THIRD DIVISION

[G.R. NO. 132390 : May 21, 2004]

BPI FAMILY SAVINGS BANK, INC., Petitioner, v.  FIRST METRO

INVESTMENT CORPORATION, Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review

on Certiorariunder Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision1 dated July 4, 1997 and
Resolution2 dated January 28, 1998 of the Court of Appeals in CA-
G.R. CV No. 44986, First Metro Investment Corporation v. BPI
Family Bank.

The facts as found by the trial court and affirmed by the Court of
Appeals are as follows:ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ

First Metro Investment Corporation (FMIC), respondent, is an

investment house organized under Philippine laws.Petitioner, Bank
of Philippine Islands Family Savings Bank, Inc. is a banking
corporation also organized under Philippine laws.

On August 25, 1989, FMIC, through its Executive Vice President

Antonio Ong, opened current account no. 8401-07473-0 and
deposited METROBANK check no. 898679 of P100 million with BPI
Family Bank  (BPI FB) San Francisco del Monte Branch (Quezon
*

City). Ong made the deposit upon request of his friend, Ador de
Asis, a close acquaintance of Jaime Sebastian, then Branch Manager
of BPI FB San Francisco del Monte Branch.Sebastians aim was to
increase the deposit level in his Branch.

BPI FB, through Sebastian, guaranteed the payment

of P14,667,687.01 representing 17% per annum interest of P100
million deposited by FMIC. The latter, in turn, assured BPI FB that it
will maintain its deposit of P100 million for a period of one year on
condition that the interest of 17% per annum is paid in advance.
This agreement between the parties was reached through their
communications in writing.

Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01

upon clearance of the latters check deposit.

However, on August 29, 1989, on the basis of an Authority to Debit

signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI
FB transferred P80 million from FMICs current account to the
savings account of Tevesteco Arrastre Stevedoring, Inc.
(Tevesteco).

FMIC denied having authorized the transfer of its funds to

Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC, on
September 12, 1989, issued BPI FB check no. 129077
for P86,057,646.72 payable to itself and drawn on its deposit
withBPI FB SFDM branch. But upon presentation for payment on
September 13, 1989, BPI FB dishonored the check as it was drawn
against insufficient funds (DAIF).

Consequently, FMIC filed with the Regional Trial Court, Branch 146,
Makati City Civil Case No. 89-5280 against BPI FB. FMIC likewise
caused the filing by the Office of the State Prosecutors of an
Information for estafa against Ong, de Asis, Sebastian and four
others. However, the Information was dismissed on the basis of a
demurrer to evidence filed by the accused.

On October 1, 1993, the trial court rendered its Decision in Civil

Case No. 89-5280, the dispositive portion of which reads: ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ

Premises considered, judgment is rendered in favor of plaintiff,

ordering defendant to pay: ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ

a.the amount of P80 million with interest at the legal rate from the
time this complaint was filed less P14,667,678.01; chanroblesvirtuallawlibrary

b.the amount of P100,000.00 as reasonable attorneys fees; and cralawlibrary

c.the cost.
SO ORDERED.

On appeal by both parties, the Court of Appeals rendered a Decision

affirming the assailed Decision with modification, thus: ςηαñrοblεš  νιr†υαl  lαω lιbrαrÿ

WHEREFORE, considering all the foregoing, this Court hereby

modifies the decision of the trial court and adjudges BPI Family
Bank liable to First Metro Investment Corporation for the amount
of P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. Further, this 17% interest shall itself earn
interest at 12% from October 4, 1989 until fully paid.

SO ORDERED.

BPI FB then filed a motion for reconsideration but was denied by the
Court of Appeals.

In the instant petition, BPI FB ascribes to the Appellate Court the

following assignments of error: ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ

A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT

BETWEEN FMIC AND AN OVERSTEPPING BRANCH MANAGER OF BPI
FB, THE COURT OF APPEALS DECIDED THE APPEALED CASE IN A
MANNER NOT IN ACCORDANCE WITH LAW OR THE APPLICAPLE
DECISIONS OF THE HONORABLE COURT.

B.THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL

ADMISSIONS MADE BY FMIC WHEN IT CHARACTERIZED THE
TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME DEPOSIT
WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT ACCOUNT
WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS AN
ILLEGAL TRANSACTION.

C.THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN

RULING THAT BPI FB CLOTHED ITS BRANCH MANAGER WITH
APPARENT AUTHORITY TO ENTER INTO SUCH A PATENTLY ILLEGAL
ARRANGEMENT.

D.THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN

IT REFUSED TO CONSIDER THE NEGLIGENT ACTS COMMITTED BY
FMIC ITSELF WHICH LED TO THE TRANSFER OF THE P80 MILLION
FROM THE FMIC ACCOUNT TO THE TEVESTECO ACCOUNT.

E.THE COURT OF APPEALS DID NOT ADHERE TO SETTLED

JURISPRUDENCE WHEN IT ADJUDGED BPI FB LIABLE TO FMIC FOR
AN AMOUNT WHICH WAS MORE THAN WHAT WAS CONTEMPLATED
OR PRAYED FOR IN FMICS COMPLAINT, MOTION FOR
RECONSIDERATION OF THE TRIAL COURTS DECISION AND APPEAL
BRIEF.

F.IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS

THAT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT ORDERING THE CONSOLIDATION OF THE INSTANT CASE WITH
THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE
MAKATI REGIONAL TRIAL COURT.

Petitioner BPI FB contends that the Court of Appeals erred in

awarding the 17% per annum interest corresponding to the amount
deposited by respondent FMIC. Petitioner insists that respondents
deposit is not a special savings account similar to a time deposit,
but actually a demand deposit, withdrawable upon
demand, proscribed from earning interest under Central Bank
Circular 777. Petitioner further contends that the transaction is not
valid as its Branch Manager, Jaime Sebastian, clearly overstepped
his authority in entering into such an agreement with respondents
Executive Vice President.

We hold that the parties did not intend the deposit to be treated as
a demand deposit but rather as an interest-earning time deposit not
withdrawable any time. This is quite obvious from the
communications between Jaime Sebastian, petitioners Branch
Manager, and Antonio Ong, respondents Executive Vice President.
Both agreed that the deposit of P100 million was non-
withdrawable for one year upon payment in advance of the
17% per annum interest. Respondents time deposit of P100
million was accepted by petitioner as shown by a deposit slip
prepared and signed by Ong himself who indicated therein the
account number to which the deposit is to be credited, the name of
FMIC as depositor or account holder, the date of deposit, and the
amount of P100 million as deposit in check. Clearly, when
respondent FMIC invested its money with petitioner BPI FB, they
intended the P100 million as a time deposit, to earn 17% per
annum interest and to remain intact until its maturity date one year
thereafter.

Ordinarily, a time deposit is defined as one the payment of which

cannot legally be required within such a specified number of days.3  ςrνll

In contrast, demand deposits are all those liabilities of the Bangko

Sentral and of other banks which are denominated in Philippine
currency and are subject to payment in legal tender upon
demand by the presentation of (depositors) checks.4  ςrνll

While it may be true that barely one month and seven days from
the date of deposit, respondent FMIC demanded the withdrawal
of P86,057,646.72 through the issuance of a check payable to itself,
the same was made as a result of the fraudulent and unauthorized
transfer by petitioner BPI FB of its P80 million deposit to Tevestecos
savings account.Certainly, such was a normal reaction of
respondent as a depositor to petitioners failure in its fiduciary duty
to treat its account with the highest degree of care.

Under this circumstance, the withdrawal of deposit by respondent

FMIC before the one-year maturity date did not change the nature
of its time deposit to one of demand deposit.

On another tack, petitioners argument that Central Bank regulations

prohibit demand deposit from earning interest is bereft of merit.

Under Central Bank Circular No. 22, Series of 1994, demand

deposits shall not be subject to any interest rate ceiling. This,
in effect, is an open authority to pay interest on demand deposits,
such interest not being subject to any rate ceiling.

Likewise, time deposits are not subject to interest rate ceiling. In

fact, the rate ceiling was abolished and even allowed to float
depending on the market conditions. Sections 1244 and 1244.1 of
the Manual of Regulations of the Central Bank of the Philippines
provide:ςηαñrοblεš  νιr†υαl  lαω lιbrαrÿ
Sec. 1244. Interest on time deposit.  Time deposits shall not be
subject to any interest rate ceiling.

Sec. 1244.1. Time of payment.  Interest on time deposit may be

paid at maturity or upon withdrawal or in advance. Provided,
however, That interest paid in advance shall not exceed the interest
for one year.

Thus, even assuming that respondents account with petitioner is a

demand deposit, still it would earn interest.

Going back to the unauthorized transfer of respondents funds to

Tevesteco, in its attempt to evade any liability therefor, petitioner
now impugns the validity of the subject agreement on the ground
that its Branch Manager, Jaime Sebastian, overstepped the limits of
his authority in accepting respondents deposit with 17% interest per
annum.We have held that if a corporation knowingly permits its
officer, or any other agent, to perform acts within the scope of an
apparent authority, holding him out to the public as possessing
power to do those acts, the corporation will, as against any person
who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority.5 We reiterated this
doctrine in Prudential Bank v. Court of Appeals,6 thus:ςηαñrοblεš  νιr†υαl  lαω lιbrαrÿ

A bank holding out its officers and agent 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.
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
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.

In Francisco v. Government Service Insurance System,7 we ruled: ςηαñrοblεš νιr†υαl  lαω lιbrαrÿ

Corporate transactions would speedily come to a standstill were

every person dealing with a corporation held duty-bound to
disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed
in Ramirez v. Orientalist Co., 38 Phil. 634, 654-655, that

In passing upon the liability of a corporation in cases of this kind it

is always well to keep in mind the situation as it presents itself to
the third party with whom the contract is made.Naturally he can
have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation
strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would
permit the property of a man in the city of Paris to be whisked out
of his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had
been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public
as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and
where it is said if the corporation permits, this means the same as if
the thing is permitted by the directing power of the corporation.

Petitioner maintains that respondent should have first inquired

whether the deposit of P100 Million and the fixing of the interest
rate were pursuant to its (petitioners) internal procedures.
Petitioners stance is a futile attempt to evade an obligation clearly
established by the intent of the parties. What transpires in the
corporate board room is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of respondents
representative in failing to find out the scope of authority of
petitioners Branch Manager. Indeed, the public has the right to rely
on the trustworthiness of bank managers and their acts. Obviously,
confidence in the banking system, which necessarily includes
reliance on bank managers, is vital in the economic life of our
society.
Significantly, the transaction was actually acknowledged and ratified
by petitioner when it paid respondent in advance the interest for
one year. Thus, petitioner is estopped from denying that it
authorized its Branch Manager to enter into an agreement with
respondents Executive Vice President concerning the deposit with
the corresponding 17% interest per annum.

Anent the award of interest, petitioner contends that such award is

not in order as it had not been prayed for by respondent in its
complaint nor was it an issue agreed upon by the parties during the
pre-trial of the case. Nonetheless, the rule is well settled that 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, as in this
case.Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.8 Besides, the
matter of how much interest respondent is entitled to falls squarely
within the issues framed by the parties in their respective pleadings
filed with the court  a quo. At any rate, courts may indeed grant the
relief warranted by the allegations and proof even if no such
specific relief is prayed for if only to conclude a complete and
thorough resolution of the issues involved.9 ςrνll

Finally, petitioner faults the Court of Appeals in not ordering the

consolidation of Civil Case No. 89-4996 (filed by petitioner against
Tevesteco) with Civil Case No. 89-5280 (the instant case).
According to petitioner, had there been consolidation of these two
cases, it would have been shown that the P80 Million transferred to
Tevestecos account were proceeds of a loan extended by
respondent FMIC to Tevesteco. Suffice it to state that as found by
both the trial court and the Appellate Court, petitioners transfer of
respondents P80M to Tevesteco was unauthorized and tainted with
fraud.

At this point, we must emphasize that this Court is not a trier of

facts. Thus, we uphold the finding of both lower courts that
petitioner failed to exercise that degree of diligence required by the
nature of its obligations to its depositors. 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 million of
pesos.10 Here, petitioner cannot claim it exercised such a degree of
care required of it and must, therefore, bear the consequence.

WHEREFORE, the petition is DENIED. The assailed Decision dated

July 4, 1997 and the Resolution dated January 28, 1998 of the
Court of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED.
Costs against petitioner.

SO ORDERED.

t (G.R. No. 132390)
Date: October 16, 2016Author: jaicdn0 Comments

Facts:

Respondent FMIC an investment house, through its EVP Ong, opened a current
account amounting P100M with petitioner’s San Francisco Del Monte branch
upon the request of his friend which is a close acquaintance of said bank’s
branch manager with the latter’s aim of increasing the deposit level in his branch.
Petitioner through its SFDM branch manager guaranteed the payment of deposit
by the FMIC with interest on the condition that the interest is to be paid in
advance. An agreement was reached between the parties and subsequently
petitioner paid FMIC upon clearance of the latter’s check deposit. However, on
the basis of an Authority to Debit signed by the EVP and Senior Manager of
FMIC, petitioner transferred P80M from FMCI’s current account to the savings
account of one Tevesteco, a stevedoring company. FMIC denied having
authorized the transfer of its funds claiming that the signatures were falsified. In
order to recover immediately its deposit, FMCI issued a check payable to itself
and drawn on its deposit but was dishonored upon upon presentation for
payment. Thus, FMIC filed a complaint with the RTC which then ruled in their
favor. CA affirmed.
Issue:

Whether petitioner was remiss in its fiduciary duty.

Ruling: YES.

Petitioner maintains that respondent should have first inquired whether the
deposit of P100 Million and the fixing of the interest rate were pursuant to its
(petitioner’s) internal procedures. Petitioner’s stance is a futile attempt to evade
an obligation clearly established by the intent of the parties. What transpires in
the corporate board room is entirely an internal matter. Hence, petitioner may not
impute negligence on the part of respondent’s representative in failing to find out
the scope of authority of petitioner’s Branch Manager. Indeed, the public has the
right to rely on the trustworthiness of bank managers and their acts. Obviously,
confidence in the banking system, which necessarily includes reliance on bank
managers, is vital in the economic life of our society.

Thus, we uphold the finding of both lower courts that petitioner failed to exercise
that degree of diligence required by the nature of its obligations to its depositors.
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 million of
pesos. Here, petitioner cannot claim it exercised such a degree of care required
of it and must, therefore, bear the consequence.

G.R. No. 168842 : August 11, 2010

VICENTE GO, Petitioner, v. METROPOLITAN BANK AND TRUST CO., Respondent.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision1  dated May 27, 2005 and the Resolution2  dated August 31, 2005 of the Court of Appeals
cra1aw cra1aw

(CA) in CA-G.R. CV No. 63469.

 The Facts

The facts of the case are as follows: chan robles virtual law library

Petitioner filed two separate cases before the Regional Trial Court (RTC) of Cebu. Civil Case No. CEB-
9713 was filed by petitioner against Ma. Teresa Chua (Chua) and Glyndah Tabañag (Tabañag) for a
sum of money with preliminary attachment. Civil Case No. CEB-9866 was filed by petitioner for a sum
of money with damages against herein respondent Metropolitan Bank and Trust Company (Metrobank)
and Chua.3 cra1aw

In both cases, petitioner alleged that he was doing business under the name "Hope Pharmacy" which
sells medicine and other pharmaceutical products in the City of Cebu. Petitioner had in his employ
Chua as his pharmacist and trustee or caretaker of the business; Tabañag, on the other hand, took
care of the receipts and invoices and assisted Chua in making deposits for petitioner's accounts in the
business operations of Hope Pharmacy.4 cra1aw

In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made by
Chua and Tabañag in the total amount of One Hundred Nine Thousand Four Hundred Thirty-three
Pesos and Thirty Centavos (P109,433.30). He questioned particularly the following:

(1) FEBTC Check No. 251111 dated April 29, 1990 in the amount of P22,635.00 which was issued by
plaintiff's [petitioner's] customer Loy Libron in payment of the stocks purchased was deposited under
Metrobank Savings Account No. 420-920-6 belonging to the defendant Ma. Teresa Chua;

(2) RCBC Checks Nos. 330958 and 294515, which were in blank but pre-signed by him (plaintiff
[petitioner] Vicente Go) for convenience and intended for payment to plaintiff's [petitioner's]
suppliers, were filled up and dated September 22, 1990 and September 7, 1990 in the amount
of P30,000.00 and P50,000.00 respectively, and were deposited with defendant Chua's aforestated
account with Metrobank;

(3) PBC Check No. 005874, drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the amount
of P6,798.30 was encashed by the defendant Glyndah Tabañag;

(4) There were unauthorized deposits and encashments in the total sum of P109,433.30;5 cra1aw

In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee,
for varying sums, amounting to One Million Four Hundred Ninety-Two Thousand Five Hundred Ninety-
Five Pesos and Six Centavos (P1,492,595.06), that were not endorsed by him but were deposited
under the personal account of Chua with respondent bank,6  and these are the following: cra1aw

CHECK NO. DATE AMOUNT

FEBTC 251166 5-23-90 P 65,214.88
FEBTC 239399 5-08-90 24,917.75
FEBTC 251350 7-24-90 212,326.56
PBC 279887 6-27-90 2,000.00
PBC 162387 1-24-90 6,300.00
PBC 162317 12-22-89 3,300.00
PBC 279881 6-23-90 7,650.00
PBC 009005 7-21-89 3,584.00
 PBC 279771 5-14-90 3,600.00
PBC 279726 4-25-90 2,000.00
PBC 168004 3-22-90 2,800.00
PBC 167963 3-07-90 1,700.00
FEBTC 267793 8-20-90 80,085.66
FEBTC 267761 7-21-90 45,304.63
FEBTC 251252 6-03-90 64,000.00
FEBTC 267798 8-15-90 40,078.67
PBC 367292 8-06-90 2,100.00
PBC 376445 9-26-90 1,125.00
PBC 009056 8-07-89 2,500.00
PBC 376402 9-12-90 12,105.40
BPI 197074 7-17-90 5,240.00
BPI 197051 7-06-90 1,350.00
BPI 204358 9-19-90 5,402.60
BPI 204252 7-31-90 6,715.60
FEBTC 251171 6-27-90 83,175.54
FEBTC 251165 6-28-90 231,936.10
FEBTC 251251 6-30-90 47,087.25
FEBTC 251163 6-21-90 170,600.85
FEBTC 251170 5-23-90 16,440.00
FEBTC 251112 5-31-90 211,592.69
FEBTC 239400 6-15-90 47,664.03
FEBTC 251162 6-22-90 82,697.85

P1,492,595.067 cra1aw

Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that
without the participation and connivance of respondent bank, the checks could not have been
accepted for deposit to any other account, except petitioner's account.8 cra1aw

Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and
severally, to pay the principal amount of P1,492,595.06, plus interest at 12% from the dates of the
checks, until the obligation shall have been fully paid; moral damages of Five Hundred Thousand
Pesos (P500,000.00); exemplary damages of P500,000.00; and attorney's fees and costs in the
amount of P500,000.00.9 cra1aw

On February 23, 1995, the RTC rendered a Joint Decision,10  the dispositive portion of which reads:
cra1aw
WHEREFORE, premises considered, the Court hereby renders judgment dismissing plaintiff Vicente
Go's complaint against the defendant Ma. Teresa Chua and Glyndah Tabañag in Civil Case No. CEB-
9713, as well as plaintiff's complaint against the same defendant Ma. Teresa Chua in Civil Case No.
CEB-9866.

Plaintiff Vicente Go is moreover sentenced to pay P50,000.00 in attorney's fees and litigation expenses
to the defendants Ma. Teresa Chua and Glyndah Tabañag in Civil Case No. CEB-9713.

Defendant Metrobank in Civil Case No. CEB-9866 is hereby condemned to pay unto plaintiff Vicente
Go/Hope Pharmacy the amount of P50,000.00 as moral damages, and attorney's fees and litigation
expenses in the aggregate sum of P25,000.00.

The defendant Metrobank's crossclaim against its co-defendant Ma. Teresa Chua in Civil Case No. CEB-
9866 is dismissed for lack of merit.

No special pronouncement as to costs in both instances.

SO ORDERED.11 cra1aw

In striking down the complaint of the petitioner against Chua and Tabañag in CEB-9713, the RTC
made the following findings:chan robles virtual law library

(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of P22,635.00 payable to cash, was
drawn by Loy Libron in payment of her purchases of medicines and other drugs which Ma. Teresa
Chua was selling side by side with the medicines and drugs of the Hope Pharmacy, for which she
(Maritess) was granted permission by its owner, Mr. Vicente Chua. These medicines and drugs from
Thailand were Maritess' sideline, and were segregated from the stocks of Hope Pharmacy; x x x.

(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go payable to
cash x x x; these checks were replacements of the sums earlier advanced by Ma. Teresa Chua, but
which were deposited in the account of Vicente Go with RCBC, as shown by the deposit slips x x x, and
confirmed by the statement of account of Vicente Go with RCBC.

(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in the
amount of P6,798.30 dated September 6, 1990, was admittedly encashed by the defendant, Glyndah
Tabañag. As per instruction by Vicente Go, Glyndah requested the drawer to insert the word "Cash,"
so that she could encash the same with PCIB, to meet the Hope Pharmacy's overdraft.

The listings x x x, made by Glyndah Tabañag and Flor Ouano will show that the corresponding
amounts covered thereby were in fact deposited to the account of Mr. Vicente Go with RCBC; the Bank
Statement of Mr. Go x x x, confirms defendants' claim independently of the deposit slip[s] x x x.12cra1aw

The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in CEB-9866
were payments of petitioner for his loans or borrowings from the parents of Ma. Teresa Chua, through
Ma. Teresa, who was given the total discretion by petitioner to transfer money from the offices of
Hope Pharmacy to pay the advances and other obligations of the drugstore; she was also given the
full discretion where to source the funds to cover the daily overdrafts, even to the extent of borrowing
money with interest from other persons.13 cra1aw

While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable for
being negligent in allowing the deposit of crossed checks without the proper indorsement.

Petitioner filed an appeal before the CA. On May 27, 2005, the CA rendered a Decision,14 the fallo of
cra1aw

which reads:
WHEREFORE, except for the award of attorney's fees and litigation expenses in favor of defendants
Chua and Tabañag which is hereby deleted, the decision of the lower court is hereby AFFIRMED.

SO ORDERED.15 cra1aw

Hence, this petition.

The Issue

Petitioner presented this sole issue for resolution:

The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of Crossed
Checks Which Were Issued In Favor Of And Payable To Petitioner And Without Being Indorsed By The
Petitioner, To The Account Of Maria Teresa Chua.16 cra1aw

The Ruling of the Court

A check is a bill of exchange drawn on a bank payable on demand.17  There are different kinds of
cra1aw

checks. In this case, crossed checks are the subject of the controversy. A crossed check is one where
two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or
specially.18 cra1aw

A check is crossed specially when the name of a particular banker or a company is written between
the parallel lines drawn. It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines, as in this case. It may be issued so that
presentment can be made only by a bank.19 cra1aw

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a
check has the following effects: (a) the check may not be encashed but only deposited in the bank;
(b) the check may be

negotiated only once - to one who has an account with a bank; and (c) the act of crossing the check
serves as warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due
course.20cra1aw

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper
left hand corner means that it could only be deposited and not converted into cash. The effect of
crossing a check,

thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein.21  The crossing of a check is a warning that
cra1aw

the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting
bank to ascertain that the check be deposited to the payee's account only.22 cra1aw

In the instant case, there is no dispute that the subject 32 checks with the total amount
of P1,492,595.06 were crossed checks with petitioner as the named payee. It is the submission of
petitioner that respondent bank should be held accountable for the entire amount of the checks
because it accepted the checks for deposit under Chua's account despite the fact that the checks were
crossed and that the payee named therein was not Chua.

In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total
sum of P1,492,595.06 from either Maria Teresa Chua or respondent bank because petitioner was not
damaged thereby.23 cra1aw
Respondent bank's contention is meritorious. Respondent bank should not be held liable for the entire
amount of the checks considering that, as found by the RTC and affirmed by the CA, the checks were
actually given to Chua as payments by petitioner for loans obtained from the parents of Chua.
Furthermore, petitioner's non-inclusion of Chua and Tabañag in the petition before this Court is, in
effect, an admission by the petitioner that Chua, in representation of her parents, had rightful claim to
the proceeds of the checks, as payments by petitioner for money he borrowed from the parents of
Chua. Therefore, petitioner suffered no pecuniary loss in the deposit of the checks to the account of
Chua.

However, we affirm the finding of the RTC that respondent bank was negligent in permitting the
deposit and encashment of the crossed checks without the proper indorsement. An indorsement is
necessary for the proper negotiation of checks specially if the payee named therein or holder thereof
is not the one depositing or encashing it. Knowing fully well that the subject checks were crossed, that
the payee was not the holder and that the checks contained no indorsement, respondent bank should
have taken reasonable steps in order to determine the validity of the representations made by Chua.
Respondent bank was amiss in its duty as an agent of the payee. Prudence dictates that respondent
bank should not have merely relied on the assurances given by Chua.

Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the officer-in-
charge and ranked second to the assistant vice president of the bank at the time material to this case.
Davis' testimony was summarized by the RTC as follows: chan robles virtual law library

Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this litigation
which were payable to Hope Pharmacy. According to him, it was a privilege given to valued customers
on a highly selective case to case basis, for marketing purposes, based on trust and confidence,
because Ma. Teresa [Chua] told him that those checks belonged to her as payment for the advances
she extended to Mr. Go/Hope Pharmacy. x x x

Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check she
deposited with Metrobank, the same would be credited outright to her account, meaning that she
could immediately make use of the amount credited; this arrangement went on for about three years,
without any complaint from Mr. Go/Hope Pharmacy, and Ma. Teresa Chua made warranty that she
would reimburse Metrobank if Mr. Go complained. He did not however call or inform Mr. Go about this
arrangement, because their bank being a Chinese bank, transactions are based on trust and
confidence, and for him to inform Mr. Vicente Go about it, was tantamount to questioning the integrity
of their client, Ma. Teresa Chua. Besides, this special privilege or arrangement would not bring any
monetary gain to the bank.24 cra1aw

Negligence was committed by respondent bank in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The law imposes a
duty of extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the
purpose of determining their genuineness and regularity.25  As a business affected with public interest
cra1aw

and because of the nature of its functions, the banks are under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of the relationship.26  The
cra1aw

fact that this arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising
any objection does not detract from the duty of the bank to exercise extraordinary diligence. Thus, the
Decision of the RTC, as affirmed by the CA, holding respondent bank liable for moral damages is
sufficient to remind it of its responsibility to exercise extraordinary diligence in the course of its
business which is imbued with public interest.

WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of the Court
of Appeals in CA-G.R. CV No. 63469 are hereby AFFIRMED.

SO ORDERED.

FACTS:
Petitioner filed two separate cases, one was filed against Chua and Tabañag for a sum of money
with preliminary attachment, and the other one was for a sum of money with damages against
herein respondent Metrobank and Chua.
Petitioner alleged that he was doing business under the name “Hope Pharmacy” which sells
medicine and other pharmaceutical products. Chua was his pharmacist and trustee or caretaker of
the business. Tabañag, on the other hand, took care of the receipts and invoices and assisted
Chua in making deposits for petitioner’s accounts in the business operations of Hope Pharmacy.

Petitioner claimed that there were unauthorized deposits and encashments made by Chua and
Tabañag in the total sum of ₱109,433.30.
Petitioner averred that there were 32 crossed checks with Hope Pharmacy as payee, for varying
sums, amounting to ₱1,492,595.06, that were not endorsed by him but were deposited under the
personal account of Chua with respondent bank.
The RTC rendered a Joint Decision, dismissing Go’s complaint against Chua and Glyndah
Tabañag for lack of merit, and declaring respondent bank liable for being negligent in allowing
the deposit of crossed checks without the proper indorsement.
The CA affirmed the trial court’s decision.
Hence, this petition.

ISSUE:
Whether or not Metrobank is liable for allowing the deposit of crossed checks which were issued
in favor of and payable to petitioner and without being indorsed by the petitioner, to the account
of Maria Teresa Chua. 

RULING:
A check is a bill of exchange drawn on a bank payable on demand. A crossed check is a kind of
check where two parallel lines are drawn across its face or across the corner thereof. It may be
crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is written
between the parallel lines drawn. It is crossed generally when only the words “and company” are
written or nothing is written at all between the parallel lines, as in this case. It may be issued so
that presentment can be made only by a bank.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing
of a check has the following effects: (a) the check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only once — to one who has an account with a bank; and
(c) the act of crossing the check serves as warning to the holder that the check has been issued
for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
While there is no dispute that the subject 32 checks were crossed checks with petitioner as the
named payee, respondent bank should not be held liable for the entire amount of the checks
considering that, as found by the RTC and affirmed by the CA, the checks were actually given to
Chua as payments by petitioner for loans obtained from the parents of Chua. Therefore,
petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.
However, we affirm the finding of the RTC that respondent bank was negligent in permitting the
deposit and encashment of the crossed checks without the proper indorsement. An indorsement is
necessary for the proper negotiation of checks specially if the payee named therein or holder
thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were
crossed, that the payee was not the holder and that the checks contained no indorsement,
respondent bank should have taken reasonable steps in order to determine the validity of the
representations made by Chua.

The law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.

G.R. No. 121413        January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND

AMERICA),petitioner, 
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

G.R. No. 121479        January 29, 2001

FORD PHILIPPINES, INC., petitioner-plaintiff, 

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents.

G.R. No. 128604        January 29, 2001

FORD PHILIPPINES, INC., petitioner, 

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF
APPEALS, respondents.

QUISUMBING, J.:

These consolidated petitions involve several fraudulently negotiated checks.

The original actions a quo were instituted by Ford Philippines to recover from the drawee bank,
CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank)
[formerly Insular Bank of Asia and America], the value of several checks payable to the
Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate. 1âwphi1.nêt

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of the
Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and
Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the August
8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay
the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the Court
of Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc.
vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in toto the judgment of
the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers
SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:

"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in
the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment
of plaintiff;s percentage or manufacturer's sales taxes for the third quarter of 1977.

The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank,
the proceeds of the check was paid to IBAA as collecting or depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the
payee thereof, the Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue,

the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of
its percentage/manufacturers' sales taxes for the third quarter of 1977 and that said second
payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of
Internal Revenue.

It is further admitted by defendant Citibank that during the time of the transactions in
question, plaintiff had been maintaining a checking account with defendant Citibank; that
Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel
lines and written in between said lines was the phrase "Payee's Account Only"; and that
defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to
the defendant IBAA.

It has been duly established that for the payment of plaintiff's percentage tax for the last
quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No.
18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the
authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of the
plaintiff.

On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue
Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch.
The latter accepted the check and sent it to the Central Clearing House for clearing on the
samd day, with the indorsement at the back "all prior indorsements and/or lack of
indorsements guaranteed." Thereafter, defendant IBAA presented the check for payment to
defendant Citibank on same date, December 19, 1977, and the latter paid the face value of
the check in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was
debited in plaintiff's account with the defendant Citibank and the check was returned to the
plaintiff.
 Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate
letters dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter
that in case it will be re-assessed by the BIR for the payment of the taxes covered by the
said checks, then plaintiff shall hold the defendants liable for reimbursement of the face
value of the same. Both defendants denied liability and refused to pay.

In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue
addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially informed,
among others, that its check in the amount of P4, 746,114.41 was not paid to the
government or its authorized agent and instead encashed by unauthorized persons, hence,
plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice
of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue,
the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third
quarter of 1977.

As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made

for the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its
original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial
International Bank (PCI Bank) with the latter as the surviving entity.

Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-
04867 in the amount of P4,746,114.41 "was in due course"; it merely relied on the clearing
stamp of the depository/collecting bank, the defendant IBAA that "all prior indorsements
and/or lack of indorsements guaranteed"; and the proximate cause of plaintiff's injury is the
gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question.

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No.
SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a
checking account with defendant Citibank."5

Although it was not among the stipulated facts, an investigation by the National Bureau of
Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo Rivera,
the General Ledger Accountant of Ford. He purportedly needed to hold back the check because
there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With
Rivera's instruction, PCIBank replaced the check with two of its own Manager's Checks (MCs).
Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation.

Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific
Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court
dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed the
third-party complaint against Godofredo Rivera because he could not be served with summons as
the NBI declared him as a "fugitive from justice".

On June 15, 1989, the trial court rendered its decision, as follows:

"Premises considered, judgment is hereby rendered as follows:

 "1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally,
to pay the plaintiff the amount of P4,746,114.41 representing the face value of
plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate
starting January 20, 1983, the date when the original complaint was filed until the
amount is fully paid, plus costs;

"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now

PCI Bank) to reimburse defendant Citibank for whatever amount the latter has paid
or may pay to the plaintiff in accordance with next preceding paragraph;

"3. The counterclaims asserted by the defendants against the plaintiff, as well as that
asserted by the cross-defendant against the cross-claimant are dismissed, for lack of
merits; and

"4. With costs against the defendants.

SO ORDERED."6

Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their
respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the
appellate court issued its judgment as follows:

"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with
modifications.

The court hereby renderes judgment:

1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank

N.A. is concerned;

2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-
04867, with interest thereon at the legal rate starting January 20, 1983, the date
when the original complaint was filed until the amount is fully paid;

3. Dismissing the counterclaims asserted by the defendants against the plaintiff as

well as that asserted by the cross-defendant against the cross-claimant, for lack of
merits.

Costs against the defendant IBAA (now PCI Bank).

IT IS SO ORDERED."7

PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a
"Motion for Partial Reconsideration." Both motions were denied for lack of merit.

Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule
45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth
Division of the Court of Appeals contending that it merely acted on the instruction of Ford and such
casue of action had already prescribed.

PCIBank sets forth the following issues for consideration:

I. Did the respondent court err when, after finding that the petitioner acted on the check
drawn by respondent Ford on the said respondent's instructions, it nevertheless found the
petitioner liable to the said respondent for the full amount of the said check.

II. Did the respondent court err when it did not find prescription in favor of the petitioner. 8

In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same
decision and resolution of the Court of Appeals, and praying for the reinstatement in toto of the
decision of the trial court which found both PCIBank and Citibank jointly and severally liable for the
loss.

In G.R. No. 121479, appellant Ford presents the following propositions for consideration:

I. Respondent Citibank is liable to petitioner Ford considering that:

1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the
subject check and a depositor of respondent Citibank, an absolute and contractual
duty to pay the proceeds of the subject check only to the payee thereof, the
Commissioner of Internal Revenue.

2. Respondent Citibank failed to observe its duty as banker with respect to the
subject check, which was crossed and payable to "Payee's Account Only."

3. Respondent Citibank raises an issue for the first time on appeal; thus the same
should not be considered by the Honorable Court.

4. As correctly held by the trial court, there is no evidence of gross negligence on the
part of petitioner Ford.9

II. PCI Bank is liable to petitioner Ford considering that:

1. There were no instructions from petitioner Ford to deliver the proceeds of the
subject check to a person other than the payee named therein, the Commissioner of
the Bureau of Internal Revenue; thus, PCIBank's only obligation is to deliver the
proceeds to the Commissioner of the Bureau of Internal Revenue. 10

2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement
and/or lack of indorsement guaranteed"), is liable as collecting bank. 11

3. PCIBank is barred from raising issues of fact in the instant proceedings. 12

4. Petitioner Ford's cause of action had not prescribed. 13

II. G.R. No. 128604

The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle
Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.

The facts as narrated by the Court of Appeals are as follows:

Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37
representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of
Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the said purpose.

On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and payable
to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A-1697160 was
issued for the said purpose.

Both checks were "crossed checks" and contain two diagonal lines on its upper corner between,
which were written the words "payable to the payee's account only."

The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR,
Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned.

As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and
spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced
Ford to pay the BIR a new, while an action was filed against Citibank and PCIBank for the recovery
of the amount of Citibank Check Numbers SN-10597 and 16508.

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus
operandi of the syndicate, as follows:

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger
Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank Check No.
Sn-10597] for payment to the BIR. Instead, however, fo delivering the same of the payee, he
passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of
the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself
subsequently opened a Checking Account in the name of a fictitious person denominated as
'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant
Manager.

After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank
of America Check in exactly the same amount as the first FORD check (Exh. "A",
P5,851,706.37) while this worthless check was coursed through PCIB's main office enroute
to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and
accordingly tampered the accompanying documents to cover the replacement. As a result,
Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious deposit account of
'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the
FORD check Exhibit 'A'. The same method was again utilized by the syndicate in profiting
from Exh. 'B' [Citibank Check No. SN-16508] which was subsequently pilfered by Alexis
Marindo, Rivera's Assistant at FORD.

From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of
the other participating conspirators namely (1) CRISANTO BERNABE, the mastermind who
formulated the method for the embezzlement; (2) RODOLFO R. DE LEON a customs broker
 who negotiated the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's
Remberto Castro; (3) JUAN VASTILLO who assisted de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD's accountant who passed on the first check (Exhibit "A") to
Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San Andres who performed the
switching of checks in the clearing process and opened the fictitious Reynaldo Reyes
account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its
Meralco Branch, who assisted Castro in switching the checks in the clearing process and
facilitated the opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS
MARINDO, Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8)
ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious revenue
tax receipts to make it appear that the BIR had received FORD's tax payments.

Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned participants in
the conspiracy, have not been impleaded in the present case. The manner by which the said
funds were distributed among them are traceable from the record of checks drawn against
the original "Reynaldo Reyes" account and indubitably identify the parties who illegally
benefited therefrom and readily indicate in what amounts they did so." 14

On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable
for the value of the two checks while adsolving PCIBank from any liability, disposing as follows:

"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse

plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6%
interest thereon from date of first written demand until full payment, plus P300,000.00
attorney's fees and expenses litigation, and to pay the defendant, PCIB (on its counterclaim
to crossclaim) the sum of P300,000.00 as attorney's fees and costs of litigation, and pay the
costs.

SO ORDERED."15

Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the
trial court. Hence, this petition.

Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals
decision and its resolution dated March 5, 1997, with respect to the dismissal of the complaint
against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check
Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.

Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank
considering that:

I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required
to be exercised by it as a banking insitution.

II. Defendant PCIBank clearly failed to observe the diligence required in the selection and
supervision of its officers and employees.

III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage
resulting to the plaintiff Ford as a consequence of the substitution of the check consistent
with Section 5 of Central Bank Circular No. 580 series of 1977.
 IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due
course the subject checks, it is liable, under Article 2154 of the Civil Code, to return the
money which it admits having received, and which was credited to it its Central bank
account.16

The main issue presented for our consideration by these petitions could be simplified as follows: Has
petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue?
Or has Ford's cause of action already prescribed?

Note that in these cases, the checks were drawn against the drawee bank, but the title of the person
negotiating the same was allegedly defective because the instrument was obtained by fraud and
unlawful means, and the proceeds of the checks were not remitted to the payee. It was established
that instead of paying the checks to the CIR, for the settlement of the approprite quarterly
percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution
among the mmbers of the syndicate. As to the unlawful negotiation of the check the applicable law is
Section 55 of the Negotiable Instruments Law (NIL), which provides:

"When title defective -- The title of a person who negotiates an instrument is defective within
the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud,
duress, or fore and fear, or other unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith or under such circumstances as amount to a fraud."

Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach
of faith amounting to fraud. The person negotiating the checks must have gone beyond the authority
given by his principal. If the principal could prove that there was no negligence in the performance of
his duties, he may set up the personal defense to escape liability and recover from other parties
who. Though their own negligence, alowed the commission of the crime.

In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to
a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left only with the task of determining who of the
present parties before us must bear the burden of loss of these millions. It all boils down to
thequestion of liability based on the degree of negligence among the parties concerned.

Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees,
Godofredo Rivera and Alexis Marindo, were among the members of the syndicate.

Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the
checks to his co-conspirators, instead of delivering them to the designated authorized collecting
bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in the
supervision and control of its own employees, inasmuch as it only discovered the syndicate's
activities through the information given by the payee of the checks after an unreasonable period of
time.

PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the
proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent
run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the
proximate cause of the damge to Ford lies in its own officers and employees who carried out the
fradulent schemes and the transactions. These circumstances were not checked by other officers of
the company including its comptroller or internal auditor. PCIBank contends that the inaction of Ford
despite the enormity of the amount involved was a sheer negligence and stated that, as between two
innocent persons, one of whom must suffer the consequences of a breach of trust, the one who
made it possible, by his act of negligence, must bear the loss.

For its part, Ford denies any negligence in the performance of its duties. It avers that there was no
evidence presented before the trial court showing lack of diligence on the part of Ford. And, citing
the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if there was a finding therein
that the drawer was negligent, the drawee bank was still ordered to pay damages.

Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in
its behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the issue of
imputed negligence against Ford for the first time on appeal. Thus, it should not be considered by
this Court.

On this point, jurisprudence regarding the imputed negligence of employer in a master-servant

relationship is instructive. Since a master may be held for his servant's wrongful act, the law imputes
to the master the act of the servant, and if that act is negligent or wrongful and proximately results in
injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of
the master, for which he is liable. 18 The general rule is that if the master is injured by the negligence
of a third person and by the concuring contributory negligence of his own servant or agent, the
latter's negligence is imputed to his superior and will defeat the superior's action against the third
person, asuming, of course that the contributory negligence was the proximate cause of the injury
of which complaint is made.19

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General
Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or
damage. AS defined, proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without the result would not
have occurred.20

It appears that although the employees of Ford initiated the transactions attributable to an organized
syndicate, in our view, their actions were not the proximate cause of encashing the checks payable
to the CIR. The degree of Ford's negligence, if any, could not be characterized as the proximate
cause of the injury to the parties.

The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall
Citibank Check No. SN-04867. Rivera's instruction to replace the said check with PCIBank's
Manager's Check was not in theordinary course of business which could have prompted PCIBank to
validate the same.

As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these
checks were made payable to the CIR. Both were crossed checks. These checks were apparently
turned around by Ford's emploees, who were acting on their own personal capacity.

Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for perpertrating
the fraud and imposing the forged paper upon the bank, does notentitle the bank toshift the loss to
the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. 21 This
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees
who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks involved, separately,
the trial courts found variations between the negotiation of Citibank Check No. SN-04867 and the
misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when the syndicate achieved its ultimate agenda of
stealing the proceeds of these checks.

G.R. Nos. 121413 and 121479

Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed
through the ordinary banking transaction, sent to Central Clearing with the indorsement at the back
"all prior indorsements and/or lack of indorsements guaranteed," and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to encash the same.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect
of PCIBank employees to verify whether his letter requesting for the replacement of the Citibank
Check No. SN-04867 was duly authorized, showed lack of care and prudence required in the
circumstances.

Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent. As aptly stated by the trial court, to wit:

"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which
claimed to be a depository/collecting bank of BIR, it has the responsibility to make sure that
the check in question is deposited in Payee's account only.

xxx      xxx      xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions
only from its principal BIR and not from any other person especially so when that person is
not known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely
on the alleged telephone call of the one Godofredo Rivera and in his signature considering
that the plaintiff is not a client of the defendant IBAA."

It is a well-settled rule that the relationship between the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the absence of an argreement to the contrary, that of
principal and agent.22 A bank which receives such paper for collection is the agent of the payee or
holder.23

Even considering arguendo, that the diversion of the amount of a check payable to the collecting
bank in behalf of the designated payee may be allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the diversion can be justified only by proof of authority
from the drawer, or that the drawer has clothed his agent with apparent authority to receive the
proceeds of such check.

Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS
GURANTEED should render PCIBank liable because it made it pass through the clearing house and
therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it.
Thus, Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank.
Since the questione dcrossed check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility to make sure that the check in
questions is deposited in Payee's account only.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the
check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank
PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is the
collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before
it could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed".

In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, 24 we ruled:

"Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the
PCHC's Board of Directors that:

'In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the
checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK
OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid
on the checks.'

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the
warranty has proven to be false and inaccurate, the defendant is liable for any damage
arising out of the falsity of its representation."25

Lastly, banking business requires that the one who first cashes and negotiates the check must take
some percautions to learn whether or not it is genuine. And if the one cashing the check through
indifference or othe circumstance assists the forger in committing the fraud, he should not be
permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not
discover the forgery or the defect in the title of the person negotiating the instrument before paying
the check. For this reason, a bank which cashes a check drawn upon another bank, without
requiring proof as to the identity of persons presenting it, or making inquiries with regard to them,
cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards
diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of the
authenticity of the negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence
which proximately contributed to the success of the fraud practiced on the drawee bank. The latter
may recover from the holder the money paid on the check.26

Having established that the collecting bank's negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No.
SN-04867.

G.R. No. 128604

The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course
of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-
10597 and 16508, because PCIBank did not actually receive nor hold the two Ford checks at all.
The trial court held, thus:
 "Neither is there any proof that defendant PCIBank contributed any official or conscious
participation in the process of the embezzlement. This Court is convinced that the switching
operation (involving the checks while in transit for "clearing") were the clandestine or hidden
actuations performed by the members of the syndicate in their own personl, covert and
private capacity and done without the knowledge of the defendant PCIBank…" 27

In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in
the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents within the course and scope of their
employment.28 A bank will be held liable for the negligence of its officers or agents when acting within
the course and scope of their employment. It may be liable for the tortuous acts of its officers even
as regards that species of tort of which malice is an essential element. In this case, we find a
situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in
which its own management employees had particiapted.

The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check
Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of
PCIBank's Meralco Branch, who helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same
amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The
PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager apparently performed
their activities using facilities in their official capacity or authority but for their personal and private
gain or benefit.

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
the frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts
or representations of an officer or agent acting within the course and apparent scope of his
employment or authority.29 And if an officer or employee of a bank, in his official capacity, receives
money to satisfy an evidence of indebetedness lodged with his bank for collection, the bank is liable
for his misappropriation of such sum.30

Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series of
1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending
bank, which in this case is PCIBank.

But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.

The evidence on record shows that Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment of Ford's checjs were made in
due course and legally in order. In its defense, Citibank claims the genuineness and due execution
of said checks, considering that Citibank (1) has no knowledge of any informity in the issuance of the
checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the
endorsement of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has
the obligation to honor and pay the same.

For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR. Citing
Section 6232 of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the
acceptro which is Citibank engages that it will pay according to the tenor of its acceptance, and that
it will pay only to the payee, (the CIR), considering the fact that here the check was crossed with
annotation "Payees Account Only."

As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford
on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing
between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and
such degree of culpability contributed to the damage caused to the latter. On this score, we agree
with the respondent court's ruling.

Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record:
the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly
examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would
have been discovered in time. For this reason, Citibank had indeed failed to perform what was
incumbent upon it, which is to ensure that the amount of the checks should be paid only to its
designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our
view, consitutes negligence in carrying out the bank's duty to its depositors. 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.33

Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and
Citibank failed in their respective obligations and both were negligent in the selection and
supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 AND
16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR.

Time and again, we have stressed that banking business is so impressed with public interest where
the trust and confidence of the public in general is of paramount umportance such that the
appropriate standard of diligence must be very high, if not the highest, degree of diligence. 34 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 of no moment. 35

Banks handle daily transactions involving millions of pesos. 36 By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. 37 Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees. 38

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its
inability to seek judicial relief seasonably, considering that the alleged negligent act took place prior
to December 19, 1977 but the relief was sought only in 1983, or seven years thereafter.

The statute of limitations begins to run when the bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of
his account,39 and an action upon a check is ordinarily governed by the statutory period applicable to
instruments in writing.40

Our laws on the matter provide that the action upon a written contract must be brought within ten
year from the time the right of action accrues.41 hence, the reckoning time for the prescriptive period
begins when the instrument was issued and the corresponding check was returned by the bank to its
depositor (normally a month thereafter). Applying the same rule, the cause of action for the recovery
of the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19,
1977, when Citibank paid the face value of the check in the amount of P4,746,114.41. Since the
original complaint for the cause of action was filed on January 20, 1984, barely six years had lapsed.
Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN
04867 was seasonably filed within the period provided by law.

Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on
the part of the depositor to examine its passbook, statements of account, and cancelled checks and
to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in
the exercise of due care and diligence find therein, serves to mitigate the banks' liability by reducing
the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in
Article 1172 of the Civil Code of the Philippines, respondibility arising from negligence in the
performance of every kind of obligation is also demandable, but such liability may be regulated by
the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the
plaintiff shall reduce the damages that he may recover.42

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared
solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount
P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford
Philippines Inc. from the date when the original complaint was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430
are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until full
payment of said amount. 1âwphi1.nêt

Costs against Philippine Commercial International Bank and Citibank N.A.

SO ORDERED.

PCIB V. CA
350 SCRA 446
 

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting   bank   PCIB   the  
value   of   several   checks   payable   to   the Commissioner of Internal Revenue which were embezzled 
allegedly by an organized  syndicate.    What  prompted  this  action  was  the  drawing  of  a check  by 
Ford,  which  it  deposited  to  PCIB  as  payment  and  was  debited from their Citibank account.  It later
on found out that the payment wasn’t received  by  the  Commissioner.    Meanwhile,  according  to  the 
NBI  report, one of the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the
amount to be paid.  This was replaced with manager’s check by  PCIB,  which  were  allegedly  stolen  by 
the  syndicate  and  deposited  in their own account.   
 
The trial court decided in favor of Ford. 
 

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR? 
 

HELD:
The checks were drawn against the drawee bank but the title of the person negotiating the same was
allegedly defective because the instrument was obtained  by  fraud  and  unlawful  means,  and  the 
proceeds  of  the  checks were not remitted to the payee.  It was established that instead paying the 
Commissioner,  the  checks  were  diverted  and  encashed  for  the  eventual distribution among
members of the syndicate. 
 
Pursuant  to  this,  it  is  vital  to  show  that  the  negotiation  is  made  by  the perpetrator in breach of
faith amounting to fraud.  The person negotiating the checks must have gone beyond the authority given
by his principal.  If the principal could prove that there was no negligence in the performance of  his 
duties,  he  may  set  up  the  personal  defense  to  escape  liability  and recover from other parties who,
through their own negligence, allowed the commission of the crime. 
 
It  should  be  resolved  if  Ford  is  guilty  of  the  imputed  contributory negligence that would defeat its
claim for reimbursement, bearing in mind that its employees were among the members of the syndicate. 
It appears although  the  employees  of  Ford  initiated  the  transactions  attributable  to the  organized 
syndicate,  their  actions  were  not  the  proximate  cause  of encashing  the  checks  payable  to  CIR.   
The  degree  of  Ford’s  negligence couldn’t  be  characterized  as  the proximate  cause  of  the  injury 
to  parties.    The  mere  fact  that  the  forgery  was  committed  by  a  drawer-payor’s confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, doesn’t entitle the bank to shift the loss to the drawer-payor, in
the absence of some circumstance raising estoppel against the drawer.   
 
Note:  not  only  PCIB  but  also  Citibank  is  responsible  for  negligence.  Citibank was negligent in the
performance of its duties as a drawee bank.  It  failed  to  establish  its  payments  of  Ford’s  checks 
were  made  in  due course and legally in order.  

HILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA

AND AMERICA) V. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK,
N.A.           

[G.R. No. 121413. January 29, 2001] (350 SCRA 446)

FACTS:
These consolidated petitions arose from the action filed by BIR against Citibank and
PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. Said
checks, both crossed checks were alleged to have been negotiated fraudulently by an
organized syndicate between and among two employees of Ford (General Ledger Accountant
and his assistant), and PCIBank officers.

It was established that instead of paying the crossed checks, containing two diagonal lines
on its upper left corner between which were written the words payable to the payees account
only, to the CIR for the settlement of the appropriate quarterly percentage taxes of Ford, the
checks were diverted and encashed for the eventual distribution among the members of the
syndicate.  Citibank Check No. SN-10597 amounted to P5,851,706.37, while Citibank Check
No. SN-16508 amounted to P6,311,591.73.
It was found that the pro-manager of San Andres Branch of PCIBank, Remberto Castro,
received Citibank Check Numbers SN 10597 and 16508. He passed the checks to a co-
conspirator, an Assistant Manager of PCIBanks Meralco Branch, who helped Castro open a
Checking account of a fictitious person named Reynaldo Reyes. Castro deposited a worthless
Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered
with the checks and succeeded in replacing the worthless checks and the eventual encashment
of Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-
conspirator Assistant Manager apparently performed their activities using facilities in their official
capacity or authority but for their personal and private gain or benefit.

The trial court and the Court of Appeals found that PCIBank had no official act in the
ordinary course of business that would attribute to it the case of the embezzlement of Citibank
Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the
two Ford checks at all. Neither is there any proof that defendant PCIBank contributed any
official or conscious participation in the process of the embezzlement. The Court is convinced
that the switching operation (involving the checks while in transit for clearing) were the
clandestine or hidden actuations performed by the members of the syndicate in their own
personal, covert and private capacity and done without the knowledge of the defendant
PCIBank.

The evidence on record shows that Citibank as drawee bank was likewise negligent in
the performance of its duties. Citibank failed to establish that its payment of Fords checks were
made in due course and legally in order. It likewise appears that although the employees of
Ford initiated the transactions attributable to an organized syndicate, their actions were not the
proximate cause of encashing the checks.

ISSUE:

Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the
drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of
Internal Revenue? 
HELD:

YES. The mere fact that the forgery was committed by a drawer-payors confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud
and imposing the forged paper upon the bank, does NOT entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.

 In this case, there was no evidence presented confirming the conscious participation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for
the wrongful or tortuous acts and declarations of its officers or agents within the course and
scope of their employment. A bank will be held liable for the negligence of its officers or agents
when acting within the course and scope of their employment. It may be liable for the tortuous
acts of its officers even as regards that species of tort of which malice is an essential
element. In this case, we find a situation where the PCIBank appears also to be the victim of the
scheme hatched by a syndicate in which its own management employees had participated.
A bank holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course
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. For the general rule is that a bank is liable
for the fraudulent acts or representations of an officer or agent acting within the course and
apparent scope of his employment or authority. And if an officer or employee of a bank, in his
official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.

Citibank must likewise answer for the damages incurred by Ford on Citibank Checks
Numbers SN 10597 and 16508, because of the contractual relationship existing between the
two. Citibank, as the drawee bank breached its contractual obligation with Ford and such
degree of culpability contributed to the damage caused to the latter. 
PCIBank and Citibank are thus liable for and must share the loss, (concerning the proceeds of
Citibank Check Numbers SN 10597 and 16508 totaling P12,163,298.10) on a fifty-fifty ratio. 

G.R. No. 113236            March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, 

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV
No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in
Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by

the Central Bank of the Philippines, and among its activities, accepts savings and time
deposits. Said defendant had as one of its client-depositors the Fojas-Arca Enterprises
Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special savings account with
the defendant, the latter authorized and allowed withdrawals of funds therefrom through the
medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.

In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement"
(Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's
products.

On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca
purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In
payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips
drawn upon the defendant. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the defendant. This singular
circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding
special withdrawal slips drawn upon the defendant would be equally sufficiently funded.
Relying on such confidence and belief and as a direct consequence thereof, plaintiff
extended to Fojas-Arca other purchases on credit of its products.

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K)

and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn
upon the defendant, to wit:

WITHDRAWAL
DATE AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and in turn the
Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in
respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only
withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period coupled with the fact
that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the
amount of P981,500.00 plaintiff's belief was all the more strengthened that the other
withdrawal slips were likewise sufficiently funded, and that it had received full value and
payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff
was induced to continue extending to Fojas-Arca further purchase on credit of its products as
per agreement (Exh. "B").
 However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal
slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15,
1978 for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.'
As a consequence, the Citibank debited plaintiff's account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly
attributable to defendant's gross negligence.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for
the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's
claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur
litigation expenses and attorney's fees which amount are recoverable from the defendant.

Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the

transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which
defendant is not involved; Vehemently, it was denied by defendant that the special
withdrawal slips were honored and treated as if it were checks, the truth being that when the
special withdrawal slips were received by defendant, it only verified whether or not the
signatures therein were authentic, and whether or not the deposit level in the passbook
concurred with the savings ledger, and whether or not the deposit is sufficient to cover the
withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then
plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as
check when it is clearly stated therein that the withdrawal slips are non-negotiable; that
defendant is not a privy to any of the transactions between Fojas-Arca and plaintiff for which
reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first
defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a
prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action
against it (pp. 1-3, Dec.; pp. 368-370, id).3

Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City,
Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of
defendant.

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon
Development Bank was liable for damages under Article 2176 5 in relation to Articles 196 and 207 of
the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the part of private
respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation
of the depositor's passbook thereby giving the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks;
and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the
four special withdrawal slips.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal
and affirmed the judgment of the trial court. According to the appellate court, respondent bank
notified the depositor to present the passbook whenever it received a collection note from another
bank, belying petitioner's claim that respondent bank was negligent in not requiring a passbook
under the subject transaction. The appellate court also found that the special withdrawal slips in
question were not purposely given the appearance of checks, contrary to petitioner's assertions, and
thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent
bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for
to do so would have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any
fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the
dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code. 8

The issue for our consideration is whether or not respondent bank should be held liable for damages
suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal
slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter
purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special
savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with
Citibank. The latter credited the same to petitioner's current account, then presented the slips for
payment to respondent bank. It was at this point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and
42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by
respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about
six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal
slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing
the alleged pecuniary damage subject of petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-
negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable
instruments do not apply in this case.10Petitioner itself concedes this point.11 Thus, respondent bank
was under no obligation to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments.
It could not expect these slips to be treated as checks by other entities. Payment or notice of
dishonor from respondent bank could not be expected immediately, in contrast to the situation
involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development
Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's current
account with the amount of the subject withdrawal slips, then merely waited for the same to be
honored and paid by respondent bank. It presumed that the withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal
slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies
in its freedom to circulate freely as a substitute for money. 12 The withdrawal slips in question lacked
this character.

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.13 The fact that the other
withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume
that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary
duty to treat the accounts of its clients with the highest degree of care. 14

In the ordinary and usual course of banking operations, current account deposits are accepted by
the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of the deposit, and the
amount of the deposit either in cash or in check.15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as
petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit.
But having erroneously accepted them as such, Citibank — and petitioner as account-holder — must
bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not
now shift the risk and hold private respondent liable for their admitted mistake.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No.
29546 is AFFIRMED. Costs against petitioner.

SO ORDERED.

FIRESTONE TIRE V. CA  
353 SCRA 601
 

FACTS:
Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former had the privilege
to purchase on credit  the latter’s products.  In paying for these products, the former could pay through
special withdrawal slips.  In turn, Firestone would deposit these slips with Citibank.  Citibank would  then 
honor  and  pay  the  slips.    Citibank  automatically  credits  the account  of  Firestone  then  merely 
waited  for  the  same  to  be  honored  and paid  by  Luzon  Development  Bank.    As  this  was  the 
circumstances, 
Firestone  believed  in  the  sufficient  funding  of  the  slips  until  there  was  a time  that  Citibank 
informed  it  that  one  of  the  slips  was  dishonored.    It wrote  then  a  demand  letter  to  Fojas  Arca 
for  the  payment  and  damages but the latter refused to pay, prompting Firestone to file an action
against 
it.   
 

HELD:

The withdrawal slips, at the outset, are non-negotiable.  Hence, the rule on immediate notice of dishonor
is non-applicable to the case at hand.  Thus, the bank was under no obligation to give immediate notice
that it wouldn't make  payment  on  the  subject  withdrawal  slips.    Citibank  should  have known  that 
withdrawal  slips  are  not  negotiable  instruments.    It  couldn't expect then the slips be treated like
checks by other entities.  Payment or notice of dishonor from respondent bank couldn't be expected
immediately in contrast to the situation involving checks. 

In the case at bar, Citibank relied on the fact that LDB honored and paid the  withdrawal  slips  which 
made  it  automatically  credit  the  account  of Firestone  with  the  amount  of  the  subject  withdrawal 
slips  then  merely waited for LDB to honor and pay the same.  It bears stressing though that Citibank 
couldn't  have  missed  the  non-negotiable  character  of  the  slips.  The  essence  of  negotiability 
which  characterizes  a  negotiable  paper  as  a credit  instrument  lies  in  its  freedom  to  be  a 
substitute  for  money.    The withdrawal slips in question lacked this character. 
 
The  withdrawal  slips  deposited  were  not  checks  as  Firestone  admits  and Citibank generally was
not bound to accept the withdrawal slips as a valid mode of deposit.  Nonetheless, Citibank erroneously
accepted the same as such  and  thus,  must  bear  the  risks  attendant  to  the  acceptance  of  the
instruments.  Firestone and Citibank could not now shift the risk to LDB for their committed mistake. 


 Facts:
             Forjas-Arca Enterprise Company is maintaining a special savings account with
Luzon Development Bank, the latter authorized and allowed withdrawals of funds though
the medium of special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca
purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca
delivered a 6 special withdrawal slips. In turn, these were deposited by the Firsestone to
its bank account in Citibank. With this, relying on such confidence and belief Firestone
extended to Fojas-Arca other purchase on credit of its products but several withdrawal
slips were dishonored and not paid. As a consequence, Citibank debited the plaintiff’s
account representing the aggregate amount of the two dishonored special withdrawal
slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and directly
attributes to defendant’s gross negligence as a result Fojas-Arca filed a complaint.

 Issue:
             Whether or not the acceptance and payment of the special withdrawal slips
without the presentation of the depositor’s passbook thereby giving the impression that it
is a negotiable instrument like a check.

 Held:
             No. Withdrawal slips in question were non negotiable instrument. Hence, the
rules governing the giving immediate notice of dishonor of negotiable instrument do not
apply. The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character.

G.R. No. 173134, September 02, 2015

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA FERNANDEZ, Respondent.; DALMIRO

SIAN, THIRD PARTY, Respondent.

DECISION

BRION, J.:
We resolve the Petition for Review on Certiorari filed by the petitioner Bank of the Philippine Islands (BPI)
under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) July 14, 2005 Decision1 and the
June 14, 2006 Resolution2 in CA-G.R. CV No. 61764.

The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her proportionate
share in the proceeds of four joint AND/OR accounts that the petitioner BPI released to her estranged
husband Manuel G. Fernandez (Manuel) without the presentation of the requisite certificates of deposit. The
facts leading to this dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and Marco
Fernandez, opened the following AND/OR deposit accounts with the petitioner BPI, Shaw Blvd. Branch: chanRoblesvirtualLawlibrary

1) Peso Time Certificate of Deposit No. 2425545 issued on June 27, 1991 in
the name(s) of Manuel G. Fernandez Sr. or Baby Fernandez or
Monique Fernandez in the amount of P1,684,661.40, with a term of 90
days and a corresponding interest at 17.5% per annum;3
2) Peso Time Certificate of Deposit No. 2425556 issued on July 1, 1991 in
the name(s) of Manuel G. Fernandez Sr. or Marco
Fernandez or Tarcila Fernandez, in the amount of P1,534,335.10,
with a term of 92 days and interest at 17.5% per annum;4
3) FCDU Time Certificate of Deposit No. 449059 issued on August 27, 1991
in the name(s) of Manuel or Tarcila Fernandez in the amount of
US$36,219.53, with a term of 30 days and interest at 5.3125% per
annum;
4) Deposit under SA No. 3301-0145-61 issued on September 10, 1991 in
the name(s) of Manuel Fernandez or Baby Fernandez or Monique
Fernandez in the amount of P11,369,800.78 with interest at 5% per
annum.5
The deposits were subject to the following conditions:
"x x x

2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if

pre-termination is allowed, it is subject to an interest penalty to be determined on the date
of pre-termination; ChanRoblesVirtualawlibrary

3. Endorsement and presentation of the Certificate of Deposit is necessary for the

renewal or termination of the deposit"

On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint AND/OR
accounts. She brought with her the certificates of time deposit and the passbook, and presented them to the
bank. BPI, however, refused the requested pre-termination despite Tarcila's presentation of the covering
certificates. Instead, BPI, through its branch manager, Mrs. Elma San Pedro Capistrano (Capistrano),
insisted on contacting Manuel, alleging in this regard that this is an integral part of its standard
operating procedure.6

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination of the joint
AND/OR accounts.7 Manuel claimed that he had lost the same certificates of deposit that Tarcila had earlier
brought with her.8 BPI, through Capistrano, this time acceded to the pre-termination requests, blindly
believed Manuel's claim,9 and requested him to accomplish BPI's pro-forma affidavit of loss.10

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR accounts. He
was accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian), and two (2) alleged
National Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss that he
previously accomplished and an Indemnity Agreement that he and Sian executed on the same day. The
Indemnity Agreement discharged BPI from any liability in connection with the pre-termination.11Notably,
none of the co-depositors were contacted in carrying out these transactions.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened account with
BPI. Immediately thereafter, Capistrano requested Sian to sign blank withdrawal slips, which
Manuel used to withdraw the funds from Sian's newly opened account.12Sian's account, after its
use, was closed on the same day.13

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of Marriage, etc."
against Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC No. 2098.14 Based on the
records, this civil case has been archived.15

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her to demand
from BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When her demands remained
unheeded, Tarcila initiated a complaint for damages with the Regional Trial Court (RTQ of Makati City,
Branch 59, docketed as Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits were invalid
with respect to her share.17She argued that BPI was in bad faith for allowing the pre-termination of the time
deposits based on Manuel's affidavit of loss when the bank had actual knowledge that the certificates of
deposit were in her possession.18

In its answer, BPI alleged that the accounts contained conjugal funds that Manuel exclusively funded.19BPI
further argued that Tarcila could not ask for her share of the pre-terminated deposits because her share in
the conjugal property is considered inchoate until its dissolution.20 BPI further denied refusing Tarcila's
request for pre-termination as it processed her request but she left the branch before BPI could even
contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity Agreement
they had previously executed. As summons against Manuel remained unserved,21 only BPI's complaint
against Sian proceeded to trial.

During the pre-trial, the parties admitted, among others, the conjugal nature of the funds deposited with
BPI.

After trial on the merits, the RTC of Makati, Branch 59, ruled in favor of Tarcila and awarded her the
following amounts: 1.) 1/2 of US$36,379.87; 2.) 1/3 of P11,3369,800.78; 3.) 1/3 of Php1,684,661.40; and
1/3 of P1,534,335.10. The RTC likewise ordered BPI to pay Tarcila the amount of P50,000.00 representing
exemplary damages and P500,000.00 as attorney's fees.

In its decision,22 the RTC opined that the AND/OR nature of the accounts indicate an active solidarity that
thus entitled any of the account holders to demand from BPI payment of their proceeds. Since Tarcila made
the first demand upon BPI, payments should have been made to her23 under Article 1214 of the Civil Code,
which provides:
"Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him."
The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that he was
merely coerced into signing the Indemnity Agreement.24 BPI appealed the RTC ruling with the CA.

CA Ruling

On July 14, 2005, the CA denied BPFs appeal through the decision25 that BPI now challenges before this
Court. The CA ruled that as a co-depositor and a solidary creditor of joint "AND/OR" accounts, BPI did not
enjoy the prerogative to determine the source of the deposited funds and to refuse payment to Tarcila on
this basis.
The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the certificates of
deposits and in facilitating the swift funneling of the funds to Sian's account, which allowed Manuel to
withdraw them.26 The CA noted that the transactions were accomplished in one sitting for the purpose of
misleading anyone who would try to trace Manuel's deposit accounts.27

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It affirmed the
factual finding that intimidation and undue influence vitiated Sian's consent in signing the Indemnity
Agreement.28

BPI moved for the reconsideration of the CA ruling, but the appellate court denied its motion in its June 14,
2006 Resolution.29 BPI then filed the present petition for review on certiorari under Rule 45 with this Court.

The Petition and Comment

BPI insists in its present petition30 that the CA and the court a quo erred in applying the provisions of Article
1214 of the Civil Code to the present case. It believes that the CA should have relied on the conjugal
partnership of gains provision in view of the existing marriage between the spouses. Accordingly, BPI argues
that Tarcila could not have suffered any damage from its payment of the proceeds to Manuel inasmuch as
the proceeds of the pre-terminated accounts formed part of the conjugal partnership of gains.

BPI likewise claims that it did not breach its obligations under the certificates of deposit; it processed
Tarciia's pre-termination request but she left the branch before her request could be completed. Moreover,
assuming without conceding that BPI indeed declined Tarciia's request, it posits that it possessed the
discretion to do so since the request for pre-termination was done prior to their maturity dates. Thus, BPI
firmly believes that it could not be accused of wanton, fraudulent, reckless, or malevolent conduct as it was
merely exercising its rights.

Finally, BPI insists that Sian's consent was not vitiated when he signed the Indemnity Agreement. According
to BPI, the records are bereft of any proof that Sian was actually threatened to sign the Indemnity
Agreement. Thus, BPI maintains that it may validly invoke the Agreement to release itself from any liability.

In her Comment,31 Tarcila points out that the petition raised questions of fact that are not proper issues in a
petition for review on certiorari.32 She also argues that BPI's acts were not mere precautionary steps but
were indicia of bias and bad faith. Finally, Tarcila adds that the issue of who has management, control, and
custody of conjugal property cannot be set up to justify BPI's patent bad faith.

Sian failed to file his Comment on the petition. Nevertheless, he filed a Memorandum33 in compliance with
the Court's September 22, 2008 Resolution.34 He alleged that Manuel forced and intimidated him to sign the
Indemnity Agreement.

THE COURT'S RULING

We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum
of money on deposit which the bank or banker promises to pay to the depositor, to the order of the
depositor, or to some other person or his order, whereby the relation of debtor and creditor between
the bank and the depositor is created.35 In particular, the certificates of deposit contain provisions on
the amount of interest, period of maturity, and manner of termination. Specifically, they stressed that
endorsement and presentation of the certificate of deposit is indispensable to their termination. In other
words, the accounts may only be terminated upon endorsement and presentation of the
certificates of deposit. Without the requisite presentation of the certificates of deposit, BPI may not
terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two steps. First, it
must ensure the identity of the account holder. Second, BPI must demand the surrender of the certificates
of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability measure to
other co-depositors. By requiring the presentation of the certificates prior to termination, the other
depositors may rely on the fact that their investments in the interest-yielding accounts may not
be indiscriminately withdrawn by any of their co-depositors. This protective mechanism likewise
benefits the bank, which shields it from liability upon showing that it released the funds in good
faith to an account holder who possesses the certificates. Without the presentation of the certificates
of deposit, BPI may not validly terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the prejudice of
Tarcila. BPI allowed the termination of the accounts without demanding the surrender of the certificates of
deposits, in the ordinary course of business. Worse, BPI even had actual knowledge that the certificates
of deposit were in Tarcila's possession and yet it chose to release the proceeds to Manuel on the
basis of a falsified affidavit of loss, in gross violation of the terms of the deposit agreements.

As we have stressed in the case of FEBTC v. Querimit:36

"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without
its production and surrender after proper indorsement. As a rule, one who pleads payment has the
burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove payment. The debtor has
the burden of showing with legal certainty that the obligation has been discharged by payment, x
x x Petitioner should not have paid respondent's husband or any third party without requiring
the surrender of the certificates of deposit."37
BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal in character.
This contention, however, is misleading. The principal issue involved in the present case is BPFs breach of its
obligations under the express terms of the certificates of deposit and the consequent damage that Tarcila
suffered as a co-depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the proceeds of the
certificates of deposits. As the CA noted in the assailed Decision, the series of transactions were
accomplished in one sitting for the purpose of misleading anyone who would try to trace the
proceeds of [Manuel]'s deposit accounts.38 As the court a quo likewise observed:
"Aside from the affidavit of loss, the bank required [Manuel] to execute an Indemnity Agreement. Hence, on
September 26, 1991, [Manuel] returned to the bank. This time, Dalmiro Sian, his son-in-law, Atty. Hector
Rodriguez, his lawyer, and two NBI agents were with him. There, the bank required him and Sian to sign an
Indemnity Agreement whereby they undertook "to hold the bank free and harmless from all liabilities arising
from said [pre-termination]." The agreement was prepared by one of the officers of the bank. At the same
time, Sian was told to open a new account under his name. The opening of a new account N. 3305-
0539-44 in the name of Sian was facilitated. The proceeds of the four deposit accounts were then
transferred or deposited to this new account in the name of Sian. x x x Sian also signed two blank
withdrawal slips. With the use of these withdrawal slips, [Manuel] Fernandez withdrew all the
proceeds deposited under the name of Sian. Shortly thereafter, account no. 3305-0539-44 was
closed."39
It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share in
proceeds. Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by making it appear
that the funds were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these transactions. Bad
faith imports a dishonest purpose and conscious wrongdoing.40 It means a breach of a known duty through
some motive or interest or ill will.41

A review of the records of the case show ample evidence supporting BPI's bad faith, as shown by the clear
bias it had against Tarcila. As the CA observed:
"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the face of the
fact that [BPI]'s officers did not require the presentation of the certificates of deposit from
[Manuel] but even assisted and facilitated the pre-termination transaction by the latter on the
basis of a mere pro-forma and defective affidavit of loss, which the bank itself supplied, despite
the fact that [BPI]'s officers were fully aware that the certificates were not lost but in the
possession of [Tarcila]. Moreover, given the fact that said affidavit of loss was executed by [Manuel] just
a few minutes after [Tarcila] had presented the certificates of deposit to [BPI], it taxes one's credulity to say
that [BPI] believed in good faith that the certificates were indeed lost."42
Similarly, the trial court observed:
"It is quite alarming to note the eagerness and haste by which the defendant bank accommodated [Manuel]
's request for the pre-termination of the questioned account deposits and the subsequent release to him of
the full proceeds thereof, to the exclusion of the [Tarcila]. The prejudice of the officers of [BPI] against the
[Tarcila] is very apparent. Elma Capistrano, branch manager, categorically testified that [Tarcila] is a client
of the bank only in name; and that she does not consider [Tarcila] as a primary depositor to the account
because the source of the money being deposited and being transacted was [Manuel]."43
BPI argues that it merely took precautionary steps when it insisted on contacting Manuel as a form of
standard operating procedure. This assertion, however, is belied by BPI's own witness. During her
testimony, Capistrano narrated:
"x x x
Q: Can you tell us why it was necessary for the branch to get in touch with
Mr. Manuel Fernandez?
A: Because he is the one that handles and is in control of all the
money deposited in the branch44
xxx
Q: I heard you mentioned the word "primary depositor" does that mean
that Mrs. Tarcila Fernandez is not a primary depositor?
A: Personally, I do not really consider her as the primary depositor
to the account because the source of the money being deposited and
being transacted was Mr. Manuel Fernandez.45
xxx
Q: Were you the one who recommended that Mr. Manuel Fernandez prepare
this affidavit of loss?
A: That is the usual things that we tell our clients if the original of the
certificates of deposits (sic) or passbook or checkbooks are missing.
Q: But is it not a fact that earlier a few minutes before Mr.
Fernandez came, you were aware that the certificates were not
actually missing but were in the possession of Mrs. [Tarcila]
Fernandez, is it not?
A: Yes Sir.
Q: And yet when this affidavit of loss was later prepared and
presented to you, did you give due course to this affidavit of
loss? Did you accept the truth of the contents of this affidavit of
loss?
A: Because it is Mr. [Manuel] Fernandez who is in possession of all
the certificates, and if he is missing it, I believed that it is really
missing."46
The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel as the
primary depositor despite the clear import of the nature of their AND/OR account, which permits either or
any of the co-depositors to transact with BPI, upon the surrender of the certificates of deposit. Worse,
BPI facilitated the scheme in order to allow Manuel to obtain the proceeds and conceal any evidence of
wrongdoing.

BPI did not only fail to exercise that degree of diligence required by the nature of its business, it
also exercised its functions with bad faith and manifest partiality against Tarcila. The bank even
recognized an affidavit of loss whose allegations, the bank knew, were false. This aspect of the
transactions opens up other issues that we do not here decide because they are outside the
scope of the case before us.

One aspect is criminal in nature because Manuel swore to a falsity and the act was with the
knowing participation of bank officers. The other issue is administrative in character as these
bank officers betrayed the trust reposed in them by the bank. We mention all these because
these are disturbing acts to observe in a banking institution as large as the BPI.

BPI is sternly reminded that the business of banks is impressed with public interest. The fiduciary nature of
their relationship with their depositors requires it to treat the accounts of its clients with the highest degree
of integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also
transgresses the general banking law47 and Article 19 of the Civil Code, which directs every person, in the
exercise of his rights, "to give everyone his due, and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

BPI assails the CA's declaration voiding the Indemnity Agreement that would allow it to hold Sian liable for
the withdrawn deposits.48 It argues that Sian's allegation of vitiation of consent should not be recognized as
it is based solely on the presence of Manuel's lawyer and two (2) alleged NBI Agents.49BPI thus claims that
"mere presence" of law enforcement officers cannot be reasonably equated as imminent threat.50

This particular issue involves a factual determination of vitiated consent, which is a question of fact and one
which is not generally appropriate in a petition for review on certiorari under Rule 45. We, however, are not
precluded from again examining the evidence introduced and considered with respect to this factual issue
where the CA's finding of vitiated consent is both speculative and mistaken.51

We agree with BPFs observation on this point that there is nothing in the records that even remotely
resembles vitiation of consent. In order that intimidation may vitiate consent, it is essential that the
intimidation was the moving cause for giving consent.52 Moreover, the threatened act must be unjust or
unlawful.53 In addition, the threat must be real or serious, and must produce well-grounded fear from
the fact that the person making the threat has the necessary means or ability to inflict the threat.54

Nothing in the records supports this conclusion. In fact, we find it difficult to believe that the presence of
Manuel, his lawyer, and two (2) NBI agents could amount to intimidation in the absence of any act or
threatened injury on Sian. If he did sign the Indemnity Agreement with reluctance, vitiation of consent is
still negated, as we held in Vales v. Villa:55
"There must, then, be a distinction to be made between a case where a person gives his consent reluctantly
and even against his good sense: and judgment, and where he, in reality, gives no consent at all, as where
he executes a contract or performs an act against his will under a pressure which he cannot resist. It is clear
that one acts as voluntarily and independently in the eye of the law when he acts reluctantly and with
hesitation as when he acts spontaneously and joyously. Legally speaking he acts as voluntarily and freely
when he acts wholly against his better sense and judgment as when he acts in conformity with them.
Between the two acts there is no difference in law. But when his sense, judgment, and his will rebel and he
refuses absolutely to act as requested, but is nevertheless overcome by force or intimidation to such an
extent that he becomes a mere automation and acts mechanically only, a new element enters, namely, a
disappearance of the personality of the actor. He ceases to exist as an independent entity with faculties and
judgment, and in his place is substituted another — the one exercising the force or making use of
intimidation. While his hand signs, the will which moves it is another's. While a contract is made, it has, in
reality and in law, only one party to it; and, there being only one party, the one using the force or the
intimidation, it is unenforceable for lack of a second party.

From these considerations it is clear that every case of alleged intimidation must be examined to determine
within which class it falls. If it is within the first class it is not duress in law, if it falls in the second, it is."
This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity Agreement on
the basis of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine resting on the theory
that courts will not aid parties who base their cause of action on their own immoral or illegal acts.56When
two parties, acting together, commit an illegal or wrongful act, the party held responsible for the act
cannot recover from the other, because both have been equally culpable and the damage resulted from their
joint offense.57

In the present case, equity dictates that BPI should not be allowed to claim from Sian on the basis of the
Indemnity Agreement. The facts unmistakably show that both BPI and Sian participated in the deceptive
scheme to allow Manuel to withdraw the funds. As succinctly admitted by Capistrano during her testimony:
xxx
Q: I see, in other words, the same certificates of deposit earlier
 presented by Mrs. Tarcila were recognized by the bank as having
been lost and thereafter transactions were made in favor of Mr.
Manuel Fernandez, that was what happened?
A: Yes Sir, because of the representation of Mr. Manuel Fernandez that he
lost it.
Q: You accepted, the bank immediately accepted in face value that
representation?
A: Yes Sir.58
BPI knew very well the irregularity in Manuel's transaction for it had actual knowledge that the
certificates of deposit were in Tarcila's possession. Because of this knowledge, it entertained the
possibility of reprisal from the co-depositors. Thus, it took shrewdly calculated steps and required
Manuel and Sian to execute an Indemnity Agreement, hoping that this instrument would absolve it from
liability.

BPI and Sian are in pari delicto, thus, no affirmative relief should be given to one against the other. BPI
came to court with unclean hands; for which reason, it cannot obtain relief and thereby gain from its
indispensable participation in the irregular transaction. One who seeks equity and justice must come to court
with clean hands.59chanroblesvirtuallawlibrary

Award of exemplary damages proper

Exemplary or corrective damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated, or compensatory damages.60 In quasi-delicts, exemplary damages
may be granted if the defendant acted with gross negligence.61

In the present case, BPI's bias and bad faith unquestionably caused prejudice to Tarcila. The law allows the
grant of exemplary damages in cases such as this to serve as a warning to the public and as a deterrent
against the repetition of this kind of deleterious actions.62 From this perspective, we find that the CA did not
err in affirming the RTC's award of P50,000.00 by way of exemplary damages.

Attorney's fees in order

In view of the award of exemplary damages, we find that that the CA did not err in confirming the RTC's
award of attorney's fees, in accordance with Article 2208 (1) of the Civil Code. We find the award of
attorney's fees, equivalent to P500,000.00, to be just and reasonable under the circumstances.

WHEREFORE, premises considered, the petition is hereby DENIED.

Costs against the petitioner.

SO ORDERED.

BPI vs CA Case Digest

BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS 

232 SCRA302 

G.R. NO. 104612 

MAY 10, 1994 

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the corporation,
had an “AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest
of petitioner Bank of the Philippine Islands. Lim withdraw funds from such account and used it to open a
joint checking account (an “AND” account) with Mariano Velasco. When Velasco died in 1977, said joint
checking account had P662,522.87. By virtue of an Indemnity Undertaking executed by Lim and as
President and General Manager of Eastern withdrew one half of this amount and deposited it to one of
the accounts of Eastern with CBTC. 

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and CBTC
executed a Holdout Agreement providing that the loan was secured by the “Holdout of the C/A No. 2310-
001-42” referring to the joint checking account of Velasco and Lim. 

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the
account of Velasco and Lim. 

Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that it
is the duty of CBTC to debit the account of respondents to set off the amount of P73,000 covered by the
promissory note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint account of Velasco and Lim came from Eastern
and therefore rightfully belong to Eastern and/or Lim. Since the Holdout Agreement covers the loan of
P73,000, then petitioner can only hold that amount against the joint checking account and must return the
rest. 

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents on the account subject of the
withdrawal by the heirs of Velasco. 

RULING: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on CBTC the power,
not the duty, to set off the loan from the account subject of the Agreement. When BPI demanded payment
of the loan from Eastern, it exercised its right to collect payment based on the promissory note, and
disregarded its option under the Holdout Agreement. Therefore, its demand was in the correct order. 

Regarding the second issue, BPI was the debtor and Eastern was the creditor with respect to the joint
checking account. Therefore, BPI was obliged to return the amount of the said account only to the
creditor. When it allowed the withdrawal of the balance of the account by the heirs of Velasco, it made the
payment to the wrong party. The law provides that payment made by the debtor to the wrong party does
not extinguish its obligation to the creditor who is without fault or negligence. Therefore, BPI was still
liable to the true creditor, Eastern.

BSB Group v. Sally Go (G.R.

No. 168644)
Date: October 16, 2016Author: jaicdn0 Comments
Facts:

Petitioner is a duly organized domestic corporation presided by its representative,

Ricardo Bangayan, husband of herein respondent Sally Go. Respondent was employed as
a cashier, and was engaged, among others, to receive and account for the payments made
by the various customers of the company. Bangayan filed with the Manila Prosecutor’s
Office a complaint for estafa/qualified theft against respondent alleging that several
checks issued by the company’s customers in payment of their obligation were, instead of
being turned over to the company’s coffers, indorsed by respondent who deposited the
same to her personal banking account maintained at Security Bank. Accordingly,
respondent was charged and the prosecution moved for the issuance of subpoena duces
tecum/ad testificandum against the respective managers or records custodians of Security
Bank and Asian Savings Bank. Respondent opposed and meanwhile, prosecution was
able to present in court the testimony of one Security Bank representative. Petitioner
moved to exclude the testimony but was denied by the trial court. CA reversed and set
aside the order.

Issue:

Whether or not the testimony on the particulars of respondent’s account with Security
Bank, as well as of the corresponding evidence of the checks allegedly deposited in said
account, constitutes an unallowable inquiry under R.A. 1405.

Ruling: YES.

The Court found guidance in the relevant portions of the legislative deliberations on
Senate Bill No. 351 and House Bill No. 3977, which later became the Bank Secrecy Act,
and it held that the absolute confidentiality rule in R.A. No. 1405 actually aims at
protection from unwarranted inquiry or investigation if the purpose of such inquiry or
investigation is merely to determine the existence and nature, as well as the amount of the
deposit in any given bank account.

What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A.
No. 1405 has been pointedly and amply addressed in Union Bank of the Philippines v.
Court of Appeals, in which the Court noted that the inquiry into bank deposits allowable
under R.A. No. 1405 must be premised on the fact that the money deposited in the
account is itself the subject of the action. Given this perspective, we deduce that the
subject matter of the action in the case at bar is to be determined from the indictment that
charges respondent with the offense, and not from the evidence sought by the prosecution
to be admitted into the records. In the criminal Information filed with the trial court,
respondent, unqualifiedly and in plain language, is charged with qualified theft by
abusing petitioner’s trust and confidence and stealing cash. The said Information makes
no factual allegation that in some material way involves the checks subject of the
testimonial and documentary evidence sought to be suppressed. Neither do the allegations
in said Information make mention of the supposed bank account in which the funds
represented by the checks have allegedly been kept.

In other words, it can hardly be inferred from the indictment itself that the Security Bank
account is the ostensible subject of the prosecution’s inquiry. Without needlessly
expanding the scope of what is plainly alleged in the Information, the subject matter of
the action in this case is the money alleged to have been stolen by respondent, and not the
money equivalent of the checks which are sought to be admitted in evidence. Thus, it is
that, which the prosecution is bound to prove with its evidence, and no other.

It comes clear that the admission of testimonial and documentary evidence relative to
respondent’s Security Bank account serves no other purpose than to establish the
existence of such account, its nature and the amount kept in it. It constitutes an attempt by
the prosecution at an impermissible inquiry into a bank deposit account the privacy and
confidentiality of which is protected by law. On this score alone, the objection posed by
respondent in her motion to suppress should have indeed put an end to the controversy at
the very first instance it was raised before the trial court.

Ejercito v. Sandiganbayan (G.R.

Nos. 157294-95)
Date: October 16, 2016Author: jaicdn0 Comments

Facts:

In lieu of the Criminal Case “People v. Estrada” for plunder, the Special Prosecution
Panel filed before the Sandiganbayan a request for issuance of Subpoena Duces Tecum
directing the President of Export and Industry Bank or his/her authorized representative
to produce documents namely, Trust Account and Savings Account belonging to
petitioner and statement of accounts of one named “Jose Velarde” and to testify thereon
during the hearings. Sandiganbayan granted both requests and subpoenas were
accordingly issued. Sandiganbayan also granted and issued subpoenas prayed for by the
Prosecution Panel in another later date. Petitioner now assisted by his counsel filed two
separate motions to quash the two subpoenas issued. Sandiganbayan denied both motions
and the consequent motions for reconsideration of petitioner.

Issues:

(1) Whether or not the trust accounts of petitioner are covered by the term “deposits” as
used in R.A. No. 1405

(2) Whether or not plunder is neither bribery nor dereliction of duty not exempted from
protection of R.A. No. 1405
(3) Whether or not the unlawful examination of bank accounts shall render the evidence
obtained therefrom inadmissible in evidence.

Ruling:

(1) YES. An examination of the law shows that the term “deposits” used therein is to be
understood broadly and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank.

The policy behind the law is laid down in Section 1. If the money deposited under an
account may be used by banks for authorized loans to third persons, then such account,
regardless of whether it creates a creditor-debtor relationship between the depositor and
the bank, falls under the category of accounts which the law precisely seeks to protect for
the purpose of boosting the economic development of the country.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement
between petitioner and Urban Bank provides that the trust account covers “deposit,
placement or investment of funds” by Urban Bank for and in behalf of petitioner. The
money deposited under Trust Account No. 858, was, therefore, intended not merely to
remain with the bank but to be invested by it elsewhere. To hold that this type of account
is not protected by R.A. 1405 would encourage private hoarding of funds that could
otherwise be invested by banks in other ventures, contrary to the policy behind the law.

Section 2 of the same law in fact even more clearly shows that the term “deposits” was
intended to be understood broadly. The phrase “of whatever nature” proscribes any
restrictive interpretation of “deposits.” Moreover, it is clear from the immediately quoted
provision that, generally, the law applies not only to money which is deposited but also to
those which are invested. This further shows that the law was not intended to apply only
to “deposits” in the strict sense of the word. Otherwise, there would have been no need to
add the phrase “or invested.”
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.

(2) NO. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty
and no reason is seen why these two classes of cases cannot be excepted from the rule
making bank deposits confidential. The policy as to one cannot be different from the
policy as to the other. This policy expresses the notion that a public office is a public trust
and any person who enters upon its discharge does so with the full knowledge that his
life, so far as relevant to his duty, is open to public scrutiny.

The crime of bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea that “a public office is a public trust and
any person who enters upon its discharge does so with the full knowledge that his life, so
far as relevant to his duty, is open to public scrutiny” applies with equal force.

Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases
of bribery must also apply to cases of plunder.

(3) NO. Petitioner’s attempt to make the exclusionary rule applicable to the instant case
fails. R.A. 1405, it bears noting, nowhere provides that an unlawful examination of bank
accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5
of R.A. 1405 only states that “[a]ny violation of this law will subject the offender upon
conviction, to an imprisonment of not more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of the court.”

Even assuming arguendo, however, that the exclusionary rule applies in principle to cases
involving R.A. 1405, the Court finds no reason to apply the same in this particular case.
Clearly, the “fruit of the poisonous tree” doctrine presupposes a violation of law. If there
was no violation of R.A. 1405 in the instant case, then there would be no “poisonous
tree” to begin with, and, thus, no reason to apply the doctrine.
Additional Note: (This case is to be contrasted with Marquez v. Desierto)

The Marquez ruling notwithstanding, the above-described examination by the

Ombudsman of petitioner’s bank accounts, conducted before a case was filed with a court
of competent jurisdiction, was lawful.

For the Ombudsman issued the subpoenas bearing on the bank accounts of
petitioner about four months before Marquez was promulgated on June 27, 2001.

When this Court construed the Ombudsman Act of 1989, in light of the Secrecy of Bank
Deposits Law in Marquez, that “before an in camera inspection may be allowed there
must be a pending case before a court of competent jurisdiction”, it was, in fact, reversing
an earlier doctrine found in Banco Filipino Savings and Mortgage Bank v. Purisima.

Banco Filipino involved subpoenas duces tecum issued by the Office of the Ombudsman,
then known as the Tanodbayan, in the course of its preliminary investigation of a charge
of violation of the Anti-Graft and Corrupt Practices Act. As the subpoenas subject of
Banco Filipino were issued during a preliminary investigation, in effect this Court upheld
the power of the Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank
documents prior to the filing of a case before a court of competent jurisdiction.

Marquez, on the other hand, practically reversed this ruling in Banco Filipino despite the
fact that the subpoena power of the Ombudsman under R.A. 6770 was essentially the
same as that under P.D. 1630.

The Marquez ruling that there must be a pending case in order for the Ombudsman to
validly inspect bank records in camera thus reversed a prevailing doctrine. Hence, it may
not be retroactively applied. The Ombudsman’s inquiry into the subject bank accounts
prior to the filing of any case before a court of competent jurisdiction was therefore valid
at the time it was conducted. In fine, the subpoenas issued by the Ombudsman in this case
were legal, hence, invocation of the “fruit of the poisonous tree” doctrine is misplaced.

Marquez v. Desierto (G.R. No. 135882)

Date: October 16, 2016Author: jaicdn0 Comments

Facts:

Petitioner Lourdes Marquez received an Order from respondent Ombudsman Aniano

Desierto to produce several bank documents for purposes of inspection in camera relative
to various accounts maintained at the bank where petitioner is the branch manager. The
accounts to be inspected are involved in a case pending with the Ombudsman entitled,
Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo. It appears that a
certain George Trivinio purchased trail managers check and deposited some of it to an
account maintained at petitioner’s branch. Petitioner after meeting with the FFIB Panel to
ensure the veracity of the checks agreed to the in camera inspection. Petitioner being
unable to readily identify the accounts in question, the Ombudsman issued an order
directing petitioner to produce the bank documents. Thus, petitioner sought a declaration
of her rights from the court due to the clear conflict between RA 6770 and RA 1405.
Meanwhile, FFIB moved to cite petitioner in contempt before the Ombudsman.

Issue:

Whether or not the order of Ombudsman to have an in camera inspection of the accounts
is an allowable exception of R.A. No. 1405.

Ruling: NO.

The order of the Ombudsman to produce for in camera inspection the subject accounts
with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending
investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for
violation of R.A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement
between the Public Estates Authority and AMARI.

We rule that before an in camera inspection may be allowed, there must be a pending
case before a court of competent jurisdiction. Further, the account must be clearly
identified, the inspection limited to the subject matter of the pending case before the court
of competent jurisdiction. The bank personnel and the account holder must be notified to
be present during the inspection, and such inspection may cover only the account
identified in the pending case.

In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the Office of the Ombudsman. In short,
what the office of the ombudsman would wish to do is to fish for additional evidence to
formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no
pending case in court which would warrant the opening of the bank account for
inspection.

*In contrast to Ejercito v. Sandiganbayan. Interestingly, time is of the essence. A

different ruling in Ejercito was enunciated because there was already a pending
investigation months before the ruling made in this case as to the exemption in the
power of the Ombudsman.

Union Bank of the Philippines v. CA

(G.R. No. 134699)
Date: October 16, 2016Author: jaicdn0 Comments

Facts:
A check in the amount of P1M was drawn against an account with private respondent
Allied Bank payable to the order of one Jose Ch. Alvarez. The payee deposited the check
with petitioner Union Bank who credited the P1M to the account of Mr. Alvarez.
Petitioner sent the check for clearing and when the check was presented for payment, a
clearing discrepancy was committed by Union Bank’s clearing staff when the amount
P1M was erroneously “under-encoded” to P1,000 only. Petitioner only discovered the
under-encoding almost a year later. Thus, Union Bank notified Allied Bank of the
discrepancy by way of a charge slip for P999,000.00 for automatic debiting against
Allied Bank. The latter, however, refused to accept the charge slip “since [the]
transaction was completed per your [Union Bank’s] original instruction and client’s
account is now insufficiently funded.” Union Bank filed a complaint against Allied Bank
before the PCHC Arbitration Committee (Arbicom). Thereafter, Union Bank filed before
the RTC a petition for the examination of the account with respondent bank. Judgment on
the arbitration case was held in abeyance pending the resolution of said petition. The
RTC dismissed Union Bank’s petition. CA affirmed the dismissal ruling that the case was
not one where the money deposited is the subject matter of the litigation.

Issue:

Whether the discrepancy amount is the subject matter of litigation.

Ruling: NO.

The petition before this Court reveals that the true purpose for the examination is to aid
petitioner in proving the extent of Allied Bank’s liability. In other words, only a
disclosure of the pertinent details and information relating to the transactions involving
subject account will enable petitioner to prove its allegations in the pending Arbicom
case. Petitioner is fishing for information so it can determine the culpability of private
respondent and the amount of damages it can recover from the latter. It does not seek
recovery of the very money contained in the deposit. The subject matter of the dispute
may be the amount of P999,000.00 that petitioner seeks from private respondent as a
result of the latter’s alleged failure to inform the former of the discrepancy; but it is not
the P999,000.00 deposited in the drawer’s account. By the terms of R.A. No. 1405, the
“money deposited” itself should be the subject matter of the litigation. That petitioner
feels a need for such information in order to establish its case against private respondent
does not, by itself, warrant the examination of the bank deposits. The necessity of the
inquiry, or the lack thereof, is immaterial since the case does not come under any of the
exceptions allowed by the Bank Deposits Secrecy Act.

Republic v Judge Eugenio G.R. No. 174629,

February 14, 2008
MARCH 16, 2014LEAVE A COMMENT

Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be
examined by any person, government official, bureau or offial; namely when: (1) upon written
permission of the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is
upon order of a competent court in cases of bribery or dereliction of duty of public officials; and
(4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No.
3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as constituting
an additional exception to the rule of absolute confidentiality, and there have been other similar
recognitions as well.[
Facts: Under the authority granted by the Resolution, the AMLC filed an application to inquire into
or examine the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the
RTC of Makati, Branch 138, presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr.
The application was docketed as AMLC No. 05-005. The Makati RTC heard the testimony of the
Deputy Director of the AMLC, Richard David C. Funk II, and received the documentary evidence of
the AMLC.[14] Thereafter, on 4 July 2005, the Makati RTC rendered an Order (Makati RTC bank
inquiry order) granting the AMLC the authority to inquire and examine the subject bank accounts of
Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being satisfied that there existed
p]robable cause [to] believe that the deposits in various bank accounts, details of which appear in
paragraph 1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt
Practices Act now the subject of criminal prosecution before the Sandiganbayan as attested to by the
Informations, Exhibits C, D, E, F, and G Pursuant to the Makati RTC bank inquiry order, the CIS
proceeded to inquire and examine the deposits, investments and related web accounts of the four. [16]
Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a
letter dated 2 November 2005, requesting the AMLC to investigate the accounts of Alvarez,
PIATCO, and several other entities involved in the nullified contract. The letter adverted to probable
cause to believe that the bank accounts were used in the commission of unlawful activities that were
committed a in relation to the criminal cases then pending before the Sandiganbayan. Attached to the
letter was a memorandum on why the investigation of the [accounts] is necessary in the prosecution
of the above criminal cases before the Sandiganbayan. In response to the letter of the Special
Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121 Series of 2005,
[19]
 which authorized the executive director of the AMLC to inquire into and examine the accounts
named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in
the name of Cheng Yong with Metrobank. The Resolution characterized the memorandum attached
to the Special Prosecutors letter as extensively justif[ying] the existence of probable cause that the
bank accounts of the persons and entities mentioned in the letter are related to the unlawful activity
of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as amended.
Issue: Whether or not the bank accounts of respondents can be examined.

Held: Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2
of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined
by any person, government official, bureau or offial; namely when: (1) upon written permission of
the depositor; (2) in cases of impeachment; (3) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-
Graft and Corrupt Practices Act, has been recognized by this Court as constituting an additional
exception to the rule of absolute confidentiality, and there have been other similar recognitions as
well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may
inquire into a bank account upon order of any competent court in cases of violation of the AMLA, it
having been established that there is probable cause that the deposits or investments are related to
unlawful activities as defined in Section 3(i) of the law, or a money laundering offense under Section
4 thereof. Further, in instances where there is probable cause that the deposits or investments are
related to kidnapping for ransom, [certain violations of the Comprehensive Dangerous Drugs Act of
2002,hijacking and other violations under R.A. No. 6235, destructive arson and murder, then there is
no need for the AMLC to obtain a court order before it could inquire into such accounts. It cannot be
successfully argued the proceedings relating to the bank inquiry order under Section 11 of the AMLA
is a litigation encompassed in one of the exceptions to the Bank Secrecy Act which is when money
deposited or invested is the subject matter of the litigation. The orientation of the bank inquiry order
is simply to serve as a provisional relief or remedy. As earlier stated, the application for such does
not entail a full-blown trial. Nevertheless, just because the AMLA establishes additional exceptions
to the Bank Secrecy Act it does not mean that the later law has dispensed with the general principle
established in the older law that all deposits of whatever nature with banks or banking institutions in
the Philippines x x x are hereby considered as of an absolutely confidential nature. Indeed, by force
of statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the
legislated exceptions referred to above.