Vitug v. CA G.R. No.
82027, March 29, 1990 other shall give or do upon the happening of an event which is to occur at an indeterminate
Spouses Dolores and Romarico Vitug entered into a survivorship agreement with the Bank
of American National Trust and Savings Association. The said agreement contained the
following stipulations:
(1) All money deposited and to be deposited with the Bank in their joint savings current
account shall be both their property and shall be payable to and collectible or withdrawable
by either or any of them during their lifetime; and
(2) After the death of one of them, the same shall belong to and be the sole property of the
surviving spouse and payable to and collectible or withdrawable by such survivor
Dolores died naming Rowena Corona in her wills as executrix. Romarico later filed a motion
asking authority to sell certain shares of stock and real property belonging to the estate to
cover his advances to the estate which he claimed were personal funds withdrawn from
their savings account. Rowena opposed on the ground that the same funds withdrawn from
the savings account were conjugal partnership properties and part of the estate. Hence,
there should be no reimbursement. On the other hand, Romarico insists that the same are
his exclusive property acquired through the survivorship agreement.
ISSUE: Whether or not the funds of the savings account subject of the survivorship
agreement were conjugal partnership properties and part of the estate
No. The Court ruled that a Survivorship Agreement is neither a donation mortis causa nor a
donation inter vivos. It is in the nature of an aleatory contract whereby one or both of the
parties reciprocally bind themselves to give or to do something in consideration of what the
time or is uncertain, such as death. The Court further ruled that a survivorship agreement is
per se not contrary to law and thus is valid unless its operation or effect may be violative of
a law such as in the following instances: (1) it is used as a mere cloak to hide an inofficious
donation; (2) it is used to transfer property in fraud of creditors; or (3) it is used to defeat
the legitime of a compulsory heir. In the instant case, none of the foregoing instances were
present. Consequently, the Court upheld the validity of the survivorship agreement entered
into by the spouses Vitug. As such, Romarico, being the surviving spouse, acquired a vested
right over the amounts under the savings account, which became his exclusive property
upon the death of his wife pursuant to the survivorship agreement. Thus, the funds of the
savings account are not conjugal partnership properties and not part of the estate of the
deceased Dolores.
SALVACION VS. CENTRAL BANK
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian,
and Spouses FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION vs. CENTRAL BANK OF
THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT
G.R. No. 94723 August 21, 1997
FACTS: Greg Bartelli, an American tourist, was arrested for committing four counts of rape
and serious illegal detention against Karen Salvacion. Police recovered from him several
dollar checks and a dollar account in the China Banking Corp. He was, however, able to
escape from prison. In a civil case filed against him, the trial court awarded Salvacion moral,
exemplary and attorney’s fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China
Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No. 960
exempts foreign currency deposits from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body
whatsoever. Salvacion therefore filed this action for declaratory relief in the Supreme Court.
ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act No.
6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
HELD: NO.
The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246, insofar as it
amends Section 8 of Republic Act No. 6426, are hereby held to be INAPPLICABLE to this case
because of its peculiar circumstances. Respondents are hereby required to comply with the
writ of execution issued in the civil case and to release to petitioners the dollar deposit of
Bartelli in such amount as would satisfy the judgment.
Supreme Court ruled that the questioned law makes futile the favorable judgment and
award of damages that Salvacion and her parents fully deserve. It then proceeded to show
that the economic basis for the enactment of RA No. 6426 is not anymore present; and even
if it still exists, the questioned law still denies those entitled to due process of law for being
unreasonable and oppressive. The intention of the law may be good when enacted. The law
failed to anticipate the iniquitous effects producing outright injustice and inequality such as
the case before us.
The SC adopted the comment of the Solicitor General who argued that the Offshore Banking
System and the Foreign Currency Deposit System were designed to draw deposits from
foreign lenders and investors and, subsequently, to give the latter protection. However, the
foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country and, therefore, will maintain
his deposit in the bank only for a short time. Considering that Bartelli is just a tourist or a
transient, he is not entitled to the protection of Section 113 of Central Bank Circular No. 960
and PD No. 1246 against attachment, garnishment or other court processes.
Further, the SC said: “In fine, the application of the law depends on the extent of its justice.
Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable to
a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest
like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides
that “in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.”
___________
NOTES:
– On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and
lured petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein,
Greg Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able
to rape the child once on February 4, and three times each day on February 5, 6, and 7,
1989. On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg
Bartelli was arrested and detained at the Makati Municipal Jail. The policemen recovered
from Bartelli the following items: 1.) Dollar Check No. 368, Control No. 021000678-
1166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.)
Dollar Account — China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.)
Philippine Money (P234.00) cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used
in seducing the complainant.
Ejercito v. Sandiganbayan (G.R. Nos. 157294-95)
Facts:
In lieu of the Criminal Case “People v. Estrada” for plunder, the Special Prosecution Panel
filed before the Sandiganbayan a request for issuance of Subpoena Duces Tecum directing
the President of Export and Industry Bank or his/her authorized representative to produce
documents namely, Trust Account and Savings Account belonging to petitioner and
statement of accounts of one named “Jose Velarde” and to testify thereon during the
hearings. Sandiganbayan granted both requests and subpoenas were accordingly issued.
Sandiganbayan also granted and issued subpoenas prayed for by the Prosecution Panel in
another later date. Petitioner now assisted by his counsel filed two separate motions to
quash the two subpoenas issued. Sandiganbayan denied both motions and the consequent
motions for reconsideration of petitioner.
Issues:
(1) Whether or not the trust accounts of petitioner are covered by the term “deposits” as
used in R.A. No. 1405
(2) Whether or not plunder is neither bribery nor dereliction of duty not exempted from
protection of R.A. No. 1405
(3) Whether or not the unlawful examination of bank accounts shall render the evidence
obtained therefrom inadmissible in evidence.
Ruling:
(1) YES. An examination of the law shows that the term “deposits” used therein is to be
understood broadly and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank.
The policy behind the law is laid down in Section 1. If the money deposited under an
account may be used by banks for authorized loans to third persons, then such account,
regardless of whether it creates a creditor-debtor relationship between the depositor and
the bank, falls under the category of accounts which the law precisely seeks to protect for
the purpose of boosting the economic development of the country.
Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between
petitioner and Urban Bank provides that the trust account covers “deposit, placement or
investment of funds” by Urban Bank for and in behalf of petitioner. The money deposited
under Trust Account No. 858, was, therefore, intended not merely to remain with the bank
but to be invested by it elsewhere. To hold that this type of account is not protected by R.A.
1405 would encourage private hoarding of funds that could otherwise be invested by banks
in other ventures, contrary to the policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term “deposits” was
intended to be understood broadly. The phrase “of whatever nature” proscribes any
restrictive interpretation of “deposits.” Moreover, it is clear from the immediately quoted
provision that, generally, the law applies not only to money which is deposited but also to
those which are invested. This further shows that the law was not intended to apply only to
“deposits” in the strict sense of the word. Otherwise, there would have been no need to add
the phrase “or invested.”
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.
(2) NO. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and
no reason is seen why these two classes of cases cannot be excepted from the rule making
bank deposits confidential. The policy as to one cannot be different from the policy as to the
other. This policy expresses the notion that a public office is a public trust and any person
who enters upon its discharge does so with the full knowledge that his life, so far as relevant
to his duty, is open to public scrutiny.
The crime of bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea that “a public office is a public trust and any
person who enters upon its discharge does so with the full knowledge that his life, so far as
relevant to his duty, is open to public scrutiny” applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of
bribery must also apply to cases of plunder.
(3) NO. Petitioner’s attempt to make the exclusionary rule applicable to the instant case
fails. R.A. 1405, it bears noting, nowhere provides that an unlawful examination of bank
accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5
of R.A. 1405 only states that “[a]ny violation of this law will subject the offender upon
conviction, to an imprisonment of not more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of the court.”
Even assuming arguendo, however, that the exclusionary rule applies in principle to cases
involving R.A. 1405, the Court finds no reason to apply the same in this particular case.
Clearly, the “fruit of the poisonous tree” doctrine presupposes a violation of law. If there
was no violation of R.A. 1405 in the instant case, then there would be no “poisonous tree”
to begin with, and, thus, no reason to apply the doctrine.
Additional Note: (This case is to be contrasted with Marquez v. Desierto)
The Marquez ruling notwithstanding, the above-described examination by the Ombudsman
of petitioner’s bank accounts, conducted before a case was filed with a court of competent
jurisdiction, was lawful.
For the Ombudsman issued the subpoenas bearing on the bank accounts of petitioner about
four months before Marquez was promulgated on June 27, 2001.
When this Court construed the Ombudsman Act of 1989, in light of the Secrecy of Bank
Deposits Law in Marquez, that “before an in camera inspection may be allowed there must
be a pending case before a court of competent jurisdiction”, it was, in fact, reversing an
earlier doctrine found in Banco Filipino Savings and Mortgage Bank v. Purisima.
Banco Filipino involved subpoenas duces tecum issued by the Office of the Ombudsman,
then known as the Tanodbayan, in the course of its preliminary investigation of a charge of
violation of the Anti-Graft and Corrupt Practices Act. As the subpoenas subject of Banco
Filipino were issued during a preliminary investigation, in effect this Court upheld the power
of the Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank documents
prior to the filing of a case before a court of competent jurisdiction.
Marquez, on the other hand, practically reversed this ruling in Banco Filipino despite the
fact that the subpoena power of the Ombudsman under R.A. 6770 was essentially the same
as that under P.D. 1630.
The Marquez ruling that there must be a pending case in order for the Ombudsman to
validly inspect bank records in camera thus reversed a prevailing doctrine. Hence, it may not
be retroactively applied. The Ombudsman’s inquiry into the subject bank accounts prior to
the filing of any case before a court of competent jurisdiction was therefore valid at the time
it was conducted. In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the “fruit of the poisonous tree” doctrine is misplaced.
DBP v. Arcilla Jr
.Facts:Atty. Felipe Arcilla Jr. was employed by the DBP. After he was assigned to the legal
department, he decided to avail of a loan under the Individual Housing Project (IHP) of the
bank for the payment of the parcel of land purchased by him and for its construction. When
Arcilla resigned grom DBP, the bank notified him that his loan has been converted to a
regular housing loan. Arcilla agreed to the reservation by the DBP of its right to increase the
rate of interest on the loan, as well as all other fees andcharges on loans and advances
pursuant to such policy as it may adopt from time to time during the period of the loan.
Issue:Whether or not DBP violated RA 3765 otherwiseknown as “The Truth in Lending Act”.
Ruling:Section 1 of R.A. No. 3765 provides that prior tothe consummation of a loan
transaction, thebank, as creditor, is obliged to furnish a clientwith a clear statement, in
writing, setting forth, tothe extent applicable and in accordance with therules and
regulations prescribed by theMonetary Board of the Central Bank of
thePhilippines, the following information:1. the cash price ordelivered price of the
property orservice to be acquired;2. the amounts, if any, tobe credited as down
paymentand/or trade-in; 3. the difference betweenthe amounts set forth
underclauses (1) and (2); 4. the charges, individuallyitemized, which are paid or to bepaid
by such person inconnection with the transactionbut which are not incident to
theextension of credit;5. the total amount to befinanced;6. the finance
chargesexpressed in terms of pesosand centavos; and7. the percentage that thefinance
charge bears to the totalamount to be financedexpressed as a simple annualrate on
the outstanding unpaidbalance of the obligation. If the borrower is not duly informed of
the data required by the law prior to the consummation ofthe availment or drawdown, the
lender will have no right to collect such charge or increases thereof, even if stipulated in the
promissory note. However, such failure shall not affect the validity or enforceability of any
contract or transaction.
**Truth in Lending
UCPB v. Spouses BelusoFacts:The UCPB granted the spouses Beluso a Promissory Note Line
under a Credit Agreement. The spouses Beluso constituted other than their promissory
notes, a real estate mortgage over parcels of land as additional security for the obligation. In
any case, UCPB applied interest rates on the differenct promissory notes ranging from 18%
to 34%. Thespouses, however, failed to make any payment of their obligations with the
bank. Spouses Beluso filed a petition for the annulment , accounting and damages against
UCPB.Issue:Whether or not UCPB is authorized to unilaterally fix the interest rates.Ruling:A
promissory note which grants the creditor the power to unilaterally fix the interest rate
means that the promissory note does not contain a clear statement in writing of the finance
charge. Such provision is illegal not only because it violates the provisions of the Civil Code
on mutuality of contracts but also because it violates the Truth in Lending Law. The penalty
for the violation of the law is P100.00 or an amount equal to twice of the finance charge
required by such creditor in connection with such transaction, whichever is greater, except
that such liability shall not exceed P2,000 on anycredit transaction. The action to recover the
penalty should be brought within one year from the date of the occurrence of the violation.
As the penalty depends on the finance charge required of the borrower, the borrower’s
cause of action would only accrue when such finance charge is required. The action to
recover the penalty may be instituted by the aggrieved private person separately and
independently from the criminal case for the same offense.**
Sps. Larrobis v. Philippine Veterans Bank (G.R. No. 135706 )
Facts:
Petitioner spouses contracted a monetary loan with herein respondent bank secured by a
REM executed on their lot. Respondent bank then went bankrupt and was placed under
receivership/liquidation by the Central Bank. Sometime after, respondent bank sent a
demand letter for the amount of the insurance premiums advanced by it over the
mortgaged property of petitioners. More than 14 years from the time the loan became due
and demandable, respondent bank moved for the extrajudicial foreclosure of the mortgaged
property and was sold to it as being the lone bidder. Petitioners moved to declare the
foreclosure null and void contending that the respondent bank being placed under
receivership did not interrupt the running of the prescriptive period. RTC ruled in favor of
respondents.
Issues:
(1) Whether or not foreclosure of mortgage is included in the acts prohibited during
receivership/liquidation proceedings.
(2) Whether or not the period within which the respondent bank was placed under
receivership and liquidation proceedings interrupted the running of the prescriptive period
in bringing actions.
Ruling: NO.
(1) While it is true that foreclosure falls within the broad definition of “doing business,” it
should not be considered included, however, in the acts prohibited whenever banks are
“prohibited from doing business” during receivership and liquidation proceedings. This is
consistent with the purpose of receivership proceedings, i.e., to receive collectibles and
preserve the assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank.
There is also no truth to respondent’s claim that it could not continue doing business from
the time it was under receivership. As correctly pointed out by petitioner, respondent was
even able to send petitioners a demand letter, through Francisco Go, for the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners. How it
could send a demand letter on unpaid insurance premiums and not foreclose the mortgage
during the time it was “prohibited from doing business” was not adequately explained by
respondent.
(2) A close scrutiny of the Provident case shows that the Court arrived at said conclusion,
which is an exception to the general rule, due to the peculiar circumstances of Provident
Savings Bank at the time. The Superintendent of Banks, which was instructed to take charge
of the assets of the bank in the name of the Monetary Board, had no power to act as a
receiver of the bank and carry out the obligations specified in Sec. 29 of the Central Bank
Act.
In this case, it is not disputed that Philippine Veterans Bank was placed under receivership
by the Monetary Board of the Central Bank pursuant to Section 29 of the Central Bank Act
on insolvency of banks. Unlike Provident Savings Bank, there was no legal prohibition
imposed upon herein respondent to deter its receiver and liquidator from performing their
obligations under the law. Thus, the ruling laid down in the Provident case cannot apply in
the case at bar.
(In contrast to Provident Savings Bank v. CA, this is the General Rule)
Fidelity Savings and Mortgage Bank v. Cenzon (G.R. No. L-46208)
Facts:
Respondent spouses Santiago maintained a savings and time deposit with petitioner bank.
The Monetary Board found petitioner bank to be insolvent and ordered for its assets to be
taken charged of by the Acting Superintendent. The PDIC paid spouses for their deposits
with petitioner bank but there was still a remaining balance. The Monetary Board then
directed the liquidation of the affairs of petitioner bank and a subsequent petition for
assistance and supervision in liquidation was filed in the court. The liquidation proceedings
still pending, respondent spouses sent demand letters to petitioner bank for the payment of
their deposits. The court found in favor of respondent spouses.
Issue:
Whether or not petitioner bank may be adjudged to pay interest on unpaid deposits even
after its closure by the Central Bank by reason of insolvency.
Ruling: NO.
It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to
pay interest on bank deposits which accrued during the period when the bank is actually
closed and non-operational. In The Overseas Bank of Manila vs. Court of Appeals and Tony
D. Tapia, we held that:
It is a matter of common knowledge, which We take judicial notice of, that what enables a
bank to pay stipulated interest on money deposited with it is that thru the other aspects of
its operation it is able to generate funds to cover the payment of such interest. Unless a
bank can lend money, engage in international transactions, acquire foreclosed mortgaged
properties or their proceeds and generally engage in other banking and financing activities
from which it can derive income, it is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and
just conclusion. And it can be said that all who deposit money in banks are aware of such a
simple economic proposition. Consequently, it should be deemed read into every contract of
deposit with a bank that the obligation to pay interest on the deposit ceases the moment
the operation of the bank is completely suspended by the duly constituted authority, the
Central Bank.
From the aforecited authorities, it is manifest that petitioner cannot be held liable for
interest on bank deposits which accrued from the time it was prohibited by the Central Bank
to continue with its banking operations. The order, therefore, of the Central Bank as
receiver/liquidator of petitioner bank allowing the claims of depositors and creditors to
earn interest up to the date of its closure is in line with the doctrine laid down in the
jurisprudence above cited.
PHILIPPINE NATIONAL BANK, Petitioner vs.JUAN F. VILLA, Respondent
For resolution of the Court is the instant Petition for Review on Certiorari1 filed by
petitioner Philippine National Bank (PNB), seeking to reverse and set aside the Decision2
dated 18 December 2013 and Resolution3 dated 13 June 2014 of the Court of Appeals (CA)
in CA-G.R. CV No. 97612. The assailed decision and resolution affirmed the 22 June 2011
Decision4 of the Regional Trial. Court (RTC) of Villasis, Pangasinan, Branch 50 which found
that petitioner PNB is not a mortgagee in good faith.
The Facts
Petitioner PNB is a universal banking corporation duly authorized by Bangko Sentral ng
Pilipinas (BSP) to engage in banking business. Sometime in 1986, Spouses Reynaldo Comista
and Erlinda Gamboa Comista (Spouses Comista) obtained a loan from Traders Royal Bank
(Traders Bank).5 To secure the said obligation, the Spouses Comista mortgaged to the bank a
parcel of land with an area of 451 square meters designated as Lot 555-A-2 and registered
under Transfer Certificate of Title (TCT) No. 131498 in their names by the Register of Deeds
of Pangasinan.
For failure of the Spouses Comista to make good of their loan obligation after it has become
due, Traders Bank foreclosed the mortgage constituted on the security of the loan. After the
notice and publication requirements were complied with, the subject property was sold at
the public auction on 23 December 1987. During the public sale, respondent Juan F. Vila
(Vila) was declared as the highest bidder after he offered to buy the subject property for
P50,000.00. The Certificate of Sale dated 13 January 1988 was duly recorded in TCT No.
131498 under Entry No. 623599.6
To exercise his right of ownership, Vila immediately took possession of the subject property
and paid the real estate taxes corresponding thereon.
On 11 February 1989, a Certificate of Final Sale was issued to Vila after the one-year
redemption period had passed without the Spouses Comista exercising their statutory right
to redeem the subject property. He was, however, prevented from consolidating the
ownership of the property under his name because the owner's copy of the certificate of
title was not turned over to him by the Sheriff.
Despite the lapse of the redemption period and the fact of issuance of a Certificate of Final
Sale to Vila, the Spouses Comista were nonetheless allowed to buy back the subject
property by tendering the amount of ₱50,000.00. A Certificate of Redemption7 dated 14
March 1989 was issued for this purpose and was duly annotated in the title under Entry No.
708261.
Claiming that the Spouses Cornista already lost their right to redeem the subject property,
Vila filed an action for nullification of redemption, transfer of title and damages against the
Spouses Comista and Alfredo Vega in his capacity as the Register of Deeds of Pangasinan.
The case was docketed as Civil Case No. V-0242 on 10 January 1992 and was raffled to
Branch 50. A Notice of Lis Pendens was issued for this purpose and was duly recorded in the
certificate of title of the property on 19 October 1992 under Entry No. 759302.8
On 3 February 1995, the RTC rendered a Decision9 in Civil Case No. V-0242 in favor of Vila
thereby ordering the Register of Deeds to cancel the registration of the certificate of
redemption and the annotation thereof on TCT No. 131498. The said decision was affirmed
by the CA on 19 October 1997 in CA-G.R. CV No. 49463. 10 The decision of the appellate
court became final and executory on 19 November 1997.
In order to enforce the favorable decision, Vila filed before the RTC a Motion for the
Issuance of Writ of Execution which was granted by the court. Accordingly, a Writ of
Execution 11 was issued by the RTC on 14 December 1997.
By unfortunate tum of events, the Sheriff could not successfully enforce the decision
because the certificate of title covering the subject property was no longer registered under
the names of the Spouses Comista. Hence, the judgment was returned unsatisfied as shown
in Sheriffs Retum12 dated 13 July 1999.
Upon investigation it was found out that during the interregnum the Spouses Comista were
able to secure a loan from the PNB in the amount of ₱532,000.00 using the same property
subject of litigation as security. The Real Estate Mortgage (REM) was recorded on 28
September 1992 under Entry No. 758171 13 or month before the Notice of Lis Pendens was
annotated.
Eventually, the Spouses Comista defaulted in the payment of their loan obligation with the
PNB prompting the latter to foreclose the property offered as security. The bank emerged as
the highest bidder during the public sale as shown at the Certificate of Sale issued by the
Sheriff. As with the prior mortgage, the Spouses Comista once again failed to exercise their
right of redemption within the required period allowing PNB to consolidate its ownership
over the subject property. Accordingly, TCT No. 131498 14 in
the name of the Spouses Comista was cancelled and a new one under TCT No. 216771 15
under the name of the PNB was issued.
The foregoing tum of events left Vila with no other choice but to commence another round
of litigation against the Spouses Comista and PNB before the RTC of Villasis, Pangasinan,
Branch 50. In his Complaint docketed as Civil Case No. V-0567, Vila sought for the
nullification of TCT No. 216771 issued under the name of PNB and for the payment of
damages.
To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith pointing
the fact that at the time the subject property was mortgaged to it, the same was still free
from any liens and encumbrances and the Notice of Lis Pendens was registered only a
month after the REM was annotated on the title. PNB meant to say that at the time of the
transaction, the Spouses Cornista were still the absolute owners of the property possessing
all the rights to mortgage the same to third persons. PNB also harped on the fact that a
close examination of title was conducted and nowhere was it shown that there was any
cloud in the title of the Spouses Cornista, the latter having redeemed the property after they
have lost it in a foreclosure sale. 16
After the Pre-Trial Conference, trial on the merits ensued. The court a quo then proceeded
to receive documentary and testimonial evidence from the opposing parties. Thereafter, the
parties submitted their respective memorandum and the case was submitted for decision.
On 22 June 2011, the RTC rendered a Decision17 in favor of Vila and ruled that PNB is not a
mortgagee in good faith. As a financial institution, the trial court held that PNB is expected
to observe a higher degree of diligence. In hastily granting the loan, the trial court declared
that PNB failed in this regard. Had the bank exercised due diligence, it could have easily
discovered that the Spouses Comista were not the possessors of the subject property which
could lead it to the fact that at the time the subject property was mortgaged to it, a
litigation involving the same was already commenced before the court. ·It was further
ratiocinated by the RTC that "[a] mortgagee cannot close his eyes to facts which should put
a reasonable man upon his guard" in ascertaining the status of a mortgaged property. The
dispositive portion of the decision reads:
"WHEREFORE, judgment is hereby rendered:
1. Declaring the Real Estate Mortgage dated September 28, 1992, executed by the Spouses
Reynaldo Comista and Erlinda Gamboa in favor of the Philippine National Bank, Tayug,
Pangasinan Branch, over the parcel of land covered by TCT No. 131498 null and void;
2. Declaring the Deed of Sale dated September 27, 1996, in favor of the PNB null and void;
3. Ordering the nullification and cancellation of Transfer Certificate of Title No. 216771 in
the name of PNB;
4. Ordering the Register of Deeds of Pangasinan to issue a new certificate of title covering
the property subject matter of this case in the name.of Juan F. Vila; and
5. Ordering [the] defendant PNB to pay the plaintiff P-50,000.00 moral damages, P-
50,000.00 exemplary damages and P-100,000.00 attorney's fees and litigation expenses.
Costs against defendant Philippine National Bank.
SO ORDERED." 18
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its earlier decision and
thereby denied the Motion for Reconsideration interposed by PNB.
On appeal, the CA Decision20 dated 18 December 2013 affirmed the RTC ruling. In failing to
exercise greater care and diligence in approving the loan of the Spouses Comista without
first ascertaining if there were any defects in their title, tlre appellate court held that PNB
could not be afforded the status of a mortgagee in good faith. It went further by declaring
that "[a] bank whose business is impressed with public interest is expected to exercise more
care and prudence in its dealings than a private individual, even in cases involving registered
lands. A bank cannot assume that, simply because the title offered as security is on its face
free of any encumbrances of lien, it is relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged. "21 The CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated June 22, 2011 and
the Resolution dated August 11, 2011 of the Regional Trial Court of Villasis, Pangasinan,
Branch 50, in Civil Case No, V-0567 are hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution23 denying the Motion for Reconsideration of
the PNB prompting the bank to seek recourse before the Court via instant Petition for
Review on Certiorari. For Our resolution are the following issues:
The Issues
I. WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;

II. WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24
The Court's Ruling
We resolve to deny the petition.
In general, the issue of whether a mortgagee is in good faith cannot be entertained in a Rule
45 petition. This is because the ascertainment of good faith or the lack thereof, and the
determination of negligence are factual matters which lay outside the scope of a petition for
review on certiorari. Good faith, or the lack of it, is a question of intention. In ascertaining
intention, courts are necessarily controlled by the evidence as to the conduct and outward
facts by which alone the inward motive may, with safety, be determined.25 A recognized.
exception to the rule is when there are conflicting findings of fact by the CA and the RTC.26
In the case at bar, RTC and the CA agreed on their findings.
The RTC, which possessed the first hand opportunity to observe the demeanor of the
witnesses and admit the documentary evidence, found that PNB accepted outright the
collateral offered by the Spouses Cornista without making further inquiry as to the real
status of the subject property. Had the bank been prudent and diligent enough in
ascertaining the condition of the property, it could have discovered that the same was in the
possession of Vila who, at that time, possessed a colorable title thereon being a holder of a
Final Certificate of Sale. The RTC further exposed the frailty of PNB' s claim by pointing to
the fact that it was Vila who was paying the realty tax on the property, a crucial information
that the bank could have easily discovered had it exercised due diligence.
Resonating the findings of the RTC, the CA also declared that PNB fell short in exercising the
degree of diligence expected from bank and financial institutions. We hereby quote with
approval the disquisition of the appellate court:
Thus, before approving a loan application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property offered for mortgage and to
verify the genuineness of the title to determine the real owner thereof. The apparent
purpose of an ocular inspection is to protect the "true owner" of the property as well as
innocent third parties with a right, interest or claim thereon from a usurper who may have
acquired a fraudulent certificate of title thereto. Here, [the] PNB has failed to exercise the
requisite due diligence in ascertaining the status and condition of the property being offered
to it as security for the loan before it approved the same. xxx. 27
Clearly, the PNB failed to observe the exacting standards required of banking institutions
which are behooved by statutes and jurisprudence to exercise greater care and prudence
before entering into a mortgage contract.
No credible proof on the records could substantiate the claim of PNB that a physical
inspection of the property was conducted. We agree with both the RTC and CA that if in fact
it were true that ocular inspection was conducted, a suspicion could have been raised as to
the real status of the property. By failing to uncover a crucial fact that the mortgagors were
not the possessors of the subject property, We could not lend credence to the claim of the
bank that an ocular inspection of the property was conducted.1âwphi1 What further
tramples upon PNB' s claim is the fact that, as shown on the records, it was Vila who was
religiously paying the real property tax due on the property from 1989 to 1996, another
significant fact that could have raised a red flag as to the real ownership of the property. The
failure of the mortgagee to take precautionary steps would mean negligence on his part and
would thereby preclude it from invoking that it is a mortgagee in good faith.
Before approving a loan application, it is standard operating procedure for banks and
financial institutions to conduct an ocular inspection of the property offered for mortgage
and to determine the real owner(s) thereof. The apparent purpose of an ocular inspection is
to protect the "true owner" of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have acquired a fraudulent certificate of
title thereto.28
In this case, it was adjudged by the courts of competent jurisdiction in a final and
executory .decision that the Spouses Cornista's reacquisition of the property after the lapse
of the redemption period is fraudulent and the property used by the mortgagors as
collateral rightfully belongs to Vila, an innocent third party with a right, could have been
protected if PNB only observed the degree diligence expected from it.
In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted banks to exercise
the highest degree of diligence in its dealing with properties offered as securities for the
loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or damages are justly due.36 In the instant case, we find that the award of moral damages is
mortgagees for value is applied more strictly. Being in the business of extending loans proper. 37 As for the award of exemplary damages, we deem that the same is proper for the
secured by real estate mortgage, banks are presumed to be familiar with the rules on land PNB was remiss in its obligation to inquire the real status of the subject property, causing
registration. Since the banking business· is impressed with public interest, they are expected damage to Vila.38 Finally, we rule that the award of attorney's fees and litigation expenses
to be more cautious, to exercise a higher degree of diligence, care and prudence, than is valid since Vila was compelled to litigate and thus incur expenses in order to protect its
private individuals in their dealings, even those involving registereo lands. Banks may not rights over the subject property. 39
simply rely on the face of the certificate of title. Hence, they cannot assume that, xxx the
WHEREFORE, premises considered, the petition is DENIED. The assailed Decision and
title offered as security is on its face free of any encumbrances or lien, they are relieved of
the responsibility of taking further steps to verify the title and inspect the properties to be Resolution of the Court of Appeals are hereby AFFIRMED. Accordingly, the decision of the
RTC dated 22 June 2011 STANDS as the final resolution of this case.
mortgaged. As expected, the ascertainment of the status or condition of a property offered
to it as security for a loan must be a standard and indispensable part of the bank's SO ORDERED.
operations. xxx. (Citations omitted)
JOSE PORTUGAL PEREZ
We never fail to stress the remarkable significance of a banking institution to commercial
transactions, in particular, and to the country's economy in general. 30 The banking system Associate Justice
is an indispensable institution in the modern world and plays a vital role in the economic life
of every civilized nation.31 Whether as mere passive entities for the safekeeping and saving
of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.32 Consequently, the highest degree of diligence Soriano vs People and BSP G.R. No. 162336 February 1, 2010
is expected, and high standards of integrity and performance are even required, of it. 33
Facts:
PNB clearly failed to observe the required degree of caution in readily approving the loan
Soriano was charged for estafa through falsification of commercial documents for allegedly
and accepting the collateral offered by the Spouses Comista without first ascertaining the
securing a loan of 48 million in the name of two (2) persons when in fact these individuals
real ownership of the property. It should not have simply relied on the face of title but went
did not make any loan in the bank, nor did the bank's officers approved or had any
further to physically ascertain the actual condition of the property. That the property
information about the said loan. The state prosecutor conducted a Preliminary Investigation
offered as security was in the possession of the person other than the one applying for the
on the basis of letters sent by the officers of Special Investigation of BSP together with 5
loan and the taxes were declared not in their names could have raised a suspicion. A person
affidavits and filed two (2) separate information against Soriano for estafa through
who deliberately ignores a significant fact that could create suspicion in an otherwise
falsification of commercial documents and violation of DORSI law.
reasonable person is not an innocent purchaser for value.
Soriano moved for the quashal of the two (2) informations based on the ground:
Having laid down that the PNB is not in good faith, We are led to affirm the award of moral
damages, exemplary damages, attorney's fees and costs of litigation in favor of Vila. Moral that the court has no jurisdiction over the offense charged, for the letter transmitted by the
damages are not awarded to penalize the defendant but to compensate the plaintiff for the BSP to the DOJ constituted the complaint and was defective for failure to comply with the
injuries he may have suffered.35 Willful injury to property may be a legal ground for mandatory requirements of Sec. 3(a), Rule 112 of the Rules of Court, such as statment of
awarding moral damages if the court should find that, under the circumstances, such
address of the petitioner and oath of subscription and the signatories were not authorized
persons to file the complaint; and
that the facts charged do not constitute an offense, for the commission of estafa uner par.
1(b) of Art. 315 of the RPC is inherently incompatible with the violation of DORSI law (Sec.
83 or RA 337 as amended by PD 1795), and therefore a person cannot be charged of both
offenses.
Issue:
Whether or not the complaint filed complied with the mandatory requirements of law.
Whether or not the petition for certiorari under Rule 65 is the proper remedy in an order
denying a Motion to Quash.
Ruling:
Yes, the letters transmitted were not intended to be the complaint but merely transmitted
for preliminary investigation. The affidavits and not the letter transmitting them initiated
the preliminary investigation and therefore is the complaint which substantially complied
with the manadory requirements of law.
No. The proper procedure in such a case is for the accused to enter a plea, go to trial
without prejudice on his part to present special defenses he had invoked in his motion to
quash and if after trial on the merits, an adverse decision is rendered, to appeal therefrom
in the manner authorized by law.
PHILIPPINE NATIONAL BANK,- versus -SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO
CHEAH,
Law favoreth diligence, and therefore, hateth folly and negligence.Wingates Maxim.
In doing a friend a favor to help the latters friend collect the proceeds of a foreign check, a
woman deposited the check in her and her husbands dollar account. The local bank
accepted the check for collection and immediately credited the proceeds thereof to said
spouses account even before the lapse of the clearing period. And just when the money had
been withdrawn and distributed among different beneficiaries, it was discovered that all
along, to the horror of the woman whose intention to accommodate a friends friend
backfired, she and her bank had dealt with a rubber check.
These consolidated[1] Petitions for Review on Certiorari filed by the Philippine National
Bank (PNB)[2] and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses
Cheah)[3] both assail the August 22, 2005 Decision[4] and December 21, 2005
Resolution[5]of the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both
parties equally negligent and, hence, should equally suffer the resulting loss. For its part,
PNB questions why it was declared blameworthy together with its depositors, spouses
Cheah, for the amount wrongfully paid the latter, while the spouses Cheah plead that they
be declared entirely faultless.
Factual Antecedents
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were
having a conversation in the latters office when Adelinas friend, Filipina Tuazon (Filipina),
approached her to ask if she could have Filipinas check cleared and encashed for a service
fee of 2.5%. The check is Bank of America Check No. 190[6] under the account of Alejandria
Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America
Alhambra Branch in California, USA, with a face amount of $300,000.00, payable to cash.
Because Adelina does not have a dollar account in which to deposit the check, she asked
Ofelia if she could accommodate Filipinas request since she has a joint dollar savings
account with her Malaysian husband Cheah Chee Chong (Chee Chong) under Account No.
265-705612-2 with PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto
Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin
(Garin). Garin discussed with them the process of clearing the subject check and they were
told that it normally takes 15 days.[7] Assured that the deposit and subsequent clearance of
the check is a normal transaction, Ofelia deposited Filipinas check. PNB then sent it for
clearing through its correspondent bank, Philadelphia National Bank. Five days later, PNB
received a credit advice[8] from Philadelphia National Bank that the proceeds of the subject
check had been temporarily credited to PNBs account as of November 6, 1992. On
November 16, 1992, Garin called up Ofelia to inform her that the check had already been
cleared.[9] The following day, PNB Buendia Branch, after deducting the bank charges,
credited $299,248.37 to the account of the spouses Cheah.[10] Acting on Adelinas
instruction to withdraw the credited amount, Ofelia that day personally withdrew
$180,000.00.[11] Adelina was able to withdraw the remaining amount the next day after
having been authorized by Ofelia.[12] Filipina received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on
November 16, 1992 a SWIFT[13] message from Philadelphia National Bank dated November
13, 1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the return
of the subject check for insufficient funds.[14] However, the PNB Head Office could not
ascertain to which branch/office it should forward the same for proper action. Eventually,
PNB Head Office sent Philadelphia National Bank a SWIFT message informing the latter that
SWIFT message with TRN 46506218 has been relayed to PNBs various
divisions/departments but was returned to PNB Head Office as it seemed misrouted. PNB
Head Office thus requested for Philadelphia National Banks advice on said SWIFT messages
proper disposition.[15] After a few days, PNB Head Office ascertained that the SWIFT
message was intended for PNB Buendia Branch.
PNB Buendia Branch learned about the bounced check when it received on November 20,
1992 a debit advice,[16] followed by a letter[17] on November 24, 1992, from Philadelphia
National Bank to which the November 13, 1992 SWIFT message was attached. Informed
about the bounced check and upon demand by PNB Buendia Branch to return the money
withdrawn, Ofelia immediately contacted Filipina to get the money back. But the latter told
her that all the money had already been given to several people who asked for the checks
encashment. In their effort to recover the money, spouses Cheah then sought the help of
the National Bureau of Investigation. Said agencys Anti-Fraud and Action Division was later
able to apprehend some of the beneficiaries of the proceeds of the check and recover from
them $20,000.00. Criminal charges were then filed against these suspect beneficiaries.[18]
Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to
discuss matters regarding the incident and the recovery of the value of the check while the
cases against the alleged perpetrators remain pending. Chee Chong in the end signed a PNB
drafted[19] letter[20] which states that the spouses Cheah are offering their condominium
units as collaterals for the amount withdrawn. Under this setup, the amount withdrawn
would be treated as a loan account with deferred interest while the spouses try to recover
the money from those who defrauded them. Apparently, Chee Chong signed the letter after
the Vice President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked
the spouses Cheah to help him and the other bank officers as they were in danger of losing
their jobs because of the incident. Asperilla likewise assured the spouses Cheah that the
letter was a mere formality and that the mortgage will be disregarded once PNB receives its
claim for indemnity from Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal,[21] the same did not
materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the
amount of the check,[22] froze their peso and dollar deposits in the amounts of P275,166.80
and $893.46,[23] and filed a complaint[24] against them for Sum of Money with Branch 50
of the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said
complaint, PNB demanded payment of around P8,202,220.44, plus interests[25] and
attorneys fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of PNBs injury
was its own negligence of paying a US dollar denominated check
without waiting for the 15-day clearing period, in violation of its bank practice as mandated
by its own bank circular, i.e., PNB General Circular No. 52-101/88.[26] Because of this,
spouses Cheah averred that PNB is barred from claiming what it had lost. They further
averred that it is unjust for them to pay back the amount disbursed as they never really
benefited therefrom. As counterclaim, they prayed for the return of their frozen deposits,
the recoupment of P400,000.00 representing the amount they had so far spent in recovering
the value of the check, and payment of moral and exemplary damages, as well as attorneys
fees.
Ruling of the Regional Trial Court
The RTC ruled in PNBs favor. The dispositive portion of its Decision[27] dated May 20, 1999
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia
Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs bank
the amount:
1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate
prevailing at the time the proceeds of the BA Check No. 190 were withdrawn or the
prevailing Central Bank Rate at the time the amount is to be reimbursed by the defendants
to plaintiff or whatever is lower. This is without prejudice however, to the rights of the
defendants (accommodating parties) to go against the group of Adelina Guarin, Atty.
Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy
to the defendants.
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friends friend whom she did not know and considering the amount
of the check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in
her dealings. She should have exercised due care by investigating the negotiability of the
check and the identity of the drawer. While the court found that the proximate cause of the
wrongful payment of the check was PNBs negligence in not observing the 15-day guarantee
period rule, it ruled that spouses Cheah still cannot escape liability to reimburse PNB the
value of the check as an accommodation party pursuant to Section 29 of the Negotiable
Instruments Law.[29] It likewise applied the principle of solutio indebiti under the Civil
Code. With regard to the award of other forms of damages, the RTC held that each party
must suffer the consequences of their own acts and thus left both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
Ruling of the Court of Appeals
While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to
suffer the consequences of Ofelias lack of care and prudence in immediately trusting a
stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005
Decision,[30] viz:
As both parties were equally negligent, it is but right and just that both parties should
equally suffer and shoulder the loss. The scam would not have been possible without the
negligence of both parties. As earlier stated, the complaint of PNB cannot be dismissed
because the Cheah spouses were negligent and Ms. Cheah took an active part in the deposit
of the check and the withdrawal of the subject amounts. On the other hand, the Cheah
spouses cannot entirely bear the loss because PNB allowed her to withdraw without waiting
for the clearance of the check. The remedy of the parties is to go after those who
perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in
Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered
DECLARING both parties equally negligent and should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah
spouses the amount due to them.
In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the SWIFT
message from Philadelphia National Bank within the 15-day clearing period is not an
acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB had the
last clear opportunity to avoid the impending loss of the money and yet, it glaringly
exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day
clearing period which has always been a standard banking practice as testified to by PNBs
own officers, and as provided in its own General Circular No. 52/101/88. To the CA, PNB
cannot claim from spouses Cheah even if the latter are accommodation parties under the
law as the banks own negligence is the proximate cause of the damage it sustained.
Nevertheless, it also found Ofelia guilty of contributory negligence. Thus, both parties
should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration[32] but same were denied in
a Resolution[33] dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearing
period was the proximate cause of the loss.
Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not
have occurred. x x x To determine the proximate cause of a controversy, the question that
needs to be asked is: If the event did not happen, would the injury have resulted? If the
answer is no, then the event is the proximate cause.[34]
Here, while PNB highlights Ofelias fault in accommodating a strangers check and depositing
it to the bank, it remains mum in its release of the proceeds thereof without exhausting the
15-day clearing period, an act which contravened established banking rules and practice.
It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking
days. As declared by Josephine Estella, the Administrative Service Officer who was the banks
Remittance Examiner, what was unusual in the processing of the check was that the lapse of
15 banking days was not observed.[35] Even PNBs agreement with Philadelphia National
Bank[36] regarding the rules on the collection of the proceeds of US dollar checks refers to
business/ banking days. Ofelia deposited the subject check on November 4, 1992. Hence,
the 15th banking day from the date of said deposit should fall on November 25, 1992.
However, what happened was that PNB Buendia Branch, upon calling up Ofelia that the
check had been cleared, allowed the proceeds thereof to be withdrawn on November 17
and 18, 1992, a week before the lapse of the standard 15-day clearing period.
This Court already held that the payment of the amounts of checks without previously
clearing them with the drawee bank especially so where the drawee bank is a foreign bank
and the amounts involved were large is contrary to normal or ordinary banking practice.[37]
Also, in Associated Bank v. Tan,[38] wherein the bank allowed the withdrawal of the value
of a check prior to its clearing, we said that [b]efore the check shall have been cleared for
deposit, the collecting bank can only assume at its own risk x x x that the check would be
cleared and paid out. The delay in the receipt by PNB Buendia Branch of the November 13,
1992 SWIFT message notifying it of the dishonor of the subject check is of no moment,
because had PNB Buendia Branch waited for the expiration of the clearing period and had
never released during that time the proceeds of the check, it would have already been duly
notified of its dishonor. Clearly, PNBs disregard of its preventive and protective measure
against the possibility of being victimized by bad checks had brought upon itself the injury
of losing a significant amount of money.
It bears stressing that 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.[39] PNB
miserably failed to do its duty of exercising extraordinary diligence and reasonable business
prudence. The disregard of its own banking policy amounts to gross negligence, which the
law defines as negligence characterized by the want of even slight care, acting or omitting to
act in a situation where there is duty to act, not inadvertently but wilfully and intentionally
with a conscious indifference to consequences in so far as other persons may be affected.
[40] With regard to collection or encashment of checks, suffice it to say that the law imposes
on the collecting bank the duty to scrutinize diligently the checks deposited with it for the
purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field, and
the law thus holds it to a high standard of conduct.[41] A bank is expected to be an expert in
banking procedures and it has the necessary means to ascertain whether a check, local or
foreign, is sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the
principle of solutio indebiti, which is laid down in Article 2154 of the Civil Code:[42]
Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that
he who paid was not under obligation to do so; and (b) that the payment was made by
reason of an essential mistake of fact.[43]
In the case at bench, PNB cannot recover the proceeds of the check under the principle it
invokes. In the first place, the gross negligence of PNB, as earlier discussed, can never be
equated with a mere mistake of fact, which must be something excusable and which
requires the exercise of prudence. No recovery is due if the mistake done is one of gross
negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss
with the bank
Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the standard to
which he is required to conform for his own protection.[44]
The CA found Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed to
observe caution in giving her full trust in accommodating a complete stranger and this led
her and her husband to be swindled. Considering that Filipina was not personally known to
her and the amount of the foreign check to be encashed was $300,000.00, a higher degree
of care is expected of Ofelia which she, however, failed to exercise under the circumstances.
Another circumstance which should have goaded Ofelia to be more circumspect in her
dealings was when a bank officer called her up to inform that the Bank of America check has
already been cleared way earlier than the 15-day clearing period. The fact that the check
was cleared after only eight banking days from the time it was deposited or contrary to
what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She
should have first verified the regularity of such hasty clearance considering that if something
goes wrong with the transaction, it is she and her husband who would be put at risk and not
the accommodated party. However, Ofelia chose to ignore the same and instead actively
participated in immediately withdrawing the proceeds of the check. Thus, we are one with
the CA in ruling that Ofelias prior consultation with PNB officers is not enough to totally
absolve her of any liability. In the first place, she should have shunned any participation in
that palpably shady transaction.

In any case, the complaint against the spouses Cheah could not be dismissed. As PNBs
client, Ofelia was the one who dealt with PNB and negotiated the check such that its value
was credited in her and her husbands account. Being the ones in privity with PNB, the
spouses Cheah are therefore the persons who should return to PNB the money released to
them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are
equally negligent and should therefore equally suffer the loss. The two must both bear the
consequences of their mistakes.

WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865
and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and
December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby
AFFIRMED in toto.