SIMEX INTERNATIONAL v CA
215477 dated June 9, 1981, in favor of Sea-Land
CRUZ, J.:
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.
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:
BANKING LAWS (Diligence Required of Banks Cases)
6. Check No.
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
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
Page 1
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
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 negligence, if not
wanton bad faith, that the respondent court said had not been
established by the petitioner.
BANKING LAWS (Diligence Required of Banks Cases)
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."
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
Page 2
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:
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.
BANKING LAWS (Diligence Required of Banks Cases)
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 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,
Page 3
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.
CONSOLIDATED BANK AND TRUST CORPORATION v CA
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of
Appeals dated 27 October 1998 and its Resolution dated 11 May
1999. The assailed decision reversed the Decision[2] of the Regional
Trial Court of Manila, Branch 8, absolving petitioner Consolidated
Bank and Trust Corporation, now known as Solidbank Corporation
(Solidbank), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank
BANKING LAWS (Diligence Required of Banks Cases)
but modified the decision by deleting the award of exemplary
damages, attorneys fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing
under Philippine laws. Private respondent L.C. Diaz and Company,
CPAs (L.C. Diaz), is a professional partnership engaged in the
practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with
Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes
Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990
and a savings (checks) deposit slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the
money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two
deposit slips and the passbook. The teller acknowledged receipt of
the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE.
Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with
Solidbank. Calapre then went to Allied Bank. When Calapre returned
to Solidbank to retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook.[3] Calapre went back to L.C. Diaz and
reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies
with a check of P200,000. Macaraya, together with Calapre, went to
Solidbank and presented to Teller No. 6 the deposit slip and check.
The teller stamped the words DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit
slip. When Macaraya asked for the passbook, Teller No. 6 told
Macaraya that someone got the passbook but she could not
remember to whom she gave the passbook. When Macaraya asked
Page 4
Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that
someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August
1991 for the deposit of a check for P90,000 drawn on Philippine
Banking Corporation (PBC). This PBC check of L.C. Diaz was a
check that it had long closed.[4] PBC subsequently dishonored the
check because of insufficient funds and because the signature in the
check differed from PBCs specimen signature. Failing to get back the
passbook, Macaraya went back to her office and reported the matter
to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief
Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop
any transaction using the same passbook until L.C. Diaz could open
a new account.[5] On the same day, Diaz formally wrote Solidbank to
make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for
the P300,000 bore the signatures of the authorized signatories of
L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories,
however, denied signing the withdrawal slip. A certain Noel Tamayo
received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional
Trial Court of Manila dismissed the criminal case after the City
Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a
Sum of Money against Solidbank with the Regional Trial Court of
Manila, Branch 8. After trial, the trial court rendered on 28 December
1994 a decision absolving Solidbank and dismissing the complaint.
BANKING LAWS (Diligence Required of Banks Cases)
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October
1998, the Court of Appeals issued its Decision reversing the decision
of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying
the motion for reconsideration of Solidbank. The appellate court,
however, modified its decision by deleting the award of exemplary
damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings
account written on the passbook. The rules state that possession of
this book shall raise the presumption of ownership and any payment
or payments made by the bank upon the production of the said book
and entry therein of the withdrawal shall have the same effect as if
made to the depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with
the signatures of the authorized signatories of L.C. Diaz. The
specimen signatures of these persons were in the signature cards.
The teller stamped the withdrawal slip with the words Saving Teller
No. 5. The teller then passed on the withdrawal slip to Genere
Manuel (Manuel) for authentication. Manuel verified the signatures
on the withdrawal slip. The withdrawal slip was then given to another
officer who compared the signatures on the withdrawal slip with the
specimen on the signature cards. The trial court concluded that
Solidbank acted with care and observed the rules on savings
account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C.
Diaz to prove that the signatures on the withdrawal slip were forged.
The trial court admonished L.C. Diaz for not offering in evidence the
National Bureau of Investigation (NBI) report on the authenticity of
the signatures on the withdrawal slip for P300,000. The trial court
believed that L.C. Diaz did not offer this evidence because it is
derogatory to its action.
Page 5
Another provision of the rules on savings account states that the
depositor must keep the passbook under lock and key.[10] When
another person presents the passbook for withdrawal prior to
Solidbanks receipt of the notice of loss of the passbook, that person
is considered as the owner of the passbook. The trial court ruled that
the passbook presented during the questioned transaction was now
out of the lock and key and presumptively ready for a business
transaction.[11]
Solidbank did not have any participation in the custody and care of
the passbook. The trial court believed that Solidbanks act of allowing
the withdrawal of P300,000 was not the direct and proximate cause
of the loss. The trial court held that L.C. Diazs negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diazs
negligence: (1) the possession of the passbook by a person other
than the depositor L.C. Diaz; (2) the presentation of a signed
withdrawal receipt by an unauthorized person; and (3) the
possession by an unauthorized person of a PBC check long closed
by L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not
follow the precautionary procedures observed by the two parties
whenever L.C. Diaz withdrew significant amounts from its account.
L.C. Diaz claimed that a letter must accompany withdrawals of more
than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a managers check. The bearer
must also have a letter authorizing him to withdraw the same
amount. Another person driving a car must accompany the bearer so
that he would not walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz disregarded
these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz
withdrew P82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a
managers check.
The trial court further justified the dismissal of the complaint by
holding that the case was a last ditch effort of L.C. Diaz to recover
P300,000 after the dismissal of the criminal case against Ilagan.
BANKING LAWS (Diligence Required of Banks Cases)
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank
pursuant to its counterclaim the amount of Thirty Thousand Pesos
(P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the
proximate cause of the unauthorized withdrawal of P300,000 from
the savings account of L.C. Diaz. The appellate court reached this
conclusion after applying the provision of the Civil Code on quasi-
delict, to wit:
Article 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed
by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are
present in this case, namely: (a) damages suffered by the plaintiff;
(b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the
damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who
received the withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. The appellate court stated that
the teller, who was not presented by Solidbank during trial, should
have called up the depositor because the money to be withdrawn
was a significant amount. Had the teller called up L.C. Diaz,
Page 6
Solidbank would have known that the withdrawal was unauthorized.
The teller did not even verify the identity of the impostor who made
the withdrawal. Thus, the appellate court found Solidbank liable for
its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving
the passbook with the teller, Solidbank could not escape liability
because of the doctrine of last clear chance. Solidbank could have
averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to
verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The
business and functions of banks are affected with public interest.
Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is
hereby REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust
Corporation to pay plaintiff-appellant the sum of Three Hundred
Thousand Pesos (P300,000.00), with interest thereon at the rate of
12% per annum from the date of filing of the complaint until paid, the
sum of P20,000.00 as exemplary damages, and P20,000.00 as
attorneys fees and expenses of litigation as well as the cost of suit;
and
2. Ordering the dismissal of defendant-appellees counterclaim in the
amount of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate
court affirmed its decision but modified the award of damages. The
BANKING LAWS (Diligence Required of Banks Cases)
appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231[14] of the Civil Code, the
appellate court ruled that exemplary damages could be granted if the
defendant acted with gross negligence. Since Solidbank was guilty of
simple negligence only, the award of exemplary damages was not
justified. Consequently, the award of attorneys fees was also
disallowed pursuant to Article 2208 of the Civil Code. The expenses
of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27,
1998 is affirmed with modification by deleting the award of exemplary
damages and attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the
Court of Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS
TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT
BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF
P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT,
NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A
BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO
WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT
Page 7
THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE
RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS MESSENGER
EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS
AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT
THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE
EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE
2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING
THAT PETITIONER BANKS NEGLIGENCE WAS ONLY
CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz
based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and
L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The
law on quasi-delict or culpa aquiliana is generally applicable when
there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to
negligence, or culpa contractual.
BANKING LAWS (Diligence Required of Banks Cases)
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan.[17] Article 1980 of the
Civil Code expressly provides that x x x savings x x x deposits of
money in banks and similar institutions shall be governed by the
provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is
the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary
nature of banking. Section 2 of Republic Act No. 8791 (RA 8791),[18]
which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals,[20] holding that the bank is under
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship.[21]
This fiduciary relationship means that the banks obligation to observe
high standards of integrity and performance is deemed written into
every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of
the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family.[22] Section
2 of RA 8791 prescribes the statutory diligence required from banks
that banks must observe high standards of integrity and performance
in servicing their depositors. Although RA 8791 took effect almost
nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence[23] at the time of the
withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does
not convert the contract between the bank and its depositors from a
Page 8
simple loan to a trust agreement, whether express or implied. Failure
by the bank to pay the depositor is failure to pay a simple loan, and
not a breach of trust.[24] The law simply imposes on the bank a
higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required
of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks
to offer the lowest possible interest rate to depositors while charging
the highest possible interest rate on their own borrowers. The
interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are
cestui que trust of banks, then the interest spread or income belongs
to the depositors, a situation that Congress certainly did not intend in
enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is
demandable. For breach of the savings deposit agreement due to
negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction
took time and he had to go to Allied Bank for another transaction.
The passbook was still in the hands of the employees of Solidbank
for the processing of the deposit when Calapre left Solidbank.
Solidbanks rules on savings account require that the deposit book
should be carefully guarded by the depositor and kept under lock
and key, if possible. When the passbook is in the possession of
Solidbanks tellers during withdrawals, the law imposes on Solidbank
and its tellers an even higher degree of diligence in safeguarding the
passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence
in insuring that they return the passbook only to the depositor or his
authorized representative. The tellers know, or should know, that the
rules on savings account provide that any person in possession of
BANKING LAWS (Diligence Required of Banks Cases)
the passbook is presumptively its owner. If the tellers give the
passbook to the wrong person, they would be clothing that person
presumptive ownership of the passbook, facilitating unauthorized
withdrawals by that person. For failing to return the passbook to
Calapre, the authorized representative of L.C. Diaz, Solidbank and
Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to
the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract,
there is a presumption that the defendant was at fault or negligent.
The burden is on the defendant to prove that he was not at fault or
negligent. In contrast, in culpa aquiliana the plaintiff has the burden
of proving that the defendant was negligent. In the present case, L.C.
Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that
there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to
the trial court Teller No. 6, the teller with whom Calapre left the
passbook and who was supposed to return the passbook to him. The
record does not indicate that Teller No. 6 verified the identity of the
person who retrieved the passbook. Solidbank also failed to adduce
in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that
Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the
principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and
performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with
its fiduciary duty. Solidbank failed to present the teller who had the
Page 9
duty to return to Calapre the passbook, and thus failed to prove that
this teller exercised the high standards of integrity and performance
required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts
is the proximate cause of the unauthorized withdrawal. The trial court
believed that L.C. Diazs negligence in not securing its passbook
under lock and key was the proximate cause that allowed the
impostor to withdraw the P300,000. For the appellate court, the
proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with
either court.
Proximate cause is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred.[26]
Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of
the impostor. Solidbank was in possession of the passbook while it
was processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only
to Calapre, the authorized representative of L.C. Diaz. Solidbank
failed to fulfill its contractual obligation because it gave the passbook
to another person.
Solidbanks failure to return the passbook to Calapre made possible
the withdrawal of the P300,000 by the impostor who took possession
of the passbook. Under Solidbanks rules on savings account, mere
possession of the passbook raises the presumption of ownership. It
was the negligent act of Solidbanks Teller No. 6 that gave the
impostor presumptive ownership of the passbook. Had the passbook
not fallen into the hands of the impostor, the loss of P300,000 would
not have happened. Thus, the proximate cause of the unauthorized
withdrawal was Solidbanks negligence in not returning the passbook
to Calapre.
BANKING LAWS (Diligence Required of Banks Cases)
We do not subscribe to the appellate courts theory that the proximate
cause of the unauthorized withdrawal was the tellers failure to call up
L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to
call up L.C. Diaz to confirm the withdrawal. There is no arrangement
between Solidbank and L.C. Diaz to this effect. Even the agreement
between Solidbank and L.C. Diaz pertaining to measures that the
parties must observe whenever withdrawals of large amounts are
made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever
their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the
usual practice of Solidbank to call up its clients to verify a withdrawal
of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put
on guard to verify the withdrawal. Prior to the withdrawal of
P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC
check, which later bounced. The impostor apparently deposited a
large amount of money to deflect suspicion from the withdrawal of a
much bigger amount of money. The appellate court thus erred when
it imposed on Solidbank the duty to call up L.C. Diaz to confirm the
withdrawal when no law requires this from banks and when the teller
had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger
of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the
following statements in the Booking and Information Sheet of
Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check
of PBC and indicated the amount of P90,000 which he deposited in
favor of L.C. Diaz and Company. After successfully withdrawing this
large sum of money, accused Ilagan gave alias Rey (Noel Tamayo)
his share of the loot. Ilagan then hired a taxicab in the amount of
P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a
big part of his loot was wasted in cockfight and horse racing. Ilagan
Page 10
was apprehended and meekly admitted his guilt.[28] (Emphasis
supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the
person who withdrew the P300,000 was a certain Noel Tamayo. Both
the trial and appellate courts stated that this Noel Tamayo presented
the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain
Noel Tamayo withdrew the P300,000. The Court is not a trier of
facts. We find no justifiable reason to reverse the factual finding of
the trial court and the Court of Appeals. The tellers who processed
the deposit of the P90,000 check and the withdrawal of the P300,000
were not presented during trial to substantiate Solidbanks claim that
Ilagan deposited the check and made the questioned withdrawal.
Moreover, the entry quoted by Solidbank does not categorically state
that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of
the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with
the loss.[29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due
diligence.[30]
We do not apply the doctrine of last clear chance to the present
case. Solidbank is liable for breach of contract due to negligence in
the performance of its contractual obligation to L.C. Diaz. This is a
case of culpa contractual, where neither the contributory negligence
of the plaintiff nor his last clear chance to avoid the loss, would
exonerate the defendant from liability.[31] Such contributory
negligence or last clear chance by the plaintiff merely serves to
reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.[32]
BANKING LAWS (Diligence Required of Banks Cases)
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated
by the courts, according to the circumstances. This means that if the
defendant exercised the proper diligence in the selection and
supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the
Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-
60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz
must shoulder 40% of the actual damages awarded by the appellate
court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPAs only 60% of the
actual damages awarded by the Court of Appeals. The remaining
40% of the actual damages shall be borne by private respondent
L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
METROPOLITAN BANK AND TRUST CORPORATION v CA
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed by
petitioner Metropolitan Bank and Trust Company (Metrobank)
seeking to reverse and set aside the Decision1 of the Court of
Appeals dated 8 March 2002 and its Resolution dated 26 July 2002
affirming the Decision of the Regional Trial Court (RTC) of Manila,
Branch 13 dated 4 September 1998. The dispositive portion of the
Court of Appeals Decision reads:
Page 11
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.
Petitioner Metrobank is a banking institution duly organized and
existing as such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s
clients who maintained a current account with Metrobank Pasong
Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No.
985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was
drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by
Cabilzo to a certain Mr. Marquez, as his sales commission.4
Subsequently, the check was presented to Westmont Bank for
payment. Westmont Bank, in turn, indorsed the check to Metrobank
for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the signature
of the drawer, Metrobank cleared the check for encashment in
accordance with the Philippine Clearing House Corporation (PCHC)
Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank
Pasong Tamo Branch to make some transaction when he was asked
by a bank personnel if Cabilzo had issued a check in the amount of
P91,000.00 to which the former replied in the negative. On the
afternoon of the same date, Cabilzo himself called Metrobank to
reiterate that he did not issue a check in the amount of P91,000.00
and requested that the questioned check be returned to him for
verification, to which Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check
No. 985988 which he issued on 12 November 1994 in the amount of
P1,000.00 was altered to P91,000.00 and the date 24 November
1994 was changed to 14 November 1994.6
BANKING LAWS (Diligence Required of Banks Cases)
Hence, Cabilzo demanded that Metrobank re-credit the amount of
P91,000.00 to his account. Metrobank, however, refused reasoning
that it has to refer the matter first to its Legal Division for appropriate
action. Repeated verbal demands followed but Metrobank still failed
to re-credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-
demand8 to Metrobank for the payment of P90,000.00, after
deducting the original value of the check in the amount of P1,000.00.
Such written demand notwithstanding, Metrobank still failed or
refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against
Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v.
Metropolitan Bank and Trust Company, Cabilzo prayed that in
addition to his claim for reimbursement, actual and moral damages
plus costs of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the receipt of the said
check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawer’s signature appearing
thereon and the technical entries on the check including the amount
in figures and in words to determine if there were alterations,
erasures, superimpositions or intercalations thereon, but none was
noted. After verifying the authenticity and propriety of the aforesaid
entries, including the indorsement of the collecting bank located at
the dorsal side of the check which stated that, "all prior indorsements
and lack of indorsement guaranteed," Metrobank cleared the
check.10
Anent thereto, Metrobank claimed that as a collecting bank and the
last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified
indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is
genuine and in all respect what it purports to be.
Page 12
In addition, Metrobank, in turn, claimed that Cabilzo was partly
responsible in leaving spaces on the check, which, made the
fraudulent insertion of the amount and figures thereon, possible. On
account of his negligence in the preparation and issuance of the
check, which according to Metrobank, was the proximate cause of
the loss, Cabilzo cannot thereafter claim indemnity by virtue of the
doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount
of P100,000.00 which represents the cost of litigation and attorney’s
fees, for allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against
Westmont Bank on account of its unqualified indorsement stamped
at the dorsal side of the check which the former relied upon in
clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was
then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said
case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont
Bank, and now the subject of a Petition for Review before the RTC of
Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the
Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of
Cabilzo and thereby ordered Metrobank to pay the sum of
P90,000.00, the amount of the check. In stressing the fiduciary
nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent
alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The
dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant
Metropolitan Bank and Trust Company to pay plaintiff Renato
BANKING LAWS (Diligence Required of Banks Cases)
Cabilzo the sum of P90,000 with legal interest of 6 percent per
annum from November 16, 1994 until payment is made plus P20,000
attorney’s fees, exemplary damages of P50,000, and costs of the
suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of
Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent
alteration of the check. Elaborating, Metrobank maintained that by
reason of its unqualified indorsement, Westmont Bank warranted that
the check in question is genuine, valid and subsisting and that upon
presentment the check shall be accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not
remiss in the performance of its duty as the drawee bank, but rather,
it exercised the highest degree of diligence in accordance with the
generally accepted banking practice. It further insisted that the
entries in the check were regular and authentic and alteration could
not be determined even upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed
with modification the Decision of the court a quo, similarly finding
Metrobank liable for the amount of the check, without prejudice,
however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The
decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with the modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which
was also denied by the appellate court in its Resolution19 issued on
26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE
Page 13
ALTERATIONS ON THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument
that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party.20 In other
words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand or at a fixed determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument
Law which states:
Section 125. What constitutes material alteration. – Any alteration
which changes:
(a) The date;
BANKING LAWS (Diligence Required of Banks Cases)
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the
entries altered were among those enumerated under Section 1 and
125, namely, the sum of money payable and the date of the check,
the instant controversy therefore squarely falls within the purview of
material alteration.
Now, having laid the premise that the present petition is a case of
material alteration, it is now necessary for us to determine the effect
of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out
this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself
made, authorized, and assented to the alteration and subsequent
indorsers.
But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor.
(Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or
Page 14
implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which
could have otherwise prevented the loss. As correctly ruled by the
appellate court, Cabilzo was never remiss in the preparation and
issuance of the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed asterisks before and
after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the amount
indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise
of his tasks and the performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary enough that he filled
with asterisks the spaces between and after the amounts, not only
those stated in words, but also those in numerical figures, in order to
prevent any fraudulent insertion, but unfortunately, the check was still
successfully altered, indorsed by the collecting bank, and cleared by
the drawee bank, and encashed by the perpetrator of the fraud, to
the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent
and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each
guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission or
commission, was the cause of injury.21 Metrobank’s reliance on this
dictum, is misplaced. For one, Metrobank’s representation that it is
an innocent party is flimsy and evidently, misleading. At the same
time, Metrobank cannot asseverate that Cabilzo was negligent and
this negligence was the proximate cause22 of the loss in the
absence of even a scintilla proof to buttress such claim. Negligence
is not presumed but must be proven by the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant
controversy. He was just an ordinary businessman who, in order to
facilitate his business transactions, entrusted his money with a bank,
not knowing that the latter would yield a substantial amount of his
deposit to fraud, for which Cabilzo can never be faulted.
BANKING LAWS (Diligence Required of Banks Cases)
We never fail to stress the remarkable significance of a banking
institution to commercial transactions, in particular, and to the
country’s economy in general. 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.24
Thus, even the humble wage-earner does not hesitate 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 a businessman
like the respondent, the bank is a trusted and active associate that
can help in the running of his 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.25
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.26
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high
degree of diligence, if not the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss in that
duty and violated that relationship. As observed by the Court of
Page 15
Appeals, there are material alterations on the check that are visible
to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure
in the shape of the number "2". The appellant’s employees who
examined the said check should have likewise been put on guard as
to why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said
phrase, there is none, even as 4 asterisks have been placed before
and after the word "CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS ONLY" have
noticeably been erased with typing correction paper, leaving white
marks, over which the word "NINETY" was superimposed. The same
can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of
the asterisk which was deleted to insert the said figure. The
appellant’s employees should have again noticed why only 2
asterisks were placed before the amount in figures, while 3 asterisks
were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words
"ONE THOUSAND PESOS ONLY." The letters of the word
"NINETY" are likewise a little bigger when compared with the letters
of the words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above
alterations which could not escape the attention of even an ordinary
person. This negligence was exacerbated by the fact that, as found
by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks
indorsed for payment against drawer’s accounts.29 Obviously, the
employee allowed by Metrobank to examine the check was not verse
and competent to handle such duty. These factual findings of the trial
court is conclusive upon this court especially when such findings was
affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the very nature of their
work the degree of responsibility, care and trustworthiness expected
of their employees and officials is far better than those of ordinary
clerks and employees. Banks are expected to exercise the highest
BANKING LAWS (Diligence Required of Banks Cases)
degree of diligence in the selection and supervision of their
employees.31
In addition, the bank on which the check is drawn, known as the
drawee bank, is under strict liability to pay to the order of the payee
in accordance with the drawer’s instructions as reflected on the face
and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the
instruction of the drawer.
When the drawee bank pays a materially altered check, it violates
the terms of the check, as well as its duty to charge its client’s
account only for bona fide disbursements he had made. Since the
drawee bank, in the instant case, did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has
no right to claim reimbursement from the drawer, much less, the right
to deduct the erroneous payment it made from the drawer’s account
which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were
carefully examined: The date of the instrument, the amount in words
and figures, as well as the drawer’s signature, which after
verification, were found to be proper and authentic and was thus
cleared. We are not persuaded. Metrobank’s negligence consisted in
the omission of that degree of diligence required of a bank owing to
the fiduciary nature of its relationship with its client. Article 1173 of
the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and
of the place. x x x.
Beyond question, Metrobank failed to comply with the degree
required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it
would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the
intricacies of the banking business. This Court is not completely
unaware of banks’ practices of employing devices and techniques in
Page 16
order to detect forgeries, insertions, intercalations, superimpositions
and alterations in checks and other negotiable instruments so as to
safeguard their authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it point its finger at
the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and
the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already
under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check.
The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement
is clearly inconsistent, if not totally offensive to the dictum that being
impressed with public interest, banks should exercise the highest
degree of diligence, if not utmost diligence in dealing with the
accounts of its own clients. It owes the highest degree fidelity to its
clients and should not therefore lightly rely on the judgment of other
banks on occasions where its clients money were involve, no matter
how small or substantial the amount at stake.
Metrobank’s contention that it relied on the strength of collecting
bank’s indorsement may be merely a lame excuse to evade liability,
or may be indeed an actual banking practice. In either case, such act
constitutes a deplorable banking practice and could not be allowed
by this Court bearing in mind that the confidence of public in general
is of paramount importance in banking business.
What is even more deplorable is that, having been informed of the
alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full
blown litigation to push through, to the prejudice of its client. Anyway,
Metrobank is not left with no recourse for it can still run after the one
who made the alteration or with the collecting bank, which it had
already done. It bears repeating that the records are bare of
evidence to prove that Cabilzo was negligent. We find no justifiable
reason therefore why Metrobank did not immediately reimburse his
account. Such ineptness comes within the concept of wanton
BANKING LAWS (Diligence Required of Banks Cases)
manner contemplated under the Civil Code which warrants the
imposition of exemplary damages, "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 stern warning in order to deter the repetition of
similar acts of negligence, lest the confidence of the public in the
banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED.
The Decision dated 8 March 2002 and the Resolution dated 26 July
2002 of the Court of Appeals are AFFIRMED with modification that
exemplary damages in the amount of P50,000.00 be awarded. Costs
against the petitioner.
SO ORDERED.
PNB v PIKE
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, seeks to reverse the Decision[1]
dated 19 December 2002, and the Resolution[2] dated 02 April 2003,
both of the Court of Appeals, in CA-G.R. CV No. 59389, which
affirmed with modification the Decision[3] rendered by the Regional
Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in
Civil Case No. 94-68821 in favor of herein respondent Norman Pike
(Pike).
The case stemmed from a complaint[4] filed by herein respondent
Pike for damages[5] against Philippine National Bank (PNB) on 04
January 1994.
Complainant Pike often traveled to and from Japan as a gay
entertainer in said country. Sometime in 1991, he opened U.S. Dollar
Savings Account No. 0265-704591-0 with herein petitioner PNB
Buendia branch for which he was issued a corresponding passbook.
The complaint alleged in substance that before complainant Pike left
for Japan on 18 March 1993, he kept the aforementioned passbook
inside a cabinet under lock and key, in his home; that on 19 April
1993, a few hours after he arrived from Japan, he discovered that
Page 17
some of his valuables were missing including the passbook; that he
immediately reported the incident to the police which led to the arrest
and prosecution of a certain Mr. Joy Manuel Davasol; that
complainant Pike also discovered that Davasol made two (2)
unauthorized withdrawals from his U.S. Dollar Savings Account No.
0265-704591-0, both times at the PNB Buendia branch on the
following dates:
DATE
AMOUNT
31 March 1993
$3,500.00
05 April 1993
4,000.00
TOTAL
$7,500.00
that on several occasions, complainant Pike went to defendant PNBs
Buendia branch and verbally protested the unauthorized withdrawals
and likewise demanded the return of the total withdrawn amount of
U.S. $7,500.00, on the ground that he never authorized anybody to
withdraw from his account as the signatures appearing on the
subject withdrawal slips were clearly forgeries; that defendant PNB
refused to credit said amount back to complainants U.S. Dollar
Savings Account without justifiable reason, and instead, defendant
bank wrote him that it exercised due diligence in the handling of said
account; and that on 06 May 1993, complainant Pike wrote
defendant PNB simply to request that the hold-account be lifted so
that he may withdraw the remaining balance left in his U.S.$ Savings
Account and nothing else.
On the other hand, defendant PNB alleged, in its Motion to
Dismiss[6] of 18 April 1994, a counterstatement of facts. Its factual
allegations read:
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike,
together with a certain Joy Davasol went to see PNB AVP Mr.
Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of
$2,000.00. Mr. Pike also informed AVP Val that he is leaving for
abroad (Japan) and made verbal instruction to honor all withdrawals
BANKING LAWS (Diligence Required of Banks Cases)
to be transmitted by his Talent Manager and Choreographer, Joy
Davasol who shall present pre-signed withdrawal slips bearing his
(Pikes) signature. . .
On April 19, 1993, a certain Josephine Balmaceda, who claimed to
be plaintiffs sister executed an affidavit . . . . stating therein that they
discovered today (April 19, 1993) the lost (sic) of her brothers
passbook issued by PNB on account of robbery, committed in the
residence/office of her brother, promptly reporting the matter to the
police authorities and her brother cannot report the matter to the
Bank because he was currently in Japan and therefore requesting
the Bank to issue a hold-order on her brothers passbook.
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated
that plaintiff (who was the one who reported the matter) after one
month in Japan, he (complainant) arrived yesterday. . .
On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiffs
counsel sent a demand letter to VP Violeta T. Suquila (then VP and
Manager of PNB Buendia Branch) demanding the bank to credit
back the amount of US$7,500.00 which were withdrawn on March
31, 1993 and April 5, 1993, because his clients signatures were
forged and the withdrawal made thereon were unauthorized. . .
On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss
(sic) Dollar Account Passbook and requested the PNB to replace the
same and allow him to make withdrawals thereon. He stated that his
passbook was stolen together with other valuables which he
discovered only in the early morning of April 19, 1993. . .
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed
to the Manager of PNB, Buendia Branch the full contents of said
letter hereto quoted as follows:
May 6, 1993
The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Page 18
Makati, Metro Manila
Sir:
In connection with the request of my sister, Mrs. Josephine P.
Balmaceda for the hold-order on my dollar savings passbook No.
265-704591-0, I am now requesting your good office to lift the same
so I can withdraw the remaining balance of my passbook which was
reported lost sometime in March of this year.
I also promise not to hold responsible the bank and its officers for the
withdrawal made on my dollar savings passbook on March 19 and
April 5, 1993 respectively as a result of the lost (sic) of my passbook.
Sgd. NORMAN Y. PIKE
Depositor
Philippine Passport
No. H918022
Issued at Manila on
Sept. 6, 1990
Place of Issuance
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed
by defendant bank to withdraw the remaining balance from his
passbook .
A letter dated May 18, 1993 was sent to Plaintiffs counsel by PNB
stating that the Bank regrets that it cannot accede to such request
inasmuch as the Bank exercised due diligence of a good father to his
family in the handling of transactions covering the deposit account of
Mr. Pike .
On July 2, 1993, Plaintiffs counsel sent a letter to PNB Vice Pres.
Suquila denying that his client made any such promise not to hold
responsible the bank and its officers for the withdrawal made .
A letter dated July 29, 1993 was sent to Plaintiffs counsel by VP
Suquila stating that plaintiffs withdrawal of the remaining balance of
his account with the Bank effectively estops him from claiming on the
alleged unauthorized withdrawals.
BANKING LAWS (Diligence Required of Banks Cases)
The trial court, in its decision dated 10 January 1997, made the
following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals.
The court is not impressed with the defense put up by the bank. Its
contention that the withdrawals were authorized by the plaintiff
because there was an arrangement between the bank represented
by its Asst. Vice President Lorenzo Bal, Jr. and the depositor
Norman Y. Pike to the effect that pre-signed withdrawal slips, that is,
withdrawal slip signed by the depositor in the presence of Mr. Bal
whereby it would be made to appear that it was the depositor himself
who presented the same to the bank despite the fact that it was
another person who presented the same should be honored by the
bank cannot be sanctioned by the court. Firstly, the court is not
satisfied that there was indeed such an arrangement. . . It is Mr. Bals
contention that such an arrangement although not ordinarily entered
into is still a legal procedure of the bank and is resorted to
accommodate the depositors specially honored and valued depositor
at that.
---
The court compared the signatures in the questioned withdrawal
slips with the known signatures of the depositor and is convinced that
the signatures in the unauthorized withdrawal slips do not
correspond to the true signatures of the depositor.
From the evidence that it received, the court is convinced that the
bank was negligent in the performance of its duties such that
unauthorized withdrawals were made in the deposit of plaintiff
Norman Y. Pike.[7]
The dispositive portion of the trial courts decision reads:
WHEREFORE and considering the foregoing, judgment is hereby
rendered in favor of the plaintiff and against the defendant and
ordering the defendant to pay the following:
1. US$7,500.00 plus interest thereon at the rate of 12% per
annum until the full amount is paid;
2. P25,000.00 for and as attorneys fees;
3. P50,000.00 as moral damages and P50,000.00 as
exemplary damages; and
4. Plus the costs of suit.[8]
Page 19

Defendant PNBs motion for reconsideration was subsequently
denied by the court a quo.[9]
On appeal, the Court of Appeals issued the assailed decision dated
19 December 2002, affirming the findings of the RTC that indeed
defendant-appellant PNB was negligent in exercising the diligence
required of a business imbued with public interest such as that of the
banking industry, however, it modified the rate of interest and award
for damages, to wit:
WHEREFORE, premises considered, the Decision dated January 10,
1997 issued by the Regional Trial Court of Manila, Branch 7, in Civil
Case No. 94-68821, is hereby AFFIRMED with MODIFICATION, as
follows:
1. Ordering appellant, the Philippine National Bank, Buendia Branch,
to refund appellee the amount of $7,500.00 plus interest of 6% per
annum to be computed from the date of the filing of the complaint
which interest rate shall become 12% per annum from the time the
judgment in this case becomes final and executory until its
satisfaction;
2. The award for moral damages is reduced to P20,000.00; and
3. The award for exemplary damages is likewise reduced to
P20,000.00.
Costs against appellant.[10]
The appellate court held that.
Appellant claims that appellee personally talked to its officers to allow
Joy Manuel Davasol to make withdrawals. Appellee even left pre-
signed withdrawal slips before he went to Japan. However, appellant
could have told appellee to authorize the withdrawal by a
representative by indicating the same at the space provided at the
back portion of the withdrawal slip. This operational flaw was
observed by the trial court, when it ruled:
The court cannot also understand why the bank did not require the
correct, proper and the usual procedure of requiring a depositor who
is withdrawing the money through a representative to fill up the back
BANKING LAWS (Diligence Required of Banks Cases)
portion of the withdrawal slips, which form was issued by the bank
itself.
A perusal of the records discloses that appellee had previously
authorized withdrawals by a representative. However, these
withdrawals were properly accompanied by a withdrawal by a
representative form aside from a handwritten request by appellee to
allow such withdrawals by his representative, or a typewritten letter-
request for withdrawal by a representative. Certainly, appellant
lacked the due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding
business as banking.
In its desire to be exonerated from liability, appellant advances the
argument that, granting negligence on its part, appellee condoned
this negligence as shown in his letter dated May 6, 1993, wherein
appellee purportedly undertook, not to hold the bank and its officers
responsible for the unauthorized withdrawals from his account.
We do not agree. It should be emphasized that while the appellee
admitted signing the letter dated May 6, 1993, he, however, denied
having undertook (sic) to exonerate the appellant from liability for the
unauthorized withdrawals. Appellee questioned the second
paragraph of the said letter as being superimposed so that his
signature overlapped the text of the second paragraph of said letter.
A waiver of right, in order to be valid, should be in a language that
clearly manifests his desire to do so. In the instant case, appellees
filing of the instant action is inconsistent with appellants contention
that he had waived his right to question appellants negligent act of
allowing the unauthorized withdrawals from his account.[11]
Defendant-appellant PNB filed a motion for reconsideration. In a
Resolution dated 02 April 2003, the Court of Appeals denied said
motion.
Hence, this petition.
Petitioner PNB now seeks the review of the aforequoted decision
and resolution of the Court of Appeals predicated on the following
issues:
Page 20
I.
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT
PROPERLY APPLIED IN THIS CASE;
II.
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY
PROVEN THAT THE SIGNATURES APPEARING ON THE TWO (2)
QUESTIONED PRE-SIGNED WITHDRAWAL SLIP FORMS ARE
ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE
132 OF THE REVISED RULES OF COURT; and
III.
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN
BE AWARDED AGAINST A PARTY IN GOOD FAITH.
Petitioner PNB contends that due to the verbal instructions[12] of
respondent Pike, a valued depositor, it allowed the withdrawal by
another person. Plus, the fact that said respondent withdrew the
remaining balance in his US Savings Account and executed a waiver
releasing petitioner PNB from any liability due to the loss of the funds
should rightly negate a finding of negligence on its part. Accordingly,
petitioner PNB claims that the appellate court, as well as the trial
court erred in holding that the withdrawals in question were
unauthorized as the signatures appearing on the subject withdrawal
slips were forgeries. Petitioner PNB, therefore, argues that it should
not be held liable for the amount withdrawn from the account of
respondent Pike in the sum of $7,500.00, as well as for moral and
exemplary damages.
A priori, it is quite evident that the petition is anchored on a plea to
review or re-examine the factual conclusions reached by the trial
court and affirmed by the Court of Appeals, and for this Court to hold
otherwise. Whether:
1) respondent Pikes signatures appearing on the pertinent
withdrawal slips used by Joy Manuel Davasol[13] to withdraw the
amount of $7,500.00, were forgeries, as found by the trial court and
affirmed by the Court of Appeals, or were authentic as claimed by
petitioner bank; and
2) respondent Pike in fact executed a waiver absolving petitioner
bank from any legal responsibility due to the unauthorized
withdrawals, as maintained by petitioner bank, or the paragraph
BANKING LAWS (Diligence Required of Banks Cases)
containing said waiver was intercalated by some other person, thus,
amounting no waiver at all, as held by the courts a quo.
are questions of fact and not of law. Inexorably, these issues call for
an inquiry into the facts and evidence on record. This, as we have so
often held, we cannot do.
Elementary is the rule that this Court is not the appropriate venue to
consider anew the factual issues as it is not a trier of facts, and, it
generally does not weigh anew the evidence already passed upon by
the Court of Appeals.[14] When this Court is tasked to go over once
more the evidence presented by both parties, and analyze, assess
and weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of
evidence of one party or the other, the Court cannot and will not do
the same.[15] Such task is foreclosed by the rule enunciated under
Section 1 of Rule 45[16] of the Rules of Court:
SECTION 1. Filing of petition with Supreme Court. - . . . The petition
shall raise only questions of law[17] which must be distinctly set
forth.
We have oft ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court and they
carry even more weight when the Court of Appeals affirms the factual
findings of the trial court,[18] and in the absence of any showing that
the findings complained of are totally devoid of support in the
evidence on record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand. The
courts a quo are in a much better position to evaluate properly the
evidence.
Finding no other alternative but to affirm their finding that petitioner
PNB negligently allowed the unauthorized withdrawals subject of the
case at bar, the instant petition for review must necessarily fail.
At this juncture, it bears emphasizing that negligence of banking
institutions should never be countenanced. The negligence here lies
in the lackadaisical attitude exhibited by employees of petitioner PNB
in their treatment of respondent Pikes US Dollar Savings Account
Page 21
that resulted in the unauthorized withdrawal of $7,500.00.
Nevertheless, though its employees may be the ones negligent, a
banks liability as an obligor is not merely vicarious but primary, as
banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees,[19] and having such
obligation, this Court cannot ignore the circumstances surrounding
the case at bar how the employees of petitioner PNB turned their
heads, nay, closed their eyes to the suspicious circumstances
enfolding the two withdrawals subject of the case at bar. It may even
be said that they went out of their ways to disregard standard
operating procedures formulated to ensure the security of each and
every account that they are handling. Petitioner PNB does not deny
that the withdrawal slips used were in breach of standard operating
procedures of banks in the ordinary and usual course of banking
operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal,
Assistant Vice President of Petitioner PNBs Buendia branch, on
cross-examination[20] he stated thus:
Q: Mr. Witness, when the original of Exhibit B[21] was presented to
you for approval, how many signatures of depositor appears
thereon?
A: Two (2) signatures appears (sic) on the face of the withdrawal slip.
Q: When it (sic) was (sic) presented to you immediately?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir. Because it was pre signed withdrawal slip.
Q: What does the signature appear, the word recipient means?
A: Received.
Q: So, what you are saying is that, the depositor here signed this
even before receiving the amount?
A: Because before the withdrawal was made, Mr. Pike, the depositor
came to the bank when he withdrew the $2,000.00 and instructed me
or requested us even the supervisor to honor all withdrawal slip.
Q: And this is a regular procedure?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir.
Q: Do you have written manual on this particular procedure, Mr.
Witness?
A: Of course, that includes in the Rules and regulations of the bank.
Q: Are you are (sic) are very sure of that?
BANKING LAWS (Diligence Required of Banks Cases)
A: And banking is a fast transaction between the depositor and the
bank.
Q: And then, is the use of the back portion of the withdrawal slip with
a heading of authorization?
A: Normally, a depositor and the bank agrees on certain terms that if
you allow withdrawal from his account, his or her account, its enough
that the signature of the depositor appears on both spaces in the
front side of the withdrawal slip. Even if you do not have the back
portion of the withdrawal slip.
Q: You are very sure of that?
A: Yes, sir.
Q: And that has been done with the other withdrawal slip of Norman
Pike as stated or as shown in the Statement of Account?
A: Yes, sir.
Q: That withdrawal made by representative?
A: Yes, sir.
From the foregoing, petitioner PNBs witness was utterly remiss in
protecting the banks client, as well as the bank itself, when he
allowed an account holder to make it appear as if he was the one
actually withdrawing from an account and actually receiving the
withdrawn amount. Ordinarily, banks allow withdrawal by someone
who is not the account holder so long as the account holder
authorizes his representative to withdraw and receive from his
account by signing on the space provided particularly for such
transactions, usually found at the back of withdrawal slips. As fittingly
found by the courts a quo, if indeed, respondent Pike signed the
withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNBs
AVP at its Buendia branch, why did he not call respondent Pikes
attention and refer him to the space provided for authorizing
representatives to withdraw from and receive the proceeds of such
withdrawal? Or, at the very least, sign or initial the same so that he
could identify the pre-signed withdrawal slips made by Mr. Pike?
Q: You are also saying that on March 15, 1993, you likewise met Joy
Manuel Dabasol?
A: Yes, sir.
Q: And you (sic) also saying on March 15, 1993, you also met
Norman Pike, the depositor.
A: Yes, sir.
Q: And when did you first met (sic) Norman Pike?
Page 22
A: March 15 when he withdrew $2,000.00.
Q: That was the first time?
A: First time, yes.
Q: And Mr. Norman Pike was already transacting with you long
before that day, is this correct? For how long was he transacting with
you?
A: That was my first time.
Q: That was the first time. What I mean is, that he was transacting
with the PNB, Buendia Branch long before you met him?
A: Maybe.
Q: And the withdrawal made on April 5, 1993 which you approved,
you did not look at Exhibit C, the Savings Signature Card Individual?
A: We do not look at that, that is kept in the vault.
Q: Yes or no?
A: No, sir.
Q: And Mr. witness, Exhibit C-1[22] which is being kept at your vault,
also contains a picture?
A: Yes, sir
Q: And the picture of the depositor?
A: Yes, sir.
Q: And are you familiar with the identity of the depositor Norman
Pike?
A: What particular identity?
Q: His appearance?
A: He is gay looking fellow.
COURT: Answer. You are familiar with his physical appearance?
A: Not so much. Because there are so much depositor (sic) in the
bank.[23] [Emphasis ours.]
By his own testimony, the witness negated the very reason for the
banks bizarre accommodation of the alleged verbal request of
respondent Pike that he was a valued client. From the aforequoted, it
appears that the witness, Lorenzo Bal, was not even reasonably
familiar with respondent Pike, yet, he was ready, willing and able to
accommodate the verbal request of said depositor. Worse still, the
witness still approved the withdrawal transaction without asking for
any proof of identification for the reason that: 1) Davasol was in
possession of a pre-signed withdrawal slip; and 2) the witness
recognized the signature of respondent Pike even after admitting that
he did not bother to counter check the signature on the slip with the
BANKING LAWS (Diligence Required of Banks Cases)
specimen signature card of respondent Pike and that he met
respondent Pike just once so that he cannot seem to recall what the
latter looks like. The ensuing quoted testimony of the same witness
will justify a finding of negligence amounting to bad faith, to wit:
Q: And you also met Joy Manuel Dabasol on March 15?
A: Yes, sir.
Q: And can you describe Joy Manuel Dabasol?
A: I cannot recall his face but then he is a Talnt manager, because
there are so many depositors in the bank.
...
Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you
verbal authority to honor withdrawal by Joy Manuel Dabasol?
A: Yes, sir.
Q: Why did you not require then that Mr. Pike instead sign the
authorization portion and that the name of Joy Manuel Dabasol
appear thereon with his signature.
...
A: I required Mr. Norman Pike to sign the withdrawal slip on the face
of the withdrawal slip.
Q: But not the authorization portion of the said withdrawal slip?
...
A: No, because that is sufficient already.
Q: And is this your normal procedure, Mr. witness? This particular
procedure that you conducted?
A: I dont think so.
Q: Mr. witness, when on April 5, 1993, when Joy Dabasol came to
the office and according to you, you do not remember him, is that
correct?
A: I cannot recall his face.
...
Q: And he just showed you a withdrawal slip, is this correct?
A: Yes, on April 5.
Q: Did you require him to produce any Identification Card, yes or no?
A: No.
Q: And how did you know then that it was Joy Dabasol who was
making the withdrawal on April 5?
A: Because the presigned withdrawal slip was presented to me.
Q: Is that all your basis?
A: Yes, sir. Because his signature appears.
...
Page 23
Q: Mr. witness, this alleged authority given to you by Norman Pike to
honor withdrawal by Joy Manuel Dabasol, was that in writing?
A: It was verbally requested.
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal
authorities?
A: Yes.
Q: Is that Standard Operating Procedure?
A: It is not SPO, but when you knew the client, Your Honor, you have
to honor also the trust and confidence. Let us say if you
Q: According to you, you met Norman Pike only on March 15, 1993
and immediately you allowed him to withdraw through pre-signed
withdrawal slip?
A: Yes, Your Honor. Because a depositor requested you to honor his
signature, you have to do that or else willand besides the request is
for purpose of expediency, Your Honor. Because most often than
that, he is out of the country, in Japan. And his Talent Manager is the
one managing the recruiting agency. The money will be used in the
operating expenses.
...
Q: You did not even bother to look at the Savings Signature Card
Individual, yes or no?
A: No, sir.[24] [Emphases supplied.]
Having admitted that pre-signed withdrawal slips do not constitute
the normal procedure with respect to withdrawals by representatives
should have already put petitioner PNBs employees on guard.
Rather than readily validating and permitting said withdrawals, they
should have proceeded more cautiously. Clearly, petitioner banks
employee, Lorenzo T. Bal, an Assistant Vice President at that, was
exceedingly careless in his treatment of respondent Pikes savings
account.
From the foregoing, the evidence clearly showed that the petitioner
bank did not exercise the degree of diligence that it ought to have
exercised in dealing with their clients.
With banks, the degree of diligence required, contrary to the position
of petitioner PNB, is more than that of a good father of a family
considering that the business of banking is imbued with public
interest due to the nature of their functions. The stability of banks
BANKING LAWS (Diligence Required of Banks Cases)
largely depends on the confidence of the people in the honesty and
efficiency of banks. Thus, the law imposes on banks a high degree of
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of banking. Section 2 of
Republic Act No. 8791,[25] which took effect on 13 June 2000,
makes a categorical declaration that the State recognizes the
fiduciary nature of banking that requires high standards of integrity
and performance.[26]
Though passed long after the unauthorized withdrawals in this case,
the aforequoted provision is a statutory affirmation of Supreme Court
decisions already in esse at the time of such withdrawals. We
elucidated in the 1990 case of Simex International, Inc. v. Court of
Appeals,[27] that the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.[28]
Likewise, in the case of The Consolidated Bank and Trust
Corporation v. Court of Appeals,[29] we clarified that said fiduciary
relationship means that the banks obligation to observe highest
standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the New
Civil Code states that the degree of diligence required of an
obligor[30] is that prescribed by law or contract, and absent such
stipulation then the diligence of a family. In every case, the depositor
expects the bank to treat his account with the utmost fidelity, whether
such accounts consist only of a few hundred pesos or of millions of
pesos.[31]
Anent the issue of the propriety of the award of damages in this
case, petitioner PNB asseverates that there was no evidence to
prove that respondent Pike suffered anguish, embarrassment and
mental sufferings[32] due to its acts in allowing the alleged
unauthorized withdrawals. And, having relied on the instructions of a
valued depositor, petitioner PNB likewise avers that its actions were
made in good faith, for this reason, there is no factual basis for said
award.
Page 24
Petitioner PNBs assertions fail to impress us.
The award of moral and exemplary damages is left to the sound
discretion of the court, and if such discretion is well exercised, as in
this case, it will not be disturbed on appeal.[33] In the case of
Philippine Telegraph & Telephone Corporation v. Court of
Appeals,[34] we had the occasion to reiterate the conditions to be
met in order that moral damages may be recovered. In said case we
stated:
An award of moral damages would require, firstly, evidence of
besmirched reputation, or physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission
of the defendant is the proximate cause of the damages sustained by
the claimant; and fourthly, that the case is predicated on any of the
instances expressed or envisioned by Articles 2219[35] and 2220[36]
of the Civil Code.
Specifically, in culpa contractual or breach of contract, as here, moral
damages are recoverable only if the defendant has acted
fraudulently or in bad faith,[37] or is found guilty of gross negligence
amounting to bad faith,[38] or in wanton disregard of his contractual
obligations.[39] Verily, the breach must be wanton, reckless,
malicious, or in bad faith, oppressive or abusive.[40]
There is no reason to disturb the trial courts finding of petitioner
banks employees negligence in their treatment of respondent Pikes
account. In the case on hand, the Court of Appeals sustained, and
rightly so, that an award of moral damages is warranted. For, as
found by said appellate court, citing the case of Prudential Bank v.
Court of Appeals,[41] the banks negligence is a result of lack of due
care and caution required of managers and employees of a firm
engaged in so sensitive and demanding business, as banking,
hence, the award of P20,000.00 as moral damages, is proper.
The award of exemplary damages is also proper as a warning to
petitioner PNB and all concerned not to recklessly disregard their
obligation to exercise the highest and strictest diligence in serving
their depositors
BANKING LAWS (Diligence Required of Banks Cases)
Finally, the aforestated grant of exemplary damages entitles
respondent Pike the award of attorney's fees in the amount of
P20,000.00 and the award of P10,000.00 for litigation expenses.[42]
WHEREFORE, the instant petition is DENIED. The assailed Decision
dated 19 December 2002, and the Resolution dated 02 April 2003,
both of the Court of Appeals, in CA-G.R. CV No. 59389, which
affirmed with modification the Decision rendered by the Regional
Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in
Civil Case No. 94-68821, are hereby AFFIRMED with the
MODIFICATION that petitioner PNB is directed to pay respondent
Pike additional 1) P20,000.00 representing attorneys fees; and 2)
P10,000.00 representing expenses of litigation. Costs against
petitioner PNB.
SO ORDERED.
BPI v LIFETIME MARKETING
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks the reversal of the
Decision1 of the Court of Appeals dated 31 July 2006 in CA-G.R. CV
No. 62769 which ordered it to pay Lifetime Marketing Corporation
(LMC) actual damages in the amount of P2,075,695.50 on account
of its gross negligence in handling LMC's account.
The following facts, quoted from the decision of the Court of Appeals,
are undisputed:
On October 22, 1981, Lifetime Marketing Corporation (LMC, for
brevity), opened a current account with the Bank of the Philippine
Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as
Account No. 3101-0680-63. In this account, the "sales agents" of
LMC would have to deposit their collections or payments to the latter.
As a result, LMC and BPI, made a special arrangement that the
former's agents will accomplish three (3) copies of the deposit slips,
the third copy to be retained and held by the teller until LMC's
authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta
Ancajas, shall retrieve them on the following banking day.
Page 25

Sometime in 1986, LMC availed of the BPI's inter-branch banking
network services in Metro Manila, whereby the former's agents could
make [a] deposit to any BPI branch in Metro Manila under the same
account. Under this system, BPI's bank tellers were no longer
obliged to retain the extra copy of the deposit slips instead, they will
rely on the machine-validated deposit slip, to be submitted by LMC's
agents. For its part, BPI would send to LMC a monthly bank
statement relating to the subject account. This practice was observed
and complied with by the parties.
As a business practice, the registered sales agents or the Lifetime
Educational Consultants of LMC, can get the books from the latter on
consignment basis, then they would go directly to their clients to sell.
These agents or Lifetime Educational Consultants would then pay to
LMC, seven (7) days after they pick up all the books to be sold.
Since LMC have several agents around the Philippines, it required to
remit their payments through BPI, where LMC maintained its current
account. It has been LMC's practice to require its agents to present a
validated deposit slip and, on that basis, LMC would issue to the
latter an acknowledgement receipt.
Alice Laurel, is one of LMC's "Educational Consultants" or agents.
On various dates covering the period from May, [sic] 1991 up to
August, 1992, Alice Laurel deposited checks to LMC's subject
account at different branches of BPI, specifically: at the
Harrison/Buendia branch-8 checks; at Arrangue branch-4 checks; at
Araneta branch-1 check; at Binondo branch-3 checks; at Ermita
branch-5 checks; at Cubao Shopping branch-1 check; at Escolta
branch-4 checks; at the Malate branch-2 checks; at Taft Avenue
branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San
Juan branch, at West Avenue and Commonwealth Quezon City
branch- 2 checks; and at Vito Cruz branch-2 checks.
Each check thus deposited were retrieved by Alice Laurel after the
deposit slips were machine-validated, except the following thirteen
(13) checks, which bore no machine validation, to wit: CBC Check
No. 484004, RCBC Check No. 419818, CBC Check No. 484042,
FEBTC Check No. 171857, RCBC Check No. 419847, CBC Check
No. 484053, MBTC Check No. 080726, CBC Check No. 484062,
BANKING LAWS (Diligence Required of Banks Cases)
PBC Check No. 158076, CBC Check No. 484027, CBC Check No.
484017, CBC Check No. 484023 and CBC Check No. 218190.
A verification with BPI by LMC showed that Alice Laurel made check
deposits with the named BPI branches and, after the check deposit
slips were machine-validated, requested the teller to reverse the
transactions. Based on general banking practices, however, the
cancellation of deposit or payment transactions upon request by any
depositor or payor, requires that all copies of the deposit slips must
be retrieved or surrendered to the bank. This practice, in effect,
cancels the deposit or payment transaction, thus, it leaves no
evidence for any subsequent claim or misrepresentation made by
any innocent third person. Notwithstanding this, the verbal requests
of Alice Laurel and her husband to reverse the deposits even after
the deposit slips were already received and consummated were
accommodated by BPI tellers.
Alice Laurel presented the machine-validated deposit slips to LMC
which, on the strength thereof, considered her account paid. LMC
even granted her certain privileges or prizes based on the deposits
she made.
The total aggregate amount covered by Alice Laurel's deposit slips
was Two Million Seven Hundred Sixty Seven Thousand, Five
Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC
paid Laurel the total sum of Five Hundred Sixty Thousand Seven
Hundred Twenty Six Pesos (P560,726.00) by way of "sales discount
and promo prizes."
The above fraudulent transactions of Alice Laurel and her husband
was made possible through BPI teller's failure to retrieve the
duplicate original copies of the deposit slips from the former, every
time they ask for cancellation or reversal of the deposit or payment
transaction.
Upon discovery of this fraud in early August 1992, LMC made
queries from the BPI branches involved. In reply to said queries, BPI
branch managers formally admitted that they cancelled, without the
permission of or due notice to LMC, the deposit transactions made
Page 26
by Alice and her husband, and based only upon the latter's verbal
request or representation.
Thereafter, LMC immediately instituted a criminal action for Estafa
against Alice Laurel and her husband Thomas Limoanco, before the
Regional Trial Court of Makati, Branch 65, docketed as Criminal
Case No. 93-7970 to 71, entitled People of the Philippines v. Thomas
Limoanco and Alice Laurel. This case for estafa, however, was
archived because summons could not be served upon the spouses
as they have absconded. Thus, the BPI's apparent reluctance to
admit liability and settle LMC's claim for damages, and a hopeless
case of recovery from Alice Laurel and her husband, has left LMC,
with no option but to recover damages from BPI.
On July 24, 1995, LMC, through its representative, Miss Consolacion
C. Rogacion, the President of the company, filed a Complaint for
Damages against BPI, docketed as Civil Case No. 95-1106, and was
raffled to Regional Trial Court of Makati City, Branch 141.
After trial on the merits, the court a quo rendered a Decision in favor
of LMC. The dispositive portion of which reads, as follows:
WHEREFORE, decision is hereby rendered ordering defendant bank
to pay plaintiff actual damages equitably reduced to one (1) million
pesos plus attorney's fees of P100,000.00.
No pronouncement as to costs.
SO ORDERED.2
Only BPI filed an appeal. The Court of Appeals affirmed the decision
of the trial court but increased the award of actual damages to
P2,075,695.50 and deleted the award of P100,000.00 as attorney's
fees.3 Citing public interest, the appellate court denied
reconsideration in a Resolution4 dated 30 January 2007.
In this Petition for Review5 dated 19 March 2007, BPI insists that
LMC should have presented evidence to prove not only the amount
of the checks that were deposited and subsequently reversed, but
also the actual delivery of the books and the payment of "sales and
BANKING LAWS (Diligence Required of Banks Cases)
promo prizes" to Alice Laurel. Failing this, there was allegedly no
basis for the award of actual damages. Moreover, the actual
damages should not have been increased because the decision of
the trial court became conclusive as regards LMC when it did not
appeal the said decision.
BPI further avers that LMC's negligence in considering the machine-
validated check deposit slips as evidence of Alice Laurel's payment
was the proximate cause of its own loss. Allegedly, by allowing its
agents to make deposits with other BPI branches, LMC violated its
own special arrangement with BPI's Greenhills-EDSA branch for the
latter to hold on to an extra copy of the deposit slip for pick up by
LMC's authorized representatives. BPI points out that the deposits
were in check and not in cash. As such, LMC should have borne in
mind that the machine validation in the deposit slips is still subject to
the sufficiency of the funds in the drawers' account. Furthermore,
LMC allegedly ignored the express notice indicated in its monthly
bank statements and consequently failed to check the accuracy of
the transactions reflected therein.
In its Manifestation of Compliance by Respondent on the Order
Dated 20 June 2007 Received on 29 July 2007 to Submit
Comment,6 dated 9 August 2007, LMC insists that it is indeed
entitled to the actual damages awarded to it by the appellate court.
BPI filed a Reply7 dated 15 January 2008, in reiteration of its
submissions.
We have repeatedly emphasized that the banking industry is
impressed with public interest. Of paramount importance thereto is
the trust and confidence of the public in general. Accordingly, the
highest degree of diligence is expected, and high standards of
integrity and performance are required of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
nature of its relationship with them.8 The fiduciary nature of banking,
previously imposed by case law, is now enshrined in Republic Act
No. 8791 or the General Banking Law of 2000. Section 2 thereof
specifically says that the state recognizes the fiduciary nature of
banking that requires high standards of integrity and performance.9
Page 27

Whether BPI observed the highest degree of care in handling LMC's
account is the subject of the inquiry in this case.
LMC sought recovery from BPI on a cause of action based on tort.
Article 2176 of the Civil Code provides, "Whoever by act or omission
causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence if there
is no pre-existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter." There
are three elements of quasi-delict: (a) fault or negligence of the
defendant, or some other person for whose acts he must respond;
(b) damages suffered by the plaintiff; and (c) the connection of cause
and effect between the fault or negligence of the defendant and the
damages incurred by the plaintiff.10
In this case, both the trial court and the Court of Appeals found that
the reversal of the transactions in question was unilaterally
undertaken by BPI's tellers without following normal banking
procedure which requires them to ensure that all copies of the
deposit slips are surrendered by the depositor. The machine-
validated deposit slips do not show that the transactions have been
cancelled, leading LMC to rely on these slips and to consider Alice
Laurel's account as already paid.
Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would not do.11 Negligence in this
case lies in the tellers' disregard of the validation procedures in place
and BPI's utter failure to supervise its employees. Notably, BPI's
managers admitted in several correspondences with LMC that the
deposit transactions were cancelled without LMC's knowledge and
consent and based only upon the request of Alice Laurel and her
husband.12
It is well to reiterate that the degree of diligence required of banks is
more than that of a reasonable man or a good father of a family. In
view of the fiduciary nature of their relationship with their depositors,
BANKING LAWS (Diligence Required of Banks Cases)
banks are duty-bound to treat the accounts of their clients with the
highest degree of care.13
BPI cannot escape liability because of LMC's failure to scrutinize the
monthly statements sent to it by the bank. This omission does not
change the fact that were it not for the wanton and reckless
negligence of BPI's tellers in failing to require the surrender of the
machine-validated deposit slips before reversing the deposit
transactions, the loss would not have occurred. BPI's negligence is
undoubtedly the proximate cause of the loss. Proximate cause is that
cause which, in a natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without
which the result would not have occurred.14
It is also true, however, that LMC should have been more vigilant in
managing and overseeing its own financial affairs. The damages
awarded to it were correctly reduced on account of its own
contributory negligence in accordance with Article 1172 of the Civil
Code.15
Parenthetically, we find no merit in BPI's allegation that LMC should
have presented evidence of delivery of the books and payment of
sales and promo prizes to Alice Laurel. The evidence presented by
LMC in the form of BPI's own admission that the deposit transactions
were
reversed at the instance of Alice Laurel and her husband, coupled
with the machine-validated deposit slips16 which were supposed to
have been deposited to LMC's account but were cancelled without its
knowledge and consent, sufficiently form the bases for the actual
damages claimed because they are the very same documents relied
upon by LMC in considering Alice Laurel's account paid and in
granting her monetary privileges and prizes.
Be that as it may, we find the appellate court's decision increasing
the award of actual damages in favor of LMC improper since the
latter did not appeal from the decision of the trial court. It is well-
settled that a party who does not appeal from the decision may not
obtain any affirmative relief from the appellate court other than what
he has obtained from the lower court whose decision is brought up
Page 28
on appeal. The exceptions to this rule, such as where there are (1) the forged checks in the amount of ₱547,115.00 after deductions
errors affecting the lower court's jurisdiction over the subject matter, subject to REIMBURSEMENT from third party defendant Yabut who
(2) plain errors not specified, and (3) clerical errors, do not apply in is likewise ORDERED to pay the other half to plaintiff corporation
this case.17 [Casa Montessori Internationale (CASA)]."4

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV The assailed Resolution denied all the parties’ Motions for
No. 62769 dated 31 July 2006 and its Resolution dated January 30, Reconsideration.
2007 are AFFIRMED with the MODIFICATION that the Bank of the
Philippine Islands is ordered to pay actual damages to Lifetime The Facts

Marketing Corporation in the amount of One Million Pesos The facts of the case are narrated by the CA as follows:
(P1,000,000.00). No pronouncement as to costs.
"On November 8, 1982, plaintiff CASA Montessori International5
SO ORDERED. opened Current Account No. 0291-0081-01 with defendant BPI[,]
with CASA’s President Ms. Ma. Carina C. Lebron as one of its
BPI v CASA MONTESSORI authorized signatories.

PANGANIBAN, J.: "In 1991, after conducting an investigation, plaintiff discovered that
nine (9) of its checks had been encashed by a certain Sonny D.
By the nature of its functions, a bank is required to take meticulous Santos since 1990 in the total amount of ₱782,000.00, on the
care of the deposits of its clients, who have the right to expect high following dates and amounts:
standards of integrity and performance from it.
‘Check No. Date Amount
Among its obligations in furtherance thereof is knowing the 1. 839700 April 24, 1990 ₱ 43,400.00
signatures of its clients. Depositors are not estopped from 2. 839459 Nov. 2, 1990 110,500.00
questioning wrongful withdrawals, even if they have failed to question 3. 839609 Oct. 17, 1990 47,723.00
those errors in the statements sent by the bank to them for 4. 839549 April 7, 1990 90,700.00
verification. 5. 839569 Sept. 23, 1990 52,277.00
6. 729149 Mar. 22, 1990 148,000.00
The Case 7. 729129 Mar. 16, 1990 51,015.00
8. 839684 Dec. 1, 1990 140,000.00
Before us are two Petitions for Review1 under Rule 45 of the Rules 9. 729034 Mar. 2, 1990 98,985.00
of Court, assailing the March 23, 2001 Decision2 and the August 17, Total --
2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. ₱ 782,600.006
63561. The decretal portion of the assailed Decision reads as "It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
follows: Branch [was] a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. Third
"WHEREFORE, upon the premises, the decision appealed from is party defendant voluntarily admitted that he forged the signature of
AFFIRMED with the modification that defendant bank [Bank of the Ms. Lebron and encashed the checks. "The PNP Crime Laboratory
Philippine Islands (BPI)] is held liable only for one-half of the value of conducted an examination of the nine (9) checks and concluded that

BANKING LAWS (Diligence Required of Banks Cases) Page 29

the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter.
"On March 4, 1991, plaintiff filed the herein Complaint for Collection
with Damages against defendant bank praying that the latter be
ordered to reinstate the amount of ₱782,500.007 in the current and
savings accounts of the plaintiff with interest at 6% per annum.
"On February 16, 1999, the RTC rendered the appealed decision in
favor of the plaintiff."8
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA
apportioned the loss between BPI and CASA. The appellate court
took into account CASA’s contributory negligence that resulted in the
undetected forgery. It then ordered Leonardo T. Yabut to reimburse
BPI half the total amount claimed; and CASA, the other half. It also
disallowed attorney’s fees and moral and exemplary damages.
Hence, these Petitions.9
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:
"I. The Honorable Court of Appeals erred in deciding this case NOT
in accord with the applicable decisions of this Honorable Court to the
effect that forgery cannot be presumed; that it must be proved by
clear, positive and convincing evidence; and that the burden of proof
lies on the party alleging the forgery.
"II. The Honorable Court of Appeals erred in deciding this case not in
accord with applicable laws, in particular the Negotiable Instruments
Law (NIL) which precludes CASA, on account of its own negligence,
from asserting its forgery claim against BPI, specially taking into
account the absence of any negligence on the part of BPI."10
In GR No. 149507, Petitioner CASA submits the following issues:
BANKING LAWS (Diligence Required of Banks Cases)
"1. The Honorable Court of Appeals erred when it ruled that ‘there is
no showing that [BPI], although negligent, acted in bad faith x x x’
thus denying the prayer for the award of attorney’s fees, moral
damages and exemplary damages to [CASA]. The Honorable Court
also erred when it did not order [BPI] to pay interest on the amounts
due to [CASA].
"2. The Honorable Court of Appeals erred when it declared that
[CASA] was likewise negligent in the case at bar, thus warranting its
conclusion that the loss in the amount of ₱547,115.00 be
‘apportioned between [CASA] and [BPI] x x x.’"11
These issues can be narrowed down to three. First, was there
forgery under the Negotiable Instruments Law (NIL)? Second, were
any of the parties negligent and therefore precluded from setting up
forgery as a defense? Third, should moral and exemplary damages,
attorney’s fees, and interest be awarded?
The Court’s Ruling
The Petition in GR No. 149454 has no merit, while that in GR No.
149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
"Section 23. Forged signature; effect of. -- When a signature is
forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right x x x to enforce
payment thereof against any party thereto, can be acquired through
or under such signature, unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want
of authority."12
Under this provision, a forged signature is a real13 or absolute
defense,14 and a person whose signature on a negotiable
Page 30
instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise
to it.15
The counterfeiting of any writing, consisting in the signing of
another’s name with intent to defraud, is forgery.16
In the present case, we hold that there was forgery of the drawer’s
signature on the check.
First, both the CA17 and the RTC18 found that Respondent Yabut
himself had voluntarily admitted, through an Affidavit, that he had
forged the drawer’s signature and encashed the checks.19 He never
refuted these findings.20 That he had been coerced into admission
was not corroborated by any evidence on record.21
Second, the appellate and the trial courts also ruled that the PNP
Crime Laboratory, after its examination of the said checks,22 had
concluded that the handwritings thereon -- compared to the standard
signature of the drawer -- were not hers.23 This conclusion was the
same as that in the Report24 that the PNP Crime Laboratory had
earlier issued to BPI -- the drawee bank -- upon the latter’s request.
Indeed, we respect and affirm the RTC’s factual findings, especially
when affirmed by the CA, since these are supported by substantial
evidence on record.25
Voluntary Admission Not Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional
rights (1) on custodial investigation, and (2) against self-
incrimination.
In the first place, he was not under custodial investigation.26 His
Affidavit was executed in private and before private individuals.27
The mantle of protection under Section 12 of Article III of the 1987
Constitution28 covers only the period "from the time a person is
taken into custody for investigation of his possible participation in the
commission of a crime or from the time he is singled out as a suspect
in the commission of a crime although not yet in custody."29
BANKING LAWS (Diligence Required of Banks Cases)
Therefore, to fall within the ambit of Section 12, quoted above, there
must be an arrest or a deprivation of freedom, with "questions
propounded on him by the police authorities for the purpose of
eliciting admissions, confessions, or any information."30 The said
constitutional provision does "not apply to spontaneous statements
made in a voluntary manner"31 whereby an individual orally admits
to authorship of a crime.32 "What the Constitution proscribes is the
compulsory or coercive disclosure of incriminating facts."33
Moreover, the right against self-incrimination34 under Section 17 of
Article III35 of the Constitution, which is ordinarily available only in
criminal prosecutions, extends to all other government proceedings --
including civil actions, legislative investigations,36 and administrative
proceedings that possess a criminal or penal aspect37 -- but not to
private investigations done by private individuals. Even in such
government proceedings, this right may be waived,38 provided the
waiver is certain; unequivocal; and intelligently, understandingly and
willingly made.39
If in these government proceedings waiver is allowed, all the more is
it so in private investigations. It is of no moment that no criminal case
has yet been filed against Yabut. The filing thereof is entirely up to
the appropriate authorities or to the private individuals upon whom
damage has been caused. As we shall also explain later, it is not
mandatory for CASA -- the plaintiff below -- to implead Yabut in the
civil case before the lower court.
Under these two constitutional provisions, "[t]he Bill of Rights40 does
not concern itself with the relation between a private individual and
another individual. It governs the relationship between the individual
and the State."41 Moreover, the Bill of Rights "is a charter of liberties
for the individual and a limitation upon the power of the [S]tate."42
These rights43 are guaranteed to preclude the slightest coercion by
the State that may lead the accused "to admit something false, not
prevent him from freely and voluntarily telling the truth."44
Yabut is not an accused here. Besides, his mere invocation of the
aforesaid rights "does not automatically entitle him to the
constitutional protection."45 When he freely and voluntarily
Page 31
executed46 his Affidavit, the State was not even involved. Such
Affidavit may therefore be admitted without violating his constitutional
rights while under custodial investigation and against self-
incrimination.
Clear, Positive and Convincing Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless
clear, positive and convincing.
Forgery "cannot be presumed."47 It must be established by clear,
positive and convincing evidence.48 Under the best evidence rule as
applied to documentary evidence like the checks in question, no
secondary or substitutionary evidence may inceptively be introduced,
as the original writing itself must be produced in court.49 But when,
without bad faith on the part of the offeror, the original checks have
already been destroyed or cannot be produced in court, secondary
evidence may be produced.50 Without bad faith on its part, CASA
proved the loss or destruction of the original checks through the
Affidavit of the one person who knew of that fact51 -- Yabut. He
clearly admitted to discarding the paid checks to cover up his
misdeed.52 In such a situation, secondary evidence like microfilm
copies may be introduced in court.
The drawer’s signatures on the microfilm copies were compared with
the standard signature. PNP Document Examiner II Josefina de la
Cruz testified on cross-examination that two different persons had
written them.53 Although no conclusive report could be issued in the
absence of the original checks,54 she affirmed that her findings were
90 percent conclusive.55 According to her, even if the microfilm
copies were the only basis of comparison, the differences were
evident.56 Besides, the RTC explained that although the Report was
inconclusive, no conclusive report could have been given by the
PNP, anyway, in the absence of the original checks.57 This
explanation is valid; otherwise, no such report can ever be relied
upon in court.
Even with respect to documentary evidence, the best evidence rule
applies only when the contents of a document -- such as the
drawer’s signature on a check -- is the subject of inquiry.58 As to
BANKING LAWS (Diligence Required of Banks Cases)
whether the document has been actually executed, this rule does not
apply; and testimonial as well as any other secondary evidence is
admissible.59 Carina Lebron herself, the drawer’s authorized
signatory, testified many times that she had never signed those
checks. Her testimonial evidence is admissible; the checks have not
been actually executed. The genuineness of her handwriting is
proved, not only through the court’s comparison of the questioned
handwritings and admittedly genuine specimens thereof,60 but
above all by her.
The failure of CASA to produce the original checks neither gives rise
to the presumption of suppression of evidence61 nor creates an
unfavorable inference against it.62 Such failure merely authorizes
the introduction of secondary evidence63 in the form of microfilm
copies. Of no consequence is the fact that CASA did not present the
signature card containing the signatures with which those on the
checks were compared.64 Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in
evidence, other documents that bear the drawer’s authentic
signature may be resorted to.65 Besides, that card was in the
possession of BPI -- the adverse party.
We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive comparison
that would establish forgery;66 and that a comparison based on a
mere reproduction of the document under controversy cannot
produce reliable results.67 We have also said, however, that a judge
cannot merely rely on a handwriting expert’s testimony,68 but should
also exercise independent judgment in evaluating the authenticity of
a signature under scrutiny.69 In the present case, both the RTC and
the CA conducted independent examinations of the evidence
presented and arrived at reasonable and similar conclusions. Not
only did they admit secondary evidence; they also appositely
considered testimonial and other documentary evidence in the form
of the Affidavit.
The best evidence rule admits of exceptions and, as we have
discussed earlier, the first of these has been met.70 The result of
examining a questioned handwriting, even with the aid of experts
and scientific instruments, may be inconclusive;71 but it is a non
Page 32
sequitur to say that such result is not clear, positive and convincing.
The preponderance of evidence required in this case has been
satisfied.72
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawer’s signature, BPI -- the
drawee -- erred in making payments by virtue thereof. The forged
signatures are wholly inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the negotiable instruments --
cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have repeatedly emphasized that, since the banking business is
impressed with public interest, of paramount importance thereto is
the trust and confidence of the public in general. Consequently, the
highest degree of diligence73 is expected,74 and high standards of
integrity and performance are even required, of it.75 By the nature of
its functions, a bank is "under obligation to treat the accounts of its
depositors with meticulous care,76 always having in mind the
fiduciary nature of their relationship."77
BPI contends that it has a signature verification procedure, in which
checks are honored only when the signatures therein are verified to
be the same with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that
degree of diligence required78 of a bank. It cannot now feign
ignorance, for very early on we have already ruled that a bank is
"bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its
own funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged."79 In fact, BPI
was the same bank involved when we issued this ruling seventy
years ago.
BANKING LAWS (Diligence Required of Banks Cases)
Neither Waiver nor Estoppel Results from Failure to Report Error in
Bank Statement
The monthly statements issued by BPI to its clients contain a notice
worded as follows: "If no error is reported in ten (10) days, account
will be correct."80 Such notice cannot be considered a waiver, even
if CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation81 or "circularization" -- in
accounting parlance -- that requests client-depositors to affirm the
accuracy of items recorded by the banks.82 Its purpose is to obtain
from the depositors a direct corroboration of the correctness of their
account balances with their respective banks.83 Internal or external
auditors of a bank use it as a basic audit procedure84 -- the results
of which its client-depositors are neither interested in nor privy to -- to
test the details of transactions and balances in the bank’s records.85
Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability86 than that
obtained solely within it for purposes of an audit of its own financial
statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be
detected87 for various reasons. One, materiality is a consideration in
audit planning;88 and two, the information obtained from such a
substantive test is merely presumptive and cannot be the basis of a
valid waiver.89 BPI has no right to impose a condition unilaterally
and thereafter consider failure to meet such condition a waiver.
Neither may CASA renounce a right90 it has never possessed.91
Every right has subjects -- active and passive. While the active
subject is entitled to demand its enforcement, the passive one is
duty-bound to suffer such enforcement.92
On the one hand, BPI could not have been an active subject,
because it could not have demanded from CASA a response to its
notice. Besides, the notice was a measly request worded as follows:
"Please examine x x x and report x x x."93 CASA, on the other hand,
could not have been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose not to respond.
Page 33

Estoppel precludes individuals from denying or asserting, by their
own deed or representation, anything contrary to that established as
the truth, in legal contemplation.94 Our rules on evidence even make
a juris et de jure presumption95 that whenever one has, by one’s
own act or omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that belief, one
cannot -- in any litigation arising from such act or omission -- be
permitted to falsify that supposed truth.96
In the instant case, CASA never made any deed or representation
that misled BPI. The former’s omission, if any, may only be deemed
an innocent mistake oblivious to the procedures and consequences
of periodic audits. Since its conduct was due to such ignorance
founded upon an innocent mistake, estoppel will not arise.97 A
person who has no knowledge of or consent to a transaction may not
be estopped by it.98 "Estoppel cannot be sustained by mere
argument or doubtful inference x x x."99 CASA is not barred from
questioning BPI’s error even after the lapse of the period given in the
notice.
Loss Borne by Proximate Source of Negligence
For allowing payment100 on the checks to a wrongful and fictitious
payee, BPI -- the drawee bank -- becomes liable to its depositor-
drawer. Since the encashing bank is one of its branches,101 BPI can
easily go after it and hold it liable for reimbursement.102 It "may not
debit the drawer’s account103 and is not entitled to indemnification
from the drawer."104 In both law and equity, when one of two
innocent persons "must suffer by the wrongful act of a third person,
the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third
person to perpetrate the wrong."105
Proximate cause is determined by the facts of the case.106 "It is that
cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which
the result would not have occurred."107
BANKING LAWS (Diligence Required of Banks Cases)
Pursuant to its prime duty to ascertain well the genuineness of the
signatures of its client-depositors on checks being encashed, BPI is
"expected to use reasonable business prudence."108 In the
performance of that obligation, it is bound by its internal banking
rules and regulations that form part of the contract it enters into with
its depositors.109
Unfortunately, it failed in that regard. First, Yabut was able to open a
bank account in one of its branches without privity;110 that is,
without the proper verification of his corresponding identification
papers. Second, BPI was unable to discover early on not only this
irregularity, but also the marked differences in the signatures on the
checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification
Unit111 of the bank even passed off these evidently different
signatures as genuine. Without exercising the required prudence on
its part, BPI accepted and encashed the eight checks presented to it.
As a result, it proximately contributed to the fraud and should be held
primarily liable112 for the "negligence of its officers or agents when
acting within the course and scope of their employment."113 It must
bear the loss.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is
recognized as an exception114 to the general rule that a forged
signature is wholly inoperative.115 Contrary to BPI’s claim, however,
we do not find CASA negligent in handling its financial affairs. CASA,
we stress, is not precluded from setting up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and
determine objectively if the financial statements submitted for audit
by a corporation have been prepared in accordance with the
appropriate financial reporting practices116 of private entities. The
relationship that arises therefrom is both legal and moral.117 It
begins with the execution of the engagement letter118 that embodies
the terms and conditions of the audit and ends with the fulfilled
Page 34
expectation of the auditor’s ethical119 and competent performance
in all aspects of the audit.120
The financial statements are representations of the client; but it is the
auditor who has the responsibility for the accuracy in the recording of
data that underlies their preparation, their form of presentation, and
the opinion121 expressed therein.122 The auditor does not assume
the role of employee or of management in the client’s conduct of
operations123 and is never under the control or supervision124 of
the client.
Yabut was an independent auditor125 hired by CASA. He handled
its monthly bank reconciliations and had access to all relevant
documents and checkbooks.126 In him was reposed the client’s127
trust and confidence128 that he would perform precisely those
functions and apply the appropriate procedures in accordance with
generally accepted auditing standards.129 Yet he did not meet these
expectations. Nothing could be more horrible to a client than to
discover later on that the person tasked to detect fraud was the same
one who perpetrated it.
Cash Balances Open to Manipulation
It is a non sequitur to say that the person who receives the monthly
bank statements, together with the cancelled checks and other
debit/credit memoranda, shall examine the contents and give notice
of any discrepancies within a reasonable time. Awareness is not
equipollent with discernment.
Besides, in the internal accounting control system prudently installed
by CASA,130 it was Yabut who should examine those documents in
order to prepare the bank reconciliations.131 He owned his working
papers,132 and his output consisted of his opinion as well as the
client’s financial statements and accompanying notes thereto. CASA
had every right to rely solely upon his output -- based on the terms of
the audit engagement -- and could thus be unwittingly duped into
believing that everything was in order. Besides, "[g]ood faith is
always presumed and it is the burden of the party claiming otherwise
to adduce clear and convincing evidence to the contrary."133
BANKING LAWS (Diligence Required of Banks Cases)
Moreover, there was a time gap between the period covered by the
bank statement and the date of its actual receipt. Lebron personally
received the December 1990 bank statement only in January
1991134 -- when she was also informed of the forgery for the first
time, after which she immediately requested a "stop payment order."
She cannot be faulted for the late detection of the forged December
check. After all, the bank account with BPI was not personal but
corporate, and she could not be expected to monitor closely all its
finances. A preschool teacher charged with molding the minds of the
youth cannot be burdened with the intricacies or complexities of
corporate existence.
There is also a cutoff period such that checks issued during a given
month, but not presented for payment within that period, will not be
reflected therein.135 An experienced auditor with intent to defraud
can easily conceal any devious scheme from a client unwary of the
accounting processes involved by manipulating the cash balances
on record -- especially when bank transactions are numerous, large
and frequent. CASA could only be blamed, if at all, for its
unintelligent choice in the selection and appointment of an auditor --
a fault that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it.136 Its
mere existence "is not sufficient without proof that it, and no other
cause,"137 has given rise to damages.138 In addition, this fault is
common to, if not prevalent among, small and medium-sized
business entities, thus leading the Professional Regulation
Commission (PRC), through the Board of Accountancy (BOA), to
require today not only accreditation for the practice of public
accountancy,139 but also the registration of firms in the practice
thereof. In fact, among the attachments now required upon
registration are the code of good governance140 and a sworn
statement on adequate and effective training.141
The missing checks were certainly reported by the bookkeeper142 to
the accountant143 -- her immediate supervisor -- and by the latter to
the auditor. However, both the accountant and the auditor, for
reasons known only to them, assured the bookkeeper that there
were no irregularities.
Page 35
The bookkeeper144 who had exclusive custody of the
checkbooks145 did not have to go directly to CASA’s president or to
BPI. Although she rightfully reported the matter, neither an
investigation was conducted nor a resolution of it was arrived at,
precisely because the person at the top of the helm was the culprit.
The vouchers, invoices and check stubs in support of all check
disbursements could be concealed or fabricated -- even in collusion -
- and management would still have no way to verify its cash
accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through
no fault of CASA. If auditors may be held liable for breach of contract
and negligence,146 with all the more reason may they be charged
with the perpetration of fraud upon an unsuspecting client. CASA
had the discretion to pursue BPI alone under the NIL, by reason of
expediency or munificence or both. Money paid under a mistake may
rightfully be recovered,147 and under such terms as the injured party
may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASA’s claim for moral damages.
In the absence of a wrongful act or omission,148 or of fraud or bad
faith,149 moral damages cannot be awarded.150 The adverse result
of an action does not per se make the action wrongful, or the party
liable for it. One may err, but error alone is not a ground for granting
such damages.151 While no proof of pecuniary loss is necessary
therefor -- with the amount to be awarded left to the court’s
discretion152 -- the claimant must nonetheless satisfactorily prove
the existence of its factual basis153 and causal relation154 to the
claimant’s act or omission.155
Regrettably, in this case CASA was unable to identify the particular
instance -- enumerated in the Civil Code -- upon which its claim for
moral damages is predicated.156 Neither bad faith nor negligence so
BANKING LAWS (Diligence Required of Banks Cases)
gross that it amounts to malice157 can be imputed to BPI. Bad faith,
under the law, "does not simply connote bad judgment or
negligence;158 it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature
of fraud."159
As a general rule, a corporation -- being an artificial person without
feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages,160 because it
cannot experience physical suffering and mental anguish.161
However, for breach of the fiduciary duty required of a bank, a
corporate client may claim such damages when its good reputation is
besmirched by such breach, and social humiliation results
therefrom.162 CASA was unable to prove that BPI had debased the
good reputation of,163 and consequently caused incalculable
embarrassment to, the former. CASA’s mere allegation or
supposition thereof, without any sufficient evidence on record,164 is
not enough.
Exemplary Damages Also Denied
We also deny CASA’s claim for exemplary damages.
Imposed by way of correction165 for the public good,166 exemplary
damages cannot be recovered as a matter of right.167 As we have
said earlier, there is no bad faith on the part of BPI for paying the
checks of CASA upon forged signatures. Therefore, the former
cannot be said to have acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.168 The latter, having no right to
moral damages, cannot demand exemplary damages.169
Attorney’s Fees Granted
Although it is a sound policy not to set a premium on the right to
litigate,170 we find that CASA is entitled to reasonable attorney’s
fees based on "factual, legal, and equitable justification."171
When the act or omission of the defendant has compelled the plaintiff
to incur expenses to protect the latter’s interest,172 or where the
Page 36
court deems it just and equitable,173 attorney’s fees may be
recovered. In the present case, BPI persistently denied the claim of
CASA under the NIL to recredit the latter’s account for the value of
the forged checks. This denial constrained CASA to incur expenses
and exert effort for more than ten years in order to protect its
corporate interest in its bank account. Besides, we have already
cautioned BPI on a similar act of negligence it had committed
seventy years ago, but it has remained unrelenting. Therefore, the
Court deems it just and equitable to grant ten percent (10%)174 of
the total value adjudged to CASA as attorney’s fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling
the latter to resort to the courts to obtain payment, legal interest may
be adjudicated at the discretion of the Court, the same to run from
the filing175 of the Complaint.176 Since a court judgment is not a
loan or a forbearance of recovery, the legal interest shall be at six
percent (6%) per annum.177 "If the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary,
shall be the payment of x x x legal interest, which is six percent per
annum."178 The actual base for its computation shall be "on the
amount finally adjudged,"179 compounded180 annually to make up
for the cost of money181 already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us
from granting it upon damages awarded for breach of contract.182
Because BPI evidently breached its contract of deposit with CASA,
we award interest in addition to the total amount adjudged. Under
Section 196 of the NIL, any case not provided for shall be "governed
by the provisions of existing legislation or, in default thereof, by the
rules of the law merchant."183 Damages are not provided for in the
NIL. Thus, we resort to the Code of Commerce and the Civil Code.
Under Article 2 of the Code of Commerce, acts of commerce shall be
governed by its provisions and, "in their absence, by the usages of
commerce generally observed in each place; and in the absence of
both rules, by those of the civil law."184 This law being silent, we
look at Article 18 of the Civil Code, which states: "In matters which
are governed by the Code of Commerce and special laws, their
BANKING LAWS (Diligence Required of Banks Cases)
deficiency shall be supplied" by its provisions. A perusal of these
three statutes unmistakably shows that the award of interest under
our civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED,
and that in GR No. 149507 PARTLY GRANTED. The assailed
Decision of the Court of Appeals is AFFIRMED with modification: BPI
is held liable for ₱547,115, the total value of the forged checks less
the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum --
compounded annually, from the filing of the complaint until paid in
full; and attorney’s fees of ten percent (10%) thereof, subject to
reimbursement from Respondent Yabut for the entire amount,
excepting attorney’s fees. Let a copy of this Decision be furnished
the Board of Accountancy of the Professional Regulation
Commission for such action as it may deem appropriate against
Respondent Yabut. No costs.
SO ORDERED.
PHILIPPINE BANK OF COMMERCE v CA
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision dated February
28, 19911 rendered by public respondent Court of Appeals which
affirmed the Decision dated November 15, 1985 of the Regional Trial
Court, National Capital Judicial Region, Branch CLX (160), Pasig
City, in Civil Case No. 27288 entitled "Rommel's Marketing
Corporation, etc. v. Philippine Bank of Commerce, now absorbed by
Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent
Rommel's Marketing Corporation (RMC for brevity), represented by
its President and General Manager Romeo Lipana, to recover from
the former Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank, the sum
of P304,979.74 representing various deposits it had made in its
current account with said bank but which were not credited to its
account, and were instead deposited to the account of one
Page 37
Bienvenido Cotas, allegedly due to the gross and inexcusable
negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current Account
Nos. 53-01980-3 and 53-01748-7, with the Pasig Branch of PBC in
connection with its business of selling appliances.
In the ordinary and usual course of banking operations, current
account deposits are accepted by the bank on the basis of deposit
slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number to
which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of
the deposit either in cash or checks. The deposit slip has an upper
portion or stub, which is detached and given to the depositor or his
agent; the lower portion is retained by the bank. In some instances,
however, the deposit slips are prepared in duplicate by the depositor.
The original of the deposit slip is retained by the bank, while the
duplicate copy is returned or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims
to have entrusted RMC funds in the form of cash totalling
P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with PBC. It
turned out, however, that these deposits, on all occasions, were not
credited to RMC's account but were instead deposited to Account
No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise
maintains an account with the same bank. During this period,
petitioner bank had, however, been regularly furnishing private
respondent with monthly statements showing its current accounts
balances. Unfortunately, it had never been the practice of Romeo
Lipana to check these monthly statements of account reposing
complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would
accomplish two (2) copies of the deposit slip, an original and a
duplicate. The original showed the name of her husband as
depositor and his current account number. On the duplicate copy
was written the account number of her husband but the name of the
account holder was left blank. PBC's teller, Azucena Mabayad,
BANKING LAWS (Diligence Required of Banks Cases)
would, however, validate and stamp both the original and the
duplicate of these deposit slips retaining only the original copy
despite the lack of information on the duplicate slip. The second copy
was kept by Irene Yabut allegedly for record purposes. After
validation, Yabut would then fill up the name of RMC in the space left
blank in the duplicate copy and change the account number written
thereon, which is that of her husband's, and make it appear to be
RMC's account number, i.e., C.A. No. 53-01980-3. With the daily
remittance records also prepared by Ms. Yabut and submitted to
private respondent RMC together with the validated duplicate slips
with the latter's name and account number, she made her company
believe that all the while the amounts she deposited were being
credited to its account when, in truth and in fact, they were being
deposited by her and credited by the petitioner bank in the account
of Cotas. This went on in a span of more than one (1) year without
private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded from
petitioner bank the return of its money, but as its demand went
unheeded, it filed a collection suit before the Regional Trial Court of
Pasig, Branch 160. The trial court found petitioner bank negligent
and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant
Philippine Bank of Commerce, now absorbed by defendant
Philippine Commercial & Industrial Bank, and defendant Azucena
Mabayad to pay the plaintiff, jointly and severally, and without
prejudice to any criminal action which may be instituted if found
warranted:
1. The sum of P304,979.72, representing plaintiffs lost deposit,
plus interest thereon at the legal rate from the filing of the complaint;
2. A sum equivalent to 14% thereof, as exemplary damages;
3. A sum equivalent to 25% of the total amount due, as and for
attorney's fees; and
4. Costs.
Page 38
Defendants' counterclaim is hereby dismissed for lack of merit.2
On appeal, the appellate court affirmed the foregoing decision with
modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED in
the sense that the awards of exemplary damages and attorney's fees
specified therein are eliminated and instead, appellants are ordered
to pay plaintiff, in addition to the principal sum of P304,979.74
representing plaintiff's lost deposit plus legal interest thereon from
the filing of the complaint, P25,000.00 attorney's fees and costs in
the lower court as well as in this Court.3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of
respondent Rommel Marketing Corporation and Romeo Lipana in
entrusting cash to a dishonest employee.
2) The failure of respondent Rommel Marketing Corporation to
cross-check the bank's statements of account with its own records
during the entire period of more than one (1) year is the proximate
cause of the commission of subsequent frauds and misappropriation
committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by
respondent Rommel Marketing Corporation are falsified and are not
proof that the amounts appearing thereon were deposited to
respondent Rommel Marketing Corporation's account with the bank,
4) The duplicate copies of the deposit slips were used by Ms.
Irene Yabut to cover up her fraudulent acts against respondent
Rommel Marketing Corporation, and not as records of deposits she
made with the bank.4
The petition has no merit.
Simply put, the main issue posited before us is: What is the
proximate cause of the loss, to the tune of P304,979.74, suffered by
BANKING LAWS (Diligence Required of Banks Cases)
the private respondent RMC — petitioner bank's negligence or that
of private respondent's?
Petitioners submit that the proximate cause of the loss is the
negligence of respondent RMC and Romeo Lipana in entrusting
cash to a dishonest employee in the person of Ms. Irene Yabut.5
According to them, it was impossible for the bank to know that the
money deposited by Ms. Irene Yabut belong to RMC; neither was the
bank forewarned by RMC that Yabut will be depositing cash to its
account. Thus, it was impossible for the bank to know the fraudulent
design of Yabut considering that her husband, Bienvenido Cotas,
also maintained an account with the bank. For the bank to inquire
into the ownership of the cash deposited by Ms. Irene Yabut would
be irregular. Otherwise stated, it was RMC's negligence in entrusting
cash to a dishonest employee which provided Ms. Irene Yabut the
opportunity to defraud RMC.6
Private respondent, on the other hand, maintains that the proximate
cause of the loss was the negligent act of the bank, thru its teller Ms.
Azucena Mabayad, in validating the deposit slips, both original and
duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding
the fact that one of the deposit slips was not completely
accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by
the plaintiff; (b) fault or negligence of the defendant, or some other
person for whose acts he must respond; and (c) the connection of
cause and effect between the fault or negligence of the defendant
and the damages incurred by the plaintiff.7
Page 39
In the case at bench, there is no dispute as to the damage suffered
by the private respondent (plaintiff in the trial court) RMC in the
amount of P304,979.74. It is in ascribing fault or negligence which
caused the damage where the parties point to each other as the
culprit.
Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would do. The seventy-eight (78)-
year-old, yet still relevant, case of Picart v. Smith,8 provides the test
by which to determine the existence of negligence in a particular
case which may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence
in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.
Applying the above test, it appears that the bank's teller, Ms.
Azucena Mabayad, was negligent in validating, officially stamping
and signing all the deposit slips prepared and presented by Ms.
Yabut, despite the glaring fact that the duplicate copy was not
completely accomplished contrary to the self-imposed procedure of
the bank with respect to the proper validation of deposit slips, original
or duplicate, as testified to by Ms. Mabayad herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us
Mrs. Mabayad your important duties and functions?
A: I accept current and savings deposits from depositors and
encashments.
Q: Now in the handling of current account deposits of bank
clients, could you tell us the procedure you follow?
BANKING LAWS (Diligence Required of Banks Cases)
A: The client or depositor or the authorized representative
prepares a deposit slip by filling up the deposit slip with the name,
the account number, the date, the cash breakdown, if it is deposited
for cash, and the check number, the amount and then he signs the
deposit slip.
Q: Now, how many deposit slips do you normally require in
accomplishing current account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the deposit although
some of our clients prepare the deposit slip in duplicate.
Q: Now in accomplishing current account deposits from your
clients, what do you issue to the depositor to evidence the deposit
made?
A: We issue or we give to the clients the depositor's stub as a
receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized representative sir?
Q: Where does the depositor's stub comes (sic) from Mrs.
Mabayad, is it with the deposit slip?
A: The depositor's stub is connected with the deposit slip or the
bank's copy. In a deposit slip, the upper portion is the depositor's
stub and the lower portion is the bank's copy, and you can detach
the bank's copy from the depositor's stub by tearing it sir.
Q: Now what do you do upon presentment of the deposit slip by
the depositor or the depositor's authorized representative?
A: We see to it that the deposit slip9 is properly accomplished
and then we count the money and then we tally it with the deposit
slip sir.
Q: Now is the depositor's stub which you issued to your clients
validated?
Page 40
A: Yes, sir. 10 [Emphasis ours]
Clearly, Ms. Mabayad failed to observe this very important
procedure. The fact that the duplicate slip was not compulsorily
required by the bank in accepting deposits should not relieve the
petitioner bank of responsibility. The odd circumstance alone that
such duplicate copy lacked one vital information — that of the name
of the account holder — should have already put Ms. Mabayad on
guard. Rather than readily validating the incomplete duplicate copy,
she should have proceeded more cautiously by being more probing
as to the true reason why the name of the account holder in the
duplicate slip was left blank while that in the original was filled up.
She should not have been so naive in accepting hook, line and
sinker the too shallow excuse of Ms. Irene Yabut to the effect that
since the duplicate copy was only for her personal record, she would
simply fill up the blank space later on. 11 A "reasonable man of
ordinary prudence" 12 would not have given credence to such
explanation and would have insisted that the space left blank be
filled up as a condition for validation. Unfortunately, this was not how
bank teller Mabayad proceeded thus resulting in huge losses to the
private respondent.
Negligence here lies not only on the part of Ms. Mabayad but also on
the part of the bank itself in its lackadaisical selection and
supervision of Ms. Mabayad. This was exemplified in the testimony
of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the
petitioner bank and now its Vice-President, to the effect that, while he
ordered the investigation of the incident, he never came to know that
blank deposit slips were validated in total disregard of the bank's
validation procedures, viz:
Q: Did he ever tell you that one of your cashiers affixed the
stamp mark of the bank on the deposit slips and they validated the
same with the machine, the fact that those deposit slips were unfilled
up, is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
BANKING LAWS (Diligence Required of Banks Cases)
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers
validated the blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir. 13
Prescinding from the above, public respondent Court of Appeals
aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in February, 1983, or
after the lapse of more than seven (7) years counted from the period
when the funds in question were deposited in plaintiff's accounts
(May, 1975 to July, 1976) that bank manager Bonifacio admittedly
became aware of the practice of his teller Mabayad of validating
blank deposit slips. Undoubtedly, this is gross, wanton, and
inexcusable negligence in the appellant bank's supervision of its
employees. 14
It was this negligence of Ms. Azucena Mabayad, coupled by the
negligence of the petitioner bank in the selection and supervision of
its bank teller, which was the proximate cause of the loss suffered by
the private respondent, and not the latter's act of entrusting cash to a
dishonest employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed
considerations of logic, common sense, policy and precedent. 15
Vda. de Bataclan v. Medina, 16 reiterated in the case of Bank of the
Phil. Islands v. Court of Appeals, 17 defines proximate cause as "that
cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which
the result would not have occurred. . . ." In this case, absent the act
of Ms. Mabayad in negligently validating the incomplete duplicate
Page 41
copy of the deposit slip, Ms. Irene Yabut would not have the facility
with which to perpetrate her fraudulent scheme with impunity.
Apropos, once again, is the pronouncement made by the respondent
appellate court, to wit:
. . . . Even if Yabut had the fraudulent intention to misappropriate the
funds entrusted to her by plaintiff, she would not have been able to
deposit those funds in her husband's current account, and then make
plaintiff believe that it was in the latter's accounts wherein she had
deposited them, had it not been for bank teller Mabayad's aforesaid
gross and reckless negligence. The latter's negligence was thus the
proximate, immediate and efficient cause that brought about the loss
claimed by plaintiff in this case, and the failure of plaintiff to discover
the same soon enough by failing to scrutinize the monthly statements
of account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut had
already completed when she deposited plaintiff's money to the
account of her husband instead of to the latter's accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred
to, at times as "supervening negligence" or as "discovered peril"),
petitioner bank was indeed the culpable party. This doctrine, in
essence, states that where both parties are negligent, but the
negligent act of one is appreciably later in time than that of the other,
or when it is impossible to determine whose fault or negligence
should be attributed to the incident, the one who had the last clear
opportunity to avoid the impending harm and failed to do so is
chargeable with the consequences thereof. 19 Stated differently, the
rule would also mean that an antecedent negligence of a person
does not preclude the recovery of damages for the supervening
negligence of, or bar a defense against liability sought by another, if
the latter, who had the last fair chance, could have avoided the
impending harm by the exercise of due diligence. 20 Here, assuming
that private respondent RMC was negligent in entrusting cash to a
dishonest employee, thus providing the latter with the opportunity to
defraud the company, as advanced by the petitioner, yet it cannot be
denied that the petitioner bank, thru its teller, had the last clear
opportunity to avert the injury incurred by its client, simply by
faithfully observing their self-imposed validation procedure.
BANKING LAWS (Diligence Required of Banks Cases)
At this juncture, it is worth to discuss the degree of diligence ought to
be exercised by banks in dealing with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required. (1104a)
In the case of banks, however, the degree of diligence required is
more than that of a good father of a family. Considering the fiduciary
nature of their relationship with their depositors, banks are duty
bound to treat the accounts of their clients with the highest degree of
care. 21
As elucidated in Simex International (Manila), Inc. v. Court of
Appeals, 22 in every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account consists only
of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect
at any given time the amount of money the depositor can dispose as
he sees fit, confident that the bank will deliver it as and to whomever
he directs. A blunder on the part of the bank, such as the failure to
duly credit him his deposits as soon as they are made, can cause the
depositor not a little embarrassment if not financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. In the case
before us, it is apparent that the petitioner bank was remiss in that
duty and violated that relationship.
Page 42

Petitioners nevertheless aver that the failure of respondent RMC to
cross-check the bank's statements of account with its own records
during the entire period of more than one (1) year is the proximate
cause of the commission of subsequent frauds and misappropriation
committed by Ms. Irene Yabut.
We do not agree.
While it is true that had private respondent checked the monthly
statements of account sent by the petitioner bank to RMC, the latter
would have discovered the loss early on, such cannot be used by the
petitioners to escape liability. This omission on the part of the private
respondent does not change the fact that were it not for the wanton
and reckless negligence of the petitioners' employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene Yabut, the
loss would not have occurred. Considering, however, that the fraud
was committed in a span of more than one (1) year covering various
deposits, common human experience dictates that the same would
not have been possible without any form of collusion between Ms.
Yabut and bank teller Mabayad. Ms. Mabayad was negligent in the
performance of her duties as bank teller nonetheless. Thus, the
petitioners are entitled to claim reimbursement from her for whatever
they shall be ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied that, indeed,
private respondent was likewise negligent in not checking its monthly
statements of account. Had it done so, the company would have
been alerted to the series of frauds being committed against RMC by
its secretary. The damage would definitely not have ballooned to
such an amount if only RMC, particularly Romeo Lipana, had
exercised even a little vigilance in their financial affairs. This
omission by RMC amounts to contributory negligence which shall
mitigate the damages that may be awarded to the private respondent
23 under Article 2179 of the New Civil Code, to wit:
. . . When the plaintiff's own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate
cause of the injury being the defendant's lack of due care, the
BANKING LAWS (Diligence Required of Banks Cases)
plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.
In view of this, we believe that the demands of substantial justice are
satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
damage awarded by the respondent appellate court, except the
award of P25,000.00 attorney's fees, shall be borne by private
respondent RMC; only the balance of 60% needs to be paid by the
petitioners. The award of attorney's fees shall be borne exclusively
by the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is
modified by reducing the amount of actual damages private
respondent is entitled to by 40%. Petitioners may recover from Ms.
Azucena Mabayad the amount they would pay the private
respondent. Private respondent shall have recourse against Ms.
Irene Yabut. In all other respects, the appellate court's decision is
AFFIRMED.
Proportionate costs.
SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Separate Opinions
PADILLA, J., dissenting:
I regret that I cannot join the majority in ruling that the proximate
cause of the damage suffered by Rommel's Marketing Corporation
(RMC) is mainly "the wanton and reckless negligence of the
petitioner's employee in validating the incomplete duplicate deposit
slips presented by Ms. Irene Yabut" (Decision, p. 15). Moreover, I
find it difficult to agree with the ruling that "petitioners are entitled to
Page 43
claim reimbursement from her (the bank teller) for whatever they
shall be ordered to pay in this case."
It seems that an innocent bank teller is being unduly burdened with
what should fall on Ms. Irene Yabut, RMC's own employee, who
should have been charged with estafa or estafa through falsification
of private document. Interestingly, the records are silent on whether
RMC had ever filed any criminal case against Ms. Irene Yabut, aside
from the fact that she does not appear to have been impleaded even
as a party defendant in any civil case for damages. Why is RMC
insulating Ms. Irene Yabut from liability when in fact she orchestrated
the entire fraud on RMC, her employer?
To set the record straight, it is not completely accurate to state that
from 5 May 1975 to 16 July 1976, Miss Irene Yabut had transacted
with PCIB (then PBC) through only one teller in the person of
Azucena Mabayad. In fact, when RMC filed a complaint for estafa
before the Office of the Provincial Fiscal of Rizal, it indicted all the
tellers of PCIB in the branch who were accused of conspiracy to
defraud RMC of its current account deposits. (See Annex B, Rollo p.
22 and 47).
Even private respondent RMC, in its Comment, maintains that "when
the petitioner's tellers" allowed Irene Yabut to carry out her modus
operandi undetected over a period of one year, "their negligence
cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This
rules out the possibility that there may have been some form of
collusion between Yabut and bank teller Mabayad. Mabayad was just
unfortunate that private respondent's documentary evidence showed
that she was the attending teller in the bulk of Yabut's transactions
with the bank.
Going back to Yabut's modus operandi, it is not disputed that each
time Yabut would transact business with PBC's tellers, she would
accomplish two (2) copies of the current account deposit slip. PBC's
deposit slip, as issued in 1975, had two parts. The upper part was
called the depositor's stub and the lower part was called the bank
copy. Both parts were detachable from each other. The deposit slip
was prepared and signed by the depositor or his representative, who
indicated therein the current account number to which the deposit
BANKING LAWS (Diligence Required of Banks Cases)
was to be credited, the name of the depositor or current account
holder, the date of the deposit, and the amount of the deposit either
in cash or in checks. (Rollo, p. 137)
Since Yabut deposited money in cash, the usual bank procedure
then was for the teller to count whether the cash deposit tallied with
the amount written down by the depositor in the deposit slip. If it did,
then the teller proceeded to verify whether the current account
number matched with the current account name as written in the
deposit slip.
In the earlier days before the age of full computerization, a bank
normally maintained a ledger which served as a repository of
accounts to which debits and credits resulting from transactions with
the bank were posted from books of original entry. Thus, it was only
after the transaction was posted in the ledger that the teller
proceeded to machine validate the deposit slip and then affix his
signature or initial to serve as proof of the completed transaction.
It should be noted that the teller validated the depositor's stub in the
upper portion and the bank copy on the lower portion on both the
original and duplicate copies of the deposit slips presented by Yabut.
The teller, however, detached the validated depositor's stub on the
original deposit slip and allowed Yabut to retain the whole validated
duplicate deposit slip that bore the same account number as the
original deposit slip, but with the account name purposely left blank
by Yabut, on the assumption that it would serve no other purpose but
for a personal record to complement the original validated depositor's
stub.
Thus, when Yabut wrote the name of RMC on the blank account
name on the validated duplicate copy of the deposit slip, tampered
with its account number, and superimposed RMC's account number,
said act only served to cover-up the loss already caused by her to
RMC, or after the deposit slip was validated by the teller in favor of
Yabut's husband. Stated otherwise, when there is a clear evidence of
tampering with any of the material entries in a deposit slip, the
genuineness and due execution of the document become an issue in
resolving whether or not the transaction had been fair and regular
Page 44
and whether the ordinary course of business had been followed by
the bank.
It is logical, therefore, to conclude that the legal or proximate cause
of RMC's loss was when Yabut, its employee, deposited the money
of RMC in her husband's name and account number instead of that
of RMC, the rightful owner of such deposited funds. Precisely, it was
the criminal act of Yabut that directly caused damage to RMC, her
employer, not the validation of the deposit slip by the teller as the
deposit slip was made out by Yabut in her husband's name and to
his account.
Even if the bank teller had required Yabut to completely fill up the
duplicate deposit slip, the original deposit slip would nonetheless still
be validated under the account of Yabut's husband. In fine, the
damage had already been done to RMC when Yabut deposited its
funds in the name and account number of her husband with
petitioner bank. It is then entirely left to speculation what Yabut would
have done afterwards — like tampering both the account number
and the account name on the stub of the original deposit slip and on
the duplicate copy — in order to cover up her crime.
Under the circumstances in this case, there was no way for PBC's
bank tellers to reasonably foresee that Yabut might or would use the
duplicate deposit slip to cover up her crime. In the first place, the
bank tellers were absolutely unaware that a crime had already been
consummated by Yabut when her transaction by her sole doing was
posted in the ledger and validated by the teller in favor of her
husband's account even if the funds deposited belonged to RMC.
The teller(s) in this case were not in any way proven to be parties to
the crime either as accessories or accomplices. Nor could it be said
that the act of posting and validation was in itself a negligent act
because the teller(s) simply had no choice but to accept and validate
the deposit as written in the original deposit slip under the account
number and name of Yabut's husband. Hence, the act of validating
the duplicate copy was not the proximate cause of RMC's injury but
merely a remote cause which an independent cause or agency
merely took advantage of to accomplish something which was not
the probable or natural effect thereof. That explains why Yabut still
BANKING LAWS (Diligence Required of Banks Cases)
had to tamper with the account number of the duplicate deposit slip
after filling in the name of RMC in the blank space.
Coming now to the doctrine of "last clear chance," it is my considered
view that the doctrine assumes that the negligence of the defendant
was subsequent to the negligence of the plaintiff and the same must
be the proximate cause of the injury. In short, there must be a last
and a clear chance, not a last possible chance, to avoid the accident
or injury. It must have been a chance as would have enabled a
reasonably prudent man in like position to have acted effectively to
avoid the injury and the resulting damage to himself.
In the case at bar, the bank was not remiss in its duty of sending
monthly bank statements to private respondent RMC so that any
error or discrepancy in the entries therein could be brought to the
bank's attention at the earliest opportunity. Private respondent failed
to examine these bank statements not because it was prevented by
some cause in not doing so, but because it was purposely negligent
as it admitted that it does not normally check bank statements given
by banks.
It was private respondent who had the last and clear chance to
prevent any further misappropriation by Yabut had it only reviewed
the status of its current accounts on the bank statements sent to it
monthly or regularly. Since a sizable amount of cash was entrusted
to Yabut, private respondent should, at least, have taken ordinary
care of its concerns, as what the law presumes. Its negligence,
therefore, is not contributory but the immediate and proximate cause
of its injury.
I vote to grant the petition.
Separate Opinions
PADILLA, J., dissenting:
I regret that I cannot join the majority in ruling that the proximate
cause of the damage suffered by Rommel's Marketing Corporation
(RMC) is mainly "the wanton and reckless negligence of the
Page 45
petitioner's employee in validating the incomplete duplicate deposit
slips presented by Ms. Irene Yabut" (Decision, p. 15). Moreover, I
find it difficult to agree with the ruling that "petitioners are entitled to
claim reimbursement from her (the bank teller) for whatever they
shall be ordered to pay in this case."
It seems that an innocent bank teller is being unduly burdened with
what should fall on Ms. Irene Yabut, RMC's own employee, who
should have been charged with estafa or estafa through falsification
of private document. Interestingly, the records are silent on whether
RMC had ever filed any criminal case against Ms. Irene Yabut, aside
from the fact that she does not appear to have been impleaded even
as a party defendant in any civil case for damages. Why is RMC
insulating Ms. Irene Yabut from liability when in fact she orchestrated
the entire fraud on RMC, her employer?
To set the record straight, it is not completely accurate to state that
from 5 May 1975 to 16 July 1976, Miss Irene Yabut had transacted
with PCIB (then PBC) through only one teller in the person of
Azucena Mabayad. In fact, when RMC filed a complaint for estafa
before the Office of the Provincial Fiscal of Rizal, it indicted all the
tellers of PCIB in the branch who were accused of conspiracy to
defraud RMC of its current account deposits. (See Annex B, Rollo p.
22 and 47).
Even private respondent RMC, in its Comment, maintains that "when
the petitioner's tellers" allowed Irene Yabut to carry out her modus
operandi undetected over a period of one year, "their negligence
cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This
rules out the possibility that there may have been some form of
collusion between Yabut and bank teller Mabayad. Mabayad was just
unfortunate that private respondent's documentary evidence showed
that she was the attending teller in the bulk of Yabut's transactions
with the bank.
Going back to Yabut's modus operandi, it is not disputed that each
time Yabut would transact business with PBC's tellers, she would
accomplish two (2) copies of the current account deposit slip. PBC's
deposit slip, as issued in 1975, had two parts. The upper part was
called the depositor's stub and the lower part was called the bank
BANKING LAWS (Diligence Required of Banks Cases)
copy. Both parts were detachable from each other. The deposit slip
was prepared and signed by the depositor or his representative, who
indicated therein the current account number to which the deposit
was to be credited, the name of the depositor or current account
holder, the date of the deposit, and the amount of the deposit either
in cash or in checks. (Rollo, p. 137)
Since Yabut deposited money in cash, the usual bank procedure
then was for the teller to count whether the cash deposit tallied with
the amount written down by the depositor in the deposit slip. If it did,
then the teller proceeded to verify whether the current account
number matched with the current account name as written in the
deposit slip.
In the earlier days before the age of full computerization, a bank
normally maintained a ledger which served as a repository of
accounts to which debits and credits resulting from transactions with
the bank were posted from books of original entry. Thus, it was only
after the transaction was posted in the ledger that the teller
proceeded to machine validate the deposit slip and then affix his
signature or initial to serve as proof of the completed transaction.
It should be noted that the teller validated the depositor's stub in the
upper portion and the bank copy on the lower portion on both the
original and duplicate copies of the deposit slips presented by Yabut.
The teller, however, detached the validated depositor's stub on the
original deposit slip and allowed Yabut to retain the whole validated
duplicate deposit slip that bore the same account number as the
original deposit slip, but with the account name purposely left blank
by Yabut, on the assumption that it would serve no other purpose but
for a personal record to complement the original validated depositor's
stub.
Thus, when Yabut wrote the name of RMC on the blank account
name on the validated duplicate copy of the deposit slip, tampered
with its account number, and superimposed RMC's account number,
said act only served to cover-up the loss already caused by her to
RMC, or after the deposit slip was validated by the teller in favor of
Yabut's husband. Stated otherwise, when there is a clear evidence of
tampering with any of the material entries in a deposit slip, the
Page 46
genuineness and due execution of the document become an issue in
resolving whether or not the transaction had been fair and regular
and whether the ordinary course of business had been followed by
the bank.
It is logical, therefore, to conclude that the legal or proximate cause
of RMC's loss was when Yabut, its employee, deposited the money
of RMC in her husband's name and account number instead of that
of RMC, the rightful owner of such deposited funds. Precisely, it was
the criminal act of Yabut that directly caused damage to RMC, her
employer, not the validation of the deposit slip by the teller as the
deposit slip was made out by Yabut in her husband's name and to
his account.
Even if the bank teller had required Yabut to completely fill up the
duplicate deposit slip, the original deposit slip would nonetheless still
be validated under the account of Yabut's husband. In fine, the
damage had already been done to RMC when Yabut deposited its
funds in the name and account number of her husband with
petitioner bank. It is then entirely left to speculation what Yabut would
have done afterwards — like tampering both the account number
and the account name on the stub of the original deposit slip and on
the duplicate copy — in order to cover up her crime.
Under the circumstances in this case, there was no way for PBC's
bank tellers to reasonably foresee that Yabut might or would use the
duplicate deposit slip to cover up her crime. In the first place, the
bank tellers were absolutely unaware that a crime had already been
consummated by Yabut when her transaction by her sole doing was
posted in the ledger and validated by the teller in favor of her
husband's account even if the funds deposited belonged to RMC.
The teller(s) in this case were not in any way proven to be parties to
the crime either as accessories or accomplices. Nor could it be said
that the act of posting and validation was in itself a negligent act
because the teller(s) simply had no choice but to accept and validate
the deposit as written in the original deposit slip under the account
number and name of Yabut's husband. Hence, the act of validating
the duplicate copy was not the proximate cause of RMC's injury but
merely a remote cause which an independent cause or agency
BANKING LAWS (Diligence Required of Banks Cases)
merely took advantage of to accomplish something which was not
the probable or natural effect thereof. That explains why Yabut still
had to tamper with the account number of the duplicate deposit slip
after filling in the name of RMC in the blank space.
Coming now to the doctrine of "last clear chance," it is my considered
view that the doctrine assumes that the negligence of the defendant
was subsequent to the negligence of the plaintiff and the same must
be the proximate cause of the injury. In short, there must be a last
and a clear chance, not a last possible chance, to avoid the accident
or injury. It must have been a chance as would have enabled a
reasonably prudent man in like position to have acted effectively to
avoid the injury and the resulting damage to himself.
In the case at bar, the bank was not remiss in its duty of sending
monthly bank statements to private respondent RMC so that any
error or discrepancy in the entries therein could be brought to the
bank's attention at the earliest opportunity. Private respondent failed
to examine these bank statements not because it was prevented by
some cause in not doing so, but because it was purposely negligent
as it admitted that it does not normally check bank statements given
by banks.
It was private respondent who had the last and clear chance to
prevent any further misappropriation by Yabut had it only reviewed
the status of its current accounts on the bank statements sent to it
monthly or regularly. Since a sizable amount of cash was entrusted
to Yabut, private respondent should, at least, have taken ordinary
care of its concerns, as what the law presumes. Its negligence,
therefore, is not contributory but the immediate and proximate cause
of its injury.
I vote to grant the petition.
REYES v CA
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated July 22,
1994 and Resolution2 dated December 29, 1994 of the Court of
Page 47
Appeals3 affirming with modification the Decision4 dated November
12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch
64, which dismissed the complaint for damages of petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against
respondent Far East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be
held in September, 1988 in Sydney, Australia, the Philippine Racing
Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said
conference. Petitioner Gregorio H. Reyes, as vice-president for
finance, racing manager, treasurer, and director of PRCI, sent
Godofredo Reyes, the club's chief cashier, to the respondent bank to
apply for a foreign exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City
to apply for a demand draft in the amount One Thousand Six
Hundred Ten Australian Dollars (AU$1,610.00) payable to the order
of the 20th Asian Racing Conference Secretariat of Sydney,
Australia. He was attended to by respondent bank's assistant
cashier, Mr. Yasis, who at first denied the application for the reason
that respondent bank did not have an Australian dollar account in
any bank in Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCI's urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank then informed
Godofredo of a roundabout way of effecting the requested remittance
to Sydney thus: the respondent bank would draw a demand draft
against Westpac Bank in Sydney, Australia (Westpac-Sydney for
brevity) and have the latter reimburse itself from the U.S. dollar
account of the respondent in Westpac Bank in New York, U.S.A.
(Westpac-New York for brevity). This arrangement has been
customarily resorted to since the 1960's and the procedure has
proven to be problem-free. PRCI and the petitioner Gregorio H.
Reyes, acting through Godofredo, agreed to this arrangement or
approach in order to effect the urgent transfer of Australian dollars
payable to the Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application
of PRCI and issued Foreign Exchange Demand Draft (FXDD) No.
BANKING LAWS (Diligence Required of Banks Cases)
209968 in the sum applied for, that is, One Thousand Six Hundred
Ten Australian Dollars (AU$ 1,610.00), payable to the order of the
20th Asian Racing Conference Secretariat of Sydney, Australia, and
addressed to Westpac-Sydney as the drawee bank.1âwphi1.nêt
On August 10, 1988, upon due presentment of the foreign exchange
demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: "xxx No
account held with Westpac." Meanwhile, on August 16, 1988,
Wespac-New York sent a cable to respondent bank informing the
latter that its dollar account in the sum of One Thousand Six Hundred
Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19,
1988, in response to PRCI's complaint about the dishonor of the said
foreign exchange demand draft, respondent bank informed Westpac-
Sydney of the issuance of the said demand draft FXDD No. 209968,
drawn against the Wespac-Sydney and informing the latter to be
reimbursed from the respondent bank's dollar account in Westpac-
New York. The respondent bank on the same day likewise informed
Wespac-New York requesting the latter to honor the reimbursement
claim of Wespac-Sydney. On September 14, 1988, upon its second
presentment for payment, FXDD No. 209968 was again dishonored
by Westpac-Sydney for the same reason, that is, that the respondent
bank has no deposit dollar account with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988, respectively,
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes
left for Australia to attend the said racing conference. When
petitioner Gregorio H. Reyes arrived in Sydney in the morning of
September 18, 1988, he went directly to the lobby of Hotel Regent
Sydney to register as a conference delegate. At the registration desk,
in the presence of other delegates from various member of the
conference secretariat that he could not register because the foreign
exchange demand draft for his registration fee had been dishonored
for the second time. A discussion ensued in the presence and within
the hearing of many delegates who were also registering. Feeling
terribly embarrassed and humiliated, petitioner Gregorio H. Reyes
asked the lady member of the conference secretariat that he be
shown the subject foreign exchange demand draft that had been
dishonored as well as the covering letter after which he promised
that he would pay the registration fees in cash. In the meantime he
Page 48
demanded that he be given his name plate and conference kit. The
lady member of the conference secretariat relented and gave him his
name plate and conference kit. It was only two (2) days later, or on
September 20, 1988, that he was given the dishonored demand draft
and a covering letter. It was then that he actually paid in cash the
registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-
Reyes arrived in Sydney. She too was embarassed and humiliated at
the registration desk of the conference secretariat when she was told
in the presence and within the hearing of other delegates that she
could not be registered due to the dishonor of the subject foreign
exchange demand draft. She felt herself trembling and unable to look
at the people around her. Fortunately, she saw her husband, coming
toward her. He saved the situation for her by telling the secretariat
member that he had already arranged for the payment of the
registration fee in cash once he was shown the dishonored demand
draft. Only then was petitioner Puyat-Reyes given her name plate
and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes
was a member of the House of Representatives representing the
lone Congressional District of Makati, Metro Manila. She has been
an officer of the Manila Banking Corporation and was cited by
Archbishop Jaime Cardinal Sin as the top lady banker of the year in
connection with her conferment of the Pro-Ecclesia et Pontifice
Award. She has also been awarded a plaque of appreciation from
the Philippine Tuberculosis Society for her extraordinary service as
the Society's campaign chairman for the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial
Court of Makati, Metro Manila, a complaint for damages, docketed as
Civil Case No. 88-2468, against the respondent bank due to the
dishonor of the said foreign exchange demand draft issued by the
respondent bank. The petitioners claim that as a result of the
dishonor of the said demand draft, they were exposed to
unnecessary shock, social humiliation, and deep mental anguish in a
foreign country, and in the presence of an international audience.
BANKING LAWS (Diligence Required of Banks Cases)
On November 12, 1992, the trial court rendered judgment in favor of
the defendant (respondent bank) and against the plaintiffs (herein
petitioners), the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the
defendant, dismissing plaintiff's complaint, and ordering plaintiffs to
pay to defendant, on its counterclaim, the amount of P50,000.00, as
reasonable attorney's fees. Costs against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision
of the trial court but in effect deleted the award of attorney's fees to
the defendant (herein respondent bank) and the pronouncement as
to the costs. The decretal portion of the decision of the appellate
court states:
WHEREFORE, the judgment appealed from, insofar as it dismissed
plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED
and SET ASIDE in all other respect. No special pronouncement as to
costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the
respondent bank liable for damages for the reason that it exerted
every effort for the subject foreign exchange demand draft to be
honored. The appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction
finally went through smoothly, considering that its New York account
had been debited and that there was no miscommunication between
it and Westpac-New York. SWIFT is a world wide association used
by almost all banks and is known to be the most reliable mode of
communication in the international banking business. Besides, the
above procedure, with the Bank as drawer and Westpac-Sydney as
drawee, and with Westpac-New York as the reimbursement Bank
Page 49
had been in place since 1960s and there was no reason for the Bank
to suspect that this particular demand draft would not be honored by
Westpac-Sydney.
From the evidence, it appears that the root cause of the
miscommunications of the Bank's SWIFT message is the erroneous
decoding on the part of Westpac-Sydney of the Bank's SWIFT
message as an MT799 format. However, a closer look at the Bank's
Exhs. "6" and "7" would show that despite what appears to be an
asterick written over the figure before "99", the figure can still be
distinctly seen as a number "1" and not number "7", to the effect that
Westpac-Sydney was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the
part of the Westpac-Sydney of the numbers "1" to "7", since Exhs.
"6" and "7" are just documentary copies of the cable message sent to
Wespac-Sydney. Hence, if there was mistake committed by
Westpac-Sydney in decoding the cable message which caused the
Bank's message to be sent to the wrong department, the mistake
was Westpac's, not the Bank's. The Bank had done what an ordinary
prudent person is required to do in the particular situation, although
appellants expect the Bank to have done more. The Bank having
done everything necessary or usual in the ordinary course of banking
transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I decision of the appellate court.
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY
APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY
PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
BANKING LAWS (Diligence Required of Banks Cases)
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING
THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS
A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE
EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE
TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE
DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the
relationship between the respondent bank and its clients, the
respondent should have exercised a higher degree of diligence than
that expected of an ordinary prudent person in the handling of its
affairs as in the case at bar. The appellate court, according to
petitioners, erred in applying the standard of diligence of an ordinary
prudent person only. Petitioners also claim that the respondent bank
violate Section 61 of the Negotiable Instruments Law9 which
provides the warranty of a drawer that "xxx on due presentment, the
instrument will be accepted or paid, or both, according to its tenor
xxx." Thus, the petitioners argue that respondent bank should be
held liable for damages for violation of this warranty. The petitioners
pray this Court to re-examine the facts to cite certain instances of
negligence.
It is our view and we hold that there is no reversible error in the
Section 1 of Rule 45 of the Revised Rules of Court provides that
"(T)he petition (for review) shall raise only questions of law which
must be distinctly set forth." Thus, we have ruled that factual findings
of the Court of Appeals are conclusive on the parties and not
reviewable by this Court – and they carry even more weight when the
Court of Appeals affirms the factual findings of the trial court.10
Page 50
The courts a quo found that respondent bank did not misrepresent
that it was maintaining a deposit account with Westpac-Sydney.
Respondent bank's assistant cashier explained to Godofredo Reyes,
representing PRCI and petitioner Gregorio H. Reyes, how the
transfer of Australian dollars would be effected through Westpac-
New York where the respondent bank has a dollar account to
Westpac-Sydney where the subject foreign exchange demand draft
(FXDD No. 209968) could be encashed by the payee, the 20th Asian
Racing Conference Secretariat. PRCI and its Vice-President for
finance, petitioner Gregorio H. Reyes, through their said
representative, agreed to that arrangement or procedure. In other
words, the petitioners are estopped from denying the said
arrangement or procedure. Similar arrangements have been a long
standing practice in banking to facilitate international commercial
transactions. In fact, the SWIFT cable message sent by respondent
bank to the drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New York, where
respondent bank has a deposit dollar account. The facts as found by
the courts a quo show that respondent bank did not cause an
erroneous transmittal of its SWIFT cable message to Westpac-
Sydney. It was the erroneous decoding of the cable message on the
part of Westpac-Sydney that caused the dishonor of the subject
foreign exchange demand draft. An employee of Westpac-Sydney in
Sydney, Australia mistakenly read the printed figures in the SWIFT
cable message of respondent bank as "MT799" instead of as
"MT199". As a result, Westpac-Sydney construed the said cable
message as a format for a letter of credit, and not for a demand draft.
The appellate court correct found that "the figure before '99' can still
be distinctly seen as a number '1' and not number '7'." Indeed, the
line of a "7" is in a slanting position while the line of a "1" is in a
horizontal position. Thus, the number "1" in "MT199" cannot be
construed as "7".11
The evidence also shows that the respondent bank exercised that
degree of diligence expected of an ordinary prudent person under
the circumstances obtaining. Prior to the first dishonor of the subject
foreign exchange demand draft, the respondent bank advised
Westpac-New York to honor the reimbursement claim of Westpac-
Sydney and to debit the dollar account12 of respondent bank with
the former. As soon as the demand draft was dishonored, the
BANKING LAWS (Diligence Required of Banks Cases)
respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to
miscommunication, re-confirmed the authority of Westpac-New York
to debit its dollar account for the purpose of reimbursing Westpac-
Sydney.13 Respondent bank also sent two (2) more cable messages
to Westpac-New York inquiring why the demand draft was not
honored.14
With these established facts, we now determine the degree of
diligence that banks are required to exert in their commercial
dealings. In Philippine Bank of Commerce v. Court of Appeals15
upholding a long standing doctrine, we ruled that the degree of
diligence required of banks, is more than that of a good father of a
family where the fiduciary nature of their relationship with their
depositors is concerned. In other words banks are duty bound to
treat the deposit accounts of their depositors with the highest degree
of care. But the said ruling applies only to cases where banks act
under their fiduciary capacity, that is, as depositary of the deposits of
their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do
not involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to
exert more than the diligence of a good father of a family in regard to
the sale and issuance of the subject foreign exchange demand draft.
The case at bar does not involve the handling of petitioners' deposit,
if any, with the respondent bank. Instead, the relationship involved
was that of a buyer and seller, that is, between the respondent bank
as the seller of the subject foreign exchange demand draft, and PRCI
as the buyer of the same, with the 20th Asian Racing conference
Secretariat in Sydney, Australia as the payee thereof. As earlier
mentioned, the said foreign exchange demand draft was intended for
the payment of the registration fees of the petitioners as delegates of
the PRCI to the 20th Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within
its power to prevent the dishonor of the subject foreign exchange
demand draft. The erroneous reading of its cable message to
Westpac-Sydney by an employee of the latter could not have been
foreseen by the respondent bank. Being unaware that its employee
Page 51
erroneously read the said cable message, Westpac-Sydney merely
stated that the respondent bank has no deposit account with it to
cover for the amount of One Thousand Six Hundred Ten Australian
Dollar (AU $1610.00) indicated in the foreign exchange demand
draft. Thus, the respondent bank had the impression that Westpac-
New York had not yet made available the amount for reimbursement
to Westpac-Sydney despite the fact that respondent bank has a
sufficient deposit dollar account with Westpac-New York. That was
the reason why the respondent bank had to re-confirm and
repeatedly notify Westpac-New York to debit its (respondent bank's)
deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of
the said demand draft.

In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault
of the respondent bank, whereas the petitioners appeared to be
under estoppel as earlier mentioned, it is no longer necessary to
discuss the alleged application of Section 61 of the Negotiable
Instruments Law to the case at bar. In any event, it was established
that the respondent bank acted in good faith and that it did not cause
the embarrassment of the petitioners in Sydney, Australia. Hence,
the Court of Appeals did not commit any reversable error in its
challenged decision.

WHEREFORE, the petition is hereby DENIED, and the assailed

decision of the Court of Appeals is AFFIRMED. Costs against the
petitioners.

SO ORDERED.

BANKING LAWS (Diligence Required of Banks Cases) Page 52