passbook.[3] Calapre went back to L.C.
Diaz and
FIRST DIVISION
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST
CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ
and COMPANY, CPAs, respondents.
DECISION
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 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
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 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.
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.
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.
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 WHEREFORE, foregoing considered, our decision
L.C. Diaz, Solidbank would have known that the dated October 27, 1998 is affirmed with modification
withdrawal was unauthorized. The teller did not by deleting the award of exemplary damages and
even verify the identity of the impostor who made attorneys fees, expenses of litigation and cost of suit.
the withdrawal. Thus, the appellate court found
Solidbank liable for its negligence in the selection SO ORDERED.[15]
and supervision of its employees.
The appellate court ruled that while L.C. Diaz Hence, this petition.
was also negligent in entrusting its deposits to its
messenger and its messenger in leaving the
passbook with the teller, Solidbank could not The Issues
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. Solidbank seeks the review of the decision
Diaz to verify the withdrawal. and resolution of the Court of Appeals on these
The appellate court ruled that the degree of grounds:
diligence required from Solidbank is more than
that of a good father of a family. The business and I. THE COURT OF APPEALS ERRED
functions of banks are affected with public IN HOLDING THAT
interest. Banks are obligated to treat the accounts PETITIONER BANK SHOULD
of their depositors with meticulous care, always SUFFER THE LOSS BECAUSE
having in mind the fiduciary nature of their ITS TELLER SHOULD HAVE
relationship with their clients. The Court of FIRST CALLED PRIVATE
Appeals found Solidbank remiss in its duty, RESPONDENT BY TELEPHONE
violating its fiduciary relationship with L.C. Diaz. BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00
The dispositive portion of the decision of the TO RESPONDENTS
Court of Appeals reads: MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO
WHEREFORE, premises considered, the decision AGREEMENT BETWEEN THE
appealed from is hereby REVERSED and a new one PARTIES IN THE OPERATION
entered. OF THE SAVINGS ACCOUNT,
NOR IS THERE ANY BANKING
1. Ordering defendant-appellee LAW, WHICH MANDATES
Consolidated Bank and Trust THAT A BANK TELLER
Corporation to pay plaintiff- SHOULD FIRST CALL UP THE
appellant the sum of Three DEPOSITOR BEFORE
Hundred Thousand Pesos ALLOWING A WITHDRAWAL
(P300,000.00), with interest OF A BIG AMOUNT IN A
thereon at the rate of 12% per SAVINGS ACCOUNT.
annum from the date of filing of the
complaint until paid, the sum II. THE COURT OF APPEALS ERRED
of P20,000.00 as exemplary IN APPLYING THE DOCTRINE
damages, and P20,000.00 as OF LAST CLEAR CHANCE AND
attorneys fees and expenses of IN HOLDING THAT
litigation as well as the cost of suit; PETITIONER BANKS TELLER
and HAD THE LAST OPPORTUNITY
TO WITHHOLD THE
2. Ordering the dismissal of defendant- WITHDRAWAL WHEN IT IS
appellees counterclaim in the UNDISPUTED THAT THE TWO
amount of P30,000.00 as attorneys SIGNATURES OF
fees. RESPONDENT ON THE
WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE
SO ORDERED.[13]
RESPONDENTS PASSBOOK
WAS DULY PRESENTED, AND
Acting on the motion for reconsideration of CONTRARIWISE RESPONDENT
Solidbank, the appellate court affirmed its WAS NEGLIGENT IN THE
decision but modified the award of damages. The SELECTION AND
appellate court deleted the award of exemplary SUPERVISION OF ITS
damages and attorneys fees. Invoking Article MESSENGER EMERANO
2231[14] of the Civil Code, the appellate court ILAGAN, AND IN THE
ruled that exemplary damages could be granted SAFEKEEPING OF ITS CHECKS
if the defendant acted with gross negligence. AND OTHER FINANCIAL
Since Solidbank was guilty of simple negligence DOCUMENTS.
only, the award of exemplary damages was not
justified. Consequently, the award of attorneys
III. THE COURT OF APPEALS ERRED
fees was also disallowed pursuant to Article 2208
IN NOT FINDING THAT THE
of the Civil Code. The expenses of litigation and
INSTANT CASE IS A LAST
cost of suit were also not imposed on Solidbank.
DITCH EFFORT OF PRIVATE
The dispositive portion of the Resolution RESPONDENT TO RECOVER
reads as follows: 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.
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 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 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 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.
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
theP90,000 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 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.
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.

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]
 FIRST DIVISION
[G.R. No. 127469. January 15, 2004]
PHILIPPINE BANKING
CORPORATION, petitioner, vs.
COURT OF APPEALS and LEONILO
MARCOS, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the
Decision[1] of the Court of Appeals in CA-G.R. CV
No. 34382 dated 10 December 1996 modifying
the Decision[2] of the Regional Trial Court, Fourth
Judicial Region, Assisting Court, Bian, Laguna in
Civil Case No. B-3148 entitled Leonilo Marcos v.
Philippine Banking Corporation.
The Antecedent Facts
On 30 August 1989, Leonilo Marcos
(Marcos) filed with the trial court a Complaint for
Sum of Money with Damages[3] against petitioner
Philippine Banking Corporation (BANK).[4]
Marcos alleged that sometime in 1982, the
BANK through Florencio B. Pagsaligan
(Pagsaligan), one of the officials of the BANK and
a close friend of Marcos, persuaded him to
deposit money with the BANK. Marcos yielded to
Pagsaligans persuasion and claimed he made a
time deposit with the BANK on two
occasions. The first was on 11 March 1982
for P664,897.67. The BANK issued Receipt No.
635734 for this time deposit. On 12 March 1982,
Marcos claimed he again made a time deposit
with the BANK for P764,897.67. The BANK did
not issue an official receipt for this time deposit
but it acknowledged a deposit of this amount
through a letter-certification Pagsaligan issued.
The time deposits earned interest at 17% per
annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the
various time deposit certificates on the assurance
that the BANK would take care of the certificates,
interests and renewals. Marcos claimed that from
the time of the deposit, he had not received the
principal amount or its interest.
Sometime in March 1983, Marcos wanted to
withdraw from the BANK his time deposits and
the accumulated interests to buy materials for his
construction business. However, the BANK
through Pagsaligan convinced Marcos to keep
his time deposits intact and instead to open
several domestic letters of credit. The BANK
required Marcos to give a marginal deposit of
30% of the total amount of the letters of
credit. The time deposits of Marcos would secure
70% of the letters of credit. Since Marcos trusted
the BANK and Pagsaligan, he signed blank
printed forms of the application for the domestic
letters of credit, trust receipt agreements and
promissory notes.
Marcos executed three Trust Receipt
Agreements totalling P851,250, broken down as
follows: (1) Trust Receipt No. CD 83.7 dated 8
March 1983 for P300,000; (2) Trust Receipt No.
CD 83.9 dated 15 March 1983 for P300,000; and
(3) Trust Receipt No. CD 83.10 dated 15 March
1983 for P251,250. Marcos deposited the
required 30% marginal deposit for the trust
receipt agreements. Marcos claimed that his
obligation to the BANK was therefore
only P595,875 representing 70% of the letters of
credit.
Marcos believed that he and the BANK
became creditors and debtors of each
other. Marcos expected the BANK to offset
automatically a portion of his time deposits and
the accumulated interest with the amount
covered by the three trust receipts
totalling P851,250 less the 30% marginal deposit
that he had paid. Marcos argued that if only the
BANK applied his time deposits and the
accumulated interest to his remaining obligation,
which is 70% of the total amount of the letters of
credit, he would have paid completely his debt.
Marcos further pointed out that since he did not
apply for a renewal of the trust receipt
agreements, the BANK had no right to renew the
same.
Marcos accused the BANK of unjustly
demanding payment for the total amount of the
trust receipt agreements without deducting the
30% marginal deposit that he had already
made.He decried the BANKs unlawful charging of
accumulated interest because he claimed there
was no agreement as to the payment of interest.
The interest arose from numerous alleged
extensions and penalties. Marcos reiterated that
there was no agreement to this effect because his
time deposits served as the collateral for his
remaining obligation.
Marcos also denied that he obtained another
loan from the BANK for P500,000 with interest at
25% per annum supposedly covered by
Promissory Note No. 20-979-83 dated 24
October 1983. Marcos bewailed the BANKs
belated claim that his time deposits were applied
to this void promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK in the
total sum of P1,428,795.34[5] has earned
accumulated interest since March 1982 up to the
present in the total amount of P1,727,305.45 at
the rate of 17% per annum so his total money
with defendant (the BANK) is P3,156,100.79 less
the amount of P595,875 representing the 70%
balance of the marginal deposit and/or balance of
the trust agreements; and
(2) his indebtedness was only P851,250
less the 30% paid as marginal deposit or a
balance of P595,875, which the BANK should
have automatically deducted from his time
deposits and accumulated interest, leaving the
BANKs indebtedness to him at P2,560,025.79.
Marcos prayed the trial court to declare
Promissory Note No. 20-979-83 void and to order
the BANK to pay the amount of his time deposits
with interest. He also sought the award of moral
and exemplary damages as well as attorneys
fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a
copy of the complaint were served on the
BANK.[6]
On 9 October 1989, the BANK filed its
Answer with Counterclaim. The BANK denied the
allegations in the complaint. The BANK believed
that the suit was Marcos desperate attempt to
avoid liability under several trust receipt
agreements that were the subject of a criminal
complaint.
The BANK alleged that as of 12 March 1982,
the total amount of the various time deposits of
Marcos was only P764,897.67 and
not P1,428,795.35[7] as alleged in the
complaint. The P764,897.67 included
the P664,897.67 that Marcos deposited on 11
March 1982.
The BANK pointed out that Marcos delivered
to the BANK the time deposit certificates by virtue
of the Deed of Assignment dated 2 June
1989. Marcos executed the Deed of Assignment
to secure his various loan obligations. The BANK
claimed that these loans are covered by
Promissory Note No. 20-756-82 dated 2 June
1982 for P420,000 and Promissory Note No. 20-
979-83 dated 24 October 1983 for P500,000. The
BANK stressed that these obligations are
separate and distinct from the trust receipt
agreements.
When Marcos defaulted in the payment of
Promissory Note No. 20-979-83, the BANK
debited his time deposits and applied the same to
the obligation that is now considered fully
paid.[8] The BANK insisted that the Deed of
Assignment authorized it to apply the time
deposits in payment of Promissory Note No. 20-
979-83.
In March 1982, the wife of Marcos,
Consolacion Marcos, sought the advice of
Pagsaligan. Consolacion informed Pagsaligan
that she and her husband needed to finance the
purchase of construction materials for their
business, L.A. Marcos Construction
Company. Pagsaligan suggested the opening of
the letters of credit and the execution of trust
receipts, whereby the BANK would agree to
purchase the goods needed by the client through
the letters of credit. The BANK would then entrust
the goods to the client, as entrustee, who would
undertake to deliver the proceeds of the sale or
the goods themselves to the entrustor within a
specified time.
The BANK claimed that Marcos freely
entered into the trust receipt agreements. When
Marcos failed to account for the goods delivered
or for the proceeds of the sale, the BANK filed a
complaint for violation of Presidential Decree No.
115 or the Trust Receipts Law. Instead of
initiating negotiations for the settlement of the
account, Marcos filed this suit.
The BANK denied falsifying Promissory
Note No. 20-979-83. The BANK claimed that the
promissory note is supported by documentary
evidence such as Marcos application for this loan
and the microfilm of the cashiers check issued for
the loan. The BANK insisted that Marcos could
not deny the agreement for the payment of
interest and penalties under the trust receipt
agreements. The BANK prayed for the dismissal
of the complaint, payment of damages, attorneys
fees and cost of suit.
On 15 December 1989, the trial court on
motion of Marcos counsel issued an order
declaring the BANK in default for filing its answer
five days after the 15-day period to file the answer
had lapsed.[9] The trial court also held that the
answer is a mere scrap of paper because a copy
was not furnished to Marcos. In the same order,
the trial court allowed Marcos to present his
evidence ex parte on 18 December 1989. On that
date, Marcos testified and presented
documentary evidence. The case was then
submitted for decision.
On 19 December 1989, Marcos received a
copy of the BANKs Answer with Compulsory
Counterclaim.
On 29 December 1989, the BANK filed an
opposition to Marcos motion to declare the BANK
in default. On 9 January 1990, the BANK filed a
motion to lift the order of default claiming that it
had only then learned of the order of default. The
BANK explained that its delayed filing of the
Answer with Counterclaim and failure to serve a
copy of the answer on Marcos was due to
excusable negligence. The BANK asked the trial
court to set aside the order of default because it
had a valid and meritorious defense.
On 7 February 1990, the trial court issued an
order setting aside the default order and admitting
the BANKs Answer with Compulsory
Counterclaim. The trial court ordered the BANK
to present its evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion
praying to cross-examine Marcos who had
testified during the ex-parte hearing of 18
December 1989. On 12 March 1990, the trial
court denied the BANKs motion and directed the
BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses,
Rodolfo Sales, the Branch Manager of the
BANKs Cubao Branch since 1987, and
Pagsaligan, the Branch Manager of the same
branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos
cross-examined Pagsaligan. Due to lack of
material time, the trial court reset the continuation
of the cross-examination and presentation of
other evidence. The succeeding hearings were
postponed, specifically on 24, 27 and 28 of
August 1990, because of the BANKs failure to
produce its witness, Pagsaligan. The BANK on
these scheduled hearings also failed to present
other evidence.
On 7 September 1990, the BANK moved to
postpone the hearing on the ground that
Pagsaligan could not attend the hearing because
of illness. The trial court denied the motion to
postpone and on motion of Marcos counsel ruled
that the BANK had waived its right to present
further evidence. The trial court considered the
case submitted for decision. The BANK moved
for reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered
its decision in favor of Marcos. Aggrieved, the
BANK appealed to the Court of Appeals.
 On 10 December 1996, the Court of Appeals
modified the decision of the trial court by reducing
the amount of actual damages and deleting the
attorneys fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of
time deposits of Marcos was P1,429,795.34 and
not only P764,897.67 as claimed by the
BANK. The trial court found that Marcos made a
time deposit on two occasions. The first time
deposit was made on 11 March 1982
for P664,897.67 as shown by Receipt No.
635743. On 12 March 1982, Marcos again made
a time deposit for P764,897.67 as acknowledged
by Pagsaligan in a letter of certification. The two
time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was
issued for the 12 March 1982 time deposit
because the letter of certification was
sufficient. The trial court made a finding that the
certification letter did not include the time deposit
made on 11 March 1982. The 12 March 1982
deposit was in cash while the 11 March 1982
deposit was in checks which still had to clear.The
checks were not included in the certification letter
since the BANK could not credit the amounts of
the checks prior to clearing. The trial court
declared that even the Deed of Assignment
acknowledged that Marcos made several time
deposits as the Deed stated that the assigment
was charged against various time deposits.
The trial court recognized the existence of
the Deed of Assignment and the two loans that
Marcos supposedly obtained from the BANK on
28 May 1982 for P340,000 and on 2 June 1982
for P420,000. The two loans amounted
to P760,000. On 2 June 1982, the same day that
he secured the second loan, Marcos executed a
Deed of Assignment assigning to the
BANK P760,000 of his time deposits. The trial
court concluded that obviously the two loans were
immediately paid by virtue of the Deed of
Assignment.
The trial court found it strange that Marcos
borrowed money from the BANK at a higher rate
of interest instead of just withdrawing his time
deposits. The trial court saw no rhyme or reason
why Marcos had to secure the loans from the
BANK. The trial court was convinced that Marcos
did not know that what he had signed were loan
applications and a Deed of Assignment in
payment for his loans. Nonetheless, the trial court
recognized the said loan of P760,000 and its
corresponding payment by virtue of the Deed of
Assignment for the equal sum.[10]
If the BANKs claim is true that the time
deposits of Marcos amounted only
to P764,897.67 and he had already
assigned P760,000 of this amount, the trial court
pointed out that what would be left as of 3 June
1982 would only be P4,867.67.[11] Yet, after the
time deposits had matured, the BANK allowed
Marcos to open letters of credit three times. The
three letters of credit were all secured by the time
deposits of Marcos after he had paid the 30%
marginal deposit. The trial court opined that if
Marcos time deposit was only P764,897.67, then
the letters of credit totalling P595,875 (less 30%
marginal deposit) was guaranteed by
only P4,867.67,[12] the remaining time deposits
after Marcos had executed the Deed of
Assignment for P760,000.
According to the trial court, a security of
only P4,867.67[13] for a loan worth P595,875 (less
30% marginal deposit) is not only preposterous, it
is also comical. Worse, aside from allowing
Marcos to have unsecured trust receipts, the
BANK still claimed to have granted Marcos
another loan for P500,000 on 25 October 1983
covered by Promissory Note No. 20-979-83. The
BANK is a commercial bank engaged in the
business of lending money. Allowing a loan of
more than a million pesos without collateral is in
the words of the trial court, an impossibility and a
gross violation of Central Bank Rules and
Regulations, which no Bank Manager has such
authority to grant.[14] Thus, the trial court held that
the BANK could not have granted Marcos the
loan covered by Promissory Note No. 20-979-83
because it was unsecured by any collateral.
The trial court required the BANK to produce
the original copies of the loan application and
Promissory Note No. 20-979-83 so that it could
determine who applied for this loan. However, the
BANK presented to the trial court only the
machine copies of the duplicate of these
documents.
Based on the machine copies of the
duplicate of the two documents, the trial court
noticed the following discrepancies: (1) Marcos
signature on the two documents are merely
initials unlike in the other documents submitted by
the BANK; (2) it is highly unnatural for the BANK
to only have duplicate copies of the two
documents in its custody; (3) the address of
Marcos in the documents is different from the
place of residence as stated by Marcos in the
other documents annexed by the BANK in its
Answer; (4) Pagsaligan made it appear that a
check for the loan proceeds of P470,588 less
bank charges was issued to Marcos but the
checks payee was one ATTY. LEONILO
MARCOS and, as the trial court noted, Marcos is
not a lawyer; and (5) Pagsaligan was not sure
what branch of the BANK issued the check for the
loan proceeds. The trial court was convinced that
Marcos did not execute the questionable
documents covering the P500,000 loan and
Pagsaligan used these documents as a means to
justify his inability to explain and account for the
time deposits of Marcos.
The trial court noted the BANKs defective
documentation of its transaction with Marcos.
First, the BANK was not in possession of the
original copies of the documents like the loan
applications. Second, the BANK did not have a
ledger of the accounts of Marcos or of his various
transactions with the BANK. Last, the BANK did
not issue a certificate of time deposit to
Marcos. Again, the trial court attributed the
BANKs lapses to Pagsaligans scheme to defraud
Marcos of his time deposits.
The trial court also took note of Pagsaligans
demeanor on the witness stand. Pagsaligan
evaded the questions by giving unresponsive or
inconsistent answers compelling the trial court to
admonish him. When the trial court ordered
Pagsaligan to produce the documents, he
conveniently became sick [15] and thus failed to
attend the hearings without presenting proof of
his physical condition.
The trial court disregarded the BANKs
assertion that the time deposits were converted
into a savings account at 14% or 10% per
annum upon maturity. The BANK never informed
Marcos that his time deposits had already
matured and these were converted into a savings
account. As to the interest due on the trust
receipts, the trial court ruled that there is no basis
for such a charge because the documents do not
stipulate any interest.
In computing the amount due to Marcos, the
trial court took into account the marginal deposit
that Marcos had already paid which is equivalent
to 30% of the total amount of the three trust
receipts. The three trust receipts
totalling P851,250 would then have a balance
of P595,875. The balance became due in March
1987 and on the same date, Marcos time deposits
of P669,932.30 had already earned interest from
1983 to 1987 totalling P569,323.21 at 17% per
annum. Thus, the trial court ruled that the time
deposits in 1987 totalled P1,239,115. From this
amount, the trial court deducted P595,875, the
amount of the trust receipts, leaving a balance on
the time deposits of P643,240 as of March
1987. However, since the BANK failed to return
the time deposits of Marcos, which again matured
in March 1990, the time deposits with interest,
less the amount of trust receipts paid in 1987,
amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that
even if Marcos had only one time deposit
of P764,897.67 as claimed by the BANK, the time
deposit would have still earned interest at the rate
of 17% per annum. The time deposit of P650,163
would have increased to P1,415,060 in 1987 after
earning interest. Deducting the amount of the
three trust receipts, Marcos time deposits still
totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the
trial court reads:
WHEREFORE, under the foregoing circumstances,
judgment is hereby rendered in favor of Plaintiff,
directing Defendant Bank as follows:
1) to return to Plaintiff his time
deposit in the sum
of P971,292.49 with interest
thereon at the legal rate, until
fully restituted;
2) to pay attorneys fees
of P200,000.00; [and]
3) [to pay the] cost of these
proceedings.
IT IS SO ORDERED.[16]
The Ruling of the Court of Appeals
The Court of Appeals addressed the
procedural and substantive issues that the BANK
raised.
The appellate court ruled that the trial court
committed a reversible error when it denied the
BANKs motion to cross-examine Marcos. The
appellate court ruled that the right to cross-
examine is a fundamental right that the BANK did
not waive because the BANK vigorously asserted
this right. The BANKs failure to serve a notice of
the motion to Marcos is not a valid ground to deny
the motion to cross-examine. The appellate court
held that the motion to cross-examine is one of
those non-litigated motions that do not require the
movant to provide a notice of hearing to the other
party.
The Court of Appeals pointed out that when
the trial court lifted the order of default, it had the
duty to afford the BANK its right to cross-examine
Marcos. This duty assumed greater importance
because the only evidence supporting the
complaint is Marcos ex-parte testimony. The trial
court should have tested the veracity of Marcos
testimony through the distilling process of cross-
examination. The Court of Appeals, however,
believed that the case should not be remanded to
the trial court because Marcos testimony on the
time deposits is supported by evidence on record
from which the appellate court could make an
intelligent judgment.
On the second procedural issue, the Court
of Appeals held that the trial court did not err
when it declared that the BANK had waived its
right to present its evidence and had submitted
the case for decision. The appellate court agreed
with the grounds relied upon by the trial court in
its Order dated 7 September 1990.
The Court of Appeals, however, differed with
the finding of the trial court as to the total amount
of the time deposits. The appellate court ruled
that the total amount of the time deposits of
Marcos is only P764,897.67 and
not P1,429,795.34 as found by the trial court. The
certification letter issued by Pagsaligan showed
that Marcos made a time deposit on 12 March
1982 for P764,897.67. The certification letter
shows that the amount mentioned in the letter
was the aggregate or total amount of the time
deposits of Marcos as of that date. Therefore,
the P764,897.67 already included
the P664,897.67 time deposit made by Marcos
on 11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. B, p. 32, Records)
dated March 11, 1982 covering the sum
of P664,987.67 time deposit did not provide for a
maturity date implying clearly that the amount
covered by said receipt forms part of the total sum
shown in the letter-certification which contained a
maturity date. Moreover, it taxes ones credulity to
believe that appellee would make a time deposit on
March 12, 1982 in the sum of P764,897.67 which
except for the additional sum of P100,000.00 is
practically identical (see underlined figures) to the
sum of P664,897.67 deposited the day before March
11, 1982.
Additionally, We agree with the contention of the
appellant that the lower court wrongly appreciated
the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged
application for loan by the appellee with the appellant
in the sum of P500,000.00 dated October 24, 1983.
(Exh. J, p. 40, Records), wherein it was stated that the
loan is for additional working capital versus
the various time deposit amounting
to P760,000.00.[17] (Emphasis supplied)
 The Court of Appeals sustained the factual
findings of the trial court in ruling that Promissory
Note No. 20-979-83 is void. There is no evidence
of a bank ledger or computation of interest of the
loan. The appellate court blamed the BANK for
failing to comply with the orders of the trial court
to produce the documents on the loan. The BANK
also made inconsistent statements. In its Answer
to the Complaint, the BANK alleged that the loan
was fully paid when it debited the time deposits of
Marcos with the loan. However, in its discussion
of the assigned errors, the BANK claimed that
Marcos had yet to pay the loan.
The appellate court deleted the award of
attorneys fees. It noted that the trial court failed to
justify the award of attorneys fees in the text of its
decision. The dispositive portion of the decision
of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed
decision is SET ASIDE. A new judgment is hereby
rendered ordering the appellant bank to return to the
appellee his time deposit in the sum of P764,897.67
with 17% interest within 90 days from March 11,
1982 in accordance with the letter-certification
and with legal interest thereafter until fully
paid. Costs against the appellant.
SO ORDERED.[18] (Emphasis supplied)
The Issues
The BANK anchors this petition on the
following issues:
1) WHETHER OR NOT THE PETITIONER [sic]
ABLE TO PROVE THE PRIVATE
RESPONDENTS OUTSTANDING OBLIGATIONS
SECURED BY THE ASSIGNMENT OF TIME
DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE
PROVISIONS OF SECTION 8 RULE 10 OF [sic]
THEN REVISED RULES OF COURT BE APPLIED
[sic] SO AS TO CREATE A JUDICIAL
ADMISSION ON THE GENUINENESS AND DUE
EXECUTION OF THE ACTIONABLE
DOCUMENTS APPENDED TO THE
PETITIONERS ANSWER?
2) WHETHER OR NOT PETITIONER [sic]
DEPRIVED OF DUE PROCESS WHEN THE
LOWER COURT HAS [sic] DECLARED
PETITIONER TO HAVE WAIVED
PRESENTATION OF FURTHER EVIDENCE AND
CONSIDERED THE CASE SUBMITTED FOR
RESOLUTION?[19]
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to
procedural due process when the trial court
denied the BANKs motion to cross-examine
Marcos. Prior to the denial of the motion, the trial
court had properly declared the BANK in default.
Since the BANK was in default, Marcos was able
to present his evidence ex-parte including his
own testimony. When the trial court lifted the
order of default, the BANK was restored to its
standing and rights in the action. However, as a
rule, the proceedings already taken should not be
disturbed.[20] Nevertheless, it is within the trial
courts discretion to reopen the evidence
submitted by the plaintiff and allow the defendant
to challenge the same, by cross-examining the
plaintiffs witnesses or introducing countervailing
evidence.[21] The 1964 Rules of Court, the rules
then in effect at the time of the hearing of this
case, recognized the trial courts exercise of this
discretion. The 1997 Rules of Court retained this
discretion.[22] Section 3, Rule 18 of the 1964
Rules of Court reads:
Sec. 3. Relief from order of default. A party declared
in default may any time after discovery thereof and
before judgment file a motion under oath to set aside
the order of default upon proper showing that his
failure to answer was due to fraud, accident, mistake
or excusable neglect and that he has a meritorious
defense. In such case the order of default may be set
aside on such terms and conditions as the judge may
impose in the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask
the trial court to restore its right to cross-examine
Marcos when it sought the lifting of the default
order on 9 January 1990. Thus, the order dated 7
February 1990 setting aside the order of default
did not confer on the BANK the right to cross-
examine Marcos. It was only on 2 March 1990
that the BANK filed the motion to cross-examine
Marcos. During the 12 March 1990 hearing, the
trial court denied the BANKs oral manifestation to
grant its motion to cross-examine Marcos
because there was no proof of service on
Marcos. The BANKs counsel pleaded for
reconsideration but the trial court denied the plea
and ordered the BANK to present its evidence.
Instead of presenting its evidence, the BANK
moved for the resetting of the hearing and when
the trial court denied the same, the BANK
informed the trial court that it was elevating the
denial to the upper court.[23]
To repeat, the trial court had previously
declared the BANK in default. The trial court
therefore had the right to decide whether or not to
disturb the testimony of Marcos that had already
been terminated even before the trial court lifted
the order of default.
We do not agree with the appellate courts
ruling that a motion to cross-examine is a non-
litigated motion and that the trial court gravely
abused its discretion when it denied the motion to
cross-examine. A motion to cross-examine is
adversarial. The adverse party in this case had
the right to resist the motion to cross-examine
because the movant had previously forfeited its
right to cross-examine the witness. The purpose
of a notice of a motion is to avoid surprises on the
opposite party and to give him time to study and
meet the arguments.[24] In a motion to cross-
examine, the adverse party has the right not only
to prepare a meaningful opposition to the motion
but also to be informed that his witness is being
recalled for cross-examination. The proof of
service was therefore indispensable and the trial
court was correct in denying the oral
manifestation to grant the motion for cross-
examination.
We find no justifiable reason to relax the
application of the rule on notice of motions [25] to
this case. The BANK could have easily re-filed
the motion to cross-examine with the requisite
notice to Marcos. It did not do so. The BANK did
not make good its threat to elevate the denial to a
higher court. The BANK waited until the trial court
rendered a judgment on the merits before
questioning the interlocutory order of denial.
While the right to cross-examine is a vital
element of procedural due process, the right does
not necessarily require an actual cross-
examination, but merely an opportunity to
exercise this right if desired by the party entitled
to it.[26] Clearly, the BANKs failure to cross-
examine is imputable to the BANK when it lost
this right[27] as it was in default and failed
thereafter to exhaust the remedies to secure the
exercise of this right at the earliest opportunity.
The two other procedural lapses that the
BANK attributes to the appellate and trial courts
deserve scant consideration.
The BANK raises for the very first time the
issue of judicial admission on the part of
Marcos. The BANK even has the audacity to fault
the Court of Appeals for not ruling on this issue
when it never raised this matter before the
appellate court or before the trial
court. Obviously, this issue is only an
afterthought. An issue raised for the first time on
appeal and not raised timely in the proceedings in
the lower court is barred by estoppel.[28]
The BANK cannot claim that Marcos had
admitted the due execution of the documents
attached to its answer because the BANK filed its
answer late and even failed to serve it on
Marcos. The BANKs answer, including the
actionable documents it pleaded and attached to
its answer, was a mere scrap of paper. There was
nothing that Marcos could specifically deny under
oath. Marcos had already completed the
presentation of his evidence when the trial court
lifted the order of default and admitted the BANKs
answer. The provision of the Rules of Court
governing admission of actionable documents
was not enacted to reward a party in default. We
will not allow a party to gain an advantage from
its disregard of the rules.
As to the issue of its right to present
additional evidence, we agree with the Court of
Appeals that the trial court correctly ruled that the
BANK had waived this right. The BANK cannot
now claim that it was deprived of its right to
conduct a re-direct examination of
Pagsaligan. The BANK postponed the hearings
three times[29] because of its inability to secure
Pagsaligans presence during the hearings. The
BANK could have presented another witness or
its other evidence but it obstinately insisted on the
resetting of the hearing because of Pagsaligans
absence allegedly due to illness.
The BANKs propensity for postponements
had long delayed the case. Its motion for
postponement based on Pagsaligans illness was
not even supported by documentary evidence
such as a medical certificate. Documentary
evidence of the illness is necessary before the
trial court could rule that there is a sufficient basis
to grant the postponement.[30]
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting
his time deposits with a fictitious promissory
note. The existence of Promissory Note No. 20-
979-83 could have been easily proven had the
BANK presented the original copies of the
promissory note and its supporting evidence. In
lieu of the original copies, the BANK presented
the machine copies of the duplicate of the
documents. These substitute documents have no
evidentiary value. The BANKs failure to explain
the absence of the original documents and to
maintain a record of the offsetting of this loan with
the time deposits bring to fore the BANKs dismal
failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General
Banking Law of 2000) expressly imposes this
fiduciary duty on banks when it declares that the
State recognizes the fiduciary nature of banking
that requires high standards of integrity and
performance. This statutory declaration merely
echoes the earlier pronouncement of the
Supreme Court in Simex International (Manila)
Inc. v. Court of Appeals[31] requiring banks to
treat the accounts of its depositors with
meticulous care, always having in mind the
fiduciary nature of their relationship.[32] The Court
reiterated this fiduciary duty of banks in
subsequent cases.[33]
Although RA No. 8791 took effect only in the
year 2000,[34] at the time that the BANK
transacted with Marcos, jurisprudence had
already imposed on banks the same high
standard of diligence required under RA No.
8791.[35] 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. Thus, the
BANKs fiduciary duty imposes upon it a higher
level of accountability than that expected of
Marcos, a businessman, who negligently signed
blank forms and entrusted his certificates of time
deposits to Pagsaligan without retaining copies of
the certificates.
The business of banking is imbued with
public interest. The stability of banks largely
depends on the confidence of the people in the
honesty and efficiency of banks. In Simex
International (Manila) Inc. v. Court of
Appeals[36] we pointed out the depositors
reasonable expectations from a bank and the
banks corresponding duty to its depositor, as
follows:
In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs.
As the BANKs depositor, Marcos had the
right to expect that the BANK was accurately
recording his transactions with it. Upon the
maturity of his time deposits, Marcos also had the
right to withdraw the amount due him after the
BANK had correctly debited his outstanding
obligations from his time deposits.
By the very nature of its business, the BANK
should have had in its possession the original
copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of
the loan with the time deposits of Marcos. The
BANK inexplicably failed to produce the original
copies of these documents. Clearly, the BANK
failed to treat the account of Marcos with
meticulous care.
The BANK claims that it is a reputable
banking institution and that it has no reason to
forge Promissory Note No. 20-979-83. The trial
court and appellate court did not rule that it was
the bank that forged the promissory note. It was
Pagsaligan, the BANKs branch manager and a
close friend of Marcos, whom the trial court
categorically blamed for the fictitious loan
agreements. The trial court held that Pagsaligan
made up the loan agreement to cover up his
inability to account for the time deposits of
Marcos.
Whether it was the BANKs negligence and
inefficiency or Pagsaligans misdeed that deprived
Marcos of the amount due him will not excuse the
BANK from its obligation to return to Marcos the
correct amount of his time deposits with
interest. The duty to observe high standards of
integrity and performance imposes on the BANK
that obligation. The BANK cannot also unjustly
enrich itself by keeping Marcos money.
Assuming Pagsaligan was behind the
spurious promissory note, the BANK would still
be accountable to Marcos. We have held that a
bank is liable for the wrongful acts of its officers
done in the interest of the bank or in their dealings
as bank representatives but not for acts outside
the scope of their authority.[37] Thus, we held:
A bank holding out its officers and agents as worthy
of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the
apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a
banking corporation is liable to innocent third
persons where the representation is made in the
course of its business by an agent acting within the
general scope of his authority even though, in the
particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud upon
his principal or some other person, for his own
ultimate benefit.[38]
The Existence of Promissory Note No. 20-
979-83 was not Proven
The BANK failed to produce the best
evidence the original copies of the loan
application and promissory note. The Best
Evidence Rule provides that the court shall not
receive any evidence that is merely
substitutionary in its nature, such as photocopies,
as long as the original evidence can be
had.[39] Absent a clear showing that the original
writing has been lost, destroyed or cannot be
produced in court, the photocopy must be
disregarded, being unworthy of any probative
value and being an inadmissible piece of
evidence.[40]
What the BANK presented were merely the
machine copies of the duplicate of the loan
application and promissory note. No explanation
was ever offered by the BANK for its inability to
produce the original copies of the documentary
evidence. The BANK also did not comply with the
orders of the trial court to submit the originals.
The purpose of the rule requiring the
production of the best evidence is the prevention
of fraud.[41] If a party is in possession of evidence
and withholds it, and seeks to substitute inferior
evidence in its place, the presumption naturally
arises that the better evidence is withheld for
fraudulent purposes, which its production would
expose and defeat.[42]
The absence of the original of the
documentary evidence casts suspicion on the
existence of Promissory Note No. 20-979-83
considering the BANKs fiduciary duty to keep
efficiently a record of its transactions with its
depositors. Moreover, the circumstances
enumerated by the trial court bolster the
conclusion that Promissory Note No. 20-979-83
is bogus. The BANK has only itself to blame for
the dearth of competent proof to establish the
existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute
the ruling of the Court of Appeals that the total
amount of time deposits that Marcos placed with
the BANK is only P764,897.67 and
not P1,429,795.34 as found by the trial court. The
BANK has always argued that Marcos time
deposits only totalled P764,897.67.[43] What the
BANK insists on in this petition is the trial courts
violation of its right to procedural due process and
the absence of any obligation to pay or return
anything to Marcos. Marcos, on the other hand,
merely prays for the affirmation of either the trial
court or appellate court decision.[44] We uphold
the finding of the Court of Appeals as to the
amount of the time deposits as such finding is in
accord with the evidence on record.
Marcos claimed that the certificates of time
deposit were with Pagsaligan for
safekeeping. Marcos was only able to present the
receipt dated 11 March 1982 and the letter-
certification dated 12 March 1982 to prove the
total amount of his time deposits with the
BANK. The letter-certification issued by
Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your
behalf various Time Deposit Certificates with an
aggregate value of PESOS: SEVEN HUNDRED
SIXTY FOUR THOUSAND EIGHT HUNDRED
NINETY SEVEN AND 67/100 (P764,897.67)
ONLY, issued today for 90 days at 17% p.a. with the
interest payable at maturity on June 10, 1982.
Thank you.
Sgd.
FLORENCIO B. PAGSALIGAN
Branch
Manager[45]
The foregoing certification is clear. The total
amount of time deposits of Marcos as of 12 March
1982 is P764,897.67, inclusive of the sum
of P664,987.67 that Marcos placed on time
deposit on 11 March 1982. This is plainly seen
from the use of the word aggregate.
We are not swayed by Marcos testimony that
the certification is actually for the first time deposit
that he placed on 11 March 1982. The letter-
certification speaks of various Time Deposits
Certificates with an aggregate value
of P764,897.67. If the amount stated in the letter-
certification is for a single time deposit only, and
did not include the 11 March 1982 time deposit,
then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a
businessman. While he already made an error in
judgment in entrusting to Pagsaligan the
certificates of time deposits, Marcos should have
known the importance of making the letter-
certification reflect the true nature of the
transaction. Marcos is bound by the letter-
certification since he was the one who prodded
Pagsaligan to issue it.
We modify the amount that the Court of
Appeals ordered the BANK to return to
Marcos. The appellate court did not offset Marcos
outstanding debt with the BANK covered by the
three trust receipt agreements even though
Marcos admits his obligation under the three trust
receipt agreements. The total amount of the trust
receipts is P851,250 less the 30% marginal
deposit of P255,375 that Marcos had already
paid the BANK. This reduced Marcos total debt
with the BANK to P595,875 under the trust
receipts.
The trial and appellate courts found that the
parties did not agree on the imposition of interest
on the loan covered by the trust receipts and thus
no interest is due on this loan. However, the
records show that the three trust receipt
agreements contained stipulations for the
payment of interest but the parties failed to fill up
the blank spaces on the rate of interest. Put
differently, the BANK and Marcos expressly
agreed in writing on the payment of
interest[46] without, however, specifying the rate of
interest. We, therefore, impose the legal interest
of 12% per annum, the legal interest for the
forbearance of money,[47] on each of the three
trust receipts.
Based on Marcos testimony[48] and the
BANKs letter of demand,[49] the trust receipt
agreements became due in March 1987. The
records do not show exactly when in March 1987
the obligation became due. In accordance with
Article 2212 of the Civil Code, in such a case the
court shall fix the period of the duration of the
obligation.[50] The BANKs letter of demand is
dated 6 March 1989. We hold that the trust
receipts became due on 6 March 1987.
Marcos payment of the marginal deposit
of P255,375 for the trust receipts resulted in the
proportionate reduction of the three trust
receipts. The reduced value of the trust receipts
and their respective interest as of 6 March 1987
are as follows:
1. Trust Receipt No. CD 83.7 issued on 8
March 1983 originally for P300,000 was
reduced to P210,618.75 with interest
of P101,027.76.[51]
2. Trust Receipt No. CD 83.9 issued on 15
March 1983 originally for P300,000 was
reduced to P210,618.75 with interest
of P100,543.04.[52]
3. Trust Receipt No. CD 83.10 issued on
15 March 1983 originally for P251,250
was reduced to P174,637.5 with interest
of P83,366.68. [53]
When the trust receipts became due on 6 March
1987, Marcos owed the BANK P880,812.48. This
amount included P595,875, the principal value of
the three trust receipts after payment of the
marginal deposit, and P284,937.48, the interest
then due on the three trust receipts.
Upon maturity of the three trust receipts, the
BANK should have automatically deducted, by
way of offsetting, Marcos outstanding debt to the
BANK from his time deposits and its accumulated
interest. Marcos time deposits of P764,897.67
had already earned interest[54] of P616,318.92 as
of 6 March 1987.[55] Thus, Marcos total funds with
the BANK amounted to P1,381,216.59 as of the
maturity of the trust receipts. After
deducting P880,812.48, the amount Marcos
owed the BANK, from Marcos funds with the
BANK of P1,381,216.59, Marcos remaining time
deposits as of 6 March 1987 is only P500,404.11.
The accumulated interest on this P500,404.11 as
of 30 August 1989, the date of filing of Marcos
complaint with the trial court,
is P211,622.96.[56] From 30 August 1989, the
interest due on the accumulated interest
of P211,622.96 should earn legal interest at
12% per annum pursuant to Article 2212[57] of the
Civil Code.
The BANKs dismal failure to account for
Marcos money justifies the award of moral[58] and
exemplary damages.[59] Certainly, the BANK, as
employer, is liable for the negligence or the
misdeed of its branch manager which caused
Marcos mental anguish and serious
anxiety.[60] Moral damages of P100,000 is
reasonable and is in accord with our rulings in
similar cases involving banks negligence with
regard to the accounts of their depositors.[61]
We also award P20,000 to Marcos as
exemplary damages. The law allows the grant of
exemplary damages by way of example for the
public good.[62] The public relies on the banks
fiduciary duty to observe the highest degree of
diligence. The banking sector is expected to
maintain at all times this high level of
meticulousness.[63]
WHEREFORE, the decision of the Court of
Appeals is AFFIRMED with MODIFICATION.
Petitioner Philippine Banking Corporation is
ordered to return to private respondent Leonilo
Marcos P500,404.11, the remaining principal
amount of his time deposits, with interest at
17% per annum from 30 August 1989 until full
payment. Petitioner Philippine Banking
Corporation is also ordered to pay to private
respondent Leonilo Marcos P211,622.96, the
accumulated interest as of 30 August 1989, plus
12% legal interest per annum from 30 August
1989 until full payment. Petitioner Philippine
Banking Corporation is further ordered to
pay P100,000 by way of moral damages
and P20,000 as exemplary damages to private
respondent Leonilo Marcos.
Costs against petitioner.
SO ODERED.

SECOND DIVISION
[G.R. NO. 176434 : June 25, 2008]
BANK OF THE PHILIPPINE
ISLANDS, Petitioner, v. LIFETIME MARKETING
CORPORATION, Respondent.
DECISION
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.
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, 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 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.3Citing 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 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
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, 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 on appeal. The exceptions to this
rule, such as where there are (1) errors affecting
the lower court's jurisdiction over the subject
matter, (2) plain errors not specified, and (3)
clerical errors, do not apply in this case.17

WHEREFORE, the Decision of the Court of

Appeals in CA-G.R. CV No. 62769 dated 31 July
2006 and its Resolution dated January 30, 2007
are AFFIRMED with the MODIFICATION that the
Bank of the Philippine Islands is ordered to pay
actual damages to Lifetime

Marketing Corporation in the amount of One

Million Pesos (P1,000,000.00). No pronouncement
as to costs.

SO ORDERED.
 SECOND DIVISION
[G.R. NO. 141835 : February 4, 2009]
CENTRAL BANK OF THE
PHILIPPINES, Petitioner, v. CITYTRUST
BANKING CORPORATION,Respondent.
DECISION
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central
Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank,
maintained a demand deposit account with
petitioner Central Bank of the Philippines, now
Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with
the names and corresponding signatures of five of
its officers authorized to sign checks and serve as
drawers and indorsers for its account. And it
provided petitioner with the list and
corresponding signatures of its roving tellers
authorized to withdraw, sign receipts and perform
other transactions on its behalf. Petitioner later
issued security identification cards to the roving
tellers one of whom was "Rounceval Flores"
(Flores).
On July 15, 1977, Flores presented for payment
to petitioner's Senior Teller Iluminada dela Cruz
(Iluminada) two Citytrust checks of even date,
payable to Citytrust, one in the amount
of P850,000 and the other in the amount
of P900,000, both of which were signed and
indorsed by Citytrust's authorized signatory-
drawers.
After the checks were certified by petitioner's
Accounting Department, Iluminada verified them,
prepared the cash transfer slip on which she
affixed her signature, stamped the checks with
the notation "Received Payment" and asked
Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however,
Flores signed as "Rosauro C. Cayabyab" - a fact
Iluminada failed to notice.ςηαñrο blεš ν ιr� υα l l αω lιbrα rÿ
Iluminada thereupon sent the cash transfer slip
and checks to petitioner's Cash Department
where an officer verified and compared the
drawers' signatures on the checks against their
specimen signatures provided by Citytrust, and
finding the same in order, approved the cash
transfer slip and paid the corresponding amounts
to Flores. Petitioner then debited the amount of
the checks totaling P1,750,000 from Citytrust's
demand deposit account.
More than a year and nine months later,
Citytrust, by letter dated April 23, 1979, alleging
that the checks were already cancelled because
they were stolen, demanded petitioner to restore
the amounts covered thereby to its demand
deposit account. Petitioner did not heed the
demand, however.
Citytrust later filed a complaint for estafa, with
reservation on the filing of a separate civil action,
against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial
Court (RTC) of Manila a complaint for recovery of
sum of money with damages against petitioner
which it alleged erred in encashing the checks and
in charging the proceeds thereof to its account,
despite the lack of authority of "Rosauro C.
Cayabyab."
By Decision1 of November 13, 1991, Branch 32 of
the RTC of Manila found both Citytrust and
petitioner negligent and accordingly held them
equally liable for the loss. Both parties appealed
to the Court of Appeals which, by Decision2 dated
July 16, 1999, affirmed the trial court's decision,
it holding that both parties contributed equally to
the fraudulent encashment of the checks, hence,
they should equally share the loss in consonance
with Article 21793 vis a vis Article 11724 of the
Civil Code.
In arriving at its Decision, the appellate court
noted that while "Citytrust failed to take adequate
precautionary measures to prevent the fraudulent
encashment of its checks," petitioner was not
entirely blame-free in light of its failure to verify
the signature of Citytrust's agent authorized to
receive payment.
Brushing aside petitioner's contention that it
cannot be sued, the appellate court held that
petitioner's Charter specifically clothes it with the
power to sue and be sued.
Also brushing aside petitioner's assertion that
Citytrust's reservation of the filing of a separate
civil action against Flores precluded Citytrust from
filing the civil action against it, the appellate court
held that the "action for the recovery of sum of
money is separate and distinct and is grounded
on a separate cause of action from that of the
criminal case for estafa."
Hence, the present appeal, petitioner maintaining
that Flores having been an authorized roving
teller, Citytrust is bound by his acts. Also
maintaining that it was not negligent in releasing
the proceeds of the checks to Flores, the failure of
its teller to properly verify his signature
notwithstanding, petitioner contends that
verification could be dispensed with, Flores having
been known to be an authorized roving teller of
Citytrust who had had numerous transactions
with it (petitioner) on its (Citytrust's) behalf for
five years prior to the questioned transaction.
Attributing negligence solely to Citytrust,
petitioner harps on Citytrust's allowing Flores to
steal the checks and failing to timely cancel them;
allowing Flores to wear the issued identification
card issued by it (petitioner); failing to report
Flores' absence from work on the day of the
incident; and failing to explain the circumstances
surrounding the supposed theft and cancellation
of the checks.
Drawing attention to Citytrust's considerable
delay in demanding the restoration of the
proceeds of the checks, petitioners argue that,
assuming arguendo that its teller was negligent,
Citytrust's negligence, which preceded that
committed by the teller, was the proximate cause
of the loss or fraud.
The petition is bereft of merit.
Petitioner's teller Iluminada did not verify Flores'
signature on the flimsy excuse that Flores had
had previous transactions with it for a number of
years. That circumstance did not excuse the teller
from focusing attention to or at least glancing at
Flores as he was signing, and to satisfy herself
that the signature he had just affixed matched
that of his specimen signature. Had she done
that, she would have readily been put on notice
that Flores was affixing, not his but a fictitious
signature.
Given that petitioner is the government body
mandated to supervise and regulate banking and
other financial institutions, this Court's ruling in
Consolidated Bank and Trust Corporation v. Court
of Appeals5illumines:
WHEREFORE, the assailed Court of Appeals
Decision of July 16, 1999 is hereby AFFIRMED
with MODIFICATION, in that petitioner and
Citytrust should bear the loss on a 60-40 ratio.
SO ORDERED.

The contract between the bank and its depositor

is governed by the provisions of the Civil Code on
simple loan. Article 1980 of the Civil Code
expressly provides that "x x x savings x x x
deposits of money in banks and similar
institutions shall be governed by the provisions
concerning simple loan." There is a debtor-
creditor relationship between the bank and its
depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the
depositor on demand. The savings deposit
agreement between the bank and the depositor is
the contract that determines the rights and
obligations of the parties.

The law imposes on banks high standards in view

of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 ("RA 8791"), which took
effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that
requires high standards of integrity and
performance." This new provision in the general
banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v.
Court of Appeals, holding that "the bank is under
obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship."

This fiduciary relationship means that the bank's

obligation to observe "high standards of integrity
and performance" is deemed written into every
deposit agreement between a bank and its
depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence
higher than that of a good father of a family.
Article 1172 of the Civil Code states that the
degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the
statutory diligence required from banks - that
banks must observe "high standards of integrity
and performance" in servicing their depositors.
Although RA 8791 took effect almost nine years
after the unauthorized withdrawal of
the P300,000 from L.C. Diaz's savings account,
jurisprudence at the time of the withdrawal
already imposed on banks the same high
standard of diligence required under RA No. 8791.
(Emphasis supplied) c ralawl ibra ry

Citytrust's failure to timely examine its account,

cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioner's
liability, in accordance with Article 2179 of the
Civil Code which provides that if the plaintiff's
negligence was only contributory, the immediate
and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may
recover damages, but the courts shall mitigate
the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or
subsequent encashment, their proceeds or part
thereof could have been recovered.

In line with the ruling in Consolidated Bank, the

Court deems it proper to allocate the loss
between petitioner and Citytrust on a 60-40 ratio.