Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170598 October 9, 2013

FAR EAST BANK TRUST COMPANY, Petitioner,

vs.
ROBERTO MAR CHANTE, a.k.a. ROBERT MAR G. CHAN, Respondents.

DECISION

BERSAMIN, J.:

In this dispute between a. bank and its depositor over liability for several supposedly fraudulent
withdrawals from the latter s account through an automated tellering machine (ATM), we hereby
resolve the issue of liability against the bank because of the intervention of a system bug that
facilitated the purported withdrawals.

The Case

Under review on certiorari is the decision promulgated on August l, 2005,1 whereby the Court of
Appeals (CA) reversed the judgment the Regional Trial Court, Branch 51, in Manila (RTC) rendered
in favor of the petitioner on May 14, 1998 in Civil Case No. 92-61706.2 Thereby, the CA relieved the
depositor of any liability for the supposedly fraudulent withdrawals.

Antecedents

Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current account depositor of
petitioner Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch (Current Account No. 5012-
00340-3). FEBTC issued to him Far East Card No. 05-01120-5-0 with July 1993 as the expiry date.
The card, known as a "Do-It-All" card to handle credit card and ATM transactions, was tagged in his
current account. As a security feature, a personal identification number (PIN), known only to Chan
as the depositor, was required in order to gain access to the account. Upon the card’s issuance,
FEBTC required him as the depositor to key in the six-digit PIN. Thus, with the use of his card and
the PIN, he could then deposit and withdraw funds from his current account from any FEBTC ATM
facility, including the MEGALINK facilities of other member banks that included the Philippine
National Bank (PNB).

Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East Bank & Trust Co.
(FEBTC) on July 1, 1992 in the RTC,3 to recover from Chan the principal sum of ₱770,488.30
representing the unpaid balance of the amount fraudulently withdrawn from Chan’s Current Account
No. 5012-00340-3 with the use of Far East Card No. 05-01120-5-0.

FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992, Chan had
used Far East Card No. 05-01120-5-0 to withdraw funds totaling ₱967,000.00 from the PNB-
MEGALINK ATM facility at the Manila Pavilion Hotel in Manila; that the withdrawals were done in a
series of 242 transactions with the use of the same machine, at ₱4,000.00/withdrawal, except for
transaction No. 108 at 3:51 a.m. of May 5, 1992, when the machine dispensed only ₱3,000.00; that
MEGALINK’S journal tapes showed that Far East Card No. 05-01120-5-0 had been used in all the
242 transactions; and that the transactions were processed and recorded by the respective
computer systems of PNB and MEGALINK despite the following circumstances, namely: (a) the
offline status of the branch of account (FEBTC Ongpin Branch); (b) Chan’s account balance being
only ₱198,511.70 at the time, as shown in the bank statement; (c) the maximum withdrawal limit of
the ATM facility being ₱50,000.00/day; and (d) his withdrawal transactions not being reflected in his
account, and no debits or deductions from his current account with the FEBTC Ongpin Branch being
recorded.

FEBTC added that at the time of the ATM withdrawal transactions, there was an error in its computer
system known as "system bug" whose nature had allowed Chan to successfully withdraw funds in
excess of his current credit balance of ₱198,511.70; and that Chan had taken advantage of the
system bug to do the withdrawal transactions.

On his part, Chan denied liability. Although admitting his physical possession of Far East Card No.
05-01120-5-0 on May 4 and May 5, 1992, he denied making the ATM withdrawals totaling
₱967,000.00, and instead insisted that he had been actually home at the time of the withdrawals. He
alluded to a possible "inside job" as the cause of the supposed withdrawals, citing a newspaper
report to the effect that an employee of FEBTC’s had admitted having debited accounts of its
depositors by using his knowledge of computers as well as information available to him. Chan
claimed that it would be physically impossible for any human being like him to stand long hours in
front of the ATM facility just to withdraw funds. He contested the debiting of his account, stating that
the debiting had affected his business and had caused him to suffer great humiliation after the
dishonor of his sufficiently-funded checks by FEBTC.

The records show that FEBTC discovered the system bug only after its routine reconciliation of the
ATM-MEGALINK transactions on May 7, 1992; that it immediately adopted remedial and corrective
measures to protect its interest in order to avoid incurring further damage as well as to prevent a
recurrence of the incident; that one of the measures it adopted pursuant to its ATM Service
Agreement with Chan was to program its computer system to repossess his ATM card; that his ATM
card was repossessed at the Ermita Branch of FEBTC when he again attempted to withdraw at the
ATM facility there; that the ATM facility retained his ATM card until its recovery by the bank; and that
FEBTC conducted an in-depth investigation and a time-and-motion study of the withdrawals in
question.

On May 14, 1992, FEBTC debited his current account in the amount of ₱192,517.20 pursuant to
Chan’s ATM Service Agreement. It debited the further sum of ₱3,000.00 on May 18, 1992, leaving
the unrecovered portion of the funds allegedly withdrawn by him at ₱770,488.30. Thus, on May 14
and May 18, 1992, FEBTC sent to Chan letters demanding the reimbursement of the unrecovered
balance of ₱770,488.30, but he turned a deaf ear to the demands, impelling it to bring this case on
July 1, 1992.4

Ruling of the RTC

As reflected in the pre-trial order of October 19, 1992, the issues to be resolved were, firstly, whether
or not Chan had himself withdrawn the total sum of ₱967,000.00 with the use of his Far East Card
No. 05-01120-5-0 at the PNB-MEGALINK ATM facility; and, secondly, if the answer to the first issue
was that he did, whether or not he was liable to reimburse to FEBTC the amount of ₱770,488.30 as
actual damages, plus interest.5

On May 14, 1998, the RTC rendered judgment in favor of FEBTC, pertinently holding and ruling as
follows:6
In the instant case, what happened was that the defendant who was at the U.N. Branch of the PNB
used his card. He entered his PIN to have access to a withdrawal transaction from his account in Far
East Bank, Ongpin Branch. However, after recognizing the card and went to the path of his account
it could not get a signal to proceed with the transaction so it proceeded to the other path who gave
the signal to go on and dispense money. But there was a computer error as it did not only dispense
the money limit for the day buty it continued to dispense a lot more until it reached the amount of
₱967,000.00 which took the defendant till the hours of the morning to obtain. But defendant says he
did not use his card. He alleges that it could be an inside job just like what happened to the said
bank which was published in the newspaper wherein the bank employee admitted having done the
theft through his knowledge of the computer. Could this be true?

The Court opines that it is not far-fetched. However why did this Court state that plaintiff’s cause of
action will survive? The action of the defendant after the incident gave him away. Merely two days
after the heavy withdrawal, the defendant returned not at the exact scene of the incident but at a
nearby branch which is also in Ermita and tried again to withdraw. But at this time the bank already
knew what happened so it blocked the card and retained it being a hot card. The defendant was not
successful this time so what he did was to issue a check almost for the whole amount of his balance
in his account leaving only a minimal amount. This incident puzzles the Court. Maybe the defendant
was hoping that the machine nearby may likewise dispense so much amount without being detected.
He will not definitely go back to the U.N. branch as he may think that it is being watched and so he
went to a nearby branch. Unfortunately, luck was not with him this time and his card was taken by
the bank. The fact that he hastily withdrew the balance of his account after his card was retained by
the bank only showed his knowledge that the bank may debit his account. It also showed his intent
to do something further other than first inquire why his card was considered a hot card if he is really
innocent. When he went to the Ermita branch to withdraw from the ATM booth he was intending to
withdraw not more than ₱50,000.00 as it is the bank’s limit for the day and if ever he needed a
bigger amount than ₱50,000.00 immediately he should have gone to the branch for an over the
counter transaction but he did not do so and instead issued a check for ₱190,000.00 dated May 7,
1992 and another check for ₱5,000.00 dated May 13, 1992. To the mind of the Court, to take
advantage of a computer error, to gain sudden and undeserved amount of money should be
condemned in the strongest terms.

There are no available precedents in this case regarding computer errors, but the Court feels that
defendant should be held liable for the mistaken amount he was able to get from the machine based
on the following provisions of the law.

Articles 19, 21, 22 and 23 of the Civil Code x x x.

xxxx

There is likewise one point that the Court would like to discuss about the allegation of the defendant
that it was impossible for him to withdraw the money in such long period and almost minute after
minute. This Court believes that money is the least of all, a person may give priority in life. There are
many who would sacrifice a lot just to have lots of it, so it would not be impossible for one to take
time, stand for several hours and just enter some items in the computer if the return would be
something like a million or close to a million. In fact, the effort exerted was just peanuts compared to
other legitimate ways of earning a living as the only capital or means used to obtain it was the
defendant’s loss of sleep and the time spent in withdrawing the same. Moreover, though the cause
of action in this case may be the erroneous dispensation of money due to computer bug which is not
of defendant’s wrong doing, the Court sees that what was wrong was the failure to return the amount
in excess of what was legally his. There is such a thing as JUSTICE. Justice means rendering to
others their due. A person is just when he is careful about respecting the rights of others, and who
knows too, how to claim what he rightfully deserves as a consequence of fulfilling his duties.

From the foregoing, the conclusion is manifest that plaintiff is within its right in initiating the instant
suit, as defendant’s refusal to pay the claim constitutes the cause of action for sum of money.

xxxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Far East Bank and Trust
Company and against the defendant Robert Mar Chante a.k.a. Robert Mar G. Chan ordering the
latter to pay the former the following:

1. the amount of ₱770,488.30 as actual damages representing the unrecovered balance of

the amounts withdrawn by defendant;

2. interest of 24% per annum on the actual damages from July 1, 1992, the date of the filing
of the complaint until fully paid;

3. the amount of ₱100,000.00 as exemplary damages;

4. the sum of ₱30,000.00 as and for attorney’s fees; and

5. the costs of the suit. Defendant’s counterclaim is hereby dismissed for lack of merit.

SO ORDERED.

Ruling of the CA

Chan appealed,7 assigning the following errors to the RTC, to wit:

1. THE TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE FOR THE

ALLEGED WITHDRAWAL OF THE AMOUNT OF ₱967,000.00 WITH INTEREST AT THE
RATE OF 24% PER ANNUM BASED MERELY ON CONJECTURES AND SUSPICIONS
NOT ESTABLISHED BY SOLID EVIDENCE;

2. THE TRIAL COURT ERRED IN AWARDING IN FAVOR OF APPELLEE EXEMPLARY

DAMAGES IN THE AMOUNT OF ₱100,000.00 AND ATTORNEY’S FEES IN THE AMOUNT
OF ₱30,000.00;

3. THE TRIAL COURT ERRED IN NOT ORDERING THE RESTITUTION OF THE AMOUNT
OF ₱196,521.30 ILLEGALLY DEBITED BY APPELLEE FROM APPELLANT’S ACCOUNT.

On August 1, 2005, the CA promulgated the assailed decision, reversing the RTC’s judgment, to wit:

x x x. The issues really before us are issues of contract application and issues of fact that would
require an examination and appreciation of the evidence presented. The first order therefore in our
review of the trial court’s decision is to take stock of the established and undisputed facts, and of the
evidence the parties have presented. We say this at the outset as we believe that it was in this
respect that the lower court failed in its consideration and appreciation of the case.
 xxxx

An evidentiary dilemma we face in this case is the fact that there is no direct evidence on the issue
of who made the actual withdrawals. Chan correctly claims that the bank failed to present any
witness testifying that he (Chan) made the actual withdrawals. At the same time, Chan can only rely
on his own uncorroborated testimony that he was at home on the night that withdrawals were made.
We recognize that the bank can claim that no other evidence of actual withdrawal is necessary
because the PIN unique to Chan is already evidence that only Chan or his authorized representative
– and none other – could have accessed his account. But at the same time, we cannot close our
eyes to the fact that computers and the ATM system is not perfect as shown by an incident cited by
Chan involving the FEBTC itself. Aside from the vulnerability to inside staff members, we take
judicial notice that no less than our own Central Bank has publicly warned banks about other
nefarious schemes involving ATM machines. In a March 7, 2003 letter, the Central Bank stated:

March 7, 2003

BSP CIRCULAR LETTER

TO : All Banks

SUBJECT : Technology Fraud on ATM Systems

Please be advised that there were incidents in other countries regarding technology fraud in ATM
systems perpetrated by unscrupulous individuals and/ or syndicates.

These acts are carried out by:

1. A specialized scanner attached to the ATM card slot, and;

2. A pinhole camera

xxxx

In light of the absence of conclusive direct evidence of actual withdrawal that we can rely upon, we
have to depend on evidence "other than direct" to reach verdict in this case.

xxxx

WHEREFORE , premises considered, we hereby GRANT the appeal and accordingly REVERSE
and SET ASIDE the Decision dated May 14, 1998 of the Regional Trial Court of Manila, Branch 51,
in Civil Case No. 92-61706. We accordingly ORDER plaintiff-appellee Far East Bank and Trust
Company (FEBTC) to return to Chan the amount of Php196,571.30 plus 12% interest per annum
computed from August 7, 1992 – the time Chan filed his counterclaim – until the obligation is
satisfied. Costs against the plaintiff-appellee FEBTC.

SO ORDERED.8

FEBTC moved for reconsideration, but the CA denied its motion on November 24, 2005.9

Issues
Hence, FEBTC has appealed, urging the reversal of the CA’s adverse decision, and praying that
Chan be held liable for the withdrawals made from his account on May 4 and May 5, 1992; and that
it should not be held liable to return to Chan the sum of ₱196,571.30 debited from his account.

Ruling

The appeal lacks merit.

FEBTC would want us to hold that Chan had authored the May 4 and May 5, 1992 ATM withdrawals
based on the following attendant factors, namely: (a) ATM transactions were processed and
identified by the PIN, among others; (b) the PIN was exclusive and known only to the account
holder; (c) the ATM was tagged in the cardholder’s account where the ATM transactions were
debited or credited; (d) the account number tagged in the ATM card identified the cardholder; (e) the
ATM withdrawals were documented transactions; and (f) the transactions were strictly monitored and
recorded not only by FEBTC as the bank of account but also by the ATM machine and MEGALINK.
In other words, the ATM transactions in question would not be processed unless the PIN, which was
known only to Chan as the cardholder, had been correctly entered, an indication both that it was his
ATM card that had been used, and that all the transactions had been processed successfully by the
PNB-MEGALINK ATM facility at the Manila Pavilion Hotel with the use of the correct PIN.

We disagree with FEBTC.

Although there was no question that Chan had the physical possession of Far East Card No. 05-
01120-5-0 at the time of the withdrawals, the exclusive possession of the card alone did not suffice
to preponderantly establish that he had himself made the withdrawals, or that he had caused the
withdrawals to be made. In his answer, he denied using the card to withdraw funds from his account
on the dates in question, and averred that the withdrawals had been an "inside job." His denial
effectively traversed FEBTC’s claim of his direct and personal liability for the withdrawals, that it
would lose the case unless it competently and sufficiently established that he had personally made
the withdrawals himself, or that he had caused the withdrawals. In other words, it carried the burden
of proof.

Burden of proof is a term that refers to two separate and quite different concepts, namely: (a) the risk
of non-persuasion, or the burden of persuasion, or simply persuasion burden; and (b) the duty of
producing evidence, or the burden of going forward with the evidence, or simply the production
burden or the burden of evidence.10 In its first concept, it is the duty to establish the truth of a given
proposition or issue by such a quantum of evidence as the law demands in the case at which the
issue arises.11 In its other concept, it is the duty of producing evidence at the beginning or at any
subsequent stage of trial in order to make or meet a prima facie case. Generally speaking, burden of
proof in its second concept passes from party to party as the case progresses, while in its first
concept it rests throughout upon the party asserting the affirmative of the issue.12

The party who alleges an affirmative fact has the burden of proving it because mere allegation of the
fact is not evidence of it.13 Verily, the party who asserts, not he who denies, must prove.14

In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on
either side.15This is because our system frees the trier of facts from the responsibility of investigating
and presenting the facts and arguments, placing that responsibility entirely upon the respective
parties.16 The burden of proof, which may either be on the plaintiff or the defendant, is on the plaintiff
if the defendant denies the factual allegations of the complaint in the manner required by the Rules
of Court; or on the defendant if he admits expressly or impliedly the essential allegations but raises
an affirmative defense or defenses, that, if proved, would exculpate him from liability.17
Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil actions, and
delineates how preponderance of evidence is determined, viz :

Section 1. In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or superior weight of evidence
on the issues involved lies, the court may consider all the facts and circumstances of the case, the
witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts
to which they are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the greater number. (Emphasis
supplied)

As the rule indicates, preponderant evidence refers to evidence that is of greater weight, or more
convincing, than the evidence offered in opposition to it.18 It is proof that leads the trier of facts to find
that the existence of the contested fact is more probable than its nonexistence.19

Being the plaintiff, FEBTC must rely on the strength of its own evidence instead of upon the
weakness of Chan’s evidence. Its burden of proof thus required it to preponderantly demonstrate
that his ATM card had been used to make the withdrawals, and that he had used the ATM card and
PIN by himself or by another person to make the fraudulent withdrawals. Otherwise, it could not
recover from him any funds supposedly improperly withdrawn from the ATM account. We remind
that as a banking institution, FEBTC had the duty and responsibility to ensure the safety of the funds
it held in trust for its depositors. It could not avoid the duty or evade the responsibility because it
alone should bear the price for the fraud resulting from the system bug on account of its exclusive
control of its computer system.

Did FEBTC discharge its burden of proof?

The CA ruled that FEBTC did not because –

After a review of the records of this case, we find the totality of evidence submitted by FEBTC
insufficient to establish the crucial facts that would justify a judgment in its favor.

To our mind, the fact that Chan’s account number and ATM card number were the ones used for the
withdrawals, by itself, is not sufficient to support the conclusion that he should be deemed to have
made the withdrawals.

FEBTC offers in this regard the PNB ATM’s journal tapes to prove the withdrawals and their details –
the time of the transactions; the account number used; the ATM card number; and the amount
withdrawn – and at the same time declared that these tapes are authentic and genuine. These
tapes, however, are not as reliable as FEBTC represented them to be as they are not even internally
consistent. A disturbing internal discrepancy we note relates to the amounts reflected as "ledger
balance" and "available balance". We find it strange that for every 4,000.00 pesos allegedly
withdrawn by Chan, the available balance increased rather than diminished. Worse, the amount of
available balance as reflected in the tapes was way above the actual available balance of less than
Php200,000.00 that Chan’s current account had at that time. These discrepancies must inevitably
reflect on the integrity of the journal tapes; the proven inconsistencies in some aspects of these
tapes leave the other aspects suspect and uncertain.

But more than this, we are not convinced that the tapes lead us to the inevitable conclusion that
Chan’s card, rather than a replacement card containing Chan’s PIN and card number or some other
equivalent scheme, was used. To our mind, we cannot discount this possibility given the available
technology making computer fraud a possibility, the cited instances of computer security breaches,
the admitted system bug, and – most notably – the fact that the withdrawals were made under
circumstances that took advantage of the system bug. System errors of this kind, when taken
advantage of to the extent that had happened in this case, are planned for. Indeed, prior preparation
must take place to avoid suspicion and attention where the withdrawal was made for seven (7) long
hours in a place frequented by hundreds of guests, over 242 transactions where the physical volume
of the money withdrawn was not insignificant. To say that this was done by the owner of the account
based solely on the records of the transactions, is a convenient but not a convincing explanation.20

In our view, the CA’s ruling was correct.

To start with, Edgar Munarriz, FEBTC’s very own Systems Analyst, admitted that the bug infecting
the bank’s computer system had facilitated the fraudulent withdrawals.21 This admission impelled the
CA to thoroughly dissect the situation in order to determine the consequences of the intervention of
the system bug in FEBTC’s computer system. It ultimately determined thusly:

Significantly, FEBTC made the admission that there was a program bug in its computer system. To
digress, computers are run based on specific pre-arranged instructions or "programs" that act on
data or information that computer users input. Computers can only process these inputted data or
information according to the installed programs. Thus, computers are as efficient, as accurate and
as convenient to use as the instructions in their installed programs. They can count, sort, compute
and arrive at decisions but they do so only and strictly in accordance with the programs that make
them work. To cite an easy example, a computer can be programmed to sort a stack of cards
prepared by male and female clients, into male and female stacks, respectively. To do this, the
computer will first scan a card and look at the place ("a field") where the male/female information can
be found. This information may be in an appropriate box which the bank client checks or shades to
indicate if he/she is male or female. The computer will check if the box beside the word "Female" is
shaded. If it is, it will send the card to the "Female" bin. If the box beside the "male" is shaded, it will
send the card to the "Male" bin. If both the squares are shaded or none is shaded or the card cannot
be read, it will send the card to the "Unknown" bin. This way, the female cards and the male cards
can be sorted efficiently. However, the program instructions can be written in such a way that the
computer can only make two decisions, that is, if the Female box is shaded, then the card goes to
the "Female" bin; otherwise, the card goes to the "Male" bin. In this program, all the Female cards
will be sorted correctly but the Male bin will contain all the other cards, that is, the Male cards, the
cards with no shading at all, and all the other cards that cannot be classified.

The imperfect results arose from the imperfect program instructions or from a program "bug".
Something very close to this example happened in the present case.

According to the testimony of the FEBTC’s systems analyst, there were two computer programs that
were involved in the transactions: CAPDROTH and SCPUP 900. CAPDROTH is the program that
validates if the account exists in the FEBTC files, if the transaction is valid, and if the branch where
the account is maintained is ON-LINE (i.e. continuously sending data). When the Chan transaction
entered the system, it was validated by CAPDROTH which, on seeing that the FEBTC-Ongpin
branch was off-line, returned a decision code passing on the decision to authorize the transaction to
the SCPUP 900, another module. However, SCPUP 900 was not expecting this type of response or
decision code. As the SCPUP 900 program was originally written, it will send back an error message
and abort a requested transaction if it receives an error message from any other module; otherwise,
it will send a message authorizing the transaction. In other words, SCPUP 900 had only two
decisions to make: check if the message is an error message, if not then, authorize. Since what it
received in the disputed transactions were not error messages and were not also authorizations, it
sent back authorization messages allowing the cash withdrawals. It kept on sending authorization
messages for the 242 cash withdrawal transactions made from Chan’s account between the evening
of May 4 and early morning of May 5, 1992. This program bug was the reason the 242 cash
withdrawals were allowed by the PNB ATM-Megalink machine.

The program bug occurred because of the simultaneous presence of three conditions that allowed it
to happen: (1) the withdrawal transactions involved a current account; (2) the current account was
with a branch that at that time was off-line; and (3) the transaction originated from MEGALINK (i.e.,
through MEGALINK through a member bank other than FEBTC). Because of the bug, Chan’s
account was not accessed at the time of the transactions so that withdrawals in excess of what the
account contained were allowed. Additionally, FEBTC’s rule that only a maximum withdrawable
amount per day (in the present case ₱50,000.00 per day) can be made from an ATM account, was
by-passed. Thus, 242 withdrawals were made over an eight hour period, in the total amount of
₱967,000.00.22

Secondly, the RTC’s deductions on the cause of the withdrawals were faulty. In holding against
Chan, the RTC chiefly relied on inferences drawn from his acts subsequent to the series of
withdrawals, specifically his attempt to withdraw funds from his account at an FEBTC ATM facility in
Ermita, Manila barely two days after the questioned withdrawals; his issuance of a check for
₱190,000.00 immediately after the capture of his ATM card by the ATM facility; his failure to
immediately report the capture of his ATM card to FEBTC; and his going to FEBTC only after the
dishonor of the check he had issued following the freezing of his account. The inferences were not
warranted, however, because the subsequent acts would not persuasively establish his actual
participation in the withdrawals due to their being actually susceptible of other interpretations
consistent with his innocence.

We join the CA’s observation that Chan’s subsequent acts "could have been impelled by so many
reasons and motivations, and cannot simply be given the meaning that the lower court attributed to
them," and, instead, were even consistent with the purpose and nature of his maintaining the current
account deposit with FEBTC, rendering the acts "not unusual nor … illegal."23 Although he was
expected to forthwith bring his card’s capture to FEBTC’s attention, that he did not do so could have
other plausible explanations consistent with good faith, among them his being constantly occupied
as a businessman to attend to the multifarious activities of his business. He might have also honestly
believed that he still had the sufficient funds in his current account, as borne out by his issuance of a
check instead after the capture of the card so as not for him to undermine any financial obligation
then becoming due. Nor should his opting to withdraw funds from his account at the ATM facility in
Ermita in less than two days after the questioned withdrawals manifest responsibility on his part, for
he could also be properly presumed to be then still unaware of the situation involving his account.
We note that his letters24 written in response to FEBTC’s written demands to him disclosed honest
intentions rather than malice.

Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with the bug infection
of FEBTC’s computer system at the time of the withdrawals and adept with the workings of the
computer system had committed the fraud. This likelihood was not far-fetched considering that
FEBTC had immediately adopted corrective measures upon its discovery of the system bug, by
which FEBTC admitted its negligence in ensuring an error-free computer system; and that the
system bug had affected only the account of Chan.25 Truly, the trial court misapprehended the extent
to which the system bug had made the computer system of FEBTC stumble in serious error.

Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish that the PNB-
MEGALINK’s ATM facility at the Manila Pavilion Hotel had actually dispensed cash in the very
significantly large amount alleged during the series of questioned withdrawals. For sure, FEBTC
should have proved the actual dispensing of funds from the ATM facility as the factual basis for its
claim against Chan. It did require PNB to furnish a validated showing of the exact level of cash then
carried by the latter’s ATM facility in the Manila Pavilion Hotel on May 4, 1992.26 Yet, when PNB
employee Erwin Arellano stood as a witness for FEBTC, he confirmed the authenticity of the journal
tapes that had recorded Chan’s May 4 and May 5, 1992 supposed ATM transactions but did not
categorically state how much funds PNB-MEGALINK’s ATM facility at the Manila Pavilion Hotel had
exactly carried at the time of the withdrawals, particularly the amounts immediately preceding and
immediately following the series of withdrawals. The omission left a yawning gap in the evidence
against Chan.

And lastly, Chan’s allegation of an "inside job" accounting for the anomalous withdrawals should not
be quickly dismissed as unworthy of credence or weight. FEBTC employee Manuel Del Castillo,
another witness for FEBTC, revealed that FEBTC had previously encountered problems of bank
accounts being debited despite the absence of any withdrawal transactions by their owners. He
attributed the problems to the erroneous tagging of the affected accounts as somebody else’s
account, allowing the latter to withdraw from the affected accounts with the use of the latter’s own
ATM card, and to the former’s account being debited.27 The revelation of Del Castillo tended to
support Chan’s denial of liability, as it showed the possibility of withdrawals being made by another
person despite the PIN being an exclusive access number known only to the cardholder.28

It is true that Del Castillo also declared that FEBTC did not store the PINs of its clients’ ATM
cards. However, he mentioned that FEBTC had stored the opposite numbers corresponding to the
1âwphi1

PINs, which meant that the PINs did not remain entirely irretrievable at all times and in all cases by
any of its officers or employees with access to the bank’s computer system. Accordingly, Del
Castillo’s assertion that the PINs were rendered useless upon being entered in the bank’s computer
system did not entirely disclose how the information on the PINs of the depositors was stored or
discarded as to become useless for any purpose.

In view of the foregoing, FEBTC did not present preponderant evidence proving Chan’s liability for
the supposedly fraudulent withdrawals. It thus failed in discharging its burden of persuasion.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals; and DIRECTS the
petitioner to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

TERESITA J. LEONARDO-DE CASTRO BIENVENIDO L. REYES

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN*

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court s Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

* Vice Associate Justice Martin S. Villarama, Jr., who is on sick leave of absence, pursuant
to Special Order No. 1545 (Revised).

1Rollo pp. 42-63; penned by Associate Justice Arturo D. Brion (now a Member of this Court),
with Associate Justice Eugenio S. Labitoria (retired) and Associate Justice Eliezer R. De los
Santos (retired/deceased) concurring.

2 Id. at 75-82.

3 Records, pp. 1-7.

4 Supra note 3.

5 Records, p. 102.

6 Rollo, pp. 78-81 (bold emphasis is supplied).

7 CA rollo, pp. 34-52.

8 Supra note 1, at 48-63.

9 Rollo, pp. 65-68.

10 James, Jr., Burdens of Proof , 47 Virginia Law Review 51 (1961).

11 Giblin v. Dudley Hardware Co .,44 R.I. 371, 375, 117 A. 418, 419 (1922); see also People
v. Macagaling , G.R. No. 109131-33, October 3, 1994, 237 SCRA 299, 320.

12Id.; see also Birmingham Trust & Savings Co. v. Acacia Mutual Life Ass’n , 221 Ala. 561,
130 So. 327 (1930).

13Luxuria Homes, Inc. v. Court of Appeals , G.R. No. 125986, January 28, 1999, 302 SCRA
315, 325; Coronel v. Court of Appeals , G.R. No. 103577, October 7, 1996, 263 SCRA 15,
35.

14Martin v. Court of Appeals , G.R. No. 82248, January 30, 1992, 205 SCRA 591, 596;
Luxuria Homes, Inc. v. Court of Appeals , supra, at 327.
 15Pacific Banking Corporation Employees Organization v. Court of Appeals , G.R. No.
109373, March 27, 1998, 288 SCRA 198, 206.

16 James, Jr., supra, at 52.

17 Sambar v. Levi Straus & Co ., G.R. No. 132604, March 6, 2002, 378 SCRA 364, 371.

18 Jison v. Court of Appeals, G.R. No. 124853, February 24, 1998, 286 SCRA 495, 532.

19 2 McCormick on Evidence, Fifth Edition, §422.

20 Supra note 1, at 58-60 (bold emphasis is supplied).

21 TSN, July 16, 1993, pp. 70-84.

22 Supra note 1, at 51-53 (bold emphasis is supplied).

23 Rollo, p. 57.

24 Records, pp. 31-35.

25Per Eduardo Munarriz, TSN, October 18, 1993, pp. 72-75, only the account of Chan was
reported to FEBTC; per Irene Tan, TSN, October 10, 1994, pp. 21-22, the fraudulent
withdrawals from Chan’s account were the only bug-related problem received at FEBTC’s
Ongpin branch.

26 TSN, May 18, 1994, pp. 11-14.

27 TSN, March 31, 1993, pp. 26-29.

28 Id. at 29-30.

epublic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 119850 June 20, 1996

MANDARIN VILLA, INC., petitioner,

vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.

RESOLUTION
FRANCISCO, J.:p

With ample evidentiary support are the following antecedent facts:

In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and
businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa
Seafoods Village Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the
amount of P2,658.50. Private respondent offered to pay the bill through his credit card issued by
Philippine Commercial Credit Card Inc. (BANKARD). This card was accepted by the waiter who
immediately proceeded to the restaurant's cashier for card verification. Ten minutes later, however,
the waiter returned and audibly informed private respondent that his credit card had expired.1 Private
respondent remonstrated that said credit card had yet to expire on September 1990, as embossed
on its face. 2 The waiter was unmoved, thus, private respondent and two of his guests approached
the restaurant's cashier who again passed the credit card over the verification computer. The same
information was produced, i.e., CARD EXPIRED. Private respondent and his guests returned to their
table and at this juncture, Professor Lirag, another guest, uttered the following remarks:
"Clody [referring to Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng
pinggan?"3 Thereupon, private respondent left the restaurant and got his BPI Express Credit Card
from his car and offered it to pay their bill. This was accepted and honored by the cashier after
verification.4 Petitioner and his companions left afterwards.

The incident triggered the filing of a suit for damages by private respondent. Following a full-dress
trial, judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the
private respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the
amount of P100,000.00, and (c) attorney's fees and litigation expenses in the amount of P50,000.00.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a
decision, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED by:

1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;

2. Absolving appellant BANKARD of any responsibility for damages;

3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND

and 00/100 (P25,000.00) PESOS;

4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and

00/100 (P10,000.00) PESOS;

5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well
as interest awarded, and

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

Costs against appellant Mandarin.

SO ORDERED.5
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6)
assigned errors which may be reduced to the following issues, to wit: (1) whether or not petitioner is
bound to accept payment by means of credit card; (2) whether or not petitioner is negligent under
the circumstances obtaining in this case; and (3) if negligent, whether or not such negligence is the
proximate cause of the private respondent's damage.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's
BANKARD credit card, the same not being a legal tender. It argues that private respondent's offer to
pay by means of credit card partook of the nature of a proposal to novate an existing obligation for
which petitioner, as creditor, must first give its consent otherwise there will be no binding contract
between them. Petitioner cannot seek refuge behind this averment.

We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an
"Agreement"6 entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia:

The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it
provided that the card expiration date has not elapsed and the card number does not
appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI
credit cards and, no signs of tampering, alterations or irregularities appear on the
face of the credit card.7

While private respondent, may not be a party to the said agreement, the above-quoted stipulation
conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD.
This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code private respondent
may demand its fulfillment provided he communicated his acceptance to the petitioner before its
revocation.8 In this case, private respondent's offer to pay by means of his BANKARD credit card
constitutes not only an acceptance of the said stipulation but also an explicit communication of his
acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village
stating that "Bankard is accepted here.9 This representation is conclusive upon the petitioner which it
cannot deny or disprove as against the private respondent, the party relying thereon. Petitioner,
therefore, cannot disclaim its obligation to accept private respondent's BANKARD credit card without
violating the equitable principle of estoppel. 10

Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its
good faith in checking, not just once but twice, the validity of the aforementioned credit card prior to
its dishonor. It argues that since the verification machine flashed an information that the credit card
has expired, petitioner could not be expected to honor the same much less be adjudged negligent
for dishonoring it. Further, petitioner asseverates that it only followed the guidelines and instructions
issued by BANKARD in dishonoring the aforementioned credit card. The argument is untenable.

The test for determining the existence of negligence in a particular case may be stated as follows:
Did the defendant in doing the alleged negligent act use the reasonable care and caution which an
ordinary prudent person would have used in the same situation? If not, then he is guilty of
negligence. 11 The Point of Sale (POS) Guidelines which outlined the steps that petitioner must follow
under the circumstances provides.

xxx xxx xxx

CARD EXPIRED
 a. Check expiry date on card.

b. If unexpired, refer to CB.

b.1. If valid, honor up to maximum of SPL only.

b.2. If in CB as Lost, do procedures 2a to 2e.,

b.3. If in CB as Suspended/Cancelled, do not honor card.

c. If expired, do not honor card. 12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the
screen of the verification machine, petitioner should check the credit card's expiry date embossed on
the card itself. If unexpired, petitioner should honor the card provided it is not invalid, cancelled or
otherwise suspended. But if expired, petitioner should not honor the card. In this case, private
respondent's BANKARD credit card has an embossed expiry date of September 1990. 13 Clearly, it
has not yet expired on October 19, 1989, when the same was wrongfully dishonored by the
petitioner. Hence, petitioner did not use the reasonable care and caution which an ordinary prudent
person would have used in the same situation and as such petitioner is guilty of negligence. In this
connection, we quote with approval the following observations of the respondent Court.

Mandarin argues that based on the POS Guidelines (supra), it has three options in
case the verification machine flashes "CARD EXPIRED". It chose to exercise option
(c) by not honoring appellee's credit card. However, appellant apparently intentionally
glossed over option "(a) Check expiry date on card" (id.) which would have shown
without any shadow of doubt that the expiry date embossed on the BANKARD was
"SEP 90". (Exhibit "D".) A cursory look at the appellee's BANKARD would also reveal
that appellee had been as of that date a cardholder since 1982, a fact which would
have entitled the customer the courtesy of better treatment. 14

Petitioner, however, argues that private respondent's own negligence in not bringing with him
sufficient cash was the proximate cause of his damage. It likewise sought exculpation by contending
that the remark of Professor Lirag 15 is a supervening event and at the same time the proximate
cause of private respondent's injury.

We find this contention also devoid of merit. While it is true that private respondent did not have
sufficient cash on hand when he hosted a dinner at petitioner's restaurant, this fact alone does not
constitute negligence on his part. Neither can it be claimed that the same was the proximate cause
of private respondent's damage. We take judicial notice 16 of the current practice among major
establishments, petitioner included, to accept payment by means of credit cards in lieu of cash.
Thus, petitioner accepted private respondent's BPI Express Credit Card after verifying its
validity, 17 a fact which all the more refutes petitioner's imputation of negligence on the private
respondent.

Neither can we conclude that the remark of Professor Lirag was a supervening event and the
proximate cause of private respondent's injury. The humiliation and embarrassment of the private
respondent was brought about not by such a remark of Professor Lirag but by the fact of dishonor by
the petitioner of private respondent's valid BANKARD credit card. If at all, the remark of Professor
Lirag served only to aggravate the embarrassment then felt by private respondent, albeit silently
within himself.
WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

Davide, Jr., Melo and Panganiban, JJ., concur.

Narvasa, C.J., took no part.

Footnotes

1 TSN, Clodualdo de Jesus, October 7, 1990, p. 5.

2 Id., p. 6.

3 Id., p. 8.

4 Exhibit E; Records, p. 119.

5 Court of Appeals Decision, promulgated on March 21, 1995, p. 8; Rollo, p. 49. Ninth
Division, penned by Justice Cañizares-Nye with Justices Imperial and Callejo concurring.

6 Exhibit 13; Records, p. 189.

7 Exhibit 13-D; Records, p. 189.

8 See Kauffman v. Philippine National Bank, 42 Phil. 182 (1921).

9 TSN, Clodualdo de Jesus, October 7, 1990, p. 25.10 Art. 1431. Through estoppel an
admission or representation is rendered conclusive upon the person making it and cannot be
denied or disapproved as against the person relying thereon (Civil Code).

11 See Picart v. Smith, 37 Phil. 809; Cangco v. Manila Railroad Co., 38 Phil. 768.

12 Rollo, pp. 17-18.

13 Exhibit D; Records, p. 118.

14 Rollo, p. 18.

15 "Clody, may problema ba? Baka kailangang maghugas na kami ng pinggan?"

16 Sec. 2. Judicial notice, when discretionary. -- A court may take judicial notice of matters
which are of public knowledge, or are capable of unquestionable demonstration, or ought to
be known to judges because of their judicial functions. Rule 129, Revised Rules of Court.

17 TSN, Clodualdo de Jesus, October 7, 1990, p. 8; Exhibit E, Records, p. 119.

Republic of the Philippines

SUPREME COURT
Manila
 FIRST DIVISION

G.R. No. 163654 October 8, 2014

BPI EXPRESS CARD CORPORATION,* Petitioner,

vs.
MA. ANTONIA R. ARMOVIT, Respondent.

DECISION

BERSAMIN, J.:

This case involves a credit card holder's claim for damages arising from the suspension of her credit
privileges due to her supposed failure to reapply for their reactivation. She has insisted that she was
not informed of the condition for reactivation.

The Case

Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the reversal of and
assails the adverse decision promulgated on February 26, 2004,1 whereby the Court of Appeals (CA)
affirmed the judgment rendered on April 22, 1996 by the Regional Trial Court, Branch 216, in
Quezon City, (RTC) adjudging it liable to pay moral and exemplary damages, attorney’s fees and
costs of suit to its credit card holder Ma. Antonia R. Armovit, the respondent herein.2

Antecedents

Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued by
BPI Express Credit a pre-approved BPI Express Credit Card (credit card) in 1989with a credit limit of
₱20,000.00 that was to expire atthe end of March 1993.3 On November 21, 1992, she treated her
British friends from Hong Kongto lunch at Mario’s Restaurant in the Ortigas Center in Pasig. As the
host, she handed to the waiter her credit card to settle the bill, but the waiter soon returned to inform
her that her credit card had been cancelled upon verification with BPI Express Credit and would not
be honored. Inasmuch asshe was relying on her credit card because she did not then carry enough
cash that day, her guests were made to share the bill to her extreme embarrassment.

Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She learned that
her credit card had been summarily cancelled for failure to pay her outstanding obligations. She
vehemently denied having defaulted onher payments. Thus, by letter dated February 3, 1993,4 she
demanded compensation for the shame, embarrassment and humiliation she had suffered in the
amount of ₱2,000,000.00.

In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that it had sent Armovit a
telegraphic message on March 19, 1992 requesting her to pay her arrears for three consecutive
months, and that she did not comply with the request, causing it totemporarily suspend her credit
card effective March 31, 1992.6 It further claimed that she had been notified of the suspension and
cautioned to refrain from using the credit card to avoid inconvenience or embarrassment;7 and that
while the obligation was settled by April, 1992, she failed to submit the required application form in
order to reactivate her credit card privileges. Thus, BPI Express Credit countered that her demand
for monetary compensation had no basis in fact and in law.
On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit apologizing
for its error of inadvertently including her credit card in Caution List No. 225 dated March 11, 1993
sent to its affiliated merchants.8

As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she had been a
credit card holder in good standing, and that she did not have any unpaid bills at the time of the
incident.

In its answer with counterclaim,9 BPI Express Credit raised the defense of lack of cause of
action,and maintained that Armovit had defaulted in her obligations for three consecutive months,
thereby causing the temporary suspension of her credit card in accordance with the terms and
conditions of the credit card.10 It pointed out that Armovit had been duly notified of the suspension;
that for her failure to comply with the requirement for the submission of the application form and
other documents as directed in its letter dated April 8, 1992,11 her credit card had not been
reactivated and had remained in the list of suspended cards at the time she used it on November 21,
1992; and thatthe telegraphic message of March 11, 1993, which was intended for another client
whose credit card had been erroneously included in the caution list, was mistakenly sent to her.12

Judgment of the RTC

In the judgment rendered April 22, 1996,13 the RTC, ruling in favor of Armovit, observed that the
terms and conditions governing the issuance and use of the credit card embodied in the application
formhad been furnished to her for the first time only on April 8, 1992, or after her credit card
privileges had already been suspended; that, accordingly, she could not be blamed for not
complying with the same; that even if she had been notified of the temporary suspension of her
credit card, her payment on April 1, 1992 had rendered the continued suspension of her credit card
unjustified; and that there was no clear showing that the submission of the application form had been
a condition precedent to the lifting of its suspension.

Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC ordered it to pay Armovit
moral damages of ₱100,000.00; exemplary damages and attorney’s fees each in the amount of
₱10,000.00; and the costs of suit.

Decision of the CA

Both parties appealed to the CA.

On February 26, 2004, the CA promulgated its assailed decision,14 concurring with the RTC, and
declaredthat because Armovit had not signed any application form in the issuance and renewals of
her credit card from 1989 up to 1992, she could not have known the terms and conditions embodied
in the application form even ifthe credit card had specified that its use bound the holder to its terms
and conditions. It did not see merit in BPI Express Credit’s contention that the submission of a new
application form was a pre-requisite for the lifting ofthe suspension of her credit card, inasmuch as
such condition was not stated in a clear and unequivocal manner in its letter dated April 8, 1992. It
noted that the letter of apology mentioning another inadvertence committed, even if it claimed the
letter of apology as intended for another card holder, still highlighted BPI Express Credit’s
negligence in its dealings with her account. Anent Armovit’s appeal, the CA did not increase the
amounts of damages for lack of basis, observing that moral and exemplary damages were awarded
not to enrich her at the expense of BPI Express Credit but to alleviate the anxiety and
embarrassment suffered.
BPI Express Credit’s motion for reconsideration was denied through the resolution promulgated on
May 14, 2004.15

Hence, this appeal by petition for review on certiorari.

Issue

The sole issue is whether or not the CA erred in sustaining the award of moral and exemplary
damages in favor of Armovit.

Ruling of the Court

The petition for review lacks merit.

The relationship between the credit card issuer and the credit card holder is a contractual one that is
governed by the terms and conditions found in the card membership agreement.16 Such terms and
conditions constitute the law between the parties. In case of their breach, moral damages may be
recovered where the defendant is shown to have acted fraudulently or in bad faith.17 Malice or bad
faith implies a conscious and intentional design to do a wrongful actfor a dishonest purpose or moral
obliquity.18 However, a conscious or intentional design need not always be present because
negligence may occasionally be so gross as to amount to malice or bad faith.19 Hence, bad faith in
the context of Article 2220 of the Civil Code includes gross negligence.20

BPI Express Credit contends thatit was not grossly negligent in refusing to lift the suspension of
Armovit’s credit card privileges inasmuch as she had not complied with the requisite submission of a
new application form; and that under the circumstances its negligence, if any, was not so gross as to
amount to malice or bad faith following the ruling in Far East Bank and Trust Company v. Court of
Appeals.21

The Court disagrees with the contentions of BPI Express Credit. The Terms and Conditions
1âwphi1

Governing the Issuance and Use of the BPI Express Credit Card22 printed on the credit card
application form spelled out the terms and conditions of the contract between BPI Express Credit
and its card holders, including Armovit. Such terms and conditions determined the rights and
obligations of the parties.23 Yet, a review of such terms and conditions did not reveal that Armovit
needed to submit her new application as the antecedent condition for her credit card to be taken out
of the list of suspended cards.

Considering that the terms and conditions nowhere stated that the card holder must submit the new
application form in order to reactivate her credit card, to allow BPI Express Credit toimpose the duty
to submit the new application form in order to enableArmovit to reactivate the credit card would
contravene the Parol Evidence Rule.24 Indeed, there was no agreement between the parties to add
the submission of the new application form as the means to reactivate the credit card. When she did
not promptly settle her outstanding balance, BPI Express Credit sent a message on March 19, 1992
demanding payment with the warning that her failure to pay would force it to temporarily suspend her
credit card effective March 31, 1992. It then sent another demand letter dated March 31, 1992
requesting her to settle her obligation in order to lift the suspension of her credit card and prevent its
cancellation. In April 1992, she paid her obligation. In the context of the contemporaneous and
subsequent acts of the parties, the only condition for the reinstatement of her credit card was the
payment of her outstanding obligation.25 Had it intended otherwise, BPI Express Credit would have
surelyu informed her of the additional requirement in its letters of March 19, 1992 and March 31,
1992. That it did not do so confirmed that they did not agree on having her submit the new
application form as the condition to reactivate her credit card.
The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform Armovit
that the submission of the new application form was the pre-condition for the reactivation of her
credit card. The statement in the letter (i.e., "… accomplish the enclosed application form and
provide us with informations/documents that can help our Credit Committee in reevaluating your
existingfacility with us.") merely raised doubt as to whether the requirement had really been a pre-
condition or not. With BPI Express Credit being the party causing the confusion, the interpretation of
the contract could not be donein its favor.26 Moreover, it cannot be denied that a credit card contract
is considered as a contract of adhesion because its terms and conditions are solely prepared by the
credit card issuer. Consequently, the terms and conditions have to be construed against BPI
Express Credit as the party who drafted the contract.27

Bereft of the clear basis to continuewith the suspension of the credit card privileges of Armovit, BPI
Express Credit acted in wanton disregard of its contractual obligations with her. We concur with the
apt observation by the CA that BPI Express Credit’s negligence was even confirmed by the
telegraphic message it had addressed and sent to Armovit apologizing for the inconvenience caused
in inadvertently including her credit card in the caution list. It was of no consequence that the
telegraphic message could have been intended for another client, as BPI Express Credit apparently
sought to convey subsequently, because the tenor ofthe apology included its admission of
negligence in dealing with its clients, Armovit included. Indeed, BPI Express Credit did not observe
the prudence expected of banks whose business was imbued with public interest.

We hold that the CA rightly sustained the award of ₱100,000.00 as moral damages. To us, too, that
amount was fair and reasonable under the circumstances. Similarly, the grant of exemplary
damages was warranted under Article 2232 of the New Civil Code because BPI Express Credit
acted in a reckless and oppressive manner. Finally, with Armovit having been forced to litigate in
order to protect her rights and interests, she was entitled to recover attorney's fees and expenses
oflitigation.28

WHEREFORE, the Court AFFIRMS the decision promulgated on February 26, 2004; and ORDERS
the petitioner to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

TERESITA J. LEONARDO-DE CASTRO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

* BPI Express Card Corporation initially changed its name to BPI Card Corporation, and then
changed its name to BPI Card Finance Corporation in 1998. On April I, 2002, all the assets
and liabilities of BPI Express Card were transferred to the Bank of the Philippine Islands, its
mother company; at rollo, p, 9

1
Rollo, pp. 20-29; penned by Associate Justice Hakim S. Abdulwahid, with Associate Justice
Delilah Vidallon-Magtolis (retired) and Associate Justice Jose L. Sabio, Jr. (deceased)
concurring.

2
Records, pp. 221-225.

3
Id. at 134.

4
Id. at 131.

5
Id. at 132.

6
Id. at 155.

7
Id. at 157.

8
Id. at 119.

9
Id. at 23-27.

10
Id. at 154.

11
Id. at 158.

12
Id. at 168.

13
Id. at 221-225.

14
Rollo, pp. 20-29.

15
Id. at 31-32.
 Pantaleon v. American Express International, Inc., G.R. No. 174269, August 25, 2010, 629
16

SCRA 276, 293.

17
Article 2220, New Civil Code.

Gonzales v. Philippine Commercial and International Bank, G.R. No. 180257, February 23,
18

2011, 644 SCRA 180, 202.

19
Bankard, Inc. v. Feliciano, G.R. No. 141761, July 28, 2006, 497 SCRA 52, 58-59.

20
Id. at 59.

21
G.R. No. 129130, December 9, 2005, 477 SCRA 49, 54.

22
Records, p. 154 (Exhibit 7).

Norton Resources and Development Corporation v. All Asia Bank Corporation, G.R. No.
23

162523, November 25, 2009.

24
Rule 131 of the Rules ofCourt embodies the Parol Evidence Rule, thusly:

Section 9.Evidence of written agreements. — When the terms of an agreement have

been reduced to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement. However, a party may
present evidence to modify, explain or add to the terms of the written agreement if he
puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of
the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement.

25
The Civil Coderelevantly states:

Article 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (1282)

26
The Civil Codesays:

Article. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.

27
Pantaleon v. Amercian Express International, Inc., supra note 16.
 28
Article 2208, New Civil Code.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 188412 November 22, 2010

CITIBANK, N.A., Petitioner,

vs.
ATTY. ERNESTO S. DINOPOL, Respondent.

MENDOZA, J.:

This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil Procedure
questioning 1] the December 16, 2008 Decision1 of the Court of Appeals (CA), in CA-G.R. CV No.
82291, which affirmed the February 20, 2004 Decision of the Regional Trial Court, Branch 226,
Quezon City (RTC), ordering petitioner Citibank, N. A. (Citibank) to pay respondent Atty. Ernesto S.
Dinopol (Atty. Dinopol) moral damages and attorney’s fees; and 2] its June 19, 2009 Resolution
denying petitioner’s motion for the reconsideration thereof.

Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibank’s "Ready Credit
Checkbooks" advertised offer. After approving his application, Citibank granted Atty. Dinopol a credit
line limit of ₱30,000.00. For said reason, Atty. Dinopol received from Citibank a check booklet
consisting of several checks with a letter stating that the account was "ready to use." Later, Citibank
billed Atty. Dinopol the sum of ₱1,545.00 representing Ready Credit Documentary Stamp and
Annual Membership Fee as reflected in his Statement of Account dated December 26, 1996.
Thereafter, Citibank billed him the amount of ₱1,629.21 for interest and charges as well as late
payment charges as stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid
said interests and charges on February 26, 1997.

On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in
the amount of ₱30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr. Geonzon) for investment
purposes in her restaurant business. However, when the check was deposited on March 12, 1997, it
was dishonored for the reason, "Drawn Against Insufficient Funds" or "DAIF." Humiliated by the
dishonor and the demand notice he received from Dr. Geonzon, Atty. Dinopol filed a civil action for
damages against Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly
negligent and acted in bad faith in dishonoring his check.

In defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopol’s check
because the account did not have sufficient funds at the time it was issued. Citibank explained that
when said check in the amount of ₱30,000.00 was issued, his credit line was already insufficient to
accommodate it. His credit limit had been reduced by the interests and penalty charges imposed as
a result of his late payment. Citibank argued that had Atty. Dinopol been prompt in the payment of
his obligations, he would not have incurred interests and penalty charges and his credit line of
₱30,000.00 would have been available at the time the check was issued and presented for payment.

On February 20, 2004, the RTC rendered a decision2 against Citibank, the dispositive portion of
which reads:
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
defendant bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty.
Ernesto S. Dinopol:

1) P100,000.00 as and for moral damages;

2) P50,000.00 as and for attorney’s fees; and

3) Costs of suit.

SO ORDERED.

The RTC reasoned out, among others, that Citibank failed to completely disclose the terms and
conditions of its "Citybank Ready Credit Account" when Atty. Dinopol applied for it. Only the general
provisions of the agreement were explained to him. The Standard Handbook Guide which would
have guided him as to fees, charges and penalties that could be billed by the bank was never given
to him.

Furthermore, the RTC found that Atty. Dinopol was given a "go signal" by Citibank when he informed
the latter that he was going to issue a check in the amount of ₱30,000.00. Citibank failed to advise
him that he still had an outstanding balance of ₱58.33 as of February 26, 1997. Had he been
informed, he could have paid such a small amount and avoided the dishonor of his check. In fact,
when he issued the check on March 6, 1997, no bill had yet been sent to him for the amount of
₱58.33 because he had just paid ₱1,629.00 on February 26, 1997. The billing statement, if any,
would still be due on March 15, 1997. On March 11, 1997, when the check was presented for
payment, Citibank could have called his attention and he could have immediately remitted the
amount of ₱58.00 within the same banking day so that the check would be honored.

Decision of the Court of Appeals

On December 16, 2008, the CA affirmed the RTC decision with modification. It increased the award
of moral damages from ₱100,000.00 to ₱500,000.00 and awarded exemplary damages in the
amount of ₱50,000.00.

In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P.
Hernando (Hernando), displayed dishonesty in claiming that Atty. Dinopol was provided with the
bank’s Customer Guidebook. No proof to the contrary was shown by the bank. Instead of exercising
good faith by providing a new account holder like Atty. Dinopol with the service guidebook, Citibank
argued that since he was a lawyer, the latter should have already been familiar with the terms and
conditions of his Ready Credit Account.

Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first consulted the
bank if he could issue one. It was only after being given the affirmative response that he issued said
check which gave rise to this controversy. The bank should have given the necessary advice to Atty.
Dinopol and thereby avoid the dishonor of the check for a measly amount of ₱58.33.

Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the check so as to
justify the ₱58.33 deduction from his ₱30,000.00 credit line. Based on the documentary evidence,
the due date for the February 26, 1997 Statement of Account was March 19, 1997. So, when Atty.
Dinopol issued the check on March 6, 1997, the period within which to settle his account was still
running, thus, rendering the ₱58.33 deduction unjustified.
In modifying the decision, the CA increased the amount of moral damages from ₱100,000.00 to
₱500,000.00 for the following reasons: 1] Atty. Dinopol’s stature - he was a lawyer of good standing,
yet he was abused by Citibank; 2] the dishonesty displayed by Citibank in claiming that Atty. Dinopol
was given a service guidebook despite lack of proof thereon; 3] the bad faith displayed by Citibank in
using a measly amount of ₱58.33 as basis to justify its dishonor (due to DAIF) of ₱30,000.00 worth
of check issued by Atty. Dinopol; and 4] the fact that Citibank besmirched Atty. Dinopol’s reputation
and has considerably caused him undue humiliation.

Hence, this petition.

ISSUE

WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING THAT PETITIONER
CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY. ERNESTO S. DINOPOL FOR DAMAGES.

Position of the Petitioner

Citibank argues that the dishonor of Atty. Dinopol’s check was valid as it was done in the exercise of
its rights and prerogative under the terms and conditions of his Ready Credit Facility. It insists that it
sent a copy of the guidebook to Atty. Dinopol after his application for the credit facility was approved.

It also points out that upon the approval of Atty. Dinopol’s Ready Credit Facility, the latter was
initially billed with the amounts of ₱1,500.00 for the annual fee and ₱45.00 for the documentary
stamp tax. The total amount of ₱1,545.00 was indicated in his Statement of Account dated
December 26, 1996, bearing the due date on or before January 16, 1997. Atty. Dinopol, however,
failed to pay it on or before said date. Thus, interest and late payment charges accrued on his
unpaid account as provided for in the provisions of the guidebook.

Further, Citibank claims that a second statement of account dated January 26, 1997 was sent to
Atty. Dinopol which showed that the aggregate amount of ₱1,629.21 was due and payable
immediately. This amount represents the unpaid sum of ₱1,545.00 for the annual fee and
documentary stamp tax, ₱10.00 as penalty charge for the late payment and ₱74.21 as accrued
interest. Atty. Dinopol paid the amount of ₱1,629.21 only on February 26, 1997. Thereafter, Citibank
sent him another statement of account acknowledging receipt of his payment and, at the same time,
charging him the additional amount of ₱58.33 for penalties and other charges. Since the unpaid
amount of ₱58.33 was automatically billed as an availment against his Ready Credit Facility, his
available credit limit at the time of the issuance of the subject check on March 6, 1997 was already
reduced by ₱58.33. As a result, when the subject check was negotiated, it had to be returned due to
"DAIF."

Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty. Dinopol’s failure
to timely settle his outstanding obligations despite receipt of his statements of account. It cannot,
therefore, be faulted because it was just exercising its legal right under the terms and conditions of
the Ready Credit Facility. It did not act fradulently or in bad faith. No proof was shown that the
dishonor of the subject check was carried out in an arbitrary, capricious, and malicious manner.

Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to have carefully
considered, known, and understood the provisions and legal effects of the contracts he entered into.

Position of the Respondent

In answer to Citibank’s assertions, Atty. Dinopol counters that the bank failed to prove that a copy of
the guidebook was sent to him. In fact, Citibank’s own witness, Hernando, categorically admitted that
the bank did not send him the said guidebook. According to Atty. Dinopol, Citibank should have
acted in good faith and in a manner deserving of the trust of its customers.

He also contends that the dishonor of the check due to the non-payment of the penalty charges and
interests of ₱58.33 was uncalled for. The payment of said amount was not yet due on March 6, 1997
when the check was issued and even on March 12, 1997 when it was dishonored. The statement of
account would show that the sum of ₱58.33 was due only on March 19, 1997. This only shows that
his account was not yet delinquent, both at the time when said check was issued and when it was
eventually presented for payment, thereby making the act of the bank of dishonoring the check
wanting of any legal basis.

Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it dishonered the subject
check for a meager amount of ₱58.33 and for imposing highly questionable charges against his
credit facility account. He believes that the bank, wilfully or negligently, wronged him and damaged
his reputation. Hence, it is liable to pay him damages.

The Court’s Ruling

The general rule is that in petitions for review on certiorari, the Court will not re-examine the findings
of fact of the appellate court except (a) when the latter’s findings are grounded entirely on
speculations, surmises or conjectures; (b) when its inference is manifestly mistaken, absurd or
impossible; (c) when there is a grave abuse of discretion; (d) when its findings of fact are conflicting;
and (e) when it goes beyond the issues of the case.3 Citibank fails to convince the Court that the
case falls under any of the exceptions. Hence, the findings of fact should no longer be reviewed.

At any rate, the Courts agrees with the courts below in concluding that Citibank was liable to Atty.
Dinopol for moral and exemplary damages and attorney’s fees.

A perusal of the evidentiary records shows that Citibank was at fault when it dishonored the subject
check. First, Citibank claims that, as a matter of standard operating procedure, it sent to Atty.
Dinopol the Citibank Ready Credit Customer Guidebook upon the approval of his Ready Credit
Account application and so, he was aware of the terms and conditions stated therein. Yet, except for
its bare allegation, no other substantial proof was presented by Citibank that the guidebook was
indeed sent to Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was
not at all delivered to him.
1avvphi1

Second, when Atty. Dinopol issued the subject check for the full amount of ₱30,000.00 and Citibank
dishonored it because of insufficiency of funds by ₱58.33 representing the amount charged on his
credit line for penalties and charges, the said amount was not yet overdue. The bank’s Statement of
Account dated January 26, 19974 showed that he must pay the total amount of ₱1,629.21
representing the annual membership fee of ₱1,500.00, documentary stamp tax of ₱45.00, late
charges of ₱10.00 and interest/charges of ₱74.21. On February 26, 1997, he immediately paid the
full amount of ₱1,629.21 as evidenced by his credit card payment slip.5 The full payment was
reflected in his statement of account6 dated February 26, 1997. The same statement of
account7 indicated that there were still charges amounting to ₱58.33 due for payment on March 19,
1997. To reiterate, the check was issued on March 6, 19978 and dishonored on March 12,
1997,9 both dates being days before the said due date. Contrary to Citibank’s insistence, Atty.
Dinopol was definitely not yet a delinquent account holder. More importantly, Citibank failed to
consider the fact that Atty. Dinopol issued the check on March 6, 1997 after paying the full amount of
₱1,629.21 and clearing with the bank if he could issue a check in the amount of ₱30,000.00.
Citibank did not even refute the allegation that it gave Atty. Dinopol the go-signal to issue such a
check.

With respect to damages, the Court is in agreement with the CA in awarding moral and exemplary
damages. However, the Court cannot sanction the modification by the CA, under the circumstances
attending the case. It is of the considered view that the award of the RTC would suffice subject, of
course, to the payment of legal interest.

The award of moral damages should be granted in reasonable amounts depending on the facts and
circumstances of the case.10 Moral damages are meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injuries unjustly caused.11

As to the award of exemplary damages, the law allows it by way of example for the public good. The
business of banking is impressed with public interest and great reliance is made on the bank’s sworn
profession of diligence and meticulousness in giving irreproachable service.12 Thus, the Court affirms
the award as a way of setting an example for the public good. In addition, it also provided for
attorney’s fees. Both are subject to legal interest.

In any event, Citibank should have been more cautious in dealing with its clients since its business is
imbued with public interest. Banks must always act in good faith and must win the confidence of
clients and people in general. It is irrelevant whether the client is a lawyer or not.

It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater familias or a good
father of a family. The highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards
of integrity and performance. Needless to say, a bank is "under obligation to treat the accounts of its
depositors with meticulous care." The fiduciary nature of the relationship between the bank and the
depositors must always be of paramount concern.13

WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is MODIFIED to read as
follows:

In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to pay
plaintiff Atty. Ernesto S. Dinopol the following:

1] ₱100,000.00 as and for moral damages;

2] ₱50,000.00 as and for exemplary damages;

3] ₱50,000.00 as and for attorney’s fees; and

4] Costs of suit,

plus interest at the legal rate reckoned from the filing of the complaint.

SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

1Rollo, pp. 10-25. Penned by Associate Justice Vicente S.E.Veloso with Associate Justice
Rebecca De Guia-Salvador and Associate Justice Ricardo R. Rosario, concurring.

2 Id. at 317-329.

3 J. Hidalgo Uy v. Spouses Medina, G.R. No. 172541, August 8, 2010.

4 Rollo, p. 257.

5 Id. at 258.

6 Id. at. 284.

 7 Id.

8 Id. at 259.

9 Id. at 260.

Manila Electric Company v. Spouses Edito and Felicidad Chua and Josefina Paqueo, G.R.
10

No. 160422, July 5, 2010.

Cagungun v. Planters Development Bank, 510 Phil. 51, 62-63 (2005), citing Samson, Jr. v
11

Bank of the Philippine Islands, 453 Phil. 577, 583 (2003).

Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan, G.R. No. 167346,
12

April 2, 2007, 520 SCRA 123, 129.

13Philippine Savings Bank v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008,
557 SCRA 318, 330-331.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 189206 June 8, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF
KOREA, TONG YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF
THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC., Respondents.

DECISION

PEREZ, J.:

The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No.
82647 allowing the quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the
production of bank ledger. This case is incident to Civil Case No. 99-1853, which is the main case
for collection of sum of money with damages filed by Industrial Bank of Korea, Tong Yang Merchant
Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank (now
United Overseas Bank), collectively known as "the Banks" against Domsat Holdings, Inc. (Domsat)
and the Government Service Insurance System (GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to lend United States (U.S.) $11 Million to Domsat for the
purpose of financing the lease and/or purchase of a Gorizon Satellite from the International
Organization of Space Communications (Intersputnik).3

The controversy originated from a surety agreement by which Domsat obtained a surety bond from
GSIS to secure the payment of the loan from the Banks. We quote the terms of the Surety Bond in
its entirety.4
 Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City

G(16) GIF Bond 027461

SURETYBOND

KNOW ALL MEN BY THESE PRESENTS:

That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the
GOVERNMENT SERVICE INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE
FUND, a corporation duly organized and existing under and by virtue of the laws of the Philippines,
with principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held and firmly
bound unto the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313
Sen. Gil J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo,
Manila: TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea;
INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and FIRST
MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum,
of US $ ELEVEN MILLION DOLLARS ($11,000,000.00) for the payment of which sum, well and truly
to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly
and severally, firmly by these presents.

THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:

WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a
contract agreement with the aforementioned OBLIGEES to fully and faithfully

Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be
used for the financing of the two (2) year lease of a Russian Satellite from INTERSPUTNIK, in
accordance with the terms and conditions of the credit package entered into by the parties.

This bond shall remain valid and effective until the loan including interest has been fully paid and
liquidated,

a copy of which contract/agreement is hereto attached and made part hereof;

WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient
bond in the above stated sum to secure the full and faithful performance on his part of said
contract/agreement.

NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings,
covenants, terms, conditions, and agreements stipulated in said contract/agreements, then this
obligation shall be null and void; otherwise, it shall remain in full force and effect.

WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.

DOMSAT HOLDINGS, INC. GOVERNMENT SERVICE INSURANCE SYSTEM

 Principal General Insurance Fund
By: By:

CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI

President Senior Vice-President
General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that
Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that
Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the
Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the
Binondo Branch of Westmont Bank.5 The Banks filed a complaint before the RTC of Makati against
Domsat and GSIS.

In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the
custodian of records of Westmont Bank to produce the following documents:

1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United
Overseas Bank), any and all documents, records, files, books, deeds, papers, notes and
other data and materials relating to the account or transactions of DOMSAT Holdings, Inc.
with or through the Westmont Bank (now United Overseas Bank) for the period January
1997 to December 2002, in his/her direct or indirect possession, custody or control (whether
actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;

2. All applications for cashier’s/ manager’s checks and bank transfers funded by the account
of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank)
for the period January 1997 to December 2002, and all other data and materials covering
said applications, in his/her direct or indirect possession, custody or control (whether actual
or constructive), whether in his/her capacity as Custodian of Records or otherwise;

3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now
United Overseas Bank), any and all documents, records, files, books, deeds, papers, notes
and other data and materials relating to the account or transactions of Philippine Agila
Satellite, Inc. with or through the Westmont bank (now United Overseas Bank) for the period
January 1997 to December 2002, in his/her direct or indirect possession, custody or control
(whether actual or constructive), whether in his/her capacity as Custodian of Records or
otherwise;

4. All applications for cashier’s/manager’s checks funded by the account of Philippine Agila
Satellite, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period
January 1997 to December 2002, and all other data and materials covering said applications,
in his/her direct or indirect possession, custody or control (whether actual or constructive),
whether in his/her capacity as Custodian of Records or otherwise.6

The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by
the banks on three grounds: 1) the subpoena is unreasonable, oppressive and does not establish
the relevance of the documents sought; 2) request for the documents will violate the Law on Secrecy
of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of the
documents.8 Domsat also joined the banks’ motion to quash through its Manifestation/Comment.9 On
9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We quote the
pertinent portion of the Order, thus:

After a careful consideration of the arguments of the parties, the Court did not find merit in the
motion.

The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank
Deposit, as amended. The law declares bank deposits to be "absolutely confidential" except: x x x
(6) In cases where the money deposited or invested is the subject matter of the litigation.

The case at bench is for the collection of a sum of money from defendants that obtained a loan from
the plaintiff. The loan was secured by defendant GSIS which was the surety. It is the contention of
defendant GSIS that the proceeds of the loan was deviated to purposes other than to what the loan
was extended. The quashal of the subpoena would deny defendant GSIS its right to prove its
defenses.

WHEREFORE, for lack of merit the motion is DENIED.10

On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed
by the banks.11 On 1 September 2003 however, the trial court granted the second motion for
reconsideration filed by the banks. The previous subpoenas issued were consequently
quashed.12 The trial court invoked the ruling in Intengan v. Court of Appeals,13 where it was ruled that
foreign currency deposits are absolutely confidential and may be examined only when there is a
written permission from the depositor. The motion for reconsideration filed by GSIS was denied on
30 December 2003.

Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals.
GSIS raised the following arguments in support of its petition:

I.

Respondent Judge acted with grave abuse of discretion when it favorably considered respondent
banks’ (second) Motion for Reconsideration dated July 9, 2003 despite the fact that it did not contain
a notice of hearing and was therefore a mere scrap of paper.

II.

Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act
(RA 6426) in ruling in his Orders dated September 1 and December 30, 2003 that the
US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is covered by
the secrecy of bank deposit.

III.

Since both respondent banks and respondent Domsat have disclosed during the trial the
US$11,000,000.00 deposit, it is no longer secret and confidential, and petitioner GSIS’ right to
inquire into what happened to such deposit can not be suppressed.14

The Court of Appeals addressed these issues in seriatim.

The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice
when it allowed the filing and acceptance of the second motion for reconsideration. The appellate
court also underscored the fact that GSIS did not raise the defect of lack of notice in its opposition to
the second motion for reconsideration. The appellate court held that failure to timely object to the
admission of a defective motion is considered a waiver of its right to do so.

The Court of Appeals declared that Domsat’s deposit in Westmont Bank is covered by Republic Act
No. 6426 or the Bank Secrecy Law. We quote the pertinent portion of the Decision:

It is our considered opinion that Domsat’s deposit of $11,000,000.00 in Westmont Bank is covered
by the Bank Secrecy Law, as such it cannot be examined, inquired or looked into without the written
consent of its owner. The ruling in Van Twest vs. Court of Appeals was rendered during the
effectivity of CB Circular No. 960, Series of 1983, under Sec. 102 thereof, transfer to foreign
currency deposit account or receipt from another foreign currency deposit account, whether for
payment of legitimate obligation or otherwise, are not eligible for deposit under the System.

CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389.
Section 102 of Circular 960 has not been re-enacted in the later Circulars. What is applicable now is
the decision in Intengan vs. Court of Appeals where the Supreme Court has ruled that the under
R.A. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is,
disclosure is allowed only upon the written permission of the depositor. Petitioner, therefore, had
inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has already
been superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to
the banking system of foreign exchange, including proceeds of foreign borrowings. This requirement,
however, can no longer be found in later circulars.

In its Reply to respondent banks’ comment, petitioner appears to have conceded that what is
applicable in this case is CB Circular 1389. Obviously, under CB 1389, proceeds of foreign
borrowings are no longer required to be surrendered to the banking system.

Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable
because Domsat’s $11,000,000.00 loan from respondent banks was intended to be paid to a foreign
supplier Intersputnik and, therefore, should have been paid directly to Intersputnik and not deposited
into Westmont Bank. The fact that it was deposited to the local bank Westmont Bank, petitioner
claims violates the circular and makes the deposit lose its confidentiality status under R.A. 6426.
However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion quoted by
the petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign
exchange. The above-said provision relied upon by the petitioner does not in any manner prescribe
the conditions before any foreign currency deposit can be entitled to the confidentiality provisions of
R.A. 6426.15

Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of
Westmont Bank is not the written consent contemplated by Republic Act No. 6426.

The Court of Appeals however upheld the issuance of subpoena praying for the production of
applications for cashier’s or manager’s checks by Domsat through Westmont Bank, as well as a
copy of an Agreement and/or Contract and/or Memorandum between Domsat and/or Philippine Agila
Satellite and Intersputnik for the acquisition and/or lease of a Gorizon Satellite. The appellate court
believed that the production of these documents does not involve the examination of Domsat’s
account since it will never be known how much money was deposited into it or withdrawn therefrom
and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of
which reads:

WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December
30, 2003 is hereby modified in that the quashal of the subpoena for the production of Domsat’s bank
ledger in Westmont Bank is upheld while respondent court is hereby ordered to issue subpoena
duces tecum ad testificandum directing the records custodian of Westmont Bank to bring to court the
following documents:

a) applications for cashier’s or manager’s checks by respondent Domsat through Westmont

Bank from January 1997 to December 2002;

b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to
December 2002; and

c) copy of an agreement and/or contract and/or memorandum between respondent Domsat

and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon
satellite.

No pronouncement as to costs.16

GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus,
the instant petition ascribing grave abuse of discretion on the part of the Court of Appeals in ruling
that Domsat’s deposit with Westmont Bank cannot be examined and in finding that the banks’
second motion for reconsideration in Civil Case No. 99-1853 is procedurally acceptable.17

This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail
the Decision and Resolution of the Court of Appeals. Petitioner availed of the improper remedy as
the appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and
not a special civil action under Rule 65.18 Certiorari under Rule 65 lies only when there is no appeal,
nor plain, speedy and adequate remedy in the ordinary course of law. That action is not a substitute
for a lost appeal in general; it is not allowed when a party to a case fails to appeal a judgment to the
proper forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is
grave abuse of discretion. Accordingly, when a party adopts an improper remedy, his petition may
be dismissed outright.20 lauuphil

Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely
lacks merit.

GSIS insists that Domsat’s deposit with Westmont Bank can be examined and inquired into. It
anchored its argument on Republic Act No. 1405 or the "Law on Secrecy of Bank Deposits," which
allows the disclosure of bank deposits in cases where the money deposited is the subject matter of
the litigation. GSIS asserts that the subject matter of the litigation is the U.S. $11 Million obtained by
Domsat from the Banks to supposedly finance the lease of a Russian satellite from Intersputnik.
Whether or not it should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS
contends, is contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite
as agreed in the Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11
Million is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11
Million should be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts
of the U.S. $11 Million will greatly prejudice and burden the GSIS pension fund considering that a
substantial portion of this fund is earmarked every year to cover the surety bond issued.

Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed
by the banks on the grounds that it is pro forma and did not conform to the notice requirements of
Section 4, Rule 15 of the Rules of Civil Procedure.21

Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative
written consent or permission to GSIS to examine its bank statements with Westmont Bank.

The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because
the Domsat deposit is a foreign currency deposit, thus covered by Republic Act No. 6426. Under
said law, only the consent of the depositor shall serve as the exception for the disclosure of his/her
deposit.

The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the
Court of Appeals. They justify the issuance of the subpoena as an interlocutory matter which may be
reconsidered anytime and that the pro forma rule has no application to interlocutory orders.

It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the
subpoena for the production of Domsat’s bank ledger with Westmont Bank. Since neither Domsat
nor the Banks interposed an appeal from the other portions of the decision, particularly for the
production of applications for cashier’s or manager’s checks by Domsat through Westmont Bank, as
well as a copy of an agreement and/or contract and/or memorandum between Domsat and/or
Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the
latter became final and executory.

GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite
Republic Act No. 6426 to oppose it. The core issue is which of the two laws should apply in the
instant case.

Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential
Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads:

Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government official, bureau or office, except
upon written permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the money
deposited or invested is the subject matter of the litigation.

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential
Decree No. 1035 and later by Presidential Decree No. 1246, provides:

Section 8. Secrecy of Foreign Currency Deposits. – All foreign currency deposits authorized under
this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits
authorized under Presidential Decree No. 1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no
instance shall foreign currency deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative or legislative or any other
entity whether public or private; Provided, however, That said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever. (As amended by PD No. 1035, and
further amended by PD No. 1246, prom. Nov. 21, 1977.)

On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits
may be disclosed. These are under any of the following instances: a) upon written permission of the
depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery or
dereliction of duty of public officials or, (d) when the money deposited or invested is the subject
matter of the litigation, and e) in cases of violation of the Anti-Money Laundering Act (AMLA), the
Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any
competent court.22 On the other hand, the lone exception to the non-disclosure of foreign currency
deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor.

These two laws both support the confidentiality of bank deposits. There is no conflict between them.
Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to
deposit their money in banking institutions and to discourage private hoarding so that the same may
be properly utilized by banks in authorized loans to assist in the economic development of the
country.23 It covers all bank deposits in the Philippines and no distinction was made between
domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general
application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from
foreign lenders and investors.24 It is a special law designed especially for foreign currency deposits in
the Philippines. A general law does not nullify a specific or special law. Generalia specialibus non
derogant.25 Therefore, it is beyond cavil that Republic Act No. 6426 applies in this case.

Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for
foreign currency deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426.

In said case, Citibank filed an action against its officers for persuading their clients to transfer their
dollar deposits to competitor banks. Bank records, including dollar deposits of petitioners, purporting
to establish the deception practiced by the officers, were annexed to the complaint. Petitioners now
complained that Citibank violated Republic Act No. 1405. This Court ruled that since the accounts in
question are U.S. dollar deposits, the applicable law therefore is not Republic Act No. 1405 but
Republic Act No. 6426.

The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where
respondent accused his daughter of stealing his dollar deposits with Citibank. The latter allegedly
received the checks from Citibank and deposited them to her account in China Bank. The subject
checks were presented in evidence. A subpoena was issued to employees of China Bank to testify
on these checks. China Bank argued that the Citibank dollar checks with both respondent and/or her
daughter as payees, deposited with China Bank, may not be looked into under the law on secrecy of
foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign
currency deposits, i.e., in the case of a written permission of the depositor, and ruled that
respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with
China Bank, he has the right to inquire into the said deposits.

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont
Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might
expose itself to criminal liability under the same act.27

The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks
and guaranteed by GSIS, was diverted to a purpose other than that stated in the surety bond. The
Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan
proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we
pre-empt the findings of the lower courts on the matter.

The third issue raised by GSIS was properly addressed by the appellate court. The appellate court
maintained that the judge may, in the exercise of his sound discretion, grant the second motion for
reconsideration despite its being pro forma. The appellate court correctly relied on precedents where
this Court set aside technicality in favor of substantive justice. Furthermore, the appellate court
accurately pointed out that petitioner did not assail the defect of lack of notice in its opposition to the
second motion of reconsideration, thus it can be considered a waiver of the defect.

WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and
19 June 2009 Resolution of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court.

RENATO C. CORONA
Chief Justice

Footnotes

1Penned by Associate Justice Agustin S. Dizon with Associate Justices Amelita G. Tolentino
and Lucenito N. Tagle, concurring. Rollo, pp. 32-44.

2 Id. at 48-91.
3 Id. at 55.

4 Id. at 92-93.

5 Id. at 9.

6 CA rollo, pp. 178-179.

7 Id. at 201-203.

8 Id. at 181.

9 Id. at 201-205.

10 Id. at 225.

11 Id. at 265.

12 Id. at 317.

13 427 Phil. 293 (2002).

14 CA rollo, pp. 16, 20 and 25.

15 Rollo, pp. 39-40.

16 Id. at 43-44.

17 Petition. Id. at 13.

18Bicol Agro-Industrial Producers Cooperative, Inc. v. Obias, G.R. No. 172077, 9 October
2009, 603 SCRA 173, 184-185 citing National Irrigation Administration v. Court of Appeals,
376 Phil. 362, 371 (1999).

19National Power Corporation v. Laohoo, G.R. No. 151973, 23 July 2009, 593 SCRA 564,
588 citing Leca Realty Corporation v. Republic, G.R. No. 155605, 27 September 2006, 503
SCRA 563, 571.

20 Sable v. People, G.R. No. 177961, 7 April 2009, 584 SCRA 619, 629-630 citing Mercado
v. Court of Appeals, 484 Phil. 438, 444 (2004); VMC Rural Electric Service Cooperative, Inc.
v. Court of Appeals, G.R. No. 153144, 16 October 2006, 504 SCRA 336, 352.

21Section 4. Hearing of motion. — Except for motions which the court may act upon without
prejudicing the rights of the adverse party, every written motion shall be set for hearing by
the applicant.

Every written motion required to be heard and the notice of the hearing thereof shall be
served in such a manner as to ensure its receipt by the other party at least three (3) days
before the date of hearing, unless the court for good cause sets the hearing on shorter
notice.
22 Republic v. Eugenio, Jr., G.R. No. 174629, 14 February 2008, 545 SCRA 384, 415-416.

23 Sec. 1, Republic Act No. 1405.

24See China Banking Corporation v. Court of Appeals, G.R. No. 140687, 18 December
2006, 511 SCRA 110, 117.

Tomawis v. Balindong, G.R. No. 182434, 5 March 2010, 614 SCRA 354, 367-368 citing
25

Agpalo, Statutory Construction, p. 415 (2003).

26 Supra note 24.

27 Section 10. Penal provisions. – Any willful violation of this Act or any regulation duly
promulgated by the Monetary Board pursuant hereto shall subject the offender upon
conviction to an imprisonment of not less than one year nor more than five years or a fine of
not less than five thousand pesos nor more than twenty-five thousand pesos, or both such
fine and imprisonment at the discretion of the court.