BANKING FULL TEXT CASES G.R. No.

171266 April 4, 2007

INTERNATIONAL EXCHANGE BANK, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CARPIO MORALES, J.: Is a Savings Account-Fixed Savings Deposit (FSD) evidenced by a passbook issued by International Exchange Bank (petitioner) subject to documentary stamp tax (DST) for the years 1996 and 1997? Petitioner, a banking institution duly organized and existing under the laws of the Philippines, was on April 13, 1999 served Letter of Authority No. 0000205351 by the Commissioner of Internal Revenue (respondent) directing the examination by a "Special Team created pursuant to RSO 797-98" (Special Team) of petitioners books of accounts and other accounting records for the year 1997 and "unverified prior years." An examination of said documents was in fact conducted. Petitioner subsequently received on November 16, 1999 a "Notice to Taxpayer"2 from the Assistant Commissioner, Enforcement Service of the Bureau of Internal Revenue, notifying it of the results of the examination conducted by the Special Team regarding its tax liabilities, which amounted to P465,158,118.31 for 1996 and P17,033,311,974.23 for 1997, and requesting it to appear for an informal conference to present its side. Between November3 and December4 1999, petitioners representatives met with the Special Team to discuss and/or dispute portions of the Special Teams audit findings. Eventually, the parties resolved issues relating to transactions involving payment of final withholding and gross receipts taxes.5 On January 6, 2000, petitioner was personally served with an undated Pre-Assessment Notice6 (PAN) assessing it of deficiency on its purchases of securities from the Bangko Sentral ng Pilipinas or Government Securities Purchased-Reverse Repurchase Agreement (RRPA) and its FSD for the taxable years 1996 and 1997, viz: Details of Discrepancies (Taxable Year 1996) INDUSTRY ISSUES 1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings Deposits - SD totaling P25,180,492.15. Government Securities Purchased-RRP amounting to P3,584,098,013.35 is subject to DST under Section 180 of the NIRC, as amended, since this falls under the classification of Deposits Substitutes as defined by RR 3-97. Savings Deposit-FSD amounting to P9,845,497,800.27 should be treated as time deposits considering that its features are very much the same as time deposits (interest rates; terms). In substance, these are certificate[s] of deposits subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s] of deposits bearing interest and others not payable on sight or demand are subject to DST.7

Details of Discrepancies (Taxable Year 1997) INDUSTRY ISSUES 1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings Deposits-FSD totaling P75,383,751.55. Government Securities Purchased-RRP amounting to P12,180.427,820.44 is subject to DST under Sec. 180 of the NIRC, as amended, since this falls under the classification of Deposit Substitutes as defined by RR 3-97. Savings Deposits-FSD amounting to P28,024,239,673.35 should be treated as time deposits considering that its features are very much the same as time deposits (interest rates; terms). In substance, these are certificates of deposit subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s] of deposit bearing interest and others not payable on sight or demand are subject to DST.8 (Underscoring in the original) The PAN advised petitioner that in case it was not agreeable to the above-quoted findings, it may "see the Assistant Commissioner-Enforcement Service to clarify issues arising from the investigation and/or review," and its failure to do so within 15 days from receipt of the PAN would mean that it was agreeable.9 On January 12, 2000, petitioner received a Formal Assessment Notice10 (FAN) for deficiency DST on its RRPA and FSD, including surcharges, in the amounts of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying demand letter11 requesting payment thereof within 30 days. Acting on the FAN, petitioner filed on February 11, 2000 a protest letter12 alleging that the assessments should be reconsidered on the grounds that: (1) the assessments are null and void for having been issued without any authority and due process, and were made beyond the prescribed period for making assessments; (2) there is no law imposing DST on RRPA, and assuming that DST was payable, it is the Bangko Sentral ng Pilipinas which is liable therefor; (3) there is no law imposing DST on its FSD; and (4) assuming the deficiency assessments for DST were proper, the imposition of surcharges was patently without legal authority. Respondent failed to act on the protest, prompting petitioner to file a petition for review before the Court of Tax Appeals (CTA). By Decision13 of October 26, 2004, the First Division of the CTA (CTA Division) disposed as follows: WHEREFORE, petitioners deficiency assessments pertaining to the reverse purchase agreements in the amounts of P6,720,183.77 and P22,838,302.16 inclusive of surcharges, for the years 1996 and 1997, respectively, are hereby CANCELLED and WITHDRAWN. However, the deficiency assessments pertaining to savings deposits-FSD are hereby UPHELD and petitioner is ORDERED to PAY the respondent the amount of P71,005,757.77 representing deficiency documentary stamp tax for the years 1996 and 1997. In addition thereto, petitioner is ORDERED to PAY respondent 20% delinquency interest from February 12, 2000 until fully paid pursuant to Section 249 of the 1997 NIRC.14 (Emphasis and underscoring supplied) Petitioner moved for reconsideration of the CTA Division decision. Respondent moved too for a partial review of the decision.

Petitioner argued that its FSD is not subject to DST since it was not one of the documents enumerated either under the 1977 Tax Code (Tax Code) or the 1997 National Internal Revenue Code (NIRC). Respondent on the other hand argued that petitioner should be liable not only for DST on its FSD but also on its RRPA. For lack of merit, the CTA Division, by Resolution15 of April 20, 2005, denied petitioners motion for reconsideration and respondents motion for partial reconsideration. Only petitioner appealed to the CTA En Banc before which it proffered that its FSD cannot be considered a certificate of deposit subject to DST under Section 180 of the Tax Code for, unlike a certificate of deposit which is a negotiable instrument, the passbook it issued for its FSD was not payable to the order of the depositor or to some other person as the deposit could only be withdrawn by the depositor or by a duly authorized representative.16 Petitioner likewise proffered that the legislative deliberations on the bill that was to become Republic Act No. (R.A.) 924317 showed that the definition of certificates of deposit was amended to include "other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date" in order to plug a revenue loophole caused by the term "certificates of deposit" provided under the Tax Code and the NIRC.18 Furthermore, petitioner argued that a "deposits [sic] evidenced by a passbook [which] have features akin to a time deposit," such as petitioners FSD, is not subject to DST under the Tax Code and the NIRC.19 Finally, petitioner argued that the FAN for 1996 and 1997 were issued in violation of its right to due process, they having been issued even before it could respond to the PAN; and that the 1996 assessment is null and void for having been issued beyond the 3-year prescriptive period. By Decision20 of January 30, 2006, the CTA En Banc affirmed the decision of the CTA Division finding petitioner liable for payment of deficiency DST for its FSD. In affirming the CTA Division Decision, the CTA En Banc held that a time deposit is a type of a certificate of deposit drawing interest, and petitioners FSD has the same nature and characteristics as those of a time deposit; that the requirement of due process had been substantially complied with; and the 1996 assessment was not barred by prescription because there was no requirement for the filing of a DST return under the Tax Code. Hence, the present petition for review on certiorari, petitioner reiterating the same grounds advanced before the CTA En Banc. The issue, in the main, is whether petitioners FSD is subject to DST for the years assessed. The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660,21 which reads: Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. - On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities or certificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than at sight or on demand, or on all promissory notes, whether negotiable

or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax: Provided, however, That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section. (Emphasis and underscoring supplied) Petitioner posits that based on this Courts definition of a certificate of deposit in Far East Bank and Trust Company v. Querimit, 22 viz: 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. . . .23 its FSD is not a certificate of deposit since there is nothing in the terms and conditions printed on the passbook evidencing it that can be construed to mean that the bank or banker acknowledges the receipt of a sum of money on deposit.24 Petitioner moreover posits that the FSD, unlike a certificate of deposit, is not negotiable or payable to the order of some other person or his order but is "only withdrawable by the depositor or his authorized representative."25 Petitioners position does not lie. As correctly found by the CTA En Banc, a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest.26 A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor.27 What is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount.28 Contrary to petitioners claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not be negotiable as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order. In any event, the negotiable character of any and all documents under Section 180 is immaterial for purposes of imposing DST. Orders for the payment of sum of money payable at sight or on demand are of course explicitly exempted from the payment of DST. Thus, a regular savings account with a passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable on a fixed maturity date. As for petitioners argument that its FSD is similar to a regular savings deposit because it is evidenced by a passbook,29 and that based on the legislative deliberations on the bill which was to become R.A.

9243 which amended Section 180 of the NIRC (which is to a large extent the same as Section 180 of the Tax Code, as amended by R.A. 7660), Congress admitted that deposits evidenced by passbooks which have features akin to time deposits are not subject to DST,30 the same does not lie. The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. Thus explains the CTA En Banc: It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit is but a type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary to determine whether petitioners Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a time deposit. In this regard, the findings of fact stated in the assailed Decision [of the CTA Division] are as follows: "In this case, a depositor of a savings deposit-FSD is required to keep the money with the bank for at least thirty (30) days in order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining only to a regular savings deposit. The same feature is present in a time deposit. A depositor is allowed to withdraw his time deposit even before its maturity subject to bank charges on its pre[-]termination and the depositor loses his entitlement to earn the interest rate corresponding to the time deposit. Instead, he earns interest pertaining only to a regular savings deposit. Thus, petitioners argument that the savings deposit-FSD is withdrawable anytime as opposed to a time deposit which has a maturity date, is not tenable. In both cases, the deposit may be withdrawn anytime but the depositor gets to earn a lower rate of interest. The only difference lies on the evidence of deposit, a savings deposit-FSD is evidenced by a passbook, while a time deposit is evidenced by a certificate of time deposit." In order for a depositor to earn the agreed higher interest rate in a SA-FSD, the amount of deposit must be maintained for a fixed period. Such being the case, We agree with the finding that the SAFSD is a deposit account with a fixed term. Withdrawal before the expiration of said fixed term results in the reduction of the interest rate. Having a fixed term and reduction of interest rate in case of pretermination are essentially the features of a time deposit. Hence, this Court concurs with the conclusion reached in the assailed Decision that petitioners SA-FSD and time deposit are substantially the same. . . .31 (Italics in the original; underscoring supplied) The findings and conclusions reached by the CTA which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, and unless there has been an abuse or improvident exercise of authority,32 and none has been shown in the present case, deserves respect. It bears emphasis that DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.33 It is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business.34 While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade payment of just taxes. 35 To claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.36

The further amendment of Section 180 of the NIRC and its renumbering as Section 179 by R.A. 9243, which was approved on February 17, 2004, viz: SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is hereby renumbered as Section 179 and further amended to read as follows: SEC. 179. Stamp Tax on All Debt Instruments. On every original issue of debt instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan. For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation." (Underscoring supplied), does not mean that as proffered, prior to its further amendment on said date, Section 180 of the Tax Code and the NIRC time deposits for which passbooks were issued were exempted from payment of DST. If at all, the further amendment was intended to eliminate precisely the scheme used by banks of issuing passbooks to "cloak" its time deposits as regular savings deposits. This is reflected from the following exchanges between Mr. Miguel Andaya of the Bankers Association of the Philippines and Senator Ralph Recto, Senate Chairman of the Committee on Ways and Means, during the deliberations on Senate Bill No. 2518 which eventually became R.A. 9243: MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to clarify. Savings deposit at the present time is not subject to DST. THE CHAIRMAN. Thats right. MR. ANDAYA. Time deposit is subject. I agree with you in principle that if we are going to encourage deposits, whether savings or time THE CHAIRMAN. Uh-huh. MR. ANDAYA. . .its questionable whether we should tax it with DST at all, even the question of imposing final withholding tax has been raised as an issue. THE CHAIRMAN. If I had it my way, Ill cut it by half. MR. ANDAYA. Yeah, but I guess concerning the constraint of government revenue, even the industry itself right now is not pushing in that direction, but in the long term, when most of us in this room are

gone, we hope that DST will disappear from the face of this earth, no. Now, I think the move of the DOF to expand the coverage of or to add that phrase, "Other evidence of indebtedness," it just removed ambiguity. When we testified earlier in the House on this very same bull, we did not interpose any objections if only for the sake of avoiding further ambiguity in the implementation of DST on deposits. Because of what has happened so far is, we dont know whether the examiner is gonna come in and say, "This savings deposit is not savings but its time deposit." So, I think what DOF has done is to eliminate any confusion. They said that a deposit that has a maturity. . . THE CHAIRMAN. Uh-huh. MR. ANDAYA. . . . which is time, in effect, regardless of what form it takes should be subject to DST. THE CHAIRMAN. Would that include savings deposit now? MR. ANDAYA. So that if we cloaked a deposit as savings deposit but it has got a fixed maturity . . . THE CHAIRMAN. Uh-huh. MR. ANDAYA. . . that would fall under the purview.37 (Underscoring supplied) Finally, as the records show, contrary to petitioners claim, it had been afforded the opportunity to protest the assessment notices as in fact it even requested for a re-investigation which is, given the nature of the present case, the essence of due process.38 WHEREFORE, the petition is DENIED. SO ORDERED. PEOPLE OF THE PHILIPPINES, appellee, vs. ALOMA REYES AND TRICHIA MAE REYES (AT LARGE), accused. ALOMA REYES, appellant. DECISION PUNO, J.: This is a direct appeal[1] from the Sentence[2] of the Regional Trial Court of Davao City, Branch 11, finding appellant Alamo Reyes guilty beyond reasonable doubt of estafa by postdating a bouncing check under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Presidential Decree No. 818, and sentencing her to an indeterminate penalty of six (6) years and one (1) day to twelve (12) years of prision mayor as minimum to thirty (30) years of reclusion perpetua as maximum.[3] Appellant claims that she issued the subject check in payment of a pre-existing obligation. Thus, her liability must be civil, not criminal. Private complainant Jules-Berne Alabastro counters that appellant, together with her daughter and co-accused Trichia Mae Reyes, issued him the check for rediscounting. He was allegedly lured to part with his money due to their seeming honest representations that the check was good and would never bounce. The following information dated May 26, 1999 was filed against the appellant and Trichia Mae Reyes:

That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with intent to defraud, willfully, unlawfully and feloniously issued to JULESBERNE I. ALABASTRO, Allied Bank, Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 in payment of an obligation, which the accused was able to obtain by reason of and simultaneously with the issuance of the said check, that when said check was presented to the drawee bank for encashment, the same was dishonored for the reason ACCOUNT CLOSED and after having been notified by such dishonor said accused failed and refused to redeem said check despite repeated demands, to the damage and prejudice of the complainant in the aforesaid amount. CONTRARY TO LAW.[4] A Warrant[5] for their arrest was subsequently issued. However, only appellant was arrested. She posted a cash bond for her provisional liberty.[6] Her co-accused had flown to Australia before her arrest warrant could be served. She remains at large. Appellant pleaded not guilty upon arraignment.[7] Trial ensued. Danilo Go, acting Branch Head of Allied Bank, Toril Branch, Davao City, testified for the prosecution. He presented an account ledger card[8] dated December 31, 1997. The account ledger card contained the transaction records of Allied Bank NOW (Negotiable Order of Withdrawal) Account No. 1333-00033-8 under the name Aloma Reyes and Trichia Mae Reyes[9] which was opened on January 27, 1997 and closed on March 26, 1997.[10] He explained that a NOW Account is a savings account where the drawer may issue checks payable only to a specific payee. A NOW check cannot be issued payable to BEARER. Hence, it cannot be further negotiated. Go identified the subject check as a NOW check issued under appellants NOW Account. It was presented for payment with Allied Bank, the drawee bank of appellant, on April 2, 1998 but was returned to Metrobank, the depository bank of private complainant, on April 3, 1998 for the reason ACCOUNT CLOSED.[11] On cross-examination, Go explained the other entries in the account ledger card. He reiterated that appellant only had a two-month transaction with Allied Bank under the NOW Account. On redirect examination, he identified another document[12] containing referral items. The document showed a list of NOW checks (the referral items) presented to Allied Bank for clearing after the NOW Account had been closed.[13] These referral items were not listed in the account ledger card which he previously presented because once an account is closed, no further entries are entered in the account ledger card. Private complainant Jules-Berne I. Alabastro was also presented by the prosecution. He testified that he was first introduced by Estrella Paulino to appellant and her daughter sometime in 1996 at his office in Davao City. The latter allegedly begged to have their personal checks discounted. Upon the assurance that their checks were good and considering that appellant and her sister used to be province mates of private complainants parents, he allegedly discounted more or less five or six checks. When asked to present the checks, he explained that he had returned the checks each time they bounce. Upon return, appellant replaced them with cash. He only had in his possession the subject check -- the only check that appellant has not replaced with cash.[14] He further testified that like the other checks which he previously discounted, he gave them cash for the subject check. When he deposited it to his account on its due date, it was dishonored by the drawee bank upon presentment for the reason ACCOUNT CLOSED.[15] He immediately notified appellant but the latter allegedly refused to replace it with cash.[16] He sent a demand letter by registered mail but appellant did not heed his demand. He thus filed the instant case.

On cross-examination, private complainant recounted that when he met appellant in 1996, she applied for a loan. He had also previously discounted five or six checks of appellant at varying amounts on different occasions. He, however, said that he was not a moneylender; he helped his wife in the flower shop business. He also refused to disclose the source of the money he used in allegedly discounting the subject P280,000.00-check. He said the source was quite personal.[17] To strengthen his rediscounting theory, private complainant averred that the subject check was complete when it was issued to him: his name, the signatures of appellant and her daughter, the date, and the amount of the subject check were already written on the instrument. He denied that he was the one who filled in the date and the amount of the subject check.[18] The defense presented the sole testimony of appellant. She admitted that she started borrowing money from private complainant in 1996 when she was still engaged in the wholesale of softdrinks. Whenever she borrowed money, she replaced it with checks. However, she suffered business reverses and closed shop. To pay her outstanding obligations with private complainant, the latter allegedly made her issue, in one and the same occasion, sixteen (16) NOW checks as installment payments. The first installment payment was to start at P6,000.00; the succeeding fifteen payments were to be at P13,000.00 each. The last installment was to fall on March 31, 1998. Appellant explained that the subject check was one of the sixteen (16) checks. Four (4) of these checks were offered in evidence and marked as exhibits.[19] None of the checks was supposed to exceed the amount of P13,000.00. Hence, during her arrest, she was surprised to learn for the first time about the P280,000.00-check. She got confused that there were two (2) NOW checks dated March 31, 1998: the subject check (Check No. 066815) with the amount of P280,000.00, and the other check (Check No. 066816),[20] with the amount of P13,000.00.[21] On cross-examination, she said that she could not produce the other eleven (11) of the sixteen (16) checks. She admitted signing the checks with her daughter but maintained that the maximum amount she agreed to pay for her obligation was P13,000.00 per check. When asked about a P2,000.00[22] check she issued as recorded in her account ledger card, she said that she probably issued it when her business was still good.[23] She also claimed that she was not able to receive the demand letter sent to her home address. Most of the times, she was in the farm.[24] On re-direct examination, appellant claimed that it was private complainant who wrote the date and the amount in the subject check. She alleged that he was also the one who filled in the dates and the amounts on the other checks on exhibit. She allegedly authorized private complainant to fill in the blank entries for the dates and the amounts because she was grateful that the latter assented to the payment arrangement of P13,000.00 per installment. Furthermore, it was private complainant who would schedule the payment dates.[25] Appellants outstanding obligation was allegedly P232,000.00 when she delivered the instruments. She placed all sixteen (16) checks on the office table of private complainant. They were already signed by her and her daughter. Private complainant thereafter wrote the dates and the amounts. She did not examine the checks after private complainant filled in the dates and the amounts. She was also not aware if private complainant wrote P280,000.00 on the subject check. She allegedly only saw him write P13,000.00 on the checks.[26] On rebuttal, private complainant maintained that the subject check was complete when it was handed to him for rediscounting. He did not know who filled in the date and the amount. He countered that it was appellants and her daughters signatures that were missing. They signed the checks in his presence. He speculated that appellant probably needed a big amount for their softdrinks business at that time. When asked to explain why there were two checks similarly dated March 31, 1998, he merely stated that there was one check that bounced, Check No. 066815, in the

amount of P280,000.00[,] dated March 31, 1998.[27] The court a quo convicted appellant upon finding that the prosecution had sufficiently proven the essential elements of estafa. Hence, this appeal. Appellant raises the following Assignment of Errors: I THE TRIAL COURT SERIOUSLY ERRED IN TREATING THE NOW INSTRUMENT AS A CHECK WITHIN THE MEANING OF ARTICLE 315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE, CONSIDERING THAT IT IS A NON-NEGOTIABLE INSTRUMENT, THE SAME BEING PAYABLE ONLY TO THE PERSON SPECIFIED THEREIN AND CANNOT BE MADE PAYABLE TO BEARER OR CASH OR BE INDORSED TO A THIRD PERSON. II ASSUMING ARGUENDO THAT THE NOW INSTRUMENT IS A CHECK WITHIN THE AMBIT OF ARTICLE 315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE, THE TRIAL COURT SERIOUSLY ERRED IN FINDING THAT FRAUD AND/OR DECEIT ATTENDED THE ISSUANCE OF THE NOW INSTRUMENT. FROM THE PROSECUTIONS AS WELL AS THE DEFENSES EVIDENCE GLARE (sic) THE FACT THAT: A. THE NOW INSTRUMENT, TOGETHER WITH THE OTHER NOW INSTRUMENTS, WAS ISSUED IN PAYMENT OF A PRE-EXISTING DEBT. THE NOW INSTRUMENT WAS A MERE EVIDENCE OF A LOAN OR SECURITY THEREOF SERVING THE SAME PURPOSE AS A PROMISSORY NOTE.

B.

III THE TRIAL COURT SERIOUSLY ERRED IN CONCLUDING THAT THE PROSECUTION SUFFICIENTLY PROVED THE ESSENTIAL ELEMENTS OF THE CRIME CHARGED. TO BE SURE, THE PROSECUTIONS EVIDENCE FELL SHORT OF THE DEGREE OF PROOF, THAT IS PROOF BEYOND REASONABLE DOUBT, REQUIRED BY LAW TO BE ESTABLISHED IN ORDER TO OVERCOME THE CONSTITUTIONALLY ENSHRINED PRESUMPTION OF INNOCENCE IN FAVOR OF ACCUSED-APPELLANT. VERILY: A. B. THE PROSECUTIONS EVIDENCE ARE SEVERELY FLAWED, AND, BY THEMSELVES, INSUFFICIENT AND UNRELIABLE. THE INCONSISTENCIES IN THE TESTIMONY OF THE DEFENSES LONE WITNESS ARE HARMLESS AND SHOULD NOT HAVE PREJUDICED THE DEFENSE IN LIGHT OF THE PRINCIPLE OF LAW THAT THE PROSECUTION MUST ESTABLISH THE GUILT OF THE ACCUSED BY THE STRENGTH OF ITS OWN EVIDENCE AND NOT ON THE WEAKNESS OF THE DEFENSES EVIDENCE OR LACK OF IT. THE PROSECUTIONS EVIDENCE DOES NOT FULFILL THE TEST OF MORAL CERTAINTY AND THEREFORE IS INSUFFICIENT TO SUPPORT A JUDGMENT OF CONVICTION.[28]

C.

We shall resolve the appeal by determining the pivotal issue: whether all the elements of estafa under Article 315, paragraph 2(d) of the Revised Penal Code were sufficiently established in the case at bar. Under Article 315, paragraph 2(d) of the Revised Penal Code, estafa is committed by any person who shall defraud another by false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud. It is committed with the following essential elements which must be proved to sustain a conviction: 1. postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; 2. lack of sufficiency of funds to cover the check; and 3. damage to the payee thereof.[29] Appellant avers that the subject check does not fall within the meaning of Section 185 of the Negotiable Instruments Law which defines a check as a bill of exchange drawn on a bank payable on demand. First, the NOW check is drawn against the savings, not the current account, of appellant. Second, it is payable only to a specific person or the payee and is not valid when made payable to BEARER or to CASH. [30] Appellant quotes the restriction written on the face of a NOW check: NOW shall be payable only to a specific person, natural or juridical. It is not valid when made payable to BEARER or to CASH or when [i]ndorsed by the payee to another person. Only the payee can encash this NOW with the drawee bank or deposit it in his account with the drawee bank or with any other bank. Appellant posits that this condition strips the subject check the character of negotiability. Hence, it is not a negotiable instrument under the Negotiable Instruments Law, and not the check contemplated in Criminal Law.[31] We disagree. Section X223 of the Manual of Regulations for Banks defines Negotiable Order of Withdrawal (NOW) Accounts as interest-bearing deposit accounts that combine the payable on demand feature of checks and the investment feature of savings accounts. The fact that a NOW check shall be payable only to a specific person, and not valid when made payable to BEARER or to CASH or when indorsed by the payee to another person, is inconsequential. The same restriction is produced when a check is crossed: only the payee named in the check may deposit it in his bank account. If a third person accepts a cross check and pays cash for its value despite the warning of the crossing, he cannot be considered in good faith and thus not a holder in due course. The purpose of the crossing is to ensure that the check will be encashed by the rightful payee only.[32] Yet, despite the restriction on the negotiability of cross checks, we held that they are negotiable instruments.[33] To be sure, negotiability is not the gravamen of the crime of estafa through bouncing checks. It is the fraud or deceit employed by the accused in issuing a worthless check that is penalized. Deceit, to constitute estafa, should be the efficient cause of defraudation. It must have been committed either prior or simultaneous with the defraudation complained of.[34] There must be concomitance: the issuance of a check should be the means to obtain money or property from the payee. Hence, a check issued in payment of a pre-existing obligation does not constitute estafa even if there is no fund in the bank to cover the amount of the check.[35] Appellant maintains that the subject check was one of the sixteen (16) checks she issued at once

to private complainant in payment of a pre-existing obligation.[36] The court a quo however upheld private complainants theory that appellant issued him the subject check for rediscounting in February 1998, long after her account was closed on March 26, 1997. We reverse. While findings of fact of trial courts are accorded not only respect, but at times, finality, this rule admits of exceptions, as when there is a misappreciation of facts. The evidence on record debunks the rediscounting theory of private complainant. He did not part with his money out of the fraudulent assurances of appellant that the subject check was good and would never bounce. A careful examination of the records establishes that appellant issued him the subject check in payment of a pre-existing obligation. Both private complainant and appellant concur in their testimonies that they met sometime in 1996. Both parties also admit that at this point, appellant started borrowing money from private complainant. It cannot be denied that the subject check, like the four other NOW checks on exhibit, was issued and signed by the same persons and charged to the same NOW Account at Allied Bank. Private complainants theory that these checks were previously issued to him for rediscounting at different times is incredulous: Atty. Zamorax WitnessAtty. Zamorax The question is, how many checks were discounted for the accused. More or less 5 or 6 checks[?] x There were previous checks discounted but on different occasions.[37] xxx You said there were 5 or six checks discounted. You have list of those?

Atty. Alabastro- Already answered. No list.[38] It puzzles the Court that after the NOW check dated August 31, 1997 bounced on September 3, 1997 for the reason ACCOUNT CLOSED, private complainant would still discount appellants checks in succession. It baffles us more that private complainant would discount a P280,000.00check in February 1998 despite knowledge of the closure of appellants NOW Account. We held in Pacheco v. Court of Appeals[39] that there is no estafa through bouncing checks when it is shown that private complainant knew that the drawer did not have sufficient funds in the bank at the time the check was issued to him. Such knowledge negates the element of deceit and constitutes a defense in estafa through bouncing checks. In the case at bar, private complainant knew that appellant did not only have insufficient funds; he knew her NOW Account was closed at the time he allegedly discounted the subject check. This is proven by the following undisputed facts: First. Appellant presented four (4) NOW checks, each bearing the amount of P13,000.00, and respectively dated August 31, 1997, January 31, 1998, March 1, 1998 and March 31, 1998. The evidence on record shows that private complainant deposited the NOW check dated August 31, 1997 to his Metrobank account on September 1, 1997. On September 2, 1997, Metrobank returned the instrument to Allied Bank with the notation ACCOUNT CLOSED. Hence, as early as September 2, 1997, private complainant already knew that appellants NOW Account had been closed.[40] Second. Fatal to private complainants case are his own admissions as to when he received the subject check. In his Affidavit-Complaint[41] dated February 25, 1999, private complainant stated,

viz.: x x x That sometime in Feb. 1998, a certain ALOMA REYES AND TRICHIA MAE REYES x x x came to me and begged to have their personal check discounted with earnest representations that their check was good check and would never bounce and because of their seeming honest representations I was lured to discount their check which is --ALLIED BANK CHECK NO. 066815-A DATED MAR. 31, 1998 AMOUNTING TO P280,000.00. They handed the check to me and I simultaneously gave them the money;[42] (emphasis supplied) In the Information filed, it was stated, viz.: That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with intent to defraud, willfully, unlawfully and feloniously issued to JULES-BERNE I. ALABASTRO, Allied Bank, Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 x x x[43] (emphasis supplied) If the subject check was issued to him in February 1998, as he alleges, at that time he already knew that the NOW Account where the subject NOW check is charged was closed. The NOW checks on record are irrefragable pieces of evidence that private complainant knew the NOW Account was closed. In light of the established facts, private complainants rediscounting theory must fail. Appellant issued the subject check in payment of a pre-existing obligation. When the NOW Account was closed on March 26, 1997, private complainant already had in his possession the NOW check in question. It was one of the sixteen (16) NOW checks previously issued by private complainant before the closure of the NOW Account. No deceit or damage attended the transaction. There being none in the case at bar, there can be no estafa through bouncing checks. Despite the inconsistencies[44] in the testimony of appellant, these were minor and did not destroy her credibility nor shatter the theory of the defense. To be sure, the prosecution failed to prove the guilt of appellant beyond reasonable doubt. As a matter of right, the constitutional presumption of innocence of appellant must be favored regardless of the inconsistencies in her testimony or the weakness of her own defense. Appellant, however, is not without liability. An accused acquitted of estafa may be held civilly liable in the same case where the facts established by the evidence so warrant. In the case at bar, the records lack sufficient evidence to determine the amount of her remaining obligation. This Court is not a trier of facts and where the evidence on record is not sufficient to warrant a conclusion, the case should be remanded to the court a quo for reception of further evidence. IN VIEW WHEREOF, appellant Aloma Reyes is ACQUITTED of estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended. The assailed Sentence of the Regional Trial Court of Davao City, Branch 11, dated March 13, 2002 is REVERSED and SET ASIDE. The case is REMANDED to the court a quo for the determination of appellants civil liability. The Director of the Bureau of Corrections is DIRECTED to release her IMMEDIATELY unless she is being lawfully held for another offense. SO ORDERED.

[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 Certiorari under 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:!"#r$bl%! &'r(#l l#) l'br#r 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. 895280 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:!"#r$bl%! &'r(#l l#) l'br#r Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay:!"#r$bl%! &'r(#l l#) l'br#r 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; andcralawlibrary c.the cost. SO ORDERED. On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed Decision with modification, thus:!"#r$bl%! &'r(#l l#) l'br#r WHEREFORE, considering all the foregoing, this Court hereby modifies the decision of the trial court and adjudges BPI Family Bank liable to First Metro Investment Corporation for the amount of P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. Further, this 17% interest shall itself earn interest at 12% from October 4, 1989 until fully paid. SO ORDERED. BPI FB then filed a motion for reconsideration but was denied by the Court of Appeals. In the instant petition, BPI FB ascribes to the Appellate Court the following assignments of error:!"#r$bl%! &'r(#l l#) l'br#r 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 nonwithdrawable 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 !r&ll 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 !r&ll 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:!"#r$bl%! &'r(#l l#) l'br#r Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate ceiling. Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon withdrawal or in advance. Provided, however, That interest paid in advance shall not exceed the interest for one year. Thus, even assuming that respondents account with petitioner is a demand deposit, still it would earn interest. Going back to the unauthorized transfer of respondents funds to Tevesteco, in its attempt to evade any liability therefor, petitioner now impugns the validity of the subject agreement on the ground that its Branch Manager, Jaime Sebastian, overstepped the limits of his authority in accepting respondents deposit with 17% interest per annum.We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority.5 We reiterated this doctrine in Prudential Bank v. Court of Appeals,6 thus:!"#r$bl%! &'r(#l l#) l'br#r 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:!"#r$bl%! &'r(#l l#) l'br#r 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 !r&ll Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case No. 894996 (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.

G.R. No. 133179

March 27, 2008

ALLIED BANKING CORPORATION, Petitioner, vs. LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Respondents. DECISION VELASCO, JR., J.: To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they unwittingly expose themselves to great risks. The Case This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals (CAs) Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No. 6757. The Facts The facts as found by the RTC and affirmed by the CA are as follows: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983,3 as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4 On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, to issue a managers check representing the proceeds of the placement, and to give the check to one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the appearance of Santos so that So could easily identify her.6 Later, Santos arrived at the bank and signed the application form for a managers check to be issued.7 The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, as payee.8 The check was crosschecked "For Payees Account Only" and given to Santos.9 Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan as indorser.11 Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs account.12 Such deposit is evidenced by Official Receipt No. 31756813 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the placement.14 The placement matured on October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter

dated October 25, 1983.15 When the placement matured, FCC demanded the payment of the proceeds of the placement.16 On December 5, 1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCCs money market placement with Producers Bank.17 In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC. To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of endorsement guaranteed."18 The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wans purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC.19 On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9, 1984.20 On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it.21 She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving the proceeds thereof. She desisted from further complaints when she was assured by the banks manager that her money would be recovered.22 When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would not materialize, sent a demand letter to Allied asking for the payment of the first placement.24 Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its subsequent release to Santos.25 Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her second placement from Allied. Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint29 against Producers Bank. Summonses were duly served upon all the parties except for Santos, who was no longer connected with Producers Bank.30 On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on the check was forged.31 Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank agreed to release the amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the amount.32 Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with Allied.33 The RTC admitted the amended complaint despite the opposition of Metrobank.34 Consequently, Allieds third party complaint against Metrobank was converted into a cross-claim and the latters fourth party complaint against FCC was converted into a third party complaint.35 After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows: 1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid; 2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral damages; 3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorneys fees; and, 4. Ordering defendant Allied Bank to pay the costs of suit. Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED. Likewise defendant Metrobanks third-party complaint as against Filipinas Cement Corporation is DISMISSED. Filipinas Cement Corporations fourth-party complaint against Producers Bank is also DISMISSED. SO ORDERED.36 The Decision of the Court of Appeals Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC Decision, as follows: WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED. SO ORDERED.37 Hence, Allied filed the instant petition. The Issues Allied raises the following issues for our consideration: The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to preterminate the initial placement and to deliver the check to Deborah Santos. The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of amount adjudged demandable. The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the check, it being the collecting bank.38

The petition is partly meritorious. A Question of Fact Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the proceeds of Lim Sio Wans money market placement to Santos. Allied clearly raises a question of fact. When the CA affirms the findings of fact of the RTC, the factual findings of both courts are binding on this Court.39 We also agree with the CA when it said that it could not disturb the trial courts findings on the credibility of witness So inasmuch as it was the trial court that heard the witness and had the opportunity to observe closely her deportment and manner of testifying. Unless the trial court had plainly overlooked facts of substance or value, which, if considered, might affect the result of the case,40 we find it best to defer to the trial court on matters pertaining to credibility of witnesses. Additionally, this Court has held that the matter of negligence is also a factual question.41 Thus, the finding of the RTC, affirmed by the CA, that the respective parties were negligent in the exercise of their obligations is also conclusive upon this Court. The Liability of the Parties As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor. Articles 1953 and 1980 of the Civil Code provide: Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or mutuum.43 Further, we defined a money market in Cebu International Finance Corporation v. Court of Appeals, as follows: [A] money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan.44 Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished. Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:

Art. 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis supplied.) From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money market placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." As commented by Arturo Tolentino: Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it.45 (Emphasis supplied.) Since there was no effective payment of Lim Sio Wans money market placement, the bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof. We cannot, however, say outright that Allied is solely liable to Lim Sio Wan. Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It points out that Metrobank guaranteed all prior indorsements inscribed on the managers check, and without Metrobanks guarantee, the present controversy would never have occurred. According to Allied: Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is, aside from being an efficient intervening cause, also the last negligent act, x x x contributory to the injury caused in the present case, which thereby leads to the conclusion that it is the collecting bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff in the instant case.46 We are not persuaded. Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred."47 Thus, there is an efficient supervening event if the event breaks the sequence leading from the cause to the ultimate result. To determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is NO, then the

event is the proximate cause. In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the check would still be lost because of Metrobanks negligence in indorsing the check without verifying the genuineness of the indorsement thereon. Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides: Section 66. Liability of general indorser.Every indorser who indorses without qualification, warrants to all subsequent holders in due course; a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and b) That the instrument is at the time of his indorsement valid and subsisting; And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an instrument by delivery or by a qualified indorsement, warrants: a) That the instrument is genuine and in all respects what it purports to be; b) That he has a good title of it; c) That all prior parties had capacity to contract; d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other than bills and notes. (Emphasis supplied.) The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged. We held in a line of cases that "a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor."48 However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was attended with negligence. Thus, in the cases cited above where the collecting bank is generally held liable, in two of the cases where the checks were negligently issued, this Court held the institution issuing the check just as liable as or more liable than the collecting bank. In isolated cases where the checks were deposited in an account other than that of the payees on the

strength of forged indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,51 the checks were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.1avvphi1 However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of the amount on the face of the negotiable instrument and the collecting bank is liable for 40%. We also noted the relative negligence exhibited by two banks, to wit: Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged checks by an impostor. Both banks were not able to overcome the presumption of negligence in the selection and supervision of their employees. It was the gross negligence of the employees of both banks which resulted in the fraud and the subsequent loss. While it is true that petitioner BPIs negligence may have been the proximate cause of the loss, respondent CBCs negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate Appellate Courts, 148 SCRA 353 [1987]). Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52 Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank should equally share the liability for the loss of amount represented by the checks concerned due to the negligence of both parties: The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement.53 A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or institution which issued the check was held partially liable for the amount of the check was because of the negligence of these parties which resulted in the issuance of the checks. In the instant case, the trial court correctly found Allied negligent in issuing the managers check and in transmitting it to Santos without even a written authorization.54 In fact, Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have prevented the whole fraudulent transaction

from unfolding. Allieds negligence must be considered as the proximate cause of the resulting loss. To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check in the first place. The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations55 without verifying the authenticity of Lim Sio Wans indorsement and when it accepted the check despite the fact that it was cross-checked payable to payees account only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wans money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld. FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wans indorsement, can raise the real defense of forgery as against both banks.57 As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee has committed. Such provision of law does not apply to civil liability arising from delict. One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant case. Such liability on the part of the employer for the civil aspect of the criminal act of the employee is based on the conviction of the employee for a crime. Here, there has been no conviction for any crime. As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied correctly claims in its petition that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code, which provides: "Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just cause or legal ground, shall return the same to him."1avvphi1 The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience."58 In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another."59 In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-terminated and withdrawn without her consent. Moreover, the proceeds of the placement were deposited in Producers Banks account in Metrobank without any justification. In other words, there is no reason that the proceeds of Lim Sio Wans placement should be deposited in FCCs account purportedly as payment for FCCs money market placement and interest in Producers Bank.lavvphil With such payment, Producers Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts

the two latter banks are ordered to pay Lim Sio Wan. It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly enriched. It must be remembered that FCCs money market placement with Producers Bank was already due and demandable; thus, Producers Banks payment thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the indorsement on the check was forged cannot be raised against FCC which was not a part in any stage of the negotiation of the check. FCC was not unjustly enriched. From the facts of the instant case, we see that Santos could be the architect of the entire controversy. Unfortunately, since summons had not been served on Santos, the courts have not acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the instant case. Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12% interest per annum, moral damages, attorneys fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40. WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION. Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows: WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED. SO ORDERED. Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and independent of each other. SO ORDERED.

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs., COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents. DECISION 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 Firestones 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 plaintiffs 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 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 plaintiffs 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-Arcas 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 plaintiffs 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 defendants 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 defendants refusal to pay plaintiffs claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur litigation DATE

expenses and attorneys 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 nonnegotiable; 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] Petitioners complaint[4] 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 19[6] and 20[7] 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 depositors 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 petitioners 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 petitioners 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-Arcas special savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioners 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-Arcas 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 petitioners account, causing the alleged pecuniary damage subject of petitioners cause of action. At the outset, we note that petitioner admits that the withdrawal slips in question were nonnegotiable.[9] Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.[10] Petitioner 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 petitioners 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 latters 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 petitioners 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.

SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners, vs. THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, respondents. Gonzales, Batiller, Bilog & Associates for petitioners. Agcaoli & Associates for private respondent.

REGALADO, J.: Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and payments were effected by personal checks upon delivery. 1 Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Saving Account No. 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current Account No. 37-00066-7 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such arrangement for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. 2 The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following provisions: xxx xxx xxx 1. The transfer may be effected on the day following the overdrawing of the current account, but the check/s would be honored if the savings account has sufficient balance to cover the overdraft. 2. The regular charges on overdraft, and activity fees will be imposed by the Bank. 3. This is merely an accommodation on our part and we have the right, at all times and for any reason whatsoever, to refuse to effect transfer of funds at our sole and absolute option and discretion, reserving our right to terminate this arrangement at any time without written notice to you. 4. You hold CITYTRUST free and harmless for any and all omissions or oversight in executing this automatic transfer of funds; . . . 3 xxx xxx xxx On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for P50,576.00 payable to Petrophil Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. 5 The total sum of the two checks was P106,666.00. On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account

with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account No. 3700066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of P26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7 At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25, 8 and he likewise deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their current account by means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account No. 1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. 10 Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the bank dishonored the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. 12 George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customer service officer, had committed a "grave error". 13 On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an application for a manager's check so that the dishonored checks could be redeemed. Diaz then went to Petrophil to personally present the checks in payment for the two dishonored checks. 14 In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the two aforementioned checks were "inadvertently dishonored . . . due to operational error." Said letter was received by Petrophil on January 4, 1984. 15 On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the bank issued a certification clearing their name and paid them P1,000,000.00 as moral damages. 16 The bank did not act favorably on their demands, hence petitioners filed a complaint for damages on September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust. After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the complaint and the counterclaim. 17 On appeal, the Court of Appeals rendered judgment in CA-G.R. CV No. 25009 on October 9, 1989 affirming the decision of the trial court. 18 We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn

on a bank payable on demand. 19 Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money. 20 Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 21 In other words, the relationship between the bank and the depositor is that of a debtor and creditor. 22 By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. 23 Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages.
24

Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. 25 Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. 26 The present action for damages accordingly hinges on the resolution of the inquiry as to whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in question. In view of the factual findings of the two lower courts the correctness of which are challenged by what appear to be plausible, arguments, we feel that the same should properly be resolved by us. This would necessarily require us to inquire into both the savings and current accounts of petitioners in relation to the PAT arrangement. On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the available balance for Savings Account No. 1037001372 was P26,104.30 while Current Account No. 3700066-7 expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in the morning, petitioners, through George Moran, learned that P66,666.00 from Saving Account No. 1037001372 was transferred to their current account. Another P40,000.00 was transferred from Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by then sufficient to cover the two checks, it is asserted by petitioners that such fact should have prevented the dishonor of the checks. It appears, however, that it was not so. As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unit of Citytrust, detailed on the witness stand the standard clearing procedure adopted by respondent bank and the Philippine Clearing House Corporation, to wit:. Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs. Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation were drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks were made payable to Petrophil Corporation. On record, Petrophil Corporation presented these two (2) checks for clearing with PNB Pandacan Branch on December 14, 1983. Now in accordance with the bank, what would happen with these checks drawn with (sic) PNB on December 14, 1983?. A: So these checks will now be presented by PNB with the Philippine Clearing House on December 14, and then the Philippine Clearing House will process it until midnight of December 14. Citytrust will send a clearing representative to the Philippine Clearing House at around 2:00 o'clock in the morning of December 15 and then get the checks. The checks will now be processed at the Citytrust Computer at around 3:00 o'clock in the morning of December 14 (sic)but it will be processed for

balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27 Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since December 15, 1983 was the actual date when the checks were processed. As earlier stated, when petitioners' checks were dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372, which was the subject of the PAT agreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while Current Account No. 370006-7 had no available balance. It was only on December 15, 1983 at around ten o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks. Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider the fact that the witness himself admitted that he had no personal knowledge surrounding the dishonor of the two checks in question. Thus, although he knew the standard clearing procedure, it does not necessarily mean that the same procedure was adopted with regard to the two checks. We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in law that the ordinary course of business has been followed. In the absence of a contrary showing, it is presumed that the acts in question were in conformity with the usual conduct of business. In the case at bar, petitioners failed to present countervailing evidence to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by the bank since 1983. Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediately payment. 28 Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of their presentment on December 14, petitioners had, at the very least, twenty-four hours to replenish their balance in the bank. As previously noted, it was only during business hours in the morning of December 15, 1983, that P66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current Account No. 37-00066-7, and another P40,000.00 was transferred from Savings Account No. 1037002387 to the same current by a debit memorandum. Petitioners argue that if indeed the checks were dishonored in the early morning of December 15, 1983, the bank would not have automatically transferred P66,666.00 to said current account. They theorize that the checks having already been dishonored, there was no necessity to put into effect the pre-authorized transfer agreement. That theory is incorrect. When the transfer from both savings accounts to the current account were made, they were done in the hope that the checks may be retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not succeed in effectuating its good intentions. The transfers were made to preserve its relations with petitioners whom it knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the same was at all possible. Although not admitting fault, it tried its best to make sure that the checks would not bounce.

Under similar circumstances, it was held in Whitman vs. First National Bank 29 that a bank performs its full duty where, upon the receipt of a check drawn against an account in which there are insufficient funds to pay it in full, it endeavors to induce the drawer to make good his account so that the check can be paid, and failing in this, it protests the check on the following morning and notifies its correspondent bank by the telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to make the check good, and by notifying its correspondent of the dishonor of the check by telegram. Petitioners maintain that at the time the checks were dishonored, they had already deposited sufficient funds to cover said checks. To prove their point, petitioners quoted in their petition the following testimony of said witness Rionisto, to wit: Q: Now according to you, you would receive the checks from (being deposited to) the collecting bank which in this particular example was the Pandacan Branch of PNB which in turn will deliver it to the Philippine Clearing House and the Philippine Clearing House will deliver it to your office around 12:00 o'clock of December . . . ? A: Around 2:00 o'clock of December 15. We sent a clearing representative. Q: And the checks will be processed in accordance with the balance available as of December 14? A: Yes, sir. Q: And naturally you will place there "drawn against insufficient funds, December 14, 1983"? A: Yes, sir. Q: Are you sure about that? A: Yes, sir . . . (tsn, September 9, 1988, p. 14) 30 Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it did not jibe with his previous testimony, wherein he categorically stated that "the checks will now be processed as the Citytrust Computer at around 3:00 in the morning of December 14 (sic) but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing." 31 Analyzing the procedure he had previously explained, and analyzing his testimony in its entirety and not in truncated portions, it would logically and ineluctably appear that he actually meant December 15, and not December 14. In the early morning of every business day, prior to banking hours, the various branches of Citytrust would receive a computer printout called the "rejected transactions" report from the head office. The report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard branch, received said report in the early morning of December 15, 1983, the two checks involved were included in the "checks to be funded." That report was used by the bank as its basis in dishonoring the two checks in question. Petitioner contends that the bank erred when it did so because on previous occasions, the report was merely used by the bank as a basis for determining whether or not it was necessary to notify them of the need to deposit certain amounts in their accounts. Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the

report and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn, George Moran testified that he would deposit the necessary funds stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check written on the notices was ever dishonored after he had funded said checks with the bank. Thus, petitioner argues, the checks were not yet dishonored after the bank received the report in the early morning of December 15, 1983. Said argument does not persuade. If ever petitioners on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence non-compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the bank may lawfully refuse payment. 32 Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be expected to accept for payment either one of the two checks nor partially honor one check. A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has never existed. Upon partial payment, the check holder could not be called upon to surrender the check, and the bank would be without a voucher affording a certain means of showing the payment. The rule is based on commercial convenience, and any rule that would work such manifest inconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the bank of the payment of such amount when the check is taken up. 33 On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by a pre-arranged automatic transfer agreement, had enough amount deposited to cover both checks (which is not so in this case), the bank still had no obligation to honor said checks as there was then no authority given to it to make the transfer of funds. Where a depositor has two accounts with a bank, an open account and a savings account, and draws a check upon the open account for more money than the account contains, the bank may rightfully refuse to pay the check, and is under no duty to make up the deficiency from the savings account. 34 We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and correctly stated by said court, ". . . the letter is not an admission of liability as it was written merely to maintain the goodwill and continued patronage of plaintiff-appellants. (This) cannot be characterized as baseless, considering the totality of the circumstances surrounding its writing." 35 In the present case, the actions taken by the bank after the incident clearly show that there was neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branch manager, even went for this purpose to the Moran residence to facilitate their application for a manager's check. Later, he went to the Petrophil Corporation to personally redeem the checks. Still later, the letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake to construe that letter as an admission of guilt on the part of the bank. It knew that it was confronted with a client who obviously was not willing to admit any fault on his part, although the facts show otherwise. Thus,

respondent bank ran the risk of losing the business of an important and influential member of the financial community if it did not do anything to assuage the feelings of petitioners. It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, which fact, more than anything, displeased them, to say the least. On demand of petitioners that their names be cleared, the bank considered it more prudent to send the letter. It never realized that it would thereafter be used by petitioners as one of the bases of their legal action. It will be noted that there was no reason for the bank to send the letter to Petrophil Corporation since the latter was not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended to accommodate the request of the Morans and was part of the series of damage-control measures taken by the bank to placate petitioners. Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffsappellants (herein petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private respondent). As pointed out by the court a quo, it took plaintiffsappellants about six (6) months after the dishonor of the checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that time, plaintiffs-appellants had discovered the letter of Mr. Diaz attributing the dishonor of their checks to 'operational error'. The attempt to unduly ride on the letter of Mr. Diaz speaks for itself." 36 On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in handling the accounts entrusted to its care, 37 the bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude. 38 WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with costs against petitioners. SO ORDERED.