Citybank N.A. vs.

Cabamongan 488 SCRA 517 Digest

Citybank v. Cabamongan
488 SCRA 517
G.R. No. 146918 May 2, 2006

Bank negligent

Facts:

1. The Cabamongan spouses Luis and Carmelita are both based in California, USA. The
spouses opened a foreign currency time deposit account for their children with petitioner
CityBank with a 180-day term. An impostor who claimed to be Carmelita (wife) succeeded to
preterminate the time deposit after presenting passport, credit card and other identification.

2. The bank personnel who attended to the transaction ignored several red flags which could
have alerted the bank as to the real identity of the person claiming to be 'Carmelita'. For
one, she failed to present the certificate of time deposit, there was also a discrepancy in her
signature with that in the signature cards of the bank. Finally, the photo in the bank's file did
not look like this person claiming to be Carmelita. Despite all these irregularities, the bank
went through with the transaction, which only took 40 minutes. The document waiver which
the impostor signed was also not notarized, as required under bank's procedures.

3. To the aghast of the spouses, they only came to learn of the incident through a daughter-
in-law who called them up in the US. Apparently, a break-in occurred previously in their US
residence and several important documents were lost to the thief. The spouses demanded
payment from the bank who refused. Hence the filing of the suit against petitioner bank.

4. The spouses presented a PNP Document Examiner expert who analysed the signature and
concluded that the signature was forged, hence the discrepancy between the signature of
the impostor and the one written in the signature cards held by the bank.

4. The trial court ruled in favor of the spouses Cabamongan, held the bank negligent and
awarded actual, moral and exemplary damages. The bank appealed to the CA which
affirmed the lower court's decision. Both parties filed a petition for review on certiorari
before the SC where the petitioner insisted that it Carmela who preterminated the TD
despite claims to the contrary, while the Cabamongan spouses contended that Citybank's
negligence was established by evidence.

Issue: Whether or not the bank is negligent and therefor should be held liable
when it allowed the pretermination of the TD in favor of the impostor

HELD:
YES. The bank was indeed negligent as it failed to exercise the highest degree of care and
diligence required of it. The banking business is impressed with public interest and of
paramount importance thereto is the trust and confidence of the public in general. The Court
has held that the bank "is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was
forged." (San Carlos Milling Ltd. vs. BPI)

It has been sufficiently shown that the signatures of Carmelita in the pretermination were
forged. The petitioner, even with its signature verification procedure failed to detect the
forgeries. Citybank cannot label its negligence as mere error. For not exercising the degree
of diligence required of banking institutions, it is liable for damages.