BANKING CASES
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA),
INCORPORATED, petitioner, vs. THE HONORABLE COURT OF
APPEALS and TRADERS ROYAL BANK, respondents.
1. Civil Law; Moral damages; Moral damages are not awarded to
penalize the defendant but to compensate the plaintiff for injuries
he may have suffered.-
We agree that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may
have suffered. In the case at bar, the petitioner is seeking such
damages for the prejudice sustained by it as a result of the private
respondent’s fault. The respondent court said that the claimed
losses are purely speculative and are not supported by substantial
evidence, but it failed to consider that the amount of such losses
need not be established with exactitude, precisely because of their
nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that
“no proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages may be
adjudicated.” That is why the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion
of the court, according to “the circumstances of each case.”
2. Civil Law; Moral damages; As petitioner has indeed incurred loss
through private respondent’s fault, the proper remedy is the award
of moral damages.-
Considering all this, we feel that the award of nominal damages in
the sum of P20,000.00 was not the proper relief to which the
petitioner was entitled. Under Article 2221 of the Civil Code,
“nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.” As we have
found that the petitioner has indeed incurred loss through the fault
of the private respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
3. Civil Law; Exemplary damages; Respondent bank’s error in not
crediting the deposit in question to petitioner, and for not correcting
it immediately after its discovery comes under the wanton manner
under the Civil Code that calls for the imposition of exemplary
damages.-
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. In the case
at bar, it is obvious that the respondent bank was remiss in that
duty and violated that relationship. What is especially deplorable is
that, having been informed of its error in not crediting the deposit
in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three
days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was
made in the first place and why it was not corrected immediately
after its discovery. Such ineptness comes under the concept of the
wanton manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.
We are concerned in this case with the question of damages,
specifically moral and exemplary damages. The negligence of the
private respondent has already been established. All we have to
ascertain is whether the petitioner is entitled to the said damages
and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private
corporation engaged in the exportation of food products. It buys
these products from various local suppliers and then sells them
abroad, particularly in the United States, Canada and the Middle
East. Most of its exports are purchased by the petitioner on credit.
1

The petitioner was a depositor of the respondent bank and
maintained a checking account in its branch at Romulo Avenue,
Cubao, Quezon City. On May 25, 1981, the petitioner deposited to
its account in the said bank the amount of P100,000.00, thus
increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks
against its deposit but was suprised to learn later that they had
been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor
of California Manufacturing Company, Inc. for
P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor
of the Bureau of Internal Revenue in the amount of
P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor
of Mr. Greg Pedreño in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor
of Malabon Longlife Trading Corporation in the
amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor
of Malabon Longlife Trading Corporation in the
amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor
of Sea-Land Services, Inc. in the amount of
P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor
of Baguio Country Club Corporation in the amount
of P4,385.02: and
BANKING CASES
8. Check No. 215480 dated June 9, 1981, in favor
of Enriqueta Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent
on June 9, 1981, a letter of demand to the petitioner, threatening
prosecution if the dishonored check issued to it was not made
good. It also withheld delivery of the order made by the petitioner.
Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on
June 10, 1981. Malabon also canceled the petitioner's credit line
and demanded that future payments be made by it in cash or
certified check. Meantime, action on the pending orders of the
petitioner with the other suppliers whose checks were dishonored
was also deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00
deposited by the petitioner on May 25, 1981, had not been credited
to it. The error was rectified on June 17, 1981, and the dishonored
checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded
reparation from the respondent bank for its "gross and wanton
negligence." This demand was not met. The petitioner then filed a
complaint in the then Court of First Instance of Rizal claiming from
the private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of
P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding
that moral and exemplary damages were not called for under the
circumstances. However, observing that the plaintiff's right had
been violated, he ordered the defendant to pay nominal damages
in the amount of P20,000.00 plus P5,000.00 attorney's fees and
costs. 5 This decision was affirmed in toto by the respondent
court. 6
2

The respondent court found with the trial court that the private
respondent was guilty of negligence but agreed that the petitioner
was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof
of bad faith (De Aparicio vs. Parogurga, 150 SCRA
280). Indeed, there was the omission by the
defendant-appellee bank to credit appellant's
deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said
amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually
paid. These circumstances negate any imputation
or insinuation of malicious, fraudulent, wanton and
gross bad faith and negligence on the part of the
defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds
that it cannot share some of the conclusions of the lower courts. It
seems to us that the negligence of the private respondent had
been brushed off rather lightly as if it were a minor infraction
requiring no more than a slap on the wrist. We feel it is not enough
to say that the private respondent rectified its records and credited
the deposit in less than a month as if this were sufficient
repentance. The error should not have been committed in the first
place. The respondent bank has not even explained why it was
committed at all. It is true that the dishonored checks were, as the
Court of Appeals put it, "eventually" paid. However, this took almost
a month when, properly, the checks should have been paid
immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent
bank, aggravated by the lack of promptitude in repairing its error,
justifies the grant of moral damages. This rather lackadaisical
attitude toward the complaining depositor constituted the gross
BANKING CASES
negligence, if not wanton bad faith, that the respondent court said
had not been established by the petitioner.
We also note that while stressing the rectification made by the
respondent bank, the decision practically ignored the prejudice
suffered by the petitioner. This was simply glossed over if not,
indeed, disbelieved. The fact is that the petitioner's credit line was
canceled and its orders were not acted upon pending receipt of
actual payment by the suppliers. Its business declined. Its
reputation was tarnished. Its standing was reduced in the business
community. All this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory
damages may be received "(2) for injury to the plaintiff s business
standing or commercial credit." There is no question that the
petitioner did sustain actual injury as a result of the dishonored
checks and that the existence of the loss having been established
"absolute certainty as to its amount is not required." 7 Such injury
should bolster all the more the demand of the petitioner for moral
damages and justifies the examination by this Court of the validity
and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may
have suffered. 8 In the case at bar, the petitioner is seeking such
damages for the prejudice sustained by it as a result of the private
respondent's fault. The respondent court said that the claimed
losses are purely speculative and are not supported by substantial
evidence, but if failed to consider that the amount of such losses
need not be established with exactitude precisely because of their
nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that
"no proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion
of the court, according to "the circumstances of each case."
3

From every viewpoint except that of the petitioner's, its claim of
moral damages in the amount of P1,000,000.00 is nothing short of
preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not
being a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is where
the corporation has a good reputation that is debased, resulting in
its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of
the private respondent's negligence that caused the dishonor of
the checks issued by it. The immediate consequence was that its
prestige was impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished. The private
respondent makes much of the one instance when the petitioner
was sued in a collection case, but that did not prove that it did not
have a good reputation that could not be marred, more so since
that case was ultimately settled. 10 It does not appear that, as the
private respondent would portray it, the petitioner is an unsavory
and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in
the sum of P20,000.00 was not the proper relief to which the
petitioner was entitled. Under Article 2221 of the Civil Code,
"nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." As we have
found that the petitioner has indeed incurred loss through the fault
of the private respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
BANKING CASES
Art. 2229. Exemplary or corrective damages are
imposed, by way of example or correction for the
public good, in addition to the moral, temperate,
liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the
court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble
wage-earner has not hesitated to entrust his life's savings to the
bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with
equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help
in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect
at any given time the amount of money the depositor can dispose
of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as
the dishonor of a check without good reason, can cause the
4
 BANKING CASES

depositor not a little embarrassment if not also financial loss and

perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and

because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. In the case
at bar, it is obvious that the respondent bank was remiss in that
duty and violated that relationship. What is especially deplorable is
that, having been informed of its error in not crediting the deposit
in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three
days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was
made in the first place and why it was not corrected immediately
after its discovery. Such ineptness comes under the concept of the
wanton manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the

exercise of its discretion, hereby imposes upon the respondent
bank exemplary damages in the amount of P50,000.00, "by way of
example or correction for the public good," in the words of the law.
It is expected that this ruling will serve as a warning and deterrent
against the repetition of the ineptness and indefference that has
been displayed here, lest the confidence of the public in the
banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and

the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00,
and exemplary damages in the amount of P50,000.00 plus the
original award of attorney's fees in the amount of P5,000.00, and
costs.

SO ORDERED.

5

G.R. No. 155033 December 19, 2007
ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I.
SANDEJAS and BENJAMIN A.I. ESPIRITU,Petitioners, vs. SPS.
ARTURO IGNACIO, JR. and EVELYN IGNACIO, Respondents.
Appeals; Certiorari; Only questions of law are entertained in
petitions for review on certiorari under Rule 45 of the Rules of
Court, and the trial court’s findings of fact, which the Court of
Appeals affirmed, are generally binding and conclusive upon the
Supreme Court; Exceptions.—The Court agrees with respondents
that only questions of law are entertained in petitions for review on
certiorari under Rule 45 of the Rules of Court. The trial court’s
findings of fact, which the Court of Appeals affirmed, are generally
binding and conclusive upon this court. There are recognized
exceptions to this rule, among which are: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3) there is
grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of facts are conflicting;
(6) there is no citation of specific evidence on which the factual
findings are based; (7) the finding of absence of facts is
contradicted by the presence of evidence on record; (8) the
findings of the CA are contrary to the findings of the trial court; (9)
the CA manifestly overlooked certain relevant and undisputed facts
that, if properly considered, would justify a different conclusion;
(10) the findings of the CA are beyond the issues of the case; and
(11) such findings are contrary to the admissions of both parties.
In the instant case, petitioners failed to demonstrate that their
petition falls under any one of the above exceptions.
Rule of Law; Family Code; Attorneys; In a civilized society such as
ours, the rule of law should always prevail—to allow otherwise
would be productive of nothing but mischief, chaos and anarchy; A
lawyer-party who has sworn to uphold the rule of law should know
better than simply take the law into her own hands—she must go
to court for relief; While Article 151 of the Family Code requires that
earnest efforts towards a compromise be made before family
members can institute suits against each other, nothing in the law
BANKING CASES
sanctions or allows the commission of or resort to any extra-legal
or illegal measure or remedy in order for family members to avoid
the filing of suits against another family member for the
enforcement or protection of their respective rights.—Petitioners’
posture is not sanctioned by law. If they truly believe that Arturo
took advantage of and violated the rights of Rosita, petitioners
should have sought redress from the courts and should not have
simply taken the law into their own hands. Our laws are replete with
specific remedies designed to provide relief for the violation of
one’s rights. In the instant case, Rosita could have immediately
filed an action for the nullification of the sale of the building she
owns in light of petitioners’ claim that the document bearing her
conformity to the sale of the said building was taken by Arturo from
her without her knowledge and consent. Or, in the alternative, as
the CA correctly held, she could have brought a suit for the
collection of a sum of money to recover her share in the sale of her
property in Morayta. In a civilized society such as ours, the rule of
law should always prevail. To allow otherwise would be productive
of nothing but mischief, chaos and anarchy. As a lawyer, who has
sworn to uphold the rule of law, Rosita should know better. She
must go to court for relief. It is true that Article 151 of the Family
Code requires that earnest efforts towards a compromise be made
before family members can institute suits against each other.
However, nothing in the law sanctions or allows the commission of
or resort to any extra-legal or illegal measure or remedy in order
for family members to avoid the filing of suits against another family
member for the enforcement or protection of their respective rights.
Principle of Pari Delicto; Words and Phrases; The principle of pari
delicto provides that when two parties are equally at fault, the law
leaves them as they are and denies recovery by either one of
them.—Petitioners invoke the rule of pari delicto to support their
contention that respondents do not deserve any relief from the
courts. The principle of pari delicto provides that when two parties
are equally at fault, the law leaves them as they are and denies
recovery by either one of them. Indeed, one who seeks equity and
justice must come to court with clean hands. However, in the
present case, petitioners were not able to establish that
6

respondents are also at fault. Thus, the principle of pari delicto
cannot apply.
Same; Exceptions; One of the exceptions to the pari delicto
principle is where the application of the pari delicto rule would
violate well-established public policy.—The application of the pari
delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the
pari delicto rule would violate well-established public policy. The
prevention of lawlessness and the maintenance of peace and order
are established public policies. In the instant case, to deny
respondents relief on the ground of pari delicto would put a
premium on the illegal act of petitioners in taking from respondents
what the former claim to be rightfully theirs.
Actions; Counterclaims; Tests to Determine Whether Counter-
claim Compulsory or Not.—Petitioners also question the trial
court’s ruling that their counterclaim is permissive. This Court has
laid down the following tests to determine whether a counterclaim
is compulsory or not, to wit: (1) Are the issues of fact or law raised
by the claim and the counterclaim largely the same? (2) Would res
judicata bar a subsequent suit on defendant’s claims, absent the
compulsory counterclaim rule? (3) Will substantially the same
evidence support or refute plaintiff’s claim as well as the
defendant’s counterclaim? and (4) Is there any logical relation
between the claim and the counterclaim, such that the conduct of
separate trials of the respective claims of the parties would entail
a substantial duplication of effort and time by the parties and the
court? Tested against the above-mentioned criteria, this Court
agrees with the view of the RTC that Rosita’s counterclaim for the
recovery of her alleged share in the sale of the Morayta property is
permissive in nature. The evidence needed to prove respondents’
claim to recover the amount of P3,000,000.00 from petitioners is
different from that required to establish Rosita’s demands for the
recovery of her alleged share in the sale of the subject Morayta
property. The recovery of respondents’ claim is not contingent or
dependent upon the establishment of Rosita’s counterclaim such
BANKING CASES
that conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties.
Filing Fees; Rules.—In Sun Insurance Office, Ltd., (SIOL) v.
Asuncion, 170 SCRA 274 (1989), this Court laid down the rules on
the payment of filing fees, to wit: 1. It is not simply the filing of the
complaint or appropriate initiatory pleading, but the payment of the
prescribed docket fee, that vests a trial court with jurisdiction over
the subject-matter or nature of the action. Where the filing of the
initiatory pleading is not accompanied by payment of the docket
fee, the court may allow payment of the fee within a reasonable
time but in no case beyond the applicable prescriptive or
reglementary period. 2. The same rule applies to permissive
counterclaims, third-party claims and similar pleadings, which shall
not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may allow payment of said fee within a
reasonable time but also in no case beyond its applicable
prescriptive or reglementary period. 3. Where the trial court
acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but,
subsequently, the judgment awards a claim not specified in the
pleading, or if specified the same has been left for determination
by the court, the additional filing fee therefor shall constitute a lien
on the judgment. It shall be the responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and assess and
collect the additional fee.
Judgments; Jurisdictions; It is settled that any decision rendered
without jurisdiction is a total nullity and may be struck down at any
time, even on appeal before this Court.—In order for the trial court
to acquire jurisdiction over her permissive counterclaim, Rosita is
bound to pay the prescribed docket fees. Since it is not disputed
that Rosita never paid the docket and filing fees, the RTC did not
acquire jurisdiction over her permissive counterclaim.
Nonetheless, the trial court ruled on the merits of Rosita’s
permissive counter-claim by dismissing the same on the ground
that she failed to establish that there is a sharing agreement
between her and Arturo with respect to the proceeds of the sale of
7

the subject Morayta property and that the amount of P3,000,000.00
represented by the check which Rosita and Alice encashed formed
part of the proceeds of the said sale. It is settled that any decision
rendered without jurisdiction is a total nullity and may be struck
down at any time, even on appeal before this Court. In the present
case, considering that the trial court did not acquire jurisdiction
over the permissive counterclaim of Rosita, any proceeding taken
up by the trial court and any ruling or judgment rendered in relation
to such counterclaim is considered null and void. In effect, Rosita
may file a separate action against Arturo for recovery of a sum of
money.
Damages; A resort to judicial processes is not, per se, evidence of
ill will upon which a claim for damages may be based.—A resort to
judicial processes is not, per se, evidence of ill will upon which a
claim for damages may be based. In China Banking Corporation v.
Court of Appeals, 231 SCRA 472 (1994), this Court held: Settled
in our jurisprudence is the rule that moral damages cannot be
recovered from a person who has filed a complaint against another
in good faith, or without malice or bad faith (Philippine National
Bank v. Court of Appeals, 159 SCRA 433 [1988]; R & B Surety and
Insurance v. Intermediate Appellate Court, 129 SCRA 736 [1984]).
If damage results from the filing of the complaint, it is damnum
absque injuria (Ilocos Norte Electrical Company v. Court of
Appeals, 179 SCRA 5 [1989]).
Banks and Banking; The banking system has become an
indispensable institution in the modern world and plays a vital role
in the economic life of every civilized society—banks have attained
a ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against
injury attributable to negligence or bad faith on its part.—As to
moral damages, Article 20 of the Civil Code provides that every
person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same. In addition,
Article 2219 (10) of the Civil Code provides that moral damages
may be recovered in acts or actions referred to in Articles 21, 26,
BANKING CASES
27, 28, 29, 30, 32, 34 and 35 of the same Code. More particularly,
Article 21 of the said Code provides that any person who willfully
causes loss or injury to another in a manner that is contrary to
morals, good customs, or public policy shall compensate the latter
for the damage. In the present case, the act of Alice and Rosita in
fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public
policy that no one should put the law into his own hands. As to
SBTC and its officers, their negligence is so gross as to amount to
a willfull injury to respondents. The banking system has become
an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as
active instruments of business and commerce, banks have
attained a ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and most of all,
confidence. For this reason, banks should guard against injury
attributable to negligence or bad faith on its part. Sandejas vs.
Ignacio, Jr., 541 SCRA 61, G.R. No. 155033 December 19, 2007
Before the Court is a Petition for Review on Certiorari under Rule
45 of the Rules of Court assailing the Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 62404 promulgated on August
27, 2002, which affirmed with modification the Decision of the
Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil Case
No. 65146 dated December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs' [petitioners] evidence that Arturo
[respondent] is the elder brother of Alice [petitioner] and Rosita
[petitioner], Benjamin [petitioner] and Patricia [petitioner] are
Arturo's nephew and niece. Arturo and his wife Evelyn [respondent]
are residents of the United States. In October 1993, Arturo leased
from Dr. Borja a condominium unit identified as Unit 28-C Gilmore
Townhomes located at Granada St., Quezon City. The lease was
for the benefit of Benjamin who is the occupant of the unit. The
rentals were paid by Ignacio. The term of the lease is for one (1)
8

year and will expire on October 15, 1994. It appears that Arturo
was intending to renew the lease contract. As he had to leave for
the U.S., Arturo drew up a check, UCPB Check No. GRH-560239
and wrote on it the name of the payee, Dr. Manuel Borja, but left
blank the date and amount. He signed the check. The check was
intended as payment for the renewal of the lease. The date and
the amount were left blank because Arturo does not know when it
will be renewed and the new rate of the lease. The check was left
with Arturo's sister-in-law, who was instructed to deliver or give it
to Benjamin.
The check later came to the possession of Alice who felt that Arturo
cheated their sister in the amount of three million pesos
(₱3,000,000.00). She believed that Arturo and Rosita had a joint
"and/or" money market placement in the amount of P3 million with
the UCPB branch at Ortigas Ave., San Juan and that Ignacio
preterminated the placement and ran away with it, which rightfully
belonged to Rosita. Alice then inquired from UCPB Greenhills
branch if Arturo still has an account with them. On getting a
confirmation, she together with Rosita drew up a scheme to
recover the P3 million from Arturo. Alice filled up the date of the
check with "March 17, 1995" and the amount with "three million
only." Alice got her driver, Kudera, to stand as the payee of the
check, Dr. Borja. Alice and Rosita came to SBC2 Greenhills Branch
together with a man (Kudera) who[m] they introduced as Dr. Borja
to the then Assistant Cashier Luis. After introducing the said man
as Dr. Borja, Rosita, Alice and the man who was later identified as
Kudera opened a Joint Savings Account No. 271-410554-7. As
initial deposit for the Joint Savings Account, Alice, Rosita and
Kudera deposited the check. No ID card was required of Mr.
Kudera because it is an internal policy of the bank that when a
valued client opens an account, an identification card is no longer
required (TSN, April 21, 1997, pp. 15-16). SBC also allowed the
check to be deposited without the endorsement of the impostor
Kudera. SBC officials stamped on the dorsal portion of the check
"endorsement/lack of endorsement guaranteed" and sent the
check for clearing to the Philippine Clearing House Corporation.
BANKING CASES
On 21 March 1995, after the check had already been cleared by
the drawer bank UCPB, Rosita withdrew P1 million from Joint
Savings Account and deposited said amount to the current account
of Alice with SBC Greenhills Branch. On the same date, Alice
caused the transfer of P2 million from the Joint Savings Account to
two (2) Investment Savings Account[s] in the names of Alice,
Rosita and/or Patricia. ...
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about
the identity of the persons and the circumstances surrounding the
deposit and withdrawal of the check, the three million pesos in the
two investment savings account[s] and in the current account just
opened with SBC were withdrawn by Alice and Rosita.3
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio
(respondents) filed a verified complaint for recovery of a sum of
money and damages against Security Bank and Trust Company
(SBTC) and its officers, namely: Rene Colin D. Gray, Manager; and
Sonia Ortiz-Luis, Cashier. The complaint also impleaded herein
petitioner Benjamin A.I. Espiritu (Benjamin), a "John Doe,"
representing himself as Manuel N. Borja; and a "Jane Doe."
On November 7, 1995, the complaint was amended by additionally
impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita
A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as
defendants who filed their respective answers and counterclaims.
After trial, the RTC rendered judgment dated December 18, 1998
with the following dispositive portion:
WHEREFORE, in view of the foregoing, judgment is rendered in
favor of plaintiffs as against defendants Security Bank and Trust
Co., Rene Colin Gray, Sonia Ortiz Luis, Alice A.I. Sandejas and
Rosita A.I. Cusi, ordering them to pay jointly and severally the
plaintiffs the following amounts:
9

(1) ₱3,000,000.00 plus legal interest on it from March 17,
1995 until the entire amount is fully paid;
(2) ₱500,000.00 as moral damages;
(3) ₱200,000.00 as exemplary damages;
(4) ₱300,000.00 as attorney's fees; plus
(5) the cost of suit.
In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the
amount of ₱100,000.00 as moral damages, ₱50,000.00 as
exemplary damages and another ₱50,000.00 as attorney's fees.
The counterclaims of Patricia A.I. Sandejas are dismissed.
SO ORDERED.4
Both parties appealed the RTC Decision to the CA.
On August 14, 1999, during the pendency of the appeal with the
CA, herein respondent Arturo Ignacio, Jr. (Arturo) died.5
On August 27, 2002, the CA promulgated the presently assailed
Decision, disposing as follows:
WHEREFORE, in view of the foregoing, the assailed decision of
the trial court is hereby AFFIRMED with the MODIFICATION that
the judgment shall read as follows:
The defendants-appellants Security Bank and Trust Company,
Rene Colin D. Gray, Sonia Ortiz-Luis, Alice A.I. Sandejas, and
Rosita A.I. Cusi, are hereby ordered to jointly and severally pay the
plaintiffs the following amounts:
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1. ₱3,000,000.00 plus legal interest computed from March
17, 1995 until the entire amount is fully paid;
2. ₱200,000.00 as moral damages;
3. ₱100,000.00 as exemplary damages;
4. ₱50,000.00 as attorney's fees; plus
5. the costs of suit.
The award of moral damages, exemplary damages, and attorney's
fees in favor of Benjamin Espiritu is DELETED.
SO ORDERED.6
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their
respective petitions for review before this Court.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed
as G.R. No. 155038, was denied in a Resolution7 issued by this
Court on November 20, 2002, for their failure to properly verify the
petition, submit a valid certification of non-forum shopping, and
attach to the petition the duplicate original or certified true copy of
the assailed CA Decision. Said
Resolution became final and executory on April 9, 2003.8
On the other hand, the instant petition was given due course.
Petitioners enumerated the following grounds in support of their
petition:
I. THE COURT OF APPEALS HAD DECIDED A QUESTION OF
SUBSTANCE NOT HERETOFORE DECIDED BY THIS COURT
AND/OR HAD DECIDED IT IN A WAY PROBABLY NOT IN
ACCORD WITH EQUITY, THE LAW AND THE APPLICABLE
DECISIONS OF THIS COURT, SUCH AS:
10

(a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS,
THE AGGRIEVED SIBLING HAS THE RIGHT TO TAKE
MEASURES OR STEPS TO PROTECT HIS OWN
INTEREST OR PROPERTY RIGHTS FROM AN ACT OF
THE GUILTY SIBLING;
(b) IN NOT HOLDING THAT THE ACT OF ROSITA AND
ALICE IN FILLING OUT THE BLANK PORTIONS OF THE
CHECK TO RECOVER WHAT ARTURO, JR. TOOK
FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN
ACTIONABLE TORT;
(c) IN NOT HOLDING THAT THE CRIMINAL ACT OF
ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS
OF THE CERTIFICATE OF TIME DEPOSIT FOR
₱3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA
JUST TO BE ABLE TO PRE-TERMINATE THE TIME
DEPOSIT AND GET ITS FACE VALUE, WHEN HE KNEW
IT WAS NOT LOST BUT IN FACT INTACT AND IN THE
POSSESSION OF ROSITA, IS A DISHONEST AND
REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND
ALICE IN TAKING MEANS TO REGAIN THE MONEY
AND TO DENY ARTURO, JR. ANY RIGHT TO RECOVER
THE SAID AMOUNT AS WELL AS TO AN AWARD OF
DAMAGES;
(d) IN NOT HOLDING THAT THE CRIMINAL ACT OF
ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS
OF THE OWNER'S COPY OF THE TITLE IN MORAYTA
AND IN TESTIFYING IN COURT AS TO SUCH, WHEN
THAT IS NOT THE TRUTH AS HE KNEW THAT THE
ORIGINAL OWNER'S COPY OF THE TITLE WAS WITH
ROSITA, IS ANOTHER DISHONEST AND
REPREHENSIBLE ACT THAT SHOULD NOT HAVE
ENTITLED HIM TO ANY AWARD OF DAMAGES; AND
(e) IN NOT APPLYING THE RULE ON PARI
DELICTO UNDER ART. 1412 OF THE CIVIL CODE.
BANKING CASES
II. THE COURT OF APPEALS HAD DEPARTED FROM THE
USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT
FAILED TO RESOLVE IN THE APPEAL THE COUNTERCLAIM
OF ROSITA AGAINST ARTURO, JR. FOR THE RECOVERY OF
THE AMOUNTS LEGALLY HERS THAT SHOULD JUSTIFY
ALICE'S BEING ABSOLVED FROM ANY LIABILITY FOR USING
THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY
BELONGING TO ROSITA;
III. THE COURT OF APPEALS HAD DEPARTED FROM THE
USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT
REVERSED THE TRIAL COURT'S FINDING THAT
RESPONDENT WAS GUILTY OF BAD FAITH AND MALICE
THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO
THE AWARD OF DAMAGES NOTWITHSTANDING THAT
THERE WAS AMPLE EVIDENCE SHOWN THAT SUCH BAD
FAITH AND MALICE WAS MADE AS A LEVERAGE TO COMPEL
ARTURO'S SIBLINGS TO RETURN TO HIM THE ₱3,000,000
WHICH WAS NOT HIS; and,
IV. THE COURT OF APPEALS HAD DECIDED THE CASE NOT
IN ACCORD WITH LAW WHEN IT DELETED THE AWARD OF
DAMAGES TO PETITIONER ESPIRITU AND IN NOT HAVING
RULED THAT HE WAS ENTITLED TO A HIGHER AWARD OF
DAMAGES CONSIDERING THE CIRCUMSTANCES OF THE
CASE AS WELL AS IN NOT HAVING RULED THAT PATRICIA
WAS ENTITLED TO AN AWARD OF DAMAGES.9
Petitioners argue that the CA overlooked and ignored vital pieces
of evidence showing that the encashment of the subject check was
not fraudulent and, on the contrary, was justified under the
circumstances; and that such encashment did not amount to an
actionable tort and that it merely called for the application of the
civil law rule on pari delicto.
In support of these arguments, petitioners contend that the
principal adversaries in the present case are full blooded siblings;
that the law recognizes the solidarity of family which is why it is
11

made a condition that earnest efforts towards a compromise be
exerted before one family member can institute a suit against the
other; that even if Arturo previously defrauded Rosita and deprived
her of her lawful share in the sale of her property, petitioners Rosita
and Alice did not precipitately file suit against him and instead took
extra-legal measures to protect Rosita's property rights and at the
same time preserve the solidarity of their family and save it from
public embarrassment. Petitioners also aver that Rosita's and
Alice's act of encashing the subject check is not fraudulent
because they did not have any unlawful intent and that they merely
took from Arturo what rightfully belonged to Rosita. Petitioners
contend that even granting that the act of Rosita and Alice
amounted to an actionable tort, they could not be adjudged liable
to return the amount to respondents or to pay damages in their
favor, because the civil law rule on pari delicto dictates that, when
both parties are at fault, neither of them could expect positive relief
from courts of justice and, instead, are left in the state where they
were at the time of the filing of the case.
Petitioners also contend that the CA erred in failing to award
damages to Patricia even if the appellate court sustained the trial
court's finding that she was not a party to the fraudulent acts
committed by Rosita and Alice. Petitioners argue that even if
1avvphi 1
Patricia did not bother to know the details of the cases against her
and left everything to her mother, she did not even know the nature
of the case against her, or her superiors in the bank where she
worked did not know whether she was the plaintiff or defendant,
these were not reasons to deny her award of damages. The fact
remains that she had been maliciously dragged into the case, and
that the suit had adversely affected her work and caused her
mental worries and anguish, besmirched reputation,
embarrassment and humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting
the award of damages and attorney's fees in his favor. Petitioners
assert that the trial court found that Benjamin suffered mental
anguish, wounded feelings and moral shock as a result of the filing
of the present case. Citing the credentials and social standing of
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Benjamin, petitioners claim that the award of damages and
attorney's fees in his favor should be increased.
Lastly, petitioners contend that the award of damages and
attorney's fees to respondents should be deleted for their failure to
establish malice or bad faith on the part of petitioners Alice and
Rosita in recovering the ₱3,000,000.00 which Arturo took from
Rosita; and that it is Rosita who is entitled to damages and
attorney's fees for Arturo's failure and refusal to give her share in
the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues
raised by petitioners are factual in nature and that the settled rule
is that questions of fact are not subject to review by the Supreme
Court in a petition for review on certiorari under Rule 45 of the
Rules of Court. While there are exceptions to this rule, respondents
assert that petitioners failed to show that the instant case falls
under any of these exceptions.
The Court’s Ruling
The Court finds the petition bereft of merit. There is no compelling
reason for the Court to disturb the findings of facts of the lower
courts.
The trial court's findings are as follows: (1) Rosita failed to establish
that there is an agreement between her and Arturo that the latter
will give her one-third of the proceeds of the sale of the Morayta
property; (2) petitioners were not able to establish by clear and
sufficient evidence that the ₱3,000,000.00 which they took from
Arturo when they encashed the subject check was part of the
proceeds of the sale of the Morayta property; (3) Rosita's
counterclaim is permissive and she failed to pay the full docket and
filing fees for her counterclaim.10
Petitioners challenge the findings of the RTC and insist that they
should not be held liable for encashing the subject check because
12

Arturo defrauded Rosita and that he committed deceitful acts which
deprived her of her rightful share in the sale of her building in
Morayta; that the amount of ₱3,000,000.00 represented by the
check which they encashed formed part of the proceeds of the said
sale; that Alice and Rosita were merely moved by their desire to
recover from Arturo, Rosita's supposed share in the sale of her
property.
However, the Court agrees with respondents that only questions of
law are entertained in petitions for review on certiorari under Rule
45 of the Rules of Court.11 The trial court’s findings of fact, which
the Court of Appeals affirmed, are generally binding and conclusive
upon this court.12 There are recognized exceptions to this rule,
among which are: (1) the conclusion is grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken,
absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings
of facts are conflicting; (6) there is no citation of specific evidence
on which the factual findings are based; (7) the finding of absence
of facts is contradicted by the presence of evidence on record; (8)
the findings of the CA are contrary to the findings of the trial court;
(9) the CA manifestly overlooked certain relevant and undisputed
facts that, if properly considered, would justify a different
conclusion; (10) the findings of the CA are beyond the issues of
the case; and (11) such findings are contrary to the admissions of
both parties.13 In the instant case, petitioners failed to demonstrate
that their petition falls under any one of the above exceptions.
Petitioners' assignments of errors boil down to the basic issue of
whether or not Alice and Rosita are justified in encashing the
subject check given the factual circumstances established in the
present case.
Petitioners' posture is not sanctioned by law. If they truly believe
that Arturo took advantage of and violated the rights of Rosita,
petitioners should have sought redress from the courts and should
not have simply taken the law into their own hands. Our laws are
replete with specific remedies designed to provide relief for the
BANKING CASES
violation of one's rights. In the instant case, Rosita could have
immediately filed an action for the nullification of the sale of the
building she owns in light of petitioners' claim that the document
bearing her conformity to the sale of the said building was taken by
Arturo from her without her knowledge and consent. Or, in the
alternative, as the CA correctly held, she could have brought a suit
for the collection of a sum of money to recover her share in the sale
of her property in Morayta. In a civilized society such as ours, the
rule of law should always prevail. To allow otherwise would be
productive of nothing but mischief, chaos and anarchy. As a
lawyer, who has sworn to uphold the rule of law, Rosita should
know better. She must go to court for relief.
It is true that Article 151 of the Family Code requires that earnest
efforts towards a compromise be made before family members can
institute suits against each other. However, nothing in the law
sanctions or allows the commission of or resort to any extra-legal
or illegal measure or remedy in order for family members to avoid
the filing of suits against another family member for the
enforcement or protection of their respective rights.
Petitioners invoke the rule of pari delicto to support their contention
that respondents do not deserve any relief from the courts.
The principle of pari delicto provides that when two parties are
equally at fault, the law leaves them as they are and denies
recovery by either one of them.14 Indeed, one who seeks equity
and justice must come to court with clean hands.15 However, in the
present case, petitioners were not able to establish that
respondents are also at fault. Thus, the principle of pari
delicto cannot apply.
In any case, the application of the pari delicto principle is not
absolute, as there are exceptions to its application.16One of these
exceptions is where the application of the pari delicto rule would
violate well-established public policy.17 The prevention of
lawlessness and the maintenance of peace and order are
established public policies. In the instant case, to deny
13

respondents relief on the ground of pari delicto would put a
premium on the illegal act of petitioners in taking from respondents
what the former claim to be rightfully theirs.
Petitioners also question the trial court's ruling that their
counterclaim is permissive. This Court has laid down the following
tests to determine whether a counterclaim is compulsory or not, to
wit: (1) Are the issues of fact or law raised by the claim and the
counterclaim largely the same? (2) Would res judicata bar a
subsequent suit on defendant’s claims, absent the compulsory
counterclaim rule? (3) Will substantially the same evidence support
or refute plaintiff’s claim as well as the defendant’s counterclaim?
and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the
respective claims of the parties would entail a substantial
duplication of effort and time by the parties and the court?18
Tested against the above-mentioned criteria, this Court agrees
with the view of the RTC that Rosita's counterclaim for the recovery
of her alleged share in the sale of the Morayta property is
permissive in nature. The evidence needed to prove respondents'
claim to recover the amount of ₱3,000,000.00 from petitioners is
different from that required to establish Rosita's demands for the
recovery of her alleged share in the sale of the subject Morayta
property. The recovery of respondents' claim is not contingent or
dependent upon the establishment of Rosita's counterclaim such
that conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,19 this Court laid
down the rules on the payment of filing fees, to wit:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied by payment of
the docket fee, the court may allow payment of the fee
BANKING CASES
within a reasonable time but in no case beyond the
applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims,
third-party claims and similar pleadings, which shall not be
considered filed until and unless the filing fee prescribed
therefor is paid. The court may allow payment of said fee
within a reasonable time but also in no case beyond its
applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by
the filing of the appropriate pleading and payment of the
prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if specified
the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and
assess and collect the additional fee.20
In order for the trial court to acquire jurisdiction over her permissive
counterclaim, Rosita is bound to pay the prescribed docket
fees.21 Since it is not disputed that Rosita never paid the docket
and filing fees, the RTC did not acquire jurisdiction over her
permissive counterclaim. Nonetheless, the trial court ruled on the
merits of Rosita's permissive counterclaim by dismissing the same
on the ground that she failed to establish that there is a sharing
agreement between her and Arturo with respect to the proceeds of
the sale of the subject Morayta property and that the amount of
₱3,000,000.00 represented by the check which Rosita and Alice
encashed formed part of the proceeds of the said sale.
It is settled that any decision rendered without jurisdiction is a total
nullity and may be struck down at any time, even on appeal before
this Court.22
14

In the present case, considering that the trial court did not acquire
jurisdiction over the permissive counterclaim of Rosita, any
proceeding taken up by the trial court and any ruling or judgment
rendered in relation to such counterclaim is considered null and
void. In effect, Rosita may file a separate action against Arturo for
recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are
compulsory as they necessarily arise as a result of the filing by
respondents of their complaint. Being compulsory in nature,
payment of docket fees is not required.23Nonetheless, since
petitioners are found to be liable to return to respondents the
amount of ₱3,000,000.00 as well as to pay moral and exemplary
damages and attorney's fees, it necessarily follows that Rosita's
counterclaim for damages and attorney's fees should be dismissed
as correctly done by the RTC and affirmed by the CA.
As to Patricia's entitlement to damages, this Court has held that
while no proof of pecuniary loss is necessary in order that moral
damages may be awarded, the amount of indemnity being left to
the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual
basis of damages and its causal connection to defendant’s
acts.24 This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.25 Moreover, additional facts
must be pleaded and proven to warrant the grant of moral damages
under the Civil Code, these being, social humiliation, wounded
feelings, grave anxiety, etc. that resulted from the act being
complained of.26 In the present case, both the RTC and the CA
were not convinced that Patricia is entitled to damages. Quoting
the RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the details
of the case against her, she left everything to the hands of her
mother Alice. Her attitude towards the case appears weird, she
being a banker who seems so concerned of her reputation.
BANKING CASES
Aside from the parties to this case, her immediate superiors in the
BPI knew that she is involved in a case. They did not however know
whether she is the plaintiff or the defendant in the case. Further,
they did not know the nature of the case that she is involved in. It
appears that Patricia has not suffered any of the injuries
enumerated in Article 2217 of the Civil Code, thus, she is not
entitled to moral damages and attorney's fees.27
This Court finds no cogent reason to depart from the above-quoted
findings as Patricia failed to satisfactorily show the existence of the
factual basis for granting her moral damages and the causal
connection of such fact to the act of respondents in filing a
complaint against her.
In addition, and with respect to Benjamin, the Court agrees with
the CA that in the absence of a wrongful act or omission, or of fraud
or bad faith, moral damages cannot be awarded.28 The adverse
result of an action does not per se make the action wrongful, or the
party liable for it.29 One may err, but error alone is not a ground for
granting such damages.30 In the absence of malice and bad faith,
the mental anguish suffered by a person for having been made a
party in a civil case is not the kind of anxiety which would warrant
the award of moral damages.31
A resort to judicial processes is not, per se, evidence of ill will upon
which a claim for damages may be based.32
In China Banking Corporation v. Court of Appeals,33 this Court
held:
Settled in our jurisprudence is the rule that moral damages cannot
be recovered from a person who has filed a complaint against
another in good faith, or without malice or bad faith (Philippine
National Bank v. Court of Appeals, 159 SCRA 433 [1988]; R & B
Surety and Insurance v. Intermediate Appellate Court, 129 SCRA
736 [1984]). If damage results from the filing of the complaint, it is
15

damnum absque injuria (Ilocos Norte Electrical Company v. Court
of Appeals, 179 SCRA 5 [1989]).34
In the present case, the Court agrees with the RTC and the CA that
petitioners failed to establish that respondents were moved by bad
faith or malice in impleading Patricia and Benjamin. Hence, Patricia
and Benjamin are not entitled to damages.
The Court sustains the award of moral and exemplary damages as
well as attorney's fees in favor of respondents.
As to moral damages, Article 20 of the Civil Code provides that
every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same. In
addition, Article 2219 (10) of the Civil Code provides that moral
damages may be recovered in acts or actions referred to in Articles
21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same Code. More
particularly, Article 21 of the said Code provides that any person
who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs, or public policy shall
compensate the latter for the damage. In the present case, the act
of Alice and Rosita in fraudulently encashing the subject check to
the prejudice of respondents is certainly a violation of law as well
as of the public policy that no one should put the law into his own
hands. As to SBTC and its officers, their negligence is so gross as
to amount to a willfull injury to respondents. The banking system
has become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized
society.35 Whether as mere passive entities for the safe-keeping
and saving of money or as active instruments of business and
commerce, banks have attained a ubiquitous presence among the
people, who have come to regard them with respect and even
gratitude and most of all, confidence.36 For this reason, banks
should guard against injury attributable to negligence or bad faith
on its part.37
There is no hard-and-fast rule in the determination of what would
be a fair amount of moral damages since each case must be
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governed by its own peculiar facts.38 The yardstick should be that
it is not palpably and scandalously excessive.39 Moreover, the
social standing of the aggrieved party is essential to the
determination of the proper amount of the award.40 Otherwise, the
goal of enabling him to obtain means, diversions, or amusements
to restore him to the status quo ante would not be achieved.41 In
the present case, the Court finds no cogent reason to modify the
amount of moral damages granted by the CA.
Likewise, the Court finds no compelling reason to disturb the
modifications made by the CA on the award of exemplary damages
and attorney's fees.
Under Article 2229 of the Civil Code, exemplary or corrective
damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or
compensatory damages. In the instant case, the award of
exemplary damages in favor of respondents is in order for the
purpose of deterring those who intend to enforce their rights by
taking measures or remedies which are not in accord with law and
public policy. On the part of respondent bank, the public relies on
a bank's sworn profession of diligence and meticulousness in
giving irreproachable service.42 Hence, the level of meticulousness
must be maintained at all times by the banking sector.43 In the
present case the award of exemplary damages is justified by the
brazen acts of petitioners Rosita and Alice in violating the law
coupled with the gross negligence committed by respondent bank
and its officers in allowing the subject check to be deposited which
later paved the way for its encashment.
As to attorney's fees, Article 2208 of the same Code provides,
among others, that attorney's fees may be recovered when
exemplary damages are awarded or when the defendant's act or
omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest.
16
 BANKING CASES

WHEREFORE, the instant petition is DENIED. The Decision of the

Court of Appeals dated August 27, 2002 in CA-G.R. CV No. 62404
is AFFIRMED.

Costs against the petitioners.

SO ORDERED.

17

G.R. No. 170984 January 30, 2009
SECURITY BANK AND TRUST COMPANY, Petitioner, vs.
RIZAL COMMERCIAL BANKING CORPORATION, Respondent.
x-------------------------x
G.R. No. 170987 January 30, 2009
RIZAL COMMERCIAL BANKING
CORPORATION, Petitioner, vs. SECURITY BANK AND TRUST
COMPANY, Respondent.
Banks and Banking; Checks; Words and Phrases; A manager’s
check is one drawn by a bank’s manager upon the bank itself—it
stands on the same footing as a certified check, which is deemed
to have been accepted by the bank that certified it.—It must be
noted that the questioned check issued by SBTC is not just an
ordinary check but a manager’s check. A manager’s check is one
drawn by a bank’s manager upon the bank itself. It stands on the
same footing as a certified check, which is deemed to have been
accepted by the bank that certified it. As the bank’s own check, a
manager’s check becomes the primary obligation of the bank and
is accepted in advance by the act of its issuance. In this case,
RCBC, in immediately crediting the amount of P8 million to CMC’s
account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check,
which was payable to “Cash,” appeared regular on its face, and the
bank found nothing unusual in the transaction, as the drawer
usually issued checks in big amounts made payable to cash,
RCBC cannot be faulted in paying the value of the questioned
check.
Same; Same; The banking system has become an indispensable
institution in the modern world and plays a vital role in the economic
life of every civilized society—it is important that banks should
guard against injury attributable to negligence or bad faith on its
part; The highest degree of diligence is expected, and high
standards of integrity and performance are required of banks.—In
addition to the above-mentioned award of compensatory
BANKING CASES
damages, we also find merit in the need to award exemplary
damages in order to set an example for the public good. The
banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of business
and commerce, banks have attained an ubiquitous presence
among the people, who have come to regard them with respect
and even gratitude and, above all, trust and confidence. In this
connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public
interest, the trust and confidence of the public in it is of paramount
importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are
required of it. SBTC having failed in this respect, the award of
exemplary damages to RCBC in the amount of P50,000.00 is
warranted. Security Bank and Trust Company vs. Rizal
Commercial Banking Corporation, 577 SCRA 407, G.R. No.
170984 January 30, 2009
Before us are opposing parties’ petitions for review of the
Decision1 dated March 29, 2005 and Resolution2 dated December
12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The
two petitions are herein consolidated as they stem from the same
set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC)
issued a manager’s check for ₱8 million, payable to "CASH," as
proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC). On the same day, the ₱8-
million check, along with other checks, was deposited by
Continental Manufacturing Corporation (CMC) in its Current
Account No. 0109-022888 with Rizal Commercial Banking
Corporation (RCBC). Immediately, RCBC honored the ₱8-million
check and allowed CMC to withdraw the same.3
18

On the next banking day, January 12, 1981, GCDC issued a "Stop
Payment Order" to SBTC, claiming that the ₱8-million check was
released to a third party by mistake. Consequently, SBTC
dishonored and returned the manager’s check to RCBC.
Thereafter, the check was returned back and forth between the two
banks, resulting in automatic debits and credits in each bank’s
clearing balance.4
On February 13, 1981, RCBC filed a complaint5 for damages
against SBTC with the then Court of First Instance of Rizal, Branch
XXII. Said case was docketed as Civil Case No. 1081 and later
transferred to the Regional Trial Court (RTC) of Makati City,
Branch 143.
Meanwhile, following the rules of the Philippine Clearing House,
RCBC and SBTC stopped returning the checks to each other. By
way of a temporary arrangement pending resolution of the case,
the ₱8-million check was equally divided between, and credited to,
RCBC and SBTC.6
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a
Decision7 in favor of RCBC. The dispositive portion of the decision
reads:
PREMISES CONSIDERED, the Court renders judgment in favor of
plaintiff [RCBC] and finds defendant SBTC justly liable to [RCBC]
and sentences [SBTC] to pay [RCBC] the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorney’s fees; and,
3. the costs.
SO ORDERED.8
BANKING CASES
On appeal, the Court of Appeals affirmed with modification the
above Decision, to wit:
WHEREFORE, the appealed Decision
is AFFIRMED with MODIFICATION. Appellant Security Bank and
Trust Co. shall pay appellee Rizal Commercial Banking
Corporation not only the principal amount of ₱4,000,000.00 but
also interest thereon at (6%) per annum covering appellee’s
unearned income on interest computed from the time of filing of the
complaint on February 13, 1981 to the date of finality of this
Decision. For lack of factual and legal basis, the award of attorney’s
fees is DELETED.
SO ORDERED.9
Now for our resolution are the opposing parties’ petitions for review
on certiorari of the abovecited decision. On its part, SBTC alleges
the following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
REFUSING TO APPLY THE LAW BECAUSE, IN ITS OPINION,
TO DO SO WOULD "RESULT IN AN INJUSTICE."
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT TO DETERMINE WHETHER OR NOT A BANK
IS A HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE
INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION
OF CENTRAL BANK RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
FAILING TO NOTE THAT THE MANAGER’S CHECK IN
19

QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC
AND WAS NOT ENCASHED BY THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
FAILING TO CONSIDER THAT PRIOR TO THE DEPOSIT OF
THE CHECKS WORTH PhP53 MILLION, RCBC WAS HOLDING
43 CHECKS TOTALING ₱49,017,669.66 DRAWN BY
CONTINENTAL MANUFACTURING CORPORATION AGAINST
ITS CURRENT ACCOUNT WHEN THE BALANCE OF THAT
ACCOUNT WAS A MERE ₱573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
FAILING TO CONSIDER THAT THE CHECKS DEPOSITED WITH
RCBC THE PROCEEDS OF WHICH WERE IMMEDIATELY
WITHDRAWN TO HONOR THE 43 CHECKS TOTALING
₱49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING
CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL
MANAGER’S CHECK[S] BUT INCLUDED ORDINARY CHECKS
IN THE TOTAL AMOUNT OF PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
FAILING TO CONSIDER THAT EACH OF THE 43 CHECKS
DRAWN BY THE CONTINENTAL MANUFACTURING
CORPORATION WERE ALL HONORED BY RCBC ON THE
BASIS OF A MIXTURE OF ALL THE MANAGER’S AND
ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9
JANUARY 1981.
VII.
BANKING CASES
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT THE RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT SBTC WAITED FOR THREE (3) DAYS TO
NOTIFY THE RCBC OF THE STOP PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT SBTC SHOULD HAVE FIRST ACQUIRED
PERSONAL KNOWLEDGE OF THE FACTS WHICH GAVE RISE
TO THE REQUEST FOR THE STOP PAYMENT ORDER
BEFORE HONORING SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY
IN REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS
BASED SOLELY ON SPECULATION, CONJECTURE AND
GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY
IN HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY
DAMAGES.
XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING SBTC LIABLE FOR THE ATTORNEY’S FEES OF
RCBC [SIC].10
On RCBC’s part, the following issues are submitted for resolution:
20

I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGER’S
CHECK IT ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY
DAMAGES EQUIVALENT TO THE INTEREST INCOME LOST AS
A RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR
ITS OWN MANAGER’S CHECK, AS WELL AS FOR EXEMPLARY
DAMAGES AND ATTORNEY’S FEES.11
Simply stated, we find that in these consolidated petitions, the legal
issues for our resolution are: (1) Is SBTC liable to RCBC for the
remaining ₱4 million? and (2) Is SBTC liable to pay for lost interest
income on the remaining ₱4 million, exemplary damages and
attorney’s fees?
RCBC avers that the manager’s check issued by SBTC is
substantially as good as the money it represents because by its
peculiar character, its issuance has the effect of an advance
acceptance. RCBC claims that it is a holder in due course when it
credited the ₱8-million manager’s check to CMC’s account.
Accordingly, RCBC asserts that SBTC’s refusal to honor its
obligation justifies RCBC claim for lost interest income, exemplary
damages and attorney’s fees.
On the other hand, SBTC contends that RCBC violated Monetary
Board Resolution No. 2202 of the Central Bank of the Philippines
mandating all banks to verify the genuineness and validity of all
checks before allowing drawings of the same. SBTC insists that
RCBC should bear the consequences of allowing CMC to withdraw
the amount of the check before it was cleared.12
We shall rule on the issues seriatim.
BANKING CASES
At the outset, it must be noted that the questioned check issued by
SBTC is not just an ordinary check but a manager’s check. A
manager’s check is one drawn by a bank’s manager upon the bank
itself. It stands on the same footing as a certified check,13 which is
deemed to have been accepted by the bank that certified it.14 As
the bank’s own check, a manager’s check becomes the primary
obligation of the bank and is accepted in advance by the act of its
issuance.15
In this case, RCBC, in immediately crediting the amount of ₱8
million to CMC’s account, relied on the integrity and honor of the
check as it is regarded in commercial transactions. Where the
questioned check, which was payable to "Cash," appeared regular
on its face, and the bank found nothing unusual in the transaction,
as the drawer usually issued checks in big amounts made payable
to cash, RCBC cannot be faulted in paying the value of the
questioned check.16
In our considered view, SBTC cannot escape liability by invoking
Monetary Board Resolution No. 2202 dated December 21, 1979,
prohibiting drawings against uncollected deposits. For we must
point out that the Central Bank at that time issued a Memorandum
dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. In its pertinent portion, said Memorandum
reads:
"MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No.
2202 dated December 31, 1979 prohibiting, as a matter of
policy, drawing against uncollected deposit effective July 1,
1980, uncollected deposits representing manager’s cashier’s/
treasurer’s checks, treasury warrants, postal money orders and
duly funded "on us" checks which may be permitted at the
21
 BANKING CASES

discretion of each bank, covers drawings against demand deposits interest, the trust and confidence of the public in it is of paramount
as well as withdrawals from savings deposits."17 importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are
Thus, it is clear from the July 9, 1980 Memorandum that banks required of it. SBTC having failed in this respect, the award of
were given the discretion to allow immediate drawings on exemplary damages to RCBC in the amount of ₱50,000.00 is
uncollected deposits of manager’s checks, among others. warranted.21
Consequently, RCBC, in allowing the immediate withdrawal
against the subject manager’s check, only exercised a prerogative Pursuant to current jurisprudence, with the finding of liability for
expressly granted to it by the Monetary Board. exemplary damages, attorney’s fees in the amount of
₱25,000.0022 must also be awarded against SBTC and in favor of
Moreover, neither Monetary Board Resolution No. 2202 nor the RCBC.
July 9, 1980 Memorandum alters the extraordinary nature of the
manager’s check and the relative rights of the parties thereto. WHEREFORE, the assailed Decision dated March 29, 2005 and
SBTC’s liability as drawer remains the same − by drawing the Resolution dated December 12, 2005 of the Court of Appeals in
instrument, it admits the existence of the payee and his then CA-G.R. CV No. 67387 is hereby AFFIRMED with
capacity to indorse; and engages that on due presentment, the MODIFICATION. Security Bank and Trust Company is ordered to
instrument will be accepted, or paid, or both, according to its pay Rizal Commercial Banking Corporation: (1) the remaining
tenor.18 ₱4,000,000.00, with legal interest thereon at six percent (6%) per
annum from the time of filing of the complaint on February 13, 1981
Concerning RCBC’s claim for lost interest income on the remaining to the date of finality of this Decision; (2) exemplary damages of
₱4 million, this is already covered by the amount of damages in the ₱50,000.00; and (3) attorney’s fees of ₱25,000.00.
form of legal interest of 6%, based on Article 220019 and 220920 of
the Civil Code of the Philippines, as awarded by the Court of No pronouncement as to costs.
Appeals in its decision.
SO ORDERED.
In addition to the above-mentioned award of compensatory
damages, we also find merit in the need to award exemplary
damages in order to set an example for the public good. The
banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of business
and commerce, banks have attained an ubiquitous presence
among the people, who have come to regard them with respect
and even gratitude and, above all, trust and confidence. In this
connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public

22

G.R. No. 161319 January 23, 2007
SPS. EDGAR AND DINAH OMENGAN, Petitioners, vs.
PHILIPPPINE NATIONAL BANK, HENRY M. MONTALVO AND
MANUEL S. ACIERTO,* Respondents.
Contracts; Breach of Contract; Appeals; The existence of a breach
of contract is a factual matter not usually reviewed in a petition filed
under Rule 45.—The existence of breach of contract is a factual
matter not usually reviewed in a petition filed under Rule 45. But
since the RTC and the CA had contradictory findings, we are
constrained to rule on this issue.
Same; Same; Words and Phrases; “Breach of Contract,”
Defined.—Breach of contract is defined as follows: [It] is the “failure
without legal reason to comply with the terms of a contract.” It is
also defined as the “[f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the contract.”
Banks and Banking; Loans; The business of a bank is one affected
with public interest, for which reason the bank should guard against
loss due to negligence or bad faith, and in approving the loan of an
applicant, the bank concerns itself with proper information
regarding its debtors.—The business of a bank is one affected with
public interest, for which reason the bank should guard against loss
due to negligence or bad faith. In approving the loan of an
applicant, the bank concerns itself with proper [information]
regarding its debtors.” Any investigation previously conducted on
the property offered by petitioners as collateral did not preclude
PNB from considering new information on the same property as
security for a subsequent loan. The credit and property
investigation for the original loan of P3 million did not oblige PNB
to grant and release any additional loan. At the time the original P3
million credit line was approved, the title to the property appeared
to pertain exclusively to petitioners. By the time the application for
an increase was considered, however, PNB already had reason to
suspect petitioners’ claim of exclusive ownership. Omengan vs.
Philippine National Bank, 512 SCRA 305, G.R. No. 161319
January 23, 2007
BANKING CASES
This petition for review on certiorari1 seeks a review and reversal
of the Court of Appeals (CA) decision2 and resolution3 in CA-G.R.
CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk
(Kalinga) Branch approved petitioners-spouses’ application for a
revolving credit line of P3 million. The loan was secured by two
residential lots in Tabuk, Kalinga-Apayao covered by Transfer
Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of
title, issued by the Registry of Deeds of the Province of Kalinga-
Apayao, were in the name of Edgar4 Omengan married to Dinah
Omengan.
The first P2.5 million was released by Branch Manager Henry
Montalvo on three separate dates. The release of the final half
million was, however, withheld by Montalvo because of a letter
allegedly sent by Edgar’s sisters. It read:
Appas, Tabuk
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:
This refers to the land at Appas, Tabuk in the name of our
brother, Edgar Omengan, which was mortgaged to [the] Bank in
the amount of Three Million Pesos (P3,000,000.00), the sum of
[P2.5 Million] had already been released and received by our
brother, Edgar.
23

In this connection, it is requested that the remaining unreleased
balance of [half a million pesos] be held in abeyance pending an
understanding by the rest of the brothers and sisters of
Edgar. Please be informed that the property mortgaged, while
in the name of Edgar Omengan, is owned in co-ownership by
all the children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject
property under Edgar’s name can attest to this fact. We had
a prior understanding with Edgar in allowing him to make
use of the property as collateral, but he refuses to comply
with such arrangement. Hence, this letter. (emphasis ours)
Very truly yours,
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver5
Montalvo was eventually replaced as branch manager by Manuel
Acierto who released the remaining half million pesos to petitioners
on May 2, 1997. Acierto also recommended the approval of a P2
million increase in their credit line to the Cagayan Valley Business
Center Credit Committee in Santiago City.
The credit committee approved the increase of petitioners’ credit
line (from P3 million to P5 million), provided Edgar’s sisters gave
their conformity. Acierto informed petitioners of the conditional
approval of their credit line.
But petitioners failed to secure the consent of Edgar’s sisters;
hence, PNB put on hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of
the P2 million. He claimed that the condition for its release was not
part of his credit line agreement with PNB because it was added
without his consent. PNB denied his request.
BANKING CASES
On March 3, 1999, petitioners filed a complaint for breach of
contract and damages against PNB with the Regional Trial Court
(RTC), Branch 25 in Tabuk, Kalinga. After trial, the court decided
in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of
[petitioners.] [PNB is ordered]:
1) To release without delay in favor of [petitioners] the
amount of P2,000,000.00 to complete the P5,000,000.00
credit line agreement;
2) To pay [petitioners] the amount of P2,760,000.00
representing the losses and/or expected income of the
[petitioners] for three years;
3) To pay lawful interest, until the amount aforementioned
on paragraphs 1 and 2 above are fully paid; and
4) To pay the costs. 1awphi 1.net
SO ORDERED.6
The CA, however, on June 18, 2003, reversed and set aside the
RTC decision dated April 21, 2001.7
Petitioners now contend that the CA erred when it did not sustain
the finding of breach of contract by the RTC. 8
The existence of breach of contract is a factual matter not usually
reviewed in a petition filed under Rule 45. But since the RTC and
the CA had contradictory findings, we are constrained to rule on
this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
24

[It] is the "failure without legal reason to comply with the terms of a
contract." It is also defined as the "[f]ailure, without legal excuse,
to perform any promise which forms the whole or part of the
contract."9
In this case, the parties agreed on a P3 million credit line. This sum
was completely released to petitioners who subsequently
applied10 for an increase in their credit line. This was conditionally
approved by PNB’s credit committee. For all intents and purposes,
petitioners sought an additional loan.
The condition attached to the increase in credit line requiring
petitioners to acquire the conformity of Edgar’s sisters was never
acknowledged and accepted by petitioners. Thus, as to the
additional loan, no meeting of the minds actually occurred and no
breach of contract could be attributed to PNB. There was no
perfected contract over the increase in credit line.
"[T]he business of a bank is one affected with public interest, for
which reason the bank should guard against loss due to negligence
or bad faith. In approving the loan of an applicant, the bank
concerns itself with proper [information] regarding its
debtors."11 Any investigation previously conducted on the property
offered by petitioners as collateral did not preclude PNB from
considering new information on the same property as security for
a subsequent loan. The credit and property investigation for the
original loan of P3 million did not oblige PNB to grant and release
any additional loan. At the time the original P3 million credit line
was approved, the title to the property appeared to pertain
exclusively to petitioners. By the time the application for an
increase was considered, however, PNB already had reason to
suspect petitioners’ claim of exclusive ownership. 1avv phi1.net
A mortgagee can rely on what appears on the certificate of title
presented by the mortgagor and an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of
the mortgagor’s title. This rule is strictly applied to banking
institutions. xxx
BANKING CASES
Banks, indeed, should exercise more care and prudence in
dealing even with registered lands, than private individuals,
as their business is one affected with public interest. xxx
Thus, this Court clarified that the rule that persons dealing
with registered lands can rely solely on the certificate of title
does not apply to banks.12 (emphasis supplied)
Here, PNB had acquired information sufficient to induce a
reasonably prudent person to inquire into the status of the title over
the subject property. Instead of defending their position, petitioners
merely insisted that reliance on the face of the certificate of title (in
their name) was sufficient. This principle, as already mentioned,
was not applicable to financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their
favor if, as they said, they really owned the subject property alone,
to the exclusion of any other owner(s). Unfortunately, all they
offered were bare denials of the co-ownership claimed by Edgar’s
sisters.
PNB exercised reasonable prudence in requiring the above-
mentioned condition for the release of the additional loan. If the
condition proved unacceptable to petitioners, the parties could
have discussed other terms instead of making an obstinate and
outright demand for the release of the additional amount. If the
alleged co-ownership in fact had no leg to stand on, petitioners
could have introduced evidence other than a simple denial of its
existence.
Since PNB did not breach any contract and since it exercised the
degree of diligence expected of it, it cannot be held liable for
damages.
WHEREFORE, the decision and resolution of the Court of Appeals
in CA-G.R. CV No. 71302 are hereby AFFIRMED.
Costs against petitioners.
25
 BANKING CASES

SO ORDERED.

26

G.R. No. 136202 January 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COURT
OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents
Certiorari; Only questions of law may be raised in an appeal by
certiorari under Rule 45 of the Rules of Court; Factual findings of
the Court of Appeals are entitled to great weight and respect,
especially when the CA affirms the factual findings of the trial court;
Exceptions.—Generally, only questions of law may be raised in an
appeal by certiorari under Rule 45 of the Rules of Court. Factual
findings of the CA are entitled to great weight and respect,
especially when the CA affirms the factual findings of the trial court.
Such questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are
clear and convincing and adequate to establish a proposition in
issue, are questions of fact. The same holds true for questions on
whether or not the body of proofs presented by a party, weighed
and analyzed in relation to contrary evidence submitted by the
adverse party may be said to be strong, clear and convincing, or
whether or not inconsistencies in the body of proofs of a party are
of such gravity as to justify refusing to give said proofs weight—all
these are issues of fact which are not reviewable by the Court. This
rule, however, is not absolute and admits of certain exceptions,
namely: a) when the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; b) when the inference
made is manifestly mistaken, absurd, or impossible; c) when there
is a grave abuse of discretion; d) when the judgment is based on a
misapprehension of facts; e) when the findings of fact are
conflicting; f) when the CA, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of
both appellant and appellee; g) when the findings of the CA are
contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are
based; i) when the finding of fact of the CA is premised on the
supposed absence of evidence but is contradicted by the evidence
on record; and j) when the CA manifestly overlooked certain
BANKING CASES
relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion.
Negotiable Instruments Law; Checks; The weight of authority is
that the mere possession of a negotiable instrument does not in
itself conclusively establish either the right of the possessor to
receive payment, or of the right of one who has made payment to
be discharged from liability.—Section 49 of the Negotiable
Instruments Law contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value without
indorsing it, thus: Transfer without indorsement; effect of.—Where
the holder of an instrument payable to his order transfers it for
value without indorsing it, the transfer vests in the transferee such
title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for
the purpose of determining whether the transferee is a holder in
due course, the negotiation takes effect as of the time when the
indorsement is actually made. It bears stressing that the above
transaction is an equitable assignment and the transferee acquires
the instrument subject to defenses and equities available among
prior parties. Thus, if the transferor had legal title, the transferee
acquires such title and, in addition, the right to have the
indorsement of the transferor and also the right, as holder of the
legal title, to maintain legal action against the maker or acceptor or
other party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the
negotiable instrument in question has taken place. Transferees in
this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere possession of
a negotiable instrument does not in itself conclusively establish
either the right of the possessor to receive payment, or of the right
of one who has made payment to be discharged from liability.
Thus, something more than mere possession by persons who are
not payees or indorsers of the instrument is necessary to authorize
payment to them in the absence of any other facts from which the
authority to receive payment may be inferred.
27

Same; Same; Crossed Checks; If instruments payable to named
payees or to their order have not been indorsed in blank, only such
payees or their indorsees can be holders and entitled to receive
payment in their own right.—In State Investment House v. IAC,
175SCRA 310 (1989), the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but
only deposited in the bank; (2) that the check may be negotiated
only once—to one who has an account with a bank; and (3) that
the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that such
holder must inquire if the check has been received pursuant to that
purpose. Thus, even if the delay in the demand for reimbursement
is taken in conjunction with Salazar’s possession of the checks, it
cannot be said that the presumption of ownership in
Templonuevo’s favor as the designated payee therein was
sufficiently overcome. This is consistent with the principle that if
instruments payable to named payees or to their order have not
been indorsed in blank, only such payees or their indorsees can be
holders and entitled to receive payment in their own right.
Same; Same; Presumptions; Words and Phrases; The
presumption under Section 131(s) of the Rules of Court stating that
a negotiable instrument was given for a sufficient consideration will
not inure to the benefit of someone who was merely the transferee
of the physical possession of the instrument—the phrase “given or
indorsed” in the context of a negotiable instrument refers to the
manner in which such instrument may be negotiated.—The
presumption under Section 131(s) of the Rules of Court stating that
a negotiable instrument was given for a sufficient consideration will
not inure to the benefit of Salazar because the term “given” does
not pertain merely to a transfer of physical possession of the
instrument. The phrase “given or indorsed” in the context of a
negotiable instrument refers to the manner in which such
instrument may be negotiated. Negotiable instruments are
negotiated by “transfer to one person or another in such a manner
as to constitute the transferee the holder thereof. If payable to
bearer it is negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by delivery.” The present
BANKING CASES
case involves checks payable to order. Not being a payee or
indorsee of the checks, private respondent Salazar could not be a
holder thereof.
Same; Same; It is an exception to the general rule for a payee of
an order instrument to transfer the instrument without
indorsement.—It is an exception to the general rule for a payee of
an order instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into
possession by virtue of a legitimate transaction with the last holder.
Salazar failed to discharge this burden, and the return of the check
proceeds to Templonuevo was therefore warranted under the
circumstances despite the fact that Templonuevo may not have
clearly demonstrated that he never authorized Salazar to deposit
the checks or to encash the same. Noteworthy also is the fact that
petitioner stamped on the back of the checks the words: “All prior
endorsements and/or lack of endorsements guaranteed,” thereby
making the assurance that it had ascertained the genuineness of
all prior endorsements. Having assumed the liability of a general
indorser, petitioner’s liability to the designated payee cannot be
denied.
Same; Banks and Banking; Checks; A bank generally has a right
of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor—the right of a collecting
bank to debit a client’s account for the value of a dishonored check
that has previously been credited has fairly been established by
jurisprudence.—The right of set-off was explained in Associated
Bank v. Tan, 446 SCRA 282 (2004): A bank generally has a right
of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank
to debit a client’s account for the value of a dishonored check that
has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code
provides that “[f]ixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions
28

concerning simple loan.” Hence, the relationship between banks
and depositors has been held to be that of creditor and debtor.
Thus, legal compensation under Article 1278 of the Civil Code may
take place “when all the requisites mentioned in Article 1279 are
present,” as follows: (1) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor of
the other; (2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated; (3) That the two debts
be due; (4) That they be liquidated and demandable; (5) That over
neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
Same; Same; As businesses affected with public interest, and
because of the nature of their functions, banks are under obligation
to treat the accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their relationship.—It
is conceded that petitioner had the right of set-off over the amount
it paid to Templonuevo against the deposit of Salazar, the issue of
whether it acted judiciously is an entirely different matter. As
businesses affected with public interest, and because of the nature
of their functions, banks are under obligation to treat the accounts
of their depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. In this regard, petitioner was
clearly remiss in its duty to private respondent Salazar as its
depositor.
Same; Same; The taking and collection of a check without the
proper indorsement amount to a conversion of the check by the
bank.—To begin with, the irregularity appeared plainly on the face
of the checks. Despite the obvious lack of indorsement thereon,
petitioner permitted the encashment of these checks three times
on three separate occasions. This negates petitioner’s claim that it
merely made a mistake in crediting the value of the checks to
Salazar’s account and instead bolsters the conclusion of the CA
that petitioner recognized Salazar’s claim of ownership of checks
and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law
BANKING CASES
imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of conduct.
The taking and collection of a check without the proper
indorsement amount to a conversion of the check by the bank.
Same; Same; Damages; A depositor has the right to recover
reasonable moral damages even if the bank’s negligence may not
have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and
humiliation.—This whole incident would have been avoided had
petitioner adhered to the standard of diligence expected of one
engaged in the banking business. A depositor has the right to
recover reasonable moral damages even if the bank’s negligence
may not have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and
humiliation. Moral damages are not meant to enrich a complainant
at the expense of defendant. It is only intended to alleviate the
moral suffering she has undergone. The award of exemplary
damages is justified, on the other hand, when the acts of the bank
are attended by malice, bad faith or gross negligence. The award
of reasonable attorney’s fees is proper where exemplary damages
are awarded. It is proper where depositors are compelled to litigate
to protect their interest. Bank of the Philippine Islands vs. Court of
Appeals, 512 SCRA 620, G.R. No. 136202 January 25, 2007
This is a petition for review under Rule 45 of the Rules of Court
seeking the reversal of the Decision1 dated April 3, 1998, and the
Resolution2 dated November 9, 1998, of the Court of Appeals in
CA-G.R. CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering Services filed an action
for a sum of money with damages against herein petitioner Bank
of the Philippine Islands (BPI) on December 5, 1991 before Branch
29

156 of the Regional Trial Court (RTC) of Pasig City. The complaint
was later amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A. Salazar
Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred
Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her
account. She likewise prayed for damages and attorney’s fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio
R. Templonuevo, third-party defendant and herein also a private
respondent, demanded from the former payment of the amount of
Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two
Pesos and Fifty Centavos (P267,692.50) representing the
aggregate value of three (3) checks, which were allegedly payable
to him, but which were deposited with the petitioner bank to private
respondent Salazar’s account (Account No. 0203-1187-67) without
his knowledge and corresponding endorsement.
Accepting that Templonuevo’s claim was a valid one, petitioner BPI
froze Account No. 0201-0588-48 of A.A. Salazar and Construction
and Engineering Services, instead of Account No. 0203-1187-67
where the checks were deposited, since this account was already
closed by private respondent Salazar or had an insufficient
balance.
Private respondent Salazar was advised to settle the matter with
Templonuevo but they did not arrive at any settlement. As it
appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-48 and the sum
of P267,692.50 was paid to Templonuevo by means of a cashier’s
check. The difference between the value of the checks
(P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the
issuance of a cashier’s check to Templonuevo.
BANKING CASES
In the answer to the third-party complaint, private respondent
Templonuevo admitted the payment to him of P267,692.50 and
argued that said payment was to correct the malicious deposit
made by private respondent Salazar to her private account, and
that petitioner bank’s negligence and tolerance regarding the
matter was violative of the primary and ordinary rules of banking.
He likewise contended that the debiting or taking of the reimbursed
amount from the account of private respondent Salazar by
petitioner BPI was a matter exclusively between said parties and
may be pursuant to banking rules and regulations, but did not in
any way affect him. The debiting from another account of private
respondent Salazar, considering that her other account was
effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of
which reads thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff [private respondent Salazar] and
against the defendant [petitioner BPI] and ordering the latter to pay
as follows:
1. The amount of P267,707.70 with 12% interest thereon
from September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary
damages;
5. The amount of P30,000.00 as and for attorney’s fees;
and
6. Costs of suit.
30

The counterclaim is hereby ordered DISMISSED for lack of factual
basis.
The third-party complaint [filed by petitioner] is hereby likewise
ordered DISMISSED for lack of merit.
Third-party defendant’s [i.e., private respondent Templonuevo’s]
counterclaim is hereby likewise DISMISSED for lack of factual
basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the
RTC and held that respondent Salazar was entitled to the proceeds
of the three (3) checks notwithstanding the lack of endorsement
thereon by the payee. The CA concluded that Salazar and
Templonuevo had previously agreed that the checks payable to
JRT Construction and Trading5 actually belonged to Salazar and
would be deposited to her account, with petitioner acquiescing to
the arrangement.6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting
Section 49 of the Negotiable Instruments Law and Section 3 (r and
s) of Rule 131 of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying
the provisions of Articles 22, 1278 and 1290 of the Civil Code in
favor of BPI.
III.
BANKING CASES
The Court of Appeals committed a reversible error in holding,
based on a misapprehension of facts, that the account from which
BPI debited the amount of P267,707.70 belonged to a corporation
with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding,
based entirely on speculations, surmises or conjectures, that there
was an agreement between SALAZAR and TEMPLONUEVO that
checks payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was privy to this
agreement.
V.
The Court of Appeals committed reversible error in holding, based
entirely on speculation, surmises or conjectures, that SALAZAR
suffered great damage and prejudice and that her business
standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the
decision of the lower court against BPI and dismissing SALAZAR’s
complaint.
VII.
The Honorable Court erred in affirming the decision of the lower
court dismissing the third-party complaint of BPI.7
The issues center on the propriety of the deductions made by
petitioner from private respondent Salazar’s account. Stated
otherwise, does a collecting bank, over the objections of its
depositor, have the authority to withdraw unilaterally from such
depositor’s account the amount it had previously paid upon certain
31

unendorsed order instruments deposited by the depositor to
another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to
order, when found in the possession of a person who is
neither a payee nor the indorsee thereof, has been lawfully
transferred for value. Hence, the CA should not have
presumed that Salazar was a transferee for value within
the contemplation of Section 49 of the Negotiable
Instruments Law,8 as the latter applies only to a holder
defined under Section 191of the same.9
2. Salazar failed to adduce sufficient evidence to prove that
her possession of the three checks was lawful despite her
allegations that these checks were deposited pursuant to a
prior internal arrangement with Templonuevo and that
petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions
on legal compensation because in deducting the subject
amount from Salazar’s account, petitioner was merely
rectifying the undue payment it made upon the checks and
exercising its prerogative to alter or modify an erroneous
credit entry in the regular course of its business.
4. The debit of the amount from the account of A.A. Salazar
Construction and Engineering Services was proper even
though the value of the checks had been originally credited
to the personal account of Salazar because A.A. Salazar
Construction and Engineering Services, an unincorporated
single proprietorship, had no separate and distinct
personality from Salazar.
5. Assuming the deduction from Salazar’s account was
improper, the CA should not have dismissed petitioner’s
BANKING CASES
third-party complaint against Templonuevo because the
latter would have the legal duty to return to petitioner the
proceeds of the checks which he previously received from
it.
6. There was no factual basis for the award of damages to
Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the
factual findings made by the CA. The CA’s conclusion that the
deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its finding
that there was no ineffective payment to Salazar which would call
for the exercise of petitioner’s right to set off against the former’s
bank deposits. This finding, in turn, was drawn from the pleadings
of the parties, the evidence adduced during trial and upon the
admissions and stipulations of fact made during the pre-trial, most
significantly the following:
(a) That Salazar previously had in her possession the
following checks:
(1) Solid Bank Check No. CB766556 dated
January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31,
1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No.
32380638 dated August 28, 1990 for the amount
of P154,800.00;
(b) That these checks which had an aggregate amount
of P267,692.50 were payable to the order of JRT
32

Construction and Trading, the name and style under which
Templonuevo does business;
(c) That despite the lack of endorsement of the designated
payee upon such checks, Salazar was able to deposit the
checks in her personal savings account with petitioner and
encash the same;
(d) That petitioner accepted and paid the checks on three
(3) separate occasions over a span of eight months in
1990; and
(e) That Templonuevo only protested the purportedly
unauthorized encashment of the checks after the lapse of
one year from the date of the last check.10
Petitioner concedes that when it credited the value of the checks
to the account of private respondent Salazar, it made a mistake
because it failed to notice the lack of endorsement thereon by the
designated payee. The CA, however, did not lend credence to this
claim and concluded that petitioner’s actions were deliberate, in
view of its admission that the "mistake" was committed three times
on three separate occasions, indicating acquiescence to the
internal arrangement between Salazar and Templonuevo. The CA
explained thus:
It was quite apparent that the three checks which appellee Salazar
deposited were not indorsed. Three times she deposited them to
her account and three times the amounts borne by these checks
were credited to the same. And in those separate occasions, the
bank did not return the checks to her so that she could have them
indorsed. Neither did the bank question her as to why she was
depositing the checks to her account considering that she was not
the payee thereof, thus allowing us to come to the conclusion that
defendant-appellant BPI was fully aware that the proceeds of the
three checks belong to appellee.
BANKING CASES
For if the bank was not privy to the agreement between Salazar
and Templonuevo, it is most unlikely that appellant BPI (or any
bank for that matter) would have accepted the checks for deposit
on three separate times nary any question. Banks are most finicky
over accepting checks for deposit without the corresponding
indorsement by their payee. In fact, they hesitate to accept
indorsed checks for deposit if the depositor is not one they know
very well.11
The CA likewise sustained Salazar’s position that she received the
checks from Templonuevo pursuant to an internal arrangement
between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and
the plaintiff over the three questioned checks, it baffles us why it
was only on August 31, 1991 or more than a year after the third
and last check was deposited that he demanded for the refund of
the total amount of P267,692.50.
A prudent man knowing that payment is due him would have
demanded payment by his debtor from the moment the same
became due and demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every person, at the
very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would
not have waited for a year within which to do so. It is most
inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in an appeal
by certiorari under Rule 45 of the Rules of Court.13Factual findings
of the CA are entitled to great weight and respect, especially when
the CA affirms the factual findings of the trial court.14 Such
questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are
clear and convincing and adequate to establish a proposition in
issue, are questions of fact. The same holds true for questions on
whether or not the body of proofs presented by a party, weighed
33

and analyzed in relation to contrary evidence submitted by the
adverse party may be said to be strong, clear and convincing, or
whether or not inconsistencies in the body of proofs of a party are
of such gravity as to justify refusing to give said proofs weight – all
these are issues of fact which are not reviewable by the Court.15
This rule, however, is not absolute and admits of certain
exceptions, namely: a) when the conclusion is a finding grounded
entirely on speculations, surmises, or conjectures; b) when the
inference made is manifestly mistaken, absurd, or impossible; c)
when there is a grave abuse of discretion; d) when the judgment is
based on a misapprehension of facts; e) when the findings of fact
are conflicting; f) when the CA, in making its findings, went beyond
the issues of the case and the same are contrary to the admissions
of both appellant and appellee; g) when the findings of the CA are
contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are
based; i) when the finding of fact of the CA is premised on the
supposed absence of evidence but is contradicted by the evidence
on record; and j) when the CA manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion.16
In the present case, the records do not support the finding made
by the CA and the trial court that a prior arrangement existed
between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazar’s
entitlement to the value of the instruments is based on the
assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a
situation whereby the payee or indorsee delivers a negotiable
instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an
instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the
BANKING CASES
transferor had therein, and the transferee acquires in addition, the
right to have the indorsement of the transferor. But for the purpose
of determining whether the transferee is a holder in due course,
the negotiation takes effect as of the time when the indorsement is
actually made. 17
It bears stressing that the above transaction is an equitable
assignment and the transferee acquires the instrument subject to
defenses and equities available among prior parties. Thus, if the
transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and
also the right, as holder of the legal title, to maintain legal action
against the maker or acceptor or other party liable to the transferor.
The underlying premise of this provision, however, is that a valid
transfer of ownership of the negotiable instrument in question has
taken place.
Transferees in this situation do not enjoy the presumption of
ownership in favor of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the
absence of any other facts from which the authority to receive
payment may be inferred.18
The CA and the trial court surmised that the subject checks
belonged to private respondent Salazar based on the pre-trial
stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To the
Court’s mind, however, such period of delay is not of such
unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was
readily apparent on the face of the instruments19 that these were
crossed checks.
34

In State Investment House v. IAC,20 the Court enumerated the
effects of crossing a check, thus: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank;
and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose so
that such holder must inquire if the check has been received
pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken
in conjunction with Salazar’s possession of the checks, it cannot
be said that the presumption of ownership in Templonuevo’s favor
as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if instruments payable to named
payees or to their order have not been indorsed in blank, only such
payees or their indorsees can be holders and entitled to receive
payment in their own right.21
The presumption under Section 131(s) of the Rules of Court stating
that a negotiable instrument was given for a sufficient
consideration will not inure to the benefit of Salazar because the
term "given" does not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or indorsed" in the
context of a negotiable instrument refers to the manner in which
such instrument may be negotiated. Negotiable instruments are
negotiated by "transfer to one person or another in such a manner
as to constitute the transferee the holder thereof. If payable to
bearer it is negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by delivery."22The
present case involves checks payable to order. Not being
a payee or indorsee of the checks, private respondent Salazar
could not be a holder thereof.
It is an exception to the general rule for a payee of an order
instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into
BANKING CASES
possession by virtue of a legitimate transaction with the last
holder.23 Salazar failed to discharge this burden, and the return of
the check proceeds to Templonuevo was therefore warranted
under the circumstances despite the fact that Templonuevo may
not have clearly demonstrated that he never authorized Salazar to
deposit the checks or to encash the same. Noteworthy also is the
fact that petitioner stamped on the back of the checks the words:
"All prior endorsements and/or lack of endorsements guaranteed,"
thereby making the assurance that it had ascertained the
genuineness of all prior endorsements. Having assumed the
liability of a general indorser, petitioner’s liability to the designated
payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to
debit Salazar’s account for the value of the checks it previously
credited in her favor. It is of no moment that the account debited
by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly
belonged to Salazar, the former being the account of the sole
proprietorship which had no separate and distinct personality from
her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for
the payment of any withdrawals on the part of a depositor. The right
of a collecting bank to debit a client's account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the
Civil Code provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the
provisions concerning simple loan."
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation
under Article 1278 of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present," as follows:
35

(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-
off over the amount it paid to Templonuevo against the deposit of
Salazar, the issue of whether it acted judiciously is an entirely
different matter.25 As businesses affected with public interest, and
because of the nature of their functions, banks are under obligation
to treat the accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their relationship.26In
this regard, petitioner was clearly remiss in its duty to private
respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the
checks. Despite the obvious lack of indorsement thereon,
petitioner permitted the encashment of these checks three times
on three separate occasions. This negates petitioner’s claim that it
merely made a mistake in crediting the value of the checks to
Salazar’s account and instead bolsters the conclusion of the CA
that petitioner recognized Salazar’s claim of ownership of checks
and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law
imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily
BANKING CASES
engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of
conduct.27 The taking and collection of a check without the proper
indorsement amount to a conversion of the check by the bank.28
More importantly, however, solely upon the prompting of
Templonuevo, and with full knowledge of the brewing dispute
between Salazar and Templonuevo, petitioner debited the account
held in the name of the sole proprietorship of Salazar without even
serving due notice upon her. This ran contrary to petitioner’s
assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy
between her and Templonuevo.29 In this connection, the CA cited
the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior
Manager of petitioner bank’s Pasig/Ortigas branch, to private
respondent Salazar informing her that her account had been
frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude
that Account No. 0201-0588-48 will remain frozen or untouched
until herein [Salazar] has settled matters with Templonuevo. But,
in an unexpected move, in less than two weeks (eleven days to be
precise) from the time that letter was written, [petitioner] bank
issued a cashier’s check in the name of Julio R. Templonuevo of
the J.R.T. Construction and Trading for the sum of P267,692.50
(Exhibit "8") and debited said amount from Ms. Arcilla’s account
No. 0201-0588-48 which was supposed to be frozen or controlled.
Such a move by BPI is, to Our minds, a clear case of negligence,
if not a fraudulent, wanton and reckless disregard of the right of its
depositor.
The records further bear out the fact that respondent Salazar had
issued several checks drawn against the account of A.A. Salazar
Construction and Engineering Services prior to any notice of
deduction being served. The CA sustained private respondent
Salazar’s claim of damages in this regard:
36
 BANKING CASES

The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn
against the said account. As can be expected, the said checks
bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28,
1991, and November 14, 1991 (Exhibits "D", "E" and "F"
respectively)30
Philippine Islands to return the amount of Two Hundred Sixty-
seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other respects, the same
are AFFIRMED.
No costs.
SO ORDERED.

These checks, it must be emphasized, were subsequently

dishonored, thereby causing private respondent Salazar undue
embarrassment and inflicting damage to her standing in the
business community. Under the circumstances, she was clearly
not given the opportunity to protect her interest when petitioner
unilaterally withdrew the above amount from her account without
informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the
award of damages granted by the CA against petitioner. This whole
incident would have been avoided had petitioner adhered to the
standard of diligence expected of one engaged in the banking
business. A depositor has the right to recover reasonable moral
damages even if the bank’s negligence may not have been
attended with malice and bad faith, if the former suffered mental
anguish, serious anxiety, embarrassment and humiliation.31 Moral
damages are not meant to enrich a complainant at the expense of
defendant. It is only intended to alleviate the moral suffering she
has undergone. The award of exemplary damages is justified, on
the other hand, when the acts of the bank are attended by malice,
bad faith or gross negligence. The award of reasonable attorney’s
fees is proper where exemplary damages are awarded. It is proper
where depositors are compelled to litigate to protect their interest.32

WHEREFORE, the petition is partially GRANTED. The assailed

Decision dated April 3, 1998 and Resolution dated April 3, 1998
rendered by the Court of Appeals in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered petitioner Bank of the

37

G.R. No. 179901 April 14, 2008
BANCO DE ORO-EPCI, INC.,* petitioner, vs. JAPRL
DEVELOPMENT CORPORATION, RAPID FORMING
CORPORATION and JOSE U. AROLLADO,respondents.
Actions; Courts; Jurisdictions; When a party moves for the
suspension of proceedings pending before a court, he waives
whatever defect there is in the service of summons and is deemed
to submit himself voluntarily to the jurisdiction of the court.—
Respondents, in their petition for certiorari in the CA, questioned
the jurisdiction of the Makati RTC over their persons (i.e., whether
or not the service of summons was validly made). Therefore, it was
only the October 10, 2005 order of the said trial court which they in
effect assailed. However, because they withdrew their motion for
reconsideration of the said order, it became final. Moreover, the
petition was filed 10 months and 1 day after the assailed order was
issued by the Makati
RTC, way past the 60 days allowed by the Rules of Court. For
these reasons, the said petition should have been dismissed
outright by the CA. More importantly, when respondents moved for
the suspension of proceedings in Civil Case No. 03-991 before the
Makati RTC (on the basis of the March 13, 2006 order of the
Calamba RTC), they waived whatever defect there was in the
service of summons and were deemed to have submitted
themselves voluntarily to the jurisdiction of the Makati RTC.
Same; Same; Same; Corporation Law; Corporate Rehabilitation;
Stay Orders; Suretyship; Under the Interim Rules of Procedure on
Corporate Rehabilitation, a stay order defers all actions or claims
against the corporation seeking rehabilitation from the date of its
issuance until the dismissal of the petition or termination of the
rehabilitation proceedings; A creditor can demand payment from
the surety solidarily liable with the corporation seeking
rehabilitation.—We withhold judgment for the moment on the July
7, 2006 order of the Makati RTC suspending the proceedings in
Civil Case No. 03-991 insofar as JAPRL and RFC are concerned.
Under the Interim Rules of Procedure on Corporate Rehabilitation,
BANKING CASES
a stay order defers all actions or claims against the corporation
seeking rehabilitation from the date of its issuance until the
dismissal of the petition or termination of the rehabilitation
proceedings. The Makati RTC may proceed to hear Civil Case No.
03-991 only against Arollado if there is no ground to go after JAPRL
and RFC (as will later be discussed). A creditor can demand
payment from the surety solidarily liable with the corporation
seeking rehabilitation.
Banks and Banking; Loans; Banks are entities engaged in the
lending of funds obtained through deposits from the public—they
borrow the public’s excess money (i.e., deposits) and lend out the
same, redistributing wealth in the economy by channeling idle
savings to profitable investments; Since banks deal with the
public’s money, their viability depends largely on their ability to
return those deposits on demand, much importance is given to
sound lending practices and good corporate governance.—Banks
are entities engaged in the lending of funds obtained through
deposits from the public. They borrow the public’s excess money
(i.e., deposits) and lend out the same. Banks therefore redistribute
wealth in the economy by channeling idle savings to profitable
investments. Banks operate (and earn income) by extending credit
facilities financed primarily by deposits from the public. They
plough back the bulk of said deposits into the economy in the form
of loans. Since banks deal with the public’s money, their viability
depends largely on their ability to return those deposits on demand.
For this reason, banking is undeniably imbued with public interest.
Consequently, much importance is given to sound lending
practices and good corporate governance.
Same; Same; Corporate Rehabilitation; Judicial Notice; Protecting
the integrity of the banking system has become, by large, the
responsibility of banks; The Court is not unaware of the rampant
and unscrupulous practice of obtaining loans without intending to
pay the same; The protective remedy of rehabilitation was never
intended to be a refuge of a debtor guilty of fraud.—Protecting the
integrity of the banking system has become, by large, the
responsibility of banks. The role of the public, particularly individual
38

borrowers, has not been emphasized. Nevertheless, we are not
unaware of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same. In this case, petitioner
alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the
amount of petitioner’s exposure in JAPRL, justice and fairness
dictate that the Makati RTC hear whether or not respondents
indeed committed fraud in securing the credit accomodation. A
finding of fraud will change the whole picture. In this event,
petitioner can use the finding of fraud to move for the dismissal of
the rehabilitation case in the Calamba RTC. The protective remedy
of rehabilitation was never intended to be a refuge of a debtor guilty
of fraud.
Same; Same; Same; Under Section 40 of the General Banking
Law, banks have the right to annul any credit accommodation or
loan, and demand the immediate payment thereof, from borrowers
proven to be guilty of fraud.—The Makati RTC should proceed to
hear Civil Case No. 03-991 against the three respondents guided
by Section 40 of the General Banking Law which states: Section
40. Requirement for Grant of Loans or Other Credit
Accommodations. Before granting a loan or other credit
accommodation, a bank must ascertain that the debtor is capable
of fulfilling his commitments to the bank. Towards this end, a bank
may demand from its credit applicants a statement of their assets
and liabilities and of their income and expenditures and such
information as may be prescribed by law or by rules and
regulations of the Monetary Board to enable the bank to properly
evaluate the credit application which includes the corresponding
financial statements submitted for taxation purposes to the Bureau
of Internal Revenue. Should such statements prove to be false or
incorrect in any material detail, the bank may terminate any loan or
credit accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or liquidation
of the obligation. In formulating the rules and regulations under this
Section, the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based lending
to the basic sectors that are not covered by traditional collateral.
BANKING CASES
(emphasis supplied) Under this provision, banks have the right to
annul any credit accommodation or loan, and demand the
immediate payment thereof, from borrowers proven to be guilty of
fraud. Petitioner would then be entitled to the immediate payment
of P194,493,388.98 and other appropriate damages. Banco De
Oro-EPCI, Inc. vs. JAPRL Development Corporation, 551 SCRA
342, G.R. No. 179901 April 14, 2008
This petition for review on certiorari1 seeks to set aside the
decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 95659
and its resolution3 denying reconsideration.
After evaluating the financial statements of respondent JAPRL
Development Corporation (JAPRL) for fiscal years 1998, 1999 and
2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit facilities
to it amounting to P230,000,0005 on March 28, 2003. Respondents
Rapid Forming Corporation (RFC) and Jose U. Arollado acted as
JAPRL's sureties.
Despite its seemingly strong financial position, JAPRL defaulted in
the payment of four trust receipts soon after the approval of its
loan.6 Petitioner later learned from MRM Management, JAPRL's
financial adviser, that JAPRL had altered and falsified its financial
statements. It allegedly bloated its sales revenues to post a big
income from operations for the concerned fiscal years to project
itself as a viable investment.7 The information alarmed petitioner.
Citing relevant provisions of the Trust Receipt Agreement,8 it
demanded immediate payment of JAPRL's outstanding obligations
amounting to P194,493,388.98.9
SP Proc. No. Q-03-064
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a
petition for rehabilitation in the Regional Trial Court (RTC) of
Quezon City, Branch 90 (Quezon City RTC).10 It disclosed that it
had been experiencing a decline in sales for the three preceding
years and a staggering loss in 2002.11
39

Because the petition was sufficient in form and substance, a stay
order12 was issued on September 28, 2003.13However, the
proposed rehabilitation plan for JAPRL and RFC was eventually
rejected by the Quezon City RTC in an order dated May 9, 2005.14
Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a
complaint for sum of money with an application for the issuance of
a writ of preliminary attachment against respondents in the RTC of
Makati City, Branch 145 (Makati RTC) on August 21,
2003.15 Petitioner essentially asserted that JAPRL was guilty of
fraud because it (JAPRL) altered and falsified its financial
statements.16
The Makati RTC subsequently denied the application (for the
issuance of a writ of preliminary attachment) for lack of merit as
petitioner was unable to substantiate its allegations. Nevertheless,
it ordered the service of summons on respondents.17 Pursuant to
the said order, summonses were issued against respondents and
were served upon them.
Respondents moved to dismiss the complaint due to an allegedly
invalid service of summons.18 Because the officer's return stated
that an "administrative assistant" had received the
summons,19 JAPRL and RFC argued that Section 11, Rule 14 of
the Rules of Court20 contained an exclusive list of persons on
whom summons against a corporation must be served.21 An
"administrative assistant" was not one of them. Arollado, on the
other hand, cited Section 6, Rule 14 thereof22 which mandated
personal service of summons on an individual defendant.23
The Makati RTC, in its October 10, 2005 order,24 noted that
because corporate officers are often busy, summonses to
corporations are usually received only by administrative assistants
or secretaries of corporate officers in the regular course of
business. Hence, it denied the motion for lack of merit.
BANKING CASES
Respondents moved for reconsideration25 but withdrew it before
the Makati RTC could resolve the matter.26
RTC SEC Case No. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a
petition for rehabilitation in the RTC of Calamba, Laguna, Branch
34 (Calamba RTC). Finding JAPRL's petition sufficient in form and
in substance, the Calamba RTC issued a stay order27 on March 13,
2006.
In view of the said order, respondents hastily moved to suspend
the proceedings in Civil Case No. 03-991 pending in the Makati
RTC.28
On July 7, 2006, the Makati RTC granted the motion with regard to
JAPRL and RFC but ordered Arollado to file an answer. It ruled
that, because he was jointly and solidarily liable with JAPRL and
RFC, the proceedings against him should continue.29 Respondents
moved for reconsideration30 but it was denied.31
On August 11, 2006, respondents filed a petition for certiorari32 in
the CA alleging that the Makati RTC committed grave abuse of
discretion in issuing the October 10, 2005 and July 7, 2006
orders.33 They asserted that the court did not acquire jurisdiction
over their persons due to defective service of summons. Thus, the
Makati RTC could not hear the complaint for sum of money.34
In its June 7, 2007 decision, the CA held that because the
summonses were served on a mere administrative assistant, the
Makati RTC never acquired jurisdiction over respondents. Thus, it
granted the petition.35
Petitioner moved for reconsideration but it was denied.36 Hence,
this petition.
40

Petitioner asserts that respondents maliciously evaded the service
of summonses to prevent the Makati RTC from acquiring
jurisdiction over their persons. Furthermore, they employed bad
faith to delay proceedings by cunningly exploiting procedural
technicalities to avoid the payment of their obligations.37
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned
the jurisdiction of the Makati RTC over their persons (i.e., whether
or not the service of summons was validly made). Therefore, it was
only the October 10, 2005 order of the said trial court which they in
effect assailed.38 However, because they withdrew their motion for
reconsideration of the said order, it became final. Moreover, the
petition was filed 10 months and 1 day after the assailed order was
issued by the Makati RTC,39 way past the 60 days allowed by the
Rules of Court. For these reasons, the said petition should have
been dismissed outright by the CA.
More importantly, when respondents moved for the suspension of
proceedings in Civil Case No. 03-991 before the Makati RTC (on
the basis of the March 13, 2006 order of the Calamba RTC), they
waived whatever defect there was in the service of summons and
were deemed to have submitted themselves voluntarily to the
jurisdiction of the Makati RTC.40
We withhold judgment for the moment on the July 7, 2006 order of
the Makati RTC suspending the proceedings in Civil Case No. 03-
991 insofar as JAPRL and RFC are concerned. Under the Interim
Rules of Procedure on Corporate Rehabilitation, a stay order
defers all actions or claims against the corporation seeking
rehabilitation41from the date of its issuance until the dismissal of
the petition or termination of the rehabilitation proceedings.42
The Makati RTC may proceed to hear Civil Case No. 03-991 only
against Arollado if there is no ground to go after JAPRL and RFC
(as will later be discussed). A creditor can demand payment from
BANKING CASES
the surety solidarily liable with the corporation seeking
rehabilitation.43
Respondents abused procedural technicalities (albeit
unsuccessfully) for the sole purpose of preventing, or at least
delaying, the collection of their legitimate obligations. Their
reprehensible scheme impeded the speedy dispensation of justice.
More importantly, however, considering the amount involved,
respondents utterly disregarded the significance of a stable and
efficient banking system to the national economy.44
Banks are entities engaged in the lending of funds obtained
through deposits45 from the public.46 They borrow the public's
excess money (i.e., deposits) and lend out the same.47 Banks
therefore redistribute wealth in the economy by channeling idle
savings to profitable investments.
Banks operate (and earn income) by extending credit facilities
financed primarily by deposits from the public.48 They plough back
the bulk of said deposits into the economy in the form of
loans.49 Since banks deal with the public's money, their viability
depends largely on their ability to return those deposits on demand.
For this reason, banking is undeniably imbued with public interest.
Consequently, much importance is given to sound lending
practices and good corporate governance.50
Protecting the integrity of the banking system has become, by
large, the responsibility of banks. The role of the public, particularly
individual borrowers, has not been emphasized. Nevertheless, we
are not unaware of the rampant and unscrupulous practice of
obtaining loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and
falsified its financial statements in order to obtain its credit facilities.
Considering the amount of petitioner's exposure in JAPRL, justice
and fairness dictate that the Makati RTC hear whether or not
41

respondents indeed committed fraud in securing the credit
accomodation.
A finding of fraud will change the whole picture. In this event,
petitioner can use the finding of fraud to move for the dismissal of
the rehabilitation case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a
refuge of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No.
03-991 against the three respondents guided by Section 40 of the
General Banking Law which states:
Section 40. Requirement for Grant of Loans or Other Credit
Accommodations. Before granting a loan or other credit
accommodation, a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank.
Towards this end, a bank may demand from its credit
applicants a statement of their assets and liabilities and of
their income and expenditures and such information as
may be prescribed by law or by rules and regulations of the
Monetary Board to enable the bank to properly evaluate
the credit application which includes the corresponding
financial statements submitted for taxation purposes to the
Bureau of Internal Revenue. Should such statements
prove to be false or incorrect in any material detail, the
bank may terminate any loan or credit accommodation
granted on the basis of said statements and shall have
the right to demand immediate repayment or
liquidation of the obligation.
In formulating the rules and regulations under this Section,
the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based
BANKING CASES
lending to the basic sectors that are not covered by
traditional collateral. (emphasis supplied)
Under this provision, banks have the right to annul any credit
accommodation or loan, and demand the immediate payment
thereof, from borrowers proven to be guilty of fraud. Petitioner
would then be entitled to the immediate payment
of P194,493,388.98 and other appropriate damages.51
Finally, considering that respondents failed to pay the four trust
receipts, the Makati City Prosecutor should investigate whether or
not there is probable cause to indict respondents for violation of
Section 13 of the Trust Receipts Law.52
ACCORDINGLY, the petition is hereby GRANTED. The June 7,
2007 decision and August 31, 2007 resolution of the Court of
Appeals in CA-G.R. SP No. 95659 are REVERSED and SET
ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to
proceed expeditiously with the trial of Civil Case No. 03-991 with
regard to respondent Jose U. Arollado, and the other respondents
if warranted.
SO ORDERED.
42

G.R. No. 180257 February 23, 2011
EUSEBIO GONZALES, Petitioner, vs. PHILIPPINE
COMMERCIAL AND INTERNATIONAL BANK, EDNA
OCAMPO, and ROBERTO NOCEDA,Respondents.
1. Negotiable Instruments Law; Accommodation Party; An
accommodation party is a person who has signed the instrument
as maker, drawer, acceptor or indorser without receiving value
therefor and for the purpose of lending his name to some other
person.-
—As an accommodation party, Gonzales is solidarily liable with the
spouses Panlilio for the loans. In Ang v. Associated Bank, 532
SCRA 244 (2007), quoting the definition of an accommodation
party under Section 29 of the Negotiable Instruments Law, the
Court cited that an accommodation party is a person “who has
signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his
name to some other person.”
2. Same; Moral Damages; Moral damages may be recovered in
acts referred to in Art. 21 of the Code.-
—As We held in MERALCO v. CA, 157 SCRA 243 (1988), failure
to give prior notice when required, such as in the instant case,
constitutes a breach of contract and is a clear violation of Art. 21 of
the Code. In cases such as this, Art. 2219 of the Code provides
that moral damages may be recovered in acts referred to in its Art.
21. Further, Art. 2220 of the Code provides that “[w]illful injury to
property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.” Similarly, “every
person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same.” Evidently,
Gonzales is entitled to recover moral damages.
BANKING CASES
3. Damages; Nominal Damages.-
—This Court finds that such acts warrant the payment of indemnity
in the form of nominal damages. Nominal damages “are
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 x x x.” We further explained the nature of nominal
damages in Almeda v. Cariño, 395 SCRA 144 (2003): “x x x Its
award is thus not for the purpose of indemnification for a loss but
for the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. When granted
by the courts, they are not treated as an equivalent of a wrong
inflicted but simply a recognition of the existence of a technical
injury. A violation of the plaintiff’s right, even if only technical, is
sufficient to support an award of nominal damages. Conversely, so
long as there is a showing of a violation of the right of the plaintiff,
an award of nominal damages is proper.”
4. Same; Same; Malice or bad faith is at the core of Art.19; Malice
or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity.-
—Malice or bad faith is at the core of Art. 19. Malice or bad faith
“implies a conscious and intentional design to do a wrongful act for
a dishonest purpose or moral obliquity.” In the instant case, PCIB
was able to send a letter advising Gonzales of the unpaid interest
on the loans but failed to mention anything about the termination
of the COHLA. More significantly, no letter was ever sent to him
about the termination of the COHLA. The failure to give prior notice
on the part of PCIB is already prima facie evidence of bad faith.
Therefore, it is abundantly clear that this case falls squarely within
the purview of the principle of abuse of rights as embodied in Art.
19.
5. Actions; Abuse of Rights; The basis of the principle of abuse of
right is Art. 19 of the new Civil Code; Elements in Order for Art. 19
to be Actionable.-
43

—Art. 19 of the New Civil Code clearly provides that “[e]very
person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe
honesty and good faith.” This is the basis of the principle of abuse
of right which, in turn, is based upon the maxim suum jus summa
injuria (the abuse of right is the greatest possible wrong). In order
for Art. 19 to be actionable, the following elements must be present:
“(1) the existence of a legal right or duty, (2) which is exercised in
bad faith, and (3) for the sole intent of prejudicing or injuring
another.” We find that such elements are present in the instant
case.
6. Same; Same; The law imposes on bank a high degree of
obligation to treat the accounts of its depositors with meticulous
care always having in mind the fiduciary nature of banking.-
—With banks, the degree of diligence required is more than that of
a good father of the family considering that the business of banking
is imbued with public interest due to the nature of their function.
The law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of banking. Had Gonzales been properly
notified of the delinquencies of the PhP 1,800,000 loan and the
process of terminating his credit line under the COHLA, he could
have acted accordingly and the dishonor of the check would have
been avoided.
7. Banks and Banking; Extraordinary Diligence; The business of
banking is impressed with public interest and great reliance is
made on the bank’s sworn profession of diligence and
meticulousness in giving irreproachable service; Like a common
carrier whose business is imbued with public interest, a bank
should exercise extraordinary diligence to negate its liability to the
depositors.-
—The business of banking is impressed with public interest and
great reliance is made on the bank’s sworn profession of diligence
and meticulousness in giving irreproachable service. Like a
BANKING CASES
common carrier whose business is imbued with public interest, a
bank should exercise extraordinary diligence to negate its liability
to the depositors. In this instance, PCIB is sorely remiss in the
diligence required in treating with its client, Gonzales. It may not
wantonly exercise its rights without respecting and honoring the
rights of its clients.
8. Same; Same; In business more so for banks, the amounts
demanded from the debtor or borrower have to be definite, clear
and without ambiguity.-
—In business, more so for banks, the amounts demanded from the
debtor or borrower have to be definite, clear, and without
ambiguity. It is not sufficient simply to be informed that one must
pay over a hundred thousand aggregate outstanding interest dues
without clear and certain figures. Thus, We find PCIB negligent in
not properly informing Gonzales, who is an accommodation party,
about the default and the exact outstanding periodic interest dues.
Without being properly apprised, Gonzales was not given the
opportunity to properly act on them.
9. Same; Same; While not exonerating his solidary liability,
Gonzales has right to be properly apprised of the default or
delinquency of the loan precisely because he is co-signatory of the
promissory notes and of his solidary liability.-
—There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind
that while solidarily liable with the spouses Panlilio on the PhP
1,800,000 loan covered by the three promissory notes, Gonzales
is only an accommodation party and as such only lent his name
and credit to the spouses Panlilio. While not exonerating his
solidary liability, Gonzales has a right to be properly apprised of
the default or delinquency of the loan precisely because he is a co-
signatory of the promissory notes and of his solidary liability.
The Case
44

This is an appeal via a Petition for Review on Certiorari under Rule
45 from the Decision1 dated October 22, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioner’s
appeal from the December 10, 2001 Decision2 in Civil Case No.
99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati
City. The RTC found justification for respondents’ dishonor of
petitioner’s check and found petitioner solidarily liable with the
spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three
promissory notes they executed in favor of respondent Philippine
Commercial and International Bank (PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a
good 15 years before he filed the instant case. His account with
PCIB was handled by respondent Edna Ocampo (Ocampo) until
she was replaced by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through
the execution of a Credit-On-Hand Loan Agreement3 (COHLA), in
which the aggregate amount of the accounts of Gonzales with
PCIB served as collateral for and his availment limit under the
credit line. Gonzales drew from said credit line through the
issuance of check. At the institution of the instant case, Gonzales
had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for
PhP 500,000. Subsequently, on December 26, 1995 and January
3, 1999, the spouses Panlilio and Gonzales obtained two additional
loans from PCIB in the amounts of PhP 1,000,000 and PhP
300,000, respectively. These three loans amounting to PhP
1,800,000 were covered by three promissory notes.4 To secure the
loans, a real estate mortgage (REM) over a parcel of land covered
by Transfer Certificate of Title (TCT) No. 38012 was executed by
Gonzales and the spouses Panlilio. Notably, the promissory notes
specified, among others, the solidary liability of Gonzales and the
spouses Panlilio for the payment of the loans. However, it was the
BANKING CASES
spouses Panlilio who received the loan proceeds of PhP
1,800,000.
The monthly interest dues of the loans were paid by the spouses
Panlilio through the automatic debiting of their account with PCIB.
But the spouses Panlilio, from the month of July 1998, defaulted in
the payment of the periodic interest dues from their PCIB account
which apparently was not maintained with enough deposits. PCIB
allegedly called the attention of Gonzales regarding the July 1998
defaults and the subsequent accumulating periodic interest dues
which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30,
1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn
against the credit line (COHLA). However, on October 13, 1998,
upon presentment for payment by Unson of said check, it was
dishonored by PCIB due to the termination by PCIB of the credit
line under COHLA on October 7, 1998 for the unpaid periodic
interest dues from the loans of Gonzales and the spouses Panlilio.
PCIB likewise froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the
dishonor of the check. They had a heated argument in the
premises of the Philippine Columbian Association (PCA) where
they are both members, which caused great embarrassment and
humiliation to Gonzales. Thereafter, on November 5, 1998, Unson
sent a demand letter5 to Gonzales for the PhP 250,000. And on
December 3, 1998, the counsel of Unson sent a second demand
letter6 to Gonzales with the threat of legal action. With his FCD
account that PCIB froze, Gonzales was forced to source out and
pay the PhP 250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB
insisting that the check he issued had been fully funded, and
demanded the return of the proceeds of his FCD as well as
damages for the unjust dishonor of the check.7 PCIB replied on
March 22, 1999 and stood its ground in freezing Gonzales’
accounts due to the outstanding dues of the loans.8 On May 26,
45

1999, Gonzales reiterated his demand, reminding PCIB that it
knew well that the actual borrowers were the spouses Panlilio and
he never benefited from the proceeds of the loans, which were
serviced by the PCIB account of the spouses Panlilio.9
PCIB’s refusal to heed his demands compelled Gonzales to file the
instant case for damages with the RTC, on account of the alleged
unjust dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a
Decision in favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows –
(a) on the first issue, plaintiff is liable to pay defendant Bank
as principal under the promissory notes, Exhibits A, B and
C;
(b) on the second issue, the Court finds that there is
justification on part of the defendant Bank to dishonor the
check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not
entitled to damages from each other.
No pronouncement as to costs.
SO ORDERED.10
The RTC found Gonzales solidarily liable with the spouses Panlilio
on the three promissory notes relative to the outstanding REM
loan. The trial court found no fault in the termination by PCIB of the
COHLA with Gonzales and in freezing the latter’s accounts to
answer for the past due PhP 1,800,000 loan. The trial court ruled
that the dishonor of the check issued by Gonzales in favor of Unson
BANKING CASES
was proper considering that the credit line under the COHLA had
already been terminated or revoked before the presentment of the
check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales’ appeal and affirming in totothe RTC
Decision. The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated
December 10, 2001, in Civil Case No. 99-1324 is hereby
AFFIRMED in toto.
SO ORDERED.11
In dismissing Gonzales’ appeal, the CA, first, confirmed the RTC’s
findings that Gonzales was indeed solidarily liable with the spouses
Panlilio for the three promissory notes executed for the REM
loan; second, it likewise found neither fault nor negligence on the
part of PCIB in dishonoring the check issued by Gonzales in favor
of Unson, ratiocinating that PCIB was merely exercising its rights
under the contractual stipulations in the COHLA brought about by
the outstanding past dues of the REM loan and interests for which
Gonzales was solidarily liable with the spouses Panlilio to pay
under the promissory notes.
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment
of errors:
46
 BANKING CASES

I - IN NOT CONSIDERING THAT THE LIABILITY
ARISING FROM PROMISSORY NOTES (EXHIBITS "A",
"B" AND "C", PETITIONER; EXHIBITS "1", "2" AND "3",
RESPONDENT) PERTAINED TO BORROWER JOSE
MA. PANLILIO AND NOT TO APPELLANT AS
RECOGNIZED AND ACKNOWLEDGE[D]
RESPONDENT PHILIPPINE COMMERCIAL
INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT
AT FAULT NOR GUILTY OF GROSS NEGLIGENCE IN
DISHONORING PETITIONER’S CHECK DATED 30
SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00
FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF
MERELY "REFER TO DRAWER" GIVEN THE FACT
THAT EVEN AFTER DISHONOR, RESPONDENT
SIGNED A CERTIFICATION DATED 7 DECEMBER 1998
THAT CREDIT ON HAND (COH) LOAN AGREEMENT
WAS STILL VALID WITH A COLLATERAL OF FOREIGN
CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST
RESPONDENTS DESPITE PRESENTATION OF CLEAR
PROOF TO SUPPORT ACTION FOR DAMAGES.12
The Court’s Ruling
A close perusal of the records shows that the courts a quo correctly
found Gonzales solidarily liable with the spouses Panlilio for the
three promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the
BY following:
&
(1) Promissory Note BD-090-1766-95,13 dated October 30,
1995, for PhP 500,000 was signed by Gonzales and his
wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,14 dated December
26, 1995, for PhP 1,000,000 was signed by Gonzales and
the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,15 dated January 3,
1996, for PhP 300,000 was signed by Gonzales and the
spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above
promissory notes. First, Gonzales admitted that he is an
accommodation party which PCIB did not dispute. In his testimony,
Gonzales admitted that he merely accommodated the spouses
Panlilio at the suggestion of Ocampo, who was then handling his
accounts, in order to facilitate the fast release of the loan. Gonzales
testified:

The core issues can be summarized, as follows: first, whether ATTY. DE JESUS:
Gonzales is liable for the three promissory notes covering the PhP
1,800,000 loan he made with the spouses Panlilio where a REM
Now in this case you filed against the bank you mentioned there
over a parcel of land covered by TCT No. 38012 was constituted
was a loan also applied for by the Panlilio’s in the sum of P1.8
as security; and second, whether PCIB properly dishonored the
Million Pesos. Will you please tell this Court how this came about?
check of Gonzales drawn against the COHLA he had with the bank.
GONZALES:
The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

47

Mr. Panlilio requested his account officer . . . . at that time it is a
P42.0 Million loan and if he secures another P1.8 Million loan the
release will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine
and we co-owned the property I agreed initially to use my name so
that the loan can be utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually
received the proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio. 16
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio
also placed under your name initially?
A: Well it was actually suggested by the account officer at that time
Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda
is the boss of Edna so he has been familiar with my account ever
since its inception.
BANKING CASES
Q: So these two officers Ocampo and Noceda knew that this was
actually the account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they
are always informing me that the account will be debited to Mr.
Panlilio’s account.17
Moreover, the first note for PhP 500,000 was signed by Gonzales
and his wife as borrowers, while the two subsequent notes showed
the spouses Panlilio sign as borrowers with Gonzales. It is, thus,
evident that Gonzales signed, as borrower, the promissory notes
covering the PhP 1,800,000 loan despite not receiving any of the
proceeds.
Second, the records of PCIB indeed bear out, and was admitted
by Noceda, that the PhP 1,800,000 loan proceeds went to the
spouses Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned
the proceeds of the 1.8 million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.18
The fact that the loans were undertaken by Gonzales when he
signed as borrower or co-borrower for the benefit of the spouses
Panlilio—as shown by the fact that the proceeds went to the
spouses Panlilio who were servicing or paying the monthly dues—
is beside the point. For signing as borrower and co-borrower on
the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to
said spouses.
48

Third, as an accommodation party, Gonzales is solidarily liable with
the spouses Panlilio for the loans. In Ang v. Associated
Bank,19 quoting the definition of an accommodation party under
Section 29 of the Negotiable Instruments Law, the Court cited that
an accommodation party is a person "who has signed the
instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name
to some other person."20 The Court further explained:
[A]n accommodation party is one who meets all the three
requisites, viz: (1) he must be a party to the instrument, signing as
maker, drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name
or credit to some other person. An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise
money; he receives no part of the consideration for the instrument
but assumes liability to the other party/ies thereto. The
accommodation party is liable on the instrument to a holder for
value even though the holder, at the time of taking the instrument,
knew him or her to be merely an accommodation party, as if the
contract was not for accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and surety—the accommodation party being the surety.
As such, he is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor
in relation to whatever is adjudged touching the obligation of the
latter since their liabilities are interwoven as to be inseparable.
Although a contract of suretyship is in essence accessory or
collateral to a valid principal obligation, the surety’s liability to the
creditor is immediate, primary and absolute;
is directly and equally bound with the principal. As an equivalent of
a regular party to the undertaking, a surety becomes liable to the
debt and duty of the principal obligor even without possessing a
direct or personal interest in the obligations nor does he receive
any benefit therefrom.21
BANKING CASES
Thus, the knowledge, acquiescence, or even demand by Ocampo
for an accommodation by Gonzales in order to extend the credit or
loan of PhP 1,800,000 to the spouses Panlilio does not exonerate
Gonzales from liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, "For value received, the
undersigned (the "BORROWER") jointly and severally promise
to pay x x x." Solidary liability cannot be presumed but must be
established by law or contract.22 Article 1207 of the Civil Code
pertinently states that "there is solidary liability only when the
obligation expressly so states, or when the obligation requires
solidarity." This is true in the instant case where Gonzales, as
accommodation party, is immediately, equally, and absolutely
bound with the spouses Panlilio on the promissory notes which
indubitably stipulated solidary liability for all the borrowers.
Moreover, the three promissory notes serve as the contract
between the parties. Contracts have the force of law between the
parties and must be complied with in good faith.23
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three
promissory notes, We shall now touch upon the question of
whether it was proper for PCIB to dishonor the check issued by
Gonzales against the credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of
Court is limited to review of errors of law.24 The factual findings of
he
the trial court, especially when affirmed by the appellate court, are
generally binding on us unless there was a misapprehension of
facts or when the inference drawn from the facts was manifestly
mistaken.25 The instant case falls within the exception.
49

The courts a quo found and held that there was a proper dishonor
of the PhP 250,000 check issued by Gonzales against the credit
line, because the credit line was already closed prior to the
presentment of the check by Unson; and the closing of the credit
line was likewise proper pursuant to the stipulations in the
promissory notes on the bank’s right to set off or apply all moneys
of the debtor in PCIB’s hand and the stipulations in the COHLA on
the PCIB’s right to terminate the credit line on grounds of default
by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed
about the default of the spouses Panlilio and that the September
21, 1998 account statement of the credit line shows a balance of
PhP 270,000 which was likewise borne out by the December 7,
1998 PCIB’s certification that he has USD 8,715.72 in his FCD
account which is more than sufficient collateral to guarantee the
PhP 250,000 check, dated September 30, 1998, he issued against
the credit line.
A careful scrutiny of the records shows that the courts a
quo committed reversible error in not finding negligence by PCIB
in the dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind
that while solidarily liable with the spouses Panlilio on the PhP
1,800,000 loan covered by the three promissory notes, Gonzales
is only an accommodation party and as such only lent his name
and credit to the spouses Panlilio. While not exonerating his
solidary liability, Gonzales has a right to be properly apprised of
the default or delinquency of the loan precisely because he is a co-
signatory of the promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the
spouses Panlilio to pay the outstanding dues of the PhP 1,800,000
loan, since he was only an accommodation party and was not
personally interested in the loan. Thus, a meeting was set by
Gonzales with the spouses Panlilio and the PCIB officers, Noceda
BANKING CASES
and Ocampo, in the spouses Panlilio’s jewelry shop in SM
Megamall on October 5, 1998. Unfortunately, the meeting did not
push through due to the heavy traffic Noceda and Ocampo
encountered.
Such knowledge of the default by Gonzales was, however, not
enough to properly apprise Gonzales about the default and the
outstanding dues. Verily, it is not enough to be merely informed to
pay over a hundred thousand without being formally apprised of
the exact aggregate amount and the corresponding dues
pertaining to specific loans and the dates they became due.
Gonzales testified that he was not duly notified about the
outstanding interest dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilio’s was encountering problems with the bank
did the defendant bank [advise] you of any problem with the same
account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.26
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr.
Gonzales when you spoke to him at the celphone?
50

NEPOMUCENO:
I just told him to update the interest so that we would not have to
cancel the COH Line and he could withdraw the money that was in
the deposit because technically, if an account is past due we are
not allowed to let the client withdraw funds because they are
allowed to offset funds so, just to help him get his money, just to
update the interest so that we could allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would
not be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has
with us so that’s why we suggested just to update the interest
because at the end of everything, he would be able to withdraw
more funds than the interest that the money he would be needed
to update the interest.27
From the foregoing testimonies, between the denial of Gonzales
and the assertion by PCIB that Gonzales was properly apprised,
we find for Gonzales. We find the testimonies of the former PCIB
employees to be self-serving and tenuous at best, for there was no
proper written notice given by the bank. The record is bereft of any
document showing that, indeed, Gonzales was formally informed
by PCIB about the past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact
by releasing the proceeds of the loan to the spouses Panlilio and
likewise only informed the spouses Panlilio of the interest dues.
The spouses Panlilio, through their account28 with PCIB, were
paying the periodic interest dues and were the ones periodically
informed by the bank of the debiting of the amounts for the periodic
BANKING CASES
interest payments. Gonzales never paid any of the periodic interest
dues. PCIB’s Noceda admitted as much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even
interest for this loan, is it not, it’s always Mr. Panlilio who was
paying the interest for this loan?
NOCEDA:
Yes sir.29
Indeed, no evidence was presented tending to show that Gonzales
was periodically sent notices or notified of the various periodic
interest dues covering the three promissory notes. Neither do the
records show that Gonzales was aware of amounts for the periodic
interests and the payment for them. Such were serviced by the
spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid
starting July 1998. And such notification must be formal or in
written form considering that the outstanding periodic interests
became due at various dates, i.e., on July 8, 17, and 28, 1998, and
the various amounts have to be certain so that Gonzales is not only
properly apprised but is given the opportunity to pay them being
solidarily liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such
dues must be put into writing and formally served to Gonzales if he
were asked to pay them, more so when the payments by the
spouses Panlilio were charged through the account of the spouses
Panlilio where the interest dues were simply debited. Such
arrangement did not cover Gonzales’ bank account with PCIB,
since he is only an accommodation party who has no personal
interest in the PhP 1,800,000 loan. Without a clear and determinate
51

demand through a formal written notice for the exact periodic
interest dues for the loans, Gonzales cannot be expected to pay
for them.
In business, more so for banks, the amounts demanded from the
debtor or borrower have to be definite, clear, and without
ambiguity. It is not sufficient simply to be informed that one must
pay over a hundred thousand aggregate outstanding interest dues
without clear and certain figures. Thus, We find PCIB negligent in
not properly informing Gonzales, who is an accommodation party,
about the default and the exact outstanding periodic interest dues.
Without being properly apprised, Gonzales was not given the
opportunity to properly act on them.
It was only through a letter30 sent by PCIB dated October 2, 1998
but incongruously showing the delinquencies of the PhP 1,800,000
loan at a much later date, i.e., as of October 31, 1998, when
Gonzales was formally apprised by PCIB. In it, the interest due was
PhP 106,1616.71 and penalties for the unpaid interest due of PhP
64,766.66, or a total aggregate due of PhP 171,383.37. But it is not
certain and the records do not show when the letter was sent and
when Gonzales received it. What is clear is that such letter was
belatedly sent by PCIB and received by Gonzales after the fact that
the latter’s FCD was already frozen, his credit line under the
COHLA was terminated or suspended, and his PhP 250,000 check
in favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from
the counsel of PCIB sent to Gonzales demanding payment of the
PhP 1,800,000 loan. Obviously, these formal written notices sent
to Gonzales were too late in the day for Gonzales to act properly
on the delinquency and he already suffered the humiliation and
embarrassment from the dishonor of his check drawn against the
credit line.
To reiterate, a written notice on the default and deficiency of the
PhP 1,800,000 loan covered by the three promissory notes was
required to apprise Gonzales, an accommodation party. PCIB is
BANKING CASES
obliged to formally inform and apprise Gonzales of the defaults and
the outstanding obligations, more so when PCIB was invoking the
solidary liability of Gonzales. This PCIB failed to do.
Second. PCIB was grossly negligent in not giving prior notice to
Gonzales about its course of action to suspend, terminate, or
revoke the credit line, thereby violating the clear stipulation in the
COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY — The COH shall be effective for a period of one
(1) year commencing from the receipt by the CLIENT of the COH
checkbook issued by the BANK, subject to automatic renewals for
same periods unless terminated by the BANK upon prior notice
served on CLIENT.31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as
required by the above stipulation in the COHLA. Noceda testified
on cross-examination on the Offering Ticket32 recommending the
termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the
plaintiff Mr. Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about
this Exhibit 8?
A: It was relayed to him verbally.
52

Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to
him, it’s only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it was
relayed by Liza that he has to pay his obligations or else it will
adversely affect the status of the account.33
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand
extended solely of course to Mr. Eusebio Gonzales who is the
plaintiff here, Mr. Panlilio is not included in this credit on hand
facility. Did I gather from you as per your Exhibit 7 as of October 2,
1998 you were the one who recommended the cancellation of this
credit on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled
his credit on hand facility?
BANKING CASES
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I don’t recall and we have to look at the folder to determine if
they were informed.
Q: If you will notice, this letter . . . what do you call this letter of
yours?
A: That is our letter advising them or reminding them of their unpaid
interest and that if he is able to update his interest he can extend
the promissory note or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in
this letter to the clients advising them or Mr. Gonzales that his
credit on hand facility was already cancelled?
A: I don’t know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio
aware that his credit on hand facility was already cancelled?
A: No actually he can understand it from the last sentence. "If you
will be able to update your outstanding interest, we can apply the
extention of your promissory note" so in other words we are saying
that if you don’t, you cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998
letter is only the loan of 1.8 million is it not, as you can see from
the letter? Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers
to the credit on hand facility which was being utilized by Mr.
Gonzales is it not?
53

A: But I don’t know if there are other letters that are not presented
to me now.34
The foregoing testimonies of PCIB officers clearly show that not
only did PCIB fail to give prior notice to Gonzales about the Offering
Ticket for the process of termination, suspension, or revocation of
the credit line under the COHLA, but PCIB likewise failed to inform
Gonzales of the fact that his credit line has been terminated. Thus,
we find PCIB grossly negligent in the termination, revocation, or
suspension of the credit line under the COHLA. While PCIB
invokes its right on the so-called "cross default provisions," it may
not with impunity ignore the rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest
and great reliance is made on the bank’s sworn profession of
diligence and meticulousness in giving irreproachable service. Like
a common carrier whose business is imbued with public interest, a
bank should exercise extraordinary diligence to negate its liability
to the depositors.35 In this instance, PCIB is sorely remiss in the
diligence required in treating with its client, Gonzales. It may not
wantonly exercise its rights without respecting and honoring the
rights of its clients.
Art. 19 of the New Civil Code clearly provides that "[e]very person
must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe
honesty and good faith." This is the basis of the principle of abuse
of right which, in turn, is based upon the maxim suum jus summa
injuria (the abuse of right is the greatest possible wrong).36
In order for Art. 19 to be actionable, the following elements must
be present: "(1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another."37 We find that such elements are present in the
instant case. The effectivity clause of the COHLA is crystal clear
that termination of the COH should be done only upon prior
notice served on the CLIENT. This is the legal duty of PCIB––to
BANKING CASES
inform Gonzales of the termination. However, as shown by the
above testimonies, PCIB failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith
"implies a conscious and intentional design to do a wrongful act for
a dishonest purpose or moral obliquity."38 In the instant case, PCIB
was able to send a letter advising Gonzales of the unpaid interest
on the loans39 but failed to mention anything about the termination
of the COHLA. More significantly, no letter was ever sent to him
about the termination of the COHLA. The failure to give prior notice
on the part of PCIB is already prima facie evidence of bad
faith.40 Therefore, it is abundantly clear that this case falls squarely
within the purview of the principle of abuse of rights as embodied
in Art. 19.
Third. There is no dispute on the right of PCIB to suspend,
terminate, or revoke the COHLA under the "cross default
provisions" of both the promissory notes and the COHLA.
However, these cross default provisions do not confer absolute
unilateral right to PCIB, as they are qualified by the other
stipulations in the contracts or specific circumstances, like in the
instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without
notice, to set off or apply to the payment of this Note any and
all moneys which may be in its hands on deposit or otherwise
belonging to the Borrower. The Borrower irrevocably appoint/s
the Lender, effective upon the nonpayment of this Note on
demand/at maturity or upon the happening of any of the events of
default, but without any obligation on the Lender’s part should it
choose not to perform this mandate, as the attorney-in-fact of the
Borrower, to sell and dispose of any property of the Borrower,
which may be in the Lender’s possession by public or private sale,
and to apply the proceeds thereof to the payment of this Note; the
Borrower, however, shall remain liable for any
deficiency.41 (Emphasis ours.)
54

The above provisos are indeed qualified with the specific
circumstance of an accommodation party who, as such, has not
been servicing the payment of the dues of the loans, and must first
be properly apprised in writing of the outstanding dues in order to
answer for his solidary obligation.
The same is true for the COHLA, which in its default clause
provides:
16. DEFAULT — The CLIENT shall be considered in default under
the COH if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement
or any contract of the CLIENT with the BANK or any bank,
persons, corporations or entities for the payment of
borrowed money, or any other event of default in such
contracts.42
The above pertinent default clause must be read in conjunction
with the effectivity clause (No. 4 of the COHLA, quoted above),
which expressly provides for the right of client to prior notice. The
rationale is simple: in cases where the bank has the right to
terminate, revoke, or suspend the credit line, the client must be
notified of such intent in order for the latter to act accordingly—
whether to correct any ground giving rise to the right of the bank to
terminate the credit line and to dishonor any check issued or to act
in accord with such termination, i.e., not to issue any check drawn
from the credit line or to replace any checks that had been issued.
This, the bank—with gross negligence—failed to accord Gonzales,
a valued client for more than 15 years.
Fourth. We find the testimony43 of Ocampo incredible on the point
that the principal borrower of the PhP 1,800,000 loan covered by
the three promissory notes is Gonzales for which the bank officers
had special instructions to grant and that it was through the
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instructions of Gonzales that the payment of the periodic interest
dues were debited from the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995
indeed shows Gonzales as the principal borrower, the other
promissory notes dated December 26, 1995 and January 3, 1996
evidently show that it was Jose Panlilio who was the principal
borrower with Gonzales as co-borrower. For another, Ocampo
cannot feign ignorance on the arrangement of the payments by the
spouses Panlilio through the debiting of their bank account. It is
incredulous that the payment arrangement is merely at the behest
of Gonzales and at a mere verbal directive to do so. The fact that
the spouses Panlilio not only received the proceeds of the loan but
were servicing the periodic interest dues reinforces the fact that
Gonzales was only an accommodation party.
Thus, due to PCIB’s negligence in not giving Gonzales—an
accommodation party—proper notice relative to the delinquencies
in the PhP 1,800,000 loan covered by the three promissory notes,
the unjust termination, revocation, or suspension of the credit line
under the COHLA from PCIB’s gross negligence in not honoring its
obligation to give prior notice to Gonzales about such termination
and in not informing Gonzales of the fact of such termination,
treating Gonzales’ account as closed and dishonoring his PhP
250,000 check, was certainly a reckless act by PCIB. This resulted
in the actual injury of PhP 250,000 to Gonzales whose FCD
account was frozen and had to look elsewhere for money to pay
Unson.
With banks, the degree of diligence required is more than that of a
good father of the family considering that the business of banking
is imbued with public interest due to the nature of their function.
The law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of banking.44 Had Gonzales been
properly notified of the delinquencies of the PhP 1,800,000 loan
and the process of terminating his credit line under the COHLA, he
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could have acted accordingly and the dishonor of the check would
have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society—banks have attained a ubiquitous presence
among the people, who have come to regard them with respect
and even gratitude and most of all, confidence, and it is for this
reason, banks should guard against injury attributable to
negligence or bad faith on its part.45
In the instant case, Gonzales suffered from the negligence and bad
faith of PCIB. From the testimonies of Gonzales’ witnesses,
particularly those of Dominador Santos46 and Freddy Gomez,47 the
embarrassment and humiliation Gonzales has to endure not only
before his former close friend Unson but more from the members
and families of his friends and associates in the PCA, which he
continues to experience considering the confrontation he had with
Unson and the consequent loss of standing and credibility among
them from the fact of the apparent bouncing check he issued.
Credit is very important to businessmen and its loss or impairment
needs to be recognized and compensated.48
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute
acts of contra bonus mores. Art. 21 of the Civil Code refers to such
acts when it says, "Any person who willfully causes loss or injury
to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for damage."
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages "are
1avv phi 1
recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present
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loss of any kind x x x."49 We further explained the nature of nominal
damages in Almeda v. Cariño:
x x x Its award is thus not for the purpose of indemnification for a
loss but for the recognition and vindication of a right. Indeed,
nominal damages are damages in name only and not in fact. When
granted by the courts, they are not treated as an equivalent of a
wrong inflicted but simply a recognition of the existence of a
technical injury. A violation of the plaintiff’s right, even if only
technical, is sufficient to support an award of nominal damages.
Conversely, so long as there is a showing of a violation of the right
of the plaintiff, an award of nominal damages is proper.50(Emphasis
Ours.)
In the present case, Gonzales had the right to be informed of the
accrued interest and most especially, for the suspension of his
COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant
circumstances.51 In this case, the Court finds that the grant of PhP
50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,52 failure to give prior
notice when required, such as in the instant case, constitutes a
breach of contract and is a clear violation of Art. 21 of the Code. In
cases such as this, Art. 2219 of the Code provides that moral
damages may be recovered in acts referred to in its Art. 21.
Further, Art. 2220 of the Code provides that "[w]illful injury to
property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith." Similarly, "every
person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same."53 Evidently,
Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor
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suffered mental anguish, serious anxiety, embarrassment, and
humiliation.54 Although incapable of pecuniary estimation, moral
damages are certainly recoverable if they are the proximate result
of the defendant’s wrongful act or omission. The factual
antecedents bolstered by undisputed testimonies likewise show
the mental anguish and anxiety Gonzales had to endure with the
threat of Unson to file a suit. Gonzales had to pay Unson PhP
250,000, while his FCD account in PCIB was frozen, prompting
Gonzales to demand from PCIB and to file the instant suit.
Commercial and International Bank (now Banco De Oro) is
ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal
damages, PhP 50,000 as moral damages, PhP 10,000 as
exemplary damages, and PhP 50,000 as attorney’s fees.
No pronouncement as to costs.
SO ORDERED.

The award of moral damages is aimed at a restoration within the

limits of the possible, of the spiritual status quo ante—it must
always reasonably approximate the extent of injury and be
proportional to the wrong committed.55Thus, an award of PhP
50,000 is reasonable moral damages for the unjust dishonor of the
PhP 250,000 which was the proximate cause of the consequent
humiliation, embarrassment, anxiety, and mental anguish suffered
by Gonzales from his loss of credibility among his friends,
colleagues and peers.

Furthermore, the initial carelessness of the bank’s omission in not

properly informing Gonzales of the outstanding interest dues––
aggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the
termination of the credit line––justifies the grant of exemplary
damages of PhP 10,000. Such an award is imposed by way of
example or correction for the public good.

Finally, an award for attorney’s fees is likewise called for from

PCIB’s negligence which compelled Gonzales to litigate to protect
his interest. In accordance with Art. 2208(1) of the Code, attorney’s
fees may be recovered when exemplary damages are awarded.
We find that the amount of PhP 50,000 as attorney’s fees is
reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly,

the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466
is hereby REVERSED and SET ASIDE. The Philippine

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