G.R. No.

213241, August 01, 2016

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

DECISION

PEREZ, J.:

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

The Facts

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

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

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

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

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

Despite the lapse of the redemption period and the fact of issuance of a Certificate of Final Sale to
Vila, the Spouses Cormsta were nonetheless allowed to buy back the subject property by tendering
the amount of P50,000.00. A Certificate of Redemption7 dated 14 March 1989 was issued for this
purpose and was duly annotated in the title under Entry No. 708261.

Claiming that the Spouses Cornista already lost their right to redeem the subject property, Vila filed

1
an action for nullification of redemption, transfer of title and damages against the Spouses Cornista
and Alfredo Vega in his capacity as the Register of Deeds of Pangasinan. The case was docketed
as Civil Case No. V-0242 on 10 January 1992 and was raffled to Branch 50. A Notice of Lis Pendens was
issued for this purpose and was duly recorded in the certificate of title of the property on 19 October
1992 under Entry No. 759302.8chanrobleslaw

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

In order to enforce the favorable decision, Vila filed before the RTC a Motion for the Issuance of Writ
of Execution which was granted by the court. Accordingly, a Writ of Execution 11 was issued by the
RTC on 14 December 1997.

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

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

Eventually, the Spouses Cornista defaulted in the payment of their loan obligation with the PNB
prompting the latter to foreclose the property offered as security. The bank emerged as the highest
bidder during the public sale as shown at the Certificate of Sale issued by the Sheriff. As with the
prior mortgage, the Spouses Cornista once again failed to exercise their right of redemption within
the required period allowing PNB to consolidate its ownership over the subject property.
Accordingly, TCT No. 13149814 in the name of the Spouses Cornista was cancelled and a new one
under TCT No. 21677115under the name of the PNB was issued.

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

To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith pointing the fact
that at the time the subject property was mortgaged to it, the same was still free from any liens and
encumbrances and the Notice of Lis Pendens was registered only a month after the REM was
annotated on the title. PNB meant to say that at the time of the transaction, the Spouses Cornista were
still the absolute owners of the property possessing all the rights to mortgage the same to third
persons. PNB also harped on the fact that a close examination of title was conducted and nowhere
was it shown that there was any cloud in the title of the Spouses Cornista, the latter having redeemed
the property after they have lost it in a foreclosure sale. 16chanrobleslaw
2
After the Pre-Trial Conference, trial on the merits ensued. The court a quo then proceeded to receive
documentary and testimonial evidence from the opposing parties. Thereafter, the parties submitted
their respective memorandum and the case was submitted for decision.

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

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

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

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

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

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

Costs against defendant Philippine National Bank.

SO ORDERED."18chanroblesvirtuallawlibrary
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its earlier decision and thereby
denied the Motion for Reconsideration interposed by PNB.

On appeal, the CA Decision20 dated 18 December 2013 affirmed the RTC ruling. In failing to exercise
greater care and diligence in approving the loan of the Spouses Cornista without first ascertaining if
there were any defects in their title, the appellate court held that PNB could not be afforded the status
of a mortgagee in good faith. It went further by declaring that [a] bank whose business is impressed
with public interest is expected to exercise more care and prudence in its dealings than a private
individual, even in cases involving registered lands. A bank cannot assume that, simply because the
title offered as security is on its face free of any encumbrances of lien, it is relieved of the responsibility
of taking further steps to verify the title and inspect the properties to be mortgaged. 21 The CA thus
disposed:ChanRoblesVirtualawlibrary
3
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated June 22, 2011 and the
Resolution dated August 11, 2011 of the Regional Trial Court of Villasis, Pangasinan, Branch 50, in
Civil Case No, V-0567 are hereby AFFIRMED."22chanroblesvirtuallawlibrary
On 13 June 2014, the CA issued a Resolution23 denying the Motion for Reconsideration of the PNB
prompting the bank to seek recourse before the Court via instant Petition for Review on Certiorari. For
Our resolution are the following issues:ChanRoblesVirtualawlibrary
The Issues

I.

WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;

II

WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24chanroblesvirtuallawlibrary

The Court's Ruling

We resolve to deny the petition.

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

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

Resonating the findings of the RTC, the CA also declared that PNB fell short in exercising the degree
of diligence expected from bank and financial Institutions. We hereby quote with approval the
disquisition of the appellate court:ChanRoblesVirtualawlibrary
Thus, before approving a loan application, it is a standard operating practice for these institutions to
conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of
the title to determine the real owner thereof. The apparent purpose of an ocular inspection is to protect
the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon
from a usurper who may have acquired a fraudulent certificate of title thereto. Here, [the] PNB has
failed to exercise the requisite due diligence in ascertaining the status and condition of the property

4
being offered to it as security for the loan before it approved the same.
xxx.27chanroblesvirtuallawlibrary
Clearly, the PNB failed to observe the exacting standards required of banking institutions which are
behooved by statutes and jurisprudence to exercise greater care and prudence before entering into a
mortgage contract.

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

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

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

In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted banks to exercise the highest
degree of diligence in its dealing with properties offered as securities for the loan
obligation:ChanRoblesVirtualawlibrary
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for
value is applied more strictly. Being in the business of extending loans secured by real estate
mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking
business-is impressed with public interest, they are expected to be more cautious, to exercise a higher
degree of diligence, care and prudence, than private individuals in their dealings, even those
involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence,
they cannot assume that, xxx the title offered as security is on its face free of any encumbrances or
lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the
properties to be mortgaged. As expected, the ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of the bank's operations.
xxx. (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to commercial transactions,
in particular, and to the country's economy in general.30 The banking system is an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized
nation.31 Whether as mere passive entities for the safekeeping and saving of money or as active
5
instruments of business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most of all,
confidence.32 Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it.33chanrobleslaw

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

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

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

SO ORDERED.chanRoblesvirtualLawlibrary

G.R. No. 160260 October 24, 2012

WESTMONT BANK, formerly ASSOCIATED BANK now UNITED OVERSEAS BANK

PHILIPPINES, Petitioner,
vs.
MYRNA DELA ROSA-RAMOS, DOMINGO TAN and WILLIAM CO, Respondents.

DECISION

MENDOZA, J.:

This is a Petition for Review under Rule 45 of the 1997 Rules of Court procedure seeking a partial
review of the February 14, 2003 Decision1 and the October 2, 2003 Resolution2 of the Court of Appeals
(CA), in CA-G.R. CV No. 63983, which modified the September 16, 1998 Decision of the Regional Trial
6
 Court, Branch 7, Manila (RTC) in Civil Case No. 89-17926 entitled, Myrna Dela Rosa-Ramos v.
Westmont Bank, formerly Associated Bank, Domingo Tan, and William Co.

The petition was filed on November 24, 2003 and received by this Court on December 15, 2003. The
case was given due course on February 6, 2008.

The Facts

From 1986, respondent Myrna Dela Rosa-Ramos (Dela Rosa-Ramos) maintained a checking/current
account with the United Overseas Bank Philippines3 (Bank) at the latter’s Sto. Cristo Branch, Binondo,
Manila. In her several transactions with the Bank, Dela Rosa-Ramos got acquainted with its Signature
Verifier, respondent Domingo Tan (Tan).4

In the course of their acquaintance, Tan offered Dela Rosa-Ramos a "special arrangement"5 wherein
he would finance or place sufficient funds in her checking/current account whenever there would be
an overdraft or when the amount of said checks would exceed the balance of her current account. It
was their arrangement to make sure that the checks she would issue would not be dishonored. Tan
offered the service for a fee of P50.00 a day for every P40,000.00 he would finance. This financier-
debtor relationship started in 1987 and lasted until1998.6

In order to guarantee payment for such funding, Dela Rosa-Ramos issued postdated checks covering
the principal amount plus interest as computed by Tan on specified date. There were also times when
she just paid in cash.7 Relative to their said agreement, Dela Rosa-Ramos issued and delivered to Tan
the following Associated Bank checks8 drawn against her current account and payable to "cash," to
wit:

1âwphi1

CHECK NO. CURRENT ACCT. DATE AMOUNT

467322 (Exh. A) 1008-08341-0 May 8, 1988 PhP200,000.00

510290 (Exh. C) 1008-08734-3 June 10, 1988 232,500.00

613307 (Exh. E) 1008-08734-3 June 14, 1988 200,000.00

613306 (Exh. D) 1008-08734-3 July 4, 1988 290,595.00

According to Dela Rosa-Ramos, Check No. 467322 for P200,000.00 was a "stale" guarantee check. The
check was originally dated August 28, 1987 but was altered to make it appear that it was dated May
8, 1988. Tan then deposited the check in the account of the other respondent, William Co (Co), despite
the obvious superimposed date. As a result, the amount of P200,00.00 or the value indicated in the
check was eventually charged against her checking account.9

Check No. 510290 for P232,500.00, dated June 10, 1988, was issued in payment of cigarettes that Dela
Rosa-Ramos bought from Co. This check allegedly "bounced" so she replaced it with her "good
7
customer’s check and cash" and gave it to Tan. The latter(tan), however, did not return the bounced
check to her. Instead, he "redeposited" it in Co’s account.10

Check No. 613307 for P200,000.00, was another guarantee check that was also "undated." Dela Rosa-
Ramos claimed that it was Tan who placed the date "June 14, 1988." For this check, an order to stop
payment was issued because of insufficient funds. Expectedly, the words

"PAYMENT STOPPED" were stamped on both sides of the check. This check was not returned to her
either and, instead, it was "redeposited" in Co’s account.11

Check Nos. 510290 and 613307 were both dishonored for insufficient funds.1âwphi1 When Dela Rosa-
Ramos got the opportunity to confront Co regarding their deposit of the two checks, the latter
disclosed that her two checks were deposited in his account to cover for his P432,500.00 cash which
was taken by Tan. Then, with a threat to expose her relationship with a married man, Tan and Co
were able to coerce her to replace the two above-mentioned checks with Check No. 59864812 in the
amount of P432,500.00 which was equivalent to the total amount of the two dishonored checks.13

Check No. 613306 for P290,595.00, was also undated when delivered to Tan who later placed the date,
July 4, 1988. Dela Rosa-Ramos pointed out that as of July 5, 1988, her checking account had
P121,989.66 which was insufficient to answer for the value of said check. A check of a certain Lee See
Bin in the amount of P170,000.00 was, however, deposited in her checking account. As a result, Tan
was able to encash Check No. 613306 and withdrew her P121,989.66 balance. Later, Dela Rosa-Ramos
found out that the Lee See Bin Check was not funded because the Bank’s bookkeeper demanded from
her the return of the deficiency.14

Claiming that the four checks mentioned were deposited by Tan without her consent, Dela Rosa-
Ramos instituted a complaint15 against Tan and the Bank before the RTC seeking, among other things,
to recover from the Bank the sum of ₱754,689.66 representing the total amount charged or withdrawn
from her current account. Dela Rosa-Ramos subsequently amended her complaint to include Co.16

During the trial, Tan’s partial direct testimony was ordered stricken off the records because he failed
to complete it and make himself available for cross-examination. Later, it was found out that he had
passed away.17

On September 16, 1998, the RTC resolved the case in this wise:

WHEREFORE, judgment is hereby rendered, sentencing defendant Associated Bank now the
Westmont Bank and defendants – DOMINGO TAN and WILLIAM CO, to pay the plaintiff, jointly
and severally:

1. The sum of P754,689.66, representing plaintiff’s lost deposit, plus interest thereon at the legal
rate of 12% per annum from the filing of the complaint, until fully paid;

2. The sum of P1,000,000.00, as moral damages;

3. The sum equivalent to 10% thereof, as exemplary damages;

8
 4. The sum equivalent to 25% of the total amount due, as and for attorney’s fees; and

5. Costs.

Defendant’s counterclaims are hereby dismissed for lack of merit.

SO ORDERED.18

Co and the Bank appealed their cases to the CA. As Co failed to file a brief within the period
prescribed, his appeal was dismissed.19 The CA then proceeded to resolve the appeal of the Bank. On
February 14, 2003, the CA rendered its appealed decision, the dispositive portion of which reads:

WHEREFORE, premises considered, Decision dated September 16, 1998 of the Regional Trial Court
of Manila, National Capital Region, Branch 7, in Civil Case No. 89-17926, is hereby AFFIRMED with
the MODIFICATION that: (a) the defendants are liable only for the amount of ₱521,989.00 covering
Check Nos. 467322, 613307 and ₱121,989.66 covered by Check No. 613306 and (b) deleting the award
for moral damages and attorney’s fees.

SO ORDERED.20

Still not satisfied, the Bank moved for partial reconsideration. On October 2, 2003, the CA denied it
for lack of merit. In the case of Co, he never appealed the CA decision. Thus, only the Bank is now
before this Court raising the following issues:

I.

WITHOUT DELINEATING THE SOURCE OF THE RESPECTIVE OBLIGATIONS OF

PETITIONER BANK, RESPONDENT TAN AND RESPONDENT CO IN RELATION TO
RESPONDENT DELA ROSA-RAMOS, THE HONORABLE COURT OF APPEALS UTTERLY
AND GRAVELY ERRED WHEN IT SWEEPINGLY AFFIRMED THE JUDGMENT OF THE
HONORABLE TRIAL COURT MAKING THEM JOINTLY AND SEVERALLY LIABLE FOR
THE JUDGMENT AWARD IN FAVOR OF RESPONDENT DELA ROSA-RAMOS.

II.

THE JUDGMENT AWARD AGAINST PETITIONER BANK UNDER CHECK NO. 467322
(EXH. ‘A’) IS TOTALLY WITHOUT LEGAL BASIS AS THE SAME WAS MERELY BASED ON
SPECULATIVE ASSUMPTION OR PURE SPECULATION.

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

ACCOUNT OF RESPONDENT DELA ROSA-RAMOS WAS DEBITED WITH THE FACE
AMOUNT OF CHECK NO. 613307 (EXH. ‘E’) AS SUCH FINDING IS CONTRARY TO THE
FINDING OF THE HONORABLE TRIAL COURT THAT THE SAID CHECK WAS
DISHONORED TOGETHER WITH CHECK NO. 510290 (EXH. ‘C’) FOR THE REASON THAT
BOTH CHECKS WERE DRAWN AGAINST INSUFFICIENT FUNDS.

9
 IV.

NOTWITHSTANDING AND CLEARLY CONTRADICTING ITS VERY FINDING THAT "AS

TO CHECK NO. 613306 (EXH.’D’), THIS COURT OPINES THAT NO MANIFEST
IRREGULARITY EXISTS," THE HONORABLE COURT OF APPEALS GROSSLY ERRED
WHEN IT ERRONEOUSLY FOUND PETITIONER BANK LIABLE IN THE AMOUNT OF
P121,989.96 COVERED BY SAID CHECK.

V.

ASSUMING ARGUENDO THAT PETITIONER BANK IS LIABLE TO ANSWER FOR THE

ALLEGED DAMAGES SUFFERED BY RESPONDENT DELA ROSA-RAMOS, THE
HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT FAILED TO PASS UPON
PETITIONER BANK’S CROSS-CLAIM AGAINST RESPONDENT TAN.21

It must be remembered that public interest is intimately carved into the banking industry because the
primordial concern here is the trust and confidence of the public. This fiduciary nature of every bank’s
relationship with its clients/depositors impels it to exercise the highest degree of care, definitely more
than that of a reasonable man or a good father of a family. 22 It is, therefore, required to treat the
accounts and deposits of these individuals with meticulous care.23 The rationale behind this is well-
expressed in Sandejas v. Ignacio,24

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 – 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, and it is for this reason, banks should guard against injury attributable to negligence or
bad faith on its part.

Considering that banks can only act through their officers and employees, the fiduciary obligation
laid down for these institutions necessarily extends to their employees. Thus, banks must ensure that
their employees observe the same high level of integrity and performance for it is only through this
that banks may meet and comply with their own fiduciary duty.25 It has been repeatedly held that "a
bank’s liability as an obligor is not merely vicarious, but primary"26 since they are expected to observe
an equally high degree of diligence, not only in the selection, but also in the supervision of its
employees. Thus, even if it is their employees who are negligent, the bank’s responsibility to its client
remains paramount making its liability to the same to be a direct one.

Guided by the following standard, the Bank, given the fiduciary nature of its relationship with Dela
Rosa- Ramos, should have exerted every effort to safeguard and protect her money which was
deposited and entrusted with it. As found by both the RTC and the CA, Ramos was defrauded and
she lost her money because of the negligence attributable to the Bank and its employees. Indeed, it
was the employees who directly dealt with Dela Rosa-Ramos, but the Bank cannot distance itself from
them. That they were the ones who gained at the expense of Dela Rosa-Ramos will not excuse it of its
fundamental responsibility to her. As stated by the RTC,

The factual circumstances attending the repeated irregular entries and transactions involving the
current account of the plaintiff-appellee is evidently due to, if not connivance, gross negligence of

10
other bank officers since the repeated assailed transactions could not possibly be committed by
defendant Tan alone considering the fact that the processing of the questioned checks would pass the
hands of various bank officers who positively identified their initials therein. Having a number of
employees commit mistake or gross negligence at the same situation is so puzzling and obviates the
appellant bank’s laxity in hiring and supervising its employees. Hence, this Court is of the opinion
that the appellant bank should be held liable for the damages suffered by the plaintiff-appellee in the
case at bench.27

That matter being settled, the next matter to be determined is the amount of liability of the Bank.

As regards Check No. 467322, the Bank avers that Dela Rosa- Ramos’ acquiesced to the change of the
date in the said check. It argues that her continued acts of dealing and transacting with the Bank like
subsequently issuing checks despite her experience with this check only shows her acquiescence
which is tantamount to giving her consent. Obviously, the Bank has not taken to heart its fiduciary
responsibility to its clients. Rather than ask and wonder why there were indeed subsequent
transactions, the more paramount issue is why the Bank through its several competent employees
and officers, did not stop, double check and ascertain the genuineness of the date of the check which
displayed an obvious alteration. This failure on the part of the Bank makes it liable for that loss. As
the RTC held:

x x x defendant-bank is not faultless in the irregularities of its signature-verifier. In the first place, it
should have readily rejected the obviously altered plaintiff’s P200,000.00-check, thus, avoid its
unwarranted deposit in defendant-Co’s account and its corollary loss from plaintiff’s deposit, had its
other employees, even excepting TAN, performed their duties efficiently and well. x x x28

The glaring error did not escape the observation of the CA either. On the matter, it hastened to add:

A careful scrutiny of the evidence shows that indeed the date of Check No. 467322 had been
materially altered from August 1987 to May 8, 1988 in accordance with Section 125 of the Negotiable
Instruments Law. It is worthy to take note of the fact that such alteration was not countersigned by
the drawer to make it a valid correction of its date as consented by its drawer as the standard
operating procedure of the appellant bank in such situation as admitted by its Sto. Cristo Branch
manager, Mabini Z. Millan. x x x.29

On Check No. 613307, the Bank argues that the CA erred in considering that the said check was
debited against the account of Dela Rosa-Ramos when the fact was that it was dishonored for having
been drawn against insufficient funds. This means that the check was not charged against her
account.

In this regard, the Court agrees with the Bank. Indeed, the admission made by Dela Rosa-Ramos that
she had to issue a replacement check for Check No. 613307 as well as for Check No. 510290 only
proves that these checks were never paid and charged or debited against her account. The
replacement check is, of course, a totally different matter and is not covered as an issue in this case.

Lastly, with respect to Check No. 613306, the Court agrees with the CA when it found:

11
x x x that no manifest irregularity exists as shown from the Statement of Accounts for the month of
July 1988 that as of July 4, 1988, the plaintiff-appellee had an outstanding deposit of P121,989.66. It
was also cleared therein that, on July 5, 1988, P170,000.00, through the check of Lee See Bin with the
same UNITED OVERSEAS BANK-Sto. Cristo Branch, was deposited on the account of the plaintiff-
appellee and on the very same day Check No. 613306 in the amount of P290,595.00 was approved and
processed and its equivalent was debited from the account of the plaintiff-appellee since the check is
an ‘on-us’ check which is deposited to an account of another with the same branch as that of the
drawer of the said check, and is considered as good as cash if funded, hence, may be withdrawn on
the very same day it was deposited.30

The Court has reviewed the findings of the RTC on the matter and agrees with the CA that there was
no irregularity. The burden of proof was on Dela Rosa-Ramos to establish that Lee See Bin was
fictitious and that the money which purportedly came from him was merely simulated. She
unfortunately failed to discharge this burden.

Withal, the Bank should only be made to answer the value of Check No. 467322 in the amount of
P200,000.00 plus the legal rate of interest. This must be further tempered down for there is no denying
that it was Dela Rosa-Ramos who exposed herself to risk when she entered into that "special
arrangement" with Tan. While the Bank reneged on its responsibility to Dela Rosa-Ramos, she is
nevertheless equally guilty of contributory negligence. It has been held that where the bank and a
depositor are equally negligent, they should equally suffer the loss. The two must both bear the
consequences of their mistakes.31 Thus, the Bank should only pay 50% of the actual damages awarded
while Dela Rosa-Ramos should have to shoulder the remaining 50%.

Considering that Tan was primarily responsible for the damages caused to Dela Rosa-Ramos, the
Bank can seek compensation from his estate, subject to the applicable laws and rules.

The reinstatement of deleted damages sought by Dela Rosa-Ramosin her comment may not be
entertained for she did not appeal the CA decision.

WHEREFORE, the petition for review is PARTIALLY GRANTED. The February 14, 2003 Decision
and the October 2, 2003 Resolution of the Court of Appeals in CA-G.R. CV No. 63983 are MODIFIED.
Petitioner United Overseas Bank Philippines (formerly Westmont Bank) is hereby ordered to pay
respondent Myrna Dela Rosa-Ramos the amount of P100,000.00, representing 50% of the actual
damages awarded plus legal interest.

SO ORDERED.

[G.R. No. 165339 : August 23, 2010]

EQUITABLE PCI BANK, PETITIONER, VS. ARCELITO B. TAN, RESPONDENT.

DECISION

PERALTA, J.:

12
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
set aside the Decision[1] and the Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 41928.

The antecedents are as follows:

Respondent Arcelito B. Tan maintained a current and savings account with Philippine Commercial
International Bank (PCIB), now petitioner Equitable PCI Bank.[3] On May 13, 1992, respondent issued
PCIB Check No. 275100 postdated May 30, 1992[4] in the amount of P34,588.72 in favor of Sulpicio
Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was P35,147.59. On May 14, 1992,
Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu
City. After clearing, the amount of the check was immediately debited by petitioner from
respondent's account thereby leaving him with a balance of only P558.87.

Meanwhile, respondent issued three checks from May 9 to May 16, 1992, specifically, PCIB Check No.
275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) for the
amount of P6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte Electric
Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB Check No. 314104 dated May 16,
1992 payable in cash for the amount of P10,000.00. When presented for payment, PCIB Check Nos.
275080, 275097 and 314014 were dishonored for being drawn against insufficient funds.

As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and
ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by
respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off
on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24,
1992, respectively.

Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint
against petitioner, praying for payment of losses consisting of unrealized income in the amount of
P1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees
and litigation expenses.

Respondent claimed that Check No. 275100 was a postdated check in payment of Bills of Lading Nos.
15, 16 and 17, and that his account with petitioner would have had sufficient funds to cover payment
of the three other checks were it not for the negligence of petitioner in immediately debiting from his
account Check No. 275100, in the amount of P34,588.72, even as the said check was postdated to May
30, 1992. As a consequence of petitioner's error, which brought about the dishonor of the two checks
paid to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut off, the business
operations thereof were stopped, and purchase orders were not duly served causing tremendous
losses to him.

In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed
that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric
supply to respondent's sawmills was not due to the dishonor of the checks, but for other reasons not
attributable to the bank.

After trial, the RTC, in its Decision[5] dated June 21, 1993, ruled in favor of petitioner and dismissed
the complaint.
13
Aggrieved by the Decision, respondent filed a Notice of Appeal.[6] In its Decision dated May 31, 2004,
the Court of Appeals reversed the decision of the trial court and directed petitioner to pay respondent
the sum of P1,864,500.00 as actual damages, P50,000.00 by way of moral damages, P50,000.00 as
exemplary damages and attorney's fees in the amount of P30,000.00. Petitioner filed a motion for
reconsideration, which the CA denied in a Resolution dated August 24, 2004.

Hence, the instant petition assigning the following errors:

THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED OFFICE ORDER NO. 82-04-CG
BY HOLDING ON TO THIS CASE AND DECIDING IT INSTEAD OF UNLOADING IT AND
HAVING IT RE-RAFFLED AMONG THE DIVISIONS IN CEBU CITY.

II

THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF THE REGIONAL TRIAL
COURT THAT CHECK NO. 275100 WAS DATED MAY 3, 1992.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT'S WAY OF WRITING
THE DATE ON CHECK NO. 275100 WAS THE PROXIMATE CAUSE OF THE DISHONOR OF HIS
THREE OTHER CHECKS.

IV

THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES, MORAL DAMAGES,

EXEMPLARY DAMAGES AND ATTORNEY'S FEES.

Anent the first issue, petitioner submits that the CA defied Office Order No. 82-04-CG dated April 5,
2004 issued by then CA Presiding Justice Cancio C. Garcia when it failed to unload CA-G.R. CV No.
41928 so that it may be re-raffled among the Divisions in Cebu City.

Office Order No. 82-04-CG[7] provides:

x x x x

In view of the reorganization of the different Divisions due to the appointment of eighteen (18) new
Justices to the additional divisions in the cities of Cebu and Cagayan de Oro, the raffle of civil,
criminal and special cases submitted for decision and falling within the jurisdiction of the additional
divisions shall commence on April 6, 2004.

The raffle of newly-filed cases and those for completion likewise falling within the jurisdiction of the
additional divisions, shall start on April 12, 2004.

xxxx
14
Petitioner alleged that since the aforementioned Office Order directed the raffle of civil, criminal and
special cases submitted for decision and falling within the jurisdiction of the additional divisions on
April 6, 2004, CA-G.R. CV No. 41928 should have been unloaded by the CA's Fourth Division and re-
raffled to the CA's Division in Cebu City instead of deciding the case on May 31, 2004.

Respondent argued that the CA's Fourth Division correctly acted in taking cognizance of the case.
The CA defended its jurisdiction by ruling that cases already submitted for decision as of the
effectivity of Republic Act (R.A.) 8246[8] on February 1, 1997 were no longer included for re-raffle to
the newly-created Visayas and Mindanao Divisions of the CA, conformable to Section 5 of the said
statute.

Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is provided that:

Section 3. Section 10 of Batas Pambansa Blg. 129, as amended, is hereby further amended to read as
follows:

Sec. 10. Place of Holding Sessions. -- The Court of Appeals shall have its permanent stations as follows:
The first seventeen (17) divisions shall be stationed in the City of Manila for cases coming from the
First to the Fifth Judicial Regions; the Eighteenth, Nineteenth, and Twentieth Divisions shall be in
Cebu City for cases coming from the Sixth, Seventh and Eighth Judicial Regions; the Twenty-first,
Twenty-second and Twenty-third Divisions shall be in Cagayan de Oro City for cases coming from
the Ninth, Tenth, Eleventh, and Twelfth Judicial Regions. Whenever demanded by public interest, or
whenever justified by an increase in case load, the Supreme Court, upon its own initiative or upon
recommendation of the Presiding Justice of the Court of Appeals, may authorize any division of the
Court to hold sessions periodically, or for such periods and at such places as the Supreme Court may
determine, for the purpose of hearing and deciding cases. Trials or hearings in the Court of Appeals
must be continuous and must be completed within three (3) months unless extended by the Chief
Justice of the Supreme Court.

Further, Section 5 of the same Act provides:

Upon the effectivity of this Act, all pending cases, except those which have been submitted for
resolution, shall be referred to the proper division of the Court of Appeals.[9]

Although CA-G.R. CV No. 41928 originated from Cebu City and is thus referable to the CA's
Divisions in Cebu City, the said case was already submitted for decision as of July 25, 1994.[10] Hence,
CA-G.R. CV No. 41928, which was already submitted for decision as of the effectivity of R.A. 8246, i.e.,
February 1, 1997, can no longer be referred to the CA's Division in Cebu City. Thus, the CA's Former
Fourth Division correctly ruled that CA-G.R. CV No. 41928 pending in its division was not among
those cases that had to be re-raffled to the newly-created CA Divisions in the Visayas Region.

Further, administrative issuances must not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out.[11] Thus, Office Order No. 82-04-CG cannot defeat
the provisions of R.A. 8246.

As to the second issue, petitioner maintains that the CA erred in reversing the finding of the RTC that
15
Check No. 275100 was dated May 3, 1992. Petitioner argued that in arriving at the conclusion that
Check No. 275100 was postdated May 30, 1992, the CA just made a visual examination of the check,
unlike the RTC which verified the truth of respondent's testimony relative to the issuance of Check
No. 275100. Respondent argued that the check was carefully examined by the CA which correctly
found that Check No. 275100 was postdated to May 30, 1992 and not May 3, 1992.

The principle is well established that this Court is not a trier of facts. Therefore, in an appeal
by certiorariunder Rule 45 of the Rules of Court, only questions of law may be raised. The resolution
of factual issues is the function of the lower courts whose findings on these matters are received with
respect and are, as a rule, binding on this Court. However, this rule is subject to certain exceptions.
One of these is when the findings of the appellate court are contrary to those of the trial court. [12] Due
to the divergence of the findings of the CA and the RTC, We shall re-examine the facts and evidence
presented before the lower courts.

The RTC ruled that:

x x x x

The issue to be resolved in this case is whether or not the date of PCIB Check No. 275100 is May 3,
1992 as contended by the defendant, or May 30, 1992 as claimed by the plaintiff. The date of the check
is written as follows - 5/3/0/92. From the manner by which the date of the check is written, the Court
cannot really make a pronouncement as to whether the true date of the check is May 3 or May 30,
1992, without inquiring into the background facts leading to the issuance of said check.

According to the plaintiff, the check was issued to Sulpicio Lines in payment of bill of lading nos. 15,
16 and 17. An examination of bill of lading no. 15, however, shows that the same was issued, not in
favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued in
favor of Suson Lumber and not to plaintiff. Likewise, Bill of Lading No. 17 shows that it was issued
to Jazz Cola and not to plaintiff. Furthermore, the receipt for the payment of the freight for the
shipments reflected in these three bills of lading shows that the freight was paid by Coca Cola Bottlers
Philippines, Inc. and not by plaintiff.

Moreover, the said receipt shows that it was paid in cash and not by check. From the foregoing, the
evidence on record does not support the claim of the plaintiff that Check No. 275100 was issued in
payment of bills of lading nos. 15, 16 and 17.

Hence, the conclusion of the Court is that the date of the check was May 3, 1992 and not May 30,
1992.[13]

xxxx

In fine, the RTC concluded that the check was dated May 3, 1992 and not May 30, 1992, because the
same check was not issued to pay for Bills of Lading Nos. 15, 16 and 17, as respondent claims. The
trial court's conclusion is preposterous and illogical. The purpose for the issuance of the check has no
logical connection with the date of the check. Besides, the trial court need not look into the purpose
for which the check was issued. A reading of Check No. 275100[14] would readily show that it was
dated May 30, 1992. As correctly observed by the CA:
16
On the first issue, we agree with appellant that appellee Bank apparently erred in misappreciating
the date of Check No. 275100. We have carefully examined the check in question (Exh. DDDD) and
we are convinced that it was indeed postdated to May 30, 1992 and not May 3, 1992 as urged by
appellee. The date written on the check clearly appears as "5/30/1992" (Exh. DDDD-4). The first bar
(/) which separates the numbers "5" and "30" and the second bar (/) which further separates the
number "30" from the year 1992 appear to have been done in heavy, well-defined and bold strokes,
clearly indicating the date of the check as "5/30/1992" which obviously means May 30, 1992. On the
other hand, the alleged bar (/) which appellee points out as allegedly separating the numbers "3" and
"0," thereby leading it to read the date as May 3, 1992, is not actually a bar or a slant but appears to be
more of an unintentional marking or line done with a very light stroke. The presence of the figure "0"
after the number "3" is quite significant. In fact, a close examination thereof would unerringly show
that the said number zero or "0" is connected to the preceeding number "3." In other words, the drawer
of the check wrote the figures "30" in one continuous stroke, thereby contradicting appellee's theory
that the number "3" is separated from the figure "0" by a bar. Besides, appellee's theory that the date
of the check is May 3, 1992 is clearly untenable considering the presence of the figure "0" after "3" and
another bar before the year 1992. And if we were to accept appellee's theory that what we find to be
an unintentional mark or line between the figures "3" and "0" is a bar separating the two numbers, the
date of the check would then appear as "5/3/0/1992, which is simply absurd. Hence, we cannot go
along with appellee's theory which will lead us to an absurd result. It is therefore our conclusion that
the check was postdated to May 30, 1992 and appellee Bank or its personnel erred in debiting the
amount of the check from appellant's account even before the check's due date. Undoubtedly, had
not appellee bank prematurely debited the amount of the check from appellant's account before its
due date, the two other checks (Exhs. LLLL and GGGG) successively dated May 9, 1992 and May 16,
1992 which were paid by appellant to ASELCO and ANECO, respectively, would not have been
dishonored and the said payees would not have disconnected their supply of electric power to
appellant's sawmills, and the latter would not have suffered losses.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of R.A.
8791[15] decrees:

Declaration of Policy. - The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking
that requires high standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy.

Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the
same high standard of diligence required under R.A. 8791 at the time of the untimely debiting of
respondent's account by petitioner in May 1992. In Simex International (Manila), Inc. v. Court of
Appeals,[16] which was decided in 1990, the Court held that as a business affected with public interest
and because of the nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

The diligence required of banks, therefore, is more than that of a good father of a family.[17] 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
17
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. [18] From the foregoing,
it is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised
in dealing with its client.

With respect to the third issue, petitioner submits that respondent's way of writing the date on Check
No. 275100 was the proximate cause of the dishonor of his three other checks. Contrary to petitioner's
view, the Court finds that its negligence is the proximate cause of respondent's loss.

Proximate cause is that cause which, in a natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred.[19] The
proximate cause of the loss is not respondent's manner of writing the date of the check, as it was very
clear that he intended Check No. 275100 to be dated May 30, 1992 and not May 3, 1992. The proximate
cause is petitioner's own negligence in debiting the account of the respondent prior to the date as
appearing in the check, which resulted in the subsequent dishonor of several checks issued by the
respondent and the disconnection by ASELCO and ANECO of his electric supply.

The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to
the order of the payee in accordance with the drawer's instructions as reflected on the face and by the
terms of the check.[20] Thus, payment made before the date specified by the drawer is clearly against
the drawee bank's duty to its client.

In its memorandum[21] filed before the RTC, petitioner submits that respondent caused confusion on
the true date of the check by writing the date of the check as 5/3/0/92. If, indeed, petitioner was
confused on whether the check was dated May 3 or May 30 because of the "/" which allegedly
separated the number "3" from the "0," petitioner should have required respondent drawer to
countersign the said "/" in order to ascertain the true intent of the drawer before honoring the check.
As a matter of practice, bank tellers would not receive nor honor such checks which they believe to
be unclear, without the counter-signature of its drawer. Petitioner should have exercised the highest
degree of diligence required of it by ascertaining from the respondent the accuracy of the entries
therein, in order to settle the confusion, instead of proceeding to honor and receive the check.

Further, petitioner's branch manager, Pedro D. Tradio, in a letter[22] addressed to ANECO, explained
the circumstances surrounding the dishonor of PCIB Check No. 275097. Thus:

June 11, 1992

ANECO

Agusan del Norte

Gentlemen:

This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the amount of P6,472.01 payable to
your goodselves issued by Mr. Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB
Mandaue Branch for insufficiency of funds.

18
Please be advised that the return of the aforesaid check was a result of an earlier negotiation to PCIB-
Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK Carbon Branch, or
through Central Bank clearing via Philippine Clearing House Corporation facilities, of a postdated
check which ironically and without bad faith passed undetected through several eyes from the payee
of the check down to the depository bank and finally the drawee bank (PCIB) the aforesaid Check
No. 275097 issued to you would have been honored because it would have been sufficiently funded
at the time it was negotiated. It should be emphasized, however, that Mr. Arcelito B. Tan was in no
way responsible for the dishonor of said PCIB Check No. 275097.

We hope that the foregoing will sufficiently explain the circumstances of the dishonor of PCIB Check
No. 275097 and would clear the name and credit of Mr. Arcelito Tan from any misimpressions which
may have resulted from the dishonor of said check.

Thank you.

xxxx

Although petitioner failed to specify in the letter the other details of this "postdated check," which
passed undetected from the eyes of the payee down to the petitioner drawee bank, the Court finds
that petitioner was evidently referring to no other than Check No. 275100 which was deposited to
Solidbank, and was postdated May 30, 1992. As correctly found by the CA:

In the aforequoted letter of its Manager, appellee Bank expressly acknowledged that Check No.
275097 (Exh. GGGG) which appellant paid to ANECO "was sufficiently funded at the time it was
negotiated," but it was dishonored as a "result of an earlier negotiation to PCIB-Mandaue Branch
through a deposit made on May 14, 1992 with SOLIDBANK xxx xxx xxx of a postdated check which
xxx xxx passed undetected." He further admitted that "Mr. Arcelito B. Tan was in no way responsible
for the dishonor of said PCIB Check No. 275097." Needless to state, since appellee's Manager has
cleared appellant of any fault in the dishonor of the ANECO check, it [necessarily] follows that
responsibility therefor or fault for the dishonor of the check should fall on appellee bank. Appellee's
attempt to extricate itself from its inadvertence must therefore fail in the face of its Manager's explicit
acknowledgment of responsibility for the inadvertent dishonor of the ANECO check.[23]

Evidently, the bank's negligence was the result of lack of due care required of its managers and
employees in handling the accounts of its clients. Petitioner was negligent in the selection and
supervision of its employees. In Citibank, N.A. v. Cabamongan,[24] the Court ruled:

x x x Banks handle daily transactions involving millions of pesos. By the very nature of their works
the degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees.

We now resolve the question on the award of actual, moral and exemplary damages, as well as
attorney's fees by the CA to the respondent.

The CA based the award of actual damages in the amount of P1,864,500.00 on the purchase
orders[25]submitted by respondent. The CA ruled that:
19
x x x In the case at bar, appellant [respondent herein] presented adequate evidence to prove losses
consisting of unrealized income that he sustained as a result of the appellee Bank's gross negligence.
Appellant identified certain Purchase Orders from various customers which were not met by reason
of the disruption of the operation of his sawmills when ANECO and ASELCO disconnected their
supply of electricity thereto. x x x

Actual or compensatory damages are those awarded in order to compensate a party for an injury or
loss he suffered. They arise out of a sense of natural justice and are aimed at repairing the wrong
done. Except as provided by law or by stipulation, a party is entitled to an adequate compensation
only for such pecuniary loss as he has duly proven.[26] To recover actual damages, not only must the
amount of loss be capable of proof; it must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence obtainable.[27]

Respondent's claim for damages was based on purchase orders from various customers which were
allegedly not met due to the disruption of the operation of his sawmills. However, aside from the
purchase orders and his testimony, respondent failed to present competent proof on the specific
amount of actual damages he suffered during the entire period his power was cut off. No other
evidence was provided by respondent to show that the foregoing purchase orders were not met or
were canceled by his various customers. The Court cannot simply rely on speculation, conjecture or
guesswork in determining the amount of damages.[28]

Moreover, an examination of the purchase orders and job orders reveal that the orders were due for
delivery prior to the period when the power supply of respondent's two sawmills was cut off on June
1, 1992 to July 20, 1992 and May 28, 1992 to August 24, 1992, respectively. Purchase Order No.
9906[29]delivery date is May 4, 1992; Purchase Order No. 9269[30] delivery date is March 19, 1992;
Purchase Order No. 147796[31] is due for delivery on January 31, 1992; Purchase Order No.
76000[32] delivery date is February and March 1992; and Job Order No. 1824,[33] dated March 18, 1992,
has a 15 days duration of work. Clearly, the disconnection of his electricity during the period May 28,
1992 to August 24, 1992 could not possibly affect his sawmill operations and prior orders therefrom.

Given the dearth of respondent's evidence on the matter, the Court resolves to delete the award of
actual damages rendered by the CA in favor of respondent for his unrealized income.

Nonetheless, in the absence of competent proof on the actual damages suffered, respondent is entitled
to temperate damages. Under Article 2224 of the Civil Code of the Philippines, temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty.[34] The allowance of temperate damages when actual
damages were not adequately proven is ultimately a rule drawn from equity, the principle affording
relief to those definitely injured who are unable to prove how definite the injury.[35]

It is apparent that respondent suffered pecuniary loss. The negligence of petitioner triggered the
disconnection of his electrical supply, which temporarily halted his business operations and the
consequent loss of business opportunity. However, due to the insufficiency of evidence before Us,
We cannot place its amount with certainty. Article 2216[36] of the Civil Code instructs that assessment
of damages is left to the discretion of the court according to the circumstances of each case. Under the
circumstances, the sum of P50,000.00 as temperate damages is reasonable.
20
Anent the award of moral damages, it is settled that 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.[37] In Philippine National Bank v. Court of Appeals,[38] the Court held that a bank is under
obligation to treat the accounts of its depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner's negligence in that case
may not have been attended with malice and bad faith, the banks' negligence caused respondent to
suffer mental anguish, serious anxiety, embarrassment and humiliation. In said case, We ruled that
respondent therein was entitled to recover reasonable moral damages.

In this case, the unexpected cutting off of respondent's electricity, which resulted in the stoppage of
his business operations, had caused him to suffer humiliation, mental anguish and serious anxiety.
The award of P50,000.00 is reasonable, considering the reputation and social standing of
respondent. As found by the CA, as an accredited supplier, respondent had been reposed with a
certain degree of trust by various reputable and well- established corporations.

On the award of exemplary damages, Article 2229 of the Civil Code states:

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.

The law allows the grant of exemplary damages to set an example for the public good. 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. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence. For this reason, banks should guard against injury attributable
to negligence or bad faith on its part. Without a doubt, it has been 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 diligence is expected,
and high standards of integrity and performance are even required of it. [39] Petitioner, having failed
in this respect, the award of exemplary damages in the amount of P50,000.00 is in order.

As to the award of attorney's fees, Article 2208[40] of the Civil 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.[41] Respondent has been forced to undergo unnecessary trouble and expense to protect
his interest. The Court affirms the appellate court's award of attorney's fees in the amount of
P30,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 41928, dated May 31, 2004 and August 24, 2004, respectively,
are AFFIRMED with the following MODIFICATIONS:

1. The award of One Million Eight Hundred Sixty-Four Thousand and Five Hundred Pesos
21
(P1,864,500.00) as actual damages, in favor of respondent Arcelito B. Tan, is DELETED; and

2. Petitioner Equitable PCI Bank is instead directed to pay respondent the amount of Fifty Thousand
Pesos (P50,000.00) as temperate damages.

SO ORDERED.

[G.R. No. 138569. September 11, 2003.]

THE CONSOLIDATED BANK and TRUST CORPORATION, Petitioner, v. COURT OF APPEALS

and L.C. DIAZ and COMPANY, CPA’s, Respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review of the Decision 1 of the Court of Appeals dated 27 October 1998 and
its Resolution dated 11 May 1999. The assailed decision reversed the Decision 2 of the Regional Trial
Court of Manila, Branch 8, absolving petitioner Consolidated. Bank and Trust Corporation, now
known as Solidbank Corporation ("Solidbank"), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank but modified the decision by
deleting the award of exemplary damages, attorney’s fees, expenses of litigation and cost of
suit.chanrob1es virtua1 1aw 1ibrary

The Facts

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

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

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

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The
teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two
22
deposit slips. Teller No. 6 stamped the deposit slips with the words "DUPLICATE" and "SAVING
TELLER 6 SOLIDBANK HEAD OFFICE." Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then
went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that "somebody got the passbook. 3 Calapre went back to L.C. Diaz and reported the
incident to Macaraya.

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

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

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

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

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

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

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

23
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration
of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary
damages and attorney’s fees.

The Ruling of the Trial Court

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

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

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

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

Solidbank did not have any participation in the custody and care of the passbook. The trial court
believed that Solidbank’s act of allowing the withdrawal of P300,000 was not the direct and proximate
cause of the loss. The trial court held that L.C. Diaz’s negligence caused the unauthorized withdrawal.
Three facts establish L.C. Diaz’s negligence: (1) the possession of the passbook by a person other than
the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized
person; and (3) the possession by an unauthorized person of a PBC check "long closed" by L.C. Diaz,
which check was deposited on the day of the fraudulent withdrawal.

The trial court debunked L.C. Diaz’s contention that Solidbank did not follow the precautionary
procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter
must request Solidbank to allow the withdrawal and convert the amount to a manager’s check. The
bearer must also have a letter authorizing him to withdraw the same amount. Another person driving
a car must accompany the bearer so that he would not walk from Solidbank to the office in making
24
the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past
withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization
or any communication with Solidbank that the money be converted into a manager’s check.

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

The dispositive portion of the decision of the trial court reads:chanrob1es virtual 1aw library

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

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

With costs against plaintiff.

SO ORDERED. 12

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbank’s negligence was the proximate cause of the unauthorized
withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this
conclusion after applying the provision of the Civil Code on quasi-delict, to wit:chanrob1es virtual
1aw library

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

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

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

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

25
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a
good father of a family. The business and functions of banks are affected with public interest. Banks
are obligated to treat the accounts of their depositors with meticulous care, always having in mind
the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.

The dispositive portion of the decision of the Court of Appeals reads:chanrob1es virtual 1aw library

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

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation. to pay plaintiff-appellant

the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per
annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary
damages, and P20,000.00 as attorney’s fees and expenses of litigation as well as the cost of suit; and

2. Ordering the dismissal of defendant-appellee’s counterclaim in the amount of P30,000.00 as

attorney’s fees.

SO ORDERED. 13

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

The dispositive portion of the Resolution reads as follows:chanrob1es virtual 1aw library

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorney’s fees, expenses of litigation
and cost of suit.chanrob1es virtua1 1aw 1ibrary

SO ORDERED. 15

Hence, this petition.

The Issues

Solidbank seeks the review of the decision and resolution of the Court of Appeals on these
grounds:chanrob1es virtual 1aw library

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER
THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY
26
TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENT’S
MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES
IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW,
WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

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

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

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

The Ruling of the Court

The petition is partly meritorious.

Solidbank’s Fiduciary Duty under the Law

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

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

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

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
27
Republic Act No. 8791 ("RA 8791"), 18 which took effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." 19 This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court
of Appeals, 20 holding that "the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. 21

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

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

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

Solidbank’s Breach of its Contractual Obligation

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

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

28
Likewise, Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. The tellers know, or should know,
that the rules on savings account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

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

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

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

The bank must not only exercise "high standards of integrity and performance," it must also insure
that its employees do likewise because this is the only way to insure that the bank will comply with
its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the
passbook, and thus failed to prove that this teller exercised the "high standards of integrity and
performance" required of Solidbank’s employees.chanrob1es virtua1 1aw 1ibrary

Proximate Cause of the Unauthorized Withdrawal

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

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred. 26
Proximate cause is determined by the facts of each case upon mixed considerations of logic, common
29
sense, policy and precedent. 27

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

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

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

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

Teller No. 5 who processed the withdrawal could not have been put on guard to verify the
withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000
PBC check, which later bounced. The impostor apparently deposited a large amount of money to
deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus
erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be suspicious of the transaction.

Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since
Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the following statements in the
Booking and Information Sheet of Emerano Ilagan:chanrob1es virtual 1aw library

. . . Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount
of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing
this large sum of money, Accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan
then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. 28 (Emphasis
supplied.)
30
L.C. Diaz refutes Solidbank’s contention by pointing out that the person who withdrew the P300,000
was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented
the passbook with the withdrawal slip.

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

Doctrine of Last Clear Chance

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

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

Mitigated Damages

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

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

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPA’s only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
borne by private respondent L.C. Diaz and Company, CPA’s. Proportionate costs.chanrob1es virtua1
1aw 1ibrary
31
SO ORDERED.

G.R. No. 127469 January 15, 2004

PHILIPPINE BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.

DECISION

CARPIO, J.:

The Case

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

The Antecedent Facts

On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of
Money with Damages3 against petitioner Philippine Banking Corporation ("BANK").4

Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one
of the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with the
BANK. Marcos yielded to 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. On 12 March 1982, Marcos claimed he again made a time deposit
with the BANK for P764,897.67. The BANK did not issue an official receipt for this time deposit but
it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. The time
deposits earned interest at 17% per annum and had a maturity period of 90 days.

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

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the
accumulated interests to buy materials for his construction business. However, the BANK through
32
Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic
letters of credit. The BANK required Marcos to give a marginal deposit of 30% of the total amount of
the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since
Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the
domestic letters of credit, trust receipt agreements and promissory notes.

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

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

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

Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25% per
annum supposedly covered by Promissory Note No. 20-979-83 dated 24 October 1983. Marcos
bewailed the BANK’s belated claim that his time deposits were applied to this void promissory note
on 12 March 1985.

In sum, Marcos claimed that:

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

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

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

33
On 18 September 1989, summons and a copy of the complaint were served on the BANK.6

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

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

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

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

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

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

The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory
note is supported by documentary evidence such as Marcos’ application for this loan and the
microfilm of the 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

34
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

35
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.
36
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:

37
 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:

38
 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?

39
 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-

40
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.

41
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.

42
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

43
What the BANK presented were merely the "machine copies of the duplicate" of the loan application
and promissory note. No explanation was ever offered by the BANK for its inability to produce the
original copies of the documentary evidence. The BANK also did not comply with the orders of the
trial court to submit the originals.

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

The absence of the original of the documentary evidence casts suspicion on the existence of
Promissory Note No. 20-979-83 considering the 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

44
The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982
is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11 March
1982. This is plainly seen from the use of the word "aggregate."

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

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

The trial and appellate courts found that the parties did not agree on the imposition of interest on the
loan covered by the trust receipts and thus no interest is due on this loan. However, the records show
that the three trust receipt agreements contained stipulations for the payment of interest but the
parties failed to fill up the blank spaces on the rate of interest. Put differently, the BANK and Marcos
expressly agreed in writing on the payment of interest 46 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

45
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 moral 58 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.

PNB VS. PIKE 157845

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
seeks to reverse the Decision [1] dated 19 December 2002, and the Resolution [2] dated 02 April 2003,
both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the

46
Decision [3] rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997,
in Civil Case No. 94-68821 in favor of herein respondent Norman Pike (Pike).

The case stemmed from a complaint [4] filed by herein respondent Pike for damages [5] against
Philippine National Bank (PNB) on 04 January 1994.

Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in
1991, 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 key, in his home; that on 19 April 1993, a few hours after he arrived from
Japan, he discovered that some 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 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:

DATE AMOUNT
31 March 1993 $3,500.00
05 April 1993 4,000.00
TOTAL $7,500.00

that on several occasions, complainant Pike went to defendant PNB's Buendia branch and verbally
protested the unauthorized withdrawals and likewise demanded the return of the total withdrawn
amount of U.S. $7,500.00, on the ground that he never authorized anybody to withdraw from his
account as the signatures appearing on the subject withdrawal slips were clearly forgeries; that
defendant PNB refused to credit said amount back to complainant's U.S. Dollar Savings Account
without justifiable reason, and instead, defendant bank wrote him that it exercised due diligence in
the handling of said account; and that on 06 May 1993, complainant Pike wrote defendant PNB simply
to request that the hold-account be lifted so that he may withdraw the remaining balance left in his
U.S.$ Savings Account and nothing else.

On the other hand, defendant PNB alleged, in its Motion to Dismiss [6] of 18 April 1994, a
counterstatement of facts. Its factual allegations read:

. . . 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 withdrawals to be transmitted by his Talent Manager and Choreographer, Joy
Davasol who shall present pre-signed withdrawal slips bearing his (Pike's ) signature. . .

On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiff's sister executed an
affidavit . . . . 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 matter to the police authorities and her brother cannot report the matter to

47
the Bank because he was currently in Japan and therefore requesting the Bank to issue a hold-order
on her brother's passbook.

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. . .

On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiff's counsel sent a demand letter
to VP Violeta T. Suquila (then VP and Manager of PNB Buendia Branch) demanding the bank to credit
back the 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. . .

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 19, 1993. . .

On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB, Buendia
Branch the full contents of said letter hereto quoted as follows:

May 6, 1993

The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila

Sir:

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.

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.

Sgd. NORMAN Y. PIKE

Depositor
Philippine Passport
No. H918022
Issued at Manila on
Sept. 6, 1990
Place of Issuance
48
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;

49
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,

50
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 instructions [12] 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.

51
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
Davasol [13] 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. [14]When 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 45 [16] of the Rules of Court:

SECTION 1. Filing of petition with Supreme Court. - . . . The petition shall raise only questions of
law [17] 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
52
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-examination [20] 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?

53
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?

54
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

Q: And the withdrawal made on April 5, 1993 which you approved, you did not look at Exhibit 'C',
the Savings Signature Card Individual?

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

Q: Yes or no?

A: No, sir.

Q: And Mr. witness, Exhibit C-1 [22] which is being kept at your vault, also contains a picture?

A: Yes, sir.

Q: And the picture of the depositor?

A: Yes, sir.

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

A: What particular identity?

Q: His appearance?

A: He is gay looking fellow.

COURT: Answer. You are familiar with his physical appearance?

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

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 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 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 finding of negligence amounting to bad faith, to
wit:

55
Q: And you also met Joy Manuel Dabasol on March 15?

A: Yes, sir.

Q: And can you describe Joy Manuel Dabasol?

A: I cannot recall his face but then he is a Talent manager, because there are so many depositors in
the bank.

...

Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you verbal authority to honor
withdrawal by Joy Manuel Dabasol?

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?

...

A: I required Mr. Norman Pike to sign the withdrawal slip on the face of the withdrawal slip.

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

...

A: No, because that is sufficient already.

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

A: I dont think so.

Q: Mr. witness, when ' on April 5, 1993, when Joy Dabasol came to the office and according to you, you do not
remember him, is that correct?

A: I cannot recall his face.

...

Q: And he just showed you a withdrawal slip, is this correct?

A: Yes, on April 5.

Q: Did you require him to produce any Identification Card, yes or no?

A: No.

56
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
willand 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.

57
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]

Likewse, 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 obligor [30] 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 2219 [35] and 2220 [36] 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]
58
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 P 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) P20,000.00
representing attorney's fees; and 2) P10,000.00 representing expenses of litigation. Costs against
petitioner PNB.

SO ORDERED

[G.R. NO. 176434 : June 25, 2008]

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. LIFETIME MARKETING

CORPORATION, Respondent.

DECISION

TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision1 of the Court of Appeals
dated 31 July 2006 in CA-G.R. CV No. 62769 which ordered it to pay Lifetime Marketing Corporation
(LMC) actual damages in the amount of P2,075,695.50 on account of its gross negligence in handling
LMC's account.

The following facts, quoted from the decision of the Court of Appeals, are undisputed:

On October 22, 1981, Lifetime Marketing Corporation (LMC, for brevity), opened a current account
with the Bank of the Philippine Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as
Account No. 3101-0680-63. In this account, the "sales agents" of LMC would have to deposit their
collections or payments to the latter. As a result, LMC and BPI, made a special arrangement that the
former's agents will accomplish three (3) copies of the deposit slips, the third copy to be retained and
held by the teller until LMC's authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta
Ancajas, shall retrieve them on the following banking day.

59
Sometime in 1986, LMC availed of the BPI's inter-branch banking network services in Metro Manila,
whereby the former's agents could make [a] deposit to any BPI branch in Metro Manila under the
same account. Under this system, BPI's bank tellers were no longer obliged to retain the extra copy of
the deposit slips instead, they will rely on the machine-validated deposit slip, to be submitted by
LMC's agents. For its part, BPI would send to LMC a monthly bank statement relating to the subject
account. This practice was observed and complied with by the parties.

As a business practice, the registered sales agents or the Lifetime Educational Consultants of LMC,
can get the books from the latter on consignment basis, then they would go directly to their clients to
sell. These agents or Lifetime Educational Consultants would then pay to LMC, seven (7) days after
they pick up all the books to be sold. Since LMC have several agents around the Philippines, it
required to remit their payments through BPI, where LMC maintained its current account. It has been
LMC's practice to require its agents to present a validated deposit slip and, on that basis, LMC would
issue to the latter an acknowledgement receipt.

Alice Laurel, is one of LMC's "Educational Consultants" or agents. On various dates covering the
period from May, [sic] 1991 up to August, 1992, Alice Laurel deposited checks to LMC's subject
account at different branches of BPI, specifically: at the Harrison/Buendia branch-8 checks; at
Arrangue branch-4 checks; at Araneta branch-1 check; at Binondo branch-3 checks; at Ermita branch-
5 checks; at Cubao Shopping branch-1 check; at Escolta branch-4 checks; at the Malate branch-2
checks; at Taft Avenue branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San Juan branch,
at West Avenue and Commonwealth Quezon City branch - 2 checks; and at Vito Cruz branch-2
checks.

Each check thus deposited were retrieved by Alice Laurel after the deposit slips were machine-
validated, except the following thirteen (13) checks, which bore no machine validation, to wit: CBC
Check No. 484004, RCBC Check No. 419818, CBC Check No. 484042, FEBTC Check No. 171857, RCBC
Check No. 419847, CBC Check No. 484053, MBTC Check No. 080726, CBC Check No. 484062, PBC
Check No. 158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check No. 484023 and CBC
Check No. 218190.

A verification with BPI by LMC showed that Alice Laurel made check deposits with the named BPI
branches and, after the check deposit slips were machine-validated, requested the teller to reverse the
transactions. Based on general banking practices, however, the cancellation of deposit or payment
transactions upon request by any depositor or payor, requires that all copies of the deposit slips must
be retrieved or surrendered to the bank. This practice, in effect, cancels the deposit or payment
transaction, thus, it leaves no evidence for any subsequent claim or misrepresentation made by any
innocent third person. Notwithstanding this, the verbal requests of Alice Laurel and her husband to
reverse the deposits even after the deposit slips were already received and consummated were
accommodated by BPI tellers.

Alice Laurel presented the machine-validated deposit slips to LMC which, on the strength thereof,
considered her account paid. LMC even granted her certain privileges or prizes based on the deposits
she made.

The total aggregate amount covered by Alice Laurel's deposit slips was Two Million Seven Hundred
Sixty Seven Thousand, Five Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid
60
Laurel the total sum of Five Hundred Sixty Thousand Seven Hundred Twenty Six Pesos (P560,726.00)
by way of "sales discount and promo prizes."

The above fraudulent transactions of Alice Laurel and her husband was made possible through BPI
teller's failure to retrieve the duplicate original copies of the deposit slips from the former, every time
they ask for cancellation or reversal of the deposit or payment transaction.

Upon discovery of this fraud in early August 1992, LMC made queries from the BPI branches
involved. In reply to said queries, BPI branch managers formally admitted that they cancelled,
without the permission of or due notice to LMC, the deposit transactions made by Alice and her
husband, and based only upon the latter's verbal request or representation.

Thereafter, LMC immediately instituted a criminal action for Estafa against Alice Laurel and her
husband Thomas Limoanco, before the Regional Trial Court of Makati, Branch 65, docketed as
Criminal Case No. 93-7970 to 71, entitled People of the Philippines v. Thomas Limoanco and Alice
Laurel. This case for estafa, however, was archived because summons could not be served upon the
spouses as they have absconded. Thus, the BPI's apparent reluctance to admit liability and settle
LMC's claim for damages, and a hopeless case of recovery from Alice Laurel and her husband, has
left LMC, with no option but to recover damages from BPI.

On July 24, 1995, LMC, through its representative, Miss Consolacion C. Rogacion, the President of the
company, filed a Complaint for Damages against BPI, docketed as Civil Case No. 95-1106, and was
raffled to Regional Trial Court of Makati City, Branch 141.

After trial on the merits, the court a quo rendered a Decision in favor of LMC. The dispositive portion
of which reads, as follows:

WHEREFORE, decision is hereby rendered ordering defendant bank to pay plaintiff actual damages equitably
reduced to one (1) million pesos plus attorney's fees of P100,000.00.

No pronouncement as to costs.

SO ORDERED.2

Only BPI filed an appeal. The Court of Appeals affirmed the decision of the trial court but increased
the award of actual damages to P2,075,695.50 and deleted the award of P100,000.00 as attorney's
fees.3 Citing public interest, the appellate court denied reconsideration in a Resolution4 dated 30
January 2007.

In this Petition for Review5 dated 19 March 2007, BPI insists that LMC should have presented
evidence to prove not only the amount of the checks that were deposited and subsequently reversed,
but also the actual delivery of the books and the payment of "sales and promo prizes" to Alice Laurel.
Failing this, there was allegedly no basis for the award of actual damages. Moreover, the actual
damages should not have been increased because the decision of the trial court became conclusive as
regards LMC when it did not appeal the said decision.

61
BPI further avers that LMC's negligence in considering the machine-validated check deposit slips as
evidence of Alice Laurel's payment was the proximate cause of its own loss. Allegedly, by allowing
its agents to make deposits with other BPI branches, LMC violated its own special arrangement with
BPI's Greenhills-EDSA branch for the latter to hold on to an extra copy of the deposit slip for pick up
by LMC's authorized representatives. BPI points out that the deposits were in check and not in cash.
As such, LMC should have borne in mind that the machine validation in the deposit slips is still
subject to the sufficiency of the funds in the drawers' account. Furthermore, LMC allegedly ignored
the express notice indicated in its monthly bank statements and consequently failed to check the
accuracy of the transactions reflected therein.

In its Manifestation of Compliance by Respondent on the Order Dated 20 June 2007 Received on 29
July 2007 to Submit Comment,6 dated 9 August 2007, LMC insists that it is indeed entitled to the
actual damages awarded to it by the appellate court.

BPI filed a Reply7 dated 15 January 2008, in reiteration of its submissions.

We have repeatedly emphasized that the banking industry is impressed with public interest. Of
paramount importance thereto is the trust and confidence of the public in general. Accordingly, the
highest degree of diligence is expected, and high standards of integrity and performance are required
of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of its relationship with them.8The
fiduciary nature of banking, previously imposed by case law, is now enshrined in Republic Act No.
8791 or the General Banking Law of 2000. Section 2 thereof specifically says that the state recognizes
the fiduciary nature of banking that requires high standards of integrity and performance.9

Whether BPI observed the highest degree of care in handling LMC's account is the subject of the
inquiry in this case.

LMC sought recovery from BPI on a cause of action based on tort. Article 2176 of the Civil Code
provides, "Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter."
There are three elements of quasi-delict: (a) fault or negligence of the defendant, or some other person
for whose acts he must respond; (b) damages suffered by the plaintiff; and (c) the connection of cause
and effect between the fault or negligence of the defendant and the damages incurred by the
plaintiff.10

In this case, both the trial court and the Court of Appeals found that the reversal of the transactions
in question was unilaterally undertaken by BPI's tellers without following normal banking procedure
which requires them to ensure that all copies of the deposit slips are surrendered by the depositor.
The machine-validated deposit slips do not show that the transactions have been cancelled, leading
LMC to rely on these slips and to consider Alice Laurel's account as already paid.

Negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would not do.11Negligence in this case lies in the tellers' disregard of
the validation procedures in place and BPI's utter failure to supervise its employees. Notably, BPI's
62
managers admitted in several correspondences with LMC that the deposit transactions were
cancelled without LMC's knowledge and consent and based only upon the request of Alice Laurel
and her husband.12

It is well to reiterate that the degree of diligence required of banks is more than that of a reasonable
man or a good father of a family. In view of the fiduciary nature of their relationship with their
depositors, banks are duty-bound to treat the accounts of their clients with the highest degree of
care.13

BPI cannot escape liability because of LMC's failure to scrutinize the monthly statements sent to it by
the bank. This omission does not change the fact that were it not for the wanton and reckless
negligence of BPI's tellers in failing to require the surrender of the machine-validated deposit slips
before reversing the deposit transactions, the loss would not have occurred. BPI's negligence is
undoubtedly the proximate cause of the loss. Proximate cause is that cause which, in a natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred.14

It is also true, however, that LMC should have been more vigilant in managing and overseeing its
own financial affairs. The damages awarded to it were correctly reduced on account of its own
contributory negligence in accordance with Article 1172 of the Civil Code.15

Parenthetically, we find no merit in BPI's allegation that LMC should have presented evidence of
delivery of the books and payment of sales and promo prizes to Alice Laurel. The evidence presented
by LMC in the form of BPI's own admission that the deposit transactions were

reversed at the instance of Alice Laurel and her husband, coupled with the machine-validated deposit
slips16which were supposed to have been deposited to LMC's account but were cancelled without its
knowledge and consent, sufficiently form the bases for the actual damages claimed because they are
the very same documents relied upon by LMC in considering Alice Laurel's account paid and in
granting her monetary privileges and prizes.

Be that as it may, we find the appellate court's decision increasing the award of actual damages in
favor of LMC improper since the latter did not appeal from the decision of the trial court. It is well-
settled that a party who does not appeal from the decision may not obtain any affirmative relief from
the appellate court other than what he has obtained from the lower court whose decision is brought
up on appeal. The exceptions to this rule, such as where there are (1) errors affecting the lower court's
jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors, do not apply
in this case.17

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 62769 dated 31 July 2006 and
its Resolution dated January 30, 2007 are AFFIRMED with the MODIFICATION that the Bank of the
Philippine Islands is ordered to pay actual damages to Lifetime

Marketing Corporation in the amount of One Million Pesos (P1,000,000.00). No pronouncement as to

costs.

SO ORDERED.

63
G.R. No. 149454 May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.

x ----------------------------- x

G.R. No. 149507 May 28, 2004

CASA MONTESSORI INTERNATIONALE, petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.

DECISION

PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients,
who have the right to expect high standards of integrity and performance from it.

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 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:

"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the
modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for
one-half of the value of the forged checks in the amount of ₱547,115.00 after deductions subject
to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay
the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]."4

The assailed Resolution denied all the parties’ Motions for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

"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 its authorized signatories.
64
 "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:

‘Check No. Date Amount

1. 839700 April 24, 1990 ₱ 43,400.00

2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00

4. 839549 April 7, 1990 90,700.00

5. 839569 Sept. 23, 1990 52,277.00

6. 729149 Mar. 22, 1990 148,000.00

7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

9. 729034 Mar. 2, 1990 98,985.00

Total -- ₱ 782,600.006

"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.

"On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank praying that the latter be ordered to reinstate the amount of ₱782,500.007 in
the current and savings accounts of the plaintiff with interest at 6% per annum.

"On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff."8

Ruling of the Court of Appeals

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 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.

Hence, these Petitions.9

65
Issues

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 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

66
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

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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;

68
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

69
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 procedure 84 -- 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

Every right has subjects -- active and passive. While the active subject is entitled to demand its
enforcement, the passive one is duty-bound to suffer such enforcement.92

On the one hand, BPI could not have been an active subject, because it could not have demanded
from 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 had no obligation to respond. It could -- as it did -- choose not to respond.

Estoppel precludes individuals from denying or asserting, by their own deed or representation,
anything contrary to that established as the truth, in legal contemplation.94 Our rules on evidence
even make a juris et de jurepresumption95 that whenever one has, by one’s own act or omission,
intentionally and deliberately led another to believe a particular thing to be true and to act upon that
belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that
supposed truth.96

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In the instant case, CASA never made any deed or representation that misled BPI. The former’s
omission, if any, may only be deemed an innocent mistake oblivious to the procedures and
consequences of periodic audits. Since its conduct was due to such ignorance founded upon an
innocent mistake, estoppel will not arise.97 A person who has no knowledge of or consent to a
transaction may not be estopped by 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.

Loss Borne by Proximate Source of Negligence

For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank --
becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can
easily go after 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

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 would not have occurred."107

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 that obligation, it is bound by its internal banking rules and regulations that form part
of the contract it enters into with its depositors.109

Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its
branches without privity;110 that is, without the proper verification of his corresponding identification
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 Unit 111of the bank even passed off
these evidently different signatures as genuine. Without exercising the required prudence on its part,
BPI accepted and 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

In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception 114 to
the 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 as a real defense.

Role of Independent Auditor

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The major purpose of an independent audit is to investigate and determine objectively if the financial
statements submitted for audit by a corporation have been prepared in accordance with the
appropriate financial reporting practices116 of private entities. The relationship that arises therefrom
is both legal and moral.117 It begins with the execution of the engagement letter118 that embodies the
terms and conditions of the audit and ends with the fulfilled expectation of the auditor’s ethical119 and
competent performance in all aspects of the audit.120

The financial statements are representations of the client; but it is the auditor who has the
responsibility for the accuracy in the recording of data that underlies their preparation, their form of
presentation, and the opinion121expressed therein.122 The auditor does not assume the role of
employee or of management in the client’s conduct of operations123 and is never under the control or
supervision124 of the client.

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 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 could be more horrible to a client than to discover later on that the person
tasked to detect fraud was the same one who perpetrated it.

Cash Balances Open to Manipulation

It is a non sequitur to say that the person who receives the monthly bank statements, together with the
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.

Besides, in the internal accounting control system prudently installed by CASA,130 it was Yabut who
should examine those documents in order to prepare the bank reconciliations. 131 He owned his
working 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. Besides, "[g]ood faith is always presumed and it is the burden of the party claiming
otherwise to adduce clear and convincing evidence to the contrary."133

Moreover, there was a time gap between the period covered by the bank statement and the date of its
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

72
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 bookkeeper 142 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

73
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.

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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.

[G.R. NO. 141835 : February 4, 2009]

CENTRAL BANK OF THE PHILIPPINES, Petitioner, v.CITYTRUST BANKING

CORPORATION, Respondent.

DECISION

CARPIO MORALES, J.:

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

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

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

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

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

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

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

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

By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and
petitioner negligent and accordingly held them equally liable for the loss. Both parties appealed to
the Court of Appeals which, by Decision2 dated July 16, 1999, affirmed the trial court's decision, it
holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they
should equally share the loss in consonance with Article 21793 vis a vis Article 11724 of the Civil
Code.

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

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

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

Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller,
Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the proceeds of
the checks to Flores, the failure of its teller to properly verify his signature notwithstanding, petitioner
contends that verification could be dispensed with, Flores having been known to be an authorized

76
roving teller of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrust's)
behalf for five years prior to the questioned transaction.

Attributing negligence solely to Citytrust, petitioner harps on Citytrust's allowing Flores to steal the
checks and failing to timely cancel them; allowing Flores to wear the issued identification card issued
by it (petitioner); failing to report Flores' absence from work on the day of the incident; and failing to
explain the circumstances surrounding the supposed theft and cancellation of the checks.

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

The petition is bereft of merit.

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

Given that petitioner is the government body mandated to supervise and regulate banking and other
financial institutions, this Court's ruling in Consolidated Bank and Trust Corporation v. Court of
Appeals5 illumines:

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

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

This fiduciary relationship means that the bank's obligation to observe "high standards of integrity
and performance" is deemed written into every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a
good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks -
that banks must observe "high standards of integrity and performance" in servicing their depositors.

77
Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000
from L.C. Diaz's savings account, jurisprudence at the time of the withdrawal already imposed on
banks the same high standard of diligence required under RA No. 8791. (Emphasis
supplied)cralawlibrary

Citytrust's failure to timely examine its account, cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioner's liability, in accordance with Article 2179 of the Civil
Code which provides that if the plaintiff's 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 mitigate the damages to be awarded. For had Citytrust timely
discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have
been recovered.

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

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with
MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

SO ORDERED.

[G.R. No. 202532. October 21, 2015.]

CHINA BANKING CORPORATION, petitioner, vs. DOLORES PADILLA (DECEASED),

ASSISTED BY HER SPOUSE, ROBERT PADILLA; AND LOIDA BIRUNG, ASSISTED BY HER
SPOUSE, ARSENIO BIRUNG, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Second Division, issued a Resolution dated 21 October 2015 which reads as
follows:

"G.R. No. 202532 — China Banking Corporation v. Dolores Padilla (deceased), assisted by her Spouse, Robert
Padilla; and Loida Birung, assisted by her Spouse, Arsenio Birung.

This is a petition for review on certiorari seeking to reverse and set aside the December 2, 2011 Decision
1 and the June 29, 2012 Resolution 2 of the Court of Appeals (CA).

Respondents Dolores Padilla (Dolores) and Loida Birung (Loida) were depositors of petitioner China
Banking Corporation (CBC). They maintained a joint account, with account number 164-011201-4
78
(CBC account), with CBC Tuguegarao Branch.

Sometime in March 1997, Dolores and Loida issued a CBC check in the amount of Seven Hundred
Pesos (P700.00) in favor of Marivic Samonte (Marivic). Curiously, the numerical figures were written
as P700,000.00 for some unknown reason. Taking advantage of the error, Marivic deposited the check
in her CBC account. The check was dishonored for the reason "drawn against insufficient funds"
because at the time of presentation, the CBC account's outstanding balance was only P5,147.10.

Due to the check's dishonor, Marivic filed a criminal case for Estafa and Violation of Batas Pambansa
Bilang 22 against the respondents. They were eventually dismissed.

On July 28, 1997, the respondents filed a complaint for damages against CBC. They alleged that CBC
failed to exercise the diligence required of banking institutions which caused the filing of criminal
charges against them. 3 Loida testified that she and Dolores purchased imported canned goods and
fruits from Marivic. They issued a check, dated March 27, 1997, as payment. The amount in numerical
figures was for P700,000.00 but the amount written in words was for P700.00 only. Dolores
corroborated Loida's testimony and further narrated that, at the time of her arrest, she immediately
called CBC's cashier Michael Yu (Yu), and inquired why she was being arrested inspite of sufficient
funds to cover for the check. After she posted bail for her arrest, Yu readily admitted his mistake in
posting the amount. 4

Winston Apalisoc, an Instructor at the St. Louis University and former bank employee and officer of
Rizal Commercial Banking Corporation, also took the witness stand for the respondents. He testified
that when there were discrepancies in the checks presented to them, the procedure was to call up the
particular drawer to inform him or her about such discrepancy and thereafter require his or her
appearance in the bank to correct the same by affixing his or her signature therein. 5

CBC, on the other hand, countered that it was never negligent in dishonoring the check. Yu called
Dolores to verify the amount of the check and it was Dolores herself who confirmed that the amount
was for P700,000.00, and not P700.00. CBC's Vice-President, Atty. Roberto Uyquiengco, testified that
Yu underwent the necessary tests before he was hired and that, at the time of the filing of the
complaint, he was already terminated from office for violation of bank policies. CBC's Operations
Head, Rogie Tamayo, narrated that he was the clearing assistant of CBC in March 1997. During that
time, Yu brought to his attention a check issued by the respondents which had a discrepancy between
the words and figures written therein. Yu relayed to him the confirmation of Dolores through
telephone as to the correct amount of the check. CAIHTE

79
Yu executed an affidavit admitting that he caused the dishonor of the check after calling Dolores to
confirm the amount involved. He, however, was never presented as witness for CBC as he already
passed away. Neither was Marivic called to the witness stand to clarify the true amount owed to her
by the respondents.

Ruling of the Regional Trial Court 6
 The RTC ruled in favor of the respondents. It cited Section 17 (a)
of the

Negotiable Instruments Law which provides:

Where the sum payable is expressed in words and also in figures and there is a discrepancy between
the two, the sum denoted by the words is the sum payable, but if the words are ambiguous or
uncertain, reference maybe had to the figures to fix the amount.

The RTC was of the view that confirmation through telephone was not enough considering the
situation, not to mention the huge amount involved. The degree of diligence required was more than
that of a good father of a family because the banking business was imbued with public interest. The
law imposed on banks a higher degree of obligation to treat the account of its depositors w ith
meticulous care, alw ays bearing in mind the banking's fiduciary nature. CBC could not evade
responsibility for the negligence in the check's dishonor, notwithstanding the series of tests and
training conducted by it. It could not evade responsibility for the negligence in the dishonor of the
check. 7 Thus, it disposed:

WHEREFORE, in view of the above considerations, judgment is hereby rendered ordering the
defendants to pay the following:

1. THREE HUNDRED THOUSAND (P300,000.00) PESOS to plaintiff Dolores Padilla, through her
heirs Roberto, Sr., Janice and

Roberto, Jr., all surnamed Padilla, as moral damages.

2. THREE HUNDRED THOUSAND (P300,000.00) PESOS to plaintiff Loida Birung, as moral

damages.

3. TWO HUNDRED THOUSAND (P200,000.00) PESOS to plaintiff Loida Birung; and

4.ONE HUNDRED FIFTY THOUSAND (P150,000.00) PESOS to plaintiffs as attorney's fees.

SO ORDERED. 8

Aggrieved, CBC appealed before the CA arguing that Yu's act in calling Dolores was the best way to
80
ascertain the true amount of the check. Considering that the check was intended as payment for
jewelry, it was highly probable that it could cost P700,000.00 and not P700.00. By ordinary experience,
the sum of P700.00 should have been paid in cash. There was no basis for the civil liability because
CBC exercised due diligence in the selection and supervision of its employees. 9

Ruling of the Court of Appeals

The CA affirmed the RTC decision with modification.

The CA reasoned that CBC could not escape liability from Yu's negligent act committed by Yu.
Considering that its business was imbued with public interest and that the relationship between it
and its depositors is fiduciary in nature, the diligence required is more than that of a good father of a
family. 10 The CA disposed as follows:

WHEREFORE, in view of the foregoing, the assailed decision dated January 6, 2009 in Civil Case No.
5179 of the Regional Trial Court, Branch 4, Tuguegarao City, Cagayan, is hereby AFFIRMED with
MODIFICATION in that the award of moral damages is hereby REDUCED to P50,000.00 each, while
the award of exemplary damages is hereby reduced to P30,000.00 each. The rest of the decision
STAYS.

SO ORDERED. 11 Hence, this petition.

ISSUE

(1) Whether the CA misconstrued the provisions of Section 17 of the Negotiable Instruments Law.

(2) Whether the CA misapplied the provisions of Article 2180 in relation to Article 2176 of the New
Civil Code.

CBC argues that Section 17 of the NIL is not absolute. It does not prohibit the draw ee bank, if it so
chooses, to make a direct personal confirmation with the drawer on the true and correct amount
written in the disputed check. While the drawee bank has the option to return the check to the payee
by reason of such discrepancy, no law exists, however, which prevents the drawee from completing
the transaction upon confirmation by the drawer of the amount intended in the check. 12 The drawer
need not be required to appear before the drawee bank to countersign the erroneous amount. Such
procedure would necessarily destroy the very purpose for which checks are used. They are deemed
as convenient substitutes for money. 13 D

On September 24, 2012, the Court issued a Resolution 14 (September 24 Resolution) requiring the

81
respondents to file their comment. Atty. Ephraim Z. Lasam (Atty. Lasam), counsel for respondents,
however, failed to submit the same. On April 3, 2013, another Resolution 15 (Show Cause Resolution)
was issued requiring Atty. Lasam to show cause why he should not be held in contempt and also to
submit the respondents' comment. Still, Atty. Lasam failed to comply with the Show Cause
Resolution. Hence, in the October 16, 2013 Resolution 16 (October 16 Resolution), the Third Division
imposed a fine of P1,000.00 upon him. He was again required to comply with the September 24
Resolution but to no avail. The registry return receipts corresponding to the three notices of
Resolution showed that said notices were delivered to Atty. Lasam on March 18, 2013, June 14, 2013
and March 7, 2014, respectively.

On February 4, 2015, another Resolution 17 was issued, imposing an additional fine of P1,000.00 and
again requiring Atty. Lasam to comply with the September 24, 2012 Resolution. To date, the
respondents have not filed their comment.

In view of the respondents' refusal to submit their comment, the Court deems it proper to consider
the petition as submitted for resolution.

The Court's Ruling

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 w ith meticulous care. 18

Time and again, the Court has stressed that 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 very high, if not the highest degree of diligence. A bank's
liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due
diligence in the selection and supervision of its employees is unavailing. By the very nature of their
duties, the degree of responsibility, care and trustworthiness expected of their employees and officials
are far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees. 19

Considering that banks can only act through their offi cers and employees, the fiduciary obligation
laid down for these institutions necessarily extends to their employees. Thus, banks must ensure that
their employees observe the same high level of integrity and performance for it is only through this
that banks may meet and comply with their own fiduciary duty. Thus, even if it is their employees
who are negligent, the bank's responsibility to its client remains paramount-making its liability to the

82
same to be a direct one. 20

CBC insists that there is no better way to ascertain the true amount of the check than the personal
confirmation of the drawer, Dolores. 21 Although it may be initially argued that Section 17 of the
Negotiable Instruments Law applies to this case, it is not absolute. CBC argues that if the drawer
would still be required to appear in the drawee bank simply to countersign the erroneous amount of
the check, such procedure would destroy the very purpose for which checks are deemed as
convenient substitutes for money.

CBC's arguments runs afoul with a bank's duty to exercise the highest degree of diligence.
Considering the amount involved in the check, it would have been more prudent for CBC to call
Dolores and require her to countersign the check. Convenience cannot defeat the bank's paramount
fiduciary responsibility to its clients.

CBC failed to show convincing evidence that it had exercised the diligence required by law. To stress,
CBC merely presented Yu's affidavit which stated that he called Dolores to verify the amount of the
check. Further, it appears that Yu was subsequently terminated in 1998 due to his unsound banking
practices. His infractions consisted of private lending and approving encashment of unfunded checks.
Worse, he failed to return unfunded in- clearing checks in the amount of P700,000.00 despite
availability of the special clearing facility. 23

Neither was Marivic presented as a witness. As the payee and creditor, she was in the best position
to state the real amount of the check. Given the fiduciary nature of its relation with the respondents,
CBC should have exerted more effort to safeguard and protect the integrity of its depositor's accounts
and transactions.

Thus, the Court finds no reason to disturb the factual findings of the RTC and the CA. For Yu's failure
to exercise the requisite diligence, CBC was correspondingly negligent in the selection and
supervision of its employees.

WHEREFORE, the petition is DENIED. (Carpio, J., on official leave; Brion, J., designated Acting
Chairperson, per Special Order No. 2222, and Peralta, J., designated Acting Member, per Special Order No.
2223, both dated September 29, 2015; Del Castillo, J., on official leave; Leonardo-de Castro, designated Acting
Member, per Special Order No. 2250, dated October 14, 2015)

SO ORDERED." aDSIHc

83
G.R. Nos. 154470-71 September 24, 2012

BANK OF COMMERCE, Petitioner,

vs.
PLANTERS DEVELOPMENT BANK and BANGKO SENTRAL NG PILIPINAS, Respondent.

x-----------------------x

G.R. Nos. 154589-90

BANGKO SENTRAL NG PILIPINAS, Petitioner,

vs.
PLANTERS DEVELOPMENT BANK, Respondent.

DECISION

BRION, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45,1 on pure
questions of law, filed by the petitioners Bank of Commerce (BOC) and the Bangko Sentral ng
Pilipinas (BSP). They assail the January 10, 2002 and July 23, 2002 Orders (assailed orders) of the
Regional Trial Court (RTC) of Makati City, Branch 143, in Civil Case Nos. 94-3233 and 94-3254. These
orders dismissed (i) the petition filed by the Planters Development Bank (PDB), (ii) the "counterclaim"
filed by the BOC, and (iii) the counter-complaint/cross-claim for interpleader filed bythe BSP; and
denied the BOC’s and the BSP’s motions for reconsideration.

THE ANTECEDENTS

The Central Bank bills

I. First set of CB bills

The Rizal Commercial Banking Corporation (RCBC) was the registered owner of seven Central Bank
(CB) bills with a total face value of ₱ 70 million, issued on January 2, 1994 and would mature on
January 2, 1995.2 As evidenced by a "Detached Assignment" dated April 8, 1994,3 the RCBC sold these
CB bills to the BOC.4 As evidenced by another "Detached Assignment"5 of even date, the BOC, in turn,
sold these CB bills to the PDB.6 The BOC delivered the Detached Assignments to the PDB.7

On April 15, 1994 (April 15 transaction), the PDB, in turn, sold to the BOC Treasury Bills worth ₱ 70
million, with maturity date of June 29, 1994, as evidenced by a Trading Order8 and a Confirmation of
Sale.9 However, instead of delivering the Treasury Bills, the PDB delivered the seven CB bills to the
BOC, as evidenced by a PDB Security Delivery Receipt, bearing a "note: ** substitution in lieu of 06-
29-94" – referring to the Treasury Bills.10 Nevertheless, the PDB retained possession of the Detached
Assignments. It is basically the nature of this April 15 transaction that the PDB and the BOC cannot
agree on.

The transfer of the first set of seven CB bills

84
i. CB bill nos. 45351-53

On April 20, 1994, according to the BOC, it "sold back"11 to the PDB three of the seven CB bills. In turn,
the PDB transferred these three CB bills to Bancapital Development Corporation (Bancap). On April
25, 1994, the BOC bought the three CB bills from Bancap – so, ultimately, the BOC reacquired these
three CB bills,12 particularly described as follows:

Serial No.: 2BB XM 045351

2BB XM 045352
2BB XM 045353

Quantity: Three (3)

Denomination: Php 10 million

Total Face Value: Php 30 million

ii. CB bill nos. 45347-50

On April 20, 1994, the BOC sold the remaining four (4) CB bills to Capital One Equities
Corporation13 which transferred them to All-Asia Capital and Trust Corporation (All Asia). On
September 30, 1994, All Asia further transferred the four CB bills back to the RCBC.14

On November 16, 1994, the RCBC sold back to All Asia one of these 4 CB bills. When the BSP refused
to release the amount of this CB bill on maturity, the BOC purchased from All Asia this lone CB
bill,15 particularly described as follows:16

Serial No.: 2BB XM 045348

Quantity: One (1)

Denomination: Php 10 million

Total Face Value: Php 10 million

As the registered owner of the remaining three CB bills, the RCBC sold them to IVI Capital and Insular
Savings Bank. Again, when the BSP refused to release the amount of this CB bill on maturity, the
RCBC paid back its transferees, reacquired these three CB bills and sold them to the BOC – ultimately,
the BOC acquired these three CB bills.

All in all, the BOC acquired the first set of seven CB bills.

II. Second set of CB bills

On April 19, 1994, the RCBC, as registered owner, (i) sold two CB bills with a total face value of ₱ 20
million to the PDB and (ii) delivered to the PDB the corresponding Detached Assignment. 17 The two
CB bills were particularly described as follows:
85
 Serial No.: BB XM 045373
BB XM 045374

Issue date: January 3, 1994

Maturity date: January 2, 1995

Denomination: Php 10 million

Total Face value: Php 20 million

On even date, the PDB delivered to Bancap the two CB bills18 (April 19 transaction). In turn, Bancap
sold the CB bills to Al-Amanah Islamic Investment Bank of the Philippines, which in turn sold it to
the BOC.19

PDB’s move against the transfer of

the first and second sets of CB bills

On June 30, 1994, upon learning of the transfers involving the CB bills, the PDB informed20 the Officer-
in-Charge of the BSP’s Government Securities Department,21 Lagrimas Nuqui, of the PDB’s claim
over these CB bills, based on the Detached Assignments in its possession. The PDB requested the
BSP22 to record its claim in the BSP’s books, explaining that its non-possession of the CB bills is "on
account of imperfect negotiations thereof and/or subsequent setoff or transfer."23

Nuqui denied the request, invoking Section 8 of CB Circular No. 28 (Regulations Governing Open
Market Operations, Stabilization of the Securities Market, Issue, Servicing and Redemption of the
Public Debt)24 which requires the presentation of the bond before a registered bond may be
transferred on the books of the BSP.25

In a July 25, 1994 letter, the PDB clarified to Nuqui that it was not "asking for the transfer of the CB
Bills…. rather it intends to put the BSP on formal notice that whoever is in possession of said bills is
not a holder in due course," and, therefore the BSP should not make payment upon the presentation
of the CB bills on maturity.26 Nuqui responded that the BSP was "not in a position at that point in
time to determine who is and who is not the holder in due course since it is not privy to all acts and
time involving the transfers or negotiation" of the CB bills. Nuqui added that the BSP’s action shall
be governed by CB Circular No. 28, as amended.27

On November 17, 1994, the PDB also asked BSP Deputy Governor Edgardo Zialcita that (i) a notation
in the BSP’s books be made against the transfer, exchange, or payment of the bonds and the payment
of interest thereon; and (ii) the presenter of the bonds upon maturity be required to submit proof as
a holder in due course (of the first set of CB bills). The PDB relied on Section 10 (d) 4 of CB Circular
No. 28.28 This provision reads:

(4) Assignments effected by fraud – Where the assignment of a registered bond is secured by
fraudulent representations, the Central Bank can grant no relief if the assignment has been honored
without notice of fraud. Otherwise, the Central Bank, upon receipt of notice that the assignment is
claimed to have been secured by fraudulent representations, or payment of the bond the payment of

86
interest thereon, and when the bond is presented, will call upon the owner and the person presenting
the bond to substantiate their respective claims.If it then appears that the person presenting the bond
stands in the position of bonafide holder for value, the Central Bank, after giving the owner an
opportunity to assert his claim, will pass the bond for transfer, exchange or payments, as the case
may be, without further question.

In a December 29, 1994 letter, Nuqui again denied the request, reiterating the BSP’s previous stand.

In light of these BSP responses and the impending maturity of the CB bills, the PDB filed 29 with the
RTC two separate petitions for Mandamus, Prohibition and Injunction with prayer for Preliminary
Injunction and Temporary Restraining Order, docketed as Civil Case No. 94-3233 (covering the first
set of CB bills) and Civil Case 94-3254 (covering the second set of CB bills) against Nuqui, the BSP
and the RCBC.30

The PDB essentially claims that in both the April 15 transaction (involving the first set of CB bills)
and the April 19 transaction (involving the second set of CB bills), there was no intent on its part to
transfer title of the CB bills, as shown by its non-issuance of a detached assignment in favor of the
BOC and Bancap, respectively. The PDB particularly alleges that it merely "warehoused" 31 the first
set of CB bills with the BOC, as security collateral.

On December 28, 1994, the RTC temporarily enjoined Nuqui and the BSP from paying the face value
of the CB bills on maturity.32 On January 10, 1995, the PDB filed an Amended Petition, additionally
impleading the BOC and All Asia.33 In a January 13, 1995 Order, the cases were consolidated.34 On
January 17, 1995, the RTC granted the PDB’s application for a writ of preliminary prohibitory
injunction.35 In both petitions, the PDB identically prayed:

WHEREFORE, it is respectfully prayed x x x that, after due notice and hearing, the Writs of
Mandamus, Prohibition and Injunction, be issued; (i) commanding the BSP and Nuqui, or whoever
may take her place -

(a) to record forthwith in the books of BSP the claim of x x x PDB on the [two sets of] CB Bills in
accordance with Section 10 (d) (4) of revised C.B. Circular No. 28; and

(b) also pursuant thereto, when the bills are presented on maturity date for payment, to call (i) x x x
PDB, (ii) x x x RCBC x x x, (iii) x x x BOC x x x, and (iv) x x x ALL-ASIA x x x; or whoever will present
the [first and second sets of] CB Bills for payment, to submit proof as to who stands as the holder in
due course of said bills, and, thereafter, act accordingly;

and (ii) ordering the BSP and Nuqui to pay jointly and severally to x x x PDB the following:

(a) the sum of ₱ 100,000.00, as and for exemplary damages;

(b) the sum of at least ₱ 500,000.00, or such amount as shall be proved at the trial, as and for
attorney’s fees;

(c) the legal rate of interest from the filing of this Petition until full payment of the sums
mentioned in this Petition; and

87
 (d) the costs of suit.36

After the petitions were filed, the BOC acquired/reacquired all the nine CB bills – the first and second
sets of CB bills (collectively, subject CB bills).

Defenses of the BSP and of the BOC37

The BOC filed its Answer, praying for the dismissal of the petition. It argued that the PDB has no
cause of action against it since the PDB is no longer the owner of the CB bills. Contrary to the PDB’s
"warehousing theory,"38 the BOC asserted that the (i) April 15 transaction and the (ii) April 19
transaction – covering both sets of CB bills - were valid contracts of sale, followed by a transfer of title
(i) to the BOC (in the April 15 transaction) upon the PDB’s delivery of the 1st set of CB bills in
substitution of the Treasury Bills the PDB originally intended to sell, and (ii) to Bancap (in the April
19 transaction) upon the PDB’s delivery of the 2nd set of CB bills to Bancap, likewise by way of
substitution.

The BOC adds that Section 10 (d) 4 of CB Circular No. 28 cannot apply to the PDB’s case because (i)
the PDB is not in possession of the CB bills and (ii) the BOC acquired these bills from the PDB, as to
the 1st set of CB bills, and from Bancap, as to the 2nd set of CB bills, in good faith and for value. The
BOC also asserted a compulsory counterclaim for damages and attorney’s fees.

On the other hand, the BSP countered that the PDB cannot invoke Section 10 (d) 4 of CB Circular No.
28 because this section applies only to an "owner" and a "person presenting the bond," of which the
PDB is neither. The PDB has not presented to the BSP any assignment of the subject CB bills, duly
recorded in the BSP’s books, in its favor to clothe it with the status of an "owner." 39 According to the
BSP –

Section 10 d. (4) applies only to a registered bond which is assigned. And the issuance of CB Bills x x
x are required to be recorded/registered in BSP’s books. In this regard, Section 4 a. (1) of CB Circular
28 provides that registered bonds "may be transferred only by an assignment thereon duly executed
by the registered owner or his duly authorized representative x x x and duly recorded on the books
of the Central Bank."

xxxx

The alleged assignment of subject CB Bills in PDB’s favor is not recorded/registered in BSP’s
books.40 (underscoring supplied)

Consequently, when Nuqui and the BSP refused the PDB’s request (to record its claim), they were
merely performing their duties in accordance with CB Circular No. 28.

Alternatively, the BSP asked that an interpleader suit be allowed between and among the claimants
to the subject CB bills on the position that while it is able and willing to pay the subject CB bills’ face
value, it is duty bound to ensure that payment is made to the rightful owner. The BSP prayed that
judgment be rendered:

a. Ordering the dismissal of the PDB’s petition for lack of merit;

88
 b. Determining which between/among [PDB] and the other claimants is/are lawfully entitled
to the ownership of the subject CB bills and the proceeds thereof;

c. x x x;

d. Ordering PDB to pay BSP and Nuqui such actual/compensatory and exemplary damages…
as the RTC may deem warranted; and

e. Ordering PDB to pay Nuqui moral damages… and to pay the costs of the suit.41

Subsequent events

The PDB agreed with the BSP’s alternative response for an interpleader –

4. PDB agrees that the various claimants should now interplead and substantiate their respective
claims on the subject CB bills. However, the total face value of the subject CB bills should be deposited
in escrow with a private bank to be disposed of only upon order of the RTC.42

Accordingly, on June 9, 199543 and August 4, 1995,44 the BOC and the PDB entered into two separate
Escrow Agreements.45 The first agreement covered the first set of CB bills, while the second agreement
covered the second set of CB bills. The parties agreed to jointly collect from the BSP the maturity
proceeds of these CB bills and to deposit said amount in escrow, "pending final determination by
Court judgment, or amicable settlement as to who shall be eventually entitled thereto."46 The BOC
and the PDB filed a Joint Motion,47 submitting these Escrow Agreements for court approval. The RTC
gave its approval to the parties’ Joint Motion.48 Accordingly, the BSP released the maturity proceeds
of the CB bills by crediting the Demand Deposit Account of the PDB and of the BOC with 50% each
of the maturity proceeds of the amount in escrow.49

In view of the BOC’s acquisition of all the CB bills, All Asia50 moved to be dropped as a respondent
(with the PDB’s conformity51 ), which the RTC granted.52 The RCBC subsequently followed suit.53

In light of the developments, on May 4, 1998, the RTC required the parties to manifest their intention
regarding the case and to inform the court of any amicable settlement; "otherwise, th[e] case shall be
dismissed for lack of interest."54 Complying with the RTC’s order, the BOC moved (i) that the case be
set for pre-trial and (ii) for further proceeding to resolve the remaining issues between the BOC and
the PDB, particularly on "who has a better right over the subject CB bills."55 The PDB joined the BOC
in its motion.56

On September 28, 2000, the RTC granted the BSP’s motion to interplead and, accordingly, required
the BOC to amend its Answer and for the conflicting claimants to comment thereon.57 In October 2000,
the BOC filed its Amended Consolidated Answer with Compulsory Counterclaim, reiterating its
earlier arguments asserting ownership over the subject CB bills.58

In the alternative, the BOC added that even assuming that there was no effective transfer of the nine
CB bills ultimately to the BOC, the PDB remains obligated to deliver to the BOC, as buyer in the April
15 transaction and ultimate successor-in-interest of the buyer (Bancap) in the April 19 transaction,

89
either the original subjects of the sales or the value thereof, plus whatever income that may have been
earned during the pendency of the case.59

That BOC prayed:

1. To declare BOC as the rightful owner of the nine (9) CB bills and as the party entitled to the
proceeds thereof as well as all income earned pursuant to the two (2) Escrow Agreements
entered into by BOC and PDB.

2. In the alternative, ordering PDB to deliver the original subject of the sales transactions or the
value thereof and whatever income earned by way of interest at prevailing rate.

Without any opposition or objection from the PDB, on February 23, 2001, the RTC admitted 60 the
BOC’s Amended Consolidated Answer with Compulsory Counterclaims.

In May 2001, the PDB filed an Omnibus Motion,61 questioning the RTC’s jurisdiction over the BOC’s
"additional counterclaims." The PDB argues that its petitions pray for the BSP (not the RTC) to
determine who among the conflicting claimants to the CB bills stands in the position of the bona fide
holder for value. The RTC cannot entertain the BOC’s counterclaim, regardless of its nature, because
it is the BSP which has jurisdiction to determine who is entitled to receive the proceeds of the CB bills.

The BOC opposed62 the PDB’s Omnibus Motion. The PDB filed its Reply.63

In a January 10, 2002 Order, the RTC dismissed the PDB’s petition, the BOC’s counterclaim and the
BSP’s counter-complaint/cross-claim for interpleader, holding that under CB Circular No. 28, it has
no jurisdiction (i) over the BOC’s "counterclaims" and (ii) to resolve the issue of ownership of the CB
bills.64 With the denial of their separate motions for Reconsideration,65 the BOC and the BSP
separately filed the present petitions for review on certiorari.66

THE BOC’S and THE BSP’S PETITIONS

The BOC argues that the present cases do not fall within the limited provision of Section 10 (d) 4 of
CB Circular No. 28, which contemplates only of three situations: first, where the fraudulent
assignment is not coupled with a notice to the BSP, it can grant no relief; second, where the fraudulent
assignment is coupled with a notice of fraud to the BSP, it will make a notation against the assignment
and require the owner and the holder to substantiate their claims; and third, where the case does not
fall on either of the first two situations, the BSP will have to await action on the assignment pending
settlement of the case, whether by agreement or by court order.

The PDB’s case cannot fall under the first two situations. With particular regard to the second
situation, CB Circular No. 28 requires that the conflict must be between an "owner" and a "holder,"
for the BSP to exercise its limited jurisdiction to resolve conflicting claims; and the word "owner" here
refers to the registered owner giving notice of the fraud to the BSP. The PDB, however, is not the
registered owner nor is it in possession (holder) of the CB bills.67 Consequently, the PDB’s case can
only falls under the third situation which leaves the RTC, as a court of general jurisdiction, with the
authority to resolve the issue of ownership of a registered bond (the CB bills) not falling in either of
the first two situations.

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The BOC asserts that the policy consideration supportive of its interpretation of CB Circular No. 28
is to have a reliable system to protect the registered owner; should he file a notice with the BSP about
a fraudulent assignment of certain CB bills, the BSP simply has to look at its books to determine who
is the owner of the CB bills fraudulently assigned. Since it is only the registered owner who complied
with the BSP’s requirement of recording an assignment in the BSP’s books, then "the protective mantle
of administrative proceedings" should necessarily benefit him only, without extending the same
benefit to those who chose to ignore the Circular’s requirement, like the PDB.68

Assuming arguendo that the PDB’s case falls under the second situation – i.e., the BSP has jurisdiction
to resolve the issue of ownership of the CB bills – the more recent CB Circular No. 769-80 (Rules and
Regulations Governing Central Bank Certificates of Indebtedness) already superseded CB Circular
No. 28, and, in particular, effectively amended Section 10 (d) 4 of CB Circular No. 28. The pertinent
provisions of CB Circular No. 769-80 read:

Assignment Affected by Fraud. – Any assignment for transfer of ownership of registered certificate
obtained through fraudulent representation if honored by the Central Bank or any of its authorized
service agencies shall not make the Central Bank or agency liable therefore unless it has previous
formal notice of the fraud. The Central Bank, upon notice under oath that the assignment was secured
through fraudulent means, shall immediately issue and circularize a "stop order" against the transfer,
exchange, redemption of the Certificate including the payment of interest coupons. The Central Bank
or service agency concerned shall continue to withhold action on the certificate until such time that
the conflicting claims have been finally settled either by amicable settlement between the parties or
by order of the Court.

Unlike CB Circular No. 28, CB Circular No. 769-80 limited the BSP’s authority to the mere issuance
and circularization of a "stop order" against the transfer, exchange and redemption upon sworn notice
of a fraudulent assignment. Under this Circular, the BSP shall only continue to withhold action until
the dispute is ended by an amicable settlement or by judicial determination. Given the more passive
stance of the BSP – the very agency tasked to enforce the circulars involved - under CB Circular No.
769-80, the RTC’s dismissal of the BOC’s counterclaims is palpably erroneous.

Lastly, since Nuqui’s office (Government Securities Department) had already been abolished,69 it can
no longer adjudicate the dispute under the second situation covered by CB Circular No. 28. The
abolition of Nuqui’s office is not only consistent with the BSP’s Charter but, more importantly, with
CB Circular No. 769-80, which removed the BSP’s adjudicative authority over fraudulent
assignments.

THE PDB’S COMMENT

The PDB claims that jurisdiction is determined by the allegations in the complaint/petition and not
by the defenses set up in the answer.70 In filing the petition with the RTC, the PDB merely seeks to
compel the BSP to determine, pursuant to CB Circular No. 28, the party legally entitled to the proceeds
of the subject CB bills, which, as the PDB alleged, have been transferred through fraudulent
representations – an allegation which properly recognized the BSP’s jurisdiction to resolve conflicting
claims of ownership over the CB bills.

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The PDB adds that under the doctrine of primary jurisdiction, courts should refrain from determining
a controversy involving a question whose resolution demands the exercise of sound administrative
discretion. In the present case, the BSP’s special knowledge and experience in resolving disputes on
securities, whose assignment and trading are governed by the BSP’s rules, should be upheld.

The PDB counters that the BOC’s tri-fold interpretation of Section 10 (d) 4 of CB Circular No. 28
sanctions split jurisdiction which is not favored;but even this tri-fold interpretation which, in the
second situation, limits the meaning of the "owner" to the registered owner is flawed. Section 10 (d)
4 aims to protect not just the registered owner but anyone who has been deprived of his bond by
fraudulent representation in order to deter fraud in the secondary trading of government securities.

The PDB asserts that the existence of CB Circular No. 769-80 or the abolition of Nuqui’s office does
not result in depriving the BSP of its jurisdiction: first, CB Circular No. 769-80 expressly provides that
CB Circular No. 28 shall have suppletory application to CB Circular No. 769-80; and second, the BSP
can always designate an office to resolve the PDB’s claim over the CB bills.

Lastly, the PDB argues that even assuming that the RTC has jurisdiction to resolve the issue of
ownership of the CB bills, the RTC has not acquired jurisdiction over the BOC’s so-called
"compulsory" counterclaims (which in truth is merely "permissive") because of the BOC’s failure to
pay the appropriate docket fees. These counterclaims should, therefore, be dismissed and expunged
from the record.

THE COURT’S RULING

We grant the petitions.

At the outset, we note that the parties have not raised the validity of either CB Circular No. 28 or CB
Circular No. 769-80 as an issue. What the parties largely contest is the applicable circular in case of
an allegedly fraudulently assigned CB bill. The applicable circular, in turn, is determinative of the
proper remedy available to the PDB and/or the BOC as claimants to the proceeds of the subject CB
bills.

Indisputably, at the time the PDB supposedly invoked the jurisdiction of the BSP in 1994 (by
requesting for the annotation of its claim over the subject CB bills in the BSP’s books), CB Circular
No. 769-80 has long been in effect. Therefore, the parties’ respective interpretations of the provision
of Section 10 (d) 4 of CB Circular No. 28 do not have any significance unless it is first established that
that Circular governs the resolution of their conflicting claims of ownership. This conclusion is
important, given the supposed repeal or modification of Section 10 (d) 4 of CB Circular No. 28 by the
following provisions of CB Circular No. 769-80:

ARTICLE XI
SUPPLEMENTAL RULES

Section 1. Central Bank Circular No. 28 – The provisions of Central Bank Circular No. 28 shall have
suppletory application to matters not specially covered by these Rules.

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ARTICLE XII
EFFECTIVITY

Effectivity – The rules and regulations herein prescribed shall take effect upon approval by the
Monetary Board, Central Bank of the Philippines, and all circulars, memoranda, or office orders
inconsistent herewith are revoked or modified accordingly. (Emphases added)

We agree with the PDB that in view of CB Circular No. 28’s suppletory application, an attempt to
harmonize the apparently conflicting provisions is a prerequisite before one may possibly conclude
that an amendment or a repeal exists.71 Interestingly, however, even the PDB itself failed to submit
an interpretation based on its own position of harmonization.

The repealing clause of CB Circular No. 769-80 obviously did not expressly repeal CB Circular No.
28; in fact, it even provided for the suppletory application of CB Circular No. 28 on "matters not
specially covered by" CB Circular No. 769-80. While no express repeal exists, the intent of CB Circular
No. 769-80 to operate as an implied repeal,72 or at least to amend earlier CB circulars, is supported by
its text "revoking" or "modif[ying" "all circulars" which are inconsistent with its terms.

At the outset, we stress that none of the parties disputes that the subject CB bills fall within the
category of a certificate or evidence of indebtedness and that these were issued by the Central Bank,
now the BSP. Thus, even without resorting to statutory construction aids, matters involving the
subject CB bills should necessarily be governed by CB Circular No. 769-80. Even granting, however,
that reliance on CB Circular No. 769-80 alone is not enough, we find that CB Circular No. 769-80
impliedly repeals CB Circular No. 28.

An implied repeal transpires when a substantial conflict exists between the new and the prior laws.
In the absence of an express repeal, a subsequent law cannot be construed as repealing a prior law
unless an irreconcilable inconsistency and repugnancy exist in the terms of the new and the old
laws.73 Repeal by implication is not favored, unless manifestly intended by the legislature, or unless
it is convincingly and unambiguously demonstrated, that the laws or orders are clearly repugnant
and patently inconsistent with one another so that they cannot co-exist; the legislature is presumed
to know the existing law and would express a repeal if one is intended.74

There are two instances of implied repeal. One takes place when the provisions in the two acts on the
same subject matter are irreconcilably contradictory, in which case, the later act, to the extent of the
conflict, constitutes an implied repeal of the earlier one. The other occurs when the later act covers
the whole subject of the earlier one and is clearly intended as a substitute; thus, it will operate to
repeal the earlier law.75

A general reading of the two circulars shows that the second instance of implied repeal is present in
this case. CB Circular No. 28, entitled "Regulations Governing Open Market Operations, Stabilization
of Securities Market, Issue, Servicing and Redemption of Public Debt," is a regulation governing the
servicing and redemption of public debt, including the issue, inscription, registration, transfer,
payment and replacement of bonds and securities representing the public debt.76 On the other hand,
CB Circular No. 769-80, entitled "Rules and Regulations Governing Central Bank Certificate of
Indebtedness," is the governing regulation on matters77 (i) involving certificate of

93
indebtedness78 issued by the Central Bank itself and (ii) which are similarly covered by CB Circular
No. 28.

The CB Monetary Board issued CB Circular No. 28 to regulate the servicing and redemption of public
debt, pursuant to Section 124 (now Section 119 of Republic Act R.A. No. 7653) of the old Central Bank
law79 which provides that "the servicing and redemption of the public debt shall also be effected
through the Bangko Sentral." However, even as R.A. No. 7653 continued to recognize this role by the
BSP, the law required a phase-out of all fiscal agency functions by the BSP, including Section 119 of
R.A. No. 7653.

In other words, even if CB Circular No. 28 applies broadly to both government-issued bonds and
securities and Central Bank-issued evidence of indebtedness, given the present state of law, CB
Circular No. 28 and CB Circular No. 769-80 now operate on the same subject – Central Bank-issued
evidence of indebtedness. Under Section 1, Article XI of CB Circular No. 769-80, the continued
relevance and application of CB Circular No. 28 would depend on the need to supplement any
deficiency or silence in CB Circular No. 769-80 on a particular matter.

In the present case, both CB Circular No. 28 and CB Circular No. 769-80 provide the BSP with a course
of action in case of an allegedly fraudulently assigned certificate of indebtedness. Under CB Circular
No. 28, in case of fraudulent assignments, the BSP would have to "call upon the owner and the person
presenting the bond to substantiate their respective claims" and, from there, determine who has a
better right over the registered bond. On the other hand, under CB Circular No. 769-80, the BSP shall
merely "issue and circularize a ‘stop order’ against the transfer, exchange, redemption of the
[registered] certificate" without any adjudicative function (which is the precise root of the present
controversy). As the two circulars stand, the patent irreconcilability of these two provisions does not
require elaboration. Section 5, Article V of CB Circular No. 769-80 inescapably repealed Section 10 (d)
4 of CB Circular No. 28.

The issue of BSP’s jurisdiction, lay hidden

On that note, the Court could have written finis to the present controversy by simply sustaining the
BSP’s hands-off approach to the PDB’s problem under CB Circular No. 769-80. However, the
jurisdictional provision of CB Circular No. 769-80 itself, in relation to CB Circular No. 28, on the
matter of fraudulent assignment, has given rise to a question of jurisdiction - the core question of law
involved in these petitions - which the Court cannot just treat sub-silencio.

Broadly speaking, jurisdiction is the legal power or authority to hear and determine a cause. 80 In the
exercise of judicial or quasi-judicial power, it refers to the authority of a court to hear and decide a
case.81 In the context of these petitions, we hark back to the basic principles governing the question of
jurisdiction over the subject matter.

First, jurisdiction over the subject matter is determined only by the Constitution and by law. 82 As a
matter of substantive law, procedural rules alone can confer no jurisdiction to courts or
administrative agencies.83 In fact, an administrative agency, acting in its quasi-judicial capacity, is a
tribunal of limited jurisdiction and, as such, could wield only such powers that are specifically
granted to it by the enabling statutes. In contrast, an RTC is a court of general jurisdiction, i.e., it has

94
jurisdiction over cases whose subject matter does not fall within the exclusive original jurisdiction of
any court, tribunal or body exercising judicial or quasi-judicial functions.84

Second, jurisdiction over the subject matter is determined not by the pleas set up by the defendant in
his answer85 but by the allegations in the complaint,86 irrespective of whether the plaintiff is entitled
to favorable judgment on the basis of his assertions.87 The reason is that the complaint is supposed to
contain a concise statement of the ultimate facts constituting the plaintiff's causes of action.88

Third, jurisdiction is determined by the law in force at the time of the filing of the complaint.89

Parenthetically, the Court observes that none of the parties ever raised the issue of whether the BSP
can simply disown its jurisdiction, assuming it has, by the simple expedient of promulgating a new
circular (specially applicable to a certificate of indebtedness issued by the BSP itself), inconsistent
with an old circular, assertive of its limited jurisdiction over ownership issues arising from fraudulent
assignments of a certificate of indebtedness. The PDB, in particular, relied solely and heavily on CB
Circular No. 28.

In light of the above principles pointing to jurisdiction as a matter of substantive law, the provisions
of the law itself that gave CB Circular 769-80 its life and jurisdiction must be examined.

The Philippine Central Bank

On January 3, 1949, Congress created the Central Bank of the Philippines (Central Bank) as a corporate
body with the primary objective of (i) maintaining the internal and external monetary stability in the
Philippines; and (ii) preserving the international value and the convertibility of the peso.90 In line with
these broad objectives, the Central Bank was empowered to issue rules and regulations "necessary
for the effective discharge of the responsibilities and exercise of the powers assigned to the Monetary
Board and to the Central Bank."91 Specifically, the Central Bank is authorized to organize (other)
departments for the efficient conduct of its business and whose powers and duties "shall be
determined by the Monetary Board, within the authority granted to the Board and the Central
Bank"92 under its original charter.

With the 1973 Constitution, the then Central Bank was constitutionally made as the country’s central
monetary authority until such time that Congress93 shall have established a central bank. The 1987
Constitution continued to recognize this function of the then Central Bank until Congress, pursuant
to the Constitution, created a new central monetary authority which later came to be known as the
Bangko Sentral ng Pilipinas.

Under the New Central Bank Act (R.A. No. 7653),94 the BSP is given the responsibility of providing
policy directions in the areas of money, banking and credit; it is given, too, the primary objective of
maintaining price stability, conducive to a balanced and sustainable growth of the economy, and of
promoting and maintaining monetary stability and convertibility of the peso.95

The Constitution expressly grants the BSP, as the country’s central monetary authority, the power of
supervision over the operation of banks, while leaving with Congress the authority to define the BSP’s
regulatory powers over the operations of finance companies and other institutions performing similar
functions. Under R.A. No. 7653, the BSP’s powers and functions include (i) supervision over the

95
operation of banks; (ii) regulation of operations of finance companies and non-bank financial
institutions performing quasi banking functions; (iii) sole power and authority to issue currency
within the Philippine territory; (iv) engaging in foreign exchange transactions; (v) making
rediscounts, discounts, loans and advances to banking and other financial institutions to influence
the volume of credit consistent with the objective of achieving price stability; (vi) engaging in open
market operations; and (vii) acting as banker and financial advisor of the government.1âwphi1

On the BSP’s power of supervision over the operation of banks, Section 4 of R.A. No. 8791 (The
General Banking Law of 2000) elaborates as follows:

CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL

SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:

4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive similarities of specific functions
to which such rules, modes or standards are to be applied;

4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;

4.3. Overseeing to ascertain that laws and regulations are complied with;

4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall
be immediately addressed;

4.5. Inquiring into the solvency and liquidity of the institution (2-D); or

4.6. Enforcing prompt corrective action. (n)

The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers
over quasi-banks, trust entities and other financial institutions which under special laws are subject
to Bangko Sentral supervision. (2-Ca)

For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes
as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes
of relending or purchasing of receivables and other obligations. [emphasis ours]

While this provision empowers the BSP to oversee the operations and activities of banks to "ascertain
that laws and regulations are complied with," the existence of the BSP’s jurisdiction in the present
dispute cannot rely on this provision. The fact remains that the BSP already made known to the PDB

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its unfavorable position on the latter’s claim of fraudulent assignment due to the latter’s own failure
to comply96 with existing regulations:

In this connection, Section 10 (b) 2 also requires that a "Detached assignment will be recognized or
accepted only upon previous notice to the Central Bank x x x." In fact, in a memo dated September
23, 1991 xxx then CB Governor Jose L. Cuisia advised all banks (including PDB) xxx as follows:

In view recurring incidents ostensibly disregarding certain provisions of CB circular No. 28 (as
amended) covering assignments of registered bonds, all banks and all concerned are enjoined to
observe strictly the pertinent provisions of said CB Circular as hereunder quoted:

xxxx

Under Section 10.b. (2)

x x x Detached assignment will be recognized or accepted only upon previous notice to the Central
Bank and its use is authorized only under the following circumstances:

(a) x x x

(b) x x x

(c) assignments of treasury notes and certificates of indebtedness in registered form which are
not provided at the back thereof with assignment form.

(d) Assignment of securities which have changed ownership several times.

(e) x x x

Non-compliance herewith will constitute a basis for non-action or withholding of action on

redemption/payment of interest coupons/transfer transactions or denominational exchange that
may be directly affected thereby. [Boldfacing supplied]

Again, the books of the BSP do not show that the supposed assignment of subject CB Bills was ever
recorded in the BSP’s books. [Boldfacing supplied]

However, the PDB faults the BSP for not recording the assignment of the CB bills in the PDB’s favor
despite the fact that the PDB already requested the BSP to record its assignment in the BSP’s books as
early as June 30, 1994.97

The PDB’s claim is not accurate. What the PDB requested the BSP on that date was not the recording
of the assignment of the CB bills in its favor but the annotation of its claim over the CB bills at the
time when (i) it was no longer in possession of the CB bills, having been transferred from one entity
to another and (ii) all it has are the detached assignments, which the PDB has not shown to be
compliant with Section 10 (b) 2 above-quoted. Obviously, the PDB cannot insist that the BSP take
cognizance of its plaint when the basis of the BSP’s refusal under existing regulation, which the PDB
is bound to observe, is the PDB’s own failure to comply therewith.

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True, the BSP exercises supervisory powers (and regulatory powers) over banks (and quasi banks).
The issue presented before the Court, however, does not concern the BSP’s supervisory power over
banks as this power is understood under the General Banking Law. In fact, there is nothing in the
PDB’s petition (even including the letters it sent to the BSP) that would support the BSP’s jurisdiction
outside of CB Circular No. 28, under its power of supervision, over conflicting claims to the proceeds
of the CB bills.

BSP has quasi-judicial powers over a

class of cases which does not include
the adjudication of ownership of the
CB bills in question

In United Coconut Planters Bank v. E. Ganzon, Inc.,98 the Court considered the BSP as an
administrative agency,99 exercising quasi-judicial functions through its Monetary Board. It held:

A quasi-judicial agency or body is an organ of government other than a court and other than a
legislature, which affects the rights of private parties through either adjudication or rule-making. The
very definition of an administrative agency includes its being vested with quasi-judicial powers. The
ever increasing variety of powers and functions given to administrative agencies recognizes the need
for the active intervention of administrative agencies in matters calling for technical knowledge and
speed in countless controversies which cannot possibly be handled by regular courts. A "quasi-
judicial function" is a term which applies to the action, discretion, etc., of public administrative
officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion
of a judicial nature.

Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or
functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an independent
central monetary authority and a body corporate with fiscal and administrative autonomy, mandated
to provide policy directions in the areas of money, banking and credit. It has power to issue subpoena,
to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer
oaths and compel presentation of books, records and others, needed in its examination, to impose
fines and other sanctions and to issue cease and desist order. Section 37 of Republic Act No. 7653, in
particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in determining
whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily
implies that the BSP Monetary Board must conduct some form of investigation or hearing regarding
the same. [citations omitted]

The BSP is not simply a corporate entity but qualifies as an administrative agency created, pursuant
to constitutional mandate,100 to carry out a particular governmental function.101 To be able to perform
its role as central monetary authority, the Constitution granted it fiscal and administrative autonomy.
In general, administrative agencies exercise powers and/or functions which may be characterized as
administrative, investigatory, regulatory, quasi-legislative, or quasi-judicial, or a mix of these five, as
may be conferred by the Constitution or by statute.102

While the very nature of an administrative agency and the raison d'être for its creation 103 and
proliferation dictate a grant of quasi-judicial power to it, the matters over which it may exercise this
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power must find sufficient anchorage on its enabling law, either by express provision or by necessary
implication. Once found, the quasi-judicial power partakes of the nature of a limited and special
jurisdiction, that is, to hear and determine a class of cases within its peculiar competence and
expertise. In other words, the provisions of the enabling statute are the yardsticks by which the Court
would measure the quantum of quasi-judicial powers an administrative agency may exercise, as
defined in the enabling act of such agency.104

Scattered provisions in R.A. No. 7653 and R.A. No. 8791, inter alia, exist, conferring jurisdiction on
the BSP on certain matters.105 For instance, under the situations contemplated under Section 36, par.
2106 (where a bank or quasi bank persists in carrying on its business in an unlawful or unsafe manner)
and Section 37107 (where the bank or its officers willfully violate the bank’s charter or by-laws, or the
rules and regulations issued by the Monetary Board) of R.A. No. 7653, the BSP may place an entity
under receivership and/or liquidation or impose administrative sanctions upon the entity or its
officers or directors.

Among its several functions under R.A. No. 7653, the BSP is authorized to engage in open market
operations and thereby "issue, place, buy and sell freely negotiable evidences of indebtedness of the
Bangko Sentral" in the following manner.

SEC. 90. Principles of Open Market Operations. – The open market purchases and sales of securities
by the Bangko Sentral shall be made exclusively in accordance with its primary objective of achieving
price stability.

xxxx

SEC. 92. Issue and Negotiation of Bangko Sentral Obligations. – In order to provide the Bangko
Sentral with effective instruments for open market operations, the Bangko Sentral may, subject to
such rules and regulations as the Monetary Board may prescribe and in accordance with the
principles stated in Section 90 of this Act, issue, place, buy and sell freely negotiable evidences of
indebtedness of the Bangko Sentral: Provided, That issuance of such certificates of indebtedness shall
be made only in cases of extraordinary movement in price levels. Said evidences of indebtedness may
be issued directly against the international reserve of the Bangko Sentral or against the securities
which it has acquired under the provisions of Section 91 of this Act, or may be issued without relation
to specific types of assets of the Bangko Sentral.

The Monetary Board shall determine the interest rates, maturities and other characteristics of said
obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in
gold or foreign currencies.

Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness of the Bangko
Sentral to which this section refers may be acquired by the Bangko Sentral before their maturity, either
through purchases in the open market or through redemptions at par and by lot if the Bangko Sentral
has reserved the right to make such redemptions. The evidences of indebtedness acquired or
redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately
retired and cancelled.108 (italics supplied; emphases ours)

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The primary objective of the BSP is to maintain price stability.109 The BSP has a number of monetary
policy instruments at its disposal to promote price stability. To increase or reduce liquidity in the
financial system, the BSP uses open market operations, among others.110 Open market operation is a
monetary tool where the BSP publicly buys or sells government securities111 from (or to) banks and
financial institutions in order to expand or contract the supply of money. By controlling the money
supply, the BSP is able to exert some influence on the prices of goods and services and achieve its
inflation objectives.112

Once the issue and/or sale of a security is made, the BSP would necessarily make a determination, in
accordance with its own rules, of the entity entitled to receive the proceeds of the security upon its
maturity. This determination by the BSP is an exercise of its administrative powers 113 under the law
as an incident to its power to prescribe rules and regulations governing open market operations to
achieve the "primary objective of achieving price stability."114 As a matter of necessity, too, the same
rules and regulations facilitate transaction with the BSP by providing for an orderly manner of,
among others, issuing, transferring, exchanging and paying securities representing public debt.

Significantly, when competing claims of ownership over the proceeds of the securities it has issued
are brought before it, the law has not given the BSP the quasi-judicial power to resolve these
competing claims as part of its power to engage in open market operations. Nothing in the BSP’s
charter confers on the BSP the jurisdiction or authority to determine this kind of claims, arising out
of a subsequent transfer or assignment of evidence of indebtedness – a matter that appropriately falls
within the competence of courts of general jurisdiction. That the statute withholds this power from
the BSP is only consistent with the fundamental reasons for the creation of a Philippine central bank,
that is, to lay down stable monetary policy and exercise bank supervisory functions. Thus, the BSP’s
assumption of jurisdiction over competing claims cannot find even a stretched-out justification under
its corporate powers "to do and perform any and all things that may be necessary or proper to carry
out the purposes" of R.A. No. 7653. 115

To reiterate, open market operation is a monetary policy instrument that the BSP employs, among
others, to regulate the supply of money in the economy to influence the timing, cost and availability
of money and credit, as well as other financial factors, for the purpose of stabilizing the price
level.116 What the law grants the BSP is a continuing role to shape and carry out the country’s
monetary policy – not the authority to adjudicate competing claims of ownership over the securities
it has issued – since this authority would not fall under the BSP’s purposes under its charter.

While R.A. No. 7653117 empowers the BSP to conduct administrative hearings and render judgment
for or against an entity under its supervisory and regulatory powers and even authorizes the BSP
Governor to "render decisions, or rulings x x x on matters regarding application or enforcement of
laws pertaining to institutions supervised by the BSP and laws pertaining to quasi-banks, as well as
regulations, policies or instructions issued by the Monetary Board," it is precisely the text of the BSP’s
own regulation (whose validity is not here raised as an issue) that points to the BSP’s limited role in
case of an allegedly fraudulent assignment to simply (i) issuing and circularizing a ‘"stop order"
against the transfer, exchange, redemption of the certificate of indebtedness, including the payment
of interest coupons, and (ii) withholding action on the certificate.

A similar conclusion can be drawn from the BSP’s administrative adjudicatory power in cases of
"willful failure or refusal to comply with, or violation of, any banking law or any order, instruction
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or regulation issued by the Monetary Board, or any order, instruction or ruling by the
Governor."118 The non-compliance with the pertinent requirements under CB Circular No. 28, as
amended, deprives a party from any right to demand payment from the BSP.

In other words, the grant of quasi-judicial authority to the BSP cannot possibly extend to situations
which do not call for the exercise by the BSP of its supervisory or regulatory functions over entities
within its jurisdiction.119

The fact alone that the parties involved are banking institutions does not necessarily call for the
exercise by the BSP of its quasi-judicial powers under the law.120

The doctrine of primary jurisdiction

argues against BSP’s purported
authority to adjudicate ownership
issues over the disputed CB bills

Given the preceding discussions, even the PDB’s invocation of the doctrine of primary jurisdiction is
misplaced.

In the exercise of its plenary legislative power, Congress may create administrative agencies endowed
with quasi-legislative and quasi-judicial powers. Necessarily, Congress likewise defines the limits of
an agency’s jurisdiction in the same manner as it defines the jurisdiction of courts. 121 As a result, it
may happen that either a court or an administrative agency has exclusive jurisdiction over a specific
matter or both have concurrent jurisdiction on the same. It may happen, too, that courts and agencies
may willingly relinquish adjudicatory power that is rightfully theirs in favor of the other. One of the
instances when a court may properly defer to the adjudicatory authority of an agency is the
applicability of the doctrine of primary jurisdiction.122

As early as 1954, the Court applied the doctrine of primary jurisdiction under the following terms:

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative
commissions and boards the power to resolve specialized disputes xxx ruled that Congress in
requiring the Industrial Court's intervention in the resolution of labor-management controversies xxx
meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court
held that under the "sense-making and expeditious doctrine of primary jurisdiction ... the courts
cannot or will not determine a controversy involving a question which is within the jurisdiction of an
administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience, and services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the
purposes of the regulatory statute administered."123 (emphasis ours)

In Industrial Enterprises, Inc. v. Court of Appeals,124 the Court ruled that while an action for rescission
of a contract between coal developers appears to be an action cognizable by regular courts, the trial
court remains to be without jurisdiction to entertain the suit since the contract sought to be rescinded
is "inextricably tied up with the right to develop coal-bearing lands and the determination of whether
or not the reversion of the coal operating contract over the subject coal blocks to [the plaintiff] would

101
be in line with the country’s national program and objective on coal-development and over-all coal-
supply-demand balance." It then applied the doctrine of primary jurisdiction –

In recent years, it has been the jurisprudential trend to apply the doctrine of primary jurisdiction in
many cases involving matters that demand the special competence of administrative agencies. It may
occur that the Court has jurisdiction to take cognizance of a particular case, which means that the
matter involved is also judicial in character. However, if the case is such that its determination
requires the expertise, specialized skills and knowledge of the proper administrative bodies because
technical matters or intricate questions of facts are involved, then relief must first be obtained in an
administrative proceeding before a remedy will be supplied by the courts even though the matter is
within the proper jurisdiction of a court. This is the doctrine of primary jurisdiction. It applies "where
a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim
requires the resolution of issues which, under a regulatory scheme, have been placed within the
special competence of an administrative body."

Clearly, the doctrine of primary jurisdiction finds application in this case since the question of what
coal areas should be exploited and developed and which entity should be granted coal operating
contracts over said areas involves a technical determination by the Bureau of Energy Development
as the administrative agency in possession of the specialized expertise to act on the matter. The Trial
Court does not have the competence to decide matters concerning activities relative to the
exploration, exploitation, development and extraction of mineral resources like coal. These issues
preclude an initial judicial determination. [emphases ours]

The absence of any express or implied statutory power to adjudicate conflicting claims of ownership
or entitlement to the proceeds of its certificates of indebtedness finds complement in the similar
absence of any technical matter that would call for the BSP’s special expertise or competence. 125 In
fact, what the PDB’s petitions bear out is essentially the nature of the transaction it had with the
subsequent transferees of the subject CB bills (BOC and Bancap) and not any matter more appropriate
for special determination by the BSP or any administrative agency.

In a similar vein, it is well-settled that the interpretation given to a rule or regulation by those charged
with its execution is entitled to the greatest weight by the courts construing such rule or
regulation.126 While there are exceptions127 to this rule, the PDB has not convinced us that a departure
is warranted in this case. Given the non-applicability of the doctrine of primary jurisdiction, the BSP’s
own position, in light of Circular No. 769-80, deserves respect from the Court.

Ordinarily, cases involving the application of doctrine of primary jurisdiction are initiated by an
action invoking the jurisdiction of a court or administrative agency to resolve the substantive legal
conflict between the parties. In this sense, the present case is quite unique since the court’s jurisdiction
was, originally, invoked to compel an administrative agency (the BSP) to resolve the legal conflict of
ownership over the CB bills - instead of obtaining a judicial determination of the same dispute.

The remedy of interpleader

Based on the unique factual premise of the present case, the RTC acted correctly in initially assuming
jurisdiction over the PDB’s petition for mandamus, prohibition and injunction. 128 While the RTC
agreed (albeit erroneously) with the PDB’s view (that the BSP has jurisdiction), it, however, dismissed
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not only the BOC’s/the BSP’s counterclaims but the PDB’s petition itself as well, on the ground that
it lacks jurisdiction.

This is plain error.

Not only the parties themselves, but more so the courts, are bound by the rule on non-waiver of
jurisdiction.129 believes that jurisdiction over the BOC’s counterclaims and the BSP’s
counterclaim/crossclaim for interpleader calls for the application of the doctrine of primary
jurisdiction, the allowance of the PDB’s petition even becomes imperative because courts may raise
the issue of primary jurisdiction sua sponte.130

Of the three possible options available to the RTC, the adoption of either of these two would lead the
trial court into serious legal error: first, if it granted the PDB’s petition, its decision would have to be
set aside on appeal because the BSP has no jurisdiction as previously discussed; and second when it
dismissed the PDB’s petitions and the BOC’s counterclaims on the ground that it lacks jurisdiction,
the trial court seriously erred because precisely, the resolution of the conflicting claims over the CB
bills falls within its general jurisdiction.

Without emasculating its jurisdiction, the RTC could have properly dismissed the PDB’s petition but
on the ground that mandamus does not lie against the BSP; but even this correct alternative is no
longer plausible since the BSP, as a respondent below, already properly brought before the RTC the
remaining conflicting claims over the subject CB bills by way of a counterclaim/crossclaim for
interpleader. Section 1, Rule 62 of the Rules of Court provides when an interpleader is proper:

SECTION 1. When interpleader proper. – Whenever conflicting claims upon the same subject matter
are or may be made against a person who claims no interest whatever in the subject matter, or an
interest which in whole or in part is not disputed by the claimants, he may bring an action against the
conflicting claimants to compel them to interplead and litigate their several claims among themselves.

The remedy of an action of interpleader131 is designed to protect a person against double vexation in
respect of a single liability.7 It requires, as an indispensable requisite, that conflicting claims upon the
same subject matter are or may be made against the stakeholder (the possessor of the subject matter)
who claims no interest whatever in the subject matter or an interest which in whole or in part is not
disputed by the claimants.132

Through this remedy, the stakeholder can join all competing claimants in a single proceeding to
determine conflicting claims without exposing the stakeholder to the possibility of having to pay
more than once on a single liability.133

When the court orders that the claimants litigate among themselves, in reality a new action
arises,134 where the claims of the interpleaders themselves are brought to the fore, the stakeholder as
plaintiff is relegated merely to the role of initiating the suit. In short, the remedy of interpleader, when
proper, merely provides an avenue for the conflicting claims on the same subject matter to be threshed
out in an action. Section 2 of Rule 62 provides:

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SEC. 2. Order. – Upon the filing of the complaint, the court shall issue an order requiring the
conflicting claimants to interplead with one another. If the interests of justice so require, the court
may direct in such order that the subject matter be paid or delivered to the court.

This is precisely what the RTC did by granting the BSP’s motion to interplead. The PDB itself "agreed
that the various claimants should now interplead." Thus, the PDB and the BOC subsequently entered
into two separate escrow agreements, covering the CB bills, and submitted them to the RTC for
approval.

In granting the BSP’s motion, the RTC acted on the correct premise that it has jurisdiction to resolve
the parties’ conflicting claims over the CB bills - consistent with the rules and the parties’ conduct -
and accordingly required the BOC to amend its answer and for the PDB to comment thereon.
Suddenly, however, the PDB made an about-face and questioned the jurisdiction of the RTC. Swayed
by the PDB’s argument, the RTC dismissed even the PDB’s petition - which means that it did not
actually compel the BSP to resolve the BOC’s and the PDB’s claims.

Without the motion to interplead and the order granting it, the RTC could only dismiss the PDB’s
petition since it is the RTC which has jurisdiction to resolve the parties’ conflicting claims – not the
BSP. Given that the motion to interplead has been actually filed, the RTC could not have really
granted the relief originally sought in the PDB’s petition since the RTC’s order granting the BSP’s
motion to interplead - to which the PDB in fact acquiesced into - effectively resulted in the dismissal
of the PDB’s petition. This is not altered by the fact that the PDB additionally prayed in its petition
for damages, attorney’s fees and costs of suit "against the public respondents" because the grant of
the order to interplead effectively sustained the propriety of the BSP’s resort to this procedural device.

Interpleader

1. as a special civil action

What is quite unique in this case is that the BSP did not initiate the interpleader suit through an
original complaint but through its Answer. This circumstance becomes understandable if it is
considered that insofar as the BSP is concerned, the PDB does not possess any right to have its claim
recorded in the BSP’s books; consequently, the PDB cannot properly be considered even as a potential
claimant to the proceeds of the CB bills upon maturity. Thus, the interpleader was only an alternative
position, made only in the BSP’s Answer.135

The remedy of interpleader, as a special civil action, is primarily governed by the specific provisions
in Rule 62 of the Rules of Court and secondarily by the provisions applicable to ordinary civil
actions.136 Indeed, Rule 62 does not expressly authorize the filing of a complaint-in-interpleader as
part of, although separate and independent from, the answer. Similarly, Section 5, Rule 6, in relation
to Section 1, Rule 9 of the Rules of Court137 does not include a complaint-in-interpleader as a claim,138 a
form of defense,139 or as an objection that a defendant may be allowed to put up in his answer or in a
motion to dismiss. This does not mean, however, that the BSP’s "counter-complaint/cross-claim for
interpleader" runs counter to general procedures.

Apart from a pleading,140 the rules141 allow a party to seek an affirmative relief from the court through
the procedural device of a motion. While captioned "Answer with counter complaint/cross-claim for

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interpleader," the RTC understood this as in the nature of a motion,142 seeking relief which essentially
consists in an order for the conflicting claimants to litigate with each other so that "payment is made
to the rightful or legitimate owner"143 of the subject CB bills.

The rules define a "civil action" as "one by which a party sues another for the enforcement or
protection of a right, or the prevention or redress of a wrong." Interpleader may be considered as a
stakeholder’s remedy to prevent a wrong, that is, from making payment to one not entitled to it,
thereby rendering itself vulnerable to lawsuit/s from those legally entitled to payment.

Interpleader is a civil action made special by the existence of particular rules to govern the uniqueness
of its application and operation. Under Section 2, Rule 6 of the Rules of Court, governing ordinary
civil actions, a party’s claim is asserted "in a complaint, counterclaim, cross-claim, third (fourth, etc.)-
party complaint, or complaint-in-intervention." In an interpleader suit, however, a claim is not
required to be contained in any of these pleadings but in the answer-(of the conflicting claimants)-in-
interpleader. This claim is different from the counter-claim (or cross-claim, third party-complaint)
which is separately allowed under Section 5, par. 2 of Rule 62.

2. the payment of docket fees covering BOC’s counterclaim

The PDB argues that, even assuming that the RTC has jurisdiction over the issue of ownership of the
CB bills, the BOC’s failure to pay the appropriate docket fees prevents the RTC from acquiring
jurisdiction over the BOC’s "counterclaims."

We disagree with the PDB.

To reiterate and recall, the order granting the "PDB’s motion to interplead," already resulted in the
dismissal of the PDB’s petition. The same order required the BOC to amend its answer and for the
conflicting claimants to comment, presumably to conform to the nature of an answer-in interpleader.
Perhaps, by reason of the BOC’s denomination of its claim as a "compulsory counterclaim" and the
PDB’s failure to fully appreciate the RTC’s order granting the "BSP’s motion for interpleader" (with
the PDB’s conformity), the PDB mistakenly treated the BOC’s claim as a "permissive counterclaim"
which necessitates the payment of docket fees.

As the preceding discussions would show, however, the BOC’s "claim" - i.e., its assertion of
ownership over the CB bills – is in reality just that, a "claim" against the stakeholder and not as a
"counterclaim,"144 whether compulsory145 or permissive. It is only the BOC’s alternative prayer (for
the PDB to deliver to the BOC, as the buyer in the April 15 transaction and the ultimate successor-in-
interest of the buyer in the April 19 transaction, either the original subjects of the sales or the value
thereof plus whatever income that may have been earned pendente lite) and its prayer for damages
that are obviously compulsory counterclaims against the PDB and, therefore, does not require
payment of docket fees.146

The PDB takes a contrary position through its insistence that a compulsory counterclaim should be
one where the presence of third parties, of whom the court cannot acquire jurisdiction, is not required.
It reasons out that since the RCBC and All Asia (the intervening holders of the CB bills) have already
been dropped from the case, then the BOC’s counterclaim must only be permissive in nature and the
BOC should have paid the correct docket fees.

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We see no reason to belabor this claim. Even if we gloss over the PDB’s own conformity to the
dropping of these entities as parties, the BOC correctly argues that a remedy is provided under the
Rules. Section 12, Rule 6 of the Rules of Court reads:

SEC. 12. Bringing new parties. – When the presence of parties other than those to the original action
is required for the granting of complete relief in the determination of a counterclaim or cross-claim,
the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.

Even then, the strict characterization of the BOC’s counterclaim is no longer material in disposing of
the PDB’s argument based on non-payment of docket fees.

When an action is filed in court, the complaint must be accompanied by the payment of the requisite
docket and filing fees by the party seeking affirmative relief from the court. It is the filing of the
complaint or appropriate initiatory pleading, accompanied by the payment of the prescribed docket
fee, that vests a trial court with jurisdiction over the claim or the nature of the action.147 However, the
non-payment of the docket fee at the time of filing does not automatically cause the dismissal of the
case, so long as the fee is paid within the applicable prescriptive or reglementary period, especially
when the claimant demonstrates a willingness to abide by the rules prescribing such payment.148

In the present case, considering the lack of a clear guideline on the payment of docket fee by the
claimants in an interpleader suit, compounded by the unusual manner in which the interpleader suit
was initiated and the circumstances surrounding it, we surely cannot deduce from the BOC’s mere
failure to specify in its prayer the total amount of the CB bills it lays claim to (or the value of the
subjects of the sales in the April 15 and April 19 transactions, in its alternative prayer) an intention to
defraud the government that would warrant the dismissal of its claim.149

At any rate, regardless of the nature of the BOC’s "counterclaims," for purposes of payment of filing
fees, both the BOC and the PDB, properly as defendants-in-interpleader, must be assessed the
payment of the correct docket fee arising from their respective claims. The seminal case of Sun
Insurance Office, Ltd. v. Judge Asuncion150 provides us guidance in the payment of docket fees, to
wit:

1. x x x 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 also allow payment of said fee within a reasonable time but also in no case
beyond its applicable prescriptive or reglementary period. [underscoring ours]

This must be the rule considering that Section 7, Rule 62 of which reads:

SEC. 7. Docket and other lawful fees, costs and litigation expenses as liens. – The docket and other
lawful fees paid by the party who filed a complaint under this Rule, as well as the costs and litigation
expenses, shall constitute a lien or charge upon the subject matter of the action, unless the court shall
order otherwise.

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only pertain to the docket and lawful fees to be paid by the one who initiated the interpleader suit,
and who, under the Rules, actually "claims no interest whatever in the subject matter." By constituting
a lien on the subject matter of the action, Section 7 in effect only aims to actually compensate the
complainant-in-interpleader, who happens to be the stakeholder unfortunate enough to get caught
in a legal crossfire between two or more conflicting claimants, for the faultless trouble it found itself
into. Since the defendants-in-interpleader are actually the ones who make a claim - only that it was
extraordinarily done through the procedural device of interpleader - then to them devolves the duty
to pay the docket fees prescribed under Rule 141 of the Rules of Court, as amended.151

The importance of paying the correct amount of docket fee cannot be overemphasized:

The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court
expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary,
and to the government as well, the payment of docket fees cannot be made dependent on the outcome
of the case, except when the claimant is a pauper-litigant.152

WHEREFORE, premises considered the consolidated PETITIONS are GRANTED. The Planters
Development Bank is hereby REQUIRED to file with the Regional Trial Court its comment or answer-
in-interpleader to Bank of Commerce’s Amended Consolidated Answer with Compulsory
Counterclaim, as previously ordered by the Regional Trial Court. The Regional Trial Court of Makati
City, Branch 143, is hereby ORDERED to assess the docket fees due from Planters Development Bank
and Bank of Commerce and order their payment, and to resolve with DELIBERATE DISPATCH the
parties’ conflicting claims of ownership over the proceeds of the Central Bank bills.

The Clerk of Court of the Regional Trial Court of Makati City, Branch 143, or his duly authorized
representative is hereby ORDERED to assess and collect the appropriate amount of docket fees
separately due the Bank of Commerce and Planters Development Bank as conflicting claimants in
Bangko Sentral ng Pilipinas’ interpleader suit, in accordance with this decision.

SO ORDERED.

G.R. No. 171845 : October 10, 2012

SPOUSES GODFREY and GERARDINA SERFINO, Petitioners, v. FAR EAST BANK AND TRUST
COMPANY, INC., now BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari, 1ςrνll filed under Rule 45 of the Rules of Court,
assailing the decision2ςrνll dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod
City, Branch 41, in Civil Case No. 95-9344.

FACTUAL ANTECEDENTS

The present case traces its roots to the compromise judgment dated October 24, 19953ςrνll of the
RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for
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collection of sum of money instituted by the petitioner spouses Godfrey and Gerardina Serfino
(collectively, spouses Serfino) against the spouses Domingo and Magdalena Cortez
(collectively, spouses Cortez). By way of settlement, the spouses Serfino and the spouses Cortez
executed a compromise agreement on October 20, 1995, in which the spouses Cortez acknowledged
their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy the debt,
Magdalena bound herself "to pay in full the judgment debt out of her retirement
benefits[.]"4ςrνll Payment of the debt shall be made one (1) week after Magdalena has received her
retirement benefits from the Government Service Insurance System (GSIS). In case of default, the debt
may be executed against any of the properties of the spouses Cortez that is subject to execution, upon
motion of the spouses Serfino.5ςrνll After finding that the compromise agreement was not contrary
to law, morals, good custom, public order or public policy, the RTC approved the entirety of the
parties agreement and issued a compromise judgment based thereon.6ςrνll The debt was later
reduced to P 155,000.00 from P 197,000.00 (including interest), with the promise that the spouses
Cortez would pay in full the judgment debt not later than April 23, 1996.7ςrνll

No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her
retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent,
Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Graces savings account with
FEBTC amounted to P 245,830.37, the entire deposit coming from Magdalenas retirement
benefits.8ςrνll That same day, the spouses Serfinos counsel sent two letters to FEBTC informing
the bank that the deposit in Graces name was owned by the spouses Serfino by virtue of an
assignment made in their favor by the spouses Cortez. The letter requested FEBTC to prevent the
delivery of the deposit to either Grace or the spouses Cortez until its actual ownership has been
resolved in court.

On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez,
Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the
payment of damages, with a prayer for preliminary attachment.

On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC. On the same
day, the spouses Serfino sent another letter to FEBTC informing it of the pending action; attached to
the letter was a copy of the complaint filed as Civil Case No. 95-9344.

During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were turning
over the balance of the deposit in FEBTC (amounting to P 54,534.00) to the spouses Serfino as partial
payment of their obligation under the compromise judgment. The RTC issued an order dated July 30,
1997, authorizing FEBTC to turn over the balance of the deposit to the spouses Serfino.

On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace and
Dante liable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving FEBTC
from any liability for allowing Grace to withdraw the deposit. The RTC declared that FEBTC was
not a party to the compromise judgment; FEBTC was thus not chargeable with notice of the parties
agreement, as there was no valid court order or processes requiring it to withhold payment of the
deposit. Given the nature of bank deposits, FEBTC was primarily bound by its contract of loan with
Grace. There was, therefore, no legal justification for the bank to refuse payment of the account,
notwithstanding the claim of the spouses Serfino as stated in their three letters.

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THE PARTIES ARGUMENTS

The spouses Serfino appealed the RTCs ruling absolving FEBTC from liability for allowing the
withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only a court
order or process can justify the withholding of the deposit in Graces name. Since FEBTC was informed
of their adverse claim after they sent three letters, they claim that:

Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1.
Withhold payment of the deposit until there is a reasonable opportunity to institute legal proceedings
to contest ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may
be held liable to the adverse claimant if it disregards the notice of adverse claim and pays the
depositor.

When the bank has reasonable notice of a bona fide claim that money deposited with it is the
property of another than the depositor, it should withhold payment until there is reasonable
opportunity to institute legal proceedings to contest the ownership. 9ςrνll (emphases and
underscoring supplied)

Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since
Article 1625 of the Civil Code states that an assignment of credit binds third persons if it appears in a
public instrument.10ςrνll They conclude that FEBTC, having been notified of their adverse claim,
should not have allowed Grace to withdraw the deposit.

While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the
spouses Serfino allege that the provisions on voluntary deposits should apply by analogy in this case,
particularly Article 1988 of the Civil Code, which states:

Article 1988. The thing deposited must be returned to the depositor upon demand, even though a
specified period or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositarys
possession, or should he have been notified of the opposition of a third person to the return or the
removal of the thing deposited. In these cases, the depositary must immediately inform the depositor
of the attachment or opposition.

Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the
depositor if notified of a third partys adverse claim.

By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the
spouses Serfino claim that FEBTC committed an actionable wrong that entitles them to the
payment of actual and moral damages.

FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound
by the compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank
deposit is owned by the bank; hence, the spouses Serfinos claim of ownership over it is erroneous.

109
Based on these arguments, the case essentially involves a determination of the obligation of banks to
a third party who claims rights over a bank deposit standing in the name of another.

THE COURTS RULING

We find the petition unmeritorious and see no reason to reverse the RTCs ruling.

Claim for actual damages not

meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit

The spouses Serfinos claim for damages against FEBTC is premised on their claim of ownership of
the deposit with FEBTC. The deposit consists of Magdalenas retirement benefits, which the spouses
Serfino claim to have been assigned to them under the compromise judgment. That the retirement
benefits were deposited in Graces savings account with FEBTC supposedly did not divest them of
ownership of the amount, as "the money already belongs to the [spouses Serfino] having been
absolutely assigned to them and constructively delivered by virtue of the x x x public
instrument[.]"11ςrνll By virtue of the assignment of credit, the spouses Serfino claim ownership of
the deposit, and they posit that FEBTC was duty bound to protect their right by preventing the
withdrawal of the deposit since the bank had been notified of the assignment and of their claim.

We find no basis to support the spouses Serfinos claim of ownership of the deposit.

"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.
It may be in the form of sale, but at times it may constitute a dation in payment, such as when a
debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a
third person."12ςrνll As a dation in payment, the assignment of credit operates as a mode of
extinguishing the obligation;13ςrνll the delivery and transmission of ownership of a thing (in this
case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent of
the performance of the obligation.14ςrνll

The terms of the compromise judgment, however, did not convey an intent to equate the assignment
of Magdalenas retirement benefits (the credit) as the equivalent of the payment of the debt due the
spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise
judgment merely identified the fund from which payment for the judgment debt would be
sourced:

(c) That before the plaintiffs file a motion for execution of the decision or order based [on this]
Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay
in full the judgment debt out of her retirement benefits as Local [T]reasury Operation Officer in the
City of Bacolod, Philippines, upon which full payment, the plaintiffs waive, abandon and relinquish

110
absolutely any of their claims for attorneys fees stipulated in the Promissory Note (Annex "A" to the
Complaint).15ςrνll[emphasis ours]

Only when Magdalena has received and turned over to the spouses Serfino the portion of her
retirement benefits corresponding to the debt due would the debt be deemed paid.

In Aquitey v. Tibong,16ςrνll the issue raised was whether the obligation to pay the loan was
extinguished by the execution of the deeds of assignment. The Court ruled in the affirmative, given
that, in the deeds involved, the respondent (the debtor) assigned to the petitioner (the creditor) her
credits "to make good" the balance of her obligation; the parties agreed to relieve the respondent of
her obligation to pay the balance of her account, and for the petitioner to collect the same from the
respondents debtors.17ςrνll The Court concluded that the respondents obligation to pay the balance
of her accounts with the petitioner was extinguished, pro tanto, by the deeds of assignment of credit
executed by the respondent in favor of the petitioner.18ςrνll

In the present case, the judgment debt was not extinguished by the mere designation in the
compromise judgment of Magdalenas retirement benefits as the fund from which payment shall be
sourced. That the compromise agreement authorizes recourse in case of default on other executable
properties of the spouses Cortez, to satisfy the judgment debt, further supports our conclusion that
there was no assignment of Magdalenas credit with the GSIS that would have extinguished the
obligation.

The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino,
the power to enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino are prohibited
from enforcing their claim until after the lapse of one (1) week from Magdalenas receipt of her
retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise
Agreement executed until after one (1) week from receipt by the defendant, Magdalena Cortez of her
retirement benefits from the [GSIS] but fails to pay within the said period the defendants judgment
debt in this case, in which case [this] Compromise Agreement [may be] executed upon any property
of the defendants that are subject to execution upon motion by the plaintiffs.19ςrνll

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power
to enforce it as against the debtor of the assignor.

Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of
the retirement benefits that were deposited with FEBTC. Without ownership rights over the amount,
they suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual
damages presupposes that the claimant suffered a duly proven pecuniary loss.20ςrνll

Claim for moral damages not

meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another

111
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21
of the Civil Code.21ςrνll Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code,
is part of the cause of action known in this jurisdiction as "abuse of rights." The elements of abuse of
rights are: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another.

The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a
notice of adverse claim to the fund in a depositors account to freeze the account for a reasonable
length of time, sufficient to allow the adverse claimant to institute legal proceedings to enforce his
right to the fund.22ςrνll In other words, the bank has a duty not to release the deposits unreasonably
early after a third party makes known his adverse claim to the bank deposit. Acknowledging that no
such duty is imposed by law in this jurisdiction, the spouses Serfino ask the Court to adopt this
foreign rule.23ςrνll

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules
governing pleading, practice and procedure in all courts.24ςrνllThe rule reflects a matter of policy
that is better addressed by the other branches of government, particularly, the Bangko Sentral ng
Pilipinas, which is the agency that supervises the operations and activities of banks, and which has
the power to issue "rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered[.]"25ςrνll To adopt this rule will have significant
implications on the banking industry and practices, as the American experience has shown.
Recognizing that the rule imposing duty on banks to freeze the deposit upon notice of adverse claim
adopts a policy adverse to the bank and its functions, and opens it to liability to both the depositor
and the adverse claimant,26ςrνll many American states have since adopted adverse claim statutes
that shifted or, at least, equalized the burden. Essentially, these statutes do not impose a duty on
banks to freeze the deposit upon a mere notice of adverse claim; they first require either a court order
or an indemnity bond.27ςrνll

In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing
policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-
imposed rule giving third parties with unverified claims against the deposit of another a better right
over the deposit. As current laws provide, the banks contractual relations are with its depositor, not
with the third party;28ςrνll "a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with
them."29ςrνll In the absence of any positive duty of the bank to an adverse claimant, there could be
no breach that entitles the latter to moral damages.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the
decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case
No. 95-9344 is AFFIRMED. Costs against the petitioners.ςrαlαωlιbrαr

SO ORDERED.

G.R. No. 165339 August 23, 2010

112
EQUITABLE PCI BANK, Petitioner,
vs.
ARCELITO B. TAN, Respondent.

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
set aside the Decision1 and the Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 41928.

The antecedents are as follows:

Respondent Arcelito B.Tan maintained a current and savings account with Philippine Commercial
International Bank (PCIB), now petitioner Equitable PCI Bank.3 On May 13, 1992, respondent issued
PCIB Check No. 275100 postdated May 30, 19924 in the amount of ₱34,588.72 in favor of Sulpicio
Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was ₱35,147.59. On May 14, 1992,
Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu
City. After clearing, the amount of the check was immediately debited by petitioner from
respondent's account thereby leaving him with a balance of only ₱558.87.

Meanwhile, respondent issued three checks from May 9 to May 16, 1992, specifically, PCIB Check No.
275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) for the
amount of ₱6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte Electric
Cooperative Inc., (ANECO) for the amount of ₱6,472.01; and PCIB Check No. 314104 dated May 16,
1992 payable in cash for the amount of ₱10,000.00. When presented for payment, PCIB Check Nos.
275080, 275097 and 314014 were dishonored for being drawn against insufficient funds.

As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and
ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by
respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off
on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24,
1992, respectively.

Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint
against petitioner, praying for payment of losses consisting of unrealized income in the amount of
₱1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees
and litigation expenses.

Respondent claimed that Check No. 275100 was a postdated check in payment of Bills of Lading Nos.
15, 16 and 17, and that his account with petitioner would have had sufficient funds to cover payment
of the three other checks were it not for the negligence of petitioner in immediately debiting from his
account Check No. 275100, in the amount of ₱34,588.72, even as the said check was postdated to May
30, 1992. As a consequence of petitioner's error, which brought about the dishonor of the two checks
paid to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut off, the business
operations thereof were stopped, and purchase orders were not duly served causing tremendous
losses to him.

113
In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed
that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric
supply to respondent's sawmills was not due to the dishonor of the checks, but for other reasons not
attributable to the bank.

After trial, the RTC, in its Decision5 dated June 21, 1993, ruled in favor of petitioner and dismissed
the complaint.

Aggrieved by the Decision, respondent filed a Notice of Appeal.6 In its Decision dated May 31, 2004,
the Court of Appeals reversed the decision of the trial court and directed petitioner to pay respondent
the sum of ₱1,864,500.00 as actual damages, ₱50,000.00 by way of moral damages, ₱50,000.00 as
exemplary damages and attorney's fees in the amount of ₱30,000.00. Petitioner filed a motion for
reconsideration, which the CA denied in a Resolution dated August 24, 2004.

Hence, the instant petition assigning the following errors:

THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED OFFICE ORDER NO. 82-
04-CG BY HOLDING ON TO THIS CASE AND DECIDING IT INSTEAD OF UNLOADING
IT AND HAVING IT RE-RAFFLED AMONG THE DIVISIONS IN CEBU CITY.

II

THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF THE REGIONAL

TRIAL COURT THAT CHECK NO. 275100 WAS DATED MAY 3, 1992.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT'S WAY OF

WRITING THE DATE ON CHECK NO. 275100 WAS THE PROXIMATE CAUSE OF THE
DISHONOR OF HIS THREE OTHER CHECKS.

IV

THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES, MORAL

DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES.

Anent the first issue, petitioner submits that the CA defied Office Order No. 82-04-CG dated April 5,
2004 issued by then CA Presiding Justice Cancio C. Garcia when it failed to unload CA-G.R. CV No.
41928 so that it may be re-raffled among the Divisions in Cebu City.

Office Order No. 82-04-CG7 provides:

xxxx

In view of the reorganization of the different Divisions due to the appointment of eighteen (18) new
Justices to the additional divisions in the cities of Cebu and Cagayan de Oro, the raffle of civil,
114
criminal and special cases submitted for decision and falling within the jurisdiction of the additional
divisions shall commence on April 6, 2004.

The raffle of newly-filed cases and those for completion likewise falling within the jurisdiction of the
additional divisions, shall start on April 12, 2004.

xxxx

Petitioner alleged that since the aforementioned Office Order directed the raffle of civil, criminal and
special cases submitted for decision and falling within the jurisdiction of the additional divisions on
April 6, 2004, CA-G.R. CV No. 41928 should have been unloaded by the CA's Fourth Division and re-
raffled to the CA's Division in Cebu City instead of deciding the case on May 31, 2004.

Respondent argued that the CA's Fourth Division correctly acted in taking cognizance of the case.
The CA defended its jurisdiction by ruling that cases already submitted for decision as of the
effectivity of Republic Act (R.A.) 82468 on February 1, 1997 were no longer included for re-raffle to
the newly-created Visayas and Mindanao Divisions of the CA, conformable to Section 5 of the said
statute.

Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is provided that:

Section 3. Section 10 of Batas Pambansa Blg. 129, as amended, is hereby further amended to read as
follows:

Sec. 10. Place of Holding Sessions. — The Court of Appeals shall have its permanent stations as follows:
The first seventeen (17) divisions shall be stationed in the City of Manila for cases coming from the
First to the Fifth Judicial Regions; the Eighteenth, Nineteenth, and Twentieth Divisions shall be in
Cebu City for cases coming from the Sixth, Seventh and Eighth Judicial Regions; the Twenty-first,
Twenty-second and Twenty-third Divisions shall be in Cagayan de Oro City for cases coming from
the Ninth, Tenth, Eleventh, and Twelfth Judicial Regions. Whenever demanded by public interest, or
whenever justified by an increase in case load, the Supreme Court, upon its own initiative or upon
recommendation of the Presiding Justice of the Court of Appeals, may authorize any division of the
Court to hold sessions periodically, or for such periods and at such places as the Supreme Court may
determine, for the purpose of hearing and deciding cases. Trials or hearings in the Court of Appeals
must be continuous and must be completed within three (3) months unless extended by the Chief
Justice of the Supreme Court.

Further, Section 5 of the same Act provides:

Upon the effectivity of this Act, all pending cases, except those which have been submitted for
resolution, shall be referred to the proper division of the Court of Appeals.9

Although CA-G.R. CV No. 41928 originated from Cebu City and is thus referable to the CA's
Divisions in Cebu City, the said case was already submitted for decision as of July 25, 1994.10 Hence,
CA-G.R. CV No. 41928, which was already submitted for decision as of the effectivity of R.A. 8246, i.e.,
February 1, 1997, can no longer be referred to the CA's Division in Cebu City. Thus, the CA's Former

115
Fourth Division correctly ruled that CA-G.R. CV No. 41928 pending in its division was not among
those cases that had to be re-raffled to the newly-created CA Divisions in the Visayas Region.

Further, administrative issuances must not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out.11 Thus, Office Order No. 82-04-CG cannot defeat the
provisions of R.A. 8246.

As to the second issue, petitioner maintains that the CA erred in reversing the finding of the RTC that
Check No. 275100 was dated May 3, 1992. Petitioner argued that in arriving at the conclusion that
Check No. 275100 was postdated May 30, 1992, the CA just made a visual examination of the check,
unlike the RTC which verified the truth of respondent's testimony relative to the issuance of Check
No. 275100. Respondent argued that the check was carefully examined by the CA which correctly
found that Check No. 275100 was postdated to May 30, 1992 and not May 3, 1992.

The principle is well established that this Court is not a trier of facts. Therefore, in an appeal by
certiorari under Rule 45 of the Rules of Court, only questions of law may be raised. The resolution of
factual issues is the function of the lower courts whose findings on these matters are received with
respect and are, as a rule, binding on this Court. However, this rule is subject to certain exceptions.
One of these is when the findings of the appellate court are contrary to those of the trial court. 12 Due
to the divergence of the findings of the CA and the RTC, We shall re-examine the facts and evidence
presented before the lower courts.

The RTC ruled that:

xxxx

The issue to be resolved in this case is whether or not the date of PCIB Check No. 275100 is May 3,
1992 as contended by the defendant, or May 30, 1992 as claimed by the plaintiff. The date of the check
is written as follows – 5/3/0/92. From the manner by which the date of the check is written, the Court
cannot really make a pronouncement as to whether the true date of the check is May 3 or May 30,
1992, without inquiring into the background facts leading to the issuance of said check.

According to the plaintiff, the check was issued to Sulpicio Lines in payment of bill of lading nos. 15,
16 and 17. An examination of bill of lading no. 15, however, shows that the same was issued, not in
favor of plaintiff but in favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued in
favor of Suson Lumber and not to plaintiff. Likewise, Bill of Lading No. 17 shows that it was issued
to Jazz Cola and not to plaintiff. Furthermore, the receipt for the payment of the freight for the
shipments reflected in these three bills of lading shows that the freight was paid by Coca Cola Bottlers
Philippines, Inc. and not by plaintiff.

Moreover, the said receipt shows that it was paid in cash and not by check. From the foregoing, the
evidence on record does not support the claim of the plaintiff that Check No. 275100 was issued in
payment of bills of lading nos. 15, 16 and 17.

Hence, the conclusion of the Court is that the date of the check was May 3, 1992 and not May 30,
1992.13

116
xxxx

In fine, the RTC concluded that the check was dated May 3, 1992 and not May 30, 1992, because the
same check was not issued to pay for Bills of Lading Nos. 15, 16 and 17, as respondent claims. The
trial court's conclusion is preposterous and illogical. The purpose for the issuance of the check has no
logical connection with the date of the check. Besides, the trial court need not look into the purpose
for which the check was issued. A reading of Check No. 27510014 would readily show that it was
dated May 30, 1992. As correctly observed by the CA:

On the first issue, we agree with appellant that appellee Bank apparently erred in misappreciating
the date of Check No. 275100. We have carefully examined the check in question (Exh. DDDD) and
we are convinced that it was indeed postdated to May 30, 1992 and not May 3, 1992 as urged by
appellee. The date written on the check clearly appears as "5/30/1992" (Exh. DDDD-4). The first bar
(/) which separates the numbers "5" and "30" and the second bar (/) which further separates the
number "30" from the year 1992 appear to have been done in heavy, well-defined and bold strokes,
clearly indicating the date of the check as "5/30/1992" which obviously means May 30, 1992. On the
other hand, the alleged bar (/) which appellee points out as allegedly separating the numbers "3" and
"0," thereby leading it to read the date as May 3, 1992, is not actually a bar or a slant but appears to be
more of an unintentional marking or line done with a very light stroke. The presence of the figure "0"
after the number "3" is quite significant. In fact, a close examination thereof would unerringly show
that the said number zero or "0" is connected to the preceeding number "3." In other words, the drawer
of the check wrote the figures "30" in one continuous stroke, thereby contradicting appellee’s theory
that the number "3" is separated from the figure "0" by a bar. Besides, appellee’s theory that the date
of the check is May 3, 1992 is clearly untenable considering the presence of the figure "0" after "3" and
another bar before the year 1992. And if we were to accept appellee’s theory that what we find to be
an unintentional mark or line between the figures "3" and "0" is a bar separating the two numbers, the
date of the check would then appear as "5/3/0/1992, which is simply absurd. Hence, we cannot go
along with appellee’s theory which will lead us to an absurd result. It is therefore our conclusion that
the check was postdated to May 30, 1992 and appellee Bank or its personnel erred in debiting the
amount of the check from appellant’s account even before the check’s due date. Undoubtedly, had
not appellee bank prematurely debited the amount of the check from appellant’s account before its
due date, the two other checks (Exhs. LLLL and GGGG) successively dated May 9, 1992 and May 16,
1992 which were paid by appellant to ASELCO and ANECO, respectively, would not have been
dishonored and the said payees would not have disconnected their supply of electric power to
appellant’s sawmills, and the latter would not have suffered losses.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of R.A.
879115decrees:

Declaration of Policy. – The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking
that requires high standards of integrity and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy.

Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the
same high standard of diligence required under R.A. 8791 at the time of the untimely debiting of
117
respondent's account by petitioner in May 1992. In Simex International (Manila), Inc. v. Court of
Appeals,16 which was decided in 1990, the Court held that as a business affected with public interest
and because of the nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

The diligence required of banks, therefore, is more than that of a good father of a family.17 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.18From the foregoing, it
is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised in
dealing with its client.

With respect to the third issue, petitioner submits that respondent's way of writing the date on Check
No. 275100 was the proximate cause of the dishonor of his three other checks. Contrary to petitioner’s
view, the Court finds that its negligence is the proximate cause of respondent’s loss.

Proximate cause is that cause which, in a natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred.19 The
proximate cause of the loss is not respondent's manner of writing the date of the check, as it was very
clear that he intended Check No. 275100 to be dated May 30, 1992 and not May 3, 1992. The proximate
cause is petitioner’s own negligence in debiting the account of the respondent prior to the date as
appearing in the check, which resulted in the subsequent dishonor of several checks issued by the
respondent and the disconnection by ASELCO and ANECO of his electric supply.

The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to
the order of the payee in accordance with the drawer’s instructions as reflected on the face and by the
terms of the check.20 Thus, payment made before the date specified by the drawer is clearly against
the drawee bank's duty to its client.

In its memorandum21 filed before the RTC, petitioner submits that respondent caused confusion on
the true date of the check by writing the date of the check as 5/3/0/92. If, indeed, petitioner was
confused on whether the check was dated May 3 or May 30 because of the "/" which allegedly
separated the number "3" from the "0," petitioner should have required respondent drawer to
countersign the said "/" in order to ascertain the true intent of the drawer before honoring the check.
As a matter of practice, bank tellers would not receive nor honor such checks which they believe to
be unclear, without the counter-signature of its drawer. Petitioner should have exercised the highest
degree of diligence required of it by ascertaining from the respondent the accuracy of the entries
therein, in order to settle the confusion, instead of proceeding to honor and receive the check.

Further, petitioner's branch manager, Pedro D. Tradio, in a letter22 addressed to ANECO, explained
the circumstances surrounding the dishonor of PCIB Check No. 275097. Thus:

June 11, 1992

118
ANECO
Agusan del Norte

Gentlemen:

This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the amount of ₱6,472.01 payable to
your goodselves issued by Mr. Arcelito B. Tan (MANWOOD Industries) which was returned by PCIB
Mandaue Branch for insufficiency of funds.

Please be advised that the return of the aforesaid check was a result of an earlier negotiation to PCIB-
Mandaue Branch through a deposit made on May 14, 1992 with SOLIDBANK Carbon Branch, or
through Central Bank clearing via Philippine Clearing House Corporation facilities, of a postdated
check which ironically and without bad faith passed undetected through several eyes from the payee
of the check down to the depository bank and finally the drawee bank (PCIB) the aforesaid Check
No. 275097 issued to you would have been honored because it would have been sufficiently funded
at the time it was negotiated. It should be emphasized, however, that Mr. Arcelito B. Tan was in no
way responsible for the dishonor of said PCIB Check No. 275097.

We hope that the foregoing will sufficiently explain the circumstances of the dishonor of PCIB Check
No. 275097 and would clear the name and credit of Mr. Arcelito Tan from any misimpressions which
may have resulted from the dishonor of said check.

Thank you.

xxxx

Although petitioner failed to specify in the letter the other details of this "postdated check," which
passed undetected from the eyes of the payee down to the petitioner drawee bank, the Court finds
that petitioner was evidently referring to no other than Check No. 275100 which was deposited to
Solidbank, and was postdated May 30, 1992. As correctly found by the CA:

In the aforequoted letter of its Manager, appellee Bank expressly acknowledged that Check No.
275097 (Exh. GGGG) which appellant paid to ANECO "was sufficiently funded at the time it was
negotiated," but it was dishonored as a "result of an earlier negotiation to PCIB-Mandaue Branch
through a deposit made on May 14, 1992 with SOLIDBANK xxx xxx xxx of a postdated check which
xxx xxx passed undetected." He further admitted that "Mr. Arcelito B. Tan was in no way responsible
for the dishonor of said PCIB Check No. 275097." Needless to state, since appellee's Manager has
cleared appellant of any fault in the dishonor of the ANECO check, it [necessarily] follows that
responsibility therefor or fault for the dishonor of the check should fall on appellee bank. Appellee's
attempt to extricate itself from its inadvertence must therefore fail in the face of its Manager's explicit
acknowledgment of responsibility for the inadvertent dishonor of the ANECO check.23

Evidently, the bank's negligence was the result of lack of due care required of its managers and
employees in handling the accounts of its clients. Petitioner was negligent in the selection and
supervision of its employees. In Citibank, N.A. v. Cabamongan,24 the Court ruled:

119
x x x Banks handle daily transactions involving millions of pesos. By the very nature of their works
the degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees.

We now resolve the question on the award of actual, moral and exemplary damages, as well as
attorney's fees by the CA to the respondent.

The CA based the award of actual damages in the amount of ₱1,864,500.00 on the purchase
orders25 submitted by respondent. The CA ruled that:

x x x In the case at bar, appellant [respondent herein] presented adequate evidence to prove losses
consisting of unrealized income that he sustained as a result of the appellee Bank's gross negligence.
Appellant identified certain Purchase Orders from various customers which were not met by reason
of the disruption of the operation of his sawmills when ANECO and ASELCO disconnected their
supply of electricity thereto. x x x

Actual or compensatory damages are those awarded in order to compensate a party for an injury or
loss he suffered. They arise out of a sense of natural justice and are aimed at repairing the wrong
done. Except as provided by law or by stipulation, a party is entitled to an adequate compensation
only for such pecuniary loss as he has duly proven.26 To recover actual damages, not only must the
amount of loss be capable of proof; it must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence obtainable.27

Respondent's claim for damages was based on purchase orders from various customers which were
allegedly not met due to the disruption of the operation of his sawmills. However, aside from the
purchase orders and his testimony, respondent failed to present competent proof on the specific
amount of actual damages he suffered during the entire period his power was cut off. No other
evidence was provided by respondent to show that the foregoing purchase orders were not met or
were canceled by his various customers. The Court cannot simply rely on speculation, conjecture or
guesswork in determining the amount of damages.28

Moreover, an examination of the purchase orders and job orders reveal that the orders were due for
delivery prior to the period when the power supply of respondent's two sawmills was cut off on June
1, 1992 to July 20, 1992 and May 28, 1992 to August 24, 1992, respectively. Purchase Order No.
990629 delivery date is May 4, 1992; Purchase Order No. 926930 delivery date is March 19, 1992;
Purchase Order No. 14779631 is due for delivery on January 31, 1992; Purchase Order No.
7600032 delivery date is February and March 1992; and Job Order No. 1824,33 dated March 18, 1992,
has a 15 days duration of work. Clearly, the disconnection of his electricity during the period May 28,
1992 to August 24, 1992 could not possibly affect his sawmill operations and prior orders therefrom.

Given the dearth of respondent's evidence on the matter, the Court resolves to delete the award of
actual damages rendered by the CA in favor of respondent for his unrealized income.

Nonetheless, in the absence of competent proof on the actual damages suffered, respondent is entitled
to temperate damages. Under Article 2224 of the Civil Code of the Philippines, temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be recovered

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when the court finds that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty.34 The allowance of temperate damages when actual
damages were not adequately proven is ultimately a rule drawn from equity, the principle affording
relief to those definitely injured who are unable to prove how definite the injury.35

It is apparent that respondent suffered pecuniary loss. The negligence of petitioner triggered the
disconnection of his electrical supply, which temporarily halted his business operations and the
consequent loss of business opportunity. However, due to the insufficiency of evidence before Us,
We cannot place its amount with certainty. Article 221636 of the Civil Code instructs that assessment
of damages is left to the discretion of the court according to the circumstances of each case. Under the
circumstances, the sum of ₱50,000.00 as temperate damages is reasonable.

Anent the award of moral damages, it is settled that 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. 37 In
Philippine National Bank v. Court of Appeals,38 the Court held that a bank is under obligation to treat
the accounts of its depositors with meticulous care whether such account consists only of a few
hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of
every kind of obligation is demandable. While petitioner's negligence in that case may not have been
attended with malice and bad faith, the banks' negligence caused respondent to suffer mental
anguish, serious anxiety, embarrassment and humiliation. In said case, We ruled that respondent
therein was entitled to recover reasonable moral damages.1âwphi1

In this case, the unexpected cutting off of respondent's electricity, which resulted in the stoppage of
his business operations, had caused him to suffer humiliation, mental anguish and serious anxiety.
The award of ₱50,000.00 is reasonable, considering the reputation and social standing of respondent.
As found by the CA, as an accredited supplier, respondent had been reposed with a certain degree of
trust by various reputable and well- established corporations.

On the award of exemplary damages, Article 2229 of the Civil Code states:

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.

The law allows the grant of exemplary damages to set an example for the public good. 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. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence. For this reason, banks should guard against injury attributable
to negligence or bad faith on its part. Without a doubt, it has been 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 diligence is expected,
and high standards of integrity and performance are even required of it.39 Petitioner, having failed in
this respect, the award of exemplary damages in the amount of ₱50,000.00 is in order.

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As to the award of attorney's fees, Article 220840 of the Civil 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.41 Respondent has been forced to undergo unnecessary trouble and expense to protect his
interest. The Court affirms the appellate court’s award of attorney’s fees in the amount of ₱30,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 41928, dated May 31, 2004 and August 24, 2004, respectively,
are AFFIRMED with the following MODIFICATIONS:

1. The award of One Million Eight Hundred Sixty-Four Thousand and Five Hundred Pesos
(₱1,864,500.00) as actual damages, in favor of respondent Arcelito B. Tan, is DELETED; and

2. Petitioner Equitable PCI Bank is instead directed to pay respondent the amount of Fifty
Thousand Pesos (₱50,000.00) as temperate damages.

SO ORDERED.

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by
the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008
Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized
and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner
of China Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of
respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As of
August 4, 2004, respondents’ Joint Peso Account showed a balance of ₱2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
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petitioner’s branch in Escolta to open a savings account, as required by the PLRA. 13 Since Liu Chiu
Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre,
filed before the Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-25014,18 against
respondent Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang’s
dollar account with petitioner’s Escolta Branch.20Petitioner alleged that on February 5, 2003, its branch
in Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch
to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw
her dollar deposits in cash;22 that Gutierrez told respondent Rosales to come back the following day
because the bank did not have enough dollars;23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the bank;24 that the impostor was able to
withdraw Liu Chiu Fang’s dollar deposit in the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later discovered that the serial
numbers of the dollar notes deposited by respondents in the amount of US$11,800.00 were the same
as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal
from the dollar account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the
bank on February 5, 2003.28Neither did she inform Gutierrez that Liu Chiu Fang was going to close
her account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her.30 Respondent Rosales’ version of the events that transpired thereafter
is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the
bank to close her account.31 At noon of the same day, respondent Rosales went to the bank to make a
transaction.32 While she was transacting with the teller, she caught a glimpse of a woman seated at
the desk of the Branch Operating Officer, Melinda Perez (Perez).33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account
and had already left.34 Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang
inquiring about the extension of her PLRA Visa and her dollar account.36 It was only then that Liu
Chiu Fang found out that her account had been closed without her knowledge.37 Respondent Rosales
then went to the bank to inform Gutierrez and Perez of the unauthorized withdrawal. 38 On June 23,
2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed
that the Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed
by Liu Chiu Fang in favor of a certain Richard So.39 Liu Chiu Fang, however, denied executing the
SPA.40 The following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA

123
Office to discuss the unauthorized withdrawal.41 During the conference, the bank officers assured Liu
Chiu Fang that the money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No.
04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they attempted
several times to withdraw their deposits but were unable to because petitioner had placed their
accounts under "Hold Out" status.45 No explanation, however, was given by petitioner as to why it
issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be
allowed to withdraw their deposits.47 They likewise prayed for actual, moral, and exemplary
damages, as well as attorney’s fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing
the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of US$75,000.0050 and to file a criminal complaint
for Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint. 52 An
Information, docketed as Criminal Case No. 05-236103,53 was then filed charging respondent Rosales
with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach
of contract.56The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the
act of withdrawal of a bank deposit is an act of demand by the creditor.57 The RTC also said that the
recourse of petitioner is against its negligent employees and not against respondents. 58 The
dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner]

METROPOLITAN BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and
YO YUK TO to withdraw their Savings and Time Deposits with the agreed interest, actual damages
of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the amount
due [respondents] as and for attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

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On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages
because "the basis for [respondents’] claim for such damages is the professional fee that they paid to
their legal counsel for [respondent] Rosales’ defense against the criminal complaint of [petitioner] for
estafa before the Office of the City Prosecutor of Manila and not this case." 60 Thus, the CA disposed
of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21,
Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual
damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE

APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS
CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE

NEGLIGENT IN RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY

DAMAGES, AND ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account.64 It posits that the said clause applies to any and all
kinds of obligation as it does not distinguish between obligations arising ex contractu or ex
delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was clearly
established by evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner likewise
denies that its employees were negligent in releasing the dollars.68 It claims that it was the deception
employed by respondent Rosales that caused petitioner’s employees to release Liu Chiu Fang’s funds
to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It
insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive
or malevolent manner.70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner. 71 They insist that petitioner

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miserably failed to prove its accusations against respondent Rosales.72 In fact, no documentary
evidence was presented to show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged
impostor.74Respondents likewise maintain that what was established during the trial was the
negligence of petitioner’s employees as they allowed the withdrawal of the funds without properly
verifying the identity of the depositor.75Furthermore, respondents contend that their deposits are in
the nature of a loan; thus, petitioner had the obligation to return the deposits to them upon
demand.76 Failing to do so makes petitioner liable to pay respondents moral and exemplary damages,
as well as attorney’s fees.77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages. The issue of whether petitioner’s
employees were negligent in allowing the withdrawal of Liu Chiu Fang’s dollar deposits has no
bearing in the resolution of this case. Thus, we find no need to discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for
issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the
Application and Agreement for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all
monies, properties or securities of the Depositor now in or which may hereafter come into the
possession or under the control of the Bank, whether left with the Bank for safekeeping or otherwise,
or coming into the hands of the Bank in any way, for so much thereof as will be sufficient to pay any
or all obligations incurred by Depositor under the Account or by reason of any other transactions
between the same parties now existing or hereafter contracted, to sell in any public or private sale
any of such properties or securities of Depositor, and to apply the proceeds to the payment of any
Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert
a lien on any balance of the Account and apply all or any part thereof against any indebtedness,

126
matured or unmatured, that may then be owing to the Bank by any or all of the Depositors. It is
understood that if said indebtedness is only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account answer for the said indebtedness
to the extent of the equal share of the debtor in the amount credited to the Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account
is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued
the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation, there was no legal basis
for petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of the RTC and
the CA that the "Hold Out" clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents’ deposit despite demand. Having breached its contract with
respondents, petitioner is liable for damages.

Respondents are entitled to moral and

exemplary damages and attorney’s fees.1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out." 82 Third,
the order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out"
order was issued on July 31, 2003,83 while the criminal complaint was filed only on September 3,
2003.84 All these taken together lead us to conclude that petitioner acted in bad faith when it breached
its contract with respondents. As we see it then, respondents are entitled to moral damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.
We need not belabor the fact that the banking industry is impressed with public interest. 87 As such,

127
"the highest degree of diligence is expected, and high standards of integrity and performance are even
required of it."88 It must therefore "treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with them."89 For failing to do this, an
award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil
Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself
from fraud or suspicions of fraud, the exercise of his right should be done within the bounds of the
law and in accordance with due process, and not in bad faith or in a wanton disregard of its
contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30,
2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.

G.R. No. 208293

PHILIPPINE NATIONAL BANK, Petitioner

vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET
AL., Respondent

x-----------------------x

G.R. No. 208295

LINA B. AGUILAR, Petitioner

vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, BUENVENIDO L.
SANTOS, ET AL.,Respondents.

DECISION

LEONEN, J.:

The standard of diligence required of banks is higher than the degree of diligence of a good father of
a family. Respondents are children of Angel C. Santos who died on March 21, 1991.1

Sometime in May 1996, respondents discovered that their father maintained a premium savings
account with Philippine National Bank (PNB), Sta. Elena-Marikina City Branch.2 As of July 14, 1996,
the deposit amounted to 1,759,082.63.3 Later, respondents would discover that their father also had a
time deposit of 1,000,000.00 with PNB.4

Respondents went to PNB to withdraw their father’s deposit.5

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Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch, required them to
submit the following: "(1) original or certified true copy of the Death Certificate of Angel C. Santos;
(2) certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal Revenue
(BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the
balance of the deposit to be withdrawn."6

By April 26, 1998, respondents had already obtained the necessary documents. 7 They tried to
withdraw the deposit.8 However, Aguilar informed them that the deposit had already "been released
to a certain Bernardito Manimbo (Manimbo) on April 1, 1997."9 An amount of 1,882,002.05 was
released upon presentation of: (a) an affidavit of selfadjudication purportedly executed by one of the
respondents, Reyme L. Santos; (b) a certificate of time deposit dated December 14, 1989 amounting
to 1,000,000.00; and (c) the death certificate of Angel C. Santos, among others.10 A special power of
attorney was purportedly executed by Reyme L. Santos in favor of Manimbo and a certain Angel P.
Santos for purposes of withdrawing and receiving the proceeds of the certificate of time deposit.11

On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for
sum of money and damages against PNB, Lina B. Aguilar, and a John Doe.12 Respondents questioned
the release of the deposit amount to Manimbo who had no authority from them to withdraw their
father’s deposit and who failed to present to PNB all the requirements for such
withdrawal.13 Respondents prayed that they be paid: (a) the premium deposit amount; (b) the
certificate of time deposit amount; and (c) moral and exemplary damages, attorney’s fees, and costs
of suit.14

PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium deposit account
and time deposit account) with PNB.15 They alleged that Angel C. Santos’ deposit account was
originally a time deposit account that was subsequently converted into a premium savings
account.16 They also alleged that Aguilar did not know about Angel C. Santos’ death in 1991 because
she only assumed office in 1996.17 Manimbo was able to submit an affidavit of self-adjudication and
the required surety bond.18 He also submitted a certificate of payment of estate tax dated March 31,
1997.19 All documents he submitted appeared to be regular.20

PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos, and Capital
Insurance and Surety Co., Inc.21

Angel P. Santos denied having anything to do with the special power of attorney and affidavit of self-
adjudication presented by Manimbo.22 He also alleged that Manimbo presented the certificate of time
deposit without his knowledge and consent.23

Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay claims only when
persons who were unduly deprived of their lawful participation in the estate filed an action in court
for their claims.24 It did not undertake to pay claims resulting from PNB’s negligence.25

In the decision26 dated February 22, 2011, the trial court held that PNB and Aguilar were jointly and
severally liable to pay respondents the amount of 1,882,002.05 with an interest rate of 6% starting May
20, 1998.27 PNB and Aguilar were also declared jointly and severally liable for moral and exemplary
damages, attorney’s fees, and costs of suit.28Manimbo, Angel P. Santos, and Capital Insurance and
129
Surety Co., Inc. were held jointly and severally liable to pay PNB 1,877,438.83 pursuant to the heir’s
bond and 50,000.00 as attorney’s fees and the costs of suit.29 The dispositive portion of the trial court’s
decision reads:

WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows:

1. ordering the defendants PNB and LINA B. AGUILAR jointly and severally liable to pay the
plaintiffs the amount of P1,882,002.05, representing the face value of PNB Manager’s Check No. AF-
974686B as balance of the total deposits of decedent Angel C. Santos at the time of its issue, with
interest thereon at the rate of 6% starting on May 20, 1998, the date when the complaint was filed,
until fully paid;

2. ordering both defendants jointly and severally liable to pay plaintiffs the amount of Php 100,000.00
as moral damages, another Php100,000.00 as exemplary damages and Php 50,000.00 as attorney’s fees
and the costs of suit;

On the Third party complaint:

3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. Santos and Capital Insurance
& Surety Co., Inc., jointly and severally liable to pay third party plaintiff PNB, the amount of Php
1,877,438.83 pursuant to the Heir’s Bond and the amount of Php 50,000.00 as attorney’s fees and the
costs of suit.

SO ORDERED.30

The trial court found that Angel C. Santos had only one account with PNB. 31 The account was
originally a time deposit, which was converted into a premium savings account when it was not
renewed on maturity.32 The trial court took judicial notice that in 1989, automatic rollover of time
deposit was not yet prevailing.33

On the liability of PNB and Aguilar, the trial court held that they were both negligent in releasing the
deposit to Manimbo.34 The trial court noted PNB’s failure to notify the depositor about the maturity
of the time deposit and the conversion of the time deposit into a premium savings account. 35 The trial
court also noted PNB’s failure to cancel the certificate of time deposit despite conversion.36 PNB and
Aguilar also failed to require the production of birth certificates to prove claimants’ relationship to
the depositor.37 Further, they relied on the affidavit of self-adjudication when several persons
claiming to be heirs had already approached them previously.38

Aguilar filed a motion for reconsideration39 of the February 22, 2011 Regional Trial Court decision.
This was denied in the June 21, 2011 Regional Trial Court order.40

PNB and Aguilar appealed before the Court of Appeals.41

Aguilar contended that she was not negligent and should not have been made jointly and severally
liable with PNB.42 She merely implemented PNB’s Legal Department’s directive to release the deposit
to Manimbo.43

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PNB argued that it was not negligent.44 The release of the deposit to Manimbo was pursuant to an
existing policy.45Moreover, the documents submitted by Manimbo were more substantial than those
submitted by respondents.46Respondents could have avoided the incident "had they accomplished
the required documents immediately."47

In the decision48 promulgated on July 25, 2013, the Court of Appeals sustained the trial court’s finding
that there was only one account.49 Angel C. Santos could not have possibly opened the premium
savings account in 1994 since he already died in 1991.50 The Court of Appeals also held that PNB and
Aguilar were negligent in handling the deposit.51 The deposit amount was released to Manimbo who
did not present all the requirements, particularly the Bureau of Internal Revenue (BIR) certification
that estate taxes had already been paid.52 They should also not have honored the

affidavit of self-adjudication.53

The Court of Appeals ruled that Aguilar could not escape liability by pointing her finger at PNB’s
Legal Department.54As the Bank Manager, she should have given the Legal Department all the
necessary information that must be known in order to protect both the depositors’ and the bank’s
interests.55

The Court of Appeals removed the award of exemplary damages, upon finding that there was no
malice or bad faith.56

The Court of Appeals considered the deposit as an ordinary loan by the bank from Angel C. Santos
or his heirs.57Therefore, the deposit was a forbearance which should earn an interest of 12% per
annum.58 The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, premises considered, the assailed decision of the court a quo dated February 22, 2011
is AFFIRMED with the MODIFICATIONS in that the rate of interest shall be twelve percent
(12%) per annum computed from the filing of the case until fully satisfied. The interest due shall
further earn an interest of 12% per annum to be computed from the date of the filing of the complaint
until fully paid. Meanwhile, the award of exemplary damages is DELETED.

SO ORDERED.59

PNB and Aguilar filed their separate petitions for review of the Court of Appeals’ July 25, 2013
decision.60

We resolve the following issues:

I. Whether Philippine National Bank was negligent in releasing the deposit to Bernardito Manimbo;

II. Whether Lina B. Aguilar is jointly and severally liable with Philippine National Bank for the release
of the deposit to Bernardito Manimbo; and

III. Whether respondents were properly awarded damages.

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Petitioner Aguilar argued that the Court of Appeals had already found no malice or bad faith on her
part.61 Moreover, as a mere officer of the bank, she cannot be made personally liable for acts that she
was authorized to do.62 These acts were mere directives to her by her superiors.63 Hence, she should
not be held solidarily liable with PNB.64

Petitioner PNB argued that it was the presumptuousness and cavalier attitude of respondents that
gave rise to the controversy and not its judgment call.65 Respondents were lacking in sufficient
documentation.66 Petitioner PNB also argued that respondents failed to show any justification for the
award of moral damages.67 No bad faith can be attributed to Aguilar.68

In their separate comments to the petitions, respondents argued that the trial court and the Court of
Appeals did not err in finding that petitioners PNB and Aguilar were negligent in handling their
father’s deposit.69 The acceptance of invalid and incomplete documents to support the deposit’s
release to Manimbo was a violation of the bank’s fiduciary duty to its clients.70 These acts constituted
gross negligence on the part of petitioners PNB and Aguilar.71

However, according to respondents, the Court of Appeals erred in deleting the award for exemplary
damages because the acts in violation of the bank’s fiduciary were done in bad faith.72

We rule for the respondents.

The trial court and the Court of Appeals correctly found that petitioners PNB and Aguilar were
negligent in handling the deposit of Angel C. Santos.

The contractual relationship between banks and their depositors is governed by the Civil Code
provisions on simple loan.73 Once a person makes a deposit of his or her money to the bank, he or she
is considered to have lent the bank that money.74 The bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated to pay him or her on demand.75

The default standard of diligence in the performance of obligations is "diligence of a good father of a
family." Thus, the Civil Code provides:

ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the stipulation of the parties requires another standard of
care.

....

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required. (Emphasis supplied)

"Diligence of a good father of a family" is the standard of diligence expected of, among others,

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usufructuaries,76 passengers of common carriers,77 agents,78 depositaries,79 pledgees,80 officious
managers,81 and persons deemed by law as responsible for the acts of others.82 "The diligence of a
good father of a family requires only that diligence which an ordinary prudent man would exercise
with regard to his own property.83

Other industries, because of their nature, are bound by law to observe higher standards of diligence.
Common carriers, for example, must observe "extraordinary diligence in the vigilance over the goods
and for the safety of [their] passengers"84 because it is considered a business affected with public
interest. "Extraordinary diligence" with respect to passenger safety is further qualified as "carry[ing]
the passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances."85

Similar to common carriers, banking is a business that is impressed with public interest. It affects
economies and plays a significant role in businesses and commerce.86 The public reposes its faith and
confidence upon banks, such that "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."87 This is why we have recognized the fiduciary nature of the banks’ functions,
and attached a special standard of diligence for the exercise of their functions.

In Simex International (Manila), Inc. v. Court of Appeals,88 this court described the nature of banks’
functions and the attitude expected of banks in handling their depositors’ accounts, thus:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. . . .

The 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.89 (Emphasis supplied)

The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking Law,
thus:

SEC. 2. Declaration of Policy.—The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking
that requires high standards of integrity and performance. In furtherance thereof, the State shall promote
and maintain a stable and efficient banking and financial system that is globally competitive, dynamic
and responsive to the demands of a developing economy. (Emphasis supplied)

In The Consolidated Bank and Trust Corporation v. Court of Appeals, 90 this court explained the
meaning of fiduciary relationship and the standard of diligence assumed by banks:

This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family.91 (Emphasis supplied, citation omitted)

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Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is inconsistent with the high
standard of diligence required of banks. They accepted Manimbo’s representations despite
knowledge of the existence of circumstances that should have raised doubts on such representations.
As a result, Angel C. Santos’ deposit was given to a person stranger to him.

Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-Sta. Elena-Marikina
City Branch Manager only five (5) years from Angel C. Santos’ death, she was not in the position to
know that respondents were the heirs of Angel C. Santos.92 She could not have accepted the unsigned
and unnotarized extrajudicial settlement deed that respondents had first showed her.93 She was not
competent to make a conclusion whether that deed was genuine.94 Neither could petitioners PNB and
Aguilar pass judgment on a letter from respondents’ lawyer stating that respondents were the nine
heirs of Angel C. Santos.95 Petitioners PNB and Aguilar’s negligence is not based on their failure to
accept respondents’ documents as evidence of their right to claim Angel C. Santos’ deposit. Rather, it
is based on their failure to exercise the diligence required of banks when they accepted the fraudulent
representations of Manimbo. Petitioners PNB and Aguilar disregarded their own requirements for
the release of the deposit to persons claiming to be heirs of a deceased depositor. When respondents
asked for the release of Angel C. Santos’ deposit, they were required to present the following: "(1)
original or certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of payment
of, or exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of
Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Deed of Extrajudicial
Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the balance of
the deposit to be withdrawn."96

Petitioners PNB and Aguilar, however, accepted Manimbo’s representations, and they released Angel
C. Santos’ deposit based on only the following documents:

1. Death certificate of Angel C. Santos;

2. Birth certificate of Reyme L. Santos;

3. Affidavit of self-adjudication of Reyme L. Santos;

4. Affidavit of publication;

5. Special power of attorney that Reyme L. Santos executed in favor of Bernardito Manimbo and
Angel P. Santos;

6. Personal items of Angel C. Santos, such as photocopies or originals of passport, residence certificate
for year 1990, SSS I.D., etc.;

7. Surety good for two (2) years; and

8. Certificate of Time Deposit No. 341306.97

Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for the
release of their deceased clients’ deposits or they have standards that they disregard for convenience,
favor, or upon exercise of discretion. Both are inconsistent with the required diligence of banks. These

134
threaten the safety of the depositors’ accounts as they provide avenues for fraudulent practices by
third persons or by bank officers themselves.

In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to Manimbo without
having been presented the BIR-issued certificate of payment of, or exception from, estate tax. This is
a legal requirement before the deposit of a decedent is released. Presidential Decree No. 1158,98 the
tax code applicable when Angel C. Santos died in 1991, provides:

SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There shall not be
transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines, any shares, obligations, bonds or
rights by way of gift inter vivos or mortis causa, legacy, or inheritance unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the
estate or any one of the heirs of the decedent may upon authorization by the Commissioner of Internal
Revenue, withdraw an amount not exceeding 10,000 without the said certification. For this purpose,
all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living
at the time of withdrawal by any one of the joint depositors and such statement shall be under oath
by the said depositors.99 (Emphasis supplied)

This provision was reproduced in Section 97 of the 1997 National Internal Revenue Code, thus:

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not
be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right
by way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand pesos (20,000) without the said certification.
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors. (Emphasis supplied)

Taxes are created primarily to generate revenues for the maintenance of the government. However,
this particular tax may also serve as guard against the release of deposits to persons who have no
sufficient and valid claim over the deposits. Based on the assumption that only those with sufficient
and valid claim to the deposit will pay the taxes for it, requiring the certificate from the BIR increases
the chance that the deposit will be released only to them.

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In their compulsory counterclaim,100 petitioners PNB and Aguilar claimed that Manimbo presented
a certificate of payment of estate tax.101 During trial, however, it turned out that this certificate was
instead an authority to accept payment, which is not the certificate required for the release of bank
deposits.102 It appears that Manimbo was not even required to submit the BIR certificate.103 He, thus,
failed to present such certificate. Petitioners PNB and Aguilar provided no satisfactory explanation
why Angel C. Santos’ deposit was released without it.

Petitioners PNB and Aguilar’s negligence is also clear when they accepted as bases for the release of
the deposit to Manimbo: (a) a mere photocopy of Angel C. Santos’ death certificate;104 (b) the falsified
affidavit of self-adjudication and special power of attorney purportedly executed by Reyme L.
Santos;105 and (c) the certificate of time deposit.106

Petitioner Aguilar was aware that there were other claimants to Angel C. Santos’ deposit.
Respondents had already communicated with petitioner Aguilar regarding Angel C. Santos’ account
before Manimbo appeared. Petitioner Aguilar even gave respondents the updated passbook of Angel
C. Santos’ account.107 Yet, petitioners PNB and Aguilar did not think twice before they released the
deposit to Manimbo. They did not doubt why no original death certificate could be submitted. They
did not doubt why Reyme L. Santos would execute an affidavit of self-adjudication when he, together
with others, had previously asked for the release of Angel C. Santos’ deposit. They also relied on the
certificate of time deposit and on Manimbo’s representation that the passbook was lost when the
passbook had just been previously presented to Aguilar for updating.108

During the trial, petitioner PNB’s counsel only reasoned that the photocopy of the death certificate
was also submitted with other documents, which led him to no other conclusion than that Angel C.
Santos was already dead.109 On petitioners PNB and Aguilar’s reliance special power of attorney
allegedly executed by Reyme L. Santos, Aguilar admitted that she did not contact Reyme L. Santos
for verification. Her reason was that Reyme L. Santos was their client. Therefore, they had no
obligation to do so.110

Given the circumstances, "diligence of a good father of a family" would have required petitioners
PNB and Aguilar to verify. A prudent man would have inquired why Reyme L. Santos would issue
an affidavit of selfadjudication when others had also claimed to be heirs of Angel C. Santos. Contrary
to petitioner Aguilar’s reasoning, the fact that Reyme L. Santos was not petitioner PNB’s client should
have moved her to take measures to ensure the veracity of Manimbo’s documents and
representations. This is because she had no previous knowledge of Reyme L. Santos his
representatives, and his signature.

Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a family
is expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of
diligence of a good father of a family. Their actions and inactions constitute gross negligence. It is for
this reason that we sustain the trial court’s and the Court of Appeals’ rulings that petitioners PNB
and Aguilar are solidarily liable with each other.111

For the same reason, we sustain the award for moral damages. Petitioners PNB and Aguilar’s gross
negligence deprived Angel C. Santos’ heirs what is rightfully theirs. Respondents also testified that
they experienced anger and embarrassment when petitioners PNB and Aguilar refused to release
Angel C. Santos’ deposit.112 "The bank’s negligence was the result of lack of due care and caution
136
required of managers and employees of a firm engaged in so sensitive and demanding business as
banking."113

Exemplary damages should also be awarded. "The law allows the grant of exemplary damages by
way of example for the public good. The public relies on the banks’ sworn profession of diligence and
meticulousness in giving irreproachable service. The level of meticulousness must be maintained at
all times by the banking sector."114

Since exemplary damages are awarded and since respondents were compelled to litigate to protect
their interests,115 the award of attorney’s fees is also proper.

The Court of Appeals' award of interest should be modified to 12% from demand on April 26, 1998
until June 30, 2013, and 6% from July I, 2013 until fully paid. In Nacar v. Gallery Frames:116

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. . . s.hall no longer
be twelve percent (12%) per annum ... but will now be six percent (6%) per annum effective July 1, 2013.
It should be noted, nonetheless, that. .. the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.

....

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 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand ...

....

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 6% per
annumfrom such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.117

WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED with
the MODIFICATIONS in that petitioners Philippine National Bank and Lina B. Aguilar are ordered
solidarily liable to pay respondents Pl 00,000.00 as exemplary damages. Further, the interest rate for
the amount of Pl,882,002.05, representing the face value of PNB Manager's Check No. AF-974686B is
modified to 12% from April 26, 1998 until June 30, 2013, and 6% from July 1, 2013 until satisfaction.
All monetary awards shall then earn interest at the rate of 6% per annum from finality of the decision
until full satisfaction.

SO ORDERED.

[G.R. NO. 133179 : March 27, 2008]

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ALLIED BANKING CORPORATION, Petitioner, v. LIM SIO WAN, METROPOLITAN BANK
AND TRUST CO., and PRODUCERS BANK, Respondents.

DECISION

VELASCO, JR., J.:

To ingratiate themselves to their valued depositors, some banks at times bend over backwards that
they unwittingly expose themselves to great risks.

The Case

This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals' (CA's)
Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied
Banking Corporation, et al. The CA Decision modified the Decision dated November 15, 19932 of the
Regional Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No. 6757.

The Facts

The facts as found by the RTC and affirmed by the CA are as follows:

On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP
1,152,597.35 for a term of 31 days to mature on December 15, 1983,3 as evidenced by Provisional
Receipt No. 1356 dated November 14, 1983.4

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied,
and instructed the latter to pre-terminate Lim Sio Wan's money market placement, to issue a
manager's check representing the proceeds of the placement, and to give the check to one Deborah
Dee Santos who would pick up the check.5 Lim Sio Wan described the appearance of Santos so that
So could easily identify her.6

Later, Santos arrived at the bank and signed the application form for a manager's check to be
issued.7The bank issued Manager's Check No. 035669 for PhP 1,158,648.49, representing the proceeds
of Lim Sio Wan's money market placement in the name of Lim Sio Wan, as payee.8 The check was
cross-checked "For Payee's Account Only" and given to Santos.9

Thereafter, the manager's check was deposited in the account of Filipinas Cement Corporation (FCC)
at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of Lim Sio
Wan as indorser.11

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with
respondent Producers Bank. Santos was the money market trader assigned to handle FCC's
account.12Such deposit is evidenced by Official Receipt No. 31756813 and a Letter dated September 21,
1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the placement.14 The
placement matured on October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by
a Letter dated October 25, 1983.15 When the placement matured, FCC demanded the payment of the

138
proceeds of the placement.16 On December 5, 1983, the same date that So received the phone call
instructing her to pre-terminate Lim Sio Wan's placement, the manager's check in the name of Lim
Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCC's money
market placement with Producers Bank.17 In other words, the Allied check was deposited with
Metrobank in the account of FCC as Producers Bank's payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check, which
reads: "All prior endorsements and/or lack of endorsement guaranteed."18

The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded
the check even without checking the authenticity of Lim Sio Wan's purported indorsement. Thus, the
amount on the face of the check was credited to the account of FCC.19

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984.20

On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan
went to Allied to withdraw it.21 She was then informed that the placement had been pre-terminated
upon her instructions. She denied giving any instructions and receiving the proceeds thereof. She
desisted from further complaints when she was assured by the bank's manager that her money would
be recovered.22

When Lim Sio Wan's second placement matured on January 9, 1984, So called Lim Sio Wan to ask for
the latter's instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement
for another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that the promise that her money
would be recovered would not materialize, sent a demand letter to Allied asking for the payment of
the first placement.24 Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the
pre-termination of the placement and its subsequent release to Santos.25

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed as
Civil Case No. 6757 against Allied to recover the proceeds of her first money market placement.
Sometime in February 1984, she withdrew her second placement from Allied.

Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a fourth
party complaint28 against FCC. FCC for its part filed a fifth party complaint29 against Producers Bank.
Summonses were duly served upon all the parties except for Santos, who was no longer connected
with Producers Bank.30

On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank
that the signature on the check was forged.31 Thus, Metrobank withheld the amount represented by
the check from FCC. Later on, Metrobank agreed to release the amount to FCC after the latter
executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the
amount.32

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along
with Allied.33 The RTC admitted the amended complaint despite the opposition of

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Metrobank.34Consequently, Allied's third party complaint against Metrobank was converted into a
cross-claim and the latter's fourth party complaint against FCC was converted into a third party
complaint.35

After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus
12% interest per annum from March 16, 1984 until fully paid;

2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral
damages;

3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorney's
fees; and,

4. Ordering defendant Allied Bank to pay the costs of suit.

Defendant Allied Bank's cross-claim against defendant Metrobank is DISMISSED.

Likewise defendant Metrobank's third-party complaint as against Filipinas Cement Corporation is

DISMISSED.

Filipinas Cement Corporation's fourth-party complaint against Producer's Bank is also DISMISSED.

SO ORDERED.36

The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying
the RTC Decision, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered
ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent
and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages,
attorney's fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied
Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the same
proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.

SO ORDERED.37

Hence, Allied filed the instant petition.

The Issues

Allied raises the following issues for our consideration:

140
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-
terminate the initial placement and to deliver the check to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount
adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank.38

The petition is partly meritorious.

A Question of Fact

Allied questions the finding of both the trial and appellate courts that Allied was not authorized to
release the proceeds of Lim Sio Wan's money market placement to Santos. Allied clearly raises a
question of fact. When the CA affirms the findings of fact of the RTC, the factual findings of both
courts are binding on this Court.39

We also agree with the CA when it said that it could not disturb the trial court's findings on the
credibility of witness So inasmuch as it was the trial court that heard the witness and had the
opportunity to observe closely her deportment and manner of testifying. Unless the trial court had
plainly overlooked facts of substance or value, which, if considered, might affect the result of the
case,40 we find it best to defer to the trial court on matters pertaining to credibility of witnesses.

Additionally, this Court has held that the matter of negligence is also a factual question. 41 Thus, the
finding of the RTC, affirmed by the CA, that the respective parties were negligent in the exercise of
their obligations is also conclusive upon this Court.

The Liability of the Parties

As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar
is the doctrine that the relationship between a bank and a client is one of debtor-creditor.

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this
Court ruled that a money market placement is a simple loan or mutuum.43 Further, we defined a
money market in Cebu International Finance Corporation v. Court of Appeals, as follows:

141
[A] money market is a market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other but through a middle
man or dealer in open market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private respondent is
in the nature of a loan.44

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon
her request, or upon maturity of the placement, or until the bank is released from its obligation as
debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.

Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished,
thus:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the
release of her money market placement to Santos and the bank had been negligent in so doing, there
is no question that the obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240
of the Code states that "payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it." As commented by
Arturo Tolentino:

Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if
there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in
utmost good faith and by mistake as to the person of his creditor, or through error induced by the
fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive
such payment, is void, except as provided in Article 1241. Such payment does not prejudice the
creditor, and accrual of interest is not suspended by it.45 (Emphasis supplied.)

Since there was no effective payment of Lim Sio Wan's money market placement, the bank still has
an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof.
142
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.

Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan's money. It points out
that Metrobank guaranteed all prior indorsements inscribed on the manager's check, and without
Metrobank's guarantee, the present controversy would never have occurred. According to Allied:

Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper
party is, aside from being an efficient intervening cause, also the last negligent act, x x x contributory
to the injury caused in the present case, which thereby leads to the conclusion that it is the collecting
bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff in the instant case.46

We are not persuaded.

Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have
occurred."47 Thus, there is an efficient supervening event if the event breaks the sequence leading
from the cause to the ultimate result. To determine the proximate cause of a controversy, the question
that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer
is NO, then the event is the proximate cause.

In the instant case, Allied avers that even if it had not issued the check payment, the money
represented by the check would still be lost because of Metrobank's negligence in indorsing the check
without verifying the genuineness of the indorsement thereon.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 66. Liability of general indorser. Every indorser who indorses without qualification, warrants
to all subsequent holders in due course;

a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and

b) That the instrument is at the time of his indorsement valid and subsisting;

And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case
may be according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.

Section 65. Warranty where negotiation by delivery, so forth. Every person negotiating an instrument
by delivery or by a qualified indorsement, warrants:

a) That the instrument is genuine and in all respects what it purports to be;

b) That he has a good title of it;

c) That all prior parties had capacity to contract;

143
d) That he has no knowledge of any fact which would impair the validity of the instrument or render
it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than
the immediate transferee.

The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)

The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the
defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last
indorser will be liable for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases that "a collecting bank which indorses a check
bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable therefor."48

However, this general rule is subject to exceptions. One such exception is when the issuance of the
check itself was attended with negligence. Thus, in the cases cited above where the collecting bank is
generally held liable, in two of the cases where the checks were negligently issued, this Court held
the institution issuing the check just as liable as or more liable than the collecting bank.

In isolated cases where the checks were deposited in an account other than that of the payees on the
strength of forged indorsements, we held the collecting bank solely liable for the whole amount of
the checks involved for having indorsed the same. In Republic Bank v. Ebrada, 49 the check was
properly issued by the Bureau of Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco
de Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly issued the checks in the name
of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,51 the checks
were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.chanrobles
virtual law library

However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable
for 60% of the amount on the face of the negotiable instrument and the collecting bank is liable for
40%. We also noted the relative negligence exhibited by two banks, to wit:

Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. It was the gross
negligence of the employees of both banks which resulted in the fraud and the subsequent loss. While
it is true that petitioner BPI's negligence may have been the proximate cause of the loss, respondent
CBC's negligence contributed equally to the success of the impostor in encashing the proceeds of the
forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that
while respondent CBC may recover its losses, such losses are subject to mitigation by the courts.
(See Phoenix Construction Inc. v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).

Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial
justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding
in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52

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Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the
collecting bank should equally share the liability for the loss of amount represented by the checks
concerned due to the negligence of both parties:

The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due
to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a
period close to three years and in not properly ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province
contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent
thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It
is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness
of the payee's indorsement.53

A reading of the facts of the two immediately preceding cases would reveal that the reason why the
bank or institution which issued the check was held partially liable for the amount of the check was
because of the negligence of these parties which resulted in the issuance of the checks.

In the instant case, the trial court correctly found Allied negligent in issuing the manager's check and
in transmitting it to Santos without even a written authorization.54 In fact, Allied did not even ask for
the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or
office to confirm her instructions. Both actions could have prevented the whole fraudulent transaction
from unfolding. Allied's negligence must be considered as the proximate cause of the resulting loss.

To reiterate, had Allied exercised the diligence due from a financial institution, the check would not
have been issued and no loss of funds would have resulted. In fact, there would have been no issuance
of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check.
When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations55 without
verifying the authenticity of Lim Sio Wan's indorsement and when it accepted the check despite the
fact that it was cross-checked payable to payee's account only,56 its negligent and cavalier
indorsement contributed to the easier release of Lim Sio Wan's money and perpetuation of the fraud.
Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled
by the CA, must be upheld.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan's
indorsement, can raise the real defense of forgery as against both banks.57

As to Producers Bank, Allied Bank's argument that Producers Bank must be held liable as employer
of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability

145
of an employer for quasi-delicts that an employee has committed. Such provision of law does not
apply to civil liability arising from delict.

One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in
the instant case. Such liability on the part of the employer for the civil aspect of the criminal act of the
employee is based on the conviction of the employee for a crime. Here, there has been no conviction
for any crime.

As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct.
Allied correctly claims in its petition that Producers Bank should reimburse Allied for whatever
judgment that may be rendered against it pursuant to Art. 22 of the Civil Code, which provides:
"Every person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just cause or legal ground, shall
return the same to him."chanrobles virtual law library

The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience."58

In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of
the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit
is derived at the expense of or with damages to another."59

In the instant case, Lim Sio Wan's money market placement in Allied Bank was pre-terminated and
withdrawn without her consent. Moreover, the proceeds of the placement were deposited in
Producers Bank's account in Metrobank without any justification. In other words, there is no reason
that the proceeds of Lim Sio Wans' placement should be deposited in FCC's account purportedly as
payment for FCC's money market placement and interest in Producers
Bank.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

With such payment, Producers Bank's indebtedness to FCC was extinguished, thereby benefitting the
former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the
facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the
amounts the two latter banks are ordered to pay Lim Sio Wan.

It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been
unjustly enriched. It must be remembered that FCC's money market placement with Producers Bank
was already due and demandable; thus, Producers Bank's payment thereof was justified. FCC was
entitled to such payment. As earlier stated, the fact that the indorsement on the check was forged
cannot be raised against FCC which was not a part in any stage of the negotiation of the check. FCC
was not unjustly enriched.

From the facts of the instant case, we see that Santos could be the architect of the entire controversy.
Unfortunately, since summons had not been served on Santos, the courts have not acquired
jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the instant case.

146
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check
plus 12% interest per annum, moral damages, attorney's fees, and costs of suit which Allied and
Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV
No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with
MODIFICATION.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered
ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent
and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages,
attorney's fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied
Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the same
proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.

SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and independent
of each other.

SO ORDERED.

G.R. No. 156940 December 14, 2004

ASSOCIATED BANK (Now WESTMONT BANK), petitioner,

vs.
VICENTE HENRY TAN, respondent.

DECISION

PANGANIBAN, J.:

While banks are granted by law the right to debit the value of a dishonored check from a depositor’s
account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly.

The Case
147
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the January 27, 2003
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows:

"WHEREFORE, premises considered, the Decision dated December 3, 1996, of the Regional
Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is
hereby AFFIRMED. Costs against the [petitioner]."3

The Facts

The CA narrated the antecedents as follows:

"Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the
Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued
to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record
thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his
original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the
same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN
deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45,
because he has issued several checks to his business partners, to wit:

CHECK NUMBERS DATE AMOUNT

a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00

"However, his suppliers and business partners went back to him alleging that the checks he
issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the
BANK to take positive steps regarding the matter for he has adequate and sufficient funds to
pay the amount of the subject checks. Nonetheless, the BANK did not bother nor offer any
apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for
Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third
Judicial Region, docketed as Civil Case No. 892-AF, against the BANK, as defendant.

"In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased in number for lack of trust. As he has been in
the business community for quite a time and has established a good record of reputation and

148
 probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation,
mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent]
further averred that he continuously lost profits in the amount of P250,000.00. [Respondent]
therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum
of P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorney’s
fees plus 25% of the amount claimed including P1,000.00 per court appearance.

"Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was
denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on
March 20, 1991 filed its Answer denying, among others, the allegations of [respondent] and
alleged that no banking institution would give an assurance to any of its client/depositor that
the check deposited by him had already been cleared and backed up by sufficient funds but it
could only presume that the same has been honored by the drawee bank in view of the lapse
of time that ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that on
October 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit
in the amount of P101,000.00, hence, on even date, [respondent] deposited the amount
of P50,000.00 to cover the returned check.

"By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action
against it and argued that it has all the right to debit the account of the [respondent] by reason
of the dishonor of the check deposited by the [respondent] which was withdrawn by him prior
to its clearing. [Petitioner] further averred that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositor’s collecting agent subject to actual
payment by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to
pay it the amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee
plus P500.00 per appearance and by way of attorney’s fees.

"Considering that Westmont Bank has taken over the management of the affairs/properties of
the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating
substantially his allegations in the original complaint, except that the name of the previous
defendant ASSOCIATED BANK is now WESTMONT BANK.

"Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the
[respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum
of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as attorney’s
fees, plus the costs of this suit. In making said ruling, it was shown that [respondent] was not officially
informed about the debiting of the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for accommodation because the
BANK considered him as one of its valued clients. The trial court ruled that the bank manager was
negligent in handling the particular checking account of the [respondent] stating that such lapses
caused all the inconveniences to the [respondent]. The trial court also took into consideration that
[respondent’s] mother was originally maintaining with the x x x BANK [a] current account as well as
[a] time deposit, but [o]n one occasion, although his mother made a deposit, the same was not credited
in her favor but in the name of another."4

149
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to
debit the account of its client for a dishonored check; and whether it had informed respondent about
the dishonor prior to debiting his account.

Ruling of the Court of Appeals

Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of
the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to
treat respondent’s account with meticulous care, the bank violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his account before
unilaterally debiting the amount of P101,000. Without such notice, it is estopped from blaming him
for failing to fund his account.

The CA opined that, had the P101,000 not been debited, respondent would have had sufficient funds
for the postdated checks he had issued. Thus, the supposed accommodation accorded by petitioner
to him is the proximate cause of his business woes and shame, for which it is liable for damages.

Because of the bank’s negligence, the CA awarded respondent moral damages of P100,000. It also
granted him exemplary damages of P75,000 and attorney’s fees of P25,000.

Hence this Petition.5

Issue

In its Memorandum, petitioner raises the sole issue of "whether or not the petitioner, which is acting
as a collecting bank, has the right to debit the account of its client for a check deposit which was
dishonored by the drawee bank."6

The Court’s Ruling

The Petition has no merit.

Sole Issue:

Debit of Depositor’s Account

Petitioner-bank contends that its rights and obligations under the present set of facts were
misappreciated by the CA. It insists that its right to debit the amount of the dishonored check from
the account of respondent is clear and unmistakable. Even assuming that it did not give him notice
that the check had been dishonored, such right remains immediately enforceable.

In particular, petitioner argues that the check deposit slip accomplished by respondent on September
17, 1990, expressly stipulated that the bank was obligating itself merely as the depositor’s collecting
agent and -- until such time as actual payment would be made to it -- it was reserving the right to
charge against the depositor’s account any amount previously credited. Respondent was allowed to
withdraw the amount of the check prior to clearing, merely as an act of accommodation, it added.

150
At the outset, we stress that the trial court’s factual findings that were affirmed by the CA are not
subject to review by this Court.7 As petitioner itself takes no issue with those findings, we need only
to determine the legal consequence, based on the established facts.

Right of Setoff

A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals
on the part of a depositor.8 The right of a collecting bank to debit a client’s account for the value of a
dishonored check that has previously been credited has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor.9 Thus, legal compensation under Article 127810 of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present,"11 as follows:

"(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor."12

Nonetheless, the real issue here is not so much the right of petitioner to debit respondent’s account
but, rather, the manner in which it exercised such right. The Court has held that even while the right
of setoff is conceded, separate is the question of whether that remedy has properly been exercised.13

The liability of petitioner in this case ultimately revolves around the issue of whether it properly
exercised its right of setoff. The determination thereof hinges, in turn, on the bank’s role and
obligations, first, as respondent’s depositary bank; and second, as collecting agent for the check in
question.

Obligation as
Depositary Bank

In BPI v. Casa Montessori,14 the Court has emphasized that the banking business is impressed with
public interest. "Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous care."15

Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals16 has held
that "the degree of diligence required of banks is more than that of a good father of a family where
151
the fiduciary nature of their relationship with their depositors is concerned." 17 Indeed, the banking
business is vested with the trust and confidence of the public; hence the "appropriate standard of
diligence must be very high, if not the highest, degree of diligence."18 The standard applies, regardless
of whether the account consists of only a few hundred pesos or of millions.19

The fiduciary nature of banking, previously imposed by case law,20 is now enshrined in Republic Act
No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance."

Did petitioner treat respondent’s account with the highest degree of care? From all indications, it did
not.

It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued

client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing.
That act certainly disregarded the clearance requirement of the banking system. Such a practice is
unusual, because a check is not legal tender or money;21 and its value can properly be transferred to
a depositor’s account only after the check has been cleared by the drawee bank.22

Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the
amount to a depositor’s account; or infuse value to that account only after the drawee bank shall have
paid such amount.23 Before the check shall have been cleared for deposit, the collecting bank can only
"assume" at its own risk -- as herein petitioner did -- that the check would be cleared and paid out.

Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over
and above his outstanding cleared balance of P196,793.45.24 Hence, the lower courts correctly
appreciated the evidence in his favor.

Obligation as
Collecting Agent

Indeed, the bank deposit slip expressed this reservation:

"In receiving items on deposit, this Bank obligates itself only as the Depositor’s Collecting
agent, assuming no responsibility beyond carefulness in selecting correspondents, and until
such time as actual payments shall have come to its possession, this Bank reserves the right to
charge back to the Depositor’s account any amounts previously credited whether or not the
deposited item is returned. x x x."25

However, this reservation is not enough to insulate the bank from any liability. In the past, we have
expressed doubt about the binding force of such conditions unilaterally imposed by a bank without
the consent of the depositor.26 It is indeed arguable that "in signing the deposit slip, the depositor does
so only to identify himself and not to agree to the conditions set forth at the back of the deposit slip."27

Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as
respondent’s agent, consonant with the well-settled rule that the relationship between the payee or

152
holder of a commercial paper and the collecting bank is that of principal and agent. 28 Under Article
190929 of the Civil Code, such bank could be held liable not only for fraud, but also for negligence.

As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or
agents within the course and scope of their employment.30 Due to the very nature of their business,
banks are expected to exercise the highest degree of diligence in the selection and supervision of their
employees.31 Jurisprudence has established that the lack of diligence of a servant is imputed to the
negligence of the employer, when the negligent or wrongful act of the former proximately results in
an injury to a third person;32 in this case, the depositor.

The manager of the bank’s Cabanatuan branch, Consorcia Santiago, categorically admitted that she
and the employees under her control had breached bank policies. They admittedly breached those
policies when, without clearance from the drawee bank in Baguio, they allowed respondent to
withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that respondent
"was not officially informed about the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x."33

Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the
withdrawal and the subsequent debiting without notice. Accordingly, what remains to be determined
is whether her actions proximately caused respondent’s injury. Proximate cause is that which -- in a
natural and continuous sequence, unbroken by any efficient intervening cause --produces the injury,
and without which the result would not have occurred.34

Let us go back to the facts as they unfolded. It is undeniable that the bank’s premature authorization
of the withdrawal by respondent on October 1, 1990, triggered -- in rapid succession and in a natural
sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and the
subsequent dishonor of his own checks for lack of funds. The CA correctly noted thus:

"x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money
was already cleared. Without such advice, [respondent] would not have withdrawn the sum
of P240,000.00. Therefore, it cannot be denied that it was [petitioner’s] fault which allowed
[respondent] to withdraw a huge sum which he believed was already his.

"To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had
the P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence,
we can say that [respondent’s] injury arose from the dishonor of his well-funded checks. x x
x."35

Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent
of the debiting of his account. Nonetheless, it argues that the giving of notice was discernible from
his act of depositing P50,000 on October 2, 1990, to augment his account and allow the debiting. This
argument deserves short shrift.

First, notice was proper and ought to be expected. By the bank manager’s account, respondent was
considered a "valued client" whose checks had always been sufficiently funded from 1987 to
1990,36 until the October imbroglio. Thus, he deserved nothing less than an official notice of the
precarious condition of his account.

153
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general
indorser37 and the procedure for a notice of dishonor,38 it was incumbent on the bank to give proper
notice to respondent. In Gullas v. National Bank,39 the Court emphasized:

"x x x [A] general indorser of a negotiable instrument engages that if the instrument – the check
in this case – is dishonored and the necessary proceedings for its dishonor are duly taken, he
will pay the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities
that notice of dishonor is necessary to charge an indorser and that the right of action against
him does not accrue until the notice is given.

"x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and
without waiting for any action by Gullas, the bank made use of the money standing in his
account to make good for the treasury warrant. At this point recall that Gullas was merely an
indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet payment
of a check drawn by him in favor of a third party, it has been held that he has a right of action against
the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the
funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different,
and notice should actually have been given him in order that he might protect his interests."40

Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully subscribe to
the CA’s observations that it was not unusual for a well-reputed businessman like him, who
"ordinarily takes note of the amount of money he takes and releases," to immediately deposit money
in his current account to answer for the postdated checks he had issued.41

Damages

Inasmuch as petitioner does not contest the basis for the award of damages and attorney’s fees, we
will no longer address these matters.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.

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