994).
26. L-33549, 81 SCRA 335 (1978).
27. Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281,
232 SCRA 559, 564 (1994) citing Simex International (Manila), Inc. v. Court of Appeals,
G.R. No. 88013, 183 SCRA 360 (1990).
28. Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997)
citing Metropolitan Bank and Trust Company v. Court of Appeals, G.R. No. 112576, 237
SCRA 761, 767 (1994) and Bank of the Philippine Islands v. Court of Appeals, G.R. No.
102383, 216 SCRA 51 (1992).
29. Ibid., at p. 676.
30. Exh. A.
31. Exh. A-1.
32. Exh. A-2.
33. Exh. A-3.
34. Exh. E.
35. Affidavit of Reyes, p. 3; Record, p. 111.
36. TSN, September 21, 1989, p. 21.
37. Philippine Bank of Commerce v. Court of Appeals, supra, at p. 679.
5. Consolidated Bank and Trust Corporation v. CA
FIRST DIVISION
[G.R. No. 138569. September 11, 2003.]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT
OF APPEALS and L.C. DIAZ and COMPANY, CPA's, respondents.
DECISION
CARPIO, J p:
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, attorney's fees, expenses of litigation and cost of suit. caAICE
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine
laws. Private respondent L.C. Diaz and Company, CPA's ("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
PBC's 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. IaSCTE
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 attorney's 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 Solidbank's 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 Solidbank's 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. Diaz's negligence
caused the unauthorized withdrawal. Three facts establish L.C. Diaz's 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. Diaz's 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 manager's 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 manager's 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 attorney's fees.
With costs against plaintiff.
SO ORDERED. 12
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbank's 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 attorney's
fees and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellee's counterclaim in the amount of
P30,000.00 as attorney's 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 attorney's 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 attorney's 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 attorney's fees,
expenses of litigation and cost of suit. SDaHEc
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 RESPONDENT'S 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 BANK'S 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 RESPONDENT'S 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 BANK'S NEGLIGENCE
WAS ONLY CONTRIBUTORY. 16
The Ruling of the Court
The petition is partly meritorious.
Solidbank's 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 ". . .
savings . . . 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 bank's 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. Diaz's 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.
Solidbank's 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.
Solidbank's 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 Solidbank's tellers during withdrawals, the law imposes on Solidbank
and its tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbank's 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 Solidbank's
employees. ETHCDS
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. Diaz's 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
teller's 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.
Solidbank's 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 Solidbank's rules
on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbank's 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 Solidbank's negligence in not returning the passbook to
Calapre.
We do not subscribe to the appellate court's theory that the proximate cause of the
unauthorized withdrawal was the teller's 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:
. . . 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 Solidbank's 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 Solidbank's 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 he 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, CPA's 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, CPA's. Proportionate costs. IDcTEA
SO ORDERED.
Davide, Jr., C.J., Vitug and Ynares-Santiago, JJ., concur.
Azcuna, J., is on official leave.
Footnotes
1. Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus
M. Elbinias, Marina L. Buzon, Godardo A. Jacinto and Candido V. Rivera, concurring,
Fourth Division (Special Division of Five Justices).
2. Penned by Judge Felixberto T. Olalia, Jr.
3. Rollo, p. 119.
4. Ibid., p. 229. The account must have been long dormant.
5. Records, p. 9.
6. Ibid., p. 34.
7. Docketed as Civil Case No. 92-62384.
8. Docketed as CA-G.R. CV No. 49243.
9. Rollo, p. 231.
10. Ibid., p. 233.
11. Ibid., p. 60.
12. Ibid., p. 66.
13. Rollo, pp. 49-50.
14. Art. 2231. In quasi-delicts, exemplary damages may be granted if the
defendant acted with gross negligence.
15. Rollo, p. 43.
16. Ibid., pp. 33-34.
17. Article 1953 of the Civil Code provides: "A person who receives a loan of money
or any other fungible thing acquires the ownership thereof, and is bound to pay the
creditor an equal amount of the same kind and quality."
18. The General Banking Law of 2000.
19. In the United States, the prevailing rule, as enunciated by the U.S. Supreme Court
in Bank of Marin v. England, 385 U.S. 99 (1966), is that the bank-depositor relationship
is governed by contract, and the bankruptcy of the depositor does not alter the
relationship unless the bank receives notice of the bankruptcy. However, the Supreme
Court of some states, like Arizona, have held that banks have more than a contractual
duty to depositors, and that a special relationship may create a fiduciary obligation on
banks outside of their contract with depositors. See Stewart v. Phoenix National Bank, 49
Ariz. 34, 64 P. 2d 101 (1937); Klein v. First Edina National Bank, 293 Minn. 418, 196
N.W. 2d 619 (1972).
20. G.R. No. 88013, 19 March 1990, 183 SCRA 360.
21. The ruling in Simex International was followed in the following cases: Bank of
the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February
1992, 206 SCRA 408; Citytrust Banking Corporation v. Intermediate Appellate Court,
G.R. No. 84281, 27 May 1994, 232 SCRA 559; Tan v. Court of Appeals, G.R. No.
108555, 20 December 1994, 239 SCRA 310; Metropolitan Bank & Trust Co. v. Court of
Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Philippine Bank of
Commerce v. Court of Appeals, 336 Phil. 667 (1997); Firestone v. Court of Appeals, G.R.
No. 113236, 5 March 2001, 353 SCRA 601.
22. The second paragraph of Article 1172 of the Civil Code provides: "If the law or
contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required."
23. See notes 20 and 21.
24. Serrano v. Central Bank, G.R. L-30511, 14 February 1980, 96 SCRA 96.
25. Cangco v. Manila Railroad Co., 38 Phil. 769 (1918); De Guia v. Meralco, 40 Phil.
706 (1920).
26. Philippine Bank of Commerce v. Court of Appeals, supra note 21, citing Vda. de
Bataclan v. Medina, 102 Phil. 181 (1957).
27. Ibid.
28. Rollo, p. 35.
29. Philippine Bank of Commerce v. Court of Appeals, supra note 21.
30. Ibid.
31. See note 23.
32. Del Prado v. Manila Electric Co., 52 Phil. 900 (1928-1929).
33. See note 21.

Copyright 2003 CD Te chnologi es Asia Inc

6. Samsung Construction Co. v. FEBTC
SECOND DIVISION
[G.R. No. 129015. August 13, 2004.]
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR
EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.
Alan A. Leynes for petitioner.
Angara Abello Concepcion Regala & Cruz for private respondent.
SYNOPSIS
A check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed from the account of petitioner Samsung Construction
in the Far East Bank. The sole signatory to the account, Jong Kyu Lee, alleged that his
signature had been forged. Consequently, petitioner filed a Complaint for Violation of
Section 23 of the Negotiable Instruments Law.
The general rule is to the effect that a forged signature is wholly inoperative and payment
made through such signature is ineffectual; thus, if payment is made, the drawee cannot
charge it to the drawer's account. In the instant case, as the Court found that there was
forgery and that Samsung Construction was not precluded from setting such defense
because of its' negligence, the Bank is thus liable, irrespective of its good faith, in paying
a forged check. AcISTE
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; WHERE
SIGNATURE THEREIN FORGED. — Section 23 of the Negotiable Instruments Law
states: When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument,
or to give a discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.
The general rule is to the effect that a forged signature is "wholly inoperative", and
payment made "through or under such signature" is ineffectual or does not discharge the
instrument. If payment is made, the drawee cannot charge it to the drawer's account. The
traditional justification for the result is that the drawee is in a superior position to detect a
forgery because he has the maker's signature and is expected to know and compare it. The
rule has a healthy cautionary effect on banks by encouraging care in the comparison of
the signatures against those on the signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute the cost among its customers who
use checks makes the drawee an ideal party to spread the risk to insurance.
2. ID.; ID.; ID.; CASE AT BAR. — Under Section 23 of the Negotiable Instruments
Law, forgery is a real or absolute defense by the party whose signature is forged. On the
premise that Jong's signature was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such liability attaches even if the bank
exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive
the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh
rule which compels it to suffer although no one has suffered by its being deceived. The
forgery may be so near like the genuine as to defy detection by the depositor himself, and
yet the bank is liable to the depositor if it pays the check. DTISaH
3. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; THAT DOCUMENT
FORMALLY PRESENTED IS GENUINE; OVERWHELMED IN CASE AT BAR. — A
document formally presented is presumed to be genuine until it is proved to be
fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations. During the testimony of PNP
expert Rosario Perez, the RTC bluntly noted that "apparently, there [are] differences on
that questioned signature and the standard signatures". This Court, in examining the
signatures, makes a similar finding. The PNP expert excused the noted "differences" by
asserting that they were mere "variations", which are normal deviations found in writing.
Yet the RTC, which had the opportunity to examine the relevant documents and to
personally observe the expert witness, clearly disbelieved the PNP expert. The Court
similarly finds the testimony of the PNP expert as unconvincing. During the trial, she was
confronted several times with apparent differences between strokes in the questioned
signature and the genuine samples. Each time, she would just blandly assert that these
differences were just "variations," as if the mere conjuration of the word would
sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing
alone, would be of little or no value unless supported by sufficiently cogent reasons
which might amount almost to a demonstration. The RTC was sufficiently convinced by
the NBI examiner's testimony, and explained her reasons in its Decisions. While the
Court of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly
demonstrate why such findings were more credible than those of the NBI expert. As a
throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to
examine the specimen signature card signed by Jong, which was relied upon by the
employees of FEBTC in authenticating Jong's signature. The distinction is irrelevant in
establishing forgery. Forgery can be established comparing the contested signatures as
against those of any sample signature duly established as that of the persons whose
signature was forged. FEBTC lays undue emphasis on the fact that the PNP examiner did
compare the questioned signature against the bank signature cards. The crucial fact in
question is whether or not the check was forged, not whether the bank could have
detected the forgery. The latter issue becomes relevant only if there is need to weigh the
comparative negligence between the bank and the party whose signature was forged.
4. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; WHERE
SIGNATURE THEREIN FORGED; DEFENSE OF FORGERY BARRED WHERE
PARTY GUILTY OF NEGLIGENCE NOT SUFFICIENTLY ESTABLISHED. — We
recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up
the defense of forgery if it is guilty of negligence. Yet, we are unable to conclude that
Samsung Construction was guilty of negligence in this case. The appellate court failed to
explain precisely how the Korean accountant was negligent or how more care and
prudence on his part would have prevented the forgery. We cannot sustain this "tar and
feathering" resorted to without any basis. The bare fact that the forgery was committed by
an employee of the party whose signature was forged cannot necessarily imply that such
party's negligence was the cause for the forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk within the hearts and minds of
their employees. Admittedly, the record does not clearly establish what measures
Samsung Construction employed to safeguard its blank checks. Jong did testify that his
accountant, Kyu, kept the checks inside a "safety box", and no contrary version was
presented by FEBTC. However, such testimony cannot prove that the checks were indeed
kept in a safety box, as Jong's testimony on that point is hearsay, since Kyu, and not Jong,
would have the personal knowledge as to how the checks were kept. Still, in the absence
of evidence to the contrary, we can conclude that there was no negligence on Samsung
Construction's part. The presumption remains that every person takes ordinary care of his
concerns, and that the ordinary course of business has been followed. Negligence is not
presumed, but must be proven by him who alleges it. While the complaint was lodged at
the instance of Samsung Construction, the matter it had to prove was the claim it had
alleged — whether the check was forged. It cannot be required as well to prove that it
was not negligent, because the legal presumption remains that ordinary care was
employed. Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact
that Samsung Construction was negligent. While the payee, as in this case, may not have
the personal knowledge as to the standard procedures observed by the drawer, it well has
the means of disputing the presumption of regularity. Proving a negative fact may be "a
difficult office", but necessarily so, as it seeks to overcome a presumption in law. FEBTC
was unable to dispute the presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of Appeals' finding of negligence.
CEcaTH
5. ID.; ID.; ID.; DEGREE OF CARE AND DILIGENCE REQUIRED OF BANKS.
— The Court recently emphasized that the highest degree of care and diligence is
required of banks. Banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who transact business
with them. They have the obligation to treat their client's account meticulously and with
the highest degree of care, considering the fiduciary nature of their relationship. The
diligence required of banks, therefore, is more than that of a good father of a family.
6. ID.; ID.; ID.; GENERAL RULE APPLIES REGARDLESS OF GOOD FAITH.
— Still, even if the bank performed with utmost diligence, the drawer whose signature
was forged may still recover from the bank as long as he or she is not precluded from
setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law
plainly states that no right to enforce the payment of a check can arise out of a forged
signature. Since the drawer, Samsung Construction, is not precluded by negligence from
setting up the forgery, the general rule should apply. Consequently, if a bank pays a
forged check, it must be considered as paying out of its funds and cannot charge the
amount so paid to the account of the depositor. A bank is liable, irrespective of its good
faith, in paying a forged check. TADcCS
DECISION
TINGA, J p:
Called to fore in the present petition is a classic textbook question — if a bank pays out
on a forged check, is it liable to reimburse the drawer from whose account the funds were
paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank,
invoked tenuous reasoning to acquit the bank of liability. We reverse, applying time-
honored principles of law.
The salient facts follow. DCcTHa
Plaintiff Samsung Construction Company Philippines, Inc. (“Samsung Construction”),
while based in Biñan, Laguna, maintained a current account with defendant Far East
Bank and Trust Company 1 (“FEBTC”) at the latter’s Bel-Air, Makati branch. 2 The sole
signatory to Samsung Construction’s account was Jong Kyu Lee (“Jong”), its Project
Manager, 3 while the checks remained in the custody of the company’s accountant, Kyu
Yong Lee (“Kyu”). 4
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No.
432100 to the bank’s branch in Bel-Air, Makati. The check, payable to cash and drawn
against Samsung Construction’s current account, was in the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe
Justiani, first checked the balance of Samsung Construction’s account. After ascertaining
there were enough funds to cover the check, 5 she compared the signature appearing on
the check with the specimen signature of Jong as contained in the specimen signature
card with the bank. After comparing the two signatures, Justiani was satisfied as to the
authenticity of the signature appearing on the check. She then asked Gonzaga to submit
proof of his identity, and the latter presented three (3) identification cards. 6
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez, as it was bank policy that two bank branch officers approve checks
exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card. He too
concluded that the check was indeed signed by Jong. Velez then forwarded the check and
signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that
Jose Sempio III (“Sempio”), the assistant accountant of Samsung Construction, was also
in the bank. Sempio was well-known to Syfu and the other bank officers, he being the
assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who
vouched for the genuineness of Jong’s signature. Confirming the identity of Gonzaga,
Sempio said that the check was for the purchase of equipment for Samsung Construction.
Satisfied with the genuineness of the signature of Jong, Syfu authorized the bank’s
encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the balance
of the bank account and discovered that a check in the amount of Nine Hundred Ninety
Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had
not prepared such a check for Jong’s signature, Kyu perused the checkbook and found
that the last blank check was missing. 7 He reported the matter to Jong, who then
proceeded to the bank. Jong learned of the encashment of the check, and realized that his
signature had been forged. The Bank Manager reputedly told Jong that he would be
reimbursed for the amount of the check. 8 Jong proceeded to the police station and
consulted with his lawyers. 9 Subsequently, a criminal case for qualified theft was filed
against Sempio before the Laguna court. 10
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that
FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00), with interest. 11 In response, FEBTC said that it was still
conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a
Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments
Law, and prayed for the payment of the amount debited as a result of the questioned
check plus interest, and attorney’s fees. 12 The case was docketed as Civil Case No. 92-
61506 before the Regional Trial Court (“RTC”) of Manila, Branch 9. 13
During the trial, both sides presented their respective expert witnesses to testify on the
claim that Jong’s signature was forged. Samsung Corporation, which had referred the
check for investigation to the NBI, presented Senior NBI Document Examiner Roda B.
Flores. She testified that based on her examination, she concluded that Jong’s signature
had been forged on the check. On the other hand, FEBTC, which had sought the
assistance of the Philippine National Police (PNP), 14 presented Rosario C. Perez, a
document examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jong’s signature on the check was genuine. 15
Confronted with conflicting expert testimony, the RTC chose to believe the findings of
the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jong’s signature on
the check was forged and accordingly directed the bank to pay or credit back to Samsung
Construction’s account the amount of Nine Hundred Ninety Nine Thousand Five
Hundred Pesos (P999,500.00), together with interest tolled from the time the complaint
was filed, and attorney’s fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special
Fourteenth Division of the Court of Appeals rendered a Decision, 16 reversing the RTC
Decision and absolving FEBTC from any liability. The Court of Appeals held that the
contradictory findings of the NBI and the PNP created doubt as to whether there was
forgery. 17 Moreover, the appellate court also held that assuming there was forgery, it
occurred due to the negligence of Samsung Construction, imputing blame on the
accountant Kyu for lack of care and prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access thereto. 18 The Court of Appeals
invoked the ruling in PNB v. National City Bank of New York 19 that, if a loss, which
must be borne by one or two innocent persons, can be traced to the neglect or fault of
either, such loss would be borne by the negligent party, even if innocent of intentional
fraud. 20
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTC’s finding of forgery. It also
contends that the appellate court erred in finding that it had been negligent in safekeeping
the check, and in applying the equity principle enunciated in PNB v. National City Bank
of New York. TAcDHS
Since the trial court and the Court of Appeals arrived at contrary findings on questions of
fact, the Court is obliged to examine the record to draw out the correct conclusions. Upon
examination of the record, and based on the applicable laws and jurisprudence, we
reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority.
(Emphasis supplied)
The general rule is to the effect that a forged signature is “wholly inoperative,” and
payment made “through or under such signature” is ineffectual or does not discharge the
instrument. 21 If payment is made, the drawee cannot charge it to the drawer’s account.
The traditional justification for the result is that the drawee is in a superior position to
detect a forgery because he has the maker’s signature and is expected to know and
compare it. 22 The rule has a healthy cautionary effect on banks by encouraging care in
the comparison of the signatures against those on the signature cards they have on file.
Moreover, the very opportunity of the drawee to insure and to distribute the cost among
its customers who use checks makes the drawee an ideal party to spread the risk to
insurance. 23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the
privilege of drawing checks in the ordinary course of business, the relationship between
the bank and the depositor is that of debtor and creditor. So far as the legal relationship
between the two is concerned, the situation is the same as though the bank had borrowed
money from the depositor, agreeing to repay it on demand, or had bought goods from the
depositor, agreeing to pay for them on demand. The bank owes the depositor money in
the same sense that any debtor owes money to his creditor. Added to this, in the case of
bank and depositor, there is, of course, the bank’s obligation to pay checks drawn by the
depositor in proper form and presented in due course. When the bank receives the
deposit, it impliedly agrees to pay only upon the depositor’s order. When the bank pays a
check, on which the depositor’s signature is a forgery, it has failed to comply with its
contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if a
bank pays the check, it is paying out its own money and not the depositor’s.
The forgery may be committed by a trusted employee or confidential agent. The bank still
must bear the loss. Even in a case where the forged check was drawn by the depositor’s
partner, the loss was placed upon the bank. The case referred to is Robinson v. Security
Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the
defendant bank for money which had been deposited to the plaintiff’s credit and which
the bank had paid out on checks bearing forgeries of the plaintiff’s signature.
xxx xxx xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank, did
not, as a matter of law, constitute a ratification of the payment, so as to preclude the
plaintiff from holding the bank liable . . .
This rule of liability can be stated briefly in these words: “A bank is bound to know its
depositors’ signature.” The rule is variously expressed in the many decisions in which the
question has been considered. But they all sum up to the proposition that a bank must
know the signatures of those whose general deposits it carries. 24
By no means is the principle rendered obsolete with the advent of modern commercial
transactions. Contemporary texts still affirm this well-entrenched standard. Nickles, in his
book Negotiable Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customer’s account by specifying whose signature is necessary on checks that
are chargeable against the customer’s account. Therefore, a check drawn against the
account of an individual customer that is signed by someone other than the customer, and
without authority from her, is not properly payable and is not chargeable to the
customer’s account, inasmuch as any “unauthorized signature on an instrument is
ineffective” as the signature of the person whose name is signed. 25
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense
by the party whose signature is forged. 26 On the premise that Jong’s signature was
indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged
check. Such liability attaches even if the bank exerts due diligence and care in preventing
such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and
when a bank has been so deceived, it is a harsh rule which compels it to suffer although
no one has suffered by its being deceived. 27 The forgery may be so near like the genuine
as to defy detection by the depositor himself, and yet the bank is liable to the depositor if
it pays the check. 28
Thus, the first matter of inquiry is into whether the check was indeed forged. A document
formally presented is presumed to be genuine until it is proved to be fraudulent. In a
forgery trial, this presumption must be overcome but this can only be done by convincing
testimony and effective illustrations. 29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in
view of the conflicting conclusions made by handwriting experts from the NBI and the
PNP, both agencies of the government. EaIDAT
xxx xxx xxx
These contradictory findings create doubt on whether there was indeed a forgery. In the
case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held that
forgery cannot be presumed; it must be proved by clear, positive and convincing
evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an
opponent’s expert witness to stand uncontradicted, thus the spectacle of competing expert
witnesses is not unusual. The trier of fact will have to decide which version to believe,
and explain why or why not such version is more credible than the other. Reliance
therefore cannot be placed merely on the fact that there are colliding opinions of two
experts, both clothed with the presumption of official duty, in order to draw a conclusion,
especially one which is extremely crucial. Doing so is tantamount to a jurisprudential
cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the
judicial hierarchy. This Court has long deferred to the appellate court as to its findings of
fact in the understanding that it has the appropriate skill and competence to plough
through the minutiae that scatters the factual field. In failing to thoroughly evaluate the
evidence before it, and relying instead on presumptions haphazardly drawn, the Court of
Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every error
deserves a stern rebuke. Yet, the appellate court’s error in this case warrants special
attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted
as a governing standard by every court in the land, barely any actionable claim would
prosper, defeated as it would be by the mere invocation of the existence of a contrary
“expert” opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible
than that of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived at
the conclusion that the testimony of the NBI document examiner is more credible
because the testimony of the PNP Crime Laboratory Services document examiner reveals
that there are a lot of differences in the questioned signature as compared to the standard
specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the
manner of execution of the standard signatures used reveals that it is a free rapid
continuous execution or stroke as shown by the tampering terminal stroke of the
signatures whereas the questioned signature is a hesitating slow drawn execution stroke.
Clearly, the person who executed the questioned signature was hesitant when the
signature was made. 30
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that
“apparently, there [are] differences on that questioned signature and the standard
signatures.” 31 This Court, in examining the signatures, makes a similar finding. The
PNP expert excused the noted “differences” by asserting that they were mere
“variations,” which are normal deviations found in writing. 32 Yet the RTC, which had
the opportunity to examine the relevant documents and to personally observe the expert
witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of
the PNP expert as unconvincing. During the trial, she was confronted several times with
apparent differences between strokes in the questioned signature and the genuine
samples. Each time, she would just blandly assert that these differences were just
“variations,” 33 as if the mere conjuration of the word would sufficiently disquiet
whatever doubts about the deviations. Such conclusion, standing alone, would be of little
or no value unless supported by sufficiently cogent reasons which might amount almost
to a demonstration. 34
The most telling difference between the questioned and genuine signatures examined by
the PNP is in the final upward stroke in the signature, or “the point to the short stroke of
the terminal in the capital letter ‘L,’” as referred to by the PNP examiner who had marked
it in her comparison chart as “point no. 6.” To the plain eye, such upward final stroke
consists of a vertical line which forms a ninety degree (90º) angle with the previous
stroke. Of the twenty one (21) other genuine samples examined by the PNP, at least nine
(9) ended with an upward stroke. 35 However, unlike the questioned signature, the
upward strokes of eight (8) of these signatures are looped, while the upward stroke of the
seventh 36 forms a severe forty-five degree (45º) with the previous stroke. The difference
is glaring, and indeed, the PNP examiner was confronted with the inconsistency in point
no. 6.
Q: Now, in this questioned document point no. 6, the “s” stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is
repeated or the last stroke “s” is pointing directly upwards?
A: There is none in the standard signature, sir. 37
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned
signature as a mere variation, 38 the same excuse she proffered for the other marked
differences noted by the Court and the counsel for petitioner. 39
There is no reason to doubt why the RTC gave credence to the testimony of the NBI
examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores, clearly qualifies as an
expert witness. A document examiner for fifteen years, she had been promoted to the rank
of Senior Document Examiner with the NBI, and had held that rank for twelve years prior
to her testimony. She had placed among the top five examinees in the Competitive
Seminar in Question Document Examination, conducted by the NBI Academy, which
qualified her as a document examiner. 40 She had trained with the Royal Hongkong
Police Laboratory and is a member of the International Association for Identification. 41
As of the time she testified, she had examined more than fifty to fifty-five thousand
questioned documents, on an average of fifteen to twenty documents a day. 42 In
comparison, PNP document examiner Perez admitted to having examined only around
five hundred documents as of her testimony. 43
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative
examination method consisting of analysis, recognition, comparison and evaluation of the
writing habits with the use of instruments such as a magnifying lense, a stereoscopic
microscope, and varied lighting substances. She also prepared enlarged photographs of
the signatures in order to facilitate the necessary comparisons. 44 She compared the
questioned signature as against ten (10) other sample signatures of Jong. Five of these
signatures were executed on checks previously issued by Jong, while the other five
contained in business letters Jong had signed. 45 The NBI found that there were
significant differences in the handwriting characteristics existing between the questioned
and the sample signatures, as to manner of execution, link/connecting strokes, proportion
characteristics, and other identifying details. 46
The RTC was sufficiently convinced by the NBI examiner’s testimony, and explained her
reasons in its Decisions. While the Court of Appeals disagreed and upheld the findings of
the PNP, it failed to convincingly demonstrate why such findings were more credible than
those of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not
the NBI, had the opportunity to examine the specimen signature card signed by Jong,
which was relied upon by the employees of FEBTC in authenticating Jong’s signature.
The distinction is irrelevant in establishing forgery. Forgery can be established comparing
the contested signatures as against those of any sample signature duly established as that
of the persons whose signature was forged. SaHIEA
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the
questioned signature against the bank signature cards. The crucial fact in question is
whether or not the check was forged, not whether the bank could have detected the
forgery. The latter issue becomes relevant only if there is need to weigh the comparative
negligence between the bank and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jong’s testimony that
the signature on the check was not his. 47 The assertion may seem self-serving at first
blush, yet it cannot be ignored that Jong was in the best position to know whether or not
the signature on the check was his. While his claim should not be taken at face value, any
averments he would have on the matter, if adjudged as truthful, deserve primacy in
consideration. Jong’s testimony is supported by the findings of the NBI examiner. They
are also backed by factual circumstances that support the conclusion that the assailed
check was indeed forged. Judicial notice can be taken that is highly unusual in practice
for a business establishment to draw a check for close to a million pesos and make it
payable to cash or bearer, and not to order. Jong immediately reported the forgery upon
its discovery. He filed the appropriate criminal charges against Sempio, the putative
forger. 48
Now for determination is whether Samsung Construction was precluded from setting up
the defense of forgery under Section 23 of the Negotiable Instruments Law. The Court of
Appeals concluded that Samsung Construction was negligent, and invoked the doctrines
that “where a loss must be borne by one of two innocent person, can be traced to the
neglect or fault of either, it is reasonable that it would be borne by him, even if innocent
of any intentional fraud, through whose means it has succeeded 49 or who put into the
power of the third person to perpetuate the wrong.” 50 Applying these rules, the Court of
Appeals determined that it was the negligence of Samsung Construction that allowed the
encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of one
Jose Sempio III, an assistant accountant employed by the plaintiff Samsung
[Construction] Co. Philippines, Inc. who supposedly stole the blank check and who
presumably is responsible for its encashment through a forged signature of Jong Kyu Lee.
Sempio was assistant to the Korean accountant who was in possession of the blank
checks and who through negligence, enabled Sempio to have access to the same. Had the
Korean accountant been more careful and prudent in keeping the blank checks Sempio
would not have had the chance to steal a page thereof and to effect the forgery. Besides,
Sempio was an employee who appears to have had dealings with the defendant Bank in
behalf of the plaintiff corporation and on the date the check was encashed, he was there to
certify that it was a genuine check issued to purchase equipment for the company. 51
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting
up the defense of forgery if it is guilty of negligence. 52 Yet, we are unable to conclude
that Samsung Construction was guilty of negligence in this case. The appellate court
failed to explain precisely how the Korean accountant was negligent or how more care
and prudence on his part would have prevented the forgery. We cannot sustain this “tar
and feathering” resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose
signature was forged cannot necessarily imply that such party’s negligence was the cause
for the forgery. Employers do not possess the preternatural gift of cognition as to the evil
that may lurk within the hearts and minds of their employees. The Court’s
pronouncement in PCI Bank v. Court of Appeals 53 applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payor’s confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift
the loss to the drawer-payor, in the absence of some circumstance raising estoppel against
the drawer. 54
Admittedly, the record does not clearly establish what measures Samsung Construction
employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept
the checks inside a “safety box,” 55 and no contrary version was presented by FEBTC.
However, such testimony cannot prove that the checks were indeed kept in a safety box,
as Jong’s testimony on that point is hearsay, since Kyu, and not Jong, would have the
personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Construction’s part. The presumption remains that every person
takes ordinary care of his concerns, 56 and that the ordinary course of business has been
followed. 57 Negligence is not presumed, but must be proven by him who alleges it. 58
While the complaint was lodged at the instance of Samsung Construction, the matter it
had to prove was the claim it had alleged — whether the check was forged. It cannot be
required as well to prove that it was not negligent, because the legal presumption remains
that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung
Construction was negligent. While the payee, as in this case, may not have the personal
knowledge as to the standard procedures observed by the drawer, it well has the means of
disputing the presumption of regularity. Proving a negative fact may be “a difficult
office,” 59 but necessarily so, as it seeks to overcome a presumption in law. FEBTC was
unable to dispute the presumption of ordinary care exercised by Samsung Construction,
hence we cannot agree with the Court of Appeals’ finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish
that there was no negligence on the part of the bank in its acceptance and payment of the
forged check. However, the degree of diligence exercised by the bank would be irrelevant
if the drawer is not precluded from setting up the defense of forgery under Section 23 by
his own negligence. The rule of equity enunciated in PNB v. National City Bank of New
York, 60 as relied upon by the Court of Appeals, deserves careful examination. SEAHcT
The point in issue has sometimes been said to be that of negligence. The drawee who has
paid upon the forged signature is held to bear the loss, because he has been negligent in
failing to recognize that the handwriting is not that of his customer. But it follows
obviously that if the payee, holder, or presenter of the forged paper has himself been in
default, if he has himself been guilty of a negligence prior to that of the banker, or if by
any act of his own he has at all contributed to induce the banker's negligence, then he
may lose his right to cast the loss upon the banker. 61 (Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged
signature bears the loss. The exception to this rule arises only when negligence can be
traced on the part of the drawer whose signature was forged, and the need arises to weigh
the comparative negligence between the drawer and the drawee to determine who should
bear the burden of loss. The Court finds no basis to conclude that Samsung Construction
was negligent in the safekeeping of its checks. For one, the settled rule is that the mere
fact that the depositor leaves his check book lying around does not constitute such
negligence as will free the bank from liability to him, where a clerk of the depositor or
other persons, taking advantage of the opportunity, abstract some of the check blanks,
forges the depositor’s signature and collect on the checks from the bank. 62 And for
another, in point of fact Samsung Construction was not negligent at all since it reported
the forgery almost immediately upon discovery. 63
It is also worth noting that the forged signatures in PNB v. National City Bank of New
York were not of the drawer, but of indorsers. The same circumstance attends PNB v.
Court of Appeals, 64 which was also cited by the Court of Appeals. It is accepted that a
forged signature of the drawer differs in treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawer’s
signature by comparison with one in his hands, but has ordinarily no opportunity to verify
an indorsement. 65
Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawer’s signature or a forged indorsement. But the bank may, as a
general rule, recover back the money which it has paid on a check bearing a forged
indorsement, whereas it has not this right to the same extent with reference to a check
bearing a forgery of the drawer’s signature. 66
The general rule imputing liability on the drawee who paid out on the forgery holds in
this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the
forged check, we might as well comment on the bank’s performance of its duty. It might
be so that the bank complied with its own internal rules prior to paying out on the
questionable check. Yet, there are several troubling circumstances that lead us to believe
that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is
unusual enough to require a higher degree of caution on the part of the bank. Indeed,
FEBTC confirms this through its own internal procedures. Checks below twenty-five
thousand pesos require only the approval of the teller; those between twenty-five
thousand to one hundred thousand pesos necessitate the approval of one bank officer; and
should the amount exceed one hundred thousand pesos, the concurrence of two bank
officers is required. 67
In this case, not only did the amount in the check nearly total one million pesos, it was
also payable to cash. That latter circumstance should have aroused the suspicion of the
bank, as it is not ordinary business practice for a check for such large amount to be made
payable to cash or to bearer, instead of to the order of a specified person. 68 Moreover,
the check was presented for payment by one Roberto Gonzaga, who was not designated
as the payee of the check, and who did not carry with him any written proof that he was
authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC,
was not even an employee of Samsung Construction. 69 These circumstances are already
suspicious if taken independently, much more so if they are evaluated in concurrence.
Given the shadiness attending Gonzaga’s presentment of the check, it was not sufficient
for FEBTC to have merely complied with its internal procedures, but mandatory that all
earnest efforts be undertaken to ensure the validity of the check, and of the authority of
Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed,
to contact Jong over the phone to verify the check. 70 She added that calling the issuer or
drawer of the check to verify the same was not part of the standard procedure of the bank,
but an “extra effort.” 71 Even assuming that such personal verification is tantamount to
extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite
the absence of any proof of verification from the drawer. Instead, the bank seems to have
relied heavily on the say-so of Sempio, who was present at the bank at the time the check
was presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly
transacted with the bank in behalf of Samsung Construction. It was even claimed that
everytime FEBTC would contact Jong about problems with his account, Jong would hand
the phone over to Sempio. 72 However, the only proof of such allegations is the
testimony of Gemma Velez, who also testified that she did not know Sempio personally,
73 and had met Sempio for the first time only on the day the check was encashed. 74 In
fact, Velez had to inquire with the other officers of the bank as to whether Sempio was
actually known to the employees of the bank. 75 Obviously, Velez had no personal
knowledge as to the past relationship between FEBTC and Sempio, and any averments of
her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not
present as a witness any other employee of their Bel-Air branch, including those who
supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf
of Samsung Construction, the irregular circumstances attending the presentment of the
forged check should have put the bank on the highest degree of alert. The Court recently
emphasized that the highest degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their client’s account meticulously and with the highest degree
of care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family. 76
Given the circumstances, extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature was
forged may still recover from the bank as long as he or she is not precluded from setting
up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly
states that no right to enforce the payment of a check can arise out of a forged signature.
Since the drawer, Samsung Construction, is not precluded by negligence from setting up
the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it
must be considered as paying out of its funds and cannot charge the amount so paid to the
account of the depositor. 77 A bank is liable, irrespective of its good faith, in paying a
forged check. 78
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
28 November 1996 is REVERSED, and the Decision of the Regional Trial Court of
Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED. AHSaTI
Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ ., concur.
Footnotes
1. Later acquired by or merged with the Bank of the Philippine Islands.
2. Rollo, p. 35.
3. Ibid.
4. Id. at 28.
5. Ibid.
6. Ibid.
7. Rollo, p. 35.
8. See TSN dated 25 June 1993, p. 10.
9. Id. at 9.
10. See TSN dated 15 June 1993, p. 26.
11. Ibid.
12. Act No. 2031.
13. Presided by Judge E.G. Sandoval, now Justice of the Sandiganbayan.
14. TSN dated 8 October 1993, p. 8.
15. Rollo, p. 24.
16. Penned by Justice S. Montoya, concurred in by Justices G. Jacinto and A.
Tuquero.
17. Rollo, p. 38.
18. Ibid.
19. 63 Phil 711 (1936).
20. Rollo, p. 38.
21. Bank of Philippine Islands v. Court of Appeals, G.R. No. 102383, 26 November
1992, 216 SCRA 51, 65.
22. Farnsworth, E.A., Negotiable Instruments: Cases and Materials, 2nd ed. (1959), at
173.
23. Id. at 174.
24. Brady, J.E., The Law of Forged and Altered Checks (1925), at 6-7. Case citations
omitted.
25. Nickles, S.H., Negotiable Instruments and Other Related Commercial Paper, 2nd
ed. (1993), at 415.
26. Gempesaw v. Court of Appeals, G.R. No. 92244, 9 February 1993, 218 SCRA
682, 689.
27. Philippine National Bank v. National City Bank of New York, 63 Phil. 711, 743-
744 (1936); citing 17 A. L. R., 891; 5 R. C. L., 559.
28. Brady, H.J., Brady on Bank Checks, 3rd ed. (1962), at 475; citing Hardy v.
Chesapeake Bank (1879) 51Md. 562, 34 Am. Rep. 325.
29. Osborn, A., Questioned Document Problems, 2nd ed. (1946), at 181-182.
30. Rollo, p. 31.
31. TSN dated 8 October 1993, p. 15.
32. Id. at 15 and 19.
33. See TSN dated 8 October 1993, pp. 15, 17, 19, 34, 36 and 38.
34. Venuto v. Lizzo, 148 App. Div. 164, 132 N.Y. Supp. 1066 (1911), as cited in A.
Osborn, supra, note 29.
35. Defendant’s Exhibits Nos. “S-1,” “S-7,” “S-8,” “S-9,” “S-10,” “S-12,” “S-14,”
“S-15,” and “S-16.”
36. Defendant’s Exhibit No. “S-9.”
37. TSN dated 8 October 1993, p. 35.
38. Id. at 19 and 36.
39. Supra, note 26.
40. TSN dated 27 April 1993, p. 5.
41. Id. at 7.
42. Id. at 7-8.
43. TSN dated 8 October 1993, p. 4.
44. TSN dated 27 April 1993, pp. 18-19.
45. Id. at 14.
46. Per NBI Questioned Documents Report No. 244-492, Plaintiff’s Exhibit “D.”
47. See TSN dated 25 January 1993, p. 7.
48. See note 10.
49. Rollo, p. 38, citing PNB v. National City Bank of New York, 63 Phil. 711, 733
(1936), which in turn cites Gloucester Bank v. Salem Bank, 17 Mass., 33; First Nat. Bank
of Danvers vs. First National Bank of Salem, 151 Mass., 280; and B.B. Ford & Co. v.
People’s Bank of Orangeburg, 74 S.C., 180.
50. Ibid., citing PNB v. CA, 134 Phil. 829, 834 (1968), which in turn cites Blondeau
v. Nano, 61 Phil. 625, 631, 632.
51. Rollo, p. 38.
52. MWSS v. Court of Appeals, G.R. No. L-62943, 14 July 1986, 143 SCRA 20, 31.
53. G.R. Nos. 121413, 121479 and 128604, 29 January 2001, 350 SCRA 446.
54. Ibid at 465.
55. TSN dated 25 January 1993, pp. 19, 31.
56. See Section 3(d), Rule 131, Rules of Court.
57. See Section 3(q), Rule 131, Rules of Court.
58. Taylor v. Manila Electric Railroad, 16 Phil. 8, 28 (1910), citing Scaevola,
Jurisprudencia del Codigo Civil, vol. 6, 551, 552.
59. US v. Tria, 17 Phil. 303, 307 (1910).
60. 63 Phil. 711 (1936).
61. Id. at 740; citing 2 Morse on Banks and Banking, 5th ed., secs. 464 and 466, pp.
82-85 and 86, 87.
62. Brady, J.E., The Law of Forged and Altered Checks, supra, note 24, at 24-27;
citing MacIntosh v. Bank, 123 Mass. 393; East St. Louis Cotton Oil Co. v. Bank of
Steele, Mo., 205 S.W. Rep. 96.
63. “For his failure or negligence either to discover or to report promptly the fact of
such forgery to the drawee, the drawer loses his right against the drawee who has debited
his account under the forged indorsement.”
Gempesaw v. Court of Appeals, G.R. No. 92244, 9 February 1993, 218
SCRA 682, 690; citing American jurisprudence. “A bank may escape liability where the
depositor’s negligence consists of failure to properly examine his bank statements and
cancelled checks and failure to notify the bank of forgery within a reasonable time.” H.
Bailey, supra, note 28, at 477. But see note 24.
64. G.R. No. L-26001, 29 October 1968, 25 SCRA 693.
65. Farnsworth, E.A., supra note 22, at 173.
66. Brady, J.E., supra, note 24, at 5.
67. See TSN dated 12 July 1993, p. 8.
68. “When the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty.” Sec. 8, Act No. 2031 (Negotiable
Instruments Law). Worthy of note is the fact that a check payable to bearer is more likely
to be forged than one that is payable to order. The unofficial essence of bearer check is
that anyone who possesses or holds it can indorse or receive payment for it which implies
that payment is not limited to a particular person. See Nickles, S.H., Matheson, J.H., and
Adams, E.S., Modern Commercial Paper: The New Law of Negotiable Instruments and
Related Commercial Paper (1994), at 61.
69. See TSN dated 26 July 1993, p. 18.
70. See TSN dated 12 July 1993, p. 11.
71. Ibid.
72. Id. at 17.
73. Id. at 18.
74. TSN dated 26 July 1993, p. 3.
75. Id. at 6.
76. Westmont Bank v. Ong, G.R. No. 132560, 30 January 2002, 375 SCRA 212, 220-
221.
77. Traders Royal Bank v. Radio Philippines Network, Inc., G.R. No. 138510, 10
October 2002, 390 SCRA 608, 614.
78. Bailey, H.J., supra, note 28 at 474.
7. Solidbank Corporation v. Arrita
THIRD DIVISION
[G.R. No. 152720. February 17, 2005.]
SOLIDBANK CORPORATION, petitioner, vs. Spouses TEODULFO and CARMEN
ARRIETA, respondents.
Segundo Y. Chua for petitioner.
Romeo B. Esuerte for respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; MORAL DAMAGES; REQUISITES FOR THE
AWARD THEREOF, ESTABLISHED IN CASE AT BAR. — Case law lays out the
following conditions for the award of moral damages: (1) there is an injury — whether
physical, mental or psychological — clearly sustained by the claimant; (2) the culpable
act or omission is factually established; (3) the wrongful act or omission of the defendant
is the proximate cause of the injury sustained by the claimant; and (4) the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code. In the
instant case, all four requisites have been established. IEAacT
2. ID.; ID.; ID.; ID.; WRONGFUL ACT OR OMISSION OF THE DEFENDANT
MUST BE THE PROXIMATE CAUSE OF THE INJURY SUSTAINED BY THE
CLAIMANT; PROXIMATE CAUSE, DEFINED. — Respondent Carmen was able to
prove that petitioner's wrongful dishonor of her check was the proximate cause of her
embarrassment and humiliation in her workplace, in her own home, and in the church
where she served as deaconess. Proximate cause has been defined as "any cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces
the result complained of and without which would not have occurred . . . ." It is
determined from the facts of each case upon combined considerations of logic, common
sense, policy and precedent. Clearly, had the bank accepted and honored the check,
Carmen would not have had to face the questions of — and explain her predicament to —
her office mates, her daughters, and the leaders and members of her church.
3. ID.; ID.; ID.; BANK'S GROSS NEGLIGENCE WHICH AMOUNT TO A
WILFUL INJURY CALLS FOR AN AWARD THEREOF. — Petitioner's negligence here
was so gross as to amount to a wilful injury to Respondent Carmen. Article 21 of the
Civil Code states that "any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the
latter for the damage". Further, Article 2219 provides for the recovery of moral damages
for acts referred to in the aforementioned Article 21. Hence, the bank is liable for moral
damages to respondent.
4. ID.; ID.; ID.; NOT INTENDED TO ENRICH THE COMPLAINANT AT THE
EXPENSE OF THE DEFENDANT; PURPOSE OF MORAL DAMAGES IS
INDEMNITY OR REPARATION NOT PUNISHMENT OR CORRECTION. — The
foregoing notwithstanding, we find the sum of P150,000 awarded by the lower courts
excessive. Moral damages are not intended to enrich the complainant at the expense of
the defendant. Rather, these are awarded only to enable the injured party to obtain
"means, diversions or amusements" that will serve to alleviate the moral suffering that
resulted by reason of the defendant's culpable action. The purpose of such damages is
essentially indemnity or reparation, not punishment or correction. In other words, the
award thereof is aimed at a restoration within the limits of the possible, of the spiritual
status quo ante; therefore, it must always reasonably approximate the extent of injury and
be proportional to the wrong committed. Accordingly, the award of moral damages must
be reduced to P20,000, an amount commensurate with the alleviation of the suffering
caused by the dishonored check that was issued for the amount of P330.
5. ID.; ID.; EXEMPLARY DAMAGES; GRANTED TO SET AN EXAMPLE FOR
THE PUBLIC GOOD. — The law allows the grant of exemplary damages to set an
example for the public good. The business of a bank is affected with public interest; thus,
it makes a sworn profession of diligence and meticulousness in giving irreproachable
service. For this reason, the bank should guard against injury attributable to negligence or
bad faith on its part. The banking sector must at all times maintain a high level of
meticulousness. The grant of exemplary damages is justified by the initial carelessness of
petitioner, aggravated by its lack of promptness in repairing its error. It was only on
August 30, 1990, or a period of five months from the erroneous dishonor of the check,
when it wrote Lopue's Department Store a letter acknowledging the bank's mistake. In
our view, however, the award of P50,000 is excessive and should accordingly be reduced
to P20,000.
6. ID.; ID.; ATTORNEY'S FEES; AWARD THEREOF PROPER WHERE PARTIES
ARE COMPELLED TO LITIGATE TO PROTECT THEIR RIGHTS. — The award of
attorney's fees in the amount of P20,000 is proper, for respondents were compelled to
litigate to protect their rights.
7. REMEDIAL LAW; EVIDENCE; FACTUAL DETERMINATIONS OF THE
LOWER COURTS ARE CONCLUSIVE AND BINDING. — Furthermore, the CA was
in agreement with the trial court in ruling that her injury arose from the gross negligence
of petitioner in dishonoring her well-funded check. Unanimity of the CA and the trial
court in their factual ascertainment of this point bars us from supplanting their finding
and substituting it with our own. Settled is the doctrine that the factual determinations of
the lower courts are conclusive and binding upon this Court. Verily, the review of cases
brought before the Supreme Court from the Court of Appeals is limited to errors of law.
None of the recognized exceptions to this principle has been shown to exist.
8. COMMERCIAL LAW; BANKING; BANKS; UNDER OBLIGATION TO
TREAT THE ACCOUNTS OF ITS DEPOSITORS WITH METICULOUS CARE AND
ALWAYS TO HAVE IN MIND THE FIDUCIARY NATURE OF ITS RELATIONSHIP
WITH THEM. — [T]reating Carmen's account as closed, merely because the ledger
could not be found was a reckless act that could not simply be brushed off as an honest
mistake. We have repeatedly emphasized that the banking industry is impressed with
public interest. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with
them. HcTDSA
DECISION
PANGANIBAN, J p:
A bank's gross negligence in dishonoring a well-funded check, aggravated by its
unreasonable delay in repairing the error, calls for an award of moral and
exemplary damages. The resulting injury to the check writer's reputation and peace
of mind needs to be recognized and compensated. cSIADa
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to
reverse and set aside the March 28, 2001 Decision 2 and the February 5, 2002 Resolution
3 of the Court of Appeals (CA) in CA-GR CV No. 55002. The assailed Decision disposed
as follows:
"WHEREFORE, the appeal is DISMISSED, with costs against defendant-appellant." 4
The CA denied reconsideration in its February 5, 2002 Resolution.
The Facts
The facts are summarized by the CA as follows:
"Carmen Arrieta is a bank depositor of Solidbank Corporation under Checking Account
No. 123-1996. On March 1990, Carmen issued SBC Check No. 0293984 (Exh. 'A') in the
amount of P330.00 in the name of Lopue's Department Store in payment of her purchases
from said store. When the check was deposited by the store to its account, the same was
dishonored due to 'Account Closed' (Exh. 'B') despite the fact that at the time the check
was presented for payment, Carmen's checking account was still active and backed up by
a deposit of P1,275.20. jur2005cd
"As a consequence of the check's dishonor, Lopue's Department Store sent a demand
letter to Carmen (Exh. 'C') threatening her with criminal prosecution unless she redeemed
the check within five (5) days. To avoid criminal prosecution, Carmen paid P330.00 in
cash to the store, plus a surcharge of P33.00 for the bouncing check, or a total of P363.00
(Exh. 'F').
"Thereupon, Carmen filed a complaint against Solidbank Corporation for damages
alleging that the bank, by its carelessness and recklessness in certifying that her account
was closed despite the fact that it was still very much active and sufficiently funded, had
destroyed her good name and reputation and prejudiced not only herself but also her
family in the form of mental anguish, sleepless nights, wounded feelings and social
humiliation. She prayed that she be awarded moral and exemplary damages as well as
attorney's fees. cSTDIC
"In its answer, the bank claimed that Carmen, contrary to her undertaking as a depositor,
failed to maintain the required balance of at least P1,000.00 on any day of the month.
Moreover, she did not handle her account in a manner satisfactory to the bank. In view of
her violations of the general terms and conditions governing the establishment and
operation of a current account, Carmen's account was recommended for closure. In any
event, the bank claimed good faith in declaring her account closed since one of the clerks,
who substituted for the regular clerk, committed an honest mistake when he thought that
the subject account was already closed when the ledger containing the said account could
not be found.
"After trial, the lower court rendered its decision holding that Solidbank Corporation was
grossly negligent in failing to check whether or not Carmen's account was still open and
viable at the time the transaction in question was made. Hence, the bank was liable to
Carmen for moral and exemplary damages, as well as attorney's fees. It held that the bank
was remiss in its duty to treat Carmen's account with the highest degree of care,
considering the fiduciary nature of their relationship. The dispositive portion of the
decision reads:
"WHEREFORE, the Court hereby renders judgment in favor of the plaintiff as against the
defendant-bank, and defendant-bank is ordered to pay moral damages of P150,000.00;
exemplary damages of P50,000.00; and attorney's fees of P20,000.00, plus costs.
SO ORDERED.'" 5
Ruling of the Court of Appeals
The CA debunked the contention of the bank that the latter was not liable. According to
petitioner, the dishonor of the check by reason of "Account Closed" was an honest
mistake of its employee. The appellate court held that the error committed by the bank
employee was imputable to the bank. Banks are obliged to treat the accounts of their
depositors with meticulous care, regardless of the amount of the deposit. Failing in this
duty, petitioner was found grossly negligent. The failure of the bank to immediately
notify Respondent Carmen Arrieta of its unilateral closure of her account manifested bad
faith, added the CA. cHAIES
The appellate court likewise affirmed the award of moral damages. It held that the bank's
wrongful act was the proximate cause of Carmen's moral suffering. The CA ruled that the
lack of malice and bad faith on the part of petitioner did not suffice to exculpate the latter
from liability; the bank's gross negligence amounted to a wilful act. The trial court's
award of exemplary damages and attorney's fees was sustained in view of respondent's
entitlement to moral damages.
Hence, this Petition. 6
Issues
Petitioner raises the following issues for our consideration:
"I.
Whether or not . . . respondents are entitled to recovery of moral and exemplary damages
and attorney's fees.
"II.
Whether or not the award of moral and exemplary damages and attorney's fees is
excessive, arbitrary and contrary to prevailing jurisprudence." 7
The Court's Ruling
The Petition is partly meritorious.
Main Issue:
Petitioner's Liability for Damages
Petitioner contends that the award of moral damages was erroneous because of the failure
of Respondent Carmen to establish that the dishonor of Check No. 0293984 on March 30,
1990 was the direct and only cause of the "social humiliation, extreme mental anguish,
sleepless nights, and wounded feelings suffered by [her]." It referred to an occasion
fifteen days before, on March 15, 1990, during which another check (Check No.
0293983) she had issued had likewise been dishonored. acITSD
According to petitioner, highly illogical was her claim that extreme mental anguish and
social humiliation resulted from the dishonor of Check No. 0293984, as she claimed none
from that of her prior Check No. 0293983, which had allegedly been deposited by
mistake by the payee's wife. Given the circumstances, petitioner adds that the dishonor of
the check — subject of the present case — did not really cause respondent mental
anguish, sleepless nights and besmirched reputation; and that her institution of this case
was clearly motivated by opportunism.
We are not persuaded.
The fact that another check Carmen had issued was previously dishonored does not
necessarily imply that the dishonor of a succeeding check can no longer cause moral
injury and personal hurt for which the aggrieved party may claim damages. Such prior
occurrence does not prove that respondent does not have a good reputation that can be
besmirched. 8
The reasons for and the circumstances surrounding the previous issuance and eventual
dishonor of Check No. 0293983 are totally separate — the payee of the prior check was
different — from that of Check No. 0293984, subject of present case. Carmen had issued
the earlier check to accommodate a relative, 9 and the succeeding one to pay for goods
purchased from Lopue's Department Store. That she might not have suffered damages as
a result of the first dishonored check does not necessarily hold true for the second. In the
light of sufficient evidence showing that she indeed suffered damages as a result of the
dishonor of Check No. 0293984, petitioner may not be exonerated from liability.
Case law 10 lays out the following conditions for the award of moral damages: (1) there
is an injury — whether physical, mental or psychological — clearly sustained by the
claimant; (2) the culpable act or omission is factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury sustained by the claimant;
and (4) the award of damages is predicated on any of the cases stated in Article 2219 11
of the Civil Code. STcDIE
In the instant case, all four requisites have been established. First, these were the findings
of the appellate court: "Carmen Arrieta is a bank depositor of Solidbank Corporation of
long standing. She works with the Central Negros Electric Cooperative, Inc. (CENECO),
as an executive secretary and later as department secretary. She is a deaconess of the
Christian Alliance Church in Bacolod City. These are positions which no doubt elevate
her social standing in the community." Understandably — and as sufficiently proven by
her testimony — she suffered mental anguish, serious anxiety, besmirched reputation,
wounded feelings and social humiliation; and she suffered thus when the people she
worked with — her friends, her family and even her daughter's classmates — learned and
talked about her bounced check.
Second, it is undisputed that the subject check was adequately funded, but that petitioner
wrongfully dishonored it.
Third, Respondent Carmen was able to prove that petitioner's wrongful dishonor of her
check was the proximate cause of her embarrassment and humiliation in her workplace,
in her own home, and in the church where she served as deaconess.
Proximate cause has been defined as "any cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the result complained of
and without which would not have occurred . . . ." 12 It is determined from the facts of
each case upon combined considerations of logic, common sense, policy and precedent.
13 Clearly, had the bank accepted and honored the check, Carmen would not have had to
face the questions of — and explain her predicament to — her office mates, her
daughters, and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial court in ruling that her injury arose
from the gross negligence of petitioner in dishonoring her well-funded check.
Unanimity of the CA and the trial court in their factual ascertainment of this point bars us
from supplanting their finding and substituting it with our own. Settled is the doctrine
that the factual determinations of the lower courts are conclusive and binding upon this
Court. 14 Verily, the review of cases brought before the Supreme Court from the Court of
Appeals is limited to errors of law. 15 None of the recognized exceptions to this principle
has been shown to exist. CASIEa
Fourth, treating Carmen's account as closed, merely because the ledger could not be
found was a reckless act that could not simply be brushed off as an honest mistake. We
have repeatedly emphasized that the banking industry is impressed with public interest.
Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are even required of it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous care and always to have
in mind the fiduciary nature of its relationship with them. 16
Petitioner's negligence here was so gross as to amount to a wilful injury to Respondent
Carmen. Article 21 of the Civil Code states that "any person who wilfully causes loss or
injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage." Further, Article 2219 provides for the
recovery of moral damages for acts referred to in the aforementioned Article 21. Hence,
the bank is liable for moral damages to respondent. 17
The foregoing notwithstanding, we find the sum of P150,000 awarded by the lower
courts excessive. Moral damages are not intended to enrich the complainant at the
expense of the defendant. 18 Rather, these are awarded only to enable the injured party to
obtain "means, diversions or amusements" that will serve to alleviate the moral suffering
that resulted by reason of the defendant's culpable action. 19 The purpose of such
damages is essentially indemnity or reparation, not punishment or correction. 20 In other
words, the award thereof is aimed at a restoration within the limits of the possible, of the
spiritual status quo ante; 21 therefore, it must always reasonably approximate the extent
of injury and be proportional to the wrong committed. 22
Accordingly, the award of moral damages must be reduced to P20,000, 23 an amount
commensurate with the alleviation of the suffering caused by the dishonored check that
was issued for the amount of P330. ISDCHA
The law allows the grant of exemplary damages to set an example for the public good. 24
The business of a bank is affected with public interest; thus, it makes a sworn profession
of diligence and meticulousness in giving irreproachable service. 25 For this reason, the
bank should guard against injury attributable to negligence or bad faith on its part. 26 The
banking sector must at all times maintain a high level of meticulousness. The grant of
exemplary damages is justified 27 by the initial carelessness of petitioner, aggravated by
its lack of promptness in repairing its error. It was only on August 30, 1990, or a period of
five months from the erroneous dishonor of the check, when it wrote Lopue's Department
Store a letter acknowledging the bank's mistake. 28 In our view, however, the award of
P50,000 is excessive and should accordingly be reduced to P20,000. 29
The award of attorney's fees in the amount of P20,000 is proper, for respondents were
compelled to litigate to protect their rights. 30
WHEREFORE, the Petition is PARTLY GRANTED and the assailed Decision
MODIFIED. Petitioners are ORDERED to pay respondents P20,000 as moral damages,
P20,000 as exemplary damages, and P20,000 as attorney's fees.
SO ORDERED.
Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Garcia, J., took no part. Concurred in the assailed Decision.
Footnotes
1. Rollo, pp. 14-37.
2. Annex "A" of Petition; id., pp. 38-49. First Division. Penned by Justice Oswaldo
D. Agcaoili and concurred in by Justices Cancio C. Garcia (Division chairman and now a
member of this Court) and Elvi John S. Asuncion (member).
3. Annex "C" of Petition; id., p. 68.
4. CA Decision, p. 11; id., p. 48.
5. CA Decision, pp. 1-3; id., pp. 38-40.
6. This case was deemed submitted for decision on June 18, 2003, upon this Court's
receipt of petitioner's Memorandum, signed by Atty. Segundo Y. Chua. Respondents'
Memorandum, signed by Atty. Romeo B. Esuerte, was received by this Court on May 30,
2003.
7. Petitioner's Memorandum, p. 3; rollo, p. 171.
8. See Simex International (Manila), Inc. v. Court of Appeals, 183 SCRA 360,
March 19, 1990.
9. See Brief for the Defendant-Appellant, p. 11; rollo, p. 60.
10. United Coconut Planters Bank v. Ramos, 415 SCRA 596, November 11, 2003;
Cathay Pacific Airways, Ltd. v. Spouses Vazquez, 399 SCRA 207, March 14, 2003;
Citytrust Banking Corporation v. Villanueva, 361 SCRA 446, July 19, 2001; Expertravel
and Tours, Inc. v. Court of Appeals, 309 SCRA 141, June 25, 1999.
11. Art. 2219. Moral damages may be recovered in the following analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred in articles 21, 26, 27, 28, 29, 30, 32, 34
and 35.
xxx xxx xxx
12. Pilipinas Bank v. Court of Appeals, 234 SCRA 435, 439, July 25, 1994, per Puno,
J.
13. Bank of the Philippine Islands v. Court of Appeals, 326 SCRA 641, February 29,
2000; Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695, March 14,
1997 (citing Sangco, Torts and Damages [1993], Vol. I, p. 8).
14. Flores v. Uy, 368 SCRA 347, October 26, 2001; Metropolitan Bank v. Wong,
supra; Philippine National Bank v. Court of Appeals, supra; Boneng v. People, 204 SCRA
252, March 4, 1999; Philippine Airlines, Inc. v. CA, 275 SCRA 621, July 17, 1997;
Kierulf v. Court of Appeals, 336 Phil. 414, March 13, 1997.
15. Philippine Banking Corporation v. Court of Appeals, 419 SCRA 61, January 13,
2004; Kierulf v. Court of Appeals, supra.
16. Bank of the Philippine Islands v. Casa Montessori Internationale, GR No. 149454,
May 28, 2004.
17. Metropolitan Bank v. Wong, 359 SCRA 608, June 26, 2001; Prudential Bank v.
CA, 384 Phil. 817, March 16, 2000; Cavite Development Bank v. Lim, 324 SCRA 346,
February 1, 2000; Philippine National Bank v. Court of Appeals, 315 SCRA 309,
September 28, 1999; Metropolitan Bank and Trust Company v. Court of Appeals, 237
SCRA 761, October 26, 1994.
18. Samson v. Bank of the Philippine Islands, 405 SCRA 607, July 10, 2003; Flores v.
Uy, supra; Philippine National Bank v. Court of Appeals, supra.
19. Quisumbing v. Manila Electric Company, 380 SCRA 195, April 3, 2002.
20. Samson v. Bank of the Philippine Islands, supra; Flores v. Uy, supra; Simex
International (Manila), Inc. v. Court of Appeals, supra.
21. Kierulf v. Court of Appeals, supra.
22. Makabali v. Court of Appeals, 157 SCRA 253, January 22, 1988.
23. Simex International (Manila), Inc. v. Court of Appeals, supra; Guilatco v. City of
Dagupan, 171 SCRA 382, March 21, 1989.
24. Article 2229, Civil Code.
25. Philippine Banking Corporation v. Court of Appeals, 419 SCRA 487, January 15,
2004; United Coconut Planters Bank v. Ramos, 415 SCRA 596, November 11, 2003;
Bank of the Philippine Islands v. Court of Appeals, supra; Simex International (Manila),
Inc. v. Court of Appeals, supra.
26. Ibid.
27. Simex International (Manila), Inc. v. Court of Appeals, supra.
28. Respondents' Memorandum, p. 18; rollo, p. 147.
29. Cavite Development Bank v. Lim, supra; Prudential Bank v. Court of Appeals,
328 SCRA 264, March 16, 2000.
30. Prudential Bank v. Court of Appeals, supra; Philippine National Bank v. Court of
Appeals, supra.
8. Reyes v. Rural Bank of San Miguel
SPECIAL SECOND DIVISION
[G.R. No. 154499. February 27, 2004.]
ALBERTO V. REYES, WILFREDO B. DOMO-ONG and HERMINIO C. PRINCIPIO,
petitioners, vs. RURAL BANK OF SAN MIGUEL (BULACAN), INC., represented by
HILARIO P. SORIANO, President and Principal Stockholder, respondent.
Jose C. Songco for petitioners.
Lamberto A. Gonzales, Jr. for respondent.
SYNOPSIS
Petitioners Reyes and Domo-ong were found liable for violation of the standards of
professionalism prescribed by the Code of Conduct and Ethical Standards for Public
Officials and Employees for using the distressed financial condition of respondent Rural
Bank of San Miguel (Bulacan), Inc. (RBSMI) as the subject of a case study in one of the
Bangko Sentral ng Pilipinas seminars and did the brokering of the sale of RBSMI. Reyes
and Domo-ong moved to reconsider the decision. Petitioner Principio was exonerated of
the administrative charges which was the subject of RBSMI's motion for partial
reconsideration. DaCEIc
The Supreme Court found that there was merit to the motion for reconsideration of Reyes
and Domo-ong. Petitioners' alleged role in the disclosure of information was not
anchored on any concrete piece of evidence. That explains the RBSMI's effort to cast
liability vicariously on the petitioners by a superficial resort to the principle of command
responsibility. But the principle itself which is an accepted notion in military or police
structural dynamics or its counterpart of respondeat superior in the law on quasi-delicts is
not relevant in this case, involving as it does the actual performance in office of the
petitioners and given the fact that petitioners are high ranking officers of the country's
central monetary authority. As such officers, petitioners cannot be expected to monitor
the activities of their subalterns. Moreover, the negligence of the subordinate cannot be
ascribed to his superior in the absence of evidence of the latter's own negligence.
The Court likewise held that the acts of Reyes did not constitute brokering. From the
evidence, all that Reyes did was to introduce RBSMI's President to the Presidents of two
other banks. There was not even a hint that he was motivated by monetary consideration
or swayed by personal interest in doing what he did. caITAC
As to the motion for partial reconsideration filed by RBSMI, the Court denied the same.
Consequently, the Court dismissed the administrative complaint and exonerated all the
petitioners.
SYLLABUS
1. POLITICAL LAW; ADMINISTRATIVE LAW; PUBLIC OFFICERS AND
EMPLOYEES; PRINCIPLE OF COMMAND RESPONSIBILITY; INAPPLICABLE IN
CASE AT BAR. — It is noteworthy again that petitioners' alleged role in the disclosure of
information is not anchored on any concrete piece of evidence. That explains the
RBSMI's effort to cast liability vicariously on the petitioners by a superficial resort to the
principle of command responsibility which this Court did not reject. But neither the
principle itself which is an accepted notion in military or police structural dynamics or its
counterpart of respondeat superior in the law on quasi-delicts would be relevant in this
case, involving as it does the actual performance in office of the petitioners and given the
fact that petitioners are high ranking officers of the country's central monetary authority.
Indeed, as such officers, petitioners cannot be expected to monitor the activities of their
subalterns. In Arias v. Sandiganbayan, this Court held that all heads of offices have to
rely to a reasonable extent on the good faith of their subordinates. The case specifically
involved the liability of the head of office in the preparation of bids, purchase of supplies
and contract negotiations done by his subordinates. In the same fashion, petitioners in this
case owing to their high ranks cannot be expected to acquaint themselves with such
minutiae as the flow of files and documents which leave their desks. Myriad details such
as those are, by office practice, left to subalterns and minor employees. Delegation of
function is part of sound management. STIHaE
2. ID.; ID.; ID.; ID.; NEGLIGENCE OF SUBORDINATE CANNOT BE
ASCRIBED TO HIS SUPERIOR IN THE ABSENCE OF EVIDENCE OF THE
LATTER'S OWN NEGLIGENCE. — [T]he negligence of the subordinate cannot be
ascribed to his superior in the absence of evidence of the latter's own negligence. Indeed,
the negligence of the subordinate is not tantamount to negligence of the superior official
so the Court ruled in a case where the mandated responsibilities of the superior do not
include actual monitoring of projects. In another case, this Court rejected the principle of
command responsibility although the case involved a provincial constabulary
commander, aptly noting that there was neither allegation nor proof that he had been in
any way guilty of fault or negligence in connection with the unlawful raid and arrest
effected by his subordinates.
3. ID.; ID.; ADMINISTRATIVE CODE OF 1987; A SUPERIOR OFFICER SHALL
NOT BE CIVILLY LIABLE FOR THE WRONGFUL ACTS OR NEGLIGENCE OF
HIS SUBORDINATES UNLESS HE HAS AUTHORIZED BY WRITTEN ORDER
THE SPECIFIC ACT COMPLAINED OF. — The immunity of public officers from
liability for the non-feasances, negligence or omissions of duty of their official
subordinates and even for the latter's misfeasances or positive wrongs rests, according to
Mechem, "upon obvious considerations of public policy, the necessities of the public
service and the perplexities and embarrassments of a contrary doctrine." These official
subordinates, he notes further, are themselves public officers though of an inferior grade,
and therefore directly liable in the cases in which any public officer is liable, for their
own misdeeds or defaults. Significantly, Mechem's disquisition provides the mooring of
the Administrative Code of 1987 which provides that a head of a department or a superior
officer shall not be civilly liable for the wrongful acts, omissions of duty, negligence, or
misfeasance of his subordinates, unless he has actually authorized by written order the
specific act or misconduct complained of. IEHTaA
RESOLUTION
TINGA, J p:
This deals with the Motion for Reconsideration of petitioners Alberto V. Reyes and
Wilfredo B. Domo-ong, both Bangko Sentral ng Pilipinas (BSP) officials, 1 and the
Motion for Partial Reconsideration of respondent Rural Bank of San Miguel (Bulacan),
Inc. AICTcE
In the Decision 2 of March 14, 2003, this Court found Deputy Governor Reyes and
Director Domo-ong liable for violation of the "standards of professionalism" prescribed
by the Code of Conduct and Ethical Standards for Public Officials and Employees
(Republic Act No. 6713) in that they used the distressed financial condition of respondent
Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the subject of a case study in one
of the BSP seminars and did the "brokering" of the sale of RBSMI. The Court modified
the Decision of the Court of Appeals in CA-GR SP No. 60184 3 by reducing the penalty
imposed by the appellate court from a fine equivalent to six months' salary to a fine of
two months' salary for Reyes and one month salary for Domo-ong.
In the Decision, the Court exonerated petitioner Herminio C. Principio 4 of the
administrative charges. The exoneration is the subject of RBSMI's Motion For Partial
Reconsideration.
The Motion for Reconsideration of Reyes and Domo-ong is anchored on the
following grounds: (1) it was not under their auspices that the seminar which used
training materials containing two case studies on RBSMI's financial distress was
conducted but under that of another department and other officials of BSP; and, (2) they
did not do any act which constituted "brokering" of the sale of RBSMI or deviated from
the standards of professionalism.
A brief revisit of the operative milieu is warranted to gain the needed perspective.
In a letter dated May 19, 1999, addressed to then BSP Governor Singson, RBSMI
charged the petitioners with violation of Republic Act No. 6713 (Code of Conduct and
Ethical Standards for Public Officials and Employees). The Monetary Board (MB) of the
BSP created an Ad Hoc Committee to investigate the matter.
The ensuing investigation disclosed that sometime in September 1996, RBSMI, which
had a history of major violations/exceptions dating back to 1995, underwent periodic
examination by the BSP. The examination team headed by Principio noted 20 serious
exceptions/violations and deficiencies of RBSMI. 5
Through Resolution No. 96, the MB required RBSMI to submit within 15 days a written
explanation with respect to the findings of the examiner. It also directed the Department
of Rural Banks (DRB), to verify, monitor and report to the Deputy Governor, Supervision
and Examination Sector (SES) on the findings/exceptions noted, until the same shall have
been corrected.
As directed by the MB, another examination team conducted a special examination on
RBSMI. RBSMI President Hilario Soriano claimed that he was pressured into issuing a
memorandum to the bank employees authorizing the team to review the bank's
accounting and internal control system.
Soriano also alleged that sometime in March 1997, Reyes started urging him to consider
selling the bank. He specified that on May 28, 1997, Reyes introduced him through
telephone to Mr. Exequiel Villacorta, President and Chief Executive Officer of the TA
Bank. They agreed to meet on the following day. In his Affidavit, 6 Villacorta confirmed
that he and Soriano indeed met but the meeting never got past the exploratory stage since
he (Villacorta) immediately expressed disinterest because Soriano wanted to sell all his
equity shares while he was merely contemplating a possible buy-in.
Soriano further alleged that when the talks with Villacorta failed, Reyes asked him
whether he wanted to meet another buyer, to which he answered in the affirmative.
Thereafter, Reyes introduced him by telephone to Benjamin P. Castillo of the Export and
Industry Bank (EIB), whom he met on June 26, 1997. No negotiation took place because
Soriano desired a total sale while EIB merely desired a joint venture arrangement or a
buy-in to allow EIB to gain control of RBSMI. DaAISH
Meanwhile, on June 13, 1997, the MB approved Resolution No. 724 7 ordering RBSMI
to correct the major exceptions noted within 30 days from receipt of the advice, and to
remit to the BSP the amount of P2,538,483.00 as fines and penalties for incurring
deficiencies in reserves against deposit liabilities.
On July 21, 1997, Soriano submitted RBSMI's answers to the BSP exceptions/findings
mentioned. He stated that "the actions taken or to be taken by the bank (RBSMI) were
deliberated and ratified by the Board of Directors in its regular meeting held on July 9,
1997." Among the board approved actions was the bank's request addressed to Domo-ong
for BSP "to debit the demand deposit of the bank in the amount of P2,538,483.00"
representing the payment of fines and penalties.
More than a year after, however, the RBSMI asked for a reconsideration of MB
Resolution No. 724 insofar as the imposition of fine amounting to P2,538,483.00. On
January 21, 1999, the MB adopted Resolution No. 71, 8 authorizing the conditional
reversal of sixty percent (60%) of the penalty pending resolution of the dispute on the
findings on reserve deficiency. Subsequently, on April 7, 1999, the MB approved the
interim reversal of the entire amount of the penalty "pending the outcome of the study on
the legal and factual basis for the imposition of the penalty."
The above incidents, particularly the alleged "brokering" by Reyes and the
petitioners' "unsupported" recommendation to impose a penalty of P2,538,483.00
for legal reserve deficiency, prompted the respondent to file the letter-complaint
charging the petitioners with "unprofessionalism."

The Motion for Reconsideration bid of Reyes and Domo-ong is meritorious.

In pinning liability on Reyes and Domo-ong for the seminar which used the rural bank as
a case study, the court made this ratiocination, viz:
"(W)hile there was indeed no evidence showing that either petitioner Reyes or petitioner
Domo-ong distributed or used the materials, the very fact that the seminar was conducted
under their auspices is enough to make them liable to a certain extent. Petitioner Reyes,
as Head of the BSP Supervision and Examination Sector, and petitioner Domo-ong, as
Director of the BSP Department of Rural Banks, should have exercised their power of
control and supervision so that the incident could have been prevented or at the very least
remedied." (Emphasis supplied)
Plainly, conclusion on petitioners' culpability is grounded, not on an established fact but
on a mere inference that the seminar was conducted under their auspices. Indeed, the
pronouncement on the petitioners' role is evidently conjectural and evaluation of the
extent of their responsibility admittedly uncertain.

It is conceded that there was no evidence that the seminar was conducted under
petitioners' patronage. And it was assumed, as indeed there was absolutely paucity of
proof, that they exercised supervision and control over the persons responsible in
organizing the seminar. On the contrary, as shown in the Motion For Reconsideration, it
was the Bangko Sentral ng Pilipinas Institute (BSPI), an office separate and
independent from the SES which is directly under the control and supervision of
another Deputy Governor, that for the Resource Management Sector (RMS) 9 which
is charged with conducting seminars and lectures for the BSP, including the seminar
involved in this case.
In its Comment, 10 RBSMI argues that since information on the state of its finances
found its way as a training material of RMS, the event could have transpired only because
the SES permitted it. Even if the subordinates of petitioners were the source of
information, RBSMI further claims in ostensible reference to the principle of command
responsibility, petitioners could be held liable for negligence. ICacDE

It is noteworthy again that petitioners' alleged role in the disclosure of information is not
anchored on any concrete piece of evidence. That explains the RBSMI's effort to cast
liability vicariously on the petitioners by a superficial resort to the principle of command
responsibility which this Court did not reject. But neither the principle itself which is an
accepted notion in military or police structural dynamics or its counterpart of respondeat
superior in the law on quasi-delicts 11 would be relevant in this case, involving as it does
the actual performance in office of the petitioners and given the fact that petitioners are
high ranking officers of the country's central monetary authority. Indeed, as such officers,
petitioners cannot be expected to monitor the activities of their subalterns. In Arias v.
Sandiganbayan, 12 this Court held that all heads of offices have to rely to a reasonable
extent on the good faith of their subordinates. The case specifically involved the liability
of the head of office in the preparation of bids, purchase of supplies and contract
negotiations done by his subordinates. In the same fashion, petitioners in this case owing
to their high ranks cannot be expected to acquaint themselves with such minutiae as the
flow of files and documents which leave their desks. Myriad details such as those are, by
office practice, left to subalterns and minor employees. Delegation of function is part of
sound management.
From another perspective, the negligence of the subordinate cannot be ascribed to his
superior in the absence of evidence of the latter's own negligence. Indeed, the negligence
of the subordinate is not tantamount to negligence of the superior official so the Court
ruled in a case 13 where the mandated responsibilities of the superior do not include
actual monitoring of projects. In another case, 14 this Court rejected the principle of
command responsibility although the case involved a provincial constabulary
commander, aptly noting that there was neither allegation nor proof that he had been in
any way guilty of fault or negligence in connection with the unlawful raid and arrest
effected by his subordinates.
The immunity of public officers from liability for the non-feasances, negligence or
omissions of duty of their official subordinates and even for the latter's misfeasances or
positive wrongs rests, according to Mechem, "upon obvious considerations of public
policy, the necessities of the public service and the perplexities and embarrassments of a
contrary doctrine." 15 These official subordinates, he notes further, are themselves public
officers though of an inferior grade, and therefore directly liable in the cases in which any
public officer is liable, for their own misdeeds or defaults. 16
Significantly, Mechem's disquisition provides the mooring of the Administrative Code of
1987 which provides that a head of a department or a superior officer shall not be civilly
liable for the wrongful acts, omissions of duty, negligence, or misfeasance of his
subordinates, unless he has actually authorized by written order the specific act or
misconduct complained of. 17
Now, the label of unprofessionalism bestowed by the Court on the petitioners at the
instance of RBSMI.
In the assailed Decision, the Court categorized Reyes' telephone introduction of officials
of other banks to RBSMI's President in connection with the latter's expressed desire to
sell the bank as "brokering" which in turn constitutes, according to the Court, violation of
the standards of professionalism. The standards are set forth in Section 4 (A) (b) of
Republic Act 6713, as follows:
Sec. 4. Norms of Conduct of Public Officials and Employees. — (A) Every public
official and employee shall observe the following as standards of personal conduct in the
discharge and execution of official duties: aHCSTD
xxx xxx xxx
(b) Professionalism. — Public officials and employees shall perform and discharge
their duties with the highest degree of excellence, professionalism, intelligence and skill.
They shall enter public service with utmost devotion and dedication to duty. They shall
endeavor to discourage wrong perceptions of their roles as dispensers or peddlers of
undue patronage.
The Court equates "brokering" with unprofessionalism. According to Webster's Third
New International Dictionary, "professionalism" means "the conduct, aims, or qualities
that characterize or mark a profession." Any standard thesaurus defines a "professional"
as a person who engages in an activity with great competence. Indeed, to call a person a
professional is to describe him as competent, efficient, experienced, proficient or
polished.
The crucial question, therefore, is whether Reyes conducted himself in an
unprofessional manner in doing the acts imputed to him.
The Court rules in the negative.
In the first place, the acts of Reyes do not constitute "brokering." Case law 18 defines a
"broker" as "one who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name but in the name of those who employed him. .
. . a broker is one whose occupation is to bring the parties together, in matters of trade,
commerce or navigation." According to Bouvier's Law Dictionary, "brokerage" refers to
"the trade or occupation of a broker; the commissions paid to a broker for his services,"
while "brokers" are "those who are engaged for others on the negotiation of contracts
relative to property, with the custody of which they have no concern." 19
Thus, the word "brokering" clearly indicates the performance of certain acts for monetary
consideration or compensation. To give it another definition such as that imputed by
RBSMI to the acts of Reyes is to distort the accepted jurisprudential meaning of the term.
From the evidence, all that Reyes did was to introduce RBSMI's President to the
President of TA Bank and EIB. Nothing more. There was not even a hint that he was
motivated by monetary consideration or swayed by any personal interest in doing what he
did.
On his part, Soriano who is RBSMI's President himself admitted that the talks with
Villacorta and Castillo never got past the exploratory stage because the two wanted a
buy-in while he was for a total sell-out. This is an indelible indication that Reyes was not
personally involved in the transaction. If he were, he would at least have an inkling of the
plans of Villacorta and Castillo; otherwise, he would not have wasted his time
introducing them to Soriano.
Indeed, RBSMI miserably failed to establish that Reyes had breached the standard of
professional conduct required of a public servant. It appears to the Court that in keeping
with the standards of professionalism and heeding the mandate of his position, he made
the telephone introductions for no other purpose but to pave the way for a possible
consolidation or merger of RBSMI with interested banks. As this Court found in its
Decision, it is indeed the policy of the BSP to promote mergers and consolidations by
providing incentives to banks that would undergo such corporate combinations. 20 To
effectively implement the policy, it was necessary that the banks be advised and assisted
by a person knowledgeable about the transactions like Reyes. The benefits which may
ultimately arise out of any preliminary facilitation step such as what Reyes undertook
will not accrue to the facilitator but to the parties to the transaction themselves and, of
course, the institution whose policy initiative is being carried out. aHcACI
All told, there is neither legal nor factual support for holding Reyes and Domo-ong liable.
As to the motion for partial reconsideration filed by RBSMI, it is argued that Principio
should be administratively penalized for his undue haste in submitting his report to the
MB, in making an unsupported recommendation for imposition of penalties for legal
reserve deficiencies, and for taking charge of the examinations of RBSMI three
consecutive times. RBSMI's arguments are not new, they having been previously
presented to and squarely ruled upon by the Court.
In closing, it cannot be overemphasized that the BSP is an independent body corporate
bestowed under its charter 21 with fiscal and administrative autonomy. As such, its
officials should be granted a certain degree of flexibility in the performance of their
duties and provided insulation from interference and vexatious suits, especially when
moves of the kind are resorted to as counterfoil to the exercise of their regulatory
mandate. Elsewise, the institutional independence and autonomy of the BSP as the central
mandatory authority would be rendered illusory.
IN VIEW OF THE FOREGOING, the Court RESOLVES to GRANT the Motion for
Reconsideration of the petitioners Deputy Governor Alberto V. Reyes and Director
Wilfredo B. Domo-ong. The Decision dated March 14, 2003 is SET ASIDE and another
entered, DISMISSING the administrative complaint and EXONERATING all the
petitioners. The Motion for Partial Reconsideration of the respondent Rural Bank of San
Miguel (Bulacan), Inc. is DENIED.
SO ORDERED.
Quisumbing, Austria-Martinez and Callejo, Sr., JJ., concur.
Puno, J., is on leave.
Footnotes
1. Reyes is Deputy Governor and Head of Supervision and Examination Sector
while Domo-ong is Director of the Department of Rural Banks.
2. Rollo, pp. 100-117.
3. Penned by Justice Cancio C. Garcia with Justices Roberto A. Barrios and
Bienvenido L. Reyes concurring.
4. Principio is an Examiner of the Department of Rural Banks.
5. See List of Exceptions/Deficiencies and Recommendation, CA Rollo, p. 408.
6. CA Rollo, p. 340.
7. See Ad-Hoc Committee Resolution, CA Rollo, p. 63.
8. Ibid.
9. The RMS is one of the three sectors directly under the BSP Governor, the two (2)
other sectors being the Supervision and Examination Sector (headed by petitioner Reyes),
and the Banking Services Sector. (See BSP Organizational Chart, Annex "A" of the
Motion for Reconsideration, Rollo, p. 144).
10. Rollo, p. 157.
11. See Art. 2180, Civil Code.
12. G.R. Nos. 81563 and 82512, December 19, 1989, 180 SCRA 309.
13. Principe v. Fact-Finding and Intelligence Bureau, G.R. No. 145973, January 23,
2002, 374 SCRA 460.
14. Quimsing v. Lachica, 11 Phil. 110 (1961).
15. Mechem, A Treatise on public Offices and Officers, pp. 528-529.
16. Ibid., at 529.
17. Book I, Chapter 9, Section 38(3), Executive Order No. 292.
18. Schmid and Oberly v. RJL Martinez Fishing Corporation, G.R. No. 75198,
October 18, 1998, 166 SCRA 493.
19. At p. 399.
20. Circular No. 1312, Series of 1991; Circular No. 172, Series of 1998; Circular No.
193, Series of 1999; Circular No. 207, Series of 1999; Circular No. 225, Series of 2000;
Circular No. 237, Series of 2000; and Circular No. 256, Series of 2000.
21. Republic Act No. 7653. Sec. 1 on Declaration of Policy.
9. Fua Cun v. China Banking Corporation
FIRST DIVISION
[G.R. No. 19441. March 27, 1923.]
FUA CUN (alias Tua Cun), plaintiff-appellee, vs. RICARDO SUMMERS, in his capacity
as Sheriff ex-oficio of the City of Manila, and the CHINA BANKING CORPORATION,
defendants-appellants.
Araneta & Zaragoza for appellants.
Canillas & Cardenas for appellee.
SYLLABUS
1. BANKING CORPORATION; SHARES OF STOCK; LIEN OF CORPORATION
UPON THE SAME. — A banking corporation has no lien upon its own stock for the
indebtedness of the stockholders even when the by-laws provide that the shares shall be
transferable only upon the books of the corporation and that no such transfer shall be
made if the holder of the shares is indebted to the corporation.
2. ID.; ID.; EFFECT OF PART PAYMENT OF SUBSCRIPTION; SPECIAL
AGREEMENT. — In the absence of special agreement to the contrary, a subscriber for a
certain number of shares of stock does not, upon payment of one-half of the subscription
price, become entitled to the issuance of certificates for one-half the number of shares
subscribed for; the subscriber's right consists only in an equity entitling him to a
certificate for the total number of shares subscribed for by him upon payment of the
remaining portion of the subscription price.
3. ID.; ID.; ASSIGNMENT OF EQUITY. — An equity in shares of stock may be
assigned, the assignment becoming effective as between the parties and as to third parties
with notice.
4. ID.; ID.; ID.; PRIORITY OF LIEN. — An attachment levied upon assigned rights
or interests in an action against the assignor after the attaching creditor has received
notice of the assignment creates no lien as against the assignee.
5. ID.; ID.; ID.; CHATTEL MORTGAGE. — Whether in this jurisdiction an equity
in shares of stock may properly be made the subject of a chattel mortgage, quaere, but
such chattel mortgage will at least operate as a conditional equitable assignment.
DECISION
OSTRAND, J p:
It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for five
hundred shares of stock of the defendant Banking Corporation at a par value of P100 per
share, paying the sum of P25,000, one-half of the subscription price, in cash, for which a
receipt was issued in the following terms:
"This is to certify, That Chua Soco, a subscriber for five hundred shares of the capital
stock of the China Banking Corporation at its par value of P100 per share, has paid into
the Treasury of the Corporation, on account of said subscription and in accordance with
its terms, the sum of twenty-five thousand pesos (P25,000), Philippine currency.
"Upon receipt of the balance of said subscription in accordance with the terms of the calls
of the Board of Directors, and surrender of this certificate, duly executed certificates for
said five hundred shares of stock will be issued to the order of the subscriber.
"It is expressly understood that the total number of shares specified in this receipt is
subject to sale by the China Banking Corporation for the payment of any unpaid
subscriptions, should the subscriber fail to pay the whole or any part of the balance of his
subscription upon 30 days' notice issued therefor by the Board of Directors.
"Witness our official signatures at Manila, P. I., this 25th day of August, 1920.
(Sgd.) "MERWIN WEBSTER
"Cashier
(Sgd.) "DEE C. CHUAN
"President"
On May 18, 1921, Chua Soco executed a promissory note in favor of the plaintiff Fua
Cun for the sum of P25,000 payable in ninety days and drawing interest at the rate of 1
per cent per month, securing the note with a chattel mortgage on the shares of stock
subscribed for by Chua Soco, who also endorsed the receipt above mentioned and
delivered it to the mortgage. The plaintiff thereupon took the receipt to the manager of
the defendant Bank and informed him of the transaction with Chua Soco, but was told to
await action upon the matter by the Board of Directors.
In the meantime Chua Soco appears to have become indebted to the China Banking
Corporation in the sum of P37,731.68 for dishonored acceptances of commercial paper
and in an action brought against him to recover this amount, Chua Soco's interest in the
five hundred shares subscribed for the attached and the receipt seized by the sheriff. The
attachment was levied after the defendant bank had received notice of the fact that the
receipt had been endorsed over to the plaintiff.
Fua Cun thereupon brought the present action maintaining that by virtue of the payment
of the one-half of the subscription price of five hundred shares Chua Soco in effect
became the owner of two hundred and fifty shares and praying that his, the plaintiff's, lien
on said shares, by virtue of the chattel mortgage, be declared to hold priority over the
claim of the defendant Banking Corporation; that the defendants be ordered to deliver the
receipt in question to him; and that he be awarded the sum of P5,000 in damages for
wrongful attachment.
The trial court rendered judgment in favor of the plaintiff declaring that Chua Soco,
through the payment of the P25,000, acquired the right to two hundred and fifty shares
fully paid up, upon which shares the plaintiff holds a lien superior to that of the defendant
Banking Corporation and ordering that the receipt be returned to said plaintiff. From this
judgment the defendants appeal.
Though the court below erred in holding that Chua Soco, by paying one-half of the
subscription price of five hundred shares, in effect became the owner of two hundred and
fifty shares, the judgment appealed from is in the main correct.
The claim of the defendant Banking Corporation upon which it brought the action in
which the writ of attachment was issued, was for the non-payment of drafts accepted by
Chua Soco and had no direct connection with the shares of stock in question. At common
law a corporation has no lien upon the shares of stockholders for any indebtedness to the
corporation (Jones on Liens, 3d ed., sec. 375) and our attention has not been called to any
statute creating such lien here. On the contrary, section 120 of the Corporation Act
provides that "no bank organized under this Act shall make any loan or discount on the
security of the shares of its own capital stock, nor be the purchaser or holder of any such
shares, unless such security or purchase shall be necessary to prevent loss upon a debt
previously contracted in good faith, and stock so purchased or acquired shall, within six
months from the time of its purchase, be sold or disposed of at public or private sale, or,
in default thereof, a receiver may be appointed to close up the business of the bank in
accordance with law."
Section 35 of the United States National Banking Act of 1864 contains a similar
provision and it has been held in various decisions of the United States Supreme Court
that a bank organized under that Act can have no lien on its own stock for the
indebtedness of the stockholders even when the by-laws provide that the shares shall be
transferable only on the books of the corporation and that no such transfer shall be made
if the holder of the shares is indebted to the corporation. (Jones on Liens, 3d ed., sec. 384;
First National Bank of South Bend vs. Lanier and Handy, 11 Wall., 369; Bullard vs.
National Eagle Bank, 18 Wall., 589; First National Bank of Xenia vs. Stewart and
McMillan, 107 U. S., 676.) The reasons for this doctrine are obvious; if banking
corporations were given a lien on their own stock for the indebtedness of the
stockholders, the prohibition against granting loans or discounts upon the security of the
stock would become largely ineffective.
Turning now to the rights of the plaintiff in the stock in question, it is argued that the
interest held by Chua Soco was merely an equity which could not be made the subject of
a chattel mortgage. Though the courts have uniformly held that chattel mortgages on
shares of stock and other chooses in action are valid as between the parties, there is still
much to be said in favor of the defendants' contention that the chattel mortgage here in
question would not prevail over liens of third parties without notice; an equity in shares
of stock is of such an intangible character that it is somewhat difficult to see how it can
be treated as a chattel and mortgaged in such a manner that the recording of the mortgage
will furnish constructive notice to third parties. As said by the court in the case of
Spalding vs. Paine's Adm'r. (81 Ky., 416), in regard to a chattel mortgage of shares of
stock:
"These certificates of stock are in the pockets of the owner, and go with him where he
may happen to locate, as chooses in action, or evidence of his right, without any means
on the part of those with whom he proposes to deal on the faith of such a security of
ascertaining whether or not this stock is in pledge or mortgaged to other. He finds the
name of the owner on the books of the company as a subscriber of paid-up stock,
amounting to 180 shares, with the certificates in his possession, pays for these certificates
their full value, and has the transfer to him made on the books of the company, thereby
obtaining a perfect title. What other inquiry is he to make, so as to make his investment
certain and secure? Where is he to look, in order to ascertain whether or not this stock has
been mortgaged? The chief office of the company may be at one place to-day and at
another tomorrow. The owner may have no fixed or permanent abode, and with his notes
in one pocket and his certificates of stock in the other — the one evidencing the extent of
his interest in the stock of the corporation, the other his right to money owing him by his
debtor, we are asked to say that the mortgage is effectual as to the one and inoperative as
to the other."
But a determination of this question is not essential in the present case. There can be no
doubt that an equity in shares of stock may be assigned and that the assignment is valid as
between the parties and as to persons to whom notice is brought home. Such an
assignment exists here, though it was made for the purpose of securing a debt. The
endorsement to the plaintiff of the receipt above mentioned reads:
"For value received, I assign all my rights in these shares in favor of Mr. Tua Cun.
"Manila, P. I., May 18, 1921.
(Sgd.) "CHUA SOCO"
This endorsement was accompanied by the delivery of the receipt to the plaintiff and
further strengthened by the execution of the chattel mortgage, which mortgage, at least,
operated as a conditional equitable assignment.
As against the right of the plaintiff the defendant bank had, as we have seen, no lien
unless by virtue of the attachment. But the attachment was levied after the bank had
received notice of the assignment of Chua Soco's interests to the plaintiff and was
therefore subject to the rights of the latter. It follows that as against these rights the
defendant bank holds no lien whatever.
As we have already stated, the court erred in holding the plaintiff as the owner of two
hundred and fifty shares of stock; "the plaintiff's rights consist in an equity in five
hundred shares and upon payment of the unpaid portion of the subscription price he
becomes entitled to the issuance of certificate for said five hundred shares in his favor."
The judgment appealed from is modified accordingly, and in all other respects it is
affirmed, with the costs against the appellant Banking Corporation. So ordered.
Araullo, C.J., Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ., concur.

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10. Register of Deeds v. China Banking Corporation
EN BANC
[G.R. No. L-11964. April 28, 1962.]
REGISTER OF DEEDS OF MANILA, petitioner-appellee, vs. CHINA BANKING
CORPORATION, respondent-appellant.
Solicitor General for petitioner-appellee.
Sycip- Salazar, Luna & Associates for respondents-appellant.
Alfonso Ponce Enrile as Amicus Curiae.
SYLLABUS
1. BANKS; ACQUISITION OF REAL ESTATE IN SATISFACTION OF DEBTS;
MEANING OF "DEBTS" IN SECTION 25, REPUBLIC ACT 337. — Paragraph (c),
Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real
estate as shall be conveyed to it in satisfaction of debts previously contracted in the
course of its dealings. The "debts" referred to in this provision are only those resulting
from previous loans and other similar transactions made or entered into by a commercial
bank in the ordinary course of its business as such.
2. CONSTITUTIONAL LAW; ACQUISITION OF PRIVATE AGRICULTURAL
LAND BY ALIENS; SECTION 5, TITLE XIII OF THE CONSTITUTION ABSOLUTE
IN TERMS. — The prohibition in section 5, Title XIII of the Constitution, which
provides that "Save in cases of hereditary succession, no private agricultural land shall be
transferred or assigned except to individuals, corporations or associations qualified to
acquire or hold lands of the public domain in the Philippines.", is absolute in terms and
has for its purpose the preservation of the patrimony of the nation. It cannot be limited to
the permanent acquisition of real estate by aliens — whether natural or juridical persons.
DECISION
DIZON, J p:
Appeal from a resolution of the Land Registration Commission holding "that the deed of
transfer in favor of an alien bank, subject of the present Consulta, is unregisterable for
being in contravention of the Constitution of the Philippines".
In an information filed on June 16, 1953 in the Court of First Instance of Manila
(Criminal Case No. 22908) Alfonso Pangilinan and one Guillermo Chua were charged
with qualified theft, the money involved amounting to P275,000.00. On September 18,
1956, Pangilinan and his wife, Belen Sta. Ana, executed a public instrument entitled
DEED OF TRANSFER whereby, after admitting his civil liability in favor of his
employer, the China Banking Corporation, in relation to the offense aforesaid, he ceded
and transferred to the latter, in satisfaction thereof, a parcel of land located in the City of
Manila, registered in the name of "Belen Sta. Ana, married to Alfonso Pangilinan"
(Transfer Certificate of Title No. 32230). On October 24, 1956 the deed was presented for
registration to the Register of Deeds of the City of Manila, but because the transferee —
the China Banking Corporation — was alien-owned and, as such, barred from acquiring
lands in the Philippines in accordance with the provisions of Section 5, Article XIII of the
Constitution of the Philippines, said officer submitted the matter of its registration to the
Land Registration Commission for resolution. After granting the parties concerned ample
opportunity to submit their views upon the issue, the Commission issued the resolution
appealed from.
Plainly stated, the question before Us is whether appellant — an alien-owned bank —
can acquire ownership of the residential lot covered by Transfer Certificate of Title
No. 32230 by virtue of the deed of transfer mentioned heretofore (Vide pages 1-6 of the
Record on Appeal).
Maintaining the affirmative, appellant argues that: (a) the temporary holding of land by
an alien-owned commercial bank under a public instrument such as the deed of transfer in
question "bears no reasonable connection with the constitutional purpose" underlying the
provisions of Section 5, Article XIII of the Constitution of the Philippines; hence, such
holding or acquisition "was not within the contemplation of the framers of the
Constitution"; (b) by judicial as well as by executive-administrative and legislative
construction, the constitutional prohibition against alien landholding does not preclude
enjoyment by aliens of temporary rights in land; and (c) under the provisions of Section
25 of Republic Act No. 337 (General Banking Act) an alien or an alien-owned
commercial bank may acquire land in the Philippines subject to the obligation of
disposing of it within 5 years from the date of its acquisition.
Upon the other hand, the argument supporting the appealed resolution is that the privilege
of acquiring real estate granted to commercial banks under the provisions of Section 25
of Republic Act No. 337 was not intended as an amendment, much less as a nullification
of the constitutional prohibition against alien acquisition of lands in the Philippines, the
same being merely an exception to the general rule, under existing banking and
corporation laws, that banks and corporations can engage only in the particular business
for which they were specifically created; that a mere statute, like the republic act relied
upon by appellant, cannot amend the Constitution; that in connection with the particular
constitutional prohibition involved herein, it is the character and nature of the possession
— whether in strict ownership or otherwise — and not the length of possession that is
material, the result being that, if real property is to be held in ownership, an alien may not
legally do so even for a single day.
After considering the arguments adduced by appellant in its brief, jointly with those
expounded in the briefs submitted by Alfonso Ponce Enrile and William H. Quasha and
Associates, as amici curiae, on the one hand, and, on the other, those relied upon in the
brief submitted by the Office of the Solicitor General on behalf of the Commission, we
are inclined to uphold, as we do uphold, the appealed resolution.
To support its view appellant relies particularly upon paragraphs (c) and (d), Section 25
of Republic Act 337 which reads as follows:
"Sec. 25. Any commercial bank may purchase, hold, and convey real estate for the
following purposes:
xxx xxx xxx
"(c) Such as shall be conveyed to it in satisfaction of debts previously contracted in the
course of its dealings;
"(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to secure debts due to it.
"But no such bank shall hold the possession of any real estate under mortgage or trust
deed, or the title and possession of any real estate purchased to secure any debt due to it,
for a longer period than five years."
Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank,
whether alien-owned or controlled or not, may purchase and hold real estate for the
specific purposes and in the particular cases enumerated in Section 25 thereof, we find
that the case before Us does not fall under anyone of them.
Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and
hold such real estate as shall be conveyed to it in satisfaction of debts previously
contracted in the course of its dealings. We deem it quite clear and free from doubt that
the "debts" referred to in this provision are only those resulting from previous loans and
other similar transactions made or entered into by a commercial bank in the ordinary
course of its business as such. Obviously, whatever "civil liability" — arising from the
criminal offense of qualified theft — was admitted in favor of appellant bank by its
former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar
transaction had between the two parties in the ordinary course of banking business.
Neither do the provisions of paragraph (d) of the same section apply to the present case
because the deed of transfer in question can in no sense be considered as a sale made by
virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same
manner it can not be said that the real property in question was purchased by appellant
"to secure debts due to it", considering that, as stated heretofore, the term debt employed
in the pertinent legal provision can logically refer only to such debts as may become
payable to appellant bank as a result of a banking transaction.
That the constitutional prohibition under consideration has for its purpose the
preservation of the patrimony of the nation can not be denied, but appellant and the amici
curiae claim that it should be liberally construed so that the prohibition be limited to the
permanent acquisition of real estate by aliens — whether natural or juridical persons.
This, of course, would make legal the ownership acquired by appellant bank by virtue of
the deed of transfer mentioned heretofore, subject to its obligation to dispose of it in
accordance with law, within 5 years from the date of its acquisition. We can not give
assent to this contention, in view of the fact that the constitutional prohibition in question
is absolute in terms. We have so held in Ong Sui Si Temple vs. The Register of Deeds of
Manila (G.R. No. L-6776, prom. May 21, 1955) where we said, inter alia, the following:
"We are of the opinion that the Court below has correctly held that in view of the absolute
terms of section 5, Title XIII, of the Constitution, the provisions of Act 271 of the old
Philippine Commission must be deemed repealed since the Constitution was enacted, in
so far as incompatible therewith. In providing that.
'Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations or associations qualified to acquire or hold
lands of the public domain in the Philippines',
the Constitution makes no exception in favor of religious associations. Neither is there
any such saving found in Sections 1 and 2 of Article XIII, restricting the acquisition of
public agricultural lands and other natural resources to 'corporations or associations at
least sixty per centum of the capital of which is owned by such citizens' (of the
Philippines)." (Italics ours)
Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50 O.G., 5239)
where a lease of a parcel of land for a total period of 50 years in favor of an alien
corporation was held to be registerable, the reason we gave for such ruling was that a
lease — unlike a sale — does not involve the transfer of dominion over the land, the clear
implication from this being that transfer of ownership over land, even for a limited period
of time, is not permissible in view of the constitutional prohibition. The reason for this is
manifestly the desire and purpose of the Constitution to place and keep in the hands of
the people the ownership over private lands in order not to endanger the integrity of the
nation. Inasmuch as when an alien buys land he acquires and will naturally exercise
ownership over the same, either permanently or temporarily, to that extent his acquisition
jeopardizes the purpose of the Constitution.
Some may say that this construction is too narrow and unwise; to this we answer that it is
not our privilege to determine the wisdom or lack of wisdom of this constitutional
mandate. It is, rather, Our sworn duty to enforce it free from qualifications and
distinctions that tend to render futile the constitutional intent.
WHEREFORE, the resolution appealed from is hereby affirmed, with costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ.,
concur.
Padilla and Labrador, JJ., took no part.

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