G.R. No. 155033. December 19, 2007.
*
1. ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I. SANDEJAS and
BENJAMIN A.I. ESPIRITU, petitioners, vs. SPS. ARTURO IGNACIO, JR. and EVELYN
IGNACIO, respondents.
Appeals; Certiorari; Only questions of law are entertained in petitions for review on certiorari
under Rule 45 of the Rules of Court, and the trial courts findings of fact, which the Court of Appeals
affirmed, are generally binding and conclusive upon the Supreme Court; Exceptions.The Court
agrees with respondents that only questions of law are entertained in petitions for review
on certiorari under Rule 45 of the Rules of Court. The trial courts findings of fact, which the Court
of Appeals affirmed, are generally binding and conclusive upon this court. There are recognized
exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises
or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave
abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of
facts are conflicting; (6) there is no citation of specific evidence on which the factual findings are
based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8)
the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly
overlooked certain relevant and undisputed facts that, if properly considered, would justify a
different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such
findings are contrary to the admissions of both parties. In the instant case, petitioners failed to
demonstrate that their petition falls under any one of the above exceptions.
Rule of Law; Family Code; Attorneys; In a civilized society such as ours, the rule of law should
always prevailto allow otherwise would be productive of nothing but mischief, chaos and anarchy;
A lawyer-party who has sworn to uphold the rule of law should know better than simply take the
law into her own handsshe must go to court for relief; While Article 151 of the Family Code
requires that earnest efforts towards a compromise be made before family members
_______________
*THIRD DIVISION.
62
6 SUPREME COURT REPORTS ANNOTATED
2 the counterclaim, such that the conduct of separate trials of the respective claims of the parties
Sandejas vs. Ignacio, Jr.
can institute suits against each other, nothing in the law sanctions or allows the commission
of or resort to any extra-legal or illegal measure or remedy in order for family members to avoid the
filing of suits against another family member for the enforcement or protection of their respective
rights.Petitioners posture is not sanctioned by law. If they truly believe that Arturo took
advantage of and violated the rights of Rosita, petitioners should have sought redress from the
courts and should not have simply taken the law into their own hands. Our laws are replete with
specific remedies designed to provide relief for the violation of ones rights. In the instant case,
Rosita could have immediately filed an action for the nullification of the sale of the building she
owns in light of petitioners claim that the document bearing her conformity to the sale of the said
building was taken by Arturo from her without her knowledge and consent. Or, in the alternative,
as the CA correctly held, she could have brought a suit for the collection of a sum of money to
recover her share in the sale of her property in Morayta. In a civilized society such as ours, the rule
of law should always prevail. To allow otherwise would be productive of nothing but mischief, chaos
and anarchy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better. She
must go to court for relief. It is true that Article 151 of the Family Code requires that earnest
efforts towards a compromise be made before family members can institute suits against each
other. However, nothing in the law sanctions or allows the commission of or resort to any extra-
legal or illegal measure or remedy in order for family members to avoid the filing of suits against
another family member for the enforcement or protection of their respective rights.
Principle of Pari Delicto; Words and Phrases; The principle of pari delicto provides that when
two parties are equally at fault, the law leaves them as they are and denies recovery by either one of
them.Petitioners invoke the rule of pari delicto to support their contention that respondents do
not deserve any relief from the courts. The principle of pari delicto provides that when two parties
are equally at fault, the law leaves them as they are and denies recovery by either one of them.
Indeed, one who seeks equity and justice must come to court with clean hands. However, in the
present case, petitioners were not able to establish that respondents are also at fault. Thus, the
principle of pari delictocannot apply.
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VOL. 541, DECEMBER 19, 2007 6
3
Sandejas vs. Ignacio, Jr.
Same; Exceptions; One of the exceptions to the pari delicto principle is where the application of
the pari delicto rule would violate well-established public policy.The application of the pari
delicto principle is not absolute, as there are exceptions to its application. One of these exceptions
is where the application of the pari delicto rule would violate well-established public policy. The
prevention of lawlessness and the maintenance of peace and order are established public policies.
In the instant case, to deny respondents relief on the ground of pari delicto would put a premium
on the illegal act of petitioners in taking from respondents what the former claim to be rightfully
theirs.
Actions; Counterclaims; Tests to Determine Whether Counter-claim Compulsory or Not.
Petitioners also question the trial courts ruling that their counterclaim is permissive. This Court
has laid down the following tests to determine whether a counterclaim is compulsory or not, to wit:
(1) Are the issues of fact or law raised by the claim and the counterclaim largely the same? (2)
Would res judicata bar a subsequent suit on defendants claims, absent the compulsory
counterclaim rule? (3) Will substantially the same evidence support or refute plaintiffs claim as
well as the defendants counterclaim? and (4) Is there any logical relation between the claim and
would entail a substantial duplication of effort and time by the parties and the court? Tested
against the above-mentioned criteria, this Court agrees with the view of the RTC that Rositas
counterclaim for the recovery of her alleged share in the sale of the Morayta property is permissive
in nature. The evidence needed to prove respondents claim to recover the amount of P3,000,000.00
from petitioners is different from that required to establish Rositas demands for the recovery of
her alleged share in the sale of the subject Morayta property. The recovery of respondents claim is
not contingent or dependent upon the establishment of Rositas counterclaim such that conducting
separate trials will not result in the substantial duplication of the time and effort of the court and
the parties.
Filing Fees; Rules.In Sun Insurance Office, Ltd., (SIOL) v. Asuncion, 170 SCRA 274 (1989),
this Court laid down the rules on the payment of filing fees, to wit: 1. It is not simply the filing of
the complaint or appropriate initiatory pleading, but the payment of the
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6 SUPREME COURT REPORTS ANNOTATED
4
Sandejas vs. Ignacio, Jr.
 prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or
nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of
the docket fee, the court may allow payment of the fee within a reasonable time but in no case
beyond the applicable prescriptive or reglementary period. 2. The same rule applies to permissive
counterclaims, third-party claims and similar pleadings, which shall not be considered filed until
and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee
within a reasonable time but also in no case beyond its applicable prescriptive or reglementary
period. 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim
not specified in the pleading, or if specified the same has been left for determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment. It shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee.
Judgments; Jurisdictions; It is settled that any decision rendered without jurisdiction is a
total nullity and may be struck down at any time, even on appeal before this Court.In order for
the trial court to acquire jurisdiction over her permissive counterclaim, Rosita is bound to pay the
prescribed docket fees. Since it is not disputed that Rosita never paid the docket and filing fees, the
RTC did not acquire jurisdiction over her permissive counterclaim. Nonetheless, the trial court
ruled on the merits of Rositas permissive counter-claim by dismissing the same on the ground that
she failed to establish that there is a sharing agreement between her and Arturo with respect to
the proceeds of the sale of the subject Morayta property and that the amount of P3,000,000.00
represented by the check which Rosita and Alice encashed formed part of the proceeds of the said
sale. It is settled that any decision rendered without jurisdiction is a total nullity and may be
struck down at any time, even on appeal before this Court. In the present case, considering that
the trial court did not acquire jurisdiction over the permissive counterclaim of Rosita, any
proceeding taken up by the trial court and any ruling or judgment rendered in relation to such
counterclaim is considered null and void. In effect, Rosita may file a separate action against Arturo
for recovery of a sum of money.
65
VOL. 541, DECEMBER 19, 2007 6 62404promulgated on August 27, 2002, which affirmed with modification the Decision of
5 the Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil Case No. 65146 dated
Sandejas vs. Ignacio, Jr.
Damages; A resort to judicial processes is not, per se, evidence of ill will upon which a claim
for damages may be based.A resort to judicial processes is not, per se, evidence of ill will upon
which a claim for damages may be based. In China Banking Corporation v. Court of Appeals, 231
SCRA 472 (1994), this Court held: Settled in our jurisprudence is the rule that moral damages
cannot be recovered from a person who has filed a complaint against another in good faith, or
without malice or bad faith (Philippine National Bank v. Court of Appeals, 159 SCRA 433 [1988]; R
& B Surety and Insurance v. Intermediate Appellate Court, 129 SCRA 736 [1984]). If damage
results from the filing of the complaint, it is damnum absque injuria (Ilocos Norte Electrical
Company v. Court of Appeals, 179 SCRA 5 [1989]).
Banks and Banking; The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized societybanks have
attained a ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and most of all, confidence, and it is for this reason, banks should guard against
injury attributable to negligence or bad faith on its part.As to moral damages, Article 20 of the
Civil Code provides that every person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same. In addition, Article 2219 (10) of the Civil Code
provides that moral damages may be recovered in acts or actions referred to in Articles 21, 26, 27,
28, 29, 30, 32, 34 and 35 of the same Code. More particularly, Article 21 of the said Code provides
that any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs, or public policy shall compensate the latter for the damage. In the present
case, the act of Alice and Rosita in fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public policy that no one should put the
law into his own hands. As to SBTC and its officers, their negligence is so gross as to amount to a
willfull injury to respondents. The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as active instruments of business and
commerce, banks have attained a ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and most of all, confidence.
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6 SUPREME COURT REPORTS ANNOTATED
6
Sandejas vs. Ignacio, Jr.
For this reason, banks should guard against injury attributable to negligence or bad faith on
its part.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Renato G. Dela Cruz & Associates for petitioners.
Alfredo Sanz and Dante H. Cortez for respondents.
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorariunder Rule 45 of the Rules of
Court assailing the Decision of the Court of Appeals (CA) in CA-G.R. CV No.
1
December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs [petitioners] evidence that Arturo [respondent] is the elder brother
of Alice [petitioner] and Rosita [petitioner], Benjamin [petitioner] and Patricia [petitioner] are
Arturos nephew and niece. Arturo and his wife Evelyn [respondent] are residents of the United
States. In October 1993, Arturo leased from Dr. Borja a condominium unit identified as Unit 28-C
Gilmore Townhomes located at Granada St., Quezon City. The lease was for the benefit of
Benjamin who is the occupant of the unit. The rentals were paid by Ignacio. The term of the lease
is for one (1) year and will expire on October 15, 1994. It appears that Arturo was intending to
renew the lease contract. As he had to leave for the U.S., Arturo drew up a check, UCPB Check No.
GRH-560239 and
_______________
1 Penned by Justice Amelita G. Tolentino with the concurrence of Justices Ruben T. Reyes (now a member of this Court)
and Renato C. Dacudao; Rollo, pp. 121-137.
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VOL. 541, DECEMBER 19, 2007 67
Sandejas vs. Ignacio, Jr.
wrote on it the name of the payee, Dr. Manuel Borja, but left blank the date and amount. He After trial, the RTC rendered judgment dated December 18, 1998 with the following
signed the check. The check was intended as payment for the renewal of the lease. The date and dispositive portion:
the amount were left blank because Arturo does not know when it will be renewed and the new WHEREFORE, in view of the foregoing, judgment is rendered in favor of plaintiffs as against
rate of the lease. The check was left with Arturos sister-in-law, who was instructed to deliver or defendants Security Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice A.I. Sandejas
give it to Benjamin. and Rosita A.I. Cusi, ordering them to pay jointly and severally the plaintiffs the following
The check later came to the possession of Alice who felt that Arturo cheated their sister in the amounts:
amount of three million pesos (P3,000,000.00). She believed that Arturo and Rosita had a joint
and/or money market placement in the amount of P3 million with the UCPB branch at Ortigas
1. (1)P3,000,000.00 plus legal interest on it from March 17, 1995 until the entire amount is
Ave., San Juan and that Ignacio pre-terminated the placement and ran away with it, which
fully paid;
rightfully belonged to Rosita. Alice then inquired from UCPB Greenhills branch if Arturo still has
2. (2)P500,000.00 as moral damages;
an account with them. On getting a confirmation, she together with Rosita drew up a scheme to
3. (3)P200,000.00 as exemplary damages;
recover the P3 million from Arturo. Alice filled up the date of the check with March 17, 1995 and
4. (4)P300,000.00 as attorneys fees; plus
the amount with three million only. Alice got her driver, Kudera, to stand as the payee of the
5. (5)the cost of suit.
check, Dr. Borja. Alice and Rosita came to SBC Greenhills Branch together with a man (Kudera)
2

who[m] they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said
man as Dr. Borja, Rosita, Alice and the man who was later identified as Kudera opened a Joint _______________
Savings Account No. 271-410554-7. As initial deposit for the Joint Savings Account, Alice, Rosita
and Kudera deposited the check. No ID card was required of Mr. Kudera because it is an internal 3RTC Decision, Rollo, pp. 110-111.
policy of the bank that when a valued client opens an account, an identification card is no longer 69
required (TSN, April 21, 1997, pp. 15-16). SBC also allowed the check to be deposited without the VOL. 541, DECEMBER 19, 2007 69
endorsement of the impostor Kudera. SBC officials stamped on the dorsal portion of the check Sandejas vs. Ignacio, Jr.
endorsement/lack of endorsement guaranteed and sent the check for clearing to the Philippine In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount of P100,000.00 as moral
Clearing House Corporation. damages, P50,000.00 as exemplary damages and another P50,000.00 as attorneys fees.
On 21 March 1995, after the check had already been cleared by the drawer bank UCPB, Rosita The counterclaims of Patricia A.I. Sandejas are dismissed.
withdrew P1 million from Joint Savings Account and deposited said amount to the current account SO ORDERED. 4

of Alice with SBC Greenhills Branch. On the same date, Alice caused the transfer of P2 million
Both parties appealed the RTC Decision to the CA.
from the Joint Savings Account to two (2)
_______________ On August 14, 1999, during the pendency of the appeal with the CA, herein
respondent Arturo Ignacio, Jr. (Arturo) died. 5

2 Security Bank and Trust Company. On August 27, 2002, the CA promulgated the presently assailed Decision, disposing
68 as follows:
68 SUPREME COURT REPORTS ANNOTATED WHEREFORE, in view of the foregoing, the assailed decision of the trial court is hereby
Sandejas vs. Ignacio, Jr. AFFIRMED with the MODIFICATION that the judgment shall read as follows: The defendants-
Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia. ... appellants Security Bank and Trust Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice A.I.
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the identity of the persons Sandejas, and Rosita A.I. Cusi, are hereby ordered to jointly and severally pay the plaintiffs the
and the circumstances surrounding the deposit and withdrawal of the check, the three million following amounts:
pesos in the two investment savings account[s] and in the current account just opened with SBC
were withdrawn by Alice and Rosita. 3 1. 1.P3,000,000.00 plus legal interest computed from March 17, 1995 until the entire amount
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a verified is fully paid;
complaint for recovery of a sum of money and damages against Security Bank and Trust 2. 2.P200,000.00 as moral damages;
3. 3.P100,000.00 as exemplary damages;
Company (SBTC) and its officers, namely: Rene Colin D. Gray, Manager; and Sonia
4. 4.P50,000.00 as attorneys fees; plus
Ortiz-Luis, Cashier. The complaint also impleaded herein petitioner Benjamin A.I. 5. 5.the costs of suit.
Espiritu (Benjamin), a John Doe, representing himself as Manuel N. Borja; and a Jane
Doe.
The award of moral damages, exemplary damages, and attorneys fees in favor of Benjamin
On November 7, 1995, the complaint was amended by additionally impleading herein Espiritu is DELETED.
petitioners Alice A.I. Sandejas (Alice), Rosita A.I. Cusi (Rosita) and Patricia A.I. Sandejas SO ORDERED. 6

(Patricia) as defendants who filed their respective answers and counterclaims. Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their respective petitions
for review before this Court.
_______________
Rollo, pp. 118-119.
4
5CA Rollo, pp. 100-102.
6Id., at p. 520.
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70 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R. No. 155038,
was denied in a Resolution issued by this Court on November 20, 2002, for their failure to
7
properly verify the petition, submit a valid certification of non-forum shopping, and
attach to the petition the duplicate original or certified true copy of the assailed CA
Decision. Said Resolution became final and executory on April 9, 2003.8
On the other hand, the instant petition was given due course. Petitioners enumerated
the following grounds in support of their petition:
1. I.THE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE
NOT HERETOFORE DECIDED BY THIS COURT AND/OR HAD DECIDED IT
IN A WAY PROBABLY NOT IN ACCORD WITH EQUITY, THE LAW AND
THE APPLICABLE DECISIONS OF THIS COURT, SUCH AS:
1. (a)IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED
SIBLING HAS THE RIGHT TO TAKE MEASURES OR STEPS TO PROTECT
HIS OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE
GUILTY SIBLING;
2. (b)IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN FILLING
OUT THE BLANK PORTIONS OF THE CHECK TO RECOVER WHAT
ARTURO, JR. TOOK FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN
ACTIONABLE TORT;
3. (c)IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN
SUBMITTING AN AFFIDAVIT OF LOSS OF THE CERTIFICATE OF TIME
DEPOSIT FOR P3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA
JUST TO BE ABLE TO PRE-TERMINATE THE TIME DEPOSIT AND GET
ITS FACE VALUE, WHEN HE KNEW IT WAS NOT LOST BUT IN FACT
INTACT AND IN THE POSSESSION OF ROSITA, IS A DISHONEST AND
REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND ALICE IN TAK-
_______________
7Id., at p. 539.
CA Rollo, p. 542.
8
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VOL. 541, DECEMBER 19, 2007 71
Sandejas vs. Ignacio, Jr.
1. ING MEANS TO REGAIN THE MONEY AND TO DENY ARTURO, JR. ANY
RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO AN AWARD OF
DAMAGES;
2. (d)IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN
SUBMITTING AN AFFIDAVIT OF LOSS OF THE OWNERS COPY OF THE
TITLE IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH, WHEN
THAT IS NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL OWNERS
COPY OF THE TITLE WAS WITH ROSITA, IS ANOTHER DISHONEST AND
REPREHENSIBLE ACT THAT SHOULD NOT HAVE ENTITLED HIM TO
ANY AWARD OF DAMAGES; AND
3. (e)IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412 OF
THE CIVIL CODE.
1. II.THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE
OF JUDICIAL PROCEEDINGS WHEN IT FAILED TO RESOLVE IN THE
APPEAL THE COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR
THE RECOVERY OF THE AMOUNTS LEGALLY HERS THAT SHOULD
JUSTIFY ALICES BEING ABSOLVED FROM ANY LIABILITY FOR USING
THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY BELONGING
TO ROSITA;
2. III.THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE
OF JUDICIAL PROCEEDINGS WHEN IT REVERSED THE TRIAL COURTS
FINDING THAT RESPONDENT WAS GUILTY OF BAD FAITH AND
MALICE THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO
THE AWARD OF DAMAGES NOTWITHSTANDING THAT THERE WAS
AMPLE EVIDENCE SHOWN THAT SUCH BAD FAITH AND MALICE WAS
MADE AS A LEVERAGE TO COMPEL ARTUROS SIBLINGS TO RETURN
TO HIM THE P3,000,000 WHICH WAS NOT HIS; and,
3. IV.THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN ACCORD
WITH LAW WHEN IT DELETED THE AWARD OF DAMAGES TO
PETITIONER ESPIRITU AND IN NOT HAVING RULED THAT HE WAS
ENTITLED TO A HIGHER AWARD OF DAMAGES CONSIDERING THE
CIRCUMSTANCES OF THE
72
72 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
1. CASE AS WELL AS IN NOT HAVING RULED THAT PATRICIA WAS
ENTITLED TO AN AWARD OF DAMAGES.
9
Petitioners argue that the CA overlooked and ignored vital pieces of evidence showing
that the encashment of the subject check was not fraudulent and, on the contrary, was
justified under the circumstances; and that such encashment did not amount to an
actionable tort and that it merely called for the application of the civil law rule on pari
delicto.
In support of these arguments, petitioners contend that the principal adversaries in
the present case are full blooded siblings; that the law recognizes the solidarity of family
which is why it is made a condition that earnest efforts towards a compromise be exerted
before one family member can institute a suit against the other; that even if Arturo
previously defrauded Rosita and deprived her of her lawful share in the sale of her
property, petitioners Rosita and Alice did not precipitately file suit against him and
instead took extra-legal measures to protect Rositas property rights and at the same
time preserve the solidarity of their family and save it from public embarrassment.
Petitioners also aver that Rositas and Alices act of encashing the subject check is not
fraudulent because they did not have any unlawful intent and that they merely took from
Arturo what rightfully belonged to Rosita. Petitioners contend that even granting that
the act of Rosita and Alice amounted to an actionable tort, they could not be adjudged
liable to return the amount to respondents or to pay damages in their favor, because the
civil law rule on pari delicto dictates that, when both parties are at fault, neither of them
could expect positive relief from courts of justice and, instead, are left in the state where
they were at the time of the filing of the case.
Petitioners also contend that the CA erred in failing to award damages to Patricia
even if the appellate court sustained the trial courts finding that she was not a party to
the
_______________
9Petition, Rollo, pp. 17-18.
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VOL. 541, DECEMBER 19, 2007 73
Sandejas vs. Ignacio, Jr.
fraudulent acts committed by Rosita and Alice. Petitioners argue that even if Patricia did
not bother to know the details of the cases against her and left everything to her mother,
she did not even know the nature of the case against her, or her superiors in the bank
where she worked did not know whether she was the plaintiff or defendant, these were
not reasons to deny her award of damages. The fact remains that she had been
maliciously dragged into the case, and that the suit had adversely affected her work and
caused her mental worries and anguish, besmirched reputation, embarrassment and
humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the award of
damages and attorneys fees in his favor. Petitioners assert that the trial court found that
Benjamin suffered mental anguish, wounded feelings and moral shock as a result of the
filing of the present case. Citing the credentials and social standing of Benjamin,
petitioners claim that the award of damages and attorneys fees in his favor should be
increased.
Lastly, petitioners contend that the award of damages and attorneys fees to
respondents should be deleted for their failure to establish malice or bad faith on the part
of petitioners Alice and Rosita in recovering the P3,000,000.00 which Arturo took from
Rosita; and that it is Rosita who is entitled to damages and attorneys fees for Arturos
failure and refusal to give her share in the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues raised by
petitioners are factual in nature and that the settled rule is that questions of fact are not
subject to review by the Supreme Court in a petition for review on certiorari under Rule
45 of the Rules of Court. While there are exceptions to this rule, respondents assert that
petitioners failed to show that the instant case falls under any of these exceptions.
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74 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
The Courts Ruling
The Court finds the petition bereft of merit. There is no compelling reason for the Court
to disturb the findings of facts of the lower courts.
The trial courts findings are as follows: (1) Rosita failed to establish that there is an
agreement between her and Arturo that the latter will give her one-third of the proceeds
of the sale of the Morayta property; (2) petitioners were not able to establish by clear and
sufficient evidence that the P3,000,000.00 which they took from Arturo when they
encashed the subject check was part of the proceeds of the sale of the Morayta property;
(3) Rositas counterclaim is permissive and she failed to pay the full docket and filing fees
for her counterclaim.
10
Petitioners challenge the findings of the RTC and insist that they should not be held
liable for encashing the subject check because Arturo defrauded Rosita and that he
committed deceitful acts which deprived her of her rightful share in the sale of her
building in Morayta; that the amount of P3,000,000.00 represented by the check which
they encashed formed part of the proceeds of the said sale; that Alice and Rosita were
merely moved by their desire to recover from Arturo, Rositas supposed share in the sale
of her property.
However, the Court agrees with respondents that only questions of law are
entertained in petitions for review on certiorari under Rule 45 of the Rules of Court. The 11
trial courts findings of fact, which the Court of Appeals affirmed, are generally binding
and conclusive upon this court. There are recognized exceptions to this rule, among
12
which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or
_______________
RTC Decision, Rollo, pp. 117-118.
10
Iron Bulk Shipping Phil. Co., Ltd. v. Remington Industrial Sales Corp., 462 Phil. 694, 703; 417 SCRA 229,
11
234 (2003).
Id., at pp. 703-704; p. 234.
12
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VOL. 541, DECEMBER 19, 2007 75
Sandejas vs. Ignacio, Jr.
impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the finding of absence of
facts is contradicted by the presence of evidence on record; (8) the findings of the CA are
contrary to the findings of the trial court; (9) the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different
conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such
findings are contrary to the admissions of both parties. In the instant case, petitioners
13
failed to demonstrate that their petition falls under any one of the above exceptions.
Petitioners assignments of errors boil down to the basic issue of whether or not Alice
and Rosita are justified in encashing the subject check given the factual circumstances
established in the present case.
Petitioners posture is not sanctioned by law. If they truly believe that Arturo took
advantage of and violated the rights of Rosita, petitioners should have sought redress
from the courts and should not have simply taken the law into their own hands. Our laws
are replete with specific remedies designed to provide relief for the violation of ones
rights. In the instant case, Rosita could have immediately filed an action for the
nullification of the sale of the building she owns in light of petitioners claim that the
document bearing her conformity to the sale of the said building was taken by Arturo
from her without her knowledge and consent. Or, in the alternative, as the CA correctly
held, she could have brought a suit for the collection of a sum of money to recover her
share in the sale of her property in Morayta. In a civilized society such as ours, the rule
of law should always prevail. To allow otherwise would be productive of nothing but
mischief, chaos and anar-
_______________
Id., at p. 704; p. 234.
13
76
76 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
chy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better.
She must go to court for relief.
It is true that Article 151 of the Family Code requires that earnest efforts towards a
compromise be made before family members can institute suits against each other.
However, nothing in the law sanctions or allows the commission of or resort to any extra-
legal or illegal measure or remedy in order for family members to avoid the filing of suits
against another family member for the enforcement or protection of their respective
rights.
Petitioners invoke the rule of pari delicto to support their contention that respondents
do not deserve any relief from the courts.
The principle of pari delicto provides that when two parties are equally at fault, the
law leaves them as they are and denies recovery by either one of them. Indeed, one who
14
seeks equity and justice must come to court with clean hands. However, in the present
15
case, petitioners were not able to establish that respondents are also at fault. Thus, the
principle of pari delicto cannot apply.
In any case, the application of the pari delicto principle is not absolute, as there are
exceptions to its application. One of these exceptions is where the application of the pari
16
delicto rule would violate well-established public policy. The prevention of lawlessness
17
and the maintenance of peace and order are established public policies. In the instant
case, to deny respondents relief on the ground of pari delicto would
_______________
Yu Bun Guan v. Ong, 419 Phil. 845, 856; 367 SCRA 559, 569 (2001).
14
Tala Realty Services Corporation v. Banco Filipino Savings and Mortgage Bank, 441 Phil. 1, 45; 392
15
SCRA 506, 540 (2002).
Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492, 515, citing Silagan v.
16
Intermediate Appellate Court, 274 Phil. 182, 193; 196 SCRA 774, 785 (1991).
Id.
17
77
VOL. 541, DECEMBER 19, 2007 77
Sandejas vs. Ignacio, Jr.
put a premium on the illegal act of petitioners in taking from respondents what the
former claim to be rightfully theirs.
Petitioners also question the trial courts ruling that their counterclaim is permissive.
This Court has laid down the following tests to determine whether a counterclaim is
compulsory or not, to wit: (1) Are the issues of fact or law raised by the claim and the
counterclaim largely the same? (2) Would res judicata bar a subsequent suit on
defendants claims, absent the compulsory counterclaim rule? (3) Will substantially the
same evidence support or refute plaintiffs claim as well as the defendants counterclaim?
and (4) Is there any logical relation between the claim and the counterclaim, such that
the conduct of separate trials of the respective claims of the parties would entail a
substantial duplication of effort and time by the parties and the court? 18
Tested against the above-mentioned criteria, this Court agrees with the view of the
RTC that Rositas counterclaim for the recovery of her alleged share in the sale of the
Morayta property is permissive in nature. The evidence needed to prove respondents
claim to recover the amount of P3,000,000.00 from petitioners is different from that
required to establish Rositas demands for the recovery of her alleged share in the sale of
the subject Morayta property. The recovery of respondents claim is not contingent or
dependent upon the establishment of Rositas counterclaim such that conducting
separate trials will not result in the substantial duplication of the time and effort of the
court and the parties.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion, this Court laid down the rules on
19
the payment of filing fees, to wit:
_______________
Tan v. Kaakbay Finance Corporation, 452 Phil. 637, 647; 404 SCRA 518, 525 (2003), citing Intestate
18
Estate of Dalisay v. Hon. Marasigan, 327 Phil. 298, 301; 257 SCRA 509, 513 (1996) and Quintanilla v. Court of
Appeals, 344 Phil. 811, 819; 279 SCRA 397, 405-406 (1997).
G.R. Nos. 79937-38, February 13, 1989, 170 SCRA 274.
19
78
78 SUPREME COURT REPORTS ANNOTATED
 Sandejas vs. Ignacio, Jr.
1. 1.It is not simply the filing of the complaint or appropriate initiatory pleading,
but the payment of the prescribed docket fee, that vests a trial court with
jurisdiction over the subject-matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied by payment of the docket fee, the
court may allow payment of the fee within a reasonable time but in no case
beyond the applicable prescriptive or reglementary period.
2. 2.The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the filing
fee prescribed therefor is paid. The court may allow payment of said fee within a
reasonable time but also in no case beyond its applicable prescriptive or
reglementary period.
3. 3.Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee but, subsequently,
the judgment awards a claim not specified in the pleading, or if specified the
same has been left for determination by the court, the additional filing fee
therefor shall constitute a lien on the judgment. It shall be the responsibility of
the Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee. 20
In order for the trial court to acquire jurisdiction over her permissive counterclaim,
Rosita is bound to pay the prescribed docket fees. Since it is not disputed that Rosita
21
never paid the docket and filing fees, the RTC did not acquire jurisdiction over her
permissive counterclaim. Nonetheless, the trial court ruled on the merits of Rositas
permissive counter-claim by dismissing the same on the ground that she failed to
establish that there is a sharing agreement between her and Arturo with respect to the
proceeds of the sale of the subject Morayta property and that the amount of
P3,000,000.00 represented by the check which Rosita and Alice encashed formed part of
the proceeds of the said sale.
_______________
Id., at p. 285.
20
Suson v. Court of Appeals, 343 Phil. 816, 825; 278 SCRA 284, 290-291 (1997).
21
79
VOL. 541, DECEMBER 19, 2007 79
Sandejas vs. Ignacio, Jr.
It is settled that any decision rendered without jurisdiction is a total nullity and may be
struck down at any time, even on appeal before this Court. 22
In the present case, considering that the trial court did not acquire jurisdiction over
the permissive counterclaim of Rosita, any proceeding taken up by the trial court and
any ruling or judgment rendered in relation to such counterclaim is considered null and
void. In effect, Rosita may file a separate action against Arturo for recovery of a sum of
money.
However, Rositas claims for damages and attorneys fees are compulsory as they
necessarily arise as a result of the filing by respondents of their complaint. Being
compulsory in nature, payment of docket fees is not required. Nonetheless, since
23
petitioners are found to be liable to return to respondents the amount of P3,000,000.00 as
well as to pay moral and exemplary damages and attorneys fees, it necessarily follows
that Rositas counterclaim for damages and attorneys fees should be dismissed as
correctly done by the RTC and affirmed by the CA.
As to Patricias entitlement to damages, this Court has held that while no proof of
pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual basis of damages and its
causal connection to defendants acts. This is so because moral damages, though
24
incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the
_______________
Lopez v. David, Jr., G.R. No. 152145, March 30, 2004, 426 SCRA 535, 543.
22
Tan v. Kaakbay, supra note 18, at p. 648; p. 527.
23
Mahinay v. Velasquez, Jr., 464 Phil. 146, 149; 419 SCRA 118, 121 (2004), citing Kierulf v. Court of
24
Appeals, 336 Phil. 414, 431-432; 269 SCRA 433, 451 (1997).
80
80 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
wrongdoer. Moreover, additional facts must be pleaded and proven to warrant the grant
25
of moral damages under the Civil Code, these being, social humiliation, wounded
feelings, grave anxiety, etc. that resulted from the act being complained of. In the 26
present case, both the RTC and the CA were not convinced that Patricia is entitled to
damages. Quoting the RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the details of the case against her, she
left everything to the hands of her mother Alice. Her attitude towards the case appears weird, she
being a banker who seems so concerned of her reputation.
Aside from the parties to this case, her immediate superiors in the BPI knew that she is
involved in a case. They did not however know whether she is the plaintiff or the defendant in the
case. Further, they did not know the nature of the case that she is involved in. It appears that
Patricia has not suffered any of the injuries enumerated in Article 2217 of the Civil Code, thus, she
is not entitled to moral damages and attorneys fees. 27
This Court finds no cogent reason to depart from the above-quoted findings as Patricia
failed to satisfactorily show the existence of the factual basis for granting her moral
damages and the causal connection of such fact to the act of respondents in filing a
complaint against her.
In addition, and with respect to Benjamin, the Court agrees with the CA that in the
absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be
awarded. The adverse result of an action does not per se
28
_______________
25 Mahinay v. Velasquez, Jr., id., at pp. 149-150; p. 121; Kierulf v. Court of Appeals, id., at p. 432; p. 451.
 Mahinay v. Velasquez, Jr., id., at p. 150; p. 121; Kierulf v. Court of Appeals, id.
26
should put the law into his own hands. As to SBTC and its officers, their negligence is so
CA Rollo, p. 518.
gross as to amount to a willfull injury to respondents. The banking system has become an
27

Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28, 2004, 430
28

SCRA 261, 293-294. indispensable institution in the modern world and plays a vital role in the economic life
81 of every civilized society. Whether as mere passive entities for the safe-keeping and
35

VOL. 541, DECEMBER 19, 2007 81 saving of money or as active instruments of business and commerce, banks have attained
a ubiquitous presence among the people, who have come to regard them with respect and
Sandejas vs. Ignacio, Jr.
even gratitude and most of all, confidence. For this reason, banks should guard against
make the action wrongful, or the party liable for it. One may err, but error alone is not a
36

injury attributable to negligence or bad faith on its part.

29

ground for granting such damages. In the absence of malice and bad faith, the mental
37

There is no hard-and-fast rule in the determination of what would be a fair amount of

30

anguish suffered by a person for having been made a party in a civil case is not the kind
moral damages since each case must be governed by its own peculiar facts. The
of anxiety which would warrant the award of moral damages.
38

yardstick should be that it is not palpably and scandalously excessive. Moreover, the
31

A resort to judicial processes is not, per se, evidence of ill will upon which a claim for
39

social standing of the aggrieved party is essen-

damages may be based. 32
_______________
In China Banking Corporation v. Court of Appeals, this Court held: 33

Settled in our jurisprudence is the rule that moral damages cannot be recovered from a person Cagungun v. Planters Development Bank, G.R. No. 158674, October 17, 2005, 473 SCRA 259, 273-274.
35

who has filed a complaint against another in good faith, or without malice or bad faith (Philippine Id., at p. 274.
36

National Bank v. Court of Appeals, 159 SCRA 433[1988]; R & B Surety and Insurance v. Id.
37

Intermediate Appellate Court, 129 SCRA 736 [1984]). If damage results from the filing of the Id., at p. 273.
38

complaint, it is damnum absque injuria (Ilocos Norte Electrical Company v. Court of Appeals, 179 Id.
39

SCRA 5 [1989]). 34
83
In the present case, the Court agrees with the RTC and the CA that petitioners failed to VOL. 541, DECEMBER 19, 2007 83
establish that respondents were moved by bad faith or malice in impleading Patricia and Sandejas vs. Ignacio, Jr.
Benjamin. Hence, Patricia and Benjamin are not entitled to damages. tial to the determination of the proper amount of the award. Otherwise, the goal of40

The Court sustains the award of moral and exemplary damages as well as attorneys enabling him to obtain means, diversions, or amusements to restore him to the status
fees in favor of respondents. quo ante would not be achieved. In the present case, the Court finds no cogent reason to
41

As to moral damages, Article 20 of the Civil Code provides that every person who, modify the amount of moral damages granted by the CA.
contrary to law, willfully or negli- Likewise, the Court finds no compelling reason to disturb the modifications made by
_______________
the CA on the award of exemplary damages and attorneys fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by
29 Id., at p. 294.
30 Id. way of example or correction for the public good, in addition to moral, temperate,
31 Padillo v. Court of Appeals, 422 Phil. 334, 356; 371 SCRA 27, 46 (2001). liquidated, or compensatory damages. In the instant case, the award of exemplary
32 Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No. 155856, May 28, 2004, 430 SCRA 323, damages in favor of respondents is in order for the purpose of deterring those who intend
336.
to enforce their rights by taking measures or remedies which are not in accord with law
G.R. No. 94182, March 28, 1994, 231 SCRA 472.
33

Id., at p. 478.
34
and public policy. On the part of respondent bank, the public relies on a banks sworn
82 profession of diligence and meticulousness in giving irreproachable service. Hence, the 42

82 SUPREME COURT REPORTS ANNOTATED level of meticulousness must be maintained at all times by the banking sector. In the 43

present case the award of exemplary damages is justified by the brazen acts of
Sandejas vs. Ignacio, Jr.
petitioners Rosita and Alice in violating the law coupled with the gross negligence
gently causes damage to another, shall indemnify the latter for the same. In addition,
committed by respondent bank and its officers in allowing the subject check to be
Article 2219 (10) of the Civil Code provides that moral damages may be recovered in acts
deposited which later paved the way for its encashment.
or actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same Code.
As to attorneys fees, Article 2208 of the same Code provides, among others, that
More particularly, Article 21 of the said Code provides that any person who willfully
attorneys fees may be recovered when exemplary damages are awarded or when the
causes loss or injury to another in a manner that is contrary to morals, good customs, or
defen-
public policy shall compensate the latter for the damage. In the present case, the act of _______________
Alice and Rosita in fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public policy that no one 40 Samson, Jr. v. Bank of the Philippine Islands, 453 Phil. 577, 585; 405 SCRA 607, 612 (2003).
 Id., at p. 585; p. 612.
41
Prudential Bank v. Court of Appeals, 384 Phil. 817, 826; 328 SCRA 264, 271 (2000).
42
Id.
43
84
84 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr.
dants act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals
dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.
Costs against the petitioners.
SO ORDERED.
Ynares-Santiago (Chairperson), Carpio-Morales, Chico-Nazario and Nachura,
**
JJ., concur.
Petition denied, judgment affirmed.
Notes.As the symbol of law and order, a judge must refrain from taking the law in
his own hands and instead must resort to the courts for the vindication of his right
except in extreme cases where he must act in self-defense, a judge must abide by the
orderly processes of the law to protect his rights. (Bernardo vs. Tiamson, 363 SCRA
279[2001])
Pari delicto may not be invoked in a case of the waiver of rights under P.D. No. 27
since it runs counter to an avowed fundamental policy of the State. (Siacor vs.
Gigantana, 380 SCRA 306 [2002])
The end does not justify the meansguilt cannot be pronounced nor penalty imposed,
unless due process is first observed, which is the essence of fairness and the rule of law in
a democracy. (Department of Health vs. Camposano, 457 SCRA 438 [2005])
2. G.R. No. 150228. July 30, 2009.*
BANK OF AMERICA NT & SA, petitioner, vs. PHILIPPINE RACING CLUB,
respondent.
Banks and Banking; Negotiable Instruments Law; If the signatures are genuine, the bank has
the unavoidable legal and contractual duty to pay.Petitioner insists that it merely fulfilled its
obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 126
and 185 of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank
to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the
drawer-clients genuine signatures. The genuine signatures of the clients duly authorized
signatories affixed on the checks signify the order for payment. Thus, pursuant to the said
obligation, the drawee bank has the duty to determine whether the signatures appearing on the
check are the drawer-clients or its duly authorized signatories. If the signatures are genuine, the
bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and
falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty
not to pay.
Same; Same; A material alteration is defined in Section 125 of the Negotiable Instruments
Law (NIL) to be one which changes the date, the sum payable, the time or place of payment, the
number or relations of the parties, the currency in which payment is to be made or one which adds a
place of payment where no place of payment is specified, or any change or addition which alters the
effect of the instrument in any respect.Petitioner maintains that there exists a duty on the drawee
bank to inquire from the drawer before encashing a check only when the check bears a material
alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the
date, the sum payable, the time or place of payment, the number or relations of the parties, the
currency in which payment is to be made or one which adds a place of payment where no place of
payment is specified, or any other change or addition which alters the effect of the instrument in
any respect. With respect to the checks at issue, petitioner points out that they do not contain
_______________
* FIRST DIVISION.
302
3 SUPREME COURT REPORTS ANNOTATED
02
Bank of America NT & SA vs. Philippine Racing Club
any material alteration. This is a fact which was affirmed by the trial court itself.
Same; It is well-settled that banks are engaged in a business impressed with public interest,
and it is their duty to protect in return their many clients and depositors who transact business with
them.It is well-settled that banks are engaged in a business impressed with public interest, and
it is their duty to protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their clients account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family.
Same; Every client should be treated equally by a banking institution regardless of the amount
of his deposits and each client has the right to expect that every centavo he entrusts to a bank would
be handled with the same degree of care as the accounts of other clients.Taking this with the
testimony of petitioners operations manager that in case of an irregularity on the face of the check
(such as when blanks were not properly filled out) the bank may or may not call the client
depending on how busy the bank is on a particular day, we are even more convinced that
petitioners safeguards to protect clients from check fraud are arbitrary and subjective. Every client
should be treated equally by a banking institution regardless of the amount of his deposits and
each client has the right to expect that every centavo he entrusts to a bank would be handled with
the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly
failed to adhere to the high standard of diligence expected of it as a banking institution.
Same; Doctrine of Last Clear Chance; In instances where both parties are at fault, this Court
has consistently applied the doctrine of last clear chance in order to assign liability.Even if we
assume that both parties were guilty of negligent acts that led to the loss, petitioner will still
emerge as the party foremost liable in this case. In instances where both parties are at fault, this
Court has consistently applied the doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong, 375 SCRA 212 (2002), we ruled: [I]t is petitioner [bank] which had the
last clear chance to stop the fraudulent encashment of the subject checks had it exercised due
diligence
303
VOL. 594, JULY 30, 2009 303
Bank of America NT & SA vs. Philippine Racing Club
and followed the proper and regular banking procedures in clearing checks. As we had earlier
ruled, the one who had a last clear opportunity to avoid the impending harm but failed
to do so is chargeable with the consequences thereof.
 Damages; Following established jurisprudential precedents, we believe the allocation of sixty
percent (60%) of the actual damages, involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises.Following established
jurisprudential precedents, we believe the allocation of sixty percent (60%) of the actual damages
involved in this case (represented by the amount of the checks with legal interest) to petitioner is
proper under the premises. Respondent should, in light of its contributory negligence, bear forty
percent (40%) of its own loss.
Attorneys Fees; An adverse decision does not ipso facto justify an award of attorneys fees to
the winning party.We find that the awards of attorneys fees and litigation expenses in favor of
respondent are not justified under the circumstances and, thus, must be deleted. The power of the
court to award attorneys fees and litigation expenses under Article 2208 of the NCC demands
factual, legal, and equitable justification. An adverse decision does not ipso facto justify an award
of attorneys fees to the winning party. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
Reyno, Tiu, Domingo & Santos for respondent.
304
304 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the
Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of
Appeals (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing Club, Inc. v. Bank of
America NT & SA, affirming the Decision2 dated March 17, 1994 of the Regional Trial
Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent.
Likewise, the present petition assails the Resolution 3 promulgated on September 28,
2001, denying the Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with
different banks in the Metro Manila area. Among the accounts maintained was Current Account
No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint
signatories with respect to said Current Account were plaintiff-appellees President (Antonia
Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of plaintiff-
appellee corporation were scheduled to go out of the country in connection with the corporations
business. In order not to disrupt operations in their absence, they pre-signed several checks
relating to Current Account No. 58891-012. The intention was to insure continuity of plaintiff-
appellees operations by making available cash/money especially to settle obligations that might
become due. These checks were entrusted to the accountant with instruction to make use of the
same as the need arose. The internal arrangement was, in the event there was need to make use of
the checks, the accountant would prepare the corresponding voucher and thereafter complete the
entries on the pre-signed checks.
_______________
1 Rollo, pp. 80-87.
2 Id., at pp. 122-126.
3 Id., at p. 89.
305
VOL. 594, JULY 30, 2009 305
Bank of America NT & SA vs. Philippine Racing Club
It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank
for encashment a couple of plaintiff-appellee corporations checks (Nos. 401116 and 401117) with
the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those
presigned by plaintiff-appellee corporations authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space
where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries
were instead typewritten: on the upper line was the word CASH while the lower line had the
following typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite the
highly irregular entries on the face of the checks, defendant-appellant bank, without as much as
verifying and/or confirming the legitimacy of the checks considering the substantial amount
involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A
verification process, even by was of a telephone call to PRCI office, would have taken less than ten
(10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee
corporation yielded the fact that there was no transaction involving PRCI that call for the payment
of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of
PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who
eventually completed without authority the entries on the pre-signed checks. PRCIs demand for
defendant-appellant to pay fell on deaf ears. Hence, the complaint.4
After due proceedings, the trial court rendered a Decision in favor of respondent, the
dispositive portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the
defendant, and the latter is ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be
computed from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;
_______________
4 Id., at pp. 81-82.
306
306 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and
To pay the costs of suit.
SO ORDERED. 5
Petitioner appealed the aforesaid trial court Decision to the CA which, however,
affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for
Reconsideration of the CA Decision was subsequently denied on September 28, 2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the proximate cause of
respondents loss was petitioners encashment of the checks.
 A.
The Court of Appeals gravely erred in holding that petitioner was liable for
the amount of the checks despite the fact that petitioner was merely
fulfilling its obligation under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had a duty to
verify the encashment, despite the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the
Negotiable Instruments Law, despite its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the proximate cause of
respondents loss was its own grossly negligent practice of pre-signing checks without
payees and amounts and delivering these pre-signed checks to its employees (other
than their signatories).
III. The Court of Appeals gravely erred in affirming the trial courts award of attorneys
fees despite the absence of any applicable ground under Article 2208 of the Civil
Code.
_______________
5 Id., at p. 126.
307
VOL. 594, JULY 30, 2009 307
Bank of America NT & SA vs. Philippine Racing Club
IV. The Court of Appeals gravely erred in not awarding attorneys fees, moral and
exemplary damages, and costs of suit in favor of petitioner, who clearly deserves
them.6
From the discussions of both parties in their pleadings, the key issue to be resolved in
the present case is whether the proximate cause of the wrongful encashment of the
checks in question was due to (a) petitioners failure to make a verification regarding the
said checks with the respondent in view of the misplacement of entries on the face of the
checks or (b) the practice of the respondent of pre-signing blank checks and leaving the
same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it
encashed the aforesaid checks. Invoking Sections 1267 and 1858 of the Negotiable
Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-
client maintaining a checking account with it is to pay orders for checks bearing the
drawer-clients genuine signatures. The genuine signatures of the clients duly
authorized signatories affixed on the checks signify the order for payment. Thus,
pursuant to the said obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-clients or its duly authorized
signatories. If the signatures are genuine, the bank has the unavoidable legal and
contractual duty to pay. If the signatures are forged and falsified, the drawee bank has
_______________
6 Id., at pp. 55-56.
7 Sec. 126. Bill of exchange defined.A bill of exchange is an unconditional order in writing addressed by
one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order or to bearer.
8 Sec. 185. Check defined.A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to
a check.
308
308 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
the corollary, but equally unavoidable legal and contractual, duty not to pay.9
Furthermore, petitioner maintains that there exists a duty on the drawee bank to
inquire from the drawer before encashing a check only when the check bears a material
alteration. A material alteration is defined in Section 125 of the NIL to be one which
changes the date, the sum payable, the time or place of payment, the number or relations
of the parties, the currency in which payment is to be made or one which adds a place of
payment where no place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect. With respect to the checks at issue,
petitioner points out that they do not contain any material alteration. 10 This is a fact
which was affirmed by the trial court itself.11
There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the respondents authorized joint signatories; namely, Antonia Reyes and
Gregorio Reyes who were respondents President and Vice President for Finance,
respectively. Both pre-signed the said checks since they were both scheduled to go abroad
and it was apparently their practice to leave with the company accountant checks signed
in black to answer for company obligations that might fall due during the signatories
absence. It is likewise admitted that neither of the subject checks contains any material
alteration or erasure.
However, on the blank space of each check reserved for the payee, the following
typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS ONLY. Above
the same is the typewritten word, CASH. On the blank reserved for the amount, the
same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check
writer. The pres-
_______________
9 Rollo, pp. 296-297.
10 Id., at p. 298.
11 Id., at p. 125.
309
VOL. 594, JULY 30, 2009 309
Bank of America NT & SA vs. Philippine Racing Club
ence of these irregularities in each check should have alerted the petitioner to be
cautious before proceeding to encash them which it did not do.
It is well-settled that banks are engaged in a business impressed with public interest,
and it is their duty to protect in return their many clients and depositors who transact
business with them. They have the obligation to treat their clients account meticulously
and with the highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more than that of a good
father of a family.12
 Petitioner asserts that it was not duty-bound to verify with the respondent since the
amount below the typewritten word CASH, expressed in words, is the very same
amount indicated in figures by means of a check writer on the amount portion of the
check. The amount stated in words is, therefore, a mere reiteration of the amount stated
in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a
repetition and that a repetition is not an alteration which if present and material would
have enjoined it to commence verification with respondent. 13
We do not agree with petitioners myopic view and carefully crafted defense. Although
not in the strict sense material alterations, the misplacement of the typewritten entries
for the payee and the amount on the same blank and the repetition of the amount using a
check writer were glaringly obvious irregularities on the face of the check. Clearly,
someone made a mistake in filling up the checks and the repetition of the entries was
possibly an attempt to rectify the mistake. Also, if the check had been filled up by the
person who customarily accomplishes the checks of respondent, it should
_______________
12 Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company, Inc., G.R. No.
129015, August 13, 2004, 436 SCRA 402, 421.
13 Id., at p. 299.
310
310 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
have occurred to petitioners employees that it would be unlikely such mistakes would be
made. All these circumstances should have alerted the bank to the possibility that the
holder or the person who is attempting to encash the checks did not have proper title to
the checks or did not have authority to fill up and encash the same. As noted by the CA,
petitioner could have made a simple phone call to its client to clarify the irregularities
and the loss to respondent due to the encashment of the stolen checks would have been
prevented.
In the case at bar, extraordinary diligence demands that petitioner should have
ascertained from respondent the authenticity of the subject checks or the accuracy of the
entries therein not only because of the presence of highly irregular entries on the face of
the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondents witness testified that for checks in amounts greater than
Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure that the
payee is indicated by name in the check.14 This was not rebutted by petitioner. Indeed, it
is highly uncommon for a corporation to make out checks payable to CASH for
substantial amounts such as in this case. If each irregular circumstance in this case were
taken singly or isolated, the banks employees might have been justified in ignoring
them. However, the confluence of the irregularities on the face of the checks and
circumstances that depart from the usual banking practice of respondent should have
put petitioners employees on guard that the checks were possibly not issued by the
respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it
from behavior that fell extremely short of the highest degree of care and diligence
required of it as a banking institution.
Indeed, taking this with the testimony of petitioners operations manager that in case
of an irregularity on the face of
_______________
14 TSN, testimony of Carlos H. Reyes, October 1, 1991, p. 3.
311
VOL. 594, JULY 30, 2009 311
Bank of America NT & SA vs. Philippine Racing Club
the check (such as when blanks were not properly filled out) the bank may or may not
call the client depending on how busy the bank is on a particular day, 15 we are even more
convinced that petitioners safeguards to protect clients from check fraud are arbitrary
and subjective. Every client should be treated equally by a banking institution regardless
of the amount of his deposits and each client has the right to expect that every centavo
he entrusts to a bank would be handled with the same degree of care as the accounts of
other clients. Perforce, we find that petitioner plainly failed to adhere to the high
standard of diligence expected of it as a banking institution.
In defense of its cashier/tellers questionable action, petitioner insists that pursuant
to Sections 1416 and 1617 of the
_______________
15 TSN, testimony of Rose Acuban, August 20, 1991, pp. 8-9.
16 Sec. 14. Blanks, when may be filled.Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when completed may be enforced against any person who became
a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and
within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course,
it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
17 Sec. 16. Delivery; when effectual; when presumed.Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between
immediate parties, and as regards a remote party other than a holder in due course, the delivery in order to be
effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing
as the case may be; and in such case the delivery may be shown to have been conditional, or for
312
312 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
NIL, it could validly presume, upon presentation of the checks, that the party who filled
up the blanks had authority and that a valid and intentional delivery to the party
presenting the checks had taken place. Thus, in petitioners view, the sole blame for this
debacle should be shifted to respondent for having its signatories pre-sign and deliver the
subject checks.18 Petitioner argues that there was indeed delivery in this case because,
following American jurisprudence, the gross negligence of respondents accountant in
safekeeping the subject checks which resulted in their theft should be treated as a
voluntary delivery by the maker who is estopped from claiming non-delivery of the
instrument.19
 Petitioners contention would have been correct if the subject checks were correctly
and properly filled out by the thief and presented to the bank in good order. In that
instance, there would be nothing to give notice to the bank of any infirmity in the title of
the holder of the checks and it could validly presume that there was proper delivery to
the holder. The bank could not be faulted if it encashed the checks under those
circumstances. However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood that the checks were
not properly delivered to the person who encashed the same. In all, we see no reason to
depart from the finding in the assailed CA Decision that the subject checks are properly
characterized as
_______________
a special purpose only, and not for the purpose of transferring the property in the instrument. But where the
instrument is in the hands of a holder of a due course, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
18 Rollo, p. 304.
19 Id., at p. 306.
313
VOL. 594, JULY 30, 2009 313
Bank of America NT & SA vs. Philippine Racing Club
incomplete and undelivered instruments thus making Section 15 20 of the NIL applicable
in this case.
However, we do agree with petitioner that respondents officers practice of pre-
signing of blank checks should be deemed seriously negligent behavior and a highly risky
means of purportedly ensuring the efficient operation of businesses. It should have
occurred to respondents officers and managers that the pre-signed blank checks could
fall into the wrong hands as they did in this case where the said checks were stolen from
the company accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that
led to the loss, petitioner will still emerge as the party foremost liable in this case. In
instances where both parties are at fault, this Court has consistently applied the doctrine
of last clear chance in order to assign liability.
In Westmont Bank v. Ong,21 we ruled:
[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of
the subject checks had it exercised due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one who had a last clear
opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof. (emphasis ours)
22
In the case at bar, petitioner cannot evade responsibility for the loss by attributing
negligence on the part of respon-
_______________
20 Sec. 15. Incomplete instrument not delivered.Where an incomplete instrument has not been
delivered it will not, if completed and negotiated, without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon before delivery.
21 G.R. No. 132560, January 30, 2002, 375 SCRA 212.
22 Id., at p. 223, citing Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, 269 SCRA 695,
707-708.
314
314 SUPREME COURT REPORTS ANNOTATED
Bank of America NT & SA vs. Philippine Racing Club
dent because, even if we concur that the latter was indeed negligent in pre-signing blank
checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners
own operations manager admitted that they could have called up the client for
verification or confirmation before honoring the dubious checks. Verily, petitioner had
the final opportunity to avert the injury that befell the respondent. Failing to make the
necessary verification due to the volume of banking transactions on that particular day is
a flimsy and unacceptable excuse, considering that the banking business is so impressed
with public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be a high
degree of diligence, if not the utmost diligence.23 Petitioners negligence has been
undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, 24 it must suffer the
consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondents
own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the immediate
and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.
Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:
_______________
23 Gempesaw v. Court of Appeals, G.R. No. 92244, February 9, 1993, 218 SCRA 682, 697.
24 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
25 G.R. No. 160709, February 23, 2005, 452 SCRA 285, 293.
315
VOL. 594, JULY 30, 2009 315
Bank of America NT & SA vs. Philippine Racing Club
The underlying precept on contributory negligence is that a plaintiff who is partly responsible
for his own injury should not be entitled to recover damages in full but must bear the consequences
of his own negligence. The defendant must thus be held liable only for the damages actually caused
by his negligence. xxx xxx xxx
As we previously stated, respondents practice of signing checks in blank whenever its
authorized bank signatories would travel abroad was a dangerous policy, especially
considering the lack of evidence on record that respondent had appropriate safeguards or
internal controls to prevent the pre-signed blank checks from falling into the hands of
unscrupulous individuals and being used to commit a fraud against the company. We
cannot believe that there was no other secure and reasonable way to guarantee the non-
disruption of respondents business. As testified to by petitioners expert witness, other (7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;
corporations would ordinarily have another set of authorized bank signatories who would
317
be able to sign checks in the absence of the preferred signatories. 26 Indeed, if not for the
fortunate happenstance that the thief failed to properly fill up the subject checks,
VOL. 594, JULY 30, 2009 317
respondent would expectedly take the blame for the entire loss since the defense of Bank of America NT & SA vs. Philippine Racing Club
forgery of a drawers signature(s) would be unavailable to it. Considering that respondent An adverse decision does not ipso facto justify an award of attorneys fees to the
knowingly took the risk that the pre-signed blank checks might fall into the hands of winning party.29 Even when a claimant is compelled to litigate with third persons or to
wrongdoers, it is but just that respondent shares in the responsibility for the loss. incur expenses to protect his rights, still attorneys fees may not be awarded where no
We also cannot ignore the fact that the person who stole the pre-signed checks subject sufficient showing of bad faith could be reflected in a partys persistence in a case other
of this case from respondents accountant turned out to be another employee, purportedly than an erroneous conviction of the righteousness of his cause.30
a clerk in respondents accounting department. As the employer of the thief, respondent WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its
supposedly had control and supervi- Resolution dated September 28, 2001 are AFFIRMED with the following
_______________ MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty
26 TSN, testimony of Gerardo Martin, a certified public accountant/auditor from Sycip Gorres & Velayo, Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b)
February 25, 1992, p. 6.
316 the awards of attorneys fees and litigation expenses in favor of respondent are deleted.
Proportionate costs.
316 SUPREME COURT REPORTS ANNOTATED
SO ORDERED.
Bank of America NT & SA vs. Philippine Racing Club 3. CITIBANK, N.A., petitioner, vs. ATTY. ERNESTO S. DINOPOL, respondent.
sion over its own employee. This gives the Court more reason to allocate part of the loss Remedial Law; Certiorari; The general rule is that in petitions for review on certain certiorari,
to respondent. the Court will not re-examine the findings of fact of the appellate court; Exceptions.The general
Following established jurisprudential precedents, 27 we believe the allocation of sixty rule is that in petitions for review on certiorari, the Court will not re-examine the findings of fact of
percent (60%) of the actual damages involved in this case (represented by the amount of the appellate court except (a) when the latters findings are grounded entirely on speculations,
the checks with legal interest) to petitioner is proper under the premises. Respondent surmises or conjectures; (b) when its inference is manifestly mistaken, absurd or impossible; (c)
should, in light of its contributory negligence, bear forty percent (40%) of its own loss. when there is a grave abuse of discretion; (d) when its findings of fact are conflicting; and (e) when
Finally, we find that the awards of attorneys fees and litigation expenses in favor of it goes beyond the issues of the case. Citibank fails to convince the Court that the case falls under
respondent are not justified under the circumstances and, thus, must be deleted. The any of the exceptions. Hence, the findings of fact should no longer be reviewed.
Civil Law; Damages; Moral Damages; The award of moral damages should be granted in
power of the court to award attorneys fees and litigation expenses under Article 2208 of
reasonable amounts depending on the facts and circumstances of the case.The award of moral
the NCC28 demands factual, legal, and equitable justification. damages should be granted in reasonable amounts depending on the facts and circumstances of the
_______________
case. Moral damages are meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
27 Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, March 14, 1997, 269 SCRA
humiliation and similar injuries unjustly caused.
695; Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, September 11, 2003, 410
_______________
SCRA 562.
28 Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
* SECOND DIVISION.
costs, cannot be recovered, except:
650
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled 6 SUPREME COURT REPORTS ANNOTATED
the plaintiff to litigate with third persons or to incur 50
expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the Citibank, N.A. vs. Dinopol
plaintiff; Same; Same; Exemplary Damages; The law allows the award of exemplary damages by way of
(4) In case of a clearly unfounded civil action or proceeding example for the public good.As to the award of exemplary damages, the law allows it by way of
against the plaintiff; example for the public good. The business of banking is impressed with public interest and great
(5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid,
reliance is made on the banks sworn profession of diligence and meticulousness in giving
just and demandable claim; irreproachable service. Thus, the Court affirms the award as a way of setting an example for the
(6) In actions for legal support; public good. In addition, it also provided for attorneys fees. Both are subject to legal interest.
 Banks and Banking; Banks must always act in good faith and must win the confidence of
clients and people in general.In any event, Citibank should have been more cautious in dealing
with its clients since its business is imbued with public interest. Banks must always act in good
faith and must win the confidence of clients and people in general. It is irrelevant whether the
client is a lawyer or not.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Jose Luis V. Agcaoili for petitioner.
Romeo B. Igot for respondent.
MENDOZA, J.:
This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil
Procedure questioning 1] the December 16, 2008 Decision 1 of the Court of Appeals (CA),in
CA-G.R. CV No. 82291, which affirmed the February 20, 2004 Decision of the Regional
Trial Court, Branch 226, Quezon City (RTC), ordering petitioner Citibank, N.
A. (Citibank) to pay respondent Atty. Ernesto S. Dinopol (Atty. Dinopol) moral damages
and attorneys fees; and 2] its June 19, 2009 Resolution denying petitioners motion for
the reconsideration thereof.
_______________
1 Rollo, pp. 10-25. Penned by Associate Justice Vicente S.E. Veloso with Associate Justice Rebecca De
Guia-Salvador and Associate Justice Ricardo R. Rosario, concurring.
651
VOL. 635, NOVEMBER 22, 2010 651
Citibank, N.A. vs. Dinopol
Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibanks
Ready Credit Checkbooks advertised offer. After approving his application, Citibank
granted Atty. Dinopol a credit line limit of P30,000.00. For said reason, Atty. Dinopol
received from Citibank a check booklet consisting of several checks with a letter stating
that the account was ready to use. Later, Citibank billed Atty. Dinopol the sum of
P1,545.00 representing Ready Credit Documentary Stamp and Annual Membership Fee
as reflected in his Statement of Account dated December 26, 1996. Thereafter, Citibank
billed him the amount of P1,629.21 for interest and charges as well as late payment
charges as stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid
said interests and charges on February 26, 1997.
On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account
with Citibank in the amount of P30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr.
Geonzon) for investment purposes in her restaurant business. However, when the check
was deposited on March 12, 1997, it was dishonored for the reason, Drawn Against
Insufficient Funds or DAIF. Humiliated by the dishonor and the demand notice he
received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages against
Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly negligent and
acted in bad faith in dishonoring his check.
In defense, Citibank averred that it was completely justified in dishonoring Atty.
Dinopols check because the account did not have sufficient funds at the time it was
issued. Citibank explained that when said check in the amount of P30,000.00 was issued,
his credit line was already insufficient to accommodate it. His credit limit had been
reduced by the interests and penalty charges imposed as a result of his late payment.
Citibank argued that had Atty. Dinopol been prompt in the payment of his obligations,
he would not have incurred interests and penalty charges and his credit line of
652
652 SUPREME COURT REPORTS ANNOTATED
Citibank, N.A. vs. Dinopol
P30,000.00 would have been available at the time the check was issued and presented for
payment.
On February 20, 2004, the RTC rendered a decision 2against Citibank, the dispositive
portion of which reads:
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
defendant bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty.
Ernesto S. Dinopol:
1) P100,000.00 as and for moral damages;
2) P50,000.00 as and for attorneys fees; and
3) Costs of suit.
SO ORDERED.
The RTC reasoned out, among others, that Citibank failed to completely disclose the
terms and conditions of its Citybank Ready Credit Account when Atty. Dinopol applied
for it. Only the general provisions of the agreement were explained to him. The Standard
Handbook Guide which would have guided him as to fees, charges and penalties that
could be billed by the bank was never given to him.
Furthermore, the RTC found that Atty. Dinopol was given a go signal by Citibank
when he informed the latter that he was going to issue a check in the amount of
P30,000.00. Citibank failed to advise him that he still had an outstanding balance of
P58.33 as of February 26, 1997. Had he been informed, he could have paid such a small
amount and avoided the dishonor of his check. In fact, when he issued the check on
March 6, 1997, no bill had yet been sent to him for the amount of P58.33 because he had
just paid P1,629.00 on February 26, 1997. The billing statement, if any, would still be
due on March 15, 1997. On March 11, 1997, when the check was presented for payment,
Citibank could have called his attention and he could have immediately remitted the
_______________
2 Id., at pp. 317-329.
653
VOL. 635, NOVEMBER 22, 2010 653
Citibank, N.A. vs. Dinopol
amount of P58.00 within the same banking day so that the check would be honored.
Decision of the Court of Appeals
On December 16, 2008, the CA affirmed the RTC decision with modification. It
increased the award of moral damages from P100,000.00 to P500,000.00 and awarded
exemplary damages in the amount of P50,000.00.
In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P.
Hernando (Hernando), displayed dishonesty in claiming that Atty. Dinopol was provided
with the banks Customer Guidebook. No proof to the contrary was shown by the bank.
Instead of exercising good faith by providing a new account holder like Atty. Dinopol with
the service guidebook, Citibank argued that since he was a lawyer, the latter should have
already been familiar with the terms and conditions of his Ready Credit Account.
Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first
consulted the bank if he could issue one. It was only after being given the affirmative
response that he issued said check which gave rise to this controversy. The bank should
have given the necessary advice to Atty. Dinopol and thereby avoid the dishonor of the
check for a measly amount of P58.33.
Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the
check so as to justify the P58.33 deduction from his P30,000.00 credit line. Based on the
documentary evidence, the due date for the February 26, 1997 Statement of Account was
March 19, 1997. So, when Atty. Dinopol issued the check on March 6, 1997, the period
within which to settle his account was still running, thus, rendering the P58.33
deduction unjustified.
In modifying the decision, the CA increased the amount of moral damages from
P100,000.00 to P500,000.00 for the following reasons: 1] Atty. Dinopols staturehe was
a lawyer of
654
654 SUPREME COURT REPORTS ANNOTATED
Citibank, N.A. vs. Dinopol
good standing, yet he was abused by Citibank; 2] the dishonesty displayed by Citibank in
claiming that Atty. Dinopol was given a service guidebook despite lack of proof thereon;
3] the bad faith displayed by Citibank in using a measly amount of P58.33 as basis to
justify its dishonor (due to DAIF) of P30,000.00 worth of check issued by Atty. Dinopol;
and 4] the fact that Citibank besmirched Atty. Dinopols reputation and has considerably
caused him undue humiliation.
Hence, this petition.
Issue
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING
THAT PETITIONER CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY.
ERNESTO S. DINOPOL FOR DAMAGES.
Position of the Petitioner
Citibank argues that the dishonor of Atty. Dinopols check was valid as it was done in
the exercise of its rights and prerogative under the terms and conditions of his Ready
Credit Facility. It insists that it sent a copy of the guidebook to Atty. Dinopol after his
application for the credit facility was approved.
It also points out that upon the approval of Atty. Dinopols Ready Credit Facility, the
latter was initially billed with the amounts of P1,500.00 for the annual fee and P45.00 for
the documentary stamp tax. The total amount of P1,545.00 was indicated in his
Statement of Account dated December 26, 1996, bearing the due date on or before
January 16, 1997. Atty. Dinopol, however, failed to pay it on or before said date. Thus,
interest and late payment charges accrued on his unpaid account as provided for in the
provisions of the guidebook.
Further, Citibank claims that a second statement of account dated January 26, 1997
was sent to Atty. Dinopol which
655
VOL. 635, NOVEMBER 22, 2010 655
Citibank, N.A. vs. Dinopol
showed that the aggregate amount of P1,629.21 was due and payable immediately. This
amount represents the unpaid sum of P1,545.00 for the annual fee and documentary
stamp tax, P10.00 as penalty charge for the late payment and P74.21 as accrued interest.
Atty. Dinopol paid the amount of P1,629.21 only on February 26, 1997. Thereafter,
Citibank sent him another statement of account acknowledging receipt of his payment
and, at the same time, charging him the additional amount of P58.33 for penalties and
other charges. Since the unpaid amount of P58.33 was automatically billed as an
availment against his Ready Credit Facility, his available credit limit at the time of the
issuance of the subject check on March 6, 1997 was already reduced by P58.33. As a
result, when the subject check was negotiated, it had to be returned due to DAIF.
Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty.
Dinopols failure to timely settle his outstanding obligations despite receipt of his
statements of account. It cannot, therefore, be faulted because it was just exercising its
legal right under the terms and conditions of the Ready Credit Facility. It did not act
fradulently or in bad faith. No proof was shown that the dishonor of the subject check
was carried out in an arbitrary, capricious, and malicious manner.
Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to
have carefully considered, known, and understood the provisions and legal effects of the
contracts he entered into.
Position of the Respondent
In answer to Citibanks assertions, Atty. Dinopol counters that the bank failed to
prove that a copy of the guidebook was sent to him. In fact, Citibanks own witness,
Hernando, categorically admitted that the bank did not send him the said guidebook.
According to Atty. Dinopol, Citibank should have
656
656 SUPREME COURT REPORTS ANNOTATED
Citibank, N.A. vs. Dinopol
acted in good faith and in a manner deserving of the trust of its customers.
He also contends that the dishonor of the check due to the non-payment of the penalty
charges and interests of P58.33 was uncalled for. The payment of said amount was not
yet due on March 6, 1997 when the check was issued and even on March 12, 1997 when
it was dishonored. The statement of account would show that the sum of P58.33 was due
only on March 19, 1997. This only shows that his account was not yet delinquent, both at
the time when said check was issued and when it was eventually presented for payment,
thereby making the act of the bank of dishonoring the check wanting of any legal basis.
Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it
dishonered the subject check for a meager amount of P58.33 and for imposing highly
questionable charges against his credit facility account. He believes that the bank,
wilfully or negligently, wronged him and damaged his reputation. Hence, it is liable to
pay him damages.
The Courts Ruling
The general rule is that in petitions for review on certiorari, the Court will not re-
examine the findings of fact of the appellate court except (a) when the latters findings
are grounded entirely on speculations, surmises or conjectures; (b) when its inference is
manifestly mistaken, absurd or impossible; (c) when there is a grave abuse of discretion;
(d) when its findings of fact are conflicting; and (e) when it goes beyond the issues of the
case.3 Citibank fails to convince the Court that the case falls under any of the exceptions.
Hence, the findings of fact should no longer be reviewed.
_______________
3 J. Hidalgo Uy v. Spouses Medina, G.R. No. 172541, August 8, 2010, 627 SCRA 245.
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Citibank, N.A. vs. Dinopol
At any rate, the Courts agrees with the courts below in concluding that Citibank was
liable to Atty. Dinopol for moral and exemplary damages and attorneys fees.
A perusal of the evidentiary records shows that Citibank was at fault when it
dishonored the subject check. First, Citibank claims that, as a matter of standard
operating procedure, it sent to Atty. Dinopol the Citibank Ready Credit Customer
Guidebook upon the approval of his Ready Credit Account application and so, he was
aware of the terms and conditions stated therein. Yet, except for its bare allegation, no
other substantial proof was presented by Citibank that the guidebook was indeed sent to
Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was not
at all delivered to him.
Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00
and Citibank dishonored it because of insufficiency of funds by P58.33 representing the
amount charged on his credit line for penalties and charges, the said amount was not yet
overdue. The banks Statement of Account dated January 26, 1997 4 showed that he must
pay the total amount of P1,629.21 representing the annual membership fee of P1,500.00,
documentary stamp tax of P45.00, late charges of P10.00 and interest/charges of P74.21.
On February 26, 1997, he immediately paid the full amount of P1,629.21 as evidenced by
his credit card payment slip.5 The full payment was reflected in his statement of
account6 dated February 26, 1997. The same statement of account7 indicated that there
were still charges amounting to P58.33 due for payment on March 19, 1997. To
reiterate, the check was issued on March 6, 19978 and dishonored on March 12,
_______________
4 Rollo, p. 257.
5 Id., at p. 258.
6 Id., at p. 284.
7 Id.
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658 SUPREME COURT REPORTS ANNOTATED
Citibank, N.A. vs. Dinopol
1997,9 both dates being days before the said due date. Contrary to Citibanks insistence,
Atty. Dinopol was definitely not yet a delinquent account holder. More importantly,
Citibank failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997
after paying the full amount of P1,629.21 and clearing with the bank if he could issue a
check in the amount of P30,000.00. Citibank did not even refute the allegation that it
gave Atty. Dinopol the go-signal to issue such a check.
With respect to damages, the Court is in agreement with the CA in awarding moral
and exemplary damages. However, the Court cannot sanction the modification by the CA,
under the circumstances attending the case. It is of the considered view that the award of
the RTC would suffice subject, of course, to the payment of legal interest.
The award of moral damages should be granted in reasonable amounts depending on
the facts and circumstances of the case.10 Moral damages are meant to compensate the
claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused.11
As to the award of exemplary damages, the law allows it by way of example for the
public good. The business of banking is impressed with public interest and great reliance
is made on the banks sworn profession of diligence and meticulousness in giving
irreproachable service.12Thus, the Court affirms the award as a way of setting an
example for the public good. In
_______________
8 Id., at p. 259.
9 Id., at p. 260.
10 Manila Electric Company v. Spouses Edito and Felicidad Chua and Josefina Paqueo, G.R. No. 160422,
July 5, 2010, 623 SCRA 81.
11 Cagungun v. Planters Development Bank, 510 Phil. 51, 62-63; 473 SCRA 259, 271 (2005), citing Samson,
Jr. v Bank of the Philippine Islands, 453 Phil. 577, 583; 405 SCRA 607, 611 (2003).
12 Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan, G.R. No. 167346, April 2, 2007,
520 SCRA 123, 129.
659
VOL. 635, NOVEMBER 22, 2010 659
Citibank, N.A. vs. Dinopol
addition, it also provided for attorneys fees. Both are subject to legal interest.
In any event, Citibank should have been more cautious in dealing with its clients
since its business is imbued with public interest. Banks must always act in good faith
and must win the confidence of clients and people in general. It is irrelevant whether the
client is a lawyer or not.
It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater familias or a
good father of a family. The highest degree of diligence is expected.
In its declaration of policy, the General Banking Law of 2000 requires of banks the highest
standards of integrity and performance. Needless to say, a bank is under obligation to treat the
accounts of its depositors with meticulous care. The fiduciary nature of the relationship between
the bank and the depositors must always be of paramount concern. 13
WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is
MODIFIED to read as follows:
In view of the foregoing, judgment is hereby rendered ordering defendant Citibank, N.A. to
pay plaintiff Atty. Ernesto S. Dinopol the following:
1] P100,000.00 as and for moral damages;
2] P50,000.00 as and for exemplary damages;
3] P50,000.00 as and for attorneys fees; and
4] Costs of suit,
plus interest at the legal rate reckoned from the filing of the complaint.
4. G.R. No. 149454. May 28, 2004. *
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI
INTERNATIONALE and LEONARDO T. YABUT, respondents.
G.R. No. 149507. May 28, 2004. *
CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE
ISLANDS, respondents.
Negotiable Instruments Law; A forged signature is a real or absolute defense, and a person
whose signature on a negotiable instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise to it.Section 23 of the NIL
provides: Section 23. Forged signature; effect of.When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no right x x
x to enforce payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority. Under this provision, a forged signature is a real or
absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to
have never become a party thereto and to have never consented to the contract that allegedly gave
rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with intent
to defraud, is forgery.
_______________
FIRST DIVISION.
*
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Bank of the Philippine Islands vs. Casa Montessori Internationale
Administrative Investigations; Rights of Suspects; The mantle of protection under Section 12
of Article III of the 1987 Constitution covers only the period from the time a person is taken into
custody for investigation of his possible participation in the commission of a crime or from the time
he is singled out as a suspect in the commission of a crime although not yet in custodyto fall
within the ambit of Section 12, there must be an arrest or a deprivation of freedom, with questions
propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or
any information.In the first place, he was not under custodial investigation. His Affidavit was
executed in private and before private individuals. The mantle of protection under Section 12 of
Article III of the 1987 Constitution covers only the period from the time a person is taken into
custody for investigation of his possible participation in the commission of a crime or from the time
he is singled out as a suspect in the commission of a crime although not yet in custody. Therefore,
to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of
freedom, with questions propounded on him by the police authorities for the purpose of eliciting
admissions, confessions, or any information. The said constitutional provision does not apply to
spontaneous statements made in a voluntary manner whereby an individual orally admits to
authorship of a crime. What the Constitution proscribes is the compulsory or coercive disclosure of
incriminating facts.
Same; Self-Incrimination; The right against self-incrimination, which is ordinarily available
only in criminal prosecutions, extends to all other government proceedingsincluding civil actions,
legislative investigations, and administrative proceedings that possess a criminal or penal aspect
but not to private investigations done by private individuals.The right against self-incrimination
under Section 17 of Article III of the Constitution, which is ordinarily available only in criminal
prosecutions, extends to all other government proceedingsincluding civil actions, legislative
investigations, and administrative proceedings that possess a criminal or penal aspectbut not to
private investigations done by private individuals. Even in such government proceedings, this right
may be waived, provided the waiver is certain; unequivocal; and intelligently, understanding and
willingly made. If in these government proceedings waiver is allowed, all the more is it so in
private investigations. It is of no moment that no criminal case has yet been filed against Yabut.
The filing thereof is entirely up to the appropriate authorities or to the private individuals upon
whom damage has been caused. As we shall also explain later, it is not mandatory for CASAthe
plaintiff belowto implead Yabut in the civil case before the lower court.
Same; Bill of Rights; The Bill of Rights does not concern itself with the relation between a
private individual and another individualthe Bill of Rights is a charter of liberties for the
individual and a limitation upon
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Bank of the Philippine Islands vs. Casa Montessori Internationale
the power of the State.Under these two constitutional provisions, [t]he Bill of Rights does
not concern itself with the relation between a private individual and another individual. It governs
the relationship between the individual and the State. Moreover, the Bill of Rights is a charter of
liberties for the individual and a limitation upon the power of the [S]tate. These rights are
guaranteed to preclude the slightest coercion by the State that may lead the accused to admit
something false, not prevent him from freely and voluntarily telling the truth.
Negotiable Instruments Law; Checks; Evidence; Best Evidence Rule; Under the best evidence
rule as applied to documentary evidence, like the checks in question, no secondary evidence or
substitutionary evidence may inceptively be introduced, as the original writing itself must be
produced in court, but when, without bad faith on the part of the offeror, the original checks have
already been destroyed or cannot be produced in court, secondary evidence, like microfilm copies,
may be produced.Forgery cannot be presumed. It must be established by clear, positive and
convincing evidence. Under the best evidence rule as applied to documentary evidence like the
checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the
original writing itself must be produced in court. But when, without bad faith on the part of the
offeror, the original checks have already been destroyed or cannot be produced in court, secondary
evidence may be produced. Without bad faith on its part, CASA proved the loss or destruction of
the original checks through the Affidavit of the one person who knew of that factYabut. He
clearly admitted to discarding the paid checks to cover up his misdeed. In such a situation,
secondary evidence like microfilm copies may be introduced in court.
Same; Same; Same; Same; Even with respect to documentary evidence, the best evidence rule
applies only when the contents of the documentsuch as the drawers signature on a checkis the
subject of inquiry.Even with respect to documentary evidence, the best evidence rule applies only
when the contents of a documentsuch as the drawers signature on a checkis the subject of
inquiry. As to whether the document has been actually executed, this rule does not apply; and
testimonial as well as any other secondary evidence is admissible. Carina Lebron herself, the
drawers authorized signatory, testified many times that she had never signed those checks. Her
testimonial evidence is admissible; the checks have not been actually executed. The genuineness of
her handwriting is proved, not only through the courts comparison of the questioned hand-writings
and admittedly genuine specimens thereof, but above all by her.
Same; Same; Same; Same; Of no consequence is the fact that the depositor did not present the
signature card containing the signatures with which those on the checks were comparedspecimens
of standard signatures are not limited to such a card.The failure of CASA to produce the
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64
Bank of the Philippine Islands vs. Casa Montessori Internationale
original checks neither gives rise to the presumption of suppression of evidence nor creates
an unfavorable inference against it. Such failure merely authorizes the introduction of secondary
evidence in the form of microfilm copies. Of no consequence is the fact that CASA did not present
the signature card containing the signatures with which those on the checks were compared.
Specimens of standard signatures are not limited to such a card. Considering that it was not
produced in evidence, other documents that bear the drawers authentic signature may be resorted
to. Besides, that card was in the possession of BPIthe adverse party.
Banks and Banking; Checks; Since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in generalthe highest
degree of diligence is expected, and high standards of integrity and performance are even required of
it; A bank is bound to know the signatures of its customers, and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so
paid to the account of the depositor whose name was forged.We have repeatedly emphasized that,
since the banking business is impressed with public interest, of paramount importance thereto is
the trust and confidence of the public in general. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required, of it. By the nature of
its functions, a bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. BPI contends that it has a
signature verification procedure, in which checks are honored only when the signatures therein are
verified to be the same with or similar to the specimen signatures on the signature cards.
Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the
VOL. 430, MAY 28, 2004 265
Bank of the Philippine Islands vs. Casa Montessori Internationale
Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is
it estopped from questioning the mistake after the lapse of the ten-day period. This notice is a
simple confirmation or circularizationin accounting parlancethat requests client-depositors to
affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a
direct corroboration of the correctness of their account balances with their respective banks.
Internal or external auditors of a bank use it as a basic audit procedurethe results of which its
client-depositors are neither interested in nor privy toto test the details of transactions and
balances in the banks records. Evidential matter obtained from independent sources outside a
bank only serves to provide greater assurance of reliability than that obtained solely within it for
purposes of an audit of its own financial statements, not those of its client-depositors.
Same; Same; Same; Banks have no right to impose a condition unilaterally and thereafter
consider failure to meet such condition a waiver, and neither may a depositor renounce a right it
never possessed.There is always the audit risk that errors would not be detected for various
reasons. One, materiality is a consideration in audit planning; and two, the information obtained
from such a substantive test is merely presumptive and cannot be the basis of a valid waiver. BPI
has no right to impose a condition unilaterally and thereafter consider failure to meet such
condition a waiver. Neither may CASA renounce a right it has never possessed.
Same; Same; Same; Every right has subjectsactive and passive, the active subject being
entitled to demand its enforcement while the passive one being duty-bound to suffer such
enforcement; The bank could not have been an active subject, because it could not have demanded
from the depositor a response to its notice, while, on the other hand, the depositor could not have
been a passive subject because it had no obligation to respond.Every right has subjectsactive
and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-
bound to suffer such enforcement. On the one hand, BPI could not have been an active subject,
because it could not have demanded from CASA a response to its notice. Besides, the notice was a
measly request worded as follows: Please examine x x x and report x x x. CASA, on the other
hand, could not have been a passive subject, either, because it had no obligation to respond. It
couldas it didchoose not to respond.
Same; Same; Estoppel; Words and Phrases; Estoppel precludes individuals from denying or
asserting, by their own deed or representation, anything contrary to that established as the truth, in
legal contemplation; Estoppel will not arise from a conduct due to ignorance founded upon an
innocent mistake.Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that
266

omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very
early on we have already ruled that a bank is bound to know the signatures of its customers; and
if it pays a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name was
forged. In fact, BPI was the same bank involved when we issued this ruling seventy years ago.
Same; Same; Audit Procedures; The notice in the monthly statements issued by the bank that
if no error is reported in ten (10) days, the account will be correct cannot be considered a waiver,
even if the depositor failed to report the error, and neither is it estopped from questioning the
mistake after the lapse of the ten-day periodsuch notice is a simple confirmation or
circularization,in accounting parlance, that requests client-depositors to affirm the accuracy of
items recorded by the banks.The monthly statements issued by BPI to its clients contain a notice
worded as follows: If no error is reported in ten (10) days, account will be correct.
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2 SUPREME COURT REPORTS ANNOTATED
66
Bank of the Philippine Islands vs. Casa Montessori Internationale
established as the truth, in legal contemplation. Our rules on evidence even make a juris et
de jure presumption that whenever one has, by ones own act or omission, intentionally and
deliberately led another to believe a particular thing to be true and to act upon that belief, one
cannotin any litigation arising from such act or omissionbe permitted to falsify that supposed
truth. In the instant case, CASA never made any deed or representation that misled BPI. The
formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and
consequences of periodic audits. Since its conduct was due to such ignorance founded upon an
innocent mistake, estoppel will not arise. A person who has no knowledge of or consent to a
transaction may not be estopped by it. Estoppel cannot be sustained by mere argument or
doubtful inference x x x. CASA is not barred from questioning BPIs error even after the lapse of
the period given in the notice.
Same; Same; For allowing payment on the checks to a wrongful and fictitious payee, the
drawee bank becomes liable to its depositor-drawer.For allowing payment on the checks to a
wrongful and fictitious payee, BPIthe drawee bankbecomes liable to its depositor-drawer.
Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for
reimbursement. It may not debit the drawers account and is not entitled to indemnification from
the drawer. In both law and equity, when one of two innocent persons must suffer by the
wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third person to perpetrate the
wrong.
Same; Same; Proximate Cause; Words and Phrases; 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.Proximate cause is determined by the facts
of the case. It is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred.
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-
depositors on checks being encashed, BPI is expected to use reasonable business prudence. In the
performance of that obligation, it is bound by its internal banking rules and regulations that form
part of the contract it enters into with its depositors.
Same; Same; Same; Negligence; Forgery; In this jurisdiction, the negligence of the party
invoking forgery is recognized as an exception to the general rule that a forged signature is wholly
inoperative.In this jurisdiction, the negligence of the party invoking forgery is recognized as an
exception to the general rule that a forged signature is wholly inoperative. Contrary to BPIs claim,
however, we do not find CASA negligent in han-
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Bank of the Philippine Islands vs. Casa Montessori Internationale
dling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real
defense.
Accountants and Auditors; The major purpose of an independent audit is to investigate and
determine objectively if the financial statements submitted for audit by a corporation have been
prepared in accordance with the appropriate financial reporting practices of private entities.The
major purpose of an independent audit is to investigate and determine objectively if the financial
statements submitted for audit by a corporation have been prepared in accordance with the
appropriate financial reporting practices of private entities. The relationship that arises therefrom
is both legal and moral. It begins with the execution of the engagement letter that embodies the
terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical
and competent performance in all aspects of the audit. The financial statements are
representations of the client; but it is the auditor who has the responsibility for the accuracy in the
recording of data that underlies their preparation, their form of presentation, and the opinion
expressed therein. The auditor does not assume the role of employee or of management in the
clients conduct of operations and is never under the control or supervision of the client.
Same; Negligence; Nothing could be more horrible to a client than to discover later on that the
person tasked to detect fraud was the same one who perpetrated it.Yabut was an independent
auditor hired by CASA. He handled its monthly bank reconciliations and had access to all relevant
documents and checkbooks. In him was reposed the clients trust and confidence that he would
perform precisely those functions and apply the appropriate procedures in accordance with
generally accepted auditing standards. Yet he did not meet these expectations. Nothing could be
more horrible to a client than to discover later on that the person tasked to detect fraud was the
same one who perpetrated it.
Same; Same; Awareness is not equipollent with discernment.It is a non sequitur to say that
the person who receives the monthly bank statements, together with the cancelled checks and
other debit/credit memoranda, shall examine the contents and give notice of any discrepancies
within a reasonable time. Awareness is not equipollent with discernment.
Same; Same; A preschool teacher charged with molding the minds of the youth cannot be
burdened with the intricacies or complexities of corporate existence.Moreover, there was a time
gap between the period covered by the bank statement and the date of its actual receipt. Lebron
personally received the December 1990 bank statement only in January 1991when she was also
informed of the forgery for the first time, after which she immediately requested a stop payment
order. She cannot be faulted for the late detection of the forged December check. After all, the
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2 SUPREME COURT REPORTS ANNOTATED
68
Bank of the Philippine Islands vs. Casa Montessori Internationale
bank account with BPI was not personal but corporate, and she could not be expected to
monitor closely all its finances. A preschool teacher charged with molding the minds of the youth
cannot be burdened with the intricacies or complexities of corporate existence.
Same; Same; The depositor could only be blamed, if at all, for its unintelligent choice in the
selection and appointment of an auditora fault that is not tantamount to negligence.There is
also a cutoff period such that checks issued during a given month, but not presented for payment
within that period, will not be reflected therein. An experienced auditor with intent to defraud can
easily conceal any devious scheme from a client unwary of the accounting processes involved by
manipulating the cash balances on recordespecially when bank transactions are numerous, large
and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and
appointment of an auditora fault that is not tantamount to negligence.
Same; Same; Negligence is not presumed, but proven by whoever alleges it; The Professional
Regulation Commission, through the Board of Accountancy, now requires not only accreditation for
the practice of public accountancy, but also the registration of firms in the practice thereof.
Negligence is not presumed, but proven by whoever alleges it. Its mere existence is not sufficient
without proof that it, and no other cause, has given rise to damages. In addition, this fault is
common to, if not prevalent among, small and medium-sized business entities, thus leading the
Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require
today not only accreditation for the practice of public accountancy, but also the registration of firms
in the practice thereof. In fact, among the attachments now required upon registration are the code
of good governance and a sworn statement on adequate and effective training.
Same; Same; If auditors may be held liable for breach of contract and negligence, with all the
more reason may they be charged with the perpetration of fraud upon an unsuspecting client.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CAS A. If auditors
may be held liable for breach of contract and negligence, with all the more reason may they be
charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to
pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid
under a mistake may rightfully be recovered, and under such terms as the injured party may
choose.
Damages; The adverse result of an action does not per se make the action wrongful, or the
party liable for it.In the absence of a wrongful act or omission, or of fraud or bad faith, moral
damages cannot be awarded.
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Bank of the Philippine Islands vs. Casa Montessori Internationale
The adverse result of an action does not per se make the action wrongful, or the party liable
for it. One may err, but error alone is not a ground for granting such damages. While no proof of
pecuniary loss is necessary thereforwith the amount to be awarded left to the courts discretion
the claimant must nonetheless satisfactorily prove the existence of its factual basis and causal
relation to the claimants act or omission.
Same; As a general rule, a corporation is not entitled to moral damages because it cannot
experience physical suffering and mental anguish, but, for breach of the fiduciary duty required of a
bank, a corporate client may claim such damages when its good reputation is besmirched by such
breach, and social humiliation results therefrom.As a general rule, a corporationbeing an
artificial person without feelings, emotions and senses, and having existence only in legal
contemplationis not entitled to moral damages, because it cannot experience physical suffering
and mental anguish. However, for breach of the fiduciary duty required of a bank, a corporate
client may claim such damages when its good reputation is besmirched by such breach, and social
humiliation results therefrom. CASA was unable to prove that BPI had debased the good
reputation of, and consequently caused incalculable embarrassment to, the former. CASAs mere
allegation or supposition thereof, without any sufficient evidence on record, is not enough.
Same; Attorneys Fees; When the act or omission of the defendant has compelled the plaintiff to
incur expenses to protect the latters interest, or where the court deems it just and equitable,
attorneys fees may be recovered.Although it is a sound policy not to set a premium on the right to
litigate, we find that CASA is entitled to reasonable attorneys fees based on factual, legal, and
equitable justification. When the act or omission of the defendant has compelled the plaintiff to
incur expenses to protect the latters interest, or where the court deems it just and equitable,
attorneys fees may be recovered. In the present case, BPI persistently denied the claim of CASA
under the NIL to recredit the latters account for the value of the forged checks. This denial
constrained CASA to incur expenses and exert effort for more than ten years in order to protect its
corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of
negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the
Court deems it just and equitable to grant ten percent (10%) of the total value adjudged to CASA
as attorneys fees.
Same; Interest Rates; Since a court judgment is not a loan or a forbearance of recovery, the
legal interest shall be at six percent (6%) per annum.For the failure of BPI to pay CASA upon
demand and for compelling the latter to resort to the courts to obtain payment, legal interest may
be adjudicated at the discretion of the Court, the same to run from the
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70
Bank of the Philippine Islands vs. Casa Montessori Internationale
filing of the Complaint. Since a court judgment is not a loan or a forbearance of recovery, the
legal interest shall be at six percent (6%) per annum. If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per
annum. The actual base for its computation shall be on the amount finally adjudged,
compounded annually to make up for the cost of money already lost to CASA.
Same; Negotiable Instruments Law; Code of Commerce; Under Section 196 of the NIL, any
case not provided for shall be governed by the provisions of existing legislation or, in default
thereof, by the rules of the law merchant, and, since damages are not provided for in the NIL, resort
is had to the Code of Commerce and the Civil Code.Moreover, the failure of the CA to award
interest does not prevent us from granting it upon damages awarded for breach of contract.
Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to
the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be
governed by the provisions of existing legislation or, in default thereof, by the rules of the law
merchant. Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and
the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its
provisions and, in their absence, by the usages of commerce generally observed in each place; and
in the absence of both rules, by those of the civil law. This law being silent, we look at Article 18 of
the Civil Code, which states: In matters which are governed by the Code of Commerce and special
laws, their deficiency shall be supplied by its provisions. A perusal of these three statutes
unmistakably shows that the award of interest under our civil law is justified.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benedicto, Verzosa, Geslogo, Burkley & Associates for Bank of the Philippine
Islands.
Oscar F. Martinez for Casa Montessori Internationale
Mauricio Law Office for Leonardo Yabut.
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the deposits
of its clients, who have the right to expect high standards of integrity and performance
from it. Among
271
VOL. 430, MAY 28, 2004 271
Bank of the Philippine Islands vs. Casa Montessori Internationale
its obligations in furtherance thereof is knowing the signatures of its clients. Depositors
are not estopped from questioning wrongful withdrawals, even if they have failed to
question those errors in the statements sent by the bank to them for verification.
The Case
Before us are two Petitions for Review under Rule 45 of the Rules of Court, assailing the
1
March 23, 2001 Decision and the August 17, 2001 Resolution of the Court of Appeals
2 3
(CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as
follows:
WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the
modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-
half of the value of the forged checks in the amount of P547,115.00 after deductions subject to
REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other
half to plaintiff corporation [Casa Montessori Internationale (CASA)]. 4
The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
On November 8, 1982, plaintiff CASA Montessori International opened Current Account No. 0291-
5 _______________
0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its
authorized signatories. 6The amount was earlier stated in the CA Decision as P782,000.
_______________ 7The total amount of the encashed checks was earlier computed in the CA Decision to be P782,600.
8Assailed CA Decision, pp. 2-4; G.R. No. 149454, Rollo, pp. 45-47; G.R. No. 149507, Rollo, pp. 23-25.
1G.R. No. 149454, Rollo, pp. 20-40; G.R. No. 149507, Rollo, pp. 3-20. Citations omitted.
2Id., pp. 44-52 & 22-30. Penned by Justice Portia Alio-Hormachuelos, with the concurrence of Justices 273
Fermin A. Martin Jr. (Second Division chairman) and Mercedes Gozo-Dadole (member). VOL. 430, MAY 28, 2004 273
3Id., pp. 54 & 32. Penned by Justice Portia Alio-Hormachuelos, with the concurrence of Justices Ramon A.
Barcelona (Special Former Second Division chairman) and Mercedes Gozo-Dadole (member). Bank of the Philippine Islands vs. Casa Montessori Internationale
4Assailed CA Decision, pp. 8-9; G.R. No. 149454, Rollo, pp. 51-52; G.R. No. 149507, Rollo, pp. 29-30. sulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI
5This is also referred to in the records as Casa Montessori Internationale or Casa Montessori International, half the total amount claimed; and CASA, the other half. It also disallowed attorneys
Inc.
fees and moral and exemplary damages.
272
Hence, these Petitions. 9

272 SUPREME COURT REPORTS ANNOTATED

Issues
Bank of the Philippine Islands vs. Casa Montessori Internationale In G.R. No. 149454, Petitioner BPI submits the following issues for our consideration:
In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable
encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be
following dates and amounts: proved by clear, positive and convincing evidence; and that the burden of proof lies on the party
Check No. Date Amount alleging the forgery.
1. 839700 April 24, 1990 P 43,400.00 II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable
laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its
2. 839459 Nov. 2, 1990 110,500.00 own negligence, from asserting its forgery claim against BPI, specially taking into account the
3. 839609 Oct. 17, 1990 47,723.00 absence of any negligence on the part of BPI. 10

4. 839549 April 7, 1990 90,700.00 In G.R. No. 149507, Petitioner CASA submits the following issues:
1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI],
5. 839569 Sept. 23, 1990 52,277.00
although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys
6. 729149 Mar. 22, 1990 148,000.00 fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it
7. 729129 Mar. 16, 1990 51,015.00 did not order [BPI] to pay interest on the amounts due to [CASA].
_______________
8. 839684 Dec. 1, 1990 140,000.00
9. 729034 Mar. 2, 1990 98,985.00 9These two cases were consolidated and deemed submitted for decision on July 25, 2002, upon the Courts
Total --- P 782,600.00 6
receipt of BPIs Memorandum in G.R. No. 149454, which was signed by Atty. Justino M. Marquez III. CASAs
Memorandum, signed by Atty. Oscar F. Martinez, was filed on July 4, 2002; while Yabuts Memorandum,
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious signed by Atty. Leny L. Mauricio, was filed on June 25, 2002.
name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. In G.R. No. 149507, a Manifestation (re: Memorandum) by Yabut, also signed by Atty. Mauricio, was filed
Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and on June 25, 2002. BPIs Memorandum, also signed by Atty. Marquez, was filed on June 3, 2002; while CASAs
encashed the checks. Memorandum, also signed by Atty. Martinez, was filed on April 19, 2002.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded 10BPIs Memorandum, p. 7; G.R. No. 149454, Rollo, p. 140. Boldface and upper case characters copied
that the handwritings thereon compared to the standard signature of Ms. Lebron were not written verbatim.
by the latter. 274
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against 274 SUPREME COURT REPORTS ANNOTATED
defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00 in the 7
Bank of the Philippine Islands vs. Casa Montessori Internationale
current and savings accounts of the plaintiff with interest at 6% per annum.
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in
On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff. 8

the case at bar, thus warranting its conclusion that the loss in the amount of P547.115.00 be
Ruling of the Court of Appeals apportioned between [CASA] and [BPI] x x x. 11

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss These issues can be narrowed down to three. First, was there forgery under the
between BPI and CASA. The appellate court took into account CASAs contributory Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and
negligence that re-
therefore precluded from setting up forgery as a defense? Third, should moral and 17Assailed CA Decision, p. 7; G.R. No. 149454, Rollo, p. 50; G.R. No. 149507, Rollo, p. 28.
RTC Decision, p. 4; G.R. No. 149454, Rollo, p. 59.
exemplary damages, attorneys fees, and interest be awarded?
18

19Yabuts Affidavit, pp. 1-2; G.R. No. 149454, Records, pp. 323-324.
The Courts Ruling 20RTC Decision, p. 4; G.R. No. 149454, Rollo, p. 59.
The Petition in G.R. No. 149454 has no merit, while that in G.R. No. 149507 is partly 21Assailed CA Decision, p. 8; id., p. 51; G.R. No. 149507, Rollo, p. 29.
Questioned Document Report No. 291-91 dated November 25, 1991; G.R. No. 149454, Records, p. 326.
meritorious.
22

23Assailed CA Decision, p. 7; G.R. No. 149454, Rollo, p. 50; G.R. No. 149507, Rollo, p. 28. See also RTC
First Issue: Decision, p. 3; G.R. No. 149454, Rollo, p. 58.
Questioned Document Report No. 029-91 dated January 28, 1991, issued upon the request of BPI Vice
Forged Signature Wholly Inoperative
24

President Amante S. Bueno; G.R. No. 149454, Records, p. 328.

Section 23 of the NIL provides: 25Francisco v. Court of Appeals, 377 Phil. 368, 378; 319 SCRA 354, 362, November 29, 1999. See
Section 23. Forged signature; effect of.When a signature is forged or made without the authority also Almeda v. Court of Appeals, 336 Phil. 621, 629; 269 SCRA 643, 652, March 13, 1997; Fuente v. Court of
of the person whose signature it purports to be, it is wholly inoperative, and no right x x x to Appeals, 335 Phil. 1163, 1169; 268 SCRA 703, February 26, 1997; and People v. Magallano, 334 Phil. 276,
enforce payment thereof against any party thereto, can be acquired through or under such 282; 266 SCRA 305, January 16, 1997.
signature, unless the party against whom it is sought to enforce such right is precluded from 276
setting up the forgery or want of authority. 12
276 SUPREME COURT REPORTS ANNOTATED
Under this provision, a forged signature is a real or absolute defense, and a person
13 14
Bank of the Philippine Islands vs. Casa Montessori Internationale
whose signature on a negotiable instrument is forged is deemed to have never become a
party thereto and to have never consented to the contract that allegedly gave rise to it. 15
Voluntary Admission Not
_______________ Violative of Constitutional Rights`
The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial
11CASAs Memorandum, p. 6; G.R. No. 149507, Rollo, p. 83. investigation, and (2) against self-incrimination.
Act No. 2031 took effect on June 2, 1911. Agbayani, Commentaries and Jurisprudence on the Commercial
In the first place, he was not under custodial investigation. His Affidavit was
12
26

Laws of the Philippines, Vol. I (1989 ed.), p. 191.

13Campos and Lopez-Campos, Notes and Selected Cases on Negotiable Instruments Law (5th ed., 1994), pp. executed in private and before private individuals. The mantle of protection under
27

268-269. Section 12 of Article III of the 1987 Constitution covers only the period from the time a
28

14Gempesaw v. Court of Appeals, 218 SCRA 682, 689, February 9, 1993. person is
15Associated Bank v. Court of Appeals, 322 Phil. 677, 695; 252 SCRA 620, 629, January 31, 1996. _______________
275
VOL. 430, MAY 28, 2004 275 26Custodial investigation is defined as any questioning initiated by law enforcement officers after a person
has been taken into custody or otherwise deprived of his freedom of action in any significant way. Sebastian,
Bank of the Philippine Islands vs. Casa Montessori Internationale Sr. v. Garchitorena, 343 SCRA 463, 470, October 18, 2000, per De Leon, Jr., J. See also Navallo v.
The counterfeiting of any writing, consisting in the signing of anothers name with intent Sandiganbayan, 234 SCRA 175, 183-184, July 18, 1994; People v. Loveria, 187 SCRA 47, 61, July 2, 1990;
to defraud, is forgery. 16 and Miranda v. Arizona, 384 US 436, 444, 16 L. Ed. 2d 694, 706, June 13, 1966.
In the present case, we hold that there was forgery of the drawers signature on the In the deliberations on the 1987 Constitution, Commissioner Felicitas Aquino summed up the right as
extending to the period of custodial interrogation, temporary detention and preliminary technical custody.
check. Bernas, The Constitution of the Republic of the Philippines: A Commentary, Vol. I (1st ed., 1987), p. 345;
First, both the CA and the RTC found that Respondent Yabut himself had
17 18
citing Record of the Constitutional Commission: Proceedings and Debates, Vol. I (1986), pp. 713-714, 716-717.
voluntarily admitted, through an Affidavit, that he had forged the drawers signature 12 of Article III of the Constitution provides for the rights available to a person facing custodial
and encashed the checks. He never refuted these findings. That he had been coerced
19 20
investigation. Cruz, Constitutional Law (1995 ed.), p. 292.
Yabuts Affidavit, supra.
into admission was not corroborated by any evidence on record.
27

x x x [A]mong the rights of a person under custodial investigation is the right to have competent and
21
28

Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, independent counsel preferably of his own choice and if the person cannot afford the services of counsel, that he
after its examination of the said checks, had concluded that the handwritings thereon
22 must be provided with one. Marcelo v. Sandiganbayan, 361 Phil. 772, 788; 302 SCRA 102, 116, January 26,
compared to the standard signature of the drawerwere not hers. This conclusion was
23
1999, per Mendoza, J. See also People v. Porio, 376 SCRA 596, 609-610, February 13, 2002; People v. Suela, 373
SCRA 163, 182, January 15, 2002; People v. Tulin, 416 Phil. 365, 382-383; 364 SCRA 10, August 30,
the same as that in the Report that the PNP Crime Laboratory had earlier issued to
24

2001; People v. Continente, 339 SCRA 1, 17-18, 20-21, 26, August 25, 2000; People v. Santocildes, Jr., 378 Phil.
BPIthe drawee bankupon the latters request. 943, 949-950; 321 SCRA 310, December 21, 1999; People v. Bermas, 365 Phil. 581, 593-596; 306 SCRA 135, 146,
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by April 21, 1999; People v. Santos, 347 Phil. 943, 949-950; 283 SCRA 443, 453, December 22, 1997; People v.
the CA, since these are supported by substantial evidence on record. 25
Andal, 344 Phil. 889, 911-912; 279 SCRA 474, September 25, 1997; People v. Fabro, 342 Phil. 708, 772, 726; 277
_______________ SCRA 19, 32, August 11, 1997; People v. Deniega, 251 SCRA 626, 638-639, De
277
16 Agbayani, supra, p. 191. VOL. 430, MAY 28, 2004 277
 Bank of the Philippine Islands vs. Casa Montessori Internationale
taken into custody for investigation of his possible participation in the commission of a
crime or from the time he is singled out as a suspect in the commission of a crime
although not yet in custody. 29
Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with questions propounded on him by the police
authorities for the purpose of eliciting admissions, confessions, or any information. The 30
said constitutional provision does not apply to spontaneous statements made in a
voluntary manner whereby an individual orally admits to authorship of a crime. What
31 32
the Constitution proscribes is the compulsory or coercive disclosure of incriminating
facts. 33
_______________
cember 29, 1995; and People v. Duero, 191 Phil. 679, 687-688; 104 SCRA 379, May 13, 1981.
29People v. Felixminia, 379 SCRA 567, 575, March 20, 2002, per curiam. See also People v. Bariquit, 341
SCRA 600, 618, October 2, 2000; People v. Bravo, 376 Phil. 931, 940; 318 SCRA 812, 821-822, November 22,
1999; People v. Andan, 336 Phil. 91, 102; 269 SCRA 95, March 3, 1997; and People v. Marra, 236 SCRA 565,
573, September 20, 1994. These rights are available if a person is in custody, even if not yet a suspect; or if
already the suspect, even if not yet in custody. Bernas, supra.
30People v. Arondain, 418 Phil. 354, 367-368; 366 SCRA 98, 105, September 27, 2001, per Ynares-
Santiago, J. See also People v. Amestuzo, 413 Phil. 500, 508; 361 SCRA 184, 191, July 12, 2001; People v.
Valdez, 341 SCRA 25, 41-42, September 25, 2000; People v. Labtan, 377 Phil. 967, 982, 984; 320 SCRA 140,
December 8, 1999; People v. De la Cruz, 344 Phil. 653, 660-661; 279 SCRA 245, September 17, 1997; People v.
Del Rosario, 365 Phil. 292, 310; 305 SCRA 740, April 14, 1999; People v. Ayson, 175 SCRA 216, 231, July 7,
1989; and Gamboa v. Cruz, 162 SCRA 642, 648, June 27, 1988.
People v. Dano, 339 SCRA 515, 528, September 1, 2000, per Quisumbing, J. See also Aballe v. People, 183
31
SCRA 196, 205, March 15, 1990; People v. Dy, 158 SCRA 111, 123-124, February 23, 1988; and People v.
Taylaran, 195 Phil. 226, 233-234; 108 SCRA 373, October 23, 1981.
32In fact, the exclusionary rule under 12, paragraph (2) of the Bill of Rights, applies only to admissions
made in a criminal investigation but not to those made in an administrative investigation. Remolona v.
CSC, 414 Phil. 590, 599; 362 SCRA 304, 311-312, August 2, 2001, per Puno, J. See also Sebastian, Sr. v.
Garchitorena, supra; Manuel v. N.C. Construction Supply, 346 Phil. 1014, 1024; 282 SCRA 326, 335, November
28, 1997; and Lumiqued v. Exevea, 346 Phil. 807, 822-823; 282 SCRA 125, November 18, 1997.
33People v. Dano, supra. See People v. Ordoo, 390 Phil. 169, 183-184; 334 SCRA 673, June 29, 2000.
278
278 SUPREME COURT REPORTS ANNOTATED
Bank of the Philippine Islands vs. Casa Montessori Internationale
Moreover, the right against self-incrimination under Section 17 of Article III of the
34 35
Constitution, which is ordinarily available only in criminal prosecutions, extends to all
other government proceedingsincluding civil actions, legislative investigations, and 36
administrative proceedings that possess a criminal or penal aspect but not to private
37
investigations done by private individuals. Even in such government proceedings, this
right may be waived, provided the waiver is certain; unequivocal; and intelligently,
38
understanding and willingly made. 39
If in these government proceedings waiver is allowed, all the more is it so in private
investigations. It is of no moment that no criminal case has yet been filed against Yabut.
The filing thereof is entirely up to the appropriate authorities or to the private
individuals upon whom damage has been caused. As we shall also explain later, it is not
mandatory for CASAthe plaintiff belowto implead Yabut in the civil case before the
lower court.
Under these two constitutional provisions, [t]he Bill of Rights does not concern itself
40
with the relation between a private individ-
_______________
34This provision prohibits the compulsory oral examination of prisoners before the trial, or upon trial, for
the purpose of extorting unwilling confessions or declarations implicating them in the commission of a crime.
Bernas, supra, pp. 422-423; citing US v. Tan Teng, 23 Phil. 145, 152, September 7, 1912.
The kernel of this right is against testimonial compulsion only. Cruz, supra, p. 283. See Regalado, Remedial
Law Compendium, Vol. II (7th rev. ed., 1995), p. 369.
35People v. Rondero, 378 Phil. 123, 139-140; 320 SCRA 383, 400, December 9, 1999. See People v. Bacor, 366
Phil. 197, 212; 306 SCRA 522, 536, April 30, 1999.
36Cruz, supra, p. 282.
37Secretary of Justice v. Lantion, 379 Phil. 165, 200; 322 SCRA 160, January 18, 2000; citing Pascual, Jr. v.
Board of Medical Examiners, 138 Phil. 361, 366; 28 SCRA 344, 348, May 26, 1969, and Cabal v. Kapunan,
Jr., 116 Phil. 1361, 1366-1369; 6 SCRA 1059, December 29, 1962. See Bernas, supra, p. 423.
38Alvero v. Dizon, 76 Phil. 637, 645, May 4, 1946.
39Cruz, supra, p. 286.
40The Bill of Rights in Article III of the Constitution is a statement of an individuals rights that are
normally protected, except in extreme cases of real public necessity, against impairment, usurpation, or
removal
279
VOL. 430, MAY 28, 2004 279
Bank of the Philippine Islands vs. Casa Montessori Internationale
ual and another individual. It governs the relationship between the individual and the
State. Moreover, the Bill of Rights is a charter of liberties for the individual and a
41
limitation upon the power of the [S]tate. These rights are guaranteed to preclude the
42 43
slightest coercion by the State that may lead the accused to admit something false, not
prevent him from freely and voluntarily telling the truth. 44
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights
does not automatically entitle him to the constitutional protection. When he freely and45
voluntarily executed his Affidavit, the State was not even involved. Such Affidavit may
46
therefore be admitted without violating his constitutional rights while under custodial
investigation and against self-incrimination.
_______________
by any form of State action. Sinco, Philippine Political Law: Principles and Concepts (10th ed., 1954), p. 73.
41People v. Silvano, 381 SCRA 607, 616, April 29, 2002, per Mendoza, J. See People v. Domantay, 366 Phil.
459, 474; 307 SCRA 1, 17, May 11, 1999; People v. Maqueda, 312 Phil. 646, 675-676; 242 SCRA 565, March 22,
1995; People v. Marti, 193 SCRA 57, 67, January 18, 1991.
Filoteo, Jr. v. Sandiganbayan, 331 Phil. 531, 574; 263 SCRA 222, 261, October 16, 1996, per
42
Panganiban, J. See Bernas, supra, p. 33.
43A person suspected or accused of a crime is entitled to the specific safeguards embodied in 12 and 17 of
the Bill of Rights against arbitrary prosecution or punishment. Cruz, supra, p. 274.
44People v. Vallejo, 382 SCRA 192, 216, May 9, 2002, per curiam; citing People v. Andan, supra. See
also People v. Ordoo, supra; People v. Barlis, 231 SCRA 426, 441, March 24, 1994; and People v. Layuso, 175
SCRA 47, 53, July 5, 1989.
45Sinco, supra, p. 670.
46In the absence of coercion, paragraph 17 of Article 32 of the Civil Code does not apply. It states:
Art. 32. Any x x x private individual x x x who directly or indirectly x x x violates or in any manner impedes or impairs any of Even with respect to documentary evidence, the best evidence rule applies only when
the following rights and liberties of another person shall be liable to the latter for damages:
(17) Freedom from being compelled to be a witness against ones self, or from being forced to confess a guilt x x x. the contents of a documentsuch as the drawers signature on a checkis the subject of
280 inquiry. As to whether the document has been actually executed, this rule does not
58

280 SUPREME COURT REPORTS ANNOTATED apply; and testimonial as well as any other secondary evidence is admissible. Carina 59

Bank of the Philippine Islands vs. Casa Montessori Internationale Lebron herself, the drawers authorized signatory, testified many times that she had
never signed those checks. Her testimonial evidence is admissible; the checks have not
Clear, Positive and Convincing been actually executed. The genuineness of her handwriting is proved, not only through
Examination and Evidence the courts comparison of the questioned handwritings and admittedly genuine
The examination by the PNP, though inconclusive, was nevertheless clear, positive and specimens thereof, but above all by her.
60

convincing. The failure of CASA to produce the original checks neither gives rise to the
Forgery cannot be presumed. It must be established by clear, positive and
47
presumption of suppression of evidence nor creates an unfavorable inference against
61

convincing evidence. Under the best evidence rule as applied to documentary evidence
48
it. Such failure merely authorizes
62

like the checks in question, no secondary or substitutionary evidence may inceptively be _______________
introduced, as the original writing itself must be produced in court. But when, without 49

bad faith on the part of the offeror, the original checks have already been destroyed or Ibid.
56

RTC Decision, p. 3; G.R. No. 149454, Rollo, p. 58.

cannot be produced in court, secondary evidence may be produced. Without bad faith on
57
50

3 of Rule 130 of the Rules of Court.

58

its part, CASA proved the loss or destruction of the original checks through the Affidavit Regalado, supra.
59

of the one person who knew of that fact Yabut. He clearly admitted to discarding the
51 22 of Rule 132 of the Rules of Court.
60

paid checks to cover up his misdeed. In such a situation, secondary evidence like
52
This adverse presumption does not arise when the suppression is not willful. Regalado, supra, p. 639;
61

citing People v. Navaja, 220 SCRA 624, 633, March 30, 1993.
microfilm copies may be introduced in court. x x x [T]he genuineness of a standard writing may be established by any of the following: (1) by the
62

The drawers signatures on the microfilm copies were compared with the standard admission of the person sought to be charged with the disputed writing made at or for the purposes of the trial,
signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination or by his testimony; (2) by witnesses who saw the standards written or to whom or in whose hearing the person
that two different persons had written them. Although no conclusive report could be
53 sought to be charged acknowledged the writing thereof; (3) by evidence showing that the reputed writer of the
standard has acquiesced in or recognized the same, or that it has been adopted and acted upon by him in his
issued in the absence of the original checks, she affirmed that her findings were 90
54

business transactions or other concerns. Security Bank & Trust Company v. Triumph Lumber and
percent conclusive. According to her, even if the microfilm copies were the only basis of
55
Construction Corp., 361 Phil. 463, 478; 301 SCRA 537, 551-552, January 21, 1999, per Davide, Jr., C.J.,
comparison, the differences citing BA Finance Corp. v. Court of Appeals, 161 SCRA 608, 618, May 28, 1988.
_______________ 282
282 SUPREME COURT REPORTS ANNOTATED
American Express International, Inc. v. Court of Appeals, 367 Phil. 333, 341; 308 SCRA 65, 71, June 8,
47

1999, per Bellosillo, J.; citing Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, 558, March 1, 1994. Bank of the Philippine Islands vs. Casa Montessori Internationale
See Siasat v. Intermediate Appellate Court, 139 SCRA 238, 248, October 10, 1985. the introduction of secondary evidence in the form of microfilm copies. Of no
63

Metropolitan Bank & Trust Co. v. Court of Appeals, 194 SCRA 169, 176, February 18, 1991. See MWSS v.
48
consequence is the fact that CASA did not present the signature card containing the
Court of Appeals, 227 Phil. 18, 26; 143 SCRA 20, 30, July 14, 1986.
Regalado, supra, p. 555.
49
signatures with which those on the checks were compared. Specimens of standard 64

3(a) of Rule 130 of the Rules of Court.

50 signatures are not limited to such a card. Considering that it was not produced in
De Vera v. Aguilar, 218 SCRA 602, 607, February 9, 1993.
51
evidence, other documents that bear the drawers authentic signature may be resorted
Yabuts Affidavit, p. 1; G.R. No. 149454, Records, p. 323.
52
to. Besides, that card was in the possession of BPIthe adverse party.
65

TSN, January 18, 1994, p. 13.

We have held that without the original document containing the allegedly forged
53

Id., p. 29.
54

Id., pp. 33-34.

55 signature, one cannot make a definitive comparison that would establish forgery; and 66

281 that a comparison based on a mere reproduction of the document under controversy
VOL. 430, MAY 28, 2004 281 cannot produce reliable results. We have also said, however, that a judge cannot merely
67

Bank of the Philippine Islands vs. Casa Montessori Internationale rely on a handwriting experts testimony, but should also exercise independent judgment
68

in evaluating the authenticity of a signature under scrutiny. In the present case, both
were evident. Besides, the RTC explained that although the Report was inconclusive, no
69

56

the RTC and the CA conducted independent examinations of the evidence presented and
conclusive report could have been given by the PNP, anyway, in the absence of the
arrived at reasonable and similar conclusions. Not only did they admit secondary
original checks. This explanation is valid; otherwise, no such report can ever be relied
57

upon in court.
evidence; they also appositely considered testimonial and other documentary evidence in
the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the
first of these has been met. The result of examining a questioned handwriting, even with
70
the aid of experts and scientific instruments, may be inconclusive; but it is a non
sequitur to say that such result is not clear, positive and convincing. The preponderance
See Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681; 269 SCRA 695, 708-709, March 14,
1997.
74Philippine Commercial International Bank v. Court of Appeals, 350 SCRA 446, 472, January 29, 2001.
752 of Republic Act No. 8791, otherwise known as The General Banking Law of 2000.
76Westmont Bank v. Ong, 375 SCRA 212, 221, January 30, 2002; citing Citytrust Banking Corp. v.
71 Intermediate Appellate Court, 232 SCRA 559, 564, May 27, 1994.
Simex International (Manila), Inc. v. Court of Appeals, 183 SCRA 360, 367, March 19, 1990, per Cruz, J.
77

284
of evidence required in this case has been satisfied. 72

_______________ 284 SUPREME COURT REPORTS ANNOTATED

Bank of the Philippine Islands vs. Casa Montessori Internationale
Regalado, supra, p. 561.
63
of that degree of diligence required of a bank. It cannot now feign ignorance, for very
78

This is the normal process followed in verifying signatures for purposes of making bank withdrawals.
early on we have already ruled that a bank is bound to know the signatures of its
64

Chiang Yia Min v. Court of Appeals, 355 SCRA 608, 622-623, March 28, 2001.
65

Heirs of Gregorio v. Court of Appeals, 360 Phil. 753, 763; 300 SCRA 565, 574, December 29, 1998.
66 customers; and if it pays a forged check, it must be considered as making the payment
Ibid.
67
out of its own funds, and cannot ordinarily charge the amount so paid to the account of
Id., p. 764.
68
the depositor whose name was forged. In fact, BPI was the same bank involved when
79

Ibid.
we issued this ruling seventy years ago.
69

3(a) of Rule 130 of the Rules of Court.

70

Regalado, supra, p. 627.

71
Neither Waiver nor Estoppel
1 of Rule 133 of the Rules of Court.
Results from Failure to
72

283
VOL. 430, MAY 28, 2004 283 Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows:
Bank of the Philippine Islands vs. Casa Montessori Internationale
If no error is reported in ten (10) days, account will be correct. Such notice cannot be 80

Second Issue: considered a waiver, even if CASA failed to report the error. Neither is it estopped from
Negligence Attributable to BPI Alone questioning the mistake after the lapse of the ten-day period.
Having established the forgery of the drawers signature, BPIthe draweeerred in This notice is a simple confirmation or circularizationin accounting parlance
81

making payments by virtue thereof. The forged signatures are wholly inoperative, and that requests client-depositors to affirm the accuracy of items recorded by the banks. Its 82

CASAthe drawer whose authorized signatures do not appear on the negotiable purpose is to obtain from the depositors a direct corroboration of the correctness of their
instrumentscannot be held liable thereon. Neither is the latter precluded from setting account balances with their respective banks. Internal or external auditors of a bank use
83

up forgery as a real defense. it as a basic audit procedure the 84

_______________
Clear Negligence in Allowing Payment
Under a Forged Signature 78Article 1173 of the Civil Code.
We have repeatedly emphasized that, since the banking business is impressed with 79San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands, 59 Phil. 59, 66, December 11, 1933, per
public interest, of paramount importance thereto is the trust and confidence of the public Hull, J.
BPIs Memorandum, p. 14; G.R. No. 149454, Rollo, p. 147.
in general. Consequently, the highest degree of diligence is expected, and high standards
80
73 74

of integrity and performance are even required, of it. By the nature of its functions, a
75
bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.
76
BPI contends that it has a signature verification procedure, in which checks are
81Aside from positive confirmations, there are also negative ones that request debtors to respond to an
auditor only if the balance in an attached statement is incorrect. Ricchiute, Auditing Concepts and
Standards (rev. 2nd ed., 1991), p. 491.
77
82Santos, Basic Auditing: Theory and Concepts, Vol. I (1988), p. 111.
Association of CPAs in Public Practice, Audit Manual (1985), p. 49.
83

honored only when the signatures therein are verified to be the same with or similar to
the specimen signatures on the signature cards. Nonetheless, it still failed to detect the
eight instances of forgery. Its negligence consisted in the omission
_______________
73The diligence required of banks is more than that of a pater familiasor good father of a family. Bank of the
Philippine Islands v. Court of Appeals, 383 Phil. 538, 554; 326 SCRA 641, 657, February 29, 2000.
84Confirmation of accounts payable balances is normally applied to nearly every audit engagement. Holmes
and Burns, Auditing Standards and Procedures (9th ed., 1979), p. 675.
A bank deposit is in the nature of a simple loan or mutuum, as provided for in Articles 1953 and 1980 of the Civil Code. See De
285
VOL. 430, MAY 28, 2004 285
Bank of the Philippine Islands vs. Casa Montessori Internationale
results of which its client-depositors are neither interested in nor privy toto test the
details of transactions and balances in the banks records. Evidential matter obtained85
from independent sources outside a bank only serves to provide greater assurance of ignorance founded upon an innocent mistake, estoppel will not arise. A person who has 97

reliability than that obtained solely within it for purposes of an audit of its own financial
86 no knowledge of or consent to a transaction may not be estopped by it. Estoppel cannot 98

statements, not those of its client-depositors. be sustained by mere argument or doubtful inference x x x. CASA is not barred from 99

Furthermore, there is always the audit risk that errors would not be detected for 87 questioning BPIs error even after the lapse of the period given in the notice.
various reasons. One, materiality is a consideration in audit planning; and two, the 88 _______________
information obtained from such a substantive test is merely presumptive and cannot be
BPIs Memorandum, p. 14; G.R. No. 149454, Rollo, p. 147.
the basis of a valid waiver. BPI has no right to impose a condition unilaterally and
93
89

94 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV (1991), p. 656.
thereafter consider failure to meet such condition a waiver. Neither may CASA renounce 95 Conclusive or absolute presumption. 2(a) of Rule 131 of the Rules of Court.
a right it has never possessed.
90 91 96 Art. 1431 of the Civil Code also provides:
Every right has subjectsactive and passive. While the active subject is entitled to Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
demand its enforcement, the passive one is duty-bound to suffer such enforcement. 92
Ramiro v. Grao, 54 Phil. 744, 750, March 31, 1930.
97

On the one hand, BPI could not have been an active subject, because it could not have Lodovica v. Court of Appeals, 65 SCRA 154, 158, July 18, 1975.
98

demanded from CASA a response to its Kalalo v. Luz, 145 Phil. 152, 161; 34 SCRA 337, July 31, 1970, per Zaldivar, J.
99

_______________ 287
VOL. 430, MAY 28, 2004 287
Leon, Comments and Cases on Credit Transactions, 1995 ed., pp. 32-33; Integrated Realty Corp. v.
Philippine National Bank, 174 SCRA 295, 309, June 28, 1989; Serrano v. Central Bank of the Philippines, 96
Bank of the Philippine Islands vs. Casa Montessori Internationale
SCRA 96, 102, February 14, 1980; and Central Bank of the Philippines v. Morfe, 63 SCRA 114, 119, March 12, Loss Borne by
1975. In bank parlance, a bank deposit is an account payable by the bank to its client-depositor.
85 Santos, supra, p. 102. Proximate Source
86 Association of CPAs in Public Practice, Audit Manual, supra. of Negligence
87 Id., p. 57. For allowing payment on the checks to a wrongful and fictitious payee, BPIthe drawee
100

Id., p. 24.
bankbecomes liable to its deposi-tor-drawer. Since the encashing bank is one of its
88

89 Waiver is defined as the relinquishment of a known right with both knowledge of its existence and an
intention to relinquish it. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, branches, BPI can easily go after it and hold it liable for reimbursement. It may not
101 102

Vol. I (1990), p. 29. debit the drawers account and is not entitled to indemnification from the drawer. In
103 104

90 Article 6 of the Civil Code. both law and equity, when one of two innocent persons must suffer by the wrongful act
The general rule of law is that a person may renounce any right which the law gives x x x. The Manila
of a third person, the loss must be borne by the one whose negligence was the proximate
91

Railroad Company v. The Attorney-General, 20 Phil. 523, 537, December 1, 1911, per Moreland, J. See
Tolentino, supra, p. 30. cause of the loss or who put it into the power of the third person to perpetrate the
92 Tolentino, supra, p. 28. wrong. 105

286 Proximate cause is determined by the facts of the case. It is that cause which, in
106

286 SUPREME COURT REPORTS ANNOTATED natural and continuous sequence, unbroken by any efficient intervening cause, produces
Bank of the Philippine Islands vs. Casa Montessori Internationale the injury, and without which the result would not have occurred. 107

_______________
notice. Besides, the notice was a measly request worded as follows: Please examine x x x
and report x x x. CASA, on the other hand, could not have been a passive subject,
93

either, because it had no obligation to respond. It couldas it didchoose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that established as the truth, in legal
contemplation. Our rules on evidence even make a juris et de jure presumption that
94
100Under Article 1231(1) of the Civil Code, payment is the actual performance that extinguishes an
obligation.
It implies not only an assent to the order of the drawer and a recognition of the drawees obligation to pay
the sum therein, but also a compliance with such obligation. Philippine National Bank v. Court of Appeals, 134
Phil. 829, 833; 25 SCRA 693, 698, October 29, 1968.
95

whenever one has, by ones own act or omission, intentionally and deliberately led
another to believe a particular thing to be true and to act upon that belief, one cannot
in any litigation arising from such act or omis-sionbe permitted to falsify that supposed
truth.
96
101Greenbelt Branch. Assailed CA Decision, p. 3; G.R. No. 149454, Rollo, p. 46; G.R. No. 149507, Rollo, p. 24.
102The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., 43 Phil. 678, 683, August
23, 1922.
103Campos and Lopez-Campos, supra, pp. 286-287.
Associated Bank v. Court of Appeals, 322 Phil. 677, 697; 252 SCRA 620, 631, January 31, 1996, per
104

Romero, J.; citing The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., supra,
In the instant case, CASA never made any deed or representation that misled BPI. and Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., 157 SCRA 188, 198, January 20,
The formers omission, if any, may only be deemed an innocent mistake oblivious to the 1988.
procedures and consequences of periodic audits. Since its conduct was due to such
 105Philippine National Bank v. Court of Appeals, supra, per Concepcion, CJ; citing Blondeau v. Nano, 61
Phil. 625, 631-632, July 26, 1935. See Philippine National Bank v. The National City Bank of New York, 63
Phil. 711, 723-726, October 31, 1936.
106Sangco, Philippine Law on Torts and Damages, Vol. I (rev. ed., 1993), p. 90.
The major purpose of an independent audit is to investigate and determine objectively if
the financial statements submitted for audit by a corporation have been prepared in
accordance with the appropriate financial reporting practices of private entities. The 116

107Bataclan v. Medina, 109 Phil. 181, 185-186, October 22, 1957, per Montemayor, J. relationship that arises therefrom is both legal and moral. It begins with the execution
117

288 of the engagement letter that embodies the terms and conditions of the audit and ends
118

288 SUPREME COURT REPORTS ANNOTATED with the fulfilled expectation of the auditors ethical and competent performance in all
119

Bank of the Philippine Islands vs. Casa Montessori Internationale aspects of the audit. 120

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its The financial statements are representations of the client; but it is the auditor who
client-depositors on checks being encashed, BPI is expected to use reasonable business has the responsibility for the accuracy in the
_______________
prudence. In the performance of that obligation, it is bound by its internal banking
108

rules and regulations that form part of the contract it enters into with its depositors. 109
115 Bank of the Philippine Islands v. Court of Appeals, supra, p. 65.
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account 116 Holmes and Burns, supra, p. 1.
in one of its branches without privity; that is, without the proper verification of his
110 During the pendency of this case, an auditor had to ascertain whether the financial statements were in conformity with the
Generally Accepted Accounting Principles (GAAP). Valix and Peralta, Financial Accounting (Vol. I, 1985 ed.), p. 8.
corresponding identification papers. Second, BPI was unable to discover early on not only As of April 2004, the Accounting Standards Council (ASC) of the Philippines has approved many Statements of Financial
this irregularity, but also the marked differences in the signatures on the checks and Accounting Standards (SFAS) and has also adopted several International Accounting Standards (IAS) issued by the
International Accounting Standards Council (IASC). http://www.picpa.com.ph/press. htm, last visited April 23, 2004, 12:05 p.m.
those on the signature card. Third, despite the examination procedures it conducted, the PST.
Central Verification Unit of the bank even passed off these evidently different
111
117Holmes and Burns, supra, p. 79.
signatures as genuine. Without exercising the required prudence on its part, BPI 118Id., p. 206.
accepted and encashed the eight checks presented to it. As a result, it proximately 119Certified public accountants or CPAs adhere to a Code of Professional Ethics, promulgated by the Board
of Accountancy (BOA) on March 15, 1978. In January 2004, a new Code of Ethics for CPAs was approved by the
contributed to the fraud and should be held primarily liable for the negligence of its
112
Board of Directors of the Philippine Institute of CPAs (PICPA), to be recommended for adoption by the BOA
officers or agents when acting within the course and scope of their employment. It must 113
and approval by the Professional Regulation Commission (PRC) as part of the rules and regulations of the BOA
bear the loss. for the practice of the accountancy profession in the Philippines.
http://www.picpa.com.ph/news/codeofethics2.pdf, last visited April 23, 2004, 12:17 p.m. PST.
CASA Not Negligent 120Holmes and Burns, supra, p. 79.
in Its Financial Affairs 290
In this jurisdiction, the negligence of the party invoking forgery is recognized as an 290 SUPREME COURT REPORTS ANNOTATED
exception to the general rule that a forged
114
Bank of the Philippine Islands vs. Casa Montessori Internationale
_______________
recording of data that underlies their preparation, their form of presentation, and the
108Philippine National Bank v. Quimpo, 158 SCRA 582, 585, March 14, 1988, per Gancayco, J. opinion expressed therein. The auditor does not assume the role of employee or of
121 122

109Gempesaw v. Court of Appeals, supra, p. 696. management in the clients conduct of operations and is never under the control or
123

110Agbayani, supra, p. 207. supervision of the client.

124

As testified to on direct examination by Angelita Dandan, senior manager of the BPI Muntinlupa Branch
Yabut was an independent auditor hired by CASA. He handled its monthly bank
111
125

and formerly connected with the BPI Forbes Park Branch. TSN, August 26, 1997, pp. 3-4, and 7.
112x x x [B]anks are expected to exercise the highest degree of diligence in the selection and supervision of reconciliations and had access to all relevant documents and checkbooks. In him was 126

their employees. Bank of the Philippine Island v. Court of Appeals, 216 SCRA 51, 71, November 26, 1992, per reposed the clients trust and confidence that he would perform precisely those
127 128

Gutierrez, Jr., J. functions and apply the appropriate procedures in accordance with generally accepted
Philippine Commercial International Bank v. Court of Appeals, supra, per Quisumbing, J., p. 469.
auditing standards. Yet he did not meet these expectations. Nothing could be more
113
129

114Agbayani, supra, p. 199.

289 horrible to a client than to discover later on that the person tasked to detect fraud was
VOL. 430, MAY 28, 2004 289 the same one who perpetrated it.
Cash Balances
Bank of the Philippine Islands vs. Casa Montessori Internationale
signature is wholly inoperative. Contrary to BPIs claim, however, we do not find CASA
115
Open to Manipulation
negligent in handling its financial affairs. CASA, we stress, is not precluded from setting It is a non sequitur to say that the person who receives the monthly bank statements,
up forgery as a real defense. together with the cancelled checks and other debit/credit memoranda, shall examine the
contents and give notice of any discrepancies within a reasonable time. Awareness is not
Role of Independent Auditor
equipollent with discernment.
_______________ 292 SUPREME COURT REPORTS ANNOTATED
Santos, supra, pp. 11 & 168.
121
Bank of the Philippine Islands vs. Casa Montessori Internationale
Holmes and Burns, supra, p. 80.
122
unwary of the accounting processes involved by manipulating the cash balances on
Ricchiute, supra, p. 48.
123
recordespecially when bank transactions are numerous, large and frequent. CASA
Santos, supra, pp. 52 & 76.
could only be blamed, if at all, for its unintelligent choice in the selection and
124

As testified to on cross-examination by Carina Lebron (TSN, February 13, 1992, pp. 18-19). See Yabuts
125

Affidavit, p. 1; G.R. No. 149454, Records, p. 323. appointment of an auditora fault that is not tantamount to negligence.
That Respondent Yabut is a CPA appears in CASAs pretrial Brief. G.R. No. 149454, Records, p. 83. Negligence is not presumed, but proven by whoever alleges it. Its mere existence is 136

Yabuts Affidavit, supra.

not sufficient without proof that it, and no other cause, has given rise to damages. In
126
137 138

127 Ricchiute, supra, p. 54.

128 Santos, supra, p. 6. addition, this fault is common to, if not prevalent among, small and medium-sized
129 Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 191, January 15, 1992. business entities, thus leading the Professional Regulation Commission (PRC), through
As of April 2004, many Generally Accepted Auditing Standards (GAAS) have been replaced by International Standards on the Board of Accountancy (BOA), to require today not only accreditation for the practice
Auditing (ISA).
291 of public accountancy, but also the registration of firms in the practice thereof. In fact,
139

VOL. 430, MAY 28, 2004 291 among the attachments now required upon registration are the code of good
governance and a sworn statement on adequate and effective training.
140 141

Bank of the Philippine Islands vs. Casa Montessori Internationale The missing checks were certainly reported by the bookkeeper to the accountant 142 143

Besides, in the internal accounting control system prudently installed by CASA, it was 130
her immediate supervisorand by the latter
Yabut who should examine those documents in order to prepare the bank _______________
reconciliations. He owned his working papers, and his output consisted of his opinion
131 132

as well as the clients financial statements and accompanying notes thereto. CASA had
every right to rely solely upon his outputbased on the terms of the audit engagement
and could thus be unwittingly duped into believing that everything was in order. Besides,
136Taylor v. The Manila Electric Railroad and Light Co., 16 Phil. 8, 28, March 22, 1910, per Carson, J.;
citing Scaevola in Jurisprudencia del Codigo Civil, Vol. 6 (1902), pp. 551-552.
Taylor v. The Manila Electric Railroad and Light Co., supra, p. 27, quoting the judgment of the Supreme
137

Court of Spain on June 12, 1900.

[g]ood faith is always presumed and it is the burden of the party claiming otherwise to 138Before there can be a judgment for damages, negligence must be affirmatively established by competent
adduce clear and convincing evidence to the contrary. 133 evidence. Sor Consuelo Barcel v. The Manila Electric Railroad and Light Co., 29 Phil. 351, 359, January 28,
Moreover, there was a time gap between the period covered by the bank statement 1915, per Carson, J.
27 of PD 692.
and the date of its actual receipt. Lebron personally received the December 1990 bank
139

statement only in January 1991 when she was also informed of the forgery for the first
134
time, after which she immediately requested a stop payment order. She cannot be Good
faulted for the late detection of the forged December check. After all, the bank account
with BPI was not personal but corporate, and she could not be expected to monitor
closely all its finances. A preschool teacher charged with molding the minds of the youth
cannot be burdened with the intricacies or complexities of corporate existence.
140Good governance has been defined as a really strong senior managerial control exercised by the chief
executive officer or CEO and one of his/her strongest direct reports. Gerry Conroy, Good Governance and
Management Keys to Successful Project
Management. http://www.pwcglobal.com/Extweb/ncinthenews.nsf/docid/28123C3F882E4-
8B7CA256AFA007A33EA, last visited May 6, 2004, 1:12 p.m. PST.
Accountability is a key requirement of good governance. As such, it cannot be enforced without transparency and the rule of
law. http://www.unescap.org/huset/gg/governance.htm, last visited May 6, 2004, 12:55 p.m. PST.
http://www.picpa.com.ph, last visited May 4, 2004, 1:57 p.m. PST.
141

Isidra Carandang, TSN, February 13, 1992, pp. 18-19.

There is also a cutoff period such that checks issued during a given month, but not
142

Felipa Cabuyao, TSN, February 13, 1992, pp. 18-19.

143

presented for payment within that period, will not be reflected therein. An experienced 135
293
auditor with intent to defraud can easily conceal any devious scheme from a client VOL. 430, MAY 28, 2004 293
_______________
Bank of the Philippine Islands vs. Casa Montessori Internationale
A depositor has a duty to set up an accounting system that is reasonably calculated to prevent any
130 to the auditor. However, both the accountant and the auditor, for reasons known only to
forgery or to render it difficult to perpetrate. Gempesaw v. Court of Appeals, supra, p. 690. them, assured the bookkeeper that there were no irregularities.
A bank reconciliation is an audit technique that verifies if the cash balance appearing on a bank
The bookkeeper who had exclusive custody of the checkbooks did not have to go
131
144 145

statement per bank records is in agreement with that in the depositors records or books of accounts. Meigs and
Meigs, Accounting: The Basis for Business Decisions, Part I (5th ed., 1981), p. 315. directly to CASAs president or to BPI. Although she rightfully reported the matter,
24 of Presidential Decree (PD) No. 692, otherwise known as The Revised Accountancy Law.
132 neither an investigation was conducted nor a resolution of it was arrived at, precisely
Chiang Yia Min v. Court of Appeals, supra, p. 624, per Gonzaga-Reyes, J.
133
because the person at the top of the helm was the culprit. The vouchers, invoices and
G.R. No. 149454, Records, p. 491.
check stubs in support of all check disbursements could be concealed or fabricatedeven
134

Cutoff bank statements do not represent all the transactions in a given month. Ricchiute, supra, p. 498.
135

292 in collusionand management would still have no way to verify its cash accountabilities.
 Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CAS 154 Article 2217 of the Civil Code.
Dee Hua Liong Electrical Equipment Corp. v. Reyes, 230 Phil. 101, 107; 145 SCRA 713, November 25,
A. If auditors may be held liable for breach of contract and negligence, with all the more
155
146

1986.
reason may they be charged with the perpetration of fraud upon an unsuspecting client. 156Guilatco v. City of Dagupan, 171 SCRA 382, 389, March 21, 1989; citing Bagumbayan Corp. v.
CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or Intermediate Appellate Court, 217 Phil. 421, 424; 132 SCRA 441, September 30, 1984.
munificence or both. Money paid under a mistake may rightfully be recovered, and 147
157Soberano v. Manila Railroad Co., 124 Phil. 1330, 1337; 18 SCRA 732, 738, November 23, 1966;
citing Fores v. Miranda, 105 Phil. 266, 274, 276, March 4, 1959 and Necesito v. Paras, 104 Phil. 75, 82-83, June
under such terms as the injured party may choose.
30, 1958.
Third Issue: 158Northwest Orient Airlines v. Court of Appeals, 186 SCRA 440, 444, June 8, 1990; citing Sabena Belgian
World Airlines v. Court of Appeals, 171 SCRA 620, 629, March 31, 1989.
Award of Monetary Claims 159Cathay Pacific Airways, Ltd. v. Vazquez, 399 SCRA 207, 220, March 14, 2003, per Davide, Jr., CJ;
Moral Damages Denied citing Francisco v. Ferrer, Jr., 353
We deny CASAs claim for moral damages. 295
In the absence of a wrongful act or omission, or of fraud or bad148 VOL. 430, MAY 28, 2004 295
_______________
Bank of the Philippine Islands vs. Casa Montessori Internationale
Yabut admitted that he had recommended Cabuyao to the position. Yabuts Afffidavit, supra. As a general rule, a corporationbeing an artificial person without feelings, emotions
The job of a bookkeeper is so integrated with a corporation that the regular recording of its business
144 and senses, and having existence only in legal contemplationis not entitled to moral
accounts and transactions safeguards it from possible fraud, which is adverse to its corporate interest. Pabon v. damages, because it
160 cannot experience physical suffering and mental
National Labor Relations Commission, 296 SCRA 7, 14, September 24, 1998.
Yabuts Affidavit, p. 1; G.R. No. 149454, Records, p. 323.
145
anguish. However, for breach of the fiduciary duty required of a bank, a corporate client
161

Holmes and Burns, supra, pp. 84-86.

146 may claim such damages when its good reputation is besmirched by such breach, and
Campos and Lopez-Campos, supra, p. 287; Agbayani, supra, p. 211. Both cited Article 2154 of the Civil
147 social humiliation results therefrom. CASA was unable to prove that BPI had debased
162

Code. the good reputation of, and consequently caused incalculable embarrassment to, the
163

Ong Yiu v. Court of Appeals, 91 SCRA 223, 229, June 29, 1979.
former. CASAs mere allegation or supposition thereof, without any sufficient evidence on
148

294
record, is not enough.
164

294 SUPREME COURT REPORTS ANNOTATED

Exemplary Damages Also Denied
Bank of the Philippine Islands vs. Casa Montessori Internationale We also deny CASAs claim for exemplary damages.
faith, moral damages cannot be awarded. The adverse result of an action does not per
149 150
Imposed by way of correction for the public good, exemplary damages cannot be
165 166

se make the action wrongful, or the party liable for it. One may err, but error alone is not recovered as a matter of right. As we have
167

a ground for granting such damages. While no proof of pecuniary loss is necessary
151
_______________
thereforwith the amount to be awarded left to the courts discretion the claimant 152

must nonetheless satisfactorily prove the existence of its factual basis and causal 153 SCRA 261, 265, February 28, 2001. See also Morris v. Court of Appeals, 352 SCRA 428, 437, February 21,
relation to the claimants act or omission.
154 155
2001; Magat, Jr. v. Court of Appeals, 337 SCRA 298, 307, August 4, 2000; and Tan v. Northwest Airlines,
Inc.,383 Phil. 1026, 1032; 327 SCRA 263, 268, March 3, 2000.
Regrettably, in this case CASA was unable to identify the particular instance LBC Express, Inc. v. Court of Appeals, 236 SCRA 602, 607, September 21, 1994. See Layda v. Court of
160

enumerated in the Civil Codeupon which its claim for moral damages is Appeals, 90 Phil. 724, 730, January 29, 1952.
predicated. Neither bad faith nor negligence so gross that it amounts to malice can be
156 157 Article 2217 of the Civil Code.
161

imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or Morales, The Philippine General Banking Law (Annotated 2002), pp. 3-4; citing Simex International
162

(Manila), Inc. v. Court of Appeals, supra, and Mambulao Lumber Co. v. Philippine National Bank, 130 Phil.
negligence; it imports a dishonest purpose or some moral obliquity and conscious doing
158

366, 391; 22 SCRA 359, January 30, 1968.

of a wrong, a breach of a known duty through some motive or interest or ill will that Sangco, supra, p. 989.
163

partakes of the nature of fraud. 159 Grapilon v. Municipal Council of Carigara, Leyte, 112 Phil. 24, 29; 2 SCRA 103, 108, May 30, 1961.
164

_______________ Article 2229 of the Civil Code.

165

Ledesma v. Court of Appeals, 160 SCRA 449, 456, April 15, 1988, Prudenciado v. Alliance Transport
166

149Suario v. Bank of the Philippine Islands, 176 SCRA 688, 696, August 25, 1989; citing Guita v. Court of System, Inc., 148 SCRA 440, 450, March 16, 1987; and Lopez v. Pan American World Airways, 123 Phil. 256,
Appeals, 139 SCRA 576, 580, November 11, 1985. 267; 16 SCRA 431, March 30, 1966.
150Rubio v. Court of Appeals, 141 SCRA 488, 515-516, March 12, 1986; citing R and B Surety & Insurance De Leon v. Court of Appeals, 165 SCRA 166, 176, August 31, 1988; Sweet Lines, Inc. v. Court of
167

Co., Inc. v. Intermediate Appellate Court, 214 Phil. 649, 657; 129 SCRA 736, 743, June 22, 1984. Appeals, 206 Phil. 663, 669; 121 SCRA 769, 775, April 28, 1983; Octot v. Ybaez, 197 Phil. 76, 82; 111 SCRA 79,
151Filinvest Credit Corp v. Mendez, 152 SCRA 593, 601, July 31, 1987. January 18, 1982; and Ventanilla v. Centeno, 110 Phil. 811, 816; 1 SCRA 215, 221, January 28, 1961, citing
152Article 2216 of the Civil Code. Article 2233 of the Civil Code
153Silva v. Peralta, 110 Phil. 57, 64, November 25, 1960. 296
296 SUPREME COURT REPORTS ANNOTATED incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
Bank of the Philippine Islands vs. Casa Montessori Internationale shall be the payment of x x x legal interest, which is six percent per annum. The actual 178

base for its computation shall be on the amount finally

said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon
adjudged, compounded annually to make up for the cost of money already lost to
forged signatures. Therefore, the former cannot be said to have acted in a wanton,
179 180 181

CASA.
fraudulent, reckless, oppressive or malevolent manner. The latter, having no right to
Moreover, the failure of the CA to award interest does not prevent us from granting it
168

moral damages, cannot demand exemplary damages.

upon damages awarded for breach of contract. Because BPI evidently breached its
169

182

Attorneys Fees Granted
Although it is a sound policy not to set a premium on the right to litigate, we find that
CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable
justification. 171
When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest, or where the court deems it just and
172
contract of deposit with CASA, we award interest in addition to the total amount
170
adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by
the provisions of existing legislation or, in default
_______________
Jarenco, Torts and Damages in Philippine Law (4th ed., 1983), p. 334; citing Pirovano v. The De la Rama
174

equitable, attorneys fees may be recovered. In the present case, BPI persistently denied
173
Steamship Co., 96 Phil. 335, 367, December 29, 1954.
When a claim is made judicially under Article 1169 of the Civil Code.
the claim of CASA under the NIL to recredit the latters account for the value of the
175

Philippine National Bank v. Utility Assurance & Surety Co., Inc., supra.
176

forged checks. This denial constrained CASA to incur expenses and exert effort for more Cabral v. Court of Appeals, 178 SCRA 90, 93, September 29, 1989.
177

than ten years in order to protect its corporate interest in its bank account. Besides, we Article 2209 of the Civil Code.
178

have already cautioned BPI on a similar act of negligence it had committed seventy years Francisco v. Court of Appeals, supra, p. 381, per Gonzaga-Reyes, J.
179

In compounding interest, x x x the amount of interest earned for a certain period is added to the
ago, but it has remained unrelenting. Therefore,
180

_______________
168Article 2232 of the Civil Code. See Nadura v. Benguet Consolidated, Inc., 116 Phil. 28, 32; 5 SCRA 879,
principal for the next period. Interest for the subsequent period is computed on the new amount, which includes
both the principal and accumulated interest. Smith and Skousen, Intermediate Accounting, the 11th ed., 1992,
p. 235.
The payment (cost) for the use of money is interest. Id., p. 234.
181

August 24, 1962. Article 2210 of the Civil Code.

182

169Estopa v. Piansay, Jr., 109 Phil. 640, 642, September 30, 1960. 298
170Firestone Tire & Rubber Co. of the Philippines v. Ines Chavez & Co., Ltd., 124 Phil. 947, 950; 18 SCRA
356, 358, October 19, 1966, citing Heirs of Basilisa Justiva vs. Gustilo, 117 Phil. 71, 73; 7 SCRA 72, 73, January
298 SUPREME COURT REPORTS ANNOTATED
31, 1963. See Tan Ti (alias Tan Tico) v. Alvear, 26 Phil. 566, 571, January 16, 1914. Bank of the Philippine Islands vs. Casa Montessori Internationale
Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 312 Phil. 466, 481; 242
thereof, by the rules of the law merchant. Damages are not provided for in the NIL.
171
183

SCRA 393, 406, March 16, 1995, per Davide, Jr., J. (now C.J.).
172Article 2208 (2) of the Civil Code. See Rivera v. Litam & Co., Inc., 114 Phil. 1009, 1022; 4 SCRA 1072,
April 25, 1962; and Luneta Motor Co. v. Baguio Bus Co., Inc., 108 Phil. 892, 898, June 30, 1960.
173Article 2208 (11) of the Civil Code. See Philippine National Bank v. Utility Assurance & Surety Co.,
Inc., 177 SCRA 208, 219, September 1, 1989; citing Plaridel Surety & Insurance Co., Inc. v. P.L. Galang
Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code
of Commerce, acts of commerce shall be governed by its provisions and, in their absence,
by the usages of commerce generally observed in each place; and in the absence of both
rules, by those of the civil law. This law being silent, we look at Article 18 of the Civil
184

Machinery Co., Inc., 100 Phil. 679, 682, January 11, 1957. See also Apelario v. Ines Chavez & Co., Ltd., 113
Phil. 215, 217-218; 3 SCRA 226, 229, October 16, 1961; and Guitarte v. Sabaco, 107 Phil. 437, 440, March 28, Code, which states: In matters which are governed by the Code of Commerce and special
1960. laws, their deficiency shall be supplied by its provisions. A perusal of these three
297 statutes unmistakably shows that the award of interest under our civil law is justified.
VOL. 430, MAY 28, 2004 297 WHEREFORE, the Petition in G.R. No. 149454 is hereby DENIED, and that in G.R.
Bank of the Philippine Islands vs. Casa Montessori Internationale No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is
the Court deems it just and equitable to grant ten percent (10%) of the total value 174
AFFIRMED with modification: BPI is held liable for P547,115, the total value of the
adjudged to CASA as attorneys fees. forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus
interest at the legal rate of six percent (6%) per annumcompounded annually, from the
Interest Allowed
filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof,
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort
subject to reimbursement from Respondent Yabut for the entire amount, excepting
to the courts to obtain payment, legal interest may be adjudicated at the discretion of the
attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the
Court, the same to run from the filing of the Complaint. Since a court judgment is not a
Professional Regulation Commission for such action as it may deem appropriate against
175 176

loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per
Respondent Yabut. No costs.
annum. If the obligation consists in the payment of a sum of money, and the debtor
SO ORDERED.
177

5. G.R. No. 127469. January 15, 2004. *
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and
LEONILO MARCOS, respondents.
Remedial Law; Civil Procedure; It is within the trial courts discretion to reopen the evidence
submitted by the plaintiff and allow the defendant to challenge the same by cross-examining the
plaintiffs witnesses or introducing countervailing evidence.There was no violation of the BANKs
right to procedural due process when the trial court denied the BANKs motion to cross-examine
Marcos. Prior to the denial of the motion, the trial court had properly declared the BANK in
default. Since the BANK was in default, Marcos was able to present his evidence ex-parteincluding
his own testimony. When the trial court lifted the order of default, the BANK was restored to its
standing and rights in the action. However, as a rule, the proceedings already taken should not be
disturbed. Nevertheless, it is within the trial courts discretion to reopen the evidence submitted by
the plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiffs
witnesses or introducing countervailing evidence. The 1964 Rules of Court, the rules then in effect
at the time of the hearing of this case, recognized the trial courts exercise of this discretion. The
1997 Rules of Court retained this discretion.
Same; Same; A motion to cross-examine is adversarial; The purpose of a notice of a motion is
to avoid surprises on the opposite party and to give him time to study and meet the arguments.We
do not agree with the appellate courts ruling that a motion to cross-examine is a non-litigated
motion and that the trial court gravely abused its discretion when it denied the motion to cross-
examine. A motion to cross-examine is adversarial. The adverse party in this case had the right to
resist the motion to cross-examine because the movant had previously forfeited its right to cross-
examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party
and to give him time to study and meet the arguments. In a motion to cross-examine, the adverse
party has the right not only to prepare a meaningful opposition to the motion but also to be
informed that his witness is being recalled for cross-examination. The proof of service was
therefore indispensable and the trial court was correct in denying the oral manifestation to grant
the motion for cross-examination.
Same; Same; While the right to cross-examine is a vital element of procedural due process, the
right does not necessarily require an actual
_______________
*FIRST DIVISION.
488
4 SUPREME COURT REPORTS ANNOTATED
88
Philippine Banking Corporation vs. Court of Appeals
cross-examination but merely an opportunity to exercise this right if desired by the party
entitled to it.While the right to cross-examine is a vital element of procedural due process, the
right does not necessarily require an actual cross-examination, but merely an opportunity to
exercise this right if desired by the party entitled to it. Clearly, the BANKS failure to cross-
examine is imputable to the BANK when it lost this right as it was in default and failed thereafter
to exhaust the remedies to secure the exercise of this right at the earliest opportunity.
Same; Same; Appeals; Estoppel; An issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred by estoppel.The BANK raises for the very
first time the issue of judicial admission on the part of Marcos. The BANK even has the audacity to
fault the Court of Appeals for not ruling on this issue when it never raised this matter before the
appellate court or before the trial court. Obviously, this issue is only an afterthought. An issue
raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel.
Commercial Law; Banks; Banks required to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.Section 2 of
Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on
banks when it declares that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance. This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of
Appeals requiring banks to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The Court reiterated this fiduciary duty
of banks in subsequent cases.
Same; Same; The fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit agreement between a
bank and its depositor.Although RA No. 8791 took effect only in the year 2000, at the time that
the BANK transacted with Marcos, jurisprudence had already imposed on banks the same high
standard of diligence required under RA No. 8791. This fiduciary relationship means that the
banks obligation to observe high standards of integrity and performance is deemed written into
every deposit agreement between a bank and its depositor.
Same; Same; A bank is liable for the wrongful acts of its officers done in the interest of the
bank or in their dealings as bank representatives but not for acts outside the scope of their
authority.Assuming Pagsaligan was behind the spurious promissory note, the BANK would still
be accountable
489
VOL. 419, JANUARY 15, 2004 48
9
Philippine Banking Corporation vs. Court of Appeals
to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the
interest of the bank or in their dealings as bank representatives but not for acts outside the scope
of their authority.
Remedial Law; Best Evidence Rule; The Best Evidence Rule provides that the court shall not
receive any evidence that is merely substitutionary in its nature such as photocopies as long as the
original evidence can be had.The BANK failed to produce the best evidencethe original copies
of the loan application and promissory note. The Best Evidence Rule provides that the court shall
not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long
as the original evidence can be had. Absent a clear showing that the original writing has been lost,
destroyed or cannot be produced in court, the photocopy must be disregarded, being unworthy of
any probative value and being an inadmissible piece of evidence.
Same; Same; The purpose of the rule requiring the production of the best evidence is the
prevention of fraud.The purpose of the rule requiring the production of the best evidence is the
prevention of fraud. If a party is in possession of evidence and withholds it, and seeks to substitute
inferior evidence in its place, the presumption naturally arises that the better evidence is withheld
for fraudulent purposes, which its production would expose and defeat.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Noel S.R. Jose for petitioner.
 Edgardo M. Salandanan for private respondent. 3Rollo, p. 204.
4The case was docketed as Civil Case No. B-3148.
491
CARPIO, J.:
VOL. 419, JANUARY 15, 2004 491
The Case Philippine Banking Corporation vs. Court of Appeals
Before us is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV
1
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as
No. 34382 dated 10 December 1996 modifying the Decision of the Regional Trial Court,
2
follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt
Fourth Judicial No. CD 83.9 dated 15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10
_______________ dated 15 March 1983 for P251,250. Marcos deposited the required 30% marginal deposit
for the trust receipt agreements. Marcos claimed that his obligation to the BANK was
1Penned by Associate Justice Arturo B. Buena with Associate Justices Ma. Alicia Austria-Martinez and therefore only P595,875 representing 70% of the letters of credit.
Bernardo Ll. Salas, concurring, Third Division. Marcos believed that he and the BANK became creditors and debtors of each other.
2Penned by Judge N. C. Perello.
490 Marcos expected the BANK to offset automatically a portion of his time deposits and the
accumulated interest with the amount covered by the three trust receipts totalling
490 SUPREME COURT REPORTS ANNOTATED
P851,250 less the 30% marginal deposit that he had paid. Marcos argued that if only the
Philippine Banking Corporation vs. Court of Appeals BANK applied his time deposits and the accumulated interest to his remaining
Region, Assisting Court, Binan, Laguna in Civil Case No. B-3148-entitled Leonilo obligation, which is 70% of the total amount of the letters of credit, he would have paid
Marcos v. Philippine Banking Corporation. completely his debt. Marcos further pointed out that since he did not apply for a renewal
The Antecedent Facts of the trust receipt agreements, the BANK had no right to renew the same.
On 30 August 1989, Leonilo Marcos (Marcos) filed with the trial court a Complaint for Marcos accused the BANK of unjustly demanding payment for the total amount of the
Sum of Money with Damages against petitioner Philippine Banking Corporation
3 trust receipt agreements without deducting the 30% marginal deposit that he had
(BANK). 4 already made. He decried the BANKs unlawful charging of accumulated interest because
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan he claimed there was no agreement as to the payment of interest. The interest arose from
(Pagsaligan), one of the officials of the BANK and a close friend of Marcos, persuaded numerous alleged extensions and penalties. Marcos reiterated that there was no
him to deposit money with the BANK. Marcos yielded to Pagsaligans persuasion and agreement to this effect because his time deposits served as the collateral for his
claimed he made a time deposit with the BANK on two occasions. The first was on 11 remaining obligation.
March 1982 for P664,897.67. The BANK issued Receipt No. 635734 for this time deposit. Marcos also denied that he obtained another loan from the BANK for P500,000 with
On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for interest at 25% per annumsupposedly covered by Promissory Note No. 20-97983 dated 24
P764,897.67. The BANK did not issue an official receipt for this time deposit but it October 1983. Marcos bewailed the BANKs belated claim that his time deposits were
acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. applied to this void promissory note on 12 March 1985.
The time deposits earned interest at 17% per annum and had a maturity period of 90 In sum, Marcos claimed that:
days. (1) his time deposit with the BANK in the total sum of P1,428,795.34 has earned 5

Marcos alleged that Pagsaligan kept the various time deposit certificates on the accumulated interest since March 1982 up to the present in the total amount of
assurance that the BANK would take care of the certificates, interests and renewals. P1,727,305.45 at the rate
Marcos claimed that from the time of the deposit, he had not received the principal _______________
amount or its interest.
The sum of P664,897.67 and P764,897.67 is P1,429,795.34, not P1,428,795.34.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time
5

492
deposits and the accumulated interests to buy materials for his construction business.
However, the BANK through Pagsaligan convinced Marcos to keep his time deposits
492 SUPREME COURT REPORTS ANNOTATED
intact and instead to open several domestic letters of credit. The BANK required Marcos Philippine Banking Corporation vs. Court of Appeals
to give a marginal deposit of 30% of the total amount of the letters of credit. The time of 17% per annum so his total money with defendant (the BANK) is P3,156,100.79 less
deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the the amount of P595,875 representing the 70% balance of the marginal deposit and/or
BANK and Pagsaligan, he signed blank printed forms of the application for the domestic balance of the trust agreements; and
letters of credit, trust receipt agreements and promissory notes. (2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a
_______________ balance of P595,875, which the BANK should have automatically deducted from his time
deposits and accumulated interest, leaving the BANKs indebtedness to him at
P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-97983 void and to
order the BANK to pay the amount of his time deposits with interest. He also sought the
award of moral and exemplary damages as well as attorneys fees for P200,000 plus 25%
of the amount due.
On 18 September 1989, summons and a copy of the complaint were served on the
BANK. 6 complaint, payment of damages, attorneys fees and cost of suit.
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied
the allegations in the complaint. The BANK believed that the suit was Marcos desperate
attempt to avoid liability under several trust receipt agreements that were the subject of
a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various time
deposits of Marcos was only P764,897.67 and not Pl,428,795.35 as alleged in the
7 Marcos testified and presented documentary evidence. The case was then submitted for
complaint. The P764,897.67 included the P664,897.67 that Marcos deposited on 11 March
1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit
certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos executed the
Deed of Assignment to secure his various loan obligations. The BANK claimed that these
loans are covered by Promissory Note No. 20-756-82 dated 2 June 1982 for P420,000 and
Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed
that these obligations are separate and distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK
debited his time deposits and applied the
_______________
6Rollo, p. 211.
7Should be P1,429,795.34. See note 5.
493
VOL. 419, JANUARY 15, 2004 493
Philippine Banking Corporation vs. Court of Appeals
same to the obligation that is now considered fully paid. The BANK insisted that the
8 and admitting the BANKs Answer with Compulsory Counterclaim. The trial court
Deed of Assignment authorized it to apply the time deposits in payment of Promissory
Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of
Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to
finance the purchase of construction materials for their business, L.A. Marcos
Construction Company. Pagsaligan suggested the opening of the letters of credit and the
execution of trust receipts, whereby the BANK would agree to purchase the goods needed
by the client through the letters of credit. The BANK would then entrust the goods to the
client, as entrustee, who would undertake to deliver the proceeds of the sale or the goods
themselves to the entrustor within a specified time.
The BANK claimed that Marcos freely entered into the trust receipt agreements.
When Marcos failed to account for the goods delivered or for the proceeds of the sale, the
BANK filed a complaint for violation of Presidential Decree No. 115 or the Trust Receipts
Law. Instead of initiating negotiations for the settlement of the account, Marcos filed this
suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that
the promissory note is supported by documentary evidence such as Marcos application
for this loan and the microfilm of the cashiers check issued for the loan. The BANK
insisted that Marcos could not deny the agreement for the payment of interest and
penalties under the trust receipt agreements. The BANK prayed for the dismissal of the
On 15 December 1989, the trial court on motion of Marcos counsel issued an order
declaring the BANK in default for filing its answer five days after the 15-day period to
file the answer had lapsed. The trial court also held that the answer is a mere scrap of
9
paper because a copy was not furnished to Marcos. In the same order, the trial court
allowed Marcos to present his evidence ex parteon 18 December 1989. On that date,
decision.
_______________
Records, p. 11.
8
9Rollo, p. 231.
494
494 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
On 19 December 1989, Marcos received a copy of the BANKs Answer with Compulsory
Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to declare the
BANK in default. On 9 January 1990, the BANK filed a motion to lift the order of default
claiming that it had only then learned of the order of default. The BANK explained that
its delayed filing of the Answer with Counterclaim and failure to serve a copy of the
answer on Marcos was due to excusable negligence. The BANK asked the trial court to
set aside the order of default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default order
ordered the BANK to present its evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had
testified during the ex-partehearing of 18 December 1989. On 12 March 1990, the trial
court denied the BANKs motion and directed the BANK to present its evidence. Trial
then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the
BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager of the same
branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of
material time, the trial court reset the continuation of the cross-examination and
presentation of other evidence. The succeeding hearings were postponed, specifically on
24, 27 and 28 of August 1990, because of the BANKs failure to produce its witness,
Pagsaligan. The BANK on these scheduled hearings also failed to present other evidence.
 On 7 September 1990, the BANK moved to postpone the hearing on the ground that
Pagsaligan could not attend the hearing because of illness. The trial court denied the
motion to postpone and on motion of Marcos counsel ruled that the BANK had waived its
right to present further evidence. The trial court considered the case submitted for
decision. The BANK moved for reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved,
the BANK appealed to the Court of Appeals.
495
VOL. 419, JANUARY 15, 2004 495
Philippine Banking Corporation vs. Court of Appeals
On 10 December 1996, the Court of Appeals modified the decision of the trial court by
reducing the amount of actual damages and deleting the attorneys fees awarded to
Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34
and not only P764,897.67 as claimed by the BANK. The trial court found that Marcos
made a time deposit on two occasions. The first time deposit was made on 11 March 1982
for P664,897.67 as shown by Receipt No. 635743. On 12 March 1982, Marcos again made
a time deposit for P764,897.67 as acknowledged by Pagsaligan in a letter of certification.
The two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982 time
deposit because the letter of certification was sufficient. The trial court made a finding
that the certification letter did not include the time deposit made on 11 March 1982. The
12 March 1982 deposit was in cash while the 11 March 1982 deposit was in checks which
still had to clear. The checks were not included in the certification letter since the BANK
could not credit the amounts of the checks prior to clearing. The trial court declared that
even the Deed of Assignment acknowledged that Marcos made several time deposits as
the Deed stated that the assignment was charged against various time deposits.
The trial court recognized the existence of the Deed of Assignment and the two loans
that Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2
June 1982 for P420,000. The two loans amounted to P760,000. On 2 June 1982, the same
day that he secured the second loan, Marcos executed a Deed of Assignment assigning to
the BANK P760,000 of his time deposits. The trial court concluded that obviously the two
loans were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a
higher rate of interest instead of just withdrawing his time deposits. The trial court saw
no rhyme or reason why Marcos had to secure the loans from the BANK. The trial court
was convinced that Marcos did not know that what he had signed were loan applications
and a Deed of Assignment in payment for his loans. Nonetheless, the trial court
recognized the said
496
496 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
loan of P760,000 and its corresponding payment by virtue of the Deed of Assignment for
the equal sum. 10
If the BANKs claim is true that the time deposits of Marcos amounted only to
P764,897.67 and he had already assigned P760,000 of this amount, the trial court
pointed out that what would be left as of 3 June 1982 would only be P4,867.67. Yet, after11
the time deposits had matured, the BANK allowed Marcos to open letters of credit three
times. The three letters of credit were all secured by the time deposits of Marcos after he
had paid the 30% marginal deposit. The trial court opined that if Marcos' time deposit
was only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal
deposit) was guaranteed by only P4,867.67, the remaining time deposits after Marcos
12
had executed the Deed of Assignment forP760,000.
According to the trial court, a security of only P4,867.67 for a loan worth P595,875
13
(less 30% marginal deposit) is not only preposterous, it is also comical. Worse, aside from
allowing Marcos to have unsecured trust receipts, the BANK still claimed to have
granted Marcos another loan for P500,000 on 25 October 1983 covered by Promissory
Note No. 20-979-83. The BANK is a commercial bank engaged in the business of lending
money. Allowing a loan of more than a million pesos without collateral is in the words of
the trial court, an impossibility and a gross violation of Central Bank Rules and
Regulations, which no Bank Manager has such authority to grant. Thus, the trial court
14
held that the BANK could not have granted Marcos the loan covered by Promissory Note
No. 20-979-83 because it was unsecured by any collateral.
The trial court required the BANK to produce the original copies of the loan
application and Promissory Note No. 20-979-83 so that it could determine who applied
for this loan. However, the BANK presented to the trial court only the machine copies of
the duplicate of these documents.
_______________
Rollo, p. 256.
10
The difference between P764,897.67 and P760,000 is P4,897.67, not P4,867.67.
11
Should be P4,897.67. See note 11.
12
Should be P4,897.67. See note 11.
13
Rollo, p. 257.
14
497
VOL. 419, JANUARY 15, 2004 497
Philippine Banking Corporation vs. Court of Appeals
Based on the machine copies of the duplicate of the two documents, the trial court
noticed the following discrepancies: (1) Marcos signature on the two documents are
merely initials unlike in the other documents submitted by the BANK; (2) it is highly
unnatural for the BANK to only have duplicate copies of the two documents in its
custody; (3) the address of Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents annexed by the BANK in its
Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588
less bank charges was issued to Marcos but the checks payee was one ATTY. LEONILO
MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was
not sure what branch of the BANK issued the check for the loan proceeds. The trial court
was convinced that Marcos did not execute the questionable documents covering the
P500,000 loan and Pagsaligan used these documents as a means to justify his inability to
explain and account for the time deposits of Marcos.
The trial court noted the BANKs defective documentation of its transaction with
Marcos. First, the BANK was not in possession of the original copies of the documents
like the loan applications. Second, the BANK did not have a ledger of the accounts of
Marcos or of his various transactions with the BANK. Last, the BANK did not issue a
certificate of time deposit to Marcos. Again, the trial court attributed the BANKs lapses
to Pagsaligans scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligans demeanor on the witness stand.
Pagsaligan evaded the questions by giving unresponsive or inconsistent answers
compelling the trial court to admonish him. When the trial court ordered Pagsaligan to
produce the documents, he conveniently became sick and thus failed to attend the
15
hearings without presenting proof of his physical condition.
The trial court disregarded the BANKs assertion that the time deposits were
converted into a savings account at 14% or 10 % per annumupon maturity. The BANK
never informed Marcos that his time deposits had already matured and these were
converted into a savings account. As to the interest due on the trust receipts, the
_______________
Rollo, p. 262.
15
498
498 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
trial court ruled that there is no basis for such a charge because the documents do not
stipulate any interest.
In computing the amount due to Marcos, the trial court took into account the
marginal deposit that Marcos had already paid which is equivalent to 30% of the total
amount of the three trust receipts. The three trust receipts totalling P851,250 would then
have a balance of P595,875. The balance became due in March 1987 and on the same
date, Marcos time deposits of P669,932.30 had already earned interest from 1983 to 1987
totalling P569,323.21 at 17% per annum.Thus, the trial court ruled that the time
deposits in 1987 totalled P1,239,115. From this amount, the trial court deducted
P595,875, the amount of the trust receipts, leaving a balance on the time deposits of
P643,240 as of March 1987. However, since the BANK failed to return the time deposits
of Marcos, which again matured in March 1990, the time deposits with interest, less the
amount of trust receipts paid in 1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time deposit
of P764,897.67 as claimed by the BANK, the time deposit would have still earned interest
at the rate of 17% per annum.The time deposit of P650,163 would have increased to
Pl,415,060 in 1987 after earning interest. Deducting the amount of the three trust
receipts, Marcos time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of
Plaintiff, directing Defendant Bank as follows:
1. 1)to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at
the legal rate, until fully restituted;
2. 2)to pay-attorneys fees of P200,000.00; [and]
3. 3)[to pay the] cost of these proceedings.
IT IS SO ORDERED. 16
_______________
Ibid., pp. 262-263.
16
499
VOL. 419, JANUARY 15, 2004 499
Philippine Banking Corporation vs. Court of Appeals
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues that the BANK
raised.
The appellate court ruled that the trial court committed a reversible error when it
denied the BANKs motion to cross-examine Marcos. The appellate court ruled that the
right to cross-examine is a fundamental right that the BANK did not waive because the
BANK vigorously asserted this right. The BANKs failure to serve a notice of the motion
to Marcos is not a valid ground to deny the motion to cross-examine. The appellate court
held that the motion to cross-examine is one of those non-litigated motions that do not
require the movant to provide a notice of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the order of default,
it had the duty to afford the BANK its right to cross-examine Marcos. This duty assumed
greater importance because the only evidence supporting the complaint is Marcos ex-
parte testimony. The trial court should have tested the veracity of Marcos testimony
through the distilling process of cross-examination. The Court of Appeals, however,
believed that the case should not be remanded to the trial court because Marcos
testimony on the time deposits is supported by evidence on record from which the
appellate court could make an intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial court did not
err when it declared that the BANK had waived its right to present its evidence and had
submitted the case for decision. The appellate court agreed with the grounds relied upon
by the trial court in its Order dated 7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court as to the
total amount of the time deposits. The appellate court ruled that the total amount of the
time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found by the trial
court. The certification letter issued by Pagsaligan showed that Marcos made a time
deposit on 12 March 1982 for P764,897.67. The certification letter shows that the amount
mentioned in the letter was the aggregate or total amount of the time deposits of Marcos
as of that date. Therefore, the P764,897.67 already included the P664,897.67 time deposit
made by Marcos on 11 March 1982.
500
500 SUPREME COURT REPORTS ANNOTATED
 Philippine Banking Corporation vs. Court of Appeals
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. B, p. 32, Records) dated March 11, 1982 covering the sum of
P664,987.67 time deposit did not provide for a maturity date implying clearly that the amount
covered by said receipt forms part of the total sum shown in the letter-certification which contained
a maturity date. Moreover, it taxes ones credulity to believe that appellee would make a time
deposit on March 12, 1982 in the sum of P764,897.67 which except for the additional sum of
P100,000.00 is practically identical (see underlined figures) to the sum of P664,897.67 deposited
the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower court wrongly
appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the
alleged application for loan by the appellee with the appellant in the sum of P500,000.00 dated
October 24, 1983. (Exh. J, p. 40, Records), wherein it was stated that the loan is for additional
working capital versus the various time deposit amounting to P760,000.00. (Emphasis supplied)
17
The Court of Appeals sustained the factual findings of the trial court in ruling that
Promissory Note No. 20-979-83 is void. There is no evidence of a bank ledger or
computation of interest of the loan. The appellate court blamed the BANK for failing to
comply with the orders of the trial court to produce the documents on the loan. The
BANK also made inconsistent statements. In its Answer to the Complaint, the BANK
alleged that the loan was fully paid when it debited the time deposits of Marcos with the
loan. However, in its discussion of the assigned errors, the BANK claimed that Marcos
had yet to pay the loan.
The appellate court deleted the award of attorneys fees. It noted that the trial court
failed to justify the award of attorneys fees in the text of its decision. The dispositive
portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new
judgment is hereby rendered ordering the appellant bank to return to the appellee his
time deposit in the sum of P764,897.67 with 17% interest within 90 days from March 11,
1982 in accordance with the letter-certification and with legal interest thereafter until
fully paid. Costs against the appellant.
_______________
Rollo, p. 35.
17
501
VOL. 419, JANUARY 15, 2004 501
Philippine Banking Corporation vs. Court of Appeals
SO ORDERED. (Emphasis supplied)
18
The Issues
The BANK anchors this petition on the following issues:
1. 1)WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE
PRIVATE RESPONDENTS OUTSTANDING OBLIGATIONS SECURED BY
THE ASSIGNMENT OF TIME DEPOSITS?
1. 1.1)COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8
RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO
AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND
DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO
THE PETITIONERS ANSWER?
1. 2)WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS
WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE
WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED
THE CASE SUBMITTED FOR RESOLUTION? 19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to procedural due process when the trial
court denied the BANKs motion to cross-examine Marcos. Prior to the denial of the
motion, the trial court had properly declared the BANK in default. Since the BANK was
in default, Marcos was able to present his evidence ex-parte including his own testimony.
When the trial court lifted the order of default, the BANK was restored to its standing
and rights in the action. However, as a rule, the proceedings already taken should not be
disturbed. Nevertheless, it is within the trial courts discretion to reopen the evidence
20
submitted by the plaintiff and allow the
_______________
Ibid.,p. 37.
18
Ibid., p. 321.
19
20FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, Vol. 1, 173 (Sixth Revised Ed., 1997).
502
502 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
defendant to challenge the same, by cross-examining the plaintiff s witnesses or
introducing countervailing evidence. The 1964 Rules of Court, the rules then in effect at
21
the time of the hearing of this case, recognized the trial courts exercise of this discretion.
The 1997 Rules of Court retained this discretion. Section 3, Rule 18 of the 1964 Rules of
22
Court reads:
Sec. 3. Relief from order of default.A party declared in default may any time after discovery
thereof and before judgment file a motion under oath to set aside the order of default upon proper
showing that his failure to answer was due to fraud, accident, mistake or excusable neglect and
that he has a meritorious defense. In such case the order of default may be set aside on such terms
and conditions as the judge may impose in the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right to cross-
examine Marcos when it sought the lifting of the default order on 9 January 1990. Thus,
the order dated 7 February 1990 setting aside the order of default did not confer on the
BANK the right to cross-examine Marcos. It was only on 2 March 1990 that the BANK
filed the motion to cross-examine Marcos. During the 12 March 1990 hearing, the trial
court denied the BANKs oral manifestation to grant its motion to cross-examine Marcos
because there was no proof of service on Marcos. The BANKs counsel pleaded for
reconsideration but the trial court denied the plea and ordered the BANK to present its
evidence. Instead of presenting its evidence, the BANK moved for the resetting of the
hearing and when the trial court denied the same, the BANK informed the trial court
that it was elevating the denial to the upper court. 23
To repeat, the trial court had previously declared the BANK in default. The trial
court therefore had the right to decide whether or not to disturb the testimony of Marcos
that had already been terminated even before the trial court lifted the order of default.
We do not agree with the appellate courts ruling that a motion to cross-examine is a
non-litigated motion and that the trial court gravely abused its discretion when it denied
the motion to cross-
_______________
Ibid.
21
22Now Section 3(b), Rule 9 of the 1997 Rules of Court.
23TSN, 12 March 1990, p. 12.
503
VOL. 419, JANUARY 15, 2004 503
Philippine Banking Corporation vs. Court of Appeals
examine. A motion to cross-examine is adversarial. The adverse party in this case had
the right to resist the motion to cross-examine because the movant had previously
forfeited its right to cross-examine the witness. The purpose of a notice of a motion is to
avoid surprises on the opposite party and to give him time to study and meet the
arguments. In a motion to cross-examine, the adverse party has the right not only to
24
prepare a meaningful opposition to the motion but also to be informed that his witness is
being recalled for cross-examination. The proof of service was therefore indispensable
and the trial court was correct in denying the oral manifestation to grant the motion for
cross-examination.
We find no justifiable reason to relax the application of the rule on notice of
motions to this case. The BANK could have easily refiled the motion to cross-examine
25
with the requisite notice to Marcos. It did not do so. The BANK did not make good its
threat to elevate the denial to a higher court. The BANK waited until the trial court
rendered a judgment on the merits before questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due process, the
right does not necessarily require an actual cross-examination, but merely an
opportunity to exercise this right if desired by the party entitled to it. Clearly, the
26
BANKs failure to cross-examine is imputable to the BANK when it lost this right as it
27
was in default and failed thereafter to exhaust the remedies to secure the exercise of this
right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and trial
courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on the part of
Marcos. The BANK even has the audacity to fault the Court of Appeals for not ruling on
this issue when it never raised this matter before the appellate court or before the trial
court. Obviously, this issue is only an afterthought. An issue raised
_______________
OSCAR M. HERRERA, REMEDIAL LAW, Vol. I, 733 (2000).
24
Section 4, Rule 15 of the 1964 Rules of Court.
25
Fulgado v. Court of Appeals, G.R. No. 61570, 12 February 1990, 182 SCRA 81.
26
SeeOSCAR M. HERRERA, REMEDIAL LAW, Vol. 6, 176 (1999 ed.).
27
504
504 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 28
The BANK cannot claim that Marcos had admitted the due execution of the
documents attached to its answer because the BANK filed its answer late and even failed
to serve it on Marcos. The BANKs answer, including the actionable documents it pleaded
and attached to its answer, was a mere scrap of paper. There was nothing that Marcos
could specifically deny under oath. Marcos had already completed the presentation of his
evidence when the trial court lifted the order of default and admitted the BANKs
answer. The provision of the Rules of Court governing admission of actionable documents
was not enacted to reward a party in default. We will not allow a party to gain an
advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the Court of
Appeals that the trial court correctly ruled that the BANK had waived this right. The
BANK cannot now claim that it was deprived of its right to conduct a re-direct
examination of Pagsaligan. The BANK postponed the hearings three times because of its 29
inability to secure Pagsaligans presence during the hearings. The BANK could have
presented another witness or its other evidence but it obstinately insisted on the
resetting of the hearing because of Pagsaligans absence allegedly due to illness.
The BANKs propensity for postponements had long delayed the case. Its motion for
postponement based on Pagsaligans illness was not even supported by documentary
evidence such as a medical certificate. Documentary evidence of the illness is necessary
before the trial court could rule that there is a sufficient basis to grant the
postponement. 30
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory
note. The existence of Promissory Note
_______________
Caltex (Philippines), Inc. v. Court of Appeals, G.R. No. 97753, 10 August 1992, 212 SCRA 448.
28
Records, p. 117.
29
Spouses Reaport v. Judge Mariano, 413 Phil. 299; 361 SCRA 1(2001).
30
505
VOL. 419, JANUARY 15, 2004 505
Philippine Banking Corporation vs. Court of Appeals
No. 20-979-83 could have been easily proven had the BANK presented the original copies
of the promissory note and its supporting evidence. In lieu of the original copies, the
BANK presented the machine copies of the duplicate of the documents. These
substitute documents have no evidentiary value. The BANKs failure to explain the
absence of the original documents and to maintain a record of the offsetting of this loan
with the time deposits bring to fore the BANKs dismal failure to fulfill its fiduciary duty
to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes
this fiduciary duty on banks when it declares that the State recognizes the fiduciary
nature of banking that requires high standards of integrity and performance. This
statutory declaration merely echoes the earlier pronouncement of the Supreme Court
in Simex International (Manila) Inc. v. Court of Appeals requiring banks to treat the
31
accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. The Court reiterated this fiduciary duty of banks in
32
subsequent cases. 33
Although RA No. 8791 took effect only in the year 2000, at the time that the BANK
34
transacted with Marcos, jurisprudence had already imposed on banks the same high
standard of diligence required under RA No. 8791. This fiduciary relationship means
35
that the banks obligation to observe high standards of integrity and performance is
deemed written into every deposit agreement between a bank and its depositor.
_______________
31G.R. No. 88013, 19 March 1990, 183 SCRA 360.
Ibid.
32
See Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February
33
1992, 206 SCRA 408; Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May
1994, 232 SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA
310; Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA
761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667; 269 SCRA 695(1997); Firestone v. Court of
Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601.
34RA No. 8791 was approved on 3 May 2000.
35The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September
2003, 410 SCRA 562.
506
506 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation vs. Court of Appeals
The fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Thus, the BANKs fiduciary duty imposes upon it a
higher level of accountability than that expected of Marcos, a businessman, who
negligently signed blank forms and entrusted his certificates of time deposits to
Pagsaligan without retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of banks largely
depends on the confidence of the people in the honesty and efficiency of banks. In Simex
International (Manila) Inc. v. Court of Appeals we pointed out the depositors reasonable
36
expectations from a bank and the banks corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever he directs.
As the BANKs depositor, Marcos had the right to expect that the BANK was accurately
recording his transactions with it. Upon the maturity of his time deposits, Marcos also
had the right to withdraw the amount due him after the BANK had correctly debited his
outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the
original copies of the disputed promissory note and the records and ledgers evidencing
the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed
to produce the original copies of these documents. Clearly, the BANK failed to treat the
account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no reason
to forge Promissory Note No. 20-979-83. The trial court and appellate court did not rule
that it was the bank that forged the promissory note. It was Pagsaligan, the BANKs
branch manager and a close friend of Marcos, whom the trial court categorically blamed
for the fictitious loan agreements. The trial
_______________
Supra,note 31.
36
507
VOL. 419, JANUARY 15, 2004 507
Philippine Banking Corporation vs. Court of Appeals
court held that Pagsaligan made up the loan agreement to cover up his inability to
account for the time deposits of Marcos.
Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed that
deprived Marcos of the amount due him will not excuse the BANK from its obligation to
return to Marcos the correct amount of his time deposits with interest. The duty to
observe high standards of integrity and performance imposes on the BANK that
obligation. The BANK cannot also unjustly enrich itself by keeping Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still
be accountable to Marcos. We have held that a bank is liable for the wrongful acts of its
officers done in the interest of the bank or in their dealings as bank representatives but
not for acts outside the scope of their authority. Thus, we held:
37
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor,
will it be permitted to shirk its responsibility for such frauds; even though no benefit may accrue to
the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidencethe original copies of the loan application
and promissory note. The Best Evidence Rule provides that the court shall not receive
any evidence that is merely substitutionary in its nature, such as photocopies, as long as court or appellate court decision. We uphold the finding of the Court of Appeals as to the
44

the original evidence can be had. Absent a clear showing that the original writing has
39 amount of the time deposits as such finding is in accord with the evidence on record.
been lost, destroyed or cannot be produced in court, the photocopy must be disregarded, Marcos claimed that the certificates of time deposit were with Pagsaligan for
being un- safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and the
_______________ letter-certification dated 12 March 1982 to prove the total amount of his time deposits
with the BANK. The letter-certification issued by Pagsaligan reads:
Prudential Bank v. Court of Appeals, G.R. No. 108957, 14 June 1993, 223 SCRA 350.
March 12, 1982
37

Ibid.
38

39San Pedro v. Court of Appeals, 333 Phil. 597; 265 SCRA 733 (1996). Dear Mr. Marcos:
508 This is to certify that we are taking care in your behalf various Time Deposit Certificates
508 SUPREME COURT REPORTS ANNOTATED with an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND
EIGHT HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for
Philippine Banking Corporation vs. Court of Appeals
90 days at 17% p.a. with the interest payable at maturity on June 10, 1982.
worthy of any probative value and being an inadmissible piece of evidence.
Thank you.
40

What the BANK presented were merely the machine copies of the duplicate of the
Sgd. FLORENCIO B. PAGSALIGAN
loan application and promissory note. No explanation was ever offered by the BANK for
Branch Manager
its inability to produce the original copies of the documentary evidence. The BANK also
45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12
did not comply with the orders of the trial court to submit the originals.
March 1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on
The purpose of the rule requiring the production of the best evidence is the prevention
time deposit on 11 March 1982. This is plainly seen from the use of the word aggregate.
of fraud. If a party is in possession of evidence and withholds it, and seeks to substitute
We are not swayed by Marcos testimony that the certification is actually for the first
41

inferior evidence in its place, the presumption naturally arises that the better evidence is
time deposit that he placed on 11 March 1982. The letter-certification speaks of various
withheld for fraudulent purposes, which its production would expose and defeat.
Time Deposits Certificates with an aggregate value of P764,897.67. If the amount
42

The absence of the original of the documentary evidence casts suspicion on the
stated in the letter-certification is for a single time deposit only, and did not include the
existence of Promissory Note No. 20-979-83 considering the BANKs fiduciary duty to
11 March 1982 time deposit, then Marcos should have demanded a new letter of
keep efficiently a record of its transactions with its depositors. Moreover, the
certification from Pagsaligan. Marcos is a businessman. While he already made an error
circumstances enumerated by the trial court bolster the conclusion that Promissory Note
in judgment in entrusting to Pagsaligan the certificates of time deposits, Marcos should
No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent
have known the importance of making the letter-certification reflect the true nature of
proof to establish the existence of Promissory Note No. 20-979-83.
the transaction. Mar-
Total Amount Due to Marcos _______________
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the
total amount of time deposits that Marcos placed with the BANK is only P764,897.67 and Ibid., p. 373.
44

not P1,429,795.34 as found by the trial court. The BANK has always argued that Marcos Ibid., pp. 34-35.
45

510
time deposits only totalled P764,897.67. What the BANK insists on in this petition is the
43

trial courts violation of its right to procedural due process and the absence of any 510 SUPREME COURT REPORTS ANNOTATED
obligation to pay or return anything to Marcos. Marcos, on the other hand, merely prays Philippine Banking Corporation vs. Court of Appeals
for the affirmation of either the trial cos is bound by the letter-certification since he was the one who prodded Pagsaligan to
_______________ issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to
Ibid.
Marcos. The appellate court did not offset Marcos outstanding debt with the BANK
40

41IBM Philippines, Inc. v. National Labor Relations Commission, 365 Phil. 137; 305 SCRA 592 (1999).
Ibid.
42
covered by the three trust receipt agreements even though Marcos admits his obligation
43Rollo, p. 21. under the three trust receipt agreements. The total amount of the trust receipts is
509 P851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the
VOL. 419, JANUARY 15, 2004 509 BANK. This reduced Marcos total debt with the BANK to P595,875 under the trust
Philippine Banking Corporation vs. Court of Appeals receipts.
The trial and appellate courts found that the parties did not agree on the imposition
of interest on the loan covered by the trust receipts and thus no interest is due on this
loan. However, the records show that the three trust receipt agreements contained Rate of Legal Interest = 12% per annum
52

Period from 15 March 1983 (Date Trust Receipt No. CD 83.9 was issued) to 6 March 1987 (date when Trust
stipulations for the payment of interest but the parties failed to fill up the blank spaces
Receipt No. CD 83.9 became due) = 1,452 days
on the rate of interest. Put differently, the Interest Due = (Value of Trust Receipt No. CD 83.9 after payment of the marginal deposit) (12%) (Number
BANK and Marcos expressly agreed in writing on the payment of interest without, 46
of Days)/ 365 days
however, specifying the rate of interest. We, therefore, impose the legal interest of Interest Due = (P210,618.75) (12%) (1,452)/365
Interest Due = P100,543.04
12% per annum, the legal interest for the forbearance of money, on each of the three 47

Rate of Legal Interest = 12% per annum

53

trust receipts. Period from 15 March 1983 (Date Trust Receipt No. CD 83.10 was issued) to 6 March 1987 (date when
Based on Marcos testimony and the BANKs letter of demand, the trust receipt
48 49
Trust Receipt No. CD 83.10 became due) = 1,452 days
agreements became due in March 1987, The records do not show exactly when in March Interest Due = (Value of Trust Receipt No. CD 83.10 after payment of the marginal deposit) (12%) (Number
of Days)/ 365 days
1987 the obligation became due. In accordance with Article 2212 of the Civil Code, in
512
such a case the court shall fix the period of the duration of the obligation. The BANKs 50

letter of demand is dated 6 March 1989. We hold that the trust receipts became due on 6
512 SUPREME COURT REPORTS ANNOTATED
March 1987. Philippine Banking Corporation vs. Court of Appeals
_______________ When the trust receipts became due on 6 March 1987, Marcos owed the BANK
P880,812.48. This amount included P595,875, the principal value of the three trust
Article 1956, Civil Code of the Philippines.
46
receipts after payment of the marginal deposit, and P284,937.48, the interest then due on
EDGARDO L. PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. 5, 832 (14th Ed, 2000); Biesterbos v.
the three trust receipts.
47

Court of Appeals, G.R. No. 152529, 22 September 2003, 411 SCRA 396.
TSN, 18 December 1989, p. 24.
48 Upon maturity of the three trust receipts, the BANK should have automatically
Records, p. 36.
49
deducted, by way of offsetting, Marcos outstanding debt to the BANK from his time
Article 2212 of the Civil Code provides: If the obligation does not fix a period, but from its nature and the
50
deposits and its accumulated interest. Marcos time deposits of P764,897.67 had already
circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
511 earned interest of P616,318.92 as of 6 March 1987. Thus, Marcos total funds with the
54 55

BANK amounted to P1,381,216.59 as of the maturity of the trust receipts. After

VOL. 419, JANUARY 15, 2004
Philippine Banking Corporation vs. Court of Appeals
Marcos payment of the marginal deposit of P255,375 for the trust receipts resulted in
the proportionate reduction of the three trust receipts. The reduced value of the trust
511
deducting P880,812.48, the amount Marcos owed the BANK, from Marcos funds with the
BANK of P1,381,216.59, Marcos remaining time deposits as of 6 March 1987 is only
P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the
date of filing of Marcos complaint with the trial court, is P211,622.96. From 30 August
56

receipts and their respective interest as of 6 March 1987 are as follows: _______________

1. 1.Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was Interest Due = (P174,637.5) (12%) (1,452)/365
Interest Due = P83,366.68
reduced to P210,618.75 with interest of P101,027.76. 51
54The time deposits matured every 90 days. The practice of banks is to compound the interest earned on
2. 2.Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was every renewal of the time deposit. However, Marcos failed to allege and prove this practice. The documents
reduced to P210,618.75 with interest of P100,543.04. 52 presented in court to prove the time deposits do not contain any stipulation on compounding of interest. Thus,
3. 3.Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 the interest on Marcos time deposits is computed on a straight, non-compounded basis. See Mambulao Lumber
Co. v. Philippine National Bank, 130 Phil. 366 (1968); The Consolidated Bank and Trust Corporation v. Court of
was reduced to P174,637.5 with interest of P83,366.68. 53
Appeals, G.R. No. 138569, 11 September 2003, 410 SCRA 562.
55Stipulated Interest Rate = 17% per annum, with interest earned capitalized every 90 days upon every
_______________ renewal of the time deposits.
Period from 10 June 1982 (Maturity date of the time deposits) to 6 March 1987 (Due date of the trust
The courts shall also fix the duration of the period when it depends on the will of the debtor. receipts) = 1,730 days
In every case, the courts shall determine such period as may under the circumstances have been probably Interest Due = (Principal) (17%) (Number of Days)/ 365 days
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. Interest Due = (P 764,897.67) (17%) (1,730)/365 = P616,318.92
Rate of Legal Interest = 12% per annum
51
56Stipulated Interest Rate = 17% per annum
Period from 8 March 1983 (Date Trust Receipt No. CD 83.7 was issued) to 6 March 1987 (date when Trust Period from 6 March 1987 (Due date of the trust receipts) to 30 August 1989 (Date of filing of the complaint
Receipt No. CD 83.7 became due) = 1,459 days with the trial court) = 908 days
Interest Due = (Value of Trust Receipt No. CD 83.7 after payment of the marginal deposit) (12%) (Number Interest Due = (Time deposits and interest -total value of the trust receipts) (17%) (Number of Days)/ 365
of Days)/ 365 days days
Interest Due = (P210,618.75) (12%) (1,459)/365 513
Interest Due = P101,027.76
 VOL. 419, JANUARY 15, 2004
Philippine Banking Corporation vs. Court of Appeals
1989, the interest due on the accumulated interest of P211,622.96 should earn legal
interest at 12% per annumpursuant to Article 2212 of the Civil Code.
57
The BANKs dismal failure to account for Marcos money justifies the award of
moral and exemplary damages. Certainly, the BANK, as employer, is liable for the
58 59
negligence or the misdeed of its branch manager which caused Marcos mental anguish
and serious anxiety. Moral damages of P100,000 is reasonable and is in accord with our
60
rulings in similar cases involving banks negligence with regard to the accounts of their
depositors. 61
We also award P20,000 to Marcos as exemplary damages. The law allows the grant of
exemplary damages by way of example for the public good. The public relies on the 62
banks fiduciary duty to observe the highest degree of diligence. The banking sector is
expected to maintain at all times this high level of meticulousness.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to
private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his
time deposits, with interest at 17% per annum from 30 August 1989 until full payment.
Petitioner Philippine Banking Corporation is also ordered to pay to private respondent
Leonilo Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12%
legal interest per annum from 30 August 1989 until full pay-
_______________
Interest Due = (P500,404.11) (17%) (908)/365 = P211,622.96
57Article 2212 of the Civil Code provides: Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
Philippine National Bank v. Court of Appeals, G.R. No. 126152, 28 September 1999, 315 SCRA 309.
58
59Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.
60The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September
2003, 410 SCRA 562; Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.
Ibid. Seealso Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310.
61
Prudential Bank v. Court of Appeals,supra, note 59.
62
Ibid.
63
514
514 SUPREME COURT REPORTS ANNOTATED
Aradillos vs. Court of Appeals
ment. Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by
way of moral damages and P20,000 as exemplary damages to private respondent Leonilo
Marcos.
Costs against petitioner.
SO ODERED.
Davide, Jr. (C.J., Chairman), Panganiban, Ynares-Santiago and Azcuna,
JJ., concur.
Judgment affirmed with modification.
513 Note.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. (Philippine National Bank vs. Court of Appeals, 315 SCRA 309 [1999])
6. G.R. No. 157845. September 20, 2005. *
PHILIPPINE NATIONAL BANK, petitioner, vs. NORMAN Y. PIKE, respondent.
Appeals; Elementary is the rule that the Supreme Court is not the appropriate venue to
consider anew the factual issues as it is not a trier of facts, and, it generally does not weigh anew the
evidence already passed upon by the Court of Appeals.Elementary is the rule that this Court is
not the appropriate venue to consider anew the factual issues as it is not a trier of facts, and, it
generally does not weigh anew the evidence already passed upon by the Court of Appeals. When
this Court is tasked to go over once more the evidence presented by both parties, and analyze,
assess and weigh them to ascertain if the trial court and the appellate court were correct in
according superior credit to this or that piece of evidence of one party or the other, the Court
63
cannot and will not do the same. Such task is foreclosed by the rule enunciated under Section 1 of
Rule 45 of the Rules of Court.
Banks and Banking; Negligence; It bears emphasizing that negligence of banking institutions
should never be countenancedthough its employees may be the ones negligent, a banks liability as
an obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees.At this juncture, it bears
emphasizing that negligence of banking institutions should never be countenanced. The negligence
here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their treatment
of respondent Pikes US Dollar Savings Account that resulted in the unauthorized withdrawal of
$7,500.00. Nevertheless, though its employees may be the ones negligent, a banks liability as an
obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees, and having such obligation, this
Court cannot ignore the circumstances surrounding the case at barhow the employees of
petitioner PNB turned their heads, nay, closed their eyes to the suspicious circumstances enfolding
the two withdrawals subject of the case at bar. It may even be said that they went out of their ways
to disregard stan-
_______________
SECOND DIVISION.
*
329
VOL. 470, SEPTEMBER 20, 2005 3
29
Philippine National Bank vs. Pike
dard operating procedures formulated to ensure the security of each and every account that
they are handling. Petitioner PNB does not deny that the withdrawal slips used were in breach of
standard operating procedures of banks in the ordinary and usual course of banking operations as
testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner PNBs
Buendia branch.
Same; Same; A banks employee was utterly remiss in protecting the banks client, as well as
the bank itself, when he allowed an account holder to make it appear as if he was the one actually
withdrawing from an account and actually receiving the withdrawn amountordinarily, banks
allow withdrawal by someone who is not the account holder so long as the account holder authorizes
his representative to withdraw and receive from his account by signing on the space provided
particularly for such transactions, usually found at the back of withdrawal slips.Petitioner PNBs
witness was utterly remiss in protecting the banks client, as well as the bank itself, when he
allowed an account holder to make it appear as if he was the one actually withdrawing from an
account and actually receiving the withdrawn amount. Ordinarily, banks allow withdrawal by
someone who is not the account holder so long as the account holder authorizes his representative
to withdraw and receive from his account by signing on the space provided particularly for such
transactions, usually found at the back of withdrawal slips. As fittingly found by the courts a quo,
if indeed, respondent Pike signed the withdrawal slips in the presence of Mr. Lorenzo Bal,
petitioner PNBs AVP at its Buendia branch, why did he not call respondent Pikes attention and
refer him to the space provided for authorizing representatives to withdraw from and receive the
proceeds of such withdrawal? Or, at the very least, sign or initial the same so that he could identify
the pre-signed withdrawal slips made by Mr. Pike?
Same; Same; General Banking Law of 2000 (R.A. No. 8791);With banks, the degree of
diligence required is more than that of a good father of a family considering that the business of
banking is imbued with public interest due to the nature of their functionsthe law imposes on
banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of banking. Though passed long after the unauthorized
withdrawals in the instant case, Sec. 2 of R.A. No. 8791, which took effect on 13 June 2000, which
makes a categorical declaration
330
3 SUPREME COURT REPORTS ANNOTATED
30
Philippine National Bank vs. Pike
that the State recognizes the fiduciary nature of banking that requires high standards of
integrity and performance, is a statutory affirmation of the Supreme Court decisions already in
esse at the time of such withdrawals.With banks, the degree of diligence required, contrary to the
position of petitioner PNB, is more than that of a good father of a family considering that the
business of banking is imbued with public interest due to the nature of their functions. The
stability of banks largely depends on the confidence of the people in the honesty and efficiency of
banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of banking. Section 2
of Republic Act No. 8791, which took effect on 13 June 2000, makes a categorical declaration that
the State recognizes the fiduciary nature of banking that requires high standards of integrity and
performance. Though passed long after the unauthorized withdrawals in this case, the
aforequoted provision is a statutory affirmation of Supreme Court decisions already in esse at the
time of such withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of
Appeals, that the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.
Damages; An award of moral damages would require, firstly, evidence of besmirched
reputation, or physical, mental or psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant; and fourthly, the case is
predicated on any of the instances expressed or envisioned by Articles 2219 and 2220 of the Civil
Code.The award of moral and exemplary damages is left to the sound discretion of the court, and
if such discretion is well exercised, as in this case, it will not be disturbed on appeal. In the case
of Philippine Telegraph & Telephone Corporation v. Court of Appeals, we had the occasion to
reiterate the conditions to be met in order that moral damages may be recovered. In said case we
stated: An award of moral damages would require, firstly, evidence of besmirched reputation, or
physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or
omission factually established; thirdly, proof that the wrongful act or omission of the defendant is
the proximate cause of the damages sustained by the claimant; and fourthly, that the case is
predicated on any of the
331
VOL. 470, SEPTEMBER 20, 2005 3
31
Philippine National Bank vs. Pike
instances expressed or envisioned by Articles 2219 and 2220 of the Civil Code.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Chief Legal Counsel and Edwin B. Panganibanfor petitioner PNB.
Rey Nathaniel C. Ifurung for respondent.
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, seeks to reverse the Decision dated 19 December 2002, and the
1
Resolution dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389,
2
which affirmed with modification the Decision rendered by the Regional Trial Court
3
(RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor
of herein respondent Norman Pike (Pike).
The case stemmed from a complaint filed by herein respondent Pike4
for damages against Philippine National Bank (PNB) on 04 January 1994.
5
_______________
1Penned by Associate Justice Juan Q. Enriquez, Jr. with Associate Justices Bernardo P. Abesamis and
Edgardo F. Sundiam, concurring; Rollo, p. 8.
Rollo, p. 16.
2
3Penned by Honorable Enrico A. Lanzanas, presiding judge of RTC-Branch 07, Manila; Rollo, p. 43.
4Records, pp. 1-5.
5In his complaint filed before the RTC, herein respondent Pike prayed that judgment be rendered ordering
defendant PNB (herein petitioner) to pay the following:
1. US$7,500.00 plus 3% interest per month until fully paid representing actual damages;
332
332 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Pike
Complainant Pike often traveled to and from Japan as a gay entertainer in said country.
Sometime in 1991, he opened U.S. Dollar Savings Account No. 0265-704591-0 with
herein petitioner PNB Buendia branch for which he was issued a corresponding
passbook. The complaint alleged in substance that before complainant Pike left for Japan
on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and
key, in his home; that on 19 April 1993, a few hours after he arrived from Japan, he
discovered that some of his valuables were missing including the passbook; that he
immediately reported the incident to the police which led to the arrest and prosecution of
a certain Mr. Joy Manuel Davasol; that complainant Pike also discovered that Davasol April 5, 1993, because his clients signatures were forged and the withdrawal made thereon were
made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account No. 0265- unauthorized . . .
_______________
704591-0, both times at the PNB Buendia branch on the following dates:
DATE AMOUNT 6Records, pp. 22-47.
31 March 1993 $3,500.00 334
05 April 1993 4,000.00 334 SUPREME COURT REPORTS ANNOTATED
TOTAL $7,500.00 Philippine National Bank vs. Pike
that on several occasions, complainant Pike went to defendant PNBs Buendia branch On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic) Dollar Account Passbook . . .
and verbally protested the unauthorized withdrawals and likewise demanded the return and requested the PNB to replace the same and allow him to make withdrawals thereon. He stated
of the total withdrawn amount of U.S. $7,500.00, on the ground that he never authorized that his passbook was stolen together with other valuables which he discovered only in the early
morning of April 19, 1993 . . .
anybody to withdraw from his account as the signatures appearing on the subject
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB,
withdrawal slips were clearly forgeries; that defendant PNB refused to Buendia Branch the full contents of said letter hereto quoted as follows:
_______________
May 6, 1993
The Manager
1. 2.P25,000.00 for and as attorneys fees plus P1,000.00 honorarium per court appearance;
2. 3.P50,000.00 as moral damages; Philippine National Bank
3. 4.P50,000.00 as exemplary damages; and Buendia Branch
4. 5.P20,000.00 as cost of suit and litigation expenses. RTC Records, p. 4. Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
333
VOL. 470, SEPTEMBER 20, 2005 333 Sir:
Philippine National Bank vs. Pike
credit said amount back to complainants U.S. Dollar Savings Account without justifiable In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-
reason, and instead, defendant bank wrote him that it exercised due diligence in the order on my dollar savings passbook No. 265-704591-0, I am now requesting your good
handling of said account; and that on 06 May 1993, complainant Pike wrote defendant office to lift the same so I can withdraw the remaining balance of my passbook which was
PNB simply to request that the hold-account be lifted so that he may withdraw the reported lost sometime in March of this year.
remaining balance left in his U.S.$ Savings Account and nothing else. I also promise not to hold responsible the bank and its officers for the withdrawal
On the other hand, defendant PNB alleged, in its Motion to Dismiss of 18 April 1994, 6
made on my dollar savings passbook on March 19 and April 5, 1993 respectively as a
a counterstatement of facts. Its factual allegations read: result of the lost (sic) of my passbook.
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, together with a certain Joy Sgd. NORMAN Y. PIKE
Davasol went to see PNB AVP Mr. Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of Depositor
$2,000.00. Mr. Pike also informed AVP Val that he is leaving for abroad (Japan) and made verbal Philippine Passport
instruction to honor all withdrawals to be transmitted by his Talent Manager and Choreographer, No. H918022
Joy Davasol who shall present pre-signed withdrawal slips bearing his (Pikes) signature. . . Issued at Manila on
On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiffs sister executed Sept. 6, 1990
an affidavit . . . . stating therein that they discovered today (April 19, 1993) the lost (sic) of her Place of Issuance
brothers passbook issued by PNB on account of robbery, committed in the residence/office of her
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to
brother, promptly reporting the matter to the police authorities and her brother cannot report the withdraw the remaining balance from his passbook . . . .
matter to the Bank because he was currently in Japan and therefore requesting the Bank to issue 335
a hold-order on her brothers passbook.
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was
VOL. 470, SEPTEMBER 20, 2005 335
the one who reported the matter) after one month in Japan, he (complainant) arrived yesterday. . . Philippine National Bank vs. Pike
On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiffs counsel sent a demand A letter dated May 18, 1993 was sent to Plaintiffs counsel . . . by PNB . . . stating that the Bank
letter to VP Violeta T. Suquila (then VP and Manager of PNB Buendia Branch) demanding the regrets that it cannot accede to such request inasmuch as the Bank exercised due diligence of a
bank to credit back the amount of US$7,500.00 which were withdrawn on March 31, 1993 and good father to his family in the handling of transactions covering the deposit account of Mr. Pike . .
.
 On July 2, 1993, Plaintiffs counsel sent a letter to PNB Vice Pres. Suquila denying that his
client made any such promise not to hold responsible the bank and its officers for the withdrawal
made . . . .
A letter dated July 29, 1993 . . . was sent to Plaintiffs counsel by VP Suquila stating that
plaintiffs withdrawal of the remaining balance of his account with the Bank effectively estops him
from claiming on the alleged unauthorized withdrawals.
The trial court, in its decision dated 10 January 1997, made the following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not
impressed with the defense put up by the bank. Its contention that the withdrawals were
authorized by the plaintiff because there was an arrangement between the bank represented by its
Asst. Vice President Lorenzo Bal, Jr. and the depositor Norman Y. Pike to the effect that pre-
signed withdrawal slips, that is, withdrawal slip signed by the depositor in the presence of Mr. Bal
whereby it would be made to appear that it was the depositor himself who presented the same to
the bank despite the fact that it was another person who presented the same should be honored by
the bank cannot be sanctioned by the court. Firstly, the court is not satisfied that there was indeed
such an arrangement. . . It is Mr. Bals contention that such an arrangement although not
ordinarily entered into is still a legal procedure of the bank and is resorted to accommodate the
depositors specially honored and valued depositor at that.
...
The court compared the signatures in the questioned withdrawal slips with the known
signatures of the depositor and is convinced that the signatures in the unauthorized withdrawal
slips do not correspond to the true signatures of the depositor.
From the evidence that it received, the court is convinced that the bank was negligent in the
performance of its duties such that
336
336 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Pike
unauthorized withdrawals were made in the deposit of plaintiff Norman Y. Pike. 7
The dispositive portion of the trial courts decision reads:
WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff
and against the defendant and ordering the defendant to pay the following:
1. 1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is
paid;
2. 2.P25,000.00 for and as attorneys fees;
3. 3.P50,000.00 as moral damages and P50,000.00 as exemplary damages; and
4. 4.Plus the costs of suit.
8 unauthorized withdrawals from his account.
Defendant PNBs motion for reconsideration was subsequently denied by the court a quo. 9
On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002,
affirming the findings of the RTC that indeed defendant-appellant PNB was negligent in
exercising the diligence required of a business imbued with public interest such as that of
the banking industry, however, it modified the rate of interest and award for damages, to
wit:
WHEREFORE, premises considered, the Decision dated January 10, 1997 issued by the Regional
Trial Court of Manila, Branch 7, in Civil Case No. 94-68821, is hereby AFFIRMED with
MODIFICATION, as follows:
1. 1.Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee
the amount of $7,500.00 plus interest of 6% per annum to be computed from the date of
the filing of the complaint which interest rate shall become 12% per annum from the
time the judgment in this case becomes final and executory until its satisfaction;
_______________
7Rollo, pp. 52-54.
8Rollo, pp. 54-55.
9[denial of mr by rtc].
337
VOL. 470, SEPTEMBER 20, 2005 337
Philippine National Bank vs. Pike
1. 2.The award for moral damages is reduced to P20,000.00; and
2. 3.The award for exemplary damages is likewise reduced to P20,000.00.
Costs against appellant. 10
The appellate court held that:
Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to
make withdrawals. Appellee even left pre-signed withdrawal slips before he went to Japan.
However, appellant could have told appellee to authorize the withdrawal by a representative by
indicating the same at the space provided at the back portion of the withdrawal slip. This
operational flaw was observed by the trial court, when it ruled:
The court cannot also understand why the bank did not require the correct, proper and the usual procedure of
requiring a depositor who is withdrawing the money through a representative to fill up the back portion of the
withdrawal slips, which form was issued by the bank itself.
A perusal of the records discloses that appellee had previously authorized withdrawals by a
representative. However, these withdrawals were properly accompanied by a withdrawal by a
representative form aside from a handwritten request by appellee to allow such withdrawals by
his representative, or a typewritten letter-request for withdrawal by a representative. Certainly,
appellant lacked the due care and caution required of managers and employees of a firm engaged
in so sensitive and demanding business as banking.
In its desire to be exonerated from liability, appellant advances the argument that, granting
negligence on its part, appellee condoned this negligence as shown in his letter dated May 6, 1993,
wherein appellee purportedly undertook, not to hold the bank and its officers responsible for the
We do not agree. It should be emphasized that while the appellee admitted signing the letter
dated May 6, 1993, he, however,
_______________
10 Rollo, p. 15.
338
338 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Pike
denied having undertook (sic) to exonerate the appellant from liability for the unauthorized
withdrawals. Appellee questioned the second paragraph of the said letter as being superimposed so
that his signature overlapped the text of the second paragraph of said letter. A waiver of right, in
order to be valid, should be in a language that clearly manifests his desire to do so. In the A priori, it is quite evident that the petition is anchored on a plea to review or re-
instant case, appellees filing of the instant action is inconsistent with appellants contention that examine the factual conclusions reached by the trial court and affirmed by the Court of
he had waived his right to question appellants negligent act of allowing the unauthorized Appeals, and for this Court to hold otherwise. Whether:
withdrawals from his account. 11

Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02

1. 1)respondent Pikes signatures appearing on the pertinent withdrawal slips used
April 2003, the Court of Appeals denied said motion.
by Joy Manuel Davasol to withdraw the amount of $7,500.00, were forgeries, as
Hence, this petition.
13

Petitioner PNB now seeks the review of the aforequoted decision and resolution of the
Court of Appeals predicated on the following issues:
I.
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN
THIS CASE;
II.
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY PROVEN THAT THE
SIGNATURES APPEARING ON THE TWO (2) QUESTIONED PRE-SIGNED WITHDRAWAL
SLIP FORMS ARE ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE 132 OF
THE REVISED RULES OF COURT; and
found by the trial court and affirmed by the Court of Appeals, or were authentic
as claimed by petitioner bank; and
2. 2)respondent Pike in fact executed a waiver absolving petitioner bank from any
legal responsibility due to the unauthorized withdrawals, as maintained by
petitioner bank, or the paragraph containing said waiver was intercalated by
some other person, thus, amounting no waiver at all, as held by the courts a
quo.
are questions of fact and not of law. Inexorably, these issues call for an inquiry into the
facts and evidence on record. This, as we have so often held, we cannot do.
Elementary is the rule that this Court is not the appropriate venue to consider anew
the factual issues as it is not a
_______________

III. tive, namely Joy Manuel Davasol, to be able to withdraw from said US $ Savings Account by presenting a
pre-signed withdrawal slip.
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST 13The person who, undisputedly, withdrew the amount of $7,500.00 from the US Dollar Savings Account of
A PARTY IN GOOD FAITH. respondent Pike.
Petitioner PNB contends that due to the verbal instructions of respondent Pike, a valued
12
340
depositor, it allowed the 340 SUPREME COURT REPORTS ANNOTATED
_______________ Philippine National Bank vs. Pike
trier of facts, and, it generally does not weigh anew the evidence already passed upon by
11Rollo, pp. 12-13.
12According to petitioner PNBs AVP Lorenzo T. Bal, respondent Pike gave verbal instructions to allow the the Court of Appeals. When this Court is tasked to go over once more the evidence
14

latters representa- presented by both parties, and analyze, assess and weigh them to ascertain if the trial
339 court and the appellate court were correct in according superior credit to this or that
VOL. 470, SEPTEMBER 20, 2005 339 piece of evidence of one party or the other, the Court cannot and will not do the
Philippine National Bank vs. Pike same. Such task is foreclosed by the rule enunciated under Section 1 of Rule 45 of the
15 16

withdrawal by another person. Plus, the fact that said respondent withdrew the Rules of Court:
SECTION 1. Filing of petition with Supreme Court.. . . The petition shall raise only questions of
remaining balance in his US Savings Account and executed a waiver releasing petitioner
law which must be distinctly set forth.
17

PNB from any liability due to the loss of the funds should rightly negate a finding of
We have oft ruled that factual findings of the Court of Appeals are conclusive on the
negligence on its part. Accordingly, petitioner PNB claims that the appellate court, as
parties and not reviewable by this Courtand they carry even more weight when the
well as the trial court erred in holding that the withdrawals in question were
Court of Appeals affirms the factual findings of the trial court, and in the absence of
18

unauthorized as the signatures appearing on the subject withdrawal slips were forgeries.
any showing that the findings complained of are totally devoid of support in the evidence
Petitioner PNB, therefore, argues that it should not be held liable for the amount
on record, or that they are so glaringly erroneous as to constitute serious abuse of
withdrawn from the account of respondent Pike in the sum of $7,500.00, as well as for
discretion, such findings must stand. The courts a quo are in a much better position to
moral and exemplary damages.
evaluate properly the evidence.
Finding no other alternative but to affirm their finding that petitioner PNB
negligently allowed the unauthorized
_______________ A: Yes, sir. Because it was pre signed withdrawal slip.
Prudential Bank and Trust Company v. Reyes, G.R. No. 141093, 20 February 2001, 352 SCRA 316;
14
Q: What does the signature appear, the word recipient means?
and Langkaan Realty Development, Inc. v. United Coconut Planters Bank, G.R. No. 139437, 08 December A: Received.
2000, 347 SCRA 542.
Elayda v. Court of Appeals, G.R. No. 49327, 18 July 1991, 199 SCRA 349.
15
Q: So, what you are saying is that, the depositor here signed this even
Appeal by Certiorari to the Supreme Court.
16
before receiving the amount?
Question of law has been defined as one that does not call for any examination of the probative value of
17

the evidence presented by the parties. A: Because before the withdrawal was made, Mr. Pike, the depositor
Borromeo v. Sun, G.R. No. 75908, 22 October 1999, 317 SCRA 176.
18
came to the bank when he withdrew the $2,000.00 and instructed me
341
or requested us even the supervisor to honor all withdrawal slip.
VOL. 470, SEPTEMBER 20, 2005 341
Q: And this is a regular procedure?
Philippine National Bank vs. Pike
A: Yes, sir.
withdrawals subject of the case at bar, the instant petition for review must necessarily
fail. Q: Are you sure of that?
At this juncture, it bears emphasizing that negligence of banking institutions should A: Yes, sir.
never be countenanced. The negligence here lies in the lackadaisical attitude exhibited Q: Do you have written manual on this particular procedure, Mr.
by employees of petitioner PNB in their treatment of respondent Pikes US Dollar Witness?
Savings Account that resulted in the unauthorized withdrawal of $7,500.00. A: Of course, that includes in the Rules and regulations of the bank.
Nevertheless, though its employees may be the ones negligent, a banks liability as an
obligor is not merely vicarious but primary, as banks are expected to exercise the highest Q Are you are (sic) are very sure of that?
degree of diligence in the selection and supervision of their employees, and having such19
A: And banking is a fast transaction between the depositor and the
obligation, this Court cannot ignore the circumstances surrounding the case at barhow bank.
the employees of petitioner PNB turned their heads, nay, closed their eyes to the Q: And then, is the use of the back portion of the withdrawalslip . . .
suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may with a heading of authorization?
even be said that they went out of their ways to disregard standard operating procedures
formulated to ensure the security of each and every account that they are handling.
A: Normally, a depositor and the bank agrees on certain terms that if
Petitioner PNB does not deny that the withdrawal slips used were in breach of standard you allow withdrawal from his account, his or her account, its
operating procedures of banks in the ordinary and usual course of banking operations as enough that the signature of the depositor appears on both spaces in
testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of the front side of the withdrawal slip. Even if you do not have the
Petitioner PNBs Buendia branch, on cross-examination he stated thus:
20

back portion of the withdrawal slip.

Q: Mr. Witness, when the original of Exhibit B was presented to you
21

Q: You are very sure of that?

for approval, how many signatures of depositor appears thereon? A: Yes, sir.
A: Two (2) signatures appears (sic) on the face of the withdrawal slip. Q: And that has been done with the other withdrawal slip of Norman
_______________
Pike as stated or as shown in the Statement of Account?
Bank of Philippine Islands v. Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51.
19 343
TSN, 01 December 1994, pp. 18-20.
20
VOL. 470, SEPTEMBER 20, 343
Withdrawal slip for $4,000.00.
21

342 2005
342 SUPREME COURT REPORTS ANNOTATED Philippine National Bank vs. Pike
Philippine National Bank vs. Pike A: Yes, sir.
Q: When it (sic) was (sic) presented to you immediately? Q: That withdrawal made by
A: Yes, sir. representative?
Q: Are you sure of that? A: Yes, sir.
From the foregoing, petitioner PNBs witness was utterly remiss in protecting the banks ...
client, as well as the bank itself, when he allowed an account holder to make it appear as Q: And Mr. witness, Exhibit C-1 which is being kept at your
22

if he was the one actually withdrawing from an account and actually receiving the
withdrawn amount. Ordinarily, banks allow withdrawal by someone who is not the
vault, also contains a picture?
account holder so long as the account holder authorizes his representative to withdraw A: Yes, sir.
and receive from his account by signing on the space provided particularly for such Q: And the picture of the depositor?
transactions, usually found at the back of withdrawal slips. As fittingly found by the A: Yes, sir.
courts a quo, if indeed, respondent Pike signed the withdrawal slips in the presence of Q: And are you familiar with the identity of the depositor Norman
Mr. Lorenzo Bal, petitioner PNBs AVP at its Buendia branch, why did he not call
Pike?
respondent Pikes attention and refer him to the space provided for authorizing
representatives to withdraw from and receive the proceeds of such withdrawal? Or, at A: What particular identity?
the very least, sign or initial the same so that he could identify the pre-signed Q: His appearance?
withdrawal slips made by Mr. Pike? A: He is gay looking fellow.
Q: You are also saying that on March 15, 1993, you likewise met Joy COURT: Answer. You are familiar with his physical appearance?
Manuel Dabasol? A: Not so much. Because there are so much depositor(sic) in the
A: Yes, sir. bank. [Emphasis ours.]
23

Q: And you (sic) also saying on March 15, 1993, you also met Norman By his own testimony, the witness negated the very reason for the banks bizarre
Pike, the depositor, accommodation of the alleged verbal request of respondent Pikethat he was a valued
A: Yes, sir. client. From the aforequoted, it appears that the witness, Lorenzo Bal, was not even
reasonably familiar with respondent Pike, yet, he was ready, willing and able to
Q: And when did you first met (sic) Norman Pike? accommodate the verbal request of said depositor. Worse still, the witness still ap-
A: March 15 when he withdrew $2,000.00. _______________
Q: That was the first time?
Savings Signature Card of Norman Pike.
22

A: First time, yes. TSN, 01 December 1994, pp. 22-25.

23

Q: And Mr. Norman Pike was already transacting with you long before 345
that day, is this correct? For how long was he transacting with you? VOL. 470, SEPTEMBER 20, 2005 345
A: That was my first time. Philippine National Bank vs. Pike
344 proved the withdrawal transaction without asking for any proof of identification for the
344 SUPREME COURT REPORTS ANNOTATED reason that: 1) Davasol was in possession of a pre-signed withdrawal slip; and 2) the
Philippine National Bank vs. Pike witness recognized the signature of respondent Pikeeven after admitting that he did
not bother to counter check the signature on the slip with the specimen signature card of
Q: That was the first time. What I mean is, that he was transacting respondent Pike and that he met respondent Pike just once so that he cannot seem to
with the PNB, Buendia Branch long before you met him? recall what the latter looks like. The ensuing quoted testimony of the same witness will
A: Maybe. justify a finding of negligence amounting to bad faith, to wit:
... Q: And you also met Joy Manuel Dabasol on March 15?
Q: And the withdrawal made on April 5, 1993 which you A: Yes, sir.
approved, you did not look at Exhibit C, the Savings Q: And can you describe Joy Manuel Dabasol?
Signature Card Individual? A: I cannot recall his face but then he is a Talent manager, because there
A: We do not look at that, that is kept in the vault. are so many depositors in the bank.
Q: Yes or no? ...
A: No, sir. Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you
 verbal authority to honor withdrawal by Joy Manuel Dabasol? authorities?
A: Yes, sir. A: Yes.
Q: Why did you not require then that Mr. Pike instead sign the Q: Is that Standard Operating Procedure?
authorization portion and that the name of Joy Manuel Dabasol A: It is not SPO, but when you knew the client, Your Honor, you have
appear thereon with his signature? to honor also the trust and confidence. Let us say if you
... Q: According to you, you met Norman Pike only on March 15, 1993
A: I required Mr. Norman Pike to sign the withdrawal slip on the face of and immediately you allowed him to withdraw through pre-signed
the withdrawal slip. withdrawal slip?
Q: But not the authorization portion of the said withdrawal slip? A: Yes, Your Honor. Because a depositor requested you to honor his
... signature, you have to do that or else willand besides the request
A: No, because that is sufficient already. is for purpose of expediency, Your Honor. Because most often than
Q: And is this your normal procedure, Mr. witness? This particular that, he is out of the country, in Japan. And his Talent Manager is
procedure that you conducted? the one managing the recruiting agency. The money will be used in
A: I dont think so. the operating expenses.
Q: Mr. witness, whenon April 5, 1993, when Joy Dabasol came to the ...
office and according to you, you do not remember him, is that 347

correct? VOL. 470, 347

SEPTEMBER 20, 2005
346 Philippine National Bank vs. Pike
346 SUPREME COURT REPORTS ANNOTATED Q: You did not even bother to look at the Savings
Philippine National Bank vs. Pike Signature Card Individual, yes or no?
A: I cannot recall his face. A: No, sir. [Emphases supplied.]
24

... Having admitted that pre-signed withdrawal slips do not constitute the normal
Q: And he just showed you a withdrawal slip, is this correct? procedure with respect to withdrawals by representatives should have already put
petitioner PNBs employees on guard. Rather than readily validating and permitting said
A: Yes, on April 5. withdrawals, they should have proceeded more cautiously. Clearly, petitioner banks
Q: Did you require him to produce any Identification Card, yes or no? employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless
A: No. in his treatment of respondent Pikes savings account.
Q: And how did you know then that it was Joy Dabasol who was From the foregoing, the evidence clearly showed that the petitioner bank did not
making the withdrawal on April 5? exercise the degree of diligence that it ought to have exercised in dealing with their
clients.
A: because the presigned withdrawal slip was presented to me.
With banks, the degree of diligence required, contrary to the position of petitioner
Q: Is that all your basis? PNB, is more than that of a good father of a family considering that the business of
A: Yes, sir. Because his signature appears. banking is imbued with public interest due to the nature of their functions. The stability
... of banks largely depends on the confidence of the people in the honesty and efficiency of
Q: Mr. witness, this alleged authority given to you by Norman Pike to banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary nature of
honor withdrawal by Joy Manuel Dabasol, was that in writing?
banking. Section 2 of Republic Act No. 8791, which took effect on 13 June 2000, makes a
25

A: It was verbally requested. categorical declaration that the State recognizes the fiduciary nature of banking that
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal requires high standards of integrity and performance. 26
 Though passed long after the unauthorized withdrawals in this case, the aforequoted petitioner PNB likewise avers that its actions were made in good faith, for this reason,
provision is a statutory affirmation of Supreme Court decisions already in esse at the there is no factual basis for said award.
time of such Petitioner PNBs assertions fail to impress us.
_______________ The award of moral and exemplary damages is left to the sound discretion of the
court, and if such discretion is well exercised, as in this case, it will not be disturbed on
Id., pp. 26-52.
appeal. In the case of Philippine Telegraph & Telephone Corporation v. Court of
24
33

25The General Banking Law of 2000.

26The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September Appeals, we had the occasion to reiterate the conditions to be met in order that moral
34

2003, 410 SCRA 562. damages may be recovered. In said case we stated:
348 An award of moral damages would require, firstly, evidence of besmirched reputation, or physical,
348 SUPREME COURT REPORTS ANNOTATED mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission of the defendant is the
Philippine National Bank vs. Pike proximate cause of the damages sustained by the claimant; and fourthly, that the case is
withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of predicated on any of the instances expressed or envisioned by Articles 2219 and 35

Appeals, that the bank is under obligation to treat the accounts of its depositors with
27 _______________
meticulous care, always having in mind the fiduciary nature of their relationship. 28

Petitioner PNBs Memorandum, p. 43; Rollo, p. 277.

Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of
32

33 Barzaga v. Court of Appeals, G.R. No. 115159, 12 February 1997, 268 SCRA 105, 1997.
Appeals, we clarified that said fiduciary relationship means that the banks obligation to
29 34 G.R. No. 139268, 03 September 2002, 388 SCRA 270.

35 Art. 2219. Moral damages may be recovered in the following and analogous cases:
observe highest standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of banking
1. (1)A criminal offense resulting in physical injuries;
requires banks to assume a degree of diligence higher than that of a good father of a 2. (2)Quasi-delicts causing physical injuries;
family. Article 1172 of the New Civil Code states that the degree of diligence required of 3. (3)Seduction, abduction, rape or other lascivious acts;
4. (4)Adultery or concubinage;
an obligor is that prescribed by law or contract, and absent such stipulation then the
30

5. (5)Illegal or arbitrary detention or arrest;

diligence of a family. In every case, the depositor expects the bank to treat his account 6. (6)Illegal search;
with the utmost fidelity, whether such accounts consist only of a few hundred pesos or of
millions of pesos. 31
350
_______________ 350 SUPREME COURT REPORTS ANNOTATED
27G.R. No. 88013, 19 March 1990, 183 SCRA 360. Philippine National Bank vs. Pike
28Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206, 2220 of the Civil Code.
36

SCRA 408; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310; Metropolitan Bank & Specifically, in culpa contractual or breach of contract, as here, moral damages are
Trust Co v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Firestone v. Court of
Appeals, G.R. No. 113236, 05 March 2001, 353 SCRA 601.
recoverable only if the defendant has acted fraudulently or in bad faith, or is found 37

29Supra, note 19. guilty of gross negligence amounting to bad faith, or in wanton disregard of his 38

30The provisions of the New Civil Code on simple loan govern the contract between a bank and its contractual obligations. Verily, the breach must be wanton, reckless, malicious, or in bad
39

depositor. Specifically, Article 1880 categorically provides that . . . savings . . . deposits of money in banks and faith, oppressive or abusive. 40

similar institutions shall be governed by the provisions concerning simple loan. Thus, the relationship between
a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it lends the bank money;
There is no reason to disturb the trial courts finding of petitioner banks employees
and the bank is the debtor, which agrees to pay the depositor on demand. negligence in their treatment of respondent Pikes account. In the case on hand, the
31Supra, note 11. Court of Appeals sustained, and rightly so, that an award of moral damages is
349 warranted. For, as found by said appellate court, citing the case of Prudential Bank v.
VOL. 470, SEPTEMBER 20, 2005 349 Court of Appeals, the banks negligence is a result of lack of due care and caution
41

_______________
Philippine National Bank vs. Pike
Anent the issue of the propriety of the award of damages in this case, petitioner PNB
1. (7)Libel, slander or any other form of defamation;
asseverates that there was no evidence to prove that respondent Pike suffered anguish, 2. (8)Malicious prosecution;
embarrassment and mental sufferings due to its acts in allowing the alleged
32
3. (9)Acts mentioned in article 309;
unauthorized withdrawals. And, having relied on the instructions of a valued depositor, 4. (10)Acts of actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
 The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also authorized by the depositor to do so. (Bank of the Philippine Islands vs. Court of
recover moral damages.
Appeals, 326 SCRA 641[2000])
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of
this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
36 o0o
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
Article 2220 New Civil Code.
37
7. G.R. No. 170598. October 9, 2013.*
Supra.
38 FAR EAST BANK & TRUST COMPANY, petitioner, vs. ROBERT MAR CHANTE, a.k.a.
Supra, note 27.
39
ROBERT MAR G. CHAN, respondents.
Herbosa v. Court of Appeals, G.R. No. 119086, 25 January 2002, 374 SCRA 578.
40
Remedial Law; Evidence; Burden of Proof; Words and Phrases; Burden of proof is a term that
G.R. No. 125536, 16 March 2000, 328 SCRA 264.
refers to two separate and quite different concepts, namely: (a) the risk of non-persuasion, or the
41

351
VOL. 470, SEPTEMBER 20, 2005
Philippine National Bank vs. Pike
required of managers and employees of a firm engaged in so sensitive and demanding
business, as banking, hence, the award of P20,000.00 as moral damages, is proper.
The award of exemplary damages is also proper as a warning to petitioner PNB and
all concerned not to recklessly disregard their obligation to exercise the highest and
strictest diligence in serving their depositors.
Finally, the aforestated grant of exemplary damages entitles respondent Pike the
award of attorneys fees in the amount of P20,000.00 and the award of P10,000.00 for
litigation expenses. 42
WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19
December 2002, and the Resolution dated 02 April 2003, both of the Court of Appeals, in
CA-G.R. CV No. 59389, which affirmed with modification the Decision rendered by the
Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case
No. 94-68821, are hereby AFFIRMED with the MODIFICATION that petitioner PNB is
directed to pay respondent Pike additional 1) P20,000.00 representing attorneys fees;
and 2) P10,000.00 representing expenses of litigation. Costs against petitioner PNB.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo, Sr.and Tinga, JJ., concur.
Petition denied, assailed decision and resolution affirmed with modification.
_______________
42 Art. 2208 (1) of the New Civil Code provides:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered,
except:
(1) When exemplary damages are awarded;
....
352
352 SUPREME COURT REPORTS ANNOTATED
Orola vs. Rural Bank of Pontevedra (Capiz), Inc.
Notes.In the world of commerce, especially in the field of banking, the promised
word is crucialonce given, it may no longer be broken. (Allied Banking Corporation vs.
Court of Appeals, 294 SCRA 803 [1998])
The requirement of presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person making the withdrawal is
burden of persuasion, or simply persuasion burden; and (b) the duty of producing evidence, or the
351 burden of going forward with the evidence, or simply the production burden or the burden of
evidence.Burden of proof is a term that refers to two separate and quite different concepts,
namely: (a) the risk of non-persuasion, or the burden of persuasion, or simply persuasion burden;
and (b) the duty of producing evidence, or the burden of going forward with the evidence, or simply
the production burden or the burden of evidence. In its first concept, it is the duty to establish the
truth of a given proposition or issue by such a quantum of evidence as the law demands in the case
at which the issue arises. In its other concept, it is the duty of producing evidence at the beginning
or at any subsequent stage of trial in order to make or meet a prima facie case. Generally speaking,
burden of proof in its second concept passes from party to party as the case progresses, while in its
first concept it rests throughout upon the party asserting the affirmative of the issue.
Same; Same; Same; The burden of proof, which may either be on the plaintiff or the
defendant, is on the plaintiff if the defendant denies the factual allegations of the complaint in the
manner required by the Rules of Court; or on the defendant if he admits expressly or impliedly the
essential allegations but raises an affirmative defense or defenses, that, if proved, would exculpate
him from liability.In civil cases, the burden of proof is on the party who would be defeated if no
evidence is given on either side. This is because our system frees the trier of facts from the
responsibility of investigating and presenting the facts and arguments, placing that responsibility
entirely upon the respective parties. The burden of proof, which may
_______________
* FIRST DIVISION.
150
1 SUPREME COURT REPORTS ANNOTATED
50
Far East Bank & Trust Company vs. Chante
either be on the plaintiff or the defendant, is on the plaintiff if the defendant denies the
factual allegations of the complaint in the manner required by the Rules of Court; or on the
defendant if he admits expressly or impliedly the essential allegations but raises an affirmative
defense or defenses, that, if proved, would exculpate him from liability.
Same; Same; Preponderance of Evidence; As the rule indicates, preponderant evidence refers to
evidence that is of greater weight, or more convincing, than the evidence offered in opposition to
it.Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil actions, and
delineates how preponderance of evidence is determined, viz.: Section 1. In civil cases, the party
having the burden of proof must establish his case by a preponderance of evidence. In
determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the
witnesses manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number of witnesses, though the preponderance is
not necessarily with the greater number. (Emphasis supplied) As the rule indicates, preponderant
evidence refers to evidence that is of greater weight, or more convincing, than the evidence offered
in opposition to it. It is proof that leads the trier of facts to find that the existence of the contested
fact is more probable than its nonexistence.
Banks and Banking; The Supreme Court reminds that as a banking institution, Far East
Bank & Trust Co. (FEBTC) had the duty and responsibility to ensure the safety of the funds it held
in trust for its depositors.Being the plaintiff, FEBTC must rely on the strength of its own evidence
instead of upon the weakness of Chans evidence. Its burden of proof thus required it to
preponderantly demonstrate that his ATM card had been used to make the withdrawals, and that
he had used the ATM card and PIN by himself or by another person to make the fraudulent
withdrawals. Otherwise, it could not recover from him any funds supposedly improperly with-
151
VOL. 707, OCTOBER 9, 2013 15
1 Far East Card No. 05-01120-5-0.
Far East Bank & Trust Company vs. Chante
drawn from the ATM account. We remind that as a banking institution, FEBTC had the duty
and responsibility to ensure the safety of the funds it held in trust for its depositors. It could not
avoid the duty or evade the responsibility because it alone should bear the price for the fraud
resulting from the system bug on account of its exclusive control of its computer system.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benedicto, Verzosa, Felipe & Burkley Law Office for petitioner.
BERSAMIN, J.:
In this dispute between a bank and its depositor over liability for several supposedly
fraudulent withdrawals from the latters account through an automated tellering
machine (ATM), we hereby resolve the issue of liability against the bank because of the
intervention of a system bug that facilitated the purported withdrawals.
The Case
Under review on certiorari is the decision promulgated on August 1, 2005, 1 whereby
the Court of Appeals (CA) reversed the judgment the Regional Trial Court, Branch 51, in
Manila (RTC) rendered in favor of the petitioner on May 14, 1998 in Civil Case No. 92-
61706.2 Thereby, the CA relieved the depositor of any liability for the supposedly
fraudulent withdrawals.
_______________
1 Rollo, pp. 42-63; penned by Associate Justice Arturo D. Brion (now a Member of this Court), with
Associate Justice Eugenio S. Labitoria (retired) and Associate Justice Eliezer R. De los Santos
(retired/deceased) concurring.
2 Id., at pp. 75-82.
152
152 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
Antecedents
Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current
account depositor of petitioner Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch
(Current Account No. 5012-00340-3). FEBTC issued to him Far East Card No. 05-01120-
5-0 with July 1993 as the expiry date. The card, known as a Do-It-All card to handle
credit card and ATM transactions, was tagged in his current account. As a security
feature, a personal identification number (PIN), known only to Chan as the depositor,
was required in order to gain access to the account. Upon the cards issuance, FEBTC
required him as the depositor to key in the six-digit PIN. Thus, with the use of his card
and the PIN, he could then deposit and withdraw funds from his current account from
any FEBTC ATM facility, including the MEGALINK facilities of other member banks
that included the Philippine National Bank (PNB).
Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East
Bank & Trust Co. (FEBTC) on July 1, 1992 in the RTC,3 to recover from Chan the
principal sum of P770,488.30 representing the unpaid balance of the amount
fraudulently withdrawn from Chans Current Account No. 5012-00340-3 with the use of
FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992,
Chan had used Far East Card No. 05-01120-5-0 to withdraw funds totaling P967,000.00
from the PNB-MEGALINK ATM facility at the Manila Pavilion Hotel in Manila; that the
withdrawals were done in a series of 242 transactions with the use of the same machine,
at P4,000.00/withdrawal, except for transaction No. 108 at 3:51 a.m. of May 5, 1992,
when the machine dispensed only P3,000.00; that MEGALINKS journal tapes showed
that Far East Card No. 05-01120-5-0 had been used in all the 242
_______________
3 Records, pp. 1-7.
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Far East Bank & Trust Company vs. Chante
transactions; and that the transactions were processed and recorded by the respective
computer systems of PNB and MEGALINK despite the following circumstances, namely:
(a) the offline status of the branch of account (FEBTC Ongpin Branch); (b) Chans
account balance being only P198,511.70 at the time, as shown in the bank statement; (c)
the maximum withdrawal limit of the ATM facility being P50,000.00/day; and (d) his
withdrawal transactions not being reflected in his account, and no debits or deductions
from his current account with the FEBTC Ongpin Branch being recorded.
FEBTC added that at the time of the ATM withdrawal transactions, there was an
error in its computer system known as system bug whose nature had allowed Chan to
successfully withdraw funds in excess of his current credit balance of P198,511.70; and
that Chan had taken advantage of the system bug to do the withdrawal transactions.
On his part, Chan denied liability. Although admitting his physical possession of Far
East Card No. 05-01120-5-0 on May 4 and May 5, 1992, he denied making the ATM
withdrawals totalling P967,000.00, and instead insisted that he had been actually home
at the time of the withdrawals. He alluded to a possible inside job as the cause of the
supposed withdrawals, citing a newspaper report to the effect that an employee of
FEBTCs had admitted having debited accounts of its depositors by using his knowledge
of computers as well as information available to him. Chan claimed that it would be
physically impossible for any human being like him to stand long hours in front of the
ATM facility just to withdraw funds. He contested the debiting of his account, stating
that the debiting had affected his business and had caused him to suffer great
humiliation after the dishonor of his sufficiently-funded checks by FEBTC.
The records show that FEBTC discovered the system bug only after its routine
reconciliation of the ATM-MEGALINK transactions on May 7, 1992; that it immediately
adopted
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154 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
remedial and corrective measures to protect its interest in order to avoid incurring
further damage as well as to prevent a recurrence of the incident; that one of the
measures it adopted pursuant to its ATM Service Agreement with Chan was to program
its computer system to repossess his ATM card; that his ATM card was repossessed at
the Ermita Branch of FEBTC when he again attempted to withdraw at the ATM facility
there; that the ATM facility retained his ATM card until its recovery by the bank; and
that FEBTC conducted an in-depth investigation and a time-and-motion study of the
withdrawals in question.
On May 14, 1992, FEBTC debited his current account in the amount of P192,517.20
pursuant to Chans ATM Service Agreement. It debited the further sum of P3,000.00 on
May 18, 1992, leaving the unrecovered portion of the funds allegedly withdrawn by him
at P770,488.30. Thus, on May 14 and May 18, 1992, FEBTC sent to Chan letters
156
demanding the reimbursement of the unrecovered balance of P770,488.30, but he turned
a deaf ear to the demands, impelling it to bring this case on July 1, 1992. 4
Ruling of the RTC
As reflected in the pre-trial order of October 19, 1992, the issues to be resolved were,
firstly, whether or not Chan had himself withdrawn the total sum of P967,000.00 with
the use of his Far East Card No. 05-01120-5-0 at the PNB-MEGALINK ATM facility;
and, secondly, if the answer to the first issue was that he did, whether or not he was
liable to reimburse to FEBTC the amount of P770,488.30 as actual damages, plus
interest.5
_______________
4 Supra note 3.
5 Records, p. 102.
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Far East Bank & Trust Company vs. Chante
On May 14, 1998, the RTC rendered judgment in favor of FEBTC, pertinently holding
and ruling as follows:6
In the instant case, what happened was that the defendant who was at the
U.N. Branch of the PNB used his card. He entered his PIN to have access to a
withdrawal transaction from his account in Far East Bank, Ongpin Branch.
However, after recognizing the card and went to the path of his account it could
not get a signal to proceed with the transaction so it proceeded to the other path
who gave the signal to go on and dispense money. But there was a computer error
as it did not only dispense the money limit for the day but it continued to dispense
a lot more until it reached the amount of P967,000.00 which took the defendant till
the hours of the morning to obtain. But defendant says he did not use his card. He
alleges that it could be an inside job just like what happened to the said bank
which was published in the newspaper wherein the bank employee admitted
having done the theft through his knowledge of the computer. Could this be true?
The Court opines that it is not far-fetched. However why did this Court state
that plaintiffs cause of action will survive? The action of the defendant after
the incident gave him away. Merely two days after the heavy withdrawal,
the defendant returned not at the exact scene of the incident but at a
nearby branch which is also in Ermita and tried again to withdraw. But
at this time the bank already knew what happened so it blocked the card
and retained it being a hot card. The defendant was not successful this
time so what he did was to issue a check almost for the whole amount of
his balance in his account leaving only a minimal amount. This incident
puzzles the Court. Maybe the defendant was hoping that the machine
nearby may likewise dispense so much amount without being detected.
He will not definitely go back to the U.N. branch as he
_______________
6 Rollo, pp. 78-81 (bold emphasis is supplied).
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Far East Bank & Trust Company vs. Chante
may think that it is being watched and so he went to a nearby branch.
Unfortunately, luck was not with him this time and his card was taken by
the bank. The fact that he hastily withdrew the balance of his account
after his card was retained by the bank only showed his knowledge that
the bank may debit his account. It also showed his intent to do something
further other than first inquire why his card was considered a hot card if
he is really innocent. When he went to the Ermita branch to withdraw
from the ATM booth he was intending to withdraw not more than
P50,000.00 as it is the banks limit for the day and if ever he needed a
bigger amount than P50,000.00 immediately he should have gone to the
branch for an over the counter transaction but he did not do so and
instead issued a check for P190,000.00 dated May 7, 1992 and another
check for P5,000.00 dated May 13, 1992. To the mind of the Court, to take
advantage of a computer error, to gain sudden and undeserved amount of
money should be condemned in the strongest terms.
There are no available precedents in this case regarding computer errors, but
the Court feels that defendant should be held liable for the mistaken amount he
was able to get from the machine based on the following provisions of the law.
 Articles 19, 21, 22 and 23 of the Civil Code x x x.
xxxx
There is likewise one point that the Court would like to discuss about the
allegation of the defendant that it was impossible for him to withdraw the money
in such long period and almost minute after minute. This Court believes that
money is the least of all, a person may give priority in life. There are many who
would sacrifice a lot just to have lots of it, so it would not be impossible for one to
take time, stand for several hours and just enter some items in the computer if the
return would be something like a million or close to a million. In fact, the effort
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Far East Bank & Trust Company vs. Chante
exerted was just peanuts compared to other legitimate ways of earning a living as the
only capital or means used to obtain it was the defendants loss of sleep and the time
spent in withdrawing the same.
Moreover, though the cause of action in this case may be the erroneous
dispensation of money due to computer bug which is not of defendants wrong
doing, the Court sees that what was wrong was the failure to return the amount in
excess of what was legally his. There is such a thing as JUSTICE. Justice means
rendering to others their due. A person is just when he is careful about respecting
the rights of others, and who knows too, how to claim what he rightfully deserves
as a consequence of fulfilling his duties.
From the foregoing, the conclusion is manifest that plaintiff is within its right
in initiating the instant suit, as defendants refusal to pay the claim constitutes
the cause of action for sum of money.
xxxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Far East
Bank and Trust Company and against the defendant Robert Mar Chante a.k.a.
Robert Mar G. Chan ordering the latter to pay the former the following:
1. the amount of P770,488.30 as actual damages representing the unrecovered
balance of the amounts withdrawn by defendant;
2. interest of 24% per annum on the actual damages from July 1, 1992, the
date of the filing of the complaint until fully paid;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P30,000.00 as and for attorneys fees; and
5. the costs of the suit.
Defendants counterclaim is hereby dismissed for lack of merit.158
158 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
SO ORDERED.
Ruling of the CA
Chan appealed,7 assigning the following errors to the RTC, to wit:
1. THE TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE
FOR THE ALLEGED WITHDRAWAL OF THE AMOUNT OF P967,000.00 WITH
INTEREST AT THE RATE OF 24% PER ANNUM BASED MERELY ON CONJECTURES
AND SUSPICIONS NOT ESTABLISHED BY SOLID EVIDENCE;
2. THE TRIAL COURT ERRED IN AWARDING IN FAVOR OF APPELLEE
EXEMPLARY DAMAGES IN THE AMOUNT OF P100,000.00 AND ATTORNEYS FEES
IN THE AMOUNT OF P30,000.00;
3. THE TRIAL COURT ERRED IN NOT ORDERING THE RESTITUTION OF THE
AMOUNT OF P196,521.30 ILLEGALLY DEBITED BY APPELLEE FROM APPELLANTS
ACCOUNT.
On August 1, 2005, the CA promulgated the assailed decision, reversing the RTCs
judgment, to wit:
x x x. The issues really before us are issues of contract application and issues of fact that
would require an examination and appreciation of the evidence presented. The first order
therefore in our review of the trial courts decision is to take stock of the established and
undisputed facts, and of the evidence the parties have presented. We say this at the outset
as we believe that it was in this respect that the lower court failed in its consideration and
appreciation of the case.
xxxx
_______________
7 CA Rollo, pp. 34-52.
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Far East Bank & Trust Company vs. Chante
An evidentiary dilemma we face in this case is the fact that there is no direct evidence
on the issue of who made the actual withdrawals. Chan correctly claims that the bank failed
to present any witness testifying that he (Chan) made the actual withdrawals. At the same
time, Chan can only rely on his own uncorroborated testimony that he was at home on the
night that withdrawals were made. We recognize that the bank can claim that no other
evidence of actual withdrawal is necessary because the PIN unique to Chan is already
evidence that only Chan or his authorized representative and none other could have
accessed his account. But at the same time, we cannot close our eyes to the fact that
computers and the ATM system is not perfect as shown by an incident cited by Chan
involving the FEBTC itself. Aside from the vulnerability to inside staff members, we take
judicial notice that no less than our own Central Bank has publicly warned banks about
other nefarious schemes involving ATM machines. In a March 7, 2003 letter, the Central
Bank stated:
March 7, 2003
BSP CIRCULAR LETTER
TO : All Banks
SUBJECT:Technology Fraud on ATM Systems
Please be advised that there were incidents in other countries regarding technology
fraud in ATM systems perpetrated by unscrupulous individuals and/or syndicates.
These acts are carried out by:
1. A specialized scanner attached to
the ATM card slot, and;
2. A pinhole camera
xxxx
In light of the absence of conclusive direct evidence of actual withdrawal that we can rely
upon, we have to depend on evidence other than direct to reach verdict in this case. 160
160 SUPREME COURT REPORTS ANNOTATED
 Far East Bank & Trust Company vs. Chante
xxxx
WHEREFORE, premises considered, we hereby GRANT the appeal and
accordingly REVERSE and SET ASIDEthe Decision dated May 14, 1998 of the Regional
Trial Court of Manila, Branch 51, in Civil Case No. 92-61706. We
accordingly ORDER plaintiff-appellee Far East Bank and Trust Company (FEBTC) to
return to Chan the amount of Php196,571.30 plus 12% interest per annum computed from
August 7, 1992 the time Chan filed his counterclaim until the obligation is satisfied.
Costs against the plaintiff-appellee FEBTC.
SO ORDERED. 8
FEBTC moved for reconsideration, but the CA denied its motion on November 24,
2005.9
Issues
Hence, FEBTC has appealed, urging the reversal of the CAs adverse decision, and
praying that Chan be held liable for the withdrawals made from his account on May 4
and May 5, 1992; and that it should not be held liable to return to Chan the sum of
P196,571.30 debited from his account.
Ruling
The appeal lacks merit.
FEBTC would want us to hold that Chan had authored the May 4 and May 5, 1992
ATM withdrawals based on the following attendant factors, namely: (a) ATM
transactions were processed and identified by the PIN, among others; (b) the PIN was
exclusive and known only to the account holder; (c) the ATM was tagged in the
cardholders account where the ATM transactions were debited or credited; (d) the
account
_______________
8 Supra note 1, at pp. 48-63.
9 Rollo, pp. 65-68.
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Far East Bank & Trust Company vs. Chante
number tagged in the ATM card identified the cardholder; (e) the ATM withdrawals were
documented transactions; and (f) the transactions were strictly monitored and recorded
not only by FEBTC as the bank of account but also by the ATM machine and
MEGALINK. In other words, the ATM transactions in question would not be processed
unless the PIN, which was known only to Chan as the cardholder, had been correctly
entered, an indication both that it was his ATM card that had been used, and that all the
transactions had been processed successfully by the PNB-MEGALINK ATM facility at
the Manila Pavilion Hotel with the use of the correct PIN.
We disagree with FEBTC.
Although there was no question that Chan had the physical possession of Far East
Card No. 05-01120-5-0 at the time of the withdrawals, the exclusive possession of the
card alone did not suffice to preponderantly establish that he had himself made the
withdrawals, or that he had caused the withdrawals to be made. In his answer, he denied
using the card to withdraw funds from his account on the dates in question, and averred
that the withdrawals had been an inside job. His denial effectively traversed FEBTCs
claim of his direct and personal liability for the withdrawals, that it would lose the case
unless it competently and sufficiently established that he had personally made the
withdrawals himself, or that he had caused the withdrawals. In other words, it carried
the burden of proof.
Burden of proof is a term that refers to two separate and quite different concepts,
namely: (a) the risk of non-persuasion, or the burden of persuasion, or simply persuasion
burden; and (b) the duty of producing evidence, or the burden of going forward with the
evidence, or simply the production burden or the burden of evidence. 10 In its first concept,
it is the duty to establish the truth of a given proposition or issue
_______________
10 James, Jr., Burdens of Proof, 47 Virginia Law Review 51 (1961).
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162 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
by such a quantum of evidence as the law demands in the case at which the issue
arises.11 In its other concept, it is the duty of producing evidence at the beginning or at
any subsequent stage of trial in order to make or meet a prima facie case. Generally
speaking, burden of proof in its second concept passes from party to party as the case
progresses, while in its first concept it rests throughout upon the party asserting the
affirmative of the issue.12
The party who alleges an affirmative fact has the burden of proving it because mere
allegation of the fact is not evidence of it.13 Verily, the party who asserts, not he who
denies, must prove.14
In civil cases, the burden of proof is on the party who would be defeated if no evidence
is given on either side.15This is because our system frees the trier of facts from the
responsibility of investigating and presenting the facts and arguments, placing that
responsibility entirely upon the respective parties.16 The burden of proof, which may
either be on the plaintiff or the defendant, is on the plaintiff if the defendant denies the
factual allegations of the complaint in the manner required by the Rules of Court; or on
the defendant if he admits expressly or impliedly the essential allegations but
_______________
11 Giblin v. Dudley Hardware Co., 44 R.I. 371, 375, 117 A. 418, 419 (1922); see also People v. Macagaling,
G.R. No. 109131-33, October 3, 1994, 237 SCRA 299, 320.
12 Id.; see also Birmingham Trust & Savings Co. v. Acacia Mutual Life Assn, 221 Ala. 561, 130 So. 327
(1930).
13 Luxuria Homes, Inc. v. Court of Appeals, G.R. No. 125986, January 28, 1999, 302 SCRA 315,
325; Coronel v. Court of Appeals, G.R. No. 103577, October 7, 1996, 263 SCRA 15, 35.
14 Martin v. Court of Appeals, G.R. No. 82248, January 30, 1992, 205 SCRA 591, 596; Luxuria Homes, Inc.
v. Court of Appeals, supra, at p. 327.
15 Pacific Banking Corporation Employees Organization v. Court of Appeals, G.R. No. 109373, March 27,
1998, 288 SCRA 198, 206.
16 James, Jr., supra, at p. 52.
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Far East Bank & Trust Company vs. Chante
raises an affirmative defense or defenses, that, if proved, would exculpate him from
liability.17
Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil
actions, and delineates how preponderance of evidence is determined, viz.:
Section 1. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstances of the case, the witnesses
manner of testifying, their intelligence, their means and opportunity of knowing
the facts to which they are testifying, the nature of the facts to which they testify,
the probability or improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number. (Emphasis supplied)
As the rule indicates, preponderant evidence refers to evidence that is of greater
weight, or more convincing, than the evidence offered in opposition to it. 18 It is proof that
leads the trier of facts to find that the existence of the contested fact is more probable
than its nonexistence.19
Being the plaintiff, FEBTC must rely on the strength of its own evidence instead of
upon the weakness of Chans evidence. Its burden of proof thus required it to
preponderantly demonstrate that his ATM card had been used to make the
_______________
17 Sambar v. Levi Straus & Co., G.R. No. 132604, March 6, 2002, 378 SCRA 364, 371.
18 Jison v. Court of Appeals, G.R. No. 124853, February 24, 1998, 286 SCRA 495, 532.
19 2 McCormick on Evidence, Fifth Edition, 422.
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164 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
withdrawals, and that he had used the ATM card and PIN by himself or by another
person to make the fraudulent withdrawals. Otherwise, it could not recover from him any
funds supposedly improperly withdrawn from the ATM account. We remind that as a
banking institution, FEBTC had the duty and responsibility to ensure the safety of the
funds it held in trust for its depositors. It could not avoid the duty or evade the
responsibility because it alone should bear the price for the fraud resulting from the
system bug on account of its exclusive control of its computer system.
Did FEBTC discharge its burden of proof?
The CA ruled that FEBTC did not because
After a review of the records of this case, we find the totality of evidence submitted by
FEBTC insufficient to establish the crucial facts that would justify a judgment in its favor.
To our mind, the fact that Chans account number and ATM card number were
the ones used for the withdrawals, by itself, is not sufficient to support the
conclusion that he should be deemed to have made the withdrawals. FEBTC offers
in this regard the PNB ATMs journal tapes to prove the withdrawals and their details
the time of the transactions; the account number used; the ATM card number; and the
amount withdrawn and at the same time declared that these tapes are authentic and
genuine.
These tapes, however, are not as reliable as FEBTC represented them to be as they are
not even internally consistent. A disturbing internal discrepancy we note relates to the
amounts reflected as ledger balance and available balance. We find it strange that for
every 4,000.00 pesos allegedly withdrawn by Chan, the available balance increased rather
than diminished. Worse, the amount of available balance as reflected in the tapes was way
above the actual available balance of less than Php200,000.00 that Chans current account
had at that time. These discrepancies must inevitably reflect on the integrity of the journal
tapes; the proven inconsistencies
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Far East Bank & Trust Company vs. Chante
in some aspects of these tapes leave the other aspects suspect and uncertain. But more
than this, we are not convinced that the tapes lead us to the inevitable conclusion
that Chans card, rather than a replacement card containing Chans PIN and card
number or some other equivalent scheme, was used. To our mind, we cannot
discount this possibility given the available technology making computer fraud a
possibility, the cited instances of computer security breaches, the admitted
system bug, and most notably the fact that the withdrawals were made under
circumstances that took advantage of the system bug. System errors of this kind,
when taken advantage of to the extent that had happened in this case, are
planned for. Indeed, prior preparation must take place to avoid suspicion and
attention where the withdrawal was made for seven (7) long hours in a place
frequented by hundreds of guests, over 242 transactions where the physical
volume of the money withdrawn was not insignificant. To say that this was done
by the owner of the account based solely on the records of the transactions, is a
convenient but not a convincing explanation. 20
In our view, the CAs ruling was correct.
To start with, Edgar Munarriz, FEBTCs very own Systems Analyst, admitted that
the bug infecting the banks computer system had facilitated the fraudulent
withdrawals.21 This admission impelled the CA to thoroughly dissect the situation in
order to determine the consequences of the intervention of the system bug in FEBTCs
computer system. It ultimately determined thusly:
Significantly, FEBTC made the admission that there was a program bug in its computer
system. To di-
_______________
20 Supra note 1, at pp. 58-60 (bold emphasis is supplied).
21 TSN, July 16, 1993, pp. 70-84.
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166 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
gress, computers are run based on specific pre-arranged instructions or programs that act
on data or information that computer users input. Computers can only process these
inputted data or information according to the installed programs. Thus, computers are as
efficient, as accurate and as convenient to use as the instructions in their installed
programs. They can count, sort, compute and arrive at decisions but they do so only and
strictly in accordance with the programs that make them work. To cite an easy example, a
computer can be programmed to sort a stack of cards prepared by male and female clients,
into male and female stacks, respectively. To do this, the computer will first scan a card and
 look at the place (a field) where the male/female information can be found. This
information may be in an appropriate box which the bank client checks or shades to
indicate if he/she is male or female. The computer will check if the box beside the word
Female is shaded. If it is, it will send the card to the Female bin. If the box beside the
male is shaded, it will send the card to the Male bin. If both the squares are shaded or
none is shaded or the card cannot be read, it will send the card to the Unknown bin. This
way, the female cards and the male cards can be sorted efficiently. However, the program
instructions can be written in such a way that the computer can only make two decisions,
that is, if the Female box is shaded, then the card goes to the Female bin; otherwise, the
card goes to the Male bin. In this program, all the Female cards will be sorted correctly
but the Male bin will contain all the other cards, that is, the Male cards, the cards with no
shading at all, and all the other cards that cannot be classified. The imperfect results
arose from the imperfect program instructions or from a program bug.
Something very close to this example happened in the present case.
According to the testimony of the FEBTCs systems analyst, there were two
computer programs that were involved in the transactions: CAPDROTH and
SCPUP 900. CAPDROTH is the program that validates if the account exists in the
FEBTC files, if the transaction is valid, and if the
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Far East Bank & Trust Company vs. Chante
branch where the account is maintained is ON-LINE (i.e., continuously sending
data). When the Chan transaction entered the system, it was validated by
CAPDROTH which, on seeing that the FEBTC-Ongpin branch was off-line,
returned a decision code passing on the decision to authorize the transaction to
the SCPUP 900, another module. However, SCPUP 900 was not expecting this type
of response or decision code. As the SCPUP 900 program was originally written, it
will send back an error message and abort a requested transaction if it receives
an error message from any other module; otherwise, it will send a message
authorizing the transaction. In other words, SCPUP 900 had only two decisions to
make: check if the message is an error message, if not then, authorize. Since what
it received in the disputed transactions were not error messages and were not
also authorizations, it sent back authorization messages allowing the cash
withdrawals. It kept on sending authorization messages for the 242 cash
withdrawal transactions made from Chans account between the evening of May 4
and early morning of May 5, 1992. This program bug was the reason the 242 cash
withdrawals were allowed by the PNB ATM-Megalink machine.
The program bug occurred because of the simultaneous presence of three
conditions that allowed it to happen: (1) the withdrawal transactions involved a
current account; (2) the current account was with a branch that at that time was
off-line; and (3) the transaction originated from MEGALINK (i.e., through
MEGALINK through a member bank other than FEBTC). Because of the bug,
Chans account was not accessed at the time of the transactions so that
withdrawals in excess of what the account contained were allowed. Additionally,
FEBTCs rule that only a maximum withdrawable amount per day (in the present
case P50,000.00 per day) can be made from an ATM ac-
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Far East Bank & Trust Company vs. Chante
count, was by-passed. Thus, 242 withdrawals were made over an eight hour
period, in the total amount of P967,000.00. 22
Secondly, the RTCs deductions on the cause of the withdrawals were faulty. In
holding against Chan, the RTC chiefly relied on inferences drawn from his acts
subsequent to the series of withdrawals, specifically his attempt to withdraw funds from
his account at an FEBTC ATM facility in Ermita, Manila barely two days after the
questioned withdrawals; his issuance of a check for P190,000.00 immediately after the
capture of his ATM card by the ATM facility; his failure to immediately report the
capture of his ATM card to FEBTC; and his going to FEBTC only after the dishonor of
the check he had issued following the freezing of his account. The inferences were not
warranted, however, because the subsequent acts would not persuasively establish his
actual participation in the withdrawals due to their being actually susceptible of other
interpretations consistent with his innocence.
We join the CAs observation that Chans subsequent acts could have been impelled
by so many reasons and motivations, and cannot simply be given the meaning that the
lower court attributed to them, and, instead, were even consistent with the purpose and
nature of his maintaining the current account deposit with FEBTC, rendering the acts
not unusual nor illegal. 23 Although he was expected to forthwith bring his cards
capture to FEBTCs attention, that he did not do so could have other plausible
explanations consistent with good faith, among them his being constantly occupied as a
businessman to attend to the multifarious activities of his business. He might have also
honestly believed that he still had the sufficient funds in his current account, as borne
out by his issuance of a check instead after the capture of the card so as not for him to
undermine any financial obligation then becom-
_______________
22 Supra note 1, at pp. 51-53 (bold emphasis is supplied).
23 Rollo, p. 57.
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ing due. Nor should his opting to withdraw funds from his account at the ATM facility in
Ermita in less than two days after the questioned withdrawals manifest responsibility on
his part, for he could also be properly presumed to be then still unaware of the situation
involving his account. We note that his letters24 written in response to FEBTCs written
demands to him disclosed honest intentions rather than malice.
Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with
the bug infection of FEBTCs computer system at the time of the withdrawals and adept
with the workings of the computer system had committed the fraud. This likelihood was
not far-fetched considering that FEBTC had immediately adopted corrective measures
upon its discovery of the system bug, by which FEBTC admitted its negligence in
ensuring an error-free computer system; and that the system bug had affected only the
account of Chan.25 Truly, the trial court misapprehended the extent to which the system
bug had made the computer system of FEBTC stumble in serious error.
 Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish
that the PNB-MEGALINKs ATM facility at the Manila Pavilion Hotel had actually
dispensed cash in the very significantly large amount alleged during the series of
questioned withdrawals. For sure, FEBTC should have proved the actual dispensing of
funds from the ATM facility as the factual basis for its claim against Chan. It did require
PNB to furnish a validated showing of the exact level of cash then carried by the latters
ATM facility in the Manila Pavilion Hotel on May 4, 1992.26 Yet, when PNB employee
_______________
24 Records, pp. 31-35.
25 Per Eduardo Munarriz, TSN, October 18, 1993, pp. 72-75, only the account of Chan was reported to
FEBTC; per Irene Tan, TSN, October 10, 1994, pp. 21-22, the fraudulent withdrawals from Chans account
were the only bug-related problem received at FEBTCs Ongpin branch.
26 TSN, May 18, 1994, pp. 11-14.
170
170 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante
Erwin Arellano stood as a witness for FEBTC, he confirmed the authenticity of the
journal tapes that had recorded Chans May 4 and May 5, 1992 supposed ATM
transactions but did not categorically state how much funds PNB-MEGALINKs ATM
facility at the Manila Pavilion Hotel had exactly carried at the time of the withdrawals,
particularly the amounts immediately preceding and immediately following the series of
withdrawals. The omission left a yawning gap in the evidence against Chan.
And lastly, Chans allegation of an inside job accounting for the anomalous
withdrawals should not be quickly dismissed as unworthy of credence or weight. FEBTC
employee Manuel Del Castillo, another witness for FEBTC, revealed that FEBTC had
previously encountered problems of bank accounts being debited despite the absence of
any withdrawal transactions by their owners. He attributed the problems to the
erroneous tagging of the affected accounts as somebody elses account, allowing the latter
to withdraw from the affected accounts with the use of the latters own ATM card, and to
the formers account being debited.27 The revelation of Del Castillo tended to support
Chans denial of liability, as it showed the possibility of withdrawals being made by
another person despite the PIN being an exclusive access number known only to the
cardholder.28
It is true that Del Castillo also declared that FEBTC did not store the PINs of its
clients ATM cards. However, he mentioned that FEBTC had stored the opposite
numbers corresponding to the PINs, which meant that the PINs did not remain entirely
irretrievable at all times and in all cases by any of its officers or employees with access to
the banks computer system. Accordingly, Del Castillos assertion that the PINs were
rendered useless upon being entered in the banks computer system did not entirely
disclose how the informa-
_______________
27 TSN, March 31, 1993, pp. 26-29.
28 Id., at pp. 29-30.
171
VOL. 707, OCTOBER 9, 2013 171
Far East Bank & Trust Company vs. Chante
tion on the PINs of the depositors was stored or discarded as to become useless for any
purpose.
In view of the foregoing, FEBTC did not present preponderant evidence proving
Chans liability for the supposedly fraudulent withdrawals. It thus failed in discharging
its burden of persuasion.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals;
and DIRECTS the petitioner to pay the costs of suit.
SO ORDERED.
Sereno (CJ.), Leonardo-De Castro, Reyes and Leonen,** JJ., concur.
Judgment affirmed.
Notes.The banking system has become an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized societyit is important
that banks should guard against injury attributable to negligence or bad faith on its part;
The highest degree of diligence is expected, and high standards of integrity and
performance are required of banks. (Security Bank and Trust Company vs. Rizal
Commercial Banking Corporation, 577 SCRA 407 [2009])
The bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship; The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. (Central Bank of the Philippines vs. Citytrust Banking
Corporation, 578 SCRA 27 [2009])
o0o
_______________
8. G.R. No. 118492. August 15, 2001. *
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON.
COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.
Remedial Law; Petition for Review; Factual findings of the Court of Appeals are conclusive on
the parties and not reviewable by the Courtand they carry even more weight when the Court of
Appeals affirms the factual findings of the trial court.Section 1 of Rule 45 of the Revised Rules of
Court provides that (T)he petition (for review) shall raise only questions of law which must be
distinctly set forth. Thus, we have ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Courtand they carry even more weight when
the Court of Appeals affirms the factual findings of the trial court.
Commercial Law; Banks and Banking; Negligence; The degree of diligence required of banks
is more than that of a good father of a family where the fiduciary nature of their relationship with
their depositors is concerned; The same higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their fiduciary relationship with their
depositors.With these established facts, we now determine the degree of diligence that banks are
required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of
Appealsupholding a long standing doctrine, we ruled that the degree of diligence required of banks,
is more than that of a good father of a family where the fiduciary nature of their relationship with
their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of
their depositors with the highest degree of care. But the said ruling applies only to cases where
banks act under their fiduciary capacity, that is, as deposi-
_______________
* SECOND DIVISION.
 52
5 SUPREME COURT REPORTS ANNOTATED
2 informed Godofredo of a roundabout way of effecting the requested remittance to Sydney
Reyes vs. Court of Appeals
tary of the deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not involve their fiduciary
relationship with their depositors.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benitez, Parlade, Africa, Herrera, Parlade & Panga Law Offices for petitioners.
Antonio R. Bautista & Partners for private respondent.
DE LEON, JR., J.:
Before us is a petition for review of the Decision dated July 22, 1994 and
1 On August 10, 1988, upon due presentment of the foreign exchange demand draft,
Resolution dated December 29, 1994 of the Court of Appeals affirming with modification
2 3
the Decision dated November 12, 1992 of the Regional Trial Court of Makati, Metro
4 stating the following: x x x No account held with Westpac. Meanwhile, on August 16,
Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses
Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and
Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in September,
1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four
(4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for
finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the
clubs chief cashier, to the respondent bank to apply for a foreign exchange demand draft
in Australian dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to apply for a
demand draft in the amount One Thousand Six
_________________
1Penned by Associate Justice Jorge S. Imperial and concurred in by Associate Justices Pacita Canizares-
Nye and Conrado M. Vasquez, Jr.; Rollo, pp. 24-42.
2Rollo, p. 44.
3Fourteenth Division.
Court of Appeals Rollo, pp. 60-80.
4
53
VOL. 363, AUGUST 15, 2001 53
Reyes vs. Court of Appeals
Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian
Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent
banks assistant cashier, Mr. Yasis, who at first denied the application for the reason
that respondent bank did not have an Australian dollar account in any bank in Sydney.
Godofredo asked if there could be a way for respondent bank to accommodate PRCIs
urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then
thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney,
Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S.
dollar account of the respondent in Westpac Bank in New York, U.S.A (Westpac-New
York for brevity). This arrangement has been customarily resorted to since the 1960s
and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H.
Reyes, acting through Godofredo, agreed to this arrangement or approach in order to
effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th
Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI and
issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that
is, One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00), payable to the
order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and
addressed to Westpac-Sydney as the drawee bank.
denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor
1988, Westpac-New York sent a cable to respondent bank informing the latter that its
dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00) was debited. On August 19, 1988, in response to PRCIs complaint about
the dishonor of the said foreign exchange demand draft, respondent bank informed
Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn
against the Westpac-Sydney and informing the latter to be reimbursed from the
respondent banks
54
54 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Court of Appeals
dollar account in Westpac-New York. The respondent bank on the same day likewise
informed Westpac-New York requesting the latter to honor the reimbursement claim of
Westpac-Sydney. On September 14, 1988, upon its second presentment for payment,
FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is,
that the respondent bank has no deposit dollar account with the drawee Westpac-
Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses
Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing
conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of
September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a
conference delegate. At the registration desk, in the presence of other delegates from
various member countries, he was told by a lady member of the conference secretariat
that he could not register because the foreign exchange demand draft for his registration
fee had been dishonored for the second time. A discussion ensued in the presence and
within the hearing of many delegates who were also registering. Feeling terribly
embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the
conference secretariat that he be shown the subject foreign exchange demand draft that
had been dishonored as well as the covering letter after which he promised that he would
pay the registration fees in cash. In the meantime he demanded that he be given his
name plate and conference kit. The lady member of the conference secretariat relented
and gave him his name plate and conference kit. It was only two (2) days later, or on
September 20, 1988, that he was given the dishonored demand draft and a covering
letter. It was then that he actually paid in cash the registration fees as he had earlier
promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in
Sydney. She too was embarrassed and humiliated at the registration desk of the
conference secretariat when she was told in the presence and within the hearing of other
delegates that she could not be registered due to the dishonor of the subject foreign
exchange demand draft. She felt herself trembling and unable to look at the people
around her. Fortunately, she saw her husband coming toward her. He saved the
situation for her by telling the
55
VOL. 363, AUGUST 15, 2001 55
Reyes vs. Court of Appeals
secretariat member that he had already arranged for the payment of the registration fees
in cash once he was shown the dishonored demand draft. Only then was petitioner
Puyat-Reyes given her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of
the House of Representatives representing the lone Congressional District of Makati,
Metro Manila. She has been an officer of the Manila Banking Corporation and was cited
by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with
her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a
plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary
service as the Societys campaign chairman for the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati,
Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the
respondent bank due to the dishonor of the said foreign exchange demand draft issued by
the respondent bank. The petitioners claim that as a result of the dishonor of the said
demand draft, they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the defendant
(respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion
of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiffs
complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of
P50,000.00, as reasonable attorneys fees. Costs against the plaintiff.
SO ORDERED.
5
The petitioners appealed the decision of the trial court to the Court of Appeals. On July
22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted
the award of
________________
Court of Appeals Rollo, p. 80.
5
56
56 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Court of Appeals
attorneys fees to the defendant (herein respondent bank) and the pronouncement as to
the costs. The decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs complaint, is hereby
AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special
pronouncement as to costs.
SO ORDERED.
6
According to the appellate court, there is no basis to hold the respondent bank liable for
damages for the reason that it exerted every effort for the subject foreign exchange
demand draft to be honored. The appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went through smoothly,
considering that its New York account had been debited and that there was no miscommunication
between it and Westpac-New York. SWIFT is a worldwide association used by almost all banks and
is known to be the most reliable mode of communication in the international banking business.
Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with
Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no
reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-
Sydney.
From the evidence, it appears that the root cause of the miscommunications of the Banks
SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Banks SWIFT
message as an MT799 format. However, a closer look at the Banks Exhs. 6 and 7 would show
that despite what appears to be an asterisk written over the figure before 99, the figure can still
be distinctly seen as a number 1 and not number 7, to the effect that Westpac-Sydney was
responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney
of the numbers 1 to 7, since Exhs. 6 and 7 are just documentary copies of the cable message
sent to Westpac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding
the cable message which caused the Banks message to be sent to the wrong department, the
mistake was Westpacs, not the Banks. The
________________
6Rollo, p. 42.
57
VOL. 363, AUGUST 15, 2001 57
Reyes vs. Court of Appeals
Bank had done what an ordinary prudent person is required to do in the particular situation,
although appellants expect the Bank to have done more. The Bank having done everything
necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any
embarrassment and corresponding damage that appellants may have incurred. 7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT
NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN
ORDINARY PRUDENT PERSON WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS
IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF
THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN
OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT WAS
DUE TO PRIVATE RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK. 8
The petitioners contend that due to the fiduciary nature of the relationship between the
respondent bank and its clients, the respondent bank should have exercised a higher
degree of diligence than that expected of an ordinary prudent person in the handling of
its affairs as in the case at bar. The appellate court, according to petitioners, erred in
applying the standard of diligence of an ordi-
_________________
7Rollo, p. 40.
8Rollo, p. 14a.
58
58 SUPREME COURT REPORTS ANNOTATED
Reyes vs. Court of Appeals
nary prudent person only. Petitioners also claim that the respondent bank violated
Section 61 of the Negotiable Instruments Law which provides the warranty of a drawer
9
that x x x on due presentment, the instrument will be accepted or paid, or both,
according to its tenor x x x. Thus, the petitioners argue that respondent bank should be
held liable for damages for violation of this warranty. The petitioners pray this: Court to
re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of the
appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition (for
review) shall raise only questions of law which must be distinctly set forth. Thus, we
have ruled that factual findings of the Court of Appeals are conclusive on the parties and
not reviewable by this Courtand they carry even more weight when the Court of
Appeals affirms the factual findings of the trial court. 10
The courts a quo found that respondent bank did not misrepresent that it was
maintaining a deposit account with Westpac-Sydney. Respondent banks assistant
cashier explained to Godofredo Reyes, representating PRCI and petitioner Gregorio H.
Reyes, how the transfer of Australian dollars would be effected through Westpac-New
York where the respondent bank has a dollar account to Westpac-Sydney where the
subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the
payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice-President for
finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that
arrangement or procedure. In
________________
9 Section 61. Liability of drawer.The drawer by drawing the instrument admits the existence of the payee
and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or
paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled
to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own
liability to the holder.
10 Boromeo v. Sun, 317 SCRA 176, 182 (1999).
59
VOL. 363, AUGUST 15, 2001 59
Reyes vs. Court of Appeals
other words, the petitioners are estopped from denying the said arrangement or
procedure. Similar arrangements have been a long-standing practice in banking to
facilitate international commercial transactions. In fact, the SWIFT cable message sent
by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New York, where respondent bank
has a deposit dollar account.
The facts as found by the courts a quo show that respondent bank did not cause an
erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the
erroneous decoding of the cable message on the part of Westpac-Sydney that caused the
dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney
in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of
respondent bank as MT799 instead of as MT199. As a result, Westpac-Sydney
construed the said cable message as a format for a letter of credit, and not for a demand
draft. The appellate court correctly found that the figure before 99 can still be distinctly
seen as a number 1 and not number 7. Indeed, the line of a 7 is in a slanting position
while the line of a 1 is in a horizontal position. Thus, the number 1 in MT199 cannot
be construed as 7. 11
The evidence also shows that the respondent bank exercised that degree of diligence
expected of an ordinary prudent person under the circumstances obtaining. Prior to the
first dishonor of the subject foreign exchange demand draft, the respondent bank advised
Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit
the dollar account of respondent bank with the former. As soon as the demand draft was
12
dishonored, the respondent bank, thinking that the problem was with the reimbursement
and without any idea that it was due to miscommunication, re-confirmed the authority of Sydney merely stated that the respondent bank has no deposit account with it to cover
Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac- for the amount of One Thousand Six Hundred Ten Australian Dollar (AU$1610.00)
Sydney. Respondent bank also sent two (2) more cable messages
13 indicated in the foreign exchange demand draft. Thus, the respondent bank had the
_______________ impression that Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient
Exhibit 6.
deposit dollar account with Westpac-New York. That was the reason why the respondent
11

Exhibit 4.
12

Exhibit 7.
13
bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent
60 banks) deposit dollar account with it and to transfer or credit the corresponding amount
60 SUPREME COURT REPORTS ANNOTATED to Westpac-Sydney to cover the amount of the said demand draft.
Reyes vs. Court of Appeals In view of all the foregoing, and considering that the dishonor of the subject foreign
exchange demand draft is not attributable to any fault of the respondent bank, whereas
to Westpac-New York inquiring why the demand draft was not honored.
the petitioners appeared to be under estoppel as earlier mentioned, it is no longer
14

With these established facts, we now determine the degree of diligence that banks are
necessary to discuss the alleged application of Section 61 of the Negotiable Instruments
required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court
Law to the case at bar. In any event, it was established that the respondent bank acted
of Appeals upholding a long standing doctrine, we ruled that the degree of diligence
in good faith and that it did not cause the embarrassment of the petitioners in Sydney,
15

required of banks, is more than that of a good father of a family where the fiduciary
Australia. Hence, the Court of Appeals did not commit any reversible error in its
nature of their relationship with their depositors is concerned. In other words banks are
challenged decision.
duty bound to treat the deposit accounts of their depositors with the highest degree of
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court
care. But the said ruling applies only to cases where banks act under their fiduciary
of Appeals is AFFIRMED. Costs against the petitioners.
capacity, that is, as depositary of the deposits of their depositors. But the same higher
SO ORDERED.
degree of diligence is not expected to be exerted by banks in commercial transactions that
Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur.
do not involve their fiduciary relationship with their depositors.
Petition denied, judgment affirmed.
Considering the foregoing, the respondent bank was not required to exert more than
Note.Banks being greatly affected with public interest are expected to exercise a
the diligence of a good father of a family in regard to the sale and issuance of the subject
degree of diligence in the handling of its affairs higher than expected of an ordinary
foreign exchange demand draft. The case at bar does not involve the handling of
business firm. (Ibaon Rural Bank, Inc. vs. Court of Appeals,321 SCRA 88 [1999])
petitioners deposit, if any, with the respondent bank. Instead, the relationship involved
was that of a buyer and seller, that is, between the respondent bank as the seller of the
o0o
subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th
Asian Racing Conference Secretariat in Sydney, Australia as the payee thereof. As
earlier mentioned, the said foreign exchange demand draft was intended for the payment 9. G.R. No. 174134. July 30, 2008.*
of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian FIRST PLANTERS PAWNSHOP, INC., petitioner, vs. COMMISSIONER OF INTERNAL
Racing Conference in Sydney. REVENUE, respondent.
The evidence shows that the respondent bank did everything within its power to Taxation; Pawnshops; The determination of a pawnshops tax liability depends on the tax
prevent the dishonor of the subject foreign exchange demand draft. The erroneous treatment of a pawnshop business.The determination of petitioners tax liability depends on the
reading of its cable message to Westpac-Sydney by an employee of the latter could not tax treatment of a pawnshop business. Oddly, there has not been any definitive declaration in this
have been foreseen by the respondent bank. Being unaware that its employee regard despite the fact that pawnshops have long been in existence. All that has been stated is
what pawnshops are not, but not what pawnshops are. The BIR itself has maintained an
erroneously read the said cable message, Westpac-
_________________
ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 15-91 issued on
March 11, 1991, a pawnshop business was considered as akin to lending investors business
Exhibits 9 and 10.
14
activity and subject to 5% percentage tax beginning January 1, 1991, under Section 116 of the Tax
269 SCRA 695, 708-709 (1997).
15
Code of 1977, as amended by E.O. No. 273. With the passage of Republic Act (R.A.) No. 7716 or the
61 EVAT Law in 1994, the BIR abandoned its earlier position and maintained that pawnshops are
subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was complemented
VOL. 363, AUGUST 15, 2001 61
by Revenue Memorandum Circular No. 45-01 dated October 12, 2001, which provided that
Reyes vs. Court of Appeals pawnshop operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996,
while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for percentage
tax, pursuant to Section 109(z) of the Tax Code of 1997.
Same; Same; Pawnshops should have been treated as non-bank financial intermediaries from
the very beginning, subject to the appropriate taxes provided by law.Prior to the EVAT Law,
pawn-
_______________
* THIRD DIVISION.
607shops were treated as lending investors subject to lending investors tax. Subsequently,
with the Courts ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under
the general classification of sale or exchange of services under Section 108(A) of the Tax Code of
1997, as amended. R.A. No. 9238 finally classified pawnshops as Other Non-bank Financial
Intermediaries. The Court finds that pawnshops should have been treated as non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by law.
Same; Same; Value Added Tax (VAT); For the year 2000, pawnshops were not subject to 10%
Value Added Tax (VAT) under the general provision on sale or exchange of services as defined
under Section 108(A) of the Tax Code of 1997instead, due to the specific nature of its business,
pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries,
as provided in the same Section 108(A).At the time of the disputed assessment, that is, for the
year 2000, pawnshops were not subject to 10% VAT under the general provision on sale or
exchange of services as defined under Section 108(A) of the TAX Code of 1997, which states: sale
or exchange of services means the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration x x x. Instead, due to the specific nature of its business,
pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries,
as provided in the same Section 108(A).
Same; Same; Same; Banks and Banking; General Banking Law of 2000 (Republic Act No.
8791); Republic Act No. 8791 provides that banks shall refer to entities engaged in the lending of
funds obtained in the form of deposits; Financial intermediaries are defined as persons or entities
whose principal functions include the lending, investing or placement of funds or evidences of
indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them,
either for their own account or for the account of others.R.A. No. 337, as amended, or the General
Banking Act characterizes the terms banking institution and bank as synonymous and
interchangeable and specifically include commercial banks, saving bank, mortgage banks,
development banks, rural banks, stock savings and loan associations, and branches and agencies
in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of
2000,608meanwhile, provided that banks shall refer to entities engaged in the lending of funds
obtained in the form of deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and
other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the
classification of banks. Financial intermediaries, on the other hand, are defined as persons or
entities whose principal functions include the lending, investing or placement of funds or evidences
of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through
them, either for their own account or for the account of others.
Same; Same; Same; Pawnshop Regulation Act (P.D. No. 114); A pawnshops business and
operations are governed by P.D. No. 114 and Central Bank Circular No. 374 (Rules and Regulations
for Pawnshops); It need not be elaborated that pawnshops are non-banks/banking institutionsthe
nature of their business activities partakes that of a financial intermediary in that its principal
function is lending.It need not be elaborated that pawnshops are non-banks/banking institutions.
Moreover, the nature of their business activities partakes that of a financial intermediary in that
its principal function is lending. A pawnshops business and operations are governed by
Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No.
374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a
person or entity engaged in the business of lending money on personal property delivered as
security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or
pawn brokerage. The pawnshops are to be treated as non-bank financial intermediaries is further
bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko Sentral
ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial Institutions. The
Manual includes pawnshops in the list of non-bank financial intermediaries.
Same; Same; Same; Since petitioner pawnshop is a non-bank financial intermediary, it is
subject to 10% Value Added Tax (VAT) for the tax years 1996 to 2002, but, with the levy, assessment
and collection of VAT from non-bank financial intermediaries being specifically deferred by law,
then it is not liable for VAT during these tax years.Coming now to the issue at handSince
petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax609years 1996
to 2002; however, with the levy, assessment and collection of VAT from non-bank
financial intermediaries being specifically deferred by law, then petitioner is not liable
for VAT during these tax years. But with the full implementation of the VAT system on non-
bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said
tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer
liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may
be.
Same; Same; Documentary Stamp Tax (DST); Pledge; A pawnshop is liable for documentary
stamp taxes; The subject of Documentary Stamp Tax (DST) is not limited to the document alone
pledge, which is an exercise of a privilege to transfer obligations, rights or properties incident
thereto, is also subject to Documentary Stamp Tax (DST).Petitioner is liable for documentary
stamp taxes. The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue, 489 SCRA 147 (2006), in which it was ruled that the subject of
DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer
obligations, rights or properties incident thereto, is also subject to DST.
PETITION for review on certiorari of the decision and resolution of the Court of Tax
Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
The Solicitor General for respondent.
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and
documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for
the year 2000. The core of petitioners argument is that it is not a lending investor within
the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as
amended, and therefore not subject to value-added tax (VAT). Petitioner also contends
that a pawn ticket is not subject to documentary610stamp tax (DST) because it is not
proof of the pledge transaction, and even assuming that it is so, still, it is not subject to
tax since a documentary stamp tax is levied on the document issued and not on the
transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR
that it has an existing tax deficiency on its VAT and DST liabilities for the year 2000.
The deficiency assessment was at P541,102.79 for VAT and P23,646.33 for
DST.1 Petitioner protested the assessment for lack of legal and factual bases. 2
 Petitioner subsequently received a Formal Assessment Notice on December 29, 2003,
directing payment of VAT deficiency in the amount of P541,102.79 and DST deficiency in
the amount of P24,747.13, inclusive of surcharge and interest. 3 Petitioner filed a
protest,4 which was denied by Acting Regional Director Anselmo G. Adriano per Final
Decision on Disputed Assessment dated January 29, 2004.5
Petitioner then filed a petition for review with the Court of Tax Appeals (CTA). 6 In a
Decision dated May 9, 2005, the 2nd Division of the CTA upheld the deficiency
assessment.7 Petitioner filed a motion for reconsideration 8which was denied in a
Resolution dated October 7, 2005.9
Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7,
2006, the dispositive portion of which reads as follows:
_______________
1 Rollo, Annex C, p. 84.
2 Id., Annex D, pp. 85-90.
3 Id., Annex E, pp. 91-95.
4 Id., Annex F, pp. 96-107.
5 Id., Annex G, p. 108.
6 Id., Annex H, pp. 109-122.
7 Id., Annex I, pp. 150-168.
8 Id., Annex J, pp. 169-183.
9 Id., Annex K, pp. 184-188.
611
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of
merit. The assailed Decision dated May 9, 2005 and Resolution dated October 7, 2005 are hereby
AFFIRMED.
SO ORDERED. 10
Petitioner sought reconsideration but this was denied by the CTA En Banc per
Resolution dated August 14, 2006.11
Hence, the present petition for review under Rule 45 of the Rules of Court based on
the following grounds:
I.
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING
PETITIONER LIABLE FOR VAT.
II.
THE HONORABLE COURT OF TAX APPEALS EN BANCGRAVELY ERRED IN RULING THAT
PETITIONER IS LIABLE FOR DST ON PAWN TICKETS. 12
The determination of petitioners tax liability depends on the tax treatment of a
pawnshop business. Oddly, there has not been any definitive declaration in this regard
despite the fact that pawnshops have long been in existence. All that has been stated is
what pawnshops are not, but not what pawnshops are.
The BIR itself has maintained an ambivalent stance on this issue. Initially,
in Revenue Memorandum Order No. 15-91 issued on March 11, 1991, a pawnshop
business was considered as akin to lending investors business activity and subject to pawnshops. Said Circular stated, inter alia:
5% percentage tax beginning January 1, 1991, under
_______________
10 Id., at p. 80.
11 Rollo, pp. 82-83.
12 Id., at p. 34.
612Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.13
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994, 14 the BIR
abandoned its earlier position and maintained that pawnshops are subject to 10% VAT,
as implemented by Revenue Regulations No. 7-95. This was complemented by Revenue
Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop
operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996,
while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for
percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIRs position that pawnshops are subject to VAT. In H.
Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue,15 the CTA ruled that
the petitioner therein was subject to 10% VAT under Section 108 of the Tax Code of
1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue16 reiterates
said ruling. It was the CTAs view that the services rendered by pawnshops fall under
the general definition of sale or exchange of services under Section 108(A) of the Tax
Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc.17 in
_______________
13 As clarified by BIR Revenue Memorandum Circular No. 43-91 issued on May 27, 1991.
14 Entitled, An Act Restructuring the Value-Added Tax (VAT) System, Widening its Tax Base and
Enhancing its Administration, and for these purposes Amending and Repealing the Relevant Provisions of the
National Internal Revenue Code, as amended, and for Other Purposes.
15 C.T.A. Case No. 6915, April 11, 2004.
16 C.T.A. Case No. 7069, June 17, 2005.
17 G.R. No. 150947, July 15, 2003, 406 SCRA 178. Penned by Chief Justice Hilario G. Davide, Jr. with the
concurrence of Associate Justices Jose Vitug, Consuelo Ynares-Santiago, Antonio T. Carpio and Adolfo S.
Azcuna.
613which it was categorically ruled that while pawnshops are engaged in the business of
lending money, they are not considered lending investors for the purpose of imposing
percentage taxes.18 The Court gave the following reasons: first, under the 1997 Tax Code,
pawnshops and lending investors were subjected to different tax treatments; second,
Congress never intended pawnshops to be treated in the same way as lending
investors; third, Section 116 of the NIRC of 1997 subjects to percentage tax dealers in
securities and lending investors only; and lastly, the BIR had ruled several times prior
to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not subject to the
5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977, as
amended by Executive Order No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-
2004 dated June 16, 2004, canceling the previous lending investors tax assessments on
In view of the said Supreme Court decision, all assessments on pawnshops for percentage
taxes as lending investors are hereby cancelled. This Circular is being issued for the sole purpose of
resolving the tax liability of pawnshops to the 5% lending investors tax provided under the then
Section 116 of the NIRC of 1977, as amended, and shall not cover issues relating to their other tax
liabilities. All internal revenue officials are enjoined from issuing assessments on pawnshops for
percentage taxes on lending investors, under then Section 116 of the NIRC of 1977, as amended.
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops
are now subject thereof. This shall however, be covered by another issuance. 19
Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby
pawnshops businesses were allowed to settle their VAT liabilities for the tax years 1996-
2002
_______________
18 Id., at p. 185.
19 ftp://ftp.bir.gov.ph/webadmin1/pdf/1887rmc36_04.pdf.
614pursuant to a memorandum of agreement entered into by the Commissioner of
Internal Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular
likewise instructed all revenue officers to ensure that all VAT due from pawnshops
beginning January 1, 2003, including increments thereto, if any, are assessed and
collected from pawnshops under its jurisdictions.
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5,
2004 entitled, An Act Amending Certain Sections of the National Internal Revenue Code
of 1997, as amended, by Excluding Several Services from the Coverage of the Value-
added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial
Intermediaries Performing Quasi-banking Functions and Other Non-bank Financial
Intermediaries beginning January 01, 2004.20
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on
February 10, 2004 advising all banks and non-bank financial intermediaries that they
shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance
issued Revenue Regulations No. 10-2004 dated October 18, 2004, classifying pawnshops
as Other Non-bank Financial Intermediaries. The BIR then issued Revenue
Memorandum Circular No. 73-2004 on November 25, 2004, prescribing the guidelines
and policies on the assessment and collection of 10% VAT for gross annual sales/
receipts exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts not
exceeding P550,000.00 of pawnshops prior to January 1, 2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject
to lending investors tax. Subsequently, with the Courts ruling in Lhuillier, pawnshops
were
_______________
20 Republic Act (R.A.) No. 9238 lapsed into law on February 05, 2004 without the signature of the
President, in accordance with Article VI, Section 27 (1) of the Constitution.
615then treated as VAT-able enterprises under the general classification of sale or
exchange of services under Section 108(A) of the Tax Code of 1997, as amended. R.A. No.
9238 finally classified pawnshops as Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by law,
thus
Under the National Internal Revenue Code of 1977, pawnshops should have been levied the 5%
21
percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under
Section 119 (now Section 121 of the Tax Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should have 22
been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and
financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax
Code of 1997); 23
This was restated by R.A. No. 8241, which amended R.A. No. 7716, although the levy, collection
24
and assessment of the 10% VAT on services rendered by banks, non-bank financial
intermediaries, finance companies, and other financial intermediaries not performing quasi-
banking functions, were made effective January 1, 1998; 25
_______________
21 Presidential Decree No. 1158.
22 Effective May 28, 1994.
23 The implementation of the VAT system under R.A. No. 7716 was made effective January 1, 1996 (see Commissioner of
Internal Revenue v. Philippine Global Communications, Inc., G.R. No. 144696, August 16, 2006, 499 SCRA 53).
24 Approved on December 20, 1996.
25 R.A. No. 8241, Section 11 provides:
SEC. 11. Section 17 of Republic Act No. 7716 is hereby amended to read as follows:
616
R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT under Section 108
26
but the levy, collection and assessment thereof were again deferred until December 31, 1999; 27
The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until
December 31, 2000, and by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy, collection and assessment of the 10% VAT on
banks, non-bank financial intermediaries, finance companies, and other financial intermediaries
not performing quasi-banking functions were finally made effective beginning January 1, 2003;
_______________
SEC. 17. Effectivity of the Imposition of VAT on Certain Goods, Properties and Services.The value-
added tax shall be levied, assessed and collected on the following transactions, starting January 1, 1998:
xxxx
(b) Services rendered by banks, non-bank financial intermediaries, finance companies and other
financial intermediaries not performing quasi-banking functions;
x x x x:
26 R.A. No. 8424 renamed the National Internal Revenue Code of 1977 to National Internal Revenue Code of 1997, or the
Tax Code of 1997, and took effect on January 1, 1998.
27 R.A. No. 8428, Section 5 provides:
SEC. 5. Transitory Provisions.Deferment of the Effectivity of the Imposition of VAT on Certain Services.
The effectivity of the imposition of the value-added tax on services as prescribed in Section 17(a) and (b) of Republic
Act No. 7616, as amended by Republic Act 8241, is hereby further deferred until December 31, 1999, unless Congress
deems otherwise: Provided, That the said services shall continue to pay the applicable tax prescribed under the
present provisions of the National Internal Revenue Code, as amended.
617
Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial
intermediaries, finance companies, and other financial intermediaries not performing quasi-
banking functions were specifically exempted from VAT, and the 0% to 5% percentage tax on
28
 gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of
the Tax Code of 1997. 29
_______________
28 R.A. No. 9238, Section 2 provides:
SEC. 2. Section 109 of the same Code is hereby amended by rewording paragraph (1) and
inserting additional paragraphs after (z) which shall now read as follows:
SEC. 109. Exempt Transactions.The following shall be exempt from the value-added
tax:
xxxx
(aa) Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries;
xxxx
The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or
properties or services which are otherwise not subject to VAT, but who issue a VAT invoice or receipt
therefor shall, in additional to his liability to other applicable percentage tax, if any, be liable to the tax
imposed in Section 106 or 108 without the benefit of input tax credit, and such tax shall also be
recognized as input tax credit to the purchaser under Section 110, all of this Code.
29 R.A. No. 9238, Section 4 reads:
Section 4. Section 122 of the National Internal Revenue Code of 1997, as amended, is hereby
restored with amendments to read as follows:
Sec. 122. Tax on Other Non-Bank Financial Intermediaries.There shall be collected a tax of five
percent (5%) on the gross receipts derived by other non-bank financial intermediaries doing business in the
Philippines, from interest, commissions, discounts and all other items treated as gross income under this
code: Provided, that interests, commissions and discounts from lending activities, as well as income from
financial leasing, shall
618At the time of the disputed assessment, that is, for the year 2000, pawnshops were
not subject to 10% VAT under the general provision on sale or exchange of services as
defined under Section 108(A) of the Tax Code of 1997, which states: sale or exchange of
services means the performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration x x x. Instead, due to the specific nature of its
business, pawnshops were then subject to 10% VAT under the category of non-bank
financial intermediaries, as provided in the same Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax.There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds or services in the
Philippines for others for a fee, remuneration or consideration, including x x x services of banks,
_______________
be taxed on the basis of remaining maturities of the instruments from which such receipts are derived, in
accordance with the following schedule:
maturity period is five (5) years or less .. 5%
maturity period is more than five (5) years ... 1%
Provided, however, that in case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct
rate shall be applied accordingly.
Provided, finally, that the generally accepted accounting principles as may be prescribed by the Securities and
Exchange Commission for other non-bank financial intermediaries shall likewise be the basis for the calculation of
gross receipts.
Nothing in this code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar financing activities.
619non-bank financial intermediaries and finance companies; and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase sale or exchange of services shall
likewise include: x x x (Emphasis and underscoring supplied)
The tax treatment of pawnshops as non-bank financial intermediaries is not without
basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the
terms banking institution and bank as synonymous and interchangeable and specifically
include commercial banks, savings bank, mortgage banks, development banks, rural
banks, stock savings and loan associations, and branches and agencies in the Philippines
of foreign banks.30 R.A. No. 8791 or the General Banking Law of 2000, meanwhile,
provided that banks shall refer to entities engaged in the lending of funds obtained in the
form of deposits.31 R.A. No. 8791 also included cooperative banks, Islamic banks and
other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in
the classification of banks.32
Financial intermediaries, on the other hand, are defined as persons or entities whose
principal functions include the lending, investing or placement of funds or evidences of
indebtedness or equity deposited with them, acquired by them, or otherwise coursed
through them, either for their own account or for the account of others.33
It need not be elaborated that pawnshops are non-banks/banking institutions.
Moreover, the nature of their business
_______________
30 Section 2.
31 Section 3.1.
32 Section 3.1 (e), (f), and (g).
33 General Banking Act, Section 2-D(c); Manual of Regulations for Non-Bank Financial Institution,
4101Q.1.
620activities partakes that of a financial intermediary in that its principal function is
lending.
A pawnshops business and operations are governed by Presidential Decree (P.D.) No.
114 or the Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules and
Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a person or
entity engaged in the business of lending money on personal property delivered as
security for loans and shall be synonymous, and may be used interchangeably, with
pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is further
bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko
Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial
Institutions. The Manual includes pawnshops in the list of non-bank financial
intermediaries, viz.:
4101Q.1 Financial Intermediaries
xxx
Non-bank financial intermediaries shall include the following:
 (1) A person or entity licensed and/or registered with any government regulatory body
as a non-bank financial intermediary, such as investment house, investment company,
financing company, securities dealer/broker, lending investor, pawnshop, money broker
x x x. (Emphasis supplied)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL
INTERMEDIARIES.Whereas, in relation to Sec. 2.3 of Rev. Regs No. 9-2004 defining Non-bank
Financial Intermediaries, the term pawnshop as defined under Presidential Decree No. 114
which authorized its creation, to be a person or entity engaged in the business of lending money, all
fall within the classification of Non-bank Financial Intermediaries and therefore, covered by Sec. 4
of R.A. No. 9238.
621This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of
Regulations for Non-Bank Financial Intermediaries and reiterated in BSP Circular No. 204-99,
classifying pawnshops as one of Non-bank Financial Intermediaries within the supervision of the
Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as
non-bank financial intermediaries.
Coming now to the issue at handSince petitioner is a non-bank financial
intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with
the levy, assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law,34 then petitioner is not liable
for VAT during these tax years. But with the full implementation of the VAT system
on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for
10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No.
9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5%, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue,35 in which it was ruled that the subject of DST is not
limited to the document alone. Pledge, which is an exercise of a privilege to transfer
obligations, rights or properties incident thereto, is also subject to DST, thus
x x x x the subject of a DST is not limited to the document embodying the enumerated
transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations,
rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of
Appeals, it was held that:
_______________
34 See pages 7-8 of this Decision.
35 G.R. No. 166786, May 3, 2006, 489 SCRA 147.
622x x x x
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined
as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers
to the creditor or to a third person movable property as security for the performance of the
principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and
accessories, shall be returned to the debtor or to the third person. This is essentially the business of
pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop
Regulation Act, as persons or entities engaged in lending money on personal property delivered as
security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For
Pawnshops issued by the Central Bank to implement the Act, require every pawnshop or
pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket signed by
the pawnbroker and containing the following details: (1) name and residence of the pawner; (2)
date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of
maturity; (6) description of pawn; (7) signature of pawnbroker or his authorized agent; (8)
signature or thumb mark of pawner or his authorized agent; and (9) such other terms and
conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central
Bank Circular No. 445, prescribed a standard form of pawn tickets with entries for the required
details on its face and the mandated terms and conditions of the pledge at the dorsal portion
thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxxx
True, the law does not consider said ticket as an evidence of security or indebtedness. However,
for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of
concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshops
obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is
therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no
tax may be imposed on a pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the
government; and that a tax623cannot be imposed without clear and express words for that purpose.
Taking our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there
is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly
subjects all pledges to DST. It states that [o]n every x x x pledge x x x there shall be collected a
documentary stamp tax x x x. It is clear, categorical, and needs no further interpretation or
construction. The explicit tenor thereof requires hardly anything than a simple application.
xxxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by
pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents
which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners
nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax
exemption represents a loss of revenue to the government and must, therefore, not rest on vague
inference. Exemption from taxation is never presumed. For tax exemption to be recognized, the
grant must be clear and express; it cannot be made to rest on doubtful implications.
Under the principle of stare decisis et non quieta movere (follow past precedents and
do not disturb what has been settled), once a case has been decided one way, any other
case involving exactly the same point at issue, as in the case at bar, should be decided in
the same manner.36
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7,
2006 and Resolution dated August 14, 2006 of the Court of Tax Appeals En Banc is
MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT
deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and SET
ASIDE, while its assessment for DST deficiency in the amount of P24,747.13, inclusive of
surcharge and interest, is UPHELD.
10. G.R. No. 189871. August 13, 2013.*
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents.
 Labor Law; Termination of Employment; Illegal Dismissals; By the nature of an illegal dismissal case, the
reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code.No essential
change is made by a recomputation as this step is a necessary consequence that flows from the nature of the
illegality of dismissal declared by the Labor Arbiter in that decision. A recomputation (or an original computation,
if no previous computation has been made) is a part of the law specifically, Article 279 of the Labor Code and
the established jurisprudence on this provision that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor
Code. The recomputation of
_______________
* EN BANC.
440
4 SUPREME COURT REPORTS ANNOTATED
40
Nacar vs. Gallery Frames
the consequences of illegal dismissal upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of
final judgments.
Same; Same; Same; Article 279 of the Labor Code provides for the consequences of illegal dismissal in no
uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed.That the amount respondents shall now pay has greatly increased is a consequence that
it cannot avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiters decision.
Article 279 provides for the consequences of illegal dismissal in no uncertain terms, qualified only by
jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When that happens,
the finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law
decrees. In allowing separation pay, the final decision effectively declares that the employment relationship ended
so that separation pay and backwages are to be computed up to that point.
Interest Rates; In the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping
Lines vs. Court of Appeals, 234 SCRA 78 (1994), and Subsection X305.1 of the Manual of Regulations for Banks
and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 but will now be six percent (6%) per annum effective July
1, 2013.In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate
of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines, Inc. v. Court of
Appeals, 234 SCRA 78 (1994) and Subsection X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its
441
VOL. 703, AUGUST 13, 2013 44
1
Nacar vs. Gallery Frames
amendment by BSP-MB Circular No. 799 but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July
1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.
Same; Monetary Board; The Bangko Sentral ng Pilipinas-Monetary Board may prescribe the maximum
rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits,
including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions.In the recent case of Advocates for Truth in Lending, Inc.
and Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 688 SCRA 530 (2013), this Court affirmed the
authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that the BSP-MB
may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries.
Same; 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; In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.When the obligation
is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions
of Article 1169 of the Civil Code.442
4 SUPREME COURT REPORTS ANNOTATED
42
Nacar vs. Gallery Frames
Same; When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.When
an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, shall be 6% per annum from such finality until its satisfaction.When the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annumfrom such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Carlo A. Domingo for petitioner.
Cabio Law Office and Associates for respondent.
443
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Nacar vs. Gallery Frames
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying
petitioners motion for reconsideration.
The factual antecedents are undisputed.
 Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of SO ORDERED.4
the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or _______________
4 Id., at pp. 82-84. (Emphasis supplied.)
Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
445
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that
he was dismissed from employment without a valid or just cause. Thus, petitioner was awarded VOL. 703, AUGUST 13, 2013 445
backwages and separation pay in lieu of reinstatement in the amount of P158,919.92. The dispositive Nacar vs. Gallery Frames
portion of the decision, reads: Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated
With the foregoing, we find and so rule that respondents failed to discharge the burden of February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents
showing that complainant was dismissed from employment for a just or valid cause. All the filed a motion for reconsideration, but it was denied. 6
more, it is clear from the records that complainant was never afforded due process before he Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
was terminated. As such, we are perforce constrained to grant complainants prayer for the 2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for
payments of separation pay in lieu of reinstatement to his former position, considering the Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.7
strained relationship between the parties, and his apparent reluctance to be reinstated, Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding
computed only up to promulgation of this decision as follows: no reversible error on the part of the CA, this Court denied the petition in the Resolution dated April
_______________ 17, 2002.8
1 Penned by Associate Justice Vicente S. E. Veloso, with Associate Justices Rebecca De Guia-Salvador and Ricardo R.
Rosario, concurring; Rollo, pp. 33-48.
An Entry of Judgment was later issued certifying that the resolution became final and executory on
2 Id., at p. 32. May 27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
3 Id., at pp. 79-84. conference was consequently scheduled, but respondents failed to appear. 10
444 On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
444 SUPREME COURT REPORTS ANNOTATED backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of the
Nacar vs. Gallery Frames Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and
SEPARATION PAY Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
_______________
Date Hired = August 1990 5 Id., at pp. 85-93.
Rate = P198/day 6 Resolution dated July 24, 2000, id., at pp. 94-96.
Date of Decision = Aug. 18, 1998 7 Rollo, p. 35.
8 Id., at pp. 35-36.
Length of Service = 8 yrs. & 1 month
9 Id., at p. 36.
P198.00 x 26 days x 8 months = P41,184.00 10 Id., at p. 100.
BACKWAGES 11 Id.
Date Dismissed = January 24, 1997 12 Id., at p. 101.
Rate per day = P196.00 446
Date of Decisions = Aug. 18, 1998 446 SUPREME COURT REPORTS ANNOTATED
a) 1/24/97 to 2/5/98 = 12.36 mos. Nacar vs. Gallery Frames
P196.00/day x 12.36 mos. = P62,986.56 On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff
b) 2/6/98 to 8/18/98 = 6.4 months to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to Quash
Prevailing Rate per day = P62,986.00 Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of
P198.00 x 26 days x 6.4 mos. = P32,947.20 P62,986.56 and limited backwages of P95,933.36, no more recomputation is required to be made of the
TOTAL = P95.933.76 said awards. They claimed that after the decision becomes final and executory, the same cannot be
xxxx altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the
WHEREFORE, premises considered, judgment is hereby rendered finding respondents motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.
guilty of constructive dismissal and are therefore, ordered: Respondents again appealed before the NLRC, which on June 30, 2003 issued a
1. To pay jointly and severally the complainant the amount of sixty-two thousand nine Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of the
hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation judgment award.
pay; On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be
2. To pay jointly and severally the complainant the amount of nine (sic) five thousand final and executory. Consequently, another pre-execution conference was held, but respondents failed
nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and to appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce
3. All other claims are hereby dismissed for lack of merit. the earlier recomputed judgment award in the sum of P471,320.31. 18
 The records of the case were again forwarded to the Computation and Examination Unit for I
recomputation, where the judgment award of petitioner was reassessed to be in the total amount of WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED
only P147,560.19. GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005
ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15,
original amount as de- 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE
_______________
13 Id., at pp. 97-102. BODY OF THE SAME DECISION. 26

14 Id., at p. 37. Petitioner argues that notwithstanding the fact that there was a computation of backwages in the
15 Id., at pp. 103-108. Labor Arbiters decision, the same is not final until reinstatement is made or until finality of the
16 Id., at pp. 109-113. decision, in case of an award of separation pay. Petitioner maintains that considering that the October
17 Id., at pp. 114-117.
18 Id., at p. 101. 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002
447 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27,
VOL. 703, AUGUST 13, 2013 447 2002, the reckoning point for the compu-
_______________
Nacar vs. Gallery Frames 24 Id., at pp. 33-48.
termined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation 25 Id., at p. 32.
26 Id., at p. 27.
of his backwages and separation pay. 449
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment
VOL. 703, AUGUST 13, 2013 449
award that was due to petitioner in the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the recomputation of the monetary Nacar vs. Gallery Frames
award to include the appropriate interests.19 tation of the backwages and separation pay should be on May 27, 2002 and not when the decision of
On May 10, 2005, the Labor Arbiter issued an Order 20granting the motion, but only up to the the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to
amount of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should the payment of interest from the finality of the decision until full payment by the respondents.
be enforced considering that it was the one that became final and executory. However, the Labor On their part, respondents assert that since only separation pay and limited backwages were
Arbiter reasoned that since the decision states that the separation pay and backwages are computed awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is
only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be required to be made of said awards. Respondents insist that since the decision clearly stated that the
executed. Thus, since petitioner already received P147,560.19, he is only entitled to the balance of separation pay and backwages are computed only up to [the] promulgation of this decision, and
P11,459.73. considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its computed by the Labor Arbiter in the total amount of P158,919.92. Respondents added that it was only
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was during the execution proceedings that the petitioner questioned the award, long after the decision had
likewise denied in the Resolution23 dated January 31, 2007. become final and executory. Respondents contend that to allow the further recomputation of the
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591. backwages to be awarded to petitioner at this point of the proceedings would substantially vary the
_______________ decision of the Labor Arbiter as it violates the rule on immutability of judgments.
19 Id., at p. 40. The petition is meritorious.
20 Id., at pp. 65-69.
21 Id., at pp. 70-74. The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
22 Id., at pp. 60-64. Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of
23 Id., at pp. 58-59. the computation of the awards made, and whether this violated the principle of immutability of
448 judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the
448 SUPREME COURT REPORTS ANNOTATED above-cited case that the decision already provided for the computation of the payable separation pay
Nacar vs. Gallery Frames and backwages due and did not further order the computation of the monetary awards up to the time of
On September 23, 2008, the CA rendered a Decision24denying the petition. The CA opined that the finality of the judgment. Also in Session Delights, the
_______________
since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already 27 G.R. No. 172149, February 8, 2010, 612 SCRA 10.
became final and executory, a belated correction thereof is no longer allowed. The CA stated that there 450
is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be 450 SUPREME COURT REPORTS ANNOTATED
modified in any respect, except to correct clerical errors or mistakes. Petitioner filed a Motion for
Reconsideration, but it was denied in the Resolution25 dated October 9, 2009. Nacar vs. Gallery Frames
Hence, the petition assigning the lone error: dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
 In concrete terms, the question is whether a re-computation in the course of execution of the labor
arbiters original computation of the awards made, pegged as of the time the decision was rendered and
confirmed with modification by a final CA decision, is legally proper. The question is posed, given that
the petitioner did not immediately pay the awards stated in the original labor arbiters decision; it delayed
payment because it continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way
the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with
finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages, attorneys fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor arbiter
made shows that it was time-bound as can be seen from the figures used in the computation. This part,
being merely a computation of what the first part of the decision established and declared, can, by its
nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-
computed because the computation is already in the labor arbiters decision that the CA had affirmed. The
public and private respondents, on the other hand, posit that a re-computation is necessary because the
relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or
up to the finality of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiters decision, at the same time that it found that an illegal dismissal had taken
place, also made a computation of the award, is understandable
451
VOL. 703, AUGUST 13, 2013 451
Nacar vs. Gallery Frames
in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a computation
be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiters
decision. As we noted above, this implication is apparent from the terms of the computation itself, and no
question would have arisen had the parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiters findings on all counts i.e., on the finding
of illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the
NLRC which, in turn, affirmed the labor arbiters decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in
affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned
to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the
original labor arbiters decision, the implementing labor arbiter ordered the award re-computed; he
apparently read the figures originally ordered to be paid to be the computation due had the case been
terminated and implemented at the labor arbiters level. Thus, the labor arbiter re-computed the award to
include the separation pay and the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiters approved computation went beyond
the finality of the CA decision (July 29, 2003) and
452
452 SUPREME COURT REPORTS ANNOTATED
Nacar vs. Gallery Frames
included as well the payment for awards the final CA decision had deleted specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a recomputation is necessary as it essentially
considered the labor arbiters original decision in accordance with its basic component parts as we
discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of the illegal
dismissal, computed as of the time of the labor arbiters original decision. 28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be
executed by the petitioner, no essential change is made by a recomputation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in
that decision.29 A recomputation (or an original computation, if no previous computation has been
made) is a part of the law specifically, Article 279 of the Labor Code and the established
jurisprudence on this provision that is read into the decision. By the nature of an illegal dismissal
case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor
Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does
not constitute an alteration or amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected,
and this is not a violation of the principle of immutability of final judgments.30
_______________
28 Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at pp. 21-23.
29 Id., at p. 25.
30 Id., at pp. 25-26.
453
VOL. 703, AUGUST 13, 2013 453
Nacar vs. Gallery Frames
That the amount respondents shall now pay has greatly increased is a consequence that it cannot
avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiters
decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms, qualified
only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed.
When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of
the reinstatement that the law decrees. In allowing separation pay, the final decision effectively
declares that the employment relationship ended so that separation pay and backwages are to be
computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v.
Court of Appeals,32 the Court laid down the guidelines regarding the manner of computing legal
interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
_______________
31 Id., at p. 26.
32 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
454
454 SUPREME COURT REPORTS ANNOTATED
Nacar vs. Gallery Frames
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. 33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution
No. 796 dated May 16, 2013, approved the amendment of Section 2 34 of Circular No.
_______________
33 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at pp. 95-97. (Citations omitted; italics in the original).
34 SECTION 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judg-
455
VOL. 703, AUGUST 13, 2013 455
Nacar vs. Gallery Frames
905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series of 2013, effective July 1, 2013,
the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
36
Banks and Sections 4305Q.1, 4305S.3 37 38
_______________
ments, in the absence of express contract as to such rate of interest, shall continue to be twelve percent (12%) per annum.
35 Rate of interest in the absence of stipulation; Dated June 21, 2013.
36 X305.1 Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of expressed contract as to such rate of interest, shall be twelve percent (12%) per annum.
37 The Section is under Q Regulations or Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions. It
reads:
4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance of any money,
goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per
annum.
38 The Section is under S Regulations or Regulations Governing Non-Stock Savings and Loan Associations. It reads:
4305S.3 Interest in the absence of contract. In the absence of express contract, the rate of interest for the loan or forbear
456
456 SUPREME COURT REPORTS ANNOTATED
Nacar vs. Gallery Frames
and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
39
amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum as
reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations
for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799 but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could
only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
percent (6%) per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates
and to issue and enforce Circu-
_______________
ance of any money, goods or credit and the rate allowed in judgment shall be twelve percent (12%) per annum.
39 The Section is under P Regulations or Regulations Governing Pawnshops. It reads:
4303P.1 Rate of interest in the absence of stipulation. The rate of interest for a loan or forbearance of money in the
absence of an expressed contract as to such rate of interest, shall be twelve percent (12%) per annum. (Circular No. 656 dated 02
June 2009)
40 Supra note 32, at pp. 95-97.
41 G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.
457
VOL. 703, AUGUST 13, 2013 457
Nacar vs. Gallery Frames
lars when it ruled that the BSP-MB may prescribe the maximum rate or rates of interest for all loans
or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates
for different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries.
Nonetheless, with regard to those judgments that have become final and executory prior to July 1,
2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on Damages of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall
_______________
 42 Supra note 32.
458
458 SUPREME COURT REPORTS ANNOTATED
Nacar vs. Gallery Frames
be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in CA-G.R. SP
459
VOL. 703, AUGUST 13, 2013 459
Nacar vs. Gallery Frames
No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents
are ORDERED to PAY petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up
to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay
per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from
May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with this Decision.
SO ORDERED.
Sereno (CJ.), Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del Castillo, Abad,
Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe and Leonen, JJ., concur.
Judgment and resolution reversed and set aside.
Notes.There is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which
explicitly allows an appeal of the decisions of the Bangko Sentral ng Pilipinas (BSP)
Monetary Board to the Court of Appeals. (United Coconut Planters Bank vs. E. Ganzon,
Inc., 591 SCRA 321 [2009])
Court is of the view that the Monetary Board approval is not required for Philippine
Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks.
(Philippine Deposit Insurance Corporation [PDIC] vs. Philippine Countryside Rural
Bank, Inc., 640 SCRA 322 [2011])
11. G.R. No. 166096. September 11, 2008.*
PHILIPPINE NATIONAL BANK, petitioner, vs. RAMON BRIGIDO L. VELASCO,
respondent.
Civil Procedure; Appeals; Certiorari; St. Martin Funeral Homes v. National Labor Relations
Commission, 295 SCRA 494 (1998) settled any doubt as to the manner of elevating decisions of the
National Labor Relations Commission (NLRC) to the Court of Appeals (CA) by holding that the
legislative intendment was that the special civil action of certiorari was and still is the proper
vehicle for judicial review of decisions of the National Labor Relations Commission (NLRC).The
correct remedy that should have been availed of is the special civil action of certiorari under Rule
65. As this Court held in the case of Pure Foods Corporation v. NLRC, 171 SCRA 415 (1989), the
party may also seasonably avail of the special civil action for certiorari, where the tribunal, board
or officer exercising judicial functions has acted without or in excess of its jurisdiction, or with
grave abuse of discretion, and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer. In any case, St. Martin Funeral
Home v. National Labor Relations Commission, 295 SCRA 494 (1998), settled any doubt as to the
manner of elevating decisions of the NLRC to the CA by holding that the legislative intendment
was that the special civil action of certiorari was and still is the proper vehicle for judicial review of
decisions of the NLRC.
_______________
* THIRD DIVISION.
513
VOL. 564, SEPTEMBER 11, 2008 5
13
Philippine National Bank vs. Velasco
Labor Law; Termination of Employment; Velasco committed serious misconduct, hence, his
dismissal is justified.II. Velasco committed serious misconduct, hence, his dismissal is
justified.Article 282 of the Labor Code enumerates the just causes where an employer may
terminate the services of an employee, to wit: a) Serious misconduct or willful disobedience by the
employee of the lawful orders of his employer or representative in connection with his work; b)
Gross and habitual neglect by the employee of his duties; c) Fraud or willful breach by the
employee of the trust reposed in him by his employer or duly authorized representative; d)
Commission of a crime or offense by the employee against the person of his employer or any
immediate member of his family or his duly authorized representative; and e) Other causes
analogous to the foregoing.
Same; Misconduct; It is settled that in order for misconduct to be serious, it must be of such
grave and aggravated character and not merely trivial or unimportant.Ordinary misconduct
would not justify the termination of the services of an employee. The law is explicit that the
misconduct should be serious. It is settled that in order for misconduct to be serious, it must be of
such grave and aggravated character and not merely trivial or unimportant. As amplified by
jurisprudence, the misconduct must (1) be serious; (2) relate to the performance of the employees
duties; and (3) show that the employee has become unfit to continue working for the employer.
Banks and Banking; Velasco violated bank rules when he transacted a no-book withdrawal
by his failure to present his passbook to the PNB, Ligao, Albay Branch on June 30, 1995.The
misconduct is serious. Velasco violated bank rules when he transacted a no-book withdrawal
by his failure to present his passbook to the PNB Ligao, Albay Branch on June 30, 1995. Section
1216 of the Manual of Regulations for Banks and Other Financial Intermediaries state that
[b]anks are prohibited from issuing/accepting withdrawal authority slips or any other similar may constitute serious misconduct which is a just cause for dismissal.
instruments designed to effect withdrawals of savings deposits without following the usual practice
of requiring the depositors concerned to present their passbooks and accomplishing the necessary
withdrawal slips. Further, he failed to present any letter of introduction as mandated under
General Circular 3-72-92 which requires that [b]efore going out-of-town, the Depositor secures a
Letter of Introduction from the branch/office where his Peso Savings Account is maintained. 514
5 SUPREME COURT REPORTS ANNOTATED
14
Philippine National Bank vs. Velasco
Same; A strict reading of General Circular 3-72-92 would lead one to conclude that only
person with peso savings account are required to secure a letter of introduction. However, simple
logic dictates that those maintaining dollar savings account are also included.True, a strict
reading of General Circular 3-72-92 would lead one to conclude that only persons with peso savings
account are required to secure a letter of introduction. However, simple logic dictates that those
maintaining dollar savings account are also included. No cogent reason would be served by the rule
if only persons with peso savings account are required to get a letter of introduction. Otherwise,
there can be a circumvention of the rule. Nemo potest facere per alium qud non potest facere per
directum. No one is allowed to do indirectly what he is prohibited to do directly. Sinuman ay
hindi pinapayagang gawin nang hindi tuwiran ang ipinagbabawal gawin nang tuwiran.
Same; The banking system is an indispensable institution in the modern world. It plays a
vital role in the economic life of every civilized nation.As an audit officer, Velasco should be the
first to ensure that banking laws, policies, rules and regulations, are strictly observed and applied
by its officers in the day-to-day transactions. The banking system is an indispensable institution in
the modern world. It plays a vital role in the economic life of every civilized nation. Whether banks
act as mere passive entities for the safekeeping and saving of money, or as active instruments of
business and commerce, they have become an ubiquitous presence among the citizenry, who have
come to regard them with respect and even gratitude and, most of all, confidence.
Evidence; Alibi; The claim of Velasco that his initial answer was made under pressing
circumstances is too flimsy an excuse. It partakes of the nature of an alibi.We find no cogent
reason to depart from Our ruling in Perez. The claim of Velasco that his initial answer was made
under pressing circumstances is too flimsy an excuse. It partakes of the nature of an alibi. As such,
it constitutes a self-serving negative evidence which cannot he accorded greater evidentiary weight
than the declaration of credible witnesses who testified on affirmative matters. The Court has
consistently frowned upon the defense of alibi, and received it with caution, not only because it is
inherently weak and unreliable but also because it can be easily fabricated. 515
VOL. 564, SEPTEMBER 11, 2008 5 thrive on and endeavor to retain public trust and confidence, every violation of which must thus be
15
Philippine National Bank vs. Velasco
Labor Law; Termination of Employment; Fitness for continued employment cannot be
compartmentalized into tight little cubicles of aspects of character, conduct, and ability separate
and independent of each other. A service of irregularities, when combined, may constitute
serious misconduct which is a just cause for dismissal.The Labor Arbiter and the NLRC are in
unison that Velasco transacted a no-book withdrawal and failed to present a letter of introduction
at PNB Ligao, Albay Branch on June 30, 1995. He also forged his passbook to cover up his offense.
Being duly supported by substantial evidence, We sustain said finding. Fitness for continued
employment cannot be compartmentalized into tight little cubicles of aspects of character, conduct,
and ability separate and independent of each other. A service of irregularities, when combined,
Same; Same; When he violated bank rules and regulations and tried to cover up his
infractions by falsifying his passbook, he was not only committing them as a depositor but also, or
rather more so, as an officer of the bank. It is akin to falsification of time cards, and circulation of
fake meal tickets, which this Court held as a just cause for terminating the services of an
employee.On one hand, he failed to present his passbook and a letter of introduction when he
withdrew US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious misconduct
was aggravated when he presented a falsified passbook to make it appear that he did not commit
any misdeed. On the other hand, he worked for PNB for eighteen (18) long years, his last position
having been as Manager 1 of the IAD. As such, he was involved in the examination of the books of
account of PNB. Thus, when he violated bank rules and regulations and tried to cover up his
infractions by falsifying his passbook, he was not only committing them as a depositor but also, or
rather more so, as an officer of the bank. It is akin to falsification of time cards, and circulation of
fake meal tickets, which this Court held as a just cause for terminating the services of an
employee.
Same; Managerial Employees; Managerial employees like Velasco are tasked to perform key
and senstitive functions and are bound by more exacting work ethics. Indeed, not even his eighteen
(18) years of service could exonerate him.C. Velasco has become unfit to continue working at
PNB. His acts render him unfit to remain in the employ of the bank. That it is his first offense is of
no516
5 SUPREME COURT REPORTS ANNOTATED
16
Philippine National Bank vs. Velasco
moment because he holds a managerial position. Employers are allowed wide latitude of
discretion in terminating managerial employees who, by virtue of their position, require full trust
and confidence in the performance of their duties. Managerial employees like Velasco are tasked to
perform key and sensitive functions and are bound by more exacting work ethics. Indeed, not even
his eighteen (18) years of service could exonerate him. As this Court held in Equitable PCIBank v.
Caguioa, 466 SCRA 686 (2005): The leniency sought by respondent on the basis of her 35 years of
service to the bank must be weighed in conjunction with the other considerations raised by
petitioners. As that service has been amply compensated, her plea for leniency cannot offset her
dishonesty. Even government employees who are validly dismissed from the service by reason of
timely discovered offenses are deprived of retirement benefits. Treating respondent in the same
manner as the loyal and code-abiding employees, despite the timely discovery of her Code
violations, may indeed have a demoralizing effect on the entire bank. Be it remembered that banks
accompanied by appropriate sanctions.
Same; Philippine National Bank; Philippine National Bank (PNB) was registered under the
Corporation Code under SEC Reg. No. ASO 96-005555 dated May 27, 1996. Thus, on that day,
employees of Philippine National Bank (PNB) came under the jurisdiction of the Labor Code.PNB
was registered under the Corporation Code under SEC Reg. No. ASO 96-005555 dated May 27,
1996. Thus, on that day, employees of PNB came under the jurisdiction of the Labor Code, whose
Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules state: Section 8. Preventive
Suspension.The employer may place the worker concerned under preventive suspension if his
continued employment poses a serious and imminent threat to the life or property of the employer
or his co-workers. Section 9. No preventive suspension shall last longer than thirty (30) days. The
employer shall thereafter reinstate the worker in his former or in a substantially equivalent
position or the employer may extend the period of suspension provided that during the period of
extension, he pays the wages and other benefits due to the worker. In such case, the worker shall
not be bound to reimburse the amount paid to him during the extension if the employer decides,
after completion of the hearing, to dismiss the worker.517
VOL. 564, SEPTEMBER 11, 2008 5 that time, the account had a balance of US$15,486.07. The Ligao Branch is an off-line
17
Philippine National Bank vs. Velasco
Same; Termination of Employment; He is not entitled to separation and backwages because he
was not illegally dismissed.He is not entitled to separation and backwages because he was not
illegally dismissed. We note though that PNB was not at all insensitive to his plight, considering
(1) his restitution of the amount akin to no actual loss to the bank, and (2) his length of service of
eighteen (18) years. As stated earlier, PNB imposed on Velasco the penalty of forced resignation
with benefits, instead of dismissal. The records bear out that he was granted P542,110.75 as
separation benefits which was used to offset his loan in the bank, leaving an outstanding balance of
P167,625.82 as of May 27, 1997. We find that PNB acted humanely under the circumstances.
Same; Same; The difference between the position of the employer and the employee, simply
considering the latter as economically weaker, is not a justification for the violation of the rights of
the former.The law imposes great burdens on the employer. One needs only to look at the varied
provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working man. The
Labor Code is titled that way and not as Employer Code. As one American ruling puts it, the
protection of labor is the highest office of our laws. Corollary to this, however, is the right of the
employer to expect from the employee no less than adequate work, diligence and good conduct. As
Mr. Justice Joseph McKenna of the United States Supreme Court said in Arizona Copper Co. v.
Hammer, 250 US 400 (1919), [t]he difference between the position of the employer and the
employee, simply considering the latter as economically weaker, is not a justification for the
violation of the rights of the former.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Legal Counsel for petitioner.
Cruz Law Firm for respondent.
518
518 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
REYES, R.T., J.:
THIS is a tale of a bank officer-depositor clinging to his position after violating bank
regulations and falsifying his passbook to cover up a false transaction.
Before the Court is a petition for review on certiorariunder Rule 45 of the 1997 Rules
of Civil Procedure seeking the reversal of the Decision 1 and Resolution2 of the Court of
Appeals (CA). The appealed decision reversed those of the National Labor Relations
Commission (NLRC)3 and the Labor Arbiter4 which dismissed the complaint for illegal
dismissal and damages of Ramon Brigido L. Velasco against Philippine National Bank
(PNB).
The Facts
Ramon Brigido L. Velasco, a PNB audit officer, and his wife, Belen Amparo E.
Velasco, maintained Dollar Savings Account No. 010-714698-95 at PNB Escolta Branch.
On June 30, 1995, while on official business at the Legazpi Branch, he went to the PNB
Ligao, Albay Branch and withdrew US$15,000.00 from the dollar savings account. At
branch, i.e., one with no network connection or computer linkage with other PNB
branches and the head office. The transaction was evidenced by an Interoffice Sav-
_______________
1 Rollo, pp. 78-89; Annex A. CA-G.R. No. 61881. Penned by Associate Justice Danilo P. Pine, with
Associate Justices Martin S. Villarama, Jr. and Arcangelita Romilla-Lontok, concurring.
2 Id., at pp. 90-91; Annex B.
3 Id., at pp. 108-114; Annex D. NLRC CA No. 020663-99. Penned by Commissioner Ireneo B. Bernardo,
with Commissioners Lourdes C. Javier and Tito F. Genilo, concurring.
4 Id., at pp. 93-106; Annex C. NLRC NRC Case No. 00-12-08987-97.
5 Annex F.
519
VOL. 564, SEPTEMBER 11, 2008 519
Philippine National Bank vs. Velasco
ings Account Withdrawal Slip, also known as the Ticket Exchange Center (TEC).6
On July 10, 1995, PNB Escolta Branch received the TEC covering the withdrawal. It
was included among the proofsheet entries of Cashier IV Ruben Francisco, Jr. The
withdrawal was not, however, posted in the computer of the Escolta Branch when it
received said advice. This means that the withdrawal was not recorded. Thus, the
account of Velasco had an overstatement of US$15,000.00.
Sometime in September 1995, while Velasco was on a provincial audit, he claimed
calling through phone a kin in Manila who just arrived from abroad. This kin allegedly
told him that his New York-based brother, Gregorio Velasco, sent him various checks
through his kin totaling US$15,000.00 and that the checks would just be deposited in
time in Velascos account.
On October 6, 1995, Velasco updated his dollar savings account by depositing
US$12.78, reflecting a balance of US$15,486.01. He was allegedly satisfied with the
updated balance, as he thought that the US$15,000.00 in his account was the amount
given by his brother.
On different dates, Velasco made several inter-branch withdrawals from the dollar
savings account, to wit:
PNB Branch Date Amount
PNB Legaspi November 7, 1995 US$2,000.00
PNB Legaspi November 13, 1995 3,329.97
Cash Dept. November 23, 1995 4,000.00
 Total US$9,329.97 On February 27, 1996, PNB Ligao, Albay Branch division chief III, Rexor Quiambao,
Mrs. Belen Velasco also withdrew several amounts on the dollar account, viz.: financial specialist II, Emma Gacer, and division chief II, Renato M. Letada, confirmed
_______________ the no-book withdrawal.10
On March 5, 1996, PNB formally charged Velasco with Dishonesty, Grave
6 Annex G. Misconduct, and/or Conduct Grossly Prejudicial to the Best Interest of the Service for the
520 irregular handling of Dollar Savings Account No. 010-714698-9.11 The administrative
520 SUPREME COURT REPORTS ANNOTATED charge alleged that: (1) he transacted a no-book withdrawal against his Dollar Savings
Philippine National Bank vs. Velasco Account No. 010-714698-9 at PNB Ligao, Albay Branch in violation of Section 1216 of the
Manual of Regulations for Banks; (2) in transacting the no-book withdrawal, he failed to
PNB Branch Date Amount
present any letter of introduction as required under General Circular 3-72/92; (3) the
PNB CEPZ December 6, 1995 US$11,494.00 irregular inter-branch withdrawal was aggravated by the failure of Escolta Branch to
PNB Frisco January 2, 1996 1,292.32 post/enter the withdrawal into the computer upon receipt of the TEC advice, resulting in
Total US$12,786.32 the overstatement of the account balance by US$15,000.00; and (4) since he was
Subsequently, the dollar savings account of the spouses was closed. presumed to be fully aware that neither the deposit nor withdrawal of the US$15,000.00
On February 6, 1996, in the course of conducting an audit at PNB Escolta Branch, was reflected on the passbook, he was able to appropriate the amount for his personal
Molina D. Salvador, a member of the Internal Audit Department (IAD) of PNB, benefit, free of interest, to the damage and prejudice of PNB. 12
discovered that the inter-branch withdrawal made on June 30, 1995 by Velasco at PNB _______________
Ligao, Albay Branch in the amount of US$15,000.00 was not posted; and that no deposit
9 Annex I.
of said amount had been credited to the dollar savings account. 10 CA Rollo, pp. 186-188; Annex M.
On February 7, 1996, Velasco was notified of the glitch when he reported at the IAD. 11 Annex J.
He said it was only in the evening that he was able to verify from his kin that the latter 12 Rollo, pp. 123-125.
was not able to deposit in his account the US$15,000.00.7 522
The following day, or on February 8, 1996, Velasco went to Dolorita Donado, assistant 522 SUPREME COURT REPORTS ANNOTATED
vice president of the Internal Audit Department and team leader of the Escolta Task Philippine National Bank vs. Velasco
Force, and delivered three (3) checks in the amount of US$5,000.00 each or a total of On April 8, 1996, PNB withheld his rice and sugar subsidy, dental/optical/outpatient
US$15,000.00. However, Donato returned the checks to Velasco and instructed him that medical benefits, consolidated medical benefits, commutation of hospitalization benefits,
he should personally deposit the checks. clothing allowance, longevity pay, anniversary bonus, Christmas bonus and cash gift,
On February 14, 1996, he deposited the checks and the amount was consequently performance incentive award, and mid-year financial assistance.13 On April 10, 1996, he
applied to his unposted withdrawal of US$15,000.00. was placed under preventive suspension for a period of ninety (90) days. 14
Meanwhile, on February 9, 1996, PNB vice president, B.C. Hermoso, On May 2, 1996, Velasco submitted his sworn Answer 15to the administrative charge
required8 Velasco to submit a written explanation concerning the incident. against him. Unlike his previous answer, he here claimed that his withdrawal on June
_______________
30, 1995 was with passbook. As proof, he attached a copy of his passbook 16 bearing the
7 Id., at p. 121.
withdrawal entry of US$15,000.00 on June 30, 1995. Explaining the inconsistency with
8 Annex H. his sworn letter-explanation on February 12, 1996, he said his initial answer was made
521 under pressing circumstances. He was unable to find his passbook which was then kept
VOL. 564, SEPTEMBER 11, 2008 521 by his wife who could not be contacted at that moment.
Philippine National Bank vs. Velasco On October 2, 1996, the Administrative Adjudication Office (AAO) of PNB composed
of Fernando R. Mangubat, Jr., Wilfredo S. Verzosa, Celso D. Benologa, and Jesse L.
On February 12, 1996, he submitted his sworn letter-explanation.9 He described the
Figueroa exonerated Velasco of the charges of dishonesty and conduct prejudicial to the
inter-branch withdrawal at PNB Ligao, Albay Branch on June 30, 1995 as no-book, i.e.,
best interest of service. However, he was found guilty of grave misconduct, mitigated by
without the corresponding presentation to the bank teller of the savings passbook. He
length of service and absence of actual loss to PNB. Thus, he was meted the penalty
stated, among others, that his withdrawal was accommodated as the statement of
of forced resignation with benefits.17
account showed a balance of US$15,486.01, and that he is personally known to the
officers and staff, being a former colleague at the PNB Ligao, Albay Branch.
 On October 31, 1996, Velasco was formally notified of the findings of the AAO after its early as October 6, 1995, when he updated his passbook, Velasco should have known that
approval by the management. As of that time, he had been employed with PNB for (1) his brothers checks in the amount of US$15,000.00 have not been deposited in his
eighteen (18) years, holding the position of Manager 1 of the IAD. He dollar savings account and (2) he appears to have been improperly credited with
_______________ US$15,000.00.21
Moreover, the Labor Arbiter held that the entry in the passbook purportedly
13 CA Rollo, p. 121; Annex G.
reflecting the withdrawal of US$15,000.00 is a forgery. It was done to conform to the
14 Annex K.
15 Annex L. defense of Velasco that he presented his passbook on June 30, 1995.22
16 Rollo, p. 117. On the charge of illegal suspension, the Labor Arbiter held that the preventive
17 Annex M. suspension of Velasco was reasonable in view of the sensitive nature of his position. It
523
was also necessary to protect the records of PNB. 23 It follows that the withholding of his
VOL. 564, SEPTEMBER 11, 2008 523 company benefits is reasonable.24 Nonetheless, he should be paid his salary from May 12,
Philippine National Bank vs. Velasco 1996 up to October 31, 1996.25
was earning P14,932.00 per month plus a monthly allowance of P3,940.00 or a total His claim for damages and attorneys fees must be denied because PNB did not
salary of P18,872.00 per month. violate his rights.26
On December 22, 1997, he filed a Complaint18 against PNB for illegal suspension, Dissatisfied with the decision of the Labor Arbiter, both Velasco 27 and PNB28 appealed
illegal dismissal, and damages before the NLRC. to the NLRC.
On July 31, 2000, the NLRC affirmed with modification the Labor Arbiter decision,
Labor Arbiter, NLRC, and CA Dispositions disposing, thus:
_______________
On July 9, 1999, Labor Arbiter Pablo C. Espiritu gave judgment, the dispositive
21 Id., at pp. 101-102.
portion of which reads: 22 Id., at pp. 104-105.
WHEREFORE, judgment is hereby rendered as follows: 23 Id., at p. 105.
1. Dismissing the complaint for illegal dismissal against respondents for want of merit. 24 Id.
2. Ordering PNB to pay complainant unpaid wages for the period May 12, 1996 to October 31, 25 Id.
1996 in the amount of P103,796.00. 26 Id., at pp. 105-106.
3. Dismissing complainants claims for damages and other monetary claims for lack of merit. 27 Annex T.
SO ORDERED. 19
28 Annex U.
525
In his ruling, the Labor Arbiter opined that as an employee and officer of PNB for
eighteen (18) years, Velasco is expected to know bank procedures, including the expected VOL. 564, SEPTEMBER 11, 2008 525
entries in a savings passbook. Even if it should be assumed that he presented his Philippine National Bank vs. Velasco
passbook when he withdrew US$15,000.00 at the PNB Ligao Branch on June 30, 1995, WHEREFORE, the decision appealed from is hereby MODIFIED to the extent that the award
he should have known that there was something wrong with the amounts credited to his of unpaid salaries is hereby REDUCED to the complainants salaries from May 27, 1996 to July 31,
account when he made an update on October 6, 1995. Being an audit officer, and fully 1996. Other dispositions in the appealed decision stands (sic) affirmed.
29

aware of his withdrawal of US$15,000.00, he should have made inquiries on the In sustaining the Labor Arbiter, the NLRC held that Velascos lack of knowledge of
inconsistency of the entries in his passbook.20 the non-posting of his withdrawal is not credible. Even a cursory look at his passbook
_______________ shows that no deposit of US$15,000.00 was ever made. That there was still a balance of
more than US$15,000.00 in his account after the withdrawal he made on June 30, 1995
18 Annex O. could only mean that the withdrawal was never posted. Worse, based also on the entries
19 Rollo, p. 106. in his passbook, it is clear that the withdrawal on June 30, 1995 was a no-book
20 Id., at p. 101.
524
transaction. The withdrawal of US$15,000.00 was not taken into consideration in the
determination of the balance of June 30, 1995 and the succeeding dates. Thus, it is clear
524 SUPREME COURT REPORTS ANNOTATED
that the entry in question was falsified. It was made merely to bolster his subsequent
Philippine National Bank vs. Velasco claim that he presented his passbook when he withdrew on June 30, 1995. 30
The Labor Arbiter also found as flimsy the argument that the additional The NLRC concluded that the falsification of the passbook shows deceit on the part of
US$15,000.00 was the amount given to Velasco by his brother from the United States. As Velasco. He took advantage of his position. The posting of the falsified entry could not
have been made without, or was at least facilitated by, his being an employee of the
bank. Thus, his subsequent withdrawals amounted to losses on the part of the bank. He
made those withdrawals from his account with full knowledge that the balance of his
passbook of more than US$15,000.00 was attributed to the non-posting of the June 30,
1995 withdrawal.31
The NLRC also held that he had been preventively suspended for more than thirty
(30) days as of May 27, 1996. Since he was paid his salaries from August 1, 1996 to
PNB has filed the instant petition for review on certiorari, putting forth the following
issues for Our resolution, viz.:
I. WHETHER OR NOT THE COURT OF APPEALS ERREDAND GRAVELY ABUSED ITS
DISCRETION IN FINDING THAT RESPONDENT HAS BEEN ILLEGALLY DISMISSED BY
THE PETITIONERS.
II. WHETHER OR NOT THE COURT OF APPEALS ERREDAND GRAVELY ABUSED ITS
DISCRETION IN DIRECTING PNB TO PAY RESPONDENT SEPARATION PAY AND
BACKWAGES. (Underscoring supplied)
38

October We add a third issue which was raised by PNB before the CA but was, however, left
_______________
unresolved: whether Velasco took the correct recourse when he elevated the decision of
29 Rollo, p. 114. the NLRC to the CA by way of petition for review on certiorari under Rule 43.
30 Id., at pp. 112-113.
31 Id., at p. 113. Our Ruling
526
526 SUPREME COURT REPORTS ANNOTATED I. Appeal does not lie from the decision of the NLRC.
Philippine National Bank vs. Velasco We first address the procedural question on the propriety of the Rule 43 petition. Rule
31, 1996, he may recover only his salary from May 27, 1996 to July 31, 1996. 32 43 provides for appeal from quasi-judicial agencies to the CA by way of petition for
Like the Labor Arbiter, the NLRC held that Velasco may not recover damages. His review. Petition for review on certiorari or appeal by certiorari is a recourse to the
dismissal was not done oppressively or in bad faith. Neither was he subjected to Supreme Court under Rule 45.
unnecessary embarrassment or humiliation.33 The mode of appeal resorted to by Velasco is wrong because appeal is not the proper
His motion for reconsideration having been denied, Velasco elevated the matter to the remedy in elevating to the CA the decision of the NLRC. Section 2, Rule 43 of the 1997
CA by way of petition for review on certiorari under Rule 43 of the Rules of Court.34On Rules of Civil Procedure is explicit that Rule 43 shall not apply to judgments or final
April 22, 2004, the CA rendered the assailed decision, the fallo stating, thus: orders issued under the Labor Code of the Philippines.
WHEREFORE, for the foregoing discussions, We REVERSEand SET ASIDE the findings of _______________
public respondent NLRC and Labor Arbiter and hereby enter a decision ordering PNB to pay
petitioner a separation pay equivalent to half-month salary for every year of service, plus 38 Id., at p. 413.
backwages from the time of his illegal termination up to the finality of this decision. 528
SO ORDERED. 35 528 SUPREME COURT REPORTS ANNOTATED
According to the CA, the failure of Velasco to present his passbook and a letter of Philippine National Bank vs. Velasco
introduction does not constitute misconduct. Assuming for the sake of argument that he The correct remedy that should have been availed of is the special civil action
committed a serious misconduct in not properly monitoring his account with ordinary of certiorari under Rule 65. As this Court held in the case of Pure Foods Corporation v.
diligence and prudence, the same may be said of PNB when it failed to make the NLRC,39 the party may also seasonably avail of the special civil action for certiorari,
necessary posting of his withdrawal.36 Lastly, the alleged offense of Velasco is not work- where the tribunal, board or officer exercising judicial functions has acted without or in
related to constitute just cause for his dismissal.37 excess of its jurisdiction, or with grave abuse of discretion, and praying that judgment be
_______________
rendered annulling or modifying the proceedings, as the law requires, of such tribunal,
32 Id.
board or officer.40 In any case, St. Martin Funeral Home v. National Labor Relations
33 Id., at p. 114. Commission41settled any doubt as to the manner of elevating decisions of the NLRC to
34 Annex W. the CA by holding that the legislative intendment was that the special civil action
35 Rollo, pp. 88-89. of certiorariwas and still is the proper vehicle for judicial review of decisions of the
36 Id., at pp. 85-86.
37 Id., at p. 86.
NLRC.42
527 That the decision of the NLRC is not subject to appeal could have been a ground for
VOL. 564, SEPTEMBER 11, 2008 527 the CA to dismiss the appeal of Velasco.43 But even assuming, arguendo, that his petition
could be liberally treated as one for certiorariunder Rule 65, the recourse should not have
Philippine National Bank vs. Velasco
prospered.
Issues II. Velasco committed serious misconduct, hence, his dismissal is justified.
_______________
39 G.R. No. 78591, March 21, 1989, 171 SCRA 415.
40 Id., at p. 424.
41 G.R. No. 130866, September 16, 1998, 295 SCRA 494.
42 St. Martin Funeral Home v. National Labor Relations Commission,id., at p. 507.
43 Rules of Civil Procedure (1997), Sec. 1. Grounds for dismissal of appeal.An appeal may be dismissed
by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:
xxxx
(i) The fact that the order or judgment appealed from is not appealable.
529
VOL. 564, SEPTEMBER 11, 2008 529
Philippine National Bank vs. Velasco
Article 282 of the Labor Code enumerates the just causes where an employer may
terminate the services of an employee,44 to wit:
a) Serious misconduct or willful disobedience by the employee of the lawful orders of
his employer or representative in connection with his work;
b) Gross and habitual neglect by the employee of his duties;
c) Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;
d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized representative;
and
e) Other causes analogous to the foregoing.
In Austria v. National Labor Relations Commission,45the Court defined misconduct as
improper and wrongful conduct. It is the transgression of some established and definite
rule of action, a forbidden act, a dereliction of duty, willful in character, and implies
wrongful intent and not mere error in judgment.46 In Camus v. Civil Service Board of
Appeals,47 miscon-
_______________
44 As contradistinguished with Article 285 of the Labor Code, which enumerates the instances when an
employee may terminate his employment relation with the employer, to wit: (1) Serious insult by the employer
or his representative on the honor and person of the employee; (2) Inhuman and unbearable treatment accorded
the employee by the employer or his representative; (3) Commission of a crime or offense by the employer or his
representative against the person of the employee or any of the immediate members of his family; and (4) Other
causes analogous to any of the foregoing.
45 G.R. No. 124382, August 16, 1999, 312 SCRA 410.
46 Austria v. National Labor Relations Commission, id., at p. 429, citing Cosep v. National Labor Relations
Commission, G.R. No. 124966, June 16, 1998, 290 SCRA 704.
47 112 Phil. 301; 2 SCRA 370 (1961).
530
530 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
duct was described as wrong or improper conduct.48 It implies a wrongful intention and
not a mere error of judgment.49
Of course, ordinary misconduct would not justify the termination of the services of an
employee. The law is explicit that the misconduct should be serious. It is settled that in
order for misconduct to be serious, it must be of such grave and aggravated character
and not merely trivial or unimportant.50 As amplified by jurisprudence, the misconduct
must (1) be serious; (2) relate to the performance of the employees duties; and (3) show
that the employee has become unfit to continue working for the employer.51
Measured by the foregoing yardstick, We rule that Velasco committed serious
misconduct that warrants termination from employment.
A. The misconduct is serious. Velasco violated bank rules when he transacted a
no-book withdrawal by his failure to present his passbook to the PNB Ligao, Albay
Branch on June 30, 1995. Section 1216 of the Manual of Regulations for Banks and
Other Financial Intermediaries state that [b]anks are prohibited from issuing/accepting
withdrawal authority slips or any other similar instruments designed to effect
withdrawals of savings deposits without following the usual practice of requiring the
depositors concerned to present their passbooks and accomplishing the necessary
withdrawal slips.
_______________
48 Camus v. Civil Service Board of Appeals, id., at p. 306; p. 375.
49 Id., citing In re Morilleno, 43 Phil. 212, 214 (1922).
50 Austria v. National Labor Relations Commissions, supra note 47.
51 Philippine Aeolus Automotive United Corporation v. National Labor Relations Commission, G.R. No.
124617, April 28, 2000, 331 SCRA 237, 246; Molato v. National Labor Relations Commission, G.R. No. 113085,
January 2, 1997, 266 SCRA 42, 46; Aris Philippines, Inc. v. National Labor Relations Commission, G.R. No.
97817, November 10, 1994, 238 SCRA 59, 62.
531
VOL. 564, SEPTEMBER 11, 2008 531
Philippine National Bank vs. Velasco
Further, he failed to present any letter of introduction as mandated under General
Circular 3-72-92 which requires that [b]efore going out-of-town, the Depositor secures a
Letter of Introduction from the branch/office where his Peso Savings Account is
maintained.
The presentation of passbook and letter of introduction is not without a valid reason.
As aptly stated by the IAD of PNB:
Considering that the PNB Ligao, Albay Branch is an offline branch, it is a must that an LOI
and the passbook be presented by the depositor before any withdrawal is allowed. This procedure is
required in order for the negotiating branch to determine or ascertain the available balance and
the specimen signature of the withdrawing party. Moreover, the maintaining branch upon issuance
of the LOI shall place a hold on the account in the computer as an internal control procedure. 52
True, a strict reading of General Circular 3-72-92 would lead one to conclude that
only persons with peso savings account are required to secure a letter of introduction.
However, simple logic dictates that those maintaining dollar savings account are also
included. No cogent reason would be served by the rule if only persons with peso savings
account are required to get a letter of introduction. Otherwise, there can be a
circumvention of the rule. Nemo potest facere per alium qud non potest facere per
directum. No one is allowed to do indirectly what he is prohibited to do
directly. Sinuman ay hindi pinapayagang gawin nang hindi tuwiran ang
ipinagbabawal gawin nang tuwiran.
 As an audit officer, Velasco should be the first to ensure that banking laws, policies,
rules and regulations, are strictly observed and applied by its officers in the day-to-day
transactions. The banking system is an indispensable institution in the modern world. It
plays a vital role in the economic life of
_______________
52 CA Rollo, p. 99.
532
532 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
every civilized nation. Whether banks act as mere passive entities for the safekeeping
and saving of money, or as active instruments of business and commerce, they have
become an ubiquitous presence among the citizenry, who have come to regard them with
respect and even gratitude and, most of all, confidence.53
The CA, however, opined that the failure of Velasco to abide by the rules is not
serious misconduct because (1) from the admission of PNB itself, allowing bank
personnel who are out-of-town to make a no-book transaction without a letter of
introduction is considered a common practice, and (2) the approving officers of PNB
Ligao Branch should have also been administratively charged considering that the no-
book transaction could not have pushed through without their approval. 54
In Santos v. San Miguel Corporation,55 petitioner, in his defense, cited the prolonged
practice of payroll personnel, including persons in managerial levels, of encashing
personal checks. Finding this argument unmeritorious, the Court held that [p]rolonged
practice of encashing personal checks among respondents payroll personnel does not
excuse or justify petitioners misdeeds. Her willful and deliberate acts were in gross
violation of respondents policy against encashment of personal checks of its personnel,
embodied in its Cash Department Memorandum dated September 6, 1989. 56 The Court
even added that petitioner cannot feign ignorance of such memorandum as she is duty-
bound to keep abreast of company policies related to financial matters within the
corporation.57 We apply the same principle here.
_______________
53 Simex International (Manila), Inc. v. Court of Appeals, G.R. No. 88013, March 19, 1990, 183 SCRA 360,
366-367.
54 Rollo, pp. 84-85.
55 G.R. No. 149416, March 14, 2003, 399 SCRA 172.
56 Santos v. San Miguel Corporation, id., at p. 183.
57 Id.; see also San Miguel Corporation v. National Labor Relations Commission, G.R. No. L-50321, March
13, 1984, 128 SCRA 180.
533
VOL. 564, SEPTEMBER 11, 2008 533
Philippine National Bank vs. Velasco
Suffice it to state that the option of who to charge or punish belongs to PNB. As an
employer, PNB is given the latitude to determine who among its erring employees should
be punished, to what extent and what penalty to impose. 58 Too, by charging Velasco, PNB
is not estopped from charging its other employees who might as well have been remiss
with their job.
Of course, We are not unaware that Velasco had a change of heart. In his sworn
Letter-Explanation February 12, 1996, he admitted that his June 30, 1995 withdrawal of
US$15,000.00 was a no-book transaction. However, in his sworn Answer dated April
30, 1996, he claimed that he actually presented his passbook when he withdrew on June
30, 1995.
To recall, he was charged with dishonesty, grave misconduct, and/or conduct grossly
prejudicial to the best interest of the service for irregularly handling his dollar savings
account. Thus, it is safe to assume that when he prepared his February 12, 1996 sworn
Letter-Explanation, the circumstances surrounding his June 30, 1995 withdrawal at
PNB Ligao, Albay Branch were still fresh on his mind. The allegations against him were
serious, which should have put him on guard from preparing a haphazard explanation.
He should have been mindful that dire consequences would surely befall him should the
charges against him be proven. Lest it be forgotten, the no-book withdrawal was
confirmed by the concerned officers of PNB Ligao, Albay Branch, namely, Quiambao,
Gacer, and Letada. These circumstances, taken together, lead to no other conclusion than
that Velasco changed his explanation from no-book to with book transaction after
realizing that he violated bank rules and regulations.
Perez v. People,59 is illustrative on this score. Perez, an acting municipal treasurer,
submitted two contradicting answers explaining the location of the missing funds under
his custody
_______________
58 See Soriano v. National Labor Relations Commission, G.R. No. L-75510, October 27, 1987, 155 SCRA
124.
59 G.R. No. 164763, February 12, 2008, 544 SCRA 532.
534
534 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
and control: the first, reiterating his previous verbal admission before the audit team
that part of the money was used to pay for the loan of his late brother, another portion
was spent for the food of his family, and the rest for his medicine; and the second,
claiming that the alleged missing amount was in the possession and custody of his
accountable personnel at the time of the audit examination.
This Court held that the sudden turnaround of Perez was merely an afterthought. He
only changed his story to exonerate himself, after realizing that his first Answer put
him in a hole, so to speak.60 Neither did the Court believe that his alleged sickness
affected the preparation of his first Answer. Perez presented no convincing evidence that
his disease at the time he formulated that Answer diminished his capacity to formulate a
true, clear and coherent response to any query. In fact, its contents merely reiterated his
verbal explanation to the auditing team on January 5, 1989 on how he disposed of the
missing funds.61
We find no cogent reason to depart from Our ruling in Perez. The claim of Velasco
that his initial answer was made under pressing circumstances is too flimsy an excuse. It
partakes of the nature of an alibi. As such, it constitutes a self-serving negative evidence
which cannot he accorded greater evidentiary weight than the declaration of credible
witnesses who testified on affirmative matters.62 The Court has consistently frowned
upon the defense of alibi, and received it with caution, not only because it is inherently
weak and unreliable but also because it can be easily fabricated.63
Also worth noting is that Velasco never imputed any ill motive on the part of Rexor,
Gacer, and Letada who collectively
_______________
60 Perez v. People, id., at p. 11; p. 551.
61 Id., at p. 13; p. 553.
62 People v. Estomaca, G.R. Nos. 134288-89, January 15, 2002, 373 SCRA 197.
63 People v. Villamor, G.R. Nos. 140407-08 & 141908-09, January 15, 2002, 373 SCRA 254.
535
VOL. 564, SEPTEMBER 11, 2008 535
Philippine National Bank vs. Velasco
narrated that the June 30, 1995 withdrawal was a no-book transaction. They confirmed
his earlier version that he did not present his passbook when he withdrew the
US$15,000.00 on June 30, 1995. In any case, the fact that he changed his stance puts his
credibility in doubt. Was he lying when he submitted his sworn letter-explanation of
February 12, 1996, or when he submitted his sworn Answer dated April 30,
1996? Allegans contraria non est audiendus. He is not to be heard who alleges things
contradictory to each other. Hindi dapat pakinggan ang nagsasabi ng mga bagay
na salungat sa isat-isa.
Velasco did not only violate bank rules and regulations. What compounds his offense
was his unusual silence. He never informed PNB about the huge overstatement of
US$15,000.00 in his account. He updated his passbook on October 6, 1995 by depositing
US$12.78. Thus, as early as that date, he should have known that something was wrong
with the credited balance in his passbook and reported it immediately to the concerned
officers of PNB. What he did, instead, was to keep mum until PNB discovered the
incident and notified him on February 7, 1996, or almost eight (8) months after his no-
book withdrawal on June 30, 1995.
With his silence, he clearly intended to gain at the expense of PNB. The omission to
report is not trivial or inconsequential because it gave him the opportunity to withdraw
from his dollar savings account more than its real balance, as what he actually did. He
took advantage of the overstatement of his account, instead of protecting the interest of
the bank. It would be impossible for him not to detect the error at the time he deposited
US$12.78 on October 6, 1995, because his account had a big balance despite the fact that
no large amount of money was deposited.
His claim that he was satisfied with the updated balance of US$15,486.01 on October 6,
1995, as he thought that the US$15,000.00 in his account was the amount given by his
brother, is simply unbelievable. It is a desperate attempt at536
536 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
exculpation. The deposit of the money from his brother should have been reflected in the
on-line computer of PNB. The deposit would have also been posted for update upon the
presentation of the passbook on October 6, 1995. No deposit of US$15,000.00 was,
however, reflected in the passbook.
In Aboitiz Shipping Corporation v. Dela Serna,64 Tiu v. National Labor Relations
Commission,65 Five J Taxi v. National Labor Relations Commission,66 and Falguera v.
Linsangan,67 among other cases, this Court consistently held that factual findings of
quasi-judicial agencies, which have acquired expertise in matters entrusted to their
jurisdiction, are accorded not only respect but also finality if they are supported by
substantial evidence.68 Thus, in the absence of proof that the Labor Arbiter or the NLRC
had gravely abused their discretion, this Court shall deem conclusive and will not
overturn their particular factual findings.69
_______________
64 G.R. No. 88538, July 25, 1991, 199 SCRA 568.
65 G.R. No. 83433, November 12, 1992, 215 SCRA 540.
66 G.R. No. 111474, August 22, 1994, August 22, 1994, 235 SCRA 556.
67 G.R. No. 114848, December 14, 1995, 251 SCRA 364.
68 See also German Marine Agencies, Inc. v. National Labor Relations Commission, G.R. No. 142049,
January 30, 2001, 350 SCRA 629, 646, citing Travelaire & Tours Corporation v. National Labor Relations
Commission, G.R. No. 131523, August 20, 1998, 294 SCRA 505; Suarez v. National Labor Relations
Commission, G.R. No. 124723, July 31, 1998, 293 SCRA 496; Autobus Workers Union v. National Labor
Relations Commission, G.R. No. 117453, June 26, 1998, 291 SCRA 219; Prangan v. National Labor Relations
Commission, G.R. No. 126529, April 15, 1998, 289 SCRA 142; International Pharmaceuticals, Inc. v. National
Labor Relations Commission, G.R. No. 106331, March 9, 1998, 287 SCRA 213; Villa v. National Labor Relations
Commission, G.R. No. 117043, January 14, 1998, 284 SCRA 105.
69 Id., at p. 647, citing Gandara Mill Supply v. National Labor Relations Commission, G.R. No. 126703,
December 29, 1998, 300 SCRA 702; National Union of Workers in Hotels, Restaurants and
537
VOL. 564, SEPTEMBER 11, 2008 537
Philippine National Bank vs. Velasco
The Labor Arbiter and the NLRC are in unison that Velasco transacted a no-book
withdrawal and failed to present a letter of introduction at PNB Ligao, Albay Branch on
June 30, 1995. He also forged his passbook to cover up his offense. Being duly supported
by substantial evidence, We sustain said finding. Fitness for continued employment
cannot be compartmentalized into tight little cubicles of aspects of character, conduct,
and ability separate and independent of each other. A service of irregularities, when
combined, may constitute serious misconduct which is a just cause for dismissal. 70
B. The serious misconduct relates to the performance of duties. The CA
ruled that the offense of Velasco was not work-related and does not warrant dismissal. It
likewise held that there is no proof that his failure to be a good depositor affected his
duties or performance as an employee of PNB.71
At first glance, the acts committed by Velasco pertain only to his being a depositor of
PNB. But he has a dual personality. He was a depositor and, at the same time, an officer
of the bank.
On one hand, he failed to present his passbook and a letter of introduction when he
withdrew US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious
misconduct was aggravated when he presented a falsified passbook to make it appear
that he did not commit any misdeed. On the other hand, he worked for PNB for eighteen
(18) long years, his last position having been as Manager 1 of the IAD. As
_______________
Allied Industries v. National Labor Relations Commission, G.R. No. 125561, March 6, 1998, 287 SCRA 192.
70 Piedad v. Lanao del Norte Electric Cooperative, Inc., G.R. No. 73735, August 31, 1987, 153 SCRA 500,
509, citing National Service Corporation v. Leogardo, Jr., G.R. No. L-64296, July 20, 1984, 130 SCRA 502; see
also Gustilo v. Wyeth Philippines, Inc., G.R. No. 149629, October 4, 2004, 440 SCRA 67, 75.
71 Rollo, pp. 86-87.
538
538 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
such, he was involved in the examination of the books of account of PNB. Thus, when he
violated bank rules and regulations and tried to cover up his infractions by falsifying his
passbook, he was not only committing them as a depositor but also, or rather more so, as
an officer of the bank. It is akin to falsification of time cards, 72 and circulation of fake
meal tickets,73 which this Court held as a just cause for terminating the services of an
employee.
C. Velasco has become unfit to continue working at PNB. Taken together, his
acts render him unfit to remain in the employ of the bank. That it is his first offense is of
no moment because he holds a managerial position. Employers are allowed wide latitude
of discretion in terminating managerial employees who, by virtue of their position,
require full trust and confidence in the performance of their duties. 74 Managerial
employees like Velasco are tasked to perform key and sensitive functions and are bound
by more exacting work ethics.75 Indeed, not even his eighteen (18) years of service
_______________
72 See San Miguel Corporation Employees Union v. Ferrer-Calleja, G.R. No. 80141, July 5, 1989, 175 SCRA
85.
73 Ibarrientos v. National Labor Relations Commission, G.R. No. 75277, July 31, 1989, 175 SCRA 761.
74 Mendoza v. National Labor Relations Commission, G.R. No. 131405, July 20, 1999, 310 SCRA 846; see
also Etcuban, Jr. v. Sulpicio Lines, Inc., G.R. No. 148410, January 17, 2005, 448 SCRA 516; Tan v. National
Labor Relations Commission, G.R. No. 128290, November 24, 1998, 299 SCRA 169, 183; Filipro, Incorporated v.
National Labor Relations Commission, G.R. No. L-70546, October 16, 1986, 145 SCRA 123; Lamsan Trading,
Inc. v. Leogardo, Jr., G.R. No. L-73245, September 30, 1986, 144 SCRA 571; Metro Drug Corporation v.
National Labor Relations Commission, G.R. No. L-72248, July 22, 1986, 143 SCRA 132; San Miguel
Corporation v. National Labor Relations Commission, G.R. No. L-70177, June 25, 1986, 142 SCRA 376.
75 Gonzales v. National Labor Relations Commission, G.R. No. 131653, March 26, 2001, 355 SCRA 195.
539
VOL. 564, SEPTEMBER 11, 2008 539
Philippine National Bank vs. Velasco
could exonerate him. As this Court held in Equitable PCIBank v. Caguioa:76
The leniency sought by respondent on the basis of her 35 years of service to the bank must be
weighed in conjunction with the other considerations raised by petitioners. As that service has
been amply compensated, her plea for leniency cannot offset her dishonesty. Even government
employees who are validly dismissed from the service by reason of timely discovered offenses are
deprived of retirement benefits. Treating respondent in the same manner as the loyal and code-
abiding employees, despite the timely discovery of her Code violations, may indeed have a
demoralizing effect on the entire bank. Be it remembered that banks thrive on and endeavor to
retain public trust and confidence, every violation of which must thus be accompanied by
appropriate sanctions. 77
III. The CA erred in directing PNB to pay Velasco separation pay and
backwages. PNB has no other liability to Velasco, except his unpaid wages from
May 27, 1996 to July 31, 1996.
PNB was registered under the Corporation Code under SEC Reg. No. ASO 96-005555
dated May 27, 1996.78 Thus, on that day, employees of PNB came under the jurisdiction of
the Labor Code, whose Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules
state:
Section 8. Preventive Suspension.The employer may place the worker concerned under
preventive suspension if his continued employment poses a serious and imminent threat to the life
or property of the employer or his co-workers.
Section 9. No preventive suspension shall last longer than thirty (30) days. The employer
shall thereafter reinstate the worker in his former or in a substantially equivalent position or the
employer may extend the period of suspension provided that during the
_______________
76 G.R. No. 159170, August 12, 2005, 466 SCRA 686.
77 Equitable PCIBank v. Caguioa, id., at p. 698.
78 Rollo, p. 165.
540
540 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Velasco
period of extension, he pays the wages and other benefits due to the worker. In such case, the
worker shall not be bound to reimburse the amount paid to him during the extension if the
employer decides, after completion of the hearing, to dismiss the worker.
PNB has the right to preventively suspend Velasco during the pendency of the
administrative case against him. It was obviously done as a measure of self-protection. It
was necessary to secure the vital records of PNB which, in view of the position of Velasco
as internal auditor, are easily accessible to him.
Velasco was preventively suspended for more than thirty (30) days as of May 27,
1996, while the records bear that Velasco was paid his salaries from August 1, 1996 to
October 31, 1996.79 Thus, the NLRC is correct in its holding that he may recover his
salaries from May 27, 1996 to July 31, 1996.
He is not entitled to separation and backwages because he was not illegally
dismissed.80 We note though that PNB was not at all insensitive to his plight, considering
(1) his restitution of the amount akin to no actual loss to the bank, and (2) his length of
service of eighteen (18) years.81 As stated earlier, PNB imposed on Velasco the penalty of
forced resignation with benefits, instead of dismissal. The records bear out that he was
granted P542,110.75 as separation benefits82 which was used to offset his loan in the
bank, leaving an outstanding balance of P167,625.82 as of May 27, 1997. 83 We find that
PNB acted humanely under the circumstances.
One last word.
_______________
 79 Rollo, p. 258; Annex 1.
80 See Labor Code, Art. 279; Philippine Carpet Employees Association v. Philippine Carpet Manufacturing
Corporation, G.R. Nos. 140269-70, September 14, 2000, 340 SCRA 383.
81 Rollo, p. 164.
82 CA Rollo, p. 200.
83 Id., at p. 203.
541
VOL. 564, SEPTEMBER 11, 2008 541
Philippine National Bank vs. Velasco
The law imposes great burdens on the employer. One needs only to look at the varied
provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working
man. The Labor Code is titled that way and not as Employer Code. As one American
ruling puts it, the protection of labor is the highest office of our laws. 84
Corollary to this, however, is the right of the employer to expect from the employee no
less than adequate work, diligence and good conduct. 85 As Mr. Justice Joseph McKenna of
the United States Supreme Court said in Arizona Copper Co. v. Hammer,86 [t]he
difference between the position of the employer and the employee, simply considering the
latter as economically weaker, is not a justification for the violation of the rights of the
former.87
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED and
SET ASIDE. The Decision of the National Labor Relations Commission is REINSTATED.
SO ORDERED.
12. G.R. No. 170290. April 11, 2012.*
PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. CITIBANK, N.A.
and BANK OF AMERICA, S.T. & N.A., respondents.
Mercantile Law; Banks and Banking; Where a bank maintains branches, each branch
becomes a separate business entity with separate books of account; Nevertheless, when considered
with relation to the parent bank they are not independent agencies; they are, what their name
imports, merely branches, and are subject to the supervision and control of the parent bank;
Ultimate liability for a debt of a branch would rest upon the parent bank.For lack of judicial
precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading
case of Sokoloff v. The National City Bank of New York, 130 Misc. 66, 224 N.Y.S. 102, where the
Supreme Court of New York held: Where a bank maintains branches, each branch becomes
a separate business entity with separate books of account. A depositor in one branch cannot
issue checks or drafts upon another branch or demand payment from such other branch, and in
many other respects the branches are considered separate corporate entities and as distinct from
one another as any other bank. Nevertheless, when considered with relation to the parent
bank they are not independent agencies; they are, what their name imports, merely
branches, and are subject to the supervision and control of the parent bank, and are
instrumentalities whereby the parent bank carries on its business, and are established for its own
particular purposes, and their business conduct and policies are controlled by the parent bank and
their property and assets belong to the parent bank, although nominally held in the names of the
particular branches. Ultimate liability for a debt of a branch would rest upon the parent
bank. [Emphases supplied] This ruling was later reiterated in the more recent case of United
States v. BCCI Holdings Luxembourg, 48 F.3d 551, 554 (D.C.Cir.1995), where the United States
Court of Appeals, District of Columbia Circuit, emphasized that while individual bank branches
may be treated as independent of one another, each branch, unless
_______________
* THIRD DIVISION.
192
1 SUPREME COURT REPORTS ANNOTATED
92
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
separately incorporated, must be viewed as a part of the parent bank rather than as an
independent entity.
Same; Same; Both Section 75 of R.A. No. 8791 and Section 5 of R.A. No. 7221 require the head
office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine
branch.In addition, Philippine banking laws also support the conclusion that the head office of a
foreign bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The
General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of
Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of
all the liabilities of its Philippine branch, to wit: Republic Act No. 8791: Sec. 75. Head Office
Guarantee.In order to provide effective protection of the interests of the depositors and other
creditors of Philippine branches of a foreign bank, the head office of such branches shall fully
guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of
the Philippines who are creditors of a branch in the Philippines of foreign bank shall have
preferential rights to the assets of such branch in accordance with the existing laws. Republic Act
No. 7721: Sec. 5. Head Office Guarantee.The head office of foreign bank branches shall
guarantee prompt payment of all liabilities of its Philippine branches.
Same; Same; Philippine Deposit Insurance Corporation (PDIC); The purpose of the Philippine
Deposit Insurance Corporation (PDIC) is to protect the depositing public in the event of a bank
closure.The purpose of the PDIC is to protect the depositing public in the event of a bank closure.
It has already been sufficiently established by US jurisprudence and Philippine statutes that the
head office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of
Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the
deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the
head office and the branch are two separate entities and that the funds placed by the head office
and its foreign branches with the Philippine branch are considered deposits within the meaning of
the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office,
would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses
it may incur occasioned by the closure of Citibank Philippines. Surely
193
VOL. 669, APRIL 11, 2012 193
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
our law makers could not have envisioned such a preposterous circumstance when they
created PDIC.
Same; Same; The head office of a bank and its branches are considered as one under the eyes
of the law. While branches are treated as separate business units for commercial and financial
reporting purposes, in the end, the head office remains responsible and answerable for the liabilities
of its branches which are under its supervision and control.It is clear that the head office of a
bank and its branches are considered as one under the eyes of the law. While branches are treated
as separate business units for commercial and financial reporting purposes, in the end, the head
office remains responsible and answerable for the liabilities of its branches which are under its
supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank
and BA, to insure the money placements made by their home office and other branches. Deposit
insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the
funds and the one which made the placements are one and the same legal entity.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Elpidio J. Vega for petitioner.
Jose Luis V. Agcaoili for respondents.
MENDOZA, J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil
Procedure, assailing the October 27, 2005 Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 61316, entitled Citibank, N.A. and Bank of America, S.T. & N.A. v.
Philippine Deposit Insurance Corporation.
_______________
1 Rollo, pp. 34-46; penned by Associate Justice Aurora Santiago-Lagman and concurred in by Associate
Justice Ruben T. Reyes (retired member of this Court) and Associate Justice Rebecca de Guia-Salvador of the
Fourth Division.
194
194 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
The Facts
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government
instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A.
No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent
Bank of America, S.T. & N.A. (BA) is a national banking association, both of which are
duly organized and existing under the laws of the United States of America and duly
licensed to do business in the Philippines, with offices in Makati City. 3
In 1977, PDIC conducted an examination of the books of account of Citibank. It
discovered that Citibank, in the course of its banking business, from September 30, 1974
to June 30, 1977, received from its head office and other foreign branches a total of
P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates.4 These funds, which were lodged in
the books of Citibank under the account Their Account-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject to
assessment for insurance.5 As such, in a letter dated March 16, 1978, PDIC assessed
Citibank for deficiency in the sum of P1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which
revealed that from September 30, 1976 to June 30, 1978, BA received from its head office
and its other foreign branches a total of P629,311,869.10 in dollars, covered by
Certificates of Dollar Time Deposit that were interest-bearing with corresponding
maturity dates and lodged
_______________
2 Id., at pp. 13-14.
3 Id., at pp. 47 and 56.
4 Id., at pp. 35 and 83.
5 Id., at pp. 35 and 244.
6 Id., at p. 79.
195
VOL. 669, APRIL 11, 2012 195
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
in their books under the account Due to Head Office/Branches.7 Because BA also
excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking
the remittance of P109,264.83 representing deficiency premium assessments for dollar
deposits.8
Believing that litigation would inevitably arise from this dispute, Citibank and BA
each filed a petition for declaratory relief before the Court of First Instance (now the
Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979, respectively. 9 In
their petitions, Citibank and BA sought a declaratory judgment stating that the money
placements they received from their head office and other foreign branches were not
deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of
R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments
made by PDIC were improper and erroneous.10 The cases were then consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig
City (RTC) promulgated its Decision12 in favor of Citibank and BA, ruling that the subject
money placements were not deposits and did not give rise to insurable deposit liabilities,
and that the deficiency assessments issued by PDIC were improper and erroneous.
Therefore, Citibank and BA were not liable to pay the same. The RTC reasoned out that
the money placements subject of the petitions were not assessable for insurance purposes
under the PDIC Charter because said placements were deposits made outside of the
Philippines and, under Section 3.05(b) of the PDIC Rules and Regula-
_______________
7 Id., at pp. 36 and 84.
8 Id., at pp. 83-84.
9 Id., at p. 36.
10 Id., at pp. 55 and 62.
11 Id ., at p. 36.
12 Id., at pp. 78-93; penned by Judge Aurelio C. Trampe.
196
196 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
tions,13 such deposits are excluded from the computation of deposit liabilities. Section 3(f)
of the PDIC Charter likewise excludes from the definition of the term deposit any
obligation of a bank payable at the office of the bank located outside the Philippines. The
RTC further stated that there was no depositor-depository relationship between the
respondents and their head office or other branches. As a result, such deposits were not
included as third-party deposits that must be insured. Rather, they were considered
inter-branch deposits which were excluded from the assessment base, in accordance with
the practice of the United States Federal Deposit Insurance Corporation (FDIC) after
which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its
October 27, 2005 Decision. In so ruling, the CA found that the money placements were
received as part of the banks internal dealings by Citibank and BA as agents of their
respective head offices. This showed that the head office and the Philippine branch were
considered as the same entity. Thus, no bank deposit could have arisen from the
transactions between the Philippine branch and the head office because there did not
exist two separate contracting parties to act as depositor and depositary. 14 Secondly, the
CA called attention to the purpose for the creation of PDIC which was to protect the
deposits of depositors in the Philippines
_______________
13 Section 3.05 Exclusions from Deposit Liabilities.For assessment purposes, the following items may be
excluded in computing the total deposit liabilities:
xxx
b. Deposit liabilities of a bank which are payable at an office of the bank located outside the Philippines
unless the insured bank which is incorporated under the laws of the Philippines and which maintains a branch
outside the Philippines has elected to include for insurance its deposit obligations payable only at such branch
in which case such deposit liabilities should be included as part of the total deposit liabilities.
14 Rollo, pp. 41-42.
187
VOL. 669, APRIL 11, 2012 187
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
and not the deposits of the same bank through its head office or foreign
branches.15 Thirdly, because there was no law or jurisprudence on the treatment of inter-
branch deposits between the Philippine branch of a foreign bank and its head office and
other branches for purposes of insurance, the CA was guided by the procedure observed
by the FDIC which considered inter-branch deposits as non-assessable.16 Finally, the CA
cited Section 3(f) of R.A. No. 3591, which specifically excludes obligations payable at the
office of the bank located outside the Philippines from the definition of a deposit or an
insured deposit. Since the subject money placements were made in the respective head
offices of Citibank and BA located outside the Philippines, then such placements could
not be subject to assessment under the PDIC Charter.17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar deposits are assessable for
insurance purposes under the PDIC Charter with the following assigned errors:
A.
The appellate court erred in ruling that the subject dollar deposits are money
placements, thus, they are not subject to the provisions of Republic Act No. 6426
otherwise known as the Foreign Currency Deposit Act of the Philippines.
B.
The appellate court erred in ruling that the subject dollar deposits are not covered by
the PDIC insurance. 18
_______________
15 Id., at p. 42.
16 Id., at p. 43.
17 Id., at p. 45.
18 Id., at pp. 21, 247-248.
198
198 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
Respondents similarly identify only one issue in this case:
Whether or not the money placements subject matter of these petitions are assessable
for insurance purposes under the PDIC Act. 19
The sole question to be resolved in this case is whether the funds placed in the
Philippine branch by the head office and foreign branches of Citibank and BA are
insurable deposits under the PDIC Charter and, as such, are subject to assessment for
insurance premiums.
The Courts Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and their individual foreign
branches are separate and independent entities. It insists that under American
jurisprudence, a banks head office and its branches have a principal-agent relationship
only if they operate in the same jurisdiction. In the case of foreign branches, however, no
such relationship exists because the head office and said foreign branches are deemed to
be two distinct entities.20Under Philippine law, specifically, Section 3(b) of R.A. No. 3591,
which defines the terms bank and banking institutions, PDIC contends that the law
treats a branch of a foreign bank as a separate and independent banking unit. 21
The respondents, on the other hand, initially point out that the factual findings of the
RTC and the CA, with regard to the nature of the money placements, the capacity in
which the
_______________
19 Id., at p. 283.
20 Id., at pp. 254-255.
21 Id., at p. 260.
199
VOL. 669, APRIL 11, 2012 199
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
same were received by the respondents and the exclusion of inter-branch deposits from
assessment, can no longer be disturbed and should be accorded great weight by this
Court.22 They also argue that the money placements are not deposits. They postulate that
for a deposit to exist, there must be at least two partiesa depositor and a depository
each with a legal personality distinct from the other. Because the respondents respective
head offices and their branches form only a single legal entity, there is no creditor-debtor
relationship and the funds placed in the Philippine branch belong to one and the same
bank. A bank cannot have a deposit with itself.23
This Court is of the opinion that the key to the resolution of this controversy is the
relationship of the Philippine branches of Citibank and BA to their respective head
offices and their other foreign branches.
The Court begins by examining the manner by which a foreign corporation can
establish its presence in the Philippines. It may choose to incorporate its own subsidiary
as a domestic corporation, in which case such subsidiary would have its own separate
and independent legal personality to conduct business in the country. In the alternative,
it may create a branch in the Philippines, which would not be a legally independent unit,
and simply obtain a license to do business in the Philippines. 24
In the case of Citibank and BA, it is apparent that they both did not incorporate a
separate domestic corporation to represent its business interests in the Philippines.
Their Philippine branches are, as the name implies, merely branches, without a separate
legal personality from their parent company, Citibank and BA. Thus, being one and the
same entity, the funds placed by the respondents in their respective
_______________
22 Id., at pp. 285-286.
23 Id., at p. 290.
24 Campos, Jose Jr. and Campos, Maria Clara L., The Corporation Code: Comments, Notes and Selected
Cases, Vol. II, p. 484.
200
200 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
branches in the Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter.
For lack of judicial precedents on this issue, the Court seeks guidance from American
jurisprudence. In the leading case of Sokoloff v. The National City Bank of New
York,25 where the Supreme Court of New York held:
Where a bank maintains branches, each branch becomes a separate business entity
with separate books of account. A depositor in one branch cannot issue checks or drafts upon
another branch or demand payment from such other branch, and in many other respects the
branches are considered separate corporate entities and as distinct from one another as any other
bank. Nevertheless, when considered with relation to the parent bank they are not
independent agencies; they are, what their name imports, merely branches, and are
subject to the supervision and control of the parent bank, and are instrumentalities
whereby the parent bank carries on its business, and are established for its own particular
purposes, and their business conduct and policies are controlled by the parent bank and their
property and assets belong to the parent bank, although nominally held in the names of the
particular branches. Ultimate liability for a debt of a branch would rest upon the parent
bank. [Emphases supplied]
This ruling was later reiterated in the more recent case of United States v. BCCI
Holdings Luxembourg26 where the United States Court of Appeals, District of Columbia
Circuit, emphasized that while individual bank branches may be treated as independent
of one another, each branch, unless
_______________
25 130 Misc. 66, 224 N.Y.S. 102 (Sup. Ct. 1927), affd without opinion, 223 A.D. 754, 227 N.Y.S. 907, affd
250 N.Y.S. 69.
26 48 F.3d 551, 554 (D.C.Cir.1995), aff'd 833 F.Supp. 32 (D.D.C.1993), cert. denied sub nom. Liquidation
Commission for BCCI (Overseas) Ltd., Macau v. United States, 516 U.S. 1008, 116 S.Ct. 563, 133 L.Ed.2d 489
(1995).
201
VOL. 669, APRIL 11, 2012 201
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
separately incorporated, must be viewed as a part of the parent bank rather than as an
independent entity.
In addition, Philippine banking laws also support the conclusion that the head office
of a foreign bank and its branches are considered as one legal entity. Section 75 of R.A.
No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act
Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to
guarantee the prompt payment of all the liabilities of its Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee.In order to provide effective protection of the interests of the
depositors and other creditors of Philippine branches of a foreign bank, the head office of such
branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch in the Philippines of foreign
bank shall have preferential rights to the assets of such branch in accordance with the existing
laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee.The head office of foreign bank branches shall guarantee prompt
payment of all liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in
Section 1 of R.A. No. 3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter
referred to as the Corporation which shall insure, as herein provided, the deposits of all banks
which are entitled to the benefits of insurance under this Act, and which shall have the powers
hereinafter granted.202
202 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the
establishment of the PDIC:
Section 1. Statement of State Policy and Objectives.It is hereby declared to be the policy of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve,
maintain faith and confidence in the countrys banking system, and protect it from illegal schemes
and machinations.
Towards this end, the government must extend all means and mechanisms necessary for the
Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and
safeguarding the interests of the depositing public by way of providing permanent and continuing
insurance coverage on all insured deposits, and in helping develop a sound and stable banking
system at all times.
The purpose of the PDIC is to protect the depositing public in the event of a bank
closure. It has already been sufficiently established by US jurisprudence and Philippine
statutes that the head office shall answer for the liabilities of its branch. Now, suppose
the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would
then be required to answer for the deposit liabilities of Citibank Philippines. If the Court
were to adopt the posture of PDIC that the head office and the branch are two separate
entities and that the funds placed by the head office and its foreign branches with the
Philippine branch are considered deposits within the meaning of the PDIC Charter, it
would result to the incongruous situation where Citibank, as the head office, would be
placed in the ridiculous position of having to reimburse itself, as depositor, for the losses
it may incur occasioned by the closure of Citibank Philippines. Surely our law makers
could not have envisioned such a preposterous circumstance when they created PDIC. 203
VOL. 669, APRIL 11, 2012 203
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of
a bank and a banking institution in Section 3(b) of the PDIC Charter 27 which
explicitly states that the head office of a foreign bank and its other branches are separate
and distinct from their Philippine branches.
There is no need to complicate the matter when it can be solved by simple logic
bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head office
of a bank and its branches are considered as one under the eyes of the law. While
branches are treated as separate business units for commercial and financial reporting
purposes, in the end, the head office remains responsible and answerable for the
liabilities of its branches which are under its supervision and control. As such, it is
unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money
placements made by their home office and other branches. Deposit insurance is
superfluous and entirely unnecessary when, as in this case, the institution holding the
funds and the one which made the placements are one and the same legal entity.
Funds not a deposit under the
definition of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not money placements. Citing R.A.
No. 6848, it defines money placement as a deposit which is received with authority to
_______________
27 The term Bank and Banking Institution shall be synonymous and interchangeable and shall include
banks, commercial banks, savings banks, mortgage banks, rural banks, development banks, cooperative banks,
stock savings and loan associations and branches and agencies in the Philippines of foreign banks and all other
corporations authorized to perform banking functions in the Philippines (as amended by Republic Act Nos. 7400
and 9302).
204
204 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
invest. Because there is no evidence to indicate that the respondents were authorized to
invest the subject dollar deposits, it argues that the same cannot be considered money
placements.28 PDIC then goes on to assert that the funds received by Citibank and BA are
deposits, as contemplated by Section 3(f) of R.A. No. 3591, for the following reasons: (1)
the dollar deposits were received by Citibank and BA in the course of their banking
operations from their respective head office and foreign branches and were recorded in
their books as Account-Head Office/Branches-Time Deposits pursuant to Central Bank
Circular No. 343 which implements R.A. No. 6426; (2) the dollar deposits were credited
as dollar time accounts and were covered by Certificates of Dollar Time Deposit which
were interest-bearing and payable upon maturity, and (3) the respondents maintain
100% foreign currency cover for their deposit liability arising from the dollar time
deposits as required by Section 4 of R.A. No. 6426.29
To refute PDICs allegations, the respondents explain the inter-branch transactions
which necessitate the creation of the accounts or placements subject of this case. When
the Philippine branch needs to procure foreign currencies, it will coordinate with a
branch in another country which handles foreign currency purchases. Both branches
have existing accounts with their head office and when a money placement is made in
relation to the acquisition of foreign currency from the international market, the amount
is credited to the account of the Philippine branch with its head office while the same is
debited from the account of the branch which facilitated the purchase. This is further
documented by the issuance of a certificate of time deposit with a stated interest rate and
maturity date. The interest rate represents the cost of obtaining the funds while the
maturity date represents the date on which the placement must be returned. On the
maturity date, the amount previously credited to the account of
_______________
28 Rollo, p. 252.
29 Id., at pp. 256-257.
205
VOL. 669, APRIL 11, 2012 205
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
the Philippine branch is debited, together with the cost for obtaining the funds, and
credited to the account of the other branch. The respondents insist that the interest rate
and maturity date are simply the basis for the debit and credit entries made by the head
office in the accounts of its branches to reflect the inter-branch accommodation.30 As
regards the maintenance of currency cover over the subject money placements, the
respondents point out that they maintain foreign currency cover in excess of what is
required by law as a matter of prudent banking practice.31
PDIC attempts to define money placement in order to impugn the respondents claim
that the funds received from their head office and other branches are money placements
and not deposits, as defined under the PDIC Charter. In the process, it loses sight of the
important issue in this case, which is the determination of whether the funds in question
are subject to assessment for deposit insurance as required by the PDIC Charter. In its
struggle to find an adequate definition of money placement, PDIC desperately cites
R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the
Philippines. Reliance on the said law is unfounded because nowhere in the law is the
term money placement defined. Additionally, R.A. No. 6848 refers to the establishment
of an Islamic bank subject to the rulings of Islamic Sharia to assist in the development of
the Autonomous Region of Muslim Mindanao (ARMM),32 making it utterly irrelevant to
the case at bench. Since Citibank and BA are neither Islamic banks nor are they located
anywhere near the ARMM, then it should be painfully obvious that R.A. No. 6848 cannot
aid us in deciding this case.
_______________
30 Id., at pp. 297-300.
31 Id., at p. 302.
32 Republic Act No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines
(1990), Section 3.
 206
206 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
Furthermore, PDIC heavily relies on the fact that the respondents documented the
money placements with certificates of time deposit to simply conclude that the funds
involved are deposits, as contemplated by the PDIC Charter, and are consequently
subject to assessment for deposit insurance. It is this kind of reasoning that creates non-
existent obscurities in the law and obstructs the prompt resolution of what is essentially
a straightforward issue, thereby causing this case to drag on for more than three
decades.
Noticeably, PDIC does not dispute the veracity of the internal transactions of the
respondents which gave rise to the issuance of the certificates of time deposit for the
funds the subject of the present dispute. Neither does it question the findings of the RTC
and the CA that the money placements were made, and were payable, outside of the
Philippines, thus, making them fall under the exclusions to deposit liabilities. PDIC also
fails to impugn the truth of the testimony of John David Shaffer, then a Fiscal Agent and
Head of the Assessment Section of the FDIC, that inter-branch deposits were excluded
from the assessment base. Therefore, the determination of facts of the lower courts shall
be accepted at face value by this Court, following the well-established principle that
factual findings of the trial court, when adopted and confirmed by the CA, are binding
and conclusive on this Court, and will generally not be reviewed on appeal. 33
As explained by the respondents, the transfer of funds, which resulted from the inter-
branch transactions, took place in the books of account of the respective branches in their
head office located in the United States. Hence, because it is payable outside of the
Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter:
_______________
33 Eterton Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation, G.R. No. 179812, July 6,
2010, 624 SCRA 148, 154.
207
VOL. 669, APRIL 11, 2012 207
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
Sec. 3(f) The term deposit means the unpaid balance of money or its equivalent received by a
bank in the usual course of business and for which it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift account or which is evidenced by its certificate of
deposit, and trust funds held by such bank whether retained or deposited in any department of
said bank or deposit in another bank, together with such other obligations of a bank as the Board
of Directors shall find and shall prescribe by regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the purposes of this
Act or included as part of the total deposits or of the insured deposits; Provided further,
that any insured bank which is incorporated under the laws of the Philippines may elect to include
for insurance its deposit obligation payable only at such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the
FDIC, after which PDIC was modelled, is also persuasive. Inter-branch deposits refer to
funds of one branch deposited in another branch and both branches are part of the same
parent company and it is the practice of the FDIC to exclude such inter-branch deposits
from a banks total deposit liabilities subject to assessment.34
All things considered, the Court finds that the funds in question are not deposits
within the definition of the PDIC Charter and are, thus, excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court
of Appeals in CA-G.R. CV No. 61316 is AFFIRMED.
_______________
34 Rollo, p. 90.
208
208 SUPREME COURT REPORTS ANNOTATED
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
SO ORDERED.
Velasco, Jr. (Chairperson), Peralta, Abad and Reyes,**JJ., concur.
Petition denied, judgment affirmed.
Notes.A certificate of deposit is 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; A
certificate of deposit is also defined as a receipt issued by a bank for an interest-bearing
time deposit coming due at a specified future date. (Philippine Banking Corporation
[Now: Global Business Bank, Inc.] vs. Commissioner of Internal Revenue, 577 SCRA 366
[2009])
Court is of the view that the Monetary Board approval is not required for Philippine
Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks.
(Philippine Deposit Insurance Corporation [(PDIC] vs. Philippine Countryside Rural
Bank, Inc., 640 SCRA 322 [2011])
o0o
13. G.R. No. 121413. January 29, 2001. *
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF
ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES,
INC. and CITIBANK, N.A., respondents.
G.R. No. 121479. January 29, 2001. *
FORD PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS and CITIBANK, N.A.
and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.
G.R. No. 128604. January 29, 2001. *
FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE
COMMERCIAL INTERNATIONAL BANK and THE COURT OF APPEALS,
respondents.
Negligence; Torts; Quasi-Delicts; The general rule is that if the master is injured by the
negligence of a third person and by the concurring contributory negligence of his own servant or
agent, the latters negligence is imputed to his superior and will defeat the superiors action against
the third person, assuming, of course that the contributory negligence was the proximate cause of the
injury of which complaint is made.On this point, jurisprudence regarding the imputed negligence
of employer in a master-servant relationship is instructive. Since a master may be held for his
servants wrongful act, the law imputes to the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury to a third person, the negligence or
wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. The
general rule is that if the master is injured by the negligence of a third person and by the
concurring contributory negligence of his own servant or agent, the latters negligence is imputed
to his superior and will defeat the superiors action against the third person, assuming, of course
that the contributory negligence was the proximate cause of the injury of which complaint is made.
Same; Same; Same; Words and Phrases; Proximate cause is that which, in the natural and
continuous sequence, unbroken by any efficient, intervening cause, produces the injury, and without
which the result would
________________
SECOND DIVISION.
*
4 SUPREME COURT REPORTS ANNOTATED
48
Philippine Commercial and International Bank vs. Court of Appeals
Manager's checks and enabled the syndicate to encash the same. On record, PCIBank failed
to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to
verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was
duly authorized, showed lack of care and prudence required in the circumstances. Furthermore, it
was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR.
As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent.
Same; Same; Same; Negotiable Instruments; It is a well-settled rule that the relationship

447
between the payee or holder of commercial paper and the bank to which it is sent for collection is, in
VOL. 350, JANUARY 29, 2001 44 the absence of an agreement to the contrary, that of principal and agent.It is a well-settled rule
7 that the relationship between the payee or holder of commercial paper and the bank to which it is
Philippine Commercial and International Bank vs. Court of Appeals sent for collection is, in the absence of an agreement to the contrary, that of principal and agent. A
bank which receives such paper for collection is the agent of the payee or holder.
not have occurred.Accordingly, we need to determine whether or not the action of
Same; Same; Same; Even considering arguendo, that the diversion of the amount of a check
Godofredo Rivera, Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was the
payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion
proximate cause of the loss or damage. As defined, proximate cause is that which, in the natural
must be properly authorized by the payor.Even considering arguendo, that the diversion of the
and continuous sequence, unbroken by any efficient, intervening cause produces the injury, and
amount of a check payable to the collecting bank in behalf of the designated payee may be allowed,
without which the result would not have occurred.
still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can
Banks and Banking; Negotiable Instruments; Checks; The mere fact that the forgery was
be justified only by proof of authority from the drawer, or that the drawer has clothed his agent
committed by a drawer-payors confidential employee or agent, who by virtue of his position had
with apparent authority to receive the proceeds of such check.
unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not
Same; Same; Same; Crossed Checks; Words and Phrases; The crossing of the check with the
entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstances raising
phrase Payees Account Only, is a warning that the check should be deposited only in the account
estoppel against the drawer.It appears that although the employees of Ford initiated the
of the payee; It is the collecting bank which is bound to scrutinize the check and to know its
transactions attributable to an organized syndicate, in our view, their actions were not the
depositors before it could make the clearing indorsement all prior indorsements and lor lack
proximate cause of encashing the checks payable to the CIR. The degree of Fords negligence, if
ofindorsement guaranteed.Indeed, the crossing of the check with the phrase Payees Account
any, could not be characterized as the proximate cause of the injury to the parties. The Board of
Only, is a warning that the check should be deposited only in the account of the CIR. Thus, it is
Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank
the duty of the collecting bank PCIBank to ascertain that the check be deposited in payees account
Check No. SN-04867. Riveras instruction to replace the said check with PCIBanks Managers
only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to
Check was not in the ordinary course of business which could have prompted PCIBank to validate
know its depositors before it could make the clearing indorsement all prior indorsements and/or
the same. As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established
lack of indorsement guaranteed.
that these checks were made payable to the CIR. Both were crossed checks. These checks were 449
apparently turned around by Fords employees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payors VOL. 350, JANUARY 29, 2001 44
confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating 9
the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss Philippine Commercial International Bank vs. Court of Appeals
to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This
Same; Same; Same; A bank which cashes a check drawn upon another bank, without
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential
requiring proof as to the identity of persons presenting it, or making inquiries with regard to them,
employees who hold them in their possession.
cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards
Same; Checks; Collecting Banks; Taxation; A bank authorized to collect the payment of
diverted to the hands of a third party.Banking business requires that the one who first cashes
taxpayers in behalf of the Bureau of Internal Revenue is duty bound to consult its principal
and negotiates the check must take some precautions to learn whether or not it is genuine. And if
regarding the unwarranted instructions given by the pay or of its agent.Citibank Check No. SN-
the one cashing the check through indifference or other circumstance assists the forger in
04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary
committing the fraud, he should not be permitted to retain the proceeds of the check from the
banking transaction, sent to Central Clearing with the indorsement at the back all prior
drawee whose sole fault was that it did not discover the forgery or the defect in the title of the
indorsements and/or lack of indorsements guaranteed, and was presented to Citibank for
person negotiating the instrument before paying the check. For this reason, a bank which cashes a
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its
448
check drawn upon another bank, without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds against the drawee when the
proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the
drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual
proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one
who encashed a check which had been forged or diverted and in turn received payment thereon
from the drawee, is guilty of negligence which proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from the holder the money paid on the check.
Same; Same; Torts; As a general rule, a banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents within the course and scope of their
employmentit may be liable for the tortuous acts of its officers even as regards that species of tort
of which malice is an essential element.In this case, there was no evidence presented confirming
the conscious participation of PCIBank in the embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents
within the course and scope of their employment. A bank will be held liable for the negligence of its
officers or agents when acting within the course and scope of their employment. It may be liable for
the tortuous acts of its officers even as regards that species of tort of which malice is an essential
element. In this case, we find a situation where the PCIBank appears also to be the victim of the
scheme hatched by a syndicate in which its own management employees had participated.
Same; Same; Same; The general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment
or authority.A bank hold-
450
4 SUPREME COURT REPORTS ANNOTATED
50
Philippine Commercial International Bank vs. Court of Appeals
ing out its officers and agents as worthy of confidence will not be permit- ted to profit by the
frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the course and apparent
scope of his employment or authority. And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection,
the bank is liable for his misappropriation of such sum.
Same; Same; Same; Negligence; As a business affected with public interest and because of the
nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.Citibank should
have scrutinized Citibank Check Numbers SN-10597 and 16508 before paying the amount of the
proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing
stamps at the back of Citibank Check Nos. SN-10597 and 16508 do not bear any initials. Citibank
failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent
upon it, which is to ensure that the amount of the checks should be paid only to its designated
payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view,
constitutes negligence in carrying out the banks duty to its depositors. The point is that as a
business affected with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
Same; Same; Same; Same; Doctrine of Comparative Negligence; Where both the collecting and
drawee banks failed in their respective obligations and both were negligent in the selection and
supervision of their employees, both are equally liable for the loss of the proceeds of checks
fraudulently encashed.Thus, invoking the doctrine of comparative negligence, we are of the view
that both PCIBank and Citibank failed in their respective obligations and both were negligent in
the selection and supervision of their employees resulting in the encashment of Citibank Check
Nos. SN-10597 and 16508. Thus, we are constrained to hold them equally liable for the loss of the
proceeds of said checks issued by Ford in favor of the CIR.
451
VOL. 350, JANUARY 29, 2001 45
1
Philippine Commercial International Bank vs. Court of Appeals
Same; Same; Same; Same; The banking business is so impressed with public interest where
the trust and confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be very high, if not the highest, degree of diligence.Time
and again, we have stressed that banking business is so impressed with public interest where the
trust and confidence of the public in general is of paramount importance such that the appropriate
standard of diligence must be very high, if not the highest, degree of diligence. A banks liability as
obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the
selection and supervision of its employees is of no moment.
Same; Same; Same; Same; Banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.Banks handle daily transactions involving millions of
pesos. By the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and employees.
Banks are expected to exercise the highest degree of diligence in the selection and supervision of
their employees.
Same; Same; Same; Prescription; The statute of limitations begins to run when the bank gives
the depositor notice of the payment, and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing; An action upon a written contract must be
brought within ten years from the time the right of action accrues.The statute of limitations
begins to run when the bank gives the depositor notice of the payment, which is ordinarily when
the check is returned to the alleged drawer as a voucher with a statement of his account, and an
action upon a check is ordinarily governed by the statutory period applicable to instruments in
writing. Our laws on the matter provide that the action upon a written contract must be brought
within ten years from the time the right of action accrues. Hence, the reckoning time for the
prescriptive period begins when the instrument was issued and the corresponding check was
returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the
cause of action for the recovery of the proceeds of Citibank Check No. SN-04867 would normally be
a month after December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1983,
barely six years had lapsed. Thus, we conclude that Fords cause of action to recover the amount of
Citibank Check No. SN-04867 was seasonably filed within the period provided by law.
452
4 SUPREME COURT REPORTS ANNOTATED
52
Philippine Commercial International Bank vs. Court of Appeals
Same; Same; Same; Negligence; Failure on the part of the depositor to examine its passbook,
statements of account, and cancelled checks and to give notice within a reasonable time (or as
required by statute) of any discrepancy which it may in the exercise of due care and diligence find
therein, serves to mitigate the banks liability by reducing the award of interest from twelve percent
(12%) to six percent (6%) per annum.We also find that Ford is not completely blameless in its
failure to detect the fraud. Failure on the part of the depositor to examine its passbook, statements
of account, and cancelled checks and to give notice within a reasonable time (or as required by
statute) of any discrepancy which it may in the exercise of due care and diligence find therein,
serves to mitigate the banks liability by reducing the award of interest from twelve percent (12%)
to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines,
responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the circumstances. In
quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may
recover.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for Ford Philippines, Inc.
Agabin, Verzola, Hermoso, Layaoen and De Castro for private respondent PCIB.
Angara, Abello, Concepcion, Regala and Cruz for respondent Citibank.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the
drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial
International Bank (PCI-Bank) [formerly Insular Bank of Asia and America], the value
of several checks payable to the Commissioner of Internal Revenue, which were
embezzled allegedly by an organized syndicate.
453
VOL. 350, JANUARY 29, 2001 453
Philippine Commercial International Bank vs. Court of Appeals
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995
Decision of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford Philippines,
1
Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philippine
Commercial International Bank), and the August 8, 1995 Resolution, ordering the 2
collecting bank, Philippine Commercial International Bank, to pay the amount of
Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996
Decision of the Court of Appeals and its March 5, 1997 Resolution in CA-G.R. No.
3 4
28430entitled Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial
International Bank, affirming in toto the judgment of the trial court holding the
defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10
as damages for the misapplied proceeds of the plaintiffs Citibank Check Numbers SN-
10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as
follows:
On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the
amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of
plaintiffs percentage or manufacturers sales taxes for the third quarter of 1977.
The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the
proceeds of the check was paid to IBAA as collecting or depository bank.
__________________
Penned by Justice B. A. Adefuin-dela Cruz and concurred in by Justices Jesus M. Elbinias and Lourdes K.
1
Tayao-Jaguros, rollo, G.R. No. 121413, pp. 27-42.
Rollo, G.R. No. 121413, pp. 44-45.
2
Penned by Justice Jose C. de la Rama and concurred in by Justices Emeterio C. Cui and Eduardo G.
3
Montenegro, rollo, G.R. No. 128604, pp. 45-60.
Rollo, G.R. No. 128604, pp. 42-43.
4
454
454 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee
thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the
plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its
percentage/manufacturers sales taxes for the third quarter of 1977 and that said second payment
of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in
question, plaintiff had been maintaining a checking account with defendant Citibank; that
Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines
and written in between said lines was the phrase Payees Account Only; and that defendant
Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant
IBAA.
It has been duly established that for the payment of plaintiffs percentage tax for the last
quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002, dated
October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized agent bank
of Metrobank, Alabang Branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiffs Citibank Check No. SN-04867, together with the Revenue
Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The
latter accepted the check and sent it to the Central Clearing House for clearing on the same day,
with the indorsement at the back all prior indorsements and/or lack of indorsements guaranteed.
Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date,
December 19, 1977, and the latter paid the face value of the check in the amount of P4,746,114.41.
Consequently, the amount of P4,746,114.41 was debited in plaintiffs account with the defendant
Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters
dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it
will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then
plaintiff shall hold the defendants liable for reim-
 455
VOL. 350, JANUARY 29, 2001 455
Philippine Commercial International Bank vs. Court of Appeals
bursement of the face value of the same. Both defendants denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed
to the plaintiffsupposed to be Exhibit D, the latter was officially informed, among others, that
its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent
and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within
fifteen days from receipt of the letter. Upon advice of the plaintiffs lawyers, plaintiff on March 11,
1982, paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment
of plaintiffs percentage tax for the third quarter of 1977.
As a consequence of defendants refusal to reimburse plaintiff of the payment it had made for
the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original
complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial
International Bank (PCIBank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiffs Citibank Check No. SN-
04867 in the amount of P4,746,114.41 was in due course; it merely relied on the clearing stamp of
the depository/collecting bank, the defendant IBAA that all prior indorsements and/or lack of
indorsements guaranteed; and the proximate cause of plaintiffs injury is the gross negligence of
defendant IBAA in indorsing the plaintiffs Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank Check No.
SN-04867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking
account with defendant Citibank. 5
Although it was not among the stipulated facts, an investigation by the National Bureau
of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by
Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold
back the check because there was an error in the computation of the tax due to the
Bureau of Internal Revenue (BIR). With Riveras instruction, PCIBank replaced the
check with two of its own Man-
__________________
5Supra, see note 1, pp. 32-34 (All citations omitted).
456
456 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
agers Checks (MCs). Alleged members of a syndicate later deposited the two MCs with
the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party
defendants. But the court dismissed the complaint against PBC for lack of cause of
action. The court likewise dismissed the third-party complaint against Godofredo Rivera
because he could not be served with summons as the NBI declared him as a fugitive
from justice.
On June 15, 1989, the trial court rendered its decision, as follows:
Premises considered, judgment is hereby rendered as follows:
1. 1.Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to
pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiffs
Citibank Check No. SN-04867, with interest thereon at the legal rate starting January
20, 1983, the date when the original complaint was filed until the amount is fully paid,
plus costs;
2. 2.On defendant Citibanks cross-claim: ordering the cross-defendant IBAA (now PCI
BANK) to reimburse defendant Citibank for whatever amount the latter has paid or may
pay to the plaintiff in accordance with the next preceding paragraph;
3. 3.The counterclaims asserted by the defendants against the plaintiff, as well as that
asserted by the cross-defendant against the cross-claimant are dismissed, for lack of
merits; and
4. 4.With costs against the defendants.
SO ORDERED. 6
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated
their respective petitions for review on certiorari to the Court of Appeals. On March 27,
1995, the appellate court issued its judgment as follows:
WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with
modifications.
The court hereby renders judgment:
_________________
6Rollo, G.R. No. 121413, pp. 131-132.
457
VOL. 350, JANUARY 29, 2001 457
Philippine Commercial International Bank vs. Court of Appeals
1. 1.Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is
concerned;
2. 2.Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiffs Citibank Check No. SN-04867,
with interest thereon at the legal rate starting January 20, 1983, the date when the
original complaint was filed until the amount is fully paid;
3. 3.Dismissing the counterclaims asserted by the defendants against the plaintiff as well as
that asserted by the cross-defendant against the cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED. 7
PCIBank moved to reconsider the above-quoted decision of the Court of Appeals, while
Ford filed a Motion for Partial Reconsideration. Both motions were denied for lack of
merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by
certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the
Twelfth Division of the Court of Appeals contending that it merely acted on the
instruction of Ford and such cause of action had already prescribed.
PCIBank sets forth the following issues for consideration:
 1. I.Did the respondent court err when, after finding that the petitioner acted on the
check drawn by respondent Ford on the said respondents instructions, it
nevertheless found the petitioner liable to the said respondent for the full
amount of the said check.
2. II.Did the respondent court err when it did not find prescription in favor of the
petitioner.
8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the
same decision and resolution of the Court of Appeals, and praying for the
reinstatement in toto of the decision
_________________
71d. at 41-42.
8Id. at 18.
458
458 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
of the trial court which found both PCIBank and Citibank jointly and severally liable for
the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
1. I.Respondent Citibank is liable to petitioner Ford considering that:
1. 1.As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of
the subject check and a depositor of respondent Citibank, an absolute and
contractual duty to pay the proceeds of the subject check only to the payee
thereof, the Commissioner of Internal Revenue.
2. 2.Respondent Citibank failed to observe its duty as banker with respect to the
subject check, which was crossed and payable to Payees Account Only. corner between which were written the words payable to the payees account only.
3. 3.Respondent Citibank raises an issue for the first time on appeal; thus the same
should not be considered by the Honorable Court.
4. 4.As correctly held by the trial court, there is no evidence of gross negligence on
the part of petitioner Ford.
9
1. II.PCIBank is liable to petitioner Ford considering that:
1. 1.There were no instructions from petitioner Ford to deliver the proceeds of the
subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBanks only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue. 10
2. 2.PCIBank which affixed its indorsement on the subject check (All prior
indorsement and/or lack of indorsement guaranteed), is liable as collecting
bank.11
3. 3.PCIBank is barred from raising issues of fact in the instant proceedings.12
4. 4.Petitioner Fords cause of action had not prescribed.
13
___________________
Rollo, G.R. No. 121479, pp. 162-163.
9
Id. at 181.
10
Id. at 186.
11
Id at 188.
12
Id. at 192.
13
459
VOL. 350, JANUARY 29, 2001 459
Philippine Commercial International Bank vs. Court of Appeals
II. G.R. No. 128604
The same syndicate apparently embezzled the proceeds of checks intended, this time, to
settle Fords percentage taxes appertaining to the second quarter of 1978 and the first
quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No.
28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979
arid payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt
No. A-1697160 was issued for the said purpose.
Both checks were crossed checks and contain two diagonal lines on its upper left
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980,
the BIR, Region 4-B, demanded for the said tax payments the corresponding periods
above-mentioned.
As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were
considered fake and spurious. This anomaly was confirmed by the NBI upon the
initiative of the BIR. The findings forced Ford to pay the BIR anew, while an action was
filed against Citibank and PCIBank for the recovery of the amount of Citibank Check
Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its
findings on the modus operandi of the syndicate, as follows:
A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger
Accountant. As such, he prepared the plaintiffs check marked Exh. A [Citibank Check No. SN-
10597] for payment to the BIR. Instead, however, of delivering the same to the payee, he passed
460
460 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
on the check to a co-conspirator named Remberto Castro who was a promanager of the San Andres
Branch of PCIB. In connivance with one Winston Dulay, Castro himself subsequently opened a
**
Checking Account in the name of a fictitious person denominated as Reynaldo Reyes in the
Meralco Branch of PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of
America Check in exactly the same amount as the first FORD check (Exh. A, P5,851,706.37)
while this worthless check was coursed through PCIBs main office enroute to the Central Bank for
clearing, replaced this worthless check with FORDs Exhibit A and accordingly tampered the
accompanying documents to cover the replacement. As a result, Exhibit A was cleared by
defendant CITIBANK, and the fictitious deposit account of Reynaldo Reyes was credited at the
PCIB Meralco Branch with the total amount of the FORD check Exhibit A. The same method was
again utilized by the syndicate in profiting from Exh. B [Citibank Check No. SN-16508] which was
subsequently pilfered by Alexis Marindo, Riveras Assistant at FORD.
From this Reynaldo Reyes account, Castro drew various checks distributing the shares of the
other participating conspirators namely (1) CRISANTO BERNABE, the mastermind who
formulated the method for the embezzlement; (2) RODOLFO R. DE LEON a customs broker who
negotiated the initial contact between Bernabe, FORDs Godofredo Rivera and PCIBs Remberto
Castro; (3) JUAN CASTILLO who assisted de Leon in the initial arrangements; (4) GODOFREDO
RIVERA, FORDs accountant who passed on the first check (Exhibit A) to Castro; (5)
REMBERTO CASTRO, PCIBs pro-manager at San Andres who performed the switching of checks
in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco
Branch; (6) WINSTON DULAY, PCIBs Assistant Manager at its Meralco Branch, who assisted
Castro in switching the checks in the clearing process and facilitated the opening of the fictitious
Reynaldo Reyes bank account; (7) ALEXIS MARINDO, Riveras Assistant at FORD, who gave the
second check (Exh. B) to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided
the fake and spurious revenue tax receipts to make it appear that the BIR had received FORDs
tax payments.
Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned participants in the
conspiracy, have not been im-
___________________
** Initials stand for Philippine Commercial International Bank, or PCIBank.
461
VOL. 350, JANUARY 29, 2001 461
Philippine Commercial International Bank vs. Court of Appeals
pleaded in the present case. The manner by which the said funds were distributed among them are
traceable from the record of checks drawn against the original Reynaldo Reyes account and
indubitably identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so. 14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank,
Citibank, liable for the value of the two checks while absolving PCIBank from any
liability, disposing as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse
plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6% interest
thereon from date of first written demand until full payment, plus P300,000.00 attorneys fees and
expenses of litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim) the sum
of P300,000.00 as attorneys fees and costs of litigation, and pay the costs.
SO ORDERED. 15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the
decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the
Court of Appeals decision and its resolution dated March 5, 1997, with respect to the
dismissal of the complaint against PCIBank and holding Citibank solely responsible for
the proceeds of Citibank Check Numbers SN-10597 and 16508 fot P5,851,706.73 and
P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint against
defendant PCIBank considering that:
1. I.Defendant PCIBank was clearly negligent when it failed to exercise the
diligence required to be exercised by it as a banking institution.
2. II.Defendant PCIBank clearly failed to observe the diligence re- quired in the
selection and supervision of its officers and employees.
_________________
Supra, see note 3, pp. 47-49.
14
Id. at 46.
15
462
462 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
1. III.Defendant PCIBank was, due to its negligence, clearly liable for the loss or
damage resulting to the plaintiff Ford as a consequence of the substitution of
the check consistent with Section 5 of Central Bank Circular No. 580 series of
1977.
2. IV.Assuming arguendo that defendant PCIBank did not accept, endorse or
negotiate in due course the subject checks, it is liable, under Article 2154 of the
Civil Code, to return the money which it admits having received, and which was
credited to it in its Central Bank account.16
The main issue presented for our consideration by these petitions could be simplified as
follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and
the drawee bank (Citibank) the value of the checks intended as payment to the
Commissioner of Internal Revenue? Or has Fords cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but the
title of the person negotiating the same was allegedly defective because the instrument
was obtained by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead of paying the checks to the CIR, for
the settlement of the appropriate quarterly percentage taxes of Ford, the checks were
diverted and encashed for the eventual distribution among the members of the syndicate.
As to the unlawful negotiation of the check the applicable law is Section 55 of the
Negotiable Instruments Law (NIL), which provides:
When title defectiveThe title of a person who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress,
or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it
in breach of faith or under such circumstances as amount to a fraud.
Pursuant to this provision, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud. The person negotiating the checks
must have gone beyond
__________________
Id. at 24-25.
16
463
VOL. 350, JANUARY 29, 2001 463
Philippine Commercial International Bank vs. Court of Appeals
the authority given by his principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up the personal defense to escape
liability and recover from other parties who, through their own negligence, allowed the
commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the
embezzlers belonging to a syndicate, are now fugitives from justice. They have, even if
temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left
only with the task of determining who of the present parties before us must bear the
burden of loss of these millions. It all boils down to the question of liability based on the
degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the imputed
contributory negligence that would defeat its claim for reimbursement, bearing in mind
that its employees, Godofredo Rivera and Alexis Marindo, were among the members of
the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to
negotiate the checks to his co-conspirators, instead of delivering them to the designated
authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the
fact that Ford was remiss in the supervision and control of its own employees, inasmuch
as it only discovered the syndicates activities through the information given by the payee
of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo
Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay
the BIR. As to the subsequent run-around of funds of Citibank Check Nos. SN-10597 and
16508, PCIBank claims that the proximate cause of the damage to Ford lies in its own
officers and employees who carried out the fraudulent schemes and the transactions.
These circumstances were not checked by other officers of the company, including its
comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the
enormity of the amount involved was a sheer negligence and stated that, as between two
innocent persons, one of whom must suffer the consequences of a breach of trust, the
464
464 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
one who made it possible, by his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers that
there was no evidence presented before the trial court showing lack of diligence on the
part of Ford. And, citing the case of Gempesaw vs. Court of Appeals, Ford argues that
17
even if there was a finding therein that the drawer was negligent, the drawee bank was
still ordered to pay damages.
Furthermore, Ford contends that Godofredo Rivera was not authorized to make any
representation in its behalf, specifically, to divert the proceeds of the checks. It adds that
Citibank raised the issue of imputed negligence against Ford for the first time on appeal.
Thus, it should not be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of employer in a
master-servant relationship is instructive. Since a master may be held for his servants
wrongful act, the law imputes to the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury to a third person, the negligence
or wrongful conduct is the negligence or wrongful conduct of the master, for which he is
liable. The general rule is that if the master is injured by the negligence of a third
18
person and by the concurring contributory negligence of his own servant or agent, the
latters negligence is imputed to his superior and will defeat the superiors action against
the third person, assuming, of course that the contributory negligence was the proximate
cause of the injury of which complaint is made. 19
Accordingly, we need to determine whether or not the action of Godofredo Rivera,
Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was the
proximate cause of the loss or damage. As defined, proximate cause is that which, in the
natural and continuous sequence, unbroken by any efficient, intervening cause produces
the injury, and without which the result would not have occurred. 20
___________________
218 SCRA 682 (1993).
17
Am Jur 2d, Volume 58, Negligence, Section 458.
18
Am Jur 2d, Volume 58, Negligence, Section 464.
19
Vda. de Bataclan, et al vs. Medina, 102 Phil. 181,186 (1957).
20
465
VOL. 350, JANUARY 29, 2001 465
Philippine Commercial International Bank vs. Court of Appeals
It appears that although the employees of Ford initiated the transactions attributable to
an organized syndicate, in our view, their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree of Fords negligence, if any, could
not be characterized as the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo
Rivera to recall Citibank Check No. SN-04867. Riveras instruction to replace the said
check with PCIBanks Managers Check was not in the ordinary course of business which
could have prompted PCIBank to validate the same.
 As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was
established that these checks were made payable to the CIR. Both were crossed checks.
These checks were apparently turned around by Fords employees, who were acting on
their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a
drawer-payors confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper Upon the bank, does
not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. This rule likewise applies to the
21
checks fraudulently negotiated or diverted by the confidential employees who hold them
in their possession.
With respect to the negligence of PCIBank in the payment of the three checks
involved, separately, the trial courts found variations between the negotiation of
Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-
10597 and 16508. Therefore, we have to scrutinize, separately, PCIBanks share of
negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of
these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It
was coursed through the ordinary
___________________
Am Jur 2d, Volume 10, Banks, Section 604 (1963 Edition).
21
466
466 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
banking transaction, sent to Central Clearing with the indorsement at the back all prior
indorsements and/or lack of indorsements guaranteed, and was presented to Citibank
for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared
two of its Managers checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. The neglect of PCIBank employees to verify whether his letter requesting for the
replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of
care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of
taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted instructions given by the payor or its agent. As
aptly stated by the trial court, to wit:
x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed
to be a depository/collecting bank of the BIR, it has the responsibility to make sure that the check
in question is deposited in Payees account only.
xxx xxx xxx
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only
from its principal BIR and not from any other person especially so when that person is not known
to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the alleged
telephone call of one Godofredo Rivera and in his signature to the authenticity of such signature
considering that the plaintiff is not a client of the defendant IBAA.
It is a well-settled rule that the relationship between the payee or holder of commercial
paper and the bank to which it is sent for collection is, in the absence of an agreement to
the contrary, that of principal and agent. A bank which receives such paper for collection
22
is the agent of the payee or holder. 23
__________________
Id. at Section 697.
22
Ibid.
23
467
VOL. 350, JANUARY 29, 2001 467
Philippine Commercial International Bank vs. Court of Appeals
Even considering arguendo, that the diversion of the amount of a check payable to the
collecting bank in behalf of the designated payee may be allowed, still such diversion
must be properly authorized by the payor. Otherwise stated, the diversion can be
justified only by proof of authority from the drawer, or that the drawer has clothed his
agent with apparent authority to receive the proceeds of such check.
Citibank further argues that PCI Banks clearing stamp appearing at the back of the
questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GUARANTEED should render PCIBank liable because it made it
pass through the clearing house and therefore Citibank had no other option but to pay it.
Thus, Citibank asserts that the proximate cause of Fords injury is the gross negligence
of PCIBank. Since the questioned crossed check was deposited with PCIBank, which
claimed to be a depository/collecting bank of the BIR, it had the responsibility to make
sure that the check in question is deposited in Payees account only.
Indeed, the crossing of the check with the phrase Payees Account Only, is a
warning that the check should be deposited only in the account of the CIR. Thus, it is the
duty of the collecting bank PCIBank to ascertain that the check be deposited in payees
account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize
the check and to know its depositors before it could make the clearing indorsement all
prior indorsements and/or lack of indorsement guaranteed.
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, we 24
ruled:
Anent petitioners liability on said instruments, this court is in full accord with the ruling of the
PCHCs Board of Directors that:
In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of all prior endorsements. Thus, stamped at the back of the checks are
the defendants clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF EN-
_________________
157 SCRA 188 (1988).
24
468
468 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
DORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the
checks.
No amount of legal jargon can reverse the clear meaning of defendants warranty. As the
warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out
of the falsity of its representation.
25
Lastly, banking business requires that the one who first cashes and negotiates the check
must take some precautions to learn whether or not it is genuine. And if the one cashing
the check through indifference or other circumstance assists the forger in committing the
fraud, he should not be permitted to retain the proceeds of the check from the drawee
whose sole fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason, a bank which
cashes a check drawn upon another bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were afterwards diverted to the
hands of a third party. In such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check
which had been forged or diverted and in turn received payment thereon from the
drawee, is guilty of negligence which proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from the holder the money paid on
the check. 26
Having established that the collecting banks negligence is the proximate cause of the
loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of
Citibank Check No SN-04867.
__________________
Id. at 194.
25
Supra note 20 at Section 611.
26
469
VOL. 350, JANUARY 29, 2001 469
Philippine Commercial International Bank vs. Court of Appeals
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act in the
ordinary course of business that would attribute to it the case of the embezzlement of
Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually
receive nor hold the two Ford checks at all. The trial court held, thus:
Neither is there any proof that defendant PCIBank contributed any official or conscious
participation in the process of the embezzlement. This Court is convinced that the switching
operation (involving the checks while in transit for clearing) were the clandestine or hidden
actuations performed by the members of the syndicate in their own personal, covert and private
capacity and done without the knowledge of the defendant PCIBank. . . .27
In this case, there was no evidence presented confirming the conscious participation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is
liable for the wrongful or tortuous acts and declarations of its officers or agents within
the course and scope of their employment. A bank will be held liable for the negligence of
28
its officers or agents when acting within the course and scope of their employment. It
may be liable for the tortuous acts of its officers even as regards that species of tort of
which malice is an essential element. In this case, we find a situation where the
PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its
own management employees had participated.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received
Citibank Check Numbers SN-10597 and 16508. He passed the checks to a co-conspirator,
an Assistant Manager of PCIBanks Meralco Branch, who helped Castro open a Checking
account of a fictitious person named Reynaldo Reyes. Castro deposited a worthless
Bank of America Check in exactly the same amount of Ford checks. The syndicate
tampered with the checks
__________________
Rollo, G.R. No. 128604, pp. 56-57.
27
Supra note 20 at Section 110.
28
470
470 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
and succeeded in replacing the worthless checks and the eventual encashment of
Citibank Check Nos, SN-10597 and 16508. The PCIBank Pro-manager, Castro, and his
co-conspirator Assistant Manager apparently performed their activities using facilities in
their official capacity or authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds these officers or agents were enabled to perpetrate in
the apparent course of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
For the general rule is that a bank is liable for the fraudulent acts or representations of
an officer or agent acting within the course and apparent scope of his employment or
authority. And if an officer or employee of a bank, in his official capacity, receives money
29
to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is
liable for his misappropriation of such sum. 30
Moreover, as correctly pointed out by Ford, Section 5 of Central Bank Circular No.
31
580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be
for the account of sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBanks shoulders
alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in
the performance of its duties. Citibank failed to establish that its payment of Fords
checks were made in due course and legally in order. In its defense, Citibank claims the
genuineness and due execution of said checks, considering that Citibank (1) has no
knowledge of any infirmity in the issuance of the checks in question (2) coupled by the
fact that said checks were sufficiently funded and (3) the endorsement of the Payee or
lack
___________________
 Id. at Sec. 111.
29
Check Nos. SN-10597 and 16508. Thus, we are constrained to hold them equally liable
Id. Sec. 113.
for the loss of the proceeds of said checks issued by Ford in favor of the CIR.
30

Sec. 5. Loss of Clearing Items.Any loss or damage arising from theft, pilferage, or other causes affecting
31

items in transit shall be for the account of the sending bank/branch, institution or entity concerned. Time and again, we have stressed that banking business is so impressed with public
471 interest where the trust and confidence of the public in general is of paramount
VOL. 350, JANUARY 29, 2001 471 importance such that the appropriate standard of diligence must be very high, if not the
highest, degree of diligence. A banks liability as obligor is not merely vicarious but
34

Philippine Commercial and International Bank vs. Court of Appeals

primary, wherein the defense of exercise of due diligence in the selection and supervision
thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
of its employees is of no moment.
honor and pay the same.
35

Banks handle daily transactions involving millions of pesos. By the very nature of
36

For its part, Ford contends that Citibank as the drawee bank owes to Ford an
their work the degree of responsibility, care and tnistworthiness expected of their
absolute and contractual duty to pay the proceeds of the subject check only to the payee
employees and officials is far greater than those of ordinary clerks and
thereof, the CIR. Citing Section 62 of the Negotiable Instruments Law, Ford argues that
employees. Banks are expected to exercise the highest degree of diligence in the selection
32

by accepting the instrument, the acceptor which is Citibank engages that it will pay
37

and supervision of their employees. 38

according to the tenor of its acceptance, and that it will pay only to the payee, (the CIR),
On the issue of prescription, PCIBank claims that the action of Ford had prescribed
considering the fact that here the check was crossed with annotation Payees Account
because of its inability to seek judicial relief seasonably, considering that the alleged
Only.
negligent act took place prior to December 19, 1977 but the relief was sought only in
As ruled by the Court of Appeals, Citibank must likewise answer for the damages
1983, or seven years thereafter.
incurred by Ford on Citibank Checks Numbers SN-10597 and 16508, because of the
The statute of limitations begins to run when the bank gives the depositor notice of
contractual relationship existing between the two. Citibank, as the drawee bank
the payment, which is ordinarily when the check
breached its contractual obligation with Ford and such degree of culpability contributed ______________________
to the damage caused to the latter. On this score, we agree with the respondent courts
ruling. Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, 367 (1990).
33

Citibank should have scrutinized Citibank Check Numbers SN-10597 and 16508 Supra, see note 17, at p. 697.
34

before paying the amount of the proceeds thereof to the collecting bank of the BIR. One Ibid.
35

BPI vs. Court of Appeals, 216 SCRA 51, 71 (1992).

thing is clear from the record: the clearing stamps at the back of Citibank Check Nos.
36

Ibid.
37

SN-10597 and 16508 do not bear any initials. Citibank failed to notice and verify the Ibid.
38

absence of the clearing stamps. Had this been duly examined, the switching of the 473
worthless checks to Citibank Check Nos. SN-10597 and 16508 would have been VOL. 350, JANUARY 29, 2001 473
discovered in time. For this reason, Citibank had indeed failed to perform what was Philippine Commercial International Bank vs. Court of Appeals
incumbent upon it, which is to ensure that the amount of the checks should be paid only is returned to the alleged drawer as a voucher with a statement of his account, and an 39

to its designated payee. The fact that the drawee bank did not discover the irregularity action upon a check is ordinarily governed by the statutory period applicable to
seasonably, in our view, constitutes negligence in carrying out the banks duty to its instruments in writing. 40

depositors. The point is that as a business affected with public interest and because of Our laws on the matter provide that the action upon a written contract must be
the nature of its functions, the bank is under obligation to treat the accounts of its brought within ten years from the time the right of action accrues. Hence, the reckoning
41

depositors with me- time for the prescriptive period begins when the instrument was issued and the
___________________
corresponding check was returned by the bank to its depositor (normally a month
Sec. 62, Negotiable Instruments Law.
32
thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of
472 Citibank Check No. SN-04867 would normally be a month after December 19, 1977,
472 SUPREME COURT REPORTS ANNOTATED when Citibank paid the face value of the check in the amount of P4,746,114.41. Since the
original complaint for the cause of action was filed on January 20, 1983, barely six years
Philippine Commercial International Bank vs. Court of Appeals
had lapsed. Thus, we conclude that Fords cause of action to recover the amount of
ticulous care, always having in mind the fiduciary nature of their relationship.
Citibank Check No. SN-04867 was seasonably filed within the period provided by law.
33

Thus, invoking the doctrine of comparative negligence, we are of the view that both
Finally, we also find that Ford is not completely blameless in its failure to detect the
PCIBank and Citibank failed in their respective obligations and both were negligent in
fraud. Failure on the part of the depositor to examine its passbook, statements of
the selection and supervision of their employees resulting in the encashment of Citibank
account, and cancelled checks and to give notice within a reasonable time (or as required
by statute) of any discrepancy which it may in the exercise of due care and diligence find
therein, serves to mitigate the banks liability by reducing the award of interest from
twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the
Civil Code of the Philippines, responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be regulated by the
courts, according to the circumstances. In, quasi-delicts, the. contributory negligence of
the plaintiff shall reduce the damages that he may recover. 42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-
G.R. CV No. 25017, are AFFIRMED. PCIBank, known formerly as Insular Bank of Asia
and America, is declared solely responsible for the loss of the proceeds of Citibank
___________________
Supra note 20 at Section 605.
39
Ibid.
40
CIVIL CODE, Art. 1144.
41
CIVIL CODE, Art. 2214.
42
474
474 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Court of Appeals
Check No. SN-04867 in the amount of P4,746,114.41, which shall be paid together with
six percent (6%) interest thereon to Ford Philippines, Inc. from the date when the
original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430
are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share
the loss, (concerning the proceeds of Citibank Check Numbers SN-10597 and 16508
totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford
Philippines, Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the
complaint was filed until full payment of said amount.
Costs against Philippine Commercial International Bank and Citibank, N.A.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.
Judgment in CA-G.R. CV No. 25017 affirmed, while in CA-G.R. No. 28430 modified.
Notes.Issuing a crossed check imposes no legal obligation on the drawee not to
honor such a check. (Gempesaw vs. Court of Appeals, 218 SCRA 682 [19931)
There is no contractual relation created between a drawee bank and the payee as a
result of the payment by the former of the amount of the check. (Security Bank and Trust
Company vs. Court of Appeals, 291 SCRA 33 [1998])
o0o
14. G.R. No. 132390. May 21, 2004. * power to do those acts, the corporation will, as against any person who has dealt in good faith with
BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO INVESTMENT
CORPORATION, respondent.
Banks and Banking; Words and Phrases; Ordinarily, a time deposit is defined as one the
payment of which cannot legally be required within such a specified number of days while 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.We hold that the parties did not intend the deposit to be treated as a
demand deposit but rather as an interest-earning time deposit not withdrawable any time. This is
quite obvious from the communications between Jaime Sebastian, petitioners Branch Manager,
and Antonio Ong, respondents Executive Vice President. Both agreed that the deposit of P100
million was non-withdrawable for one year upon payment in advance of the 17% per annum
interest. Respondents time deposit of P100 million was accepted by petitioner as shown by a
deposit slip prepared and signed by Ong himself who indicated therein the account number to
which the deposit is to be credited, the name of FMIC as depositor or account holder, the date of
deposit, and the amount of P100 million as deposit in check. Clearly, when respondent FMIC
invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to
earn 17% per annum interest and to remain intact until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as one the payment of which cannot legally be required
within such a specified number of days. In contrast, demand deposits are all those liabilities of
the Bangko Sentraland 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.
Same; Central Bank regulations do not prohibit demand deposits from earning interest
under Central Bank Circular No. 22, Series of 1994, demand deposits shall not be subject to any
interest rate ceiling, which, in effect, is an open authority to pay interest on demand deposits
without being subject to any rate ceiling.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.
Sec-
_______________
*THIRD DIVISION.
31
VOL. 429, MAY 21, 2004 3
1
BPI Family Savings Bank, Inc. vs. First Metro Investment
Corporation
tions 1244 and 1244.1 of the Manual of Regulations of the Central Bank of the Philippines
provide: 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.
Same; Corporation Law; 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
the corporation through such agent, be estopped from denying such authority.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.
Same; Same; What transpires in the corporate board room is entirely an internal matter; The
public has the right to rely on the trustworthiness of bank managers and their actsobviously,
confidence in the banking system, which necessarily includes reliance on bank managers, is vital in
the economic life of our society.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.
Same; Interests; 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, and the interest due shall itself earn legal interest from
the time it is judicially demanded; Courts may indeed grant the relief warranted by the allegations
and proof even if no such specific relief is
32
3 SUPREME COURT REPORTS ANNOTATED
2 On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong,
BPI Family Savings Bank, Inc. vs. First Metro Investment
Corporation
prayed for if only to conclude a complete and thorough resolution of the issues involved.
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. 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.
Same; 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.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.
Here, petitioner cannot claim it exercised such a degree of care required of it and must, therefore,
bear the consequence.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Padilla Law Office for petitioner.
Antonio R. Bautista for respondent.
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 Decision dated July 4, 1997 and
1
Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986,
2
First Metro Investment Corporation vs. BPI Family Bank.
_______________
1Annex A, Petition for Review on Certiorari, Rollo at pp. 67-79.
2Annex B, id., at pp. 80-90.
33
VOL. 429, MAY 21, 2004 33
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
The facts as found by the trial court and affirmed by the Court of Appeals are as follows:
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.
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 ArrastreStevedoring, 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 with BPI 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).
_______________
Owned by petitioner BPI Family Savings Bank, Inc.
**
34
34 SUPREME COURT REPORTS ANNOTATED
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil
Case No. 89-5280 against BPI FB. FMIC likewise caused the filing by the Office of the
State Prosecutors of an Information for estafa against Ong, de Asis, Sebastian and four
others. However, the Information was dismissed on the basis of a demurrer to evidence
filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil Case No. 89-5280,
the dispositive portion of which reads:
Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay:
1. a.the amount of P80 million with interest at the legal rate from the time this complaint
was filed less P14,667,678.01;
2. b.the amount of P100,000.00 as reasonable attorneys fees; and
3. c.the cost.
SO ORDERED.
On appeal by both parties, the Court of Appeals rendered a Decision affirming the
assailed Decision with modification, thus:
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:
1. 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.
2. 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 DE
35
VOL. 429, MAY 21, 2004 35
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
1. POSIT WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT
ACCOUNT WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS
AN ILLEGAL TRANSACTION.
2. 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.
3. 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.
4. 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.
5. F.IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS
THAT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT ORDERING THE CONSOLIDATION OF THE INSTANT CASE WITH
THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE
MAKATI REGIONAL TRIAL COURT.
Petitioner BPI FB contends that the Court of Appeals erred in awarding the 17% per
annum interest corresponding to the amount deposited by respondent FMIC. Petitioner
insists that respondents deposit is not a special savings account similar to a time
deposit, but actually a demand deposit, withdrawable upon demand, proscribed from
earning interest under Central Bank Circular 777. Petitioner further contends that the
transaction is not valid as its Branch Manager, Jaime Sebastian, clearly overstepped his
authority in entering into such an agreement with respondents Executive Vice
President.
We hold that the parties did not intend the deposit to be treated as a demand deposit
but rather as an interest-earning time deposit not withdrawable any time. This is quite
obvious from the communications between Jaime Sebastian, petitioners Branch
Manager, and Antonio Ong, respondents Executive Vice President. Both agreed that the
deposit of P100 million was non-withdrawable for one year upon payment in advance of
the 17% per annum interest.
36
36 SUPREME COURT REPORTS ANNOTATED
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
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 Appeals, thus:
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
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
_______________
310 Am Jur 2d 652, citing 12 CFR 204.2 (c) (1).
4See Section 58, Republic Act No. 7653 The New Central Bank Act.
37
VOL. 429, MAY 21, 2004 37
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
depending on the market conditions. Sections 1244 and 1244.1 of the Manual of
Regulations of the Central Bank of the Philippines provide:
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. We reiterated this doctrine in Prudential Bank vs. Court of
5
6
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.
_______________
5Francisco vs. Government Service Insurance System, G.R. No. L-18287, March 30, 1963, 7 SCRA 577,
584; 117 Phil. 587, 593.
G.R. No. 108957, June 14, 1993, 223 SCRA 350.
6
38
38 SUPREME COURT REPORTS ANNOTATED
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
In Francisco vs. Government Service Insurance System, we ruled: 7
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 vs. 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
in-
_______________
Supra.
7
39
VOL. 429, MAY 21, 2004 39
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
cludes 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. Besides, the matter of how much interest
8
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
Finally, petitioner faults the Court of Appeals in not ordering the consolidation
of Civil Case No. 89-4996 (filed by petitioner against Tevesteco) with Civil Case No. 89-
5280 (the instant case). According to petitioner, had there been consolidation of these two
cases, it would have been shown that the P80 Million transferred to Tevestecos account
were proceeds of a loan extended by respondent FMIC to Tevesteco. Suffice it to state
that as found by both the trial court and the Appellate Court, petitioners transfer of
respondents P80M to Tevesteco was unauthorized and tainted with fraud.
_______________
Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 17, 1994, 234 SCRA 78; Eastern
8
Assurance and Surety Corporation vs. Court of Appeals, G.R. No. 127135, January 18, 2000, 322 SCRA 73, cited
in Rizal Commercial Banking Corporation vs. Alfa RTW Manufacturing Corporation, G.R. No. 133877,
November 14, 2001, 368 SCRA 611, 619.
9Robleza vs. Court of Appeals, G.R. No. 80364, June 28, 1989, 174 SCRA 354.
40
40 SUPREME COURT REPORTS ANNOTATED
BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation
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. Here, petitioner cannot claim it
10
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.
Vitug (Chairman), Corona and Carpio-Morales, JJ.,concur.
Petition denied, assailed petition and resolution affirmed.
Notes.The bank is not expected to be infallible but it must bear the blame for not
discovering the mistake of its teller despite the established procedure requiring the
papers and bank books to pass through a battery of bank personnel whose duty it is to
check and countercheck them for possible errors. (Tan vs. Court of Appeals, 239 SCRA
310 [1994])
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for
themselves. (Consolidated Bank and Trust Corporation vs. Court of Appeals, 410 SCRA
562 [2003])
15. G.R. No. 156940. December 14, 2004. *
ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY
TAN, respondent.
Commercial Law; Banks and Banking; The right of a collecting bank to debit a clients
account for the value of a dishonored check that has previously been credited has fairly been
established by jurisprudence.A bank generally has a right of setoff over the deposits therein for
the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a
clients account for the value of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that
[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loan.
Same; Same; The relationship between banks and depositors has been held to take place.The
relationship between banks and depositors has been held to be that of creditor and debtor. Thus,
legal compensation under Article 1278 of the Civil Code may take place when all the requisites
mentioned in Article 1279 are present, as follows: (1) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other; (2) That both debts
consist in a sum of money, or if the things due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be
liquidated and demandable; (5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
Same; Same; By the nature of its functions, a bank is under obligation to treat the accounts of
its depositors with meticulous care.In BPI v. Casa Montessori, the Court has emphasized that the
banking business is impressed with public interest. Consequently, the highest degree of diligence
is expected, and high standards of integrity and performance are even required of it. By the nature
of its
_______________
*THIRD DIVISION.
283
 VOL. 446, DECEMBER 14, 2004 28 While banks are granted by law the right to debit the value of a dishonored check from a
3 depositors account, they must do so with the highest degree of care, so as not to prejudice
the depositor unduly.
Associated Bank vs. Tan
The Case
functions, a bank is under obligation to treat the accounts of its depositors with meticulous
care. Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
1

Same; Same; The degree of diligence required of banks is more than that of a good father of a January 27, 2003 Decision of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA
2

family where the fiduciary nature of their relationship with their depositors is concerned; The disposed as follows:
standard applies, regardless of whether the account consists of only a few hundred pesos or of WHEREFORE, premises considered, the Decision dated December 3, 1996, of the Regional Trial
millions.Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AFis hereby
Appeals has held that the degree of diligence required of banks is more than that of a good father AFFIRMED. Costs against the [petitioner]. 3

of a family where the fiduciary nature of their relationship with their depositors is concerned. The Facts
Indeed, the banking business is vested with the trust and confidence of the public; hence the The CA narrated the antecedents as follows:
appropriate standard of diligence must be very high, if not the highest, degree of diligence. The Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the
standard applies, regardless of whether the account consists of only a few hundred pesos or of Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited
millions. a
Same; Same; It is indeed arguable that in signing the deposit slip, the depositor does so only _______________
to identify himself and not to agree to the conditions set forth at the back of the deposit slip.This
reservation is not enough to insulate the bank from any liability. In the past, we have expressed 1 Rollo, pp. 18-42.
doubt about the binding force of such conditions unilaterally imposed by a bank without the 2 Penned by Justice Mercedes Gozo-Dadole and concurred in by Justices B. A. Adefuin de la Cruz (then Chairman, Ninth
Division) and Mariano C. del Castillo.
consent of the depositor. It is indeed arguable that in signing the deposit slip, the depositor does 3 CA Decision, p. 9; Rollo, p. 92.

so only to identify himself and not to agree to the conditions set forth at the back of the deposit 285
slip.
VOL. 446, DECEMBER 14, 2004 285
Same; Same; Negotiable Instruments Law; Under the provisions of the Negotiable Instruments
Law regarding the liability of a general indorser and the procedure for a notice of dishonor, it was Associated Bank vs. Tan
incumbent on the bank to give proper notice to respondent.Under the provisions of the Negotiable postdated UCPB check with the said BANK in the amount of P101,000.00 issued to him by a
Instruments Law regarding the liability of a general indorser and the procedure for a notice of certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby making
dishonor, it was incumbent on the bank to give proper notice to respondent. In Gullas v. National his balance in the amount of P297,000.00, as of October 1, 1990, from his original deposit of
Bank, the Court emphasized: x x x [A] general indorser of a negotiable instrument engages that if P196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00 check was
the instrumentthe check in this caseis dishonored and the necessary proceedings for its already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum of
dishonor are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the amount of
a long line of authorities that notice of dishonor is necessary to charge an indorser and that the P50,000.00 making his existing balance in the amount of P107,793.45, because he has issued
right of action against him does not accrue until the notice is given. several checks to his business partners, to wit:
284 CHECK NUMBERS DATE AMOUNT
284 SUPREME COURT REPORTS ANNOTATED a. 138814 Sept. 29, 1990 P9,000.00
Associated Bank vs. Tan b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
PETITION for review on certiorari of a decision of the Court of Appeals.
d. 138847 Sept. 29, 1990 21,850.00
The facts are stated in the opinion of the Court. e. 167054 Sept. 29, 1990 4,093.40
Edgardo G. Villarin for petitioner. f. 138792 Sept. 29, 1990 3,546.00
Cesar R. Villar for respondent. g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
PANGANIBAN, J.:
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that the checks he
issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to
take positive steps regarding the matter for he has adequate and sufficient funds to pay the
amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology
regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on
December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region,
docketed as Civil Case No. 892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased in number for lack of trust. As he has been in the
business community for quite a time and has established a good record of reputation and probity,
plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation, mental
anxieties and
286
286 SUPREME COURT REPORTS ANNOTATED
Associated Bank vs. Tan
sleepless nights because of the said unfortunate incident. [Respondent] further averred that he
continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for
exemplary damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way of
moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of the amount
claimed including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was
denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March
20, 1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that
no banking institution would give an assurance to any of its client/depositor that the check
deposited by him had already been cleared and backed up by sufficient funds but it could only
presume that the same has been honored by the drawee bank in view of the lapse of time that
ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that on October 2, 1990,
it gave notice to the [respondent] as to the return of his UCPB check deposit in the amount of
P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00 to cover the
returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action
against it and argued that it has all the right to debit the account of the [respondent] by reason of
the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositors collecting agent subject to actual payment by
the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount of
P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00 per appearance
and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the affairs/properties of
the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating
substantially his allegations in the original complaint, except that the name of the previous
defendant ASSOCIATED BANK is now WESTMONT BANK.
287
VOL. 446, DECEMBER 14, 2004 287
Associated Bank vs. Tan
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of
the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum of
P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys
fees, plus the costs of this suit. In making said ruling, it was shown that [respondent] was not
officially informed about the debiting of the P101,000.00 [from] his existing balance and that the
BANK merely allowed the [respondent] to use the fund prior to clearing merely for accommodation
because the BANK considered him as one of its valued clients. The trial court ruled that the bank
manager was negligent in handling the particular checking account of the [respondent] stating that
such lapses caused all the inconveniences to the [respondent]. The trial court also took into
consideration that [respondents] mother was originally maintaining with the x x x BANK [a]
current account as well as [a] time deposit, but [o]n one occasion, although his mother made a
deposit, the same was not credited in her favor but in the name of another.
4
Petitioner appealed to the CA on the issues of whether it was within its rights, as
collecting bank, to debit the account of its client for a dishonored check; and whether it
had informed respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the
withdrawal of the value of the deposited check prior to its clearing. Having done so,
contrary to its obligation to treat respondents account with meticulous care, the bank
violated its own policy. It thereby took upon itself the obligation to officially inform
respondent of the status of his account before unilaterally debiting the amount of
P101,000. Without such notice, it is estopped from blaming him for failing to fund his
account.
_______________
4Id., pp. 2-4 & 85-87. Citations omitted.
288
288 SUPREME COURT REPORTS ANNOTATED
Associated Bank vs. Tan
The CA opined that, had the P101,000 not been debited, respondent would have had
sufficient funds for the postdated checks he had issued. Thus, the supposed
accommodation accorded by petitioner to him is the proximate cause of his business woes
and shame, for which it is liable for damages.
Because of the banks negligence, the CA awarded respondent moral damages of
P100,000. It also granted him exemplary damages of P75,000 and attorneys fees of
P25,000.
Hence this Petition. 5
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the petitioner,
which is acting as a collecting bank, has the right to debit the account of its client for a
check deposit which was dishonored by the drawee bank. 6
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of facts
were misappreciated by the CA. It insists that its right to debit the amount of the
dishonored check from the account of respondent is clear and unmistakable. Even
assuming that it did not give him notice that the check had been dishonored, such right 2. (2)That both debts consist in a sum of money, or if the things due are
remains immediately enforceable. consumable, they be of the same kind, and also of the same quality if the latter
_______________ has been stated;
3. (3)That the two debts be due;
The Petition was deemed submitted for decision on December 1, 2003, upon the courts receipt of
4. (4)That they be liquidated and demandable;
5

respondents Memorandum signed by Atty. Cesar R. Villar. Petitioners Memorandum, signed by Atty. Edgardo
G. Villarin, was received by the Court on November 5, 2003. 5. (5)That over neither of them there be any retention or controversy, commenced
6Petitioners Memorandum, p. 8; Rollo, p. 121. by third persons and communicated in due time to the debtor. 12

289
VOL. 446, DECEMBER 14, 2004 289 Nonetheless, the real issue here is not so much the right of petitioner to debit
Associated Bank vs. Tan respondents account but, rather, the manner in which it exercised such right. The Court
In particular, petitioner argues that the check deposit slip accomplished by respondent has held that even while the right of setoff is conceded, separate is the question of
on September 17, 1990, expressly stipulated that the bank was obligating itself merely as whether that remedy has properly been exercised. 13

the depositors collecting agent anduntil such time as actual payment would be made to _______________
itit was reserving the right to charge against the depositors account any amount
previously credited. Respondent was allowed to withdraw the amount of the check prior
to clearing, merely as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by
the CA are not subject to review by this Court. As petitioner itself takes no issue with
7
those findings, we need only to determine the legal consequence, based on the established
9Consolidated Bank & Trust Corporation v. Court of Appeals, 410 SCRA 562, 574, September 11,
2003; Guingona, Jr. v. City Fiscal of Manila, 128 SCRA 577, 584, April 4, 1984; Serrano v. Central Bank of the
Phils., 96 SCRA 96, 102-103, February 14, 1980.
10Article 1278 provides:
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (See
also Bank of the Philippine Islands v. Court of Appeals, 325 Phil. 930, 938-939; 255 SCRA 571, 577, March 29, 1996.)
Article 1290 of the Civil Code.
11

facts. Article 1279 of the Civil Code.

12

Gullas v. National Bank; supra, p. 522.

13

Right of Setoff 291

A bank generally has a right of setoff over the deposits therein for the payment of any VOL. 446, DECEMBER 14, 2004 291
withdrawals on the part of a depositor. The right of a collecting bank to debit a clients
8

account for the value of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides
that [f]ixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan.
_______________
7Aclon v. Court of Appeals, 436 Phil. 219, 230; 387 SCRA 415, 423, August 20, 2002; Reyes v. Court of
Associated Bank vs. Tan
The liability of petitioner in this case ultimately revolves around the issue of whether it
properly exercised its right of setoff. The determination thereof hinges, in turn, on the
banks role and obligations, first, as respondents depositary bank; and second, as
collecting agent for the check in question.
Obligation as Depositary Bank
In BPI v. Casa Montessori, the Court has emphasized that the banking business is
14

Appeals & Far East Bank and Trust Company, 415 Phil. 258, 267; 363 SCRA 51, 58, August 15, 2001; W-Red
Construction and Development Corporation v. Court of Appeals, 392 Phil. 888, 894; 338 SCRA 341, 345, August
17, 2000.
8Gullas v. National Bank, 62 Phil. 519, 521, November 13, 1935.
290
impressed with public interest. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required of it. By the
nature of its functions, a bank is under obligation to treat the accounts of its depositors
with meticulous care. 15

290 SUPREME COURT REPORTS ANNOTATED Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of
Associated Bank vs. Tan Appeals has held that the degree of diligence required of banks is more than that of a
16

Hence, the relationship between banks and depositors has been held to be that of creditor good father of a family where the fiduciary nature of their relationship with their
and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take
9 10 depositors is concerned. Indeed, the banking business is vested with the trust and
17

place when all the requisites mentioned in Article 1279 are present, as follows:11 confidence of the public; hence the appropriate standard of diligence must be very high,
if not the highest, degree of diligence. The standard
18

_______________
1. (1)That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other; 14 G.R. No. 149454, May 28, 2004, 430 SCRA 261.
15 Id., per Panganiban, J.
 336 Phil. 667; 269 SCRA 695, March 14, 1997 (cited in Reyes v. Court of Appeals & Far East Bank and
16
Trust Company; supra, p. 269; p. 60.)
Id., p. 681; p. 708, per Hermosisima, Jr., J. See also Consolidated Bank & Trust Corporation v. Court of
17
Appeals; supra, pp. 574-575.
Philippine Commercial International Bank v. Court of Appeals, 350 SCRA 446, 472, January 29, 2001, per
18
Quisumbing, J. (citing Simex International [Manila], Inc. v. Court of Appeals, 183 SCRA 360, 367, March 19,
1990).
292
292 SUPREME COURT REPORTS ANNOTATED
Associated Bank vs. Tan
applies, regardless of whether the account consists of only a few hundred pesos or of
millions. 19
The fiduciary nature of banking, previously imposed by case law, is now enshrined in
20
Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law
specifically says that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance.
Did petitioner treat respondents account with the highest degree of care? From all
indications, it did not.
It is undisputednay, even admittedthat purportedly as an act of accommodation
to a valued client, petitioner allowed the withdrawal of the face value of the deposited
check prior to its clearing. That act certainly disregarded the clearance requirement of
the banking system. Such a practice is unusual, because a check is not legal tender or
money; and its value can properly be transferred to a depositors account only after the
21
check has been cleared by the drawee bank. 22
Under ordinary banking practice, after receiving a check deposit, a
bank either immediately credit the amount to a
_______________
19Prudential Bank v. Court of Appeals, 384 Phil. 817, 825; 328 SCRA 264, 270, March 16, 2000; Philippine
National Bank v. Court of Appeals,373 Phil. 942, 948; 315 SCRA 309, 314-315, September 28, 1999; Simex
International v. Court of Appeals, supra; Bank of the Philippine Islands v. Intermediate Appellate Court, 206
SCRA 408, 412-413, February 21, 1992.
20Simex International v. Court of Appeals, supra; Bank of the Philippine Islands v. Intermediate Appellate
Court, supra; Metropolitan Bank & Trust Co. v. Court of Appeals, 237 SCRA 761, 767, October 26, 1994.
21Philippine Airlines, Inc. v. Court of Appeals, 181 SCRA 557, 568, January 30, 1990.
22Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court, 191 SCRA 411, 422, November
16, 1990 (cited in Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 547; 326 SCRA 641, 650,
February 29, 2000).
293
VOL. 446, DECEMBER 14, 2004 293
Associated Bank vs. Tan
depositors account; or infuse value to that account only after the drawee bank shall have
paid such amount. Before the check shall have been cleared for deposit, the collecting
23
bank can only assume at its own riskas herein petitioner didthat the check would Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of
be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner should
not have authorized the withdrawal by respondent of P240,000 on October 1, 1990, as
this amount was over and above his outstanding cleared balance of P196,793.45. Hence, 24
the lower courts correctly appreciated the evidence in his favor.
Obligation as Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent,
assuming no responsibility beyond carefulness in selecting correspondents, and until such time as
actual payments shall have come to its possession, this Bank reserves the right to charge back to
the Depositors account any amounts previously credited whether or not the deposited item is
returned. x x x. 25
However, this reservation is not enough to insulate the bank from any liability. In the
past, we have expressed doubt about the binding force of such conditions unilaterally
imposed by a bank without the consent of the depositor. It is 26
_______________
Bank of the Philippine Islands v. Court of Appeals; supra, p. 554; p. 656 (citing Banco Atlantico v. Auditor
23
General, 81 SCRA 335, 340-341, January 31, 1978).
This amount was computed based on the bank ledger which was submitted as Annex A of Respondents
24
Complaint; Rollo, p. 48.
Petitioners (then Defendant-Appellants) Brief to the CA, pp. 5-6; Rollo, pp. 62-63.
25
Metropolitan Bank & Trust Company v. Court of Appeals, 194 SCRA 169, 175, February 18, 1991.
26
294
294 SUPREME COURT REPORTS ANNOTATED
Associated Bank vs. Tan
indeed arguable that in signing the deposit slip, the depositor does so only to identify
himself and not to agree to the conditions set forth at the back of the deposit slip. 27
Further, by the express terms of the stipulation, petitioner took upon itself certain
obligations as respondents agent, consonant with the well-settled rule that the
relationship between the payee or holder of a commercial paper and the collecting bank
is that of principal and agent. Under Article 1909 of the Civil Code, such bank could be
28 29
held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations
of its officers or agents within the course and scope of their employment. Due to the very 30
nature of their business, banks are expected to exercise the highest degree of diligence in
the selection and supervision of
_______________
27 Ibid.
28 Philippine Commercial International Bank v. Court of Appeals; supra, p. 466.
29 Art. 1909 of the Civil Code provides:
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by
the courts, according to whether the agency was or was not for compensation.
30Philippine Commercial International Bank v. Court of Appeals; supraat p. 470; Producers Bank of the
Philippines (Now First International Bank) v. Court of Appeals, 397 SCRA 651, 663, February 19, 2003. Article
2180 of the Civil Code, which embodies this principle, provides:
persons for whom one is demandable.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry.
 295 funded from 1987 to 1990, until the October imbroglio. Thus, he deserved nothing less
36

VOL. 446, DECEMBER 14, 2004 295 than an official notice of the precarious condition of his account.
Associated Bank vs. Tan Second, under the provisions of the Negotiable Instruments Law regarding the
their employees. Jurisprudence has established that the lack of diligence of a servant is
31
liability of a general indorser and the 37

_______________
imputed to the negligence of the employer, when the negligent or wrongful act of the
former proximately results in an injury to a third person; in this case, the depositor.
32
35 CA Decision, pp. 7-8; Rollo, pp. 90-91.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically 36 RTC Decision, p. 3; id., p. 76.
admitted that she and the employees under her control had breached bank policies. They 37 66 of the Negotiable Instruments Law provides:
Sec. 66. Liability of general indorser.Every indorser who indorses without qualification, warrants to all subsequent holders
admittedly breached those policies when, without clearance from the drawee bank in in due course:
Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the xxx xxx xxx
check deposited. Santiago testified that respondent was not officially informed about the 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
debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 x x x. 33
297
Being the branch manager, Santiago clearly acted within the scope of her authority in VOL. 446, DECEMBER 14, 2004 297
authorizing the withdrawal and the subsequent debiting without notice. Accordingly,
what remains to be determined is whether her actions proximately caused respondents Associated Bank vs. Tan
injury. Proximate cause is that whichin a natural and continuous sequence, unbroken procedure for a notice of dishonor, it was incumbent on the bank to give proper notice to
38

by any efficient intervening causeproduces the injury, and without which the result respondent. In Gullas v. National Bank, the Court emphasized:
39

x x x [A] general indorser of a negotiable instrument engages that if the instrumentthe check in
would not have occurred. 34

this caseis dishonored and the necessary proceedings for its dishonor are duly taken, he will pay
Let us go back to the facts as they unfolded. It is undeniable that the banks
the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice
premature authorization of the withdrawal by respondent on October 1, 1990, of dishonor is necessary to charge an indorser and that the right of action against him does not
triggeredin rapid succession and in a natural sequencethe debiting of his account, accrue until the notice is given.
the fall of his account balance to insufficient levels, and the subsequent dishonor of his x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and
own checks for lack of funds. The CA correctly noted thus: without waiting for any action by Gullas, the bank made use of the money standing in his account
_______________ to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and
had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of a
Philippine Commercial International Bank v. Court of Appeals; supra, p. 472.
31
check drawn by him in favor of a third party, it has been held that he has a right of action against
Id., p. 464; Bank of the Philippine Islands v. Casa Montessori Internationale; supra.
32
the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied
RTC Decision, p. 4; Rollo, p. 77.
33
the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of
Bank of the Philippine Islands v. Casa Montessori Internationale; supra, p. 26.
Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different,
34

296
and notice should actually have been given him in order that he might protect his interests. 40

296 SUPREME COURT REPORTS ANNOTATED _______________

Associated Bank vs. Tan
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was
already cleared. Without such advice, [respondent] would not have withdrawn the sum of
P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed
[respondent] to withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had the
P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence, we can
thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
38The procedure as to the manner and the time of giving notice is outlined under 89-118 of the said law.
89, in particular, provides as follows:
Sec. 89. To whom notice of dishonor must be given.Except as herein otherwise provided, when a negotiable instrument has
been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and
any drawer or indorser to whom such notice is not given is discharged.
Supra.
39

Id., pp. 521-522, per Malcolm, J.

40

say that [respondents] injury arose from the dishonor of his well-funded checks. x x x. 35
298
Aggravating matters, petitioner failed to show that it had immediately and duly
298 SUPREME COURT REPORTS ANNOTATED
informed respondent of the debiting of his account. Nonetheless, it argues that the giving
of notice was discernible from his act of depositing P50,000 on October 2, 1990, to Associated Bank vs. Tan
augment his account and allow the debiting. This argument deserves short shrift. Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully
First, notice was proper and ought to be expected. By the bank managers account, subscribe to the CAs observations that it was not unusual for a well-reputed
respondent was considered a valued client whose checks had always been sufficiently businessman like him, who ordinarily takes note of the amount of money he takes and
releases, to immediately deposit money in his current account to answer for the
postdated checks he had issued. 41
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and
attorneys fees, we will no longer address these matters.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales and Garcia, JJ., concur.
Corona, J., On Leave.
Petition denied, assailed decision affirmed.
Note.In dealing with its depositors, a bank should exercise its functions not only
with the diligence of a good father of a family but it should do so with the highest degree
of care. (Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641 [2000])
o0o
16. G.R. No. 158674. October 17, 2005. *
LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS L.
CAGUNGUN, VICENTE L. CAGUNGUN, JR., RICARDO L. CAGUNGUN, EDUARDO
L. CAGUNGUN, ROWENA L. CAGUNGUN, ALVIN L. CAGUNGUN and ALMA L.
CAGUNGUN, petitioners, vs.PLANTERS DEVELOPMENT BANK, respondent.
Commercial Law; Banks and Banking; Negligence; The bank was indeed grossly negligent
when it allowed the sum of P220,000.00 to be withdrawn through falsified withdrawal slips without
petitioners authority and knowledge and its failure to comply with petitioners instruction to apply
their deposits on their loan.The bank was indeed grossly negligent when it allowed the sum of
P220,000.00 to be withdrawn through falsified withdrawal slips without petitioners authority and
knowledge and its failure to comply with petitioners instruction to apply their deposits on their
loan. In so doing, respondent bank breached the trust that petitioners reposed on it.
Same; Same; Same; Respondent did not exercise the degree of diligence it ought to have
exercised in dealing with its clientsdiligence higher than that of a good father of a family.We
agree in the findings of the two courts below that the unauthorized transactions were committed by
one or some of the employees of respondent bank for which it should be liable. The evidence showed
that respondent did not exercise the degree of diligence it ought to have exercised in dealing with
its clientsdiligence higher than that of a good father of a family. If only respondent exercised
such diligence, no anomaly or irregularity would have happened.
Civil Law; Damages; Moral Damages; Settled is the rule that gross negligence of a bank in the
handling of its clients deposit amounts to bad faith that calls for an award of moral damages.
Settled is the rule that gross negligence of a bank in the handling of its clients deposit amounts to
bad faith that calls for an award of moral damages. Moral damages are meant to compensate the
claimant for any physical suffering, mental anguish, fright, serious anxi-
_______________
*SECOND DIVISION.
260
2 SUPREME COURT REPORTS ANNOTATED
60
Cagungun vs. Planters Development Bank
ety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injuries unjustly caused.
Same; Same; Same; In culpa contractual or breach of contract, moral damages are recoverable
only if the defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligations.In culpa
contractual or breach of contract, as in the case before us, moral damages are recoverable only if
the defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligations. In fine, the requisites
on award of moral damages would require, firstly, evidence of besmirched reputation or physical,
mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission of the defendant is the
proximate cause of the damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the
Civil Code. All these elements are present in the instant case.
Same; Same; Exemplary Damages; The award of exemplary damages is warranted by the
failure of respondent bank to prevent the unauthorized withdrawals from petitioners deposits and
its failure to properly apply the latters deposits to their loan.The law allows the grant of
exemplary damages to set an example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as
active instruments of business and commerce, banks have attained a ubiquitous presence among
the people, who have come to regard them with respect and even gratitude and most of all,
confidence. For this reason, banks should guard against injury attributable to negligence or bad
faith on its part. The award of exemplary damages is warranted by the failure of respondent bank
to prevent the unauthorized withdrawals from petitioners deposits and its failure to properly
apply the latters deposits to their loan. We, however, find the P300,000.00 awarded by the lower
court to be excessive and should accordingly be reduced to P50,000.00.
261
VOL. 473, OCTOBER 17, 2005 26
1
Cagungun vs. Planters Development Bank
Same; Same; Attorneys Fees; An award of attorneys fees, being an exception from the policy of
not putting a premium or a penalty on the right to litigate, has since been limited to the grounds
specified by law.On the matter of attorneys fees and expenses of litigation, it is settled that the
reasons or grounds for the award thereof must be set forth in the decision of the court. An award of
attorneys fees, being an exception from the policy of not putting a premium or a penalty on the
right to litigate, has since been limited to the grounds specified by law. Article 2208 of the Civil
Code enumerates the instances where attorneys fees and expenses of litigation can be recovered.
Same; Same; Same; There being an award for exemplary damages, it follows that there should
be an award of attorneys fees and litigation expenses.In the case at bar, the RTC clearly stated in
its decision that petitioners are entitled to attorneys fees and litigation expenses because they
were compelled to litigate in order to protect their interest. We agree. Moreover, there being an
award for exemplary damages, it follows that there should be an award of attorneys fees and
litigation expenses. However, the awards of P50,000.00 for attorneys fees and P50,000.00 for
litigation expenses by the RTC are too much, while the award of P30,000.00 of the Court of Appeals
for both is too small. In as much as this case has been pending for more than twenty (20) years, the
award of P25,000.00 for each will be sufficient.
Remedial Law; Civil Procedure; Actions; Evidence; Pleadings and Practice; Under Section 5,
Rule 10 of the Revised Rules of Court, if evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the Court may allow the pleadings to be amended freely
when the presentation of the merits of the action will be subserved thereby.Under Section 5, Rule
10 of the Revised Rules of Court, if evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the Court may allow the pleadings to be amended freely
when the presentation of the merits of the action will be subserved thereby and the admission of
such evidence would not prejudice the objecting party in maintaining his action or defense upon
the merit. x x x It is thus clear that when there is an objection on the evidence presented because it
is not within the issues made by the pleadings, an amendment must be made before accepting such
evidence. If no
262
2 SUPREME COURT REPORTS ANNOTATED
62
Cagungun vs. Planters Development Bank
amendment is made, the evidence objected to cannot be considered. In the case before us, the
trial court, there being an objection on the evidence being presented by respondent, failed to order
the amendment of the complaint. Thus, we are constrained not to consider evidence regarding the
P30,000.00 and P118,000.00 allegedly withdrawn from their accounts. With this ruling, it follows
that the outstanding loan of petitioners in the amount of P58,297.16 remains unpaid.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Carmelino M. Roque for petitioners.
Carolyn J. Senador-Farinas for respondent.
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure are the decision of the Court of Appeals dated 25 March 2002 that modified
1 Manager Lolita Mendoza and Cashier Bella Lumanog. It was explained that the withdrawal of
the decision of the Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case
No. 245-0-83, dated 26 June 1997, deleting the awards of moral and exemplary damages
and finding that the mortgaged loan was deemed paid and enjoining foreclosure, as well
as reducing the awards for litigation fees and expenses, and its Resolution dated 06 June
2
2003 denying petitioners Lapreciosisima Cagungun, et al.s motion for reconsideration.
The antecedents are summarized by the Court of Appeals in its decision as follows:
_______________
CA Rollo, pp. 91-98; Penned by Associate Justice Roberto A. Barrios with Associate Justices Ma. Alicia
1
Austria-Martinez (now Associate Justice of this Court) and Bienvenido L. Reyes, concurring.
Id., at p. 132.
2
263
VOL. 473, OCTOBER 17, 2005 263
Cagungun vs. Planters Development Bank
On September 1, 1987, the spouses Vicente Cagungun and Lapreciosisima Cagungun (or the
Cagungun spouses) filed suit with the Regional Trial Court of Olongapo City against the Country
Development Bank (or COUNTRY), and which was docketed as Civil Case No. 245-083 and
assigned to Branch 74. Vicente Cagungun has since died and was substituted as plaintiff on
August 8, 1984 by their children. On the other hand COUNTRY has entered into a merger and
reflective of this the party defendant has been changed to Planters Development Bank (or
PLANTERS) on September 1, 1987.
COUNTRY had opened an extension office in Olongapo City, and among their first customers
were the Cagungun spouses who had diverse business interests in the locality. They opened some
accounts, and for two (2) of which they were issued Savings Passbook No. 12241-16 in the name of
Purings Dry Goods and Savings Passbook No. 38470-29 in the names of V/L Cagungun.
It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law
Sarah Cagungun, that because of the exigencies of their businesses that required daily deposits of
the proceeds and of the trust that they have reposed with COUNTRY and its personnel, they
entrusted and left with them their said savings pass books. At least once a day the Branch
manager Ruperto Reyes or a certain Bong and Ding would come to get their funds and with the
agreement that these would be rounded off and deposited to their account while the odd remainder
would be applied to their loan. The arrangement apparently went well, until March 1981 when the
Cagungun spouses received a letter from COUNTRY telling them that their loan is past due and
payment was demanded . . . or else. This prompted them to investigate, but this was tedious and
difficult because of lack of cooperation and even resistance from COUNTRY. But with the help of
friends in high places the Cagungun spouses were able to access and pry information that in the
year 1979 on the dates of October 8, 18, 20 and 31 and November 15, and December 4 and 8, with
the use of withdrawal slips a total of P220,000.00 was withdrawn from their Savings Passbook No.
12241-16. These withdrawals were invalid for no such withdrawal was authorized, made or
received by the depositors, and the signatures of Vicente Cagungun on the slips were forgeries.
This was confirmed by Arcadio Ramos, Chief of the Questioned Documents Division of the NBI
when these were subjected to examination.
264
264 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
The side of PLANTERS was explicated by its employees, Internal Auditor Lilia Tactay, Branch
P20,000.00 made on October 8, 1979 from Savings Account No. 12241-16 and the withdrawals of a
total of P30,000.00 from several of the other accounts of the spouses, were placed on time deposits
on the same date by Vicente Cagungun in five (5) accounts held with their children. The other said
withdrawals from Savings Account No. 12241-16 were made by Vicente Cagungun in exchange for
Managers Checks made in the names of payees Santiago Lee, Rosita Saldana, Benito Yap and
Joaquin Aganda. 3
The lower court ruled, among other things, that the withdrawals from Savings Account
No. 12241-16 through seven (7) withdrawal slips amounting to P220,000.00 were not
4
made by petitioners as the alleged signatures of Vicente Cagungun, Jr. appearing therein
were falsified as confirmed by the National Bureau of Investigation Handwriting Expert
Arcadio Ramos. It likewise considered petitioners to have paid their mortgage loan in the
amount of P58,297.16 in view of their instruction to respondent to apply their funds in
Savings Account No. 38470-29 thereto which were adequate for this purpose.
 For not applying the savings of petitioners in Savings Account No. 38470-29 as 5Records, pp. 473-493.
Id., at pp. 492-493.
payment to their loan, thereby causing the threatened foreclosure of the real estate
6

266
mortgage over their house and lot, and for allowing the unauthorized withdrawals from
Savings Account No. 12241-16 through falsified withdrawal slips, the lower court held
266 SUPREME COURT REPORTS ANNOTATED
respondent liable to pay moral damages. For ignoring the two (2) demand letters of Cagungun vs. Planters Development Bank
petitioners, the demand letter of petitioners counsel and the representations made by sums deposited to their loan, it remained admittedly an unpaid obligation. It removed
Pampanga Gov. Estelito Mendoza and Central Bank Governor Jaime Laya, and for the the awards for moral and exemplary damages and reduced the awards for attorneys fees
attempt to cover up the misdeeds of its employees constituting malice and bad faith, and litigation expenses.
respondent was also ordered to pay The Court of Appeals promulgated its decision on 25 March 2002, the dispositive
_______________ portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED, but with these MODIFICATONS (a) the
3CA Rollo, pp. 91-93. dispositions in Par. 1 and Par. 3 of the fallo deeming the mortgaged loan paid and enjoining
4Exhs. A, A-1 to A-6. foreclosure, are DELETED; (b) the disposition in Par. 4 and Par. 5 of the fallo awarding moral and
265 exemplary damages, are DELETED; and (c) the awards of litigation fees and expenses are
VOL. 473, OCTOBER 17, 2005 265 REDUCED to a combined P30,000.00. 7

Cagungun vs. Planters Development Bank The motion for reconsideration filed by petitioners was denied in a resolution dated 06
exemplary damages as an example to others. On account of these acts, respondent was June 2003. 8

also ordered to pay attorneys fees and the cost of suit. Petitioners are now before us assailing the Decision and Resolution of the Court of
In its decision dated 26 June 1997, the lower court disposed of the case in this wise:
5
Appeals when the latter:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant
as follows: 1. (A)DELETED THE PORTION OF THE RTC DECISION DECLARING THE
MORTGAGED LOAN PAID AND ENJOINING FORECLOSURE;
1. 1.)Enjoining the defendant from foreclosing the mortgage of plaintiffs property 2. (B)DELETED THE AWARD OF MORAL AND EXEMPLARY DAMAGES; AND
located at No. 88 Gordon Avenue, Pag-asa, Olongapo City; 3. (C)REDUCED THE LITIGATION FEES AND EXPENSES. 9

2. 2.)Ordering the defendant to pay plaintiffs the amount of P220,000.00 actual

damages representing the total amount withdrawn from their accounts plus Respondent filed a Comment on 04 September 2003 to which petitioners filed their
10

twelve (12%) percent interest per annum from the date of the filing of the Reply dated 06 February 2004.
11

complaint until it shall have been fully paid; On 06 December 2004, the Court gave due course to the petition and required the
3. 3.)Considering plaintiffs mortgaged account in the amount of P58,297.16 to have parties to submit their respective
been paid; _______________
4. 4.)Ordering the defendant to pay plaintiffs the amount of P300,000.00 moral
damages; 7CA Rollo, p. 97.
8Id., at p. 132.
5. 5.)Ordering the defendant to pay plaintiffs the amount of P300,000.00 exemplary 9Rollo, p. 4.
damages; and 10Id., at pp. 59-67.
6. 6.)Ordering defendant to pay plaintiffs the amount of P50,000.00 litigation 11Id., at pp. 73-82.
expense, P50,000.00 attorneys fee plus the cost of suit.
6
267
VOL. 473, OCTOBER 17, 2005 267
Aggrieved, respondent appealed to the Court of Appeals. Cagungun vs. Planters Development Bank
The Court of Appeals agreed that money was withdrawn from the deposits of memoranda within thirty (30) days from notice. Both parties complied.
12 13

petitioners without their authority or knowledge, and that this was done by one or some
of the personnel of respondent. However, it held that petitioners are not free from the
obligation to pay the admitted loan (P58,297.16) for though the same was not paid for
failure of respondent to comply with the instruction to apply the remainder of the
_______________
We first discuss the deletion made by the Court of Appeals of the awards of moral
damages and exemplary damages.
Petitioners maintain that the Court of Appeals erred in removing the award of moral
damages considering that it is settled jurisprudence that the same should be awarded
when the injured party suffers mental anguish and serious anxiety. They contend that
the Court of Appeals failed to appreciate the torment they suffered from the time they
noticed their deposits were not properly recorded until the receipt of respondents letter
threatening the foreclosure of their residential house and lot for a loan of P58,000.00.
They narrated that respondent bank refused to give them copies of the ledgers of their
deposits as well as copies of the withdrawal slips. Despite the intercession of Pampanga
Governor Estelito Mendoza and Central Bank Governor Jaime Laya, respondent did not
give them copies of the ledgers and withdrawal slips. It was only after the Chief of the
Criminal Investigation Service (CIS) of the Philippine Constabulary sent two of his
investigators, whom they authorized to look into the records of their deposits, that they
received copies thereof. They discovered therein that the sum of P220,000.00 was
withdrawn from their accounts by respondent bank through its employees by falsifying
the signatures of Vicente Cagungun, Jr. in seven withdrawal slips. Despite the forgeries,
they refused to acknowledge its liability. Thus, on 07 September 1983, in order to protect
their rights, petitioners were forced to file the instant case with prayer for issuance of a
temporary restraining order and/or writ of preliminary injunction to enjoin the
foreclosure of their property. Petitioners insist that respondent, in allowing withdrawals
in their savings account without their
_______________
Id., at p. 85.
12
Id., at pp. 87-104; 105-118.
13
268
268 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
authority or knowledge, is guilty of gross negligence to which it is liable for moral
damages.
On the other hand, respondent maintains that the Court of Appeals was correct in
deleting the award of moral damages.
Respondent argues that it should not be faulted if petitioners had to experience
inconveniences in acquiring copies of ledgers of their deposits as well as copies of the
withdrawal slips since certain banking procedures must be observed. It likewise faults
petitioners for not strictly observing security rules of financial institutions in the care
and custody of their passbooks, as well as in the standard operating procedure for
deposits and withdrawals which led to the alleged improper recording of deposits and the
alleged losses they incurred. It stresses that passbooks should be securely kept by the
owner but, in the case of petitioners, they openly entrusted their passbooks to other
people leaving them totally unable to monitor their transactions. It added that there was
absence of any actual injury on the part of the petitioners. It asserts that it neither acted
in bad faith nor took advantage of petitioners deposit for its use and benefit. It claims
that petitioners failed to establish fraud on the part of respondent bank as to make it
liable for the alleged improper recording of deposits. It claims that petitioners failed to
present in court the persons (Bong or Ding) to whom they entrusted their money for
deposit and to prove that Ruperto Reyes, then Officer-In-Charge (O-I-C) of the Extension
Office of Country Development Bank, defrauded them by facilitating withdrawals for the
benefit of the bank. No proof was adduced to show that they verified if the persons to
whom they delegated to make the deposits faithfully performed the tasks in accordance
with their intentions. Respondent insists that it is the negligence of petitioners, not fraud
on its part, which was the reason that petitioners deposits were not applied in
accordance with their intentions resulting to the (threatened) foreclosure of their
mortgaged property.
269
VOL. 473, OCTOBER 17, 2005 269
Cagungun vs. Planters Development Bank
From the foregoing reasons advanced by respondent bank, it is apparent that it is trying
to pass all the blame on petitioners for the unauthorized withdrawals amounting to
P220,000.00 and the non-applications of deposits to their loan.
This cannot be. The fact that petitioners left the custody of their passbooks to
respondent, through its employee O-I-C Ruperto Reyes, and that they entrusted to Bong
or Ding their deposits will not excuse respondent from being liable. Petitioners did these
things because they trusted and depended on respondent to take care of their accounts
with it. If respondent bank was really strict in enforcing the banking rule that the
passbook must be kept by the depositor, why did it not do so? For its failure, any anomaly
or damage that might result therefrom should be borne by it.
We, likewise, find untenable respondents contention that petitioners should have
presented O-I-C Ruperto Reyes, Bong or Ding as witnesses to clear the air. On the
contrary, it should have been respondents duty to present these persons they being their
employees. It should have presented these people, especially O-I-C Ruperto Reyes, who
had custody of the passbooks, to explain why unauthorized withdrawals were made and
why the instruction to apply petitioners deposit to their loan was not complied with.
The bank was indeed grossly negligent when it allowed the sum of P220,000.00 to be
withdrawn through falsified withdrawal slips without petitioners authority and
knowledge and its failure to comply with petitioners instruction to apply their deposits
on their loan. In so doing, respondent bank breached the trust that petitioners reposed on
it.
We agree in the findings of the two courts below that the unauthorized transactions
were committed by one or some of the employees of respondent bank for which it should
be liable. The evidence showed that respondent did not exercise the degree of diligence it
ought to have exercised in dealing with its clientsdiligence higher than that of a good
father of
270
270 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
a family. If only respondent exercised such diligence, no anomaly or irregularity would
have happened.
In the case of Philippine National Bank v. Pike, we discussed the degree of diligence
14
imposed on banks as follows:
With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more
than that of a good father of a family considering that the business of banking is imbued with
public interest due to the nature of their functions. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. Thus, the law imposes on banks a
high degree of obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of banking. Section 2 of Republic Act No. 8791, which took effect on 13
June 2000, makes a categorical declaration that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance.
Though passed long after the unauthorized withdrawals in this case, the aforequoted provision
is a statutory affirmation of Supreme Court decisions already in esse at the time of such
withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals that
the bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.
Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals, we
clarified that said fiduciary relationship means that the banks obligation to observe highest
standards of integrity and performance is deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the New Civil Code states
that the degree of diligence required of an obligor is that prescribed by law or contract, and absent
such stipulation then the diligence of a family. In every case, the depositor expects the bank to
treat his account with utmost fidelity, whether such accounts consists only of a few hundred pesos
or of millions of pesos.
_______________
G.R. No. 157845, 20 September 2005, 470 SCRA 328.
14
271
VOL. 473, OCTOBER 17, 2005 271
Cagungun vs. Planters Development Bank
Settled is the rule that gross negligence of a bank in the handling of its clients deposit
amounts to bad faith that calls for an award of moral damages. Moral damages are
meant to compensate the claimant for any physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injuries unjustly caused. 15
In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals
from the deposits of petitioners and its non-compliance with petitioners instructions
regarding the loan payments constitute gross negligence which justifies the award of
moral damages. As employer, respondent is liable for the negligence or misdeed of its
employees which caused petitioners to have sleepless nights thinking about the
threatened foreclosure of their house and lot. In addition, the way respondent gave
petitioners a hard time in securing copies of their withdrawal slips and ledgers of their
deposits is an indication of bad faith. Respondent could have easily cooperated with
petitioners by immediately furnishing the latter with documents they wanted. This was
not to be. Written communications from petitioners lawyers and from the Central Bank
Governor were not sufficient in order that respondent will provide petitioners with the
documents they needed. It was only after two agents of the CIS of the Philippine
Constabulary went to the bank that respondent was obliged to give petitioners what they
were asking for.
In culpa contractual or breach of contract, as in the case before us, moral damages
16
are recoverable only if the defen-
_______________
15Samson, Jr. v. Bank of the Philippine Islands, G.R. No. 150487, 10 July 2003, 405 SCRA 607.
16The provisions of the New Civil Code on simple loan govern the contract between a bank and its
depositor. Specifically, Article 1980 categorically provides that . . . savings . . . deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan. Thus, the relationship between
a bank and its depositor is that of a debtor-creditor, the depositor being the
272
272 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
dant has acted fraudulently or in bad faith, or is found guilty of gross negligence
17
amounting to bad faith, or in wanton disregard of his contractual obligations. 18
In fine, the requisites on award of moral damages would require, firstly, evidence of
besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that
the wrongful act or omission of the defendant is the proximate cause of the damages
sustained by the claimant; and fourthly, that the case is predicated on any of the
instances expressed or envisioned by Article 2219 and 19
_______________
creditor as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on
demand.
Article 2220, New Civil Code.
17
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
18Philippine Telegraph & Telephone Corporation v. Court of Appeals, G.R. No. 139268, 03 September
2002, 388 SCRA 270.
19Art. 2219. Moral damages may be recovered in the following and analogous cases:
1. (1)A criminal offense resulting in physical injuries;
2. (2)Quasi-delicts causing physical injuries;
3. (3)Seduction, abduction, rape, or other lascivious acts;
4. (4)Adultery or concubinage;
5. (5)Illegal or arbitrary detention or arrest;
6. (6)Illegal search;
7. (7)Libel, slander or any other form of defamation;
8. (8)Malicious prosecution;
9. (9)Acts mentioned in article 309;
10. (10)Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
273
VOL. 473, OCTOBER 17, 2005 273
Cagungun vs. Planters Development Bank
Article 2220 of the Civil Code. All these elements are present in the instant case.
20
There is no hard-and-fast rule in the determination of what would be a fair amount of
moral damages since each case must be governed by its own peculiar facts. The yardstick
should be that it is not palpably and scandalously excessive. We find the sum of
21
P300,000.00 awarded by the lower courts excessive. In our view, the award of
P100,000.00 as moral damages is reasonable and is in accord with our rulings in similar
cases involving banks negligence with regard to the accounts of their depositors. 22
 Anent the removal by the Court of Appeals of the award of exemplary damages, we
find the same to be not in order.
The law allows the grant of exemplary damages to set an example for the public
good. The banking system has become an indispensable institution in the modern world
23
and plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and
_______________
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral
damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of this article, in
the order named.
20Philippine Telegraph & Telephone Corporation v. Court of Appeals, supra, note 18; Citytrust Banking
Corporation (now Bank of the Philippine Islands) v. Villanueva, G.R. No. 141011, 19 July 2001, 361 SCRA 446.
21Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264; Philippine
National Bank v. Court of Appeals, G.R. No. 126152, 28 September 1999, 315 SCRA 309; Samson, Jr. v. Bank of
the Philippine Islands, supra, note 15.
22Philippine Banking Corporation v. Court of Appeals, G.R. No. 127469, 15 January 2004, 419 SCRA
487; Samson, Jr. v. Bank of the Philippine Islands, supra note 15; Philippine National Bank v. Court of
Appeals, ibid.
23Prudential Bank v. Court of Appeals, supra, note 21.
274
274 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
saving of money or as active instruments of business and commerce, banks have attained
a ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and most of all, confidence. For this reason, banks should guard against
24
injury attributable to negligence or bad faith on its part. The award of exemplary 25
damages is warranted by the failure of respondent bank to prevent the unauthorized
withdrawals from petitioners deposits and its failure to properly apply the latters
deposits to their loan. We, however, find the P300,000.00 awarded by the lower court to
be excessive and should accordingly be reduced to P50,000.00.
On the matter of attorneys fees and expenses of litigation, it is settled that the
reasons or grounds for the award thereof must be set forth in the decision of the
court. An award of attorneys fees, being an exception from the policy of not putting a
26
premium or a penalty on the right to litigate, has since been limited to the grounds
specified by law. Article 2208 of
27 28
_______________
24Bautista v. Mangaldan Rural Bank, Inc., G.R. No. 100755, 10 February 1994, 230 SCRA 16.
25Solidbank Corporation v. Arrieta, G.R. No. 152720, 17 February 2005, 451 SCRA 711, 722.
26Cipriano v. Court of Appeals, G.R. No. 107968, 30 October 1996, 263 SCRA 711.
Olan v. Court of Appeals, G.R. No. 126848, 12 March 1998, 287 SCRA 504.
27
28Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
1. (1)When exemplary damages are awarded;
2. (2)When the defendants act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
3. (3)In criminal cases of malicious prosecution against the plaintiff;
4. (4)In case of a clearly unfounded civil action or proceeding against the plaintiff;
275
VOL. 473, OCTOBER 17, 2005 275
Cagungun vs. Planters Development Bank
the Civil Code enumerates the instances where attorneys fees and expenses of litigation
can be recovered.
In the case at bar, the RTC clearly stated in its decision that petitioners are entitled
to attorneys fees and litigation expenses because they were compelled to litigate in order
to protect their interest. We agree. Moreover, there being an award for exemplary
damages, it follows that there should be an award of attorneys fees and litigation
expenses. However, the awards of P50,000.00 for attorneys fees and P50,000.00 for
litigation expenses by the RTC are too much, while the award of P30,000.00 of the Court
of Appeals for both is too small. In as much as this case has been pending for more than
twenty (20) years, the award of P25,000.00 for each will be sufficient.
Petitioners claim that the Court of Appeals erred in deleting the portions of the RTC
decision declaring their mortgage loan paid and enjoining foreclosure. They insist that
they were able to prove that the amounts of P30,000.00 and P118,000.00 were
respectively withdrawn from their accounts
_______________
1. (5)Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;
2. (6)In actions for legal support;
3. (7)In actions for the recovery of wages of household helpers, laborers and skilled workers;
4. (8)In actions for indemnity under workmens compensation and employers liability laws;
5. (9)In a separate civil action to recover civil liability arising from a crime;
6. (10)When at least double judicial costs are awarded;
7. (11)In any other case where the court deems it just and equitable that attorneys fees and expenses of
litigation should be recovered.In all cases, the attorneys fees and expenses of litigation must be
reasonable.
276
276 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
(SA No. 38470-29 and No. 12241-16) and that same were not applied as payment for
their loan. They maintain that by adding together said amounts, the sum thereof is
sufficient to pay their loan and to consider the real estate mortgage as discharged.
Looking at the complaint filed by petitioners, there is no allegation that said amounts
were withdrawn from their accounts and that same were not applied as payments for
their loan. Petitioners likewise did not ask in their prayer that said amounts be returned
to them or that they be used to off-set their indebtedness to respondent. Moreover, when
petitioners tried to prove this allegation, counsel for respondent objected and attempted 29
to have the testimony thereon stricken off the record on the ground of allegata et
probata. 30
 Under Section 5, Rule 10 of the Revised Rules of Court, if evidence is objected to at
31
the trial on the ground that it is not within the issues made by the pleadings, the Court
may allow the pleadings to be amended freely when the presentation of the merits of the
action will be subserved thereby and the
_______________
29TSN, 26 September 1984, pp. 3-7.
30A rule of procedure whereby only matters alleged in the pleadings may be proved (Robles v. Del
Rosario, 100 Phil. 886 [1957]) cited in Philippine Law Dictionary by Moreno, 2nd Ed., p. 35.
SEC. 5. Amendment to conform to or authorize presentation of evidence.When issues not raised by the
31
pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if
they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to
be made. (1997 Rules of Civil Procedure).
277
VOL. 473, OCTOBER 17, 2005 277
Cagungun vs. Planters Development Bank
admission of such evidence would not prejudice the objecting party in maintaining his
action or defense upon the merit. Said section reads:
Sec. 5. Amendment to conform to or authorize presentation of evidence.When issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings to be amended and
shall do so freely when presentation of the merits of the action will be subserved thereby and the
objecting party fails to satisfy the court that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may grant a continuance to enable
the objecting party to meet such evidence.
It is thus clear that when there is an objection on the evidence presented because it is not
within the issues made by the pleadings, an amendment must be made before accepting
such evidence. If no amendment is made, the evidence objected to cannot be considered.
In the case before us, the trial court, there being an objection on the evidence being
presented by respondent, failed to order the amendment of the complaint. Thus, we are
constrained not to consider evidence regarding the P30,000.00 and P118,000.00 allegedly
withdrawn from their accounts. With this ruling, it follows that the outstanding loan of
petitioners in the amount of P58,297.16 remains unpaid.
As regards respondents right to exercise its right to foreclosure of the real estate
mortgage on petitioners property, we rule that respondent cannot exercise such right
under the circumstances obtaining. It will be the height of inequity if we allow such a
thing. The evidence is clear that the sum of P220,000.00 was withdrawn from petitioners
deposits with-
278
278 SUPREME COURT REPORTS ANNOTATED
Cagungun vs. Planters Development Bank
out their knowledge and authority. This amount is more than sufficient to pay for the
loan had it not been illegally withdrawn. Neither should petitioners be held liable for any
interest on the remaining balance of the loan considering that they could have easily
settled their obligation with respondent if they were not embroiled in the anomaly caused
by respondents employees. Finally, payment for the remaining balance of the loan
amounting to P58,297.16 should be deducted from the actual damages awarded by the
court.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The 25
March 2002 decision of the Court of Appeals modifying the decision of the Regional Trial
Court of Olongapo City is AFFIRMED with MODIFICATIONS. As modified, respondent
Planters Development Bank is ordered to pay petitioners the following: (1) P220,000.00
as actual damages representing the total amount withdrawn from petitioners accounts
plus interest of 6% per annum to be computed from the date of the filing of the complaint
which interest rate shall become 12% per annum from the time of finality of this
judgment until actual payment; (2) P100,000.00 as moral damages; (3) P50,000.00 as
exemplary damages; and (4) P25,000.00 as attorneys fees and P25,000.00 for litigation
expenses. Respondent is enjoined from foreclosing the real estate mortgage on
petitioners property located at No. 88 Gordon Avenue, Pag-asa, Olongapo City. Payment
for the outstanding loan of petitioners in the amount of P58,297.16 shall be deducted
from the damages awarded by the Court.
SO ORDERED.
Puno (Chairman), Callejo, Sr. and Tinga, JJ., concur.
Austria-Martinez, J.,No Part.
Petition partially granted, judgment affirmed with modifications.
279
VOL. 473, OCTOBER 17, 2005 279
Valencia vs. Sandiganbayan
Notes.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. (Philippine National Bank vs. Court of Appeals, 315 SCRA 309 [1999])
The degree of diligence required of banks is more than that of a good father of a
family; in keeping with their responsibility to exercise the necessary care and prudence
in dealing even on a registered or titled property. (Canlas vs. Court of Appeals, 326 SCRA
415 [2000])
Banks are engaged in a business impressed with public interest, and it is their duty
to protect in return their many clients and depositors who transact business with them.
(Westmont Bank vs. Ong, 375 SCRA 212 [2002])
o0o
17. G.R. No. 136371. November 11, 2005. *
PRUDENTIAL BANK, petitioner, vs. CHONNEY LIM, respondent.
Appeals; Factual findings of the Court of Appeals and other lower courts are, as a rule,
accorded with great weight, if not binding upon the Supreme Court, save for the most compelling
and cogent reasons. Essentially, as intimated earlier, the issue in the instant case boils down to
whether respondent made a deposit of P34,000.00 on 15 March 1988, apart from the deposit of an
equal amount the day before, a factual question which was resolved in the affirmative by the RTC,
which finding was categorically affirmed by the Court of Appeals. The factual issue is beyond the
province of this Court to review or disturb. It is not the function of the Court to analyze or weigh all
over again the evidence or premises supportive of such factual determination. The Court has
consistently held that the findings of the Court of Appeals and other lower courts are, as a rule,
accorded great weight, if not binding upon it, save for the most compelling and cogent reasons.
Banks and Banking; Negligence; The failure of the banks employees to credit the amount
deposited to the depositors savings account, resulting as it did in the dishonor of the latters checks,
constitutes actionable negligence in law.Article 1172 of the Civil Code ordains that responsibility
arising from negligence in the performance of an obligation is demandable. The failure of the
banks employees to credit the amount of P34,000.00 to respondents savings account, resulting as
it did in the dishonor of respondents checks, constitutes actionable negligence in law.
_______________
*SECOND DIVISION.
486
4 SUPREME COURT REPORTS ANNOTATED
86
Prudential Bank vs. Lim
Same; Same; It is worthy of note that the banking industry is impressed with public
interest.From another perspective, the negligence of the bank constitutes a breach of duty to its
client. It is worthy of note that the banking industry is impressed with public interest. As such, it
must observe a high degree of diligence and observe lofty standards of integrity and performance.
By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with them.
Same; The banking system is an indispensable institution in the modern world and plays a
vital role in economic life of every civilized nation.With the attending factual milieu, the
imposition of damages on the errant bank is in order. Presaging this course of action is the ruling
in Simex International v. Court of Appeals, where this Court rendered a telling discourse on the
fiduciary responsibility of depository banks, thus: The banking system is an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money or as active instruments
of business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the
humble wage-earner has not hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him. The ordinary
person, with equal faith, usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses. As for business entities
like the petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks. In every case, the depositor expects the
bank to treat his account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction accurately, down to
the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he sees fit, confident that the bank
will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the
dishonor of a check without good reason, can cause the depositor not a little embarrassment if not
also financial loss and perhaps even civil and criminal litigation.
487
VOL. 474, NOVEMBER 11, 2005 48
7
Prudential Bank vs. Lim
Same; Damages; Credit is very important to businessmen and its loss or impairment needs to
be recognized and compensated.The concept of moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may
be recovered if they are the proximate result of the defendants wrongful act or omission. Needless
to say, the banks wrongful act caused injury to respondent. Credit is very important to
businessmen, and its loss or impairment needs to be recognized and compensated. This Court
in Leopoldo Araneta v. Bank of America highlights the importance of good credit in the business
community: The financial credit of a businessman is a prized and valuable asset, it being a
significant part of the foundation of his business. Any adverse reflection thereon constitutes some
material loss to him. As stated in the case Atlanta National Bank vs. Davis, supra, citing 2 Morse
Banks, Sec. 458, it can hardly be possible that a customers check can be wrongfully refused
payment without some impeachment of his credit, which must in fact be an actual injury, though
he cannot, from the nature of the case, furnish independent, distinct proof thereof.
Same; Same; The banking sector must at all times maintain high level of meticulousness, and
in the instant case, in view of the banks negligence to record the deposit, the grant of exemplary
damages is justified. We sustain the award of exemplary damages. Such damages are imposed by
way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages. The business of a bank is affected with public interest; thus, it makes a
sworn profession of diligence and meticulousness in giving irreproachable service. For this reason,
the bank should guard against injury attributable to negligence or bad faith on its part. The
banking sector must at all times maintain a high level of meticulousness. In view of the banks
negligence to record the deposit, the grant of exemplary damages is thus justified.
Appeals; Pleadings and Practice; As a rule, no issue may be raised on appeal unless it has
been brought before the lower tribunal for its considerationhigher courts are precluded from
entertaining matters neither alleged in the pleadings nor raised during the proceedings below.The
bank raises another issue, that concerning the postdated check which it had prematurely posted
and which it initially assumed, when it first wrote the respondent on 30 May 1988, to be the cause
of the dishonor of respondents check payable to Paluwagan. The bank argues that the fact it
prematurely honored such postdated check did not give rise to damages. This
488
4 SUPREME COURT REPORTS ANNOTATED
88
Prudential Bank vs. Lim
argument is irrelevant. The act or omission of the bank that gives rise to damages in favor of
respondent is not the premature posting of the post-dated check, but the fact that the bank did not
credit respondents second deposit of P34,000.00. Besides, this is the first time that said issue was
presented. As a rule, no issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration. Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time
only in a motion for reconsideration or on appeal.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
George M. Florendo for petitioner.
Emiliano L. Gayo & Associates for respondent.
TINGA, J.:
This treats of the petition for review on certiorari of the Decision of the Court of
1
Appeals, dated 31 July 1998, which affirmed with slight modification the Decision of the
2 3
Regional Trial Court (RTC), granting the action filed by respondent for recovery of sum
4 8 Supra note 6.
of money and damages.
Chonney Lim (respondent), the owner of Rikes Boutique located at Session Road,
Baguio City, maintained two (2) accounts with Prudential Bank (the bank), namely:
Savings Account No. 11264 and Checking Account No. 1262. He availed of the banks
automatic transfer system wherein the funds from his savings account could be
transferred to his checking account in case the balance of the latter account was
insufficient to cover the checks he issued.
_______________
1 Rollo, pp. 40-51.
2 Penned by Associate Justice Angelina Sandoval-Gutierrez (now Supreme Court Associate Justice) and
concurred in by Associate Justices B.A. Adefuin-De la Cruz and Presbitero J. Velasco, Jr.
3 Rollo, pp. 24-39.
4 Penned by Judge Salvador J. Valdez, Jr.
489
VOL. 474, NOVEMBER 11, 2005 489
Prudential Bank vs. Lim
On 14 March 1988, respondent deposited the amount of P34,000.00 with his savings
account. According to respondent, the following day, 15 March 1988, he deposited an
equal amount with the same savings account. The matter is the crux of contention
between the parties, as the bank has steadfastly denied having received the latter
deposit from respondent.
On 24 May 1988, respondent issued a check against his current account in favor of
the Paluwagan ng Bayan Savings Bank (Paluwagan) in the sum of P2,830.00 in payment
of his loan with the said bank. On 25 May 1988, respondent drew another check against
his checking account to the order of Teodulo Crisologo in the amount of P10,000.00 as
payment for a business transaction with the latter.
The bank, however, dishonored both checks, claiming that respondent did not have
sufficient funds in his account with the bank. Upon learning that the first check paid to
Paluwagan had been dishonored, respondent wrote a letter to the bank on 27 May 1988,
5
asking it to recheck its records. On 30 May 1988, the banks manager, Tolentino
Opiniano (Opiniano), sent a reply letter, offering, as an excuse for the dishonor of said
6
check, the inadvertent earlier posting to respondents account of a postdated
check. While Opiniano apologized for respondents inconvenience, he made no
7
commitment to honor this first check. 8
When the second dishonored check came to respondents knowledge, he immediately
wrote a letter to the bank, protesting the dishonor of the check. Opiniano sent a
9
reply stating that as per records, a deposit slip dated 15 March 1988 for P34,000.00 was
10
received for deposit to Savings Account No. 11264 on 14 March 1988.
_______________
5 Rollo, p. 25.
Id., at p. 27.
6
7 Check No. 275243 dated 29 May 1988 for P3,500.00 in favor of Mrs. Amparo Arre was posted on 11 May
1988.
9 Id., at pp. 28-29.
Id., at p. 29.
10
490
490 SUPREME COURT REPORTS ANNOTATED
Prudential Bank vs. Lim
Respondent denied having made only one deposit, insisting that he made two deposits of
P34,000.00 each, one on 14 March and the other on 15 March. As proof, respondent
presented the two separate deposit slips covering the transactions, the first bearing the
date 14 March 1988 while the second, the date 15 March 1988.
After the bank had conducted a thorough investigation, on 10 June 1988, Opiniano
informed respondent that two deposits were made on 14 March 1988, one for P34,000.00
and the other for P1,000.00; and that two other deposits were made on 15 March 1988:
P4,900.00 and P2,900.00. He maintained that although the deposit slip bearing the
amount of P34,000.00 is dated 15 March 1988, it was actually received the day before or
on 14 March 1988. Thus, the banks position is that only one deposit of P34,000.00 was
made by respondent on 14 and 15 March 1988. 11
In view of the banks adamant refusal to alter its stand, respondent filed
a Complaint before the RTC, Baguio City for the recovery of P34,000.00 representing his
12
actual deposit and P300.00 as penalty charge, plus damages.
On 27 August 1991, the RTC rendered its Decisionholding that respondent made two
deposits of P34,000.00 apiece. Thus, the RTC ordered the bank to pay the following
amounts: P34,000, representing the unposted deposit, with legal interest; P600.00,
representing the service charges unjustifiably imposed on respondent, with legal
interest; P50,000.00 as moral damages; P25,000.00 as exemplary damages; and
P10,000.00 as attorneys fees, plus costs of suit.
On appeal, the Court of Appeals affirmed the decision of the trial court with
modification as to the award of moral damages, reducing it to P10,000.00. The testimony
of the bank teller, coupled with the fact that the two deposit slips listed different
denominations of money totaling P34,000.00 per deposit slip, led the appellate court to
conclude that there were indeed two deposits of P34,000.00 each, one made on 14 March
and the other on 15 March 1988.
_______________ and C which are plaintiffs file copies of two separate and different deposit slips for P34,000.00
each. Exhibit B is a deposit slip, dated March 14, 1988, for P34,000.00 consisting of 300 pieces of
Id., at pp. 31-32.
11
P100 bills and 80 pieces of P50.00 bills; while Exhibit C is a deposit slip, dated March 15, 1988,
RTC Records, pp. 1-5.
12
also for P34,000.00, but consisting of 340 pieces of P100 bills. It is only Exhibit C that appears to
491 have been recorded by the defendant bank (Exhibit 3). Since teller Caasi acknowledged to have
VOL. 474, NOVEMBER 11, 2005 491 stamped both deposit slips, logic and reason dictates that she should be presumed to have received
Prudential Bank vs. Lim the amounts covered by them unless she could satisfactorily demonstrate the contrary which she,
however, miserably failed to do. The fact that only one (1) deposit of P34,000.00 is recorded in the
Before this Court, the bank argues in the main that the award of damages by the tellers validating machine and blotter, as well as in the ledger, passbook, bookkeepers machine
appellate court is groundless that consequently, the assailed decision is not in accord tape and blotter, can not help her any for the crux precisely of plaintiffs complaint is defendants
with law and jurisprudence. 13
negligence in not recording his other deposit of P34,000.00.16

As a rule, the findings of fact of the trial court when affirmed by the Court of Appeals The appellate court similarly observed:
are final and conclusive on, and cannot be reviewed on appeal by, this Court as long as On the basis of the evidence adduced by the parties, We are convinced that indeed, appellee
they are borne out by the record or are based on substantial evidence. The Court is not a deposited P34,000.00 on March 14 and another P34,000.00 on March 15, 1988. These two different
trier of facts, its jurisdiction being limited to reviewing only errors of law that may have transactions are evidenced by two deposit slips marked as Exhibits B and C. The fact that
been committed by the lower courts. 14
appellant received the amount represented by each deposit slip can be inferred from the testimony
Essentially, as intimated earlier, the issue in the instant case boils down to whether of Merlita Caasi, a bank teller:
respondent made a deposit of P34,000.00 on 15 March 1988, apart from the deposit of an ATTY. GAYO:
equal amount the day before, a factual question which was resolved in the affirmative by Q: And by stamping the duplicate copy of a depositor, in the case of Mr.
the RTC, which finding was categorically affirmed by the Court of Appeals. The factual Lim, who is in a practice of always preparing a duplicate
issue is beyond the province of this Court to review or disturb. It is not the function of the _______________
Court to analyze or weigh all over again the evidence or premises supportive of such
factual determination. The Court has consistently held that the findings of the Court of Supra note 3 at pp. 37-38.
16

Appeals and other lower courts are, as a rule, accorded great weight, if not binding upon 493
it, save for the most compelling and cogent reasons. 15 VOL. 474, 493
We find no justification to deviate from the factual findings of the trial court and the NOVEMBER 11,
appellate court. The bank has utterly failed to convince us that the assailed findings are 2005
devoid of basis or are not supported by substantial evidence.
_______________
Prudential Bank vs. Lim
copy for his file, your mere stamping of the
13Rollo, pp. 12-13. duplicate would indicate that you received the
14Swagman Hotels and Travel, Inc. v. Court of Appeals, G.R. No. 161135, 8 April 2005, 455 SCRA
175, citing Amigo v. Teves, 96 Phil. 252(1954) and Alsua-Betts v. Court of Appeals, Nos. L-46430-31, 30 July money deposited?
1979, 92 SCRA 332. A: Yes, your Honor.
15Abacus Real Estate Development Center v. Manila Banking Corporation, G.R. No. 162270, 6 April
2005, 455 SCRA 97, citing Philippine Telegraph and Telephone Corporation v. Court of Appeals, G.R. No.
which must be read in conjunction with her testimony on cross-examination, thus:
152057, 29 September 2003, 412 SCRA 263; Ibay v. Court of Appeals, G.R. No. 47158, 5 August 1992, 212 SCRA ATTY. GAYO:
160; and Republic v. Court of Appeals, G.R. No. 116372, 18 January 2001, 349 SCRA 451.
492
Q: I am showing you Exhibit C and tell the Honorable Court if that is
492 SUPREME COURT REPORTS ANNOTATED the duplicate of Exhibit 3 which you also stamped with the stamp
Prudential Bank vs. Lim of the bank?
As found by the RTC, respondent indeed made two deposits of P34,000.00 on 14 and 15 A: I am not sure if that is the real deposit slip made at the same day
March 1988, viz.: because they have the practice to get another duplicate if their
On the pivotal issue of whether or not the plaintiff made only one (1) or two (2) deposits of personal copy was lost, your Honor. This is my stamp but I am not
P34,000.00the first on March 14 and the second on March 15, 1988the Court holds that, from
the evidence extant in the record, particularly the admissions of teller Merlita Susan Caasi, the
sure if this is the same.
plaintiff has established his claim of having made two (2) deposits of P34,000.00. Thus, Caasi INTERPRETER:
admitted that she impressed her rubber stamp, Teller 2 and duplicate on both the Exhibits B
 Witness referring to Exhibit C. A: Yes, Your Honor. It is shown at the back of the deposit slip.
ATTY. GAYO: Q: As what?
Q: But you are sure that this is your stamp as Teller No. 2 at that time? A: At the back of the deposit slip, your Honor. It shows that the
A: It appears, it is. P100.00 bills I deposited is 340 pieces, amounting to P34,000.00.
Q: I am showing you now that which we reserved the last time, the Q: Do you have a xerox copy of that?
original of Exhibit B, a copyan original copy of a dep osit slip A: Yes, Your Honor.
dated March 14, 1988, stamped with the stamp of the Bank Teller No. Atty. Gayo:
2 and a duplicate. Now, can you now state to the Court that this was May we show both the original and the xerox copy. The xerox copy
your stamp of the bank stamp? reflects the front page and the reverse side of the deposit slip dated
A: That is my stamp. March 15, 1988. May we ask for an observation.
Q: Even this word duplicate stamped also in this Exhibit B, the Atty. Muoz:
original of Exhibit B, is your stamp? The xerox copy of the deposit slip dated March 15, 1988 in the sum
A: Yes, it is my stamp. of P34,000.00, together with the reverse side is a faithful
Appellee also presented in evidence the reverse side of the deposit slip dated March 14, 1988 he reproduction of the duplicate original presented.
described as follows:
Atty. Gayo:
Q: On the front side of Exhibit B, the amount of P34,000.00 cash
May we respectfully pray that the front page of that deposit slip be
appears. Is this explained by any denomination of the same exhibit?
marked as Exhibit C and the reverse side as Exhibit C-1. 17

A: Yes, your Honor. _______________

Q: You are referring to what part of the exhibit?
A: I am referring to Exhibit B-1, Your Honor. 17 Supra note 1 at pp. 45-48.
495
494
494 SUPREME COURT REPORTS ANNOTATED VOL. 474, NOVEMBER 11, 2005 495
Prudential Bank vs. Lim Prudential Bank vs. Lim
An examination of the deposit slips dated 14 March and 15 March 1988 reveals that
Q: So that the P34,000.00 you deposited consisted of 300 pieces of while the slips each cover deposits in the amount of P34,000.00, they list down different
P100.00 bills in the total amount of P30,000.00; 80 pieces of P50.00 denominations however. Evidently, the slips were not prepared simultaneously or
bills in the total amount of P4,000.00? concurrently. This fact militates against the banks claim that one deposit slip is simply
A: Yes. Your Honor. the duplicate of the other. To sustain the banks hypothesis, we would have to conclude
In the same manner, appellee also presented the other side of the deposit slip dated March 15, that respondent, with all deliberate design, prepared two deposit slips and purposely
1988, thus: wrote different denominations in them to mislead the bank that the two deposit slips
Q: On March 15, 1988, do you remember having again deposited were separately executed on different occasions. There is no evidence to support such a
another amount of P34,000.00 to your account with the defendant bizarre conclusion; thus, we are content to uphold the findings of the triers of fact on this
point.
bank?
The bank insists that the court misappreciated the import of the letter of Opiniano
A: Yes. Your Honor. dated 10 June 1988. As we have earlier intimated, appreciation of evidence is the domain
Q: Do you have a copy? Do you have evidence to show? of the lower courts. The testimonies of the witnesses presented by the bank deserve scant
A: Yes. Your Honor. I have here my deposit slip on March 15, 1988, consideration in the face of the overwhelming documentary evidence of respondent, i.e.,
for the amount of another P34,000.00. the duplicate originals of the deposit slips bearing the amount of P34,000.00 dated 14
and 15 March 1988, respectively. Indeed, the bank failed to rebut the inexorable
Q: Is the denomination of the total deposit of P34,000.00 you made on
probative impact of the deposit slips.
March 15 shown in this deposit slip?
 Article 1172 of the Civil Code ordains that responsibility arising from negligence in
the performance of an obligation is demandable. The failure of the banks employees to
credit the amount of P34,000.00 to respondents savings account, resulting as it did in the
dishonor of respondents checks, constitutes actionable negligence in law.
From another perspective, the negligence of the bank constitutes a breach of duty to
its client. It is worthy of note that the banking industry is impressed with public interest.
As such, it must observe a high degree of diligence and observe lofty standards of
integrity and performance. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors with meticulous
496
496 SUPREME COURT REPORTS ANNOTATED
Prudential Bank vs. Lim
care and always to have in mind the fiduciary nature of its relationship with them. 18
With the attending factual milieu, the imposition of damages on the errant bank is in
order. Presaging this course of action is the ruling in Simex International v. Court of
Appeals, where this Court rendered a telling discourse on the fiduciary responsibility of
19
depository banks, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and
active associate that can help in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible. This has
to be done if the account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal
litigation.
_______________
18 Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. 138569, 11 September 2003, 410
SCRA 562, citing Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, 28 May
2004, 430 SCRA 261.
19 G.R. No. 88013, 19 March 1990, 183 SCRA 360.
497
VOL. 474, NOVEMBER 11, 2005 497
Prudential Bank vs. Lim
The action for damages hinges on the resolution of whether respondent has sufficient
funds in his account when the checks were dishonored. Both the trial and appellate
courts ruled that had the bank credited the P34,000.00 deposit made by respondent on 15
March 1988, the checks would not have been dishonored. Likewise, both courts found
that moral damages were in order.
The concept of moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendant's wrongful
act or omission. 20
Needless to say, the banks wrongful act caused injury to respondent. Credit is very
important to businessmen, and its loss or impairment needs to be recognized and
compensated. This Court in Leopoldo Araneta v. Bank of America highlights the
21 22
importance of good credit in the business community:
The financial credit of a businessman is a prized and valuable asset, it being a significant part of
the foundation of his business. Any adverse reflection thereon constitutes some material loss to
him. As stated in the case Atlanta National Bank vs. Davis, supra, citing 2 Morse Banks, Sec. 458,
it can hardly be possible that a customers check can be wrongfully refused payment without some
impeachment of his credit, which must in fact be an actual injury, though he cannot, from the
nature of the case, furnish independent, distinct proof thereof.
Under the circumstances of this case, we find that the award of moral damages is proper
but the amount must be reverted back to P50,000.00 as ordered by the RTC, said court
being in a better position to assess the amount of damages to be imposed on the negligent
bank.
_______________
Article 2217, CIVIL CODE.
20
Samson v. Bank of the Philippine Islands, G.R. No. 150487, 10 July 2003, 405 SCRA 607.
21
148-B Phil. 124; 40 SCRA 144 (1971).
22
498
498 SUPREME COURT REPORTS ANNOTATED
Prudential Bank vs. Lim
Furthermore, we sustain the award of exemplary damages. Such damages are imposed
by way of example or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages. The business of a bank is affected with public
23
interest; thus, it makes a sworn profession of diligence and meticulousness in giving
irreproachable service. For this reason, the bank should guard against injury
attributable to negligence or bad faith on its part. The banking sector must at all times
maintain a high level of meticulousness. In view of the banks negligence to record the
24
deposit, the grant of exemplary damages is thus justified.
The bank raises another issue, that concerning the postdated check which it had
prematurely posted and which it initially assumed, when it first wrote the respondent on
25
30 May 1988, to be the cause of the dishonor of respondents check payable to
Paluwagan. The bank argues that the fact it prematurely honored such postdated check
26
did not give rise to damages. This argument is irrelevant. The act or omission of the
27
bank that gives rise to damages in favor of respondent is not the premature posting of
the postdated check, but the fact that the bank did not credit respondents second deposit
of P34,000.00. Besides, this is the first time that said issue was presented. As a rule, no
issue may be raised on appeal unless it has been brought before the lower tribunal for its
consideration. Higher courts are precluded from entertaining matters neither alleged in
the pleadings nor raised during the proceedings below, but ventilated for the first time
only in a motion for reconsideration or on appeal. 28
Labor Law; Labor Relations; Dismissals; Loss of Trust and Confidence; Lack of material or
pecuniary damages would not in any way mitigate a persons liability nor obliterate the loss of trust
and confidence. There is jurisprudential support, as noted by the Court of Appeals in
citing University of the East v. NLRC that lack of material or pecuniary damages would not in any
way mitigate a persons liability nor obliterate the loss of trust and confidence. In the case
of Etcuban v. Sulpicio Lines, this Court
_______________

_______________ *SECOND DIVISION.

233
23 Article 2229, CIVIL CODE OF THE PHILIPPINES. VOL. 474, OCTOBER 25, 2005 23
24 Solidbank Corporation v. Arrieta, G.R. No. 152720, 17 February 2005, 451 SCRA 711, citing Simex
International v. Court of Appeals, supranote 19.
3
25 Supra note 7. Cadiz vs. Court of Appeals
26 Ibid. definitively ruled that: . . . Whether or not the respondent bank was financially prejudiced is
Rollo, p. 18.
immaterial. Also, what matters is not the amount involved, be it paltry or gargantuan; rather the
27

28 Mendoza and Casino v. Bautista, G.R. No. 143666, 18 March 2005, 453 SCRA 691, citing Sesbreo v.
Central Board of Assessment Appeals, 337 Phil. 89; 270 SCRA 360 (1997); Manila Bay Club Corporation v.
Court of Appeals, 319 Phil. 413; 249 SCRA 303 (1995); Development Bank of the
499
VOL. 474, NOVEMBER 11, 2005 499
Prudential Bank vs. Lim
WHEREFORE, the petition is DENIED. The Decision of the RTC dated 27 August 1991
in Civil Case No. 1467-R is AFFIRMED IN FULL. Costs against petitioner.
SO ORDERED.
Puno (Chairman), Austria-Martinez and Callejo, Sr., JJ.,concur.
Chico-Nazario, J.,On Leave.
Petition denied, judgment affirmed in full.
Notes.Where the questioned checks were payable to cash, appeared on their face
and the bank found nothing unusual in the transaction, as the drawer usually issued
checks in big amounts made payable to cash or to a particular person or to a company,
the bank cannot be faulted in paying the value of the disputed checks. (Security Bank &
Trust Company vs. Triumph Lumber and Construction Corporation, 301 SCRA
537 [1999])
A banks lifeline depends largely on the trust and confidence accorded to it by its
depositors and the public in general. Public officers cannot be faulted with the careless
handling of confidential and vital information in their custody where too many
possibilities exist as to how word got to the press. (Reyes vs. Rural Bank of San Miguel
[Bulacan], Inc., 399 SCRA 226 [2003])
o0o
18. G.R. No. 153784. October 25, 2005. *
fraudulent scheme in which the petitioner was involved, which constitutes a clear betrayal of trust
and confidence. . . . Moreover, it cannot be discounted that as bank employees, the responsibilities
of petitioners are impressed with a high degree of public interest. Private persons entrust their
fortunes to banks, and it would cause a breakdown of the financial order if the judicial system were
to leave unsanctioned bank employees who treat depositors accounts as their own private kitty.
Same; Same; Preventive Suspension; Preventive suspension, which is never obligatory on the
part of the employer, may be resorted to only when the continued employment of the employee poses
a serious and imminent threat to the life or property of the employer or of his co-workers.
Petitioners insist that respondent bank never lost trust and confidence in them as it did not place
them under preventive suspension, and more tellingly, it even promoted them after the labor
arbiter had ordered their reinstatement. Preventive suspension, which is never obligatory on the
part of the employer, may be resorted to only when the continued employment of the employee
poses a serious and imminent threat to the life or property of the employer or of his co-workers.
The bank points out that the Alfiscar account, through which the anomalous transactions were
coursed, was no longer active at the time the fraud was discovered. Clearly, the bank had reason to
conclude that the imminence of the threat posed by the employees was not as vital as it would have
been had the dubious account still been open.
Banks and Banking; The bank must not only exercise high standards of integrity and
performance, it must also ensure that its employees do likewise because this is the only way to
ensure that the bank will comply with its fiduciary duty.It would simply be temerarious for the
Court to sanction the reinstatement of bank employees who have clearly engaged in anomalous
banking practices. The particular fiduciary responsibilities reposed on banks and its employees
cannot be emphasized enough. The fiduciary nature of banking is enshrined in Republic Act No.
8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and
performance. The bank must not only exercise high standards of integrity and performance, it
must also ensure that its employees do likewise because this is the only way to ensure that the
bank will comply with its fiduciary duty.
234

ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA IV,

2 SUPREME COURT REPORTS ANNOTATED
petitioners, vs. COURT OF APPEALS, and PHILIPPINE COMMERCIAL 34
INTERNATIONAL BANK (Now EQUITABLE PCIBANK), respondents. Cadiz vs. Court of Appeals
 Labor Law; Labor Relations; Dismissals; Loss of Trust and Confidence; The breach of trust
must be willful, meaning it must be done intentionally, knowingly, and purposely, without
justifiable excuse.We affirm the conclusion that petitioners were dismissed for just cause. Loss of
trust and confidence is one of the just causes for termination by employer under Article 282 of the
Labor Code. The breach of trust must be willful, meaning it must be done intentionally, knowingly,
and purposely, without justifiable excuse. Ideally, loss of confidence applies only to cases involving
employees occupying positions of trust and confidence or to those situations where the employee is
routinely charged with the care and custody of the employers money or property. Utmost trust and
confidence are deemed to have been reposed on petitioners by virtue of the nature of their work.
PETITION for review on certiorari of the decisions of the Court of Appeals.
The facts are stated in the opinion of the Court.
Armando San Antonio for petitioners.
Esteban Y. Mendoza for private respondent.
TINGA, J.:
Employees who abuse their position for fiduciary gain cannot be shielded from the
consequences of their wrongdoing even on account of the banks operational laxities that
may have provided the gateway for their shenanigans. Their misconduct provides the
bank with cause for the termination of their employment.
The facts follow.
Petitioners Romeo Cadiz (Cadiz), Carlito Bongkingki (Bongkingki) and Prisco
Gloria IV (Gloria) were employed as signature verifier, bookkeeper, and foreign
currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch
(MOB) of Philippine Commercial International Bank (respondent bank).
The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a
complaint with PCIB for the alleged non-receipt of a Six Hundred Dollar ($600.00)
demand draft drawn against it
235
VOL. 474, OCTOBER 25, 2005 235
Cadiz vs. Court of Appeals
which was purchased by her husband from Hongkong and Shanghai Banking
Corporation. Upon verification, it was uncovered that the demand draft was deposited on
10 June 1988 with FCDU Savings Account (S/A) No. 1083-4, an account under the name
of Sonia Alfiscar (Alfiscar). Further investigation revealed that the demand draft,
together with four (4) other checks, was made to appear as only one deposit covered by
HSBC Check No. 979120 for One Thousand Two Hundred Thirty-two Dollars
(US$1,232.00).
The Branch Manager, Ismael R. Sandig, then presided over a series of meetings,
wherein Cadiz, Bongkingki and Gloria allegedly verbally admitted their participation in
a scheme to divert funds intended for other accounts using the Savings Account of
Alfiscar. Subsequently, Cadiz allegedly paid Alqueza P12,690.00, the peso equivalent of
US$600, but insisted that the corresponding receipt be issued in Alfiscars name instead.
On account of these allegations, a special audit examination was conducted by the
bank. On 31 January 1989, the internal auditors of the bank, headed by Lizza G. Baylon,
submitted their findings in an official report. The auditors determined that as early as
July 1987, petitioner Cadiz had reserved the savings account in the name of Sonia
Alfiscar. The account was opened on 27 November 1987 and closed on 23 June 1988.
Twenty-five (25) deposit slips involving the account were posted by Bongkingki while
sixteen (16) deposit slips were posted by Gloria. A verification of the deposit slips yielded
findings of miscoded checks, forged signatures, non-validation of deposit slips by the
tellers, wrongful deposit of second-endorsed checks into foreign currency deposit
accounts, the deposit slips which do not bear the required approval of bank officers, and
withdrawals made either on the day of deposit or the following banking day. 1
In view of such findings, show-cause memoranda were served on petitioners,
2
requiring them to explain within seventy-two (72) hours why no disciplinary action
should be taken against them in
_______________
1Rollo, pp. 8-9.
2Id., at pp. 68-73.
236
236 SUPREME COURT REPORTS ANNOTATED
Cadiz vs. Court of Appeals
connection with the results of the special audit examination. On 22 March 1989,
petitioners submitted their written explanations. Not satisfied with their explanations,
3
respondent bank in memoranda all dated 22 June 1989 dismissed petitioners from
4
employment for violation of Article III Section 1 B-2 and Article III Section 1-C of the
Code of Discipline.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal on 18
September 1989. Labor Arbiter Ernesto S. Dinopol adjudged that petitioners were
illegally dismissed and ordered their reinstatement and payment of backwages. This
conclusion was based on the notices of dismissal, which, to the mind of the labor arbiter,
was couched in general terms and without explaining how the rules were violated. The
labor arbiter also attributed petitioners acts in fraudulently coding several deposit slips
as 1511 (immediately withdrawable) as mere procedural inadequacies, with the fault
attributable to respondent bank for its laxity.5
The labor arbiters Decision was reversed on appeal before the Second Division of the
National Labor Relations Commission (NLRC), which, in a Decision dated 30 June 1994,
6
ordered the dismissal of the petition. In doing so, the NLRC departed from the labor
arbiters finding of facts and concluded that petitioners were dismissed for just cause.
Dismissing petitioners appeal, the Court of Appeals Ninth Division similarly determined
on the basis of substantial evidence that petitioners were validly terminated in its
own Decision dated 13 July 2001.
7
_______________
3 Id., at pp. 75-79.
4 Id., at pp. 80-81.
 5Id., at pp. 115-123.
Id., at pp. 124-140. Penned by Commissioner Rogelio I. Rayala and concurred in by Presiding
6
Commissioner Edna Bonto-Perez. Commissioner Victoriano R. Calaycay did not take part.
7Id., at pp. 191-204. Penned by Associate Justice Delilah Vidallon-Magtolis, concurred in by Associate
Justices Teodoro P. Regino and Josefina Guevara-Salonga.
237
VOL. 474, OCTOBER 25, 2005 237
Cadiz vs. Court of Appeals
After the appellate court denied petitioners motion for reconsideration, the matter was
brought before this Court in a Petition for Review on Certiorari. 8
The issues to be resolved are whether the Court of Appeals erred in not sustaining the
findings of the labor arbiter and upholding those of the NLRC and whether the Court of
Appeals erred in dismissing the petition by ignoring petitioners claims that they were
dismissed without just cause and due process. 9
In its Comment, respondent bank seeks to have the petition dismissed inasmuch as
10
all the issues raised herein involve questions of fact. We note that as a general rule, only
questions of law may be brought upon this Court in a petition for review
on certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts, and as
such is tasked to calibrate and assess the probative weight of evidence adduced by the
parties during trial all over again. 11
However, if there are competing factual findings by the different triers of fact, such as
those made in this case by the labor arbiter on one hand, and those of the NLRC and
Court of Appeals on the other hand, this Court is compelled to go over the records of the
case, as well as the submissions of the parties, and resolve the factual issues. With this 12
in mind, we shall now proceed to examine the decisions under review.
_______________
8Id., at p. 3.
9Id., at pp. 25-26.
10Id., at pp. 343-425.
Union Motor Corporation v. National Labor Relations Commission, G.R. No. 159738, 9 December
11
2004, 445 SCRA 683, citing Superlines Transportation Company, Inc. and Manolet Lavides v. ICC Leasing and
Financing Corporation, G.R. No. 150673, 28 February 2003, 398 SCRA 508.
12Fujitsu Computer Products Corporation of the Philippines v. Court of Appeals, G.R. No. 158232, 31 March
2005, 454 SCRA 737, citing Globe Telecom, Inc. v. Florendo-Flores, G.R. No. 150092, 27 September 2002, 390
SCRA 201; Caingat v. National Labor Relations Commission, G.R. No. 154308, 10 March 2005, 453 SCRA 142.
238
238 SUPREME COURT REPORTS ANNOTATED
Cadiz vs. Court of Appeals
The general thesis as laid down by the NLRC and Court of Appeals is that petitioners
had surreptitiously diverted funds deposited by depositors to S/A No. 1083-4 which was
under their control and disposition. On the other hand, a perusal of the labor
arbiters Decision reveals a different perspective from which the case was approached.
While the labor arbiter conceded that petitioners Bongkingki and Gloria had miscoded
several deposit slips, rendering them immediately withdrawable, he characterized the
errors as mere procedural inadequacies which were preventable had management
exercised greater control over its employees. 13
Far from petitioners thrust, the miscoding of deposit slips cannot be downplayed as
mere procedural inadequacies. After all, it is such miscoding that precipitated the
fraudulent withdrawals in the first place. The act operated as the first indispensable step
towards the commission of fraud on the bank.
More disturbing though is the labor arbiters willingness to acquit petitioners of
culpability on account of the purported negligence of the bank. It is similar to concluding
that the bank guards, and not the burglars, bear primary culpability for a bank robbery.
Whatever liability or responsibility was expected of the bank stands as an issue separate
from the liability of the recreant bank employees. Even assuming that the bank observed
less-than-ideal controls over the security of its operations, such laxity does not serve as
the carte blanche signal for the bank employees to take advantage of safeguard control
lapses and perpetrate chicanery on their employer.
The labor arbiter also evaluated the banks claim that Cadiz had reimbursed the
amount of $600 to the aggrieved depositor Alqueza while making it appear that it was
Alfiscar who had actually made the refund. In disbelieving this claim, the Labor Arbiter
concluded that it is unthinkable for a lowly bank employee to impose his will upon his
high and mighty employer. 14
_______________
Rollo, p. 120.
13
Id., at p. 121.
14
239
VOL. 474, OCTOBER 25, 2005 239
Cadiz vs. Court of Appeals
This pronouncement is revelatory of absurd logic. The notion that a lowly employee will
never countermand the will or interests of the employer is sufficiently rebutted by any
labor law casebook, any omnibus of our labor jurisprudence, and the evolution of the
human experience that disquiets persons from unhesitatingly acceding to the
presumptive good faith of others. It is an accepted premise of life and jurisprudence that
persons are capable, upon impure motivations, of taking advantage of others, whether
their social lessers, equals, or betters. The necessity of punishment arises from this flaw
of human nature. This philosophic stance of the labor arbiter actually obviates the
nature of sin.
Obviously, we are hard-pressed to accord high regard to the labor arbiters
discernment as a trier of facts. Nonetheless, his claim that there were procedural flaws
attending the dismissal of petitioners warrants some deliberation.
The labor arbiter ruled that the notices of dismissal served on petitioners was
insufficient as it failed to specifically delineate how petitioners had violated the internal
rules of the bank. However, the notices do cite the rules which petitioners had violated
and refer to the fact that such violations occurred relating to S/A No. 1083-4 account of
Sonia Alfiscar and/or Rosalinda Alqueza.
There is no demand that the notices of dismissal themselves be couched in the form
and language of judicial or quasi-judicial decisions. What is required is that the employer
conduct a formal investigation process, with notices duly served on the employees
informing them of the fact of investigation, and subsequently, if warranted, a separate
notice of dismissal. Through the formal investigatory process, the employee must be
15
accorded the right to present his/her side, which must be considered and weighed by the
employer. The employee must be sufficiently apprised of the nature of the charge against
him/her, so as to be able to intelligently defend against the charges.
In the instant case, records show that respondent bank complied with the two-notice
rule prescribed in Article 277(b) of the Labor
_______________
See Article 277, Labor Code.
15
240
240 SUPREME COURT REPORTS ANNOTATED
Cadiz vs. Court of Appeals
Code. Petitioners were given all avenues to present their side and disprove the
16
allegations of respondent bank. An informal meeting was held between the branch
manager of MOB, the three petitioners and Mr. Gener, the Vice-President of the PCIB
Employees Union. As per report, petitioners admitted having used Alfiscars account to
divert funds intended for other accounts. A special audit investigation was conducted to
determine the extent of the fraudulent transactions. Based on the results of the
investigation, respondent bank sent show-cause memoranda to petitioners, asking them
to explain their lapses, under pain of disciplinary action. The memoranda, which
constitute the first notice, specified the various questionable acts committed by
petitioners.
Afterwards, petitioners submitted their respective replies to the memoranda. This
very well complies with the requirement for hearing, by which petitioners were afforded
the opportunity to
_______________
16 ART. 277. Miscellaneous provisions.
...
(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against dismissal
except for just and authorized cause and without prejudice to the requirement of notice under Article 283 of this Code, the
employer shall furnish the worker whose employment is sought to be terminated a written notice containing a statement of the
causes for termination and shall afford the latter ample opportunity to be heard and defend himself with the assistance of his
representative if he so desire in accordance with company rules and regulations promulgated pursuant to guidelines set by the
Department of Labor and Employment. Any decision taken by the employer shall be without prejudice to the right of the
worker to contest the validity or legality of his dismissal by filing a complaint with the regional branch of the National Labor
Relations Commission. The burden of proving that the termination was for a valid or authorized cause shall rest on the
employer. The Secretary of the Department of Labor and Employment may certify the dispute in the event of a prima
faciefinding by the appropriate official of the Department of Labor and Employment before whom such dispute pending that the
termination may cause a serious labor dispute or is in implementation of a mass lay-off.
241
VOL. 474, OCTOBER 25, 2005 241
Cadiz vs. Court of Appeals
defend themselves. The second notice came in the form of the termination memoranda,
informing petitioners of their dismissal from service. From the foregoing, it is clear that
the required procedural due process for their termination was strictly complied with.
All told, we hold that the factual appreciation and conclusions rendered by the labor
arbiter are not worthy of adoption by this Court. In contrast, from the factual
determinations made by the NLRC and the Court of Appeals, we accept the following
facts as proven:
1. 1.Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on
respondent banks new account register.
2. 2.Foreign denominated checks payable to other payees were diverted into the
said account.
3. 3.The various deposit slips, covering the said checks, did not bear the machine
validation of any of the tellers-incharge.
4. 4.The signatures of the MOB officers appearing on the said deposit slips were in
fact forged.
5. 5.The posting of said bank transactions bore the initials of petitioners
Bongkingki or Gloria.
6. 6.The deposit slips were coded as 1511 or on-us check.
7. 7.Petitioner Cadiz agreed to pay Alqueza the equivalent amount of $600.00 but it
was made to appear that Alfiscar paid the said amount.
8. 8.In view of these findings, petitioners were served with show-cause memoranda
asking them to explain the lapses.
9. 9.Finding their explanations unsatisfactory, petitioners were terminated from
employment.
It is from these established facts that we consider the arguments now presented by
petitioners. In light of these facts, petitioners arguments hardly detract from the
conclusion that their behavior in the course of the discharge of their duties is clearly
malfeasant, and constitutes ground for their termination on account of just cause.
242
242 SUPREME COURT REPORTS ANNOTATED
Cadiz vs. Court of Appeals
First, petitioners insist that the show-cause memoranda served on them did not impute
any fraudulent behavior, but merely lapses. We disagree.
The show-cause memoranda were occasioned by the confidential report prepared by
Sandig, as well as the findings of the special audit examination. The confidential report
prepared by Sandig addressed to the Vice-President of respondent bank pertains to the
discovery of fraudulent transactions on S/A No.1083-4 involving three employees of
respondent bank. The report detailed how the events transpired, including the
admissions of petitioners. From there, a special audit examination was conducted to
make a thorough investigation of the questioned account. The examination yielded
conspicuous findings that anomalous transactions had taken place involving petitioners.
Moreover, the show-cause memoranda respectively served on petitioners clearly
indicate that they were being made to answer questions pertaining to possible anomalous
behavior on their part. For example, petitioners were asked to explain why they had
posted the questioned deposits on the ledger, although there were no teller validations or
teller stamps, and also on what basis they considered such transactions to be valid. On
17
the other hand, the show-cause memorandum to Cadiz directly asks him to provide the
personal details of Sonia Alfiscar, why he went out of his way to make a special
arrangement for the mysterious Alfiscar, and other questions pertaining to the Alfiscar
accounts.
We thus cannot give credence to the averments of petitioners that the memoranda
pertain to lapses, and not fraudulent transactions. The bank could not have been
expected to conclude outright that petitioners were guilty of fraud, despite all the indicia
that they indeed were. Certainly, the purpose of the show-cause memoranda was to
afford petitioners the opportunity to acquit themselves of culpable responsibility. It
would have been quite irresponsible for the bank to have premised the queries therein on
_______________
Rollo, pp. 458, 461.
17
243
VOL. 474, OCTOBER 25, 2005 243
Cadiz vs. Court of Appeals
irretractable conclusions that petitioners had been guilty of anomalous transactions.
Second, petitioners contend that they should be relieved of any liability considering
that respondent bank did not suffer a pecuniary loss. This claim must obviously fail.
There is jurisprudential support, as noted by the Court of Appeals in citing University
of the East v. NLRC that lack of material or pecuniary damages would not in any way
18
mitigate a persons liability nor obliterate the loss of trust and confidence. In the case
of Etcuban, Jr. v. Sulpicio Lines, Inc., this Court definitively ruled that:
19
. . . Whether or not the respondent bank was financially prejudiced is immaterial. Also, what
matters is not the amount involved, be it paltry or gargantuan; rather the fraudulent scheme in
which the petitioner was involved, which constitutes a clear betrayal of trust and confidence. . . .
Moreover, it cannot be discounted that as bank employees, the responsibilities of
petitioners are impressed with a high degree of public interest. Private persons entrust
their fortunes to banks, and it would cause a breakdown of the financial order if the
judicial system were to leave unsanctioned bank employees who treat depositors
accounts as their own private kitty.
Still, petitioners insist that respondent bank never lost trust and confidence in them
as it did not place them under preventive suspension, and more tellingly, it even
promoted them after the labor arbiter had ordered their reinstatement. Preventive
suspension, which is never obligatory on the part of the employer, may be resorted to
only when the continued employment of the employee poses a serious and imminent
threat to the life or property of the employer or of his co-workers. The bank points out
20
that the Alfiscar account, through which the anomalous transactions were coursed, was
no longer active at the time the fraud was discov-
_______________
G.R. No. 71065, 22 November 1985, 140 SCRA 296.
18
G.R. No. 148410, 17 January 2005, 448 SCRA 516.
19
See Section 3, Rule XIV, Book IV, Omnibus Rules Implementing the Labor Code.
20
244
244 SUPREME COURT REPORTS ANNOTATED
Cadiz vs. Court of Appeals
ered. Clearly, the bank had reason to conclude that the imminence of the threat posed by
21
the employees was not as vital as it would have been had the dubious account still been
open.
As to the alleged promotions, the original employer, PCIB, admits that petitioners
had been reinstated by reason of the Decision, but such act was by no means voluntary.
PCIB however does not rebut the allegations that Bongkingki and Cadiz were assigned to
sensitive positions within the bank after their compulsory reinstatement. This may be so,
but the fact that PCIB lost no time in removing the employees from the plantilla after
the NLRC reversed the labor arbiters Decision hardly evinces any continuing trust and
confidence on the part of the bank, as maintained by petitioners. Moreover, considering
that these reinstated employees were, for the meantime, regular employees of the bank,
it is within the discretion of PCIB to reassign them as it sees fit, taking into account the
circumstances.
Moreover, it would simply be temerarious for the Court to sanction the reinstatement
of bank employees who have clearly engaged in anomalous banking practices. The
particular fiduciary responsibilities reposed on banks and its employees cannot be
emphasized enough. The fiduciary nature of banking is enshrined in Republic Act No.
22
8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the
State recognizes the fiduciary nature of banking that requires high standards of
integrity and performance. The bank must not only exercise high standards of
23
integrity and performance, it must also ensure that its employees do likewise because
this is the only way to ensure that the bank will comply with its fiduciary duty. 24
_______________
21Rollo, p. 417.
22Solidbank Corporation v. Arrieta, G.R. No. 152720, 17 February 2005, 451 SCRA 711, citing Bank of the
Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, 28 May 2004, 430 SCRA 261.
23Associated Bank v. Tan, G.R. No. 156940, 14 December 2004, 446 SCRA 282.
24The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September
2003, 410 SCRA 562.
245
VOL. 474, OCTOBER 25, 2005 245
Cadiz vs. Court of Appeals
All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of
trust and confidence is one of the just causes for termination by employer under Article
282 of the Labor Code. The breach of trust must be willful, meaning it must be done
intentionally, knowingly, and purposely, without justifiable excuse. Ideally, loss of
25
confidence applies only to cases involving employees occupying positions of trust and
confidence or to those situations where the employee is routinely charged with the care
and custody of the employers money or property. Utmost trust and confidence are
26
deemed to have been reposed on petitioners by virtue of the nature of their work.
The facts as established, as well as the need to assert the public interest in
safeguarding against bank fraud, militate against the present petition.
 WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court
of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno (Chairman), Austria-Martinez and Callejo, Sr., JJ., concur.
Chico-Nazario, J.,On Leave.
Petition denied, assailed decision affirmed.
_______________
Philippine National Construction Corporation v. Matias, G.R. No. 156283, 6 May 2005, 458 SCRA 148,
25
citing Gonzales v. National Labor Relations Commission, 26 March 2001, 355 SCRA 195; P.J. Lhuillier, Inc. v.
National Labor Relations Commission, G.R. No. 158758, 29 April 2005, 457 SCRA 784, citing Tiu v. National
Labor Relations Commission, G.R. No. 83433, 12 November 1992, 215 SCRA 540; Felix v. National Labor
Relations Commission, G.R. No. 148256, 17 November 2004, 442 SCRA 465, citing De la Cruz v. National Labor
Relations Commission, 268 SCRA 458 (1997).
26Supra note 16; Mabeza v. National Labor Relations Commission and Hotel Supreme, 338 Phil. 386; 271
SCRA 670 (1997).
246
246 SUPREME COURT REPORTS ANNOTATED
Ilao-Quianay vs. Mapile
Notes.The contract between a bank and its depositors is governed by the provisions
of the Civil Code on simple loans. (Consolidated Bank and Trust Corporation vs. Court of
Appeals, 410 SCRA 562 [2003])
The new provision in the general banking law, that the State recognizes the
fiduciary nature of banking that requires high standards of integrity and performance,
introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with
the 1990 case of Simex International vs. Court of Appeals, 183 SCRA 360. (Id.)
Once a court determines that the information charging a public officer with an offense
under Republic Act No. 3019 or Title 7, Book II of the Revised Penal Code, or any other
offense involving fraud upon government or public funds or property is valid, it is bound
to issue an order of preventive suspension of the accused public officer as a matter of
course. (Flores vs. Layosa, 436 SCRA 337 [2004])
In order to constitute a just cause for dismissal, the act which makes up loss of
confidence must be so related to the performance of the duties of the dismissed employee
as would show that he or she is unfit to continue working for the employer. (Philippine
National Construction Corporation vs. Matias, 458 SCRA 148 [2005])
19. G.R. No. 157049. August 11, 2010.*
CITYTRUST BANKING CORPORATION (now Bank of the Philippine Islands),
petitioner, vs. CARLOS ROMULO N. CRUZ, respondent.
Banks and Banking; A banking institution has the direct obligation to supervise very closely
the employees handling its depositors accounts, and should always be mindful of the fiduciary
nature of its relationship with the depositorssuch relationship requires it and its employees to
record accurately every single transaction, and as promptly as possible, considering that the
depositors accounts should always reflect the amounts of money the depositors could dispose of as
they saw fit, confident that, as a bank, it would deliver the amounts to whomever they directed.
The petitioner, being a banking institution, had the direct obligation to supervise very closely the
employees handling its depositors accounts, and should always be mindful of the fiduciary nature
of its relationship with the depositors. Such relationship required it and its employees to record
accurately every single transaction, and as promptly as possible, considering that the depositors
accounts should always reflect the amounts of money the depositors could dispose of as they saw
fit, confident that, as a bank, it would deliver the amounts to whomever they directed. If it fell
short of that obligation, it should bear the responsibility for the consequences to the depositors,
who, like the respondent, suffered particular embarrassment and disturbed peace of mind from the
negligence in the handling of the accounts.
Same; The failure of a bank to exercise diligence and meticulousness warrants its liability for
exemplary damages and for reasonable attorneys fees.The CA properly affirmed the RTCs award
of exemplary damages and attorneys fees. It is never overemphasized that the public always relies
on a banks profession of diligence and meticulousness in rendering irreproachable service. Its
failure to exercise diligence and meticulousness warranted its liability for exemplary damages and
for reasonable attorneys fees.
_______________
* THIRD DIVISION.
23
VOL. 628, AUGUST 10, 2010 23
Citytrust Banking Corporation vs. Cruz
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Gonzaga Law Office for petitioner.
Eliseo M. Cruz for respondent.
RESOLUTION
BERSAMIN, J.:
Under review is the decision promulgated on October 8, 2002 in C.A.-G.R. CV No.
48928,1 whereby the Court of Appeals (CA) affirmed the decision dated January 13, 1995
of the Regional Trial Court (RTC), Branch 91, in Quezon City, 2 finding the petitioner
liable to pay to the respondent moral damages of P100,000.00, exemplary damages of
P20,000.00, and attorneys fees of P20,000.00.
In the time material to the case, the respondent, an architect and businessman,
maintained savings and checking accounts at the petitioners Loyola Heights Branch.
The savings account was considered closed due to the oversight committed by one of the
latters tellers. The closure resulted in the extreme embarrassment of the respondent, for
checks that he had issued could not be honored although his savings account was
sufficiently funded and the accounts were maintained under the petitioners check-o-
matic arrangement (whereby the current account was maintained at zero balance and
the funds from the savings account were automatically trans-
_______________
1 Rollo, pp. 39-49; penned by Associate Justice Danilo B. Pine (retired), with Associate Justice Ruben T.
Reyes (later a Member of the Court, since retired) and Associate Justice Andres B. Reyes, Jr. (now Presiding
Justice of the Court of Appeals) concurring.
2 Id., at pp. 56-64; penned by then Presiding Judge Marina L. Buzon (later an Associate Justice of the
Court of Appeals).
24
24 SUPREME COURT REPORTS ANNOTATED
Citytrust Banking Corporation vs. Cruz
ferred to the current account to cover checks issued by the depositor like the respondent).
Unmoved by the petitioners apologies and the adjustment made on his accounts by
its employees, the respondent sued in the RTC to claim damages from the petitioner.
After trial, the RTC ruled in the respondents favor, and ordered the petitioner to pay
him P100,000.00 as moral damages, P20,000.00 as exemplary damage, and P20,0000.00
as attorneys fees. The RTC found that the petitioner had failed to properly supervise its
teller; and that the petitioners negligence had made the respondent suffer serious
anxiety, embarrassment and humiliation, entitling him to damages.3
The petitioner appealed to the Court of Appeals (CA), arguing that the RTC erred in
ordering it to pay moral and exemplary damages.
However, the CA affirmed the RTC, explaining that the erroneous closure of the
respondents account would not have been committed in the first place if the petitioner
had not been careless in supervising its employees. According to the CA, the fiduciary
relationship and the extent of diligence that is to be expected from a banking institution,
like herein appellant Citytrust, in handling the accounts of its depositors cannot be
relaxed behind the shadow of an employee whether or not he/she is new on the
job.4Moreover, the CA said that the negligence of the petitioners personnel was the
proximate cause that had set in motion the events leading to the damage caused to the
respondent; hence, the RTC correctly opined that while a bank is not expected to be
infallible, it must bear the blame for not discovering the mistake of its teller for lack of
proper supervision.5
_______________
3 Id.
4 Supra, note 1, p. 46.
5 Id.
25
VOL. 628, AUGUST 10, 2010 25
Citytrust Banking Corporation vs. Cruz
The petitioner sought reconsideration, but the CA denied its motion for
reconsideration for lack of merit.
Hence, this appeal, in which the petitioner maintains that there were decisive fact
situations showing excusable negligence and good faith 6 that did not justify the award of
moral and exemplary damages and attorneys fees.
The petition has no merit.
Firstly, the errors sought to be reviewed focused on the correctness of the factual
findings of the CA. Such review will require the Court to again assess the facts. Yet, the
Court is not a trier of facts. Thus, the appeal is not proper, for only questions of law can
be elevated to the Court viapetition for review on certiorari.7
Secondly, nothing from the petitioners arguments persuasively showed that the RTC
and the CA erred. The findings of both lower courts were fully supported by the evidence
adduced.
Unquestionably, the petitioner, being a banking institution, had the direct obligation
to supervise very closely the employees handling its depositors accounts, and should
always be mindful of the fiduciary nature of its relationship with the depositors. Such
relationship required it and its employees to record accurately everysingle transaction,
and as promptly as possible, considering that the depositors accounts should always
reflect the amounts of money the depositors could dispose of as they saw fit, confident
that, as a bank, it would deliver the amounts to whomever they directed. 8 If it fell short
of that obligation, it should bear the responsibility for the consequences to the depositors,
who, like
_______________
6 Id., at p. 30.
7 Section 1, Rule 45, Rules of Court, specifically states that the petition for review on certiorari shall raise
only questions of law, which must be distinctly set forth.
8 Citytrust Banking Corp. v. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994, 232 SCRA 559,
564.
26
26 SUPREME COURT REPORTS ANNOTATED
Citytrust Banking Corporation vs. Cruz
the respondent, suffered particular embarrassment and disturbed peace of mind from the
negligence in the handling of the accounts.
Thirdly, in several decisions of the Court,9 the banks, defendants therein, were made
liable for negligence, even without sufficient proof of malice or bad faith on their part,
and the Court awarded moral damages of P100,000.00 each time to the suing depositors
in proper consideration of their reputation and their social standing. The respondent
should be similarly awarded for the damage to his reputation as an architect and
businessman.
Lastly, the CA properly affirmed the RTCs award of exemplary damages and
attorneys fees. It is never overemphasized that the public always relies on a banks
profession of diligence and meticulousness in rendering irreproachable service. 10 Its
failure to exercise diligence and meticulousness warranted its liability for exemplary
damages and for reasonable attorneys fees.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision
rendered on October 8, 2002 by the Court of Appeals.
Costs of suit to be paid by the petitioner.
SO ORDERED.
Carpio-Morales (Chairperson), Brion, Abad** and
Villarama, Jr., JJ., concur.
20. G.R. No. 173780. March 21, 2011.*
METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. MARINA B.
CUSTODIO, respondent.
Appeals; Pleadings, Practice and Procedure; Unless the party availing of the remedy clearly
demonstrates at the first opportunity that the appeal falls under any of the established exceptions, a
Rule 45 petition that raises pure questions of fact shall be subject to dismissal by the Court.In a
petition for review on certiorarifiled under Rule 45, the issues that can be raised are limited only to
questions of law. Questions of fact are not reviewable in a Rule 45 petition. Nonetheless, this rule
permits of exceptions, which the Court has long since recognized. Unless the party availing of the
remedy clearly demonstrates at the first opportunity that the appeal falls under any of the
established exceptions, a Rule 45 petition that raises pure questions of fact shall be subject to
dismissal by the Court, since it is principally not a trier of facts. Although the emerging trend in
the Courts rulings is to afford all party-litigants the amplest opportunity for the proper and just
determination of their cause, this is not a license for erring litigants to violate the rules with
impunity.
Same; The difference in appreciation by the trial court and the appellate court of the evidence with
respect to the circumstances surrounding the cash shortage is prima facie justification for the
Supreme Court to review the facts and the records of the case.The difference in appreciation by
the trial court and the appellate court of the evidence with respect to the circumstances
surrounding the cash shortage is prima facie justification for the Court to review the facts and the
records of the case. While factual issues are not within the province of this Court, as it is not a trier
of facts and is not required to examine or contrast the oral and documentary evidence de novo, this
Court has the authority to review and, in proper cases, reverse the factual findings of lower courts
when the findings of fact of the trial court are in conflict with those of the appellate court.
_______________
* THIRD DIVISION.
697
VOL. 645, MARCH 21, 2011 697
Metropolitan Bank and Trust Company vs. Custodio
Same; Pleadings, Practice and Procedure; Courts will not entertain and act on petitions that have
yet to be properly filed, even if a copy has been served on the other party.In her Comment,
respondent Custodio likewise assails the separate Petition she received from Atty. Cachapero, the
former counsel of petitioner Metrobank. She claims that the separate Petition should not be
entertained by the Court, since there is no proof of payment of the docket fees or proof of service.
Moreover, the Petition coming from Atty. Cachapero should preclude the instant Petition filed by
the banks new counsel, Sediego & Associates. Aside from the fact that this issue is not raised in
respondents Memorandum, nothing in the record shows that the separate Petition signed by Atty.
Cachapero was ever filed and docketed with the Court. Courts will not entertain and act on
petitions that have yet to be properly filed, even if a copy has been served on the other party.
Moreover, the separate Petition that came into the hands of respondent has no bearing on this
case, since Atty. Cachapero has already withdrawn as counsel for petitioner Metrobank. Therefore,
the Court will only confine itself to the instant Petition, which was duly filed by the banks new
counsel and submitted within the extended reglamentary period, after docket fees were paid and
the Court had given due course to it.
Evidence; Words and Phrases; The concept of preponderance of evidence refers to evidence that is of
greater weight or more convincing, than that which is offered in opposition to itat bottom, it
means probability of truth.In civil cases such as in the instant action for a sum of money,
petitioner Metrobank carries the burden of proof and must establish its cause of action by a
preponderance of evidence. The concept of preponderance of evidence refers to evidence that is of
greater weight or more convincing, than that which is offered in opposition to it; at bottom, it
means probability of truth. The Court sustains the appellate courts finding that petitioner
Metrobank failed to discharge its burden of proving that respondent Custodio was responsible for
the cash shortage. Petitioner Metrobanks evidence on record does not sufficiently establish that
respondent Custodio took the funds that were entrusted to her as a bank teller.
Banks and Banking; Negligence; The exacting standard of diligence from the banking business
pertains to the relationship between a bank and a depositor, and not between a bank and its
employees.The Court of Appeals underscored the highest degree of diligence
699
VOL. 645, MARCH 21, 2011 699
Metropolitan Bank and Trust Company vs. Custodio
from the banking business, considering that it is impressed with public interest and of paramount
importance. However, as petitioner Metrobank pointed out, the exacting standard of diligence
required by the appellate court pertains to the relationship between a bank and a depositor, and
not between a bank and its employees. In this case, no depositors were affected, as the transactions
during that day were accounted for, and no error was found in the recording thereof. The relevant
standard of diligence that we need to examine here is that of a bank teller who was entrusted
monies by the bank and who may have failed to account for them. In this case, petitioner
Metrobank was unable to prove that respondent Custodio failed to exercise the necessary degree of
diligence that would justify the banks action for damages. Respondent Custodio was not remiss in
her duties as all her dealings with the banks money were clearly reflected on the records of the
bank.
Same; Same; If theft of the money cannot be established, and negligence is the only legal
phenomenon that is evident on the records, then the proximate cause of the loss of the banks cash is
the cash custodian who disregarded established procedures and blindly signed the tellers cash
transfer slips without counting the money turned over to her.If petitioner bank had to attribute
any negligence on the part of its employees, then it should have set its sights on the acts and/or
omissions of Ms. Marinel Castro, the cash Custodian, and Mr. Hanibal Jara, the security guard. If
theft of the money cannot be established, and negligence is the only legal phenomenon that is
evident on the records, then the proximate cause of the loss of the banks PhP600,000 is Ms.
Castro, who, as cash custodian, disregarded established procedures and blindly signed the tellers
cash transfer slips without counting the money turned over to her. Meanwhile, Mr. Jara failed to
inspect respondent Custodios belongings as she left the bank on that day for lunch. Despite his
own suspicions of respondent tellers conduct, he ignored them and decided not to check the bags.
This omission can conceivably be considered as a grave omission of his duties as a security guard.
Evidence; Witnesses; A fact elicited from a witness during testimony cannot be considered in the
disposition of the case if it has been ordered stricken out, unless it is established by any other
evidence on record.During one of the hearings, Mr. Lucas, the branch manager, explained that it
was unusual for respondent Custodio to
700
700 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
have requested a cash transfer, considering that she had sufficient funds to cover the amount.
However, as the appellate court explained, the trial court should not have considered his testimony
in this respect, since the judge had ordered that particular statement stricken out during the trial
court proceedings. A fact elicited from a witness during testimony cannot be considered in the
disposition of the case if it has been ordered stricken out, unless it is established by any other
evidence on record.
Same; While the general evidentiary rule is that evidence that one did or did not do a certain thing
at one time is not admissible to prove that one did or did not do the same or a similar thing at
another time, evidence of similar acts may be received to prove a specific intent or knowledge,
identity, plan system, scheme, habit, custom or usage and the like.The general evidentiary rule is
that evidence that one did or did not do a certain thing at one time is not admissible to prove that
one did or did not do the same or a similar thing at another time. However, evidence of similar acts
may be received to prove a specific intent or knowledge, identity, plan system, scheme, habit,
custom or usage and the like. In Citibank N.A. (Formerly First National City Bank) v. Sabeniano,
504 SCRA 378 (2006), the Court explained the rationale for this rule: The rule is founded upon
reason, public policy, justice and judicial convenience. The fact that a person has committed the
same or similar acts at some prior time affords, as a general rule, no logical guaranty that he
committed the act in question. This is so because, subjectively, a mans mind and even his modes of
life may change; and, objectively, the conditions under which he may find himself at a given time
may likewise change and thus induce him to act in a different way. Besides, if evidence of similar
acts are to be invariably admitted, they will give rise to a multiplicity of collateral issues and will
subject the defendant to surprise as well as confuse the court and prolong the trial. Evidence of
similar acts may frequently become relevant, especially to actions based on fraud and deceit,
because it sheds light on the state of mind or knowledge of a person; it provides insight into such
persons motive or intent; it uncovers a scheme, design or plan, or it reveals a mistake.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
701
VOL. 645, MARCH 21, 2011 701
Metropolitan Bank and Trust Company vs. Custodio
SERENO, J.:
This civil case is essentially a demand by a bank for the recovery of a sum of money from
one of its tellers who allegedly failed to account for funds entrusted to her, amounting to
six hundred thousand pesos (PhP600,000).
Petitioner Metropolitan Bank and Trust Company (Metrobank) is a banking corporation.
On the other hand, respondent Marina Custodio is a bank teller employed at the Laoag
City branch of petitioner Metrobank.1
On 13 June 1995 at 8:18 a.m.,2 respondent Custodio reported for work in petitioner
banks branch in Laoag City.3 At the start of the banking day, respondent Custodio
received loose money (picos)4 for the days business and was assigned as Teller No. 3. 5 In
the course of performing her duties, respondent Custodio handled several cash
transactions with the customers on behalf of petitioner bank. 6
At 12:10 p.m., a cash transfer of two hundred thousand pesos (PhP200,000) was made
from Teller No. 1 to respondent Custodio.7 Petitioner Metrobank explained that, usually,
a transfer of money from one teller to another occurs if the latter needs money, maybe to
pay for the withdrawal.8 How-
_______________
1 RTC Pre-Trial Order dated 12 September 1995, RTC records at p. 60.
2 Exhibit A-4, id., at p. 262.
3 RTC Pre-Trial Order dated 12 September 1995, id., at p. 60.
4 On 13 June 1995, respondent Custodio received fifty-four thousand nine hundred twenty-nine and 19/100
Pesos (PhP54,929.19) as her picos from the cash custodian. (Exhibit B-1, [id., at p. 268]; RTC Decision at pp.
6-7 [Rollo at pp. 94-95]).
5 TSN, II December 1995, at pp. 8-10; Exhibit B-1, RTC records at p. 268.
6 RTC Pre-Trial Order dated 12 September 1995 (id., at p. 60); Exhibit B-1 (id., at p. 268).
7 Exhibit B-2, id., at p. 270.
8 RTC Decision at 6; Rollo at p. 94.
702
702 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
ever, petitioner bank pointed out that it was unnecessary for respondent Custodio to
borrow from another teller at that time, since respondent had sufficient cash on hand to
cover a withdrawal in the same amount as the cash transfer. 9
At 12:25 p.m., respondent Custodio was reported to have taken her lunch break alone
and returned to work thereafter at 1:12 p.m.10
The security guard for the Laoag City branch of petitioner Metrobank, Mr. Hannibal
Jara, testified that respondent Custodio would ordinarily go out for lunch at noon with
another teller, Ms. Mary Paula Castro.11However, he explained that the two employees
did not go out for lunch together that day, since another teller was on leave.12 Mr. Jara
also noticed that when respondent Custodio went out for lunch, she was carrying a
shoulder bag and a paper bag.13 He, however, did not check the contents of the bags
carried by respondent.14
At the close of banking hours, respondent Custodio balanced her transactions for the day
and turned over the funds to the banks cash custodian, Ms. Marinel Castro, in the
amount of two million one hundred thirteen thousand five hundred pesos
(PhP2,113,500).15 Ms. Marinel Castro acknowl-
_______________
9 At the time of the cash transfer, respondent Custodio had cash on hand amounting to one million one
hundred thirty-nine thousand eight hundred seventy-four and 32/100 pesos (PhP1,139,874.32). (RTC Decision
at pp. 6-7 [Rollo at pp. 94-95]; Exhibit B-3 [RTC records at p. 270]; TSN, 11 December 1995, at p. 15)
10 Exhibits A-5 and A-6, RTC records at p. 262.
11 TSN, 02 June 1998, at pp. 64-67; RTC Decision at p. 8 {Rollo at p. 96).
12 TSN, 02 June 1998, at p. 66.
13 TSN, 03 August 1998, at pp. 83-84; RTC Decision at p. 14 (Rollo at p. 102).
14 Id.
15 Part of the funds transferred by respondent Custodio are bundles of one-thousand-peso bills amounting to
PhP400,000 and
703
VOL. 645, MARCH 21, 2011 703
Metropolitan Bank and Trust Company vs. Custodio
edged receipt of the bundled cash turned over and signed a Cash Transfer Slip. 16
At around 5:05 p.m., after all tellers had turned over their cash on hand,17 Ms. Castro
discovered that there was a shortage amounting to PhP600,000. 18 She notified Mr.
Adriano Lucas, the branch manager, of the missing money.19 The latter then instructed
the cashier and the accountant to review all cash transactions to find out the reason for
the cash shortage.20 However, no errors were found in the records of the transactions, and
the shortage was confirmed.21
Thereafter, Mr. Lucas instructed all bank employees to check all desks, drawers and
even personal bags.22 The guards were likewise instructed to search anybody going out of
the office from that time on.23 However, the missing money was not found.24 Thus, the
amount CASH IN VAULT was reported to be short of PhP600,000.25
_______________
bundles of five-hundred-peso bills amounting to PhP1,100,00. (Exhibit B-1, RTC records at p. 271)
16 RTC Decision at pp. 14-15; Rollo at pp. 102-103.
17 On that day, there were four tellers who turned over cash to Castro: (1) Virginia Asanon; (2) Eliza Piedad;
(3) respondent Custodio; and (4) Mary Paula Castro. (RTC Decision at p. 9, Rollo at p. 97)
18 The shortage is broken down as follows: (a) PhP200,000, consisting of one thousand peso bills; and (b)
PhP400,000, consisting of five-hundred-peso bills. (RTC Decision at 13 [Rollo at p. 101]; TSN, 11 December
1995, at p. 7).
19 RTC Decision dated 25 July 2003, at p. 13 (Rollo at p. 101); TSN, 11 December 1995, at pp. 7-8.
20 Id.
21 Id.
22 RTC Decision at p. 13; Rollo at p. 101.
23 RTC Decision at 10 (id., at p. 98); TSN, 11 December 1995, at p. 8.
24 RTC Decision at 13; id., at p. 101.
25 Brief for the Appellant, at 7 (id., at p. 116); TSN, 28 February 2000, at pp. 97-98.
704
704 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
Respondent Custodio left work that day, together with some of the employees, at 8:30
p.m.26
Later on, petitioner Metrobank alleged that it was able to recover eight bill wrappers
only for bundles of five-hundred-peso bills (without the bills thereunder) that
purportedly corresponded to the missing four hundred thousand pesos
(PhP400,000).27 These bill wrappers bore a rubber stamp PEPT-3 for Teller No.
3.28 Respondent Custodio countered that the discovery of the bill wrappers being
attributed to her care was never mentioned at the time the cash shortage occurred, and
that these wrappers could have been obtained subsequently by stamping unmarked
ones.29
Respondent Custodio was allowed to continue to render services as a teller in petitioner
banks Laoag City branch from 14 June 1995 to 23 June 1995 30 She argued that had she
been found responsible for the cash shortage, then she would not have been allowed to
continue working as a teller on subsequent days.31
On 15 June 1995, investigators from the regional office of petitioner Metrobank as well
as from its Department of Internal Affairs, Head Office, arrived at the Laoag City branch
to investigate the cash shortage.32 On a one-on-one basis, the investigators confronted the
employees, including respondent Custodio.33 After these meetings, Ms. Castro, the cash
custodian, allegedly admitted that she received and acknowledged
_______________
26 Exhibit A-7; RTC records at p. 262.
27 Exhibits G to G-8; id., at p. 276.
28 Exhibits G to G-8; id., at p. 276.
29 Brief for the Appellant, at pp. 13-14; Rollo at pp. 122-123.
30 TSN, 27 September 2002, at pp. 129-130; TSN, 09 July 1996, at p. 34.
31 TSN, 27 September 2002 at pp. 129-130.
32 RTC Pre-Trial Order dated 12 September 1995, RTC records at p. 60.
33 Answer, id., at p. 13.
705
VOL. 645, MARCH 21, 2011 705
Metropolitan Bank and Trust Company vs. Custodio
the cash bundles and signed the Cash Transfer Slip for the funds turned over by
respondent Custodio.34
On 16 June 1995, employees of the Laoag City branch of petitioner Metrobank
including the new accounts clerk, the remittance clerk and all the other tellerswere
made to take polygraph tests at the National Bureau of Investigation, except for
respondent Custodio.35Respondent was eight months pregnant at that time and, thus,
was not required to take the lie detector test.36
On 22 June 1995, petitioner Metrobank filed a Complaint for a sum of money with ex-
parte application for a writ of preliminary attachment, praying that respondent Custodio
pay the amount of PhP600,000, including attorneys fees and costs of suit.37 The trial
court subsequently granted the application for a writ of preliminary attachment against
the properties of respondent Custodio.38
On 23 June 1995 at around 1:30 p.m., while respondent Custodio was performing her
duties as a teller, she was served the trial courts summons39 and a copy of petitioner
Metrobanks Complaint, including the attachment writ.40
After she was served the summons, respondent Custodio was supposedly caught bringing
out a tellers copy of the journal print transactions with the related cash transfer slips for
that particular banking day (23 June 1995).41These bank records were confiscated from
respondent Custodio, when
_______________
34 TSN, 22 August 2002, at p. 114.
35 Answer, RTC records at p. 13.
36 CA Decision at 2; Rollo at p. 46.
37 RTC records at pp. 1-6.
38 RTC Order dated 23 June 1995; id., at p. 17.
39 Id., at p. 9.
40 RTC records at p. 10.
41 RTC Decision at pp. 7-8; Rollo at pp. 95-96.
706
706 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
they were discovered in her dress pocket during a body search done on all employees
leaving the office.42
Respondent teller later explained that she had mistakenly brought out these records
because she was no longer allowed to go inside the tellers cage to file the transaction
journal, after she was served the summons and Complaint. 43 She claimed that, at that
time, she was confused by the banks Complaint filed against her, so she placed the
transaction journal in her right pocket.44 It was admitted by the bank manager, however,
that no cash shortage occurred on that day.45
Thereafter, respondent Custodio was relegated to a non-accountable position.46
Because of her alleged attempt to take the journal print transactions, Mr. Lucas, the
branch manager, recommended that respondent Custodio be preventively
suspended.47 Thereafter, respondent received an Inter-Office Letter48 requiring her to
explain why no disciplinary action should be meted out to her for her attempt to
surreptiously bring out bank records.49 After respondent teller filed her explanation,
petitioner Metrobank found it unacceptable and suspended her from work for seven days
without pay.50
_______________
42 Id.
43 RTC Decision at p. 11 (Rollo at p. 99); TSN, 17 March 2000, at p. 105; TSN, 22 August 2002 at pp. 112-113.
44 RTC Decision at p. 11, Rollo at p. 99.
45 TSN, 12 December 1996, at p. 44.
46 Respondent Custodys Formal Offer of Evidence at pp. 2-3, RTC records at pp. 303-304; TSN, 12 December
1996, at p. 43.
47 Exhibit 3 (RTC records at p. 88); RTC Decision at p. 8 (Rollo at p. 96).
48 Exhibit C (RTC records at p. 272); id.
49 Pre-Trial Order at p. 1, RTC records at p. 60.
50 Exhibit D (RTC records at p. 273); RTC Decision at p. 8 (Rollo at p. 96).
707
VOL. 645, MARCH 21, 2011 707
Metropolitan Bank and Trust Company vs. Custodio
On 27 June 1995, respondent Custodio requested from petitioner Metrobank a copy of
the Cash Transfer Slip that was signed by the cash custodian, Ms. Castro. 51 In reply, Mr.
Lucas notified respondent that her request would be sent to the Head Office of petitioner
Metrobank for approval.52 This request was, however, not acted upon by
petitioner.53 Despite respondents motion to have the Cash Transfer Slip produced in the
trial proceedings54 and the manifestation of petitioner Metrobanks counsel that it would
present the slip,55 the document was not entered into the records.
On 06 July 1995, respondent Custodio filed an Answer with Compulsory Counterclaim,
denying the allegations of petitioner Metrobank that she was responsible for the cash
shortage.56 Respondent argued that Ms. Castro, not she, was the one who incurred the
cash shortage, since the loss was discovered only after the cash and other
accountabilities were turned over to her, as cash custodian.57
After the case was submitted for decision,58 the trial court rendered its Decision granting
petitioner Metrobanks Com-
_______________
51 Exhibit 1 (RTC records at p. 308); Pre-Trial Order at p. 1 (RTC records at 60); RTC Decision at p. 11
(Rollo at p. 99).
52 Exhibit 2 (RTC records at p. 309); Pre-Trial Order at pp. 1-2 (RTC records at pp. 60-61); RTC Decision at p.
11 (Rollo at p. 99).
53 RTC Decision at p. 15 (Rollo at p. 103).
54 Motion for the Issuance of a Subpoena Duces Tecum dated 16 December 1996; RTC records at pp. 104-107.
55 RTC Order dated 12 March 1997, RTC records at p. 125.
56 Id., at p. 11-16.
57 RTC Decision at p. 11; Rollo at p. 99.
58 After petitioner Metrobank filed its Memorandum on 26 June 2003, the trial court deemed the case
submitted for decision. Respondent Custodio failed to file a memorandum within the non-extendible forty-five
(45) day period. (Order dated 02 July 2003; RTC records at p. 323)
708
708 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
plaint and ordering respondent Custodio to pay the amount of six hundred thousand
pesos (PhP600,000) plus interest.59
On 06 August 2003, respondent teller subsequently filed a Notice of Appeal. 60
On 29 July 2004, respondent Custodio, thru her counsel Atty. Oliver Cachapero, filed a
Brief for the Appellant.61Meanwhile, petitioner Metrobank submitted a Brief for the
Appellee on 15 September 2004.62
On 16 July 2006, the Court of Appeals (10th Division)63found respondent Custodios
appeal meritorious and reversed the trial courts Decision:
WHEREFORE, the appeal being meritorious, the assailed decision dated July 25, 2003 of the
RTC, Branch 11, Laoag City, in Civil Case No. 10814 is REVERSED and SET ASIDE.
Consequently, the plaintiff-appellees complaint against defendant-appellant is DISMISSED. 64
On 10 August 2006, petitioner Metrobank, through the Sediego & Associates Law Office,
in collaboration with Atty. Cachapero, filed in this Court a Motion for Extension of Time
to File Petition for Review on Certiorari.65 On 28 August 2006,
_______________
59 WHEREFORE, the complaint is hereby GRANTED. The defendant is hereby directed to pay the plaintiff-
bank the amount of six hundred thousand pesos (P600,000.00) plus interest at the legal rate of 12% per
annum beginning June 13, 1995 until fully paid. (RTC Decision at pp. 18-19, Rollo at pp. 106-107)
60 RTC records at p. 357.
61 CA Records at pp. 36-57; Rollo at pp. 108-128.
62 Id., at pp. 77-95; Rollo at pp. 148-165.
63 Composed of Justices Andres B. Reyes. Jr.. Hakim S. Abdulwahid (ponente) and Estela M. Perlas-Bernabe.
64 CA Decision dated 14 July 2006. CA Records at pp. 98-107; Rollo at pp. 45-54.
65 Rollo at pp. 3-7.
709
VOL. 645, MARCH 21, 2011 709
Metropolitan Bank and Trust Company vs. Custodio
Atty. Cachapero informed the Court that he had withdrawn as counsel for petitioner
Metrobank.66
Respondent Custodio averred, however, that she received, through counsel, a separate
Petition for Review on Certiorari filed by petitioner Metrobanks counsel, Atty.
Cachapero, on 07 August 2006.67
Within the thirty-day extension period granted by the Court, 68 petitioner Metrobank filed
the Petition for Review under Rule 45, through its new counsel of record, Sediego &
Associates Law Office.69 On 30 October 2007, respondent Custodio submitted her
Comment on the instant Petition.70In response, petitioner Metrobank subsequently filed a
Reply on 31 January 2008.71
After the instant Petition was given due course, 72 the parties submitted their respective
memoranda.73
Before resolving the substantial legal issue, the Court will first resolve the procedural
matters with respect to the propriety of raising questions of fact in the instant Petition
and the receipt by respondent Custodio of another Petition through Atty. Cachapero.
In a petition for review on certiorari filed under Rule 45, the issues that can be raised are
limited only to questions of
_______________
66 Id., at pp. 9-10.
67 Comment at pp. 1-3; Rollo at pp. 175-177. (See Annex 1 of the Comment)
68 Resolution dated 23 August 2006; Rollo at p. 8.
69 Rollo at pp. 12-42.
70 Comment dated 08 October 2007; Rollo at pp. 175-182.
71 Reply dated 30 January 2008; id., at pp. 230-235.
72 Resolution dated 13 February 2008, id., at pp. 242-243.
73 Petitioner Metrobanks Memorandum dated 02 July 2008 (Id., at pp. 271-285); Respondent Custodios
Memorandum dated 13 June 2009 (Id., at pp. 299-311).
710
710 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
law.74 Questions of fact are not reviewable in a Rule 45 petition. 75 Nonetheless, this rule
permits of exceptions, which the Court has long since recognized. 76
Unless the party availing of the remedy clearly demonstrates at the first opportunity
that the appeal falls under any of the established exceptions, a Rule 45 petition that
raises pure questions of fact shall be subject to dismissal by the Court, since it is
principally not a trier of facts. Although the emerging trend in the Courts rulings is to
afford all party-litigants the amplest opportunity for the proper and just determination of
their cause,77 this is not a license for erring litigants to violate the rules with impunity. 78
_______________
74 New Rural Bank Guimba (N.E.), Inc. v. Abad, G.R. No. 161818, 20 August 2008, 562 SCRA 503; Rules of
Court Rule 45, Sec. 1.
75 Yokohama Tire Philippines, Inc. v. Yokohama Employees Union, G.R. No. 163532, 12 March 2010, 615 SCRA
143.
76 A question of fact can be entertained in a Rule 45 petition for the following exceptions/reasons: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken,
absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific evidence
on which the factual findings are based; (7) the finding of absence of facts is contradicted by the presence of
evidence on record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA
manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a
different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings are
contrary to the admissions of both parties. (Serrano v. People, G.R. No. 175023, 05 July 2010, 623 SCRA 322
[footnote 13] citing Pelonia v. People, G.R. No. 168997, 13 April 2007, 521 SCRA 207)
77 Tabujara III v. People, G.R. No. 175162, 29 October 2008, 570 SCRA 229.
78 Marphomsalic v. Cole, G.R. No. 169918, 27 February 2008, 547 SCRA 98.
711
VOL. 645, MARCH 21, 2011 711
Metropolitan Bank and Trust Company vs. Custodio
Respondent Custodio reasons that the banks Petition before the Court seeks a review of
factual issues, and that such kind of review is not countenanced by the Rules. 79Although
she recognizes the exceptions to the prohibition against raising a question of fact in a
Rule 45 petition, respondent insists that the instant Petition fails to measure up to any of
them, which would have permitted a review of the factual circumstances of the
case.80Respondent Custodios bare allegation that the present controversy81 does not fall
within the established exceptions fails to convince the Court.
The difference in appreciation by the trial court and the appellate court of the evidence
with respect to the circumstances surrounding the cash shortage is prima
faciejustification for the Court to review the facts and the records of the case. While
factual issues are not within the province of this Court, as it is not a trier of facts and is
not required to examine or contrast the oral and documentary evidence de novo, this
Court has the authority to review and, in proper cases, reverse the factual findings of
lower courts when the findings of fact of the trial court are in conflict with those of the
appellate court.82
In her Comment, respondent Custodio likewise assails the separate Petition she received
from Atty. Cachapero, the former counsel of petitioner Metrobank. 83 She claims that the
separate Petition should not be entertained by the Court, since there is no proof of
payment of the docket fees or proof of service. Moreover, the Petition coming from Atty.
Cachapero should preclude the instant Petition filed by the banks new counsel, Sediego
& Associates. Aside from the fact that this
_______________
79 Respondent Custodios Comment at p. 4, Rollo at p. 178.
80 Memorandum for Respondent at pp. 10-11; id., at pp. 308-309.
81 Petitioner Metrobanks Memorandum at p. 11, id., at p. 281.
82 Encinares v. Achero, G.R. No. 161419, 25 August 2009, 597 SCRA 34.
83 Comment at pp. 1-3; Rollo at pp. 175-177.
712
712 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
issue is not raised in respondents Memorandum, nothing in the record shows that the
separate Petition signed by Atty. Cachapero was ever filed and docketed with the Court.
Courts will not entertain and act on petitions that have yet to be properly filed, even if a
copy has been served on the other party. Moreover, the separate Petition that came into
the hands of respondent has no bearing on this case, since Atty. Cachapero has already
withdrawn as counsel for petitioner Metrobank. Therefore, the Court will only confine
itself to the instant Petition, which was duly filed by the banks new counsel and
submitted within the extended reglamentary period, after docket fees were paid and the
Court had given due course to it.84
The Court now proceeds to the substantial merits of the case.
The resolution of the instant Petition hinges on whether there is a preponderance of
evidence to establish that respondent Custodio incurred a cash shortage of PhP600,000
at the close of the banking day on 13 June 1995 and is therefore liable to pay petitioner
Metrobank the said amount.85
In civil cases such as in the instant action for a sum of money, petitioner Metrobank
carries the burden of proof and must establish its cause of action by a preponderance of
evidence.86 The concept of preponderance of evidence refers to evidence that is of greater
weight or more convincing, than that which is offered in opposition to it; at bottom, it
means probability of truth.87
_______________
84 Resolution dated 13 February 2008; Rollo at pp. 242-243.
85 See RTC Pre-Trial Order at p. 2, RTC records at p. 61.
86 Rules of Court, Rule 131, Sec. 1; Spouses Montecalvo v. Primero, G.R. No. 165168, 09 July 2010, 624 SCRA
575.
87 Rizal Commercial Banking Corporation v. Marcopper Mining Corporation, G.R. No. 170738, 12 September
2008, 565 SCRA 125, citing Jison v. Court of Appeals, G.R. No. 124853, 24 February 1998, 286 SCRA 495, 532.
713
VOL. 645, MARCH 21, 2011 713
Metropolitan Bank and Trust Company vs. Custodio
The Court sustains the appellate courts finding that petitioner Metrobank failed to
discharge its burden of proving that respondent Custodio was responsible for the cash
shortage. Petitioner Metrobanks evidence on record does not sufficiently establish that
respondent Custodio took the funds that were entrusted to her as a bank teller.
The issue of respondent Custodios civil liability for the cash shortage turns on whether
she is the proximate or direct cause of the loss. There is nothing on record that will show
that there were any missing bundles of one-thousand-peso and five-hundred-peso bills
when respondent Custodio turned over the funds to the cash custodian, Ms. Marinel
Castro. As the appellate court correctly found, the Cash Transfer Slip was the best
evidence that respondent Custodio had properly turned over the amounts in her care,
and that the cash custodian received them without any shortage. 88
Although the Cash Transfer Slip was not introduced in evidence, Ms. Castro admitted
having signed it. Had there been any cash shortage at that point, then the cash custodian
could have refused to sign the Cash Transfer Slip, and respondent Custodio could have
been required to account for any missing funds. However, having acknowledged receipt of
the funds from respondent, it is reasonably presumed that Ms. Castro found nothing out
of order in respondents records of cash transactions and the amounts transferred.
Petitioner Metrobank admits the existence of the cash transfer slip and the custodians
signature thereon. It reasons, though, that it was not unusual for the custodian to sign
the slip without counting the money, since she trusted her co-employees. Petitioner seeks
to impress upon this Court that the custodians negligence wa s in good faith and should
not exonerate respondent Custodio from the cash shortage.
_______________
88 The cash transfer slip is the best evidence that appellant (Custodio) turned over the amount of
P2,113,500.00 on June 13, 1995. (CA Decision at p. 6; Rollo at p. 50).
714
714 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
As the Court of Appeals correctly surmised, Ms. Castros procedural lapse in trusting her
co-employees by automatically signing the cash transfer slip without ensuring its
correctness contributed significantly to the loss of the banks money.89 The proper
accounting of funds through the cash transfer slip was precisely instituted as a safety
mechanism to trace the flow of money from one employee to another. Specifically, the
cash transfer slip was meant to ensure that the tellers had properly counted the money
that they turned over to the cash custodian.90 If Ms. Castro, as cash custodian, had not
been remiss in her responsibilities, petitioner Metrobank would have been able to
identify who among the tellers failed to turn over the proper amount as reflected in the
Cash Transfer Slip. The cash custodian is not to be admonished for reposing her trust in
her co-employees; nonetheless, she was negligent, insofar as ignoring established bank
procedures meant to prevent loss, especially when one of her co-employees had broken
that trust.
The Court of Appeals underscored the highest degree of diligence from the banking
business, considering that it is impressed with public interest and of paramount
importance.91 However, as petitioner Metrobank pointed out,92 the exacting standard of
diligence required by the appellate court pertains to the relationship between a bank and
a depositor, and not between a bank and its employees. In this case, no
_______________
89 But the cash custodian was negligent in not following the standard operating procedure of the bank. Her
negligence was the root cause why the cash shortage was not discovered earlier because, had she counted first
the money bills delivered to her before signing the cash transfer, the shortage could have been detected. (CA
Decision at p. 9; Id., at p. 53)
90 TSN, 27 September 2002, at p. 120.
91 CA Decision at 9 (Rollo at p. 53) citing Bank of the Philippine Islands v. Casa Montessori Internationale, 430
SCRA 261, 283 (2004).
92 Petitioner Metrobanks Memorandum at pp. 9-11; Rollo at pp. 279-281.
715
VOL. 645, MARCH 21, 2011 715
Metropolitan Bank and Trust Company vs. Custodio
depositors were affected, as the transactions during that day were accounted for, and no
error was found in the recording thereof. The relevant standard of diligence that we need
to examine here is that of a bank teller who was entrusted monies by the bank and who
may have failed to account for them.93 In this case, petitioner Metrobank was unable to
prove that respondent Custodio failed to exercise the necessary degree of diligence that
would justify the banks action for damages. Respondent Custodio was not remiss in her
duties as all her dealings with the banks money were clearly reflected on the records of
the bank.
If petitioner bank had to attribute any negligence on the part of its employees, then it
should have set its sights on the acts and/or omissions of Ms. Marinel Castro, the cash
Custodian, and Mr. Hanibal Jara, the security guard. If theft of the money cannot be
established, and negligence is the only legal phenomenon that is evident on the records,
then the proximate cause of the loss of the banks PhP600,000 is Ms. Castro, who, as cash
custodian, disregarded established procedures and blindly signed the tellers cash
transfer slips without counting the money turned over to her. Meanwhile, Mr. Jara failed
to inspect respondent Custodios belongings as she left the bank on that day for lunch.
Despite his own suspicions of respondent tellers conduct, he ignored them and decided
not to check the bags. This omission can conceivably be considered as a grave omission of
his duties as a security guard. The
_______________
93 A tellers relationship with the bank is necessarily one of trust and confidence. The teller as a trustee is
expected to possess a high degree of fidelity to trust and must exercise utmost diligence and care in handling
cash. A teller cannot afford to relax vigilance in the performance of his duties. (Fuentes v. National Labor
Relations Commission, G.R. No. 75955, 28 October 1988, 166 SCRA 752, citing Galsim v. PNB, G.R. No. 23921,
24 August 1969, 29 SCRA 293; Allied Banking Corporation v. Castro, et al., G.R. No. L-70608, 22 December
1987, 156 SCRA 789)
716
716 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
Court of Appeals succinctly explained both matters in this wise:
The foregoing circumstance is not sufficient basis for the court to assume that the said paper and
shoulder bag contained the cash shortage (P600,000). Ordinary diligence dictates that as a security
guard, Jara should have checked and inspected the things of all the bank employees, especially
those who were in charge of handling money before going out of the premises. Upon seeing a
teller going out for lunch with an expandable shoulder bag and paper bag, prudence
dictates that the security guard should have inspected and checked the tellers bags.
But the security guard failed to do so. It should be noted that the security guards testimony
reveals that the said shoulder bag had been used by appellant even prior to June 13, 1995, and on
said days, there were no shortages.
xxx
The signature of the cash custodian in the transfer slip means that the amount reflected therein
corresponds to the bills turned over to her. The cash transfer slip is the best evidence that
appellant turned over the amount of P2,113,500.00 on June 13, 1995. The cash transfer slip signed
by the cash custodian was not presented despite the written requires of appellant. However, the
existence of the signed transfer slip was admitted by the cash custodian. She even admitted that
she did not follow the banks standard operating procedure to count the money
delivered by the teller to her before signing the cash transfer slip, x x x.
xxx
In her testimony, the cash custodian, attested that it was not only the cash transfer slip of
appellant which she signed without counting the money submitted to her, but also those of the
other tellers. Under the circumstance, it cannot be determined at what point of the transactions
the shortage occurred. But the cash custodian was negligent in not following the standard
operating procedure of the bank. Her negligence was the root cause why the cash
shortage was not discovered earlier because, had she counted first the money bills
delivered to her before
717
VOL. 645, MARCH 21, 2011 717
Metropolitan Bank and Trust Company vs. Custodio
signing the cash transfer slip, the shortage could have been detected. x x x (Emphasis
supplied)94
Verily, it is highly doubtful that Ms. Castro and Mr. Jara had performed the necessary
care and caution required of bank employees in this instance, which directly contributed
to the loss of PhP600,000 for petitioner Metrobank.
Considering the failure of the cash custodian and the security guard to abide by the
procedural safeguards, petitioner bank is now left to find other evidence to determine the
person liable for the cash shortage. The Court, however, is not sufficiently convinced that
petitioner Metrobank has introduced a preponderance of circumstantial evidence to show
that respondent Custodio was liable for the missing bundles of cash worth PhP600,000.
As regards respondents receipt of PhP200,000 from another teller during the course of
the business day, it was never demonstrated that the cash transfer was highly irregular.
Neither was it conclusively proven that respondent took the money that was transferred
by the other teller.
During one of the hearings, Mr. Lucas, the branch manager, explained that it was
unusual for respondent Custodio to have requested a cash transfer, considering that she
had sufficient funds to cover the amount. 95However, as the appellate court explained, the
trial court should not have considered his testimony in this respect, since the judge had
ordered that particular statement stricken out during the trial court proceedings. 96 A fact
elicited from a witness during testimony cannot be considered in the disposition of the
case if it has been ordered stricken out, unless it is established by any other evidence on
record.97
_______________
94 CA Decision, at pp. 6-9; Rollo at pp. 50-53.
95 TSN, 11 December 1995, at p. 15.
96 CA Decision at p. 5; Rollo at p. 49.
97 Striking out answer.Should a witness answer the question before the adverse party had the opportunity
to voice fully its objec-
718
718 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
Even if the Court were to take cognizance of the bank managers statement, the unusual
cash transfer does not tend to prove that respondent Custodio took the money. There was
no reason why respondent Custodio would appropriate several bundles of cash from
another teller, because the transfer would be reflected in her transaction journals and
those of the other teller anyway. Besides, respondent would be held to account for all the
transactions and funds at the end of the banking day. If at all, the cash transfer, which
was reflected in the records, indicated a movement of funds from one teller to another,
but did not establish the movement from the banks coffers to respondent Custodios
pockets. In any case, based on the transaction journal, no error was found in the records,
as all the entries were duly accounted for by respondent Custodio and the other teller.
The security guards testimony that respondent Custodio left for lunch alone with an
expandable shoulder bag and a paper bag is inadequate proof for the Court to believe
that she carted away the missing cash. Although she ordinarily took her lunch break at
noon with another tellerMs. Mary Castrothe same security guard explained that
respondent deviated from her usual practice, because one of the tellers was on leave.
Presumably, respondent Custodio had to take her lunch alone, rather than go with Ms.
Castro. Otherwise, the branch would have been left under-staffed and unable to serve the
branchs clients fully. The daily time records submitted by petitioner Metrobank even
show that there were other in-
_______________
tion to the same, and such objection is found to be meritorious, the court shall sustain the objection and order
the answer given to be stricken off the record.
On proper motion, the court may also order the striking out of answers which are incompetent, irrelevant, or
otherwise improper. (Rule 132, Sec. 39)
719
VOL. 645, MARCH 21, 2011 719
Metropolitan Bank and Trust Company vs. Custodio
stances in which respondent did not have lunch together with her co-teller, yet, no cash
shortage was reported.98
On the other hand, the bags carried by respondent Custodio when she went out for lunch
were never inspected by the security guard. The latter failed to search these bags, which
could have determined whether respondent teller had carried away the banks missing
money during her break. As it were, the security guard saw nothing unusual or out of the
ordinary, with respect to respondent Custodios bags that would have aroused his
suspicion and prompt him to inspect her belongings before she left.
Meanwhile, the eight wrappers of five-hundred-peso bills allegedly recovered by
petitioner Metrobank are likewise of doubtful credibility and are inconclusive in
determining liability. The bill wrappers bear the stamp assigned to Teller No. 3, who is
respondent Custodio. Yet, as respondent explains, these stamped wrappers can easily be
procured by stamping unmarked bill wrappers with tools and materials that are readily
available to petitioner Metrobank. Moreover, the wrappers offered into evidence by
petitioner bank do not bear respondent Custodios initials to prove that the bundles of
money which these wrappers correspond to were in respondents care, as is the common
practice in the branch and as testified to by the cash custodian, Ms. Castro:
Q: Madam witness, going over Exhibit G, you claim that these bill wrappers belong to defendant Marina Custodio because all
these bill wrappers are stamped PEPT-3?
A: Yes, sir.
Q: Despite the fact that Marina Custodio did not affix her signature on these hill wrappers, you claim that these belong to
her just by the mere stamp?
A: Yes, sir.
_______________
98 Exhibit 4 (RTC records at pp. 311-312); TSN 03 August 1998, at pp. 78-80.
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720 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
Q: Is it not a fact, madam witness, that the date when these ball wrappers are turned over to you is supposed to be
reflected?
A: It is supposed to reflect the date, sir; in fact, it is supposed to contain their signatures.99
Moreover, the circumstances surrounding the discovery of these bill wrappers by
petitioner Metrobank remain unclear. Despite the bank managers instructions and the
bank employees efforts in conducting a thorough search for the missing cash bundles,
neither the money nor the bill wrappers were found on the day of the cash shortage. The
cash custodian who identified these bill wrappers did not explain how she came to
discover them.100
In addition, respondent Custodio was never confronted with these wrappers when the
cash shortage was discovered. Neither were the wrappers presented to her when the
banks investigators conducted a one-on-one meeting with the employees two days after
the incident. Not even a report by the investigation team of petitioner Metrobank
regarding the incident was submitted to show when the bill wrappers were discovered, or
when respondent Custodio was suspected of taking the money. 101
It appears highly unlikely that respondent Custodio would be able to cart away several
bundles of cash without being detected at all, only to carelessly leave the purported
wrap-
_______________
99 TSN, 28 February 2000 at p. 95.
100 Id., at pp. 90-91.
101 Further, Mr. Lucas, the manager of appellee bank admitted that investigators from their Regional Office
and from their head office, the Department of Internal Affairs conducted an investigation on the shortage and
submitted a written report. Interestingly, the manager of appellee bank had to refer to the written
investigation report during the cross-examination to refresh his memory. But appellant was not even furnished
with a copy of the said report nor was such report presented to enlighten the trial court of what really
transpired. (CA Decision at p. 9, Rollo at p. 53)
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Metropolitan Bank and Trust Company vs. Custodio
pers of the stolen cash, wrappers stamped with marks that might lead to her identity.
The sudden appearance of these bill wrappers begs the question as to where and when
they were discovered by petitioner Metrobank. If these empty bill wrappers were
allegedly found to be under the account of respondent Custodio soon after the cash
shortage was discovered, then there was no reason for petitioner Metrobank to have
allowed her to continue with her duties in handling bank funds. Yet, respondent
Custodio was subsequently permitted to report for work after the incident until 23 June
1995.
Contrary to the banks assertions in the Complaint,102respondent Custodio was never
asked to account for and/or turn over the missing money. Neither did the bank, prior to
the service of the summons and the complaint, demand that she return the money.
Respondent Custodio was only informed that she was accused of stealing the missing
funds when the summons was served upon her on 23 June 1995. 103 Indeed, after the
discovery of the cash shortage, every employee was held suspect,104 and respondent was
never singled out for the loss until petitioner bank filed the Complaint with the trial
court.
Petitioner Metrobank also argues that respondent Custodios prior involvement in a cash
shortage in its Cubao branch is admissible as evidence to prove a scheme or habit on her
part.105
The general evidentiary rule is that evidence that one did or did not do a certain thing at
one time is not admissible to
_______________
102 4. That the plaintiff appealed and demanded from defendant to account and/or turn over the said sum of
P600,00[0].00 but the latter refused and failed and still refuses and fails to honor plaintiffs demand.
(Complaint at p. 2, RTC records at p. 2)
103 TSN, 27 September 2002, at p. 130.
104 TSN, 28 February 2000, at p. 97.
105 Petition for Review at 25 (Rollo at p. 36); Memorandum for Petitioner at p. 11 (Rollo at p. 281).
722
722 SUPREME COURT REPORTS ANNOTATED
 Metropolitan Bank and Trust Company vs. Custodio
prove that one did or did not do the same or a similar thing at another time. However, 106
evidence of similar acts may be received to prove a specific intent or knowledge, identity,
plan system, scheme, habit, custom or usage and the like. 107 In Citibank N.A., (Formerly
First National City Bank) v. Sabeniano, the Court explained the rationale for this rule:
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a
person has committed the same or similar acts at some prior time affords, as a general rule, no
logical guaranty that he committed the act in question. This is so because, subjectively, a mans
mind and even his modes of life may change; and, objectively, the conditions under which he may
find himself at a given time may likewise change and thus induce him to act in a different way.
Besides, if evidence of similar acts are to be invariably admitted, they will give rise to a
multiplicity of collateral issues and will subject the defendant to surprise as well as confuse the
court and prolong the trial.108
Evidence of similar acts may frequently become relevant, especially to actions based on
fraud and deceit, because it sheds light on the state of mind or knowledge of a person; it
provides insight into such persons motive or intent; it uncovers a scheme, design or plan,
or it reveals a mistake.109
In this case however, respondent Custodios prior involvement in a cash shortage in the
banks Cubao branch does not conclusively prove that she is responsible for the loss of
PhP600,000 in the Laoag City branch, subject of the instant case.
_______________
106 Rules of Court, Rule 130, Sec. 34.
107 Id.
108 G.R. No. 156132, 16 October 2006, 504 SCRA 378, citing J.A.R. SIBAL AND J.N. SALAZAR, JR., COMPENDIUM
ON EVIDENCE 199-200 (4th ed., 1995).
109 Tanzo v. Drilon, G.R. No. 106671, 30 March 2000, 329 SCRA 147, citing Cruz v. Court of Appeals, 293
SCRA 239, 255 (1998).
723
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Metropolitan Bank and Trust Company vs. Custodio
Although the previous cash shortage in Cubao could possibly shed light on the intent,
scheme or habit of respondent Custodio, that previous cash shortage is not sufficient to
affirm a definitive finding of fact that she took the funds in the Laoag City branch. If the
prior cash shortage in Cubao showed a reasonable intent or habit on the part of
respondent, then there was no reason for petitioner Metrobank to continue to employ
her, considering the degree of trust and confidence required of a bank teller.
Nevertheless, respondent Custodio continued to serve the bank even after the case in
petitioner Metrobanks Cubao branch. Her continued employment was an affirmation
that she was still worthy of the banks trust, insofar as she was allowed to continue to
handle sums of money in the Laoag City branch.
With respect to the taking of the journal transaction slip by respondent Custodio, no
correlation was ever established between this incident and the cash shortage subject of
the instant case. The same journal transaction slip, which respondent allegedly
attempted to take away, has to do with transactions occurring on 23 June 1995. It does
not pertain to the transactions on 13 June 1995, the day of the cash shortage. No
reasonable explanation has been offered regarding how this incident is relevant to the
instant case or how it tends to prove that respondent Custodio was the one responsible
for a cash shortage that occurred ten days earlier. This incident was distinct and
separate from the cash shortage, as shown by the fact that she was subsequently
penalized with a seven-day preventive suspension for the incident on 23 June 1995, a
penalty that is not the subject of the instant proceedings.
In any event, respondent Custodio sufficiently explains that the incident arose from
confusion on her part. It is understandable that at the time she was caught with the
journal transaction slip, she was just confronted with petitioner Metrobanks serious
accusations that she had taken the missing funds. When the complaint was presented to
her and she
724
724 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
was barred from entering the tellers cage, respondent must have been so confused that
she mistakenly placed the transaction journals in her pocket. That no cash shortage
occurred at that time emphasizes that there was no direct and causal link between the
transaction journal slip and the cash shortage.
It is not denied that petitioner Metrobank discovered the lost money after all the tellers
had turned over their cash for the day, and the cash custodian had signed the Cash
Transfer Slip. Without the cash custodian counting the money before signing the Cash
Transfer Slip, many probabilities arise.110 The shortage may have occurred even prior to
the turnover of the cash by respondent Custodio. The missing cash may have also
resulted from the transfers done by the other tellers, and not necessarily by respondent
Custodio. It may have been taken away during the counting of the money by the cash
custodian and the other tellers themselves.
Petitioner Metrobank even argued that respondent Custodio may have taken the money
after the cash custodian had returned the amounts turned over to the tellers and other
employees for sorting and counting.111 To begin with, this position is directly contrary to
petitioner Metrobanks theory that respondent Custodio carried away the money in the
morning of 13 June 1995. In addition, the cash custodian had asked for assistance from
the other bank employees to speed up the counting and sorting, which necessarily opens
the possibility that any of those involved could have been a sus-
_______________
110 In her testimony, the cash custodian, attested that it was not only the cash transfer slip of appellant
(Custodio) which she signed without counting the money submitted to her, but also those of the other tellers of
the bank. Under the circumstance, it cannot be determined at what point of the transactions the shortage
occurred. (CA Decision at p. 9, Rollo at p. 53)
111 Brief for the Appellee at p. 9, Rollo at p. 158.
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Metropolitan Bank and Trust Company vs. Custodio
pect as well.112 Respondent Custodio even argued that the money she had counted and
sorted were funds turned over by other tellers, and not the same funds she herself had
given to the cash custodian.113 More disconcerting is the failure of the cash custodian to
even remember who were the employees who had helped her in counting the cash at that
time, since everybody was in a hurry to go home. 114The procedural shortcuts resorted to
by petitioner banks employees threw open the doors to a multitude of probable scenarios,
leading to ambiguity in determining civil liability.
The secondary and incidental facts offered by petitioner Metrobank do not prove the
primary factual issue that it wishes to establish in demanding the instant relief from the
courtsthat respondent Custodio took the money.
Regrettably, the evidence offered by petitioner Metrobank is insufficient to convince to
the Court that the probability of respondent Custodios having taken the money is
greater than its having been taken by another employee. Verily, weighing the evidence
on record, the Court finds that petitioner Metrobank failed in its burden of proving by a
preponderance of evidence that respondent Custodio took PhP600,000 from petitioner
Metrobank and is liable to return the amount to the latter.
In view of the foregoing, the Court DENIES the instant Petition for Review filed by
Metropolitan Bank and Trust Company. The Court of Appeals 14 July 2006 Decision,
which dismissed the complaint against respondent Marina Custodio, is hereby
AFFIRMED.
_______________
112 Q: Is it not a fact that on said date after all the bundles were turned over to you, when you made a
bundle count before you placed these bundles of cash inside the vault, there were also bundles missing from
other tellers in the person of Mary Paula Castro?
A: Yes, sir. (TSN 28 February 2000, at p. 96).
113 TSN, 27 September 2002, at p. 121.
114 TSN, 12 May 2003, at p. 6.
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726 SUPREME COURT REPORTS ANNOTATED
Metropolitan Bank and Trust Company vs. Custodio
SO ORDERED.
Carpio-Morales (Chairperson), Brion, Bersamin and Villarama, Jr., JJ., concur.
Petition denied, judgment affirmed.
Notes.The defense of due care in the selection and supervision of employees provided
in the last paragraph of Article 2180 of the New Civil Code may be availed of only where
the liability arises from culpa aquiliana and not from culpa contractual. (Herbosa vs.
Court of Appeals, 374 SCRA 578 [2002])
Evidence should only be considered for the purpose it was formally offered. (People vs.
Ignas, 412 SCRA 311 [2003])
21. G.R. No. 174912. July 24, 2013.*
BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEUDAVAO CITY-FUBU), petitioner, vs.
BANK OF THE PHILIPPINE ISLANDS (BPI), and BPI OFFICERS CLARO M. REYES, CECIL
CONANAN and GEMMA VELEZ, respondents.
Labor Law; Unfair Labor Practices; Only gross violations of the economic provisions of the collective
bargaining agreement are treated as unfair labor practice.In essence, the primordial issue in this case is
whether or not the act of BPI to outsource the cashiering, distribution and bookkeeping functions to BOMC is in
conformity with the law and the existing CBA. Particularly in dispute is the validity of the transfer of twelve (12)
former FEBTC employees to BOMC, instead of being absorbed in BPI after the corporate merger. The Union
claims that a union shop agreement is stipulated in the existing CBA. It is unfair labor practice for employer to
outsource the positions in the existing bargaining unit, citing the case of Shell Oil Workers Union v. Shell
Company of the Philippines, Ltd., 39 SCRA 276 (1971). The Unions reliance on the Shell Case is misplaced. The
rule now is covered by Article 261 of the Labor Code, which took effect on November 1, 1974. Article 261
provides: ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators.x x x
Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall
no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective
Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall
mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement. Clearly,
only gross violations of the economic provisions of the CBA are treated as ULP. Otherwise, they are mere
grievances.
Same; Outsourcing; Contracting out of services is not illegal per se. It is an exercise of business judgment
or management prerogative.It is to be emphasized that contracting out of services is not
_______________
* THIRD DIVISION.
43
VOL. 702, JULY 24, 2013 43
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
illegal per se. It is an exercise of business judgment or management prerogative. Absent proof that the
management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment by
an employer. In this case, bad faith cannot be attributed to BPI because its actions were authorized by CBP
Circular No. 1388, Series of 1993 issued by the Monetary Board of the then Central Bank of the Philippines (now
Bangko Sentral ng Pilipinas). The circular covered amendments in Book I of the Manual of Regulations for Banks
and Other Financial Intermediaries, particularly on the matter of bank service contracts. A finding of ULP
necessarily requires the alleging party to prove it with substantial evidence. Unfortunately, the Union failed to
discharge this burden.
Statutory Construction; A statute should be construed not only to be consistent with itself but also to
harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system of
jurisprudence.Consistent with the maxim, interpretare et concordare leges legibus est optimus interpretandi
modus, a statute should be construed not only to be consistent with itself but also to harmonize with other laws on
the same subject matter, as to form a complete, coherent and intelligible system of jurisprudence. The seemingly
conflicting provisions of a law or of two laws must be harmonized to render each effective. It is only when
harmonization is impossible that resort must be made to choosing which law to apply.
Banks and Banking; Outsourcing; The competence in determining which banking functions may or may not
be outsourced lies with the Bangko Sentral ng Pilipinas.In the case at bench, the Union submits that while the
Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment relationship.
To this, the Court agrees. The fact that banks are of a specialized industry must, however, be taken into account.
The competence in determining which banking functions may or may not be outsourced lies with the BSP. This
does not mean that banks can simply outsource banking functions allowed by the BSP through its circulars,
without giving regard to the guidelines set forth under D.O. No. 10 issued by the DOLE.
Outsourcing; The Supreme Court held that it is management prerogative to farm out any of its activities,
regardless of whether
44
4 SUPREME COURT REPORTS ANNOTATED
4
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
 Islands (BPI)
such activity is peripheral or core in nature. What is of primordial importance is that the service agreement
does not violate the employees right to security of tenure and payment of benefits to which he is entitled under the
law.The Court held that it is management prerogative to farm out any of its activities, regardless of whether
such activity is peripheral or core in nature. What is of primordial importance is that the service agreement does
not violate the employees right to security of tenure and payment of benefits to which he is entitled under the law.
Furthermore, the outsourcing must not squarely fall under labor-only contracting where the contractor or sub-
contractor merely recruits, supplies or places workers to perform a job, work or service for a principal or if any of
the following elements are present: i) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related to the main business
of the principal; or ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Gregorio A. Pizarro for petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for respondents.
MENDOZA, J.:
Before the Court is a petition for review on certiorariunder Rule 45 of the 1997 Rules of Civil
Procedure, assailing the April 5, 2006 Decision1 and August 17, 2006 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 74595 affirming the
_______________
1 Penned by Associate Justice Rodrigo F. Lim, Jr., with Associate Justices Teresita Dy-Liacco Flores and Ramon R. Garcia,
concurring; Rollo, pp. 84-103.
2 Id., at pp. 105-107.
45
VOL. 702, JULY 24, 2013 45
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
December 21, 20013 and August 23, 20024 Resolutions of the National Labor Relations Commission
(NLRC) in declaring as valid and legal the action of respondent Bank of the Philippine Islands-Davao
City (BPI-Davao) in contracting out certain functions to BPI Operations Management Corporation
(BOMC).
The Factual Antecedents
BOMC, which was created pursuant to Central Bank5Circular No. 1388, Series of 1993 (CBP
Circular No. 1388, 1993), and primarily engaged in providing and/or handling support services for
banks and other financial institutions, is a subsidiary of the Bank of Philippine Islands (BPI) operating
and functioning as an entirely separate and distinct entity.
A service agreement between BPI and BOMC was initially implemented in BPIs Metro Manila
branches. In this agreement, BOMC undertook to provide services such as check clearing, delivery of
bank statements, fund transfers, card production, operations accounting and control, and cash
servicing, conformably with BSP Circular No. 1388. Not a single BPI employee was displaced and
those performing the functions, which were transferred to BOMC, were given other assignments.
The Manila chapter of BPI Employees Union (BPIEU-Metro Manila-FUBU) then filed a
complaint for unfair labor practice (ULP). The Labor Arbiter (LA) decided the case in favor of the
union. The decision was, however, reversed on appeal by the NLRC. BPIEU-Metro Manila-FUBU
filed a petition for certiorari before the CA which denied it, holding that BPI transferred the
employees in the affected departments in the pursuit of its legitimate business. The employees
_______________
3 Id., at pp. 53-79.
4 Id., at pp. 81-82.
5 Now Bangko Sentral ng Pilipinas (BSP).
46
46 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
were neither demoted nor were their salaries, benefits and other privileges diminished. 6
On January 1, 1996, the service agreement was likewise implemented in Davao City. Later, a
merger between BPI and Far East Bank and Trust Company (FEBTC) took effect on April 10, 2000
with BPI as the surviving corporation. Thereafter, BPIs cashiering function and FEBTCs cashiering,
distribution and bookkeeping functions were handled by BOMC. Consequently, twelve (12) former
FEBTC employees were transferred to BOMC to complete the latters service complement.
BPI Davaos rank and file collective bargaining agent, BPI Employees Union-Davao City-FUBU
(Union), objected to the transfer of the functions and the twelve (12) personnel to BOMC contending
that the functions rightfully belonged to the BPI employees and that the Union was deprived of
membership of former FEBTC personnel who, by virtue of the merger, would have formed part of the
bargaining unit represented by the Union pursuant to its union shop provision in the CBA. 7
The Union then filed a formal protest on June 14, 2000 addressed to BPI Vice Presidents Claro M.
Reyes and Cecil Conanan reiterating its objection. It requested the BPI management to submit the
BOMC issue to the grievance procedure under the CBA, but BPI did not consider it as grievable.
Instead, BPI proposed a Labor Management Conference (LMC) between the parties.8
During the LMC, BPI invoked management prerogative stating that the creation of the BOMC was
to preserve more jobs and to designate it as an agency to place employees where they were most
needed. On the other hand, the Union charged that BOMC undermined the existence of the union
_______________
6 Rollo, p. 181.
7 Id., at pp. 87-88.
8 Id., at p. 88.
47
VOL. 702, JULY 24, 2013 47
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
since it reduced or divided the bargaining unit. While BOMC employees perform BPI functions, they
were beyond the bargaining units coverage. In contracting out FEBTC functions to BOMC, BPI
effectively deprived the union of the membership of employees handling said functions as well as
curtailed the right of those employees to join the union.
Thereafter, the Union demanded that the matter be submitted to the grievance machinery as the
resort to the LMC was unsuccessful. As BPI allegedly ignored the demand, the Union filed a notice of
strike before the National Conciliation and Mediation Board (NCMB) on the following grounds:
a) Contracting out services/functions performed by union members that interfered with, restrained
and/or coerced the employees in the exercise of their right to self-organization;
b) Violation of duty to bargain; and
c) Union busting.9
 BPI then filed a petition for assumption of jurisdiction/certification with the Secretary of the and, thus, entitled to great respect and finality. To the CA, the NLRC did not act with grave abuse of
Department of Labor and Employment (DOLE), who subsequently issued an order certifying the labor discretion as to merit the reversal of the resolution.15
dispute to the NLRC for compulsory arbitration. The DOLE Secretary directed the parties to cease and Furthermore, the CA ratiocinated that, considering the ramifications of the corporate merger, it was
desist from committing any act that might exacerbate the situation. well within BPIs prerogatives to determine what additional tasks should be performed, who should
On October 27, 2000, a hearing was conducted. Thereafter, the parties were required to submit best perform it and what should be done to meet the exigencies of business. 16 It pointed out that the
their respective position papers. On November 29, 2000, the Union filed its Urgent Omnibus Motion to Union did not, by the mere fact of the merger, become the bargaining agent of the merged
Cease and Desist with a prayer that BPI-Davao and/or Mr. Claro M. Reyes and Mr. Cecil Conanan be employees17 as the Unions right to represent said employees did not arise until it was chosen by them. 18
held in contempt for the following alleged acts of BPI: _______________
1. The Bank created a Task Force Committee on November 20, 2000 composed of six (6) former FEBTC 13 Id., at p. 93.
_______________ 14 Id., at p. 96.
9 Id., at p. 90.
48 15 Id., at p. 97.
16 Id., at p. 98.
48 SUPREME COURT REPORTS ANNOTATED 17 Id., at p. 99.
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine 18 Id.
50
Islands (BPI)
employees to handle the Cashiering, Distributing, Clearing, Tellering and Accounting functions of the former FEBTC branches but the 50 SUPREME COURT REPORTS ANNOTATED
task force conducts its business at the office of the BOMC using the latters equipment and facilities.
2. On November 27, 2000, the bank integrated the clearing operations of the BPI and the FEBTC. The clearing function of BPI, then BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
solely handled by the BPI Processing Center prior to the labor dispute, is now encroached upon by the BOMC because with the Islands (BPI)
merger, differences between BPI and FEBTC operations were diminished or deleted. What the bank did was simply to get the
total of all clearing transactions under BPI but the BOMC employees process the clearing of checks at the Clearing House as to As to the applicability of D.O. No. 10, the CA agreed with the NLRC that the said order did not
checks coming from former FEBTC branches. Prior to the labor dispute, the run-up and distribution of the checks of BPI were apply as BPI, being a commercial bank, its transactions were subject to the rules and regulations of the
returned to the BPI processing center, now all checks whether of BPI or of FEBTC were brought to the BOMC. Since the
clearing operations were previously done by the BPI processing center with BPI employees, said function should be performed BSP.
by BPI employees and not by BOMC.10 Not satisfied, the Union filed a motion for reconsideration which was, however, denied by the CA.
On December 21, 2001, the NLRC came out with a resolution upholding the validity of the service Hence, the present petition with the following
agreement between BPI and BOMC and dismissing the charge of ULP. It ruled that the engagement by ASSIGNMENT OF ERRORS:
BPI of BOMC to undertake some of its activities was clearly a valid exercise of its management A. THE PETITION BEFORE THE COURT OF APPEALS INVOLVED QUESTIONS OF LAW AND ITS DECISION DID
NOT ADDRESS THE ISSUE OF WHETHER BPIS ACT OF OUTSOURCING FUNCTIONS FORMERLY
prerogative.11 It further stated that the spinning off by BPI to BOMC of certain services and functions PERFORMED BY UNION MEMBERS VIOLATES THE CBA.
did not interfere with, restrain or coerce employees in the exercise of their right to self- B. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DOLE DEPARTMENT ORDER NO. 10
DOES NOT APPLY IN THIS CASE.
organization.12 The Union did not present even an iota of evidence showing that BPI had terminated The Union is of the position that the outsourcing of jobs included in the existing bargaining unit to
employees, BOMC is a breach of the union-shop agreement in the CBA. In transferring the former employees of
_______________
10 Id., at p. 91. FEBTC to BOMC instead of absorbing them in BPI as the surviving corporation in the merger, the
11 Id., at p. 93. number of positions covered by the bargaining unit was decreased, resulting in the reduction of the
12 Id., at p. 92. Unions membership. For the Union, BPIs act of arbitrarily outsourcing functions formerly performed
49 by the Union members and, in fact, transferring a number of its members beyond the ambit of the
VOL. 702, JULY 24, 2013 49 Union, is a violation of the CBA and interfered with the employees right to self organization. The
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine Union insists that the CBA covers the agreement with respect, not only to wages and hours of work,
Islands (BPI) but to all other terms and conditions of work. The union shop clause, being part of these conditions,
states that the regular employees belonging to the bargaining
who were its members. In fact, BPI exerted utmost diligence, care and effort to see to it that no union 51
member was terminated.13 The NLRC also stressed that Department Order (D.O.) No. 10 series of
1997, strongly relied upon by the Union, did not apply in this case as BSP Circular No. 1388, series of
VOL. 702, JULY 24, 2013 51
1993, was the applicable rule. BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
After the denial of its motion for reconsideration, the Union elevated its grievance to the CA via a Islands (BPI)
petition for certiorari under Rule 65. The CA, however, affirmed the NLRCs December 21, 2001 unit, including those absorbed by way of the corporate merger, were required to join the bargaining
Resolution with modification that the enumeration of functions listed under BSP Circular No. 1388 in union as a condition for employment. Simply put, the transfer of former FEBTC employees to
the said resolution be deleted. The CA noted at the outset that the petition must be dismissed as it BOMC removed them from the coverage of unionized establishment. While the Union admitted that
merely touched on factual matters which were beyond the ambit of the remedy availed of. 14 Be that as BPI has the prerogative to determine what should be done to meet the exigencies of business in
it may, the CA found that the factual findings of the NLRC were supported by substantial evidence accordance with the case of Sime Darby Pilipinas, Inc. v. NLRC,19 it insisted that the exercise of
management prerogative is not absolute, thus, requiring good faith and adherence to the law and the
CBA. Citing the case of Shell Oil Workers Union v. Shell Company of the Philippines, Ltd.,20 the
Union claims that it is unfair labor practice for an employer to outsource the positions in the existing
bargaining unit.
Position of BPI-Davao
For its part, BPI defended the validity of its service agreement with BOMC on three (3) grounds:
1] that it was pursuant to the prevailing law at that time, CBP Circular No. 1388; 2] that the creation of
BOMC was within management prerogatives intended to streamline the operations and provide focus
for BPIs core activities; and 3] that the Union recognized, in its CBA, the exclusive right and
prerogative of BPI to conduct the management and operation of its business. 21
BPI argues that the case of Shell Oil Workers Union v. Shell Company of the Philippines,
Ltd.,22 cited by the Union, is
_______________
19 351 Phil. 1013; 289 SCRA 86 (1998).
20 148-A Phil. 229; 39 SCRA 276 (1971).
21 Section 1, Article IV. Exclusive Rights and PrerogativesThe UNION all all its members hereby recognize that the
management and operation of the business of the BANK which include, among others, the hiring of employees, promotion,
transfers, and dismissal for just cause as well as the maintenance of order, discipline and efficiency in its operation are the sole
and exclusive prerogative of the BANK.
22 Supra note 20.
52
52 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
not on all fours with the present case. In said case, the company dissolved its security guard section
and replaced it with an outside agency, claiming that such act was a valid exercise of management
prerogative. The Court, however, ruled against the said outsourcing because there was an express
assurance in the CBA that the security guard section would continue to exist. Having failed to reserve
its right to effect a dissolution, the companys act of outsourcing and transferring security guards was
invalidated by the Court, ruling that the unfair labor practice strike called by the Union did have the
impression of validity. In contrast, there is no provision in the CBA between BPI and the Union
expressly stipulating the continued existence of any position within the bargaining unit. For BPI, the
absence of this peculiar fact is enough reason to prevent the application of Shell to this case.
BPI likewise invokes settled jurisprudence,23 where the Court upheld the acts of management to
contract out certain functions held by employees, and even notably those held by union members. In
these cases, the decision to outsource certain functions was a justifiable business judgment which
deserved no judicial interference. The only requisite of this act is good faith on the part of the
employer and the absence of malicious and arbitrary action in the outsourcing of functions to BOMC.
On the issue of the alleged curtailment of the right of the employees to self-organization, BPI
refutes the Unions allegation that ULP was committed when the number of positions in the bargaining
was reduced. It cites as correct the CA ruling that the representation of the Unions prospective
members is contingent on the choice of the employee, that is, whether or not to join the Union. Hence,
it was premature for
_______________
23 Cecille de Ocampo v. NLRC, G.R. No. 101539, September 4, 1992, 213 SCRA 652; Asian Alcohol Corporation v.
NLRC, 364 Phil. 912; 305 SCRA 416 (1999), G.R. No. 131108, March 25, 1999; Manila Electric Company v. Quisumbing, 383
Phil. 47; 326 SCRA 172 (2000).
53
VOL. 702, JULY 24, 2013 53
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
the Union to claim that the rights of its prospective members to self-organize were restrained by the
transfer of the former FEBTC employees to BOMC.
The Courts Ruling
In essence, the primordial issue in this case is whether or not the act of BPI to outsource the
cashiering, distribution and bookkeeping functions to BOMC is in conformity with the law and the
existing CBA. Particularly in dispute is the validity of the transfer of twelve (12) former FEBTC
employees to BOMC, instead of being absorbed in BPI after the corporate merger. The Union claims
that a union shop agreement is stipulated in the existing CBA. It is unfair labor practice for employer
to outsource the positions in the existing bargaining unit, citing the case of Shell Oil Workers Union v.
Shell Company of the Philippines, Ltd.24
The Unions reliance on the Shell Case is misplaced. The rule now is covered by Article 261 of the
Labor Code, which took effect on November 1, 1974. 25 Article 261 provides:
ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators.x x x
Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under
the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective
Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic
provisions of such agreement. [Emphases supplied]
_______________
24 Supra note 20.
25 Bustamante v. NLRC, 332 Phil. 833, 839; 265 SCRA 61, 68 (1996).
54
54 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
Clearly, only gross violations of the economic provisions of the CBA are treated as ULP.
Otherwise, they are mere grievances.
In the present case, the alleged violation of the union shop agreement in the CBA, even assuming it
was malicious and flagrant, is not a violation of an economic provision in the agreement. The
provisions relied upon by the Union were those articles referring to the recognition of the union as the
sole and exclusive bargaining representative of all rank-and-file employees, as well as the articles on
union security, specifically, the maintenance of membership in good standing as a condition for
continued employment and the union shop clause.26 It failed to take into consideration its recognition of
the banks exclusive rights and prerogatives, likewise provided in the CBA, which included the hiring
of employees, promotion, transfers, and dismissals for just cause and the maintenance of order,
discipline and efficiency in its operations.27
The Union, however, insists that jobs being outsourced to BOMC were included in the existing
bargaining unit, thus, resulting in a reduction of a number of positions in such unit. The reduction
interfered with the employees right to self-organization because the power of a union primarily
depends on its strength in number.28
 It is incomprehensible how the reduction of positions in the collective bargaining unit interferes
with the employees right to self-organization because the employees themselves were neither
transferred nor dismissed from the service. As the NLRC clearly stated:
In the case at hand, the union has not presented even an iota of evidence that petitioner bank has
started
_______________
26 Rollo, p. 57.
27 Id., at p. 125.
28 Id., at p. 37.
55
VOL. 702, JULY 24, 2013 55
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
to terminate certain employees, members of the union. In fact, what appears is that the Bank has exerted
utmost diligence, care and effort to see to it that no union member has been terminated. In the process of
the consolidation or merger of the two banks which resulted in increased diversification of functions,
some of these non-banking functions were merely transferred to the BOMC without affecting the union
membership.
29
BPI stresses that not a single employee or union member was or would be dislocated or terminated
from their employment as a result of the Service Agreement. 30Neither had it resulted in any diminution
of salaries and benefits nor led to any reduction of union membership. 31
As far as the twelve (12) former FEBTC employees are concerned, the Union failed to
substantially prove that their transfer, made to complete BOMCs service complement, was motivated
by ill will, anti-unionism or bad faith so as to affect or interfere with the employees right to self-
organization.
It is to be emphasized that contracting out of services is not illegal per se. It is an exercise of
business judgment or management prerogative. Absent proof that the management acted in a malicious
or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer. 32 In this
case, bad faith cannot be attributed to BPI because its actions were authorized by CBP Circular No.
1388, Series of 199333 issued by the Monetary Board of the then Central
_______________
29 Id., at pp. 72-73.
30 Id., at pp. 125-126.
31 Id.
32 Manila Electric Company v. Secretary Quisumbing, 383 Phil. 47, 60; 326 SCRA 172, 185 (2000).
33 CBP CIRCULAR NO. 1388
Series of 1993
The Monetary Board, in its Resolution No. 231 dated March 19, 1993, approved the following amendments to Book I of the
Manual of Regulations for Banks and Other Financial Intermediaries:
56
56 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
Bank of the Philippines (now Bangko Sentral ng Pilipinas). The circular covered amendments in
Book I of the Manual of
_______________
SECTION 1. The following new section is hereby added after Section 1176 of the Manual:
SECTION 1177. Bank Service Contract.A bank with expanded commercial banking authority or a commercial bank
may engage a bank service bureau or corporation to perform the following services:
(a) data processing systems development and maintenance;
(b) deposit and withdrawal recording;
(c) computation and recording of interests, service charges, penalties, and other fees;
(d) check-clearing processing, such as the transmission and receipt of check-clearing items/tapes to and from the Central
Bank (CB), collection and delivery of checks not included in the Philippine Clearing House System, as well as the recording of
the same;
(e) printing and delivery of bank statements; and
(f) providing general support services, such as purchasing of bank forms, equipment and supplies; messengerial, janitorial
and services; necessary budget and expense accounting, and other similar services.
Banks may enter into contracts covering above-mentioned services, provided that:
1. The performance by the Service Bureau of aforesaid bank services pertinent to deposit operations will not in any way
violate laws on secrecy of bank deposits;
2. There will be no diminution of Central Banks supervisory and examining authority over banks, nor in any manner
impede CBs exercise thereof;
3. The administrative powers of CB over the bank, its directors and officers shall not be impaired by such transfer of
activities;
4. The bank remains responsible for the performance of subject activities in the same manner and to the same extent as it
was before the transfer of said services to the Bureau;
5. The Service Bureau shall be owned exclusively by banks and shall render services to banks; and
6. The bank shall continue to comply with all laws and regulations, covering the activities performed by the Service
Bureau for and in its behalf such as, but may not be limited to, keeping of re-
57
VOL. 702, JULY 24, 2013 57
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
Regulations for Banks and Other Financial Intermediaries, particularly on the matter of bank service
contracts. A finding of ULP necessarily requires the alleging party to prove it with substantial
evidence. Unfortunately, the Union failed to discharge this burden.
Much has been said about the applicability of D.O. No. 10. Both the NLRC and the CA agreed
with BPI that the said order does not apply. With BPI, as a commercial bank, its transactions are
subject to the rules and regulations of the governing agency which is the Bangko Sentral ng
Pilipinas.34 The Union insists that D.O. No. 10 should prevail.
The Court is of the view, however, that there is no conflict between D.O. No. 10 and CBP Circular
No. 1388. In fact, they complement each other.
Consistent with the maxim, interpretare et concordare leges legibus est optimus interpretandi
modus, a statute should be construed not only to be consistent with itself but also to harmonize with
other laws on the same subject matter, as to form a complete, coherent and intelligible system of
jurisprudence.35 The seemingly conflicting provisions of a law or of two
_______________
cords and preparation of reports, signing authorities, internal control, and clearing regulations.
SECTION 2. Section 1379(a) is hereby amended by adding a paragraph after item (10), as follows:
(11) Bank service corporations all of the capital of which is owned by one or more banks and organized to perform for
and in behalf of banks the services enumerated in Section 1177.
This Circular shall take effect immediately.
JOSE L. CUISIA, JR.
Governor
34 Rollo, pp. 100-101.
35 Dreamwork Construction, Inc. v. Janiola, G.R. No. 184861, June 30, 2009, 591 SCRA 466, 474; CSC v. CA, G.R. No.
176162, October 9, 2012, 682 SCRA 353, sc.judiciary.gov.ph/jurisprudence/2012/october2012/176162.pdf, (last visited June 17,
2013).
58
58 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine

Islands (BPI)
laws must be harmonized to render each effective.36 It is only when harmonization is impossible that
resort must be made to choosing which law to apply.37
In the case at bench, the Union submits that while the Central Bank regulates banking, the Labor
Code and its implementing rules regulate the employment relationship. To this, the Court agrees. The
fact that banks are of a specialized industry must, however, be taken into account. The competence in
determining which banking functions may or may not be outsourced lies with the BSP. This does not
mean that banks can simply outsource banking functions allowed by the BSP through its circulars,
without giving regard to the guidelines set forth under D.O. No. 10 issued by the DOLE.
While D.O. No. 10, Series of 1997, enumerates the permissible contracting or subcontracting
activities, it is to be observed that, particularly in Sec. 6(d) invoked by the Union, the provision is
general in character x x x Works or services not directly related or not integral to the main
business or operation of the principal x x x. This does not limit or prohibit the appropriate
government agency, such as the BSP, to issue rules, regulations or circulars to further and specifically
determine the permissible services to be contracted out. CBP Circular No. 1388 38 enumerated functions
which are ancillary to the business of banks, hence, allowed to be outsourced. Thus, sanctioned by said
circular, BPI outsourced the cashiering (i.e., cash-delivery and deposit pick-up) and accounting
requirements of its Davao City branches.39 The Union even described the extent of BPIs actual and
intended contracting out to BOMC as follows:
_______________
36 Remo v. The Honorable Secretary of Foreign Affairs, G.R. No. 169202, March 5, 2010, 614 SCRA 281, 290.
37 Dreamwork Construction, Inc. v. Janiola, supra note 35 at p. 475.
38 See Note 33.
39 Rollo, pp. 181-182.
59
VOL. 702, JULY 24, 2013 59
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
As an initiatory move, the functions of the Cashiering Unit of the Processing Center of BPI,
handled by its regular rank and file employees who are members of the Union, xxx [were] transferred to
BOMC with the Accounting Department as next in line. The Distributing, Clearing and Bookkeeping
functions of the Processing Center of the former FEBTC were likewise contracted out to BOMC.
Thus, the subject functions appear to be not in any way directly related to the core activities of
banks. They are functions in a processing center of BPI which does not handle or manage deposit
transactions. Clearly, the functions outsourced are not inherent banking functions, and, thus, are well
within the permissible services under the circular.
The Court agrees with BPI that D.O. No. 10 is but a guide to determine what functions may be
contracted out, subject to the rules and established jurisprudence on legitimate job contracting and
prohibited labor-only contracting.41 Even if the Court considers D.O. No. 10 only, BPI would still be
within the bounds of D.O. No. 10 when it contracted out the subject functions. This is because the
subject functions were not related or not integral to the main business or operation of the principal
which is the lending of funds obtained in the form of deposits.42 From the very definition of banks as
provided under the General Banking Law, it can easily be discerned that banks perform only two (2)
main or basic functions deposit and loan functions. Thus, cashiering, distribution and bookkeeping
are but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as well as
D.O. No. 10. Even BPI itself recognizes that deposit
_______________
40 Rollo, p. 219.
41 Rollo, p. 201.
42 Sec. 3.1., Chapter I, R.A. No. 8191, The General Banking Law of 2000; First Planters Pawnshop, Inc. v. CIR, G.R. No.
174134, July 30, 2008, 560 SCRA 606, 619; Galvez v. CA, G.R. No. 187919, April 25, 2012, 671 SCRA 223, 238.
60
60 SUPREME COURT REPORTS ANNOTATED
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
and loan functions cannot be legally contracted out as they are directly related or integral to the main
business or operation of banks. The CBPs Manual of Regulations has even categorically stated and
emphasized on the prohibition against outsourcing inherent banking functions, which refer to any
contract between the bank and a service provider for the latter to supply, or any act whereby the latter
supplies, the manpower to service the deposit transactions of the former. 43
In one case, the Court held that it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature.44 What is of primordial
importance is that the service agreement does not violate the employees right to security of tenure and
payment of benefits to which he is entitled under the law. Furthermore, the outsourcing must not
squarely fall under labor-only contracting where the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal or if any of the following
elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to
the job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee. 45
WHEREFORE, the petition is DENIED.
_______________
43 X162.1 (2008- X169.1), Manual of Regulations for Banks.
44 Alviado v. Procter & Gamble Phils., Inc., G.R. No. 160506, March 9, 2010, 614 SCRA 563, 577.
45 Id.; Art. 106, Labor Code of the Philippines.
61
40 VOL. 702, JULY 24, 2013 61
BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine
Islands (BPI)
SO ORDERED.
Velasco, Jr. (Chairperson), Peralta, Abad and Leonen, JJ., concur.
Petition denied.
Notes.Unfair labor practice refers to acts that violate the workers right to
organize the prohibited acts are related to the workers right to self-organization and
to the observance of a Collective Bargaining Agreement (CBA). (General Santos Coca-
Cola Plant Free Workers Union-TUPAS vs. Coca-Cola Bottlers Phils., Inc. [General
Santos City], 579 SCRA 414 [2009])
There is a universal recognition of outsourcing as a legitimate activity. (Temic
Automotive Philippines, Inc. vs. Temic Automotive Philippines, Inc. Employees Union-
FFW, 609 SCRA 355 [2009])
 22. G.R. No. 170574. January 30, 2009.*
PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS BANK, INC.),
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
Taxation; Banks and Banking; Certificates of Deposit; Words and Phrases; A certificate of
deposit is 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; A certificate of deposit is also defined as a receipt issued by a bank for an
interest-bearing time deposit coming due at a specified future date.In Far East Bank and Trust
Company v. Querimit, 373 SCRA 665 (2002), the Court defined a certificate of deposit 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.
A certificate of deposit is also defined
_______________
** Additional member in lieu of Associate Justice Presbitero J. Velasco, Jr. who is abroad on official business.
* FIRST DIVISION.
367
VOL. 577, JANUARY 30, 2009 367
Philippine Banking Corporation (Now: Global Business Bank, Inc.)
vs. Commissioner of Internal Revenue
as a receipt issued by a bank for an interest-bearing time deposit coming due at a specified
future date. The deposit operations of a bank as listed in the Bangko Sentral ng Pilipinas Manual
of Regulations for Banks consist of the following: 1. Demand Deposits are deposits, subject to
withdrawal either by check or thru the automated tellering machines which are otherwise known
as current or checking accounts. The Bank may or may not pay interest on these accounts. 2.
Savings Deposits are interest-bearing deposits which are withdrawable either upon presentation
of a properly accomplished withdrawal slip together with the corresponding passbook or thru the
automated tellering machines. 3. Negotiable Order of Withdrawal Accounts are interest-bearing
savings deposit which are withdrawable by means of Negotiable Orders of Withdrawal. 4. Time
Deposits are interest-bearing deposits with specific maturity dates and evidenced by certificates
issued by the bank.
Same; Same; Same; It is clear that a certificate of deposit drawing interest as used in Section
180 of the 1977 National Internal Revenue Code (NIRC) refers to a time deposit account.Based on
the definition and comparison, it is clear that a certificate of deposit drawing interest as used in
Section 180 of the 1977 NIRC refers to a time deposit account. As the Bureau of Internal Revenue
(BIR) explained in Revenue Memorandum Circular No. 16-2003, the distinct features of a
certificate of deposit from a technical point of view are as follows: a. Minimum deposit requirement;
b. Stated maturity period; c. Interest rate is higher than the ordinary savings account; d. Not
payable on sight or demand, but upon maturity or in case of pre-termination, prior notice is
required; and e. Early withdrawal penalty in the form of partial loss or total loss of interest in case
of pre-termination. The SSDA is for depositors who maintain savings deposits with substantial
average daily balance and which earn higher interest rates. The holding period of an SSDA floats
at the option of the depositor at 30, 60, 90, 120 days or more and for maintaining a longer holding
period, the depositor earns higher interest rates. There is no pre-termination of accounts in an
SSDA because the account is simply reverted to an ordinary savings status in case of early or
partial withdrawal or if the required holding period is not met. Based on the foregoing, the SSDA
has all of the distinct features of a certificate of deposit.368
3 SUPREME COURT REPORTS ANNOTATED
68
Philippine Banking Corporation (Now: Global Business Bank, Inc.)
vs. Commissioner of Internal Revenue
Same; Same; Same; Documentary Stamp Tax; Documentary stamp tax is a tax on documents,
instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of
an obligation, right or property incident theretoa Documentary Stamp Tax (DST) is actually an
excise tax because it is imposed on the transaction rather than on the document; A certificate of
deposit is a written acknowledgment by a bank of the receipt of a sum of money on deposit which the
bank 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 or creditor between the bank and the depositor is created.
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto. A DST is actually an excise tax because it is imposed on the transaction rather than on the
document. A DST is also 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. Hence, in imposing the DST, the Court considers not only the document but also the
nature and character of the transaction. Section 180 of the 1977 NIRC imposes a DST of P0.30 on
each P200 of the face value of any certificate of deposit drawing interest. As correctly observed by
the CTA, a certificate of deposit is a written acknowledgment by a bank of the receipt of a sum of
money on deposit which the bank 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 or creditor between the bank and
the depositor is created.
Same; Tax Amnesty; Words and Phrases; A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose penalties on persons otherwise guilty of violation
of a tax lawit partakes of an absolute waiver by the government of its right to collect what is due it
and to give tax evaders who wish to relent a chance to start with a clean slate; The Documentary
Stamp Tax (DST) is one of the taxes covered by the Tax Amnesty Program under RA 9480.A tax
amnesty is a general pardon or the intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violation of a tax law. It partakes of an absolute waiver by
the government of its right to collect what is due it and to give tax evaders who wish to relent a
chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never fa-369
VOL. 577, JANUARY 30, 2009 369
Philippine Banking Corporation (Now: Global Business Bank, Inc.)
vs. Commissioner of Internal Revenue
vored nor presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing authority. The DST is
one of the taxes covered by the Tax Amnesty Program under RA 9480. As discussed above,
petitioner is clearly liable to pay the DST on its SSDA for the years 1996 and 1997. However,
petitioner, as the absorbed corporation, can avail of the tax amnesty benefits granted to
Metrobank.
Same; Same; RA 9480 is specifically clear that the exceptions to the tax amnesty program
include tax cases subject of final and executory judgment by the courts.Records show that
Metrobank, a qualified tax amnesty applicant, has duly complied with the requirements
enumerated in RA 9480, as implemented by DO 29-07 and RMC 19-2008. Considering that the
completion of these requirements shall be deemed full compliance with the tax amnesty program,
the law mandates that the taxpayer shall thereafter be immune from the payment of taxes, and
additions thereto, as well as the appurtenant civil, criminal or administrative penalties under the
NIRC of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years. The BIRs inclusion of issues and cases which were ruled by
any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer as
one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is specifically clear that the exceptions
to the tax amnesty program include tax cases subject of final and executory judgment by the
courts. The present case has not become final and executory when Metrobank availed of the tax
amnesty program.
PETITION for review on certiorari of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
The Law Firm of Esquivias, Cruz, Conlu & Yabut for petitioner.
370
370 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
CARPIO,** J.:
The Case
The Philippine Banking Corporation, now, Global Business Bank, Inc., (petitioner)
filed this Petition for Review1 to reverse the Court of Tax Appeals Decision 2dated 23
November 2005 in CTA EB No. 63 (C.T.A. Case No. 6395). In the assailed decision, the
Court of Tax Appeals En Banc ordered petitioner to pay P17,595,488.75 and
P47,767,756.24 as deficiency documentary stamp taxes for the taxable years 1996 and
1997, respectively, on its bank product called Special/Super Savings Deposit Account
(SSDA).
The Facts
Petitioner is a domestic corporation duly licensed as a banking institution. 3 For the
taxable years 1996 and 1997, petitioner offered its SSDA to its depositors. The SSDA is a
form of a savings deposit evidenced by a passbook and earning a higher interest rate
than a regular savings account. Petitioner believes that the SSDA is not subject to
Documentary Stamp Tax (DST) under Section 180 of the 1977 National Internal Revenue
Code (NIRC), as amended.4
_______________
** Acting Chairperson. Per Special Order No. 552-A.
1 Under Rule 45 of the Rules of Court.
2 Penned by Associate Justice Juanito C. Castaeda, Jr. with Presiding Justice Ernesto D. Acosta,
Associate Justices Lovell R. Bautista, Erlinda P. Uy, Olga Palance-Enriquez, concurring and Associate Justice
Caesar A. Casanova, dissenting.
3 Philippine Banking Corporation was merged with the Global Business Bank, Inc. On 4 September 2002,
Global Business Bank, Inc. was changed into a holding company under the name Global Business Holdings,
Inc. On 11 October 2002, the banking business of Global Business Bank, Inc. was subsequently transferred and
absorbed by Metropolitan Bank and Trust Company.
4 Rollo, p. 5.
371
VOL. 577, JANUARY 30, 2009 371
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
On 10 January 2000, the Commissioner of Internal Revenue (respondent) sent
petitioner a Final Assessment Notice assessing deficiency DST based on the outstanding
balances of its SSDA, including increments, in the total sum of P17,595,488.75 for 1996
and P47,767,756.24 for 1997. These assessments were based on the outstanding balances
of the SSDA appearing in the schedule attached to petitioners audited financial
statements for the taxable years 1996 and 1997.5
Petitioner claims that the SSDA is in the nature of a regular savings account since
both types of accounts have the following common features:
a. They are both evidenced by a passbook;
b. The depositors can make deposits or withdrawals anytime which are not
subject to penalty; and
c. Both can have an Automatic Transfer Agreement (ATA) with the
depositors current or checking account.6
Petitioner alleges that the only difference between the regular savings account and
the SSDA is that the SSDA is for depositors who maintain savings deposits with a
substantial average daily balance, and as an incentive, they are given higher interest
rates than regular savings accounts. These deposits are classified separately in
petitioners financial statements in order to maintain a separate record for savings
deposits with substantial balances entitled to higher interest rates. 7
Petitioner maintains that the tax assessments are erroneous because Section 180 of
the 1977 NIRC does not include deposits evidenced by a passbook among the
enumeration of instruments subject to DST. Petitioner asserts that the lan-
_______________
5 Id.
6 Id., at p. 7.
7 Id., at p. 8.
372
372 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
guage of the law is clear and requires no interpretation. 8Section 180 of the 1977 NIRC, as
amended,9 provides:
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 the 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 10 Rollo, pp. 11-12.
shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos, 11 Id., at p. 13.
or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, 12 Id., at pp. 15-16.
374
certificate of deposit, or note: provided, that only one documentary stamp tax shall be imposed on
either loan agreement, or promissory note issued to secure such loan, whichever will yield a higher 374 SUPREME COURT REPORTS
tax: provided, however, that loan agreements or promissory notes the aggregate of which does not ANNOTATED
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
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the Commissioner of Internal Revenue
documentary stamp tax provided under this section. (Boldfacing supplied) TIME DEPOSITS SSDA
Petitioner insists that the SSDA, being issued in the form of a passbook, cannot be
1. The holding period is fixed 1. The holding period floats at the option
construed as a certificate of deposit
_______________ beforehand. of the depositor. It can be 30, 60, 90 or
120 days or more and as an incentive for
8 Id., at p. 14.
9 The 1977 NIRC was amended by Republic Act No. 7660. An Act Rationalizing Further the Structure and
maintaining a longer holding period, the
Administration of the Documentary Stamp Tax, Amending for the Purpose Certain Provisions of the National depositor earns higher interest.
Internal Revenue Code, as Amended, Allocating Funds for Specific Programs, and For Other Purposes (23
December 1993).
2. There is pre-termination 2. No pre-termination and the passbook
373 because there is no partial account is simply reverted to an ordinary
VOL. 577, JANUARY 30, 2009 373 withdrawal of a certificate. Pre- savings status in case of early or partial
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs. termination results in the withdrawal or if the required holding
Commissioner of Internal Revenue surrender and cancellation of the period is not met.
subject to DST under Section 180 of the 1977 NIRC. Petitioner explains that the SSDA is certificate of deposit.
a necessary offshoot of the deregulated interest rate regime in bank deposits.10Petitioner Petitioner also argues that even on the assumption that a passbook evidencing the
elucidates: SSDA is a certificate of deposit, no DST will be imposed because only negotiable
With the removal of the respective interest rate ceilings on savings and time deposit, banks certificates of deposits are subject to tax under Section 180 of the 1977 NIRC. 13 Petitioner
are enabled to legitimately offer higher rates on savings account which may even be at par with
reasons that a savings passbook is not a negotiable instrument and it cannot be denied
rates on time deposit. Practically, the distinction between a savings and a time deposit was
removed insofar as interest rates are concerned. This being so, and for the legitimate purpose of
that savings passbooks have never been taxed as certificates of deposits. 14
further enticing deposits for savings account, banks have evolved a productthe Super/Special Petitioner alleges that prior to the passage of Republic Act No. 9243 15 (RA 9243), there
Savings Accountwhich offers the flexibility of a savings deposit but does away with the rigidity of was no law subjecting SSDA to DST during the taxable years 1996 and 1997. The
a time deposit account and with interest rate at par with the latter. This is offered as an incentive amendatory provision in RA 9243 now specifically includes certificates or other
for depositors who maintain or who wish to maintain deposits with substantial average daily evidences of deposits that are either drawing interest significantly higher than the
balance. Such depositors will be entitled to an attractive interest rate, a rate higher than that to regular savings deposit taking into consideration the size of the deposit and the risks
which the regular savings account is entitled. Just like an ordinary savings, Super/Special Savings involved or drawing interest and having a specific maturity
Deposits can be withdrawn anytime. Of course, to be entitled to preferential interest rate, such _______________
account must conform to a stated minimum deposit balance within a specified holding period.
Otherwise, the depositor will lose the incentive of a higher interest rate and the account will revert 13 Id., at p. 16.
to an ordinary savings account and be entitled only to prevailing rates of interest applicable to 14 Id., at p. 18.
regular savings account. And unlike a time deposit account, the Super/Special Savings Account 15 An Act Rationalizing the Provisions of the Documentary Stamp Tax of the National Internal Revenue
comes in the form of a passbook, hence need not be formally renewed in the manner that a time Code of 1997, as Amended and for other Purposes. Promulgated on 17 February 2004.
deposit certificate has to be formally surrendered and renewed upon maturity. 11 375
Petitioner argues that the DST is imposed on the basis of a mere inference or VOL. 577, JANUARY 30, 2009 375
perceived implication of what the SSDA is supposed to be and not on the basis of what Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
the law specifically states. Petitioner points out the differences between the SSDA and Commissioner of Internal Revenue
time deposits:12
_______________
date.16 Petitioner admits that with this new taxing clause, its SSDA is now subject to
DST. However, the fact remains that this provision was non-existent during the taxable
years 1996 and 1997 subject of the assessments in the present case. 17
Respondent, through the Office of the Solicitor General, contends that the SSDA is
substantially the same and identical to that of a time deposit account because in order to
avail of the SSDA, one has to deposit a minimum of P50,000 and this amount must be
maintained for a required period of time to earn higher interest rates. 18 In a time deposit
account, the minimum deposit requirement is P20,000 and this amount must be
maintained for the agreed period to earn the agreed interest rate. If a time deposit is pre-
terminated, a penalty will be imposed resulting in a lower interest income. In a regular
savings account, the interest rate is fixed and there is no penalty imposed for as long as
the required minimum balance is maintained. Thus, respondent asserts that the SSDA is
a time deposit account, albeit in the guise of a regular savings account evidenced by a
passbook.19
Respondent explains that under Section 180 of the 1977 NIRC, certificates of deposits
deriving interest are subject to the payment of DST. Petitioners passbook evidencing its
SSDA is considered a certificate of deposit, and being very similar to a time deposit
account, it should be subject to the payment of DST.20
Respondent also argues that Section 180 of the 1977 NIRC categorically states that
certificates of deposit deriving interest are subject to DST without limiting the
enumeration to negotiable certificates of deposit. Based on the definition of a certificate
of deposit in Far East Bank and Trust Company v.
_______________
16 Rollo, pp. 22-23.
17 Id., at p. 24.
18 Id., at p. 429.
19 Id., at pp. 429-430.
20 Id., at pp. 430-431.
376
376 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
Querimit,21 a certificate of deposit may or may not be negotiable, since it may be payable
only to the depositor.22
The Ruling of the Court of Tax Appeals
On 23 November 2005, the Court of Tax Appeals En Banc (CTA) affirmed the
Decision and Resolution of the CTAs Second Division. The dispositive portion reads:
WHEREFORE, the instant petition is DENIED for lack of merit. Accordingly, the petitioner
is hereby ORDERED to PAYthe amounts of P17,595,488.75 and P47,767,756.24 as deficiency
documentary stamp taxes for the taxable years 1996 and 1997, plus 25% surcharge for late
payment and 20% annual delinquency interest for late payment from January 20, 2002 until fully
paid pursuant to Sections 248 and 249 of the Tax Code. 23
The CTA ruled that a deposit account with the same features as a time deposit, i.e., a
fixed term in order to earn a higher interest rate, is subject to DST imposed in Section
180 of the 1977 NIRC.24 It is clear that certificates of deposit drawing interest are
subject to DST. The CTA, citing Far East Bank and Trust Company v. Querimit,25defined
a certificate of deposit 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 some other person or his order, whereby the relation of
debtor and creditor between the bank and the depositor is created.26
The CTA pointed out that this Court neither referred to a particular form of deposit
nor limited the coverage to time
_______________
21 424 Phil. 721; 373 SCRA 665 (2002).
22 Rollo, p. 433.
23 Id., at pp. 36-37.
24 Id., at pp. 42-43.
25 Supra.
26 Rollo, pp. 43-44.
377
VOL. 577, JANUARY 30, 2009 377
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
deposits only. This Court used the term written acknowledgment which means that for
as long as there is some written memorandum of the fact that the bank accepted a
deposit of a sum of money from a depositor, the writing constitutes a certificate of
deposit. The CTA held that a passbook representing an interest-earning deposit account
issued by a bank qualifies as a certificate of deposit drawing interest.27
The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on documents,
whether the documents are negotiable or non-negotiable.28 The CTA held that petitioners
argument that Section 180 of the 1977 NIRC imposes the DST only on negotiable
certificates of deposit as implied from the old tax provision is erroneous. 29 Section 217 of
Commonwealth Act No. 466, as amended (old NIRC) reads:
Sec. 217. Stamp tax on negotiable promissory notes, bills of exchange, drafts,
certificate of deposit bearing interest and others not payable on sight or demand.On
all bills of exchange (between points within the Philippines), drafts or certificates of deposit
drawing interest, or orders for the payment of any sum of money otherwise than at sight or on
demand, or all negotiable promissory notes, except bank notes issued for circulation, and on
each renewal of any such note, there shall be collected a documentary stamp tax of four centavos
on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange,
draft, certificate of deposit, or note. (As amended by Sec. 6, Republic Act No. 40) (Emphasis in the
30
original)
The CTA observed that the requirement of negotiability pertains to promissory notes
only. Such intention is disclosed by the fact that the word negotiable was written
before promissory notes followed by a comma, hence, the word negotiable modifies
promissory notes only. Therefore, with respect to all
_______________
 27 Id., at p. 44.
28 Id.
29 Id., at pp. 44-45.
30 Id., at p. 45.
378
378 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
other documents mentioned in Section 217 of the old NIRC, the attribute of negotiability
is not required.31 The CTA added that the applicable provision is Section 180 of the 1977
NIRC and not Section 217 of the old NIRC.32 Section 180 of the 1977 NIRC provides that
the following are subject to DST, to wit: (1) Loan Agreements; (2) Bills of Exchange; (3)
Drafts; (4) Instruments and Securities issued by the Government or any of its
instrumentalities; (5) Certificates of Deposits drawing interest; (6) Orders for the
payment of any sum of money otherwise than at sight or on demand; and (7) Promissory
Notes, whether negotiable or non-negotiable. Therefore, the DST is imposed on all
certificates of deposit drawing interest without any qualification. 33
The CTA held that a certificate of time deposit, a type of a certificate of deposit
drawing interest, is subject to DST. The CTA observed that the SSDA has the same
nature and characteristics as a time deposit.34 The CTA discussed the similarities of a
time deposit account with an SSDA:
In order for the depositor to earn the agreed higher interest rate in a Special/Super Savings
Account, the required minimum amount of deposit must not only be met but should also be
maintained for a definite period. Thus, the Special/Super Savings Account is a deposit with a fixed
term. Withdrawal before the expiration of said fixed term results to the reduction of the interest
rate. The fixed term and reduction of interest rate in case of pre-termination are essentially the
features of a time deposit. Hence, this Court concurs with the conclusion reached in the assailed
Decision that petitioners Special/Super Savings Deposits and certificates of time deposit are
substantially the same, if not one and the same product, and therefore both are subject to the DST
on certificates of deposit. 35
_______________
31 Id., at pp. 45-46.
32 Id., at p. 46.
33 Id., at pp. 46-47.
34 Id., at p. 47.
35 Id., at pp. 48-49.
379
VOL. 577, JANUARY 30, 2009 379
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
The CTA stated that the fact that the SSDA is evidenced by a passbook is immaterial
because in determining whether certain instruments are subject to DST, substance
would control over form and labels.36
On 14 December 2005, petitioner appealed to this Court the CTA decision.37
The Issue
Petitioner submits this sole issue for our consideration: whether petitioners product
called Special/Super Savings Account is subject to DST under Section 180 of the 1977
NIRC prior to the passage of RA 9243 in 2004.38
The Ruling of the Court
The issue in the present case is whether petitioners SSDAs are certificates of
deposits drawing interest as used in Section 180 of the 1977 NIRC. If they are, then the
SSDAs are subject to DST. If not, then they are merely regular savings account which
concededly are not subject to DST. So what are certificates of deposits drawing interest,
and how do they differ from a regular savings account?
Section 180 of the 1977 NIRC, as amended, provides:
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 inter-
_______________
36 Id., at p. 49.
37 Id., at p. 3.
38 Id., at p. 7.
380
380 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
est, or orders for the payment of any sum of money otherwise than at the 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 note 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. (Boldfacing and underscoring supplied)
In Far East Bank and Trust Company v. Querimit,39 the Court defined a certificate of
deposit 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. A certificate of deposit is also
defined as a receipt issued by a bank for an interest-bearing time deposit coming due at interest
a specified future date.40
Period None Fixed Term Fixed Term
The deposit operations of a bank as listed in the Bangko Sentral ng Pilipinas Manual
of Regulations for Banks41consist of the following: Evidenced Passbook Certificate of Passbook
1. Demand Deposits are deposits, subject to withdrawal either by check or by: Time Deposit
thru the automated tellering Pre- None With penalty With penalty
_______________
termination
39 Supra note 21 at p. 730. Holding None Yes Yes
40 Websters Third New International Dictionary, Unabridged. Period
41 Issued 1993 and amended in 2005. Part II- Deposit and Borrowing Operations.
381 Withdrawal Allowed Withdrawal Allowed provided the
VOL. 577, JANUARY 30, 2009 381 amounts to
minimum amount to earn the
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs. pretermination higher interest rate is
Commissioner of Internal Revenue maintained, otherwise, the
machines which are otherwise known as current or checking accounts. The Bank regular savings interest rate
may or may not pay interest on these accounts.42 will apply.
2. Savings Deposits are interest-bearing deposits which are withdrawable Based on the definition and comparison, it is clear that a certificate of deposit
either upon presentation of a properly accomplished withdrawal slip together with drawing interest as used in Section 180 of the 1977 NIRC refers to a time deposit
the corresponding passbook or thru the automated tellering machines. 43 account. As the Bureau of Internal Revenue (BIR) explained in Revenue Memorandum
3. Negotiable Order of Withdrawal Accounts are interest-bearing savings Circular No. 16-2003,46 the distinct features of a certificate of deposit from a technical
deposit which are withdrawable by means of Negotiable Orders of Withdrawal.44 point of view are as follows:
4. Time Deposits are interest-bearing deposits with specific maturity dates a. Minimum deposit requirement;
and evidenced by certificates issued by the bank.45 b. Stated maturity period;
Petitioner treats the SSDA as a regular savings deposit account since it is evidenced c. Interest rate is higher than the ordinary savings account;
by a passbook and allows withdrawal. Respondent treats the SSDA as a time deposit _______________
account because of the higher interest rates and holding period. It is then significant to
differentiate a regular savings deposit and a time deposit vis--vis the SSDA to 46 BIR Revenue Memorandum Circular No. 16-2003, Defining the Term Certificate of Deposit for
the Purpose of Clarifying its Taxability Under Section 180 of the National Internal Revenue Code (Tax
determine if the SSDA is a certificate of deposit drawing interest referred to in Section Code) of 1997, 18 February 2003.
180 of the 1977 NIRC. A comparison of a savings account, time deposit account, and 383
SSDA is shown in the table below: VOL. 577, JANUARY 30, 2009 383
Savings Time Deposit SSDA Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Account Commissioner of Internal Revenue
Interest rate Regular savings Higher interest rate Higher interest rate d. Not payable on sight or demand, but upon maturity or in case of pre-
_______________ termination, prior notice is required; and
e. Early withdrawal penalty in the form of partial loss or total loss of interest
42 BSP Manual of Accounts for Expanded Commercial Banks and Commercial Banks 2-1-02-02, p. 27.
43 Id., 2-1-02-04, at p. 28. in case of pre-termination.
44 Id., 2-1-02-06, at p. 28. The SSDA is for depositors who maintain savings deposits with substantial average
45 Id., 2-1-02-08, at p. 29. daily balance and which earn higher interest rates. The holding period of an SSDA floats
382 at the option of the depositor at 30, 60, 90, 120 days or more and for maintaining a longer
382 SUPREME COURT REPORTS ANNOTATED holding period, the depositor earns higher interest rates. There is no pre-termination of
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs. accounts in an SSDA because the account is simply reverted to an ordinary savings
Commissioner of Internal Revenue status in case of early or partial withdrawal or if the required holding period is not met.
Based on the foregoing, the SSDA has all of the distinct features of a certificate of
deposit.
Petitioner argues that a deposit account evidenced by a passbook cannot be construed
as a certificate of deposit subject to DST under Section 180 of the 1977 NIRC.
In International Exchange Bank v. Commissioner of Internal Revenue,47 this Court
categorically ruled that a passbook representing an interest earning deposit account
issued by a bank qualifies as a certificate of deposit drawing interest and should be
subject to DST. The Court added that 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. 48
Petitioner also argues that prior to the passage of RA 9243, there was no law
subjecting SSDA to DST. In International Exchange Bank v. Commissioner of Internal
Revenue,49 the Court held that the amendment to include other evidences of deposits
that are drawing interest significantly higher than
_______________
47 G.R. No. 171266, 4 April 2007, 520 SCRA 688.
48 Id., at p. 697.
49 Id., at pp. 701-703.
384
384 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
the regular savings deposit was intended to eliminate the ambiguity. The Court
explained:
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 RA 9243:
MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to clarify. Savings deposit at the present 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 bill, 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...385
VOL. 577, JANUARY 30, 2009 385
Philippine Banking Corporation (Now: Global Business Bank, Inc.)
vs. Commissioner of Internal Revenue
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 you 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. (Italics in the original)
DST is imposed on Certificates of Deposits Bearing Interest including a special
savings account evidenced by a passbook.
Documentary stamp tax is a tax on documents, instruments, loan agreements, and
papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or
property incident thereto. A DST is actually an excise tax because it is imposed on the
transaction rather than on the document.50 A DST is also 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. 51 Hence, in
imposing the DST, the Court considers not only the document but also the nature and
character of the transaction.
Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face value
of any certificate of deposit drawing interest. As correctly observed by the CTA, a
certificate of deposit is a written acknowledgment by a bank of the receipt
_______________
50 Sec. 173, 1997 NIRC. See De Leon and De Leon, The National Internal Revenue Code Annotated, 8th ed.,
Volume 2 (2003). See also Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No.
166786, 3 May 2006, 489 SCRA 147, 152-153.
51 Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil. 368, 372-373; 301 SCRA 443, 447
(1999).
386
386 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
of a sum of money on deposit which the bank 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 or creditor between the bank and the depositor is created. 52
Petitioners SSDA has the following features:
1. Although the money placed in the SSDA can be withdrawn anytime, the
money is subject to a holding period in order to earn a higher interest rate.
Otherwise, in case of premature withdrawal, the depositor will not earn the
preferred interest ranging from 8% or higher but only the normal interest rate on
regular savings deposit.
2. In order to qualify for an SSDA, the depositor must place a substantial
amount of money of not less than P50,000. This amount is even larger than what
is needed to open a time deposit which is P20,000. Aside from the substantial
amount of money required, this amount must be maintained within a certain
period just like a time deposit.
3. On the issue of penalty, in an SSDA, if the depositor withdraws the money
and the balance falls below the minimum balance of P50,000, the interest is
 reduced. This condition is identical to that imposed on a time deposit that is
withdrawn before maturity.53
Based on these features, it is clear that the SSDA is a certificate of deposit drawing
interest subject to DST even if it is evidenced by a passbook and non-negotiable in
character. In International Exchange Bank v. Commissioner of Internal Revenue,54 we
held that:
_______________
52 Far East Bank and Trust Company v. Querimit, supra note 21.
53 CTA En Banc Rollo, pp. 61-62.
54 Supra note 47 at p. 697.
387
VOL. 577, JANUARY 30, 2009 387
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
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.
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.
Moreover, a certificate of deposit may be payable to the depositor, to the order of the
depositor, or to some other person or his order. From the use of the conjunction or,
instead of and, the negotiable character of a certificate of deposit is immaterial in
determining the imposition of DST.55
In Banco de Oro Universal Bank v. Commissioner of Internal Revenue,56 this Court
upheld the CTAs decision and ruled:
The CTA en banc likewise declared that in practice, a time deposit transaction is covered by a
certificate of deposit while petitioners Investment Savings Account (ISA) transaction is through a
passbook. Despite the differences in the form of any documents, the CTA en banc ruled that a time
deposit and ISA have essentially the same attributes and features. It explained that like time
deposit, ISA transactions bear a fixed term or maturity because the bank acknowledges receipt of a
sum of money on deposit which the bank promises to pay the depositor, bearer or to the order of a
bearer on a specified period of time. Section 180 of the 1997 NIRC does not prescribed the form of a
certificate of deposit. It may be any written acknowledgment by a bank of the receipt of money on
deposit. The definition of a certificate of deposit is all encompassing to include a savings
account deposit such as ISA. (Emphasis supplied)
Availment of the Tax Amnesty Program
On 24 May 2007, during the pendency of this case before this Court, Republic Act No.
9480 or An Act Enhancing Revenue Administration and Collection by Granting an
Amnesty
_______________
55 Id., at pp. 697-698.
56 G.R. No. 173602, 15 January 2007.
388
388 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
on All Unpaid Internal Revenue Taxes Imposed by the National Government for
Taxable Year 2005 and Prior Years (RA 9480), lapsed into law.
The pertinent provisions of RA 9480 are:
Section 1. Coverage.There is hereby authorized and granted a tax amnesty which
shall cover all national internal revenue taxes for the taxable year 2005 and prior years,
with or without assessments duly issued therefor, that have remained unpaid as of December 31,
2005: Provided, however, That the amnesty hereby authorized and granted shall not cover persons
or cases enumerated under Section 8 hereof.
xxx
Sec. 6. Immunities and Privileges.Those who availed themselves of the tax amnesty
under Section 5 hereof, and have fully complied with all its conditions shall be entitled to the
following immunities and privileges:
1. The taxpayer shall be immune from the payment of taxes, as well as
addition thereto, and the appurtenant civil, criminal or administrative penalties
under the National Internal Revenue Code of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior
years.
xxx
Sec. 8. Exceptions.The tax amnesty provided in Section 5 hereof shall not extend to the
following persons or cases existing as of the effectivity of this Act:
1. Withholding agents with respect to their withholding tax liabilities;
2. Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;
3. Those with pending cases involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act;
4. Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;389
VOL. 577, JANUARY 30, 2009 389
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
5. Those with pending criminal cases for tax evasion and other criminal offenses under
Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and the
felonies of frauds, illegal exactions and transactions, and malversation of public funds and
property under Chapters III and IV of Title VII of the Revised Penal Code; and
6. Tax cases subject of final and executory judgment by the courts. (Emphasis
supplied)
The Department of Finance (DOF) issued DOF Department Order No. 29-07 (DO 29-
07).57 Section 6 of DO 29-07 provides:
SEC. 6. Method of Availment of Tax Amnesty.
1. Forms/Documents to be filed.To avail of the general tax amnesty, concerned taxpayers
shall file the following documents/requirements:
a. Notice of Availment in such form as may be prescribed by the BIR;
b. Statements of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in
such form, as may be prescribed by the BIR;
c. Tax Amnesty Return in such form as may be prescribed by the BIR.
 xxx
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty
Return shall be submitted to the RDO, which shall be received only after complete payment. The
completion of these requirements shall be deemed full compliance with the provisions
of RA 9480. (Emphasis supplied)
The BIR issued Revenue Memorandum Circular No. 19-2008 (RMC 19-2008).58 The
pertinent provisions are:
_______________
57 Rules and Regulations to Implement Republic Act No. 9480 (15 August 2007).
58 Circularizing the Full Text of A Basic Guide on the Tax Amnesty Act of 2007 for Taxpayers Who Wish
to Avail of the Tax Amnesty Pursuant To Republic Act No. 9480 (Tax Amnesty Act of 2007). (22 February
2008).
390
390 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
Who may avail of the amnesty?
The following taxpayers may avail of the Tax Amnesty Program:
.Individuals
.Estates and Trusts
.Corporations
.Cooperatives and tax-exempt entities that have become taxable as of December 31, 2005
.Other juridical entities including partnerships.
o .Fiscal year taxpayers may likewise avail of the tax amnesty using their Financial
Statement ending in any month of 2005.
EXCEPT:
o 392
.Withhlding agents with respect to their withholding tax liabilities
.Those with pending cases:
.Under the jurisdiction of the PCGG
.Involving violations of the Anti-Graft and Corrupt Practices Act
.Involving violations of the Anti-Money Laundering Law
.For tax evasion and other criminal offenses under the NIRC and/or the RPC
.Issues and cases which were ruled by any court (even without finality) in favor
of the BIR prior to amnesty availmento of the taxpayer. (e.g. Taxpayers who have
failed to observe or follow BOI and/or PEZA rules on entitlement to Income Tax Holiday
Incentives and other incentives)
.Cases involving issues ruled with finality by the Supreme Court prior to the
effectivity of RA 9480 (e.g. DST on Special Savings Account)
.Taxes passed on and collected from customers for remittance to the BIR391
VOL. 577, JANUARY 30, 2009 391
Philippine Banking Corporation (Now: Global Business Bank,
Inc.) vs. Commissioner of Internal Revenue
.Delinquent Accounts/Accounts Receivable considered as assets of the BIR/Government,
including self-assessed tax. (Emphasis supplied)
The BIR also issued Revenue Memorandum Circular No. 69-2007 (RMC 69-
2007).59 The pertinent portion provides:
Q-32 May surviving or new corporations avail of the tax amnesty in behalf of the corporations absorbed or
dissolved pursuant to a merger or consolidation that took effect prior to Taxable Year 2005? Can they avail of
the Tax Amnesty?
A-32 Yes, these companies can avail of the tax amnesty for purposes of obtaining tax clearances for the dissolved or
absorbed corporations. (Emphasis supplied)
On 21 September 2007, Metropolitan Bank and Trust Company (Metrobank), the
surviving entity that absorbed petitioners banking business, filed a Tax Amnesty
Return,60 paid the amnesty tax and fully complied with all the requirements 61 of the Tax
Amnesty Program under RA 9480. Petitioner alleges that by virtue of this availment,
petitioner is now deemed immune from the payment of taxes as well as additions
thereto, and is statutorily discharged from paying all internal revenue tax liabilities for
the taxable year 2005 and prior years. Petitioner contends that the availment in-
_______________
59 Clarification of Issues Concerning The Tax Amnesty Program Under Republic Act No. 9480 as
Implemented by Department Order No. 29-07 (5 November 2007).
60 Rollo, pp. 510-512. Metrobank paid a total of P88,549,049.10 as Amnesty Tax.
61 Under RMC 19-2008, the requisites are as follows:
Forms to be submitted are:
- Notice of Availment of Tax Amnesty
- Statement of Assets, Liabilities and Networth (SALN)
- Tax Amnesty Return (BIR Form No. 2116)
- Payment Form (BIR Form No. 0617)
392 SUPREME COURT REPORTS ANNOTATED
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
cludes all deficiency tax assessments of the BIR subject of this petition.
A tax amnesty is a general pardon or the intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of violation of a tax law. It
partakes of an absolute waiver by the government of its right to collect what is due it and
to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty,
much like a tax exemption, is never favored nor presumed in law. The grant of a tax
amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.62
The DST is one of the taxes covered by the Tax Amnesty Program under RA 9480.63 As
discussed above, petitioner is clearly liable to pay the DST on its SSDA for the years
1996 and 1997. However, petitioner, as the absorbed corporation, can avail of the tax
amnesty benefits granted to Metrobank.
Records show that Metrobank, a qualified tax amnesty applicant, 64 has duly complied
with the requirements enumerated in RA 9480, as implemented by DO 29-07 and RMC
19-2008.65 Considering that the completion of these requirements shall be deemed full
compliance with the tax amnesty program,66 the law mandates that the taxpayer shall
thereafter be immune from the payment of taxes, and additions thereto, as well as the
appurtenant civil, criminal or administrative penalties under the NIRC of 1997, as
amended, arising from
_______________
62 Commissioner of Internal Revenue v. Marubeni Corp., 423 Phil. 862, 874; 372 SCRA 576, 588-589 (2001).
63 RMC 69-2007. Q-1, A-1.
64 On the time of the availment of the tax amnesty program, this case is not subject of a final and
executory judgment.
65 Rollo, p. 508 (Notice of Availment of Tax Amnesty), p. 509 (SALN), p. 510 (BIR Form No. 2116 and BIR
Form No. 0617), and p. 512 (Certificate from Development Bank of the Philippines that Metrobank has paid the
Amnesty Tax).
66 Section 6, DO 20-07.
393
VOL. 577, JANUARY 30, 2009 393
Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue
the failure to pay any and all internal revenue taxes for taxable year 2005 and prior
years.67
The BIRs inclusion of issues and cases which were ruled by any court (even without
finality) in favor of the BIR prior to amnesty availment of the taxpayer as one of the
exceptions in RMC 19-2008 is misplaced. RA 9480 is specifically clear that the exceptions
to the tax amnesty program include tax cases subject of final and executory judgment by
the courts. The present case has not become final and executory when Metrobank
availed of the tax amnesty program.
Wherefore, we GRANT the petition, and SET ASIDE the Court of Tax Appeals
Decision dated 23 November 2005 in CTA EB No. 63 solely in view of petitioners
availment of the Tax Amnesty Program.
SO ORDERED.
Austria-Martinez,*** Corona, Carpio-Morales*** and Leonardo-De Castro, JJ., concur.
Petition granted, judgment set aside.
Notes.The documentary stamp taxes must be paid upon the issuance of the
instruments, without regard to whether the contracts which gave rise to them are
rescissible, void, voidable, or unenforceable. (Philippine Home Assurance Corporation vs.
Court of Appeals, 301 SCRA 443 [1999])
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.
(International Exchange Bank vs. Commissioner of Internal Revenue, 520 SCRA 688
[2007])
o0o 197, Rollo, Manifestation of September 19, 1973), petitioners remedy is to file his claim in the
_______________
23. MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES;
OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS,
EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA,
ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Remedial Law; Civil Procedure; Actions; Mandamus and prohibition, not a case of; Banking;
Claims for recovery of time deposits from a distressed bank and recovery of damages not proper in
actions for mandamus and prohibition but should be ventilated in the Court of First Instance by the
proper party.By the very nature of the claims and causes of action against respondents, they in
reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and
recovery of damages against respondent Central Bank for its alleged failure to strictly supervise
the acts of the other respondent Bank and protect the interests of its depositors by virtue of the
constructive trust created when respondent Central Bank required the other respondent to
increase its collaterals for its overdrafts and emergency loans, said collaterals allegedly acquired
through the use of depositors money. These claims should be ventilated in the Court of First
Instance of proper jurisdiction as We already pointed out when this Court denied petitioners
motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for
mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in
its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was,
petitioner here is not the proper party to raise that question, but rather the Overseas Bank of
Manila, as it did in G.R. No. L-29352.
Banking; Bank deposits; nature of; Nature of relationship between a person making the time
deposit and a bank; Effect of failure of a bank to honor the time deposit.Bank deposits are in the
nature of irregular deposits. They are really loans because they earn interest. All kinds of bank
deposits, whether fixed, savings, or cur-
_________________
*SECOND DIVISION
97
VOL. 96, FEBRUARY 14, 1980 9
7
Serrano vs. Central Bank of the Philippines
rent are to be treated as loans and are to be covered by the law on loans. Current and savings
deposits are loans to a bank because it can use the same. The petitioner here in making time
deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of
the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner.
Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor
and not a breach of trust arising from a depositarys failure to return the subject matter of the
deposit.
Aquino, J., concurring:
Remedial Law; Civil Procedure; Actions; Mandamus and prohibition; Claim for recovery of
time deposit from an insolvent bank should be filed in the liquidation proceedings.Since the
Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered
to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p.
liquidation proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; conveyance or transfer of whatever nature of the properties listed in Annex 7 of the
Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75). Answer of respondent Central Bank in G.R. No. 29352. 2

Same; Same; Central Bank, Banks; The Central Bank has no obligation to pay the deposit of a ________________
depositor made in a bank found insolvent.The petitioner has no causes of action against the
Central Bank to obtain those reliefs. They cannot be granted in petitioners instant original actions 1pp. 1-10, rollo.
in this Court for mandamusand prohibition. It is not the Central Banks ministerial duty to pay 2p. 10, Id.
petitioners time deposits or to hold the mortgaged properties in trust for the depositors of the 99
Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually VOL. 96, FEBRUARY 14, 1980 99
available against any tribunal, board, corporation or person exercising judicial or ministerial
functions.
Serrano vs. Central Bank of the Philippines
A sought for ex-parte preliminary injunction against both respondent banks was not
Barredo, J., concurring: given by this Court.
Undisputed pertinent facts are:
Banks; Central Bank; Mandamus; I concur on the basis of the concurring opinion of Justice On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one
Aquino.I concur in the judgment on the basis of the concurring opinion of Justice Aquino. year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the
98 respondent Overseas Bank of Manila. Concepcion Maneja also made a time deposit, for
3

98 SUPREME COURT REPORTS ANNOTATED one year with 6-1/2% interest, on March 6, 1967, of Two Hundred Thousand Pesos
Serrano vs. Central Bank of the Philippines (P200,000.00) with the same respondent Overseas Bank of Manila. 4

ORIGINAL ACTION in the Supreme Court. Mandamus and prohibition with preliminary On August 31, 1968, Concepcion Maneja, married to Felix-berto M. Serrano, assigned
injunction. and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with
The facts are stated in the opinion of the Court. respondent Overseas Bank of Manila. 5

Rene Diokno for petitioner. Notwithstanding series of demands for encashment of the aforementioned time
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up
Philippines. to March 4, 1968, not a single one of the time deposit certificates was honored by
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent respondent Overseas Bank of Manila. 6

Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines and
Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas
Bank of Manila to return the time deposits made by petitioner and assigned to him, on
the ground that respondent Central Bank failed in its duty to exercise strict supervision
over respondent Overseas Bank of Manila to protect depositors and the general
public. Petitioner also prays that both respondent banks be ordered to execute the proper
1 4pp. 12-13, Id.
and necessary documents to constitute all properties listed in Annex 7 of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352, entitled Emerito M.
Respondent Central Bank admits that it is charged with the duty of administering
the banking system of the Republic and it exercises supervision over all doing business in
the Philippines, but denies the petitioners allegation that the Central Bank has the duty
to exercise a most rigid and stringent supervision of banks, implying that respondent
Central Bank has to watch every move or activity of all banks, including respondent
Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965,
the Overseas Bank of Manila, while operating, was only on a limited degree of banking
operations since the Monetary Board decided in its Resolution No. 322, dated March 12,
1965, to prohibit the Overseas Bank of Manila from making new loans and investments
in
________________
3pp. 12-13, Id.
5p. 14, Id.
p. 15, Id.
6

100
Ramos, et al. vs. Central Bank of the Philippines, into a trust fund in favor of petitioner
and all other depositors of respondent Overseas Bank of Manila. It is also prayed that
100 SUPREME COURT REPORTS ANNOTATED
the respondents be prohibited permanently from honoring, implementing, or doing any Serrano vs. Central Bank of the Philippines
act predicated upon the validity or efficacy of the deeds of mortgage, assignment, and/or view of its chronic reserve deficiencies against its deposit liabilities. This limited
operation of respondent Overseas Bank of Manila continued up to 1968. 7
 Respondent Central Bank also denied that it is guarantor of the permanent solvency
of any banking institution as claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central Bank to advertise or represent to
the public any remedial measures it may impose upon chronic delinquent banks as such
action may inevitably result to panic or bank runs. In the years 1966-1967, there were
no findings to declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in
favor of petitioner and his predecessor in interest Concepcion Maneja when their time
deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as
during that time the latter was not an insolvent bank and its operation as a banking
institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioners claim that the properties
given by respondent Overseas Bank of Manila as additional collaterals to respondent
Central Bank of the Philippines for the formers overdrafts and emergency loans were
acquired through the use of depositors money, including that of the petitioner and
Concepcion Maneja. 10
In G.R. No. L-29352, entitled Emerito M. Ramos, et al. vs. Central Bank of the
Philippines, a case was filed by the petioner Ramos, wherein respondent Overseas Bank
of Manila sought to prevent respondent Central Bank from closing, declaring the former
insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on
September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that
Serrano had a real and legal interest as depositor of the
________________
pp. 18-19, Id.
7
8pp. 19-20, Id.
9pp. 22-24, Id.
pp. 24-25, Id.
10
101
VOL. 96, FEBRUARY 14, 1980 101
Serrano vs. Central Bank of the Philippines
Overseas Bank of Manila in the matter in litigation in that case. Respondent Central
Bank in G.R. No. L-29352opposed petitioner Manuel Serranos motion to intervene in
that case, on the ground that his claim as depositor of the Overseas Bank of Manila
should properly be ventilated in the Court of First Instance, and if this Court were to
allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court. In the
resolution dated October 4, 1968, this Court denied Serranos motion to intervene. The
contents of said motion to intervene are substantially the same as those of the present
petition.11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became
final and executory on March 3, 1972, favorable to the respondent Overseas Bank of
Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central
Banks resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operation, and ordering the liquidation of said
bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is
directed to comply with its obligations under the Voting Trust Agreement, and to desist from
taking action in violation therefor. Costs against respondent Central Bank of the Philippines.
12
Because of the above decision, petitioner in this case filed a motion for judgment in this
case, praying for a decision on the merits, adjudging respondent Central Bank jointly and
severally liable with respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests due therein; and
declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila
and the Ramos groups in favor of the Central Bank as trust funds for the benefit of
petitioner and other depositors. 13
________________
pp. 26-27, Id.
11
p. 193, Id.
12
pp. 183-187, Id.
13
102
102 SUPREME COURT REPORTS ANNOTATED
Serrano vs. Central Bank of the Philippines
By the very nature of the claims and causes of action against respondents, they in reality
are recovery of time deposits plus interest from respondent Overseas Bank of Manila,
and recovery of damages against respondent Central Bank for its alleged failure to
strictly supervise the acts of the other respondent Bank and protect the interests of its
depositors by virtue of the constructive trust created when respondent Central Bank
required the other respondent to increase its collaterals for its overdrafts and emergency
loans, said collaterals allegedly acquired through the use of depositors money. These
claims should be ventilated in the Court of First Instance of proper jurisdiction as We
already pointed out when this Court denied petitioners motion to intervene in G.R. No.
L-29352. Claims of these nature are not proper in actions for mandamus and prohibition
as there is no shown clear abuse of discretion by the Central Bank in its exercise of
supervision over the other respondent Overseas Bank of Manila, and if there was,
petitioner here is not the proper party to raise that question, but rather the Overseas
Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in
this case, since the questioned acts of the respondent Central Bank (the acts of dissolving
and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his
basis for claims of damages against respondent Central Bank, had been accomplished a
long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of
bank deposits when the petitioner claimed that there should be created a constructive
trust in his favor when the respondent Overseas Bank of Manila increased its collaterals
in favor of respondent Central Bank for the formers overdrafts and emergency loans,
since these collaterals were acquired by the use of depositors money.
Bank deposits are in the nature of irregular deposits. They are really loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans. Current and
14
________________
Art. 1980, Civil Code; Gullas vs. Phil. National Bank, 62 Phil. 519.
14
103
VOL. 96, FEBRUARY 14, 1980 103
Serrano vs. Central Bank of the Philippines
savings deposits are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests with respondent Overseas Bank of Manila was
in reality a creditor of the respondent Bank and not a depositor. The respondent Bank
was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time
deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a
depositarys failure to return the subject matter of the deposit.
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman), J., concur in the judgment on the basis of the concurring
opinion of Justice Aquino.
Aquino, J., concurring opinion.
I concur in the result. The petitioner prayed that the Central Bank be ordered to pay
his time deposits of P350,000, plus interests, which he could not recover from the
distressed Overseas Bank of Manila, and to declare all the assets assigned or mortgaged
by that bank and the Ramos group to the Central Bank as trust properties for the benefit
of the petitioner and other depositors.
The petitioner has no causes of action against the Central Bank to obtain those
reliefs. They cannot be granted in petitioners instant original actions in this Court
for mandamus and prohibition. It is not the Central Banks ministerial duty to pay
petitioners time deposits or to hold the mortgaged properties in trust for the depositors
of the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a
remedy usually available against any tribunal, board, corporation or person exercising
judicial or ministerial functions.
104
104 SUPREME COURT REPORTS ANNOTATED
Serrano vs. Central Bank of the Philippines
Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of
Banks was ordered to take over its assets preparatory to its liquidation under section 29
of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioners
remedy is to file his claim in the liquidation proceeding (Central Bank vs. Morfe, L-
38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-
29791, January 10, 1978, 81 SCRA 75).
Petition dismissed.
Notes.The courts power to appoint a receiver carried with it the power to revoke
the appointment of a receiver. (Cochingyan, Jr. vs. Cloribel, 76 SCRA 361).
After an attorney had been dismissed as counsel, he is eligible for appointment as a
receiver in the case where his former client is a party. (Cochingyan, Jr. vs. Cloribel, 76
SCRA 361).
The Law requiring compliance with legal requirements before anybody can engage in
banking obviously seeks to protect the public against actual and potential injury.
(Central Bank vs. Morfe, 20 SCRA 507).
The disclosure of bank accounts of a depositor would not be contrary to public policy
making bank deposits confidential for while Section 2 of R.A. 1405 declares bank deposits
to be absolutely confidential, it nevertheless allows such disclosure in the following
instances: (1) upon written permission of the depositor; (2) in cases of impeachment; (3)
upon order of a competent court in cases of bribery or dereliction of duty of public
officials; (4) in cases where the money deposited is the subject of litigation. (Philippine
National Bank vs. Gancayco, 15 SCRA 91).
An action for reconveyance based on implied or constructive trust is prescriptible; it
prescribes in ten years. (Carantes vs. Court of Appeals, 76 SCRA 514).
In its technical legal sense, a trust is defined as the right enforceable solely in equity,
to the beneficial enjoyment of property, the legal title to which is vested in another, but
the word trust is frequently employed to indicate duties, relations, and responsibilities.
(Salao vs. Salao, 70 SCRA 65).
105
VOL. 96, FEBRUARY 14, 1980 105
Caminong vs. Ubay
A person who establishes a trust is called the trustor; one whom confidence is reposed as
regards property for the benefit, of another person is known as the trustee; and the
person for whose benefit the trust has been created is referred to as the beneficiary.
There is a fiduciary relation between trustee and the cestui que trust as regards certain
property, real, personal, money or choses in action. (Salao vs. Salao, 70 SCRA 65).
An implied trust arises where a person purchases land with his own money and takes
conveyance thereof in the name of another. (Lim vs. Court of Appeals, 65 SCRA 160).
o0o
24. G.R. No. 88013. March 19, 1990. *
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE
HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Civil Law; Moral damages; Moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for injuries he may have suffered.We agree that moral damages are not
awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have
suffered. In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it
as a result of the private respondents fault. The respondent court said that the claimed losses are
purely speculative and are not supported by substantial evidence, but it failed to consider that the
amount of such losses need not be established with exactitude, precisely because of their nature.
Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code
specifically provides that no proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. That is why the determination
of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, The parties agree on the basic facts. The petitioner is a private corporation engaged in
according to the circumstances of each case. the exportation of food products. It buys these products from various local suppliers and
________________
then sells them abroad, particularly in the United States, Canada and the Middle East.
* FIRST DIVISION Most of its exports are purchased by the petitioner on credit.
361 The petitioner was a depositor of the respondent bank and maintained a checking
VOL. 183, MARCH 19, 1990 361 account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the
Simex International (Manila), Inc. vs. Court of Appeals petitioner deposited to its account in the said bank the amount of P100,000.00, thus
Same; Same; As petitioner has indeed incurred loss through private respondents fault, the increasing its balance as of that date to P190,380.74. Subsequently, the petitioner
1

proper remedy is the award of moral damages.Considering all this, we feel that the award of issued several checks against its deposit but was suprised to learn later that they had
nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was been dishonored for insufficient funds.
entitled. Under Article 2221 of the Civil Code, nominal damages are adjudicated in order that a The dishonored checks are the following:
right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. As 1. 1.Check No. 215391 dated May 29, 1981, in favor of California Manufacturing
we have found that the petitioner has indeed incurred loss through the fault of the private
Company, Inc. for P16,480.00:
respondent, the proper remedy is the award to it of moral damages, which we impose, in our
discretion, in the same amount of P20,000.00.
2. 2.Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal
Same; Exemplary damages; Respondent banks error in not crediting the deposit in question to Revenue in the amount of P3,386.73:
petitioner, and for not correcting it immediately after its discovery comes under the wanton manner 3. 3.Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the
under the Civil Code that calls for the imposition of exemplary damages.The point is that as a amount of P7,080.00:
business affected with public interest and because of the nature of its functions, the bank is under 4. 4.Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
obligation to treat the accounts of its depositors with meticulous care, always having in mind the Corporation in the amount of P42,906.00:
fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was 5. 5.Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
remiss in that duty and violated that relationship. What is especially deplorable is that, having Corporation in the amount of P12,953.00:
been informed of its error in not crediting the deposit in question to the petitioner, the respondent
6. 6.Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the
bank did not immediately correct it but did so only one week later or twenty-three days after the
deposit was made. It bears repeating that the record does not contain any satisfactory explanation
amount of P27,024.45:
of why the error was made in the first place and why it was not corrected immediately after its 7. 7.Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Corporation in the amount of P4,385.02: and
Code that calls for the imposition of exemplary damages. 8. 8.Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the
amount of P6,275.00. 2

PETITION to review the judgment of the Court of Appeals.

As a consequence, the California Manufacturing Corporation
The facts are stated in the opinion of the Court. ________________
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent. 1Rollo, p. 4.
2Exhibits 1-a to 1-h.
363
CRUZ, J.:
VOL. 183, MARCH 19, 1990 363
We are concerned in this case with the question of damages, Simex International (Manila), Inc. vs. Court of Appeals
362 sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the
362 SUPREME COURT REPORTS ANNOTATED dishonored check issued to it was not made good. It also withheld delivery of the order
Simex International (Manila), Inc. vs. Court of Appeals made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long
Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
specifically moral and exemplary damages. The negligence of the private respondent has
Malabon also canceled the petitioners credit line and demanded that future payments be
already been established. All we have to ascertain is whether the petitioner is entitled to
made by it in cash or certified check. Meantime, action on the pending orders of the
the said damages and, if so, in what amounts.
petitioner with the other suppliers whose checks were dishonored was also deferred.
 The petitioner complained to the respondent bank on June 10, 1981. Investigation 3
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had
not been credited to it. The error was rectified on June 17, 1981, and the dishonored
checks were paid after they were re-deposited. 4 We also note that while stressing the rectification made by the respondent bank, the
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its gross and wanton negligence. This demand was not met. The
petitioner then filed a complaint in the then Court of First Instance of Rizal claiming
from the private respondent moral damages in the sum of P1,000,000.00 and exemplary
damages in the sum of P500,000.00, plus 25% attorneys fees, and costs.
After trial, Judge Johnico G. Serquia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However, observing
that the plaintiffs right had been violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00 attorneys fees and costs. This 5 365
decision was affirmed in toto by the respondent court. 6 VOL. 183, MARCH 19, 1990
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral
damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150
SCRA 280). Indeed, there was the
________________
3 Rollo, p. 6.
Ibid. , pp. 6-7.
4
5 Id., p. 24.
6 Victor, J., with Ejercito and Pe, JJ., concurring.
364
364 SUPREME COURT REPORTS ANNOTATED
Simex International (Manila), Inc. vs. Court of Appeals
omission by the defendant-appellee bank to credit appellants deposit of P100,000.00 on May 25,
1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant
in less than a month. The dishonored checks were eventually paid. These circumstances negate any
imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on
the part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share
some of the conclusions of the lower courts. It seems to us that the negligence of the
private respondent had been brushed off rather lightly as if it were a minor infraction
requiring no more than a slap on the wrist. We feel it is not enough to say that the
private respondent rectified its records and credited the deposit in less than a month as if
this were sufficient repentance. The error should not have been committed in the first
place. The respondent bank has not even explained why it was committed at all. It is true
that the dishonored checks were, as the Court of Appeals put it, eventually paid.
However, this took almost a month when, properly, the checks should have been paid
immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by
the lack of promptitude in repairing its error, justifies the grant of moral damages. This
rather lackadaisical attitude toward the complaining depositor constituted the gross
negligence, if not wanton bad faith, that the respondent court said had not been
established by the petitioner.
decision practically ignored the prejudice suffered by the petitioner. This was simply
glossed over if not, indeed, disbelieved. The fact is that the petitioners credit line was
canceled and its orders were not acted upon pending receipt of actual payment by the
suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced
in the business community. All this was due to the fault of the respondent bank which
was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be
received (2) for injury to the plaintiffs
365
Simex International (Manila), Inc. vs. Court of Appeals
business standing or commercial credit. There is no question that the petitioner did
sustain actual injury as a result of the dishonored checks and that the existence of the
loss having been established absolute certainty as to its amount is not required. Such 7
injury should bolster all the more the demand of the petitioner for moral damages and
justifies the examination by this Court of the validity and reasonableness of the said
claim.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. In the case at bar, the
8
petitioner is seeking such damages for the prejudice sustained by it as a result of the
private respondents fault. The respondent court said that the claimed losses are purely
speculative and are not supported by substantial evidence, but if failed to consider that
the amount of such losses need not be established with exactitude, precisely because of
their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of
the Civil Code specifically provides that no proof of pecuniary loss is necessary in order
that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated.
That is why the determination of the amount to be awarded (except liquidated damages)
is left to the sound discretion of the court, according to the circumstances of each case.
From every viewpoint except that of the petitioners, its claim of moral damages in
the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is
not that big, or its name that prestigious, to sustain such an extravagant pretense.
Moreover, a corporation is not as a rule entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The only exception to this
rule is where the corporation has a good reputation that is debased, resulting in its social
humiliation. 9
________________
7Cerrano v. Tan Chuco, 38 Phil. 392.
Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713; San Andres v. Court of
8
Appeals, 116 SCRA 81.
 9Mambulao Lumber Co. v. Philippine National Bank, 22 SCRA 359.
366
366 SUPREME COURT REPORTS ANNOTATED
Simex International (Manila), Inc. vs. Court of Appeals
We shall recognize that the petitioner did suffer injury because of the private
respondents negligence that caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was diminished. The private respondent
makes much of the one instance when the petitioner was sued in a collection case, but
that did not prove that it did not have a good reputation that could not be marred, more
so since that case was ultimately settled. It does not appear that, as the private
10
respondent would portray it, the petitioner is an unsavory and disreputable entity that
has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article
2221 of the Civil Code, nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by
him. As we have found that the petitioner has indeed incurred loss through the fault of
the private respondent, the proper remedy is the award to it of moral damages, which we
impose, in our discretion, in the same amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities for
the safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence
________________
Rollo, pp. 38-41.
10
367
VOL. 183, MARCH 19, 1990 367
Simex International (Manila), Inc. vs. Court of Appeals
among the people, who have come to regard them with respect and even gratitude and,
most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust
his lifes savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their
day-to-day transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time the
amount of money the depositor can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs. A blunder on the part of the bank, such as the
dishonor of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank was remiss in that duty and violated
that relationship. What is especially deplorable is that, having been informed of its error
in not crediting the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three days after the
deposit was made. It bears repeating that the record does not contain any satisfactory
explanation of why the error was made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the
368
368 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Intermediate Appellate Court
imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the amount
of P50,000.00, by way of example or correction for the public good, in the words of the
law. It is expected that this ruling will serve as a warning and deterrent against the
repetition of the ineptness and indefference that has been displayed here, lest the
confidence of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages
in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus
the original award of attorneys fees in the amount of P5,000.00, and costs.
SO ORDERED.
Narvasa (Chairman), Gancayco, Grio-Aquino and Medialdea, JJ., concur.
Judgment modified.
Note.Though incapable of pecuniary estimation, moral damages may be recovered
if they are the proximate result of the defendants wrongful act or omission. (De Lem vs.
Court of Appeals, 165 SCRA 166)
o0o
 25. G.R. No. 97626. March 14, 1997. *
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA
PASCUAL, et al., petitioners, vs. THE COURT OF APPEALS, ROMMELS
MARKETING CORP., represented by ROMEO LIPANA, its President & General
Manager, respondents.
Civil Law; Negligence; Elements of a Quasi-delict.There are three elements of a quasi-
delict: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other
person for whose acts he must respond; and (c) the connection of cause and effect between the fault
or negligence of the defendant and the damages incurred by the plaintiff.
Same; Same; Negligence is the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent and reasonable man would do.Negligence is the omission to do
something which a reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and reasonable man
would not do. The seventy-eight (78)-yearold, yet still relevant, case of Picart v. Smith, provides the
test by which to determine the existence of negligence in a particular case which may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty
of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case
is not determined by reference to the personal judgment of the actor in the situation before him.
The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
Same; Same; Proximate Cause; Definition Of.Proximate cause is determined on the facts of
each case upon mixed considera-
_______________
*FIRST DIVISION.
696
6 SUPREME COURT REPORTS ANNOTATED
96
Philippine Bank of Commerce vs. Court of Appeals
tions of logic, common sense, policy and precedent. Vda. de Bataclan v. Medina, reiterated in
the case of Bank of the Phil. Islands v. Court of Appeals, defines proximate cause as 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. x x x. In this case, absent the
act of Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit slip, Ms.
Irene Yabut would not have the facility with which to perpetrate her fraudulent scheme with
impunity.
Same; Same; Same; Essence of the Doctrine of Last Clear Chance.Furthermore, under the
doctrine of last clear chance (also referred to, at times as supervening negligence or as dis-
covered peril), petitioner bank was indeed the culpable party. This doctrine, in essence, states that
where both parties are negligent, but the negligent act of one is appreciably later in time than that
of the other, or when it is impossible to determine whose fault or negligence should be attributed to
the incident, the one who had the last clear opportunity to avoid the impending harm and failed to
do so is chargeable with the consequences thereof. Stated differently, the rule would also mean
that an antecedent negligence of a person does not preclude the recovery of damages for the
supervening negligence of, or bar a defense against liability sought by another, if the latter, who
had the last fair chance, could have avoided the impending harm by the exercise of due diligence.
Here, assuming that private respondent RMC was negligent in entrusting cash to a dishonest
employee, thus providing the latter with the opportunity to defraud the company, as advanced by
the petitioner, yet it cannot be denied that the petitioner bank, thru its teller, had the last clear
opportunity to avert the injury incurred by its client, simply by faithfully observing their self-
imposed validation procedure.
Same; Same; Same; Considering the fiduciary nature of their relationship with their
depositors, banks are duty bound to treat the accounts of their clients with the highest degree of
care.In the case of banks, however, the degree of diligence required is more than that of a good
father of a family. Considering the fiduciary nature of their relationship with their depositors,
banks are duty bound to treat the accounts of their clients with the highest degree of care.
Same; Same; Same; A blunder on the part of the bank, such as the failure to duly credit him
his deposits as soon as they are made, can cause the depositor not a little embarrassment if not
financial
697
VOL. 269, MARCH 14, 1997 697
Philippine Bank of Commerce vs. Court of Appeals
loss and perhaps even civil and criminal litigation.As elucidated in Simex International
(Manila), Inc. v. Court of Appeals, in every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time the amount
of money the depositor can dispose as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the failure to duly credit him his
deposits as soon as they are made, can cause the depositor not a little embarrassment if not
financial loss and perhaps even civil and criminal litigation.
Same; Same; Same; It cannot be denied that private respondent was likewise negligent in not
checking its monthly statements of account.The foregoing notwithstanding, it cannot be denied
that, indeed, private respondent was likewise negligent in not checking its monthly statements of
account. Had it done so, the company would have been alerted to the series of frauds being
committed against RMC by its secretary. The damage would definitely not have ballooned to such
an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their
financial affairs. This omission by RMC amounts to contributory negligence which shall mitigate
the damages that may be awarded to the private respondent under Article 2179 of the New Civil
Code.
PADILLA, J., Dissenting Opinion:
Civil Law; Negligence; Elements of a Quasi-delict; The doctrine of last clear chance assumes
that the negligence of the defendant was subsequent to the negligence of the plaintiff and the same
must be the proximate cause of the injury.Coming now to the doctrine of last clear chance, it is
my considered view that the doctrine assumes that the negligence of the defendant was subsequent
to the negligence of the plaintiff and the same must be the proximate cause of the injury. In short,
there must be a lastand a clear chance, not a last possible chance, to avoid the accident or injury. It
must have been a chance as would have enabled a reasonably prudent man in like position to have
acted effectively to avoid the injury and the resulting damage to himself.
698
 6 SUPREME COURT REPORTS ANNOTATED
98
Philippine Bank of Commerce vs. Court of Appeals
Same; Same; Same; Negligence of private respondent is not contributory but the immediate
and proximate cause of its injury.It was private respondent who had the last and clear chance to
prevent any further misappropriation by Yabut had it only reviewed the status of its current
accounts on the bank statements sent to it monthly or regularly. Since a sizable amount of cash
was entrusted to Yabut, private respondent should, at least, have taken ordinary care of its
concerns, as what the law presumes. Its negligence, therefore, is not contributory but the
immediate and proximate cause of its injury.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Carpio, Villaraza & Cruz for petitioners.
Roberto C. Bermejo for private respondents.
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision dated February 28, 1991 rendered
1 copies of the deposit slip, an original and a duplicate. The original showed the name of
by public respondent Court of Appeals which affirmed the Decision dated November 15,
1985 of the Regional Trial Court, National Capital Judicial Region, Branch CLX (160),
Pasig City, in Civil Case No. 27288 entitled Rommels Marketing Corporation, etc. v.
Philippine Bank of Commerce, now absorbed by Philippine Commercial and Industrial
Bank.
The case stemmed from a complaint filed by the private respondent Rommels
Marketing Corporation (RMC for brevity), represented by its President and General
Manager Romeo Lipana, to recover from the former Philippine Bank of Commerce (PBC
for brevity), now absorbed by the Philippine Commercial International Bank, the sum of
P304,979.74 representing various deposits it had made in its current account with said
bank but which were not credited to its account, and were instead
_______________
1Rollo, pp. 37-46.
699
VOL. 269, MARCH 14, 1997 699
Philippine Bank of Commerce vs. Court of Appeals
deposited to the account of one Bienvenido Cotas, allegedly due to the gross and
inexcusable negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3
and 53-01748-7, with the Pasig Branch of PBC in connection with its business of selling
appliances.
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 checks.
The deposit slip has an upper portion or stub, which is detached and given to the
depositor or his agent; the lower portion is retained by the bank. In some instances,
however, the deposit slips are prepared in duplicate by the depositor. The original of the
deposit slip is retained by the bank, while the duplicate copy is returned or given to the
depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted
RMC funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for
the purpose of depositing said funds in the current accounts of RMC with PBC. It turned
out, however, that these deposits, on all occasions, were not credited to RMCs account
but were instead deposited to Account No. 53-01734-7 of Yabuts husband, Bienvenido
Cotas who likewise maintains an account with the same bank. During this period,
petitioner bank had, however, been regularly furnishing private respondent with
monthly statements showing its current accounts balances. Unfortunately, it had never
been the practice of Romeo Lipana to check these monthly statements of account
reposing complete trust and confidence on petitioner bank.
Irene Yabuts modus operandi is far from complicated. She would accomplish two (2)
her husband as depositor and his current account number. On the duplicate copy was
written the account number of her hus-
700
700 SUPREME COURT REPORTS ANNOTATED
Philippine Bank of Commerce vs. Court of Appeals
band but the name of the account holder was left bank. PBCs teller, Azucena Mabayad,
would, however, validate and stamp both the original and the duplicate of these deposit
slips retaining only the original copy despite the lack of information on the duplicate slip.
The second copy was kept by Irene Yabut allegedly for record purposes. After validation,
Yabut would then fill up the name of RMC in the space left blank in the duplicate copy
and change the account number written thereon, which is that of her husbands, and
make it appear to be RMCs account number, i.e., C.A. No. 53-01980-3. With the daily
remittance records also prepared by Ms. Yabut and submitted to private respondent
RMC together with the validated duplicate slips with the latters name and account
number, she made her company believe that all the while the amounts she deposited
were being credited to its account when, in truth and in fact, they were being deposited
by her and credited by the petitioner bank in the account of Cotas. This went on in a
span of more than one (1) year without private respondents knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the
return of its money, but as its demand went unheeded, it filed a collection suit before the
Regional Trial Court of Pasig, Branch 160. The trial court found petitioner bank
negligent and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Bank of Commerce,
now absorbed by defendant Philippine Commercial & Industrial Bank, and defendant Azucena
Mabayad to pay the plaintiff, jointly and severally, and without prejudice to any criminal action
which may be instituted if found warranted:
1. 1.The sum of P304,979.72, representing plaintiffs lost deposit, plus interest thereon at the
legal rate from the filing of the complaint;
2. 2.A sum equivalent to 14% thereof, as exemplary damages;
3. 3.A sum equivalent to 25% of the total amount due, as and for attorneys fees; and
4. 4.Costs.
701
VOL. 269, MARCH 14, 1997 701
Philippine Bank of Commerce vs. Court of Appeals
Defendants counterclaim is hereby dismissed for lack of merit. 2
On appeal, the appellate court affirmed the foregoing decision with modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the awards of
exemplary damages and attorneys fees specified therein are eliminated and instead, appellants
are ordered to pay plaintiff, in addition to the principal sum of P304,979.74 representing plaintiffs
lost deposit plus legal interest thereon from the filing of the complaint, P25,000.00 attorneys fees
and costs in the lower court as well as in this Court.3
Hence, this petition anchored on the following grounds:
1. 1)The proximate cause of the loss is the negligence of respondent Rommel
Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest
employee.
2. 2)The failure of respondent Rommel Marketing Corporation to cross-check the
banks statements of account with its own records during the entire period of
more than one (1) year is the proximate cause of the commission of subsequent
frauds and misappropriation committed by Ms. Irene Yabut.
3. 3)The duplicate copies of the deposit slips presented by respondent Rommel
Marketing Corporation are falsified and are not proof that the amounts
appearing thereon were deposited to respondent Rommel Marketing
Corporations account with the bank.
4. 4)The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover
up her fraudulent acts against respondent Rommel Marketing Corporation, and
not as records of deposits she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause of the
loss, to the tune of P304,979.74, suf-
_______________
2Rollo, pp. 40-41.
3Decision, pp. 9-10; Rollo, pp. 45-46.
4Petition, pp. 13-14; Rollo, pp. 20-21.
702
702 SUPREME COURT REPORTS ANNOTATED
Philippine Bank of Commerce vs. Court of Appeals
fered by the private respondent RMCpetitioner banks negligence or that of private
respondents?
Petitioners submit that the proximate cause of the loss is the negligence of
respondent RMC and Romeo Lipana in entrusting cash to a dishonest employee in the
person of Ms. Irene Yabut.5 According to them, it was impossible for the bank to know
that the money deposited by Ms. Irene Yabut belong to RMC; neither was the bank
forewarned by RMC that Yabut will be depositing cash to its account. Thus, it was
impossible for the bank to know the fraudulent design of Yabut considering that her
husband, Bienvenido Cotas, also maintained an account with the bank. For the bank to
inquire into the ownership of the cash deposited by Ms. Irene Yabut would be irregular.
Otherwise stated, it was RMCs negligence in entrusting cash to a dishonest employee
which provided Ms. Irene Yabut the opportunity to defraud RMC. 6
Private respondent, on the other hand, maintains that the proximate cause of the loss
was the negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the
deposit slips, both original and duplicate, presented by Ms. Yabut to Ms. Mabayad,
notwithstanding the fact that one of the deposit slips was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delictand is governed by the provisions of
this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault
or negligence of the defendant, or some other person for whose acts he must respond; and
(c) the connection of cause and effect between the fault or negli-
_______________
5Petition, p. 14; Rollo, p. 21.
6Reply, p. 13; Rollo, p. 82.
703
VOL. 269, MARCH 14, 1997 703
Philippine Bank of Commerce vs. Court of Appeals
gence of the defendant and the damages incurred by the plaintiff. 7
In the case at bench, there is no dispute as to the damage suffered by the private
respondent (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in
ascribing fault or negligence which caused the damage where the parties point to each
other as the culprit.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would not do. The seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to
8
determine the existence of negligence in a particular case which may be stated as follows:
Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then A:
he is guilty of negligence. The law here in effect adopts the standard supposed to be Q:
supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers what would be A:
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that.
Applying the above test, it appears that the banks teller, Ms. Azucena Mabayad, was
negligent in validating, officially stamping and signing all the deposit slips prepared and
Q:
presented by Ms. Yabut, despite the glaring fact that the dupli-
_______________
A:
The depositor or the authorized representative sir.
Where does the depositors stub comes (sic) from Mrs. Mabayad, is
it with the deposit slip?
The depositors stub is connected with the deposit slip or the banks
copy. In a deposit slip, the upper portion is the depositors stub and
the lower portion is the banks copy, and you can detach the banks
copy from the depositors stub by tearing it sir.
Now what do you do upon presentment of the deposit slip by the
depositor or the depositors authorized representative?
We see to it that the deposit slip is properly accomplished and then
9

Andamo v. Intermediate Appellate Court, 191 SCRA 195, 201 [1990], citing Taylor v. Manila Electric
7

Company, 16 Phil. 8 [1910]; Vergara v. Court of Appeals, 154 SCRA 564 [1987]. we count the money and then we tally it with the
37 Phil. 809, 813 [1918], reiterated in Bank of the Phil. Islands v. Court of Appeals, 216 SCRA 51, 72-73
8
_______________
[1992]; Layugan v. Intermediate Appellate Court, 167 SCRA 363, 373 [1988]; Gan v. Court of Appeals, 165
SCRA 378, 382 [1988]; see also Leano v. Domingo, 198 SCRA 800, 804 [1991]. 9Original or duplicate.
704 705
704 SUPREME COURT REPORTS ANNOTATED VOL. 269, MARCH 705
Philippine Bank of Commerce vs. Court of Appeals 14, 1997
cate copy was not completely accomplished contrary to the self-imposed procedure of the Philippine Bank of Commerce vs. Court of Appeals
bank with respect to the proper validation of deposit slips, original or duplicate, as deposit slip sir.
testified to by Ms. Mabayad herself, thus:
Q: Now is the depositors stub which you issued to
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs.
your clients validated?
Mabayad your important duties and functions?
A: Yes, sir. [Italics ours]
10

A: I accept current and savings deposits from depositors and
encashments.
Q: Now in the handling of current account deposits of bank clients,
could you tell us the procedure you follow?
A: The client or depositor or the authorized representative prepares a
deposit slip by filling up the deposit slip with the name, the account
number, the date, the cash breakd own, if it is deposited for cash,
and the check number, the amount and then he signs the deposit slip.
Q: Now, how many deposit slips do you normally require in
accomplishing current account deposit, Mrs. Mabayad?
Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the
duplicate slip was not compulsorily required by the bank in accepting deposits should not
relieve the petitioner bank of responsibility. The odd circumstance alone that such
duplicate copy lacked one vital informationthat of the name of the account holder
should have already put Ms. Mabayad on guard. Rather than readily validating the
incomplete duplicate copy, she should have proceeded more cautiously by being more
probing as to the true reason why the name of the account holder in the duplicate slip
was left blank while that in the original was filled up. She should not have been so naive
in accepting hook, line and sinker the too shallow excuse of Ms. Irene Yabut to the effect
that since the duplicate copy was only for her personal record, she would simply fill up
the blank space later on. A reasonable man of ordinary prudence would not have given
11 12

credence to such explanation and would have insisted that the space left blank be filled
A: The bank requires only one copy of the deposit although some of up as a condition for validation. Unfortunately, this was not how bank teller Mabayad
our clients prepare the deposit slip in duplicate. proceeded thus resulting in huge losses to the private respondent.
Q: Now in accomplishing current account deposits from your clients, Negligence here lies not only on the part of Ms. Mabayad but also on the part of the
what do you issue to the depositor to evidence the deposit made? bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This was
A: We issue or we give to the clients the depositors stub as a receipt of exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch
of the petitioner bank and now its Vice-President, to the effect that, while he ordered the
the deposit.
Q: And who prepares the deposit slip?
investigation of the incident, he never came to know that blank deposit slips were VOL. 269, MARCH 14, 1997 707
validated in total disregard of the banks validation procedures, viz: Philippine Bank of Commerce vs. Court of Appeals
_______________
case of Bank of the Phil. Islands v. Court of Appeals, defines proximate cause as that
17

10 Rollo, pp. 104-105, citing TSN, 14 August 1981, pp. 6-12. cause, which, in natural and continuous sequence, unbroken by any efficient intervening
11 Rollo, p. 56, citing TSN, 14 August 1981, pp. 42-47. cause, produces the injury, and without which the result would not have occurred. x x x.
12 Sangco, Torts and Damages, Vol. I, 1993 ed., p. 8, citing Prosser, Law on Torts, 3rd Edition, 1964, pp. 153- In this case, absent the act of Ms. Mabayad in negligently validating the incomplete
154.
706
duplicate copy of the deposit slip, Ms. Irene Yabut would not have the facility with which
to perpetrate her fraudulent scheme with impunity. Apropos, once again, is the
706 SUPREME COURT REPORTS ANNOTATED
pronouncement made by the respondent appellate court, to wit:
Philippine Bank of Commerce vs. Court of Appeals x x x. Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by
Q: Did he ever tell you that one of your cashiers affixed the stamp mark plaintiff, she would not have been able to deposit those funds in her husbands current account,
and then make plaintiff believe that it was in the latters accounts wherein she had deposited
of the bank on the deposit slips and they validated the same with the
them, had it not been for bank teller Mabayads aforesaid gross and reckless negligence. The
machine, the fact that those deposit slips were unfilled up, is there latters negligence was thus the proximate, immediate and efficient cause that brought about the
any report similar to that? loss claimed by plaintiff in this case, and the failure of plaintiff to discover the same soon enough
by failing to scrutinize the monthly statements of account being sent to it by appellant bank could
A: No, it was not the cashier but the teller.
not have prevented the fraud and misappropriation which Irene Yabut had already completed
Q: The teller validated the blank deposit slip? when she deposited plaintiffs money to the account of her husband instead of to the latters
A: No it was not reported. accounts.18

Q: You did not know that any one in the bank tellers or cashiers Furthermore, under the doctrine of last clear chance (also referred to, at times as
supervening negligence or as discovered peril), petitioner bank was indeed the
validated the blank deposit slip? culpable party. This doctrine, in essence, states that where both parties are negligent,
A: I am not aware of that. but the negligent act of one is appreciably later in time than that of the other, or when it
Q: It is only now that you are aware of that? is impossible to determine whose fault or negligence should be attributed to the incident,
A: Yes, sir. 13 the one who had the last clear opportunity to avoid the impending harm and failed to do
Prescinding from the above, public respondent Court of Appeals aptly observed: so is chargeable with the
x x x xxx xxx _______________
It was in fact only when he testified in this case in February, 1983, or after the lapse of more
than seven (7) years counted from the period when the funds in question were deposited in 216 SCRA 51, 75 [1992].
17

Decision, pp. 6-7; Rollo, pp. 42-43.

plaintiffs accounts (May, 1975 to July, 1976) that bank manager Bonifacio admittedly became
18

708
aware of the practice of his teller Mabayad of validating blank deposit slips. Undoubtedly, this is
gross, wanton, and inexcusable negligence in the appellant banks supervision of its employees. 14
708 SUPREME COURT REPORTS ANNOTATED
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the Philippine Bank of Commerce vs. Court of Appeals
petitioner bank in the selection and supervision of its bank teller, which was the consequences thereof. Stated differently, the rule would also mean that an antecedent
19

proximate cause of the loss suffered by the private respondent, and not the latters act of
entrusting cash to a dishonest employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed considerations of
logic, common sense, policy and precedent. Vda. De Bataclan v. Medina, reiterated in
15
negligence of a person does not preclude the recovery of damages for the supervening
negligence of, or bar a defense against liability sought by another, if the latter, who had
the last fair chance, could have avoided the impending harm by the exercise of due
16
diligence. Here, assuming that private respondent RMC was negligent in entrusting
20

the cash to a dishonest employee, thus providing the latter with the opportunity to defraud
_______________ the company, as advanced by the petitioner, yet it cannot be denied that the petitioner
bank, thru its teller, had the last clear opportunity to avert the injury incurred by its
Rollo, p. 43, citing TSN, 9 February 1983, pp. 10-12.
13

Decision, p. 8; Rollo, p. 44.

14
client, simply by faithfully observing their self-imposed validation procedure.
Supra, note 12 at 90.
15 At this juncture, it is worth to discuss the degree of diligence ought to be exercised by
102 Phil. 181, 186 [1957].
16
banks in dealing with their clients.
707 The New Civil Code provides:
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required. (1104a)
In the case of banks, however, the degree of diligence required is more than that of
a good father of a family. Considering the fiduciary nature of their relationship with their
depositors, banks are duty bound to treat the accounts of their
_______________
LBC Air Cargo, Inc. v. Court of Appeals, 241 SCRA 619, 624 [1995], citing Picart v. Smith, supra.
19
20Ibid., citing Pantranco North Express, Inc. v. Baesa, 179 SCRA 384; Glan Peoples Lumber and Hardware
v. Intermediate Appellate Court, 173 SCRA 464.
709
VOL. 269, MARCH 14, 1997 709
Philippine Bank of Commerce vs. Court of Appeals
clients with the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court of Appeals, in every case,
22
the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount of money the
depositor can dispose as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the failure to duly credit
him his deposits as soon as they are made, can cause the depositor not a little
embarrassment if not financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. In the
case before us, it is apparent that the petitioner bank was remiss in that duty and
violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-check the
banks statements of account with its own records during the entire period of more than
one (1) year is the proximate cause of the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.
We do not agree.
While it is true that had private respondent checked the monthly statements of
account sent by the petitioner bank to
_______________
21Metropolitan Bank and Trust Company v. Court of Appeals, 237 SCRA 761, 767 [1994]; Bank of the Phil.
Islands v. Court of Appeals, supra, note 16 at 71.
22183 SCRA 360, 367 [1990], cited in Bank of the Phil. Islands v. Intermediate Appellate Court, 206 SCRA
408, 412-413 [1992]; City Trust Banking Corp. v. Intermediate Appellate Court, 232 SCRA 559, 564
[1994]; Metropolitan Bank and Trust Company v. CA, supra.
710
710 SUPREME COURT REPORTS ANNOTATED
Philippine Bank of Commerce vs. Court of Appeals
RMC, the latter would have discovered the loss early on, such cannot be used by the
petitioners to escape liability. This omission on the part of the private respondent does
not change the fact that were it not for the wanton and reckless negligence of the
petitioners employee in validating the incomplete duplicate deposit slips presented by
Ms. Irene Yabut, the loss would not have occurred. Considering, however, that the fraud
was committed in a span of more than one (1) year covering various deposits, common
human experience dictates that the same would not have been possible without any form
of collusion between Ms. Yabut and bank teller Mabayad. Ms. Mabayad was negligent in
the performance of her duties as bank teller nonetheless. Thus, the petitioners are
entitled to claim reimbursement from her for whatever they shall be ordered to pay in
this case.
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent
was likewise negligent in not checking its monthly statements of account. Had it done so,
the company would have been alerted to the series of frauds being committed against
RMC by its secretary. The damage would definitely not have ballooned to such an
amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in
their financial affairs. This omission by RMC amounts to contributory negligence which
shall mitigate the damages that may be awarded to the private respondent under Article 23
2179 of the New Civil Code, to wit:
x x x. When the plaintiffs own negligence was the immediate and proximate cause of his injury,
he cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.
_______________
Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353, 368 [1987]; Del Prado v.
23
Manila Electric Co., 52 Phil. 900, 906 [1929]; Rakes v. Atlantic Gulf and Pacific Co., 7 Phil. 359, 375 [1907].
711
VOL. 269, MARCH 14, 1997 711
Philippine Bank of Commerce vs. Court of Appeals
In view of this, we believe that the demands of substantialjustice are satisfied by
allocating the damage on a 60-40 ratio.Thus, 40% of the damage awarded by the
respondent appellate court, except the award of P25,000.00 attorneys fees,shall be borne
by private respondent RMC; only the balance of60% needs to be paid by the petitioners.
The award of attorneys fees shall be borne exclusively by the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing
the amount of actual damages private respondent is entitled to by 40%. Petitioners may
recover from Ms. Azucena Mabayad the amount they would pay the private respondent.
Private respondent shall have recourse against Ms. Irene Yabut. In all other respects,
the appellate courts decision is AFFIRMED.
Proportionate costs.
SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
 Padilla (Chairman), See dissenting opinion.
DISSENTING OPINION
PADILLA, J.:
I regret that I cannot join the majority in ruling that the proximate cause of the damage
suffered by Rommels Marketing Corporation (RMC) is mainly the wanton and reckless
negligence of the petitioners employee in validating the incomplete duplicate deposit
slips presented by Ms. Irene Yabut (Decision, p. 15). Moreover, I find it difficult to agree
with the ruling that petitioners are entitled to claim reimbursement from her (the bank
teller) for whatever they shall be ordered to pay in this case.
It seems that an innocent bank teller is being unduly burdened with what should fall
on Ms. Irene Yabut, RMCs own employee, who should have been charged with estafa or
estafa through falsification of private document. Interestingly, the records are silent on
whether RMC had ever filed any crimi-
712
712 SUPREME COURT REPORTS ANNOTATED
Philippine Bank of Commerce vs. Court of Appeals
nal case against Ms. Irene Yabut, aside from the fact that she does not appear to have
been impleaded even as a party defendant in any civil case for damages. Why is RMC
insulating Ms. Irene Yabut from liability when in fact she orchestrated the entire fraud
on RMC, her employer?
To set the record straight, it is not completely accurate to state that from 5 May 1975
to 16 July 1976, Miss Irene Yabut had transacted with PCIB (then PBC) through
only one teller in the person of Azucena Mabayad. In fact, when RMC filed a complaint
for estafa before the Office of the Provincial Fiscal of Rizal, it indicted all the tellers of
PCIB in the branch who were accused of conspiracy to defraud RMC of its current
account deposits. (See Annex B, Rollo pp. 22 and 47).
Even private respondent RMC, in its Comment, maintains that when the
petitioners tellers allowed Irene Yabut to carry out her modus operandi undetected over
a period of one year, their negligence cannot but be gross. (Rollo, p. 55; see also Rollo
pp. 58 to 59). This rules out the possibility that there may have been some form of
collusion between Yabut and bank teller Mabayad. Mabayad was just unfortunate that
private respondents documentary evidence showed that she was the attending teller in
the bulk of Yabuts transactions with the bank.
Going back to Yabuts modus operandi, it is not disputed that each time Yabut would
transact business with PBCs tellers, she would accomplish two (2) copies of the current
account deposit slip. PBCs deposit slip, as issued in 1975, had two parts. The upper part
was called the depositors stub and the lower part was called the bank copy. Both parts
were detachable from each other. The deposit slip was prepared and signed by the
depositor or his representative, who indicated therein the current account number to
which the deposit was 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 checks. (Rollo,
p. 137)
Since Yabut deposited money in cash, the usual bank procedure then was for the
teller to count whether the cash deposit tallied with the amount written down by the
depositor in
713
VOL. 269, MARCH 14, 1997 713
Philippine Bank of Commerce vs. Court of Appeals
the deposit slip. If it did, then the teller proceeded to verify whether the current account
number matched with the current account name as written in the deposit slip.
In the earlier days before the age of full computerization, a bank normally maintained
a ledger which served as a repository of accounts to which debits and credits resulting
from transactions with the bank were posted from books of original entry. Thus, it was
only afterthe transaction was posted in the ledger that the teller proceeded to machine
validate the deposit slip and then affix his signature or initial to serve as proof of the
completed transaction.
It should be noted that the teller validated the depositors stub in the upper portion
and the bank copy on the lower portion on both the original and duplicate copies of the
deposit slips presented by Yabut. The teller, however, detached the validated depositors
stub on the original deposit slip and allowed Yabut to retain the wholevalidated duplicate
deposit slip that bore the same account number as the original deposit slip, but with the
account name purposely left blank by Yabut, on the assumption that it would serve no
other purpose but for a personal record to complement the original validated depositors
stub.
Thus, when Yabut wrote the name of RMC on the blank account name on the
validated duplicate copy of the deposit slip, tampered with its account number, and
superimposed RMCs account number, said act only served to cover-up the loss already
caused by her to RMC, or after the deposit slip was validated by the teller in favor of
Yabuts husband. Stated otherwise, when there is a clear evidence of tampering with any
of the material entries in a deposit slip, the genuineness and due execution of the
document become an issue in resolving whether or not the transaction had been fair and
regular and whether the ordinary course of business had been followed by the bank.
It is logical, therefore, to conclude that the legal or proximate cause of RMCs loss was
when Yabut, its employee, deposited the money of RMC in her husbands name and
account number instead of that of RMC, the rightful owner of such
714
714 SUPREME COURT REPORTS ANNOTATED
Philippine Bank of Commerce vs. Court of Appeals
deposited funds. Precisely, it was the criminal act of Yabut that directly caused damage
to RMC, her employer, not the validation of the deposit slip by the teller as the deposit
slip was made out by Yabut in her husbands name and to his account.
Even if the bank teller had required Yabut to completely fill up the duplicate deposit
slip, the original deposit slip would nonetheless still be validated under the account of
Yabuts husband. In fine, the damage had already been done to RMC when Yabut
deposited its funds in the name and account number of her husband with petitioner
bank. It is then entirely left to speculation what Yabut would have done afterwardslike
tampering both the account number and the account name on the stub of the original
deposit slip and on the duplicate copyin order to cover up her crime.
Under the circumstances in this case, there was no way for PBCs bank tellers to
reasonably foresee that Yabut might or would use the duplicate deposit slip to cover up
her crime. In the first place, the bank tellers were absolutely unaware that a crime had
already been consummated by Yabut when her transaction by her sole doing was posted
in the ledger and validated by the teller in favor of her husbands account even if the
funds deposited belonged to RMC.
The teller(s) in this case were not in any way proven to be parties to the crime either
as accessories or accomplices. Nor could it be said that the act of posting and validation
was in itself a negligent act because the teller(s) simply had no choice but to accept and
validate the deposit as written in the original deposit slip under the account number and
name of Yabuts husband. Hence, the act of validating the duplicate copy was not the
proximate cause of RMCs injury but merely a remote cause which an independent cause
or agency merely took advantage of to accomplish something which was not the probable
or natural effect thereof. That explains why Yabut still had to tamper with the account
number of the duplicate deposit slip after filling in the name of RMC in the blank space.
715
VOL. 269, MARCH 14, 1997 715
Philippine Bank of Commerce vs. Court of Appeals
Coming now to the doctrine of last clear chance, it is my considered view that the
doctrine assumes that the negligence of the defendant was subsequent to the negligence
of the plaintiff and the same must be the proximate cause of the injury. In short, there
must be a lastand a clear chance, not a last possible chance, to avoid the accident or
injury. It must have been a chance as would have enabled a reasonably prudent man in
like position to have acted effectively to avoid the injury and the resulting damage to
himself.
In the case at bar, the bank was not remiss in its duty of sending monthly bank
statements to private respondent RMC so that any error or discrepancy in the entries
therein could be brought to the banks attention at the earliest opportunity. Private
respondent failed to examine these bank statements not because it was prevented by
some cause in not doing so, but because it was purposely negligent as it admitted that it
does not normally check bank statements given by banks.
It was private respondent who had the last and clearchance to prevent any further
misappropriation by Yabut had it only reviewed the status of its current accounts on the
bank statements sent to it monthly or regularly. Since a sizable amount of cash was
entrusted to Yabut, private respondent should, at least, have taken ordinary care of its
concerns, as what the law presumes. Its negligence, therefore, is not contributory but the
immediate and proximate cause of its injury.
I vote to grant the petition.
Judgment modified.
Note.There is no justification for limiting the scope of Article 2176 of the Civil Code
to acts or omissions resulting from negligence. (Dulay vs. Court of Appeals, 243 SCRA
220 [1995])
o0o
26.
G.R. No. 123498. November 23, 2007. *
BPI FAMILY BANK, petitioner, vs. AMADO FRANCO and COURT OF APPEALS,
respondents.
Civil Law; Property; The movable property mentioned in Article 559 of the Civil Code pertains
to a specific or determinate thinga determinate or specific thing is one that is individualized and
can be identified or distinguished from others of the same kind.BPI-FBs argument is unsound.
To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a
specific or determinate thing. A determinate or specific thing is one that is individualized and can
be identified or distinguished from others of the same kind.
_______________
*THIRD DIVISION.
185
VOL. 538, NOVEMBER 23, 2007 18
5
BPI Family Bank vs. Franco
Same; Same; In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible.In this case, the deposit in Francos accounts
consists of money which, albeit characterized as a movable, is generic and fungible. The quality of
being fungible depends upon the possibility of the property, because of its nature or the will of the
parties, being substituted by others of the same kind, not having a distinct individuality.
Mercantile Law; Banking Laws; Money as a Medium of Exchange; Money, which had passed
through various transactions in the general course of banking business, even if of traceable origin,
bears no earmarks of peculiar ownership.It bears emphasizing that money bears no earmarks of
peculiar ownership, and this characteristic is all the more manifest in the instant case which
involves money in a banking transaction gone awry. Its primary function is to pass from hand to
hand as a medium of exchange, without other evidence of its title. Money, which had passed
through various transactions in the general course of banking business, even if of traceable origin,
bears no earmarks of peculiar ownership.
Same; Same; Nature of a Bank; As a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of the relation-ship.In every case,
the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account
is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever directs. A blunder on the part of the
bank, such as the dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is
that as a business affected with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. x x x.
186
1 SUPREME COURT REPORTS ANNOTATED
86
BPI Family Bank vs. Franco
Remedial Law; Civil Procedure; Amendment to Conform to Evidence; When issues not raised
by the pleadings are tried with the express or implied consent of the parties, they shall be treated in
all respects as if they had been raised in the pleadingssuch amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at anytime, even after judgment, but failure to amend does not affect the result
of the trial of these issues.Section 5. Amendment to conform to or authorize presentation of
evidence.When issues not raised by the pleadings are tried with the express or implied consent of
the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of these issues. If evidence is objected to at
the trial on the ground that it is now within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so with liberality if the presentation of the merits of the
action and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made.
Service of Court Papers; It should be noted that the strict requirement on the service of papers
upon the parties affected is designed to comply with the elementary requisite of due process.In this
argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section 4, Rule 13 of the
Rules of Court. It should be noted that the strict requirement on service of court papers upon the
parties affected is designed to comply with the elementary requisites of due process. Franco was
entitled, as a matter of right, to notice, if the requirements of due process are to be observed. Yet,
he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the
two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was
premature for BPI-FB to freeze Francos accounts without even awaiting service of the Makati
RTCs Notice of Garnishment on Franco.
Civil Law; Damages; Moral Damages; In the absence of fraud or bad faith, moral damages
cannot be awarded; and that the adverse result of an action does not per se make the action
wrongful, or the party liable for it. One may err, but error alone is not a ground for
187
VOL. 538, NOVEMBER 23, 2007 18
7 account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of
BPI Family Bank vs. Franco
granting such damages.We have had occasion to hold that in the absence of fraud or bad
faith, moral damages cannot be awarded; and that the adverse result of an action does not per
semake the action wrongful, or the party liable for it. One may err, but error alone is not a ground
for granting such damages.
Same; Exemplary Damages; As there is no basis for the award of moral damages, neither can
exemplary damages be granted.We also deny the claim for exemplary damages. Franco should
show that he is entitled to moral, temperate, or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded to him. As there is no
basis for the award of moral damages, neither can exemplary damages be granted.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ramirez, Bargas, Benedicto & Associates for petitioner.
Lawrence P. Villanueva for private respondent.
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and
utmost fidelity. We reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of
Appeals (CA) Decision in CA-G.R. CV No. 43424 which affirmed with modification the
1
judgment of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case
2
No. 90-53295.
_______________
1 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Cancio C. Garcia (retired
Associate Justice of the Supreme Court) and Portia Alino-Hormachuelos, concurring; Rollo, pp. 40-55.
2 CA Rollo, pp. 70-79.
188
188 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family
Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other
individuals, some of whom opened and maintained separate accounts with BPI-FB, San
3
Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a
savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989, First
Metro Investment Corporation (FMIC) also opened a time deposit account with the same
branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a
current, savings, and time deposit, with BPI-FB. The current and savings accounts were
4 5 6
respectively funded with an initial deposit of P500,000.00 each, while the time deposit
P2,000,000.00 used to open these accounts is traceable to a check issued by Te-vesteco
allegedly in consideration of Francos introduction of Eladio Teves, who was looking for a
7
conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who was
then BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check
was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account and
credited to Tevestecos current account pursuant to an Authority to Debit purportedly
signed by FMICs officers.
_______________
3 Antonio T. Ong, Manuel Bienvenida, Jr., Milagros Nayve, Jaime Sebastian, Ador de Asis, and Eladio
Teves. Rollo, pp. 160-207. RTC, Quezon City, Branch 85, Decision in Crim. Case No. Q91-22386.
Account No. 840-107483-7.
4
5 Account No. 1668238-1.
6 Account No. 08523412.
7 President of Tevesteco.
 189
VOL. 538, NOVEMBER 23, 2007 189
BPI Family Bank vs. Franco
It appears, however, that the signatures of FMICs officers on the Authority to Debit
were forged. On September 4, 1989, Antonio Ong, upon being shown the Authority to
8 9
Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco
had already effected several withdrawals from its current account (to which had been
credited the P80,000,000.00 covered by the forged Authority to Debit) amounting to
P37,455,410.54, including the P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMICs
forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed
Jesus Arangorin to debit Francos savings and current accounts for the amounts
10
remaining therein. However, Francos time deposit account could not be debited due to
11
the capacity limitations of BPI-FBs computer. 12
In the meantime, two checks drawn by Franco against his BPI-FB current account
13
were dishonored upon presentment for payment, and stamped with a notation account
under garnishment. Apparently, Francos current account was garnished by virtue of an
Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil
Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et
al., to recover the P37,455,410.54 representing Tevestecos total withdrawals from its
14
account.
_______________
8 BPI-FBs Memorandum, Rollo, pp. 104-105.
9 Executive Vice-President of FMIC.
10The new BPI-FB SFDM branch manager who replaced Jaime Sebastian.
11BPI-FBs Memorandum, Rollo, p. 105.
Id.
12
13Respectively dated September 11 and 18, 1989. The first check dated August 31, 1989 Franco issued in
the amount of P50,000.00 was honored by BPI-FB.
14Supra note 3. The names of other defendants in Crim. Case No. 091-22386.
190
190 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-
FB prior to Francos receipt of notice that his accounts were under garnishment. In fact,
at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB,
Franco had yet to be impleaded in the Makati case where the writ of attachment was
issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended
Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati
case. Immediately, upon receipt of such copy, Franco filed a Motion to Discharge
16
Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the
Order of Attachment was served on BPI-FB on even date, with Franco demanding the
release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-
FBs new manager, could not forthwith comply with the demand as the funds, as
previously stated, had already been debited because of FMICs forgery claim. As such,
BPI-FBs computer at the SFDM Branch indicated that the current account record was
not on file.
With respect to Francos savings account, it appears that Franco agreed to an
arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings account was
temporarily transferred to Domingo Quiaoits savings account, subject to its immediate
return upon issuance of a certificate of deposit which Quiaoit needed in connection with
his visa application at the Taiwan Embassy. As part of the arrangement, Sebastian
retained custody of Quiaoits savings account passbook to ensure that no withdrawal
would be effected therefrom, and to preserve Francos deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted
the amount of P63,189.00 from the
_______________
15Franco received the Notice of Garnishment on September 27, 1989, but the 2 checks he had issued were
presented for payment at BPI-FB on September 20 & 21, 1989, respectively.
16Francos Memorandum, Rollo, p. 137.
191
VOL. 538, NOVEMBER 23, 2007 191
BPI Family Bank vs. Franco
remaining balance of the time deposit account representing advance interest paid to him.
These transactions spawned a number of cases, some of which we had already
resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of
P80,000,000.00 debited from its account. The case eventually reached this Court, and
17
in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, we upheld the 18
finding of the courts below that BPI-FB failed to exercise the degree of diligence required
by the nature of its obligation to treat the accounts of its depositors with meticulous care.
Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was
ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989
until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4,
1989 until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica
(Buenaventura, et al.), recipients of a P500,000.00 check proceeding from the
19
15
P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaven-tura et
al., as in the case of Franco, were also prevented from effecting withdrawals from their 20
current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise,
when the case was elevated to this Court docketed as BPI Family Bank v.
Buenaventura, we ruled that BPI-FB had no right to freeze Buenaventura, et al.s
21
accounts and adjudged BPI-FB liable therefor, in addition to damages.
_______________
17Docketed as Civil Case No. 89-5280 and entitled First Metro Investment Corporation v. BPI Family
Bank.
18G.R. No. 132390, May 21, 2004, 429 SCRA 30.
 19Officers of the International Baptist Church and International Baptist Academy in Malabon, Metro 1. 1.P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from
Manila. May 18, 1990 to October 31, 1991;
20The checks issued by Buenaventura, et al. were dishonored upon presentment for payment. 2. 2.P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990,
G.R. No. 148196, September 30, 2005, 471 SCRA 431.
together with the interest thereon in accordance with the banks guidelines on the
21

192
payment therefor;
192 SUPREME COURT REPORTS ANNOTATED 3. 3.P30,000.00 by way of attorneys fees; and
BPI Family Bank vs. Franco 4. 4.P10,000.00 as nominal damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be
the perpetrators of the multimillion peso scam. In the criminal case, Franco, along with
22 The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor. Costs
the other accused, except for Manuel Bienvenida who was still at large, were acquitted of against [BPI-FB].
the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised SO ORDERED. 28

Penal Code. However, the civil case remains under litigation and the respective rights
23 24
Unsatisfied with the decision, both parties filed their respective appeals before the CA.
and liabilities of the parties have yet to be adjudicated. Franco confined his appeal to the Manila RTCs denial of his claim for moral and
Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his exemplary damages, and the diminutive award of attorneys fees. In affirming with
accounts and release his deposits therein, the latter filed on June 4, 1990 with the modification the lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with
Manila RTC the subject suit. In his complaint, Franco prayed for the fol-lowing reliefs:
modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from
(1) the interest on the remaining balance of his current account which was eventually
25

the time deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as

released to him on October 31, 1991; (2) the balance on his savings account, plus interest
26
exemplary damages, deleting the award of
thereon; (3) the advance interest paid to him which had been deducted when he pre-
27
_______________
terminated his time deposit account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees. CA Rollo, p. 79.
28

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts 194
of Franco and refusing to release his deposits, claiming that it had a better right to the 194 SUPREME COURT REPORTS ANNOTATED
amounts which consisted of part of the money allegedly fraudulently withdrawn from it BPI Family Bank vs. Franco
by Tevesteco and ending up nominal damages (in view of the award of moral and exemplary damages) and increasing the
_______________ award of attorneys fees from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
22Supra note 3. SO ORDERED. 29

23Rollo, pp. 160-208. In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a
24The Makati Case for recovery of the P37,455,410.54 representing Tevestecos total withdrawals wherein
Franco was belatedly impleaded, and a Writ of Garnishment was issued on Francos accounts. better right to the deposits in the subject accounts which are part of the proceeds of a
25P450,000.00. forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3)
26The reflected amount of P98,973.23 plus P400,000.00 representing what was transferred to Quiaoits Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor
account under their arrangement. of Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos
27P63,189.00.
193 time deposit, and for moral and exemplary damages; and (6) BPI-FBs counter-claim has
VOL. 538, NOVEMBER 23, 2007 193 no factual and legal anchor.
The petition is partly meritorious.
BPI Family Bank vs. Franco We are in full accord with the common ruling of the lower courts that BPI-FB cannot
in Francos accounts. BPI-FB asseverated that the claimed consideration of unilaterally freeze Francos accounts and preclude him from withdrawing his deposits.
P2,000,000.00 for the introduction facilitated by Franco between George Daantos and However, contrary to the appellate courts ruling, we hold that Franco is not entitled to
Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of unearned interest on the time deposit as well as to moral and exemplary damages.
Francos participation in the fraudulent transaction. First. On the issue of who has a better right to the deposits in Francos accounts, BPI-
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of FB urges us that the legal consequence of FMICs forgery claim is that the money
which reads as follows: transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and possession of the same when the money was redeposited by Franco, it had the right to set
against [BPI-FB], ordering the latter to pay to the former the following sums:
up its ownership thereon and freeze Francos accounts.
 BPI-FB contends that its position is not unlike that of an owner of personal property
who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the
following example: where Xs television set is stolen by Y who thereaf-
_______________
Rollo, p. 54.
29
195
VOL. 538, NOVEMBER 23, 2007 195
BPI Family Bank vs. Franco
ter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter
would have the right to keep possession of the property and preclude Z from recovering
possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code,
which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover
it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned in
Article 559 of the Civil Code pertains to a specific or determinate thing. A determinate 30
or specific thing is one that is individualized and can be identified or distinguished from
others of the same kind. 31
In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible. The quality of being fungible
32
depends upon the possibility of the property, because of its nature or the will of the
parties, being substituted by others of the same kind, not having a distinct individuality.
Significantly, while Article 559 permits an owner who has lost or has been unlawfully
deprived of a movable to recover
_______________
See Article 1460, paragraph 1 of the Civil Code. A thing is determinate when it is particularly designated
30
or physically segregated from all others of the same class.
31Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. IV, 1985, p. 90.
32See Article 418 of the Civil Code, taken from Article 337 of the Old Civil Code which used the words
fungible or non-fungible.
Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. II, 1983, p. 26.
33
196
196 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
the exact same thing from the current possessor, BPI-FB simply claims ownership of the
equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from
FMICs account and credited to Tevestecos, and subsequently traced to Francos account.
In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked
its claim on the money itself which passed from one account to another, commencing with
the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership, and this 34
characteristic is all the more manifest in the instant case which involves money in a
banking transaction gone awry. Its primary function is to pass from hand to hand as a
medium of exchange, without other evidence of its title. Money, which had passed
35
through various transactions in the general course of banking business, even if of
traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate personal property,
BPI-FBs illustrative example, ostensibly based on Article 559, is inapplicable to the
instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco,
but not as a legal consequence of its unauthorized transfer of FMICs deposits to
Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks is
governed by the Civil Code provisions on simple loan or mutuum. As there is a debtor-
36
creditor relationship between a bank and its depositor, BPI-FB ultimately acquired
ownership of Francos deposits, but such ownership is coupled with a corresponding
obligation to pay him an equal amount
_______________
34 United States v. Sotelo, 28 Phil. 147, 158 (1914).
35 Id.
36 Article 1980 of the Civil Code: Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan. See Article 1933 of the Civil Code.
197
VOL. 538, NOVEMBER 23, 2007 197
BPI Family Bank vs. Franco
on demand. Although BPI-FB owns the deposits in Francos accounts, it cannot prevent
37
33 him from demanding payment of BPI-FBs obligation by drawing checks against his
current account, or asking for the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of
Franco based on its mere suspicion that the funds therein were proceeds of the multi-
million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for
that matter, the right to take whatever action it pleases on deposits which it supposes
are derived from shady transactions, would open the floodgates of public distrust in the
banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of
Appeals continues to resonate, thus:
38
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his lifes savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. x x x.
_______________
Article 1953 of the Civil Code: A person who receives a loan of money or any other fungible thing acquires
37
the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality.
G.R. No. 88013, March 19, 1990, 183 SCRA 360, 366-367.
38
198
198 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of
the bank, such as the dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know
the signatures of its customers. Having failed to detect the forgery in the Authority to
Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB
cannot now shift liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts without the
appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity
of the signature in the Authority to Debit, effected the transfer of P80,000,000.00 from
FMICs to Tevestecos account, when FMICs account was a time deposit and it had
already paid advance interest to FMIC. Considering that there is as yet no indubitable
evidence establishing Francos participation in the forgery, he remains an innocent party.
As between him and BPI-FB, the latter, which made possible the present predicament,
must bear the resulting loss or inconvenience.
Second. With respect to its liability for interest on Francos current account, BPI-FB
argues that its noncompliance with the Makati RTCs Order Lifting the Order of
199
VOL. 538, NOVEMBER 23, 2007 199
BPI Family Bank vs. Franco
Attachment and the legal consequences thereof, is a matter that ought to be taken up in
that court.
The argument is tenuous. We agree with the succinct hold-ing of the appellate court
in this respect. The Manila RTCs order to pay interests on Francos current account
arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco
pursuant to their contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current account, specifically, from
May 17, 1990, interest at the rate of 12% began to accrue thereon. 39
Undeniably, the Makati RTC is vested with the authority to determine the legal
consequences of BPI-FBs noncompliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from ruling on
BPI-FBs liability to Franco for payment of interest based on its continued and
unjustified refusal to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find no
reason to depart from the factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account
are actually owned by Franco who simply accommodated Jaime Sebastians request to
temporarily transfer P400,000.00 from Francos savings account to Quiaoits
account. His testimony cannot be characterized as hearsay as the records reveal that he
40
had personal knowledge of the arrangement made between Franco, Sebastian and
himself. 41
_______________
See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95.
39
TSN, July 30, 1991, p. 5.
40
Id., at pp. 5-11.
41
200
200 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
BPI-FB makes capital of Francos belated allegation relative to this particular
arrangement. It insists that the transaction with Quiaoit was not specifically alleged in
Francos complaint before the Manila RTC. However, it appears that BPI-FB had
impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence.When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any time,
even after judgment; but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is now within the issues made by
the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if
the presentation of the merits of the action and the ends of substantial justice will be sub-served
thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to recover the
P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial,
unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as
the actual owner thereof. Clearly, Francos action for the recovery of his deposits
appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the
dishonor of Francos checks respectively dated September 11 and 18, 1989 was legally in
order in view of the Makati RTCs supplemental writ of attachment issued on September
14, 1989. It posits that as the party that applied for the writ of attachment before the
Makati RTC, it
201
VOL. 538, NOVEMBER 23, 2007 201
BPI Family Bank vs. Franco
need not be served with the Notice of Garnishment before it could place Francos
accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs clever but
transparent ploy to circumvent Section 4, Rule 13 of the Rules of Court. It should be
42
noted that the strict requirement on service of court papers upon the parties affected is
designed to comply with the elementary requisites of due process. Franco was entitled, as
a matter of right, to notice, if the requirements of due process are to be observed. Yet, he
received a copy of the Notice of Garnishment only on September 27, 1989, several days
after the two checks he issued were dishonored by BPI-FB on September 20 and 21,
1989. Verily, it was premature for BPI-FB to freeze Francos accounts without even
awaiting service of the Makati RTCs Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment
cannot be made without including in the main suit the owner of the property attached by
virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that no levy
or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or
contemporaneously accompanied, by service of summons, together with a copy of the
complaint, the application for attachment, on the defendant within the Philippines.
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC
had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his
accounts. Effectively, therefore, the Makati RTC had no authority yet to bind the
43
deposits of Franco through the writ of attachment,
_______________
42SEC. 4. Papers required to be filed and served.Every judgment, resolution, order, pleading subsequent
to the complaint, written motion, notice, appearance, demand, offer of judgment or similar papers shall be filed
with the court, and served upon the parties affected.
43See Sievert v. Court of Appeals, G.R. No. L-84034, December 22, 1988, 168 SCRA 692, 696.
202
202 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Franco
and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by
Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the
advance interest it deducted from Francos time deposit account, and for moral as well as
exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow
only the recovery of nominal damages in the amount of P10,000.00. However, we retain
the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and
exemplary damages, the CA attributed bad faith to BPI-FB because it (1) completely
disregarded its obligation to Franco; (2) misleadingly claimed that Francos deposits were
under garnishment; (3) misrepresented that Francos current account was not on file; and
(4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit,
wanted the amount returned to Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the breach of
the obligation, and which the parties have foreseen or could have reasonable foreseen at the time
the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-performance
of the obligation. (Emphasis supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and
not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind
contemplated in Article 2201 and should not be held liable for all damages now being
imputed to it for its breach of obligation.
203
VOL. 538, NOVEMBER 23, 2007 203
BPI Family Bank vs. Franco
For the same reason, it is not liable for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it partakes of the nature
of fraud. We have held that it is a breach of a known duty through some motive of
44
interest or ill will. In the instant case, we cannot attribute to BPI-FB fraud or even a
45
motive of self-enrichment. As the trial court found, there was no denial whatsoever by
BPI-FB of the existence of the accounts. The computer-generated document which
indicated that the current account was not on file resulted from the prior debit by BPI-
FB of the deposits. The remedy of freezing the account, or the garnishment, or even the
outright refusal to honor any transaction thereon was resorted to solely for the purpose
of holding on to the funds as a security for its intended court action, and with no other
46
goal but to ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith, moral 47
damages cannot be awarded; and that the adverse result of an action does not per se
make the action wrongful, or the party liable for it. One may err, but error alone is not a
ground for granting such damages. 48
An award of moral damages contemplates the existence of the following requisites: (1)
there must be an injury clearly sustained by the claimant, whether physical, mental or
psy-
_______________
Board of Liquidators v. Heirs of Maximo Kalaw, et al., 127 Phil. 399, 421; 20 SCRA 987, 1007 (1967).
44
45 Lopez, et al. v. Pan American World Airways, 123 Phil. 256, 264-265; 16 SCRA 431, 438 (1966).
46 CA Rollo, p. 74.
47 Suario v. Bank of the Philippine Islands, G.R. No. 50459, August 25, 1989, 176 SCRA 688, 696;
citing Guita v. Court of Appeals, 139 SCRA 576, 580 (1985).
 Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28, 2004, 430
48
Attorneys fees may be awarded when a party is compelled to litigate or incur
SCRA 261, 293-294.
expenses to protect his interest, or when the court deems it just and equitable. In the
54 55

204
case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati
204 SUPREME COURT REPORTS ANNOTATED RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that
BPI Family Bank vs. Franco the P400,000.00 was part of Francos savings account. This refusal constrained Franco to
chological; (2) there must be a culpable act or omission factually established; (3) the incur expenses and litigate for almost two (2) decades in order to protect his interests
wrongful act or omission of the defendant is the proximate cause of the injury sustained and recover his deposits. There-
by the claimant; and (4) the award for damages is predicated on any of the cases stated _______________
in Article 2219 of the Civil Code. 49

Franco could not point to, or identify any particular circumstance in Article 2219 of
the Civil Code, upon which to base his claim for moral damages.
50
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages
under Article 2220 of the Civil Code for breach of contract. 51
_______________
52 Article 2234 of the Civil Code.
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should
be awarded. In case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such
liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that he would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated damages.
Bank of the Philippine Islands v. Casa Montessori Internationale, supra note 48, at p. 296.
53

49United Coconut Planters Bank v. Ramos, 461 Phil. 277, 298; 415 SCRA 596, 612 (2003); citing Cathay CIVIL CODE, Art. 2208, par. (2).
54

Pacific Airways, Ltd. v. Spouses Vazquez, 447 Phil. 306; 399 SCRA 207 (2003). CIVIL CODE, Art. 2208, par. (11).
55

50Art. 2219. Moral damages may be recovered in the follow-ing and analogous cases: 206
206 SUPREME COURT REPORTS ANNOTATED
1. (1)A criminal offense resulting in physical injuries; BPI Family Bank vs. Franco
2. (2)Quasi-delicts causing physical injuries;
3. (3)Seduction, abduction, rape, or other lascivious acts; fore, this Court deems it just and equitable to grant Franco P75,000.00 as attorneys fees.
4. (4)Adultery or concubinage; The award is reasonable in view of the complexity of the issues and the time it has taken
5. (5)Illegal or arbitrary detention or arrest; for this case to be resolved. 56

6. (6)Illegal search;
7. (7)Libel, slander or any other form of defamation;
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs
8. (8)Malicious prosecution; ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as
9. (9)Acts mentioned in Article 309; actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as already
10. (10)Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION that the
recover moral damages.
The spouse, descendants, ascendants, and brother and sisters may bring the action mentioned in No. 9 of
award of unearned interest on the time deposit and of moral and exemplary damages is
this article, in the order named. DELETED.
51Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court No pronouncement as to costs.
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of SO ORDERED.
contract where the defendant acted fraudulently or in bad faith.
205
Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario and Reyes, JJ.,
concur.
VOL. 538, NOVEMBER 23, 2007 205
Petition partially granted, judgment affirmed with modification.
BPI Family Bank vs. Franco Note.The business of a bank is one affected with public interest, for which reason
We also deny the claim for exemplary damages. Franco should show that he is entitled to the bank should guard against loss due to negligence or bad faith. (United Coconut
moral, temperate, or compensatory damages before the court may even consider the Planters Bank vs. Ramos, 415 SCRA 596 [2003])
question of whether exemplary damages should be awarded to him. As there is no basis 52

for the award of moral damages, neither can exemplary damages be granted. o0o
While it is a sound policy not to set a premium on the right to litigate, we, however, 53

find that Franco is entitled to reasonable attorneys fees for having been compelled to go 27. G.R. No. 177526. July 4, 2008.*
to court in order to assert his right. Thus, we affirm the CAs grant of P75,000.00 as PHILIPPINE SAVINGS BANK, petitioner, vs. CHOWKING FOOD CORPORATION,
attorneys fees. respondent.
 Remedial Law; Evidence; Estoppel; Equitable doctrine of estoppel explained by the Court in checks even without the requisite endorsements.Proximate cause is determined by the facts of the
Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448 (1992).The doctrine of equitable case. It is that cause which, in natural and continuous sequence, unbroken by any efficient
estoppel or estoppel in pais finds no application in the present case. The equitable doctrine intervening cause, produces the injury, and without which the result would not have occurred.
of estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA Measured by the foregoing yardstick, the proximate cause of the loss is not respondents alleged
448 (1992): Under the doctrine of estoppel, an admission or representation is rendered conclusive negligence in allowing Manzano to take hold and encash respondents checks. The proximate cause
upon the person making it, and cannot be is petitioners own negligence in the supervision of its employees when it overlooked the irregular
_______________ practice of encashing checks even without the requisite endorsements.
PETITION for review on certiorari of a decision of the Court of Appeals.
* THIRD DIVISION.
319 The facts are stated in the opinion of the Court.
VOL. 557, JULY 4, 2008 319 Agabin, Verzola, Hermoso & Layaoen Law Offices for respondent.
Lucas C. Carpio, Jr. for Erlinda Santos.
Philippine Savings Bank vs. Chowking Food Corporation REYES, R.T., J.:
denied or disproved as against the person relying thereon. A party may not go back on his IT is the peculiar quality of a fool to perceive the fault of others and to forget his
own acts and representations to the prejudice of the other party who relied upon them. In the law
own. Ang isang kakatuwang katangian ng isang hangal ay punahin ang
of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any kamalian ng iba at kalimutan naman ang sa kanya.
litigation arising out of such declaration, act, or omission, be permitted to falsify it. This is a petition for review on certiorari of the Decision1of the Court of Appeals (CA)
Same; Same; Same; Elements of Estoppel.Neither can estoppel be appreciated in relation to reinstating the Decision of the
petitioner itself. In Kalalo v. Luz, 34 SCRA 337 (1970), the Court enumerated the elements of _______________
estoppel in this wise: x x x As related to the party claiming the estoppel, the essential elements are
(1) lack of knowledge and of the means of knowledge of the truth as the facts in question; (2) 1 Rollo, pp. 39-55. Dated January 31, 2007. Penned by Associate Justice Apolinario D. Bruselas, Jr., with
reliance, in good faith, upon the conduct and statements of the party to be estopped; (3) action or Associate Justices Bienvenido L. Reyes and Aurora Santiago-Lagman, concurring.
321
inaction based thereon of such character as to change the position or status of the party claiming
the estoppel, to his injury, detriment or prejudice. VOL. 557, JULY 4, 2008 321
Same; Same; Same; Estoppel cannot be sustained in doubtful inference.It is elementary Philippine Savings Bank vs. Chowking Food Corporation
that estoppel cannot be sustained in doubtful inference. Absent the conclusive proof that its
Regional Trial Court (RTC), Manila, Branch 5. The RTC ordered petitioner Philippine
essential elements are present, estoppel must fail. Because estoppel, when misapplied, becomes a
Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse
most effective weapon to accomplish an injustice, inasmuch as it shuts a mans mouth from
speaking the truth. respondent Chowking Food Corporation (Chowking) the amount corresponding to five (5)
Civil Law; Banks and Banking; Negligence; The banking business is impressed with public illegally encashed checks.
interest; The diligence required of banks is more than that of a Roman pater familias or a good
father of a family.Petitioner failed to prove that it has observed the due diligence The Facts
required of banks under the law. Contrary to petitioners view, its negligence is the proximate
cause of respondents loss. It cannot be over emphasized that the banking business is impressed Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in
with public interest. Of paramount importance is the trust and confidence of the public in general favor of Chowking five (5) PSBank checks with the following numbers, dates and
in the banking industry. Consequently, the diligence required of banks is more than that of a denominations:
Roman pater familias or a good father of a family. The highest degree of diligence is expected.
Same; Same; Same; A bank is under obligation to treat the accounts of its depositors with Check No. Amount Date
meticulous care.In its declaration of policy, the General Banking Law of 2000 requires of banks 017069 P 44,120.00 15 March 1989
the high-320
053528 P135,052.87 09 May 1989
3 SUPREME COURT REPORTS ANNOTATED
074602 P160,138.12 08 August 1989
20
074631 P159,634.13 08 August 1989
Philippine Savings Bank vs. Chowking Food Corporation 017096 P 60,036.74 10 August 19892
est standards of integrity and performance. Needless to say, a bank is under obligation to
The total amount of the subject checks reached P556,981.86.
treat the accounts of its depositors with meticulous care. The fiduciary nature of the relationship
between the bank and the depositors must always be of paramount concern. On the respective due dates of each check, Chowkings acting accounting manager,
Same; Same; Same; Proximate Cause, Definition of; The proximate cause is petitioners own Rino T. Manzano, endorsed and encashed said checks with the Bustos branch of
negligence in the supervision of its employees when it overlooked the irregular practice of encashing respondent PSBank.3
 All the five checks were honored by defendant Santos, even with only the lowed the banks practice of honoring respondents checks even if accompanied only by
endorsement of Manzano approving them. The signatures of the other authorized officers Manzanos endorsement.15
of respondent corporation were absent in the five (5) checks, contrary to usual banking Defendant Abacan likewise denied any liability to respondent. He alleged that, as
practice.4 Unexpectedly, Manzano absconded with and misappropriated the check president and officer of petitioner bank, he played no role in the transactions complained
proceeds.5 of.16 Thus, respondent has no cause of action against him.
_______________ Petitioner, Santos and Abacan were unanimous in asserting that respondent is
estopped from claiming reimbursement and damages since it was negligent in allowing
2 Id., at p. 58.
Manzano to take hold, endorse, and encash its checks. Petitioner pointed out that the
3 Id.
4 Id., at p. 40. proximate cause of respondents loss was its own negligence. 17
5 Id., at p. 58.
322 RTC Disposition
322 SUPREME COURT REPORTS ANNOTATED
Philippine Savings Bank vs. Chowking Food Corporation On August 24, 1998, the RTC rendered judgment in favor of respondent, the
When Chowking found out Manzanos scheme, it demanded reimbursement from dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and as
PSBank.6 When PSBank refused to pay, Chowking filed a complaint 7 for a sum of money
against defendant Philippine Savings Bank and Erlinda O. Santos ordering the said defendants to
with damages before the RTC. Likewise impleaded were PSBanks president, Antonio S. pay plaintiff, jointly and severally:
Abacan, and Bustos branch head, Santos.8 1. The amount of P556,981.86 plus interest at the rate of 12% per annum from August
Both PSBank and Santos filed cross claims and third party complaints against 15, 1989 until said amount shall have been paid;
Manzano.9 Despite all diligent efforts, summonses were not served upon third party 2. 20% of the total amount due plaintiff as attorneys fees;
defendant Manzano. Santos did not take any further action and her third party 3. The sum of P100,000.00 as exemplary damages;
complaint was archived.10 4. The sum of P1,000,000.00 for plaintiffs unrealized profits.
Meanwhile, petitioner caused the service of its summons on the cross-claim and third The complaint with respect to defendant Antonio Abacan, Jr. as well as his counterclaim and
party complaints through publication. On its subsequent motion, Manzano was declared cross claim are hereby DISMISSED.
_______________
in default for failure to file a responsive pleading.11
Respondent filed a motion for summary judgment. Petitioner opposed the motion. On 15 Id.
February 1, 1995, the trial court denied the motion via an order of even date. 12 16 Id.
17 Id., at p. 41.
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to 324
respondent for the encashed checks.13 Petitioner bank maintained it exercised due 324 SUPREME COURT REPORTS ANNOTATED
diligence in the supervision of all its employees. It even dismissed defendant Santos after
she was found guilty of negligence in the performance of her duties. 14 Philippine Savings Bank vs. Chowking Food Corporation
With respect to the cross claim of defendant PSBank against Erlinda Santos and its third-party
Defendant Santos, on the other hand, denied that she had been negligent in her job.
complaint against Rino T. Manzano, both Santos and Manzano are hereby ordered to jointly and
She averred that she merely fol-
severally, reimburse defendant PSBank whatever amount the latter shall be constrained to pay
_______________
plaintiff in connection with this case.
SO ORDERED. 18
6 Id., at pp. 58-59.
7 Docketed as Civil Case No. 94-50776. Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated
8 Rollo, p. 57. January 11, 1999, the RTC reversed its earlier ruling and held that it was respondents
9 Id. own negligence that was the proximate cause of the loss. The fallo of the amended RTC
10 Id.
decision now reads:
11 Id., at p. 58.
12 Id. In light of the foregoing grounds and observations, the Decision of August 24, 1998, by this
13 Id. Court is accordingly modified as follows:
14 Id. 1. Ordering the dismissal of the complaint by the plaintiff Chowking Food Corporation
323 against the defendants, Philippine Savings Bank (PSBank) and Erlinda Santos for lack of basis in
VOL. 557, JULY 4, 2008 323 fact and law;
2. Ordering the third party defendant, Regino or Rino T. Manzano to pay the plaintiff
Philippine Savings Bank vs. Chowking Food Corporation Chowking Food Corporation, the following:
 a. To reimburse the plaintiff the amount of P556,981.86 plus interest at the rate of 12% per
annum from August 15, 1989, until said amount has been fully satisfied;
b. To pay an attorneys fee equivalent to 20% of the total amount due the plaintiff;
c. To pay an amount of P100,000.00 the plaintiff for actual and compensatory damages, plus
the costs of this suit.
SO ORDERED. 19
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
_______________
18 Id., at p. 42.
19 Id., at p. 43.
325
VOL. 557, JULY 4, 2008 325
Philippine Savings Bank vs. Chowking Food Corporation
CA Disposition
In its appeal, respondent Chowking contended, inter alia, that the RTC erred in
ruling that the proximate cause of the loss was its own negligence; and that its claim was
barred by estoppel.
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order appealed from is hereby SET
ASIDE and the 24 August 1998 decision is consequently REINSTATED with modification that the
awards of attorneys fees, exemplary damages, and alleged P1,000,000.00 unrealized profits of the
appellant are DELETED.
IT IS SO ORDERED. 20
The CA held that both petitioner PSBank and Santos should bear the loss. Said the
appellate court:
It is admitted that PSB cashed, over the counter, the checks of the appellant indorsed by
Manzano alone. Since there is no more dispute on the negligent act of Santos in honoring the
appellants checks, over the counter, despite the proper indorsements, the categorical finding of
negligence against her, remaining unrebutted, is deemed established. This in effect warrants a
finding that Santos is liable for damages to the appellant. The lower court therefore erred in
dismissing the complaint against her. 21
Further, the CA held that:
Contrary to PSBs contention that it should not be held liable because it neither consented to
nor had knowledge of Santos (sic) violations, such liability of Santos is solidary with PSB pursuant
to Article 2176 in relation to Article 2180 of the Civil Code which states:
_______________
20 Id., at p. 54.
21 Id., at p. 44.
326
326 SUPREME COURT REPORTS ANNOTATED
Philippine Savings Bank vs. Chowking Food Corporation
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done....
Art. 2180. The obligation imposed by Art. 2176 is demandable not only for one's own
acts or omissions but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damage caused by their employees and household
helpers acting within the scope of their assigned tasks even though the former are not
engaged in any business or activity.
xxxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to prevent
damage.
x x x However, with banks like PSB, the degree of diligence required is more than that of a
good father of a family considering that the business of banking is imbued with public interest due
to the nature of its functions. Highest degree of diligence is needed which PSB, in this case, failed
to observe.
x x x Its argument that it should no be held responsible for the negligent acts of Santos because
those were independent acts x x x perpetrated without its knowledge and consent is without basis
in fact and in law. Assuming that PSB did not err in hiring Santos for her position, its lack of
supervision over her made it solidarily liable for the unauthorized encashment of the checks
involved. In the supervision of employees, the employer must formulate standard operating
procedures, monitor their implementation and impose disciplinary measures for the breach thereof.
The appellee, in this case, presented no evidence that it formulated rules/guidelines for the proper
performance of functions of its employees and that it strictly implemented and monitored
compliance therewith. x x x 22
The CA also disagreed with petitioners contention that respondents own negligence
was the proximate cause of its loss.
_______________
22 Id., at pp. 44-46.
327
VOL. 557, JULY 4, 2008 327
Philippine Savings Bank vs. Chowking Food Corporation
The CA opined that even assuming that respondent was also negligent in allowing
Manzano to encash its checks, petitioner had the last clear chance to avert injury and
loss to respondent. This could have been done if petitioner, through Santos, faithfully and
carefully observed its encashment rules and procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of the checks involved, she
would not have cashed the same because Manzano, whose only signature appears therein, is
apparently not an authorized signatory of the appellant x x x had every means to determine the
validity of those indorsements but for one reason or another she was neglectful of her duty x x x as
admitted by PSB, such over the counter encashments are not even sanctioned by its policies but
Santos simply ignored the same. It appears clear that Santos let the opportunity slip by when an
exercise of ordinary prudence expected of bank employees would have sufficed to prevent the loss. 23
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following
errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT
WAS ESTOPPED FROM ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT
RESPONDENT'S NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS OWN LOSS. (Italics
supplied)
_______________
23 Id., at pp. 51-52.
328
328 SUPREME COURT REPORTS ANNOTATED
Philippine Savings Bank vs. Chowking Food Corporation
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in
the present case. The equitable doctrine of estoppel was explained by this Court
in Caltex (Philippines), Inc. v. Court of Appeals:24
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon. A party
may not go back on his own acts and representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify
it.
25
The principle received further elaboration in Maneclang v. Baun:26
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be
a concurrence of the following requisites: (a) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b)
intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the
other party; and (c) knowledge, actual or constructive of the actual facts.
27
Estoppel may vary somewhat in definition, but all authorities agree that a party
invoking the doctrine must have been misled to ones prejudice. That is the final and, in
reality,
_______________
24 G.R. No. 97753, August 10, 1992, 212 SCRA 448.
25 Caltex (Philippines), Inc. v. Court of Appeals, id., at p. 457.
26 G.R. No. 27876, April 22, 1992, 208 SCRA 179.
27 Maneclang v. Baun, id., at p. 192.
329
VOL. 557, JULY 4, 2008 329
Philippine Savings Bank vs. Chowking Food Corporation
most important of the elements of equitable estoppel. 28 It is this element that is lacking
here.
We agree with the CA that Chowking did not make any false representation or
concealment of material facts in relation to the encashments of the previous checks. As
adverted to earlier, respondent may have allowed Manzano to previously encash its
checks, but it has always been accompanied with the endorsements of the other
authorized signatories. Respondent did not allow petitioner to have its checks encashed
without the signature of all of its authorized signatories.
The CA pointed out:
We find at the back of those checks, whereon indorsement usually appears, the signature of
Manzano together with other signature/signatures though mostly are illegible. It appears then that,
assuming the appellant impliedly tolerated the act of Manzano in indorsing the checks, it did not
allow Manzano alone to indorse its checks as what actually happened in this case because his
previous indorsements were coupled with other indorsements of the appellants
signatories. There is, therefore, no sufficient evidence to sustain PSBs submission. On this score
alone, the defense of estoppel must fail. (Underscoring and emphasis supplied)
29
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v.
Luz,30 the Court enumerated the elements of estoppel in this wise:
x x x As related to the party claiming the estoppel, the essential elements are (1) lack of
knowledge and of the means of knowledge of the truth as the facts in question; (2) reliance, in good
faith, upon the conduct and statements of the party to be estopped; (3) action or inaction based
thereon of such character as to change the
_______________
28 Vega v. San Carlos Milling Company Limited, G.R. No. 21549, October 22, 1924.
29 Rollo, p. 49.
30 G.R. No. L-27782, July 31, 1970, 34 SCRA 337.
330
330 SUPREME COURT REPORTS ANNOTATED
Philippine Savings Bank vs. Chowking Food Corporation
position or status of the party claiming the estoppel, to his injury, detriment or prejudice. 31
Here, the first two elements are wanting. Petitioner has knowledge of the truth and
the means to it as to the proper endorsements necessary in encashing respondents
checks. Respondent has an account with petitioner bank and, as such, is privy to the
proper signatories to endorse respondents checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the
conclusive proof that its essential elements are present, estoppel must fail. Because
estoppel, when misapplied, becomes a most effective weapon to accomplish an injustice,
inasmuch as it shuts a mans mouth from speaking the truth.32
Petitioner failed to prove that it has observed the due diligence required of
banks under the law.Contrary to petitioners view, its negligence is the proximate
cause of respondents loss.
It cannot be over emphasized that the banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in general in
the banking industry. Consequently, the diligence required of banks is more than that of
a Roman pater familias or a good father of a family.33 The highest degree of diligence is
expected.34
In its declaration of policy, the General Banking Law of 200035 requires of banks the
highest standards of integrity
_______________
 31 Kalalo v. Luz, id., at p. 347.
32 28 Am. Jur. 2d, pp. 601-602.
33 Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538; 326 SCRA 641 (2000); Philippine Bank
of Commerce v. Court of Appeals,336 Phil. 667; 269 SCRA 695 (1997).
34 Philippine Commercial International Bank v. Court of Appeals, G.R. No. 121413, January 29, 2000, 350
SCRA 446.
35 Republic Act No. 8791.
331
VOL. 557, JULY 4, 2008
Philippine Savings Bank vs. Chowking Food Corporation
and performance. Needless to say, a bank is under obligation to treat the accounts of its
depositors with meticulous care.36 The fiduciary nature of the relationship between the
bank and the depositors must always be of paramount concern. 37
Petitioner, through Santos, was clearly negligent when it honored respondents
checks with the lone endorsement of Manzano. In the similar case of Philippine Bank of
Commerce v. Court of Appeals,38 an employee of Rommels Marketing Corporation (RMC)
was able to illegally deposit in a different account the checks of the corporation. This
Court found that it was the bank tellers failure to exercise extraordinary diligence to
validate the deposit slips that caused the crime to be perpetrated.
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself
in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the
testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and
now its Vice-President, to the effect that, while he ordered the investigation of the incident, he
never came to know that blank deposit slips were validated in total disregard of the bank's
Proximate cause is determined by the facts of the case. It is that cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces
the injury, and without which the result would not have occurred. 40
Measured by the foregoing yardstick, the proximate cause of the loss is not
respondents alleged negligence in allowing Manzano to take hold and encash
respondents checks. The proximate cause is petitioners own negligence in the
supervision of its employees when it overlooked the irregular practice of encashing
331 checks even without the requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,41 this Court
similarly held:
For allowing payment on the checks to a wrongful and fictitious payee, BPIthe drawee
bankbecomes liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI
can easily go after it and hold it liable for reimbursement. x x x In both law and equity, when one of
two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by
the one
_______________
39 Philippine Bank of Commerce v. Court of Appeals, id., at pp. 705-706.
40 Bataclan v. Medina, 109 Phil. 181 (1960).
41 G.R. No. 149454, May 28, 2004, 430 SCRA 261.
333
VOL. 557, JULY 4, 2008 333
Philippine Savings Bank vs. Chowking Food Corporation
whose negligence was the proximate cause of the loss or who put it into the power of the third person
to perpetrate the wrong. 42

validation procedures, viz.: Further, the Court ruled:

Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-
validated the same with the machine, the fact that those deposit slips were unfilled up, is there any report
similar to that?
depositors on checks being encashed, BPI is expected to use reasonable business prudence. In the
A: No, it was not the cashier but the teller. performance of that obligation, it is bound by its internal banking rules and regulations that form
_______________
part of the contract it enters into with its depositors.
36 Westmont Bank v. Ong, G.R. No. 132560, January 30, 2002, 375 SCRA 212; citing Citytrust Banking Corp. v. Intermediate Appellate Court, G.R. No. 84281, May 27,
Unfortunately, it failed in that regard. x x x Without exercising the required prudence on its
1994, 232 SCRA 559. part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately
37 Simex International (Manila), Inc. v. Court of Appeals, G.R. No. 88013, March 14, 1997, 183 SCRA 360.
38 G.R. No. 97626, March 14, 1997, 269 SCRA 695. contributed to the fraud and should be held primarily liable for the negligence of its
332
officers or agents when acting within the course and scope of their employment. It must
332 SUPREME COURT REPORTS ANNOTATED bear the loss. 43

Philippine Savings Bank vs. Chowking Food Corporation WHEREFORE, the petition is DENIED for lack of merit.
Q: The teller validated the blank deposit slip? SO ORDERED.
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip?
Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario and Nachura,
A: I am not aware of that. JJ., concur.
Q: It is only now that you are aware of that? Petition denied.
A: Yes, Sir.
xxxx Note.In determining whether or not the petitioner bank acted negligently, the
It was this negligence x x x coupled by the negligence of the petitioner bank in the selection and constant test isDid the defendant in doing the negligent act use that reasonable care
supervision of its bank teller, which was the proximate cause of the loss suffered by private and caution which an ordinarily prudent person would have used in the same situation?
respondent, and not the latters act of entrusting cash to a dishonest employee, as insisted by the (United Coconut Planters Bank vs. Ramos, 415 SCRA 596 [2003])
petitioners. 39
o0o
_______________
 42 Bank of the Philippine Islands v. Casa Montessori Internationale, id., at p. 287.
43 Id., at p. 288.
28. G.R. No. 141835. February 4, 2009.*
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs.CITYTRUST BANKING
CORPORATION, respondent.
Banks and Banking; Fiduciary Nature of Banking; The bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship; The fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family.The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13
June 2000, declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance. This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990
case of Simex International v. Court
_______________
* SECOND DIVISION.
28
2 SUPREME COURT REPORTS ANNOTATED
8 After the checks were certified by petitioners Accounting Department, Iluminada
Central Bank of the Philippines vs. Citytrust Banking Corporation
of Appeals, holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship. This
fiduciary relationship means that the banks obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family.
Same; Same; Petitioners liability to Citytrust mitigated on a 60-40-ratio.Citytrusts failure
to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft
should mitigate petitioners liability, in accordance with Article 2179 of the Civil Code which
provides that if the plaintiffs negligence was only contributory, the immediate and proximate
cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but
the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the
loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered.
In line with the ruling in Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA
562 (2003), the Court deems it proper to allocate the loss between petitioner and Citytrust on a 60-
40 ratio.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
The General Counsel for petitioner.
Ricardo P.C. Castro, Jr. and Laurence B. Arroyo for respondent.
CARPIO-MORALES,** J.:
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust
Banking Corporation (Citytrust),
_______________
** Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who inhibited himself from the case due
to close relation to a party, per Raffle dated January 26, 2009.
29
VOL. 578, FEBRUARY 4, 2009 29
Central Bank of the Philippines vs. Citytrust Banking Corporation
formerly Feati Bank, maintained a demand deposit account with petitioner Central Bank
of the Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and corresponding
signatures of five of its officers authorized to sign checks and serve as drawers and
indorsers for its account. And it provided petitioner with the list and corresponding
signatures of its roving tellers authorized to withdraw, sign receipts and perform other
transactions on its behalf. Petitioner later issued security identification cards to the
roving tellers one of whom was Rounceval Flores (Flores).
On July 15, 1977, Flores presented for payment to petitioners Senior Teller
Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust,
one in the amount of P850,000 and the other in the amount of P900,000, both of which
were signed and indorsed by Citytrusts authorized signatory-drawers.
verified them, prepared the cash transfer slip on which she affixed her signature,
stamped the checks with the notation Received Payment and asked Flores to, as he did,
sign on the space above such notation. Instead of signing his name, however, Flores
signed as Rosauro C. Cayabyab a fact Iluminada failed to notice.
Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash
Department where an officer verified and compared the drawers signatures on the
checks against their specimen signatures provided by Citytrust, and finding the same in
order, approved the cash transfer slip and paid the corresponding amounts to Flores.
Petitioner then debited the amount of the checks totaling P1,750,000 from Citytrusts
demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23, 1979,
alleging that the checks were already cancelled because they were stolen, demanded peti-
30
30 SUPREME COURT REPORTS ANNOTATED
Central Bank of the Philippines vs. Citytrust Banking Corporation
tioner to restore the amounts covered thereby to its demand deposit account. Petitioner
did not heed the demand, however.
Citytrust later filed a complaint for estafa, with reservation on the filing of a separate
civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint
for recovery of sum of money with damages against petitioner which it alleged erred in
encashing the checks and in charging the proceeds thereof to its account, despite the lack
of authority of Rosauro C. Cayabyab.
 By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both
Citytrust and petitioner negligent and accordingly held them equally liable for the loss.
Both parties appealed to the Court of Appeals which, by Decision 2 dated July 16, 1999,
affirmed the trial courts decision, it holding that both parties contributed equally to the
fraudulent encashment of the checks, hence, they should equally share the loss in
consonance with Article 21793 vis--vis Article 11724 of the Civil Code.
_______________
1 CA Rollo, pp. 160-172. Penned by Assisting Judge Benjamin P. Martinez.
2 Id., at pp. 287-300. Penned by Associate Justice Oswaldo D. Agcaoili and concurred in by Associate
Justices Corona Ibay-Somera and Andres B. Reyes, Jr.
3 Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the
injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate
the damages to be awarded.
4 Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the circumstances.
31
VOL. 578, FEBRUARY 4, 2009 31
Central Bank of the Philippines vs. Citytrust Banking Corporation
In arriving at its Decision, the appellate court noted that while Citytrust failed to
take adequate precautionary measures to prevent the fraudulent encashment of its
checks, petitioner was not entirely blame-free in light of its failure to verify the
signature of Citytrusts agent authorized to receive payment.
Brushing aside petitioners contention that it cannot be sued, the appellate court held
that petitioners Charter specifically clothes it with the power to sue and be sued.
Also brushing aside petitioners assertion that Citytrusts reservation of the filing of a
separate civil action against Flores precluded Citytrust from filing the civil action
against it, the appellate court held that the action for the recovery of sum of money is
separate and distinct and is grounded on a separate cause of action from that of the
criminal case for estafa.
Hence, the present appeal, petitioner maintaining that Flores having been an
authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was not
negligent in releasing the proceeds of the checks to Flores, the failure of its teller to
properly verify his signature notwithstanding, petitioner contends that verification could
be dispensed with, Flores having been known to be an authorized roving teller of
Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts)
behalf for five years prior to the questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrusts allowing
Flores to steal the checks and failing to timely cancel them; allowing Flores to wear the
issued identification card issued by it (petitioner); failing to report Flores absence from
work on the day of the incident; and failing to explain the circumstances surrounding the
supposed theft and cancellation of the checks.
Drawing attention to Citytrusts considerable delay in demanding the restoration of the
proceeds of the checks, petitioners argue that, assuming arguendo that its teller was32
32 SUPREME COURT REPORTS ANNOTATED
Central Bank of the Philippines vs. Citytrust Banking Corporation
negligent, Citytrusts negligence, which preceded that committed by the teller, was the
proximate cause of the loss or fraud.
The petition is bereft of merit.
Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse that
Flores had had previous transactions with it for a number of years. That circumstance
did not excuse the teller from focusing attention to or at least glancing at Flores as he
was signing, and to satisfy herself that the signature he had just affixed matched that of
his specimen signature. Had she done that, she would have readily been put on notice
that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate
banking and other financial institutions, this Courts ruling in Consolidated Bank and
Trust Corporation v. Court of Appeals5 illumines:
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x
deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank
is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank
agrees to pay the depositor on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and
performance. This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex In-
_______________
5 G.R. No. 138569, September 11, 2003, 410 SCRA 562, 574-575.
33
VOL. 578, FEBRUARY 4, 2009 33
Central Bank of the Philippines vs. Citytrust Banking Corporation
ternational v. Court of Appeals, holding that the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a good father of a
family.Article 1172 of the Civil Code states that the degree of diligence required of an obligor is
that prescribed by law or contract, and absent such stipulation then the diligence of a good father
of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks that
banks must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time
of the withdrawal already imposed on banks the same high standard of diligence
required under RA No. 8791. (Emphasis supplied)
 Citytrusts failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioners liability, in accordance
with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was
only contributory, the immediate and proximate cause of the injury being the defendants
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded. For had Citytrust timely discovered the loss/theft and/or
subsequent encashment, their proceeds or part thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate
the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby
AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss
on a 60-40 ratio.
29. G.R. No. 150487. July 10, 2003. * The Facts
GERARDO F. SAMSON, JR., petitioner, vs. BANK OF THE PHILIPPINE ISLANDS,
respondent.
Civil Law; Damages; Moral damages are not punitive in nature and were never intended to
enrich the claimant at the expense of the defendant.Moral damages are meant to compensate the
claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. Although
incapable of pecuniary estimation, the amount must somehow be proportional to and in
approximation of the suffering inflicted. Moral damages are not punitive in nature and were never
intended to enrich the claimant at the expense of the defendant.
Same; Same; There is no hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, since each case must be governed by its own peculiar facts.
There is no hard-and-fast rule in determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own peculiar facts. Trial courts are given
discretion in determining the amount, with the limitation that it should not be palpably and
scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered.
Same; Same; The social standing of the aggrieved party is essential to the determination of the
proper amount of the award.The social standing of the aggrieved party is essential to the
determination of the proper amount of the award. Otherwise, the goal of enabling him to obtain
means, diversions, or amusements to restore him to the status quo ante would not be achieved.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Abello, Concepcion, Regala and Cruz for petitioner.
Benedicto, Verzosa, Gealogo and Burkley for respondent BPI.
_______________
*THIRD DIVISION.
608
608 SUPREME COURT REPORTS ANNOTATED
Samson, Jr. vs. Bank of the Philippine Islands
PANGANIBAN, J.:
Gross negligence of a bank in the handling of its clients deposit amounts to bad faith
that calls for an award of moral damages. Credit is very important to businessmen, and
its loss or impairment needs to be recognized and compensated.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set
1
aside the March 30, 2001 Decision and the October 22, 2001 Resolution of the Court of
2 3
Appeals (CA) in CA-GR CV No. 54599. The dispositive portion of the assailed Decision
reads as follows:
WHEREFORE, foregoing premises considered, the Decision appealed from is AFFIRMED WITH A
MODIFICATION that the award of moral damages is reduced to P50,000.00. 4
The assailed Resolution denied the Motions for Reconsideration filed by the parties.
The CA summarized the antecedents of the case as follows:
Gerardo F. Samson, Jr. filed an action for damages against the Bank of the Philippine Islands.
In his complaint, [petitioner] avers, inter alia that he is a client/depositor of [respondent] with
Savings Account No. 3085-0125-75 through the [respondents] Express Teller System[,] a 24-hour
banking service; that on August 20, 1990, [petitioner] deposited to his BPI account a Prudential
Bank Check No. 209116 in the amount of Three Thousand Five Hundred Pesos (P3,500.00); that as
of said date, [petitioners] account balance was Three Hundred Sixty-Seven and 38/100 Pesos
(P367.38); that on August 24, 1990, [petitioner] instructed his daughter to withdraw
_______________
1 Rollo, pp. 12-41.
2 Id., pp. 44-55. Special Third Division. Written by Justice Ma. Alicia Austria-Martinez (Division chairman, now a member
of this Court) and concurred in by Justices Jose L. Sabio, Jr. and Edgardo P. Cruz (members).
3 Id., pp. 57-58.
4 Assailed Decision, p. 11; Rollo, p. 54.
609
VOL. 405, JULY 10, 2003 609
Samson, Jr. vs. Bank of the Philippine Islands
P2,000.00 from the said account; that the withdrawal was declined twice as the Express Teller
transaction record showed Sorry, Insufficient Funds; that because of such eventuality, [petitioner]
suffered embarrassment as he could not then and there produce the required cash with which to
fulfill his commitment and monetary obligation towards a creditor who had waited at his residence;
that on September 12, 1990, [petitioner] deposited to his aforesaid account through the Express
Teller, the amount of Five Thousand Five Hundred Pesos (P5,500.00); that he discovered that his
available total balance as of said date was only Three Hundred Forty-Two and 38/100 Pesos
(P342.38) without his earlier check deposit of Three Thousand Five Hundred Pesos (P3,500.00) on
August 20, 1990 but with a Twenty-Five Peso (P25.00) penalty/service charge; that [petitioner]
complained to [respondent] about the discrepancy; that [respondent] confirmed the P3,500.00 check
deposit but could not account the same; that investigation only ensued after [petitioner] informed
[respondent] that his P3,500.00 Prudential Bank check was encashed by [respondents] security
guard named Nonilon E. Rondina; that per such investigation, it was discovered that one of the
deposit envelopes was missing; that [respondent] did nothing to look for the missing check deposit
or to inform [petitioner] about it; that despite [respondents] knowledge of the irregularity and
suspicious discrepancy in its records as early as of August 20, 1990, it did not even bother to
conduct its own inquiry into said irregularity; that worse, despite being at fault, [respondents]
Manager, Nerissa M. Cayanga, displayed arrogance, indifference and discourtesy towards
[petitioner].
In its Answer, [respondent] Bank denied all the material allegations in the [C]omplaint and
alleged among others, that the [C]omplaint fails to state a cause of action; that [petitioner] has
violated the provisions of the covering contract of deposit which provides that representatives are
not allowed to contract business on the account on behalf of the depositor; that [petitioners] claim
has been paid, waived and extinguished; that [petitioner] by his inaction in reporting the loss of his
check deposit, is estopped from claiming damages from defendant.
After trial on the merits, the trial court rendered [a Decision in favor of petitioner].
5 Samson, Jr. vs. Bank of the Philippine Islands
Ruling of the Court of Appeals
The CA affirmed the ruling of the trial court, but modified the amount of damages. It
held that since the banking business was affected with public interest, Bank of the
Philippine Islands (BPI) was required to exercise a high degree of care with respect to
the
_______________
5Assailed CA Decision, pp. 2-3; Rollo, pp. 45-46.
610
610 SUPREME COURT REPORTS ANNOTATED
Samson, Jr. vs. Bank of the Philippine Islands
accounts of its clients. Thus, the bank was rendered liable by its negligence resulting in
damage to its depositor.
Since it was undisputed that BPI had lost the check of petitioner, the appellate court
reviewed the evidence and held that respondent bank was grossly negligent in its failure
to observe the required degree of care. This gross negligence on the part of BPI amounted
to bad faith that entitled petitioner to moral damages. The moral damages of P200,000
awarded by the trial court was, however, found to be excessive. It was therefore reduced
to P50,000, because petitioner claimed only P3,500, which had already been credited
back to his account.
Hence, this Petition. 6
Issues:
In his Memorandum, petitioner submits the following issues for the Courts
consideration:
I 493; 308 SCRA 215, June 14, 1999; Morales v. Court of Appeals, 274 SCRA 282, June 19, 1997.
Whether the reduction of the award of moral damages to Php50,000.00, a mere one-fourth of the
moral damages awarded by the trial court, was proper.
II
Assuming that Respondent BPI is not precluded from raising this defense in this appeal,
whether petitioner was negligent in demanding the return of his deposit, which was lost through
the banks gross negligence and inaction. 7
In sum, the main issue in this case is whether the CA erred in reducing the award of
moral damages from P200,000 to only P50,000.
_______________
6 This case was deemed submitted for resolution on November 4, 2002, upon the Courts receipt of both the
Memorandum of petitionersigned by Attys. Teresita J. Herbosa, Patricia-Ann T. Prodigalidad and Chrysilla
Carissa P. Bautista of Abello Concepcion Regala & Cruzand that of respondent, signed by Atty. Michael Ross
I. Limosnero of Benedicto Verzosa Gealogo & Burkley.
7 Petitioners Memorandum, p. 15; Rollo, p. 324. Original in upper case.
611
VOL. 405, JULY 10, 2003 611
The Courts Ruling
The Petition is partly meritorious.
Sole Issue:
Amount of Moral Damages
Moral damages are meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injuries unjustly caused. Although incapable of pecuniary
8
estimation, the amount must somehow be proportional to and in approximation of the
suffering inflicted. Moral damages are not punitive in nature and were never intended
9 10
to enrich the claimant the expense of the defendant. 11
There is no hard-and-fast rule in determining what would be a fair and reasonable
amount of moral damages, since each case must be governed by its own peculiar
facts. Trial courts are given discretion in determining the amount, with the limitation
12
that it
_______________
8 Art. 2217, Civil Code; City trust banking Corporation v. Villanueva,413 Phil. 776; 361 SCRA 446, July 19,
2001; Francisco v. Court of Appeals,377 Phil. 368; 319 SCRA 354, November 29, 1999; Prudenciado v. Alliance
Transport System, Inc., 148 SCRA 440, March 16, 1987.
Expertravel & Tours, Inc. v. Court of Appeals, 368 Phil. 444; 309 SCRA 141, June 25, 1999; De la Serna v.
9
Court of Appeals, 233 SCRA 325, June 21, 1994; Visayan Sawmill Company, Inc. v. Court of Appeals, 219 SCRA
378, March 3, 1993.
10Flores v. Uy, 368 SCRA 347, October 26, 2001; Pagsuyuin v. Intermediate Appellate Court, 193 SCRA 547,
February 6, 1991.
11Northwest Airlines v. Laya, G.R. No. 145956, May 29, 2002, 382 SCRA 730; Cavite Development Bank v.
Sps. Lim, 381 Phil. 355; 324 SCRA 346, February 1, 2000; Coca Cola Bottlers, Phils., Inc. v. Roque, 367 Phil.
12Prudential Bank v. Court of Appeals, 384 Phil. 817; 328 SCRA 264, March 16, 2000; Philippine National
Bank v. Court of Appeals, 373 Phil. 942; 315 SCRA 309, September 28, 1999; Singson v. Court of Appeals, 346
Phil. 831; 282 SCRA 149, November 18, 1997; Del Rosario v. Court of Appeals, 334 Phil. 812; 267 SCRA 158,
January 29, 1997.
612
612 SUPREME COURT REPORTS ANNOTATED
Samson, Jr. vs. Bank of the Philippine Islands
should not be palpably and scandalously excessive. Indeed, it must be commensurate to
13
the loss or injury suffered. 14
In the present case, petitioner bases his claim on the failure of respondent to credit
the sum of P3,500 to his account due to its gross negligence. As a result of such failure,
he was unable to fulfill his obligation to a valued creditor, resulting in the severance of
his credit line. He further alleges that he suffered humiliation and besmirched
reputation. According to him, his suffering was exacerbated by his subjection to
15
indifference, discourtesy and arrogance from respondents officers.
Moral damages are awarded to achieve a spiritual status quo, thus:
Moral damages are awarded to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he/she has undergone, by reason of the
defendants culpable action. Its award is aimed at restoration, as much as possible, of the
spiritual status quo ante; thus, it must be proportionate to the suffering inflicted. Since each case
must be governed by its own peculiar circumstances, there is no hard and fast rule in determining
the proper amount. x x x. 16
The social standing of the aggrieved party is essential to the determination of the proper
amount of the award. Otherwise, the goal of enabling him to obtain means, diversions, or
amusements to restore him to the status quo ante would not be achieved.
We believe that the award should be increased to P100,000, considering (1) that
petitioner was a businessman and was the highest lay person in the United Methodist
Church; (2) that he was regarded by respondent and its officers with arrogance and a
conde-
_______________
Singson v. Court of Appeals, supra, per Bellosillo, J.; Quisumbing v. Manila Electric Company, supra.
13
Del Rosario v. Court of Appeals, supra; Philippine National Bank v. Court of Appeals, 326 Phil. 326; 256
14
SCRA 309, April 17, 1996; Mayo v. People, 204 SCRA 642, December 5, 1991; Policarpio v. Court of Appeals,194
SCRA 729, March 5, 1991; Radio Communications of the Philippines, Inc. v. Rodriguez 182 SCRA 899,
February 28, 1990; Prudenciado v. Alliance Transport System, Inc., supra.
Petitioners Memorandum, p. 20; Rollo, p. 329.
15
Kierulf v. Court of Appeals, 336 Phil. 414, 432; 269 SCRA 433, March 13, 1997, per Panganiban, J.
16
613
VOL. 405, JULY 10, 2003 613
Samson, Jr. vs. Bank of the Philippine Islands
scending manner; and (3) that respondent successfully postponed compensating him for
more than a decade. This amount is more than the P50,000 granted by the CA, but not as
much as the P200,000 granted by the RTC.
That petitioner reported the missing check deposit to respondent only after three
weeks did not constitute contributory negligence. The injury resulted from the denial of
his withdrawal due to insufficient funds, an injury he suffered before learning that his
check deposit had been lost. Respondent, not he, immediately knew that a deposit
envelop was missing, yet it did nothing to solve the problem. His alleged delay in
reporting the matter did not at all contribute to his injury.
Though the amount of P3,500 was already credited back to his account, this step was
made only after his persistent prompting. Prior to this development, he suffered damages
that could no longer be reversed by the belated restoration of the amount lost. It is for
this suffering that moral damages are due.
In Prudential Bank v. CA, Philippine National Bank v. CA and Metropolitan Bank v.
17 18
Wong, the Court consistently awarded moral damages of P100,000 in consideration of
19
the reputation and the social standing of the claimant, as well as the rulings in similar
cases involving the negligence of banks with regard to the accounts of their depositors.
WHEREFORE, the Petition is partly GRANTED and the assailed Decision
MODIFIED. The award of moral damages is increased to P100,000. No pronouncement
as to costs.
SO ORDERED.
Puno (Chairman), Corona and Carpio-Morales, JJ.,concur.
Sandoval-Gutierrez, J., On official leave.
Petition partly granted, assailed judgment modified.
Note.The grant of moral damages depends upon the discretion of the court based
on the circumstances of each case. (Lucena vs. Court of Appeals, 313 SCRA 47 [1999])
o0o
_______________
30. BPI FAMILY BANK, petitioner, vs. EDGARDO BUENAVENTURA, MYRNA
LIZARDO and YOLANDA TICA, respondents.
29
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA,
petitioners, vs. BPI FAMILY BANK, respondent.
Remedial Law; Actions; Party-in-Interest; It is elementary that it is only in the name of a real
party-in-interest that a civil suit may be prosecuted; To qualify a person to be a real party-in-interest
in whose name an action must be prosecuted, he must appear to be the present real owner of the
right sought to be enforced.It is elementary that it is only in the name of a real party-in-interest
that a civil suit may be prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real
party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit. Interest within the meaning of the rule means
material interest, an interest in issue and to be affected by the decree, as distinguished from mere
interest in the question involved, or a mere incidental interest. One having no right or interest to
protect cannot invoke the jurisdiction of the court as a party plaintiff in an action. To qualify a
person to be a real party-in-interest in whose name an action must be prosecuted, he must appear
to be the present real owner of the right sought to be enforced. Since a contract may be violated
only by the parties thereto as against each other, in an action upon that contract, the real parties-
in-interest, either as plaintiff or as defendant, must be parties to the said contract.
Same; Same; A court may grant relief to a party even if the party awarded did not pray for it
in his pleadings.There is no merit to the claim that the CA erred in affirming the RTCs order
directing BPI-FB to pay the balance of their account plus interest
_______________
* SECOND DIVISION.
432
4 SUPREME COURT REPORTS ANNOTATED
32
 BPI Family Bank vs. Buenaventura
although the prayer was only to reinstate their Current Account. The complaint does contain
a general prayer for such other relief as may be just and equitable in the premises. And this
general prayer is broad enough to justify extension of a remedy different from or together with the
specific remedy sought. Indeed, a court may grant relief to a party, even if the party awarded did
not pray for it in his pleadings.
Civil Law; Banks; The contract between a bank and its depositors is governed by the
provisions of the Civil Code on simple loan.The contract between a bank and its depositor is
governed by the provisions of the Civil Code on simple loan. Thus, there is a debtor-creditor
relationship between a bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand.
The savings or current deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
Same; Same; Forgery; Unless a forgery or alteration is attributable to the fault or negligence of
the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered
check for payment is against the party responsible for the forgery or alteration, otherwise it bears the
loss.Every bank that issues checks for the use of its customers should know whether or not the
drawers signature thereon is genuine, whether there are sufficient funds in the drawers account to
cover checks issued, and it should be able to detect alterations, erasures, superimpositions or
intercalations thereon, for these instruments are prepared, printed and issued by itself, it has
control of the drawers account, and it is supposed to be familiar with the drawers signature. It
should possess appropriate detecting devices for uncovering forgeries and/or alterations on these
instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer
himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.
PETITIONS for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
433
VOL. 471, SEPTEMBER 30, 2005 433
BPI Family Bank vs. Buenaventura
Bargas, Benedicto, Tale, Verzosa & Associates for petitioner in G.R. No. 148196 and
respondent in G.R. No. 148259.
Ernesto L. Pineda for respondents in G.R. No. 148196and for petitioners in G.R.
No. 148259.
AUSTRIA-MARTINEZ, J.:
Before us are two consolidated petitions for review on certiorari under Rule 45 of the
Rules of Court assailing the Decision of the Court of Appeals (CA) dated November 27,
1
2000 in CA-G.R. CV No. 53962, which affirmed with modification the Decision dated
August 11, 1995 of the Regional Trial Court, Branch 25, Manila (Manila RTC); and the
CA Resolution dated May 3, 2001, which denied the parties separate motions for
reconsideration.
The factual background of the case is as follows:
On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica
(Buenaventura, et al.), all officers of the International Baptist Church and International
Baptist Academy in Malabon, Metro Manila, filed a complaint for Reinstatement of
Current Account/Release of Money plus Damages against BPI Family Bank (BPI-FB)
before the Manila RTC, docketed as Civil Case No. 90-53154. 2
They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB
Check No. 129004 dated August 29, 1989 in the amount of P500,000.00, jointly issued by
Eladio Teves and Joseph Teves; they opened Current Account No. 807-065314-0 with the
3
BPI-FB Branch at Bonifacio Market, Edsa, Caloocan City and deposited the check as
initial deposit; the check was subsequently cleared and the amount was credited to their
Current Account; on September 3, 1989,
_______________
1Penned by Justice Rodrigo V. Cosico and concurred in by Justices Ramon A. Barcelona (now retired) and
Bienvenido L. Reyes.
Records, p. 1.
2
3Id., p. 218.
434
434 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
they drew a check in the amount of P10,171.50 and pursuant to normal banking
procedure the check was honored and debited from their Current Account, leaving a
balance of P490,328.50; on September 4, 1989, they drew another check in the amount of
P46,189.60; instead of debiting the said amount against their Current Account, it was
debited, without their knowledge and consent, against their Savings Account No. 08-
95332-5 with the same branch; on September 9, 1989, they drew a check for P91,270.00
which, upon presentment for payment, was dishonored for the reason account closed, in
spite of the balance in the Current Account of P490,328.50; they thereafter learned from
BPI-FB that their Current Account had been frozen upon instruction of Severino P.
Coronacion, Vice-President of BPI-FB on the ground that the source of fund was illegal or
unauthorized; they demanded the reinstatement of the account, but BPI-FB refused.
On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia,
alleging that there is a pending case for recovery of sum of money arising from the BPI-
FB Check No. 129004 dated August 29, 1989 before the Regional Trial Court (RTC),
Branch 146, Makati and 4 Buenaventura is one of the defendants
therein. Buenaventura, et al. opposed the motion to dismiss on the ground that there is
5
no identity of parties, rights asserted and reliefs prayed between the two cases. 6
_______________
4 Civil Case No. 89-4996, entitled BPI Family Savings Bank, Inc. vs. Tevesteco Arrastre Stevedoring Co.,
Inc., Estrella Reyes, Eladio Teves, Joseph Anthony Teves, Milagros Nayve, Amado Franco, P. Ador A. De Asis,
Manuel Bienvenida, Jr., Alberto Bienvenida, Cynthia Z. Ong, Evangeline Sebastian, Ricardo Lorenzana,
Edgardo Buenaventura, Antonio T. Ong, Harald Merkle, Martin Gerard Teves, Jaime Sebastian, Jesus
Macawili, Arthur Sy, Maria Theresa David, Id., p. 27.
5 Id., p. 19.
6 Id., p. 49.
 435
VOL. 471, SEPTEMBER 30, 2005 435
BPI Family Bank vs. Buenaventura
On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can
be no res judicata between the two cases since the parties are different and the causes of
action are not the same. 7 depositors in the future;
On December 10, 1990, BPI-FB filed its answer alleging that: the check received by
Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves
against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco);
the funds in the said Tevesteco account allegedly consisted mainly of funds in the
amount of P80,000,000.00 transferred to it from another account belonging to the First
Metro Investment Corporation (FMIC); such transfer of funds was effected on the basis of
an Authority to Debit bearing the signatures of certain officers of FMIC; upon its
investigation, BPI-FB found that the signatures in the Authority to Debit were forged;
before this, however, Tevesteco had already issued several checks against its Current
Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et
al. from Amado Franco, after a series of indorsements; it has the right to consider the
Current Account of Buenaventura, et al., which is funded from BPI-FB Check No.
129004, as closed and to refuse any further withdrawal from the same; assuming that the
forgery claim of FMIC is untrue and incorrect, it is the right of the BPI-FB, as a matter
of protecting its interests, to freeze their account or to hold it in suspense and not to
allow any withdrawals therefrom in the meantime that the issue of forgery remains
unsettled; FMIC has instituted another civil action, presently pending appeal, against
BPI-FB and several other defendants for the recovery of the P80,000,000.00 transferred
from the formers account to Tevestecos account. 8
Following trial on the merits, on August 11, 1995, the Manila RTC rendered its
decision, finding that: BPI-FB had no
_______________
7Id., p. 69.
Id., p. 86.
8
436
436 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no
participation in any fraud that may have attended the prior fund transfers from FMIC to
Tevesteco; as holders in good faith and for value of the BPI-FB Check No. 129004, their
rights to the sum embodied in the said check should have been respected; BPI-FBs
unilateral action of freezing the Current Account amounted to an unlawful confiscation of
their property without due process. The dispositive portion of the RTC decision reads as
follows:
WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against
the defendant bank and the latter is ordered as follows:
1. 1.To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs
deposit under Account No. 807-065-313-0 which was unlawfully frozen by the bank and
finally debited against said account with legal rate of interest from date of closure;
2. 2.To pay the sum of P200,000.00 as moral damages;
3. 3.To pay the amount of P200,000.00 as exemplary damages to serve as an example and
lesson to serve as a deterrent for similar action which the bank may take against its
4. 4.To pay the sum of P50,000.00 as attorneys fees.
SO ORDERED. 9
Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been
dismissed for lack of cause of action because it is the International Baptist Academy
which is the owner of the funds deposited with BPI-FB and therefore the real party-in-
interest, although the account is in the name of Buenaventura, et al.; the RTC should not
have ordered the payment of the balance of the Current Account of Buenaventura, et
al. because the latter were interested only in the reinstatement of their Current Account;
the provisions of the Negotiable Instruments Law should not have been applied by the
RTC to support its position that Buenaventura, et al. are
_______________
Id., p. 484.
9
437
VOL. 471, SEPTEMBER 30, 2005 437
BPI Family Bank vs. Buenaventura
the owners of the funds in their Current Account; BPI-FB is entitled to freeze the account
of Buenaventura, et al. and to disallow any withdrawals therefrom as a measure to
protect its interest; BPI-FB, not Buenaventura, et al., is entitled to damages.
On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that
BPI-FB did not act in accordance with law. It ruled that the relationship between the
10
bank and the depositor is that of debtor and creditor and, as such, BPI-FB could not
lawfully refuse to make payments on the checks drawn and issued by Buenaventura, et
al., provided only that there are funds available in the latters deposit. It further declared
that BPI-FB is not justified in freezing the amounts deposited by Buenaventura, et al. for
suspicion of being illegal or unauthorized as a result of the claimed fraud perpetuated
against FMIC because: (a) it has not been sufficiently shown that the funds in the
account of Buenaventura, et al.were derived exclusively from the alleged P80,000,000.00
unlawfully transferred from the funds of FMIC or that the deposit under the name of
Tevesteco consisted exclusively of the said P80,000,000.00 debited from FMICs account;
and (b) there is no clear proof of any involvement of Buenaventura, et al., the
International Baptist Church or International Baptist Academy in the alleged
irregularities attending the fund transfer from FMIC to Tevesteco.
The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no
cause of action since the International Baptist Academy is the real party-in-interest. It
held that since it is undisputed that it is the Current Account of Buenaventura, et
al. which was frozen and closed by BPI-FB, then the former are the parties-in-interest in
the reopening of the said account. It found no error in the Manila RTCs order that BPI-
FB pay the amount of P490,328.50 plus interest
_______________
CA Rollo, p. 207.
10
438
438 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
directly to Buenaventura, et al. since the reinstatement of the Current Account would
mean the same thing as the payment of the balance; Buenaventura, et al. would
necessarily have the right to withdraw their deposit if and when they see it fit.
Furthermore, the CA held that the RTCs disposition falls under the general prayer of
Buenaventura, et al. for such other reliefs as may be just and equitable under the
attendant circumstances.
With regard to award of damages, the CA sustained the award of moral damages and
attorneys fees, holding that BPI-FBs actuations were established to have caused
Buenaventura, et al. to incur the distrust of their Baptist brethren, besides suffering
mental anguish, serious anxiety, wounded feelings, and moral shock but found no basis
for the award of exemplary damages of P200,000.00 for lack of showing that BPI-FB was
not animated by any wanton, fraudulent, reckless, oppressive or malevolent intent.
Both parties filed separate motions for reconsideration. Buenaventura, et al. sought
reconsideration of the deletion of the award of exemplary damages. On the other hand,
11
BPI-FB reiterated its argument that the International Baptist Academy is the real party-
in-interest. It also assailed the findings and conclusions of the CA. 12
On May 3, 2001, the CA denied both motions for reconsideration. 13
Hence, the present two consolidated petitions for review on certiorari.
In G.R. No. 148196, BPI-FB ascribes six errors upon the CA, to wit:
I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are
the real parties-in-interest
_______________
11 Id., p. 230.
12 Id., p. 214.
13 Id., p. 245.
439
VOL. 471, SEPTEMBER 30, 2005 439
BPI Family Bank vs. Buenaventura
in this case contrary to the admissions of respondents themselves that it is the International
Baptist Academy who is the owner of the funds in question and hence it is and out to be the real
party in interest in this case.
II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing
respondents complaint for lack of cause of action.
III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a
misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow any
withdrawal therefrom as a measure to protect its interest.
IV. The Honorable Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with
BPI-FB under the name of the respondents were derived exclusively from the alleged 80 million
pesos unlawfully transferred from the funds of FMIC or that the deposit under the name of
Tevesteco consisted exclusively of the said 80 million pesos debited from FMICs account.
V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding
the position of BPI-FB on the freezing of respondents current account when it held that there was
no clear proof of any involvement by the respondents with the alleged irregularities attending the
fund transfer from FMIC to Tevesteco.
VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect,
that there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents
directly the balance of their account plus interest although their prayer in their complaint was only
to reinstate their current account. 14
Anent the first and second grounds, BPI-FB maintains that the complaint should have
been dismissed for lack of cause of action because Buenaventura et al. admit that the
International Baptist Academy is the owner of the funds in question and therefore the
real party-in-interest to prosecute the action.
_______________
Rollo, G.R. No. 148196, pp. 28-29.
14
440
440 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
On the third ground, BPI-FB asserts that it has the right to consider the account of
Buenaventura, et al. as frozen and to refuse any withdrawals from the same because of
the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and correct, the
amount transferred from FMICs account to Tevestecos account is the money of BPI-FB
under the principle that a bank is deemed to have disbursed its own funds. It submits
that as an original owner who is restored in possession of stolen property, it has a better
right over such property than a mere transferee no matter how innocent the latter may
be.
Concerning the fourth ground, BPI-FB submits that ample proof was presented by it
that the deposit under the name of Tevesteco consisted exclusively of the P80,000,000.00
debited from FMICs account and the funds in deposit with BPI-FB under the name of
Buenaventura, et al. were derived exclusively from the P80,000,000.00 unlawfully
transferred from the funds of FMIC.
With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any
involvement by Buenaventura, et al. in the alleged irregularities attending the fund
transfer from FMIC to Tevesteco. It insists, however, that the freezing of the account was
triggered by the forgery claim of FMIC and the unauthorized fund transfer to Tevesteco
based on the principle that a bank is deemed to have disbursed its own funds, and not its
depositors, where the authority for such disbursement is a forgery and null and void. It
had the right to set up its ownership of the money as against that of Buenaventura, et
al. and to refuse to return the same to them.
As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed
in the alternative for the reinstatement of their Current Account or for payment of the
balance remaining in said account but they subsequently chose to delete that portion
praying for the payment of the balance of their account. It submits that Buenaventura, et
al. deliberately did this to sidestep the other pending case filed
441
VOL. 471, SEPTEMBER 30, 2005 441
BPI Family Bank vs. Buenaventura
against the suspected perpetrators of the fraud, including Amado Franco and
Buenaventura, before RTC, Branch 146, Makati.
In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to
wit:
The Honorable Court of Appeals has decided the case in a way not in accord with law and
applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a
quo. 15
They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner
in freezing, and subsequently closing, their account without prior notification. They
insist that BPI-FB failed in its obligation, as an entity engaged in business affected with
public interest, to treat the accounts of its depositors with meticulous care, having in
mind the fiduciary nature of their relationship. Moreover, as if to compound its reckless
conduct, BPI-FB declared itself the owner of the money which the depositors have placed
in its care, freezing and later closing the depositors account, all before due notice and
without first giving the latter the opportunity to properly present their side or at least
sufficient time to direct their course of action, like refraining from issuing any check, to
eventually save themselves from any embarrassment and/or possible criminal
prosecution for estafa or violation of Batas Pambansa Blg. 22.
We rule in favor of Buenaventura, et al.
It is elementary that it is only in the name of a real partyin-interest that a civil suit
may be prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-
in-interest is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit. Interest within the meaning of the rule
means material interest, an interest in issue and to be affected by the decree, as
distinguished from mere interest in the ques-
_______________
Rollo, G.R. No. 148259, p. 12.
15
442
442 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
tion involved, or a mere incidental interest. One having no right or interest to protect
16
cannot invoke the jurisdiction of the court as a party plaintiff in an action. To qualify a
17
person to be a real party-in-interest in whose name an action must be prosecuted, he
must appear to be the present real owner of the right sought to be enforced. Since a 18
contract may be violated only by the parties thereto as against each other, in an action
upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must
be parties to the said contract. 19
In the present case, Buenaventura, et al. are the real parties-in-interest. They are the
parties who contracted with BPI-FB with regard to the Current Account. While the funds
were used for purposes of the International Baptist Church and the International Baptist
Academy, it must be noted that the Current Account is in the name of Buenaventura, et
al. They are the signatories of the check which was dishonored by BPI-FB upon
presentment and the ones who will be held accountable for the nonpayment or dishonor
of any check they issued. Thus, they are the real parties-in-interest to enforce the terms
of the contract of deposit with BPI-FB.
Furthermore, BPI-FB has no unilateral right to freeze the current account of
Buenaventura, et al. based on the suspicion that the funds in the latters account are
illegal or unauthor-
_______________
Abella, Jr. vs. Civil Service Commission, G.R. No. 152574, November 17, 2004, 442 SCRA 507, 521; Tan
16
vs. Court of Appeals, G.R. No. 127210, August 7, 2003, 408 SCRA 470, 475-76; VSC Commercial Enterprises,
Inc. vs. Court of Appeals, G.R. No. 121159, December 16, 2002, 394 SCRA 74, 79.
17Abella, Jr. vs. Civil Service Commission, supra; Shipside, Inc. vs. Court of Appeals, G.R. No. 143377,
February 20, 2001, 352 SCRA 334, 349; Ralla vs. Ralla, G.R. No. 78646, July 23, 1991, 199 SCRA 495, 499.
Shipside, Inc. vs. Court of Appeals, supra.
18
19Vidal vs. Escueta, G.R. No. 156228, December 10, 2003, 417 SCRA 617, 634; Uy vs. Court of Appeals, G.R.
No. 120465, September 9, 1999, 314 SCRA 69, 77.
443
VOL. 471, SEPTEMBER 30, 2005 443
BPI Family Bank vs. Buenaventura
ized having been sourced from the unlawful transfer of funds from the account of FMIC
to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest.
Needless to stress, the contract between a bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Thus, there is a debtor-creditor relationship
20
between a bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on
demand. The savings or current deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the parties.
Every bank that issues checks for the use of its customers should know whether or
not the drawers signature thereon is genuine, whether there are sufficient funds in the
drawers account to cover checks issued, and it should be able to detect alterations,
erasures, superimpositions or intercalations thereon, for these instruments are prepared,
printed and issued by itself, it has control of the drawers account, and it is supposed to
be familiar with the drawers signature. It should possess appropriate detecting devices
for uncovering forgeries and/or alterations on these instruments. Unless a forgery or
alteration is attributable to the fault or negligence of the drawer himself, the remedy of
the drawee bank that negligently clears a forged and/or altered check for payment is
against the party responsible for the forgery or alteration, otherwise, it bears the loss.
21
There is nothing inequitable in such a rule for if in the regular course of business the
check comes to the drawee
_______________
 20Article 1980 of the Civil Code expressly provides: Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loan.
21Republic Bank vs. Court of Appeals, G.R. No. 42725, April 22, 1991, 196 SCRA 100, 106, citing Hongkong
& Shanghai Banking Corp. vs. Peoples Bank & Trust Co., G.R. No. L-28226, September 30, 1970, 35 SCRA 140.
444
444 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
bank which, having the opportunity to ascertain its character, pronounces it to be valid
and pays it, as in this case, it is not only a question of payment under mistake, but
payment in neglect of duty which the commercial law places upon it, and the result of its
negligence must rest upon it. 22
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB
should bear the loss and cant shift the blame to Buenaventura, et al. having failed to
show any participation on their part in the forgery. BPI-FB fails to point any
circumstance which should have put Buenaventura, et al. on inquiry as to the why and
wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not
privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no
obligation to ascertain from Franco what the nature of the latters title to the checks was,
if any, or the nature of his possession. They cannot be guilty of gross neglect amounting
to legal absence of good faith, absent any showing that there was something amiss about
Francos acquisition or possession of the check, which was payable to bearer. 23
Thus, the fact that the funds in deposit with BPI-FB under the name of
Buenaventura, et al. were allegedly derived exclusively from the alleged P80,000,000.00
unlawfully transferred from the funds of FMIC or that the deposit under the name of
Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs
account is immaterial. These circumstances cannot be used against a party not privy to
the forgery.
There is no merit to the claim that the CA erred in affirming the RTCs order
directing BPI-FB to pay the balance of
_______________
22Republic Bank vs. Court of Appeals, supra; Philippine National Bank vs. Quimpo, G.R. No. L-53194,
March 14, 1988, 158 SCRA 582, 584.
23Yang vs. Court of Appeals, G.R. No. 138074, August 15, 2003, 409 SCRA 159, 170; See also Ozark Motor
Co. vs. Horton, 196 SW 395; Davis vs. First National Bank, 26 Ariz. 621, 229 P. 391.
445
VOL. 471, SEPTEMBER 30, 2005 445
BPI Family Bank vs. Buenaventura
their account plus interest although the prayer was only to reinstate their Current
Account. The complaint does contain a general prayer for such other relief as may be
just and equitable in the premises. And this general prayer is broad enough to justify
extension of a remedy different from or together with the specific remedy
sought. Indeed, a court may grant relief to a party, even if the party awarded did not
24
pray for it in his pleadings. 25
As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that
the CA erred in deleting the award of exemplary damages. The law allows the grant of
exemplary damages to set an example for the public good. The business of a bank is
26
affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. For this reason, the bank should guard
27
against injury attributable to negligence or bad faith on its part. The award of 28
exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly
disregard their obligation to exercise the highest and strictest diligence in serving their
depositors. However, the award should be in a reduced amount of P50,000.00 since
exemplary damages are imposed not to enrich one party or impoverish
_______________
24Morales vs. Court of Appeals, G.R. No. 112140, June 23, 2005, citing Schenker vs. Gemperle, No. L-16449,
August 31, 1962, 5 SCRA 1042, 1047.
25Morales vs. Court of Appeals, supra; First Metro Investment Corporation vs. Este Del Sol Mountain
Reserve, Inc., G.R. No. 141811, November 15, 2001, 369 SCRA 99, 116.
26Article 2229 of the Civil Code provides: Exemplary or corrective damages are imposed, by way of example
or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.
27Philippine Banking Corporation vs. Court of Appeals, G.R. No. 127469, January 15, 2004, 419 SCRA 487,
506; United Coconut Planters Bank vs. Ramos, G.R. No. 147800, November 11, 2003, 415 SCRA 596, 609.
Ibid.
28
446
446 SUPREME COURT REPORTS ANNOTATED
BPI Family Bank vs. Buenaventura
another but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions. 29
In summation, the Court reminds BPI-FB that the banking sector must at all times
maintain a high level of meticulousness, always having in mind the fiduciary nature of
its relationship with its depositors. This fiduciary relationship means that the banks
30
obligation to observe high standards of integrity and performance is deemed written
into every deposit agreement between a bank and its depositor. Failure to comply with
this standard shall render a bank liable to its depositors for damages.
WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R.
No. 148259 is GRANTED. The assailed Decision dated November 27, 2000 and
Resolution dated May 3, 2001 of the Court of Appeals in CA-G.R. CV No. 53962, which
affirmed with modification the Decision ren-
_______________
29Victory Liner vs. Heirs of Malecdan, G.R. No. 154278, December 27, 2002, 394 SCRA 520-528; Bataan
Seedling Association, Inc. vs. Republic, G.R. No. 141009, July 2, 2002, 383 SCRA 590, 600-601; Philippine
National Bank vs. Court of Appeals, G.R. No. 116181, April 17, 1996, 256 SCRA 309, 323.
30The General Banking Law of 2000 (Republic Act No. 8791), which took effect on June 13, 2000, or more
than ten years after the freezing of the current account of Buenaventura, et al., declares under Section 2 thereof
that the State recognizes the fiduciary nature of banking that requires high standards of integrity and
performance. See Simex International vs. Court of Appeals, G.R. No. 88013, March 19, 1990, 183 SCRA
360; Bank of the Philippine Islands vs. Intermediate Appellate Court, G.R. No. 69162, February 21, 1992, 206
SCRA 408; Citytrust Banking Corporation vs. Intermediate Appellate Court, G.R. No. 84281, May 27, 1994, 232
SCRA 559; Tan vs. Court of Appeals, G.R. No. 108555, December 20, 1994, 239 SCRA 310; Metropolitan Bank &
Trust Co. vs. Court of Appeals, G.R. No. 112576, October 26, 1994, 237 SCRA 761; Philippine Bank of Commerce
vs. Court of Appeals, G.R. No. 97626, March 14, 1997, 269 SCRA 695, 699; Firestone Tire & Rubber Co. of the
Phils. vs. Court of Appeals, G.R. No. 113236, March 5, 2001, 353 SCRA 601.

447
VOL. 471, SEPTEMBER 30, 2005 447
People vs. Padrones
dered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil
Case No. 90-53154, are hereby AFFIRMED with the MODIFICATION that BPI Family
Bank is directed to pay Buenaventura, et al. the amount of P50,000.00 as exemplary
damages. Costs against BPI Family Bank.
SO ORDERED.
Puno (Chairman), Callejo, Sr., Tinga and Chico-Nazario, JJ., concur.
Petition in G.R. No. 148196 denied, petition in G.R. No. 148259 granted. Assailed
decision and resolution affirmed with modification.
Note.If one who is not a real party-in-interest brings the action, the suit is
dismissible for lack of cause of action. (Pascual vs. Court of Appeals, 409 SCRA
105 [2003])
o0o
31. G.R. No. 158143. September 21, 2011.*
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. ANTONIO B.
BALMACEDA and ROLANDO N. RAMOS, respondents.
Appeals; An exception to the rule that petitions for review on certiorari only involve questions of law
is when the findings of fact in the tribunals below are conflicting, in which case the Supreme Court
can delve into evidence and the factual circumstance of the case, and when the exception applies, the
Court is given latitude to review the evidence on record to decide the case with finality.At the
outset, we observe that the petition raises mainly questions of fact whose resolution requires the
re-examination of the evidence on record. As a general rule, petitions for review on certiorari only
involve questions of law. By way of exception, however, we can delve into evidence and the factual
circumstance of the case when the findings of fact in the tribunals below (in this case between
those of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude
to review the evidence on record to decide the case with finality.
Actions; Evidence; Quantum of Proof; Words and Phrases; Preponderance of Evidence, Explained;
Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side
and is usually considered to be synonymous with the term greater weight of the evidence or
greater weight of the credible evidencepreponderance of evidence is a phrase which, in the last
analysis, means probability of the truth, evidence which is more convincing to the court as worthy of
belief than that which is offered in opposition thereto.In civil cases, the party carrying the burden
of proof must establish his case by a preponderance of evidence, or evidence which, to the court, is
more worthy of belief than the evidence offered in opposition. This Court, in Encinas v. National
Bookstore, Inc., 443 SCRA 293 (2004), defined preponderance of evidence in the following
manner: Preponderance of evidence is the weight, credit, and value of the aggregate evidence on
either side and is usually considered to be synonymous with the term greater weight of the
evidence or greater weight of the credible evidence.
_______________
* SECOND DIVISION.
34
34 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It
is evidence which is more convincing to the court as worthy of belief than that which is offered in
opposition thereto. The party, whether the plaintiff or the defendant, who asserts the affirmative of
an issue has the onus to prove his assertion in order to obtain a favorable judgment, subject to the
overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the
defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in
the plaintiff's cause of action, but one which, if established, will constitute an avoidance of the
claim.
Same; Same; Same; Even if the evidence adduced by the plaintiff appears stronger than that
presented by the defendant, a judgment cannot be entered in the plaintiffs favor if his evidence still
does not suffice to sustain his cause of action.Given that PCIB failed to establish Ramos
participation in Balmacedas scheme, it was not even necessary for Ramos to provide an
explanation for the money he received from Balmaceda. Even if the evidence adduced by the
plaintiff appears stronger than that presented by the defendant, a judgment cannot be entered in
the plaintiffs favor if his evidence still does not suffice to sustain his cause of action; to reiterate, a
preponderance of evidence as defined must be established to achieve this result.
Banks and Banking; Negotiable Instruments Law; Checks; Crossed Checks; Words and Phrases; A
crossed check is one where two parallel lines are drawn across its face or across its corner; The
crossing of a check has the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only onceto the one who has an account with the bank;
and (c) the act of crossing the check serves as a warning to the holder that the check has been issued
for a definite purpose and he must inquire if he received the check pursuant to this purpose;
otherwise, he is not a holder in due course.Another telling indicator of PCIBs negligence is the
fact that it allowed Balmaceda to encash the Managers checks that were plainly crossed
checks. A crossed check is one where two parallel lines are drawn across its face or across its
corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check
may not be encashed but only deposited in the bank; (b) the check may be negotiated only
onceto the
35
VOL. 658, SEPTEMBER 21, 2011 35
Philippine Commercial International Bank vs. Balmaceda
one who has an account with the bank; and (c) the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose and he must inquire if he received
the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the
crossing of a check is a warning that the check should be deposited only in the account of the
payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the
check is only deposited to the payees account. In complete disregard of this duty, PCIBs
systems allowed Balmaceda to encash 26 Managers checks which were all crossed checks, or
checks payable to the payees account only.
Same; Same; Same; The diligence required of banks is more than that of a Roman pater familias or
a good father of a familythe highest degree of diligence is expected.The General Banking Law of
2000 requires of banks the highest standards of integrity and performance. The banking business
is impressed with public interest. Of paramount importance is the trust and confidence of the
public in general in the banking industry. Consequently, the diligence required of banks is more
than that of a Roman pater familias or a good father of a family. The highest degree of diligence is
expected.
Equity; Unjust Enrichment; To substantiate a claim for unjust enrichment, the claimant must
unequivocally prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to keep the
benefit.To have a cause of action based on unjust enrichment, we explained in University of the
Philippines v. Philab Industries, Inc., 439 SCRA 467 (2004), that: Unjust enrichment claims do not
lie simply because one party benefits from the efforts or obligations of others, but instead it must
be shown that a party was unjustly enriched in the sense that the term unjustly could mean
illegally or unlawfully. Moreover, to substantiate a claim for unjust enrichment, the claimant must
unequivocally prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to keep the
benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration
of or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake,
fraud, coercion,
36
36 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution.
Banks and Banking; Compensation; A bank does not have a unilateral right to freeze the account of
a depositor based on its mere suspicion that the funds therein were proceeds of some shady
transactions; For legal compensation to take place, two persons, in their own right, must first be
creditors and debtors of each other.We also find that PCIB acted illegally in freezing and debiting
Ramos bank account. In BPI Family Bank v. Franco, 538 SCRA 184 (2007), we cautioned against
the unilateral freezing of bank accounts by banks, noting that: More importantly, [BPI Family
Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion
that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved
in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry. We see no legal merit in PCIBs claim that
legal compensation took place between it and Ramos, thereby warranting the automatic deduction
from Ramos bank account. For legal compensation to take place, two persons, in their own right,
must first be creditors and debtors of each other. While PCIB, as the depositary bank, is Ramos
debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB
adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank
account.
Same; Damages; One may err, but error alone is not a ground for granting moral damages.
Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB
liable for moral and exemplary damages. Since a contractual relationship existed between Ramos
and PCIB as the depositor and the depositary bank, respectively, the award of moral damages
depends on the applicability of Article 2220 of the Civil Code, which provides: Article 2220. Willful
injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith. [emphasis ours] Bad faith does not
simply connote bad judg-
37
VOL. 658, SEPTEMBER 21, 2011 37
Philippine Commercial International Bank vs. Balmaceda
ment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
commission of a wrong; it partakes of the nature of fraud. As the facts of this case bear out, PCIB
did not act out of malice or bad faith when it froze Ramos bank account and subsequently debited
the amount of P251,910.96 therefrom. While PCIB may have acted hastily and without regard to
its primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity,
we find that its actions were propelled more by the need to protect itself, and not out of
malevolence or ill will. One may err, but error alone is not a ground for granting moral damages.
Attorneys Fees; Taking into consideration the time and efforts involved that went into this case, the
Court increases the award of attorneys fees from P20,000.00 to P75,000.00.We deem it just and
equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into
consideration the time and efforts involved that went into this case, we increase the award of
attorneys fees from P20,000.00 to P75,000.00.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Musico Law Office for respondent Rolando Ramos.
BRION,** J.:
Before us is a petition for review on certiorari,1 filed by the Philippine Commercial
International Bank2 (Bank or PCIB), to reverse and set aside the decision3 dated April 29,
2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69955. The CA
_______________
** Designated as Acting Chairperson in lieu of Associate Justice Antonio T. Carpio per Special Order No. 1083
dated September 13, 2011.
1 Rollo, pp. 16-36.
2 Now the Equitable PCI Bank.
3 Penned by Associate Justice Eugenio S. Labitoria, and concurred in by Associate Justices Andres B. Reyes,
Jr. and Regalado E. Maambong; Rollo, pp. 38-49.
38
38 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
overturned the September 22, 2000 decision of the Regional Trial Court (RTC) of Makati
City, Branch 148, in Civil Case No. 93-3181, which held respondent Rolando Ramos
liable to PCIB for the amount of P895,000.00.
Factual Antecedents
On September 10, 1993, PCIB filed an action for recovery of sum of money with damages
before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila
branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by
taking advantage of his position as branch manager, fraudulently obtained and encashed
31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two
Thousand One Hundred Fifty Pesos (P10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to
implead Rolando Ramos as one of the recipients of a portion of the proceeds from
Balmacedas alleged fraud. PCIB also increased the number of fraudulently obtained and
encashed Managers checks to 34, in the total amount of Eleven Million Nine Hundred
Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted
this motion.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand,
Ramos filed an Answer denying any knowledge of Balmacedas scheme. According to
Ramos, he is a reputable businessman engaged in the business of buying and selling
fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money
from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but
maintained that he had no knowledge of the source of Balmacedas money. 39
VOL. 658, SEPTEMBER 21, 2011 39
Philippine Commercial International Bank vs. Balmaceda
The RTC Decision
On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following
dispositive portion:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:
1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with interest
thereon at the legal rate from [the] date of his misappropriation of the said amount until full
restitution shall have been made[.]
2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at the legal
rate from the date of misappropriation of the said amount until full restitution shall have been
made[.]
3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and
attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to
be recovered.
4. Plus costs of suit.
SO ORDERED. 4
From the evidence presented, the RTC found that Balmaceda, by taking undue
advantage of his position and authority as branch manager of the Sta. Cruz, Manila
branch of PCIB, successfully obtained and misappropriated the banks funds by falsifying
several commercial documents. He accomplished this by claiming that he had been
instructed by one of the Banks corporate clients to purchase Managers checks on its
behalf, with the value of the checks to be debited from the clients corporate bank
account. First, he would instruct the Bank staff to prepare the application forms for the
purchase of Managers checks, payable to several persons. Then, he would forge the
signature of the clients authorized representative on these forms and sign the forms as
PCIBs approving
_______________
4 Id., at p. 59.
40
40 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
officer. Finally, he would have an authorized officer of PCIB issue the Managers checks.
Balmaceda would subsequently ask his subordinates to release the Managers checks to
him, claiming that the client had requested that he deliver the checks.5 After receiving
the Managers checks, he encashed them by forging the signatures of the payees on the
checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although
the Managers checks payable to Ramos were crossed checks, Balmaceda was still able to
encash the checks.6 After Balmaceda encashed three of these Managers checks, he
deposited most of the money into Ramos account.7 The RTC concluded that from the
P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actually went
to Ramos. Since the RTC disbelieved Ramos allegation that the sum of money deposited
into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting
cocks, it held Ramos liable to pay PCIB the amount of P895,000.00.
The Court of Appeals Decision
On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient
evidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulent
manipulations.8
_______________
5 Id., at pp. 51-52.
6 Id., at p. 54.
7 Balmaceda encashed PCIB Managers Check No. 017979 dated February 28, 1992 in the amount of
P250,000.00, and deposited P200,000.00 into Ramos PCIB bank account, maintained in the Banks Pasig
branch, while he took P50,000.00. Balmaceda also encashed PCIB Managers Check No. 019340 dated October
1992 in the amount of P425,000.00, and PCIB Managers Check No. 019708 dated November 27, 1992 in the
amount of P480,000.00, and deposited these amounts in Ramos PCIB bank account, although he kept
P10,000.00 from the latter check.
8 Decision, dated April 29, 2003; supra note 3.
41
VOL. 658, SEPTEMBER 21, 2011 41
Philippine Commercial International Bank vs. Balmaceda
According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the
Managers checks does not suffice to prove that Ramos was complicit in Balmacedas
fraudulent scheme. It observed that other persons were also named as payees in the
checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos.
With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal
and factual basis exists to hold him liable.
The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from
Ramos bank account. The CA thus decreed:
WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22,
2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below against
him is DISMISSED.
Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus interest
at [the] legal rate computed from September 30, 1993 until appellee shall have fully complied
therewith.
Appellee is likewise ordered to pay appellant Ramos the following:
a) P50,000.00 as moral damages
b) P50,000.00 as exemplary damages, and
c) P20,000.00 as attorneys fees.
No costs.
SO ORDERED. 9
 The Petition
In the present petition, PCIB avers that:
_______________
9 Supra note 3, at p. 48.
42
42 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
I liable for the return of this money to the Bank.
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD
THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT BALMACEDA
II
THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE
AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS FEES 10
PCIB contends that the circumstantial evidence shows that Ramos had knowledge of,
and acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramos
explanation that he is a businessman and that he received the Managers checks as
payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum
of money involved. While Ramos presented evidence that he is a reputable businessman,
this evidence does not explain why the Managers checks were made payable to him in
the first place.
PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from
Ramos bank account, even without his consent, since legal compensation had taken
place between them by operation of law. PCIB debited Ramos bank account, believing in
good faith that Ramos was not entitled to the proceeds of the Managers checks and was
actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable
for moral and exemplary damages.
Our Ruling
We partly grant the petition.
At the outset, we observe that the petition raises mainly questions of fact whose
resolution requires the re-examination of the evidence on record. As a general rule,
petitions for re-
_______________
10 Supra note 1, at p. 22.
43
VOL. 658, SEPTEMBER 21, 2011 43
Philippine Commercial International Bank vs. Balmaceda
view on certiorari only involve questions of law.11 By way of exception, however, we can
delve into evidence and the factual circumstance of the case when the findings of fact in
the tribunals below (in this case between those of the CA and of the RTC) are conflicting.
When the exception applies, we are given latitude to review the evidence on record to
decide the case with finality.12
Ramos participation in
Balmacedas scheme not proven
From the testimonial and documentary evidence presented, we find it beyond question
that Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta.
Cruz, Manila branch, was able to apply for and obtain Managers checks drawn against
the bank account of one of PCIBs clients. The unsettled question is whether Ramos, who
received a portion of the money that Balmaceda took from PCIB, should also be held
PCIB insists that it presented sufficient evidence to establish that Ramos colluded with
Balmaceda in the scheme to fraudulently secure Managers checks and to misappropriate
their proceeds. Since Ramos defenseanchored on mere denial of any participation in
Balmacedas wrongdoingis an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish his case by a
preponderance of evidence, or evidence which, to the court, is more worthy of belief than
the evidence
_______________
11 RULES OF COURT, Rule 45, Section 1.
12 F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc., G.R. No. 171238, February 2,
2011, 641 SCRA 390; and McDonalds Corporation v. L.C. Big Mak Burger, Inc., 480 Phil. 402; 437 SCRA 10
(2004).
44
44 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
offered in opposition.13 This Court, in Encinas v. National Bookstore, Inc.,14 defined
preponderance of evidence in the following manner:
Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term greater weight of the evidence or
greater weight of the credible evidence. Preponderance of evidence is a phrase which, in the last
analysis, means probability of the truth. It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto.
The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue
has the onus to prove his assertion in order to obtain a favorable judgment, subject to the
overriding rule that the burden to prove his cause of action never leaves the plaintiff. For
the defendant, an affirmative defense is one that is not merely a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will constitute
an avoidance of the claim.15
Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive
assertion that Ramos conspired with Balmaceda in perpetrating the latters scheme to
defraud the Bank. In PCIBs estimation, it successfully accomplished this through the
submission of the following evidence:
[1] Exhibits A, D, PPPP, QQQQ, and RRRR and their submarkings, the
application forms for MCs, show that [these MCs were applied for in favor of Ramos;]
[2] Exhibits K, N, SSSS, TTTT, and UUUU and their submarkings prove that Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the
application form?
the MCs were issued in favor of x x x Ramos[; and] A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by the
_______________ client and his signature representing that, he certified the signature based on their records to be authentic.
13 RULES OF COURT, Rule 133, Section 1. Q: When you said he to whom are you referring to?
14 485 Phil. 683, 695; 443 SCRA 293, 302 (2004). A: Mr. Balmaceda. And at the same time he approved the transaction.
xxxx
15 Bank of the Philippine Islands v. Royeca, G.R. No. 176664, July 21, 2008, 559 SCRA 207.
Q: Do you know if the corresponding checks applied for in the application forms were issued?
45 A: Yes sir.47
VOL. 658, SEPTEMBER 21, 2011 45 VOL. 658, SEPTEMBER 21, 2011 47
Philippine Commercial International Bank vs. Balmaceda Philippine Commercial International Bank vs. Balmaceda
[3] [T]estimonies of the witness for [PCIB].16
We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of Q: Could you please show us where these checks are now, the one applied for in Exhibit A which is in the amount of
P150,000.00, where is the corresponding check?
proof that PCIB carries as plaintiff. A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmacedas
On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a signature.
Q: In other words he is likewise approving signatory to the Managers check?
payee when he filled up the application forms for the Managers checks. But, as the CA A: Yes sir. This is an authority that the check [has] been encashed.
correctly observed, the mere fact that Balmaceda made Ramos the payee on some of the Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he allowed to
encash by granting it.
Managers checks is not enough basis to conclude that Ramos was complicit in Could you please show us?
Balmacedas fraud; a number of other people were made payees on the other Managers ATTY. PACES: Witness pointing to an initial of the defendant
checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other Antonio Balmaceda, the notation cross check.
A: And this is his signature.
evidence pointing to Ramos participation that would justify his separate treatment from xxxx
the others. Also, while Ramos is Balmacedas brother-in-law, their relationship is not Q: How about the check corresponding to Exhibit E-2 which is an application for P125,000.00 for a certain Rolando Ramos. Do
you have the check?
sufficient, by itself, to render Ramos liable, absent concrete proof of his actual A: Yes sir.
participation in the fraudulent scheme. ATTY. PACES: Witness producing a check dated December 19,
1991 the amount of P125,000.00 payable to certain
Moreover, the evidence on record clearly shows that Balmaceda acted on his own when Rolando Ramos.
he applied for the Managers checks against the bank account of one of PCIBs clients, as Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as he is concerned?
well as when he encashed the fraudulently acquired Managers checks. A: Yes sir he is also the right signer and he authorized the cancellation of the cross check. 17 (emphasis ours)
xxxx
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, _______________
17 TSN, September 16, 1993, pp. 8-17.
testified that Balmaceda committed all the acts necessary to obtain the unauthorized 48

Managers checksfrom filling up the application form by forging the signature of the 48 SUPREME COURT REPORTS ANNOTATED
clients representative, to forging the signatures of the payees in order to encash the Philippine Commercial International Bank vs. Balmaceda
checks. As Mrs. Costes stated in her testimony:
Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making unauthorized Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again any participation in
withdrawals from particular account of a client or a these checks?
_______________
16 Supra note 1, at p. 25.
A: He is also the right signer and approved officer and he was authorized to debit on file.
46 xxxx
Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were subsequently encashed?
46 SUPREME COURT REPORTS ANNOTATED A: Yes sir.
Philippine Commercial International Bank vs. Balmaceda Q: Were you able to find out who encashed?
A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the
client of yours at Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals?
encashment of the check.
A: He prevailed upon the domestic remittance clerk to prepare the application of a Managers check which [has] been debited
xxxx
to a clients account. This particular Managers check will be payable to a certain individual thru his account as the instruction
Q: Do you know if this particular person having in fact withdraw or received the proceeds of [these] particular checks, the
of the client.
payee?
Q: What was your findings in so far as the particular alleged instruction of a client is concerned?
A: No sir.
A: We found out that he forged the signature of the client.
Q: It was all Mr. Balmaceda dealing with you?
Q: On that particular application?
A: Yes sir.
A: Yes sir.
Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging
Q: Showing to you several applications for Managers Check previously attached as Annexes A, B, C, D and E[] of the
the payees signature?
complaint. Could you please tell us where is that particular alleged signature of a client applying for the Managers check
A: Yes sir.18 (emphases ours)
which you claimed to have been forged by Mr. Balmaceda?
A: Here sir. Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila
xxxx branch at the time the events of this case occurred, confirmed Mrs. Costes testimony by
stating that it was Balmaceda who forged Ramos signature on the Managers
checks where Ramos was the payee, so as to encash the amounts indicated on
the checks.19 Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta.
Cruz, Manila branch to encash the checks since Balmaceda was the one who
deposited the checks into
_______________
18 Id., at pp. 24-26.
19 TSN, June 24, 1997, pp. 15-17.
49
VOL. 658, SEPTEMBER 21, 2011 49
Philippine Commercial International Bank vs. Balmaceda
Ramos bank account. As revealed during Mrs. Lafortezas cross-examination:
Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client go to the
bank to encash these checks?
A: No it is Balmaceda who is depositing in his behalf.
Q: Did my client ever call up the bank concerning this amount?
A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.
Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to
the account of my client?
A: Yes.20 (emphases ours)
Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos
encashed a Managers check for P480,000.00, could only testify that the money was
deposited into Ramos PCIB bank account. She could not attest that Ramos himself
presented the Managers check for deposit in his bank account.21 These testimonies
clearly dispute PCIBs theory that Ramos was instrumental in the encashment of the
Managers checks.
We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums
of money into his bank account as payment for the fighting cocks that Balmaceda
purchased from him. Ramos presented two witnessesVicente Cosculluela and Crispin
Gadapanwho testified that Ramos previously engaged in the business of buying and
selling fighting cocks, and that Balmaceda was one of Ramos biggest clients.
Quoting from the RTC decision, PCIB stresses that Ramos own witness and business
partner, Cosculluela, testified that
_______________
20 Id., at p. 77.
21 TSN, January 28, 1999, pp. 7-13.
50
50 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
the biggest net profit he and Ramos earned from a single transaction with Balmaceda
amounted to no more than P100,000.00, for the sale of approximately 45 fighting
cocks.22 In PCIBs view, this testimony directly contradicts Ramos assertion that he
received approximately P400,000.00 from his biggest transaction with Balmaceda. To
PCIB, the testimony also renders questionable Ramos assertion that Balmaceda
deposited large amounts of money into his bank account as payment for the fighting
cocks.
On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the
testimony shows that Cosculluela specifically referred to the net profit that they earned
from the sale of the fighting cocks;23 PCIB apparently did not take into account the
capital, transportation and other expenses that are components of these transactions.
Obviously, in sales transactions, the buyer has to pay not only for the value of the thing
sold, but also for the shipping costs and other incidental costs that accompany the
acquisition of the thing sold. Thus, while the biggest net profit that Ramos and
Cosculluela earned in a single transaction amounted to no more than P100,000.00,24 the
inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses
(i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant
expenses could account for the P400,000.00 that Balmaceda deposited into Ramos bank
account.
Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was
not even necessary for Ramos to provide an explanation for the money he received from
Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that
presented by the defendant, a judgment cannot be entered in the plaintiffs favor if his
evidence still
_______________
22 TSN, August 6, 1998, p. 28.
23 Id., at p. 29.
24 Id., at p. 30.
51
VOL. 658, SEPTEMBER 21, 2011 51
Philippine Commercial International Bank vs. Balmaceda
does not suffice to sustain his cause of action; 25 to reiterate, a preponderance of evidence
as defined must be established to achieve this result.
PCIB itself at fault as employer
In considering this case, one point that cannot be disregarded is the significant role that
PCIB played which contributed to the perpetration of the fraud. We cannot ignore that
Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB
employees failed to carry out their assigned tasksflaws imputable to PCIB itself as the
employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at
the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda
broke the Banks protocol when he ordered the Banks employees to fill up the application
forms for the Managers checks, to be debited from the bank account of one of the banks
clients, without providing the necessary Authority to Debit from the client.26 PCIB also
admitted that these Managers checks were subsequently released to Balmaceda, and not
to the clients representative, based solely on Balmacedas word that the client had
tasked him to deliver these checks.27
Despite Balmacedas gross violations of bank proceduresmainly in the processing of the
applications for Managers checks and in the releasing of the Managers checks
Balmacedas co-employees not only turned a blind eye to his actions, but actually
complied with his instructions. In this way, PCIBs own employees were unwitting
accomplices in Balmacedas fraud.
_______________
25 Ong v. Yap, 492 Phil. 188, 197; 452 SCRA 41, 50 (2005), citing United Airlines, Inc. v. Court of Appeals, G.R.
No. 124110, April 20, 2001, 357 SCRA 99, 106-107.
26 TSN, September 13, 1996, p. 21.
27 RTC Records, p. 164.
52
52 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to
encash the Managers checks that were plainly crossed checks. A crossed check is
one where two parallel lines are drawn across its face or across its corner. 28 Based on
jurisprudence, the crossing of a check has the following effects: (a) the check may not
be encashed but only deposited in the bank; (b) the check may be negotiated only
onceto the one who has an account with the bank; and (c) the act of crossing the check
serves as a warning to the holder that the check has been issued for a definite purpose
and he must inquire if he received the check pursuant to this purpose; otherwise, he is
not a holder in due course.29 In other words, the crossing of a check is a warning that the
check should be deposited only in the account of the payee. When a check is crossed, it
is the duty of the collecting bank to ascertain that the check is only deposited
to the payees account.30 In complete disregard of this duty, PCIBs systems allowed
Balmaceda to encash 26 Managers checks which were all crossed checks, or checks
payable to the payees account only.
The General Banking Law of 200031 requires of banks the highest standards of integrity
and performance. The banking business is impressed with public interest. Of paramount
_______________
28 Go v. Metropolitan Bank and Trust Company, G.R. No. 168842, August 11, 2010, 628 SCRA 107, 114,
citing Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA
643, 647; Associated Bank v. Court of Appeals, G.R. No. 89802, May 7, 1992, 208 SCRA 465; State Investment
House v. Intermediate Appellate Court, G.R. No. 72764, July 13, 1989, 175 SCRA 310; and De Ocampo & Co. v.
Gatchalian, et al., 113 Phil. 574; 3 SCRA 596 (1961).
29 Go v. Metropolitan Bank and Trust Company, supra, at p. 115, citing Bataan Cigar and Cigarette Factory,
Inc. v. Court of Appeals, supra, at p. 648.
30 Philippine Commercial International Bank v. Court of Appeals, 403 Phil. 361, 364; 350 SCRA 446, 467
(2001).
31 Republic Act No. 8791.
53
VOL. 658, SEPTEMBER 21, 2011 53
Philippine Commercial International Bank vs. Balmaceda
importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater
familias or a good father of a family.32 The highest degree of diligence is expected.33
While we appreciate that Balmaceda took advantage of his authority and position as the
branch manager to commit these acts, this circumstance cannot be used to excuse the
manner the Bankthrough its employeeshandled its clients bank accounts and
thereby ignored established bank procedures at the branch managers mere order. This
lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33
more times in a period of over one year by the Banks own estimation. With this kind of
record, blame must be imputed on the Bank itself and its systems, not solely on the
weakness or lapses of individual employees.
Principle of unjust enrichment not
applicable
PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right
to recover the amounts unjustly received by Ramos pursuant to the principle of unjust
enrichment. This principle is embodied in Article 22 of the Civil Code which provides:
Article 22. 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 or legal
ground, shall return the same to him.
_______________
32 Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538; 326 SCRA 641 (2000); and Philippine
Bank of Commerce v. Court of Appeals, 336 Phil. 667; 269 SCRA 695 (1997).
33 Philippine Commercial International Bank v. Court of Appeals,supra note 30.
54
54 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
To have a cause of action based on unjust enrichment, we explained in University of the
Philippines v. Philab Industries, Inc.34 that:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the sense
that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to
keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give rise to legal or
equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it
is a prerequisite for the enforcement of the doctrine of restitution. (emphasis ours)
35
Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he
received payments out of money secured by fraud from PCIB. To hold Ramos
accountable, it is necessary to prove that he received the money from Balmaceda,
knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the
time that he received the money from Balmaceda, knew that the money was acquired
through fraud. Knowledge of the fraud is the link between Ramos and PCIB that would
obligate Ramos to return the money based on the principle of unjust enrichment.
However, as the evidence on record indicates, Ramos accepted the deposits that
Balmaceda made directly into his bank account, believing that these deposits were
payments for the fighting cocks that Balmaceda had purchased. Signifi-
_______________
34 482 Phil. 693; 439 SCRA 467 (2004).
35 Id., at pp. 709-710; p. 484-485.
55
VOL. 658, SEPTEMBER 21, 2011 55
Philippine Commercial International Bank vs. Balmaceda
cantly, PCIB has not presented any evidence proving that Ramos participated in, or that
he even knew of, the fraudulent sources of Balmacedas funds.
PCIB illegally froze and debited
Ramos assets
We also find that PCIB acted illegally in freezing and debiting Ramos bank account.
In BPI Family Bank v. Franco,36 we cautioned against the unilateral freezing of bank
accounts by banks, noting that:
More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of
Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso
scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter,
the right to take whatever action it pleases on deposits which it supposes are derived from shady
transactions, would open the floodgates of public distrust in the banking industry.
37
We see no legal merit in PCIBs claim that legal compensation took place between it and
Ramos, thereby warranting the automatic deduction from Ramos bank account. For legal
compensation to take place, two persons, in their own right, must first be creditors and
debtors of each other.38 While PCIB, as the depositary bank, is Ramos debtor in the
amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB
adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos
bank account.
On the award of damages
Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold
PCIB liable for moral and
_______________
36 G.R. No. 123498, November 23, 2007, 538 SCRA 184.
37 Id., at p. 197.
38 CIVIL CODE, Article 1278.
56
56 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
exemplary damages. Since a contractual relationship existed between Ramos and PCIB
as the depositor and the depositary bank, respectively, the award of moral damages
depends on the applicability of Article 2220 of the Civil Code, which provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis
ours]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious commission of a wrong; it partakes of the
nature of fraud.39
As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze
Ramos bank account and subsequently debited the amount of P251,910.96 therefrom.
While PCIB may have acted hastily and without regard to its primary duty to treat the
accounts of its depositors with meticulous care and utmost fidelity, 40 we find that its
actions were propelled more by the need to protect itself, and not out of malevolence or ill
will. One may err, but error alone is not a ground for granting moral damages. 41
We also disallow the award of exemplary damages. Article 2234 of the Civil Code
requires a party to first prove that he is entitled to moral, temperate or compensatory
damages before he can be awarded exemplary damages. Since no reason ex-
_______________
39 BPI Family Bank v. Franco, supra note 36, at p. 203, citing Board of Liquidators v. Kalaw, No. L-18805,
August 14, 1967, 20 SCRA 987.
40 Central Bank of the Philippines v. Court of Appeals, G.R. Nos. 88353 and 92943, May 8, 1992, 208 SCRA
652, 684-685.
41 Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28, 2004, 430 SCRA
261, 294.
57
VOL. 658, SEPTEMBER 21, 2011 57
Philippine Commercial International Bank vs. Balmaceda
ists to award moral damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos
favor. Taking into consideration the time and efforts involved that went into this case, we
increase the award of attorneys fees from P20,000.00 to P75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the
Court of Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the
MODIFICATION that the award of moral and exemplary damages in favor of Rolando N.
Ramos is DELETED, while the award of attorneys fees is INCREASED to P75,000.00.
Costs against the Philippine Commercial International Bank.
SO ORDERED.
Velasco, Jr.,*** Perez, Sereno and Reyes, JJ., concur.
Petition partially granted, judgment affirmed with modification.
Notes.There is unjust enrichment when a person unjustly retains a benefit at the loss
of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience; A sense of justice and
fairness demands that a party should not be allowed to benefit from his act of entering
into a contract to sell that violates the constitutional proscription. (Hulst vs. PR Builders,
Inc., 532 SCRA 74 [2007])
Preponderance of evidence means evidence which is more convincing to the court as
worthy of belief than that which is
_______________
*** Designated as Additional Member of the Second Division in lieu of Associate Justice Antonio T. Carpio per
Special Order No. 1084 dated September 13, 2011.
58
58 SUPREME COURT REPORTS ANNOTATED
Philippine Commercial International Bank vs. Balmaceda
offered in opposition thereto. (Republic vs. Bautista, 532 SCRA 598 [2007])
32. G.R No. 113236. March 5, 2001. *
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES,
petitioner, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
Commercial Law; Banks and Banking; 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.A bank is under obligation to treat the accounts of its depositors with DATE WITHDRAWAL SLIP NO. AMOUNT
meticulous care, whether such account consists only of a few hundred pesos or of millions of pesos.
The fact that the other withdrawal slips were honored and paid by respondent bank was no license June 15, 1978 42127 P1,198,092.80
for Citibank to presume that subsequent slips would be honored and paid immediately. By doing July 15, 1978 42128 940,190.00
so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care. Aug. 15, 1978 42129 880,000.00
PETITION for review on certiorari of a decision of the Court of Appeals.
Sept. 15, 1978 42130 981,500.00
The facts are stated in the opinion of the Court. These were likewise deposited by plaintiff in its current account with Citibank and in turn the
Sycip, Salazar, Hernandez & Gatmaitan for petitioner. Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in respect of
Cao Law Office for private respondent. 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.
QUISUMBING, J.: 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
This petition assails the decision dated December 29, 1993 of the Court of Appeals in CA-
1
all the more strengthened that the other withdrawal slips were
603
G.R. CV No. 29546, which affirmed the judgment of the Regional Trial Court of Pasay
2

City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestones complaint for VOL. 353, MARCH 5, 2001 603
damages. Firestone Tire & Rubber Company of the Philippines vs. Court of
The facts of this case, adopted by the CA and based on findings by the trial court, are Appeals
as follows: 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).
*SECOND DIVISION. However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal
Rollo, pp. 27-34.
slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for
1

2Id. at 44-48.
602 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
602 SUPREME COURT REPORTS ANNOTATED representing the aggregate amount of the above-two special withdrawal slips. Under such
Firestone Tire & Rubber Company of the Philippines vs. Court of situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly
Appeals attributable to defendants gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for
. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the
the satisfaction of the damages suffered by it. And due to defendants refusal to pay plaintiffs
Central Bank of the Philippines, and among its activities, accepts savings and time deposits. Said
claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur
defendant had as one of its client-depositors the Fojas-Arca Enterprises Company (Fojas-Arca for
litigation expenses and attorneys fees which amount are recoverable from the defendant.
brevity). Fojas-Arca maintaining a special savings account with the defendant, the latter
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the
authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal
transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant
slips. These are supplied by the defendant to Fojas-Arca.
is not involved; Vehemently, it was denied by defendant that the special withdrawal slips were
In January 1978, plaintiff and Fojas-Arca entered into a Franchised Dealership Agreement
honored and treated as if it were checks, the truth being that when the special withdrawal slips
(Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiffs products.
were received by defendant, it only verified whether or not the signatures therein were authentic,
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca
and whether or not the deposit level in the passbook concurred with the savings ledger, and
purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In
whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special
payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn
withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly
upon the defendant. In turn, these were deposited by the plaintiff with its current account with the
negligent in treating the withdrawal slips as check when it is clearly stated therein that the
Citibank. All of them were honored and paid by the defendant. This singular circumstance made
withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions
plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn
between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give
upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and
notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an
as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its
extension of usual bank courtesy to a prospective client; that defendant is only dealing with its
products.
depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that
On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and
plaintiff has no cause of action against it (pp. 1-3, Dec; pp. 368-370, id.).
delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon
3

_______________
the defendant, to wit:
 3Id. at 27-30.
604
604 SUPREME COURT REPORTS ANNOTATED
Firestone Tire & Rubber Company of the Philippines vs. Court of
Appeals
Petitioners complaint for a sum of money and damages with the Regional Trial Court of
4 free from any fault or negligence regarding the dishonor, or in failing to give fair
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 in relation to 5
Articles 19 and 20 of the Civil Code. As noted by the CA, petitioner alleged the following
6 7
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
_______________
4 Id. at 35-43.
5 ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
6 ART. 19. The local civil registrar shall require the payment of the fees prescribed by law or regulations
before the issuance of the marriage license. No other sum shall be collected in the nature of a fee or tax of any
kind for the issuance of said license. It shall, however, be issued free of charge to indigent parties, that is, those
who have no visible means of income or whose income is insufficient for their subsistence, a fact established by
their affidavit or by their oath before the local civil registrar.
7 ART. 20. The license shall be valid in any part of the Philippines for a period of one hundred twenty days
from the date of issue, and shall be deemed automatically cancelled at the expiration of said period if the
contracting parties have not made use of it. The expiry date shall be stamped in bold characters on the face of
every license issued.
605
VOL. 353, MARCH 5, 2001 605
Firestone Tire & Rubber Company of the Philippines vs. Court of
Appeals
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:
1. 25.The CA grievously erred in holding that the [Luzon Development] Bank was
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 pur-
_______________
8Rollo, p. 13.
606
606 SUPREME COURT REPORTS ANNOTATED
Firestone Tire & Rubber Company of the Philippines vs. Court of
Appeals
chased 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 non-negotiable. Hence, the rules governing the giving of immediate notice of
9
dishonor of negotiable instruments do not apply in this case. Petitioner itself concedes10
this point. Thus, respondent bank was under no obligation to give
11
_______________
9 Id. at 19; Petition, paragraph 34, subparagraph B.
10 NEGOTIABLE INSTRUMENTS LAW-ACT NO. 2031
SEC. 89. To whom notice of dishonor must be given.Except as otherwise provided, when a negotiable instrument has been
dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any
drawer or indorser to whom such notice is not given is discharged.
SEC. 103. Where parties reside in same place.Where the person giving and the person to receive notice reside in the same
place, notice must be given within the following times:
 1. (a)If given at the place of business of the person to receive notice, it must be given before the close of business hours
the day following;
2. (b)If given at his residence, it must be given before the usual hours of rest on the day following;
3. (c)If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day following.
SEC. 104. Where parties reside in different places.Where the person giving and the person to receive notice reside in
different places, the notice must be given within the following times:
1. (a)If sent by mail, it must be deposited in the post-office in time to go by mail the day following the day of dishonor,
or if there be no mail at a convenient hour on that day, by the next mail thereafter;
2. (b)If given otherwise than through the post-office, then within the time that notice would have been received in due
course of mail if it had been deposited in the post-office within the time specified in the last subdivision.
Supra, note 9.
11
607
VOL. 353, MARCH 5, 2001 607
Firestone Tire & Rubber Company of the Philippines vs. Court of
Appeals
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 nonnegotiable 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. The withdrawal slips in question lacked this character.
12
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. The 13
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
_______________
Traders Royal Bank vs. Court of Appeals, 269 SCRA 15, 26 (1997).
12
Philippine National Bank vs. Court of Appeals, 315 SCRA 309, 314-315 (1999).
13
Philippine Bank of Commerce vs. Court of Appeals, 269 SCRA 695, 708-709 (1997).
14
608
608 SUPREME COURT REPORTS ANNOTATED
Firestone Tire & Rubber Company of the Philippines vs. Court of
Appeals
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, Citibankand
petitioner as account-holdermust 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.
Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.
Petition denied, judgment affirmed.
Note.Banks, being greatly affected with public interest, are expected to exercise a
degree of diligence in the handling of its affairs higher than that expected of an ordinary
business firm. (Ibaan Rural Bank, Inc. vs. Court of Appeals, 321 SCRA 88 [1999])
o0o
33. G.R. No. 170865. April 25, 2012.*
PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES CHEAH CHEE CHONG and
OFELIA CAMACHO CHEAH, respondents.
G.R. No. 170892. April 25, 2012.*
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH,
petitioners, vs. PHILIPPINE NATIONAL BANK, respondent.
Civil Law; Quasi-Delicts; Damages; Proximate Cause; Words and Phrases; 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.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. x x x 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.
Banks and Banking; Checks; The payment of the amounts of checks without previously
clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the
amounts involved were large is contrary to normal or ordinary banking practice.This Court
already held that the payment of the amounts of checks without previously clearing them with the
drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were
large is contrary to normal or ordinary banking practice. Also, in Associated Bank v. Tan, 446
SCRA 282 (2004), wherein the bank allowed the withdrawal of the value of a check prior to its
clearing, we said that [b]efore the check shall have been cleared for deposit, the collecting bank
can only assume at its own risk x x x
 _______________
* FIRST DIVISION.
50
5 SUPREME COURT REPORTS ANNOTATED
0 inform that the Bank of America check has already been cleared way earlier than the 15-day
Philippine National Bank vs. Cheah Chee Chong
that the check would be cleared and paid out. The delay in the receipt by PNB Buendia
Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check
is of no moment, because had PNB Buendia Branch waited for the expiration of the clearing period
and had never released during that time the proceeds of the check, it would have already been duly
notified of its dishonor. Clearly, PNBs disregard of its preventive and protective measure against
the possibility of being victimized by bad checks had brought upon itself the injury of losing a
significant amount of money.
Same; Same; A bank is expected to be an expert in banking procedures and it has the
necessary means to ascertain whether a check, local or foreign, is sufficiently funded.It bears
stressing that the diligence required of banks is more than that of a Roman pater familias or a
good father of a family. The highest degree of diligence is expected. PNB miserably failed to do its
duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its
own banking policy amounts to gross negligence, which the law defines as negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is
duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to
consequences in so far as other persons may be affected. With regard to collection or encashment
of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize
diligently the checks deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public
as the expert on this field, and the law thus holds it to a high standard of conduct. A bank is
expected to be an expert in banking procedures and it has the necessary means to ascertain
whether a check, local or foreign, is sufficiently funded.
Civil Law; Solutio Indebiti; The indispensable requisites of the juridical relation known as
solutio indebiti, are, (a) that he who paid was not under obligation to do so; and (b) that the
payment was made by reason of an essential mistake of fact.[T]he indispensable requisites of the
juridical relation known as solutioindebiti, are, (a) that he who paid was not under obligation to do
so; and (b) that the payment was made by reason of an essential mistake of fact. In the case at
bench, PNB cannot recover the proceeds of the check under the
51
VOL. 671, APRIL 25, 2012 5 These consolidated1 Petitions for Review on Certiorarifiled by the Philippine National
1 Bank (PNB)2 and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses
Philippine National Bank vs. Cheah Chee Chong
principle it invokes. In the first place, the gross negligence of PNB, as earlier discussed, can
never be equated with a mere mistake of fact, which must be something excusable and which
requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.
Same; Contributory Negligence; Contributory negligence is conduct on the part of the injured
party, contributing as a legal cause to the harm he has suffered, which falls below the standard to
which he is required to conform for his own protection.Contributory negligence is conduct on the
part of the injured party, contributing as a legal cause to the harm he has suffered, which falls
below the standard to which he is required to conform for his own protection. The CA found
Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed to observe caution in giving
her full trust in accommodating a complete stranger and this led her and her husband to be
swindled. Considering that Filipina was not personally known to her and the amount of the foreign
check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia which she,
however, failed to exercise under the circumstances. Another circumstance which should have
goaded Ofelia to be more circumspect in her dealings was when a bank officer called her up to
clearing period. The fact that the check was cleared after only eight banking days from the time it
was deposited or contrary to what Garin told her that clearing takes 15 days should have already
put Ofelia on guard. She should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is she and her husband who
would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same
and instead actively participated in immediately withdrawing the proceeds of the check. Thus, we
are one with the CA in ruling that Ofelias prior consultation with PNB officers is not enough to
totally absolve her of any liability. In the first place, she should have shunned any participation in
that palpably shady transaction.
PETITIONS for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.52
52 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
The Chief Legal Counsel for PNB.
Castro & Associates for Spouses Cheah.
DEL CASTILLO, J.:
Law favoreth diligence, and therefore, hateth folly
and negligence.Wingates Maxim.
In doing a friend a favor to help the latters friend collect the proceeds of a foreign
check, a woman deposited the check in her and her husbands dollar account. The local
bank accepted the check for collection and immediately credited the proceeds thereof to
said spouses account even before the lapse of the clearing period. And just when the
money had been withdrawn and distributed among different beneficiaries, it was
discovered that all along, to the horror of the woman whose intention to accommodate a
friends friend backfired, she and her bank had dealt with a rubber check.
Cheah)3 both assail the August 22, 2005 Decision4and December 21, 2005 Resolution5 of
the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties equally
negligent and, hence, should equally suffer the resulting loss.
_______________
1 Consolidated pursuant to our Resolution dated April 26, 2006, Rollo(G.R. No. 170865), p. 392
and Rollo (G.R. No. 170892), p. 95.
2 Docketed as G.R. No. 170865, Rollo, pp. 105-129.
3 Docketed as G.R. No. 170892, id., at pp. 11-39.
4 CA Rollo, pp. 172-188; penned by Associate Justice Jose Catral Mendoza (now a member of this Court)
and concurred in by Presiding Justice Romeo A. Brawner and Associate Justice Mario L. Guaria III.
5 Id., at p. 261; penned by Associate Justice Jose Catral Mendoza and concurred in by Associate Justices
Mario L. Guaria III and Celia C. Librea-Leagogo.
53
VOL. 671, APRIL 25, 2012 53
Philippine National Bank vs. Cheah Chee Chong
For its part, PNB questions why it was declared blameworthy together with its
depositors, spouses Cheah, for the amount wrongfully paid the latter, while the spouses
Cheah plead that they be declared entirely faultless.
Factual Antecedents
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina)
were having a conversation in the latters office when Adelinas friend, Filipina Tuazon
(Filipina), approached her to ask if she could have Filipinas check cleared and encashed
for a service fee of 2.5%. The check is Bank of America Check No. 190 6 under the account
of Alejandria Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against
Bank of America Alhambra Branch in California, USA, with a face amount of
$300,000.00, payable to cash. Because Adelina does not have a dollar account in which to
deposit the check, she asked Ofelia if she could accommodate Filipinas request since she
has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee
Chong) under Account No. 265-705612-2 with PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with
Perfecto Mendiola of the Loans Department who referred them to PNB Division Chief
Alberto Garin (Garin). Garin discussed with them the process of clearing the subject
check and they were told that it normally takes 15 days. 7 Assured that the deposit and
subsequent clearance of the check is a normal transaction, Ofelia deposited Filipinas
check. PNB then sent it for clearing through its correspondent bank, Philadelphia
National Bank. Five days
_______________
6 Records, p. 199.
7 TSN, July 3, 1998, pp. 14-17.
54
54 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
later, PNB received a credit advice8 from Philadelphia National Bank that the proceeds
of the subject check had been temporarily credited to PNBs account as of November 6,
1992. On November 16, 1992, Garin called up Ofelia to inform her that the check had
already been cleared.9 The following day, PNB Buendia Branch, after deducting the bank
charges, credited $299,248.37 to the account of the spouses Cheah. 10 Acting on Adelinas
instruction to withdraw the credited amount, Ofelia that day personally withdrew
$180,000.00.11 Adelina was able to withdraw the remaining amount the next day after
having been authorized by Ofelia.12 Filipina received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received
on November 16, 1992 a SWIFT13 message from Philadelphia National Bank dated
November 13, 1992 with Transaction Reference Number (TRN) 46506218, informing
PNB of the return of the subject check for insufficient funds. 14 However, the PNB Head
Office could not ascertain to which branch/office it should forward the same for proper
action. Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT message
informing the
_______________
8 Records, p. 200.
9 TSN, July 3, 1998, pp. 18-19; July 24, 1998, pp. 32-33.
10 Records, pp. 201 and 425.
11 Id., at p. 202.
12 Id., at p. 206.
13 Stands for Society for Worldwide Interbank Financial Telecommunication. It is an international
transaction processing system owned by and serving the financial community worldwide. It handles financial
messages such as: a. customer transfers or payment orders; b. bank transfers; c. foreign exchange confirmation;
d. debit confirmation; e. credit confirmation; f. statement of account; g. collections; h. documentary credits; i.
syndications; j. travelers checks; See Joint Affidavit of Gregorio SC Termulo and Leoncio M. David, Assistant
Department Manager II and Division Chief III of the Cable Division, International Department of PNB, id., at
pp. 312-315.
14 Id., at p. 316.
55
VOL. 671, APRIL 25, 2012 55
Philippine National Bank vs. Cheah Chee Chong
latter that SWIFT message with TRN 46506218 has been relayed to PNBs various
divisions/departments but was returned to PNB Head Office as it seemed misrouted.
PNB Head Office thus requested for Philadelphia National Banks advice on said SWIFT
messages proper disposition.15 After a few days, PNB Head Office ascertained that the
SWIFT message was intended for PNB Buendia Branch.
PNB Buendia Branch learned about the bounced check when it received on November
20, 1992 a debit advice,16followed by a letter17 on November 24, 1992, from Philadelphia
National Bank to which the November 13, 1992 SWIFT message was attached. Informed
about the bounced check and upon demand by PNB Buendia Branch to return the money
withdrawn, Ofelia immediately contacted Filipina to get the money back. But the latter
told her that all the money had already been given to several people who asked for the
checks encashment. In their effort to recover the money, spouses Cheah then sought the
help of the National Bureau of Investigation. Said agencys Anti-Fraud and Action
Division was later able to apprehend some of the beneficiaries of the proceeds of the
check and recover from them $20,000.00. Criminal charges were then filed against these
suspect beneficiaries.18
_______________
15 Id., at p. 317.
16 Id., at p. 384.
17 Id., at pp. 386-387.
18 Based on the records of the case at bar, upon the NBIs investigation, the withdrawn money was divided
among Transmedian Management (Adelina Guarins office), Nilo Montalban, Patricio Valleser, and Lucresio
Semblante, who all received a part of the proceeds as commissions, while the rest of the amount was divided
between Felix Sajot and Eduardo Rosales, id., at pp. 76-277. The NBI, suspecting a conspiracy among the bank
officers and the beneficiaries, filed an estafacase against Adelina Guarin and PNB officials Lorenzo Bal,
Ponciano Felix, Teresita Gregorio, and Domingo Posadas before the Office of the Ombudsman, but this was
dismissed, id., at pp. 402-407. Criminal case for estafa was likewise
56
56 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
 Meanwhile, the spouses Cheah have been constantly meeting with the bank officials
to discuss matters regarding the incident and the recovery of the value of the check while
the cases against the alleged perpetrators remain pending. Chee Chong in the end signed
a PNB drafted19 letter20 which states that the spouses Cheah are offering their
condominium units as collaterals for the amount withdrawn. Under this setup, the
amount withdrawn would be treated as a loan account with deferred interest while the
spouses try to recover the money from those who defrauded them. Apparently, Chee
Chong signed the letter after the Vice President and Manager of PNB Buendia Branch,
Erwin Asperilla (Asperilla), asked the spouses Cheah to help him and the other bank
officers as they were in danger of losing their jobs because of the incident. Asperilla
likewise assured the spouses Cheah that the letter was a mere formality and that the
mortgage will be disregarded once PNB receives its claim for indemnity from
Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal, 21 the same did
not materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the
return of the amount of the check,22 froze their peso and dollar deposits in the amounts of
P275,166.80 and $893.46,23 and filed a complaint24 against them for Sum of Money with
Branch 50 of the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 94-
71022. In said complaint, PNB demanded payment of
_______________
filed by the Makati Prosecutor against Filipina Tuazon, Nilo Montalban, Patricio Vallaser, Lucresio
Semblante, Eduardo Rosales and Felix Sajot before the Regional Trial Court of Makati, id., at pp. 426-427.
19 TSN, July 3, 1998, pp. 43-48; July 24, 1998, p. 9.
20 Records, pp. 207-208.
21 Id., at pp. 388-395.
22 Id., at p. 399.
23 Under Account Nos. 265-560184-0 and 265-705612-2.
24 Records, pp. 1-9.
57
VOL. 671, APRIL 25, 2012 57
Philippine National Bank vs. Cheah Chee Chong
around P8,202,220.44, plus interests25 and attorneys fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of PNBs
injury was its own negligence of paying a US dollar denominated check without waiting
for the 15-day clearing period, in violation of its bank practice as mandated by its own
bank circular, i.e., PNB General Circular No. 52-101/88.26 Because of this, spouses Cheah
averred that PNB is barred from claiming what it had lost. They further averred that it
is unjust for them to pay back the amount disbursed as they never really benefited
therefrom. As counterclaim, they prayed for the return of their frozen deposits, the
recoupment of P400,000.00 representing the amount they had so far spent in recovering
the value of the check, and payment of moral and exemplary damages, as well as
attorneys fees.
Ruling of the Regional Trial Court
The RTC ruled in PNBs favor. The dispositive portion of its Decision 27 dated May 20,
1999 reads:
_______________
25 Converted to peso at a rate of $1 = P27.695. The amount recovered was deducted from the $300,000,
then computed at an interest rate of 7.5% per annum.
26 Said Circular dated August 31, 1988, states:
The existing cash letter services of our foreign correspondents [sic] bank make it possible for PNB to obtain
immediate credit, subject to final payment for US dollar denominated checks withdrawn on banks in the U.S.A.
negotiated with us by clients. The guarantee period and notice of non-payment by telex features under such
clearing item is made known to PNB within 15 days from date of receipts of checks by our collecting agent
bank. Records, p. 525 as incorporated in the RTC Decision, p. 20.
27 Id., at pp. 506-541; penned by Judge Urbano Victorio, Sr.
58
58 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia
Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs bank the
amount:
1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing
at the time the proceeds of the BA Check No. 190 were withdrawn or the prevailing Central Bank
Rate at the time the amount is to be reimbursed by the defendants to plaintiff or whatever is lower.
This is without prejudice however, to the rights of the defendants (accommodating parties) to go
against the group of Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries-
accommodated parties) who are privy to the defendants.
No pronouncement as to costs.
No other award of damages for non[e] has been proven.
SO ORDERED. 28
The RTC held that spouses Cheah were guilty of contributory negligence. Because
Ofelia trusted a friends friend whom she did not know and considering the amount of the
check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her
dealings. She should have exercised due care by investigating the negotiability of the
check and the identity of the drawer. While the court found that the proximate cause of
the wrongful payment of the check was PNBs negligence in not observing the 15-day
guarantee period rule, it ruled that spouses Cheah still cannot escape liability to
reimburse PNB the value of the check as an accommodation party pursuant to Section 29
of the Negotiable Instruments Law.29 It likewise applied the principle of solutio
_______________
28 Id., at pp. 540-541.
29 Sec. 29. Liability of accommodation party.An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such
59
VOL. 671, APRIL 25, 2012 59
Philippine National Bank vs. Cheah Chee Chong
indebiti under the Civil Code. With regard to the award of other forms of damages, the
RTC held that each party must suffer the consequences of their own acts and thus left
both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
Ruling of the Court of Appeals
 While the CA recognized the spouses Cheah as victims of a scam who nevertheless VOL. 671, APRIL 25, 2012 61
have to suffer the consequences of Ofelias lack of care and prudence in immediately Philippine National Bank vs. Cheah Chee Chong
trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August
PNBs act of releasing the proceeds
22, 2005 Decision,30 viz.:
As both parties were equally negligent, it is but right and just that both parties should equally
of the check prior to the lapse of the
suffer and shoulder the loss. The scam would not have been possible without the negligence of both 15-day clearing period was the
parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah spouses proximate cause of the loss.
were negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of Proximate cause is that cause, which, in natural and continuous sequence, unbroken
the subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because by any efficient intervening cause, produces the injury and without which the result
PNB allowed her to withdraw without waiting for the clearance of the check. The remedy of the would not have occurred. x x x To determine the proximate cause of a controversy, the
parties is to go after those who perpetrated, and benefited from, the scam. question that needs to be asked is: If the event did not happen, would the injury have
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in resulted? If the answer is no, then the event is the proximate cause. 34
Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered
Here, while PNB highlights Ofelias fault in accommodating a strangers check and
DECLARING both parties equally negligent and should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah
depositing it to the bank, it remains mum in its release of the proceeds thereof without
spouses the amount due to them. exhausting the 15-day clearing period, an act which contravened established banking
_______________ rules and practice.
holder, at the time of taking the instrument, knew him to be only an accommodation party. It is worthy of notice that the 15-day clearing period alluded to is construed as 15
30 Supra note 4.
60 banking days. As declared by Josephine Estella, the Administrative Service Officer who
60 SUPREME COURT REPORTS ANNOTATED was the banks Remittance Examiner, what was unusual in the processing of the check
was that the lapse of 15 banking days was not observed. 35 Even PNBs agreement with
Philippine National Bank vs. Cheah Chee Chong
Philadelphia National Bank36 regarding the rules on the collection of the proceeds of US
SO ORDERED. 31

In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the
SWIFT message from Philadelphia National Bank within the 15-day clearing period is
not an acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB
had the last clear opportunity to avoid the impending loss of the money and yet, it
glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting
the 15-day clearing period which has always been a standard banking practice as
testified to by PNBs own officers, and as provided in its own General Circular No.
52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are
accommodation parties under the law as the banks own negligence is the proximate
cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of contributory
negligence. Thus, both parties should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration 32 but same were denied
in a Resolution33dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
_______________
31 CA Rollo, pp. 187-188.
32 See PNBs Motion for Reconsideration, id., at pp. 194-207 and the spouses Cheahs Motion for
Reconsideration, id., at pp. 208-231.
33 Supra note 5.
61
dollar checks refers to business/banking days. Ofelia deposited the subject check on
November 4, 1992. Hence, the 15th banking day from the date of said deposit should fall
on November 25, 1992. However, what happened was that PNB Buendia Branch, upon
calling up Ofelia that the check had been cleared, allowed the proceeds thereof
_______________
34 Allied Banking Corporation v. Lim Sio Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 518.
35 TSN, July 5, 1995, p. 26.
36 Records, pp. 281-285.
62
62 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard
15-day clearing period.
This Court already held that the payment of the amounts of checks without
previously clearing them with the drawee bank especially so where the drawee bank is a
foreign bank and the amounts involved were large is contrary to normal or ordinary
banking practice.37 Also, in Associated Bank v. Tan,38 wherein the bank allowed the
withdrawal of the value of a check prior to its clearing, we said that [b]efore the check
shall have been cleared for deposit, the collecting bank can only assume at its own risk
x x x that the check would be cleared and paid out. The delay in the receipt by PNB
Buendia Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of
the subject check is of no moment, because had PNB Buendia Branch waited for the
expiration of the clearing period and had never released during that time the proceeds of
the check, it would have already been duly notified of its dishonor. Clearly, PNBs
disregard of its preventive and protective measure against the possibility of being
victimized by bad checks had brought upon itself the injury of losing a significant amount
of money.
It bears stressing that the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence is
expected.39PNB miserably failed to do its duty of exercising extraordinary diligence and
reasonable business prudence. The disregard of
_______________
37 Banco Atlantico v. Auditor General, 171 Phil. 298, 304; 81 SCRA 335, 340-341 (1978).
38 487 Phil. 512, 525; 446 SCRA 282, 293 (2004).
39 Philippine Savings Bank v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008, 557 SCRA 318,
330, citing Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 554; 326 SCRA 641, 657
(2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681; 269 SCRA 695, 708-709 (1997)
and Philippine Commercial International Bank v. Court of Appeals, 403 Phil. 361, 388; 350 SCRA 446, 472
(2001).
63
VOL. 671, APRIL 25, 2012 63
Philippine National Bank vs. Cheah Chee Chong
its own banking policy amounts to gross negligence, which the law defines as negligence
characterized by the want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but wilfully and intentionally with a
conscious indifference to consequences in so far as other persons may be affected. 40With
regard to collection or encashment of checks, suffice it to say that the law imposes on the
collecting bank the duty to scrutinize diligently the checks deposited with it for the
purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field,
and the law thus holds it to a high standard of conduct. 41 A bank is expected to be an
expert in banking procedures and it has the necessary means to ascertain whether a
check, local or foreign, is sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under
the principle of solutioindebiti, which is laid down in Article 2154 of the Civil Code:42
Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
[T]he indispensable requisites of the juridical relation known as solutio indebiti, are,
(a) that he who paid was not
_______________
40 Victoriano v. People, G.R. Nos. 171322-24, November 30, 2006, 509 SCRA 483, 493, citing Fonacier v.
Sandiganbayan, G.R. Nos. 50691, 52263, 52766, 52821, 53350, 53397, 53415 and 53520, December 5, 1994, 238
SCRA 655, 687-688.
41 Metropolitan Bank and Trust Company v. Philippine Bank of Communications, G.R. Nos. 141408 and
141429, October 18, 2007, 536 SCRA 556, 563, citing Banco de Oro Savings and Mortgage Bank v. Equitable
Banking Corporation, 241 Phil. 187, 200; 157 SCRA 188, 200 (1988).
42 N.B. Solutio indebiti also covers mistake in law under Article 2155 of the Civil Code.
64
64 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
under obligation to do so; and (b) that the payment was made by reason of an essential
mistake of fact.43
In the case at bench, PNB cannot recover the proceeds of the check under the
principle it invokes. In the first place, the gross negligence of PNB, as earlier discussed,
can never be equated with a mere mistake of fact, which must be something excusable
and which requires the exercise of prudence. No recovery is due if the mistake done is
one of gross negligence.
The spouses Cheah are guilty of
contributory negligence and are
bound to share the loss with the
bank
Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.44
The CA found Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed to
observe caution in giving her full trust in accommodating a complete stranger and this
led her and her husband to be swindled. Considering that Filipina was not personally
known to her and the amount of the foreign check to be encashed was $300,000.00, a
higher degree of care is expected of Ofelia which she, however, failed to exercise under
the circumstances. Another circumstance which should have goaded Ofelia to be more
circumspect in her dealings was when a bank officer called her up to inform that the
Bank of America check has already been cleared way earlier than the 15-day clearing
period. The fact that the check was cleared after only eight banking days from the time
_______________
43 City of Cebu v. Judge Piccio, 110 Phil. 558, 563 (1960).
44 Valenzuela v. Court of Appeals, 323 Phil. 374, 388; 253 SCRA 303, 318 (1996).
65
VOL. 671, APRIL 25, 2012 65
Philippine National Bank vs. Cheah Chee Chong
it was deposited or contrary to what Garin told her that clearing takes 15 days should
have already put Ofelia on guard. She should have first verified the regularity of such
hasty clearance considering that if something goes wrong with the transaction, it is she
and her husband who would be put at risk and not the accommodated party. However,
Ofelia chose to ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check. Thus, we are one with the CA in ruling that
Ofelias prior consultation with PNB officers is not enough to totally absolve her of any
liability. In the first place, she should have shunned any participation in that palpably
shady transaction.
In any case, the complaint against the spouses Cheah could not be dismissed. As
PNBs client, Ofelia was the one who dealt with PNB and negotiated the check such that
its value was credited in her and her husbands account. Being the ones in privity with
PNB, the spouses Cheah are therefore the persons who should return to PNB the money
released to them.
 All told, the Court concurs with the findings of the CA that PNB and the spouses
Cheah are equally negligent and should therefore equally suffer the loss. The two must
both bear the consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R.
No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005
Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No.
63948 are hereby AFFIRMED in toto.
SO ORDERED.
Corona (C.J, Chairperson), Leonardo-De Castro, Bersamin and Villarama, Jr., JJ.,
concur.
Petitions denied, judgment and resolution affirmed in toto.
66
66 SUPREME COURT REPORTS ANNOTATED
Philippine National Bank vs. Cheah Chee Chong
Notes.The principle of solutio indebiti applies in case of erroneous payment of
undue interest. (Siga-an vs. Villanueva, 576 SCRA 696 [2009])
Unjust enrichment exists 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. (Land Bank of the Philippines vs. Ong,
636 SCRA 266 [2010])
Where the banks negligence is the proximate cause of the loss and the depositor is
guilty of contributory negligence, we allocated the damages between the bank and the
depositor on a 60-40 ratio. (Philippine National Bank vs. F.F. Cruz and Co., Inc., 654
SCRA 333 [2011])
o0o
34. G.R. No. 188363. February 27, 2013.*
ALLIED BANKING CORPORATION, petitioner, vs. BANK OF THE PHILIPPINE
ISLANDS, respondent.
Civil Law; Quasi-Delicts; Doctrine of Last Clear Chance; The doctrine of last clear chance,
stated broadly, is that the negligence of the plaintiff does not preclude a recovery for the negligence
of the defendant where it appears that the defendant, by exercising reasonable care and prudence,
might have avoided injurious consequences to the plaintiff notwithstanding the plaintiffs
negligence.The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff
does not preclude a recovery for the negligence of the defendant where it appears that the
defendant, by exercising reasonable care and prudence, might have avoided injurious consequences
to the plaintiff notwithstanding the plaintiffs negligence. The doctrine
_______________
* FIRST DIVISION.
187
VOL. 692, FEBRUARY 27, 2013 18
7 Roman pater familias or a good father of a family. The highest degree of diligence is expected,
Allied Banking Corporation vs. Bank of the Philippine Islands
necessarily assumes negligence on the part of the defendant and contributory negligence on
the part of the plaintiff, and does not apply except upon that assumption. Stated differently, the
antecedent negligence of the plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence. Moreover, in situations where the doctrine has
been applied, it was defendants failure to exercise such ordinary care, having the last clear chance
to avoid loss or injury, which was the proximate cause of the occurrence of such loss or injury.
Same; Same; Same; Contributory Negligence; In the case of Philippine Bank of Commerce v.
Court of Appeals, 269 SCRA 695 (1997), while the Court found petitioner bank as the culpable party
under the doctrine of last clear chance since it had, thru its teller, the last opportunity to avert the
injury incurred by its client simply by faithfully observing its own validation procedure, it
nevertheless ruled that the plaintiff depositor (private respondent) must share in the loss on account
of its contributory negligence in not checking its monthly statements of account.What petitioner
omitted to mention is that in the cited case of Philippine Bank of Commerce v. Court of Appeals,
269 SCRA 695 (1997), while the Court found petitioner bank as the culpable party under the
doctrine of last clear chance since it had, thru its teller, the last opportunity to avert the injury
incurred by its client simply by faithfully observing its own validation procedure, it nevertheless
ruled that the plaintiff depositor (private respondent) must share in the loss on account of
its contributory negligence. Thus: The foregoing notwithstanding, it cannot be denied that, indeed,
private respondent was likewise negligent in not checking its monthly statements of account. Had
it done so, the company would have been alerted to the series of frauds being committed against
RMC by its secretary. The damage would definitely not have ballooned to such an amount if only
RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial
affairs. This omission by RMC amounts to contributory negligence which shall mitigate
the damages that may be awarded to the private respondent under Article 2179 of the
New Civil Code, to wit: x x x. When the plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the defendants lack of due
188
1 SUPREME COURT REPORTS ANNOTATED
88
Allied Banking Corporation vs. Bank of the Philippine Islands
care, the plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded.
Same; Same; Same; Same; Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the standard to which
he is required to conform for his own protection.Contributory negligence is conduct on the part of
the injured party, contributing as a legal cause to the harm he has suffered, which falls below the
standard to which he is required to conform for his own protection. Admittedly, petitioners
acceptance of the subject check for deposit despite the one year postdate written on its face was a
clear violation of established banking regulations and practices. In such instances, payment should
be refused by the drawee bank and returned through the PCHC within the 24-hour reglementary
period. As aptly observed by the CA, petitioners failure to comply with this basic policy regarding
post-dated checks was a telling sign of its lack of due diligence in handling checks coursed through
it.
Same; Same; Banks and Banking; The diligence required of banks is more than that of a
considering the nature of the banking business that is imbued with public interest.It bears
stressing that the diligence required of banks is more than that of a Roman pater familias or a
good father of a family. The highest degree of diligence is expected, considering the nature of the
banking business that is imbued with public interest. While it is true that respondents liability for
its negligent clearing of the check is greater, petitioner cannot take lightly its own violation of the
long-standing rule against encashment of post-dated checks and the injurious consequences of
allowing such checks into the clearing system.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Allied Banking Corporation Legal and Collection Department for petitioner.189
VOL. 692, FEBRUARY 27, 2013 189
Allied Banking Corporation vs. Bank of the Philippine Islands
Benedicto, Verzosa, Felipe & Burkley for respondent.
VILLARAMA, JR., J.:
A collecting bank is guilty of contributory negligence when it accepted for deposit a
post-dated check notwithstanding that said check had been cleared by the drawee bank
which failed to return the check within the 24-hour reglementary period.
Petitioner Allied Banking Corporation appeals the Decision 1 dated March 19, 2009 of
the Court of Appeals (CA) in CA-G.R. SP No. 97604 which set aside the Decision 2 dated
December 13, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 57 in Civil
Case No. 05-418.
The factual antecedents:
On October 10, 2002, a check in the amount of P1,000,000.00 payable to Mateo Mgt.
Group International (MMGI) was presented for deposit and accepted at petitioners
Kawit Branch. The check, post-dated Oct. 9, 2003, was drawn against the account of
Marciano Silva, Jr. (Silva) with respondent Bank of the Philippine Islands (BPI) Bel-Air
Branch. Upon receipt, petitioner sent the check for clearing to respondent through the
Philippine Clearing House Corporation (PCHC).3
The check was cleared by respondent and petitioner credited the account of MMGI
with P1,000,000.00. On October 22, 2002, MMGIs account was closed and all the funds
therein were withdrawn. A month later, Silva discovered the debit of P1,000,000.00 from
his account. In response to Silvas com-
_______________
1 Rollo, pp. 27-33-A. Penned by Associate Justice Edgardo P. Cruz with Associate Justices Vicente S.E.
Veloso and Ricardo R. Rosario concurring.
2 Id., at pp. 56-61. Penned by Judge Reinato G. Quilala.
3 Id., at pp. 27, 270, 276-279, 314.
190
190 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
plaint, respondent credited his account with the aforesaid sum. 4
On March 21, 2003, respondent returned a photocopy of the check to petitioner for the
reason: Postdated. Petitioner, however, refused to accept and sent back to respondent a
photocopy of the check. Thereafter, the check, or more accurately, the Charge Slip, was
tossed several times from petitioner to respondent, and back to petitioner, until on May
6, 2003, respondent requested the PCHC to take custody of the check. Acting on the
request, PCHC directed the respondent to deliver the original check and informed it of
PCHCs authority under Clearing House Operating Memo (CHOM) No. 279 dated 06
September 1996 to split 50/50 the amount of the check subject of a Ping-
Pong controversy which shall be implemented thru the issuance of Debit Adjustment
Tickets against the outward demands of the banks involved. PCHC likewise encouraged
respondent to submit the controversy for resolution thru the PCHC Arbitration
Mechanism.5
However, it was petitioner who filed a complaint6 before the Arbitration Committee,
asserting that respondent should solely bear the entire face value of the check due to its
negligence in failing to return the check to petitioner within the 24-hour reglementary
period as provided in Section 20.17 of
_______________
4 Id., at pp. 27-28.
5 Id., at pp. 28, 240-242, 360.
6 Id., at pp. 233-239.
7 SEC. 20REGULAR RETURN ITEM PROCEDURE
20.1. Any cheque/item sent for clearing through the PCHC on which payment should be refused by the
Drawee Bank in accordance with long standing and accepted banking practices, such as but not limited to the
fact that:
a) it bears the forged or unauthorized signature of the drawer(s); or
b) it is drawn against a closed account; or
c) it is drawn against insufficient funds; or
d) payment thereof has been stopped; or
191
VOL. 692, FEBRUARY 27, 2013 191
Allied Banking Corporation vs. Bank of the Philippine Islands
the Clearing House Rules and Regulations8 (CHRR) 2000. Petitioner prayed that
respondent be ordered to reimburse the sum of P500,000.00 with 12% interest per
annum, and to pay attorneys fees and other arbitration expenses.
In its Answer with Counterclaims,9 respondent charged petitioner with gross
negligence for accepting the post-dated check in the first place. It contended that
petitioners admitted negligence was the sole and proximate cause of the loss.
On December 8, 2004, the Arbitration Committee rendered its Decision 10 in favor of
petitioner and against the respondent. First, it ruled that the situation of the parties
does not involve a Ping-Pong controversy since the subject check was neither returned
within the reglementary time or through the PCHC return window, nor coursed through
the clearing facilities of the PCHC.
As to respondents direct presentation of a photocopy of the subject check, it was
declared to be without legal basis because Section 21.111 of the CHRR 2000 does not apply
to post-
_______________
e) it is post-dated or stale-dated or out-of-date; or
f) it is a cashiers/managers/treasurers cheque of the drawee which has been materially altered; and
g) it is a counterfeit/spurious cheque shall be returned through the PCHC not later than the next regular
clearing for local exchanges and the acceptance of said return by the Sending Bank shall be mandatory. (Rollo,
p. 165-A.)
8 Effective October 2, 2000. (Board Resolution No. 10-2000).
9 Rollo, pp. 246-248.
10 Id., at pp. 325-337.
11 SEC. 21SPECIAL RETURN ITEMS BEYOND THE REGLEMENTARY CLEARING PERIOD
 21.1. Items which have been the subject of a material alteration or items bearing a forged endorsement
and/or lack of endorsement x x x shall be returned by direct presentation or demand to the Presenting Bank
and not through the regular clearing house facilities within five (5) years from date of presentation in clearing.
(Rollo, p. 166.)
192
192 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
dated checks. The Arbitration Committee further noted that respondent not only failed to
return the check within the 24-hour reglementary period, it also failed to institute any
formal complaint within the contemplation of Section 20.3 12 and it appears that
respondent was already contented with the 50-50 split initially implemented by the
PCHC. Finding both parties negligent in the performance of their duties, the Committee
applied the doctrine of Last Clear Chance and ruled that the loss should be shouldered
by respondent alone, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Allied
Banking Corporation and against defendant Bank of the Philippine Islands, ordering the latter to
pay the former the following:
(a) The sum of P500,000.00, plus interest thereon at the rate of 12% per annum counted from
the date of filing of the complaint;
(b) Attorneys fees in the amount of P25,000.00;
(c) The sum of P2,090.00 as and by way of reimbursement of filing fees, plus the cost of suit.
SO ORDERED. 13
Respondent filed a motion for reconsideration 14 but it was denied by the PCHC Board
of Directors under Board Resolution No. 10-200515 dated April 22, 2005. The Board
pointed out that what actually transpired was a ping-pong not of a check but of a
Charge Slip (CS) enclosed in a carrier envelope
_______________
12 SEC. 20. REGULAR RETURN ITEM PROCEDURE
xxxx
20.3. However, the right of the Drawee Bank to recover the amount of the item(s) returned shall remain
to be governed by the general principles of law when the defect(s) are discovered after the reglementary
period. (Id., at p. 165-A.)
13 Rollo, p. 335.
14 Id., at pp. 338-344.
15 Id., at pp. 351-359.
193
VOL. 692, FEBRUARY 27, 2013 193
Allied Banking Corporation vs. Bank of the Philippine Islands
that went back and forth through the clearing system in apparent reaction by [petitioner]
to the wrongful return via the PCHC clearing system. Respondents conduct was held as
a gross and unmistakably deliberate violation of Section 20.2, 16 in relation to Section
20.1(e) of the CHRR 2000.17
On May 13, 2005, respondent filed a petition for review 18in the RTC claiming that
PCHC erred in constricting the return of a post-dated check to Section 20.1, overlooking
the fact that Section 20.3 is also applicable which provision necessarily contemplates
defects that are referred to in Section 20.1 as both sections are subsumed under the
general provision (Section 20) on the return of regular items. Respondent also argued
that assuming it to be liable, the PCHC erred in holding it solely responsible and should
bear entirely the consequent loss considering that while respondent may have the last
opportunity in proximity, it was petitioner which had the longest, fairest and clearest
chance to discover the mistake and avoid the happening of the loss. Lastly, respondent
assailed the award of attorneys fees, arguing that PCHCs perception of malice against
it and misuse of the clearing machinery is clearly baseless and unfounded.
In its Decision dated December 13, 2005, the RTC affirmed with modification the
Arbitration Committees decision by deleting the award of attorneys fees. The RTC found
no merit in respondents stance that through inadvertence it failed to discover that the
check was post-dated and that confirmation within 24 hours is often elusive if not
outright impossible because a drawee bank receives hundreds if not thousands of checks
in an ordinary clearing day. Thus:
_______________
16 SEC. 20. REGULAR RETURN ITEM PROCEDURE
xxxx
20.2. Failure of the Drawee Bank to return such items within said reglementary period shall deprive
the Bank of its right to return the items thru the PCHC. (Rollo, p. 165-A.)
17 Rollo, p. 356.
18 Records, pp. 1-24.
194
194 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
Petitioner admitted par. 4 in its Answer with Counterclaim and in its Memorandum, further
adding that upon receipt of the subject check through inadvertence, it did not notice that the
check was postdated, hence, petitioner did not return the same to respondent.
These contradict petitioners belated contention that it discovered the defect only after the
lapse of the reglementary period. What the evidence on record discloses is that petitioner received
the check on October 10, 2002, that it was promptly sent for clearing, that through inadvertence, it
did not notice that the check was postdated. Petitioner did not even state when it discovered the
defect in the subject check.
Likewise, petitioners contention that its discovery of the defect was a non-issue in view of the
admissions made in its Answer is unavailing. The Court has noted the fact that the PCHC
Arbitration Committee conducted a clarificatory hearing during which petitioner admitted that its
standard operating procedure as regards confirmation of checks was not followed. No less than
petitioners witness admitted that BPI tried to call up the drawer of the check, as their procedure
dictates when it comes to checks in large amounts. However, having initially failed to contact the
drawer, no follow up calls were made nor other actions taken. Despite these, petitioner cleared the
check. Having admitted making said calls, it is simply impossible for petitioner to have
missed the fact that the check was postdated. (Emphasis supplied)
19
With the denial of its motion for partial reconsideration, respondent elevated the case
to the CA by filing a petition for review under Rule 42 of the 1997 Rules of Civil
Procedure, as amended.
By Decision dated March 19, 2009, the CA set aside the RTC judgment and ruled for
a 60-40 sharing of the loss as it found petitioner guilty of contributory negligence in
accepting what is clearly a post-dated check. The CA found that petitioners failure to
notice the irregularity on the face of the check was a breach of its duty to the public and a
telling sign
 _______________
19 Rollo, p. 59.
195
VOL. 692, FEBRUARY 27, 2013 195
Allied Banking Corporation vs. Bank of the Philippine Islands
of its lack of due diligence in handling checks coursed through it. While the CA conceded
that the drawee bank has a bigger responsibility in the clearing of checks, it declared
that the presenting bank cannot take lightly its obligation to make sure that only valid
checks are introduced into the clearing system. According to the CA, considerations of
public policy and substantial justice will be served by allocating the damage on a 60-40
ratio, as it thus decreed:
WHEREFORE, the decision of the Regional Trial Court of Makati City (Branch 57) dated
December 13, 2005 is ANNULLED and SET ASIDE and judgment is rendered ordering petitioner
to pay respondent Allied Banking Corporation the sum of P100,000.00 plus interest thereon at the
rate of 6% from July 10, 2003, which shall become 12% per annum from finality hereof, until fully
paid, aside from costs.
SO ORDERED. 20
Its motion for reconsideration having been denied by the CA, petitioner is now before
the Court seeking a partial reversal of the CAs decision and affirmance of the December
13, 2005 Decision of the RTC.
Essentially, the two issues for resolution are: (1) whether the doctrine of last clear
chance applies in this case; and (2) whether the 60-40 apportionment of loss ordered by
the CA was justified.
As well-established by the records, both petitioner and respondent were admittedly
negligent in the encashment of a check post-dated one year from its presentment.
Petitioner argues that the CA should have sustained PCHCs finding that despite the
antecedent negligence of petitioner in accepting the post-dated check for deposit,
respondent, by exercising reasonable care and prudence, might have avoided injurious
consequences had it not negligently
_______________
20 Id., at pp. 33 to 33-A.
196
196 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
cleared the check in question. It pointed out that in applying the doctrine of last clear
chance, the PCHC cited the case of Philippine Bank of Commerce v. Court of
Appeals21 which ruled that assuming the banks depositor, private respondent, was
negligent in entrusting cash to a dishonest employee, thus providing the latter with the
opportunity to defraud the company, it cannot be denied that petitioner bank had the
last clear opportunity to avert the injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
Petitioner underscores respondents failure to observe clearing house rules and its
own standard operating procedure which, the PCHC said constitute further negligence so
much so that respondent should be solely liable for the loss. Specifically, respondent
failed to return the subject check within the 24-hour reglementary period under Section
20.1 and to institute any formal complaint within the contemplation of Section 20.3 of the
CHRR 2000. The PCHC likewise faulted respondent for not making follow-up calls or
taking any other action after it initially attempted, without success, to contact by
telephone the drawer of the check, and clearing the check despite such lack of
confirmation from its depositor in violation of its own standard procedure for checks
involving large amounts.
The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff
does not preclude a recovery for the negligence of the defendant where it appears that
the defendant, by exercising reasonable care and prudence, might have avoided injurious
consequences to the plaintiff notwithstanding the plaintiffs negligence. 22 The doctrine
necessarily assumes negligence on the part of the defendant and contributory negligence
on the part of the plaintiff, and does not apply
_______________
21 336 Phil. 667, 681; 269 SCRA 695, 708 (1997).
22 Bustamante v. Court of Appeals, 271 Phil. 633, 641-642; 193 SCRA 603, 611 (1991).
197
VOL. 692, FEBRUARY 27, 2013 197
Allied Banking Corporation vs. Bank of the Philippine Islands
except upon that assumption.23 Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening
negligence of the defendant, who had the last fair chance to prevent the impending harm
by the exercise of due diligence.24 Moreover, in situations where the doctrine has been
applied, it was defendants failure to exercise such ordinary care, having the last clear
chance to avoid loss or injury, which was the proximate cause of the occurrence of such
loss or injury.25
In this case, the evidence clearly shows that the proximate cause of the unwarranted
encashment of the subject check was the negligence of respondent who cleared a post-
dated check sent to it thru the PCHC clearing facility without observing its own
verification procedure. As correctly found by the PCHC and upheld by the RTC, if only
respondent exercised ordinary care in the clearing process, it could have easily noticed
the glaring defect upon seeing the date written on the face of the check Oct. 9, 2003.
Respondent could have then promptly returned the check and with the check thus
dishonored, petitioner would have not credited the amount thereof to the payees account.
Thus, notwithstanding the antecedent negligence of the petitioner in accepting the post-
dated check for deposit, it can seek reimbursement from respondent the amount credited
to the payees account covering the check.
What petitioner omitted to mention is that in the cited case of Philippine Bank of
Commerce v. Court of Appeals,26while the Court found petitioner bank as the culpable
party under
_______________
23 J. Cezar S. Sangco, PHILIPPINE LAW ON TORTS AND DAMAGES, 1993 Edition, Vol. I, p. 77.
24 The Consolidated Bank & Trust Corporation v. Court of Appeals, 457 Phil. 688, 712; 410 SCRA 562, 580
(2003), citing Philippine Bank of Commerce v. Court of Appeals, supra note 21, at p. 680; p. 708.
25 Supra note 23, at p. 76.
26 Supra note 21.
198
198 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
the doctrine of last clear chance since it had, thru its teller, the last opportunity to avert
the injury incurred by its client simply by faithfully observing its own validation
procedure, it nevertheless ruled that the plaintiff depositor (private respondent) must
share in the loss on account of its contributory negligence. Thus:
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was
likewise negligent in not checking its monthly statements of account. Had it done so, the company
would have been alerted to the series of frauds being committed against RMC by its secretary. The
damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC
amounts to contributory negligence which shall mitigate the damages that may be
awarded to the private respondent under Article 2179 of the New Civil Code, to wit:
x x x. When the plaintiffs own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
In view of this, we believe that the demands of substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court,
except the award of P25,000.00 attorneys fees, shall be borne by private respondent RMC; only the
balance of 60% needs to be paid by the petitioners. The award of attorneys fees shall be borne
exclusively by the petitioners. (Italics in the original; emphasis supplied)
27
In another earlier case,28 the Court refused to hold petitioner bank solely liable for the
loss notwithstanding the
_______________
27 Id., at pp. 682-683; pp. 710-711.
28 Bank of the Philippine Islands v. Court of Appeals, G.R. No. 102383, November 26, 1992, 216 SCRA 51.
199
VOL. 692, FEBRUARY 27, 2013 199
Allied Banking Corporation vs. Bank of the Philippine Islands
finding that the proximate cause of the loss was due to its negligence. Since the
employees of private respondent bank were likewise found negligent, its claim for
damages is subject to mitigation by the courts. Thus:
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. x x x
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 proceedings in the amount of P7,250.00 and the costs of litigation on a 60-40 ratio.
Conformably with this ruling, no interests and attorneys fees can be awarded to either of the
parties. (Emphasis supplied)
29
Apportionment of damages between parties who are both negligent was followed in
subsequent cases involving banking transactions notwithstanding the courts finding
that one of them had the last clear opportunity to avoid the occurrence of the loss.
In Bank of America NT & SA v. Philippine Racing Club,30 the Court ruled:
_______________
29 Id., at p. 77.
30 G.R. No. 150228, July 30, 2009, 594 SCRA 301.
200
200 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence
on the part of respondent because, even if we concur that the latter was indeed negligent in pre-
signing blank checks, the former had the last clear chance to avoid the loss. To reiterate,
petitioners own operations manager admitted that they could have called up the client for
verification or confirmation before honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. x x x Petitioners negligence has been
undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, it must suffer the
consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondents
own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:
xxxx
Explaining this provision in Lambert v. Heirs of Ray Castillon, the Court held:
The underlying precept on contributory negligence is that a plaintiff who is partly
responsible for his own injury should not be entitled to recover damages in full but must
bear the consequences of his own negligence. The defendant must thus be held liable only
for the damages actually caused by his negligence. xxx xxx xxx
xxxx
Following established jurisprudential precedents, we believe the allocation of sixty percent
(60%) of the actual damages involved in this case (represented by the amount of the checks with
legal interest) to petitioner is proper under the premises. Respondent should, in light of its
contributory negligence, bear forty percent (40%) of its own loss. (Emphasis supplied)
31
In Philippine National Bank v. F.F. Cruz and Co., Inc.,32the Court made a similar
disposition, thus:
_______________
31 Id., at pp. 313-316.
32 G.R. No. 173259, July 25, 2011, 654 SCRA 333.
201
VOL. 692, FEBRUARY 27, 2013 201
Allied Banking Corporation vs. Bank of the Philippine Islands
Given the foregoing, we find no reversible error in the findings of the appellate court that PNB
was negligent in the handling of FFCCIs combo account, specifically, with respect to PNBs failure
to detect the forgeries in the subject applications for managers check which could have prevented
the loss. x x x PNB failed to meet the high standard of diligence required by the circumstances to
prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals and The Consolidated Bank
& Trust Corporation v. Court of Appeals, where the banks negligence is the proximate cause of the
loss and the depositor is guilty of contributory negligence, we allocated the damages between the
bank and the depositor on a 60-40 ratio. We apply the same ruling in this case considering that, as
shown above, PNBs negligence is the proximate cause of the loss while the issue as to FFCCIs
contributory negligence has been settled with finality in G.R. No. 173278. Thus, the appellate court
properly adjudged PNB to bear the greater part of the loss consistent with these rulings. 33
Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.34 Admittedly, petitioners acceptance of the
subject check for deposit despite the one year postdate written on its face was a clear
violation of established banking regulations and practices. In such instances, payment
should be refused by the drawee bank and returned through the PCHC within the 24-
hour reglementary period. As aptly observed by the CA, petitioners failure to comply
with this basic policy regarding post-dated checks was a telling sign of its lack of due
diligence in handling checks coursed through it.35
_______________
33 Id., at pp. 340-341.
34 Philippine National Bank v. Cheah Chee Chong, G.R. Nos. 170865 & 170892, April 25, 2012, 671 SCRA
49, 64, citing Valenzuela v. Court of Appeals, 323 Phil. 374, 388; 253 SCRA 303, 318 (1996).
35 Rollo, p. 32.
202
202 SUPREME COURT REPORTS ANNOTATED
Allied Banking Corporation vs. Bank of the Philippine Islands
It bears stressing that the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence is
expected,36considering the nature of the banking business that is imbued with public
interest. While it is true that respondents liability for its negligent clearing of the check
is greater, petitioner cannot take lightly its own violation of the long-standing rule
against encashment of post-dated checks and the injurious consequences of allowing such
checks into the clearing system.
Petitioner repeatedly harps on respondents transgression of clearing house rules
when the latter resorted to direct presentment way beyond the reglementary period but
glosses over its own negligent act that clearly fell short of the conduct expected of it as a
collecting bank. Petitioner must bear the consequences of its omission to exercise
extraordinary diligence in scrutinizing checks presented by its depositors.
Assessing the facts and in the light of the cited precedents, the Court thus finds no
error committed by the CA in allocating the resulting loss from the wrongful encashment
of the subject check on a 60-40 ratio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
March 19, 2009 of the Court of Appeals in CA-G.R. SP No. 97604 is hereby AFFIRMED.
No pronouncement as to costs.
_______________
36 Philippine National Bank v. Cheah Chee Chong, supra note 34, at p. 62, citing Philippine Savings Bank
v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008, 557 SCRA 318, 330; Bank of the Philippine
Islands v. Court of Appeals, 383 Phil. 538, 554; 326 SCRA 641, 657 (2000); Philippine Bank of Commerce v.
Court of Appeals, supra note 21, at p. 681; p. 708; and Philippine Commercial International Bank v. Court of
Appeals, 403 Phil. 361, 388; 350 SCRA 446, 472 (2001).
203
VOL. 692, FEBRUARY 27, 2013 203
Allied Banking Corporation vs. Bank of the Philippine Islands
SO ORDERED.
Sereno (C.J., Chairperson), Leonardo-De Castro, Bersamin and Reyes, JJ., concur.
Petition denied, judgment affirmed.
Notes.The doctrine of last clear chance does not apply where the party charged is
required to act instantaneously, and the injury cannot be avoided by the application of all
means at hand after the peril is or should have been discovered. (Achevara vs. Ramos,
601 SCRA 270 [2009])
The doctrine of last clear chance provides that where both parties are negligent but
the negligent act of one is appreciably later in point of time than that of the other, or
where it is impossible to determine whose fault or negligence brought about the
occurrence of the incident, the one who had the last clear opportunity to avoid the
impending harm but failed to do so, is chargeable with the consequences arising
therefrom. (Philippine National Railways Corporation vs. Vizcara, 666 SCRA 363 [2012])
o0o
35. G.R. No. 104612. May 10, 1994. *
BANK OF THE PHILIPPINE ISLANDS (successor-in-interest of COMMERCIAL BANK
AND TRUST CO.), petitioner, vs. HON. COURT OF APPEALS, EASTERN PLYWOOD
CORP. and BENIGNO D. LIM, respondents.
Negotiable Instruments Law; Court of Appeals correctly ruled that BPI was not a holder in
due course because the note was not indorsed to BPI by the payee CBTC.It further correctly ruled
that BPI was not a holder in due course because the note was not indorsed to BPI by the payee,
CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a
holder in due course. It acquired the note from CBTC by the contract of merger or sale between the
two banks. BPI, therefore, took the note subject to the Holdout Agreement.
Same; Banks and Banking; To apply the deposit to the payment of a loan is a privilege, a right
of set-off which the bank has the option to exercise.We disagree, however, with the Court of
Appeals in its interpretation of the Holdout Agreement. It is clear from paragraph 02 thereof that
CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim settle
their liability under the promissory note. It cannot be compelled to retain and apply the deposit in
Lim and Velascos joint account to the payment of the note. What the agreement conferred on
CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the
application. To apply the deposit to the payment of a loan is a privilege, a right of set-off which the
bank has the option to exercise.
Same; Same; Bank deposits are in the nature of irregular deposits; they are really loans
because they earn interests.Article 1980 of the Civil Code expressly provides that [f]ixed, savings,
and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. In Serrano vs. Central Bank of the Philippines, we held that bank deposits
are in the nature of irregular deposits; they are really loans because they earn interest. The
relationship then between a depositor and a bank is one of creditor and debtor. The deposit under
the questioned account was an ordinary bank deposit; hence, it was payable on demand of the
depositor.
_______________
*FIRST DIVISION.
303
 VOL. 232, MAY 10, 1994 303
Bank of the Philippine Islands vs. Court of Appeals
Special Proceedings; Probate; When the ownership of a particular property is disputed, the
determination by a probate court of whether that property is included in the estate of a deceased is
merely provisional in character and cannot be the subject of execution.Moreover, the order of the
court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI
was not specifically ordered to release the account to the said heirs; hence, it was under no judicial
compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a final
determination or adjudication that the account belonged to Velasco. We have ruled that when the
ownership of a particular property is disputed, the determination by a probate court of whether
that property is included in the estate of a deceased is merely provisional in character and cannot
be the subject of execution.
Civil Law; Obligations; Payment; Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or negligence.Because the
ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no
right to pay to persons other than those in whose favor the obligation was constituted or whose
right or authority to receive payment is indisputable. The payment of the money deposited with
BPI that will extinguish its obligation to the creditor-depositor is payment to the person of the
creditor or to one authorized by him or by the law to receive it. Payment made by the debtor to the
wrong party does not extinguish the obligation as to the creditor who is without fault or negligence,
even if the debtor acted in utmost good faith and by mistake as to the person of the creditor, or
through error induced by fraud of a third person.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended Decision of 6 March 1992 of
1 annum. The note was signed by Lim both in his own capacity and as President and
respondent Court of Appeals in CA-
________________
Annex A of Petition; Rollo, 18-24. Per Associate Justice Jose C. Campos, Jr., concurred in by Associate
1
Justices Alicia V. Sempio-Diy and Filemon H. Mendoza.
304
304 SUPREME COURT REPORTS ANNOTATED
Bank of the Philippine Islands vs. Court of Appeals
G.R. CV No. 25739 which modified the Decision of 15 November 1990 of Branch 19 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 87-42967, entitled Bank of the
Philippine Islands (successor-in-interest of Commercial Bank and Trust Company) versus
Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had affirmed
the dismissal of the complaint but had granted the defendants counterclaim for
P331,261.44 which represents the outstanding balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts were
duly established:
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim
(Lim), an officer and stockholder of Eastern, held at least one joint bank account
(and/or account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-
interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a
joint checking account (and account) with Lim in the amount of P120,000.00 was
opened by Mariano Velasco with funds withdrawn from the account of Eastern and/ or
Lim. Various amounts were later deposited or withdrawn from the joint account of
Velasco and Lim. The money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the
account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking
executed by Lim for himself and as President and General Manager of Eastern, one-half
2
of this amount was provisionally released and transferred to one of the bank account of
Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as
Additional Working Capital, evidenced by the Disclosure Statement on Loan/Credit
Transaction (Disclosure Statement) signed by CBTC through its branch manager,
Ceferino Jimenez, and Eastern, through Lim, as its President and General Manager. The4
loan was payable on demand with interest at 14% per annum.
_______________
2Annex 2 of Answer; Original Records (OR), 23-26.
3Exhibits 31 and 32; Id., 124 and 125, respectively.
4Exhibit A-6; Id., 5,
305
VOL. 232, MAY 10, 1994 305
Bank of the Philippine Islands vs. Court of Appeals
For this loan, Eastern issued on the same day a negotiable promissory note for
P73,000.00 payable on demand to the order of CBTC with interest at 14% per
5
General Manager of Eastern. No reference to any security for the loan appears on the
note. In the Disclosure Statement, the box with the printed word UNSECURED was
marked with Xmeaning unsecured, while the line with the words this loan is wholly/
partly secured by is followed by the typewritten words HoldOut on a 1:1 on C/A No.
2310-001-42, which refers to the joint account of Velasco and Lim with a balance of
P331.261.44.
In addition, Eastern and Lim, and CBTC signed another document entitled Holdout
Agreement, also dated 18 August 1978, wherein it was stated that as security for the
6
Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on said
[Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full
extent of their alleged interests therein as these may appear as a result of final and
definitive judicial action or a settlement between and among the contesting parties
thereto. Paragraph 02 of the Agreement provides as follows:
7
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged
interests in the Account Balance shall have been established with finality, ample and sufficient
power as shall be necessary to retain said Account Balance and enable Comtrust to apply the
Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued
interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable
on demand at any time, nor shall the existence hereof and the non-resolution of the dispute
between the contending parties in respect of entitlement to the Account Balance, preclude
Comtrust from instituting an action for recovery against Eastply and/or Mr. Lim in the event the
Loan is declared due and
_______________
5 Exhibit A; OR, 4.
Exhibit C; Id., 155-157.
6
7 Holdout Agreement, 1-2.
306
306 SUPREME COURT REPORTS ANNOTATED
Bank of the Philippine Islands vs. Court of Appeals
payable and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities
thereunder.
In the meantime, a case for the settlement of Velascos estate was filed with Branch 152
of the RTC of Pasig, entitled In re Intestate Estate of Mariano Velasco, and docketed as
Sp. Proc. No. 8959. In the said case, the whole balance of P331.261.44 in the aforesaid
joint account of Velasco and Lim was being claimed as part of Velascos estate. On 9
September 1986, the intestate court granted the urgent motion of the heirs of Velasco to
withdraw the deposit under the joint account of Lim and Velasco and authorized the
heirs to divide among themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPL On 2 December 1987, BPI filed with
9
the RTC of Manila a complaint against Lim and Eastern demanding payment of the
promissory note for P73,000.00. The complaint was docketed as Civil Case No. 87-42967
and was raffled to Branch 19 of the said court, then presided over by Judge Wenceslao M.
Polo. Defendants Lim and Eastern, in turn, filed a counterclaim against BPI for the
return of the balance in the disputed account subject of the Holdout Agreement and the
interests thereon after deducting the amount due on the promissory note.
After due proceedings, the trial court rendered its decision on 15 November 1990
dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled
that the promissory note in question is subject to the hold-out agreement, and that
10
based on this agreement, it was the duty of plaintiff Bank [BPI] to debit the account of
the defendants under the promissory note to set off the loan even though the same has no
fixed maturity. As to the defendants counterclaim, the trial court, recognizing the fact
11
that the entire amount in question had been withdrawn by Velascos heirs pursuant to
the order of the intestate court in Sp. Proc. No. 8959, denied it because the said claim
cannot be
_______________
8Annex A of Answer to Counterclaim; OR, 31-32.
9Per testimony of Ceferino Jimenez; TSN, 4 July 1988, 11.
OR, 200.
10
Id., 201.
11
307
VOL. 232, MAY 10, 1994 307
Bank of the Philippine Islands vs. Court of Appeals
awarded without disturbing the resolution of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal
was docketed as CA-G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision
of the trial court. It, however, failed to rule on the defendants (private respondents)
partial appeal from the trial courts denial of their counterclaim. Upon their motion for
reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended
Decision wherein it ruled that the settlement of Velascos estate had nothing to do with
13
the claim of the defendants for the return of the balance of their account with CBTC/BPI
as they were not privy to that case, and that the defendants, as depositors of CBTC/BPI,
are the latters creditors; hence, CBTC/BPI should have protected the defendants
interest in Sp. Proc. No. 8959 when the said account was claimed by Velascos estate. It
then ordered BPI to pay defendants the amount of P331.261.44 representing the
outstanding balance in the bank account of defendants.
14
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout
Agreement in question was subject to a suspensive condition stated therein, viz., that the
P331,261.44 shall become a security for respondent Lims promissory note only if
respondents, Lim and Eastern Plywood Corporations interests to that amount are
established as a result of a final and definitive judicial action or a settlement between
and among the contesting parties thereto. Hence, BPI asserts, the Court of Appeals
15
erred in affirming the trial courts decision dismissing the complaint on the ground that
it was the duty of CBTC to debit the account of the defendants to set off the amount of
P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the suspensive condition argument of
the petitioner. They interpret the findings of both the trial and appellate courts that the
money deposited in the joint account of Velasco and Lim came from Eastern
_______________
Id., 202.
12
Annex A of Petition; Rollo, 19-23.
13
Rollo, 22-23.
14
Id., 13-14.
15
308
308 SUPREME COURT REPORTS ANNOTATED
Bank of the Philippine Islands vs. Court of Appeals
and Lims own account as a finding that the money deposited in the joint account of Lim
and Velasco rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno Lim.
And because the latter are the rightful owners of the money in question, the suspensive
condition does not find any application in this case and the bank had the duty to set off
this deposit with the loan. They add that the ruling of the lower court that they own the
disputed amount is the final and definitive judicial action required by the Holdout
Agreement; hence, the petitioner can only hold the amount of P73,000.00 representing
the security required for the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents filed
a Rejoinder thereto.
We gave due course to the petition and required the parties to submit simultaneously
their memoranda.
The key issues in this case are whether BPI can demand payment of the loan of
P73,000.00 despite the existence of the Holdout Agreement and whether BPI is still
liable to the private respondents on the account subject of the Holdout Agreement after
its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for P73,000.00. On its face,
the note is an unconditional promise to pay the said amount, and as stated by the
respondent Court of Appeals, [t]here is no question that the promissory note is a
negotiable instrument. It further correctly ruled that BPI was not a holder in due
17
course because the note was not indorsed to BPI by the payee, CBTC. Only a negotiation
by indorsement could have operated as a valid transfer to make BPI a holder in due
course. It acquired the note from CBTC by the contract of merger or sale between the two
banks. BPI, therefore, took the note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout
Agreement. It is clear from paragraph 02 thereof that CBTC, or BPI as its-successor-in-
interest, had every right to demand that Eastern and Lim settle their liability under the
promissory note. It cannot be compelled to retain and
_______________
Rollo, 33-35.
16
Id., 20.
17
309
VOL. 232, MAY 10, 1994 309
Bank of the Philippine Islands vs. Court of Appeals
apply the deposit in Lim and Velascos joint account to the payment of the note. What the
agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no
duty or obligation to make the application. To apply the deposit to the payment of a loan
18
is a privilege, a right of set-off which the bank has the option to exercise.
19
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the
agreement, CBTC was not in any way precluded from demanding payment from Eastern
and from instituting an action to recover payment of the loan. What it provides is an
alternative, not an exclusive, method of enforcing its claim on the note. When it
demanded payment of the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the Holdout Agreement to the
payment of the promissory note for P73,000.00. Its suit for the enforcement of the note
was then in order and it was error for the trial court to dismiss it on the theory that it
was set off by an equivalent portion in C/A No. 2310-001-42 which BPI should-have
debited. The Court of Appeals also erred in affirming such dismissal.
The suspensive condition theory of the petitioner is therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. The counterclaim of
Eastern and Lim for the return of the P331,261.44 was equivalent to a demand hat they
20
be allowed to withdraw their deposit with the bank. Article 1980 of the Civil Code
expressly provides that [f]ixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan.
In Serrano vs. Central Bank of the Philippines, we held that bank deposits are
21
_______________
9 C.J.S. Banks and Banking 301 (1938). See Bank of California vs. Starrett, 188 P. 410 (Wash.
18
1920); Bryant vs. Williams, 16 F.2d 159 (D.C.N.C. 1926).
19Id., 296. See Lowden vs. Iowa-Des Moines Nat. Bank and Trust Co., 10 F. Supp. 430 (D.C. Iowa
1935); Meredith vs. First National Bank of Central City, 271 S.W. 2d 274 (Ky. Ct. App. 1954).
20OR, 17.
96 SCRA 96 [1980]. See also, Guingona vs. City Fiscal of Manila, 128 SCRA 577 [1984]; People vs.
21
Ong, 204 SCRA 942 [1991].
310
310 SUPREME COURT REPORTS ANNOTATED
Bank of the Philippine Islands vs. Court of Appeals
in the nature of irregular deposits; they are really loans because they earn interest. The
relationship then between a depositor and a bank is one of creditor and debtor. The
deposit under the questioned account was an ordinary bank deposit; hence, it was
payable on demand of the depositor. 22
The account was proved and established to belong to Eastern even if it was deposited
in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right
to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay
Eastern simply because it already allowed the heirs of Velasco to withdraw the whole
balance of the account. The petitioner should not have allowed such withdrawal because
it had admitted in the Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate
Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being
claimed by them and that one-half was being claimed by the heirs of Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of
Velasco to withdraw the account. BPI was not specifically ordered to release the account
to the said heirs; hence, it was under no judicial compulsion to do so. The authorization
given to the heirs of Velasco cannot be construed as a final determination or adjudication
that the account belonged to Velasco. We have ruled that when the ownership of a
particular property is disputed, the determination by a probate court of whether that
property is included in the estate of a deceased is merely provisional in character and
cannot be the subject of execution. 24
Because the ownership of the deposit remained undetermined, BPI, as the debtor
with respect thereto, had no right to pay to persons other than those in whose favor the
obligation was constituted or whose right or authority to receive payment is indisputable.
The payment of the money deposited with BPI that will extinguish its obligation to the
creditor-depositor is payment
_______________
 10 Am Jur 2d, Banks, 356.
22

Annex 1 of Answer, OR, 20-21.

36.
23

Valera vs. Inserto, 149 SCRA 533 [1987].

24

311 FAR EAST BANK & TRUST COMPANY, G.R. No. 168274
VOL. 232, MAY 10, 1994 311 Petitioner,
Bank of the Philippine Islands vs. Court of Appeals Present:
to the person of the creditor or to one authorized by him or by the law to receive
it. Payment made by the debtor to the wrong party does not extinguish the obligation as
25
YNARES-SANTIAGO, J.,
to the creditor who is without fault or negligence, even if the debtor acted in utmost good - versus - Chairperson,
faith and by mistake as to the person of the creditor, or through error induced by fraud of AUSTRIA-MARTINEZ,
a third person. The payment then by BPI to the heirs of Velasco, even if done in good
26
CHICO-NAZARIO,
faith, did not extinguish its obligation to the true depositor, Eastern. NACHURA, and
In the light of the above findings, the dismissal of the petitioners complaint is
GOLD PALACE JEWELLERY CO., as represented REYES, JJ.
reversed and set aside. The award on the counter-claim is sustained subject to a
modification of the interest.
by Judy L. Yang, Julie Yang-Go and Kho Soon
WHEREFORE, the instant petition is partly GRANTED. The challenged amended Huat, Promulgated:
decision in CA-G.R. CV No. 25735 is hereby MODIFIED. As modified: Respondent.
August 20, 2008
1. (1)Private respondents are ordered to pay the petitioner the promissory note for
P73,000.00 with interest at: x------------------------------------------------------------------------------------x

1. (a)14% per annum on the principal, computed from 18 August 1978 until DECISION
payment;
2. (b)12% per annum on the interest which had accrued up to the date of the filing NACHURA, J.:
of the complaint, computed from that date until payment pursuant to Article
2212 of the Civil Code.

1. (2)The award of P331,264.44 in favor of the private respondents shall bear

interest at the rate of 12% per annum computed from the filing of the
counterclaim.
For the review of the Court through a Rule 45 petition are the following issuances of
No pronouncement as to costs.
SO ORDERED. the Court of Appeals (CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005
Cruz (Chairman), Bellosillo, Quiason and Kapunan, JJ., concur. Decision[1] which reversed the trial courts ruling, and (2) the May 26, 2005
Petition partly granted; Challenged amended decision modified.
_______________ Resolution[2] which denied the motion for reconsideration of the said CA decision.

See Article 1240, New Civil Code.

25

IV ARTURO TOLENTINO, CIVIL CODE OF THE PHILIPPINES285 (1991 ed.).

26
The instant controversy traces its roots to a transaction consummated sometime in
312
312 SUPREME COURT REPORTS ANNOTATED June 1998, when a foreigner, identified as Samuel Tagoe, purchased from the
Bank of the Philippine Islands vs. Court of Appeals respondent Gold Palace Jewellery Co.s (Gold Palaces) store at SM-North EDSA
Note.A payment in order to be effective to discharge an obligation must be made to several pieces of jewelry valued at P258,000.00.[3] In payment of the same, he offered
the proper person (Philippine Airlines, Inc. vs. Court of Appeals, 181 SCRA 557).
Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD
Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.[4]
Before receiving the draft, respondent Judy Yang, the assistant general
manager of Gold Palace, inquired from petitioner Far East Bank & Trust Companys
(Far Easts) SM North EDSA Branch, its neighbor mall tenant, the nature of the draft.
The teller informed her that the same was similar to a managers check, but advised
her not to release the pieces of jewelry until the draft had been cleared.[5] Following
the banks advice, Yang issued Cash Invoice No. 1609[6] to the foreigner, asked him to
come back, and informed him that the pieces of jewelry would be released when the
draft had already been cleared.[7] Respondent Julie Yang-Go, the manager
of Gold Palace, consequently deposited the draft in the companys account with the
aforementioned Far East branch on June 2, 1998.[8]
When Far East, the collecting bank, presented the draft for clearing to LBP,
the drawee bank, the latter cleared the same[9]UOBs account with LBP was
debited,[10] and Gold Palaces account with Far East was credited with the amount
stated in the draft.[11]
The foreigner eventually returned to respondents store on June 6, 1998 to claim the
purchased goods. After ascertaining that the draft had been cleared, respondent
Yang released the pieces of jewelry to Samuel Tagoe; and because the amount in the
draft was more than the value of the goods purchased, she issued, as his change, Far
East Check No. 1730881[12] for P122,000.00.[13] This check was later presented for
encashment and was, in fact, paid by the said bank.[14]
On June 26, 1998, or after around three weeks, LBP informed Far East that the
amount in Foreign Draft No. M-069670 had been materially altered from P300.00
to P380,000.00 and that it was returning the same. Attached to its official
correspondence were Special Clearing Receipt No. 002593 and the duly notarized
and consul-authenticated affidavit of a corporate officer of the drawer, UOB.[15] It is
noted at this point that the material alteration was discovered by UOB after LBP had
informed it that its funds were being depleted following the encashment of the
subject draft.[16] Intending to debit the amount from respondents account, Far
East subsequently refunded the P380,000.00 earlier paid by LBP.
Gold Palace, in the meantime, had already utilized portions of the amount.
Thus, on July 20, 1998, as the outstanding balance of its account was already
inadequate, Far East was able to debit only P168,053.36,[17] but this was done without
a prior written notice to the account holder.[18] Far East only notified by phone the
representatives of the respondent company.[19]
On August 12, 1998, petitioner demanded from respondents the payment
of P211,946.64 or the difference between the amount in the materially altered draft
and the amount debited from the respondent companys
account.[20] Because Gold Palace did not heed the demand, Far East consequently
instituted Civil Case No. 99-296 for sum of money and damages before the Regional
Trial Court (RTC), Branch 64 of Makati City.[21]
In their Answer, respondents specifically denied the material allegations in
the complaint and interposed as a defense that the complaint states no cause of
actionthe subject foreign draft having been cleared and the respondent not being the
party who made the material alteration. Respondents further counterclaimed for
actual damages, moral and exemplary damages, and attorneys fees considering,
among others, that the petitioner had confiscated without basis Gold Palaces balance
in its account resulting in operational loss, and had maliciously imputed to the latter
the act of alteration.[22]
 After trial on the merits, the RTC rendered its July 30, 2001 Decision [23] in
favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual
damages and P50,000.00 as attorneys fees.[24] The trial court ruled that, on the basis of
its warranties as a general indorser, Gold Palace was liable to Far East.[25]
On appeal, the CA, in the assailed March 15, 2005 Decision,[26] reversed the
ruling of the trial court and awarded respondents counterclaim. It ruled in the main
that Far East failed to undergo the proceedings on the protest of the foreign draft or
to notify Gold Palace of the drafts dishonor; thus, Far East could not
charge Gold Palace on its secondary liability as an indorser.[27] The appellate court
further ruled that the drawee bank had cleared the check, and its remedy should be
against the party responsible for the alteration. Considering that, in this
case, Gold Palace neither altered the draft nor knew of the alteration, it could not be
held liable.[28] The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the appeal is GRANTED;
the assailed Decision dated 30 July 2001 of the Regional Trial Court of
Makati City, Branch 64 is hereby REVERSED and SET ASIDE; the
Complaint dated January 1999 is DISMISSED; and appellee Far East
Bank and Trust Company is hereby ordered to pay appellant Gold
Palace Jewellery Company the amount of Php168,053.36 for actual
damages plus legal interest of 12% per annum from 20 July 1998,
Php50,000.00 for exemplary damages, and Php50,000.00 for attorneys
fees. Costs against appellee Far East Bank and Trust Company.[29]
The appellate court, in the further challenged May 26, 2005
Resolution,[30] denied petitioners Motion for Reconsideration,[31] which prompted the
petitioner to institute before the Court the instant Petition for Review on Certiorari.[32]
We deny the petition.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides
that the acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of his acceptance.[33] This provision applies with equal force in case the
drawee pays a bill without having previously accepted it. His actual payment of the
amount in the check implies not only his assent to the order of the drawer and a
recognition of his corresponding obligation to pay the aforementioned sum, but also,
his clear compliance with that obligation.[34] Actual payment by the drawee is greater
than his acceptance, which is merely a promise in writing to pay. The payment of a
check includes its acceptance.[35]
Unmistakable herein is the fact that the drawee bank cleared and paid the
subject foreign draft and forwarded the amount thereof to the collecting bank. The
latter then credited to Gold Palaces account the payment it received. Following the
plain language of the law, the drawee, by the said payment, recognized and
complied with its obligation to pay in accordance with the tenor of his acceptance.
The tenor of the acceptance is determined by the terms of the bill as it is when the
drawee accepts.[36] Stated simply, LBP was liable on its payment of the check
according to the tenor of the check at the time of payment, which was the raised
amount.
Because of that engagement, LBP could no longer repudiate the payment it
erroneously made to a due course holder. We note at this point that Gold Palace was
not a participant in the alteration of the draft, was not negligent, and was a holder in
due courseit received the draft complete and regular on its face, before it became
overdue and without notice of any dishonor, in good faith and for value, and absent
any knowledge of any infirmity in the instrument or defect in the title of the person
negotiating it.[37] Having relied on the drawee banks clearance and payment of the
draft and not being negligent (it delivered the purchased jewelry only when the draft
was cleared and paid), respondent is amply protected by the said Section 62.
Commercial policy favors the protection of any one who, in due course, changes his
position on the faith of the drawee banks clearance and payment of a check or
draft.[38]
This construction and application of the law gives effect to the plain language
of the NIL[39] and is in line with the sound principle that where one of two innocent
parties must suffer a loss, the law will leave the loss where it finds it.[40] It further
reasserts the usefulness, stability and currency of negotiable paper without seriously
endangering accepted banking practices. Indeed, banking institutions can readily
protect themselves against liability on altered instruments either by qualifying their
acceptance or certification, or by relying on forgery insurance and special paper
which will make alterations obvious.[41] This is not to mention, but we state
nevertheless for emphasis, that the drawee bank, in most cases, is in a better
position, compared to the holder, to verify with the drawer the matters stated in the
instrument. As we have observed in this case, were it not for LBPs communication
with the drawer that its account in the Philippines was being depleted after the
subject foreign draft had been encashed, then, the alteration would not have been
discovered. What we cannot understand is why LBP, having the most convenient
means to correspond with UOB, did not first verify the amount of the draft before it
cleared and paid the same. Gold Palace, on the other hand, had no facility to
ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was left
with no option but to rely on the representations of LBP that the draft was good.
In arriving at this conclusion, the Court is not closing its eyes to the other
view espoused in common law jurisdictions that a drawee bank, having paid to an
innocent holder the amount of an uncertified, altered check in good faith and without
negligence which contributed to the loss, could recover from the person to whom payment
was made as for money paid by mistake.[42] However, given the foregoing discussion, we
find no compelling reason to apply the principle to the instant case.
The Court is also aware that under the Uniform Commercial Code in the
United States of America, if an unaccepted draft is presented to a drawee for payment or
acceptance and the drawee pays or accepts the draft, the person obtaining payment or
acceptance, at the time of presentment, and a previous transferor of the draft, at the time of
transfer, warrant to the drawee making payment or accepting the draft in good faith that the
draft has not been altered.[43] Nonetheless, absent any similar provision in our law, we
cannot extend the same preferential treatment to the paying bank.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of
the NIL, its collecting agent, Far East, should not have debited the money paid by the
drawee bank from respondent companys account. When Gold Palace deposited the
check with Far East, the latter, under the terms of the deposit and the provisions of
the NIL, became an agent of the former for the collection of the amount in the
draft.[44] The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee and the
holder of the check or his agent are concerned, converted the check into a mere
voucher,[45] and, as already discussed, foreclosed the recovery by the drawee of the
amount paid. This closure of the transaction is a matter of course; otherwise,
uncertainty in commercial transactions, delay and annoyance will arise if a bank at
some future time will call on the payee for the return of the money paid to him on
the check.[46]
As the transaction in this case had been closed and the principal-agent
relationship between the payee and the collecting bank had already ceased, the latter
in returning the amount to the drawee bank was already acting on its own and
should now be responsible for its own actions. Neither can petitioner be considered
to have acted as the representative of the drawee bank when it debited respondents
account, because, as already explained, the drawee bank had no right to recover
what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor
who indorsed the instrument for collection to shift the burden it brought upon itself.
This is precisely because the said indorsement is only for purposes of collection are AFFIRMED WITH THE MODIFICATION that the award of exemplary
which, under Section 36 of the NIL, is a restrictive indorsement.[47] It did not in any damages and attorneys fees is DELETED.
way transfer the title of the instrument to the collecting bank. Far East did not own
the draft, it merely presented it for payment. Considering that the warranties of a SO ORDERED.
general indorser as provided in Section 66 of the NIL are based upon a transfer of
title and are available only to holders in due course,[48] these warranties did not
attach to the indorsement for deposit and collection made by Gold Palace to Far East.
Without any legal right to do so, the collecting bank, therefore, could not debit
respondents account for the amount it refunded to the drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the
extent that Far East could not debit the account of Gold Palace, and for doing so, it
must return what it had erroneously taken. Far Easts remedy under the law is not
against Gold Palace but against the drawee-bank or the person responsible for the
alteration. That, however, is another issue which we do not find necessary to discuss
in this case.

However, we delete the exemplary damages awarded by the appellate court.

Respondents have not shown that they are entitled to moral, temperate or
compensatory damages.[49] Neither was petitioner impelled by malice or bad faith in
debiting the account of the respondent company and in pursuing its cause.[50] On the
contrary, petitioner was honestly convinced of the propriety of the debit. We also
delete the award of attorneys fees for, in a plethora of cases, we have ruled that it is
not a sound public policy to place a premium on the right to litigate. No damages
can be charged to those who exercise such precious right in good faith, even if done
erroneously.[51]

WHEREFORE, premises considered, the March 15, 2005 Decision and the
May 26, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 71858