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PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA

PASCUAL, e a!", petitioners, vs. THE COURT OF APPEALS, ROMMEL#S MARKETING CORP", re$resen ed by ROMEO LIPANA, % s Pres%den & Genera! Mana'er, respondents. HERMOSISIMA, (R", J.: Challenged in this petition for review is the Decision dated February 28, 1991 ) rendered by public respondent Court of Appeals which affir ed the Decision dated !ove ber 1", 198" of the #egional $rial Court, !ational Capital %udicial #egion, &ranch C'( )1*+,, -asig City, in Civil Case !o. 2.288 entitled /#o el0s 1ar2eting Corporation, etc. v. -hilippine &an2 of Co erce, now absorbed by -hilippine Co ercial and 3ndustrial &an2./ $he case ste ed fro a co plaint filed by the private respondent #o el0s 1ar2eting Corporation )#1C for brevity,, represented by its -resident and 4eneral 1anager #o eo 'ipana, to recover fro the for er -hilippine &an2 of Co erce )-&C for brevity,, now absorbed by the -hilippine Co ercial 3nternational &an2, the su of -5+6,9.9..6 representing various deposits it had ade in its current account with said ban2 but which were not credited to its account, and were instead deposited to the account of one &ienvenido Cotas, allegedly due to the gross and ine7cusable negligence of the petitioner ban2. #1C aintained two )2, separate current accounts, Current Account !os. "58+198+8 5 and "58+1.688., with the -asig &ranch of -&C in connection with its business of selling appliances. 3n the ordinary and usual course of ban2ing operations, current account deposits are accepted by the ban2 on the basis of deposit slips prepared and signed by the depositor, or the latter0s agent or representative, who indicates therein the current account nu ber to which the deposit is to be credited, the na e of the depositor or current account holder, the date of the deposit, and the a ount of the deposit either in cash or chec2s. $he deposit slip has an upper portion or stub, which is detached and given to the depositor or his agent9 the lower portion is retained by the ban2. 3n so e instances, however, the deposit slips are prepared in duplicate by the depositor. $he original of the deposit slip is retained by the ban2, while the duplicate copy is returned or given to the depositor. Fro 1ay ", 19." to %uly 1*, 19.*, petitioner #o eo 'ipana clai s to have entrusted #1C funds in the for of cash totalling -5+6,9.9..6 to his secretary, 3rene :abut, for the purpose of depositing said funds in the current accounts of #1C with -&C. 3t turned out, however, that these deposits, on all occasions, were not credited to #1C0s account but were instead deposited to Account !o. "58+1.568. of :abut0s husband, &ienvenido Cotas who li2ewise aintains an account with the sa e ban2. During this period, petitioner ban2 had, however, been regularly furnishing private respondent with onthly state ents showing its current accounts balances. ;nfortunately, it had never been the practice of #o eo 'ipana to chec2 these onthly state ents of account reposing co plete trust and confidence on petitioner ban2.

3rene :abut0s modus operandi is far fro co plicated. <he would acco plish two )2, copies of the deposit slip, an original and a duplicate. $he original showed the na e of her husband as depositor and his current account nu ber. =n the duplicate copy was written the account nu ber of her husband but the na e of the account holder was left blan2. -&C0s teller, A>ucena 1abayad, would, however, validate and sta p both the original and the duplicate of these deposit slips retaining only the original copy despite the lac2 of infor ation on the duplicate slip. $he second copy was 2ept by 3rene :abut allegedly for record purposes. After validation, :abut would then fill up the na e of #1C in the space left blan2 in the duplicate copy and change the account nu ber written thereon, which is that of her husband0s, and a2e it appear to be #1C0s account nu ber, i.e., C.A. !o. "58+198+85. ?ith the daily re ittance records also prepared by 1s. :abut and sub itted to private respondent #1C together with the validated duplicate slips with the latter0s na e and account nu ber, she ade her co pany believe that all the while the a ounts she deposited were being credited to its account when, in truth and in fact, they were being deposited by her and credited by the petitioner ban2 in the account of Cotas. $his went on in a span of ore than one )1, year without private respondent0s 2nowledge. ;pon discovery of the loss of its funds, #1C de anded fro petitioner ban2 the return of its oney, but as its de and went unheeded, it filed a collection suit before the #egional $rial Court of -asig, &ranch 1*+. $he trial court found petitioner ban2 negligent and ruled as follows@ ?AB#BF=#B, Cudg ent is hereby rendered sentencing defendant -hilippine &an2 of Co erce, now absorbed by defendant -hilippine Co ercial D 3ndustrial &an2, and defendant A>ucena 1abayad to pay the plaintiff, Cointly and severally, and without preCudice to any cri inal action which ay be instituted if found warranted@ 1. $he su of -5+6,9.9..2, representing plaintiffs lost deposit, plus interest thereon at the legal rate fro the filing of the co plaint9 2. A su eEuivalent to 16F thereof, as e7e plary da ages9 5. A su eEuivalent to 2"F of the total a ount due, as and for attorney0s fees9 and 6. Costs. Defendants0 counterclai is hereby dis issed for lac2 of erit. * =n appeal, the appellate court affir ed the foregoing decision with odifications, viz@ ?AB#BF=#B, the decision appealed fro herein is 1=D3F3BD in the sense that the awards of e7e plary da ages and attorney0s fees specified therein are eli inated and instead, appellants are ordered to pay plaintiff, in addition to the principal su of -5+6,9.9..6 representing plaintiff0s lost deposit plus legal interest thereon fro the filing of the co plaint, -2",+++.++ attorney0s fees and costs in the lower court as well as in this Court. + Aence, this petition anchored on the following grounds@

1, $he pro7i ate cause of the loss is the negligence of respondent #o el 1ar2eting Corporation and #o eo 'ipana in entrusting cash to a dishonest e ployee. 2, $he failure of respondent #o el 1ar2eting Corporation to cross8chec2 the ban20s state ents of account with its own records during the entire period of ore than one )1, year is the pro7i ate cause of the co ission of subseEuent frauds and isappropriation co itted by 1s. 3rene :abut. 5, $he duplicate copies of the deposit slips presented by respondent #o el 1ar2eting Corporation are falsified and are not proof that the a ounts appearing thereon were deposited to respondent #o el 1ar2eting Corporation0s account with the ban2, 6, $he duplicate copies of the deposit slips were used by 1s. 3rene :abut to cover up her fraudulent acts against respondent #o el 1ar2eting Corporation, and not as records of deposits she ade with the ban2. , $he petition has no erit. <i ply put, the ain issue posited before us is@ ?hat is the pro7i ate cause of the loss, to the tune of -5+6,9.9..6, suffered by the private respondent #1C G petitioner ban20s negligence or that of private respondent0sH -etitioners sub it that the pro7i ate cause of the loss is the negligence of respondent #1C and #o eo 'ipana in entrusting cash to a dishonest e ployee in the person of 1s. 3rene :abut. - According to the , it was i possible for the ban2 to 2now that the oney deposited by 1s. 3rene :abut belong to #1C9 neither was the ban2 forewarned by #1C that :abut will be depositing cash to its account. $hus, it was i possible for the ban2 to 2now the fraudulent design of :abut considering that her husband, &ienvenido Cotas, also aintained an account with the ban2. For the ban2 to inEuire into the ownership of the cash deposited by 1s. 3rene :abut would be irregular. =therwise stated, it was #1C0s negligence in entrusting cash to a dishonest e ployee which provided 1s. 3rene :abut the opportunity to defraud #1C. . -rivate respondent, on the other hand, aintains that the pro7i ate cause of the loss was the negligent act of the ban2, thru its teller 1s. A>ucena 1abayad, in validating the deposit slips, both original and duplicate, presented by 1s. :abut to 1s. 1abayad, notwithstanding the fact that one of the deposit slips was not co pletely acco plished. ?e sustain the private respondent. =ur law on Euasi8delicts states@ Art. 21.*. ?hoever by act or o ission causes da age to another, there being fault or negligence, is obliged to pay for the da age done. <uch fault or negligence, if there is no pre8e7isting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. $here are three ele ents of a Euasi8delict@ )a, da ages suffered by the plaintiff9 )b, fault or negligence of the defendant, or so e other person for whose acts he ust

respond9 and )c, the connection of cause and effect between the fault or negligence of the defendant and the da ages incurred by the plaintiff. / 3n the case at bench, there is no dispute as to the da age suffered by the private respondent )plaintiff in the trial court, #1C in the a ount of -5+6,9.9..6. 3t is in ascribing fault or negligence which caused the da age where the parties point to each other as the culprit. !egligence is the o ission to do so ething which a reasonable an, guided by those considerations which ordinarily regulate the conduct of hu an affairs, would do, or the doing of so ething which a prudent and reasonable an would do. $he seventy8eight ).8,8year8old, yet still relevant, case of Picart v. Smith, 0 provides the test by which to deter ine the e7istence of negligence in a particular case which ay be stated as follows@ Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the sa e situationH 3f not, then he is guilty of negligence. $he law here in effect adopts the standard supposed to be supplied by the i aginary conduct of the discreet paterfamilias of the #o an law. $he e7istence of negligence in a given case is not deter ined by reference to the personal Cudg ent of the actor in the situation before hi . $he law considers what would be rec2less, bla eworthy, or negligent in the an of ordinary intelligence and prudence and deter ines liability by that. Applying the above test, it appears that the ban20s teller, 1s. A>ucena 1abayad, was negligent in validating, officially sta ping and signing all the deposit slips prepared and presented by 1s. :abut, despite the glaring fact that the duplicate copy was not co pletely acco plished contrary to the self8i posed procedure of the ban2 with respect to the proper validation of deposit slips, original or duplicate, as testified to by 1s. 1abayad herself, thus@ I@ !ow, as teller of -C3&, -asig &ranch, will you please tell us 1rs. 1abayad your i portant duties and functionsH A@ 3 accept current and savings deposits fro depositors and encash ents. I@ !ow in the handling of current account deposits of ban2 clients, could you tell us the procedure you followH A@ The client or depositor or the authorized representative prepares a deposit slip by filling up the deposit slip with the name, the account number, the date, the cash breakdown, if it is deposited for cash, and the check number, the amount and then he signs the deposit slip. I@ !ow, how any deposit slips do you nor ally reEuire in acco plishing current account deposit, 1rs. 1abayadH A@ The bank requires only one copy of the deposit although some of our clients prepare the deposit slip in duplicate.

I@ !ow in acco plishing current account deposits fro your clients, what do you issue to the depositor to evidence the deposit adeH A@ ?e issue or we give to the clients the depositor0s stub as a receipt of the deposit. I@ And who prepares the deposit slipH A@ $he depositor or the authori>ed representative sirH I@ ?here does the depositor0s stub co es )sic, fro 1rs. 1abayad, is it with the deposit slipH A@ $he depositor0s stub is connected with the deposit slip or the ban20s copy. 3n a deposit slip, the upper portion is the depositor0s stub and the lower portion is the ban20s copy, and you can detach the ban20s copy fro the depositor0s stub by tearing it sir. I@ !ow what do you do upon present ent of the deposit slip by the depositor or the depositor0s authori>ed representativeH A@ We see to it that the deposit slip 9 is properly accomplished and then we count the money and then we tally it with the deposit slip sir. I@ ow is the depositor!s stub which you issued to your clients validated" A@ #es, sir. )1 JB phasis oursK Clearly, 1s. 1abayad failed to observe this very i portant procedure. $he fact that the duplicate slip was not co pulsorily reEuired by the ban2 in accepting deposits should not relieve the petitioner ban2 of responsibility. $he odd circu stance alone that such duplicate copy lac2ed one vital infor ation G that of the na e of the account holder G should have already put 1s. 1abayad on guard. #ather than readily validating the inco plete duplicate copy, she should have proceeded ore cautiously by being ore probing as to the true reason why the na e of the account holder in the duplicate slip was left blan2 while that in the original was filled up. <he should not have been so naive in accepting hoo2, line and sin2er the too shallow e7cuse of 1s. 3rene :abut to the effect that since the duplicate copy was only for her personal record, she would si ply fill up the blan2 space later on. )) A /reasonable an of ordinary prudence/ )*would not have given credence to such e7planation and would have insisted that the space left blan2 be filled up as a condition for validation. ;nfortunately, this was not how ban2 teller 1abayad proceeded thus resulting in huge losses to the private respondent. !egligence here lies not only on the part of 1s. 1abayad but also on the part of the ban2 itself in its lac2adaisical selection and supervision of 1s. 1abayad. $his was e7e plified in the testi ony of 1r. #o eo &onifacio, then 1anager of the -asig &ranch of the petitioner ban2 and now its Lice8-resident, to the effect that, while he

ordered the investigation of the incident, he never ca e to 2now that blan2 deposit slips were validated in total disregard of the ban20s validation procedures, viz@ I@ Did he ever tell you that one of your cashiers affi7ed the sta p ar2 of the ban2 on the deposit slips and they validated the sa e with the achine, the fact that those deposit slips were unfilled up, is there any report si ilar to thatH A@ !o, it was not the cashier but the teller. I@ $he teller validated the blan2 deposit slipH A@ !o it was not reported. I@ #ou did not know that any one in the bank tellers or cashiers validated the blank deposit slipH A@ $ am not aware of that. I@ $t is only now that you are aware of thatH A@ #es, sir. )+ -rescinding fro the above, public respondent Court of Appeals aptly observed@ 777 777 777 3t was in fact only when he testified in this case in February, 1985, or after the lapse of ore than seven )., years counted fro the period when the funds in Euestion were deposited in plaintiff0s accounts )1ay, 19." to %uly, 19.*, that ban2 anager &onifacio ad ittedly beca e aware of the practice of his teller 1abayad of validating blan2 deposit slips. ;ndoubtedly, this is gross, wanton, and ine7cusable negligence in the appellant ban20s supervision of its e ployees. ), 3t was this negligence of 1s. A>ucena 1abayad, coupled by the negligence of the petitioner ban2 in the selection and supervision of its ban2 teller, which was the pro7i ate cause of the loss suffered by the private respondent, and not the latter0s act of entrusting cash to a dishonest e ployee, as insisted by the petitioners. -ro7i ate cause is deter ined on the facts of each case upon i7ed considerations of logic, co on sense, policy and precedent. )- Lda. de &ataclan v. ). 1edina, reiterated in the case of %ank of the Phil. $slands v. &ourt of 'ppeals, )/ defines pro7i ate cause as /that cause, which, in natural and continuous seEuence, unbro2en by any efficient intervening cause, produces the inCury, and without which the result would not have occurred. . . ./ 3n this case, absent the act of 1s. 1abayad in negligently validating the inco plete duplicate copy of the deposit slip, 1s. 3rene :abut would not have the facility with which to perpetrate her fraudulent sche e with i punity. Apropos, once again, is the pronounce ent ade by the respondent appellate court, to wit@ . . . . Bven if :abut had the fraudulent intention to isappropriate the funds entrusted to her by plaintiff, she would not have been able to deposit those funds in her husband0s current account, and then a2e plaintiff believe that it was in the latter0s accounts wherein she had deposited the , had it not been for ban2 teller

1abayad0s aforesaid gross and rec2less negligence. $he latter0s negligence was thus the pro7i ate, i ediate and efficient cause that brought about the loss clai ed by plaintiff in this case, and the failure of plaintiff to discover the sa e soon enough by failing to scrutini>e the onthly state ents of account being sent to it by appellant ban2 could not have prevented the fraud and isappropriation which 3rene :abut had already co pleted when she deposited plaintiff0s oney to the account of her husband instead of to the latter0s accounts. )0 Further ore, under the doctrine of /last clear chance/ )also referred to, at ti es as /supervening negligence/ or as /discovered peril/,, petitioner ban2 was indeed the culpable party. $his doctrine, in essence, states that where both parties are negligent, but the negligent act of one is appreciably later in ti e than that of the other, or when it is i possible to deter ine whose fault or negligence should be attributed to the incident, the one who had the last clear opportunity to avoid the i pending har and failed to do so is chargeable with the conseEuences thereof. )2<tated differently, the rule would also ean that an antecedent negligence of a person does not preclude the recovery of da ages for the supervening negligence of, or bar a defense against liability sought by another, if the latter, who had the last fair chance, could have avoided the i pending har by the e7ercise of due diligence. *1Aere, assu ing that private respondent #1C was negligent in entrusting cash to a dishonest e ployee, thus providing the latter with the opportunity to defraud the co pany, as advanced by the petitioner, yet it cannot be denied that the petitioner ban2, thru its teller, had the last clear opportunity to avert the inCury incurred by its client, si ply by faithfully observing their self8i posed validation procedure. At this Cuncture, it is worth to discuss the degree of diligence ought to be e7ercised by ban2s in dealing with their clients. $he !ew Civil Code provides@ Art. 11.5. $he fault or negligence of the obligor consists in the o ission of that diligence which is reEuired by the nature of the obligation and corresponds with the circu stances of the persons, of the ti e and of the place. ?hen negligence shows bad faith, the provisions of articles 11.1 and 22+1, paragraph 2, shall apply. 3f the law or contract does not state the diligence which is to be observed in the perfor ance, that which is e7pected of a good father of a family shall be reEuired. )11+6a, 3n the case of ban2s, however, the degree of diligence reEuired is ore than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, ban2s are duty bound to treat the accounts of their clients with the highest degree of care. *) As elucidated in Sime( $nternational )*anila+, $nc. v. &ourt of 'ppeals, ** in every case, the depositor e7pects the ban2 to treat his account with the ut ost fidelity, whether such account consists only of a few hundred pesos or of illions. $he ban2 ust record every single transaction accurately, down to the last centavo, and as pro ptly as possible. $his has to be done if the account is to reflect at any given ti e the a ount of oney the depositor can dispose as he sees fit, confident that the ban2

will deliver it as and to who ever he directs. A blunder on the part of the ban2, such as the failure to duly credit hi his deposits as soon as they are ade, can cause the depositor not a little e barrass ent if not financial loss and perhaps even civil and cri inal litigation. $he point is that as a business affected with public interest and because of the nature of its functions, the ban2 is under obligation to treat the accounts of its depositors with eticulous care, always having in ind the fiduciary nature of their relationship. 3n the case before us, it is apparent that the petitioner ban2 was re iss in that duty and violated that relationship. -etitioners nevertheless aver that the failure of respondent #1C to cross8chec2 the ban20s state ents of account with its own records during the entire period of ore than one )1, year is the pro7i ate cause of the co ission of subseEuent frauds and isappropriation co itted by 1s. 3rene :abut. ?e do not agree. ?hile it is true that had private respondent chec2ed the onthly state ents of account sent by the petitioner ban2 to #1C, the latter would have discovered the loss early on, such cannot be used by the petitioners to escape liability. $his o ission on the part of the private respondent does not change the fact that were it not for the wanton and rec2less negligence of the petitioners0 e ployee in validating the inco plete duplicate deposit slips presented by 1s. 3rene :abut, the loss would not have occurred. Considering, however, that the fraud was co itted in a span of ore than one )1, year covering various deposits, co on hu an e7perience dictates that the sa e would not have been possible without any for of collusion between 1s. :abut and ban2 teller 1abayad. 1s. 1abayad was negligent in the perfor ance of her duties as ban2 teller nonetheless. $hus, the petitioners are entitled to clai rei burse ent fro her for whatever they shall be ordered to pay in this case. $he foregoing notwithstanding, it cannot be denied that, indeed, private respondent was li2ewise negligent in not chec2ing its onthly state ents of account. Aad it done so, the co pany would have been alerted to the series of frauds being co itted against #1C by its secretary. $he da age would definitely not have ballooned to such an a ount if only #1C, particularly #o eo 'ipana, had e7ercised even a little vigilance in their financial affairs. $his o ission by #1C a ounts to contributory negligence which shall itigate the da ages that ay be awarded to the private respondent *+ under Article 21.9 of the !ew Civil Code, to wit@ . . . ?hen the plaintiff0s own negligence was the i ediate and pro7i ate cause of his inCury, he cannot recover da ages. &ut if his negligence was only contributory, the i ediate and pro7i ate cause of the inCury being the defendant0s lac2 of due care, the plaintiff ay recover da ages, but the courts shall itigate the da ages to be awarded. 3n view of this, we believe that the de ands of substantial Custice are satisfied by allocating the da age on a *+86+ ratio. $hus, 6+F of the da age awarded by the respondent appellate court, e7cept the award of -2",+++.++ attorney0s fees, shall be borne by private respondent #1C9 only

the balance of *+F needs to be paid by the petitioners. $he award of attorney0s fees shall be borne e7clusively by the petitioners. ?AB#BF=#B, the decision of the respondent Court of Appeals is odified by reducing the a ount of actual da ages private respondent is entitled to by 6+F. -etitioners ay recover fro 1s. A>ucena 1abayad the a ount they would pay the private respondent. -rivate respondent shall have recourse against 1s. 3rene :abut. 3n all other respects, the appellate court0s decision is AFF3#1BD. -roportionate costs. <= =#DB#BD.

?B<$1=!$ &A!M vs. =!4 DECISION 3UISUMBING, J"4 $his is a petition for review of the decisionJ1K dated %anuary 15, 1998, of the Court of Appeals in CA84.#. CL !o. 285+6 ordering the petitioner to pay respondent -1,."6,.8.."+ plus twelve percent )12F, interest per annu co puted fro =ctober ., 19.., the date of the first e7traCudicial de and, plus da ages. $he facts of this case are undisputed. #espondent Bugene =ng aintained a current account with petitioner, for erly the Associated &an2ing Corporation, but now 2nown as ?est ont &an2. <o eti e in 1ay 19.*, he sold certain shares of stoc2s through 3sland <ecurities Corporation. $o pay =ng, 3sland <ecurities purchased two )2, -acific &an2ing Corporation anagerNs chec2s,J2K both dated 1ay 6, 19.*, issued in the na e of Bugene =ng as payee. &efore =ng could get hold of the chec2s, his friend -aciano $anli co got hold of the , forged =ngNs signature and deposited these with petitioner, where $anli co was also a depositor. Bven though =ngNs speci en signature was on file, petitioner accepted and credited both chec2s to the account of $anli co, without verifying the Osignature indorse entsN appearing at the bac2 thereof. $anli co then i ediately withdrew the oney and absconded. 3nstead of going straight to the ban2 to stop or Euestion the pay ent, =ng first sought the help of $anli coNs fa ily to recover the a ount. 'ater, he reported the incident to the Central &an2, which li2e the first effort, unfortunately proved futile. 3t was only on =ctober ., 19.., about five )", onths fro discovery of the fraud, did =ng cry foul and de anded in his co plaint that petitioner pay the value of the two chec2s fro the ban2 on whose gross negligence he i puted his loss. 3n his suit, he insisted that he did not Pdeliver, negotiate, endorse or transfer to any person or entityQ the subCect chec2s issued to hi and asserted that the signatures on the bac2 were spurious.J5K $he ban2 did not present evidence to the contrary, but si ply contended that since plaintiff =ng clai ed to have never received the originals of the two )2, chec2s in Euestion fro 3sland <ecurities, uch less to have authori>ed $anli co to receive the sa e, he never acEuired ownership of these chec2s. $hus, he had no legal personality to sue as he is not a real party in interest. $he ban2 then filed a de urrer to evidence which was denied. =n February 8, 1989, after trial on the erits, the #egional $rial Court of 1anila, &ranch 58, rendered a decision, thus@ 3! L3B? =F $AB F=#B4=3!4, the court hereby renders Cudg ent for the plaintiff and against the defendant, and orders the defendant to pay the plaintiff@ 1. $he su of -1,."6,.8.."+ representing the total face value of the two chec2s in Euestion, e7hibits PAQ and P&Q, respectively, with interest thereon at the legal rate of twelve percent )12F, per annu co puted fro =ctober ., 19.. )the date of the first e7traCudicial de and, up to and until the sa e shall have been paid in full9 2. 1oral da ages in the a ount of -2"+,+++.++9 5. B7e plary or corrective da ages in the su of -1++,+++.++ by way of e7a ple or correction for the public good9

6. AttorneyNs fees of -"+,+++.++ and costs of suit. DefendantNs counterclai s are dis issed for lac2 of erit. <= =#DB#BD.J6K -etitioner elevated the case to the Court of Appeals without success. 3n its decision, the appellate court held@ ?AB#BF=#B, in view of the foregoing, the appealed decision is AFF3#1BD in toto.J"K -etitioner now co es before this Court on a petition for review, alleging that the Court of Appeals erred@ I ... 3! AFF3#13!4 $AB $#3A' C=;#$N< C=!C';<3=! $AA$ #B<-=!DB!$ AA< A CA;<B =F AC$3=! A4A3!<$ $AB -B$3$3=!B#. II ... 3! AFF3#13!4 $AB $#3A' C=;#$N< DBC3<3=! F3!D3!4 -B$3$3=!B# '3A&'B $= #B<-=!DB!$ A!D DBC'A#3!4 $AA$ $AB 'A$$B# 1A: #BC=LB# D3#BC$': F#=1 $AB F=#1B#9 A!D III ... 3! !=$ AD%;D43!4 #B<-=!DB!$ 4;3'$: =F 'ACAB< A!D 3! !=$ A&<='L3!4 -B$3$3=!B# F#=1 '3A&3'3$:. Bssentially the issues in this case are@ )1, whether or not respondent =ng has a cause of action against petitioner ?est ont &an29 and )2, whether or not =ng is barred to recover the oney fro ?est ont &an2 due to laches. #espondent ad itted that he was never in actual or physical possession of the two )2, chec2s of the 3sland <ecurities nor did he authori>e $anli co or any of the latterNs representative to de and, accept and receive the sa e. For this reason, petitioner argues, respondent cannot sue petitioner because under <ection "1 of the !egotiable 3nstru ents 'awJ*K it is only when a person beco es a holder of a negotiable instru ent can he sue in his own na e. Conversely, prior to his beco ing a holder, he had no right or cause of action under such negotiable instru ent. -etitioner further argues that since <ection 191J.K of the !egotiable 3nstru ents 'aw defines a PholderQ as the Opayee or indorsee of a bill or note, who is in possession of it, or the bearer thereof,N in order to be a holder, it is a reEuire ent that he be in possession of the instru ent or the bearer thereof. <i ply stated, since =ng never had possession of the chec2s nor did he authori>e anybody, he did not beco e a holder thereof hence he cannot sue in his own na e.J8K -etitioner also cites Article 1269J9K of the Civil Code e7plaining that a chec2, even if it is a anagerNs chec2, is not legal tender. Aence, the creditor cannot be co pelled to accept pay ent thru this eans.J1+K 3t is petitionerNs position that for all intents and purposes, 3sland <ecurities has not yet tendered pay ent to respondent =ng, thus, any action by =ng should be directed towards collecting the a ount fro 3sland <ecurities. -etitioner clai s that =ngNs cause of action against it has not ripened as of yet. 3t ay be that petitioner would be liable to the drawee ban2 8 8 but that is a atter between petitioner and drawee8ban2, -acific &an2ing Corporation. J11K For its part, respondent =ng leans on the ruling of the trial court and the Court of Appeals which held that the suit of =ng against the petitioner ban2 is a desirable shortcut to reach the party who ought in any event to be ulti ately liable. J12K 3t

li2ewise cites the ruling of the courts a quo which held that according to the general rule, a ban2 who has obtained possession of a chec2 upon an unauthori>ed or forged indorse ent of the payeeNs signature and who collects the a ount of the chec2 fro the drawee is liable for the proceeds thereof to the payee. $he theory of said rule is that the collecting ban2Ns possession of such chec2 is wrongful.J15K #espondent also cites 'ssociated %ank vs, &ourt of 'ppealsJ16K which held that the collecting ban2 or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorse ents. $he collecting ban2 is also ade liable because it is privy to the depositor who negotiated the chec2. $he ban2 2nows hi , his address and history because he is a client. Aence, it is in a better position to detect forgery, fraud or irregularity in the indorse ent.J1"K Anent Article 1269 of the Civil Code, =ng points out that ban2 chec2s are specifically governed by the !egotiable 3nstru ents 'aw which is a special law and only in the absence of specific provisions or deficiency in the special law ay the Civil Code be invo2ed.J1*K Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the appellate and trial courts, hence there is no Custifiable reason to grant the petition. -etitionerNs clai that respondent has no cause of action against the ban2 is clearly isplaced. As defined, a cause of action is the act or o ission by which a party violates a right of another.J1.K $he essential ele ents of a cause of action are@ )a, a legal right or rights of the plaintiff, )b, a correlative obligation of the defendant, and )c, an act or o ission of the defendant in violation of said legal right.J18K $he co plaint filed before the trial court e7pressly alleged respondentNs right as payee of the anagerNs chec2s to receive the a ount involved, petitionerNs correlative duty as collecting ban2 to ensure that the a ount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondentNs rights.J19K ;nder <ection 25 of the !egotiable 3nstru ents 'aw@ ?hen a signature is forged or ade without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instru ent, or to give a discharge therefor, or to enforce pay ent thereof against any party thereto, can be acEuired through or under such signature, unless the party against who it is sought to enforce such right is precluded fro setting up the forgery or want of authority. <ince the signature of the payee, in the case at bar, was forged to a2e it appear that he had ade an indorse ent in favor of the forger, such signature should be dee ed as inoperative and ineffectual. -etitioner, as the collecting ban2, grossly erred in a2ing pay ent by virtue of said forged signature. $he payee, herein respondent, should therefore be allowed to recover fro the collecting ban2. $he collecting ban2 is liable to the payee and ust bear the loss because it is its legal duty to ascertain that the payeeNs endorse ent was genuine before cashing the chec2. J2+K As a general rule, a ban2 or corporation who has obtained possession of a chec2 upon an unauthori>ed or forged indorse ent of the payeeNs signature and who collects the a ount of the chec2 fro the drawee, is liable for the proceeds thereof to

the payee or other owner, notwithstanding that the a ount has been paid to the person fro who the chec2 was obtained.J21K $he theory of the rule is that the possession of the chec2 on the forged or unauthori>ed indorse ent is wrongful, and when the oney had been collected on the chec2, the ban2 or other person or corporation can be held as for oneys had and received, and the proceeds are held for the rightful owners who ay recover the . $he position of the ban2 ta2ing the chec2 on the forged or unauthori>ed indorse ent is the sa e as if it had ta2en the chec2 and collected the oney without indorse ent at all and the act of the ban2 a ounts to conversion of the chec2.J22K -etitionerNs clai that since there was no delivery yet and respondent has never acEuired possession of the chec2s, respondentNs re edy is with the drawer and not with petitioner ban2. -etitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in hi , he ought not to be allowed to recover on the ground that he lost nothing because he never beca e the owner of the chec2 and still retained his clai of debt against the drawer. J25K Aowever, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not aterial. $he rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ulti ately liable as a ong the innocent persons involved in the transaction. 3n other words, the payee ought to be allowed to recover directly fro the collecting ban2, regardless of whether the chec2 was delivered to the payee or not.J26K Considering the circu stances in this case, in our view, petitioner could not escape liability for its negligent acts. Ad ittedly, respondent Bugene =ng at the ti e the fraudulent transaction too2 place was a depositor of petitioner ban2. &an2s are engaged in a business i pressed with public interest, and it is their duty to protect in return their any clients and depositors who transact business with the .J2"K $hey have the obligation to treat their clientNs account eticulously and with the highest degree of care, considering the fiduciary nature of their relationship. $he diligence reEuired of ban2s, therefore, is ore than that of a good father of a fa ily.J2*K 3n the present case, petitioner was held to be grossly negligent in perfor ing its duties. As found by the trial court@ 777 )A,t the ti e the Euestioned chec2s were accepted for deposit to -aciano $anli coNs account by defendant ban2, defendant ban2, ad ittedly had in its files speci en signatures of plaintiff who aintained a current account with the )B7hibits P'81Q and P181Q9 testi ony of B anuel $orio,. 4iven the substantial face value of the two chec2s, totalling -1,."6,.8.."+, and the fact that they were being deposited by a person not the payee, the very least defendant ban2 should have done, as any reasonable prudent an would have done, was to verify the genuineness of the indorse ents thereon. $he Court cannot help but note that had defendant conducted even the ost cursory co parison with plaintiffNs speci en signatures in its files )B7hibit P'81Q and P181Q, it would have at once seen that the alleged indorse ents were falsified and were not those of the plaintiff8payee. Aowever, defendant apparently failed to a2e such a verification or, what is worse did so but, chose to disregard the obvious dissi ilarity of the signatures. $he first o ission

a2es it guilty of gross negligence9 the second of bad faith. 3n either case, defendant is liable to plaintiff for the proceeds of the chec2s in Euestion.J2.K $hese findings are binding and conclusive on the appellate and the reviewing courts. =n the second issue, petitioner avers that respondent =ng is barred by laches for failing to assert his right for recovery fro the ban2 as soon as he discovered the sca . $he lapse of five onths before he went to see2 relief fro the ban2, according to petitioner, constitutes laches. 3n turn, respondent contends that petitioner presented no evidence to support its clai of laches. =n the contrary, the established facts of the case as found by the trial court and affir ed by the Court of Appeals are that respondent left no stone unturned to obtain relief fro his predica ent. =n the atter of delay in reporting the loss, respondent calls attention to the fact that the chec2s were issued on 1ay 6, 19.*, and on the very ne7t day, 1ay ", 19.*, these were already credited to the account of -aciano $anli co and presented for pay ent to -acific &an2ing Corporation. <o even if the theft of the chec2s were discovered and reported earlier, respondent argues, it would not have altered the situation as the encash ent of the chec2s was consu ated within twenty four hours and facilitated by the gross negligence of the petitioner ban2.J28K 'aches ay be defined as the failure or neglect for an unreasonable and une7plained length of ti e, to do that which, by e7ercising due diligence, could or should have been done earlier. 3t is negligence or o ission to assert a right within a reasonable ti e, warranting a presu ption that the party entitled thereto has either abandoned or declined to assert it.J29K3t concerns itself with whether or not by reason of long inaction or ine7cusable neglect, a person clai ing a right should be barred fro asserting the sa e, because to allow hi to do so would be unCust to the person against who such right is sought to be enforced.J5+K 3n the case at bar, it cannot be said that respondent sat on his rights. Ae i ediately acted after 2nowing of the forgery by proceeding to see2 help fro the $anli co fa ily and later the Central &an2, to re edy the situation and recover his oney fro the forger, -aciano $anli co. =nly after he had e7hausted possibilities of settling the atter a icably with the fa ily of $anli co and through the C&, about five onths after the unlawful transaction too2 place, did he resort to a2ing the de and upon the petitioner and eventually before the court for recovery of the oney value of the two chec2s. $hese acts cannot be construed as undue delay in or abandon ent of the assertion of his rights. 1oreover, the clai of petitioner that respondent should be barred by laches is clearly a vain atte pt to deflect responsibility for its negligent act. As e7plained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encash ent of the subCect chec2s had it e7ercised due diligence and followed the proper and regular ban2ing procedures in clearing chec2s.J51K As we had earlier ruled, the one who had the last clear opportunity to avoid the i pending har but failed to do so is chargeable with the conseEuences thereof.J52K 5HEREFORE, the instant petition is DB!3BD for lac2 of erit. $he assailed decision of the Court of Appeals, sustaining the Cudg ent of the #egional $rial Court of 1anila, is AFF3#1BD. Costs against petitioner.

SO ORDERED"

&-3 FA13': <AL3!4< &A!M vs. F3#<$1B$#= 3!LB<$1B!$ 4#=;<A!D=LA'84;$3B##BR, -,@ For our resolution is the instant petition for review on certiorari under #ule 6" of the 199. #ules of Civil -rocedure, as a ended, assailing the Decision1 dated %uly 6, 199. and #esolution2 dated %anuary 28, 1998 of the Court of Appeals in CA84.#. CL !o. 6698*, .irst *etro $nvestment &orporation vs, %P$ .amily %ank. $he facts as found by the trial court and affir ed by the Court of Appeals are as follows@ First 1etro 3nvest ent Corporation )F13C,, respondent, is an invest ent house organi>ed under -hilippine laws.-etitioner, &an2 of -hilippine 3slands Fa ily <avings &an2, 3nc. is a ban2ing corporation also organi>ed under -hilippine laws. =n August 2", 1989, F13C, through its B7ecutive Lice -resident Antonio =ng, opened current account no. 86+18+.6.58+ and deposited 1B$#=&A!M chec2 no. 898*.9 of -1++ illion with &-3 Fa ily &an2S )&-3 F&, <an Francisco del 1onte &ranch )Iue>on City,. =ng ade the deposit upon reEuest of his friend, Ador de Asis, a close acEuaintance of %ai e <ebastian, then &ranch 1anager of &-3 F& <an Francisco del 1onte &ranch.<ebastians ai was to increase the deposit level in his &ranch. &-3 F&, through <ebastian, guaranteed the pay ent of -16,**.,*8..+1 representing 1.F per annu interest of -1++ illion deposited by F13C. $he latter, in turn, assured &-3 F& that it will aintain its deposit of -1++ illion for a period of one year on condition that the interest of 1.F per annu is paid in advance. $his agree ent between the parties was reached through their co unications in writing. <ubseEuently, &-3 F& paid F13C 1.F interest or -16,**.,*8..+1 upon clearance of the latters chec2 deposit. Aowever, on August 29, 1989, on the basis of an Authority to Debit signed by =ng and 1a. $heresa David, <enior 1anager of F13C, &-3 F& transferred -8+ illion fro F13Cs current account to the savings account of $evesteco Arrastre <tevedoring, 3nc. )$evesteco,. F13C denied having authori>ed the transfer of its funds to $evesteco, clai ing that the signatures of =ng and David were falsified. $hereupon, to recover i ediately its deposit, F13C, on <epte ber 12, 1989, issued &-3 F& chec2 no. 129+.. for-8*,+".,*6*..2 payable to itself and drawn on its deposit with&-3 F& <FD1 branch. &ut upon presentation for pay ent on<epte ber 15, 1989, &-3 F& dishonored the chec2 as it was drawn against insufficient funds )DA3F,. ConseEuently, F13C filed with the #egional $rial Court, &ranch 16*, 1a2ati City Civil Case !o. 898"28+ against &-3 F&. F13C li2ewise caused the filing by the =ffice of the <tate -rosecutors of an 3nfor ation for estafa against =ng, de Asis, <ebastian and four others. Aowever, the 3nfor ation was dis issed on the basis of a de urrer to evidence filed by the accused. =n =ctober 1, 1995, the trial court rendered its Decision in Civil Case !o. 898"28+, the dispositive portion of which reads@ -re ises considered, Cudg ent is rendered in favor of plaintiff, ordering defendant to pay@

a.the a ount of -8+ illion with interest at the legal rate fro the ti e this co plaint was filed less -16,**.,*.8.+19 b.the a ount of -1++,+++.++ as reasonable attorneys fees9 and c.the cost. <= =#DB#BD. =n appeal by both parties, the Court of Appeals rendered a Decision affir ing the assailed Decision with odification, thus@ ?AB#BF=#B, considering all the foregoing, this Court hereby odifies the decision of the trial court and adCudges &-3 Fa ily &an2 liable to First 1etro 3nvest ent Corporation for the a ount of -*",552,521.99 plus interest at 1.F per annu fro August 29, 1989 until fully restored. Further, this 1.F interest shall itself earn interest at 12F fro =ctober 6, 1989 until fully paid. <= =#DB#BD. &-3 F& then filed a otion for reconsideration but was denied by the Court of Appeals. 3n the instant petition, &-3 F& ascribes to the Appellate Court the following assign ents of error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

-etitioner &-3 F& contends that the Court of Appeals erred in awarding the 1.F per annu interest corresponding to the a ount deposited by respondent F13C. -etitioner insists that respondents deposit is not a special savings account si ilar to a ti e deposit, but actually a de and deposit, withdrawable upon de and, $ros6r%bed 7ro8 earn%n' %n eres under Central &an2 Circular .... -etitioner further contends that the transaction is not valid as its &ranch 1anager, %ai e <ebastian, clearly overstepped his authority in entering into such an agree ent with respondents B7ecutive Lice -resident. ?e hold that the parties did not intend the deposit to be treated as a de and deposit but rather as an interest8earning ti e deposit not withdrawable any ti e. $his is Euite obvious fro the co unications between %ai e <ebastian, petitioners &ranch 1anager, and Antonio =ng, respondents B7ecutive Lice -resident. &oth agreed that the deposit of -1++ illion was non9w% :drawab!e 7or one year ;$on $ay8en %n ad<an6e o7 :e )/= $er ann;8 %n eres . #espondents ti e deposit of -1++ illion was accepted by petitioner as shown by a deposit slip prepared and signed by =ng hi self who indicated therein the account nu ber to which the deposit is to be credited, the na e of F13C as depositor or account holder, the date of deposit, and the a ount of -1++ illion as deposit in chec2. Clearly, when respondent F13C invested its oney with petitioner &-3 F&, they intended the -1++ illion as a ti e deposit, to earn 1.F per annu interest and to re ain intact until its aturity date one year thereafter. =rdinarily, a %8e de$os% is defined as one the pay ent of which cannot legally be reEuired within such a specified nu ber of days.5 3n contrast, de8and de$os% s are all those liabilities of the %angko Sentral and of other ban2s which are deno inated in -hilippine currency and are s;b>e6 o $ay8en %n !e'a! ender ;$on de8and by :e $resen a %on o7 ?de$os% ors@ 6:e6As"6 ?hile it ay be true that barely one onth and seven days fro the date of deposit, respondent F13C de anded the withdrawal of -8*,+".,*6*..2 through the issuance of a chec2 payable to itself, the sa e was ade as a result of the fraudulent and unauthori>ed transfer by petitioner &-3 F& of its -8+ illion deposit to $evestecos savings account.Certainly, such was a nor al reaction of respondent as a depositor to petitioners failure in its fiduciary duty to treat its account with the highest degree of care. ;nder this circu stance, the withdrawal of deposit by respondent F13C before the one8year aturity date did not change the nature of its ti e deposit to one of de and deposit. =n another tac2, petitioners argu ent that Central &an2 regulations prohibit de and deposit fro earning interest is bereft of erit. ;nder Central &an2 Circular !o. 22, <eries of 1996, de8and de$os% s s:a!! no be s;b>e6 o any %n eres ra e 6e%!%n'" $his, in effect, is an open authority to pay interest on de and deposits, such interest not being subCect to any rate ceiling. 'i2ewise, ti e deposits are not subCect to interest rate ceiling. 3n fact, the rate ceiling was abolished and even allowed to float depending on the ar2et conditions. <ections 1266 and 1266.1 of the 1anual of #egulations of the Central &an2 of the -hilippines provide@

<ec. 1266. $nterest on time deposit, $i e deposits shall not be subCect to any interest rate ceiling. <ec. 1266.1. Time of payment, 3nterest on ti e deposit ay be paid at aturity or upon withdrawal or in advance. -rovided, however, $hat interest paid in advance shall not e7ceed the interest for one year. $hus, even assu ing that respondents account with petitioner is a de and deposit, still it would earn interest. 4oing bac2 to the unauthori>ed transfer of respondents funds to $evesteco, in its atte pt to evade any liability therefor, petitioner now i pugns the validity of the subCect agree ent on the ground that its &ranch 1anager, %ai e <ebastian, overstepped the li its of his authority in accepting respondents deposit with 1.F interest per annu .?e have held that if a corporation 2nowingly per its its officer, or any other agent, to perfor acts within the scope of an apparent authority, holding hi out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped fro denying such authority." ?e reiterated this doctrine inPrudential %ank vs, &ourt of 'ppeals,* thus@ A ban2 holding out its officers and agent as worthy of confidence will not be per itted to profit by the frauds they ay thus be enabled to perpetrate in the apparent scope of their e ploy ent9 nor will it be per itted to shir2 its responsibility for such frauds, even though no benefit ay accrue to the ban2 therefro . Accordingly, a ban2ing corporation is liable to innocent third persons where the representation is ade in the course of its business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority and atte pting to perpetrate a fraud upon his principal or so e other person for his own ulti ate benefit. 3n Francisco vs. 4overn ent <ervice 3nsurance <yste ,. we ruled@ Corporate transactions would speedily co e to a standstill were every person dealing with a corporation held duty8bound to disbelieve every act of its responsible officers, no atter how regular they should appear on their face. $his Court has observed in /amirez vs, 0rientalist &o,, 58 -hil. *56, *"68*"", that 3n passing upon the liability of a corporation in cases of this 2ind it is always well to 2eep in ind the situation as it presents itself to the third party with who the contract is ade.!aturally he can have little or no infor ation as to what occurs in corporate eetings9 and he ust necessarily rely upon the e7ternal anifestations of corporate consent. $he integrity of co ercial transactions can only be aintained by holding the corporation strictly to the liability fi7ed upon it by its agents in accordance with law9 and we would be sorry to announce a doctrine which would per it the property of a an in the city of -aris to be whis2ed out of his hands and carried into a re ote Euarter of the earth without recourse against the corporation whose na e and authority had been used in the anner disclosed in this case. As already observed, it is fa iliar doctrine that if a corporation 2nowingly per its one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds hi out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped fro denying his authority9 and where it

is said if the corporation per its, this eans the sa e as if the thing is per itted by the directing power of the corporation. -etitioner aintains that respondent should have first inEuired whether the deposit of -1++ 1illion and the fi7ing of the interest rate were pursuant to its )petitioners, internal procedures. -etitioners stance is a futile atte pt to evade an obligation clearly established by the intent of the parties. ?hat transpires in the corporate board roo is entirely an internal atter. Aence, petitioner ay not i pute negligence on the part of respondents representative in failing to find out the scope of authority of petitioners &ranch 1anager. 3ndeed, the public has the right to rely on the trustworthiness of ban2 anagers and their acts. =bviously, confidence in the ban2ing syste , which necessarily includes reliance on ban2 anagers, is vital in the econo ic life of our society. <ignificantly, the transaction was actually ac2nowledged and ratified by petitioner when it paid respondent in advance the interest for one year. $hus, petitioner is estopped fro denying that it authori>ed its &ranch 1anager to enter into an agree ent with respondents B7ecutive Lice -resident concerning the deposit with the corresponding 1.F interest per annu . Anent the award of interest, petitioner contends that such award is not in order as it had not been prayed for by respondent in its co plaint nor was it an issue agreed upon by the parties during the pre8trial of the case. !onetheless, the rule is well settled that when the obligation is breached, and it consists in the pay ent of a su of oney, i,e., a loan or forbearance of oney, the interest due should be that which ay have been stipulated in writing, as in this case. F;r :er8ore, :e %n eres d;e s:a!! % se!7 earn !e'a! %n eres 7ro8 :e %8e % %s >;d%6%a!!y de8anded .8 &esides, the atter of how uch interest respondent is entitled to falls sEuarely within the issues fra ed by the parties in their respective pleadings filed with the court a quo. At any rate, courts ay indeed grant the relief warranted by the allegations and proof e<en %7 no s;6: s$e6%7%6 re!%e7 %s $rayed 7or if only to conclude a co plete and thorough resolution of the issues involved.9 Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case !o. 898699* )filed by petitioner against $evesteco, with Civil Case !o. 898"28+ )the instant case,. According to petitioner, had there been consolidation of these two cases, it would have been shown that the -8+ 1illion transferred to $evestecos account were proceeds of a loan e7tended by respondent F13C to $evesteco. <uffice it to state that as found by both the trial court and the Appellate Court, petitioners transfer of respondents -8+1 to $evesteco was unauthori>ed and tainted with fraud. At this point, we ust e phasi>e that this Court is not a trier of facts. $hus, we uphold the finding of both lower courts that petitioner failed to e7ercise that degree of diligence reEuired by the nature of its obligations to its depositors. A ban2 is under obligation to treat the accounts of its depositors with eticulous care, whether such account consists only of a few hundred pesos or of illion of pesos.1+ Aere, petitioner cannot clai it e7ercised such a degree of care reEuired of it and ust, therefore, bear the conseEuence.

5HEREFORE, the petition is DB!3BD. $he assailed Decision dated %uly 6, 199. and the #esolution dated %anuary 28, 1998 of the Court of Appeals in CA84.#. CL !o. 6698* are hereby AFF3#1BD. Costs against petitioner. SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and :e SPOUSES ARTHUR CANLAS and BIBIENE CANLAS,respondents. 1eonen, /amirez 2 'ssociates for petitioner, 1, 3mmanuel %, &anilao for private respondents, GRICO9A3UINO, J.: 3n a decision dated <epte ber 5, 1986, the 3nter ediate Appellate Court )now Court of Appeals, in AC84.#. CL !o. *91.8 entitled, /Arthur A. Canlas, et al., -laintiff8 Appellees vs. Co ercial &an2 and $rust Co pany of the -hilippines, Defendant8 Appellant,/ reduced to -1+",+++ the -6*",+++ da age8award of the trial court to the private respondents for an error of a ban2 teller which resulted in the dishonor of two s all chec2s which the private respondents had issued against their Coint current account. $his petition for review of that decision was filed by the &an2. $he respondent spouses, Arthur and Livienne Canlas, opened a Coint current account !o. 21+8"2+8.5 on April 2", 19.. in the Iue>on City branch of the Co ercial &an2 and $rust Co pany of the -hilippines )C&$C, with an initial deposit of -2,2"+. -rior thereto, Arthur Canlas had an e7isting separate personal chec2ing account !o. 21+8662861 in the sa e branch. ?hen the respondent spouses opened their Coint current account, the /new accounts/ teller of the ban2 pulled out fro the ban20s files the old and e7isting signature card of respondent Arthur Canlas for Current Account !o. 21+8662861 for use as 3 D and reference. &y ista2e, she placed the old personal account nu ber of Arthur Canlas on the deposit slip for the new Coint chec2ing account of the spouses so that the initial deposit of -2,2"+ for the Coint chec2ing account was iscredited to Arthur0s personal account )p. 9, /ollo,. $he spouses subseEuently deposited other a ounts in their Coint account. Aowever, when respondent Livienne Canlas issued a chec2 for -l,*59.89 in April 19.. and another chec2 for -1,1*+.++ on %une 1, 19.., one of the chec2s was dishonored by the ban2 for insufficient funds and a penalty of -2+ was deducted fro the account in both instances. 3n view of the overdrawings, the ban2 tried to call up the spouses at the telephone nu ber which they had given in their application for , but the ban2 could not contact the because they actually reside in -orac, -a panga. $he city address and telephone nu ber which they gave to the ban2 belonged to 1rs. Canlas0 parents. =n Dece ber 1", 19.., the private respondents filed a co plaint for da ages against C&$C in the Court of First 3nstance of -a panga )p. 115, /ollo,. =n February 2., 19.8, the ban2 filed a otion to dis iss the co plaint for i proper venue. $he otion was denied. During the pendency of the case, the &an2 of the -hilippine 3slands )&-3, and C&$C were erged. As the surviving corporation under the erger agree ent and under <ection 8+ )", of the Corporation Code of the -hilippines, &-3 too2 over the prosecution and defense of any pending clai s, actions or proceedings by and against C&$C.

=n 1ay ", 1981, the #egional $rial Court of -a panga rendered a decision against &-3, the dispositive portion of which reads@ ?AB#BF=#B, Cudg ent is hereby rendered sentencing defendant to pay the plaintiff the following@ 1. - ",+++.++ as actual da ages9 2. - 1"+,+++.++ for plaintiff Arthur Canlas and -1"+,+++.++ for plaintiff Livienne <. Canlas representing oral da ages9 5. - 1"+.+++.++ as e7e plary da ages9 6. - 1+,+++.++ as attorney0s fees9 and ". Costs. )p. 5*, /ollo,. =n appeal, the 3nter ediate Appellate Court deleted the actual da ages and reduced the other awards. $he dispositive portion of its decision reads@ ?AB#BF=#B, the Cudg ent appealed fro is hereby odified as follows@ 1. $he award of -"+,+++.++ in actual da ages is herewith deleted. 2. 1oral da ages of -"+,+++.++ is awarded to plaintiffs8appellees Arthur Canlas and Livienne <. Canlas, not -"+,+++.++ each. 5. B7e plary da ages is li2ewise reduced to the su of -"+,+++.++ and attorney0s fees to -",+++.++. Costs against the defendants appellant. )p. 6+, /ollo., -etitioner filed this petition for review alleging that the appellate court erred in holding that@ 1. $he venue of the case had been properly laid at -a panga in the light of private respondents0 earlier declaration that Iue>on City is their true residence. 2. $he petitioner was guilty of gross negligence in the handling of private respondents0 ban2 account. 5. -rivate respondents are entitled to the oral and e7e plary da ages and attorney0s fees adCudged by the respondent appellate court. =n the Euestion of venue raised by petitioner, it is evident that personal actions ay be instituted in the Court of First 3nstance )now #egional $rial Court, of the province where the defendant or any of the defendants resides or ay be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff )<ection 2JbK, #ule 6 of the #ules of Court,. 3n this case, there was a ple proof that the residence of the plaintiffs is &. <acan, -orac, -a panga )p. 11., /ollo,. $he city address of 1rs. Canlas0 parents was placed by the private respondents in their application for a Coint chec2ing account, at the suggestion of the new accounts teller, presu ably to facilitate ailing of the ban2 state ents and co unicating with the private respondents in case any proble s should arise involving the account. !o waiver of their provincial residence for purposes of deter ining the venue of an action against the ban2 ay be inferred fro the so8called / isrepresentation/ of their true residence. $he appellate court based its award of oral and e7e plary da ages, and attorney0s fees on its finding that the ista2e co itted by the new accounts teller of the petitioner constituted /serious/ negligence )p. 58, /ollo,. <aid court further stressed that it cannot absolve the petitioner fro liability for da ages to the private respondents, even on the assu ption of an honest ista2e on its part, because of the e barrass ent that even an honest ista2e can cause its depositors )p. 51, /ollo,.

$here is no erit in petitioner0s argu ent that it should not be considered negligent, uch less held liable for da ages on account of the inadvertence of its ban2 e ployee for Article 11.5 of the Civil Code only reEuires it to e7ercise the diligence of a good father of fa ily. 3n Sime( $nternational )*anila+, $nc. vs. &ourt of 'ppeals )185 <C#A 5*+, 5*.,, this Court stressed the fiduciary nature of the relationship between a ban2 and its depositors and the e7tent of diligence e7pected of it in handling the accounts entrusted to its care. 3n every case, the depositor e7pects the ban2 to treat his account with the ut ost fidelity, whether such account consists only of a few hundred pesos or of illions. $he ban2 ust record every single transaction accurately, down to the last centavo, and as pro ptly as possible. $his has to be done if the account is to reflect at any given ti e the a ount of oney the depositor can dispose of as he sees fit, confident that the ban2 will deliver it as and to who ever he directs. A blunder on the part of the ban2, such as the dishonor of a chec2 without good reason, can cause the depositor not a little e barrass ent if not also financial loss and perhaps even civil and cri inal litigation. $he point is that as a business affected with public interest and because of the nature of its functions, the ban2 is under obligation to treat the accounts of its depositors with eticulous care, always having in ind the fiduciary nature of their relationship. . . . $he ban2 is not e7pected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it ust bear the bla e for not discovering the ista2e of its teller despite the established procedure reEuiring the papers and ban2 boo2s to pass through a battery of ban2 personnel whose duty it is to chec2 and counterchec2 the for possible errors. Apparently, the officials and e ployees tas2ed to do that did not perfor their duties with due care, as ay be gathered fro the testi ony of the ban20s lone witness, Antonio Bnciso, who casually declared that /the approving officer does not have to see the account nu bers and all those things.Those are very petty things for the approving manager to look into/ )p. .8, #ecord on Appeal,. ;nfortunately, it was a /petty thing,/ li2e the incorrect account nu ber that the ban2 teller wrote on the initial deposit slip for the newly8opened Coint current account of the Canlas spouses, that spar2ed this half8a8 illion8peso da age suit against the ban2. ?hile the ban20s negligence ay not have been attended with alice and bad faith, nevertheless, it caused serious an7iety, e barrass ent and hu iliation to the private respondents for which they are entitled to recover reasonable oral da ages )A erican B7press 3nternational, 3nc. vs. 3AC, 1*. <C#A 2+9,. $he award of reasonable attorney0s fees is proper for the private respondents were co pelled to litigate to protect their interest )Art. 22+8, Civil Code,. Aowever, the absence of alice and bad faith renders the award of e7e plary da ages i proper )4lobe 1ac2ay Cable and #adio Corp. vs. Court of Appeals, 1.* <C#A ..8,. ?AB#BF=#B, the petition for review is granted. $he appealed decision is 1=D3F3BD by deleting the award of e7e plary da ages to the private respondents. 3n all other respects, the decision of the 3nter ediate Appellate Court, now Court of Appeals, is AFF3#1BD. !o costs.

<= =#DB#BD.

PRUDENTIAL BANK, petitioner, vs. INTERMEDIATE APPELLATE COURT, PHILIPPINE RADON MILLS, INC" and ANACLETO R" CHI, respondents. DABIDE, (R", J.: -etitioner see2s to review and set aside the decision ) of public respondent9 3nter ediate Appellate Court )now Court of Appeals,, dated 1+ 1arch 198*, in AC8 4.#. !o. **.55 which affir ed in toto the 1" %une 19.8 decision of &ranch 9 )Iue>on City, of the then Court of First 3nstance )now #egional $rial Court, of #i>al in Civil Case !o. I819512. $he latter involved an action instituted by the petitioner for the recovery of a su of oney representing the a ount paid by it to the !issho Co pany 'td. of %apan for te7tile achinery i ported by the defendant, now private respondent, -hilippine #ayon 1ills, 3nc. )hereinafter -hilippine #ayon,, represented by co8defendant Anacleto #. Chi. $he facts which gave rise to the instant controversy are su ari>ed by the public respondent as follows@ =n August 8, 19*2, defendant8appellant -hilippine #ayon 1ills, 3nc. entered into a contract with !issho Co., 'td. of %apan for the i portation of te7tile achineries under a five8year deferred pay ent plan )B7hibit &, -laintiff0s Folder of B7hibits, p 2,. $o effect pay ent for said achineries, the defendant8appellant applied for a co ercial letter of credit with the -rudential &an2 and $rust Co pany in favor of !issho. &y virtue of said application, the -rudential &an2 opened 'etter of Credit !o. D--8*5.*2 for T128,"68..8 )B7hibit A, $bid., p. 1,. Against this letter of credit, drafts were drawn and issued by !issho )B7hibits (, (81 to (811, $bid., pp. *", ** to .*,, which were all paid by the -rudential &an2 through its correspondent in %apan, the &an2 of $o2yo, 'td. As indicated on their faces, two of these drafts )B7hibit ( and (81, $bid., pp. *"8**, were accepted by the defendant8appellant through its president, Anacleto #. Chi, while the others were not )B7hibits (82 to (811, $bid., pp. ** to .*,. ;pon the arrival of the achineries, the -rudential &an2 indorsed the shipping docu ents to the defendant8appellant which accepted delivery of the sa e. $o enable the defendant8appellant to ta2e delivery of the achineries, it e7ecuted, by prior arrange ent with the -rudential &an2, a trust receipt which was signed by Anacleto #. Chi in his capacity as -resident )sic, of defendant8appellant co pany )B7hibit C, $bid., p. 15,. At the bac2 of the trust receipt is a printed for to be acco plished by two sureties who, by the very ter s and conditions thereof, were to be Cointly and severally liable to the -rudential &an2 should the defendant8appellant fail to pay the total a ount or any portion of the drafts issued by !issho and paid for by -rudential &an2. $he defendant8appellant was able to ta2e delivery of the te7tile achineries and installed the sa e at its factory site at *9 =budan <treet, Iue>on City. <o eti e in 19*., the defendant8appellant ceased business operation )sic,. =n Dece ber 29, 19*9, defendant8appellant0s factory was leased by :upangco Cotton 1ills for an annual rental of -2++,+++.++ )B7hibit 3, $bid., p. 22,. $he lease was renewed on %anuary 5, 19.5 )B7hibit %, $bid., p. 2*,. =n %anuary ", 19.6, all the

te7tile achineries in the defendant8appellant0s factory were sold to A3C Develop ent Corporation for -5++,+++.++ )B7hibit M, $bid., p. 29,. $he obligation of the defendant8appellant arising fro the letter of credit and the trust receipt re ained unpaid and unliEuidated. #epeated for al de ands )B7hibits ;, L, and ?, 3bid., pp. *2, *5, *6, for the pay ent of the said trust receipt yielded no result Aence, the present action for the collection of the principal a ount of -9"*,586.9" was filed on =ctober 5, 19.6 against the defendant8appellant and Anacleto #. Chi. 3n their respective answers, the defendants interposed identical special defenses, viz., the co plaint states no cause of action9 if there is, the sa e has prescribed9 and the plaintiff is guilty of laches. * =n 1" %une 19.8, the trial court rendered its decision the dispositive portion of which reads@ ?AB#BF=#B, Cudg ent is hereby rendered sentencing the defendant -hilippine #ayon 1ills, 3nc. to pay plaintiff the su of -1"5,*6".22, the a ounts due under B7hibits /(/ D /(81/, with interest at *F per annu beginning <epte ber 1", 19.6 until fully paid. 3nsofar as the a ounts involved in drafts B7hs. /(/ )sic, to /(811/, inclusive, the sa e not having been accepted by defendant -hilippine #ayon 1ills, 3nc., plaintiff0s cause of action thereon has not accrued, hence, the instant case is pre ature. 3nsofar as defendant Anacleto #. Chi is concerned, the case is dis issed. -laintiff is ordered to pay defendant Anacleto #. Chi the su of -2+,+++.++ as attorney0s fees. ?ith costs against defendant -hilippine #ayon 1ills, 3nc. <= =#DB#BD. + -etitioner appealed the decision to the then 3nter ediate Appellate Court. 3n urging the said court to reverse or odify the decision, petitioner alleged in its &rief that the trial court erred in )a, disregarding its right to rei burse ent fro the private respondents for the entire unpaid balance of the i ported achines, the total a ount of which was paid to the !issho Co pany 'td., thereby violating the principle of the third party payor0s right to rei burse ent provided for in the second paragraph of Article 125* of the Civil Code and under the rule against unCust enrich ent9 )b, refusing to hold Anacleto #. Chi, as the responsible officer of defendant corporation, liable under <ection 15 of -.D !o 11" for the entire unpaid balance of the i ported achines covered by the ban20s trust receipt )B7hibit /C/,9 )c, finding that the solidary guaranty clause signed by Anacleto #. Chi is not a guaranty at all9 )d, controverting the Cudicial ad issions of Anacleto #. Chi that he is at least a si ple guarantor of the said trust receipt obligation9 )e, contravening, based on the assu ption that Chi is a si ple guarantor, Articles 2+"9, 2+*+ and 2+*2 of the Civil Code and the related evidence and Curisprudence which provide that such liability had already attached9 )f, contravening the Cudicial ad issions of -hilippine #ayon with respect to its liability to pay the petitioner the a ounts involved in the drafts )B7hibits /(/, /(8l/ to /(81100,9 and )g, interpreting /sight/ drafts as reEuiring acceptance by -hilippine #ayon before the latter could be held liable thereon. , 3n its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it ruled that the provision on unCust enrich ent, Article 2162 of the Civil Code, applies only if there is no e7press contract between the parties and there is a clear showing that the pay ent is Custified. 3n the instant case,

the relationship e7isting between the petitioner and -hilippine #ayon is governed by specific contracts, na ely the application for letters of credit, the pro issory note, the drafts and the trust receipt. ?ith respect to the last ten )1+, drafts )B7hibits /(82/ to /(811/, which had not been presented to and were not accepted by -hilippine #ayon, petitioner was not Custified in unilaterally paying the a ounts stated therein. $he public respondent did not agree with the petitioner0s clai that the drafts were sight drafts which did not reEuire present ent for acceptance to -hilippine #ayon because paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. <ince the ten )1+, drafts were not presented and accepted, no valid de and for pay ent can be ade. -ublic respondent also disagreed with the petitioner0s contention that private respondent Chi is solidarily liable with -hilippine #ayon pursuant to <ection 15 of -.D. !o. 11" and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided for in said <ection 15 attaches only after conviction. As to the second, it e7pressed isgivings as to whether Chi0s signature on the trust receipt ade the latter auto atically liable thereon because the so8called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one )1, person alone, but by two )2, persons9 the last sentence of the sa e is inco plete and unsigned by witnesses9 and it is not ac2nowledged before a notary public. &esides, even granting that it was e7ecuted and ac2nowledged before a notary public, Chi cannot be held liable therefor because the records fail to show that petitioner had either e7hausted the properties of -hilippine #ayon or had resorted to all legal re edies as reEuired in Article 2+"8 of the Civil Code. As provided for under Articles 2+"2 and 2+"6 of the Civil Code, the obligation of a guarantor is erely accessory and subsidiary, respectively. Chi0s liability would therefore arise only when the principal debtor fails to co ply with his obligation. 3ts otion to reconsider the decision having been denied by the public respondent in its #esolution of 11 %une 198*, . petitioner filed the instant petition on 51 %uly 198* sub itting the following legal issues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n the #esolution of 12 1arch 199+, 0 this Court gave due course to the petition after the filing of the Co ent thereto by private respondent Anacleto Chi and of the #eply to the latter by the petitioner9 both parties were also reEuired to sub it their respective e oranda which they subseEuently co plied with. As ?e see it, the issues ay be reduced as follows@ 1. ?hether present ent for acceptance of the drafts was indispensable to a2e -hilippine #ayon liable thereon9 2. ?hether -hilippine #ayon is liable on the basis of the trust receipt9 5. ?hether private respondent Chi is Cointly and severally liable with -hilippine #ayon for the obligation sought to be enforced and if not, whether he ay be considered a guarantor9 in the latter situation, whether the case should have been dis issed on the ground of lac2 of cause of action as there was no prior e7haustion of -hilippine #ayon0s properties. &oth the trial court and the public respondent ruled that -hilippine #ayon could be held liable for the two )2, drafts, B7hibits /(/ and /(81/, because only these appear to have been accepted by the latter after due present ent. $he liability for the re aining ten )1+, drafts )B7hibits /(82/ to /(811/ inclusive, did not arise because the sa e were not presented for acceptance. 3n short, both courts concluded that acceptance of the drafts by -hilippine #ayon was indispensable to a2e the latter liable thereon. ?e are unable to agree with this proposition. $he transaction in the case at bar ste ed fro -hilippine #ayon0s application for a co ercial letter of credit with the petitioner in the a ount of T128,"68..8 to cover the for er0s contract to purchase and i port loo and te7tile achinery fro !issho Co pany, 'td. of %apan under a five8year deferred pay ent plan. -etitioner approved the application. As correctly ruled by the trial court in its =rder of * 1arch 19."@ 2 . . . &y virtue of said Application and Agree ent for Co ercial 'etter of Credit, plaintiff ban2 )1 was under obligation to pay through its correspondent ban2 in %apan the drafts that !isso )sic, Co pany, 'td., periodically drew against said letter of credit fro 19*5 to 19*8, pursuant to plaintiff0s contract with the defendant -hilippine #ayon 1ills, 3nc. 3n turn, defendant -hilippine #ayon 1ills, 3nc., was obligated to pay plaintiff ban2 the a ounts of the drafts drawn by !isso )sic, Co pany, 'td. against said plaintiff ban2 together with any accruing co ercial charges, interest, etc. pursuant to the ter s and conditions stipulated in the Application and Agree ent of Co ercial 'etter of Credit Anne7 /A/.

A letter of credit is defined as an engage ent by a ban2 or other person ade at the reEuest of a custo er that the issuer will honor drafts or other de ands for pay ent upon co pliance with the conditions specified in the credit. )) $hrough a letter of credit, the ban2 erely substitutes its own pro ise to pay for one of its custo ers who in return pro ises to pay the ban2 the a ount of funds entioned in the letter of credit plus credit or co it ent fees utually agreed upon. )* 3n the instant case then, the drawee was necessarily the herein petitioner. 3t was to the latter that the drafts were presented for pay ent. 3n fact, there was no need for acceptance as the issued drafts are sight drafts. -resent ent for acceptance is necessary only in the cases e7pressly provided for in <ection 165 of the !egotiable 3nstru ents 'aw )!3',. )+ $he said section reads@ <ec. 165. When presentment for acceptance must be made. G -resent ent for acceptance ust be ade@ )a, ?here the bill is payable after sight, or in any other case, where present ent for acceptance is necessary in order to fi7 the aturity of the instru ent9 or )b, ?here the bill e7pressly stipulates that it shall be presented for acceptance9 or )c, ?here the bill is drawn payable elsewhere than at the residence or place of business of the drawee. 3n no other case is present ent for acceptance necessary in order to render any party to the bill liable. =bviously then, sight drafts do not reEuire present ent for acceptance. $he acceptance of a bill is the signification by the drawee of his assent to the order of the drawer9 ), this ay be done in writing by the drawee in the bill itself, or in a separate instru ent. )$he parties herein agree, and the trial court e7plicitly ruled, that the subCect, drafts are sight drafts. <aid the latter@ . . . 3n the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless plaintiff ban2 has given the -hilippine #ayon 1ills 3nc. ti e within which to pay the sa e. $he first two drafts )Anne7es C D D, B7h. ( D (81, were duly accepted as indicated on their face )sic,, and upon such acceptance should have been paid forthwith. $hese two drafts were not paid and although -hilippine #ayon 1ills ought to have paid the sa e, the fact re ains that until now they are still unpaid. ). Corollarily, they are, pursuant to <ection . of the !3', payable on de and. <ection . provides@ <ec. .. When payable on demand. G An instru ent is payable on de and G )a, ?hen so it is e7pressed to be payable on de and, or at sight, or on presentation9 or )b, 3n which no ti e for pay ent in e7pressed. ?here an instru ent is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on de and. )e phasis supplied, -aragraph 8 of the $rust #eceipt which reads@ /1yUour liability for pay ent at aturity of any accepted draft, bill of e7change or indebtedness shall not be e7tinguished or odified/ )/ does not, contrary to the holding of the public respondent, conte plate prior acceptance by -hilippine #ayon, but by the petitioner.

Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner G and not -hilippine #ayon G which had to accept the sa e for the latter was not the drawee. -resent ent for acceptance is defined an the production of a bill of e7change to a drawee for acceptance. )0 $he trial court and the public respondent, therefore, erred in ruling that present ent for acceptance was an indispensable reEuisite for -hilippine #ayon0s liability on the drafts to attach. Contrary to both courts0 pronounce ents, -hilippine #ayon i ediately beca e liable thereon upon petitioner0s pay ent thereof. <uch is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which co ercial letters of credit are founded because in such a case, both the beneficiary and the issuer, !issho Co pany 'td. and the petitioner, respectively, would be placed at the ercy of -hilippine #ayon even if the latter had already received the i ported achinery and the petitioner had fully paid for it. $he typical setting and purpose of a letter of credit are described in 4ibernia %ank and Trust &o. vs. -. 'ron 2 &o., $nc., )2 thus@ Co ercial letters of credit have co e into general use in international sales transactions where uch ti e necessarily elapses between the sale and the receipt by a purchaser of the erchandise, during which interval great price changes ay occur. &uyers and sellers struggle for the advantage of position. $he seller is desirous of being paid as surely and as soon as possible, reali>ing that the vendee at a distant point has it in his power to reCect on trivial grounds erchandise on arrival, and cause considerable hardship to the shipper. 'etters of credit eet this condition by affording celerity and certainty of pay ent. $heir purpose is to insure to a seller pay ent of a definite a ount upon presentation of docu ents. $he ban2 deals only with docu ents. 3t has nothing to do with the Euality of the erchandise. Disputes as to the erchandise shipped ay arise and be litigated later between vendor and vendee, but they ay not i pede acceptance of drafts and pay ent by the issuing ban2 when the proper docu ents are presented. $he trial court and the public respondent li2ewise erred in disregarding the trust receipt and in not holding that -hilippine #ayon was liable thereon. 3n People vs. #u &hai 4o, *1 this Court e7plains the nature of a trust receipt by Euoting $n re 5unlap &arpet &o., *) thus@ &y this arrange ent a ban2er advances oney to an intending i porter, and thereby lends the aid of capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign co erce. 1uch of this trade could hardly be carried on by any other eans, and therefore it is of the first i portance that the funda ental factor in the transaction, the ban2er0s advance of oney and credit, should receive the a plest protection. Accordingly, in order to secure that the ban2er shall be repaid at the critical point G that is, when the i ported goods finally reach the hands of the intended vendee G the ban2er ta2es the full title to the goods at the very beginning9 he ta2es it as soon as the goods are bought and settled for by his pay ents or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the goods are sold in the ;nited <tates and the vendee is called upon to pay for the . $his security is not an ordinary pledge by the i porter

to the ban2er, for the i porter has never owned the goods, and oreover he is not able to deliver the possession9 but the security is the co plete title vested originally in the ban2ers, and this characteristic of the transaction has again and again been recogni>ed and protected by the courts. =f course, the title is at botto a security title, as it has so eti es been called, and the ban2er is always under the obligation to reconvey9 but only after his advances have been fully repaid and after the i porter has fulfilled the other ter s of the contract. As further stated in ational %ank vs. 6iuda e 4i7os de 'ngel -ose, ** trust receipts@ . . . J3Kn a certain anner, . . . parta2e of the nature of a conditional sale as provided by the Chattel 1ortgage 'aw, that is, the i porter beco es absolute owner of the i ported erchandise as soon an he has paid its price. $he ownership of the erchandise continues to be vested in the owner thereof or in the person who has advanced pay ent, until he has been paid in full, or if the erchandise has already been sold, the proceeds of the sale should be turned over to hi by the i porter or by his representative or successor in interest. ;nder -.D. !o. 11", otherwise 2nown an the $rust #eceipts 'aw, which too2 effect on 29 %anuary 19.5, a trust receipt transaction is defined as /any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests0 over certain specified goods, docu ents or instru ents, releases the sa e to the possession of the entrustee upon the latter0s e7ecution and delivery to the entruster of a signed docu ent called the /trust receipt/ wherein the entrustee binds hi self to hold the designated goods, docu ents or instru ents in trust for the entruster and to sell or otherwise dispose of the goods, docu ents or instru ents with the obligation to turn over to the entruster the proceeds thereof to the e7tent of the a ount owing to the entruster or as appears in the trust receipt or the goods, instru ents the selves if they are unsold or not otherwise disposed of, in accordance with the ter s and conditions specified in the trusts receipt, or for other purposes substantially eEuivalent to any one of the following@ . . ./ 3t is alleged in the co plaint that private respondents /not only have presu ably put said achinery to good use and have profited by its operation andUor disposition but very recent infor ation that )sic, reached plaintiff ban2 that defendants already sold the achinery covered by the trust receipt to :upangco Cotton 1ills,/ and that /as trustees of the property covered by the trust receipt, . . . and therefore acting in fiduciary )sic, capacity, defendants have willfully violated their duty to account for the whereabouts of the achinery covered by the trust receipt or for the proceeds of any lease, sale or other disposition of the sa e that they ay have ade, notwithstanding de ands therefor9 defendants have fraudulently isapplied or converted to their own use any oney reali>ed fro the lease, sale, and other disposition of said achinery./ *+ ?hile there is no specific prayer for the delivery to the petitioner by -hilippine #ayon of the proceeds of the sale of the achinery covered by the trust receipt, such relief is covered by the general prayer for /such further and other relief as ay be Cust and eEuitable on the pre ises./ *, And although it is true that the petitioner co enced a cri inal action for the violation of the $rust #eceipts 'aw, no legal obstacle prevented it fro enforcing the civil

liability arising out of the trust, receipt in a separate civil action. ;nder <ection 15 of the $rust #eceipts 'aw, the failure of an entrustee to turn over the proceeds of the sale of goods, docu ents or instru ents covered by a trust receipt to the e7tent of the a ount owing to the entruster or as appear in the trust receipt or to return said goods, docu ents or instru ents if they were not sold or disposed of in accordance with the ter s of the trust receipt shall constitute the cri e of estafa, punishable under the provisions of Article 51", paragraph 1)b, of the #evised -enal Code. *-;nder Article 55 of the Civil Code, a civil action for da ages, entirely separate and distinct fro the cri inal action, ay be brought by the inCured party in cases of defa ation, fraud and physical inCuries. Bstafa falls underfraud. ?e also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private respondent Chi0s signature in the dorsal portion of the trust receipt did not bind hi solidarily with -hilippine #ayon. $he state ent at the dorsal portion of the said trust receipt, which petitioner describes as a /solidary guaranty clause/, reads@ 3n consideration of the -#;DB!$3A' &A!M A!D $#;<$ C=1-A!: co plying with the foregoing, we Cointly and severally agree and underta2e to pay on de and to the -#;DB!$3A' &A!M A!D $#;<$ C=1-A!: all su s of oney which the said -#;DB!$3A' &A!M A!D $#;<$ C=1-A!: ay call upon us to pay arising out of or pertaining to, andUor in any event connected with the default of andUor non8fulfill ent in any respect of the underta2ing of the aforesaid@ -A3'3--3!B #A:=! 13''<, 3!C. ?e further agree that the -#;DB!$3A' &A!M A!D $#;<$ C=1-A!: does not have to ta2e any steps or e7haust its re edy against aforesaid@ before a2ing de and on eUus. )<gd., Anacleto #. Chi A!AC'B$= #. CA3 *. -etitioner insists that by virtue of the clear wording of the state ent, specifically the clause /. . . we Cointly and severally agree and underta2e . . .,/ and the concluding sentence on e7haustion, Chi0s liability therein is solidary. 3n holding otherwise, the public respondent ratiocinates as follows@ ?ith respect to the second argu ent, we have our isgivings as to whether the ere signature of defendant8appellee Chi of )sic, the guaranty agree ent, B7hibit /C81/, will a2e it an actionable docu ent. 3t should be noted that B7hibit /C81/ was prepared and printed by the plaintiff8appellant. A perusal of B7hibit /C81/ shows that it was to be signed and e7ecuted by two persons. 3t was signed only by defendant8 appellee Chi. B7hibit /C81/ was to be witnessed by two persons, but no one signed in that capacity. $he last sentence of the guaranty clause is inco plete. Further ore, the plaintiff8appellant also failed to have the purported guarantee clause ac2nowledged before a notary public. All these show that the alleged guaranty provision was disregarded and, therefore, not consu ated. &ut granting arguendo that the guaranty provision in B7hibit /C81/ was fully e7ecuted and ac2nowledged still defendant8appellee Chi cannot be held liable thereunder because the records show that the plaintiff8appellant had neither e7hausted the property of the defendant8appellant nor had it resorted to all legal re edies against the said defendant8appellant as provided in Article 2+"8 of the

Civil Code. $he obligation of a guarantor is erely accessory under Article 2+"2 of the Civil Code and subsidiary under Article 2+"6 of the Civil Code. $herefore, the liability of the defendant8appellee arises only when the principal debtor fails to co ply with his obligation. */ =ur own reading of the Euestioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. $his is further bolstered by the last sentence which spea2s of waiver of e7haustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property ay not be e7hausted was not filled up. ;nder Article 2+"8 of the Civil Code, the defense of e7haustion )e7cussion, ay be raised by a guarantor before he ay be held liable for the obligation. -etitioner li2ewise ad its that the Euestioned provision is a solidary guaranty clause, thereby clearly distinguishing it fro a contract of surety. 3t, however, described the guaranty as solidary between the guarantors9 this would have been correct if two )2, guarantors had signed it. $he clause /we Cointly and severally agree and underta2e/ refers to the underta2ing of the two )2, parties who are to sign it or to the liability e7isting between the selves. 3t does not refer to the underta2ing between either one or both of the on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. Blsewise stated, their liability is not divisible as between the , i.e., it can be enforced to its full e7tent against any one of the . Further ore, any doubt as to the i port, or true intent of the solidary guaranty clause should be resolved against the petitioner. $he trust receipt, together with the Euestioned solidary guaranty clause, is on a for drafted and prepared solely by the petitioner9 Chi0s participation therein is li ited to the affi7ing of his signature thereon. 3t is, therefore, a contract of adhesion9 *0 as such, it ust be strictly construed against the party responsible for its preparation. *2 !either can ?e agree with the reasoning of the public respondent that this solidary guaranty clause was effectively disregarded si ply because it was not signed and witnessed by two )2, persons and ac2nowledged before a notary public. ?hile indeed, the clause ought to have been signed by two )2, guarantors, the fact that it was only Chi who signed the sa e did not a2e his act an idle cere ony or render the clause totally eaningless. &y his signing, Chi beca e the sole guarantor. $he attestation by witnesses and the ac2nowledge ent before a notary public are not reEuired by law to a2e a party liable on the instru ent. $he rule is that contracts shall be obligatory in whatever for they ay have been entered into, provided all the essential reEuisites for their validity are present9 however, when the law reEuires that a contract be in so e for in order that it ay be valid or enforceable, or that it be proved in a certain way, that reEuire ent is absolute and indispensable. +1 ?ith respect to a guaranty, +) which is a pro ise to answer for the debt or default of another, the law erely reEuires that it, or so e note or e orandu thereof, be in writing. =therwise, it would be unenforceable unless ratified. +* ?hile the ac2nowledge ent of a surety before a notary public is reEuired to a2e the sa e a public document, under Article 15"8 of the Civil Code, a contract of guaranty does not have to appear in a public docu ent. And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, na ely the cri inal proceedings against the latter for the violation of

-.D. !o. 11". -etitioner clai s that because of the said cri inal proceedings, Chi would be answerable for the civil liability arising therefro pursuant to <ection 15 of -.D. !o. 11". -ublic respondent reCected this clai because such civil liability presupposes prior conviction as can be gleaned fro the phrase /without preCudice to the civil liability arising fro the cri inal offense./ &oth are wrong. $he said section reads@ <ec. 15. Penalty &lause. G $he failure of an entrustee to turn over the proceeds of the sale of the goods, docu ents or instru ents covered by a trust receipt to the e7tent of the a ount owing to the entruster or as appears in the trust receipt or to return said goods, docu ents or instru ents if they were not sold or disposed of in accordance with the ter s of the trust receipt shall constitute the cri e of estafa, punishable under the provisions of Article $hree hundred and fifteen, paragraph one )b, of Act !u bered $hree thousand eight hundred and fifteen, as a ended, otherwise 2nown as the #evised -enal Code. 3f the violation or offense is co itted by a corporation, partnership, association or other Curidical entities, the penalty provided for in this Decree shall be i posed upon the directors, officers, e ployees or other officials or persons therein responsible for the offense, without preCudice to the civil liabilities arising fro the cri inal offense. A close e7a ination of the Euoted provision reveals that it is the last sentence which provides for the correct solution. 3t is clear that if the violation or offense is co itted by a corporation, partnership, association or other Curidical entities, the penalty shall be i posed upon the directors, officers, e ployees or other officials or persons therein responsible for the offense. $he penalty referred to is i prison ent, the duration of which would depend on the a ount of the fraud as provided for in Article 51" of the #evised -enal Code. $he reason for this is obvious@ corporations, partnerships, associations and other Curidical entities cannot be put in Cail. Aowever, it is these entities which are ade liable for the civil liability arising fro the cri inal offense. $his is the i port of the clause /without preCudice to the civil liabilities arising fro the cri inal offense./ And, as ?e stated earlier, since that violation of a trust receipt constitutes fraud under Article 55 of the Civil Code, petitioner was acting well within its rights in filing an independent civil action to enforce the civil liability arising therefro against -hilippine #ayon. $he re aining issue to be resolved concerns the propriety of the dis issal of the case against private respondent Chi. $he trial court based the dis issal, and the respondent Court its affir ance thereof, on the theory that Chi is not liable on the trust receipt in any capacity G either as surety or as guarantor G because his signature at the dorsal portion thereof was useless9 and even if he could be bound by such signature as a si ple guarantor, he cannot, pursuant to Article 2+"8 of the Civil Code, be co pelled to pay until after petitioner has e7hausted and resorted to all legal re edies against the principal debtor, -hilippine #ayon. $he records fail to show that petitioner had done so ++ #eliance is thus placed on Article 2+"8 of the Civil Code which provides@ Art. 2+"*. $he guarantor cannot be co pelled to pay the creditor unless the latter has e7hausted all the property of the debtor, and has resorted to all the legal re edies against the debtor. <i ply stated, there is as yet no cause of action against Chi.

?e are not persuaded. B7cussion is not a condition sine qua non for the institution of an action against a guarantor. 3n Southern *otors, $nc. vs. %arbosa, +, this Court stated@ 6. Although an ordinary personal guarantor G not a ortgagor or pledgor G ay de and the afore entioned e7haustion, the creditor ay, prior thereto, secure a Cudg ent against said guarantor, who shall be entitled, however, to a defer ent of the e7ecution of said Cudg ent against hi until after the properties of the principal debtor shall have been e7hausted to satisfy the obligation involved in the case. $here was then nothing procedurally obCectionable in i pleading private respondent Chi as a co8defendant in Civil Case !o. I819512 before the trial court. As a atter of fact, <ection *, #ule 5 of the #ules of Court on per issive Coinder of parties e7plicitly allows it. 3t reads@ <ec. *. Permissive 7oinder of parties. G All persons in who or against who any right to relief in respect to or arising out of the sa e transaction or series of transactions is alleged to e7ist, whether Cointly, severally, or in the alternative, ay, e7cept as otherwise provided in these rules, Coin as plaintiffs or be Coined as defendants in one co plaint, where any Euestion of law or fact co on to all such plaintiffs or to all such defendants ay arise in the action9 but the court ay a2e such orders as ay be Cust to prevent any plaintiff or defendant fro being e barrassed or put to e7pense in connection with any proceedings in which he ay have no interest. $his is the eEuity rule relating to ultifariousness. 3t is based on trial convenience and is designed to per it the Coinder of plaintiffs or defendants whenever there is a co on Euestion of law or fact. 3t will save the parties unnecessary wor2, trouble and e7pense. +Aowever, Chi0s liability is li ited to the principal obligation in the trust receipt plus all the accessories thereof including Cudicial costs9 with respect to the latter, he shall only be liable for those costs incurred after being Cudicially reEuired to pay. +. 3nterest and da ages, being accessories of the principal obligation, should also be paid9 these, however, shall run only fro the date of the filing of the co plaint. Attorney0s fees ay even be allowed in appropriate cases. +/ 3n the instant case, the attorney0s fees to be paid by Chi cannot be the sa e as that to be paid by -hilippine #ayon since it is only the trust receipt that is covered by the guaranty and not the full e7tent of the latter0s liability. All things considered, he can be held liable for the su of -1+,+++.++ as attorney0s fees in favor of the petitioner. $hus, the trial court co itted grave abuse of discretion in dis issing the co plaint as against private respondent Chi and conde ning petitioner to pay hi -2+,+++.++ as attorney0s fees. 3n the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner ?AB#BF=#B, the instant -etition is hereby 4#A!$BD. $he appealed Decision of 1+ 1arch 198* of the public respondent in AC84.#. CL !o. **.55 and, necessarily, that of &ranch 9 )Iue>on City, of the then Court of First 3nstance of #i>al in Civil Case !o. I819512 are hereby #BLB#<BD and <B$ A<3DB and another is hereby entered@

1. Declaring private respondent -hilippine #ayon 1ills, 3nc. liable on the twelve drafts in Euestion )B7hibits /(/, /(81/ to /(811/, inclusive, and on the trust receipt )B7hibit /C/,, and ordering it to pay petitioner@ )a, the a ounts due thereon in the total su of -9"*,586.9" as of 1" <epte ber 19.6, with interest thereon at si7 percent )*F, per annu fro 1* <epte ber 19.6 until it is fully paid, less whatever ay have been applied thereto by virtue of foreclosure of ortgages, if any9 )b, a su eEual to ten percent )1+F, of the aforesaid a ount as attorney0s fees9 and )c, the costs. 2. Declaring private respondent Anacleto #. Chi secondarily liable on the trust receipt and ordering hi to pay the face value thereof, with interest at the legal rate, co encing fro the date of the filing of the co plaint in Civil Case !o. I819512 until the sa e is fully paid as well as the costs and attorney0s fees in the su of -1+,+++.++ if the writ of e7ecution for the enforce ent of the above awards against -hilippine #ayon 1ills, 3nc. is returned unsatisfied. Costs against private respondents. <= =#DB#BD.

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