[ GR No.

173259, Jul 25, 2011 ]

PHILIPPINE NATIONAL BANK v. F.F. CRUZ +
As between a bank and its depositor, where the bank's negligence is the proximate cause of the loss and the
depositor is guilty of contributory negligence, the greater proportion of the loss shall be borne by the bank
This Petition for Review on Certiorari seeks to reverse and set aside the Court of Appeal's January 31, 2006
Decision [1] in CA-G.R. CV No. 81349, which modified the January 30, 2004 Decision [2] of the Regional Trial
Court of Manila City, Branch 46 in Civil Case No. 97-84010, and the June 26, 2006 Resolution [3] denying
petitioner's motion for reconsideration.
Factual Antecedents
The antecedents are aptly summarized by the appellate court:

In its complaint, it is alleged that [respondent F.F. Cruz & Co., Inc.] (hereinafter FFCCI) opened savings/current
or so-called combo account No. 0219-830-146 and dollar savings account No. 0219-0502-458-6 with [petitioner
Philippine National Bank] (hereinafter PNB) at its Timog Avenue Branch. Its President Felipe Cruz (or Felipe)
and Secretary-Treasurer Angelita A. Cruz (or Angelita) were the named signatories for the said accounts.

The said signatories on separate but coeval dates left for and returned from the Unites States of America, Felipe
on March 18, 1995 until June 10, 1995 while Angelita followed him on March 29, 1995 and returned ahead on
May 9, 1995.

While they were thus out of the country, applications for cashier's and manager's [checks] bearing Felipe's
[signature] were presented to and both approved by the PNB. The first was on March 27, 1995 for P9,950,000.00
payable to a certain Gene B. Sangalang and the other one was on April 24, 1995 for P3,260,500.31 payable to
one Paul Bautista. The amounts of these checks were then debited by the PNB against the combo account of
[FFCCI].

When Angelita returned to the country, she had occasion to examine the PNB statements of account of [FFCCI]
for the months of February to August 1995 and she noticed the deductions of P9,950,000.00 and P3,260,500.31.
Claiming that these were unauthorized and fraudulently made, [FFCCI] requested PNB to credit back and restore
to its account the value of the checks. PNB refused, and thus constrained [FFCCI] filed the instant suit for damages
against the PNB and its own accountant Aurea Caparas (or Caparas).

In its traverse, PNB averred lack of cause of action. It alleged that it exercised due diligence in handling the
account of [FFCCI]. The applications for manager's check have passed through the standard bank procedures and
it was only after finding no infirmity that these were given due course. In fact, it was no less than Caparas, the
accountant of [FFCCI], who confirmed the regularity of the transaction. The delay of [FFCCI] in picking up and
going over the bank statements was the proximate cause of its self-proclaimed injury. Had [FFCCI] been
conscientious in this regard, the alleged chicanery would have been detected early on and Caparas effectively
prevented from absconding with its millions. It prayed for the dismissal of the complaint. [4]
Regional Trial Court's Ruling

The trial court ruled that F.F. Cruz and Company, Inc. ( FFCCI) was guilty of negligence in clothing Aurea
Caparas (Caparas) with authority to make decisions on and dispositions of its account which paved the way for
the fraudulent transactions perpetrated by Caparas; that, in practice, FFCCI waived the two-signature requirement
in transactions involving the subject combo account so much so that Philippine National Bank (PNB) could not
be faulted for honoring the applications for manager's check even if only the signature of Felipe Cruz appeared
thereon; and that FFCCI was negligent in not immediately informing PNB of the fraud.

On the other hand, the trial court found that PNB was, likewise, negligent in not calling or personally verifying
from the authorized signatories the legitimacy of the subject withdrawals considering that they were in huge
amounts. For this reason, PNB had the last clear chance to prevent the unauthorized debits from FFCCI's combo
account. Thus, PNB should bear the whole loss -

WHEREFORE, judgment is hereby rendered ordering defendant [PNB] to pay plaintiff [FFCCI] P13,210,500.31
representing the amounts debited against plaintiff's account, with interest at the legal rate computed from the
filing of the complaint plus costs of suit.

IT IS SO ORDERED. [5]
Court of Appeal's Ruling
On January 31, 2006, the CA rendered the assailed Decision affirming with modification the Decision of the trial
court, viz:
WHEREFORE, the appealed Decision is AFFIRMED with the MODIFICATION that [PNB] shall pay [FFCCI]
only 60% of the actual damages awarded by the trial court while the remaining 40% shall be borne by [FFCCI].
SO ORDERED. [6]
The appellate court ruled that PNB was negligent in not properly verifying the genuineness of the signatures
appearing on the two applications for manager's check as evidenced by the lack of the signature of the bank
verifier thereon. Had this procedure been followed, the forgery would have been detected.
Nonetheless, the appellate court found FFCCI guilty of contributory negligence because it clothed its
accountant/bookkeeper Caparas with apparent authority to transact business with PNB. In addition, FFCCI failed
to timely examine its monthly statement of account and report the discrepancy to PNB within a reasonable period
of time to prevent or recover the loss. FFCCI's contributory negligence, thus, mitigated the bank's liability.
Pursuant to the rulings in Philippine Bank of Commerce v. Court of Appeals [7] and The Consolidated Bank &
Trust Corporation v. Court of Appeals, [8] the appellate court allocated the damages on a 60-40 ratio with the
bigger share to be borne by PNB.
From this decision, both FFCCI and PNB sought review before this Court.
On August 17, 2006, FFCCI filed its petition for review on certiorari which was docketed as G.R. No. 173278.
[9] On March 7, 2007, the Court issued a Resolution [10] denying said petition. On June 13, 2007, the Court
issued another Resolution [11] denying FFCCI's motion for reconsideration. In denying the aforesaid petition, the
Court ruled that FFCCI essentially raises questions of fact which are, as a rule, not reviewable under a Rule 45
petition; that FFCCI failed to show that its case fell within the established exceptions to this rule; and that FFCCI
was guilty of contributory negligence. Thus, the appellate court correctly mitigated PNB's liability.
On July 13, 2006, PNB filed its petition for review on certiorari which is the subject matter of this case.
Issue
Whether the Court of Appeals seriously erred when it found PNB guilty of negligence. [12]
Our Ruling
We affirm the ruling of the CA.
PNB is guilty of negligence.
Preliminarily, in G.R. No. 173278, we resolved with finality [13] that FFCCI is guilty of contributory negligence,
thus, making it partly liable for the loss (i.e., as to 40% thereof) arising from the unauthorized withdrawal of
P13,210,500.31 from its combo account. The case before us is, thus, limited to PNB's alleged negligence in the
subject transactions which the appellate court found to be the proximate cause of the loss, thus, making it liable
for the greater part of the loss (i.e., as to 60% thereof) pursuant to our rulings in Philippine Bank of Commerce v.
Court of Appeals [14] and The Consolidated Bank & Trust Corporation v. Court of Appeals. [15]

PNB contends that it was not negligent in verifying the genuineness of the signatures appearing on the subject
applications for manager's check. It claims that it followed the standard operating procedure in the verification
process and that four bank officers examined the signatures and found the same to be similar with those found in
the signature cards of FFCCI's authorized signatories on file with the bank.
PNB raises factual issues which are generally not proper for review under a Rule 45 petition. While there are
exceptions to this rule, we find none applicable to the present case. As correctly found by the appellate court,
PNB failed to make the proper verification because the applications for the manager's check do not bear the
signature of the bank verifier. PNB concedes the absence [16] of the subject signature but argues that the same
was the result of inadvertence. It posits that the testimonies of Geronimo Gallego (Gallego), then the branch
manager of PNB Timog Branch, and Stella San Diego (San Diego), then branch cashier, suffice to establish that
the signature verification process was duly followed.
We are not persuaded.
First, oral testimony is not as reliable as documentary evidence. [17] Second, PNB's own witness, San Diego,
testified that in the verification process, the principal duty to determine the genuineness of the signature devolved
upon the account analyst. [18] However, PNB did not present the account analyst to explain his or her failure to
sign the box for signature and balance verification of the subject applications for manager's check, thus, casting
doubt as to whether he or she did indeed verify the signatures thereon. Third, we cannot fault the appellate court
for not giving weight to the testimonies of Gallego and San Diego considering that the latter are naturally
interested in exculpating themselves from any liability arising from the failure to detect the forgeries in the subject
transactions. Fourth, Gallego admitted that PNB's employees received training on detecting forgeries from the
National Bureau of Investigation. [19] However, Emmanuel Guzman, then NBI senior document examiner,
testified, as an expert witness, that the forged signatures in the subject applications for manager's check contained
noticeable and significant differences from the genuine signatures of FFCCI's authorized signatories and that the
forgeries should have been detected or observed by a trained signature verifier of any bank. [20]
Given the foregoing, we find no reversible error in the findings of the appellate court that PNB was negligent in
the handling of FFCCI's combo account, specifically, with respect to PNB's failure to detect the forgeries in the
subject applications for manager's check which could have prevented the loss. As we have often ruled, the
banking business is impressed with public trust. [21] A higher degree of diligence is imposed on banks relative
to the handling of their affairs than that of an ordinary business enterprise. [22] Thus, the degree of responsibility,
care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers
and employees in other enterprises. [23] In the case at bar, PNB failed to meet the high standard of diligence
required by the circumstances to prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals [24]
and The Consolidated Bank & Trust Corporation v. Court of Appeals, [25] where the bank's negligence is the
proximate cause of the loss and the depositor is guilty of contributory negligence, we allocated the damages
between the bank and the depositor on a 60-40 ratio. We apply the same ruling in this case considering that, as
shown above, PNB's negligence is the proximate cause of the loss while the issue as to FFCCI's contributory
negligence has been settled with finality in G.R. No. 173278. Thus, the appellate court properly adjudged PNB
to bear the greater part of the loss consistent with these rulings.

WHEREFORE, the petition is DENIED. The January 31, 2006 Decision and June 26, 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 81349 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
[ GR NO. 88013, Mar 19, 1990 ]
SIMEX INTERNATIONAL v. CA +
CRUZ, J.:

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

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

The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo
Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the
amount of P100,000.00, thus increasing its balance as of that date to P190,380.74.[1] Subsequently, the petitioner
issued several checks against its deposit but was surprised to learn later that they had been dishonored for
insufficient funds.
The dishonored checks are the following:
Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00;
Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73;
Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the amount of P7,080.00;
Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P42,906.00;
Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of
P12,953.00;
Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45;
Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,386.02;
and

Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00.[2]
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the
petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld
delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the
petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime,
action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also
deferred.
The petitioner complained to the respondent bank on June 10, 1981.[3] Investigation disclosed that the sum of
P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on
June 17, 1981, and the dishonored checks were paid after they were re-deposited.[4]

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and
wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First
Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary
damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquiña rendered judgment holding that moral and exemplary damages were not
called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the
defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs.[5] This
decision was affirmed in toto by the respondent court.[6]
The respondent court found with the trial court that the private respondent was guilty of negligence but agreed
that the petitioner was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on
May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less
than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or
insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-
appellant.
It is this ruling that is faulted in the petition now before us.

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

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

We also note that while stressing the rectification made by the respondent bank, the decision practically ignored
the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that
the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by
the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business
community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the
petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to
the plaintiff's business standing or commercial credit." There is no question that the petitioner did sustain actual
injury as a result of the dishonored checks and that the existence of the loss having been established "absolute
certainty as to its amount is not required."[7] Such injury should bolster all the more the demand of the petitioner
for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the
injuries he may have suffered.[8] In the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are
purely speculative and are not supported by substantial evidence, but it failed to consider that the amount of such
losses need not be established with exactitude, precisely because of their nature. Moral damages are not
susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to
the sound discretion of the court, according to "the circumstances of each case."

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

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper
relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As
we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper
remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role in the economic life
of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the payment of
ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can
help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of
their day-to-day transactions like the issuance or encashment of checks.

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

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

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

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

SO ORDERED.
G.R. No. 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.
Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated December 29, 1994
of the Court of Appeals3 affirming with modification the Decision4 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 20th 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 club's chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian
dollars.
Godofredo went to respondent bank's 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 20th Asian Racing
Conference Secretariat of Sydney, Australia. He was attended to by respondent bank's 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 PRCI's
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 1960's 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 20th 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 20th Asian Racing Conference Secretariat of Sydney,
Australia, and addressed to Westpac-Sydney as the drawee bank.1âwphi1.nêt

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, Wespac-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 PRCI's 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 Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's
dollar account in Westpac-New York. The respondent bank on the same day likewise informed Wespac-New
York requesting the latter to honor the reimbursement claim of Wespac-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 Wespac-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 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 embarassed
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 fee 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 Society's
campaign chairman for the ninth (9th) 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 plaintiff's complaint, and
ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorney's
fees. Costs against the plaintiff.
SO ORDERED.5
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 attorney's 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 dismissed plaintiff's complaint, is hereby AFFIRMED,
but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs.

SO ORDERED.6
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 Bank's SWIFT message is the
erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. However,
a closer look at the Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick 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 Wespac-Sydney. Hence,
if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's
message to be sent to the wrong department, the mistake was Westpac's, not the Bank's. 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 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 RESPONDENT'S 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 AS DUE TO
PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its
clients, the respondent 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 violate Section 61 of the Negotiable Instruments Law9 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.10
The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with
Westpac-Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing 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 20th Asian Racing Conference Secretariat.
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 part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand
draft. An 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 correct
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".11

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 account12 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.14

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 Appeals15 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 20th 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 20th 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 bank's)
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.
9 Section 61. Liability of drawer. – The drawer by drawing the instrument admits the existence of the payee and
his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or
both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But
the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.