G.R. No.

L-43191 November 13, 1935

PAULINO GULLAS, plaintiff-appellant,

vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

MALCOLM, J.:

Both parties to this case appealed from a judgment of the Court of First Instance of Cebu, which sentenced the
defendant to return to the account of the plaintiff the sum of P5098, with legal interest and costs, the plaintiff to secure
damages in the amount of P10,000 more or less, and the defendant to be absolved totally from the amended complaint.
As it is conceded that the plaintiff has already received the sum represented by the United States treasury, warrant,
which is in question, the appeal will thus determine the amount, if any, which should be paid to the plaintiff by the
defendant.

The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is a member of the
Philippine Bar, resident in the City of Cebu. The second named is a banking corporation with a branch in the same city.
Attorney Gullas has had a current account with the bank.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the United States Veterans
Bureau issued a Warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and
Pedro Lopez signed as endorsers of this check. Thereupon it was cashed by the Philippine National Bank. Subsequently
the treasury warrant was dishonored by the Insular Treasurer.

At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against this balance he had
issued certain cheeks which could not be paid when the money was sequestered by the On August 20, 1933, Attorney
Gullas left his residence for Manila.

The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which could not be
delivered to him at that time because he was in Manila. In the bank's letter of August 21, 1933, addressed to Messrs.
Paulino Gulla and Pedro Lopez, they were informed that the United States Treasury warrant No. 20175 in the name of
Francisco Sabectoria Bacos for $361 or P722, the payment for which had been received has been returned by our Manila
office with the notation that the payment of his check has been stopped by the Insular Treasurer. "In view of this
therefore we have applied the outstanding balances of your current accounts with us to the part payment of the
foregoing check", namely, Mr. Paulino Gullas P509. On the return of Attorney Gullas to Cebu on August 31, 1933, notice
of dishonor was received and the unpaid balance of the United States Treasury warrant was immediately paid by him.

As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney Gullas. In the first
place, as above indicated, checks including one for his insurance were not paid because of the lack of funds standing to
his credit in the bank. In the second place, periodicals in the vicinity gave prominence to the news to the great
mortification of Gullas.lawphil.net

A variety of incidental questions have been suggested on the record which it can be taken for granted as having been
adversely disposed of in this opinion. The main issues are two, namely, (1) as to the right of Philippine National Bank, and
to apply a deposit to the debt of depositor to the bank and (2) as to the amount damages, if any, which should be
awarded Gullas.

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq., 1758 et seq. The
portions of Philippine law provide that compensation shall take place when two persons are reciprocally creditor and
debtor of each other (Civil Code, article 1195). In his connection, it has been held that the relation existing between a
depositor and a bank is that of creditor and debtor. (Fulton Iron Works Co. vs. China Banking Corporation [1933], 59 Phil.,
59.)
The Negotiable Instruments Law contains provisions establishing the liability of a general indorser and giving the
procedure for a notice of dishonor. The general indorser of negotiable instrument engages that if he be dishonored and
the, necessary proceedings of dishonor be duly taken, he will pay the amount thereof to the holder. (Negotiable
Instruments Law, sec. 66.) In this connection, it has been held a long line of authorities that notice of dishonor is in order
to charge all indorser and that the right of action against him does not accrue until the notice is given. (Asia Banking
Corporation vs. Javier [1923] 44 Phil., 777; 5 Uniform Laws Annotated.)

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on
the part of a depositor. In Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a bank has no
right, without an order from or special assent of the depositor to retain out of his deposit an amount sufficient to meet
his indebtedness. The basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular
deposits, e. g., the deposit of money with a banker. With freedom of selection and after full preference to the minority
rule as more in harmony with modern banking practice. (1 Morse on Banks and Banking, 5th ed., sec. 324; Garrison vs.
Union Trust Company [1905], 111 A.S.R., 407; Louisiana Civil Code Annotated, arts. 2207 et seq.; Gordon & Gomila vs.
Muchler [1882], 34 L. Ann., 604; 8 Manresa, Comentarios al Codigo Civil Espaol, 4th ed., 359 et seq., 11 Manresa pp.
694 et seq.)

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas a right
of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that prior to the
mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in
his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued
in good faith.

As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been
held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that
the bank has applied the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) The decision cited represents the minority doctrine, for on principle it would seem
that notice is not necessary to a maker because the right is based on the doctrine that the relationship is that of creditor
and debtor. However this may be, as to an indorser the situation is different, and notice should actually have been given
him in order that he might protect his interests.

We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow up that statement
with others proving exact damages is not so easy. For instance, for alleged libelous articles the bank would not be
primarily liable. The same remark could be made relative to the loss of business which Gullas claims but which could not
be traced definitely to this occurrence. Also Gullas having eventually been reimbursed lost little through the actual levy
by the bank on his funds. On the other hand, it was not agreeable for one to draw checks in all good faith, then, leave for
Manila, and on return find that those checks had not been cashed because of the action taken by the bank. That caused
a disturbance in Gullas' finances, especially with reference to his insurance, which was injurious to him. All facts and
circumstances considered, we are of the opinion that Gullas should be awarded nominal damages because of the
premature action of the bank against which Gullas had no means of protection, and have finally determined that the
amount should be P250.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the result that the
judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff the sum of P250, and the
costs of both instances.
 G.R. Nos. 173654-765 August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines,
represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9
June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112
cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioners Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112
cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases
No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date and
time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within
the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan,
Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of gain, did then and there
willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would
have necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of taking without the consent of the owners was missing on the ground that it is the depositors-clients,
and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents
and the offended party that would have created a high degree of confidence between them which the respondents could
have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative
of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal
prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him.
Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January
2006 and refused to issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioners Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30,
2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June
2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of
the same Code provides that "a person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the
depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of
the money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a
perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper
of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of
confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review
on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant
of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to
file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore,
because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant
of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts
which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent
to gain and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the
Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of
grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is
not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has created a high degree of confidence between them, which the
respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the
insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense
charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of
discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:

ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by two degrees than those
respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of
confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the
premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers property without
violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;
6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information
must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying
and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used
in the statute but in terms sufficient to enable a person of common understanding to know what offense is being
charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions
complained of as constituting the offense. The test is whether it enables a person of common understanding to know the
charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of
the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the
monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where
monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the
law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as
follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of
the money deposits therein, and the duties being performed by its employees who have custody of the money or have
come into possession of it. The Court has consistently considered the allegations in the Information that such employees
acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as
owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque
v. People,6 where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga,
Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE,
being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa
Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility to receive and collect
capital contributions from its member/contributors of said corporation, and having collected and received in her capacity
as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave
abuse of confidence and without the knowledge and consent of said corporation, did then and there willfully, unlawfully
and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency, by making it appear that a
certain depositor by the name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact
said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the
total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the tellers possession due to the
confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the
Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates
inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with
intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to
wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL
INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U.
FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he
being the Branch Operation Officer of the said complainant and as such he had free access to the place where the said
amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is
Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch
Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its
trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which
he exploited to enrich himself to the damage and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank.
The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the
defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of
confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that
the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of
the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by reason
of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high
degree of confidence between them, which respondents abused,"12 and without employing the word "owner" in lieu of
the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no
reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the
Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the
requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are
entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified
Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia
Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party
is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an
acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as
the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by
the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by
certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised a
question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the
preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein
respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon a
finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence.
Soliven v. Makasiar,15 as reiterated in Allado v. Driokno,16 explained that probable cause for the issuance of a warrant of
arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to
believe that an offense has been committed by the person sought to be arrested.17 The records reasonably indicate that
the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve
the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a
sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed
with the case upon a showing that there is a prima facie case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30
January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET
ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS.
The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to
05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs. SO ORDERED.
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID,
respondents.

MAKASIAR, Actg. C.J.:

This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining order and/or writ
of preliminary injunction filed by petitioners on March 26, 1982.

On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary restraining order
was duly issued ordering the respondents, their officers, agents, representatives and/or person or persons acting upon
their (respondents') orders or in their place or stead to refrain from proceeding with the preliminary investigation in Case
No. 8131938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement
David filed a motion to lift restraining order which was denied in the resolution of this Court dated May 18, 1983.

As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceeding with the
preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent Clement David,
with estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange
transactions principally, on the ground of lack of jurisdiction in that the allegations of the charged, as well as the
testimony of private respondent's principal witness and the evidence through said witness, showed that petitioners'
obligation is civil in nature.

For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment dated
June 28,1982, as follows:t.hqw

On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of Manila, which
case was assigned to respondent Lota for preliminary investigation (Petition, p. 8).

In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following directors of the
Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr.,
Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank Circular
No. 364 and related Central Bank regulations on foreign exchange transactions, allegedly committed as follows (Petition,
Annex "A"):t.hqw

"From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter called
NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise
Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00
under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was induced into making the aforestated
investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr.,
then NSLA President, petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA
General Manager; that on March 21, 1981 N LA was placed under receivership by the Central Bank, so that David filed
claims therewith for his investments and those of his sister; that on July 22, 1981 David received a report from the
Central Bank that only P305,821.92 of those investments were entered in the records of NSLA; that, therefore, the
respondents in I.S. No. 81-31938 misappropriated the balance of the investments, at the same time violating Central
Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions; that after demands,
petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and
US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the following.t.
hqw

"That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served as such until
October 30, 1980, while Santos was General Manager up to November 1980; that because NSLA was urgently in need of
funds and at David's insistence, his investments were treated as special- accounts with interest above the legal rate, an
recorded in separate confidential documents only a portion of which were to be reported because he did not want the
Australian government to tax his total earnings (nor) to know his total investments; that all transactions with David were
recorded except the sum of US$15,000.00 which was a personal loan of Santos; that David's check for US$50,000.00 was
cleared through Guingona, Jr.'s dollar account because NSLA did not have one, that a draft of US$30,000.00 was placed in
the name of one Paz Roces because of a pending transaction with her; that the Philippine Deposit Insurance Corporation
had already reimbursed David within the legal limits; that majority of the stockholders of NSLA had filed Special
Proceedings No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that after NSLA was placed under
receivership, Martin executed a promissory note in David's favor and caused the transfer to him of a nine and on behalf
(9 1/2) carat diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were civil in nature."

Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:t.hqw

"That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.) had resigned as
NSLA president in March 1978, or prior to those transactions; that he assumed a portion o; the liabilities of NSLA to
David because of the latter's insistence that he placed his investments with NSLA because of his faith in Guingona, Jr.;
that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.) bound himself to pay David the
sums of P668.307.01 and US$37,500.00 in stated installments; that he (Guingona, Jr.) secured payment of those amounts
with second mortgages over two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in
which it was provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of the
obligation to David; that he (Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which David refused to
accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to
effect the release of the mortgage over one (1) of the two parcels of land conveyed to David under second mortgages."

At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was itself
novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).

But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the production
of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account allegedly showed that
the transactions between David and NSLA were simple loans, i.e., civil obligations on the part of NSLA which were
novated when Guingona, Jr. and Martin assumed them; and (b) David's principal witness allegedly testified that the
duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that
some of his investments were not record (Petition, pp. 8-9).

Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile (Petition,
p. 9) [pp. 153-157, rec.].

As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents acted
without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and related
regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.

There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public respondents
have no jurisdiction over the charge of estafa.

A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of Manila by private
respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one
Robert Marshall and the other directors of the Nation Savings and Loan Association, will show that from March 20, 1979
to March, 1981, private respondent David, together with his sister, Denise Kuhne, invested with the Nation Savings and
Loan Association the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time
Deposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a total
of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with his sister, made
investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981,
petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the bank to
private respondent David by executing on June 17, 1981 a joint promissory note in favor of private respondent
acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was based on the
statement of account as of June 30, 1981 prepared by the private respondent (p. 81, rec.). The amount of indebtedness
assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits
of private respondent's sister in the amount of P116,613.20.

Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and petitioner
Guingona executed another promissory note antedated to June 17, 1981 whereby he personally acknowledged an
indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor of private
respondent (p. 25, rec.). The aforesaid promissory notes were executed as a result of deposits made by Clement David
and Denise Kuhne with the Nation Savings and Loan Association.

Furthermore, the various pleadings and documents filed by private respondent David, before this Court indisputably
show that he has indeed invested his money on time and savings deposits with the Nation Savings and Loan Association.

It must be pointed out that when private respondent David invested his money on nine. and savings deposits with the
aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit.
Thus, Article 1980 of the New Civil Code provides that:

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the
provisions concerning simple loan.

In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:t.hqw

It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true
deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation of
Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese
Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co.
vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that:t.
hqw

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 (Art.
1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it
can use the same. The petitioner here in making time deposits that earn interests will 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 depositary's failure to return the subject matter of the deposit (Emphasis supplied).

Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor
and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of
the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits
and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation
to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will
not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it
will only give rise to civil liability over which the public respondents have no- jurisdiction.

WE have already laid down the rule that:

In order that a person can be convicted under the above-quoted provision, it must be proven that he has the obligation
to deliver or return the some money, goods or personal property that he received Petitioners had no such obligation to
return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly
as stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money
that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.t.hqw

"Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter may use the same for a certain time- and return it, in which case the contract is called a commodatum; or
money or other consumable thing, upon the condition that the same amount of the same kind and quality shall he paid
in which case the contract is simply called a loan or mutuum.

"Commodatum is essentially gratuitous.

"Simple loan may be gratuitous or with a stipulation to pay interest.

"In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to the
borrower.

"Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality."

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum
the borrower acquires ownership of the money, goods or personal property borrowed Being the owner, the borrower
can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof'
(Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).

But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would
constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal
liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank,
petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in
the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original
trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the
petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation
as a debtor.

Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA
64, 69 [1968]) We held that:t.hqw

As pointed out in People vs. Nery, novation prior to the filing of the criminal information as in the case at bar may
convert the relation between the parties into an ordinary creditor-debtor relation, and place the complainant in estoppel
to insist on the original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Court reiterated the
ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw

The novation theory may perhaps apply prior to the filling of the criminal information in court by the state prosecutors
because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor
situation, thereby placing the complainant in estoppel to insist on the original trust. But after the justice authorities have
taken cognizance of the crime and instituted action in court, the offended party may no longer divest the prosecution of
its power to exact the criminal liability, as distinguished from the civil. The crime being an offense against the state, only
the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8
Phil. 620).

It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal
liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal habihty or to
cast doubt on the true nature of the original basic transaction, whether or not it was such that its breach would not give
rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to
(cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).

In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981
assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa was filed on
December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the
criminal complaint with the Office of the City Fiscal.

Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability on the
part of petitioners Guingona and Martin to pay the assumed obligation.

Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and other related
regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by
respondent David for deposit were all converted into Philippine currency before acceptance and deposit into Nation
Savings and Loan Association.

Petitioners' contention is worthy of behelf for the following reasons:

1. It appears from the records that when respondent David was about to make a deposit of bank draft issued in his
name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to be cleared first and
converted into Philippine currency. Accordingly, the bank draft was endorsed by respondent David to petitioner
Guingona, who in turn deposited it to his dollar account with the Security Bank and Trust Company. Petitioner Guingona
merely accommodated the request of the Nation Savings and loan Association in order to clear the bank draft through
his dollar account because the bank did not have a dollar account. Immediately after the bank draft was cleared,
petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the
bank for its operations.

2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted and
deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the ordinary course of
the business which is to accept deposits in Philippine currency only, and that the transaction was regular and fair, in the
absence of a clear and convincing evidence to the contrary (see paragraphs p and q, Sec. 5, Rule 131, Rules of Court).

3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was
raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 reply to public
respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding more
support to the conclusion that the US$75,000.00 were really converted into Philippine currency before they were
accepted and deposited into Nation Savings and Loan Association. Considering that this might adversely affect his case,
respondent David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing
that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction
when they investigated the charges against the petitioners. Consequently, public respondents should be restrained from
further proceeding with the criminal case for to allow the case to continue, even if the petitioners could have appealed
to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper
administration of justice.

While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, this court has
recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases, thus:t.hqw

On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the general rule is
that "ordinarily, criminal prosecution may not be blocked by court prohibition or injunction." Exceptions, however, are
allowed in the following instances:t.hqw

"1. for the orderly administration of justice;

"2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and
Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).

Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:t.hqw

The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis, intended to annul
void proceedings; to prevent the unlawful and oppressive exercise of legal authority and to provide for a fair and orderly
administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a petition for certiorari
and prohibition although the accused in the case could have appealed in due time from the order complained of, our
action in the premises being based on the public welfare policy the advancement of public policy. In Dimayuga vs.
Fajardo, 43 Phil. 304, We also admitted a petition to restrain the prosecution of certain chiropractors although, if
convicted, they could have appealed. We gave due course to their petition for the orderly administration of justice and to
avoid possible oppression by the strong arm of the law. And in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition for
certiorari challenging the trial court's action admitting an amended information was sustained despite the availability of
appeal at the proper time.

WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE
PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.
 G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

DECISION

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) Decision1 in CA-G.R. CV
No. 43424 which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC),
in Civil Case No. 90-53295.

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,3 some of whom opened and maintained
separate accounts with BPI-FB, San 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 100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6 with
BPI-FB. The current and savings accounts were respectively funded with an initial deposit of 500,000.00 each, while the
time deposit account had 1,000,000.00 with a maturity date of August 31, 1990. The total amount of 2,000,000.00
used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevestecos business transactions, to Jaime
Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the funding for the 2,000,000.00 check was part of
the 80,000,000.00 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.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.8 On September 4,
1989, Antonio Ong,9 upon being shown the Authority to 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 80,000,000.00 covered by the forged Authority to Debit) amounting to 37,455,410.54, including the
2,000,000.00 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 Arangorin10 to debit Francos savings and current accounts
for the amounts remaining therein.11 However, Francos time deposit account could not be debited due to the capacity
limitations of BPI-FBs computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account 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.,14 to recover the 37,455,410.54
representing Tevestecos total withdrawals from its account.
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.15 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.16 Immediately, upon receipt of such copy, Franco filed a Motion to
Discharge 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 400,000.00 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 63,189.00 from the
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 80,000,000.00 debited from its account.17 The
case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,18 we
upheld the 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 65,332,321.99 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.),19 recipients of a
500,000.00 check proceeding from the 80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals20 from their 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,21 we ruled that BPI-FB had no right to freeze Buenaventura, et al.s
accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-
million peso scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was
still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised
Penal Code.23 However, the civil case24 remains under litigation and the respective rights and liabilities of the parties
have yet to be adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his deposits
therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the
following reliefs: (1) the interest on the remaining balance25 of his current account which was eventually released to him
on October 31, 1991; (2) the balance26 on his savings account, plus interest thereon; (3) the advance interest27 paid to
him which had been deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral
and exemplary damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his
deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently
withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the claimed consideration of
2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand,
and Jaime Sebastian, on the other, spoke volumes of Francos participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering
the latter to pay to the former the following sums:

1. 76,500.00 representing the legal rate of interest on the amount of 450,000.00 from May 18, 1990 to October 31,
1991;

2. 498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the interest
thereon in accordance with the banks guidelines on the payment therefor;

3. 30,000.00 by way of attorneys fees; and

4. 10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the
Manila RTCs denial of his claim for moral and exemplary damages, and the diminutive award of attorneys fees. In
affirming with modification the lower courts decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to
pay [Franco] 63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. 200,000.00 as
moral damages and 100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award
of moral and exemplary damages) and increasing the award of attorneys fees from 30,000.00 to 75,000.00.

Cost against [BPI-FB].

SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the
subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his
current account; (3) Franco can recover the 400,000.00 deposit in Quiaoits savings account; (4) the dishonor of
Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit, and for moral and
exemplary damages; and (6) BPI-FBs counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos accounts
and preclude him from withdrawing his deposits. However, contrary to the appellate courts ruling, we hold that Franco
is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal
consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering
that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set 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
thereafter 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.30 A determinate 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.32 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.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover
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,34 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.35 Money, which had passed 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.36 As there is a debtor-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 on demand.37 Although BPI-FB owns the deposits
in Francos accounts, it cannot prevent 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 Appeals38 continues to resonate, 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. x x x.

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 80,000,000.00 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 non-compliance with
the Makati RTCs Order Lifting the Order of 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 holding 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 non-compliance
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 400,000.00 from Francos savings account to
Quiaoits account.40 His testimony cannot be characterized as hearsay as the records reveal that he had personal
knowledge of the arrangement made between Franco, Sebastian and himself.41

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 subserved 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 400,000.00 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
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 4,42
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.

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.43 Effectively, therefore, the Makati RTC had no authority yet to
bind the deposits of Franco through the writ of attachment, 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 10,000.00. However, we retain the
CAs award of 75,000.00 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 400,000.00 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. 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.44 We have held that it is a breach of a known duty
through some motive of interest or ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or even a 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,46 and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 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 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 psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained 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,50 upon which to base
his claim for moral damages.1wphi1

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

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.52 As there is no basis for the award of moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to
reasonable attorneys fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CAs
grant of 75,000.00 as attorneys fees.
Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54 or
when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of Franco
despite the Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that the 400,000.00
was part of Francos savings account. This refusal constrained Franco to incur expenses and litigate for almost two (2)
decades in order to protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to
grant Franco 75,000.00 as attorneys fees. The award is reasonable in view of the complexity of the issues and the time
it has taken for this case to be resolved.56

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-FB
is not entitled to recover 3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as
already 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 Decision dated November 29, 1995 is AFFIRMED
with the MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary damages is
DELETED.

No pronouncement as to costs.

SO ORDERED.
 G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.

DAVIDE, JR., J.:

The petitioner urges us to review and set aside the amended Decision1 of 6 March 1992 of respondent Court of Appeals
in CA- 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, 2 one-half of this amount was provisionally released and transferred to one of the bank accounts 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. 4 The loan was
payable on demand with interest at 14% per annum.

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 annum. 5 The note was signed by Lim both in his own capacity and as President
and 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 "X" meaning unsecured, while the line with
the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out 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, 6 wherein it was stated that "as security for the 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." 7 Paragraph 02 of the Agreement provides as follows:

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 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 Velasco's 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 Velasco's 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 BPI. 9 On 2 December 1987, BPI filed with 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," 10 and that 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." 11 As to the defendants' counterclaim, the trial court, recognizing the fact that
the entire amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate court in Sp.
Proc. No. 8959, denied it because the "said claim cannot be 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 court's denial of their counterclaim. Upon
their motion for reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein it
ruled that the settlement of Velasco's estate had nothing to do with 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 latter's creditors; hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959
when the said account was claimed by Velasco's 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 Lim's promissory
note only if respondents' Lim and Eastern Plywood Corporation's 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." 15 Hence, BPI
asserts, the Court of Appeals erred in affirming the trial court's 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 and Lim's 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." 17 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.

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 Velasco's
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. 18 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. 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 20 was equivalent to a demand that they 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, 21 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. 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 to the person of the creditor or to one authorized by him or by the law to receive it. 25 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. 26 The payment then by BPI to the heirs of Velasco, even if done in good faith,
did not extinguish its obligation to the true depositor, Eastern.

In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The award on the
counterclaim is sustained subject to a modification of the interest.

WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735 is
hereby MODIFIED. As modified:

(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest at:

(a) 14% per annum on the principal, computed from

18 August 1978 until payment;

(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed from
that date until payment pursuant to Article 2212 of the Civil Code.

(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.

No pronouncement as to costs.

SO ORDERED.
 G.R. No. 82027 March 29, 1990

ROMARICO G. VITUG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, respondents.

SARMIENTO, J.:

This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two wills of the late Dolores
Luchangco Vitug, who died in New York, U. S.A., on November 10, 1980, naming private respondent Rowena Faustino-
Corona executrix. In our said decision, we upheld the appointment of Nenita Alonte as co-special administrator of Mrs.
Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate court to sell certain shares
of stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum of
P667,731.66, plus interests, which he claimed were personal funds. As found by the Court of Appeals, 2 the alleged
advances consisted of P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency estate tax, and
P90,749.99 as "increment thereto." 3 According to Mr. Vitug, he withdrew the sums of P518,834.27 and P90,749.99 from
savings account No. 35342-038 of the Bank of America, Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn from
savings account No. 35342-038 were conjugal partnership properties and part of the estate, and hence, there was
allegedly no ground for reimbursement. She also sought his ouster for failure to include the sums in question for
inventory and for "concealment of funds belonging to the estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same through a survivorship agreement
executed with his late wife and the bank on June 19, 1970. The agreement provides:

We hereby agree with each other and with the BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION
(hereinafter referred to as the BANK), that all money now or hereafter deposited by us or any or either of us with the
BANK in our joint savings current account shall be the property of all or both of us and shall be payable to and collectible
or withdrawable by either or any of us during our lifetime, and after the death of either or any of us shall belong to and
be the sole property of the survivor or survivors, and shall be payable to and collectible or withdrawable by such survivor
or survivors.

We further agree with each other and the BANK that the receipt or check of either, any or all of us during our lifetime, or
the receipt or check of the survivor or survivors, for any payment or withdrawal made for our above-mentioned account
shall be valid and sufficient release and discharge of the BANK for such payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of the estate of Dolores L.
Vitug, the proceeds of which shall be used to pay the personal funds of Romarico Vitug in the total sum of
P667,731.66 ... ." 7

On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private respondent, held that
the above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not comply with the
formalities of a valid will as prescribed by Article 805 of the Civil Code," 8 and secondly, assuming that it is a mere
donation inter vivos, it is a prohibited donation under the provisions of Article 133 of the Civil Code. 9

The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex II, petition) is hereby set aside insofar as
it granted private respondent's motion to sell certain properties of the estate of Dolores L. Vitug for reimbursement of
his alleged advances to the estate, but the same order is sustained in all other respects. In addition, respondent Judge is
directed to include provisionally the deposits in Savings Account No. 35342-038 with the Bank of America, Makati, in the
inventory of actual properties possessed by the spouses at the time of the decedent's death. With costs against private
respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of our decisions in Rivera v.
People's Bank and Trust Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of "survivorship
agreements" and considering them as aleatory contracts. 13

The petition is meritorious.

The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a will. A will has been
defined as "a personal, solemn, revocable and free act by which a capacitated person disposes of his property and rights
and declares or complies with duties to take effect after his death." 14 In other words, the bequest or device must
pertain to the testator. 15 In this case, the monies subject of savings account No. 35342-038 were in the nature of
conjugal funds In the case relied on, Rivera v. People's Bank and Trust Co., 16 we rejected claims that a survivorship
agreement purports to deliver one party's separate properties in favor of the other, but simply, their joint holdings:

xxx xxx xxx

... Such conclusion is evidently predicated on the assumption that Stephenson was the exclusive owner of the funds-
deposited in the bank, which assumption was in turn based on the facts (1) that the account was originally opened in the
name of Stephenson alone and (2) that Ana Rivera "served only as housemaid of the deceased." But it not infrequently
happens that a person deposits money in the bank in the name of another; and in the instant case it also appears that
Ana Rivera served her master for about nineteen years without actually receiving her salary from him. The fact that
subsequently Stephenson transferred the account to the name of himself and/or Ana Rivera and executed with the latter
the survivorship agreement in question although there was no relation of kinship between them but only that of master
and servant, nullifies the assumption that Stephenson was the exclusive owner of the bank account. In the absence,
then, of clear proof to the contrary, we must give full faith and credit to the certificate of deposit which recites in effect
that the funds in question belonged to Edgar Stephenson and Ana Rivera; that they were joint (and several) owners
thereof; and that either of them could withdraw any part or the whole of said account during the lifetime of both, and
the balance, if any, upon the death of either, belonged to the survivor. 17

xxx xxx xxx

In Macam v. Gatmaitan, 18 it was held:

xxx xxx xxx

This Court is of the opinion that Exhibit C is an aleatory contract whereby, according to article 1790 of the Civil Code, one
of the parties or both reciprocally bind themselves to give or do something as an equivalent for that which the other
party is to give or do in case of the occurrence of an event which is uncertain or will happen at an indeterminate time. As
already stated, Leonarda was the owner of the house and Juana of the Buick automobile and most of the furniture. By
virtue of Exhibit C, Juana would become the owner of the house in case Leonarda died first, and Leonarda would become
the owner of the automobile and the furniture if Juana were to die first. In this manner Leonarda and Juana reciprocally
assigned their respective property to one another conditioned upon who might die first, the time of death determining
the event upon which the acquisition of such right by the one or the other depended. This contract, as any other
contract, is binding upon the parties thereto. Inasmuch as Leonarda had died before Juana, the latter thereupon
acquired the ownership of the house, in the same manner as Leonarda would have acquired the ownership of the
automobile and of the furniture if Juana had died first. 19

xxx xxx xxx

There is no showing that the funds exclusively belonged to one party, and hence it must be presumed to be conjugal,
having been acquired during the existence of the marita. relations. 20

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take effect after the
death of one party. Secondly, it is not a donation between the spouses because it involved no conveyance of a spouse's
own properties to the other.

It is also our opinion that the agreement involves no modification petition of the conjugal partnership, as held by the
Court of Appeals, 21 by "mere stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal property
relations. Certainly, the spouses are not prohibited by law to invest conjugal property, say, by way of a joint and several
bank account, more commonly denominated in banking parlance as an "and/or" account. In the case at bar, when the
spouses Vitug opened savings account No. 35342-038, they merely put what rightfully belonged to them in a money-
making venture. They did not dispose of it in favor of the other, which would have arguably been sanctionable as a
prohibited donation. And since the funds were conjugal, it can not be said that one spouse could have pressured the
other in placing his or her deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality, that contract
imposed a mere obligation with a term, the term being death. Such agreements are permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur
at an indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the happening of an event
which is (1) "uncertain," (2) "which is to occur at an indeterminate time." A survivorship agreement, the sale of a
sweepstake ticket, a transaction stipulating on the value of currency, and insurance have been held to fall under the first
category, while a contract for life annuity or pension under Article 2021, et sequentia, has been categorized under the
second. 25 In either case, the element of risk is present. In the case at bar, the risk was the death of one party and
survivorship of the other.

However, as we have warned:

xxx xxx xxx

But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law.
For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to
transfer property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon
such grounds. No such vice has been imputed and established against the agreement involved in this case. 26

xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes, or, as
held by the respondent court, in order to frustrate our laws on wills, donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the latter has acquired upon
her death a vested right over the amounts under savings account No. 35342-038 of the Bank of America. Insofar as the
respondent court ordered their inclusion in the inventory of assets left by Mrs. Vitug, we hold that the court was in error.
Being the separate property of petitioner, it forms no more part of the estate of the deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its resolution, dated February 9,
1988, are SET ASIDE.
No costs.

SO ORDERED.
 G.R. No. 69162 February 21, 1992

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR CANLAS and VIVIENE CANLAS, respondents.

Leonen, Ramirez & Associates for petitioner.

L. Emmanuel B. Canilao for private respondents.

GRIO-AQUINO, J.:

In a decision dated September 3, 1984, the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No.
69178 entitled, "Arthur A. Canlas, et al., Plaintiff-Appellees vs. Commercial Bank and Trust Company of the Philippines,
Defendant-Appellant," reduced to P105,000 the P465,000 damage-award of the trial court to the private respondents for
an error of a bank teller which resulted in the dishonor of two small checks which the private respondents had issued
against their joint current account. This petition for review of that decision was filed by the Bank.

The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account No. 210-520-73 on April 25, 1977 in
the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of
P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account No. 210-442-41 in the same
branch.

When the respondent spouses opened their joint current account, the "new accounts" teller of the bank pulled out from
the bank's files the old and existing signature card of respondent Arthur Canlas for Current Account No. 210-442-41 for
use as I D and reference. By mistake, she placed the old personal account number of Arthur Canlas on the deposit slip for
the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was
miscredited to Arthur's personal account (p. 9, Rollo). The spouses subsequently deposited other amounts in their joint
account.

However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977 and another check for P1,160.00
on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted
from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone
number which they had given in their application form, but the bank could not contact them because they actually reside
in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to Mrs. Canlas'
parents.

On December 15, 1977, the private respondents filed a complaint for damages against CBTC in the Court of First Instance
of Pampanga (p. 113, Rollo).

On February 27, 1978, the bank filed a motion to dismiss the complaint for improper venue. The motion was denied.

During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged. As the surviving
corporation under the merger agreement and under Section 80 (5) of the Corporation Code of the Philippines, BPI took
over the prosecution and defense of any pending claims, actions or proceedings by and against CBTC.

On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision against BPI, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered sentencing defendant to pay the plaintiff the following:

1. P 5,000.00 as actual damages;

2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for plaintiff Vivienne S. Canlas representing moral
damages;

3. P 150.000.00 as exemplary damages;

4. P 10,000.00 as attorney's fees; and

5. Costs. (p. 36, Rollo).

On appeal, the Intermediate Appellate Court deleted the actual damages and reduced the other awards. The dispositive
portion of its decision reads:

WHEREFORE, the judgment appealed from is hereby modified as follows:

1. The award of P50,000.00 in actual damages is herewith deleted.

2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees Arthur Canlas and Vivienne S. Canlas, not
P50,000.00 each.

3. Exemplary damages is likewise reduced to the sum of P50,000.00 and attorney's fees to P5,000.00.

Costs against the defendants appellant. (p. 40, Rollo.)

Petitioner filed this petition for review alleging that the appellate court erred in holding that:

1. The venue of the case had been properly laid at Pampanga in the light of private respondents' earlier declaration
that Quezon City is their true residence.

2. The petitioner was guilty of gross negligence in the handling of private respondents' bank account.

3. Private respondents are entitled to the moral and exemplary damages and attorney's fees adjudged by the
respondent appellate court.

On the question of venue raised by petitioner, it is evident that personal actions may be instituted in the Court of First
Instance (now Regional Trial Court) of the province where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Section 2[b], Rule 4 of the
Rules of Court). In this case, there was ample proof that the residence of the plaintiffs is B. Sacan, Porac, Pampanga (p.
117, Rollo). The city address of Mrs. Canlas' parents was placed by the private respondents in their application for a joint
checking account, at the suggestion of the new accounts teller, presumably to facilitate mailing of the bank statements
and communicating with the private respondents in case any problems should arise involving the account. No waiver of
their provincial residence for purposes of determining the venue of an action against the bank may be inferred from the
so-called "misrepresentation" of their true residence.

The appellate court based its award of moral and exemplary damages, and attorney's fees on its finding that the mistake
committed by the new accounts teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said court further
stressed that it cannot absolve the petitioner from liability for damages to the private respondents, even on the
assumption of an honest mistake on its part, because of the embarrassment that even an honest mistake can cause its
depositors (p. 31, Rollo).

There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages
on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the
diligence of a good father of family.
In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367), this Court stressed the fiduciary nature of
the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts
entrusted to its care.

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. . . .

The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, 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. Apparently, the officials and employees tasked to do that did not perform their duties with due care, as
may be gathered from the testimony of the bank's lone witness, Antonio Enciso, who casually declared that "the
approving officer does not have to see the account numbers and all those things. Those are very petty things for the
approving manager to look into" (p. 78, Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect
account number that the bank teller wrote on the initial deposit slip for the newly-opened joint current account of the
Canlas spouses, that sparked this half-a-million-peso damage suit against the bank.

While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused serious
anxiety, embarrassment and humiliation to the private respondents for which they are entitled to recover reasonable
moral damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is
proper for the private respondents were compelled to litigate to protect their interest (Art. 2208, Civil Code). However,
the absence of malice and bad faith renders the award of exemplary damages improper (Globe Mackay Cable and Radio
Corp. vs. Court of Appeals, 176 SCRA 778).

WHEREFORE, the petition for review is granted. The appealed decision is MODIFIED by deleting the award of exemplary
damages to the private respondents. In all other respects, the decision of the Intermediate Appellate Court, now Court
of Appeals, is AFFIRMED. No costs. SO ORDERED.
 G.R. No. L-68138 May 13, 1991

AGUSTIN Y. GO and THE CONSOLIDATED BANK AND TRUST CORPORATION (Solidbank), petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and FLOVERTO JAZMIN, respondents.

FERNAN, C.J.:

The instant petition for review on certiorari questions the propriety of the respondent appellate court's award of
nominal damages and attorney's fees to private respondent whose name was used by a syndicate in encashing two U.S.
treasury checks at petitioner bank.

Floverto Jazmin is an American citizen and retired employee of the United States Federal Government. He had been a
visitor in the Philippines since 1972 residing at 34 Maravilla Street, Mangatarem, Pangasinan. As pensionado of the U.S.
government, he received annuity checks in the amounts of $ 67.00 for disability and $ 620.00 for retirement through the
Mangatarem post office. He used to encash the checks at the Prudential Bank branch at Clark Air Base, Pampanga.

In January, 1975, Jazmin failed to receive one of the checks on time thus prompting him to inquire from the post offices
at Mangatarem and Dagupan City. As the result of his inquiries proved unsatisfactory, on March 4, 1975, Jazmin wrote
the U.S. Civil Service Commission, Bureau of Retirement at Washington, D.C. complaining about the delay in receiving his
check. Thereafter, he received a substitute check which he encashed at the Prudential Bank at Clark Air Base.

Meanwhile, on April 22, 1975, Agustin Go, in his capacity as branch manager of the then Solidbank (which later became
the Consolidated Bank and Trust Corporation) in Baguio City, allowed a person named "Floverto Jazmin" to open Savings
Account No. BG 5206 by depositing two (2) U. S. treasury checks Nos. 5-449-076 and 5-448-890 in the respective
amounts of $1810.00 and $913.401 equivalent to the total amount of P 20,565.69, both payable to the order of Floverto
Jasmin of Maranilla St., Mangatarem, Pangasinan and drawn on the First National City Bank, Manila.

The savings account was opened in the ordinary course of business. Thus, the bank, through its manager Go, required
the depositor to fill up the information sheet for new accounts to reflect his personal circumstances. The depositor
indicated therein that he was Floverto Jazmin with mailing address at Mangatarem, Pangasinan and home address at
Maravilla St., Mangatarem, Pangasinan; that he was a Filipino citizen and a security officer of the US Army with the rank
of a sergeant bearing AFUS Car No. H-2711659; that he was married to Milagros Bautista; and that his initial deposit was
P3,565.35. He wrote CSA No. 138134 under remarks or instructions and left blank the spaces under telephone number,
residence certificate/alien certificate of registration/passport, bank and trade performance and as to who introduced
him to the bank.2 The depositor's signature specimens were also taken.

Thereafter, the deposited checks were sent to the drawee bank for clearance. Inasmuch as Solidbank did not receive any
word from the drawee bank, after three (3) weeks, it allowed the depositor to withdraw the amount indicated in the
checks.

On June 29, 1976 or more than a year later, the two dollar cheeks were returned to Solidbank with the notation that the
amounts were altered.3 Consequently, Go reported the matter to the Philippine Constabulary in Baguio City.

On August 3, 1976, Jazmin received radio messages requiring him to appear before the Philippine Constabulary
headquarters in Benguet on September 7, 1976 for investigation regarding the complaint filed by Go against him for
estafa by passing altered dollar checks. Initially, Jazmin was investigated by constabulary officers in Lingayen, Pangasinan
and later, at Camp Holmes, La Trinidad, Benguet. He was shown xerox copies of U.S. Government checks Nos. 5-449-076
and 5-448-890 payable to the order of Floverto Jasmin in the respective amounts of $1,810.00 and $913.40. The latter
amount was actually for only $13.40; while the records do not show the unaltered amount of the other treasury check.

Jazmin denied that he was the person whose name appeared on the checks; that he received the same and that the
signature on the indorsement was his. He likewise denied that he opened an account with Solidbank or that he
deposited and encashed therein the said checks. Eventually, the investigators found that the person named "Floverto
Jazmin" who made the deposit and withdrawal with Solidbank was an impostor.

On September 24, 1976, Jazmin filed with the then Court of First Instance of Pangasinan, Branch II at Lingayen a
complaint against Agustin Y. Go and the Consolidated Bank and Trust Corporation for moral and exemplary damages in
the total amount of P90,000 plus attorney's fees of P5,000. He alleged therein that Go allowed the deposit of the dollar
checks and the withdrawal of their peso equivalent "without ascertaining the identity of the depositor considering the
highly suspicious circumstances under which said deposit was made; that instead of taking steps to establish the correct
identity of the depositor, Go "immediately and recklessly filed (the) complaint for estafa through alteration of dollar
check" against him; that Go's complaint was "an act of vicious and wanton recklessness and clearly intended for no other
purpose than to harass and coerce the plaintiff into paying the peso equivalent of said dollar checks to the CBTC branch
office in Baguio City" so that Go would not be "disciplined by his employer;" that by reason of said complaint, he was
"compelled to present and submit himself" to investigations by the constabulary authorities; and that he suffered
humiliation and embarrassment as a result of the filing of the complaint against him as well as "great inconvenience" on
account of his age (he was a septuagenarian) and the distance between his residence and the constabulary
headquarters. He averred that his peace of mind and mental and emotional tranquility as a respected citizen of the
community would not have suffered had Go exercised "a little prudence" in ascertaining the identity of the depositor
and, for the "grossly negligent and reckless act" of its employee, the defendant CBTC should also be held responsible.4

In their answer, the defendants contended that the plaintiff had no cause of action against them because they acted in
good faith in seeking the "investigative assistance" of the Philippine Constabulary on the swindling operations against
banks by a syndicate which specialized in the theft, alteration and encashment of dollar checks. They contended that
contrary to plaintiff s allegations, they verified the signature of the depositor and their tellers conducted an Identity
check. As counterclaim, they prayed for the award of P100,000 as compensatory and moral damages; P20,000 as
exemplary damages; P20,000 as attorney's fees and P5,000 as litigation, incidental expenses and costs.5

In its decision of March 27, 19786 the lower court found that Go was negligent in failing to exercise "more care, caution
and vigilance" in accepting the checks for deposit and encashment. It noted that the checks were payable to the order of
Floverto Jasmin, Maranilla St., Mangatarem, Pangasinan and not to Floverto Jazmin, Maravilla St., Mangatarem,
Pangasinan and that the differences in name and address should have put Go on guard. It held that more care should
have been exercised by Go in the encashment of the U.S. treasury checks as there was no time limit for returning them
for clearing unlike in ordinary checks wherein a two to three-week limit is allowed.

Emphasizing that the main thrust of the complaint was "the failure of the defendants to take steps to ascertain the
identity of the depositor," the court noted that the depositor was allegedly a security officer while the plaintiff was a
retiree-pensioner. It considered as "reckless" the defendants' filing of the complaint with the Philippine Constabulary
noting that since the article on a fake dollar check ring appeared on July 18, 1976 in the Baguio Midland Courier, it was
only on August 24, 1976 or more than a month after the bank had learned of the altered checks that it filed the
complaint and therefore, it had sufficient time to ascertain the identity of the depositor.

The court also noted that instead of complying with the Central Bank Circular Letter of January 17, 1973 requesting all
banking institutions to report to the Central Bank all crimes involving their property within 48 hours from knowledge of
the crime, the bank reported the matter to the Philippine Constabulary.

Finding that the plaintiff had sufficiently shown that prejudice had been caused to him in the form of mental anguish,
moral shock and social humiliation on account of the defendants' gross negligence, the court, invoking Articles 2176,
2217 and 2219 (10) in conjunction with Article 21 of the Civil Code, ruled in favor of the plaintiff. The dispositive portion
of the decision states:

WHEREFORE, this Court finds for plaintiff and that he is entitled to the reliefs prayed for in the following manner:
Defendant Agustin Y. Co and the CONSOLIDATED BANK AND TRUST CORPORATION are hereby ordered to pay, jointly and
severally, to the plaintiff the amount of SIX THOUSAND PESOS (P6,000.00) as moral damages; ONE THOUSAND PESOS
(P1,000.00) as attorney's fees and costs of litigation and to pay the costs and defendant AGUSTIN Y. Go in addition
thereto in his sole and personal capacity to pay the plaintiff the amount of THREE THOUSAND PESOS (P3,000.00) as
exemplary damages, all with interest at six (6) percent per annum until fully paid.

SO ORDERED.

The defendants appealed to the Court of Appeals. On January 24, 1984, said court (then named Intermediate Appellate
Court) rendered a decision7 finding as evident negligence Go's failure to notice the substantial difference in the identity
of the depositor and the payee in the check, concluded that Go's negligence in the performance of his duties was "the
proximate cause why appellant bank was swindled" and that denouncing the crime to the constabulary authorities
"merely aggravated the situation." It ruled that there was a cause of action against the defendants although Jazmin had
nothing to do with the alteration of the checks, because he suffered damages due to the negligence of Go. Hence, under
Article 2180 of the Civil Code, the bank shall be held liable for its manager's negligence.

The appellate court, however, disallowed the award of moral and exemplary damages and granted nominal damages
instead. It explained thus:

While it is true that denouncing a crime is not negligence under which a claim for moral damages is available, still
appellants are liable under the law for nominal damages. The fact that appellee did not suffer from any loss is of no
moment for nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, maybe vindicated or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered
by him (Article 2221, New Civil Code). These are damages recoverable where a legal right is technically violated and must
be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach
of contract and no substantial injury or actual damages whatsoever have been or can be shown (Elgara vs. Sandijas, 27
Phil. 284). They are not intended for indemnification of loss suffered but for the vindication or recognition of a right
violated or invaded (Ventanilla vs. Centeno, L-14333, January 28, 1961). And, where the plaintiff as in the case at bar, the
herein appellee has established a cause of action, but was not able to adduce evidence showing actual damages then
nominal damages may be recovered (Sia vs. Espenilla CA-G.R. Nos. 45200-45201-R, April 21, 1975). Consequently, since
appellee has no right to claim for moral damages, then he may not likewise be entitled to exemplary damages (Estopa vs.
Piansay, No. L-14503, September 30, 1960). Considering that he had to defend himself in the criminal charges filed
against him, and that he was constrained to file the instant case, the attorney's fees to be amended (sic) to plaintiff
should be increased to P3,000.00.

Accordingly, the appellate court ordered Go and Consolidated Bank and Trust Corporation to pay jointly and severally
Floverto Jazmin only NOMINAL DAMAGES in the sum of Three Thousand Pesos (P 3,000.00) with interest at six (6%)
percent per annum until fully paid and One Thousand Pesos (P 1,000.00) as attorney's fees and costs of litigation.

Go and the bank filed a motion for the reconsideration of said decision contending that in view of the finding of the
appellate court that "denouncing a crime is not negligence under which a claim for moral damages is available," the
award of nominal damages is unjustified as they did not violate or invade Jazmin's rights. Corollarily, there being no
negligence on the part of Go, his employer may not be held liable for nominal damages.

The motion for reconsideration having been denied, Go and the bank interposed the instant petition for review on
certiorari arguing primarily that the employer bank may not be held "co-equally liable" to pay nominal damages in the
absence of proof that it was negligent in the selection of and supervision over its employee.8

The facts of this case reveal that damages in the form of mental anguish, moral shock and social humiliation were
suffered by private respondent only after the filing of the petitioners' complaint with the Philippine Constabulary. It was
only then that he had to bear the inconvenience of travelling to Benguet and Lingayen for the investigations as it was
only then that he was subjected to embarrassment for being a suspect in the unauthorized alteration of the treasury
checks. Hence, it is understandable why petitioners appear to have overlooked the facts antecedent to the filing of the
complaint to the constabulary authorities and to have put undue emphasis on the appellate court's statement that
"denouncing a crime is not negligence."
Although this Court has consistently held that there should be no penalty on the right to litigate and that error alone in
the filing of a case be it before the courts or the proper police authorities, is not a ground for moral damages,9 we hold
that under the peculiar circumstances of this case, private respondent is entitled to an award of damages.

Indeed, it would be unjust to overlook the fact that petitioners' negligence was the root of all the inconvenience and
embarrassment experienced by the private respondent albeit they happened after the filing of the complaint with the
constabulary authorities. Petitioner Go's negligence in fact led to the swindling of his employer. Had Go exercised the
diligence expected of him as a bank officer and employee, he would have noticed the glaring disparity between the
payee's name and address on the treasury checks involved and the name and address of the depositor appearing in the
bank's records. The situation would have been different if the treasury checks were tampered with only as to their
amounts because the alteration would have been unnoticeable and hard to detect as the herein altered check bearing
the amount of $ 913.40 shows. But the error in the name and address of the payee was very patent and could not have
escaped the trained eyes of bank officers and employees. There is therefore, no other conclusion than that the bank
through its employees (including the tellers who allegedly conducted an identification check on the depositor) was
grossly negligent in handling the business transaction herein involved.1wphi1

While at that stage of events private respondent was still out of the picture, it definitely was the start of his consequent
involvement as his name was illegally used in the illicit transaction. Again, knowing that its viability depended on the
confidence reposed upon it by the public, the bank through its employees should have exercised the caution expected of
it.

In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant.10 As Go's negligence was the root cause of the complained
inconvenience, humiliation and embarrassment, Go is liable to private respondents for damages.

Anent petitioner bank's claim that it is not "co-equally liable" with Go for damages, under the fifth paragraph of Article
2180 of the Civil Code, "(E)mployers shall be liable for the damages caused by their employees . . . acting within the
scope of their assigned tasks." Pursuant to this provision, the bank is responsible for the acts of its employee unless
there is proof that it exercised the diligence of a good father of a family to prevent the damage.11 Hence, the burden of
proof lies upon the bank and it cannot now disclaim liability in view of its own failure to prove not only that it exercised
due diligence to prevent damage but that it was not negligent in the selection and supervision of its employees.

WHEREFORE, the decision of the respondent appellate court is hereby affirmed. Costs against the petitioners.

SO ORDERED.
 G.R. No. 113236 March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

QUISUMBING, J.:

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

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

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

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

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

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the
corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:

DATE

WITHDRAWAL SLIP NO.

AMOUNT

June 15, 1978

42127

P1,198,092.80

July 15, 1978

42128

940,190.00

Aug. 15, 1978

42129

880,000.00

Sep. 15, 1978

42130

981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it [sic]
to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of
these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by
the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored
and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more
strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and
payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue
extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B").

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June
15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the
reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total sum of
P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation,
plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross
negligence.

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

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

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

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable
for damages under Article 21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner
alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special
withdrawal slips without the presentation of the depositor's passbook thereby giving the impression that the withdrawal
slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks;
and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special
withdrawal slips.

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

Hence, the instant petition, alleging the following assignment of error:

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

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

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

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

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

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

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

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists
only of a few hundred pesos or of millions of pesos.13 The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately.
By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.14
In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis
of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the
current account number to which the deposit is to be credited, the name of the depositor or current account holder, the
date of the deposit, and the amount of the deposit either in cash or in check.15

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

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

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, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its President & General
Manager, respondents.

HERMOSISIMA, JR., J.:

Challenged in this petition for review is the Decision dated February 28, 19911 rendered 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 "Rommel's 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 Rommel's 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 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 latter's agent or representative, who indicates therein the
current account number to which the deposit is to be credited, the name of the depositor or current account holder, the
date of the deposit, and the amount of the deposit either in cash or 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 RMC's account but
were instead deposited to Account No. 53-01734-7 of Yabut's 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 Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of the deposit slip, an
original and a duplicate. The original showed the name of her husband as depositor and his current account number. On
the duplicate copy was written the account number of her husband but the name of the account holder was left blank.
PBC's 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 husband's, and make it
appear to be RMC's 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 latter's 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 respondent's 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. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest thereon at the legal rate from the filing
of the complaint;

2. A sum equivalent to 14% thereof, as exemplary damages;

3. A sum equivalent to 25% of the total amount due, as and for attorney's fees; and

4. Costs.

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
attorney's fees specified therein are eliminated and instead, appellants are ordered to pay plaintiff, in addition to the
principal sum of P304,979.74 representing plaintiff's lost deposit plus legal interest thereon from the filing of the
complaint, P25,000.00 attorney's fees and costs in the lower court as well as in this Court.3

Hence, this petition anchored on the following grounds:

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) The failure of respondent Rommel Marketing Corporation to cross-check the bank's 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) 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 Corporation's
account with the bank,

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,
suffered by the private respondent RMC petitioner bank's negligence or that of private respondent's?

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 RMC's
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-delict and 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
negligence 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
do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith,8 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.

Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was negligent in validating, officially
stamping and signing all the deposit slips prepared and presented by Ms. Yabut, despite the glaring fact that the
duplicate copy was not completely accomplished contrary to the self-imposed procedure of the bank with respect to the
proper validation of deposit slips, original or duplicate, as testified to by Ms. Mabayad herself, thus:

Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs. Mabayad your important duties and functions?

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 breakdown, 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?

A: The bank requires only one copy of the deposit although some of our clients prepare the deposit slip in
duplicate.

Q: Now in accomplishing current account deposits from your clients, what do you issue to the depositor to evidence
the deposit made?

A: We issue or we give to the clients the depositor's stub as a receipt of the deposit.

Q: And who prepares the deposit slip?

A: The depositor or the authorized representative sir?

Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with the deposit slip?

A: The depositor's stub is connected with the deposit slip or the bank's copy. In a deposit slip, the upper portion is
the depositor's stub and the lower portion is the bank's copy, and you can detach the bank's copy from the depositor's
stub by tearing it sir.

Q: Now what do you do upon presentment of the deposit slip by the depositor or the depositor's authorized
representative?

A: We see to it that the deposit slip9 is properly accomplished and then we count the money and then we tally it
with the deposit slip sir.

Q: Now is the depositor's stub which you issued to your clients validated?

A: Yes, sir. 10 [Emphasis ours]

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 information that 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. 11 A "reasonable man of ordinary prudence" 12 would
not have given credence to such explanation and would have insisted that the space left blank be filled up as a condition
for validation. Unfortunately, this was not how bank teller Mabayad proceeded thus resulting in huge losses to the
private respondent.

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 validation procedures, viz:

Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they
validated the same with the machine, the fact that those deposit slips were unfilled up, is there any report similar to
that?

A: No, it was not the cashier but the teller.

Q: The teller validated the blank deposit slip?

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?

A: I am not aware of that.

Q: It is only now that you are aware of that?

A: Yes, sir. 13

Prescinding from the above, public respondent Court of Appeals aptly observed:

xxx 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 plaintiff's accounts (May, 1975 to July, 1976) that
bank manager Bonifacio admittedly became aware of the practice of his teller Mabayad of validating blank deposit slips.
Undoubtedly, this is gross, wanton, and inexcusable negligence in the appellant bank's supervision of its employees. 14

It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank in the selection and
supervision of its bank teller, which was the proximate cause of the loss suffered by the private respondent, and not the
latter's 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. 15 Vda. de Bataclan v. Medina, 16 reiterated in the case of Bank of the Phil. Islands v. Court of Appeals, 17
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. . . ." 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. Apropos, once again, is the
pronouncement made by the respondent appellate court, to wit:

. . . . Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by plaintiff, she would not
have been able to deposit those funds in her husband's current account, and then make plaintiff believe that it was in
the latter's accounts wherein she had deposited them, had it not been for bank teller Mabayad's aforesaid gross and
reckless negligence. The latter's negligence was thus the proximate, immediate and efficient cause that brought about
the 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 not have prevented the fraud and
misappropriation which Irene Yabut had already completed when she deposited plaintiff's money to the account of her
husband instead of to the latter's accounts. 18

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 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. 19 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. 20 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.

At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in dealing with their clients.

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 clients
with the highest degree of care. 21

As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 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.

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 bank's 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
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 23
under Article 2179 of the New Civil Code, to wit:

. . . When the plaintiff's 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
defendant's 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 attorney's fees,
shall be borne by private respondent RMC; only the balance of 60% needs to be paid by the petitioners. The award of
attorney's 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 court's decision is AFFIRMED.

Proportionate costs.

SO ORDERED.