1- SIMEX INTERNATIONAL vs.

THE HONORABLE COURT

OF APPEALS and TRADERS ROYAL BANK
Petitioner SIMEX is corporation engaged in the exportation
of food products. It buys these products from various local
suppliers and then sells them abroad. Most of its exports are
purchased by the petitioner on credit.
SIMEX was a depositor of the respondent bank TRADERS.
SIMEX deposited to its account in the said bank the amount
of P100k, thus increasing its balance as of that date to
P190k.
Subsequently, the petitioner issued several checks against its
deposit but was surprised to learn later that they had been
dishonored for insufficient funds.
As a consequence, one of Simexs creditors sent a letter of
demand to it, threatening prosecution if the dishonored check
issued to it was not made good. It also withheld delivery of
the order made by SIMEX.
Similar letters were sent to SIMEX by the other creditors
and also cancelled SIMEXs credit line and demanded
that future payments be made by it in cash or certified
check.
Meantime, action on the pending orders of the petitioner
with the other suppliers whose checks were dishonored was
also deferred.
SIMEX complained to the respondent bank.
Investigation disclosed that the sum of P100k deposited by
SIMEX on May 25, 1981, had not been credited to it.
The error was rectified on June 17, 1981, and the dishonored
checks were paid after they were re-deposited.
SIMEX demanded reparation from TRADERS for its "gross
and wanton negligence." This demand was not met.
SIMEX then filed a complaint (RTC) claiming from
TRADERS BANK moral damages in the sum of P1M and
exemplary damages in the sum of P500K, plus 25%
attorney's fees, and costs.
TC ruled that moral and exemplary damages were not called
for under the circumstances.
o However, observing that the plaintiff's right had
been violated, he ordered the defendant to pay
nominal damages of P20K plus P5K attorney's fees
and costs.
CA affirmed the decision of the TC.
Issue: Whether the decision of the RTC and CA is correct.
Held: No.
It seems that the negligence of the private respondent had
been brushed off rather lightly as if it were a minor
infraction requiring no more than a slap on the wrist.
It is not enough to say that TRADERS BANK rectified its
records and credited the deposit in less than a month as if
this were sufficient repentance.
The error should not have been committed in the first place.
The respondent bank has not even explained why it was
committed at all.
It is true that the dishonored checks were, as the CA put it,
"eventually" paid.
However, this took almost a month when, properly, the
checks should have been paid immediately upon
presentment.
As the SC sees it, the initial carelessness of the respondent
bank, aggravated by the lack of promptitude in repairing its
error, justifies the grant of moral damages.
This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if
not wanton bad faith, that the respondent court said had
not been established by the petitioner.
While stressing the rectification made by TRADERS
BANK, the decision practically ignored the prejudice
suffered by the petitioner.
This was simply glossed over if not, indeed, disbelieved.
The fact is that the SIMEXs credit line was cancelled and its
orders were not acted upon pending receipt of actual
payment by the suppliers.
Its business declined. Its reputation was tarnished. Its
standing was reduced in the business community. All this
was due to the fault of the respondent bank which was
undeniably remiss in its duty to SIMEX.
Moral Damages
In the case at bar, SIMEX is seeking such damages for the
prejudice sustained by it as a result of the private
respondent's fault.
A corporation is not as a rule entitled to moral damages
because, not being a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish and moral shock.
The only exception to this rule is where the corporation has a
good reputation that is debased, resulting in its social
humiliation.
The SC recognizes that the petitioner did suffer injury
because of the private respondent's negligence that caused
the dishonor of the checks issued by it.
The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in
it as a reliable debtor was diminished.
Considering all this, we feel that the award of nominal
damages in the sum of P20k was not the proper relief to
which the petitioner was entitled.
As we have found that the petitioner has indeed incurred loss
through the fault of the private respondent, the proper
remedy is the award to it of moral damages, which we
impose, in our discretion, in the same amount of P20K.
Public Policy with respect to the Banking System
As for business entities like the petitioner, the bank is a
trusted and active associate that can help in the running of
their affairs, not only in the form of loans when needed but
more often in the conduct of their day-to-day transactions
like the issuance or encashment of checks.
The depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few
hundred pesos or of millions.
The bank must record every single transaction
accurately, down to the last centavo, and as promptly as
possible.
This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to
whomever he directs.
A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship.
In the case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed
of its error in not crediting the deposit in question to the
petitioner, the respondent bank did not immediately correct it
but did so only one week later or twenty-three days after the
deposit was made.
It bears repeating that the record does not contain any
satisfactory explanation of why the error was made in the
first place and why it was not corrected immediately after its
discovery.
Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.
Exemplary Damages
SC imposes upon the respondent bank exemplary damages
in the amount of P50k "by way of example or correction for
the public good," in the words of the law.
It is expected that this ruling will serve as a warning and
deterrent against the repetition of the ineptness and
indefference that has been displayed here, lest the confidence
of the public in the banking system be further impaired.
2- BPI vs. IAC and the SPOUSES ARTHUR CANLAS and
VIVIENE CANLAS
Spouses Arthur and Vivienne Canlas opened a joint current
account with Commercial Bank and Trust Company of the
Philippines (CBTC).
By mistake, the "new accounts" teller of the bank
miscredited the initial deposit of P2,250 to Arthur's personal
account in the same branch.
The spouses subsequently deposited other amounts in their
joint account.
Vivienne Canlas issued a check for Pl,639.89 and another
check for P1,160.002.
One of the checks was dishonored by the bank for
insufficient funds and a penalty of P20 was deducted from
the account in both instances.
Respondents then filed a complaint for damages against
CBTC in the CFI Pampanga
During the pendency of the case, the Bank of the Philippine
Islands (BPI) and CBTC were merged.
TC awarded the private respondents P465,000.
IAC - reduced the damage-award to P105,000.
ISSUE: Whether the petitioner was guilty of gross negligence in the
handling of private respondents' bank account.
Held: YES.
There is no merit in petitioner's argument that it should not
be considered negligent, much less held liable for damages
on account of the inadvertence of its bank employee for
Article 1173 of the Civil Code only requires it to exercise the
diligence of a good father of family.
In the Simex case, this Court stressed the fiduciary nature of
the relationship between a bank and its depositors and the
extent of diligence expected of it in handling the accounts
entrusted to its care.
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions.
The bank must record every single transaction
accurately, down to the last centavo, and as promptly as
possible.
This has to be done if the account is to reflect at any
given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs.
A blunder on the part of the bank, such as the dishonor
of a check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship.
The bank is not expected to be infallible but, as correctly
observed by respondent Appellate Court, in this instance, it
must bear the blame for not discovering the mistake of its
teller despite the established procedure requiring the papers
and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for possible
errors.
3- BANK OF THE PHILIPPINE ISLANDS V. COURT OF
APPEALS AND NAPIZA, 326 SCRA 641 (2000)
FACTS: Private respondent Napiza deposited in a Foreign Currency
Deposit Unit (FCDU) account with petitioner BPI a managers check
from Continental Bank, payable to cash in the amount of $2,500. It
appears the check belonged to a certain Henry asked Napiza to
deposit the check in his dollar account by way of accommodation
and for the purpose of clearing the same.
1. Napiza agreed to the arrangement and delivered to Chan a
signed blank withdrawal slip, with the understanding that as soon as
the check is cleared, both of them will withdraw the amount of the
check upon presenting Napizas passbook to the bank
2. However, a certain Ruben Gayon used the Napizas blank
withdrawal slip to withdraw the amount of $2,541.67 from the
latters FCDU. Notably, the withdrawal slip shows that the amount
was payable to de Guzman and was duly initiated by BPIs assistant
manager
3. Subsequently, BPI was informed by Wells Fargo bank
(Drawee bank) that the check deposited by Napiza was a counterfeit.
As such, BPIs branch manager notified Napiza that the check was
dishonored
4. For failure to return the amount, petitioner BPI filed an
action against Napiza praying for the return of $2,500
5. Napiza, in his answer, alleged that while he did indeed
signed a blank withdrawal slip with the understanding that the
amount deposited shall be withdrawn only after the check has been
cleared. However, without his knowledge, Gayon withdrew
$2,541.67 Napiza contended that the bank was grossly negligent for
its apparent ignorance of routine bank rules since it accepted the
encashed the check even if the account holders passbook was not
presented
6. The lower court dismissed the complaint and ruled that
incumbent upon the petitioner bank to credit the value of the check
to the account of the private respondent only upon receipt of final
payment and should not have authorized the withdrawal from the
latters account of the value of the check.
7. CA affirmed the lower courts decision citing that BPI
committed clear gross negligence in allowing Gayon to withdraw the
money without presenting the private respondents passbook. The
mere deposit of a check in private respondents account did not mean
the check was already the private respondents property. The check
still had to be cleared and its proceeds can only be withdrawn upon
presentation of a passbook in accordance with the banks rules and
regulations.
ISSUE: WON petitioner bank was grossly negligent in allowing
the withdrawal
HELD: Yes. As correctly held by the CA, in depositing the check in
his name, private respondent did not become the outright owner of
the amount stated therein. Under the above rule, by depositing the
check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance
with the rule that a negotiable instrument, such as a check, whether a
manager's check or ordinary check, is not legal tender. As such, after
receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondent's account or infuse value thereon only
after the drawee bank shall have paid the amount of the check or the
check has been cleared for deposit. Again, this is in accordance with
ordinary banking practices and with this Court's pronouncement that
"the collecting bank or last endorser generally suffers the loss
because has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements." The rule finds more meaning in this case where the
check involved is drawn on a foreign bank and therefore collection is
more difficult than when the drawee bank is a local one even though
the check in question is a manager's check.
By the nature of its functions, a bank is under obligation to treat the
accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship. As such, in dealing
with its depositors, a bank should exercise its functions not only with
the diligence of a good father of a family but it should do so with the
highest degree of care.
CAB: BPI, in allowing the withdrawal of private respondent's
deposit, failed to exercise the diligence of a good father of a family.
In total disregard of its own rules, petitioner's personnel negligently
handled private respondent's account to petitioner's detriment.
While it is true that private respondent's having signed a blank
withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the negligence
of petitioner's personnel was the proximate cause of the loss that
petitioner sustained. Proximate cause, which is determined by a
mixed consideration of logic, common sense, policy and precedent,
is "that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury, and without
which the result would not have occurred." The proximate cause of
the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner's part was its personnel's negligence in allowing such
withdrawal in disregard of its own rules and the clearing requirement
in the banking system. In so doing, petitioner assumed the risk of
incurring a loss on account of a forged or counterfeit foreign check
and hence, it should suffer the resulting damage.

4- CONSOLIDATED BANK vs. COURT OF APPEALS
1. L.C. Diaz opened a savings account with Solidbank. L.C. Diaz
through its cashier, Macaraya, filled up a savings (cash) deposit slip
for P990 and a savings (checks) deposit slip for P50. Macaraya
instructed the messenger of L.C. Diaz, Ismael Calapre , to deposit the
money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
2. Calapre went to Solidbank and presented to Teller No. 6 the two
deposit slips and the passbook. The teller acknowledged receipt of
the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE. Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook
with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed
him that somebody got the passbook.

Calapre went back to L.C.
Diaz and reported the incident to Macaraya.
3. The following day, 15 August 1991, L.C. Diaz, called up
Solidbank to stop any transaction using the same passbook until L.C.
Diaz could open a new account. On the same day, Diaz formally
wrote Solidbank to make the same request. It was also on the same
day that L.C. Diaz learned of the unauthorized withdrawal the day
before, of P300,000 from its savings account. The withdrawal slip
for the P300,000 bore the signatures of the authorized signatories of
L.C. Diaz. The signatories, however, denied signing the withdrawal
slip. A certain Noel Tamayo received the P300,000.
4. L.C. Diaz through its counsel demanded from Solidbank the return
of its money. Solidbank refused.
5. L.C. Diaz filed a Complaint for Recovery of a Sum of Money
against Solidbank. The trial courts absolved Solidbank and
dismissed the complaint. It found LC Diaz to be negligent in
handling its passbook. The loss of the P300k was not the result of
Solidbanks negligence.
6. The Court of Appeals reversed the decision of the trial court. The
CA used the rules on quasi-delict.
ISSUE: Whether or not the relations between Solidbank and LC
Diaz, the depositor, is governed by quasi-delict in determining
the liability of Solidbank.
HELD: Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C.
Diaz based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and
L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally
applicable when there is no pre-existing contractual relationship
between the parties.
We hold that Solidbank is liable for breach of contract due to
negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. There is a debtor-
creditor relationship between the bank and its depositor. The
depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the
bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary
nature of banking. Section 2 of RA 8791

declares that the State
recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.

This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, starting with the 1990 case of Simex
I nternational v. Court of Appeals,

holding that the bank is under
obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the banks obligation to
observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family.
Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of the P300,000 from L.C. Diazs savings
account, jurisprudence at the time of the withdrawal already imposed
on banks the same high standard of diligence required under RA No.
8791.
However, the fiduciary nature of a bank-depositor relationship does
not convert the contract between the bank and its depositors from a
simple loan to a trust agreement, whether express or implied. Failure
by the bank to pay the depositor is failure to pay a simple loan, and
not a breach of trust.

The law simply imposes on the bank a higher
standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required
of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks
to offer the lowest possible interest rate to depositors while charging
the highest possible interest rate on their own borrowers. The
interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors
are cestui que trust of banks, then the interest spread or income
belongs to the depositors, a situation that Congress certainly did not
intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation- For breach of the
savings deposit agreement due to negligence, or culpa contractual,
the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction
took time and he had to go to Allied Bank for another
transaction. The passbook was still in the hands of the employees of
Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbanks rules on savings account require that the
deposit book should be carefully guarded by the depositor and kept
under lock and key, if possible. When the passbook is in the
possession of Solidbanks tellers during withdrawals, the law
imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Solidbank is bound by the negligence of its employees under the
principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.
The bank must not only exercise high standards of integrity and
performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with
its fiduciary duty.
Proximate Cause of the Unauthorized Withdrawal- L.C. Diaz was
not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only
to Calapre, the authorized representative of L.C. Diaz. Solidbank
failed to fulfill its contractual obligation because it gave the
passbook to another person. Solidbanks failure to return the
passbook to Calapre made possible the withdrawal of the P300,000
by the impostor who took possession of the passbook.
Doctrine of Last Clear Chance- We do not apply the doctrine of last
clear chance to the present case. Solidbank is liable for breach of
contract due to negligence in the performance of its contractual
obligation to L.C. Diaz. This is a case of culpa contractual, where
neither the contributory negligence of the plaintiff nor his last clear
chance to avoid the loss, would exonerate the defendant from
liability.

Such contributory negligence or last clear chance by the
plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of
contract.
Mitigated Damages- In this case, L.C. Diaz was guilty of
contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus,
the liability of Solidbank should be reduced.
WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank
Corporation shall pay private respondent L.C. Diaz and Company,
CPAs only 60% of the actual damages awarded by the Court of
Appeals. The remaining 40% of the actual damages shall be borne
by private respondent L.C. Diaz and Company,
CPAs. Proportionate costs.

5- PHILIPPINE BANKING CORPORATION vs. COURT OF
APPEALS and LEONILO MARCOS, respondents.
Marcos filed with the trial court a Complaint for Sum of
Money against petitioner BANK.
He alleged that sometime in 1982, the BANK through
Pagsaligan, one of the officials of the BANK and a close
friend, persuaded him to deposit money with the BANK.
Marcos yielded to Pagsaligans persuasion and claimed he
made a time deposit with the BANK on two occasions.
o The first for P664K. The BANK issued a receipt for
this time deposit.
o The second for P764K. The BANK did not issue an
official receipt for this time deposit but it
acknowledged a deposit of this amount through a
letter-certification Pagsaligan issued. (Take Note)
o The time deposits earned interest at 17% per
annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit
certificates on the assurance that the BANK would take care
of the certificates, interests and renewals.
Marcos claimed that from the time of the deposit, he had not
received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from
the BANK his time deposits and the accumulated interests to
buy materials for his construction business.
However, the BANK through Pagsaligan convinced Marcos
to keep his time deposits intact and instead to open several
domestic letters of credit.
Marcos executed 3 Trust Receipt Agreements
totalling P851K.
Marcos deposited the required 30% marginal deposit for the
trust receipt agreements.
Marcos claimed that his obligation to the BANK was
therefore only P595K. representing 70% of the letters of
credit.
Marcos believed that he and the BANK became creditors
and debtors of each other.
Marcos expected the BANK to offset automatically a portion
of his time deposits and the accumulated interest with the
amount covered by the three trust receipts totalling P851K
less the 30% marginal deposit that he had paid.
Marcos argued that if only the BANK applied his time
deposits and the accumulated interest to his remaining
obligation, which is 70% of the total amount of the letters of
credit, he would have paid completely his debt.
Marcos further pointed out that since he did not apply for a
renewal of the trust receipt agreements, the BANK had no
right to renew the same.
Marcos also denied that he obtained another loan from the
BANK for P500K with interest at 25% per annum
supposedly covered by a Promissory Note dated 24 October
1983. (Take Note)
Marcos bewailed the BANKs belated claim that his time
deposits were applied to this void promissory note on 12
March 1985.
TC ruled in favour of Marcos.
CA affirmed the ruling of the lower court.
Hence, this petition.
Issue: Whether the Bank was remiss of its duty to its depositor.
Held: Yes.
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits
with a fictitious promissory note.
The existence of the Promissory Note could have been easily
proven had the BANK presented the original copies of the
promissory note and its supporting evidence.
In lieu of the original copies, the BANK presented the
"machine copies of the duplicate" of the documents.
These substitute documents have no evidentiary value.
The BANKs failure to explain the absence of the original
documents and to maintain a record of the offsetting of this
loan with the time deposits bring to fore the BANKs dismal
failure to fulfill its fiduciary duty to Marcos.
Section 2 of General Banking Law of 2000 expressly
imposes this fiduciary duty on banks when it declares that
the State recognizes the "fiduciary nature of banking that
requires high standards of integrity and performance."
This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex Case (1
st

case) requiring banks to "treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship."
Although RA No. 8791 took effect only in the year 2000, at
the time that the BANK transacted with Marcos,
jurisprudence had already imposed on banks the same high
standard of diligence required under RA No. 8791.
This fiduciary relationship means that the banks
obligation to observe "high standards of integrity and
performance" is deemed written into every deposit
agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a
family.
Thus, the BANKs fiduciary duty imposes upon it a higher
level of accountability than that expected of Marcos, a
businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan
without retaining copies of the certificates.
By the very nature of its business, the BANK should have
had in its possession the original copies of the disputed
promissory note and the records and ledgers evidencing the
offsetting of the loan with the time deposits of Marcos.
The BANK inexplicably failed to produce the original copies
of these documents.
Clearly, the BANK failed to treat the account of Marcos
with meticulous care.
The trial court and appellate court did not rule that it was the
bank that forged the promissory note.
It was Pagsaligan, the BANKs branch manager and a close
friend of Marcos, whom the trial court categorically blamed
for the fictitious loan agreements.
The trial court held that Pagsaligan made up the loan
agreement to cover up his inability to account for the time
deposits of Marcos.
Whether it was the BANKs negligence and inefficiency or
Pagsaligans misdeed that deprived Marcos of the amount
due him will not excuse the BANK from its obligation to
return to Marcos the correct amount of his time deposits with
interest.
The duty to observe "high standards of integrity and
performance" imposes on the BANK that obligation.
The BANK cannot also unjustly enrich itself by keeping
Marcos money.
Assuming Pagsaligan was behind the spurious promissory
note, the BANK would still be accountable to Marcos.
We have held that a bank is liable for the wrongful acts of its
officers done in the interest of the bank or in their dealings
as bank representatives but not for acts outside the scope of
their authority.
The Existence of the Promissory Note was not Proven
What the BANK presented were merely the "machine
copies of the duplicate" of the loan application and
promissory note.
No explanation was ever offered by the BANK for its
inability to produce the original copies of the documentary
evidence.
The BANK also did not comply with the orders of the
trial court to submit the originals.
The absence of the original of the documentary evidence
casts suspicion on the existence of the Promissory Note
considering the BANKs fiduciary duty to keep efficiently a
record of its transactions with its depositors.
Moreover, the circumstances enumerated by the trial court
bolster the conclusion that the Promissory Note is bogus.
The BANK has only itself to blame for the dearth of
competent proof to establish the existence of the Promissory
Note.
6- SAMSUNG CONSTRUCTION COMPANY PHILIPPINES,
INC., petitioner,
vs. FAR EAST BANK AND TRUST COMPANY AND COURT
OF APPEALS, respondents.
Samsung Construction, while based in Bian, Laguna,
maintained a current account with defendant FEBTC at the
latters Bel-Air, Makati branch.
The sole signatory to Samsung Constructions account was
Jong Kyu Lee ("Jong"), its Project Manager, while the
checks remained in the custody of the companys
accountant, Kyu Yong Lee ("Kyu").
A certain Roberto Gonzaga presented for payment FEBTC
Check payable to cash and drawn against Samsung
Constructions current account in the amount of P999K.
The bank teller was satisfied as to the authenticity of the
signature appearing on the check.
Shirley Syfu, approved the encashment of the check after
Jose Sempio III (whom at the time of the encashment was in
the bank with Gonzaga), the assistant accountant of Samsung
Construction who was well-known to Syfu and the other
bank officers, vouched for the genuineness of Jongs
signature.
Kyu discovered that a check P999K had been encashed and
found that the last blank check was missing.
He reported the matter to Jong, who then proceeded to the
bank and realized that his signature had been forged.
Samsung Construction demanded that FEBTC credit to it the
amount encashed with interest but to no avail.
Samsung Construction filed a Complaint for violation of
Section 23 of the Negotiable Instruments Law, and prayed
for the payment of the amount debited as a result of the
questioned check plus interest, and attorneys fees.
ISSUE: Whether FEBTC is liable.
HELD: YES.
Even assuming that FEBTC had a standing habit of dealing
with Sempio, acting in behalf of Samsung Construction, the
irregular circumstances attending the presentment of the
forged check should have put the bank on the highest degree
of alert.
The Court recently emphasized that the highest degree of
care and diligence is required of banks.
Banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many
clients and depositors who transact business with them.
They have the obligation to treat their clients account
meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than that
of a good father of a family.
Given the circumstances (huge amount of money involved),
extraordinary diligence dictates that FEBTC should have
ascertained from Jong personally that the signature in the
questionable check was his.

7- PHILIPPINE NATIONAL BANK V. PIKE
FACTS: Respondent Pike, who worked in Japan, opened a US
Dollar savings account with petitioner bank PNB, for which he was
issued a corresponding passbook.
1. Pike filed an action for damages against the bank alleging
that:
a. Sometime in 1993, he discovered that some of his
valuables were missing including his PNB passbook,
which led to the arrest of a Joy Manuel Davasol.
Pike also learned that Davasol made 2 unauthorized
withdrawals from his US Dollar Savings account
b. Pike then went to PNB and demanded the return of
the amount withdrawn from his account on the
ground that he never authorized the withdrawal. The
bank refused to credit said amount and instead
argued that it exercised due diligence in the handling
of said account
2. On the other hand, PNB alleged the different set of facts:
a. Sometime in 1993, Pike and Davasol went to see
PNB AVP Lorenzo Val to withdraw $2,000. Pike
also instructed PNB to honor all withdrawals to be
transmitted by Davasol, who shall present pre-signed
withdrawal slips bearing Pikes signature
b. Subsequently, Pikes sister notified the bank that
Pikes PNB passbook was lost on account of robbery
and requested for a hold-order on hers brothers
passbook
c. Pike then executed an affidavit of loss and requested
PNB to replace the same and allow him to make
withdrawals therein. He also stated that he was
holding the bank free from any liability
3. The lower court held in favor of Pike and ruled that the bank
was negligent in the exercise of its duties for allowing such a
bizarre arrangement. The bank also compared the signatures
on the questioned withdrawal slips with the known signature
of Pike and found that said signatures do not match
4. CA affirmed the same, citing that the bank did not follow its
usual procedure of requiring a depositor who is withdrawing
the money through a representative to fill out the back
portion of the withdrawal slips.
5. PNB argument: It cannot be liable for the loss since Pike
gave verbal instructions to allow the withdrawal from his
account through another person. Moreover, the fact that Pike
withdrew the remaining balance from his account and
executed a waiver releasing PNB from any liability due to
the loss of founds negates a finding of negligence on its part

ISSUE: WON PNB should be held liable
HELD: Yes. PNBs liability arose from the negligence exhibited
by employees of PNB in the treatment of Pikes dollar account. A
banks liability as an obligor is not merely vicarious but primary, as
banks are expected to exercise the highest degree of diligence in the
selection and supervision of its employees. Ordinarily, banks allow
withdrawal by someone who is not the account holder so long as the
account holder authorizes his representative to withdraw and receive
from his account by signing on the space provided particularly for
such transactions, usually found at the back of the withdrawal slips.
With banks, the degree of diligence required, contrary to the
position of PNB, is more than that of a good father of a family
considering that the business of banking is imbued with public
interest due to the nature of their functions. The stability of
banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on banks a
high degree of obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
banking. Sec 2 General Banking Law makes a categorical
declaration that the State recognizes the fiduciary nature of banking
that requires high standards of integrity and performance. Art 1172
NCC provides that the degree of diligence required of an obligor is
that prescribed by law or contract, and absent such stipulation then
the diligence of a father of a family. In every case, the depositor
expects the bank to treat his account with utmost fidelity, whether
such accounts consist only of a few hundred pesos or millions of
pesos.

8- FAR EAST BANK AND TRUST COMPANY V. PACILAN

FACTS: Respondent Pacilan opened a current account with FEBTC
Bacolod branch in 1980. Since then, he has issued postdated checks
to different payees drawn against the said against the said account.
Sometime in 1988, respondent issued a check for P680.
1. Upon presentment, the check in question was dishonored by
petitioner bank. The following day, Pacilan deposited P800
to his current account, thus increasing the balance of his
account to P1,051.43
2. When Pacilan inquired with the bank about the dishonor of
his check, he found out that his current account was closed
on the ground that it was improperly handled.
3. As such, respondent wrote to petitioner bank complaining
that the closure of his account was unjustified. When he did
not receive a reply, he filed an action for damages against
FEBTC
4. Pacilan alleged that prior to the closure of his current
account, he had issue several other postdated checks.
FEBTCs act of closing his current account allegedly
preempted the deposits that he intended to make to fund
those checks, and exposed him to criminal prosecution for
violation of BP 22. He further alleged that the closure of his
account was done in malice since he was a cashier of a
competitor bank
5. In its answer, FEBTC contended that under the banks rules
and regulations, the bank reserves the right to close an
account if the depositor frequently draws checks against
insufficient funds and/or uncollected deposits and that the
bank reserves the right at any time to return checks of the
depositor which are drawn against insufficient funds or for
any reason
6. As evidence, the bank showed that Pacilans account was
overdrawn 156 times in 1986, 117 in 1987 and in 1988, 26
times. The respondent also signed several checks with a
different signature from the specimen on file for dubious
reasons
7. When Pacilan deposited P800, it was obviously to cover the
issuances made the previous day against an insufficiently
funded account. When he presented the check in question, he
had already incurred an overdraft. Hence, the bank rightfully
dishonored the same for insufficiency of funds
8. The lower court held in favor of Pacilan ruling that the
respondent as depositor, had the right to put up sufficient
finds for a check that was returned due to insufficient funds
the day after the check had been received from the clearing
office. In previous instances, it was shown that the bank
notified Pacilan when he incurred an overdraft and he would
then deposit sufficient funds to cover the overdraft. Thus, the
bank acted unjustifiably when it immediately closed
Pacilans account and deprived him of an opportunity to
reclear his check or deposit sufficient funds the next day. CA
affirmed the lower courts decision

ISSUE: WON the bank had acted with malice in closing the
respondents account

HELD: No. Under Art 19 NCC, there is abuse of rights when the
following concur: (a) the existence of a legal right or duty; (b) which
is exercised in bad faith; (c) for the sole intent of prejudicing or
injuring another.

It is clear that FEBTC has the right to close the account of
respondent based on its Rules and Regulations Governing the
Establishment and Operation of Regular Demand Deposits. The
same rules also provide that the depositor is not entitled, as a
matter of right to overdraw on this deposit and the bank reserves
the right to return the checks of the depositor drawn against
insufficient funds.

The facts do not establish that, in the exercise of this right, FEBTC
committed an abuse thereof. Specifically, the second and third
elements of abuse of rights are not present in this case. Given that the
respondent had a history of overdrawing his current account, the
bank was justified in closing the same for improper handling.

Nowhere under its rules and regulations is petitioner bank
required to notify the respondent or any depositor of the closure
of the account for frequently drawing checks against insufficient
funds. No malice or bad faith can be imputed on petitioner bank
for acting as such since the records clearly show that respondent
had been improperly and irregularly handling his account not
just a few times but hundreds of times. Under the circumstances,
FEBTC could not be faulted for exercising its right in
accordance with the express rules and regulations of the bank.
Upon the opening of his account, Pacilan had agreed to be bound
by these terms and conditions.

Moreover, it has not been shown that the bank had closed Pacilans
current account with the sole intention of prejudicing and injuring
the respondent. While Pacilan may have suffered injury as a result
thereof, but this falls within the concept of damnum absque injuria.


9- CITIBANK vs. SPS. LUIS and CARMELITA
CABAMONGAN and their sons LUISCABAMONGAN, JR. and
LITO CABAMONGAN, Respondents.
On Aug. 16, 1993, Spouses Cabamongan opened a joint
"and/or" foreign currency time deposit in trust for their 2
sons at the Citibank, N.A., Makati branch, in the amount of
$55K for a term of 182 days at 2.5625 per cent interest per
annum.
Prior to maturity, a person claiming to be Carmelita went to
the Makati branch and pre-terminated the said foreign
currency time deposit by presenting a passport, a Bank of
America Versatele Card, an ATM card and a Mabuhay
Credit Card.
She filled up the necessary forms for pre-termination of
deposits with the assistance of Account Officer San Pedro.
While the transaction was being processed, she was casually
interviewed by San Pedro about her personal circumstances
and investment plans.
Since the said person failed to surrender the original
Certificate of Deposit, she had to execute a notarized release
and waiver document in favor of Citibank, pursuant to
Citibank's internal procedure, before the money was released
to her.
The release and waiver document was not notarized on that
same day but the money was nonetheless given to the person
withdrawing.
After said person left, San Pedro realized that she left behind
an identification card.
Thus, San Pedro called up Carmelita's listed address at No.
48 Ranger Street, Moonwalk Village, Las Pinas, Metro
Manila on the same day to have the card picked up.
Carmelitas daughter-in-law received San Pedro's call and
was stunned by the news that Carmelita preterminated her
foreign currency time deposit because Carmelita was in the
US at that time.
The Cabamongan spouses work and reside in California.
Her daughter-in-law made an overseas call to Carmelita to
inform her about what happened.
The Cabamongan spouses were shocked at the news.
It seems that sometime between June 10 and 16, 1993, an
unidentified person broke in at the couple's residence in
California.
Initially, they reported that only Carmelita's jewelry box was
missing, but later on, they discovered that other items, such
as their passports, bank deposit certificates, including the
subject foreign currency deposit, and identification cards
were also missing.
It was only then that the Cabamongan spouses realized that
their passports and bank deposit certificates were lost.
15

Through various overseas calls, the Cabamongan spouses
informed Citibank, thru San Pedro, that Carmelita was in the
United States and did not preterminate their deposit and that
the person who did so was an impostor who could have also
been involved in the break-in of their California residence.
San Pedro told the spouses to submit the necessary
documents to support their claim but Citibank concluded
nonetheless that Carmelita indeed preterminated her deposit.
Citibank, refused the Cabamongan spouses' demand for
payment, asserting that the subject deposit was released to
Carmelita upon proper identification and verification.
The Cabamongan spouses filed a complaint against Citibank
for Specific Performance.
RTC ruled in favour of the spouses.
CA affirmed the ruling of the RTC.
Hence, this petition.
Issue: Whether Citibank should be held liable for the release of the
foreign currency time deposit of the Spouses.
Held: YES.
The Court has repeatedly emphasized that, since the banking
business is impressed with public interest, of paramount
importance thereto is the trust and confidence of the public
in general.
Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance
are even required, of it.
By the nature of its functions, a bank is "under obligation to
treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship."
In this case, it has been sufficiently shown that the
signatures of Carmelita in the forms for pretermination
of deposits are forgeries.
Citibank, with its signature verification procedure, failed to
detect the forgery.
Its negligence consisted in the omission of that degree of
diligence required of banks.
The Court has held that a bank is "bound to know the
signatures of its customers; and if it pays a forged check, it
must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged." Such
principle equally applies here.
Citibank cannot label its negligence as mere mistake or
human error.
Banks handle daily transactions involving millions of pesos.
By the very nature of their works the degree of
responsibility, care and trustworthiness expected of their
employees and officials is far greater than those of ordinary
clerks and employees.
Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.
The Court agrees with the observation of the CA that
Citibank, thru Account Officer San Pedro, openly courted
disaster when despite noticing discrepancies in the signature
and photograph of the person claiming to be Carmelita and
the failure to surrender the original certificate of time
deposit, the pretermination of the account was allowed.
Even the waiver document was not notarized, a procedure
meant to protect the bank.
For not observing the degree of diligence required of
banking institutions, whose business is impressed with
public interest, Citibank is liable for damages.

10- CITIBANK, N.A. (Formerly First National City Bank) and
INVESTORS' FINANCE CORPORATION, doing business
under the name and style of FNCB Finance, petitioners,
vs. MODESTA R. SABENIANO, respondent.
Respondent claimed to have substantial deposits and money
market placements with the petitioners, as well as money
market placements with the Ayala Investment and
Development Corporation (AIDC), the proceeds of which
were supposedly deposited automatically and directly to
respondent's accounts with petitioner Citibank.
Respondent alleged that petitioners refused to return her
deposits and the proceeds of her money market placements
despite her repeated demands, thus, compelling respondent
to file a case against petitioners for "Accounting, Sum of
Money and Damages."
On the other hand, petitioners admitted that respondent had
deposits and money market placements with them, including
dollar accounts in the Citibank branch in Geneva,
Switzerland (Citibank-Geneva).
Petitioners further alleged that the respondent later obtained
several loans from petitioner Citibank, for which she
executed Promissory Notes (PNs), and secured by (a) a
Declaration of Pledge of her dollar accounts in Citibank-
Geneva, and (b) Deeds of Assignment of her money market
placements with petitioner FNCB Finance.
When respondent failed to pay her loans despite repeated
demands by petitioner Citibank, the latter exercised its right
to off-set or compensate respondent's outstanding loans with
her deposits and money market placements, pursuant to the
Declaration of Pledge and the Deeds of Assignment
executed by respondent in its favor.
RTC set-off was illegal, null and void but ruled that
Sabeniano is indebted to Citibank.
CA ruled entirely in favor of Sabeniano saying that
Citibank failed to establish by competent evidence the
alleged indebtedness of Sabeniano.
ISSUE: Whether Citibank is liable for damages to respondent.
HELD: YES.
Citibank did commit wrong when it failed to pay and
properly account for the proceeds of respondent's money
market placements and when it sought the remittance of
respondent's dollar accounts from Citibank-Geneva by virtue
of a highly-suspect Declaration of Pledge to be applied to the
remaining balance of respondent's outstanding loans.
It bears to emphasize that banking is impressed with public
interest and its fiduciary character requires high standards of
integrity and performance.
A bank is under the obligation to treat the accounts of its
depositors with meticulous care whether such accounts
consist only of a few hundred pesos or of millions of pesos.
The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible.
Petitioner Citibank evidently failed to exercise the required
degree of care and transparency in its transactions with
respondent, thus, resulting in the wrongful deprivation of her
property.
SC affirmed CA with additional payment of damages BUT
Sabeniano was ordered to pay for the outstanding balance of her
loan.
11- CHINA BANKING CORP V. COURT OF APPEALS AND
GOTIANUY,
FACTS: Jose Gotianuy accused his daughter Mary Margaret Dee of
stealing, among his other properties, US dollar deposits with
Citibank NA amounting to P35 million and $864,000.
1. Dee received these amounts from Citibank through checks
which she allegedly deposited at China Bank.
2. Gotianuy also accused his son-in-law, George Dee, of
transferring his real properties and shares of stock in
Georges name without any consideration.
3. During the pendency of the case, Gotianuy died and was
substituted by his daughter, Elizabeth Gotianuy Lo.
4. Dee admitted during the trial that she withdrew funds of
Citibank upon instruction of her father and the funds
belonged exclusively to the latter.
5. The checks were presented as evidence during the trial.
Upon motion of Gotianuy Lo, the trial court subpoenaed 2
employees of China Bank to testify on the case.
6. China Bank opposed and moved for reconsideration. The
trial court held that the disclosure only as to the name or in
whose name the said fund is deposited is not violative of the
law. On appeal, CA affirmed the trial court. It held that what
the law covers is only deposit but not the name of the
depositor.
7. China Bank contended that since Jose Gotianuy is not the
owner of the subject foreign currency deposit, thus he cannot
invoke the aid of the court in compelling the disclosure of
someone elses foreign currency deposit.
ISSUE: WON China Banks contention is correct
HELD: No. Sec 8 RA 6426 (Foreign Currency Deposit Act)
provides that all foreign currency deposits are considered
absolutely confidential in nature and may not be inquired into,
except when the disclosure is permitted by the depositor.
Based on the facts of the case, it is clear that the source of the funds
deposited by Dee is Jose Gotianuy. As the owner of the funds
unlawfully taken and which are undisputably deposited with China
Bank, Jose Gotianuy has the right to inquire into the said deposits.
As found by the CA: it is indubitable that the Citibank checks were
drawn against the foreign currency account with Citibank. The
monies subject of said checks originally came from the late Jose
Gotianuy, the owner of the account. Thus, he also has legal rights
and interests in the CBC account where said monies were
deposited. More importantly, the Citibank checks readily
demonstrate that the late J ose Gotianuy is one of the payees of said
checks. Being a co-payee thereof, then he or his estate can be
considered as a co-depositor of said checks. Ergo, since the late
Jose Gotianuy is a co-depositor of the CBC account, then his
request for the assailed subpoena is tantamount to an express
permission of a depositor for the disclosure of the name of the
account holder



12- BPI V. CASA MONTEOSSIR INTERNATIONALE
FACTS: CASA Montessori Internationale (CASA) opened a current
account with BPI, with CASAs president Lebron as one of its
authorized signatories
1. After conducting an investigation, CASA found that 9 of its
checks had been encashed by a Sonny Santos amounting to a
total of P782,000.
2. It turned out the Sonny Santos was a fictitious name used
by Yabut, who worked as an external auditor of CASA.
Yabut admitted that he forged the signature of Lebron and
encashed the checks.
3. CASA, then, filed an action for damages against BPI,
praying that the latter be ordered to reinstate the amount of
P782,500 in the current and savings account of CASA.
4. RTC held in favor of CASA. On appeal, CA apportioned the
loss between BPI and CASA. CA took into account CASAs
contributory negligence that resulted in the undetected
forgery.
ISSUE: WON BPI is liable in this case
HELD: Yes. Under Sec 23 NIL, a forged signature is a real or
absolute defense, and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise
to it. Yabut voluntarily admitted that he forged the drawers
signature and encashed the checks.

Having established the forgery in the drawers signature, BPI
(drawee bank) erred in making payments by virtue thereof. The
forged signatures are wholly inoperative and CASA (drawer) whose
authorized signatures do not appear on the checks, cannot be held
liable thereon.
Since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the
public in general. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are
required.
BPIs contention that it has a signature verification procedure, in
which checks are honored only when the signatures therein are
verified to be the same or with similar to the specimen signatures on
the signature cards. However, it still failed to detect the 8 instances
of forgery. Its negligence consisted in the omission of that degree
of diligence required of a bank. It cannot now feign ignorance,
since it is very clear that the bank is bound to know the signature
of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and
cannot ordinarily charged the amount so paid to the account of
the depositor whose name was forged.
For allowing payment on the checks to a wrongful and fictitious
payee, BPI is liable to its depositor-drawer. Since the encashing
bank is one of its branches, BPI could have easily held it liable for
reimbursement. It may not debit the drawers account and is not
entitled to indemnification from the drawer.

It is well-settled that when one of two innocent persons must suffer
the wrongful act of a third person, the loss must be borne by the one
whose negligence is the proximate cause or who put it into the power
of the third person to perpetrate the wrong.
13- PHILIPPINE BANK OF COMMERCE, now absorbed by
PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA
PASCUAL, vs. THE COURT OF APPEALS, ROMMEL'S
MARKETING CORP., represented by ROMEO LIPANA, its
President & General Manager, respondents.
Respondent RMC maintained 2 separate current accounts,
PBC in connection with its business of selling appliances.
In some instances, the deposit slips are prepared in duplicate
by the depositor.
The original of the deposit slip is retained by the bank, while
the duplicate copy is returned or given to the depositor.
For more than a year, Respondent Lipana claims to have
entrusted RMC funds in the form of cash totalling P304k to
his secretary, Irene Yabut, for the purpose of depositing said
funds in the current accounts of RMC with PBC.
It turned out, however, that these deposits, on all occasions,
were not credited to RMC's account but were instead
deposited to the Account of Yabut's husband, Bienvenido
Cotas who likewise maintains an account with the same
bank.
During this period, PBC had, however, been regularly
furnishing private respondent with monthly statements
showing its current accounts balances.
Unfortunately, it had never been the practice of Lipana to
check these monthly statements of account reposing
complete trust and confidence on petitioner bank.
Yabuts modus operandi
She would accomplish 2 copies of the deposit slip, an
original and a duplicate.
The original showed the name of her husband as depositor
and his current account number.
On the duplicate copy was written the account number of her
husband but the name of the account holder was left blank.
PBC's teller, Azucena Mabayad, would, however,
validate and stamp both the original and the duplicate of
these deposit slips retaining only the original copy despite
the lack of information on the duplicate slip.
The second copy was kept by Irene Yabut allegedly for
record purposes.
After validation, Yabut would then fill up the name of RMC
in the space left blank in the duplicate copy and change the
account number written thereon, which is that of her
husband's, and make it appear to be RMC's account number.
With the daily remittance records also prepared by Ms.
Yabut and submitted to private respondent RMC together
with the validated duplicate slips with the latter's name and
account number, she made her company believe that all the
while the amounts she deposited were being credited to its
account when, in truth and in fact, they were being deposited
by her and credited by the petitioner bank in the account of
Cotas.
This went on in a span of more than 1 year without private
respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded
from petitioner bank the return of its money, but as its
demand went unheeded, it filed a collection suit.
RTC ruled in favour of RMC.
CA affirmed the decision.
Hence, this petition.
Issue: Whether the proximate cause of the loss is PBCs
negligence or RMCs.
Held: 60-40 ratio. 60-PBC, 40- RMCs contributory negligence.
PBC was liable under Quasi-delict.
Negligence is the omission to do something which a
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable
man would do.
The test by which to determine the existence of negligence
in a particular case which may be stated as follows:
Did the defendant in doing the
alleged negligent act use that
reasonable care and caution which
an ordinarily prudent person would
have used in the same situation? If
not, then he is guilty of negligence.
Applying the above test, it appears that the bank's teller,
Ms. Azucena Mabayad, was negligent in validating,
officially stamping and signing all the deposit slips prepared
and presented by Ms. Yabut, despite the glaring fact that the
duplicate copy was not completely accomplished contrary to
the self-imposed procedure of the bank with respect to the
proper validation of deposit slips, original or duplicate.
Ms. Mabayad failed to observe this very important
procedure.
The fact that the duplicate slip was not compulsorily
required by the bank in accepting deposits should not relieve
the petitioner bank of responsibility.
The odd circumstance alone that such duplicate copy lacked
one vital information that of the name of the account
holder should have already put Ms. Mabayad on guard.
Rather than readily validating the incomplete duplicate copy,
she should have proceeded more cautiously by being more
probing as to the true reason why the name of the account
holder in the duplicate slip was left blank while that in the
original was filled up.
She should not have been so naive in accepting hook, line
and sinker the too shallow excuse of Ms. Irene Yabut to the
effect that since the duplicate copy was only for her personal
record, she would simply fill up the blank space later on.
A "reasonable man of ordinary prudence" would not have
given credence to such explanation and would have insisted
that the space left blank be filled up as a condition for
validation.
Unfortunately, this was not how bank teller Mabayad
proceeded thus resulting in huge losses to the private
respondent.
Negligence here lies not only on the part of Ms. Mabayad
but also on the part of the bank itself in its lackadaisical
selection and supervision of Ms. Mabayad.
This was exemplified in the testimony of then Manager of
the Pasig Branch of the petitioner bank and now its Vice-
President, to the effect that, while he ordered the
investigation of the incident, he never came to know that
blank deposit slips were validated in total disregard of the
bank's validation procedures,
It was in fact only when he testified in this case or after the
lapse of more than 7 years counted from the period when the
funds in question were deposited in plaintiff's accounts that
bank manager admittedly became aware of the practice of
his teller Mabayad of validating blank deposit slips.
Undoubtedly, this is gross, wanton, and inexcusable
negligence in the appellant bank's supervision of its
employees.
Proximate Cause
Proximate cause is that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result
would not have occurred.
In this case, absent the act of Ms. Mabayad in negligently
validating the incomplete duplicate copy of the deposit slip,
Ms. Irene Yabut would not have the facility with which to
perpetrate her fraudulent scheme with impunity.


Doctrine of Last Clear Chance
This doctrine, in essence, states that where both parties are
negligent, but the negligent act of one is appreciably later in
time than that of the other, or when it is impossible to
determine whose fault or negligence should be attributed to
the incident, the one who had the last clear opportunity to
avoid the impending harm and failed to do so is chargeable
with the consequences thereof.
Here, assuming that private respondent RMC was negligent
in entrusting cash to a dishonest employee, thus providing
the latter with the opportunity to defraud the company, as
advanced by the petitioner, yet it cannot be denied that the
petitioner bank, thru its teller, had the last clear opportunity
to avert the injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
While it is true that had private respondent checked the
monthly statements of account sent by the petitioner bank to
RMC, the latter would have discovered the loss early on,
such cannot be used by the petitioners to escape liability.
This omission on the part of the private respondent does not
change the fact that were it not for the wanton and reckless
negligence of the petitioners' employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene
Yabut, the loss would not have occurred.
RMCs contributory negligence
It cannot be denied that, indeed, private respondent was
likewise negligent in not checking its monthly statements of
account.
Had it done so, the company would have been alerted to the
series of frauds being committed against RMC by its
secretary.
The damage would definitely not have ballooned to such an
amount if only RMC, particularly Lipana, had exercised
even a little vigilance in their financial affairs.
This omission by RMC amounts to contributory negligence
which shall mitigate the damages that may be awarded to the
private respondent under Article 2179 of the New Civil
Code, to wit:
. . . When the plaintiff's own
negligence was the immediate and
proximate cause of his injury, he
cannot recover damages. But if his
negligence was only contributory,
the immediate and proximate cause
of the injury being the defendant's
lack of due care, the plaintiff may
recover damages, but the courts
shall mitigate the damages to be
awarded.
In view of this, SC believes that the demands of substantial
justice are satisfied by allocating the damage on a 60-40
ratio.
Thus, 40% of the damage awarded by the respondent
appellate court, except the award of P25,000.00 attorney's
fees, shall be borne by private respondent RMC; only the
balance of 60% needs to be paid by the petitioners.
The award of attorney's fees shall be borne exclusively by
the petitioners.
14- PHILIPPINE SAVINGS BANK, petitioner, vs. CHOWKING
FOOD CORPORATION, respondent.
It is the peculiar quality of a fool to perceive the fault of
others and to forget his own. Ang isang kakatuwang
katangian ng isang hangal ay punahin ang kamalian ng
iba at kalimutan naman ang sa kanya.
Facts:
Joe Kuan Food Corporation issued in favor of Chowking 5
PSBank checks amounting to P556,981.86.
On the respective due dates of each check, Chowking's
acting accounting manager, Rino T. Manzano, endorsed and
encashed said checks with the Bustos branch of respondent
PSBank.
All the five checks were honored by defendant Santos, even
with only the endorsement of Manzano approving them.
The signatures of the other authorized officers of respondent
corporation were absent in the 5 checks, contrary to usual
banking practice.
Unexpectedly, Manzano absconded with and
misappropriated the check proceeds.
When Chowking demanded reimbursement from PSBank
but to no avail.
Chowking filed a complaint for a sum of money with
damages before the RTC.
Likewise impleaded were PSBank's president, Antonio S.
Abacan, and Bustos branch head, Santos.
Petitioner, Santos and Abacan were unanimous in asserting
that respondent is estopped from claiming reimbursement
and damages since it was negligent in allowing Manzano to
take hold, endorse, and encash its checks.
Petitioner pointed out that the proximate cause of
respondent's loss was its own negligence.
ISSUE: Whether the respondent's negligence was the proximate
cause of its own loss absolving petitioner from liability.
HELD: NO.
Petitioner failed to prove that it has observed the due
diligence required of banks under the law.
Contrary to petitioner's view, its negligence is the proximate
cause of respondent's loss.
It cannot be over emphasized that the banking business is
impressed with public interest.
Of paramount importance is the trust and confidence of the
public in general in the banking industry.
Consequently, the diligence required of banks is more than
that of a Roman pater familias or a good father of a
family. The highest degree of diligence is expected.
In its declaration of policy, the General Banking Law of
2000 requires of banks the highest standards of integrity and
performance.
Needless to say, a bank is "under obligation to treat the
accounts of its depositors with meticulous care."
The fiduciary nature of the relationship between the bank
and the depositors must always be of paramount concern.
Petitioner, through Santos, was clearly negligent when it
honored respondent's checks with the lone endorsement of
Manzano.
Measured by the foregoing yardstick, the proximate cause of
the loss is not respondent's alleged negligence in allowing
Manzano to take hold and encash respondent's checks.
The proximate cause is petitioner's own negligence in the
supervision of its employees when it overlooked the
irregular practice of encashing checks even without the
requisite endorsements.

15- EUSEBIO GONZALES vs. PHILIPPINE COMMERCIAL
AND INTERNATIONAL BANK, EDNA OCAMPO, and
ROBERTO NOCEDA
Facts:
1. PCIB granted a credit line to Gonzales through the execution of a
Credit-On-Hand Loan Agreement (COHLA), in which the aggregate
amount of the accounts of Gonzales with PCIB served as collateral
for and his availment limit under the credit line. Gonzales drew from
said credit line through the issuance of check. At the institution of
the instant case, Gonzales had a Foreign Currency Deposit (FCD) of
USD 8,715.72 with PCIB.
2. Gonzales and his wife obtained a loan for PhP 500,000.
Subsequently, on December 26, 1995 and January 3, 1999, the
spouses Panlilio and Gonzales obtained two additional loans from
PCIB in the amounts of PhP 1,000,000 and PhP 300,000,
respectively. These three loans amounting to PhP 1,800,000 were
covered by three promissory notes.
3. To secure the loans, a real estate mortgage was executed by
Gonzales and the spouses Panlilio. Notably, the promissory notes
specified, the solidary liability of Gonzales and the Panlilio for the
payment of the loans. However, it was the spouses Panlilio who
received the loan proceeds of PhP 1,800,000.
4. The monthly interest dues were paid by the spouses Panlilio
through the automatic debiting of their account with PCIB. But the
spouses Panlilio, defaulted.
5. PCIB allegedly called the attention of Gonzales regarding the
defaults and the subsequent accumulating periodic interest dues
which were left still left unpaid.
6. In the meantime, Gonzales issued a check in favor of Unson for
PhP 250,000 drawn against the credit line. However, upon
presentment for payment, it was dishonored by due to the
termination of the credit line for the unpaid periodic interest dues
from the loans. PCIB likewise froze the FCD account of Gonzales.
7. Gonzales had a falling out with Unson due to the dishonor of the
check. They had a heated argument, which caused great
embarrassment and humiliation to Gonzales. Thereafter, Unson sent
a demand letter with the threat of legal action.
8. Gonzales, wrote PCIB insisting that the check he issued had been
fully funded, and demanded the return of the proceeds of his FCD as
well as damages for the unjust dishonor of the check.
9. PCIB stood its ground in freezing the accounts. Gonzales
reiterated his demand, reminding PCIB that it knew well that the
actual borrowers were the spouses Panlilio and he never benefited
from the proceeds of the loans, which were serviced by the PCIB
account of the spouses Panlilio.
10. PCIBs refusal to heed his demands compelled Gonzales to file
the instant case for damages with the RTC, on account of the alleged
unjust dishonor of the check issued in favor of Unson.
11. The RTC found Gonzales solidarily liable with the spouses
Panlilio on the three promissory notes relative to the outstanding
REM loan. The trial court found no fault in the termination by PCIB
of the COHLA with Gonzales and in freezing the latters accounts to
answer for the past due loan. The trial court ruled that the dishonor
of the check was proper considering that the credit line had already
been terminated or revoked before the presentment of the check. The
CA affirmed the decision.
ISSUE: 1. Whether Gonzales is liable for the three promissory
notes he made with the spouses Panlilio where a REM was
constituted as security- yes
2. Whether PCIB properly dishonored the check of Gonzales
drawn against the COHLA he had with the bank.- no
HELD: First Issue: Solidarily Liability on Promissory Notes
Gonzales is liable for the loans covered by the above promissory
notes. 1
st
, Gonzales admitted that he is an accommodation party
which PCIB did not dispute. 2
nd
, the records of PCIB bear out that
the proceeds of the loan went to the spouses Panlilio. 3
rd
, as an
accommodation party, Gonzales is solidarily liable with the spouses
Panlilio for the loans.
[A]n accommodation party is one who meets all the three requisites,
viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his name or credit to
some other person. The accommodation party is liable on the
instrument to a holder for value even though the holder, at the time
of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and suretythe accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable. Although a
contract of suretyship is in essence accessory or collateral to a valid
principal obligation, the suretys liability to the creditor
is immediate, primary and absolute; he is directly and equally bound
with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest
in the obligations nor does he receive any benefit therefrom.
Thus, the knowledge, acquiescence, or even demand by Ocampo for
an accommodation by Gonzales in order to extend the credit or loan
of PhP 1,800,000 to the spouses Panlilio does not exonerate
Gonzales from liability on the three promissory notes.
4
th
, the solidary liability of Gonzales is clearly stipulated in the
promissory notes.
Second Issue: Improper Dishonor of Check
A careful scrutiny of the records shows that the courts a
quo committed reversible error in not finding negligence by PCIB in
the dishonor of the PhP 250,000 check.
1
st
- There was no proper notice to Gonzales of the default and
delinquency. While not exonerating his solidary liability, Gonzales
has a right to be properly apprised of the default or delinquency of
the loan precisely because he is a co-signatory of the promissory
notes and of his solidary liability.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid. And
such notification must be formal or in written form considering that
the outstanding periodic interests became due at various dates.
2
nd
-PCIB was grossly negligent in not giving prior notice to
Gonzales about its course of action to suspend, terminate, or revoke
the credit line, thereby violating stipulation in the COHLA.
Indeed, the business of banking is impressed with public interest and
great reliance is made on the banks sworn profession of diligence
and meticulousness in giving irreproachable service. Like a common
carrier whose business is imbued with public interest, a bank should
exercise extraordinary diligence to negate its liability to the
depositors. In this instance, PCIB is sorely remiss in the diligence
required in treating with its client, Gonzales. It may not wantonly
exercise its rights without respecting and honoring the rights of its
clients.
The effectivity clause of the COHLA is crystal clear that termination
of the COH should be done only upon prior notice served on the
CLIENT. This is the legal duty of PCIBto inform Gonzales of the
termination.
In the instant case, PCIB was able to send a letter advising Gonzales
of the unpaid interest on the loans but failed to mention anything
about the termination of the COHLA. More significantly, no letter
was ever sent to him about the termination of the COHLA. The
failure to give prior notice on the part of PCIB is already prima facie
evidence of bad faith. Therefore, it is abundantly clear that this case
falls squarely within the purview of the principle of abuse of rights
as embodied in Art. 19.
3
rd
- There is no dispute on the right of PCIB to suspend, terminate,
or revoke the COHLA under the "cross default provisions" of both
the promissory notes and the COHLA. However, these cross default
provisions do not confer absolute unilateral right to PCIB, as they are
qualified by the other stipulations in the contracts or specific
circumstances, like in the instant case of an accommodation party.
Thus, due to PCIBs negligence in not giving Gonzales proper notice
relative to the delinquencies, the unjust termination, revocation, or
suspension of the credit line from PCIBs gross negligence in not
honoring its obligation to give prior notice to Gonzales about such
termination and in not informing Gonzales of the fact of such
termination, treating Gonzales account as closed and dishonoring
his PhP 250,000 check, was certainly a reckless act by PCIB. This
resulted in the actual injury of PhP 250,000 to Gonzales whose FCD
account was frozen and had to look elsewhere for money to pay
Unson.
With banks, the degree of diligence required is more than that of a
good father of the family considering that the business of banking is
imbued with public interest due to the nature of their function. The
law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of banking.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized societybanks have attained a ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and most of all, confidence, and it is for this reason, banks
should guard against injury attributable to negligence or bad faith on
its part.
In the present case, Gonzales had the right to be informed of the
accrued interest and most especially, for the suspension of his
COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant
circumstances.
Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor suffered
mental anguish, serious anxiety, embarrassment, and
humiliation. Although incapable of pecuniary estimation, moral
damages are certainly recoverable if they are the proximate result of
the defendants wrongful act or omission.
Thus, an award of PhP 50,000 is reasonable moral damages for the
unjust dishonor of the check which was the proximate cause of the
consequent humiliation, embarrassment, anxiety, and mental anguish
suffered by Gonzales from his loss of credibility among his friends,
colleagues and peers.
Furthermore, the initial carelessness of the banks omission in not
properly informing Gonzales of the outstanding interest dues
aggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the
termination of the credit linejustifies the grant of exemplary
damages of PhP 10,000. Such an award is imposed by way of
example or correction for the public good.
Finally, an award for attorneys fees is likewise called for from
PCIBs negligence which compelled Gonzales to litigate to protect
his interest. In accordance with Art. 2208(1) of the Code, attorneys
fees may be recovered when exemplary damages are awarded. We
find that the amount of PhP 50,000 as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly,
the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466
is hereby REVERSED and SET ASIDE. The Philippine
Commercial and International Bank (now Banco De Oro) is
ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal
damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary
damages, and PhP 50,000 as attorneys fees.

16- CENTRAL BANK OF THE PHILIPPINES vs. CITYTRUST
BANKING
1. Respondent Citytrust Banking, maintained a demand deposit
account with petitioner Central Bank of the Philippines, now Bangko
Sentral ng Pilipinas.
2. As required, Citytrust furnished CB with the names and
corresponding signatures of 5 of its officers authorized to sign
checks and serve as drawers and indorsers for its account. It also
provided it with the list and corresponding signatures of its roving
tellers authorized to withdraw, sign receipts and perform other
transactions on its behalf. Petitioner later issued security
identification cards to the roving tellers one of whom was
"Rounceval Flores" (Flores).
3. Flores presented for payment to petitioners Senior Teller
Iluminada 2 Citytrust checks, payable to Citytrust, one for P850,000
and the other for P900,000, both of which were signed and indorsed
by Citytrusts authorized signatory-drawers.
4. After the checks were certified by petitioners Accounting
Department, Iluminada verified them, prepared the cash transfer slip
on which she affixed her signature, stamped the checks with the
notation "Received Payment" and asked Flores to, as he did, sign on
the space above such notation. Instead of signing his name, however,
Flores signed as "Rosauro C. Cayabyab" a fact Iluminada failed to
notice.
5. Iluminada thereupon sent the cash transfer slip and checks to
petitioners Cash Department where an officer verified and
compared the drawers signatures on the checks against their
specimen signatures provided by Citytrust, and finding the same in
order, approved the cash transfer slip and paid the corresponding
amounts to Flores. Petitioner then debited the amount of the checks
totaling P1,750,000 from Citytrusts demand deposit account.
6. More than a year and nine months later, Citytrust, by letter,
alleging that the checks were already cancelled because they were
stolen, demanded petitioner to restore the amounts covered thereby
to its demand deposit account. Petitioner did not heed the demand,
however.
7. Citytrust later filed a complaint for estafa, with reservation on the
filing of a separate civil action, against Flores. Flores was convicted.
8. Citytrust thereafter filed before the RTC a complaint for recovery
of sum of money with damages against petitioner which it alleged
erred in encashing the checks and in charging the proceeds thereof to
its account, despite the lack of authority of "Rosauro C. Cayabyab."
9. The RTC found both Citytrust and petitioner negligent and held
them equally liable for the loss. The Court of Appeals affirmed the
decision, it holding that both parties contributed equally to the
fraudulent encashment of the checks, hence, they should equally
share the loss in consonance with Article 2179/ Article 1172 of the
Civil Code.
ISSUE: Whether Both Citytrust and the Central bank should be
equally liable.
HELD: The petition is bereft of merit.
Petitioners teller Iluminada did not verify Flores signature on the
flimsy excuse that Flores had had previous transactions with it for a
number of years. That circumstance did not excuse the teller from
focusing attention to or at least glancing at Flores as he was signing,
and to satisfy herself that the signature he had just affixed matched
that of his specimen signature. Had she done that, she would have
readily been put on notice that Flores was affixing, not his but a
fictitious signature.
Given that petitioner is the government body mandated to supervise
and regulate banking and other financial institutions, the law imposes
on banks high standards in view of the fiduciary nature of banking.
Section 2 of RA 8791, which took effect on 13 June 2000, declares
that the State recognizes the "fiduciary nature of banking that
requires high standards of integrity and performance."
This fiduciary relationship means that the banks obligation to
observe "high standards of integrity and performance" is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a
family.
Citytrusts failure to timely examine its account, cancel the checks
and notify petitioner of their alleged loss/theft should mitigate
petitioners liability, in accordance with Article 2179 of the Civil
Code which provides that if the plaintiffs negligence was only
contributory, the immediate and proximate cause of the injury being
the defendants lack of due care, the plaintiff may recover damages,
but the courts shall mitigate the damages to be awarded. For had
Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been
recovered.
In line with the ruling in Consolidated Bank, the Court deems it
proper to allocate the loss between petitioner and Citytrust on a 60-
40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16,
1999 is hereby AFFIRMED with MODIFICATION, in that
petitioner and Citytrust should bear the loss on a 60-40 ratio.

17- GREGORIO H. REYES and CONSUELO PUYAT-
REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND
TRUST COMPANY, respondents.
Petitioner Reyes, as VP for finance, racing manager,
treasurer, and director of Philippine Racing Club (PRCI),
sent Godofredo, to respondent FEBTC to apply for a foreign
exchange demand draft (FXDD) in Australian dollars.
Godofredo went to FEBTC to apply for a demand draft in
the amount of AU$1,610 payable to the order of the
20
th
Asian Racing Conference Secretariat of Sydney,
Australia.
He was attended to by the bank's cashier, who at first denied
the application for the reason that FEBTC did not have an
Australian dollar account in any bank in Sydney.
Godofredo asked if there could be a way for respondent bank
to accommodate PRCI's urgent need to remit Australian
dollars to Sydney.
The banks cashier then informed Godofredo of a
roundabout way of effecting the requested remittance to
Sydney thus: the FEBTC would draw a demand draft against
Westpac Bank in Sydney, and have the latter reimburse itself
from the U.S. dollar account of the FEBTC in Westpac Bank
in New York.
This arrangement has been customarily resorted to since the
1960's and the procedure has proven to be problem-free.
PRCI and the petitioner Reyes, acting through Godofredo,
agreed to this arrangement in order to effect the urgent
transfer of Australian dollars payable to the Secretariat of the
20
th
Asian Racing Conference.
On July 28, 1988, FEBTC approved the said application of
PRCI and issued a FXDD for AU$ 1,610, payable to the
order of the 20
th
Asian Racing Conference Secretariat of
Sydney, Australia, and addressed to Westpac-Sydney as the
drawee bank.
However, upon due presentment of the FXDD, the same was
dishonoured twice, with the notice of dishonor stating the
following: "xxx No account held with Westpac."
Meanwhile, Wespac-New York sent a cable to FEBTC
informing the latter that its dollar account in the sum of AU$
1,610 was debited.
Petitioners then filed a complaint for damages, against
FEBTC due to the dishonor of the said FXDD issued by
FEBTC.
o The petitioners claim that as a result of the dishonor
of the said demand draft, they were exposed to
unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the
presence of an international audience.
TC ruled in favour of FEBTC
CA affirmed the ruling of the TC.
Issue: Whether FEBTC is liable for the dishonour of the FXDD.
Held: No.
The courts a quo found that FEBTC did not misrepresent
that it was maintaining a deposit account with Westpac-
Sydney.
FEBTCs cashier explained to Godofredo how the transfer of
Australian dollars would be effected through Westpac-New
York where the respondent bank has a dollar account to
Westpac-Sydney where the subject FXDD could be
encashed by the payee.
Petitioner agreed to that arrangement or procedure.
The petitioners are estopped from denying the said
arrangement or procedure.
Similar arrangements have been a long standing practice
in banking to facilitate international commercial
transactions.
In fact, the SWIFT cable message sent by FEBTC to the
drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New
York, where FEBTC has a deposit dollar account.
FEBTC did not cause an erroneous transmittal of its SWIFT
cable message to Westpac-Sydney.
It was the erroneous decoding of the cable message on the
part of Westpac-Sydney that caused the dishonor of the
subject foreign exchange demand draft.
An employee of Westpac-Sydney in Sydney, Australia
mistakenly read the printed figures in the SWIFT cable
message of respondent bank as "MT799" instead of as
"MT199".
As a result, Westpac-Sydney construed the said cable
message as a format for a letter of credit, and not for a
demand draft.
Degree of diligence exercised by FEBTC in this case
The degree of diligence required of banks, is more than that
of a good father of a family where the fiduciary nature of
their relationship with their depositors is concerned.
In other words banks are duty bound to treat the deposit
accounts of their depositors with the highest degree of care.
But the said ruling applies only to cases where banks act
under their fiduciary capacity, that is, as depositary of the
deposits of their depositors.
But the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not
involve their fiduciary relationship with their depositors.
In the CAB, FEBTC was not required to exert more than the
diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft.
The case at bar does not involve the handling of
petitioners' deposit, if any, with the respondent bank.
Instead, the relationship involved was that of a buyer and
seller, that is, between the FEBTC as the seller of the subject
FXDD, and PRCI as the buyer of the same.
The evidence shows that the FEBTC did everything within
its power to prevent the dishonor of the subject FXDD.
The erroneous reading of its cable message to Westpac-
Sydney by an employee of the latter could not have been
foreseen by FEBTC.
18- FAR EAST BANK AND TRUST COMPANY (now Bank of
the Philippine Islands), Petitioner,
vs. TENTMAKERS GROUP, INC., GREGORIA PILARES
SANTOS and RHOEL P. SANTOS, Respondents.
The signatures of respondents, Gregoria Pilares Santos and
Rhoel P. Santos, President and Treasurer of respondent
Tentmakers Group, Inc. (TGI) respectively, appeared on the
3 promissory notes for loans contracted with petitioner
FEBTC, now known as BP).
Gregoria and Rhoel alleged that they did sign on "blank"
promissory notes intended for future use.
After a futile demand, FEBTC filed a Complaint before the
RTC for the payment of the principal of the promissory
notes.
Respondents alleged that FEBTC had no right at all to
demand from them the amount being claimed; it was
FEBTCs branch manager, a certain Liza Liwanag, who
represented to Gregoria and Rhoel that they could avail of
additional working capital for TGI by having them sign the
promissory notes in advance, which were blank at the time,
so they would be ready for future use.
RTC - ruled in favor of FEBTC.
CA- reversed RTC
ISSUE: WON respondents are liable to FEBTC.
HELD: NO.
FEBTC miserably failed to present any document that
would serve as basis for its claim that the proceeds of the
3 promissory notes were indeed credited to the account of
the respondents.
Indeed, the Court finds no evidentiary basis to sustain the
RTCs finding of actual receipt by TGI of the amounts stated
in the promissory notes.
Accordingly, the Court affirms the CA decision for being
more in accord with the facts and evidence on record.
On a final note, FEBTC should have been more circumspect
in dealing with its clients.
It cannot be over emphasized that the banking business is
impressed with public interest.
Of paramount importance is the trust and confidence of the
public in general in the banking industry.
Consequently, the diligence required of banks is more than
that of a Roman pater familias or a good father of a family.
The highest degree of diligence is expected.
In handling loan transactions, banks are under obligation to
ensure compliance by the clients with all the documentary
requirements pertaining to the approval and release of the
loan applications.
For failure of its branch manager to exercise the requisite
diligence in abiding by the MORB and the banking rules and
practices, FEBTC was negligent in the selection and
supervision of its employees. In Equitable PCI Bank v.
Tan, the Court ruled:
Banks handle daily transactions
involving millions of pesos. By the
very nature of their works the
degree of responsibility, care and
trustworthiness expected of their
employees and officials is far
greater than those of ordinary clerks
and employees. Banks are expected
to exercise the highest degree of
diligence in the selection and
supervision of their employees.
For the loss suffered by FEBTC due to its laxity and
carelessness to police its own personnel, the bank has no one
to blame but itself.

19- PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH
CHEE CHONG and OFELIA CAMACHO CHEAH
1. On November 4, 1992, Ofelia Cheah and her friend Adelina
Guarin were having a conversation in the latters office when
Adelinas friend, Filipina Tuazon, approached her to ask if she could
have Filipinas check cleared and encashed for a service fee of 2.5%.
2. The check was Bank of America Check No. 190 drawn by Atty.
Rosales against Bank of America California, USA, with a face
amount of $300,000.00, payable to cash.
3. Because Adelina does not have a dollar account, she asked Ofelia
if she could accommodate Filipinas request since she has a joint
dollar savings account with her husband Cheah Chee Chong with
PNB Buendia Branch.
4. Ofelia agreed. They met with the Loans Department who referred
them to PNB Division Chief Garin. Garin discussed with them the
process of clearing the check and they were told that it normally
takes 15 days. Assured that the deposit and subsequent clearance of
the check is a normal transaction, Ofelia deposited Filipinas check.
5. PNB then sent it for clearing through its correspondent bank,
Philadelphia National Bank. 5 days later, PNB received a credit
advice from Philadelphia that the proceeds of the subject check had
been temporarily credited to PNBs account as of November 6, 1992.
6. On November 16, 1992, Garin called up Ofelia to inform her that
the check had already been cleared. The following day, PNB
Buendia, after deducting the bank charges, credited $299,248.37 to
the account of the spouses Cheah.
7. Acting on Adelinas instruction to withdraw the credited amount.
Filipina received all the proceeds.
8. In the meantime, the Cable Division of PNB Head Office received
on November 16, 1992 a SWIFT message from Philadelphia,
informing PNB of the return of the check for insufficient
funds. However, the PNB Head Office could not ascertain to which
branch/office it should forward the same for proper action.
9. After a few days, PNB Head Office ascertained that the SWIFT
message was intended for PNB Buendia Branch.
10. Informed about the bounced check and upon demand by PNB
Buendia to return the money withdrawn, Ofelia immediately
contacted Filipina to get the money back. But the latter told her that
all the money had already been given to several people who asked
for the checks encashment. Criminal charges were then filed against
these suspect beneficiaries.
11. Subsequently, PNB sent a demand letter to spouses Cheah for the
return of the amount of the check, froze their peso and dollar
deposits, and filed a complaint against them for Sum of Money with
the RTC. In said complaint, PNB demanded payment of
around P8,202,220.44, plus interests and attorneys fees.
12. The RTC ruled in PNBs favor. It held that spouses Cheah were
guilty of contributory negligence. While the CA recognized the
spouses Cheah as victims of a scam who nevertheless have to suffer
the consequences of Ofelias lack of care and prudence in
immediately trusting a stranger, the appellate court did not hold PNB
scot-free. It declared both parties equally negligent and should suffer
and shoulder the loss.
ISSUE: Whether PNB should be held liable.
HELD: PNBs act of releasing the proceeds of the check prior to the
lapse of the 15-day clearing period was the proximate cause of the
loss.
Ofelia deposited the subject check on November 4, 1992. Hence, the
15th banking day from the date of said deposit should fall on
November 25, 1992. However, what happened was that PNB
Buendia, upon calling up Ofelia that the check had been cleared,
allowed the proceeds thereof to be withdrawn on November 17 and
18, 1992, a week before the lapse of the standard 15-day clearing
period.
This Court already held that the payment of the amounts of checks
without previously clearing them with the drawee bank especially so
where the drawee bank is a foreign bank and the amounts involved
were large is contrary to normal or ordinary banking practice. Also,
in Associated Bank v. Tan, wherein the bank allowed the withdrawal
of the value of a check prior to its clearing, we said that "[b]efore the
check shall have been cleared for deposit, the collecting bank can
only assume at its own risk x x x that the check would be cleared
and paid out."
The delay in the receipt by PNB Buendia of the SWIFT message
notifying it of the dishonor is of no moment, because had PNB
Buendia waited for the expiration of the clearing period and had
never released during that time the proceeds of the check, it would
have already been duly notified of its dishonor. Clearly, PNBs
disregard of its preventive and protective measure against the
possibility of being victimized by bad checks had brought upon itself
the injury of losing a significant amount of money.
It bears stressing that "the diligence required of banks is more than
that of a Roman pater familias or a good father of a family. The
highest degree of diligence is expected." PNB miserably failed to do
its duty of exercising extraordinary diligence and reasonable
business prudence. The disregard of its own banking policy amounts
to gross negligence, which the law defines as "negligence
characterized by the want of even slight care, acting or omitting to
act in a situation where there is duty to act, not inadvertently but
wilfully and intentionally with a conscious indifference to
consequences in so far as other persons may be affected." With
regard to collection or encashment of checks, suffice it to say that the
law imposes on the collecting bank the duty to scrutinize diligently
the checks deposited with it for the purpose of determining their
genuineness and regularity. "The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this
field, and the law thus holds it to a high standard of conduct." A bank
is expected to be an expert in banking procedures and it has the
necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn
money under the principle of solutio indebiti.
In the case at bench, PNB cannot recover the proceeds of the check
under the principle it invokes. 1
st
, the gross negligence of PNB, can
never be equated with a mere mistake of fact, which must be
something excusable and which requires the exercise of prudence.
No recovery is due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are
bound to share the loss with the bank. "Contributory negligence is
conduct on the part of the injured party, contributing as a legal cause
to the harm he has suffered, which falls below the standard to which
he is required to conform for his own protection."
The fact that the check was cleared after only eight banking days
from the time it was deposited or contrary to what Garin told her that
clearing takes 15 days should have already put Ofelia on guard. She
should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is
she and her husband who would be put at risk and not the
accommodated party. Thus, we are one with the CA in ruling that
Ofelias prior consultation with PNB officers is not enough to totally
absolve her of any liability
In any case, the complaint against the spouses Cheah could not be
dismissed. As PNBs client, Ofelia was the one who dealt with PNB
and negotiated the check such that its value was credited in her and
her husbands account. Being the ones in privity with PNB, the
spouses Cheah are therefore the persons who should return to PNB
the money released to them.
All told, the Court concurs with the findings of the CA that PNB and
the spouses Cheah are equally negligent and should therefore equally
suffer the loss. The two must both bear the consequences of their
mistakes.
WHEREFORE, premises considered, the Petitions for Review on
Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both
DENIED. The assailed August 22, 2005 Decision and December 21,
2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948
are hereby AFFIRMED in toto.


20- EQUITABLE BANKING CORPORATION vs. SPECIAL
STEEL PRODUCTS, and AUGUSTO L. PARDO
A crossed check with the notation "account payee only" can only be
deposited in the named payees account. It is gross negligence for a
bank to ignore this rule solely on the basis of a third partys oral
representations of having a good title thereto.
FACTS:
1. Respondent Special Steel Products is acorporation selling steel
products. Its co-respondent Augusto L. Pardo is SSPIs President and
majority stockholder.
2. Interco is its regular customer.
3. Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in
charge of the purchasing department, and the son-in-law of its
majority stockholder.
4. Petitioner Equitable is engaged in banking and is the depository
bank of Interco and of Uy.
5. SSPI sold welding electrodes to Interco. The invoices provided
that Interco would pay interest at the rate of 36% per annum in case
of delay.
6. In payment for the welding electrodes, Interco issued three checks
payable to the order of SSPI. Each check was crossed with the
notation "account payee only" and was drawn against Equitable.
7. The records disclose that Uy presented each crossed check to
Equitable on the day of its issuance and claimed that he had good
title thereto.
8. Equitable acceded to Uys demands on the assumption that Uy, as
the son-in-law of Intercos majority stockholder, was acting pursuant
to Intercos orders. The bank also relied on Uys status as a valued
client. Thus, Equitable accepted the checks for deposit in Uys
personal accounts and stamped "ALL PRIOR ENDORSEMENT
AND/OR LACK OF ENDORSEMENT GUARANTEED" on their
dorsal portion. Uy promptly withdrew the proceeds of the checks.
9. SSPI reminded Interco of the unpaid welding electrodes. Interco
replied that it had already issued three checks payable to SSPI and
drawn against Equitable. SSPI denied receipt of these checks.
10. It was determined that Uy, not SSPI, received the proceeds of the
three checks that were payable to SSPI. Thus, 23 months after the
issuance of the three checks, Interco finally paid the value of the
three checks, plus a portion of the accrued interests. Interco refused
to pay the entire accrued interest of P767,345.64 on the ground that it
was not responsible for the delay. Thus, SSPI was unable to
collect P437,040.35 (at the contracted rate of 36% per annum) in
interest income.
11. SSPI and its president, Pardo, filed a complaint for damages with
application for a writ of preliminary attachment against Uy and
Equitable Bank.
12. In his personal capacity, Pardo claimed an award of P3 million as
moral damages from the defendants. He allegedly suffered
hypertension, anxiety, and sleepless nights for fear that the
government would charge him for tax evasion or money laundering.
13. The RTC rendered judgment in favor of plaintiffs Special Steel,
and Pardo and against defendants Equitable and Uy," ordering
defendants to jointly and severally pay plaintiffs. The CA affirmed
the trial courts ruling that SSPI had a cause of action for quasi-delict
against Equitable.
ISSUE: Whether SSPI has a cause of action against Equitable
for quasi-delict .
HELD: This case involves a complaint for damages based on quasi-
delict.
SSPIs cause of action is not based on the three checks. SSPI does
not ask Equitable or Uy to deliver to it the proceeds of the checks as
the rightful payee. SSPI does not assert a right based on the
undelivered checks or for breach of contract. Instead, it asserts a
cause of action based on quasi-delict. Quasi-delicts exist even
without a contractual relation between the parties. The courts below
correctly ruled that SSPI has a cause of action for quasi-delict against
Equitable.
The checks that Interco issued in favor of SSPI were all crossed,
made payable to SSPIs order, and contained the notation "account
payee only." This creates a reasonable expectation that the payee
alone would receive the proceeds of the checks and that diversion of
the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for
deposit in the named payees account only and no other. At the very
least, the nature of crossed checks should place a bank on notice that
it should exercise more caution or expend more than a cursory
inquiry, to ascertain whether the payee on the check has authorized
the holder to deposit the same in a different account. In this
connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public
interest, the trust and confidence of the public in it is of paramount
importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are
required of it."
Equitable did not observe the required degree of diligence expected
of a banking institution under the existing factual circumstances.
The fact that a person, other than the named payee of the crossed
check, was presenting it for deposit should have put the bank on
guard. It should have verified if the payee (SSPI) authorized the
holder (Uy) to present the same in its behalf, or indorsed it to him.
Considering however, that the named payee does not have an
account with Equitable (hence, the latter has no specimen signature
of SSPI by which to judge the genuineness of its indorsement to Uy),
the bank knowingly assumed the risk of relying solely on Uys word
that he had a good title to the three checks. Such misplaced reliance
on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or the
entire absence of care, evincing a thoughtless disregard of
consequences without exerting any effort to avoid them."
Equitable contends that its knowledge that Uy is the son-in-law of
the majority stockholder of the drawer, Interco, made it safe to
assume that the drawer authorized Uy to countermand the order
appearing on the check. It is troubling that Equitable proceeded with
the transaction based only on its knowledge that Uy had close
relations with Interco. The bank did not even make inquiries with the
drawer, Interco (whom the bank considered a "valued client"), to
verify Uys representation. The banking system is placed in peril
when bankers act out of blind faith and empty promises, without
requiring proof of the assertions and without making the appropriate
inquiries. Had it only exercised due diligence, Equitable could have
saved both Interco and the named payee, SSPI, from the trouble that
the banks mislaid trust wrought for them.
WHEREFORE, premises considered, the Petition is PARTIALLY
GRANTED. The assailed October 13, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 62425 is MODIFIED by:
1. REDUCING the award of actual damages to respondents
to the rate of 6% per annum of the value of the three checks
from July 1991 to June 1993 or a period of twenty-three
months;
2. REDUCING the award of moral damages in favor of
Augusto L. Pardo from P3,000,000.00 to P50,000.00; and
3. REVERSING the dismissal of Equitable Banking
Corporations cross-claim against Jose Isidoro Uy, alias
Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE
Equitable Banking Corporation the amounts that the latter
will pay to respondents.
Additionally, the Court hereby REVERSES the dismissal of
Equitable Banking Corporations counterclaim for damages against
Special Steel Products, Inc. This Court ORDERS Special Steel
Products, Inc. to PAY Equitable Banking Corporation actual
damages in the total amount of P30,204.36, for the wrongful
preliminary attachment of its properties.
The rest of the assailed Decision is AFFIRMED.
SO ORDERED.