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. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent

CRUZ, J.:

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

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

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

The dishonored checks are the following:

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

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

3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg 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.

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

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

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

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

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

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

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

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

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

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

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

From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of
preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social humiliation. 9

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the
checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in
it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a
collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was
ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable
entity that has no good name to protect.

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

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

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

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and,
most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.

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

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

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank
exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is
expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original
award of attorney's fees in the amount of P5,000.00, and costs.

SO ORDERED.

Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPAs, respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May
1999. The assailed decision reversed the Decision[2]of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated
Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary
damages, attorneys fees, expenses of litigation and cost of suit.

The Facts

Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and
Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990
and a savings (checks) deposit slip for P50.Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the
money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of
the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook.[3] Calapre went back to
L.C. Diaz and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to
Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller
No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya
asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre
was then standing beside Macaraya.

Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine
Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed. [4] PBC subsequently dishonored the
check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop
any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz formally wrote Solidbank
to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14
August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized
signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain
Noel Tamayo received the P300,000.

In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola
with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the
City Prosecutor filed a Motion to Dismiss on 4 August 1992.

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused.

On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial Court
of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the
complaint.

L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the
decision of the trial court.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court,
however, modified its decision by deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of
this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said
book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally. [9]

At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip
with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature
cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to
Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then
given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court
concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from
the savings account of L.C. Diaz.

The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were
forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the
authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.

Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key. [10] When
another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is
considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was now
out of the lock and key and presumptively ready for a business transaction. [11]

Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of
allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs
negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a
person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the
possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which check was deposited on the day of the
fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties
whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of
more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The
bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer
so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz
disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted into a managers check.

The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to
recover P300,000 after the dismissal of the criminal case against Ilagan.

The dispositive portion of the decision of the trial court reads:

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

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

With costs against plaintiff.

SO ORDERED.[12]

The Ruling of the Court of Appeals

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

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff;
(b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.

The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial,
should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz,
Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who
made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its
employees.

The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in
leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could
have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The
business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found
Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.

The dispositive portion of the decision of the Court of Appeals reads:

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

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

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

SO ORDERED.[13]

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

The dispositive portion of the Resolution reads as follows:

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

SO ORDERED.[15]

Hence, this petition.

The Issues

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

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

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

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

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

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C.
Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C.
Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine
who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is
no pre-existing contractual relationship between the parties.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. [17] Article 1980 of the
Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor.The bank is the debtor
and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings
deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA
8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.[21]

This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written
into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. [22] Section 2 of
RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance
in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from
a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan,
and not a breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while
charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs
to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is
demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another
transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept
under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.

Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or
his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has
the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that
there was no negligence on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the
passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of
the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of
the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.[25]

The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial
court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the
impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred. [26] Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent. [27]

L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it
was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only
to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.

Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took
possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.

We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to
call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no
arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C.
Diaz.

There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a
withdrawal of a large amount of money. L.C. Diaz failed to do so.

Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal
of P300,000, the impostor deposited with Teller No. 6 theP90,000 PBC check, which later bounced. The impostor apparently
deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court
thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks
and when the teller had no reason to be suspicious of the transaction.

Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of
L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the
following statements in the Booking and Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited
in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at
Bauan, Batangas.Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.)

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both
the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.

We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of
facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed
the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim
that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically
state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that
of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss. [29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due diligence. [30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence
of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. [31]Such contributory negligence
or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the
defendant from his breach of contract.[32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if
the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced.

In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C.
Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual
damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall
pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The
remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs.Proportionate costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.

Azcuna, J., on official leave.

G.R. No. 154469 December 6, 2006

METROPOLITAN BANK AND TRUST COMPANY, petitioners, vs. RENATO D. CABILZO, respondent

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company (Metrobank)
seeking to reverse and set aside the Decision1 of the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002
affirming the Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of
the Court of Appeals Decision reads:

WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.

Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.2

Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with Metrobank Pasong
Tamo Branch.3

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. 4

Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for
appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature
of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC)
Rules.

On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was
asked by a bank personnel if Cabilzo had issued a check in the amount of P91,000.00 to which the former replied in the negative. On
the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00
and requested that the questioned check be returned to him for verification, to which Metrobank complied. 5

Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the
amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994.6

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning
that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still
failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the payment of P90,000.00, after deducting the
original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation.

Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company,Cabilzo prayed that in addition to
his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.9

For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawer’s signature appearing thereon and the technical entries on the check including the
amount in figures and in words to determine if there were alterations, erasures, superimpositions or intercalations thereon, but none
was noted. After verifying the authenticity and propriety of the aforesaid entries, including the indorsement of the collecting bank
located at the dorsal side of the check which stated that, "all prior indorsements and lack of indorsement guaranteed," Metrobank
cleared the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be.

In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the
fraudulent insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the
check, which according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the
doctrine of equitable estoppel.

Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of litigation and
attorney’s fees, for allegedly bringing a frivolous and baseless suit. 11

On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on account of its unqualified indorsement
stamped at the dorsal side of the check which the former relied upon in clearing what turned out to be a materially altered check.

Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review before the RTC
of Manila, Branch 19.

In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.

On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the fiduciary nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The dispositive portion of the Decision reads:

WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo the
sum of P90,000 with legal interest of 6 percent per annum from November 16, 1994 until payment is made plus P20,000 attorney’s
fees, exemplary damages of P50,000, and costs of the suit.16

Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by
reason of its unqualified indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting and that
upon presentment the check shall be accepted according to its tenor.

Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee bank, but
rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that
the entries in the check were regular and authentic and alteration could not be determined even upon close examination.

In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of the court a quo, similarly
finding Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The decretal portion of the Decision reads:

WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that the awards for
exemplary damages and attorney’s fees are hereby deleted. 18

Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellate court in its
Resolution19 issued on 26 July 2002, for lack of merit.

Metrobank now poses before this Court this sole issue:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE
FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER
THEREOF.

We resolve to deny the petition.

An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. 20 In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable Instruments Law.

Section 1 of the Negotiable Instruments Law provides:

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand or at a fixed determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Also pertinent is the following provision in the Negotiable Instrument Law which states:

Section 125. What constitutes material alteration. – Any alteration which changes:

(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment;

(d) The number or the relation of the parties;

(e) The medium or currency in which payment is to be made;

Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.

In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1
and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the
purview of material alteration.

Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect
of a materially altered instrument, as well as the rights and obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out this issue:

Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has himself made,authorized, and assented to the alteration and subsequent
indorsers.

But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor. (Emphasis ours.)

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could
have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance
of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the
amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated
other than the one specified between the asterisks.

The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only
those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was
still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the
fraud, to the damage and prejudice of Cabilzo.

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. 21 Metrobank’s reliance on
this dictum, is misplaced. For one, Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause 22 of the loss in the
absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it. 23

Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in order to
facilitate his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount of
his deposit to fraud, for which Cabilzo can never be faulted.

We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the
country’s economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence. 24

Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that they will be
safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a
businessman like the respondent, the bank is a trusted and active associate that can help in the running of his affairs, not only in the
form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.25

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever he directs. 26

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence. 27

In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed by the Court of
Appeals, there are material alterations on the check that are visible to the naked eye. Thus:

x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number "2". The appellant’s employees who
examined the said check should have likewise been put on guard as to why at the end of the amount in words, i.e., after the word
"ONLY", there are 4 asterisks, while at the beginning of the line or before said phrase, there is none, even as 4 asterisks have been
placed before and after the word "CASH" in the space for payee. In addition, the 4 asterisks before the words "ONE THOUSAND
PESOS ONLY" have noticeably been erased with typing correction paper, leaving white marks, over which the word "NINETY" was
superimposed. The same can be said of the numeral "9" in the amount "91,000", which is superimposed over a whitish mark,
obviously an erasure, in lieu of the asterisk which was deleted to insert the said figure. The appellant’s employees should have again
noticed why only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount. The word
"NINETY" is also typed differently and with a lighter ink, when compared with the words "ONE THOUSAND PESOS ONLY." The
letters of the word "NINETY" are likewise a little bigger when compared with the letters of the words "ONE THOUSAND PESOS
ONLY".28

Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an ordinary
person. This negligence was exacerbated by the fact that, as found by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks indorsed for payment against drawer’s accounts. 29 Obviously,
the employee allowed by Metrobank to examine the check was not verse and competent to handle such duty. These factual findings of
the trial court is conclusive upon this court especially when such findings was affirmed the appellate court. 30

Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far better than those of ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees. 31

In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee
in accordance with the drawer’s instructions as reflected on the face and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the instruction of the drawer.

When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s
account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the
right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity.

Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, the amount in words
and figures, as well as the drawer’s signature, which after verification, were found to be proper and authentic and was thus cleared.
We are not persuaded. Metrobank’s negligence consisted in the omission of that degree of diligence required of a bank owing to the
fiduciary nature of its relationship with its client. Article 1173 of the Civil Code provides:

The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. x x x.

Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the intricacies of the banking business. This Court is not completely unaware
of banks’ practices of employing devices and techniques in order to detect forgeries, insertions, intercalations, superimpositions and
alterations in checks and other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it point its finger at the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check. The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.

The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to the dictum that
being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost diligence in dealing with the
accounts of its own clients. It owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of
other banks on occasions where its clients money were involve, no matter how small or substantial the amount at stake.

Metrobank’s contention that it relied on the strength of collecting bank’s indorsement may be merely a lame excuse to evade liability,
or may be indeed an actual banking practice. In either case, such act constitutes a deplorable banking practice and could not be
allowed by this Court bearing in mind that the confidence of public in general is of paramount importance in banking business.

What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run after the one who made the alteration or with the collecting bank,
which it had already done. It bears repeating that the records are bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately reimburse his account. Such ineptness comes within the concept of
wanton manner contemplated under the Civil Code which warrants the imposition of exemplary damages, "by way of example or
correction for the public good," in the words of the law. It is expected that this ruling will serve as a stern warning in order to deter the
repetition of similar acts of negligence, lest the confidence of the public in the banking system be further eroded. 32

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Resolution dated 26
July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be
awarded. Costs against the petitioner.

SO ORDERED.

Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, and Callejo, Sr., JJ., concur

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

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

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.

Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

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

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

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty
Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one
year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank
of Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano,
her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5

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

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

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

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest
Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during
that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central
Bank. 9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila
as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired
through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10

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

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

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

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

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

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

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

SO ORDERED.

Antonio, Abad Santos, JJ., concur.

Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.

G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner, vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.

Leonen, Ramirez & Associates for petitioner.

Constante A. Ancheta for private respondents.

DAVIDE, JR., J.:

The petitioner urges us to review and set aside the amended Decision1 of 6 March 1992 of respondent Court of Appeals in CA- G.R.
CV No. 25739 which modified the Decision of 15 November 1990 of Branch 19 of the Regional Trial Court (RTC) of Manila in Civil
Case No. 87-42967, entitled Bank of the Philippine Islands (successor-in-interest of Commercial Bank and Trust Company) versus
Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had affirmed the dismissal of the complaint but had granted
the defendants' counterclaim for P331,261.44 which represents the outstanding balance of their account with the plaintiff.

As culled from the records and the pleadings of the parties, the following facts were duly established:

Private respondents Eastern Plywood Corporation (Eastern) and

Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account ("and/or" account) with the
Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in
March 1975, a joint checking account ("and" account) with Lim in the amount of P120,000.00 was opened by Mariano Velasco with
funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from the joint account
of Velasco and Lim. The money therein was placed in the money market.

Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at P662,522.87. On 5 May 1977,
by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of Eastern, 2 one-half of
this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. 3

Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital," evidenced by the
"Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager, Ceferino
Jimenez, and Eastern, through Lim, as its President and General Manager. 4The loan was payable on demand with interest at 14% per
annum.

For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the order of CBTC
with interest at 14% per annum. 5 The note was signed by Lim both in his own capacity and as President and General Manager of
Eastern. No reference to any security for the loan appears on the note. In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan is wholly/partly secured by" is
followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint account of Velasco and
Lim with a balance of P331,261.44.

In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also dated 18 August
1978, 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on
said [Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged interests therein as
these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties
thereto." 7 Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged interests in the Account Balance shall
have been established with finality, ample and sufficient power as shall be necessary to retain said Account Balance and enable
Comtrust to apply the Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued interest.

And paragraph 05 thereof reads:

The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand at any time, nor shall the
existence hereof and the non-resolution of the dispute between the contending parties in respect of entitlement to the Account Balance,
preclude Comtrust from instituting an action for recovery against Eastply and/or Mr. Lim in the event the Loan is declared due and
payable and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder.

In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of Pasig, entitled "In re Intestate
Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the said case, the whole balance of P331,261.44 in the aforesaid
joint account of Velasco and Lim was being claimed as part of Velasco's estate. On 9 September 1986, the intestate court granted the
urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized the heirs to
divide among themselves the amount withdrawn. 8

Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of Manila a complaint against Lim
and Eastern demanding payment of the promissory note for P73,000.00. The complaint was docketed as Civil Case No. 87- 42967 and
was raffled to Branch 19 of the said court, then presided over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in turn, filed
a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests
thereon after deducting the amount due on the promissory note.

After due proceedings, the trial court rendered its decision on

15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled that "the promissory note
in question is subject to the 'hold-out' agreement," 10 and that based on this agreement, "it was the duty of plaintiff Bank [BPI] to debit
the account of the defendants under the promissory note to set off the loan even though the same has no fixed maturity." 11 As to the
defendants' counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn by Velasco's heirs
pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the "said claim cannot be awarded without
disturbing the resolution" of the intestate court. 12

Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 25739.

On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It, however, failed to rule on
the defendants' (private respondents') partial appeal from the trial court's denial of their counterclaim. Upon their motion for
reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein it ruled that the settlement of
Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as
they were not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI
should have protected the defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then
ordered BPI "to pay defendants the amount of P331,261.44 representing the outstanding balance in the bank account of defendants." 14

On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive
condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note only if respondents'
Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial action or a
settlement between and among the contesting parties thereto." 15 Hence, BPI asserts, the Court of Appeals erred in affirming the trial
court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the account of the defendants to set off
the amount of P73,000.00 covered by the promissory note.

Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They interpret the findings of both
the trial and appellate courts that the money deposited in the joint account of Velasco and Lim came from Eastern and Lim's own
account as a finding that the money deposited in the joint account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood
Corporation and/or Benigno Lim." And because the latter are the rightful owners of the money in question, the suspensive condition
does not find any application in this case and the bank had the duty to set off this deposit with the loan. They add that the ruling of the
lower court that they own the disputed amount is the final and definitive judicial action required by the Holdout Agreement; hence, the
petitioner can only hold the amount of P73,000.00 representing the security required for the note and must return the rest. 16

The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.

We gave due course to the petition and required the parties to submit simultaneously their memoranda.

The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its
withdrawal by the heirs of Velasco.

The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an unconditional promise to pay the
said amount, and as stated by the respondent Court of Appeals, "[t]here is no question that the promissory note is a negotiable
instrument." 17 It further correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the
payee, CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It
acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took the note subject to the
Holdout Agreement.

We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear from paragraph 02 thereof
that CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim settle their liability under the
promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note.
What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the
application. 18 To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option to
exercise. 19

Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any way precluded
from demanding payment from Eastern and from instituting an action to recover payment of the loan. What it provides is an
alternative, not an exclusive, method of enforcing its claim on the note. When it demanded payment of the debt directly from Eastern
and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the
promissory note for P73,000.00. Its suit for the enforcement of the note was then in order and it was error for the trial court to dismiss
it on the theory that it was set off by an equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The Court of
Appeals also erred in affirming such dismissal.

The "suspensive condition" theory of the petitioner is, therefore, untenable.

The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the return of the
P331,261.44 20 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980 of the Civil
Code expressly provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits are in the nature
of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of
creditor and debtor. The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the
depositor. 22

The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the real
creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay
Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner should
not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of Eastern that the deposit in the
joint account of Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of Velasco.23

Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI was not
specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. The authorization
given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account belonged to Velasco. We
have ruled that when the ownership of a particular property is disputed, the determination by a probate court of whether that property
is included in the estate of a deceased is merely provisional in character and cannot be the subject of execution. 24

Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no right to pay to persons
other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. The
payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is payment to the person of the
creditor or to one authorized by him or by the law to receive it. 25 Payment made by the debtor to the wrong party does not extinguish
the obligation as to the creditor who is without fault or negligence, even if the debtor acted in utmost good faith and by mistake as to
the person of the creditor, or through error induced by fraud of a third person. 26 The payment then by BPI to the heirs of Velasco,
even if done in good faith, did not extinguish its obligation to the true depositor, Eastern.

In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The award on the counterclaim
is sustained subject to a modification of the interest.

WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735 is hereby
MODIFIED. As modified:

(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest at:

(a) 14% per annum on the principal, computed from

18 August 1978 until payment;

(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed from that date until
payment pursuant to Article 2212 of the Civil Code.

(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12%per annum computed from the
filing of the counterclaim.

No pronouncement as to costs.

SO ORDERED.
BPI FAMILY BANK, Petitioner, - versus - AMADO FRANCO and COURT OF APPEALS,
Respondents. G.R. No. 123498

November 23, 2007

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this exhortation in
the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision[1] in CA-G.R. CV No.
43424 which affirmed with modification the judgment[2] of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case
No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by respondent
Amado Franco (Franco) in conspiracy with other individuals, [3] some of whom opened and maintained separate accounts with BPI-FB,
San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. Soon
thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit account with the same
branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current, [4] savings,[5] and time deposit,[6] with BPI-
FB. The current and savings accounts were respectively funded with an initial deposit of P500,000.00 each, while the time deposit
account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves, [7] who was looking for a
conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In
turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account
and credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.[8] On September 4, 1989, Antonio
Ong,[9] upon being shown the Authority to Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco
had already effected several withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the
forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPI-FB, thru its Senior Vice-
President, Severino Coronacion, instructed Jesus Arangorin[10] to debit Francos savings and current accounts for the amounts
remaining therein.[11] However, Francos time deposit account could not be debited due to the capacity limitations of BPI-FBs
computer.[12]

In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment,
and stamped with a notation account under garnishment. Apparently, Francos current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been
filed by BPI-FB against Franco et al.,[14] to recover the P37,455,410.54 representing Tevestecos total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Francos receipt of notice that his
accounts were under garnishment.[15] In fact, at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB,
Franco had yet to be impleaded in the Makati case where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996, that
Franco was impleaded in the Makati case.[16]Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment
which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date,
with Franco demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FBs new manager,
could not forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMICs forgery
claim. As such, BPI-FBs computer at the SFDM Branch indicated that the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits savings account, subject to its
immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan
Embassy. As part of the arrangement, Sebastian retained custody of Quiaoits savings account passbook to ensure that no withdrawal
would be effected therefrom, and to preserve Francos deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the remaining
balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.
 FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account. [17] The case
eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, [18] we upheld the finding
of the courts below that BPI-FB failed to exercise the degree of diligence required by the nature of its obligation to treat the accounts
of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was
ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself
earn interest at 12% from October 4, 1989until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),[19] recipients of a P500,000.00
check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of
Franco, were also prevented from effecting withdrawals[20] from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan
City Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,[21] we ruled that BPI-
FB had no right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso
scam.[22] In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were
acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code. [23] However, the civil
case[24] remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his deposits therein, the latter
filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest
on the remaining balance[25] of his current account which was eventually released to him on October 31, 1991; (2) the balance [26] on
his savings account, plus interest thereon; (3) the advance interest[27] paid to him which had been deducted when he pre-terminated his
time deposit account; and (4) the payment of actual, moral and exemplary damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits,
claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the
introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other,
spoke volumes of Francos participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering the
latter to pay to the former the following sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991;

2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the interest thereon in
accordance with the banks guidelines on the payment therefor;

3. P30,000.00 by way of attorneys fees; and

4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.[28]

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the Manila RTCs
denial of his claim for moral and exemplary damages, and the diminutive award of attorneys fees. In affirming with modification the
lower courts decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay
[Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral damages
and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.[29]

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the subject accounts
which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3) Franco can
recover the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB
is liable for interest on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs counter-claim has no factual and
legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos accounts and
preclude him from withdrawing his deposits.However, contrary to the appellate courts ruling, we hold that Franco is not entitled to
unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal consequence of FMICs
forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover possession
of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen, and to
illustrate this point, BPI-FB gives the following example: where Xs television set is stolen by Y who thereafter sells it to Z, and where
Z unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession of the property and preclude Z
from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale,
the owner cannot obtain its return without reimbursing the price paid therefor.

BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a specific
or determinate thing.[30] A determinate or specific thing is one that is individualized and can be identified or distinguished from others
of the same kind.[31]

In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable, is generic and
fungible.[32] The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties,
being substituted by others of the same kind, not having a distinct individuality. [33]

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact
same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e., the value thereof,
which it had mistakenly debited from FMICs account and credited to Tevestecos, and subsequently traced to Francos account. In fact,
this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which passed from one
account to another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership, [34] and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium
of exchange, without other evidence of its title.[35] Money, which had passed through various transactions in the general course of
banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs illustrative example, ostensibly based
on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized
transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the
Civil Code provisions on simple loan or mutuum. [36] As there is a debtor-creditor relationship between a bank and its depositor, BPI-
FB ultimately acquired ownership of Francos deposits, but such ownership is coupled with a corresponding obligation to pay him an
equal amount on demand.[37] Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demanding payment
of BPI-FBs obligation by drawing checks against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter,
the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals[38] continues to resonate, thus:

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 lifes 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. x x x.

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 directs. A blunder on the part of the bank, such as the dishonor of the
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. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers. Having failed to
detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot
now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected
the transfer of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a time deposit and it had already paid
advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Francos participation in the forgery, he
remains an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament, must bear the
resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its non-compliance with the Makati
RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila RTCs order to pay
interests on Francos current account arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco pursuant to
their contract of mutuum. In other words, from the time BPI-FB refused Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon. [39]

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs non-compliance with the
Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FBs liability
to Franco for payment of interest based on its continued and unjustified refusal to perform a contractual obligation upon
demand. After all, this was the core issue raised by Franco in his complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from the factual findings of both the
Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco who simply
accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos savings account to Quiaoits
account.[40] His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge of the arrangement
made between Franco, Sebastian and himself.[41]

BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that the transaction with Quiaoit
was not specifically alleged in Francos complaint before the Manila RTC. However, it appears that BPI-FB had impliedly consented
to the trial of this issue given its extensive cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may
be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial
of these issues. If evidence is objected to at the trial on the ground that it is now within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)

In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To reiterate,
Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as the actual
owner thereof. Clearly, Francos action for the recovery of his deposits appropriately covers the deposits in Quiaoits account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks respectively dated
September 11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of attachment issued on September 14,
1989. It posits that as the party that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice of
Garnishment before it could place Francos accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section 4,[42] Rule 13 of
the Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties affected is designed to
comply with the elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due
process are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the
two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze
Francos accounts without even awaiting service of the Makati RTCs Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in the main suit
the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that no levy or
attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for attachment, on the defendant within the Philippines.

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the person of
Franco when BPI-FB garnished his accounts.[43] Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of
Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Francos time
deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only
the recovery of nominal damages in the amount of P10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.

In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed bad faith
to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed that Francos deposits were under
garnishment; (3) misrepresented that Francos current account was not on file; and (4) refused to return the P400,000.00 despite the
fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that
are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have
reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.(Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill will. BPI-FB
was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages now being imputed to
it for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it partakes of the nature of fraud. [44] We have held that it is a breach of a known duty through some motive of interest
or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found,
there was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which indicated that
the current account was not on file resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to the
funds as a security for its intended court action, [46] and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith, [47] moral damages cannot be awarded; and that the adverse
result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for
granting such damages.[48]

An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly sustained by the
claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the
wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for
damages is predicated on any of the cases stated in Article 2219 of the Civil Code. [49]

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code, [50] upon which to base his claim
for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code for breach
of contract.[51]

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory damages
before the court may even consider the question of whether exemplary damages should be awarded to him. [52] As there is no basis for
the award of moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate, [53] we, however, find that Franco is entitled to reasonable
attorneys fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CAs grant of P75,000.00 as
attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest, [54] or when the court
deems it just and equitable.[55] In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTCs Order
Lifting the Order of Attachment and Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings account. This
refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his interests and recover his
deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable in
view of the complexity of the issues and the time it has taken for this case to be resolved. [56]

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not
entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as already pointed
out, of its own making. Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29,
1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary
damages is DELETED.

No pronouncement as to costs.

BPI V. CASA MONTESORRI INTERNATIONALE

430 SCRA 261

FACTS:

CASA has a current account with BPI. It was discovered that for a material period of time, several checks were encashed by a certain
Sonny Santos, who eventually was known to be a fictitious name used by the external
auditor of CASA. The external auditor admitted forging the signature of CASA’s president to be able to encash the
checks. The trial court held the bank liable but this was modified. The modified decision apportioned the loss between BPI and
CASA.

HELD:

A forged signature is a real and absolute defense, and a person whose signature appears on a negotiable instrument is forged is
deemed to never have become a party thereto and to have never consented to the contract that allegedly gave rise to it.

The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is forgery.

First, there was really a finding of forgery. The forger admitted even in his affidavit of his forgery.

Second, there was a finding by the police laboratory that indeed the signatures were forged.

Furthermore, the negligence is attributable to BPI alone. Its negligence consisted in the omission of the degree of diligence
required of a bank.

*Loss borne by proximate cause of negligence