#1 investment savings account[s] and in the current account just opened with SBC were withdrawn by Alice

[G.R. NO. 155033 : December 19, 2007] and Rosita.3

ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I. SANDEJAS and BENJAMIN A.I.
ESPIRITU, Petitioners, v. SPS. ARTURO IGNACIO, JR. and EVELYN IGNACIO, Respondents.
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a verified complaint for recovery
DECISION
of a sum of money and damages against Security Bank and Trust Company (SBTC) and its officers, namely:
Rene Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint also impleaded herein petitioner
AUSTRIA-MARTINEZ, J.: Benjamin A.I. Espiritu (Benjamin), a "John Doe," representing himself as Manuel N. Borja; and a "Jane Doe."

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the On November 7, 1995, the complaint was amended by additionally impleading herein petitioners Alice A.I.
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 62404 promulgated on August 27, 2002, which Sandejas (Alice), Rosita A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who filed their
affirmed with modification the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil respective answers and counterclaims.
Case No. 65146 dated December 18, 1998.
After trial, the RTC rendered judgment dated December 18, 1998 with the following dispositive portion:
The facts of the case, as summarized by the RTC, are as follows:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of plaintiffs as against defendants
It appears from the plaintiffs' [petitioners] evidence that Arturo [respondent] is the elder brother of Alice Security Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice A.I. Sandejas and Rosita A.I. Cusi,
[petitioner] and Rosita [petitioner], Benjamin [petitioner] and Patricia [petitioner] are Arturo's nephew and ordering them to pay jointly and severally the plaintiffs the following amounts:
niece. Arturo and his wife Evelyn [respondent] are residents of the United States. In October 1993, Arturo
leased from Dr. Borja a condominium unit identified as Unit 28-C Gilmore Townhomes located at Granada
(1) P3,000,000.00 plus legal interest on it from March 17, 1995 until the entire amount is fully paid;
St., Quezon City. The lease was for the benefit of Benjamin who is the occupant of the unit. The rentals were
(2) P500,000.00 as moral damages;
paid by Ignacio. The term of the lease is for one (1) year and will expire on October 15, 1994. It appears that
(3) P200,000.00 as exemplary damages;
Arturo was intending to renew the lease contract. As he had to leave for the U.S., Arturo drew up a check,
(4) P300,000.00 as attorney's fees; plus
UCPB Check No. GRH-560239 and wrote on it the name of the payee, Dr. Manuel Borja, but left blank the
(5) the cost of suit.
date and amount. He signed the check. The check was intended as payment for the renewal of the lease.
In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount of P100,000.00 as moral
The date and the amount were left blank because Arturo does not know when it will be renewed and the
damages, P50,000.00 as exemplary damages and another P50,000.00 as attorney's fees.
new rate of the lease. The check was left with Arturo's sister-in-law, who was instructed to deliver or give it
to Benjamin.
The counterclaims of Patricia A.I. Sandejas are dismissed.
The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of
three million pesos (P3,000,000.00). She believed that Arturo and Rosita had a joint "and/or" money market SO ORDERED.4
placement in the amount of P3 million with the UCPB branch at Ortigas Ave., San Juan and that Ignacio
preterminated the placement and ran away with it, which rightfully belonged to Rosita. Alice then inquired Both parties appealed the RTC Decision to the CA.
from UCPB Greenhills branch if Arturo still has an account with them. On getting a confirmation, she
together with Rosita drew up a scheme to recover the P3 million from Arturo. Alice filled up the date of the
check with "March 17, 1995" and the amount with "three million only." Alice got her driver, Kudera, to stand On August 14, 1999, during the pendency of the appeal with the CA, herein respondent Arturo Ignacio, Jr.
as the payee of the check, Dr. Borja. Alice and Rosita came to SBC 2 Greenhills Branch together with a man (Arturo) died.5
(Kudera) who[m] they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said
man as Dr. Borja, Rosita, Alice and the man who was later identified as Kudera opened a Joint Savings On August 27, 2002, the CA promulgated the presently assailed Decision, disposing as follows:
Account No. 271-410554-7. As initial deposit for the Joint Savings Account, Alice, Rosita and Kudera
deposited the check. No ID card was required of Mr. Kudera because it is an internal policy of the bank that
when a valued client opens an account, an identification card is no longer required (TSN, April 21, 1997, pp. WHEREFORE, in view of the foregoing, the assailed decision of the trial court is hereby AFFIRMED with the
15-16). SBC also allowed the check to be deposited without the endorsement of the impostor Kudera. SBC MODIFICATION that the judgment shall read as follows:
officials stamped on the dorsal portion of the check "endorsement/lack of endorsement guaranteed" and
sent the check for clearing to the Philippine Clearing House Corporation. The defendants-appellants Security Bank and Trust Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice A.I.
Sandejas, and Rosita A.I. Cusi, are hereby ordered to jointly and severally pay the plaintiffs the following
On 21 March 1995, after the check had already been cleared by the drawer bank UCPB, Rosita withdrew P1 amounts:
million from Joint Savings Account and deposited said amount to the current account of Alice with SBC
Greenhills Branch. On the same date, Alice caused the transfer of P2 million from the Joint Savings Account 1. P3,000,000.00 plus legal interest computed from March 17, 1995 until the entire amount is fully paid;
to two (2) Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia. ... 2. P200,000.00 as moral damages;
3. P100,000.00 as exemplary damages;
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the identity of the persons and the 4. P50,000.00 as attorney's fees; plus
circumstances surrounding the deposit and withdrawal of the check, the three million pesos in the two 5. the costs of suit.
The award of moral damages, exemplary damages, and attorney's fees in favor of Benjamin Espiritu
is DELETED.
SO ORDERED.6
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their respective petitions for review before
this Court.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R. No. 155038, was denied in a
Resolution7 issued by this Court on November 20, 2002, for their failure to properly verify the petition,
submit a valid certification of non-forum shopping, and attach to the petition the duplicate original or
certified true copy of the assailed CA Decision. Said
Resolution became final and executory on April 9, 2003.8
On the other hand, the instant petition was given due course. Petitioners enumerated the following grounds
in support of their petition:
I. THE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE NOT HERETOFORE DECIDED BY THIS
COURT AND/OR HAD DECIDED IT IN A WAY PROBABLY NOT IN ACCORD WITH EQUITY, THE LAW AND THE
APPLICABLE DECISIONS OF THIS COURT, SUCH AS:
(a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED SIBLING HAS THE RIGHT TO TAKE
MEASURES OR STEPS TO PROTECT HIS OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE GUILTY
SIBLING;
(b) IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN FILLING OUT THE BLANK PORTIONS OF THE
CHECK TO RECOVER WHAT ARTURO, JR. TOOK FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN
ACTIONABLE TORT;
(c) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS OF
THE CERTIFICATE OF TIME DEPOSIT FOR P3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA JUST TO BE
ABLE TO PRE-TERMINATE THE TIME DEPOSIT AND GET ITS FACE VALUE, WHEN HE KNEW IT WAS NOT LOST
BUT IN FACT INTACT AND IN THE POSSESSION OF ROSITA, IS A DISHONEST AND REPREHENSIBLE ACT THAT
JUSTIFIED ROSITA AND ALICE IN TAKING MEANS TO REGAIN THE MONEY AND TO DENY ARTURO, JR. ANY
RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO AN AWARD OF DAMAGES;
(d) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS OF
THE OWNER'S COPY OF THE TITLE IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH, WHEN THAT IS
NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL OWNER'S COPY OF THE TITLE WAS WITH ROSITA, IS
ANOTHER DISHONEST AND REPREHENSIBLE ACT THAT SHOULD NOT HAVE ENTITLED HIM TO ANY AWARD
OF DAMAGES; AND
(e) IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412 OF THE CIVIL CODE.
II. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN
IT FAILED TO RESOLVE IN THE APPEAL THE COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR THE
RECOVERY OF THE AMOUNTS LEGALLY HERS THAT SHOULD JUSTIFY ALICE'S BEING ABSOLVED FROM ANY
LIABILITY FOR USING THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY BELONGING TO ROSITA;
III. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN
IT REVERSED THE TRIAL COURT'S FINDING THAT RESPONDENT WAS GUILTY OF BAD FAITH AND MALICE
THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO THE AWARD OF DAMAGES NOTWITHSTANDING
THAT THERE WAS AMPLE EVIDENCE SHOWN THAT SUCH BAD FAITH AND MALICE WAS MADE AS A
LEVERAGE TO COMPEL ARTURO'S SIBLINGS TO RETURN TO HIM THE P3,000,000 WHICH WAS NOT HIS; and,
IV. THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN ACCORD WITH LAW WHEN IT DELETED THE
AWARD OF DAMAGES TO PETITIONER ESPIRITU AND IN NOT HAVING RULED THAT HE WAS ENTITLED TO A
HIGHER AWARD OF DAMAGES CONSIDERING THE CIRCUMSTANCES OF THE CASE AS WELL AS IN NOT
HAVING RULED THAT PATRICIA WAS ENTITLED TO AN AWARD OF DAMAGES.9
Petitioners argue that the CA overlooked and ignored vital pieces of evidence showing that the encashment
of the subject check was not fraudulent and, on the contrary, was justified under the circumstances; and
that such encashment did not amount to an actionable tort and that it merely called for the application of
the civil law rule on pari delicto.
In support of these arguments, petitioners contend that the principal adversaries in the present case are
full blooded siblings; that the law recognizes the solidarity of family which is why it is made a condition that
earnest efforts towards a compromise be exerted before one family member can institute a suit against the
other; that even if Arturo previously defrauded Rosita and deprived her of her lawful share in the sale of her
property, petitioners Rosita and Alice did not precipitately file suit against him and instead took extra-legal
measures to protect Rosita's property rights and at the same time preserve the solidarity of their family and
save it from public embarrassment. Petitioners also aver that Rosita's and Alice's act of encashing the
subject check is not fraudulent because they did not have any unlawful intent and that they merely took
from Arturo what rightfully belonged to Rosita. Petitioners contend that even granting that the act of Rosita
and Alice amounted to an actionable tort, they could not be adjudged liable to return the amount to
respondents or to pay damages in their favor, because the civil law rule on pari delicto dictates that, when
both parties are at fault, neither of them could expect positive relief from courts of justice and, instead, are
left in the state where they were at the time of the filing of the case.
Petitioners also contend that the CA erred in failing to award damages to Patricia even if the appellate court
sustained the trial court's finding that she was not a party to the fraudulent acts committed by Rosita and
Alice.chanrobles virtual law library Petitioners argue that even if Patricia did not bother to know the details
of the cases against her and left everything to her mother, she did not even know the nature of the case
against her, or her superiors in the bank where she worked did not know whether she was the plaintiff or
defendant, these were not reasons to deny her award of damages. The fact remains that she had been
maliciously dragged into the case, and that the suit had adversely affected her work and caused her mental
worries and anguish, besmirched reputation, embarrassment and humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the award of damages and attorney's fees
in his favor. Petitioners assert that the trial court found that Benjamin suffered mental anguish, wounded
feelings and moral shock as a result of the filing of the present case. Citing the credentials and social standing
of Benjamin, petitioners claim that the award of damages and attorney's fees in his favor should be
increased.
Lastly, petitioners contend that the award of damages and attorney's fees to respondents should be deleted
for their failure to establish malice or bad faith on the part of petitioners Alice and Rosita in recovering
the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who is entitled to damages and
attorney's fees for Arturo's failure and refusal to give her share in the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues raised by petitioners are factual in
nature and that the settled rule is that questions of fact are not subject to review by the Supreme Court in
a Petition for Review on Certiorari under Rule 45 of the Rules of Court. While there are exceptions to this
rule, respondents assert that petitioners failed to show that the instant case falls under any of these
exceptions.
The Court's Ruling
It is true that Article 151 of the Family Code requires that earnest efforts towards a compromise be made
before family members can institute suits against each other. However, nothing in the law sanctions or
allows the commission of or resort to any extra-legal or illegal measure or remedy in order for family
members to avoid the filing of suits against another family member for the enforcement or protection of
their respective rights.

Petitioners invoke the rule of pari delicto to support their contention that respondents do not deserve any
The Court finds the petition bereft of merit. There is no compelling reason for the Court to disturb the
relief from the courts.
findings of facts of the lower courts.

The principle of pari delicto provides that when two parties are equally at fault, the law leaves them as they
The trial court's findings are as follows: (1) Rosita failed to establish that there is an agreement between her
are and denies recovery by either one of them.14 Indeed, one who seeks equity and justice must come to
and Arturo that the latter will give her one-third of the proceeds of the sale of the Morayta property; (2)
court with clean hands.15 However, in the present case, petitioners were not able to establish that
petitioners were not able to establish by clear and sufficient evidence that the P3,000,000.00 which they
respondents are also at fault. Thus, the principle of pari delicto cannot apply.
took from Arturo when they encashed the subject check was part of the proceeds of the sale of the Morayta
property; (3) Rosita's counterclaim is permissive and she failed to pay the full docket and filing fees for her
counterclaim.10 In any case, the application of the pari delicto principle is not absolute, as there are exceptions to its
application.16 One of these exceptions is where the application of the pari delicto rule would violate well-
established public policy.17 The prevention of lawlessness and the maintenance of peace and order are
Petitioners challenge the findings of the RTC and insist that they should not be held liable for encashing the
established public policies. In the instant case, to deny respondents relief on the ground of pari delictowould
subject check because Arturo defrauded Rosita and that he committed deceitful acts which deprived her of
put a premium on the illegal act of petitioners in taking from respondents what the former claim to be
her rightful share in the sale of her building in Morayta; that the amount of P3,000,000.00 represented by
rightfully theirs.
the check which they encashed formed part of the proceeds of the said sale; that Alice and Rosita were
merely moved by their desire to recover from Arturo, Rosita's supposed share in the sale of her property.
Petitioners also question the trial court's ruling that their counterclaim is permissive. This Court has laid
down the following tests to determine whether a counterclaim is compulsory or not, to wit: (1) Are the
However, the Court agrees with respondents that only questions of law are entertained in Petitions for
issues of fact or law raised by the claim and the counterclaim largely the same? (2) Would res judicata bar
Review on Certiorari under Rule 45 of the Rules of Court.11 The trial court's findings of fact, which the Court
a subsequent suit on defendant's claims, absent the compulsory counterclaim rule? (3) Will substantially
of Appeals affirmed, are generally binding and conclusive upon this court.12 There are recognized exceptions
the same evidence support or refute plaintiff's claim as well as the defendant's counterclaim? and (4) Is
to this rule, among which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2)
there any logical relation between the claim and the counterclaim, such that the conduct of separate trials
the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
of the respective claims of the parties would entail a substantial duplication of effort and time by the parties
judgment is based on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no
and the court?18
citation of specific evidence on which the factual findings are based; (7) the finding of absence of facts is
contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the findings
of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly Tested against the above-mentioned criteria, this Court agrees with the view of the RTC that Rosita's
considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the counterclaim for the recovery of her alleged share in the sale of the Morayta property is permissive in
case; and (11) such findings are contrary to the admissions of both parties.13 In the instant case, petitioners nature. The evidence needed to prove respondents' claim to recover the amount of P3,000,000.00 from
failed to demonstrate that their petition falls under any one of the above exceptions. petitioners is different from that required to establish Rosita's demands for the recovery of her alleged
share in the sale of the subject Morayta property. The recovery of respondents' claim is not contingent or
dependent upon the establishment of Rosita's counterclaim such that conducting separate trials will not
Petitioners' assignments of errors boil down to the basic issue of whether or not Alice and Rosita are justified
result in the substantial duplication of the time and effort of the court and the parties.
in encashing the subject check given the factual circumstances established in the present case.

Petitioners' posture is not sanctioned by law. If they truly believe that Arturo took advantage of and violated
the rights of Rosita, petitioners should have sought redress from the courts and should not have simply
taken the law into their own hands. Our laws are replete with specific remedies designed to provide relief
for the violation of one's rights. In the instant case, Rosita could have immediately filed an action for the
nullification of the sale of the building she owns in light of petitioners' claim that the document bearing her
conformity to the sale of the said building was taken by Arturo from her without her knowledge and consent.
Or, in the alternative, as the CA correctly held, she could have brought a suit for the collection of a sum of
money to recover her share in the sale of her property in Morayta. In a civilized society such as ours, the
rule of law should always prevail. To allow otherwise would be productive of nothing but mischief, chaos
and anarchy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better. She must go
to court for relief.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,19 this Court laid down the rules on the payment of filing
fees, to wit:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the
prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the
action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the
court may allow payment of the fee within a reasonable time but in no case beyond the applicable
prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall
not be considered filed until and unless the filing fee prescribed therefor is paid. The court may allow
payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or
reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and
payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the
pleading, or if specified the same has been left for determination by the court, the additional filing fee
therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and collect the additional fee.20
In order for the trial court to acquire jurisdiction over her permissive counterclaim, Rosita is bound to pay
the prescribed docket fees.21Since it is not disputed that Rosita never paid the docket and filing fees, the
RTC did not acquire jurisdiction over her permissive counterclaim. Nonetheless, the trial court ruled on the
merits of Rosita's permissive counterclaim by dismissing the same on the ground that she failed to establish
that there is a sharing agreement between her and Arturo with respect to the proceeds of the sale of the
subject Morayta property and that the amount of P3,000,000.00 represented by the check which Rosita
and Alice encashed formed part of the proceeds of the said sale.
It is settled that any decision rendered without jurisdiction is a total nullity and may be struck down at any
time, even on appeal before this Court.22
In the present case, considering that the trial court did not acquire jurisdiction over the permissive
counterclaim of Rosita, any proceeding taken up by the trial court and any ruling or judgment rendered in
relation to such counterclaim is considered null and void. In effect, Rosita may file a separate action against
Arturo for recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are compulsory as they necessarily arise as a result
of the filing by respondents of their complaint. Being compulsory in nature, payment of docket fees is not
required.23 Nonetheless, since petitioners are found to be liable to return to respondents the amount
of P3,000,000.00 as well as to pay moral and exemplary damages and attorney's fees, it necessarily follows
that Rosita's counterclaim for damages and attorney's fees should be dismissed as correctly done by the
RTC and affirmed by the CA.
As to Patricia's entitlement to damages, this Court has held that while no proof of pecuniary loss is necessary
in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the
court, it is nevertheless essential that the claimant should satisfactorily show the existence of the factual
basis of damages and its causal connection to defendant's acts.24 This is so because moral damages, though
incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.25Moreover, additional facts must
be pleaded and proven to warrant the grant of moral damages under the Civil Code, these being, social
humiliation, wounded feelings, grave anxiety, etc. that resulted from the act being complained of.26 In the
present case, both the RTC and the CA were not convinced that Patricia is entitled to damages. Quoting the
RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the details of the case against her, she left
everything to the hands of her mother Alice. Her attitude towards the case appears weird, she being a
banker who seems so concerned of her reputation.
Aside from the parties to this case, her immediate superiors in the BPI knew that she is involved in a case.
They did not however know whether she is the plaintiff or the defendant in the case. Further, they did not
know the nature of the case that she is involved in. It appears that Patricia has not suffered any of the
injuries enumerated in Article 2217 of the Civil Code, thus, she is not entitled to moral damages and
attorney's fees.27
This Court finds no cogent reason to depart from the above-quoted findings as Patricia failed to satisfactorily
show the existence of the factual basis for granting her moral damages and the causal connection of such
fact to the act of respondents in filing a complaint against her.
In addition, and with respect to Benjamin, the Court agrees with the CA that in the absence of a wrongful
act or omission, or of fraud or bad faith, moral damages cannot be awarded.28 The adverse result of an
action does not per se make the action wrongful, or the party liable for it.29 One may err, but error alone is
not a ground for granting such damages.30 In the absence of malice and bad faith, the mental anguish
suffered by a person for having been made a party in a civil case is not the kind of anxiety which would
warrant the award of moral damages.31
A resort to judicial processes is not, per se, evidence of ill will upon which a claim for damages may be
based.32
In China Banking Corporation v. Court of Appeals,33 this Court held:
Settled in our jurisprudence is the rule that moral damages cannot be recovered from a person who has
filed a complaint against another in good faith, or without malice or bad faith (Philippine National Bank v.
Court of Appeals, 159 SCRA 433 [1988]; R & B Surety and Insurance v. Intermediate Appellate Court, 129
SCRA 736 [1984]). If damage results from the filing of the complaint, it is damnum absque injuria (Ilocos
Norte Electrical Company v. Court of Appeals, 179 SCRA 5 [1989]).34
In the present case, the Court agrees with the RTC and the CA that petitioners failed to establish that
respondents were moved by bad faith or malice in impleading Patricia and Benjamin. Hence, Patricia and
Benjamin are not entitled to damages.
The Court sustains the award of moral and exemplary damages as well as attorney's fees in favor of
respondents.
As to moral damages, Article 20 of the Civil Code provides that every person who, contrary to law, willfully
or negligently causes damage to another, shall indemnify the latter for the same. In addition, Article 2219
(10) of the Civil Code provides that moral damages may be recovered in acts or actions referred to in Articles
21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same Code. More particularly, Article 21 of the said Code provides
that any person who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs, or public policy shall compensate the latter for the damage. In the present case, the act of Alice
and Rosita in fraudulently encashing the subject check to the prejudice of respondents is certainly a violation
of law as well as of the public policy that no one should put the law into his own hands. As to SBTC and its
officers, their negligence is so gross as to amount to a willfull injury to respondents. The banking system has
become an indispensable institution in the modern world and plays a vital role in the economic life of every
civilized society.35 Whether as mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained a ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and most of all, confidence.36 For this reason,
banks should guard against injury attributable to negligence or bad faith on its part.37
There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since
each case must be governed by its own peculiar facts.38 The yardstick should be that it is not palpably and
scandalously excessive.39 Moreover, the social standing of the aggrieved party is essential to the
determination of the proper amount of the award.40 Otherwise, the goal of enabling him to obtain means,
diversions, or amusements to restore him to the status quo antewould not be achieved.41 In the present
case, the Court finds no cogent reason to modify the amount of moral damages granted by the CA.
Likewise, the Court finds no compelling reason to disturb the modifications made by the CA on the award
of exemplary damages and attorney's fees.

Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. In
the instant case, the award of exemplary damages in favor of respondents is in order for the purpose of
deterring those who intend to enforce their rights by taking measures or remedies which are not in accord
with law and public policy. On the part of respondent bank, the public relies on a bank's sworn profession
of diligence and meticulousness in giving irreproachable service.42 Hence, the level of meticulousness must
be maintained at all times by the banking sector.43 In the present case the award of exemplary damages is
justified by the brazen acts of petitioners Rosita and Alice in violating the law coupled with the gross
negligence committed by respondent bank and its officers in allowing the subject check to be deposited
which later paved the way for its encashment.

As to attorney's fees, Article 2208 of the same Code provides, among others, that attorney's fees may be
recovered when exemplary damages are awarded or when the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to protect his interest.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated August 27, 2002 in
CA-G.R. CV No. 62404 is AFFIRMED.

Costs against the petitioners. SO ORDERED.

#2
[G.R. NO. 150228 : July 30, 2009]
BANK OF AMERICA NT & SA, Petitioner, v. PHILIPPINE RACING CLUB, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court from the
Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-
G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v. Bank of America NT & SA," affirming the
Decision2 dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-
5650, in favor of the respondent. Likewise, the present petition assails the Resolution3 promulgated on
September 28, 2001, denying the Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in
the Metro Manila area. Among the accounts maintained was Current Account No. 58891-012 with
defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to said
Current Account were plaintiff-appellee's President (Antonia Reyes) and Vice President for Finance
(Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee
corporation were scheduled to go out of the country in connection with the corporation's business. In order
not to disrupt operations in their absence, they pre-signed several checks relating to Current Account No.
58891-012. The intention was to insure continuity of plaintiff-appellee's operations by making available
cash/money especially to settle obligations that might become due. These checks were entrusted to the
accountant with instruction to make use of the same as the need arose. The internal arrangement was, in
the event there was need to make use of the checks, the accountant would prepare the corresponding
voucher and thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for
encashment a couple of plaintiff-appellee corporation's checks (Nos. 401116 and 401117) with the
indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by
plaintiff-appellee corporation's authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the
name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead
typewritten: on the upper line was the word "CASH" while the lower line had the following typewritten
words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular entries on the face
of the checks, defendant-appellant bank, without as much as verifying and/or confirming the legitimacy of
the checks considering the substantial amount involved and the obvious infirmity/defect of the checks on
their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office,
would have taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by
plaintiff-appellee corporation yielded the fact that there was no transaction involving PRCI that call for the
payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of
PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually
completed without authority the entries on the pre-signed checks. PRCI's demand for defendant-appellant
to pay fell on deaf ears. Hence, the complaint.4
After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of
which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and
the latter is ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be computed
from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorney's fees;
(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and
(4) To pay the costs of suit.
SO ORDERED.5
Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in
toto in its July 16, 2001 Decision. Petitioner's Motion for Reconsideration of the CA Decision was
subsequently denied on September 28, 2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the proximate cause of respondent's loss was
petitioner's encashment of the checks.
A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks
despite the fact that petitioner was merely fulfilling its obligation under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment, despite
the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law, despite
its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the proximate cause of respondent's loss was its
own grossly negligent practice of pre-signing checks without payees and amounts and delivering these pre-
signed checks to its employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial court's award of attorney's fees despite the
absence of any applicable ground under Article 2208 of the Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorney's fees, moral and exemplary damages, and
costs of suit in favor of petitioner, who clearly deserves them.6
From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is
whether the proximate cause of the wrongful encashment of the checks in question was due to (a)
petitioner's failure to make a verification regarding the said checks with the respondent in view of the
misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank
checks and leaving the same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid
checks. Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL), petitioner claims that its
duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks
bearing the drawer-client's genuine signatures. The genuine signatures of the client's duly authorized
signatories affixed on the checks signify the order for payment. Thus, pursuant to the said obligation, the
drawee bank has the duty to determine whether the signatures appearing on the check are the drawer-
client's or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal
and contractual duty to pay. If the signatures are forged and falsified, the drawee bank has the corollary,
but equally unavoidable legal and contractual, duty not to pay.9
Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer
before encashing a check only when the check bears a material alteration. A material alteration is defined
in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment,
the number or relations of the parties, the currency in which payment is to be made or one 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. With respect to the checks at issue, petitioner points out that they
do not contain any material alteration.10 This is a fact which was affirmed by the trial court itself.11
There is no dispute that the signatures appearing on the subject checks were genuine signatures of the
respondent's authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were
respondent's President and Vice-President for Finance, respectively. Both pre-signed the said checks since
they were both scheduled to go abroad and it was apparently their practice to leave with the company
accountant checks signed in black to answer for company obligations that might fall due during the
signatories' absence. It is likewise admitted that neither of the subject checks contains any material
alteration or erasure.
However, on the blank space of each check reserved for the payee, the following typewritten words appear:
"ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the
blank reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with
the use of a check writer. The presence of these irregularities in each check should have alerted the
petitioner to be cautious before proceeding to encash them which it did not do.
It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They have the
obligation to treat their client's account meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good
father of a family.12
Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the
typewritten word "CASH," expressed in words, is the very same amount indicated in figures by means of a
check writer on the amount portion of the check. The amount stated in words is, therefore, a mere
reiteration of the amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words
is merely a repetition and that a repetition is not an alteration which if present and material would have
enjoined it to commence verification with respondent.13
We do not agree with petitioner's myopic view and carefully crafted defense. Although not in the strict
sense "material alterations," the misplacement of the typewritten entries for the payee and the amount on
the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities
on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the
entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person
who customarily accomplishes the checks of respondent, it should have occurred to petitioner's employees
that it would be unlikely such mistakes would be made. All these circumstances should have alerted the
bank to the possibility that the holder or the person who is attempting to encash the checks did not have
proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA,
petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to
respondent due to the encashment of the stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from
respondent the authenticity of the subject checks or the accuracy of the entries therein not only because
of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual
circumstances surrounding their encashment. Respondent's witness testified that for checks in amounts
greater than Twenty Thousand Pesos (P20,000.00) it is the company's practice to ensure that the payee is
indicated by name in the check.14This was not rebutted by petitioner. Indeed, it is highly uncommon for a
corporation to make out checks payable to "CASH" for substantial amounts such as in this case. If each
irregular circumstance in this case were taken singly or isolated, the bank's employees might have been
justified in ignoring them. However, the confluence of the irregularities on the face of the checks and
circumstances that depart from the usual banking practice of respondent should have put petitioner's
employees on guard that the checks were possibly not issued by the respondent in due course of its
business. Petitioner's subtle sophistry cannot exculpate it from behavior that fell extremely short of the
highest degree of care and diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioner's operations manager that in case of an irregularity on
the face of the check (such as when blanks were not properly filled out) the bank may or may not call the
client depending on how busy the bank is on a particular day,15 we are even more convinced that petitioner's
safeguards to protect clients from check fraud are arbitrary and subjective. Every client should be treated
equally by a banking institution regardless of the amount of his deposits and each client has the right to
expect that every centavo he entrusts to a bank would be handled with the same degree of care as the
accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of
diligence expected of it as a banking institution.
In defense of its cashier/teller's questionable action, petitioner insists that pursuant to Sections 14 16 and
1617 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the
blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken
place. Thus, in petitioner's view, the sole blame for this debacle should be shifted to respondent for having
its signatories pre-sign and deliver the subject checks.18Petitioner argues that there was indeed delivery in
this case because, following American jurisprudence, the gross negligence of respondent's accountant in
safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the
maker who is estopped from claiming non-delivery of the instrument.19
Petitioner's contention would have been correct if the subject checks were correctly and properly filled out
by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice
to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there
was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those
circumstances. However, the undisputed facts plainly show that there were circumstances that should have
alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed
the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject
checks are properly characterized as incomplete and undelivered instruments thus making Section 1520 of
the NIL applicable in this case.
However, we do agree with petitioner that respondent's officers' practice of pre-signing of blank checks
should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the
efficient operation of businesses. It should have occurred to respondent's officers and managers that the
pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were
stolen from the company accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner
will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this
Court has consistently applied the doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong,21 we ruled:
'[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject
checks had it exercised due diligence and followed the proper and regular banking procedures in clearing
checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but
failed to do so is chargeable with the consequences thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part
of respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks,
the former had the last clear chance to avoid the loss. To reiterate, petitioner's own operations manager
admitted that they could have called up the client for verification or confirmation before honoring the
dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent.
Failing to make the necessary verification due to the volume of banking transactions on that particular day
is a flimsy and unacceptable excuse, considering that the "banking business is so impressed with public
interest where the trust and confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be a high degree of diligence, if not the utmost
diligence."23 Petitioner's negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of
the NCC,24 it must suffer the consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondent's own negligence to
mitigate petitioner's liability. Article 2179 of the Civil Code provides:
We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from
respondent's accountant turned out to be another employee, purportedly a clerk in respondent's
accounting department. As the employer of the "thief," respondent supposedly had control and supervision
over its own employee. This gives the Court more reason to allocate part of the loss to respondent.
Following established jurisprudential precedents,27 we believe the allocation of sixty percent (60%) of the
actual damages involved in this case (represented by the amount of the checks with legal interest) to
petitioner is proper under the premises. Respondent should, in light of its contributory negligence, bear
forty percent (40%) of its own loss.
Finally, we find that the awards of attorney's fees and litigation expenses in favor of respondent are not
justified under the circumstances and, thus, must be deleted. The power of the court to award attorney's
fees and litigation expenses under Article 2208 of the NCC28 demands factual, legal, and equitable
justification.
An adverse decision does not ipso facto justify an award of attorney's fees to the winning party.29 Even when
a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's
fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence
in a case other than an erroneous conviction of the righteousness of his cause.30
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September
28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall
pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand
Pesos (P220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorney's fees
and litigation expenses in favor of respondent are deleted.

Art. 2179. When the plaintiff's own negligence was the immediate and proximate cause of his injury, he Proportionate costs.
cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause
of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall
SO ORDERED.
mitigate the damages to be awarded.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own
injury should not be entitled to recover damages in full but must bear the consequences of his own
negligence. The defendant must thus be held liable only for the damages actually caused by his negligence.
xxx xxx xxx

As we previously stated, respondent's practice of signing checks in blank whenever its authorized bank
signatories would travel abroad was a dangerous policy, especially considering the lack of evidence on
record that respondent had appropriate safeguards or internal controls to prevent the pre-signed blank
checks from falling into the hands of unscrupulous individuals and being used to commit a fraud against the
company. We cannot believe that there was no other secure and reasonable way to guarantee the non-
disruption of respondent's business. As testified to by petitioner's expert witness, other corporations would
ordinarily have another set of authorized bank signatories who would be able to sign checks in the absence
of the preferred signatories.26 Indeed, if not for the fortunate happenstance that the thief failed to properly
fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense
of forgery of a drawer's signature(s) would be unavailable to it. Considering that respondent knowingly took
the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that
respondent shares in the responsibility for the loss.
#3
G.R. No. 188412 : November 22, 2010
CITIBANK, N.A., Petitioner, v. ATTY. ERNESTO S. DINOPOL, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil Procedure questioning 1]
the December 16, 2008 Decisioncralaw1 of the Court of Appeals (CA), in CA-G.R. CV No. 82291, which
affirmed the February 20, 2004 Decision of the Regional Trial Court, Branch 226, Quezon City (RTC),ordering
petitioner Citibank, N. A. (Citibank) to pay respondent Atty. Ernesto S. Dinopol (Atty. Dinopol)moral
damages and attorney's fees; and 2] its June 19, 2009 Resolution denying petitioner's motion for the
reconsideration thereof.
Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibank's 'Ready Credit
Checkbooks' advertised offer. After approving his application, Citibank granted Atty. Dinopol a credit line
limit of P30,000.00. For said reason, Atty. Dinopol received from Citibank a check booklet consisting of
several checks with a letter stating that the account was 'ready to use.' Later, Citibank billed Atty. Dinopol
the sum of P1,545.00 representing Ready Credit Documentary Stamp and Annual Membership Fee as
reflected in his Statement of Account dated December 26, 1996. Thereafter, Citibank billed him the amount
of P1,629.21 for interest and charges as well as late payment charges as stated in his Statement of Account
dated January 26, 1997. Atty. Dinopol paid said interests and charges on February 26, 1997.
On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in the
amount of P30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr. Geonzon) for investment purposes in
her restaurant business. However, when the check was deposited on March 12, 1997, it was dishonored for
the reason, 'Drawn Against Insufficient Funds' or 'DAIF.' Humiliated by the dishonor and the demand notice
he received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages against Citibank before the RTC.
Atty. Dinopol alleged that said bank was grossly negligent and acted in bad faith in dishonoring his check.
In defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopol's check because
the account did not have sufficient funds at the time it was issued. Citibank explained that when said check
in the amount of P30,000.00 was issued, his credit line was already insufficient to accommodate it. His credit
limit had been reduced by the interests and penalty charges imposed as a result of his late payment. Citibank
argued that had Atty. Dinopol been prompt in the payment of his obligations, he would not have incurred
interests and penalty charges and his credit line of P30,000.00 would have been available at the time the
check was issued and presented for payment.
On February 20, 2004, the RTC rendered a decisioncralaw2 against Citibank, the dispositive portion of which
reads:chanrobles virtual law library
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant
bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty. Ernesto S.
Dinopol:chanrobles virtual law library
1) P100,000.00 as and for moral damages;chanroblesvirtualawlibrary
2) P50,000.00 as and for attorney's fees; and
3) Costs of suit.
SO ORDERED.
The RTC reasoned out, among others, that Citibank failed to completely disclose the terms and conditions
of its 'Citybank Ready Credit Account' when Atty. Dinopol applied for it. Only the general provisions of the
agreement were explained to him. The Standard Handbook Guide which would have guided him as to fees,
charges and penalties that could be billed by the bank was never given to him.
Furthermore, the RTC found that Atty. Dinopol was given a 'go signal' by Citibank when he informed the
latter that he was going to issue a check in the amount of P30,000.00. Citibank failed to advise him that he
still had an outstanding balance of P58.33 as of February 26, 1997. Had he been informed, he could have
paid such a small amount and avoided the dishonor of his check. In fact, when he issued the check on March
6, 1997, no bill had yet been sent to him for the amount of P58.33 because he had just paid P1,629.00 on
February 26, 1997. The billing statement, if any, would still be due on March 15, 1997. On March 11, 1997,
when the check was presented for payment, Citibank could have called his attention and he could have
immediately remitted the amount of P58.00 within the same banking day so that the check would be
honored.
Decision of the Court of Appeals
On December 16, 2008, the CA affirmed the RTC decision with modification. It increased the award of moral
damages from P100,000.00 to P500,000.00 and awarded exemplary damages in the amount of P50,000.00.
In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P. Hernando (Hernando),
displayed dishonesty in claiming that Atty. Dinopol was provided with the bank's Customer Guidebook. No
proof to the contrary was shown by the bank. Instead of exercising good faith by providing a new account
holder like Atty. Dinopol with the service guidebook, Citibank argued that since he was a lawyer, the latter
should have already been familiar with the terms and conditions of his Ready Credit Account.
Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first consulted the bank if he
could issue one. It was only after being given the affirmative response that he issued said check which gave
rise to this controversy. The bank should have given the necessary advice to Atty. Dinopol and thereby avoid
the dishonor of the check for a measly amount of P58.33.
Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the check so as to justify
the P58.33 deduction from his P30,000.00 credit line. Based on the documentary evidence, the due date
for the February 26, 1997 Statement of Account was March 19, 1997. So, when Atty. Dinopol issued the
check on March 6, 1997, the period within which to settle his account was still running, thus, rendering
the P58.33 deduction unjustified.
In modifying the decision, the CA increased the amount of moral damages from P100,000.00
to P500,000.00 for the following reasons: 1] Atty. Dinopol's stature - he was a lawyer of good standing, yet
he was abused by Citibank; 2] the dishonesty displayed by Citibank in claiming that Atty. Dinopol was given
a service guidebook despite lack of proof thereon; 3] the bad faith displayed by Citibank in using a measly
amount of P58.33 as basis to justify its dishonor (due to DAIF) of P30,000.00 worth of check issued by Atty.
Dinopol; and 4] the fact that Citibank besmirched Atty. Dinopol's reputation and has considerably caused
him undue humiliation.
Hence, this petition.
ISSUE
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING THAT PETITIONER CITIBANK, N.A. IS
LIABLE TO RESPONDENT ATTY. ERNESTO S. DINOPOL FOR DAMAGES.
Position of the Petitioner
Citibank argues that the dishonor of Atty. Dinopol's check was valid as it was done in the exercise of its rights
and prerogative under the terms and conditions of his Ready Credit Facility. It insists that it sent a copy of
the guidebook to Atty. Dinopol after his application for the credit facility was approved.
It also points out that upon the approval of Atty. Dinopol's Ready Credit Facility, the latter was initially billed
with the amounts of P1,500.00 for the annual fee and P45.00 for the documentary stamp tax. The total
amount of P1,545.00 was indicated in his Statement of Account dated December 26, 1996, bearing the due
date on or before January 16, 1997. Atty. Dinopol, however, failed to pay it on or before said date. Thus,
interest and late payment charges accrued on his unpaid account as provided for in the provisions of the
guidebook.
Further, Citibank claims that a second statement of account dated January 26, 1997 was sent to Atty.
Dinopol which showed that the aggregate amount of P1,629.21 was due and payable immediately. This
amount represents the unpaid sum of P1,545.00 for the annual fee and documentary stamp tax, P10.00 as
penalty charge for the late payment and P74.21 as accrued interest. Atty. Dinopol paid the amount
of P1,629.21 only on February 26, 1997. Thereafter, Citibank sent him another statement of account
acknowledging receipt of his payment and, at the same time, charging him the additional amount of P58.33
for penalties and other charges. Since the unpaid amount of P58.33 was automatically billed as an availment
against his Ready Credit Facility, his available credit limit at the time of the issuance of the subject check on
March 6, 1997 was already reduced by P58.33. As a result, when the subject check was negotiated, it had
to be returned due to 'DAIF.'
Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty. Dinopol's failure to
timely settle his outstanding obligations despite receipt of his statements of account. It cannot, therefore,
be faulted because it was just exercising its legal right under the terms and conditions of the Ready Credit
Facility. It did not act fradulently or in bad faith. No proof was shown that the dishonor of the subject check
was carried out in an arbitrary, capricious, and malicious manner.
Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to have carefully
considered, known, and understood the provisions and legal effects of the contracts he entered into.
Position of the Respondent
In answer to Citibank's assertions, Atty. Dinopol counters that the bank failed to prove that a copy of the
guidebook was sent to him. In fact, Citibank's own witness, Hernando, categorically admitted that the bank
did not send him the said guidebook. According to Atty. Dinopol, Citibank should have acted in good faith
and in a manner deserving of the trust of its customers.
He also contends that the dishonor of the check due to the non-payment of the penalty charges and
interests of P58.33 was uncalled for. The payment of said amount was not yet due on March 6, 1997 when
the check was issued and even on March 12, 1997 when it was dishonored. The statement of account would
show that the sum of P58.33 was due only on March 19, 1997. This only shows that his account was not yet
delinquent, both at the time when said check was issued and when it was eventually presented for payment,
thereby making the act of the bank of dishonoring the check wanting of any legal basis.
Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it dishonered the subject check for
a meager amount of P58.33 and for imposing highly questionable charges against his credit facility account.
He believes that the bank, wilfully or negligently, wronged him and damaged his reputation. Hence, it is
liable to pay him damages.
The Court's Ruling
The general rule is that in petitions for review on certiorari, the Court will not re-examine the findings of
fact of the appellate court except (a) when the latter's findings are grounded entirely on speculations,
surmises or conjectures; (b) when its inference is manifestly mistaken, absurd or impossible; (c) when there
is a grave abuse of discretion; (d) when its findings of fact are conflicting; and (e) when it goes beyond the
issues of the case.cralaw3 Citibank fails to convince the Court that the case falls under any of the exceptions.
Hence, the findings of fact should no longer be reviewed.
At any rate, the Courts agrees with the courts below in concluding that Citibank was liable to Atty. Dinopol
for moral and exemplary damages and attorney's fees.
A perusal of the evidentiary records shows that Citibank was at fault when it dishonored the subject check.
First, Citibank claims that, as a matter of standard operating procedure, it sent to Atty. Dinopol the Citibank
Ready Credit Customer Guidebook upon the approval of his Ready Credit Account application and so, he
was aware of the terms and conditions stated therein. Yet, except for its bare allegation, no other substantial
proof was presented by Citibank that the guidebook was indeed sent to Atty. Dinopol. In fact, its witness,
Hernando, admitted that the subject handbook was not at all delivered to him.
Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00 and Citibank
dishonored it because of insufficiency of funds by P58.33 representing the amount charged on his credit
line for penalties and charges, the said amount was not yet overdue. The bank's Statement of Account dated
January 26, 1997cralaw4 showed that he must pay the total amount of P1,629.21 representing the annual
membership fee of P1,500.00, documentary stamp tax of P45.00, late charges of P10.00 and
interest/charges of P74.21. On February 26, 1997, he immediately paid the full amount of P1,629.21 as
evidenced by his credit card payment slip.cralaw5 The full payment was reflected in his statement of
accountcralaw6dated February 26, 1997. The same statement of accountcralaw7 indicated that there were
still charges amounting to P58.33 due for payment on March 19, 1997. To reiterate, the check was issued
on March 6, 1997 cralaw8 and dishonored on March 12, 1997,cralaw9 both dates being days before the said
due date. Contrary to Citibank's insistence, Atty. Dinopol was definitely not yet a delinquent account holder.
More importantly, Citibank failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997
after paying the full amount of P1,629.21 and clearing with the bank if he could issue a check in the amount
of P30,000.00. Citibank did not even refute the allegation that it gave Atty. Dinopol the go-signal to issue
such a check.
With respect to damages, the Court is in agreement with the CA in awarding moral and exemplary damages.
However, the Court cannot sanction the modification by the CA, under the circumstances attending the
case. It is of the considered view that the award of the RTC would suffice subject, of course, to the payment
of legal interest.
The award of moral damages should be granted in reasonable amounts depending on the facts and
circumstances of the case.cralaw10 Moral damages are meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injuries unjustly caused.cralaw11
As to the award of exemplary damages, the law allows it by way of example for the public good. The business
of banking is impressed with public interest and great reliance is made on the bank's sworn profession of
diligence and meticulousness in giving irreproachable service.cralaw12 Thus, the Court affirms the award as
a way of setting an example for the public good. In addition, it also provided for attorney's fees. Both are
subject to legal interest.

In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued
with public interest. Banks must always act in good faith and must win the confidence of clients and people
in general. It is irrelevant whether the client is a lawyer or not.

It cannot be over emphasized that the banking business is impressed with public interest. Of paramount
importance is the trust and confidence of the public in general in the banking industry. Consequently, the
diligence required of banks is more than that of a Roman pater familias or a good father of a family. The
highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of
integrity and performance. Needless to say, a bank is 'under obligation to treat the accounts of its depositors
with meticulous care.' The fiduciary nature of the relationship between the bank and the depositors must
always be of paramount concern.cralaw13

WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is MODIFIED to read as follows:

In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to pay plaintiff Atty.
Ernesto S. Dinopol the following:chanrobles virtual law library

1] P100,000.00 as and for moral damages;chanroblesvirtualawlibrary

2] P50,000.00 as and for exemplary damages;chanroblesvirtualawlibrary

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

4] Costs of suit,

plus interest at the legal rate reckoned from the filing of the complaint.

SO ORDERED.
#4
1. 839700 April 24, 1990 ₱ 43,400.00
G.R. No. 149454 May 28, 2004
BANK OF THE PHILIPPINE ISLANDS, petitioner,
2. 839459 Nov. 2, 1990 110,500.00
vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.
3. 839609 Oct. 17, 1990 47,723.00
x ----------------------------- x
G.R. No. 149507 May 28, 2004
4. 839549 April 7, 1990 90,700.00
CASA MONTESSORI INTERNATIONALE, petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent. 5. 839569 Sept. 23, 1990 52,277.00
DECISION
6. 729149 Mar. 22, 1990 148,000.00

PANGANIBAN, J.: 7. 729129 Mar. 16, 1990 51,015.00

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who 8. 839684 Dec. 1, 1990 140,000.00
have the right to expect high standards of integrity and performance from it.
9. 729034 Mar. 2, 1990 98,985.00
Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not
estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the
Total -- ₱ 782,600.006
statements sent by the bank to them for verification.

The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001
Decision2and the August 17, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The
decretal portion of the assailed Decision reads as follows:
"It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch [was] a fictitious
name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA.
Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and
encashed the checks. "The PNP Crime Laboratory conducted an examination of the nine (9)
checks and concluded that the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter.

"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the
"On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-
defendant bank praying that the latter be ordered to reinstate the amount of ₱782,500.007 in
half of the value of the forged checks in the amount of ₱547,115.00 after deductions subject to
the current and savings accounts of the plaintiff with interest at 6% per annum.
REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other
half to plaintiff corporation [Casa Montessori Internationale (CASA)]."4
"On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff."8
The assailed Resolution denied all the parties’ Motions for Reconsideration.
Ruling of the Court of Appeals
The Facts
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA.
The appellate court took into account CASA’s contributory negligence that resulted in the undetected
The facts of the case are narrated by the CA as follows:
forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the
other half. It also disallowed attorney’s fees and moral and exemplary damages.
"On November 8, 1982, plaintiff CASA Montessori International5 opened Current Account No.
0291-0081-01 with defendant BPI[,] with CASA’s President Ms. Ma. Carina C. Lebron as one of
Hence, these Petitions.9
its authorized signatories.

Issues
"In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had
been encashed by a certain Sonny D. Santos since 1990 in the total amount of ₱782,000.00, on
the following dates and amounts: In GR No. 149454, Petitioner BPI submits the following issues for our consideration:

"I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable
‘Check No. Date Amount
decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be
 proved by clear, positive and convincing evidence; and that the burden of proof lies on the party
alleging the forgery.
"II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws,
in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own
negligence, from asserting its forgery claim against BPI, specially taking into account the absence
of any negligence on the part of BPI."10
In GR No. 149507, Petitioner CASA submits the following issues:
"1. The Honorable Court of Appeals erred when it ruled that ‘there is no showing that [BPI],
although negligent, acted in bad faith x x x’ thus denying the prayer for the award of attorney’s
fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when
it did not order [BPI] to pay interest on the amounts due to [CASA].
"2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in
the case at bar, thus warranting its conclusion that the loss in the amount of ₱547,115.00 be
‘apportioned between [CASA] and [BPI] x x x.’"11
These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments
Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a
defense? Third,should moral and exemplary damages, attorney’s fees, and interest be awarded?
The Court’s Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
"Section 23. Forged signature; effect of. -- When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no right x
x x to enforce payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority."12
Under this provision, a forged signature is a real13 or absolute defense,14 and a person whose signature on
a negotiable instrument is forged is deemed to have never become a party thereto and to have never
consented to the contract that allegedly gave rise to it.15
The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is
forgery.16
In the present case, we hold that there was forgery of the drawer’s signature on the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself had voluntarily admitted, through
an Affidavit, that he had forged the drawer’s signature and encashed the checks.19 He never refuted these
findings.20That he had been coerced into admission was not corroborated by any evidence on record.21
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of
the said checks,22 had concluded that the handwritings thereon -- compared to the standard signature of
the drawer -- were not hers.23 This conclusion was the same as that in the Report24 that the PNP Crime
Laboratory had earlier issued to BPI -- the drawee bank -- upon the latter’s request.
Indeed, we respect and affirm the RTC’s factual findings, especially when affirmed by the CA, since these
are supported by substantial evidence on record.25
Voluntary Admission Not Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and
(2) against self-incrimination.
In the first place, he was not under custodial investigation.26 His Affidavit was executed in private and before
private individuals.27 The mantle of protection under Section 12 of Article III of the 1987
Constitution28 covers only the period "from the time a person is taken into custody for investigation of his
possible participation in the commission of a crime or from the time he is singled out as a suspect in the
commission of a crime although not yet in custody."29
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of
freedom, with "questions propounded on him by the police authorities for the purpose of eliciting
admissions, confessions, or any information."30 The said constitutional provision does "not apply to
spontaneous statements made in a voluntary manner"31 whereby an individual orally admits to authorship
of a crime.32 "What the Constitution proscribes is the compulsory or coercive disclosure of incriminating
facts."33
Moreover, the right against self-incrimination34 under Section 17 of Article III35 of the Constitution, which is
ordinarily available only in criminal prosecutions, extends to all other government proceedings -- including
civil actions, legislative investigations,36 and administrative proceedings that possess a criminal or penal
aspect37 -- but not to private investigations done by private individuals. Even in such government
proceedings, this right may be waived,38 provided the waiver is certain; unequivocal; and intelligently,
understandingly and willingly made.39
If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of
no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the
appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also
explain later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before
the lower court.
Under these two constitutional provisions, "[t]he Bill of Rights40 does not concern itself with the relation
between a private individual and another individual. It governs the relationship between the individual and
the State."41Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the
power of the [S]tate."42 These rights43 are guaranteed to preclude the slightest coercion by the State that
may lead the accused "to admit something false, not prevent him from freely and voluntarily telling the
truth."44
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically
entitle him to the constitutional protection."45 When he freely and voluntarily executed46 his Affidavit, the
State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional
rights while under custodial investigation and against self-incrimination.
Clear, Positive and Convincing Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.
Forgery "cannot be presumed."47 It must be established by clear, positive and convincing evidence.48 Under
the best evidence rule as applied to documentary evidence like the checks in question, no secondary or
substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in
court.49 But when, without bad faith on the part of the offeror, the original checks have already been
destroyed or cannot be produced in court, secondary evidence may be produced.50 Without bad faith on its
part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who
knew of that fact51 -- Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed.52 In
such a situation, secondary evidence like microfilm copies may be introduced in court.
The drawer’s signatures on the microfilm copies were compared with the standard signature. PNP
Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had
written them.53Although no conclusive report could be issued in the absence of the original checks,54 she
affirmed that her findings were 90 percent conclusive.55 According to her, even if the microfilm copies were
the only basis of comparison, the differences were evident.56 Besides, the RTC explained that although the
Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of
the original checks.57 This explanation is valid; otherwise, no such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only when the contents of a
document -- such as the drawer’s signature on a check -- is the subject of inquiry.58 As to whether the
document has been actually executed, this rule does not apply; and testimonial as well as any other
secondary evidence is admissible.59Carina Lebron herself, the drawer’s authorized signatory, testified many
times that she had never signed those checks. Her testimonial evidence is admissible; the checks have not
been actually executed. The genuineness of her handwriting is proved, not only through the court’s
comparison of the questioned handwritings and admittedly genuine specimens thereof,60 but above all by
her.
The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of
evidence61 nor creates an unfavorable inference against it.62 Such failure merely authorizes the introduction
of secondary evidence63 in the form of microfilm copies. Of no consequence is the fact that CASA did not
present the signature card containing the signatures with which those on the checks were
compared.64 Specimens of standard signatures are not limited to such a card. Considering that it was not
produced in evidence, other documents that bear the drawer’s authentic signature may be resorted
to.65 Besides, that card was in the possession of BPI -- the adverse party.
We have held that without the original document containing the allegedly forged signature, one cannot
make a definitive comparison that would establish forgery;66 and that a comparison based on a mere
reproduction of the document under controversy cannot produce reliable results.67 We have also said,
however, that a judge cannot merely rely on a handwriting expert’s testimony,68 but should also exercise
independent judgment in evaluating the authenticity of a signature under scrutiny.69 In the present case,
both the RTC and the CA conducted independent examinations of the evidence presented and arrived at
reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely
considered testimonial and other documentary evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been
met.70The result of examining a questioned handwriting, even with the aid of experts and scientific
instruments, may be inconclusive;71 but it is a non sequitur to say that such result is not clear, positive and
convincing. The preponderance of evidence required in this case has been satisfied.72
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by
virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized
signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the
latter precluded from setting up forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have repeatedly emphasized that, since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence73 is expected,74 and high standards of integrity and performance are even
required, of it.75 By the nature of its functions, a bank is "under obligation to treat the accounts of its
depositors with meticulous care,76 always having in mind the fiduciary nature of their relationship."77
BPI contends that it has a signature verification procedure, in which checks are honored only when the
signatures therein are verified to be the same with or similar to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the
omission of that degree of diligence required78 of a bank. It cannot now feign ignorance, for very early on
we have already ruled that a bank is "bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged."79 In fact, BPI was the same bank
involved when we issued this ruling seventy years ago.
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is
reported in ten (10) days, account will be correct."80 Such notice cannot be considered a waiver, even if
CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the
ten-day period.
This notice is a simple confirmation81 or "circularization" -- in accounting parlance -- that requests client-
depositors to affirm the accuracy of items recorded by the banks.82 Its purpose is to obtain from the
depositors a direct corroboration of the correctness of their account balances with their respective
banks.83 Internal or external auditors of a bank use it as a basic audit procedure84 -- the results of which its
client-depositors are neither interested in nor privy to -- to test the details of transactions and balances in
the bank’s records.85 Evidential matter obtained from independent sources outside a bank only serves to
provide greater assurance of reliability86 than that obtained solely within it for purposes of an audit of its
own financial statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be detected 87 for various
reasons. One, materiality is a consideration in audit planning;88 and two, the information obtained from
such a substantive test is merely presumptive and cannot be the basis of a valid waiver.89 BPI has no right
to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither
may CASA renounce a right90 it has never possessed.91
encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should
be held primarily liable112 for the "negligence of its officers or agents when acting within the course and
scope of their employment."113 It must bear the loss.
CASA Not Negligent in Its Financial Affairs

Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement,
In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception 114 to the
the passive one is duty-bound to suffer such enforcement.92
general rule that a forged signature is wholly inoperative.115 Contrary to BPI’s claim, however, we do not
find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery
On the one hand, BPI could not have been an active subject, because it could not have demanded from as a real defense.
CASA a response to its notice. Besides, the notice was a measly request worded as follows: "Please examine
x x x and report x x x."93 CASA, on the other hand, could not have been a passive subject, either, because it
Role of Independent Auditor
had no obligation to respond. It could -- as it did -- choose not to respond.

The major purpose of an independent audit is to investigate and determine objectively if the financial
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything
statements submitted for audit by a corporation have been prepared in accordance with the appropriate
contrary to that established as the truth, in legal contemplation.94 Our rules on evidence even make a juris
financial reporting practices116 of private entities. The relationship that arises therefrom is both legal and
et de jurepresumption95 that whenever one has, by one’s own act or omission, intentionally and deliberately
moral.117 It begins with the execution of the engagement letter118 that embodies the terms and conditions
led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation
of the audit and ends with the fulfilled expectation of the auditor’s ethical119 and competent performance
arising from such act or omission -- be permitted to falsify that supposed truth.96
in all aspects of the audit.120

In the instant case, CASA never made any deed or representation that misled BPI. The former’s omission, if
The financial statements are representations of the client; but it is the auditor who has the responsibility
any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic
for the accuracy in the recording of data that underlies their preparation, their form of presentation, and
audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not
the opinion121expressed therein.122 The auditor does not assume the role of employee or of management
arise.97 A person who has no knowledge of or consent to a transaction may not be estopped by
in the client’s conduct of operations123 and is never under the control or supervision124 of the client.
it.98 "Estoppel cannot be sustained by mere argument or doubtful inference x x x."99 CASA is not barred from
questioning BPI’s error even after the lapse of the period given in the notice.
Yabut was an independent auditor125 hired by CASA. He handled its monthly bank reconciliations and had
access to all relevant documents and checkbooks.126 In him was reposed the client’s127 trust and
Loss Borne by Proximate Source of Negligence
confidence128 that he would perform precisely those functions and apply the appropriate procedures in
accordance with generally accepted auditing standards.129 Yet he did not meet these expectations. Nothing
For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes could be more horrible to a client than to discover later on that the person tasked to detect fraud was the
liable to its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can easily go after it same one who perpetrated it.
and hold it liable for reimbursement.102 It "may not debit the drawer’s account103 and is not entitled to
indemnification from the drawer."104 In both law and equity, when one of two innocent persons "must suffer
by the wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong."105
Cash Balances Open to Manipulation
Proximate cause is determined by the facts of the case.106
"It is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result It is a non sequitur to say that the person who receives the monthly bank statements, together with the
would not have occurred."107 cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of any
discrepancies within a reasonable time. Awareness is not equipollent with discernment.
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on
checks being encashed, BPI is "expected to use reasonable business prudence."108 In the performance of Besides, in the internal accounting control system prudently installed by CASA,130 it was Yabut who should
that obligation, it is bound by its internal banking rules and regulations that form part of the contract it examine those documents in order to prepare the bank reconciliations.131 He owned his working
enters into with its depositors.109 papers,132 and his output consisted of his opinion as well as the client’s financial statements and
accompanying notes thereto. CASA had every right to rely solely upon his output -- based on the terms of
the audit engagement -- and could thus be unwittingly duped into believing that everything was in order.
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches
Besides, "[g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce
without privity;110 that is, without the proper verification of his corresponding identification
clear and convincing evidence to the contrary."133
papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked
differences in the signatures on the checks and those on the signature card. Third, despite the examination
procedures it conducted, the Central Verification Unit111of the bank even passed off these evidently Moreover, there was a time gap between the period covered by the bank statement and the date of its
different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and actual receipt. Lebron personally received the December 1990 bank statement only in January 1991134 --
when she was also informed of the forgery for the first time, after which she immediately requested a "stop
payment order." She cannot be faulted for the late detection of the forged December check. After all, the
bank account with BPI was not personal but corporate, and she could not be expected to monitor closely
all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with
the intricacies or complexities of corporate existence.
There is also a cutoff period such that checks issued during a given month, but not presented for payment
within that period, will not be reflected therein.135 An experienced auditor with intent to defraud can easily
conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the
cash balances on record -- especially when bank transactions are numerous, large and frequent. CASA could
only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor -- a fault
that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it.136 Its mere existence "is not sufficient without
proof that it, and no other cause,"137 has given rise to damages.138 In addition, this fault is common to, if not
prevalent among, small and medium-sized business entities, thus leading the Professional Regulation
Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the
practice of public accountancy,139 but also the registration of firms in the practice thereof. In fact, among
the attachments now required upon registration are the code of good governance140 and a sworn statement
on adequate and effective training.141
The missing checks were certainly reported by the bookkeeper142 to the accountant143 -- her immediate
supervisor -- and by the latter to the auditor. However, both the accountant and the auditor, for reasons
known only to them, assured the bookkeeper that there were no irregularities.
The bookkeeper144 who had exclusive custody of the checkbooks145 did not have to go directly to CASA’s
president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor
a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The
vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated
-- even in collusion -- and management would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be
held liable for breach of contract and negligence,146 with all the more reason may they be charged with the
perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the
NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be
recovered,147 and under such terms as the injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASA’s claim for moral damages.
In the absence of a wrongful act or omission,148 or of fraud or bad faith,149 moral damages cannot be
awarded.150The 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.151 While no proof of pecuniary
loss is necessary therefor -- with the amount to be awarded left to the court’s discretion152 -- the claimant
must nonetheless satisfactorily prove the existence of its factual basis153 and causal relation154 to the
claimant’s act or omission.155
Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code
-- upon which its claim for moral damages is predicated.156 Neither bad faith nor negligence so gross that it
amounts to malice157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad
judgment or negligence;158 it imports a dishonest purpose or some moral obliquity and conscious doing of
a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of
fraud."159
As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and
having existence only in legal contemplation -- is not entitled to moral damages,160 because it cannot
experience physical suffering and mental anguish.161 However, for breach of the fiduciary duty required of
a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach,
and social humiliation results therefrom.162 CASA was unable to prove that BPI had debased the good
reputation of,163 and consequently caused incalculable embarrassment to, the former. CASA’s mere
allegation or supposition thereof, without any sufficient evidence on record,164 is not enough.
Exemplary Damages Also Denied
We also deny CASA’s claim for exemplary damages.
Imposed by way of correction165 for the public good,166 exemplary damages cannot be recovered as a matter
of right.167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA
upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.168 The latter, having no right to moral damages, cannot demand
exemplary damages.169
Attorney’s Fees Granted
Although it is a sound policy not to set a premium on the right to litigate,170 we find that CASA is entitled to
reasonable attorney’s fees based on "factual, legal, and equitable justification."171
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the
latter’s interest,172 or where the court deems it just and equitable,173 attorney’s fees may be recovered. In
the present case, BPI persistently denied the claim of CASA under the NIL to recredit the latter’s account for
the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more
than ten years in order to protect its corporate interest in its bank account. Besides, we have already
cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained
unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%)174 of the total value
adjudged to CASA as attorney’s fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to
obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the
filing175 of the Complaint.176 Since a court judgment is not a loan or a forbearance of recovery, the legal
interest shall be at six percent (6%) per annum.177 "If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of x x x legal interest, which is six percent per annum."178 The actual base for
its computation shall be "on the amount finally adjudged,"179 compounded180 annually to make up for the
cost of money181 already lost to CASA.

Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages
awarded for breach of contract.182 Because BPI evidently breached its contract of deposit with CASA, we
award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not
provided for shall be "governed by the provisions of existing legislation or, in default thereof, by the rules
of the law merchant."183 Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce
and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its
provisions and, "in their absence, by the usages of commerce generally observed in each place; and in the
absence of both rules, by those of the civil law."184 This law being silent, we look at Article 18 of the Civil
Code, which states: "In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably shows that the
award of interest under our civil law is justified.

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED.
The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for ₱547,115,
the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the
complaint until paid in full; and attorney’s fees of ten percent (10%) thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting attorney’s fees. Let a copy of this Decision be furnished
the Board of Accountancy of the Professional Regulation Commission for such action as it may deem
appropriate against Respondent Yabut. No costs.

SO ORDERED.
#5 covered by the three trust receipts totalling P851,250 less the 30% marginal deposit that he had paid.
G.R. No. 127469 January 15, 2004 Marcos argued that if only the BANK applied his time deposits and the accumulated interest to his remaining
PHILIPPINE BANKING CORPORATION, petitioner, obligation, which is 70% of the total amount of the letters of credit, he would have paid completely his debt.
vs. Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements, the
COURT OF APPEALS and LEONILO MARCOS, respondents. BANK had no right to renew the same.

DECISION
Marcos accused the BANK of unjustly demanding payment for the total amount of the trust receipt
agreements without deducting the 30% marginal deposit that he had already made. He decried the BANK’s
CARPIO, J.: unlawful charging of accumulated interest because he claimed there was no agreement as to the payment
of interest. The interest arose from numerous alleged extensions and penalties. Marcos reiterated that
there was no agreement to this effect because his time deposits served as the collateral for his remaining
The Case
obligation.

Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 34382 dated 10
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25% per
December 1996 modifying the Decision2 of the Regional Trial Court, Fourth Judicial Region, Assisting Court,
annum supposedly covered by Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed
Biñan, Laguna in Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine Banking Corporation."
the BANK’s belated claim that his time deposits were applied to this void promissory note on 12 March
1985.
The Antecedent Facts
In sum, Marcos claimed that:
On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of Money with
Damages3 against petitioner Philippine Banking Corporation ("BANK").4
(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has earned accumulated interest
since March 1982 up to the present in the total amount of P1,727,305.45 at the rate of 17% per annum so
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of the his total money with defendant (the BANK) is P3,156,100.79 less the amount of P595,875 representing the
officials of the BANK and a close friend of Marcos, persuaded him to deposit money with the BANK. Marcos 70% balance of the marginal deposit and/or balance of the trust agreements;" and
yielded to Pagsaligan’s persuasion and claimed he made a time deposit with the BANK on two occasions.
The first was on 11 March 1982 for P664,897.67. The BANK issued Receipt No. 635734 for this time deposit.
(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance of P595,875,
On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for P764,897.67. The BANK
which the BANK should have automatically deducted from his time deposits and accumulated interest,
did not issue an official receipt for this time deposit but it acknowledged a deposit of this amount through
leaving the BANK’s indebtedness to him at P2,560,025.79.
a letter-certification Pagsaligan issued. The time deposits earned interest at 17% per annum and had a
maturity period of 90 days.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the BANK to pay
the amount of his time deposits with interest. He also sought the award of moral and exemplary damages
Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK
as well as attorney’s fees for P200,000 plus 25% of the amount due.
would take care of the certificates, interests and renewals. Marcos claimed that from the time of the
deposit, he had not received the principal amount or its interest.
On 18 September 1989, summons and a copy of the complaint were served on the BANK.6
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the
accumulated interests to buy materials for his construction business. However, the BANK through On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the allegations in the
Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic letters complaint. The BANK believed that the suit was Marcos’ desperate attempt to avoid liability under several
of credit. The BANK required Marcos to give a marginal deposit of 30% of the total amount of the letters of trust receipt agreements that were the subject of a criminal complaint.
credit. The time deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the
BANK and Pagsaligan, he signed blank printed forms of the application for the domestic letters of credit,
The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of Marcos was
trust receipt agreements and promissory notes.
only P764,897.67 and not P1,428,795.357 as alleged in the complaint. The P764,897.67 included
the P664,897.67 that Marcos deposited on 11 March 1982.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as follows: (1) Trust
Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983
The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue of the Deed
for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983 for P251,250. Marcos deposited the
of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to secure his various loan
required 30% marginal deposit for the trust receipt agreements. Marcos claimed that his obligation to the
obligations. The BANK claimed that these loans are covered by Promissory Note No. 20-756-82 dated 2 June
BANK was therefore only P595,875 representing 70% of the letters of credit.
1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The BANK
stressed that these obligations are separate and distinct from the trust receipt agreements.
Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected the
BANK to offset automatically a portion of his time deposits and the accumulated interest with the amount
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his time
deposits and applied the same to the obligation that is now considered fully paid.8 The BANK insisted that
the Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note No. 20-979-
83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan. Consolacion
informed Pagsaligan that she and her husband needed to finance the purchase of construction materials
for their business, L.A. Marcos Construction Company. Pagsaligan suggested the opening of the letters of
credit and the execution of trust receipts, whereby the BANK would agree to purchase the goods needed
by the client through the letters of credit. The BANK would then entrust the goods to the client, as entrustee,
who would undertake to deliver the proceeds of the sale or the goods themselves to the entrustor within a
specified time.
The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed to
account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint for violation of
Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations for the settlement
of the account, Marcos filed this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory note is
supported by documentary evidence such as Marcos’ application for this loan and the microfilm of the
cashier’s check issued for the loan. The BANK insisted that Marcos could not deny the agreement for the
payment of interest and penalties under the trust receipt agreements. The BANK prayed for the dismissal
of the complaint, payment of damages, attorney’s fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos’ counsel issued an order declaring the BANK in
default for filing its answer five days after the 15-day period to file the answer had lapsed.9 The trial court
also held that the answer is a mere scrap of paper because a copy was not furnished to Marcos. In the same
order, the trial court allowed Marcos to present his evidence ex parte on 18 December 1989. On that date,
Marcos testified and presented documentary evidence. The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANK’s Answer with Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos’ motion to declare the BANK in default. On
9 January 1990, the BANK filed a motion to lift the order of default claiming that it had only then learned of
the order of default. The BANK explained that its delayed filing of the Answer with Counterclaim and failure
to serve a copy of the answer on Marcos was due to excusable negligence. The BANK asked the trial court
to set aside the order of default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default order and admitting the BANK’s
Answer with Compulsory Counterclaim. The trial court ordered the BANK to present its evidence on 12
March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified during the ex-
partehearing of 18 December 1989. On 12 March 1990, the trial court denied the BANK’s motion and
directed the BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANK’s Cubao Branch since
1987, and Pagsaligan, the Branch Manager of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material time, the trial
court reset the continuation of the cross-examination and presentation of other evidence. The succeeding
hearings were postponed, specifically on 24, 27 and 28 of August 1990, because of the BANK’s failure to
produce its witness, Pagsaligan. The BANK on these scheduled hearings also failed to present other
evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan could not
attend the hearing because of illness. The trial court denied the motion to postpone and on motion of
Marcos’ counsel ruled that the BANK had waived its right to present further evidence. The trial court
considered the case submitted for decision. The BANK moved for reconsideration, which the trial court
denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK appealed
to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the amount
of actual damages and deleting the attorney’s fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and not
only P764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit on two
occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by Receipt No.
635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as acknowledged by
Pagsaligan in a letter of certification. The two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because the letter
of certification was sufficient. The trial court made a finding that the certification letter did not include the
time deposit made on 11 March 1982. The 12 March 1982 deposit was in cash while the 11 March 1982
deposit was in checks which still had to clear. The checks were not included in the certification letter since
the BANK could not credit the amounts of the checks prior to clearing. The trial court declared that even
the Deed of Assignment acknowledged that Marcos made several time deposits as the Deed stated that the
assigment was charged against "various" time deposits.
The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos
supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982 for P420,000. The
two loans amounted to P760,000. On 2 June 1982, the same day that he secured the second loan, Marcos
executed a Deed of Assignment assigning to the BANK P760,000 of his time deposits. The trial court
concluded that obviously the two loans were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of interest
instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why Marcos had to
secure the loans from the BANK. The trial court was convinced that Marcos did not know that what he had
signed were loan applications and a Deed of Assignment in payment for his loans. Nonetheless, the trial
court recognized "the said loan of P760,000 and its corresponding payment by virtue of the Deed of
Assignment for the equal sum."10
If the BANK’s claim is true that the time deposits of Marcos amounted only to P764,897.67 and he had
already assigned P760,000 of this amount, the trial court pointed out that what would be left as of 3 June
1982 would only be P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed Marcos to
open letters of credit three times. The three letters of credit were all secured by the time deposits of Marcos
after he had paid the 30% marginal deposit. The trial court opined that if Marcos’ time deposit was
only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal deposit) was guaranteed
by only P4,867.67,12 the remaining time deposits after Marcos had executed the Deed of Assignment
for P760,000.
According to the trial court, a security of only P4,867.6713 for a loan worth P595,875 (less 30% marginal
deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to have unsecured
trust receipts, the BANK still claimed to have granted Marcos another loan for P500,000 on 25 October 1983
covered by Promissory Note No. 20-979-83. The BANK is a commercial bank engaged in the business of
lending money. Allowing a loan of more than a million pesos without collateral is in the words of the trial
court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager
has such authority to grant."14 Thus, the trial court held that the BANK could not have granted Marcos the
loan covered by Promissory Note No. 20-979-83 because it was unsecured by any collateral.
The trial court required the BANK to produce the original copies of the loan application and Promissory Note
No. 20-979-83 so that it could determine who applied for this loan. However, the BANK presented to the
trial court only the "machine copies of the duplicate" of these documents.
Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the following
discrepancies: (1) Marcos’ signature on the two documents are merely initials unlike in the other documents
submitted by the BANK; (2) it is highly unnatural for the BANK to only have duplicate copies of the two
documents in its custody; (3) the address of Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents annexed by the BANK in its Answer; (4) Pagsaligan
made it appear that a check for the loan proceeds of P470,588 less bank charges was issued to Marcos but
the check’s payee was one ATTY. LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer;
and (5) Pagsaligan was not sure what branch of the BANK issued the check for the loan proceeds. The trial
court was convinced that Marcos did not execute the questionable documents covering the P500,000 loan
and Pagsaligan used these documents as a means to justify his inability to explain and account for the time
deposits of Marcos.
The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the BANK
was not in possession of the original copies of the documents like the loan applications. Second, the BANK
did not have a ledger of the accounts of Marcos or of his various transactions with the BANK. Last, the BANK
did not issue a certificate of time deposit to Marcos. Again, the trial court attributed the BANK’s lapses to
Pagsaligan’s scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligan’s demeanor on the witness stand. Pagsaligan evaded the
questions by giving unresponsive or inconsistent answers compelling the trial court to admonish him. When
the trial court ordered Pagsaligan to produce the documents, he "conveniently became sick"15 and thus
failed to attend the hearings without presenting proof of his physical condition.
The trial court disregarded the BANK’s assertion that the time deposits were converted into a savings
account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that his time deposits
had already matured and these were converted into a savings account. As to the interest due on the trust
receipts, the trial court ruled that there is no basis for such a charge because the documents do not stipulate
any interest.
In computing the amount due to Marcos, the trial court took into account the marginal deposit that Marcos
had already paid which is equivalent to 30% of the total amount of the three trust receipts. The three trust
receipts totalling P851,250 would then have a balance of P595,875. The balance became due in March 1987
and on the same date, Marcos’ time deposits of P669,932.30 had already earned interest from 1983 to 1987
totalling P569,323.21 at 17% per annum. Thus, the trial court ruled that the time deposits in 1987
totalled P1,239,115. From this amount, the trial court deducted P595,875, the amount of the trust receipts,
leaving a balance on the time deposits of P643,240 as of March 1987. However, since the BANK failed to
return the time deposits of Marcos, which again matured in March 1990, the time deposits with interest,
less the amount of trust receipts paid in 1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time deposit of P764,897.67 as
claimed by the BANK, the time deposit would have still earned interest at the rate of 17% per annum. The
time deposit of P650,163 would have increased to P1,415,060 in 1987 after earning interest. Deducting the
amount of the three trust receipts, Marcos’ time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of Plaintiff, directing
Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at the legal rate,
until fully restituted;
2) to pay attorney’s fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.16
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues that the BANK raised.
The appellate court ruled that the trial court committed a reversible error when it denied the BANK’s motion
to cross-examine Marcos. The appellate court ruled that the right to cross-examine is a fundamental right
that the BANK did not waive because the BANK vigorously asserted this right. The BANK’s failure to serve a
notice of the motion to Marcos is not a valid ground to deny the motion to cross-examine. The appellate
court held that the motion to cross-examine is one of those non-litigated motions that do not require the
movant to provide a notice of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the order of default, it had the duty to
afford the BANK its right to cross-examine Marcos. This duty assumed greater importance because the only
evidence supporting the complaint is Marcos’ ex-parte testimony. The trial court should have tested the
veracity of Marcos’ testimony through the distilling process of cross-examination. The Court of Appeals,
however, believed that the case should not be remanded to the trial court because Marcos’ testimony on
the time deposits is supported by evidence on record from which the appellate court could make an
intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial court did not err when it declared
that the BANK had waived its right to present its evidence and had submitted the case for decision. The
appellate court agreed with the grounds relied upon by the trial court in its Order dated 7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court as to the total amount of the time
deposits. The appellate court ruled that the total amount of the time deposits of Marcos is only P764,897.67
and not P1,429,795.34 as found by the trial court. The certification letter issued by Pagsaligan showed that
Marcos made a time deposit on 12 March 1982 for P764,897.67. The certification letter shows that the
amount mentioned in the letter was the aggregate or total amount of the time deposits of Marcos as of
that date. Therefore, the P764,897.67 already included the P664,897.67 time deposit made by Marcos on
11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982 covering the sum
of P664,987.67 time deposit did not provide for a maturity date implying clearly that the amount covered
by said receipt forms part of the total sum shown in the letter-certification which contained a maturity date.
Moreover, it taxes one’s credulity to believe that appellee would make a time deposit on March 12, 1982 in
the sum of P764,897.67 which except for the additional sum of P100,000.00 is practically identical (see
underlined figures) to the sum of P664,897.67 deposited the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower court wrongly appreciated the
testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the alleged application for loan
by the appellee with the appellant in the sum of P500,000.00 dated October 24, 1983. (Exh. "J", p. 40,
Records), wherein it was stated that the loan is for additional working capital versus the various time deposit
amounting to P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory Note No. 20-
979-83 is void. There is no evidence of a bank ledger or computation of interest of the loan. The appellate
court blamed the BANK for failing to comply with the orders of the trial court to produce the documents on
the loan. The BANK also made inconsistent statements. In its Answer to the Complaint, the BANK alleged
that the loan was fully paid when it debited the time deposits of Marcos with the loan. However, in its
discussion of the assigned errors, the BANK claimed that Marcos had yet to pay the loan.
The appellate court deleted the award of attorney’s fees. It noted that the trial court failed to justify the
award of attorney’s fees in the text of its decision. The dispositive portion of the decision of the Court of
Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment is hereby rendered
ordering the appellant bank to return to the appellee his time deposit in the sum of P764,897.67 with 17%
interest within 90 days from March 11, 1982 in accordance with the letter-certification and with legal interest
thereafter until fully paid. Costs against the appellant.
SO ORDERED.18 (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENT’S OUTSTANDING
OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN REVISED RULES
OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE
EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE PETITIONER’S ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT HAS [sic]
DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED THE
CASE SUBMITTED FOR RESOLUTION?19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANK’s right to procedural due process when the trial court denied the BANK’s
motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had properly declared the
BANK in default. Since the BANK was in default, Marcos was able to present his evidence ex-parte including
his own testimony. When the trial court lifted the order of default, the BANK was restored to its standing
and rights in the action. However, as a rule, the proceedings already taken should not be
disturbed.20 Nevertheless, it is within the trial court’s discretion to reopen the evidence submitted by the
plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiff’s witnesses or
introducing countervailing evidence.21 The 1964 Rules of Court, the rules then in effect at the time of the
hearing of this case, recognized the trial court’s exercise of this discretion. The 1997 Rules of Court retained
this discretion.22 Section 3, Rule 18 of the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. — A party declared in default may any time after discovery thereof and
before judgment file a motion under oath to set aside the order of default upon proper showing that his
failure to answer was due to fraud, accident, mistake or excusable neglect and that he has a meritorious
defense. In such case the order of default may be set aside on such terms and conditions as the judge may
imposein the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right to cross-examine Marcos when
it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7 February 1990 setting
aside the order of default did not confer on the BANK the right to cross-examine Marcos. It was only on 2
March 1990 that the BANK filed the motion to cross-examine Marcos. During the 12 March 1990 hearing,
the trial court denied the BANK’s oral manifestation to grant its motion to cross-examine Marcos because
there was no proof of service on Marcos. The BANK’s counsel pleaded for reconsideration but the trial court
denied the plea and ordered the BANK to present its evidence. Instead of presenting its evidence, the BANK
moved for the resetting of the hearing and when the trial court denied the same, the BANK informed the
trial court that it was elevating the denial to the "upper court."23
To repeat, the trial court had previously declared the BANK in default. The trial court therefore had the right
to decide whether or not to disturb the testimony of Marcos that had already been terminated even before
the trial court lifted the order of default.
We do not agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated motion
and that the trial court gravely abused its discretion when it denied the motion to cross-examine. A motion
to cross-examine is adversarial. The adverse party in this case had the right to resist the motion to cross-
examine because the movant had previously forfeited its right to cross-examine the witness. The purpose
of a notice of a motion is to avoid surprises on the opposite party and to give him time to study and meet
the arguments.24 In a motion to cross-examine, the adverse party has the right not only to prepare a
meaningful opposition to the motion but also to be informed that his witness is being recalled for cross-
examination. The proof of service was therefore indispensable and the trial court was correct in denying
the oral manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice of motions 25 to this case. The
BANK could have easily re-filed the motion to cross-examine with the requisite notice to Marcos. It did not
do so. The BANK did not make good its threat to elevate the denial to a higher court. The BANK waited until
the trial court rendered a judgment on the merits before questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due process, the right does not necessarily
require an actual cross-examination, but merely an opportunity to exercise this right if desired by the party
entitled to it.26 Clearly, the BANK’s failure to cross-examine is imputable to the BANK when it lost this
right27 as it was in default and failed thereafter to exhaust the remedies to secure the exercise of this right
at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve scant
consideration.
The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The BANK even
has the audacity to fault the Court of Appeals for not ruling on this issue when it never raised this matter
before the appellate court or before the trial court. Obviously, this issue is only an afterthought. An issue
raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by
estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of the documents attached to its
answer because the BANK filed its answer late and even failed to serve it on Marcos. The BANK’s answer,
including the actionable documents it pleaded and attached to its answer, was a mere scrap of paper. There
was nothing that Marcos could specifically deny under oath. Marcos had already completed the
presentation of his evidence when the trial court lifted the order of default and admitted the BANK’s answer.
The provision of the Rules of Court governing admission of actionable documents was not enacted to reward
a party in default. We will not allow a party to gain an advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the trial
court correctly ruled that the BANK had waived this right. The BANK cannot now claim that it was deprived
of its right to conduct a re-direct examination of Pagsaligan. The BANK postponed the hearings three
times29 because of its inability to secure Pagsaligan’s presence during the hearings. The BANK could have
presented another witness or its other evidence but it obstinately insisted on the resetting of the hearing
because of Pagsaligan’s absence allegedly due to illness.
The BANK’s propensity for postponements had long delayed the case. Its motion for postponement based
on Pagsaligan’s illness was not even supported by documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary before the trial court could rule that there is a sufficient
basis to grant the postponement.30
The BANK’s Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The existence
of Promissory Note No. 20-979-83 could have been easily proven had the BANK presented the original
copies of the promissory note and its supporting evidence. In lieu of the original copies, the BANK presented
the "machine copies of the duplicate" of the documents. These substitute documents have no evidentiary
value. The BANK’s failure to explain the absence of the original documents and to maintain a record of the
offsetting of this loan with the time deposits bring to fore the BANK’s dismal failure to fulfill its fiduciary
duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on
banks when it declares that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of Appeals31 requiring
banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship."32 The Court reiterated this fiduciary duty of banks in subsequent cases.33
Although RA No. 8791 took effect only in the year 2000,34 at the time that the BANK transacted with Marcos,
jurisprudence had already imposed on banks the same high standard of diligence required under RA No.
8791.35 This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity
and performance" is deemed written into every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates of
time deposits to Pagsaligan without retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc. v. Court
of Appeals36 we pointed out the depositor’s reasonable expectations from a bank and the bank’s
corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that
the bank will deliver it as and to whomever he directs.
As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his
transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the
amount due him after the BANK had correctly debited his outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the original copies of the
disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original copies of these documents. Clearly,
the BANK failed to treat the account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no reason to forge Promissory Note
No. 20-979-83. The trial court and appellate court did not rule that it was the bank that forged the
promissory note. It was Pagsaligan, the BANK’s branch manager and a close friend of Marcos, whom the
trial court categorically blamed for the fictitious loan agreements. The trial court held that Pagsaligan made
up the loan agreement to cover up his inability to account for the time deposits of Marcos.
Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived Marcos of the
amount due him will not excuse the BANK from its obligation to return to Marcos the correct amount of his
time deposits with interest. The duty to observe "high standards of integrity and performance" imposes on
the BANK that obligation. The BANK cannot also unjustly enrich itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to
Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the interest of the
bank or in their dealings as bank representatives but not for acts outside the scope of their authority.37 Thus,
we held:
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an agent acting within the general scope
of his authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence — the original copies of the loan application and promissory
note. The Best Evidence Rule provides that the court shall not receive any evidence that is merely
substitutionary in its nature, such as photocopies, as long as the original evidence can be had. 39 Absent a
clear showing that the original writing has been lost, destroyed or cannot be produced in court, the
photocopy must be disregarded, being unworthy of any probative value and being an inadmissible piece of
evidence.40
What the BANK presented were merely the "machine copies of the duplicate" of the loan application and
promissory note. No explanation was ever offered by the BANK for its inability to produce the original copies
of the documentary evidence. The BANK also did not comply with the orders of the trial court to submit the
originals.
41
The purpose of the rule requiring the production of the best evidence is the prevention of fraud. If a party
is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its place, the
presumption naturally arises that the better evidence is withheld for fraudulent purposes, which its
production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion on the existence of Promissory
Note No. 20-979-83 considering the BANK’s fiduciary duty to keep efficiently a record of its transactions
with its depositors. Moreover, the circumstances enumerated by the trial court bolster the conclusion that
Promissory Note No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent
proof to establish the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total amount of time
deposits that Marcos placed with the BANK is only P764,897.67 and not P1,429,795.34 as found by the trial
court. The BANK has always argued that Marcos’ time deposits only totalled P764,897.67.43 What the BANK
insists on in this petition is the trial court’s violation of its right to procedural due process and the absence
of any obligation to pay or return anything to Marcos. Marcos, on the other hand, merely prays for the
affirmation of either the trial court or appellate court decision.44 We uphold the finding of the Court of
Appeals as to the amount of the time deposits as such finding is in accord with the evidence on record.
Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos was only
able to present the receipt dated 11 March 1982 and the letter-certification dated 12 March 1982 to prove
the total amount of his time deposits with the BANK. The letter-certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit Certificates with an aggregate
value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100
(P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest payable at maturity on June 10,
1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982
is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11 March 1982.
This is plainly seen from the use of the word "aggregate."
We are not swayed by Marcos’ testimony that the certification is actually for the first time deposit that he
placed on 11 March 1982. The letter-certification speaks of "various Time Deposits Certificates with an
‘aggregate value’ of P764,897.67." If the amount stated in the letter-certification is for a single time deposit
only, and did not include the 11 March 1982 time deposit, then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a businessman. While he already made an error in judgment in
entrusting to Pagsaligan the certificates of time deposits, Marcos should have known the importance of
making the letter-certification reflect the true nature of the transaction. Marcos is bound by the letter-
certification since he was the one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The appellate
court did not offset Marcos’ outstanding debt with the BANK covered by the three trust receipt agreements
even though Marcos admits his obligation under the three trust receipt agreements. The total amount of
the trust receipts is P851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the
BANK. This reduced Marcos’ total debt with the BANK to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the imposition of interest on the loan
covered by the trust receipts and thus no interest is due on this loan. However, the records show that the
three trust receipt agreements contained stipulations for the payment of interest but the parties failed to
fill up the blank spaces on the rate of interest. Put differently, the BANK and Marcos expressly agreed in
writing on the payment of interest46 without, however, specifying the rate of interest. We, therefore, impose
the legal interest of 12% per annum, the legal interest for the forbearance of money,47 on each of the three
trust receipts.
Based on Marcos’ testimony48 and the BANK’s letter of demand,49 the trust receipt agreements became due
in March 1987. The records do not show exactly when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such a case the court shall fix the period of the duration
of the obligation.50 The BANK’s letter of demand is dated 6 March 1989. We hold that the trust receipts
became due on 6 March 1987.
Marcos’ payment of the marginal deposit of P255,375 for the trust receipts resulted in the proportionate
reduction of the three trust receipts. The reduced value of the trust receipts and their respective interest
as of 6 March 1987 are as follows:

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

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

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

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

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

The BANK’s dismal failure to account for Marcos’ money justifies the award of moral58 and exemplary
damages.59 Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch
manager which caused Marcos mental anguish and serious anxiety.60 Moral damages of P100,000 is
reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard to the
accounts of their depositors.61

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

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

Costs against petitioner.

SO ORDERED.
#6 withdrawals to be transmitted by his Talent Manager and Choreographer, Joy Davasol who shall present
G.R. No. 157845 September 20, 2005 pre-signed withdrawal slips bearing his (Pike’s) signature. . .
PHILIPPINE NATIONAL BANK, Petitioners,
vs.
On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiff’s sister executed an affidavit
NORMAN Y. PIKE, Respondent.
. . . . stating therein that they discovered today (April 19, 1993) the lost (sic) of her brother’s passbook issued
by PNB on account of robbery, committed in the residence/office of her brother, promptly reporting the
DECISION matter to the police authorities and her brother cannot report the matter to the Bank because he was
currently in Japan and therefore requesting the Bank to issue a hold-order on her brother’s passbook.
CHICO-NAZARIO, J.:
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was the one who
reported the matter) after one month in Japan, he (complainant) arrived yesterday. . .
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeks
to reverse the Decision1 dated 19 December 2002, and the Resolution2 dated 02 April 2003, both of the
Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision3 rendered by the On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiff’s counsel sent a demand letter to VP
Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor Violeta T. Suquila (then VP and Manager of PNB Buendia Branch) demanding the bank to credit back the
of herein respondent Norman Pike (Pike). amount of US$7,500.00 which were withdrawn on March 31, 1993 and April 5, 1993, because his client’s
signatures were forged and the withdrawal made thereon were unauthorized. . .
The case stemmed from a complaint4 filed by herein respondent Pike for damages5 against Philippine
National Bank (PNB) on 04 January 1994. On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic) Dollar Account Passbook … and
requested the PNB to replace the same and allow him to make withdrawals thereon. He stated that his
passbook was stolen together with other valuables which he discovered only in the early morning of April
Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in 1991,
19, 1993. . .
he opened U.S. Dollar Savings Account No. 0265-704591-0 with herein petitioner PNB Buendia branch for
which he was issued a corresponding passbook. The complaint alleged in substance that before complainant
Pike left for Japan on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB, Buendia Branch
key, in his home; that on 19 April 1993, a few hours after he arrived from Japan, he discovered that some the full contents of said letter hereto quoted as follows:
of his valuables were missing including the passbook; that he immediately reported the incident to the
police which led to the arrest and prosecution of a certain Mr. Joy Manuel Davasol; that complainant Pike
May 6, 1993
also discovered that Davasol made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account
No. 0265-704591-0, both times at the PNB Buendia branch on the following dates:
The Manager
DATE AMOUNT
31 March 1993 $3,500.00 Philippine National Bank
05 April 1993 4,000.00
TOTAL $7,500.00 Buendia Branch

that on several occasions, complainant Pike went to defendant PNB’s Buendia branch and verbally protested Paseo de Roxas cor. Gil Puyat Street
the unauthorized withdrawals and likewise demanded the return of the total withdrawn amount of U.S.
$7,500.00, on the ground that he never authorized anybody to withdraw from his account as the signatures Makati, Metro Manila
appearing on the subject withdrawal slips were clearly forgeries; that defendant PNB refused to credit said
amount back to complainant’s U.S. Dollar Savings Account without justifiable reason, and instead,
Sir:
defendant bank wrote him that it exercised due diligence in the handling of said account; and that on 06
May 1993, complainant Pike wrote defendant PNB simply to request that the hold-account be lifted so that
he may withdraw the remaining balance left in his U.S.$ Savings Account and nothing else. In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-order on my dollar
savings passbook No. 265-704591-0, I am now requesting your good office to lift the same so I can withdraw
the remaining balance of my passbook which was reported lost sometime in March of this year.
On the other hand, defendant PNB alleged, in its Motion to Dismiss6 of 18 April 1994, a counterstatement
of facts. Its factual allegations read:
I also promise not to hold responsible the bank and its officers for the withdrawal made on my dollar savings
passbook on March 19 and April 5, 1993 respectively as a result of the lost (sic) of my passbook.
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, together with a certain Joy Davasol
went to see PNB AVP Mr. Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of $2,000.00. Mr. Pike
also informed AVP Val that he is leaving for abroad (Japan) and made verbal instruction to honor all Sgd. NORMAN Y. PIKE
Depositor
Philippine Passport
No. H918022
Issued at Manila on
Sept. 6, 1990
Place of Issuance
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to withdraw the
remaining balance from his passbook … .
A letter dated May 18, 1993 was sent to Plaintiff’s counsel … by PNB … stating that the Bank regrets that it
cannot accede to such request inasmuch as the Bank exercised due diligence of a good father to his family
in the handling of transactions covering the deposit account of Mr. Pike … .
On July 2, 1993, Plaintiff’s counsel sent a letter to PNB Vice Pres. Suquila denying that his client made any
such promise not to hold responsible the bank and its officers for the withdrawal made … .
A letter dated July 29, 1993 … was sent to Plaintiff’s counsel by VP Suquila stating that plaintiff’s withdrawal
of the remaining balance of his account with the Bank effectively estops him from claiming on the alleged
unauthorized withdrawals.
The trial court, in its decision dated 10 January 1997, made the following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not impressed with the
defense put up by the bank. Its contention that the withdrawals were authorized by the plaintiff because
there was an arrangement between the bank represented by its Asst. Vice President Lorenzo Bal, Jr. and
the depositor Norman Y. Pike to the effect that pre-signed withdrawal slips, that is, withdrawal slip signed
by the depositor in the presence of Mr. Bal whereby it would be made to appear that it was the depositor
himself who presented the same to the bank despite the fact that it was another person who presented the
same should be honored by the bank cannot be sanctioned by the court. Firstly, the court is not satisfied
that there was indeed such an arrangement. . . It is Mr. Bal’s contention that such an arrangement although
not ordinarily entered into is still a legal procedure of the bank and is resorted to accommodate the
depositors’ specially honored and valued depositor at that.
...
The court compared the signatures in the questioned withdrawal slips with the known signatures of the
depositor and is convinced that the signatures in the unauthorized withdrawal slips do not correspond to
the true signatures of the depositor.
From the evidence that it received, the court is convinced that the bank was negligent in the performance
of its duties such that unauthorized withdrawals were made in the deposit of plaintiff Norman Y. Pike.7
The dispositive portion of the trial court’s decision reads:
WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff and against
the defendant and ordering the defendant to pay the following:
1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is paid;
2. P25,000.00 for and as attorney’s fees;
3. P50,000.00 as moral damages and P50,000.00 as exemplary damages; and
4. Plus the costs of suit.8
Defendant PNB’s motion for reconsideration was subsequently denied by the court a quo.9
On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002, affirming the findings
of the RTC that indeed defendant-appellant PNB was negligent in exercising the diligence required of a
business imbued with public interest such as that of the banking industry, however, it modified the rate of
interest and award for damages, to wit:
WHEREFORE, premises considered, the Decision dated January 10, 1997 issued by the Regional Trial Court
of Manila, Branch 7, in Civil Case No. 94-68821, is hereby AFFIRMED with MODIFICATION, as follows:
1. Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee the amount of
$7,500.00 plus interest of 6% per annum to be computed from the date of the filing of the complaint which
interest rate shall become 12% per annum from the time the judgment in this case becomes final and
executory until its satisfaction;
2. The award for moral damages is reduced to P20,000.00; and
3. The award for exemplary damages is likewise reduced to P20,000.00.
Costs against appellant.10
The appellate court held that:
Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to make
withdrawals. Appellee even left pre-signed withdrawal slips before he went to Japan. However, appellant
could have told appellee to authorize the withdrawal by a representative by indicating the same at the space
provided at the back portion of the withdrawal slip. This operational flaw was observed by the trial court,
when it ruled:
The court cannot also understand why the bank did not require the correct, proper and the usual procedure
of requiring a depositor who is withdrawing the money through a representative to fill up the back portion
of the withdrawal slips, which form was issued by the bank itself.
A perusal of the records discloses that appellee had previously authorized withdrawals by a representative.
However, these withdrawals were properly accompanied by a "withdrawal by a representative" form aside
from a handwritten request by appellee to allow such withdrawals by his representative, or a typewritten
letter-request for withdrawal by a representative. Certainly, appellant lacked the due care and caution
required of managers and employees of a firm engaged in so sensitive and demanding business as banking.
…
In its desire to be exonerated from liability, appellant advances the argument that, granting negligence on
its part, appellee condoned this negligence as shown in his letter dated May 6, 1993, wherein appellee
purportedly undertook, not to hold the bank and its officers responsible for the unauthorized withdrawals
from his account.
We do not agree. It should be emphasized that while the appellee admitted signing the letter dated May 6,
1993, he, however, denied having undertook (sic) to exonerate the appellant from liability for the
unauthorized withdrawals. Appellee questioned the second paragraph of the said letter as being
superimposed so that his signature overlapped the text of the second paragraph of said letter. A waiver of
right, in order to be valid, should be in a language that clearly manifests his desire to do so. … In the instant
case, appellee’s filing of the instant action is inconsistent with appellant’s contention that he had waived
his right to question appellant’s negligent act of allowing the unauthorized withdrawals from his account.11
Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02 April 2003, the Court
of Appeals denied said motion.
Hence, this petition.
Petitioner PNB now seeks the review of the aforequoted decision and resolution of the Court of Appeals
predicated on the following issues:
I.
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN THIS CASE;
II.
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY PROVEN THAT THE SIGNATURES APPEARING ON
THE TWO (2) QUESTIONED PRE-SIGNED WITHDRAWAL SLIP FORMS ARE ALL FORGERIES IN ACCORDANCE
WITH SECTION 22, RULE 132 OF THE REVISED RULES OF COURT; and
III.
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST A PARTY IN GOOD
FAITH.
Petitioner PNB contends that due to the verbal instructions12 of respondent Pike, a valued depositor, it
allowed the withdrawal by another person. Plus, the fact that said respondent withdrew the remaining
balance in his US Savings Account and executed a waiver releasing petitioner PNB from any liability due to
the loss of the funds should rightly negate a finding of negligence on its part. Accordingly, petitioner PNB
claims that the appellate court, as well as the trial court erred in holding that the withdrawals in question
were unauthorized as the signatures appearing on the subject withdrawal slips were forgeries. Petitioner
PNB, therefore, argues that it should not be held liable for the amount withdrawn from the account of
respondent Pike in the sum of $7,500.00, as well as for moral and exemplary damages.
A priori, it is quite evident that the petition is anchored on a plea to review or re-examine the factual
conclusions reached by the trial court and affirmed by the Court of Appeals, and for this Court to hold
otherwise. Whether:
1) respondent Pike’s signatures appearing on the pertinent withdrawal slips used by Joy Manuel Davasol13 to
withdraw the amount of $7,500.00, were forgeries, as found by the trial court and affirmed by the Court of
Appeals, or were authentic as claimed by petitioner bank; and
2) respondent Pike in fact executed a waiver absolving petitioner bank from any legal responsibility due to
the unauthorized withdrawals, as maintained by petitioner bank, or the paragraph containing said waiver
was intercalated by some other person, thus, amounting no waiver at all, as held by the courts a quo.
are questions of fact and not of law. Inexorably, these issues call for an inquiry into the facts and evidence
on record. This, as we have so often held, we cannot do.
Elementary is the rule that this Court is not the appropriate venue to consider anew the factual issues as it
is not a trier of facts, and, it generally does not weigh anew the evidence already passed upon by the Court
of Appeals.14When this Court is tasked to go over once more the evidence presented by both parties, and
analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in
according superior credit to this or that piece of evidence of one party or the other, the Court cannot and
will not do the same.15 Such task is foreclosed by the rule enunciated under Section 1 of Rule 4516 of the
Rules of Court:
SECTION 1. Filing of petition with Supreme Court. - . . . The petition shall raise only questions of law17 which
must be distinctly set forth.
We have oft "ruled that factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by this Court – and they carry even more weight when the Court of Appeals affirms the factual
findings of the trial court,"18 and in the absence of any showing that the findings complained of are totally
devoid of support in the evidence on record, or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand. The courts a quo are in a much better position to evaluate
properly the evidence.
Finding no other alternative but to affirm their finding that petitioner PNB negligently allowed the
unauthorized withdrawals subject of the case at bar, the instant petition for review must necessarily fail.
At this juncture, it bears emphasizing that negligence of banking institutions should never be countenanced.
The negligence here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their
treatment of respondent Pike’s US Dollar Savings Account that resulted in the unauthorized withdrawal of
$7,500.00. Nevertheless, though its employees may be the ones negligent, a bank’s liability as an obligor is
not merely vicarious but primary, as banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees,19 and having such obligation, this Court cannot ignore the
circumstances surrounding the case at bar – how the employees of petitioner PNB turned their heads, nay,
closed their eyes to the suspicious circumstances enfolding the two withdrawals subject of the case at bar.
It may even be said that they went out of their ways to disregard standard operating procedures formulated
to ensure the security of each and every account that they are handling. Petitioner PNB does not deny that
the withdrawal slips used were in breach of standard operating procedures of banks in the ordinary and
usual course of banking operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice
President of Petitioner PNB’s Buendia branch, on cross-examination20 he stated thus:
Q: Mr. Witness, when the original of Exhibit "B"21 was presented to you for approval, how many signatures
of depositor appears thereon?
A: Two (2) signatures appears (sic) on the face of the withdrawal slip.
Q: When it (sic) was (sic) presented to you immediately?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir. Because it was pre signed withdrawal slip.
Q: What does the signature appear, the word recipient means?
A: Received.
Q: So, what you are saying is that, the depositor here signed this even before receiving the amount?
A: Because before the withdrawal was made, Mr. Pike, the depositor came to the bank when he withdrew
the $2,000.00 and instructed me or requested us even the supervisor to honor all withdrawal slip.
Q: And this is a regular procedure?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir.
Q: Do you have written manual on this particular procedure, Mr. Witness?
A: Of course, that includes in the Rules and regulations of the bank.
Q: Are you are (sic) are very sure of that?
A: And banking is a fast transaction between the depositor and the bank.
Q: And then, is the use of the back portion of the withdrawal slip … with a heading of authorization?
A: Normally, a depositor and the bank agrees on certain terms that if you allow withdrawal from his account,
his or her account, its enough that the signature of the depositor appears on both spaces in the front side of
the withdrawal slip. Even if you do not have the back portion of the withdrawal slip.
Q: You are very sure of that?
A: Yes, sir.
Q: And that has been done with the other withdrawal slip of Norman Pike as stated or as shown in the
Statement of Account?
A: Yes, sir.
Q: That withdrawal made by representative?
A: Yes, sir.
From the foregoing, petitioner PNB’s witness was utterly remiss in protecting the bank’s client, as well as
the bank itself, when he allowed an account holder to make it appear as if he was the one actually
withdrawing from an account and actually receiving the withdrawn amount. Ordinarily, banks allow
withdrawal by someone who is not the account holder so long as the account holder authorizes his
representative to withdraw and receive from his account by signing on the space provided particularly for
such transactions, usually found at the back of withdrawal slips. As fittingly found by the courts a quo, if
indeed, respondent Pike signed the withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNB’s
AVP at its Buendia branch, why did he not call respondent Pike’s attention and refer him to the space
provided for authorizing representatives to withdraw from and receive the proceeds of such withdrawal?
Or, at the very least, sign or initial the same so that he could identify the pre-signed withdrawal slips made
by Mr. Pike?
Q: You are also saying that on March 15, 1993, you likewise met Joy Manuel Dabasol?
A: Yes, sir.
Q: And you (sic) also saying on March 15, 1993, you also met Norman Pike, the depositor,
A: Yes, sir.
Q: And when did you first met (sic) Norman Pike?
A: March 15 when he withdrew $2,000.00.
Q: That was the first time?
A: First time, yes.
Q: And Mr. Norman Pike was already transacting with you long before that day, is this correct? For how long
was he transacting with you?
A: That was my first time.
Q: That was the first time. What I mean is, that he was transacting with the PNB, Buendia Branch long before
you met him?
A: Maybe. A: Yes, sir.

… Q: And can you describe Joy Manuel Dabasol?

Q: And the withdrawal made on April 5, 1993 which you approved, you did not look at Exhibit "C", the A: I cannot recall his face but then he is a Talent manager, because there are so many depositors in the
Savings Signature Card Individual? bank.

A: We do not look at that, that is kept in the vault. ...

Q: Yes or no? Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you verbal authority to honor withdrawal
by Joy Manuel Dabasol?
A: No, sir.
A: Yes, sir.
…
Q: Why did you not require then that Mr. Pike instead sign the authorization portion and that the name of
Joy Manuel Dabasol appear thereon with his signature?
Q: And Mr. witness, Exhibit "C-1"22 which is being kept at your vault, also contains a picture?

...
A: Yes, sir.

A: I required Mr. Norman Pike to sign the withdrawal slip on the face of the withdrawal slip.
Q: And the picture of the depositor?

Q: But not the authorization portion of the said withdrawal slip?

A: Yes, sir.

...
Q: And are you familiar with the identity of the depositor Norman Pike?

A: No, because that is sufficient already.

A: What particular identity?

Q: And is this your normal procedure, Mr. witness? This particular procedure that you conducted?
Q: His appearance?

A: I don’t think so.

A: He is gay looking fellow.

Q: Mr. witness, when – on April 5, 1993, when Joy Dabasol came to the office and according to you, you do
COURT: Answer. You are familiar with his physical appearance?
not remember him, is that correct?

A: Not so much. Because there are so much depositor (sic) in the bank.23 [Emphasis ours.]
A: I cannot recall his face.

By his own testimony, the witness negated the very reason for the bank’s bizarre "accommodation" of the
...
alleged verbal request of respondent Pike – that he was a "valued client." From the aforequoted, it appears
that the witness, Lorenzo Bal, was not even reasonably familiar with respondent Pike, yet, he was ready,
willing and able to accommodate the verbal request of said depositor. Worse still, the witness still approved Q: And he just showed you a withdrawal slip, is this correct?
the withdrawal transaction without asking for any proof of identification for the reason that: 1) Davasol was
in possession of a pre-signed withdrawal slip; and 2) the witness "recognized" the signature of respondent
A: Yes, on April 5.
Pike – even after admitting that he did not bother to counter check the signature on the slip with the
specimen signature card of respondent Pike and that he met respondent Pike just once so that he cannot
seem to recall what the latter looks like. The ensuing quoted testimony of the same witness will justify a Q: Did you require him to produce any Identification Card, yes or no?
finding of negligence amounting to bad faith, to wit:
A: No.
Q: And you also met Joy Manuel Dabasol on March 15?
Q: And how did you know then that it was Joy Dabasol who was making the withdrawal on April 5?
A: Because the presigned withdrawal slip was presented to me.
Q: Is that all your basis?
A: Yes, sir. Because his signature appears.
...
Q: Mr. witness, this alleged authority given to you by Norman Pike to honor withdrawal by Joy Manuel
Dabasol, was that in writing?
A: It was verbally requested.
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal authorities?
A: Yes.
Q: Is that Standard Operating Procedure?
A: It is not SPO, but when you knew the client, Your Honor, you have to honor also the trust and confidence.
Let us say if you…
Q: According to you, you met Norman Pike only on March 15, 1993 and immediately you allowed him to
withdraw through pre-signed withdrawal slip?
A: Yes, Your Honor. Because a depositor requested you to honor his signature, you have to do that or else
will…and besides the request is for purpose of expediency, Your Honor. Because most often than that, he is
out of the country, in Japan. And his Talent Manager is the one managing the recruiting agency. The money
will be used in the operating expenses.
...
Q: You did not even bother to look at the Savings Signature Card Individual, yes or no?
A: No, sir.24 [Emphases supplied.]
Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to
withdrawals by representatives should have already put petitioner PNB’s employees on guard. Rather than
readily validating and permitting said withdrawals, they should have proceeded more cautiously. Clearly,
petitioner bank’s employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless in
his treatment of respondent Pike’s savings account.
From the foregoing, the evidence clearly showed that the petitioner bank did not exercise the degree of
diligence that it ought to have exercised in dealing with their clients.
With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than that
of a good father of a family considering that the business of banking is imbued with public interest due to
the nature of their functions. The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking.
Section 2 of Republic Act No. 8791,25 which took effect on 13 June 2000, makes a categorical declaration
that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance."26
Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a statutory
affirmation of Supreme Court decisions already in esse at the time of such withdrawals. We elucidated in
the 1990 case of Simex International, Inc. v. Court of Appeals,27 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."28
Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals,29 we clarified that
said fiduciary relationship means that the bank’s obligation to observe "highest 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 New Civil Code states that the degree of diligence required of an obligor30 is
that prescribed by law or contract, and absent such stipulation then the diligence of a family. In every case,
the depositor expects the bank to treat his account with the utmost fidelity, whether such accounts consist
only of a few hundred pesos or of millions of pesos.31
Anent the issue of the propriety of the award of damages in this case, petitioner PNB asseverates that there
was no evidence to prove that respondent Pike "suffered anguish, embarrassment and mental
sufferings"32 due to its acts in allowing the alleged unauthorized withdrawals. And, having relied on the
instructions of a valued depositor, petitioner PNB likewise avers that its actions were made in good faith,
for this reason, there is no factual basis for said award.
Petitioner PNB’s assertions fail to impress us.
The award of moral and exemplary damages is left to the sound discretion of the court, and if such discretion
is well exercised, as in this case, it will not be disturbed on appeal.33 In the case of Philippine Telegraph &
Telephone Corporation v. Court of Appeals,34 we had the occasion to reiterate the conditions to be met in
order that moral damages may be recovered. In said case we stated:
An award of moral damages would require, firstly, evidence of besmirched reputation, or physical, mental
or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of the
damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances
expressed or envisioned by Articles 221935 and 222036 of the Civil Code.
Specifically, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith,37 or is found guilty of gross negligence amounting to bad
faith,38 or in wanton disregard of his contractual obligations.39 Verily, the breach must be wanton, reckless,
malicious, or in bad faith, oppressive or abusive.40
There is no reason to disturb the trial court’s finding of petitioner bank’s employees’ negligence in their
treatment of respondent Pike’s account. In the case on hand, the Court of Appeals sustained, and rightly so,
that an award of moral damages is warranted. For, as found by said appellate court, citing the case
of Prudential Bank v. Court of Appeals,41 "the bank’s negligence is a result of lack of due care and caution
required of managers and employees of a firm engaged in so sensitive and demanding business, as banking,
hence, the award of ₱20,000.00 as moral damages, is proper.

The award of exemplary damages is also proper as a warning to petitioner PNB and all concerned not to
recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors.

Finally, the aforestated grant of exemplary damages entitles respondent Pike the award of attorney's fees
in the amount of P20,000.00 and the award of P10,000.00 for litigation expenses.42

WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 December 2002, and the
Resolution dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with
modification the Decision rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January
1997, in Civil Case No. 94-68821, are hereby AFFIRMED with the modification that petitioner PNB is directed
to pay respondent Pike additional 1) ₱20,000.00 representing attorney’s fees; and 2) ₱10,000.00
representing expenses of litigation. Costs against petitioner PNB.

SO ORDERED.
#7
G.R. No. 170598 October 9, 2013
FAR EAST BANK TRUST COMPANY, Petitioner,
vs.
ROBERTO MAR CHANTE, a.k.a. ROBERT MAR G. CHAN, Respondents.
DECISION
BERSAMIN, J.:
In this dispute between a. bank and its depositor over liability for several supposedly fraudulent withdrawals
from the latter s account through an automated tellering machine (ATM), we hereby resolve the issue of
liability against the bank because of the intervention of a system bug that facilitated the purported
withdrawals.
The Case
Under review on certiorari is the decision promulgated on August l, 2005,1 whereby the Court of Appeals
(CA) reversed the judgment the Regional Trial Court, Branch 51, in Manila (RTC) rendered in favor of the
petitioner on May 14, 1998 in Civil Case No. 92-61706.2 Thereby, the CA relieved the depositor of any
liability for the supposedly fraudulent withdrawals.
Antecedents
Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current account depositor of petitioner
Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch (Current Account No. 5012-00340-3). FEBTC issued
to him Far East Card No. 05-01120-5-0 with July 1993 as the expiry date. The card, known as a "Do-It-All"
card to handle credit card and ATM transactions, was tagged in his current account. As a security feature, a
personal identification number (PIN), known only to Chan as the depositor, was required in order to gain
access to the account. Upon the card’s issuance, FEBTC required him as the depositor to key in the six-digit
PIN. Thus, with the use of his card and the PIN, he could then deposit and withdraw funds from his current
account from any FEBTC ATM facility, including the MEGALINK facilities of other member banks that
included the Philippine National Bank (PNB).
Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East Bank & Trust Co. (FEBTC)
on July 1, 1992 in the RTC,3 to recover from Chan the principal sum of ₱770,488.30 representing the unpaid
balance of the amount fraudulently withdrawn from Chan’s Current Account No. 5012-00340-3 with the
use of Far East Card No. 05-01120-5-0.
FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992, Chan had used Far East
Card No. 05-01120-5-0 to withdraw funds totaling ₱967,000.00 from the PNB-MEGALINK ATM facility at the
Manila Pavilion Hotel in Manila; that the withdrawals were done in a series of 242 transactions with the use
of the same machine, at ₱4,000.00/withdrawal, except for transaction No. 108 at 3:51 a.m. of May 5, 1992,
when the machine dispensed only ₱3,000.00; that MEGALINK’S journal tapes showed that Far East Card No.
05-01120-5-0 had been used in all the 242 transactions; and that the transactions were processed and
recorded by the respective computer systems of PNB and MEGALINK despite the following circumstances,
namely: (a) the offline status of the branch of account (FEBTC Ongpin Branch); (b) Chan’s account balance
being only ₱198,511.70 at the time, as shown in the bank statement; (c) the maximum withdrawal limit of
the ATM facility being ₱50,000.00/day; and (d) his withdrawal transactions not being reflected in his
account, and no debits or deductions from his current account with the FEBTC Ongpin Branch being
recorded.
FEBTC added that at the time of the ATM withdrawal transactions, there was an error in its computer system
known as "system bug" whose nature had allowed Chan to successfully withdraw funds in excess of his
current credit balance of ₱198,511.70; and that Chan had taken advantage of the system bug to do the
withdrawal transactions.
On his part, Chan denied liability. Although admitting his physical possession of Far East Card No. 05-01120-
5-0 on May 4 and May 5, 1992, he denied making the ATM withdrawals totaling ₱967,000.00, and instead
insisted that he had been actually home at the time of the withdrawals. He alluded to a possible "inside job"
as the cause of the supposed withdrawals, citing a newspaper report to the effect that an employee of
FEBTC’s had admitted having debited accounts of its depositors by using his knowledge of computers as
well as information available to him. Chan claimed that it would be physically impossible for any human
being like him to stand long hours in front of the ATM facility just to withdraw funds. He contested the
debiting of his account, stating that the debiting had affected his business and had caused him to suffer
great humiliation after the dishonor of his sufficiently-funded checks by FEBTC.
The records show that FEBTC discovered the system bug only after its routine reconciliation of the ATM-
MEGALINK transactions on May 7, 1992; that it immediately adopted remedial and corrective measures to
protect its interest in order to avoid incurring further damage as well as to prevent a recurrence of the
incident; that one of the measures it adopted pursuant to its ATM Service Agreement with Chan was to
program its computer system to repossess his ATM card; that his ATM card was repossessed at the Ermita
Branch of FEBTC when he again attempted to withdraw at the ATM facility there; that the ATM facility
retained his ATM card until its recovery by the bank; and that FEBTC conducted an in-depth investigation
and a time-and-motion study of the withdrawals in question.
On May 14, 1992, FEBTC debited his current account in the amount of ₱192,517.20 pursuant to Chan’s ATM
Service Agreement. It debited the further sum of ₱3,000.00 on May 18, 1992, leaving the unrecovered
portion of the funds allegedly withdrawn by him at ₱770,488.30. Thus, on May 14 and May 18, 1992, FEBTC
sent to Chan letters demanding the reimbursement of the unrecovered balance of ₱770,488.30, but he
turned a deaf ear to the demands, impelling it to bring this case on July 1, 1992.4
Ruling of the RTC
As reflected in the pre-trial order of October 19, 1992, the issues to be resolved were, firstly, whether or
not Chan had himself withdrawn the total sum of ₱967,000.00 with the use of his Far East Card No. 05-
01120-5-0 at the PNB-MEGALINK ATM facility; and, secondly, if the answer to the first issue was that he did,
whether or not he was liable to reimburse to FEBTC the amount of ₱770,488.30 as actual damages, plus
interest.5
On May 14, 1998, the RTC rendered judgment in favor of FEBTC, pertinently holding and ruling as follows:6
In the instant case, what happened was that the defendant who was at the U.N. Branch of the PNB used his
card. He entered his PIN to have access to a withdrawal transaction from his account in Far East Bank,
Ongpin Branch. However, after recognizing the card and went to the path of his account it could not get a
signal to proceed with the transaction so it proceeded to the other path who gave the signal to go on and
dispense money. But there was a computer error as it did not only dispense the money limit for the day
buty it continued to dispense a lot more until it reached the amount of ₱967,000.00 which took the
defendant till the hours of the morning to obtain. But defendant says he did not use his card. He alleges
that it could be an inside job just like what happened to the said bank which was published in the newspaper
wherein the bank employee admitted having done the theft through his knowledge of the computer. Could
this be true?
The Court opines that it is not far-fetched. However why did this Court state that plaintiff’s cause of action 1. the amount of ₱770,488.30 as actual damages representing the unrecovered balance of the
will survive? The action of the defendant after the incident gave him away. Merely two days after the heavy amounts withdrawn by defendant;
withdrawal, the defendant returned not at the exact scene of the incident but at a nearby branch which is
also in Ermita and tried again to withdraw. But at this time the bank already knew what happened so it
2. interest of 24% per annum on the actual damages from July 1, 1992, the date of the filing of
blocked the card and retained it being a hot card. The defendant was not successful this time so what he
the complaint until fully paid;
did was to issue a check almost for the whole amount of his balance in his account leaving only a minimal
amount. This incident puzzles the Court. Maybe the defendant was hoping that the machine nearby may
likewise dispense so much amount without being detected. He will not definitely go back to the U.N. branch 3. the amount of ₱100,000.00 as exemplary damages;
as he may think that it is being watched and so he went to a nearby branch. Unfortunately, luck was not
with him this time and his card was taken by the bank. The fact that he hastily withdrew the balance of his 4. the sum of ₱30,000.00 as and for attorney’s fees; and
account after his card was retained by the bank only showed his knowledge that the bank may debit his
account. It also showed his intent to do something further other than first inquire why his card was
considered a hot card if he is really innocent. When he went to the Ermita branch to withdraw from the 5. the costs of the suit. Defendant’s counterclaim is hereby dismissed for lack of merit.
ATM booth he was intending to withdraw not more than ₱50,000.00 as it is the bank’s limit for the day and
if ever he needed a bigger amount than ₱50,000.00 immediately he should have gone to the branch for an SO ORDERED.
over the counter transaction but he did not do so and instead issued a check for ₱190,000.00 dated May 7,
1992 and another check for ₱5,000.00 dated May 13, 1992. To the mind of the Court, to take advantage of
a computer error, to gain sudden and undeserved amount of money should be condemned in the strongest Ruling of the CA
terms.
Chan appealed,7 assigning the following errors to the RTC, to wit:
There are no available precedents in this case regarding computer errors, but the Court feels that defendant
should be held liable for the mistaken amount he was able to get from the machine based on the following 1. THE TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE FOR THE ALLEGED
provisions of the law. WITHDRAWAL OF THE AMOUNT OF ₱967,000.00 WITH INTEREST AT THE RATE OF 24% PER
ANNUM BASED MERELY ON CONJECTURES AND SUSPICIONS NOT ESTABLISHED BY SOLID
Articles 19, 21, 22 and 23 of the Civil Code x x x. EVIDENCE;

xxxx 2. THE TRIAL COURT ERRED IN AWARDING IN FAVOR OF APPELLEE EXEMPLARY DAMAGES IN THE
AMOUNT OF ₱100,000.00 AND ATTORNEY’S FEES IN THE AMOUNT OF ₱30,000.00;

There is likewise one point that the Court would like to discuss about the allegation of the defendant that it
was impossible for him to withdraw the money in such long period and almost minute after minute. This
Court believes that money is the least of all, a person may give priority in life. There are many who would
sacrifice a lot just to have lots of it, so it would not be impossible for one to take time, stand for several
hours and just enter some items in the computer if the return would be something like a million or close to
a million. In fact, the effort exerted was just peanuts compared to other legitimate ways of earning a living
as the only capital or means used to obtain it was the defendant’s loss of sleep and the time spent in
withdrawing the same. Moreover, though the cause of action in this case may be the erroneous
dispensation of money due to computer bug which is not of defendant’s wrong doing, the Court sees that
what was wrong was the failure to return the amount in excess of what was legally his. There is such a thing
as JUSTICE. Justice means rendering to others their due. A person is just when he is careful about respecting
the rights of others, and who knows too, how to claim what he rightfully deserves as a consequence of
fulfilling his duties.
From the foregoing, the conclusion is manifest that plaintiff is within its right in initiating the instant suit, as
defendant’s refusal to pay the claim constitutes the cause of action for sum of money.
xxxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Far East Bank and Trust Company and
against the defendant Robert Mar Chante a.k.a. Robert Mar G. Chan ordering the latter to pay the former
the following:
3. THE TRIAL COURT ERRED IN NOT ORDERING THE RESTITUTION OF THE AMOUNT OF
₱196,521.30 ILLEGALLY DEBITED BY APPELLEE FROM APPELLANT’S ACCOUNT.
On August 1, 2005, the CA promulgated the assailed decision, reversing the RTC’s judgment, to wit:
x x x. The issues really before us are issues of contract application and issues of fact that would require an
examination and appreciation of the evidence presented. The first order therefore in our review of the trial
court’s decision is to take stock of the established and undisputed facts, and of the evidence the parties
have presented. We say this at the outset as we believe that it was in this respect that the lower court failed
in its consideration and appreciation of the case.
xxxx
An evidentiary dilemma we face in this case is the fact that there is no direct evidence on the issue of who
made the actual withdrawals. Chan correctly claims that the bank failed to present any witness testifying
that he (Chan) made the actual withdrawals. At the same time, Chan can only rely on his own
uncorroborated testimony that he was at home on the night that withdrawals were made. We recognize
that the bank can claim that no other evidence of actual withdrawal is necessary because the PIN unique to
Chan is already evidence that only Chan or his authorized representative – and none other – could have
accessed his account. But at the same time, we cannot close our eyes to the fact that computers and the
ATM system is not perfect as shown by an incident cited by Chan involving the FEBTC itself. Aside from the
vulnerability to inside staff members, we take judicial notice that no less than our own Central Bank has
publicly warned banks about other nefarious schemes involving ATM machines. In a March 7, 2003 letter,
the Central Bank stated:
March 7, 2003
BSP CIRCULAR LETTER
TO : All Banks
SUBJECT : Technology Fraud on ATM Systems
Please be advised that there were incidents in other countries regarding technology fraud in ATM systems
perpetrated by unscrupulous individuals and/ or syndicates.
These acts are carried out by:
1. A specialized scanner attached to the ATM card slot, and;
2. A pinhole camera
xxxx
In light of the absence of conclusive direct evidence of actual withdrawal that we can rely upon, we have to
depend on evidence "other than direct" to reach verdict in this case.
xxxx
WHEREFORE , premises considered, we hereby GRANT the appeal and accordingly REVERSE and SET ASIDE
the Decision dated May 14, 1998 of the Regional Trial Court of Manila, Branch 51, in Civil Case No. 92-61706.
We accordingly ORDER plaintiff-appellee Far East Bank and Trust Company (FEBTC) to return to Chan the
amount of Php196,571.30 plus 12% interest per annum computed from August 7, 1992 – the time Chan
filed his counterclaim – until the obligation is satisfied. Costs against the plaintiff-appellee FEBTC.
SO ORDERED.8
FEBTC moved for reconsideration, but the CA denied its motion on November 24, 2005.9
Issues
Hence, FEBTC has appealed, urging the reversal of the CA’s adverse decision, and praying that Chan be held
liable for the withdrawals made from his account on May 4 and May 5, 1992; and that it should not be held
liable to return to Chan the sum of ₱196,571.30 debited from his account.
Ruling
The appeal lacks merit.
FEBTC would want us to hold that Chan had authored the May 4 and May 5, 1992 ATM withdrawals based
on the following attendant factors, namely: (a) ATM transactions were processed and identified by the PIN,
among others; (b) the PIN was exclusive and known only to the account holder; (c) the ATM was tagged in
the cardholder’s account where the ATM transactions were debited or credited; (d) the account number
tagged in the ATM card identified the cardholder; (e) the ATM withdrawals were documented transactions;
and (f) the transactions were strictly monitored and recorded not only by FEBTC as the bank of account but
also by the ATM machine and MEGALINK. In other words, the ATM transactions in question would not be
processed unless the PIN, which was known only to Chan as the cardholder, had been correctly entered, an
indication both that it was his ATM card that had been used, and that all the transactions had been
processed successfully by the PNB-MEGALINK ATM facility at the Manila Pavilion Hotel with the use of the
correct PIN.
We disagree with FEBTC.
Although there was no question that Chan had the physical possession of Far East Card No. 05-01120-5-0
at the time of the withdrawals, the exclusive possession of the card alone did not suffice to preponderantly
establish that he had himself made the withdrawals, or that he had caused the withdrawals to be made. In
his answer, he denied using the card to withdraw funds from his account on the dates in question, and
averred that the withdrawals had been an "inside job." His denial effectively traversed FEBTC’s claim of his
direct and personal liability for the withdrawals, that it would lose the case unless it competently and
sufficiently established that he had personally made the withdrawals himself, or that he had caused the
withdrawals. In other words, it carried the burden of proof.
Burden of proof is a term that refers to two separate and quite different concepts, namely: (a) the risk of
non-persuasion, or the burden of persuasion, or simply persuasion burden; and (b) the duty of producing
evidence, or the burden of going forward with the evidence, or simply the production burden or the burden
of evidence.10 In its first concept, it is the duty to establish the truth of a given proposition or issue by such
a quantum of evidence as the law demands in the case at which the issue arises.11 In its other concept, it is
the duty of producing evidence at the beginning or at any subsequent stage of trial in order to make or meet
a prima facie case. Generally speaking, burden of proof in its second concept passes from party to party as
the case progresses, while in its first concept it rests throughout upon the party asserting the affirmative of
the issue.12
The party who alleges an affirmative fact has the burden of proving it because mere allegation of the fact is
not evidence of it.13 Verily, the party who asserts, not he who denies, must prove.14
In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on either
side.15This is because our system frees the trier of facts from the responsibility of investigating and
presenting the facts and arguments, placing that responsibility entirely upon the respective parties.16 The
burden of proof, which may either be on the plaintiff or the defendant, is on the plaintiff if the defendant
denies the factual allegations of the complaint in the manner required by the Rules of Court; or on the
defendant if he admits expressly or impliedly the essential allegations but raises an affirmative defense or
defenses, that, if proved, would exculpate him from liability.17
Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil actions, and delineates how
preponderance of evidence is determined, viz :
Section 1. In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or superior weight of evidence on the issues involved
lies, the court may consider all the facts and circumstances of the case, the witnesses’ manner of testifying,
their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature
of the facts to which they testify, the probability or improbability of their testimony, their interest or want
of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the preponderance is not necessarily with the
greater number. (Emphasis supplied)
As the rule indicates, preponderant evidence refers to evidence that is of greater weight, or more
convincing, than the evidence offered in opposition to it.18 It is proof that leads the trier of facts to find that
the existence of the contested fact is more probable than its nonexistence.19
Being the plaintiff, FEBTC must rely on the strength of its own evidence instead of upon the weakness of
Chan’s evidence. Its burden of proof thus required it to preponderantly demonstrate that his ATM card had
been used to make the withdrawals, and that he had used the ATM card and PIN by himself or by another
person to make the fraudulent withdrawals. Otherwise, it could not recover from him any funds supposedly
improperly withdrawn from the ATM account. We remind that as a banking institution, FEBTC had the duty
and responsibility to ensure the safety of the funds it held in trust for its depositors. It could not avoid the
duty or evade the responsibility because it alone should bear the price for the fraud resulting from the
system bug on account of its exclusive control of its computer system.
Did FEBTC discharge its burden of proof?
The CA ruled that FEBTC did not because –
After a review of the records of this case, we find the totality of evidence submitted by FEBTC insufficient
to establish the crucial facts that would justify a judgment in its favor.
To our mind, the fact that Chan’s account number and ATM card number were the ones used for the
withdrawals, by itself, is not sufficient to support the conclusion that he should be deemed to have made
the withdrawals.
FEBTC offers in this regard the PNB ATM’s journal tapes to prove the withdrawals and their details – the
time of the transactions; the account number used; the ATM card number; and the amount withdrawn –
and at the same time declared that these tapes are authentic and genuine. These tapes, however, are not
as reliable as FEBTC represented them to be as they are not even internally consistent. A disturbing internal
discrepancy we note relates to the amounts reflected as "ledger balance" and "available balance". We find
it strange that for every 4,000.00 pesos allegedly withdrawn by Chan, the available balance increased rather
than diminished. Worse, the amount of available balance as reflected in the tapes was way above the actual
available balance of less than Php200,000.00 that Chan’s current account had at that time. These
discrepancies must inevitably reflect on the integrity of the journal tapes; the proven inconsistencies in
some aspects of these tapes leave the other aspects suspect and uncertain.
But more than this, we are not convinced that the tapes lead us to the inevitable conclusion that Chan’s
card, rather than a replacement card containing Chan’s PIN and card number or some other equivalent
scheme, was used. To our mind, we cannot discount this possibility given the available technology making
computer fraud a possibility, the cited instances of computer security breaches, the admitted system bug,
and – most notably – the fact that the withdrawals were made under circumstances that took advantage of
the system bug. System errors of this kind, when taken advantage of to the extent that had happened in
this case, are planned for. Indeed, prior preparation must take place to avoid suspicion and attention where
the withdrawal was made for seven (7) long hours in a place frequented by hundreds of guests, over 242
transactions where the physical volume of the money withdrawn was not insignificant. To say that this was
done by the owner of the account based solely on the records of the transactions, is a convenient but not a
convincing explanation.20
In our view, the CA’s ruling was correct.
To start with, Edgar Munarriz, FEBTC’s very own Systems Analyst, admitted that the bug infecting the bank’s
computer system had facilitated the fraudulent withdrawals.21 This admission impelled the CA to thoroughly
dissect the situation in order to determine the consequences of the intervention of the system bug in
FEBTC’s computer system. It ultimately determined thusly:
Significantly, FEBTC made the admission that there was a program bug in its computer system. To digress,
computers are run based on specific pre-arranged instructions or "programs" that act on data or
information that computer users input. Computers can only process these inputted data or information
according to the installed programs. Thus, computers are as efficient, as accurate and as convenient to use
as the instructions in their installed programs. They can count, sort, compute and arrive at decisions but
they do so only and strictly in accordance with the programs that make them work. To cite an easy example,
a computer can be programmed to sort a stack of cards prepared by male and female clients, into male and
female stacks, respectively. To do this, the computer will first scan a card and look at the place ("a field")
where the male/female information can be found. This information may be in an appropriate box which the
bank client checks or shades to indicate if he/she is male or female. The computer will check if the box
beside the word "Female" is shaded. If it is, it will send the card to the "Female" bin. If the box beside the
"male" is shaded, it will send the card to the "Male" bin. If both the squares are shaded or none is shaded
or the card cannot be read, it will send the card to the "Unknown" bin. This way, the female cards and the
male cards can be sorted efficiently. However, the program instructions can be written in such a way that
the computer can only make two decisions, that is, if the Female box is shaded, then the card goes to the
"Female" bin; otherwise, the card goes to the "Male" bin. In this program, all the Female cards will be sorted
correctly but the Male bin will contain all the other cards, that is, the Male cards, the cards with no shading
at all, and all the other cards that cannot be classified.
The imperfect results arose from the imperfect program instructions or from a program "bug". Something
very close to this example happened in the present case.
According to the testimony of the FEBTC’s systems analyst, there were two computer programs that were
involved in the transactions: CAPDROTH and SCPUP 900. CAPDROTH is the program that validates if the
account exists in the FEBTC files, if the transaction is valid, and if the branch where the account is maintained
is ON-LINE (i.e. continuously sending data). When the Chan transaction entered the system, it was validated
by CAPDROTH which, on seeing that the FEBTC-Ongpin branch was off-line, returned a decision code passing
on the decision to authorize the transaction to the SCPUP 900, another module. However, SCPUP 900 was
not expecting this type of response or decision code. As the SCPUP 900 program was originally written, it
will send back an error message and abort a requested transaction if it receives an error message from any
other module; otherwise, it will send a message authorizing the transaction. In other words, SCPUP 900 had
only two decisions to make: check if the message is an error message, if not then, authorize. Since what it
received in the disputed transactions were not error messages and were not also authorizations, it sent
back authorization messages allowing the cash withdrawals. It kept on sending authorization messages for
the 242 cash withdrawal transactions made from Chan’s account between the evening of May 4 and early
morning of May 5, 1992. This program bug was the reason the 242 cash withdrawals were allowed by the
PNB ATM-Megalink machine.
The program bug occurred because of the simultaneous presence of three conditions that allowed it to
happen: (1) the withdrawal transactions involved a current account; (2) the current account was with a
branch that at that time was off-line; and (3) the transaction originated from MEGALINK (i.e., through
MEGALINK through a member bank other than FEBTC). Because of the bug, Chan’s account was not
accessed at the time of the transactions so that withdrawals in excess of what the account contained were
allowed. Additionally, FEBTC’s rule that only a maximum withdrawable amount per day (in the present case
₱50,000.00 per day) can be made from an ATM account, was by-passed. Thus, 242 withdrawals were made
over an eight hour period, in the total amount of ₱967,000.00.22
Secondly, the RTC’s deductions on the cause of the withdrawals were faulty. In holding against Chan, the It is true that Del Castillo also declared that FEBTC did not store the PINs of its clients’ ATM
RTC chiefly relied on inferences drawn from his acts subsequent to the series of withdrawals, specifically his cards.1âwphi1 However, he mentioned that FEBTC had stored the opposite numbers corresponding to the
attempt to withdraw funds from his account at an FEBTC ATM facility in Ermita, Manila barely two days after PINs, which meant that the PINs did not remain entirely irretrievable at all times and in all cases by any of
the questioned withdrawals; his issuance of a check for ₱190,000.00 immediately after the capture of his its officers or employees with access to the bank’s computer system. Accordingly, Del Castillo’s assertion
ATM card by the ATM facility; his failure to immediately report the capture of his ATM card to FEBTC; and that the PINs were rendered useless upon being entered in the bank’s computer system did not entirely
his going to FEBTC only after the dishonor of the check he had issued following the freezing of his account. disclose how the information on the PINs of the depositors was stored or discarded as to become useless
The inferences were not warranted, however, because the subsequent acts would not persuasively establish for any purpose.
his actual participation in the withdrawals due to their being actually susceptible of other interpretations
consistent with his innocence.
In view of the foregoing, FEBTC did not present preponderant evidence proving Chan’s liability for the
supposedly fraudulent withdrawals. It thus failed in discharging its burden of persuasion.
We join the CA’s observation that Chan’s subsequent acts "could have been impelled by so many reasons
and motivations, and cannot simply be given the meaning that the lower court attributed to them," and,
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals; and DIRECTS the petitioner to pay
instead, were even consistent with the purpose and nature of his maintaining the current account deposit
the costs of suit.
with FEBTC, rendering the acts "not unusual nor … illegal."23 Although he was expected to forthwith bring
his card’s capture to FEBTC’s attention, that he did not do so could have other plausible explanations
consistent with good faith, among them his being constantly occupied as a businessman to attend to the SO ORDERED.
multifarious activities of his business. He might have also honestly believed that he still had the sufficient
funds in his current account, as borne out by his issuance of a check instead after the capture of the card so
as not for him to undermine any financial obligation then becoming due. Nor should his opting to withdraw
funds from his account at the ATM facility in Ermita in less than two days after the questioned withdrawals
manifest responsibility on his part, for he could also be properly presumed to be then still unaware of the
situation involving his account. We note that his letters24 written in response to FEBTC’s written demands
to him disclosed honest intentions rather than malice.

Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with the bug infection of
FEBTC’s computer system at the time of the withdrawals and adept with the workings of the computer
system had committed the fraud. This likelihood was not far-fetched considering that FEBTC had
immediately adopted corrective measures upon its discovery of the system bug, by which FEBTC admitted
its negligence in ensuring an error-free computer system; and that the system bug had affected only the
account of Chan.25 Truly, the trial court misapprehended the extent to which the system bug had made the
computer system of FEBTC stumble in serious error.

Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish that the PNB-
MEGALINK’s ATM facility at the Manila Pavilion Hotel had actually dispensed cash in the very significantly
large amount alleged during the series of questioned withdrawals. For sure, FEBTC should have proved the
actual dispensing of funds from the ATM facility as the factual basis for its claim against Chan. It did require
PNB to furnish a validated showing of the exact level of cash then carried by the latter’s ATM facility in the
Manila Pavilion Hotel on May 4, 1992.26 Yet, when PNB employee Erwin Arellano stood as a witness for
FEBTC, he confirmed the authenticity of the journal tapes that had recorded Chan’s May 4 and May 5, 1992
supposed ATM transactions but did not categorically state how much funds PNB-MEGALINK’s ATM facility
at the Manila Pavilion Hotel had exactly carried at the time of the withdrawals, particularly the amounts
immediately preceding and immediately following the series of withdrawals. The omission left a yawning
gap in the evidence against Chan.

And lastly, Chan’s allegation of an "inside job" accounting for the anomalous withdrawals should not be
quickly dismissed as unworthy of credence or weight. FEBTC employee Manuel Del Castillo, another witness
for FEBTC, revealed that FEBTC had previously encountered problems of bank accounts being debited
despite the absence of any withdrawal transactions by their owners. He attributed the problems to the
erroneous tagging of the affected accounts as somebody else’s account, allowing the latter to withdraw
from the affected accounts with the use of the latter’s own ATM card, and to the former’s account being
debited.27 The revelation of Del Castillo tended to support Chan’s denial of liability, as it showed the
possibility of withdrawals being made by another person despite the PIN being an exclusive access number
known only to the cardholder.28
#8
G.R. No. 118492. August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR
EAST BANK AND TRUST COMPANY, Respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision 1 dated July 22, 1994 and Resolution 2 dated December 29,
1994 of the Court of Appeals 3affirming with modification the Decision 4 dated November 12, 1992 of the
Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and
Trust Company.
The undisputed facts of the case are as follows:
In view of the 20 th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney,
Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI,
sent Godofredo Reyes, the clubs chief cashier, to the respondent bank to apply for a foreign exchange
demand draft in Australian dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to apply for a demand draft in the
amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the
20 thAsian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent banks
assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not
have an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCIs urgent need to remit Australian dollars to Sydney. Yasis of
respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia
(Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the
respondent in Westpac Bank in New York, U.S.A (Westpac-New York for brevity). This arrangement has been
customarily resorted to since the 1960s and the procedure has proven to be problem-free. PRCI and the
petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order
to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20 th Asian Racing
Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange
Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian
Dollars (AU$1,610.00), payable to the order of the 20 thAsian Racing Conference Secretariat of Sydney,
Australia, and addressed to Westpac-Sydney as the drawee bank.
On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD
No. 209968, the same was dishonored, with the notice of dishonor stating the following: xxx No account
held with Westpac. Meanwhile, on August 16, 1988, Westpac-New York sent a cable to respondent bank
informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00) was debited. On August 19, 1988, in response to PRCIs complaint about the dishonor of the
said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said
demand draft FXDD No. 209968, drawn against the Westpac-Sydney and informing the latter to be
reimbursed from the respondent banks dollar account in Westpac-New York. The respondent bank on the
same day likewise informed Westpac-New York requesting the latter to honor the reimbursement claim of
Westpac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968
was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no
deposit dollar account with the drawee Westpac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H.
Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent
Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates
from various member countries, he was told by a lady member of the conference secretariat that he could
not register because the foreign exchange demand draft for his registration fee had been dishonored for
the second time. A discussion ensued in the presence and within the hearing of many delegates who were
also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady
member of the conference secretariat that he be shown the subject foreign exchange demand draft that
had been dishonored as well as the covering letter after which he promised that he would pay the
registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit.
The lady member of the conference secretariat relented and gave him his name plate and conference kit. It
was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and
a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was
embarrassed and humiliated at the registration desk of the conference secretariat when she was told in the
presence and within the hearing of other delegates that she could not be registered due to the dishonor of
the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people
around her. Fortunately, she saw her husband coming toward her. He saved the situation for her by telling
the secretariat member that he had already arranged for the payment of the registration fees in cash once
he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate
and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of
Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an
officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady
banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also
been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary
service as the Societys campaign chairman for the ninth (9 th ) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint
for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the
said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result
of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and
deep mental anguish in a foreign country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and
against the plaintiffs (herein petitioners), the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiffs complaint, and
ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable
attorneys fees. Costs against the plaintiff.
SO ORDERED.5cräläwvirtualibräry
The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the
appellate court affirmed the decision of the trial court but in effect deleted the award of attorneys fees to
the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of
the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs complaint, is hereby AFFIRMED,
but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs.
SO ORDERED.6cräläwvirtualibräry
According to the appellate court, there is no basis to hold the respondent bank liable for damages for the
reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The
appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went through smoothly, considering
that its New York account had been debited and that there was no miscommunication between it and
Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most
reliable mode of communication in the international banking business. Besides, the above procedure, with
the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement
Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular
demand draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the Banks SWIFT message
is the erroneous decoding on the part of Westpac-Sydney of the Banks SWIFT message as an MT799 format.
However, a closer look at the Banks Exhs. 6 and 7 would show that despite what appears to be an asterisk
written over the figure before 99, the figure can still be distinctly seen as a number 1 and not number 7, to
the effect that Westpac-Sydney was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the
numbers 1 to 7, since Exhs. 6 and 7 are just documentary copies of the cable message sent to Westpac-
Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which
caused the Banks message to be sent to the wrong department, the mistake was Westpacs, not the Banks.
The Bank had done what an ordinary prudent person is required to do in the particular situation, although
appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the
ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding
damage that appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY
ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN ORDINARY PRUDENT PERSON WHEN
IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY
BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF
PRIVATE RESPONDENTS WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY
BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT WAS DUE TO PRIVATE RESPONDENTS
NEGLIGENCE AND NOT THE DRAWEE BANK.8cräläwvirtualibräry
The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank
and its clients, the respondent bank should have exercised a higher degree of diligence than that expected
of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court,
according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only.
Petitioners also claim that the respondent bank violated Section 61 of the Negotiable Instruments
Law 9 which provides the warranty of a drawer that xxx on due presentment, the instrument will be
accepted or paid, or both, according to its tenor xxx. Thus, the petitioners argue that respondent bank
should be held liable for damages for violation of this warranty. The petitioners pray this Court to re-examine
the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition (for review) shall raise only
questions of law which must be distinctly set forth. Thus, we have ruled that factual findings of the Court of
Appeals are conclusive on the parties and not reviewable by this Court and they carry even more weight
when the Court of Appeals affirms the factual findings of the trial court. 10cräläwvirtualibräry
The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit
account with Westpac-Sydney. Respondent banks assistant cashier explained to Godofredo Reyes,
representating PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be
effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney
where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the
20 th Asian Racing Conference Secretatriat. PRCI and its Vice-President for finance, petitioner Gregorio H.
Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the
petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been
a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT
cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New York where respondent bank has a deposit dollar
account.
The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal
of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the
employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable
message of respondent bank as MT799 instead of as MT199. As a result, Westpac-Sydney construed the
said cable message as a format for a letter of credit, and not for a demand draft. The appellate court
correctly found that the figure before 99 can still be distinctly seen as a number 1 and not number 7. Indeed,
the line of a 7 is in a slanting position while the line of a 1 is in a horizontal position. Thus, the number 1 in
MT199 cannot be construed as 7. 11cräläwvirtualibräry
The evidence also shows that the respondent bank exercised that degree of diligence expected of an
ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign
exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement
claim of Westpac-Sydney and to debit the dollar account 12 of respondent bank with the former. As soon as
the demand draft was dishonored, the respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of
Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac-
Sydney. 13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the
demand draft was not honored. 14cräläwvirtualibräry

With these established facts, we now determine the degree of diligence that banks are required to exert in
their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals 15 upholding a long standing
doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a
family where the fiduciary nature of their relationship with their depositors is concerned. In other words
banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But
the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of
the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good
father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case
at bar does not involve the handling of petitioners deposit, if any, with the respondent bank. Instead, the
relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of
the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20 th Asian Racing
Conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration fees of the petitioners as
delegates of the PRCI to the 20 th Asian Racing Conference in Sydney.

The evidence shows that the respondent bank did everything within its power to prevent the dishonor of
the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney
by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its
employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent
bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian
Dollar (AU$1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the
impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-
Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New
York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New
York to debit its (respondent banks) deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of the said demand draft.

In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft
is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under
estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of
the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent
bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia.
Hence, the Court of Appeals did not commit any reversable error in its challenged decision.

WHEREFORE , the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED.
Costs against the petitioners.

SO ORDERED.
#9
FIRST PLANTERS PAWNSHOP, INC., Petitioner, v.COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and documentary stamp taxes
imposed upon it by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's
argument is that it is not a lending investor within the purview of Section 108(A) of the National Internal
Revenue Code (NIRC), as amended, and therefore not subject to value-added tax (VAT). Petitioner also
contends that a pawn ticket is not subject to documentary stamp tax (DST) because it is not proof of the
pledge transaction, and even assuming that it is so, still, it is not subject to tax since a documentary stamp
tax is levied on the document issued and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR that it has an existing tax
deficiency on its VAT and DST liabilities for the year 2000. The deficiency assessment was at P541,102.79
for VAT and P23,646.33 for DST.1 Petitioner protested the assessment for lack of legal and factual bases.2
Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, directing payment of
VAT deficiency in the amount of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive of
surcharge and interest.3 Petitioner filed a protest,4 which was denied by Acting Regional Director Anselmo
G. Adriano per Final Decision on Disputed Assessment dated January 29, 2004.5
Petitioner then filed a Petition for Review with the Court of Tax Appeals (CTA).6 In a Decision dated May 9,
2005, the 2nd Division of the CTA upheld the deficiency assessment.7 Petitioner filed a motion for
reconsideration8 which was denied in a Resolution dated October 7, 2005.9
Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, 2006, the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. The assailed
Decision dated May 9, 2005 and Resolution dated October 7, 2005 are hereby AFFIRMED.
SO ORDERED.10
Petitioner sought reconsideration but this was denied by the CTA EnBanc per Resolution dated August 14,
2006.11
Hence, the present Petition for Review under Rule 45 of the Rules of Court based on the following grounds:
I Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby pawnshop businesses
THE HONORABLE COURT OF TAX APPEALS EN BANCGRAVELY ERRED IN FINDING PETITIONER LIABLE FOR
VAT.
II
THE HONORABLE COURT OF TAX APPEALS EN BANCGRAVELY ERRED IN RULING THAT PETITIONER IS LIABLE
FOR DST ON PAWN TICKETS.12
The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. Oddly,
there has not been any definitive declaration in this regard despite the fact that pawnshops have long been
in existence. All that has been stated is what pawnshops are not, but not what pawnshops are.
The BIR itself has maintained an ambivalent stance on this issue. Initially, in Revenue Memorandum Order
No. 15-91 issued on March 11, 1991, a pawnshop business was considered as "akin to lending investor's
business activity" and subject to 5% percentage tax beginning January 1, 1991, under Section 116 of the Tax
Code of 1977, as amended by E.O. No. 273.13
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994,14 the BIR abandoned its earlier
position and maintained that pawnshops are subject to 10% VAT, as implemented by Revenue Regulations
No. 7-95. This was complemented by Revenue Memorandum Circular No. 45-01 dated October 12, 2001,
which provided that pawnshop operators are liable to the 10% VAT based on gross receipts beginning
January 1, 1996, while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for
percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position that pawnshops are subject to VAT. In H. Tambunting Pawnshop,
Inc. v. Commissioner of Internal Revenue,15 the CTA ruled that the petitioner therein was subject to 10% VAT
under Section 108 of the Tax Code of 1997. Antam Pawnshop Corporation v. Commissioner of Internal
Revenue16reiterates said ruling. It was the CTA's view that the services rendered by pawnshops fall under
the general definition of "sale or exchange of services" under Section 108(A) of the Tax Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop,
Inc.17 in which it was categorically ruled that while pawnshops are engaged in the business of lending money,
they are not considered "lending investors" for the purpose of imposing percentage taxes.18 The Court gave
the following reasons: first, under the 1997 Tax Code, pawnshops and lending investors were subjected to
different tax treatments; second, Congress never intended pawnshops to be treated in the same way as
lending investors; third, Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities and
lending investors only; and lastly, the BIR had ruled several times prior to the issuance of RMO No. 15-91
and RMC 43-91 that pawnshops were not subject to the 5% percentage tax on lending investors imposed
by Section 116 of the NIRC of 1977, as amended by Executive Order No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-2004 dated June 16, 2004,
canceling the previous lending investor's tax assessments on pawnshops. Said Circular stated, inter alia:
In view of the said Supreme Court decision, all assessments on pawnshops for percentage taxes as lending
investors are hereby cancelled. This Circular is being issued for the sole purpose of resolving the tax liability
of pawnshops to the 5% lending investors tax provided under the then Section 116 of the NIRC of 1977, as
amended, and shall not cover issues relating to their other tax liabilities. All internal revenue officials are
enjoined from issuing assessments on pawnshops for percentage taxes on lending investors, under the then
Section 116 of the NIRC of 1977, as amended.
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops are now
subject thereof. This shall however, be covered by another issuance.19
were allowed to settle their VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of
agreement entered into by the Commissioner of Internal Revenue and the Chambers of Pawnbrokers of the
Philippines, Inc. The Circular likewise instructed all revenue officers to ensure that "all VAT due from
pawnshops beginning January 1, 2003, including increments thereto, if any, are assessed and collected from
pawnshops under its jurisdiction."
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, 2004 entitled, "An Act
Amending Certain Sections of the National Internal Revenue Code of 1997, as amended, by Excluding
Several Services from the Coverage of the Value-added Tax and Re-imposing the Gross Receipts Tax on
Banks and Non-bank Financial Intermediaries Performing Quasi-banking Functions and Other Non-bank
Financial Intermediaries beginning January 01, 2004."20
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on February 10, 2004
advising all banks and non-bank financial intermediaries that they shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance issued Revenue
Regulations No. 10-2004 dated October 18, 2004, classifying pawnshops as Other Non-bank Financial
Intermediaries. The BIR then issued Revenue Memorandum Circular No. 73-2004 on November 25, 2004,
prescribing the guidelines and policies on the assessment and collection of 10% VAT for gross annual
sales/receipts exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts not
exceeding P550,000.00 of pawnshops prior to January 1, 2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject to lending investor's
tax. Subsequently, with the Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises
under the general classification of "sale or exchange of services" under Section 108(A) of the Tax Code of
1997, as amended. R.A. No. 9238 finally classified pawnshops as Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the
very beginning, subject to the appropriate taxes provided by law, thus '
'Under the National Internal Revenue Code of 1977,21pawnshops should have been levied the 5%
percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119
(now Section 121 of the Tax Code of 1997);
'With the imposition of the VAT under R.A. No. 7716 or the EVAT Law,22 pawnshops should have been
subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions
under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);23
'This was restated by R.A. No. 8241,24 which amended R.A. No. 7716, although the levy, collection and
assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing quasi-banking functions, were made effective
January 1, 1998;25
'R.A. No. 8424 or the Tax Reform Act of 199726 likewise imposed a 10% VAT under Section 108 but the levy,
collection and assessment thereof were again deferred until December 31, 1999;27
'The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December
31, 2000, and by R.A. No. 9010, until December 31, 2002;
'With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks,
non-bank financial intermediaries, finance companies, and other financial intermediaries not performing
quasi-banking functions were finally made effective beginning January 1, 2003;
'Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not performing quasi-banking functions were
specifically exempted from VAT,28 and the 0% to 5% percentage tax on gross receipts on other non-bank
financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.29
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT
under the general provision on "sale or exchange of services" as defined under Section 108(A) of the Tax
Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration x x x." Instead, due to the specific
nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial
intermediaries, as provided in the same Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties.
The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines
for others for a fee, remuneration or consideration, including x x x services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale
or exchange of services' shall likewise include: x x x (Emphasis and underscoring supplied)cralawlibrary
The tax treatment of pawnshops as non-bank financial intermediaries is not without basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank
as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage
banks, development banks, rural banks, stock savings and loan associations, and branches and agencies in
the Philippines of foreign banks.30 R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided
that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.31 R.A. No.
8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board
of the Bangko Sentral ng Pilipinasin the classification of banks.32 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Financial intermediaries, on the other hand, are defined as "persons or entities whose principal functions
include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with
them, acquired by them, or otherwise coursed through them, either for their own account or for the
account of others."33
It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their
business activities partakes that of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop
Regulation Act and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D.
No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on personal
property delivered as security for loans and shall be synonymous, and may be used interchangeably, with
pawnbroker or pawn brokerage."
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that
pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its
Manual of Regulations for Non-Bank Financial Institutions. The Manual includes pawnshops in the list of
non-bank financial intermediaries, viz.:
'4101Q.1 Financial Intermediaries
xxx
Non-bank financial intermediaries shall include the following:
(1) A person or entity licensed and/or registered with any government regulatory body as a non-bank
financial intermediary, such as investment house, investment company, financing company, securities
dealer/broker, lending investor, pawnshop, money broker x x x. (Emphasis supplied)cralawlibrary
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL INTERMEDIARIES. - Whereas, in
relation to Sec. 2.3 of Rev. Regs No. 9-2004 defining "Non-bank Financial Intermediaries, the term
"pawnshop" as defined under Presidential Decree No. 114 which authorized its creation, to be a person or
entity engaged in the business of lending money, all fall within the classification of Non-bank Financial
Intermediaries and therefore, covered by Sec. 4 of R.A. No. 9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of Regulations for Non-
Bank Financial Intermediaries and reiterated in BSP Circular No. 204-99, classifying pawnshops as one of
Non-bank Financial Intermediaries within the supervision of the Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank financial
intermediaries.
Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it is subject to 10%
VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank
financial intermediaries being specifically deferred by law,34 then petitioner is not liable for VAT during these
tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting
January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by
virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5 %, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue,35 in
which it was ruled that the subject of DST is not limited to the document alone. Pledge, which is an exercise
of a privilege to transfer obligations, rights or properties incident thereto, is also subject to DST, thus'
x x x the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is
an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident
thereto. In Philippine Home Assurance Corporation v. Court of Appeals, it was held that:
xxx
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an
accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor
or to a third person movable property as security for the performance of the principal obligation, upon the
fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor
or to the third person. This is essentially the business of pawnshops which are defined under Section 3 of
Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending
money on personal property delivered as security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops
issued by the Central Bank to implement the Act, require every pawnshop or pawnbroker to issue, at the
time of every such loan or pledge, a memorandum or ticket signed by the pawnbroker and containing the
following details: (1) name and residence of the pawner; (2) date the loan is granted; (3) amount of principal
loan; (4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker
or his authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other
terms and conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central
Bank Circular No. 445, prescribed a standard form of pawn tickets with entries for the required details on
its face and the mandated terms and conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxx
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for
purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a
contract of pledge. At any rate, it is not said ticket that creates the pawnshop's obligation to pay DST but
the exercise of the privilege to enter into a contract of pledge. There is therefore no basis in petitioner's
assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the
government; and that a tax cannot be imposed without clear and express words for that purpose. Taking
our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that
said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to
DST. It states that "[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x." It is
clear, categorical, and needs no further interpretation or construction. The explicit tenor thereof requires
hardly anything than a simple application.
xxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops
from the payment of DST. Section 199 of the NIRC enumerated certain documents which are not subject to
stamp tax; but a pawnshop ticket is not one of them. Hence, petitioner's nebulous claim that it is not subject
to DST is without merit. It cannot be over-emphasized that tax exemption represents a loss of revenue to
the government and must, therefore, not rest on vague inference. Exemption from taxation is never
presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to
rest on doubtful implications.
Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what
has been settled), once a case has been decided one way, any other case involving exactly the same point
at issue, as in the case at bar, should be decided in the same manner.36
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated
August 14, 2006 of the Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal
Revenue assessment for VAT deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and
SET ASIDE, whileits assessment for DST deficiency in the amount of P24,747.13, inclusive of surcharge and
interest, is UPHELD.
SO ORDERED.
#10
G.R. No. 189871 August 13, 2013 Date of Decisions = Aug. 18, 1998
DARIO NACAR, PETITIONER,
vs. a) 1/24/97 to 2/5/98 = 12.36 mos.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION ₱196.00/day x 12.36 mos. = ₱62,986.56

PERALTA, J.: b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = ₱62,986.00

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s
motion for reconsideration. ₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

TOTAL = ₱95.933.76
The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the xxxx
National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey,
Jr., docketed as NLRC NCR Case No. 01-00519-97.
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive
dismissal and are therefore, ordered:
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was
dismissed from employment without a valid or just cause. Thus, petitioner was awarded backwages and
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six
separation pay in lieu of reinstatement in the amount of ₱158,919.92. The dispositive portion of the
pesos and 56/100 (₱62,986.56) Pesos representing his separation pay;
decision, reads:

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that
three and 36/100 (₱95,933.36) representing his backwages; and
complainant was dismissed from employment for a just or valid cause. All the more, it is clear from the
records that complainant was never afforded due process before he was terminated. As such, we are
perforce constrained to grant complainant’s prayer for the payments of separation pay in lieu of All other claims are hereby dismissed for lack of merit.
reinstatement to his former position, considering the strained relationship between the parties, and his
apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows: SO ORDERED.4

SEPARATION PAY Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February
29, 2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Date Hired = August 1990

Rate = ₱198/day Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA
issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was
likewise denied in a Resolution dated May 8, 2001.7
Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8
₱198.00 x 26 days x 8 months = ₱41,184.00
An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27,
BACKWAGES 2002.9The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear.10
Date Dismissed = January 24, 1997
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be
Rate per day = ₱196.00 computed from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the
Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and Examination Unit of the
NLRC arrived at an updated amount in the sum of ₱471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect
from respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited
backwages of ₱95,933.36, no more recomputation is required to be made of the said awards. They claimed
that after the decision becomes final and executory, the same cannot be altered or amended anymore.14 On
January 13, 2003, the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of
Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the
appeal in favor of the respondents and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference was held, but respondents failed to appear on
time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier
recomputed judgment award in the sum of ₱471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation,
where the judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original
amount as determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that
was due to petitioner in the amount of ₱147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to
include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of
₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory. However, the Labor Arbiter reasoned that
since the decision states that the separation pay and backwages are computed only up to the promulgation
of the said decision, it is the amount of ₱158,919.92 that should be executed. Thus, since petitioner already
received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the
Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since
petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing
left to be done except to enforce the said judgment. Consequently, it can no longer be modified in any
respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE
OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE
NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO
AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor
Arbiter’s decision, the same is not final until reinstatement is made or until finality of the decision, in case
of an award of separation pay. Petitioner maintains that considering that the October 15, 1998 decision of
the Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of the Supreme
Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for the
computation of the backwages and separation pay should be on May 27, 2002 and not when the decision
of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to
the payment of interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly stated that the separation pay and
backwages are "computed only up to [the] promulgation of this decision," and considering that petitioner
no longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter
in the total amount of ₱158,919.92. Respondents added that it was only during the execution proceedings
that the petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner
at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it violates the
rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of
the awards made, and whether this violated the principle of immutability of judgment. Like in the present
case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited case that the decision
already provided for the computation of the payable separation pay and backwages due and did not further
order the computation of the monetary awards up to the time of the finality of the judgment. Also in Session
Delights, the dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's
original computation of the awards made, pegged as of the time the decision was rendered and confirmed
with modification by a final CA decision, is legally proper. The question is posed, given that the petitioner
did not immediately pay the awards stated in the original labor arbiter's decision; it delayed payment
because it continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the
original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality.
This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor arbiter
made shows that it was time-bound as can be seen from the figures used in the computation. This part,
being merely a computation of what the first part of the decision established and declared, can, by its
nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-
computed because the computation is already in the labor arbiter's decision that the CA had affirmed. The
public and private respondents, on the other hand, posit that a re-computation is necessary because the
relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or
up to the finality of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also
made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules
of Procedure which requires that a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall
embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision.
As we noted above, this implication is apparent from the terms of the computation itself, and no question
would have arisen had the parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC
which, in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by
the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely
filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming
the payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned to the
labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original
labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read
the figures originally ordered to be paid to be the computation due had the case been terminated and
implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the award to include the
separation pay and the backwages due up to the finality of the CA decision that fully terminated the case
on the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA
decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted -
specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision
now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered
the labor arbiter's original decision in accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary consequences; the second part is
the computation of the awards or monetary consequences of the illegal dismissal, computed as of the time
of the labor arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed
by the petitioner, no essential change is made by a recomputation as this step is a necessary consequence
that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A
recomputation (or an original computation, if no previous computation has been made) is a part of the law
– specifically, Article 279 of the Labor Code and the established jurisprudence on this provision – that is
read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as
it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279
provides for the consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in
its interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the finality
of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law
decrees. In allowing separation pay, the final decision effectively declares that the employment relationship
ended so that separation pay and backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which II. With regard particularly to an award of interest in the concept of actual and compensatory
reads: damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of forbearance of money, the interest due should be that which may have been stipulated in writing.
Circular No. 905, Series of 1982: Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent
(6%) per annum. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
demand can be established with reasonable certainty. Accordingly, where the demand is established with
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
hereby amended accordingly.
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
This Circular shall take effect on 1 July 2013. made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the case interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
of Eastern Shipping Lines40and Subsection X305.1 of the Manual of Regulations for Banks and Sections finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its of credit.
amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1, 2013.
It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.
July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-
G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko
are Ordered to Pay petitioner:
Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue
and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans (1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997
of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for executory;
different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries."
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month
pay per year of service; and
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013,
said judgments shall not be disturbed and shall continue to be implemented applying the rate of interest
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from
fixed therein.1awp++i1
May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are
accordingly modified to embody BSP-MB Circular No. 799, as follows:
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits
awarded and due to petitioner in accordance with this Decision.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
SO ORDERED.
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.1âwphi1
DIOSDADO M. PERALTA
Associate Justice