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G.R. No. L-8844 December 16, 1914
FERNANDO MAULINI, ET AL., plaintiffs-appellees, vs. ANTONIO
G. SERRANO, defendant-appellant.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of
the city of Manila in favor of the plaintiff for the sum of P3,000, with
interest
thereon
at
the
rate
of
1 per cent month from September 5, 1912, together with the
costs.
The action was brought by the plaintiff upon the contract of
indorsement alleged to have been made in his favor by the
defendant upon the following promissory note:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don

Antonio G. Serrano on or before the 5th day of September,
1912, the sum of three thousand pesos (P3,000) for value
received for commercial operations. Notice and protest
renounced. If the sum herein mentioned is not completely
paid on the 5th day of September, 1912, this instrument will
draw interest at the rate of 1 per cent per month from the
date when due until the date of its complete payment. The
makers hereof agree to pay the additional sum of P500 as
attorney's fees in case of failure to pay the note.
Manila, June 5, 1912.

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm.
For Jose Padern, by F. Moreno. Angel Gimenez.
The note was indorsed on the back as follows:
G. LIABILITIES OF PARTIES
Pay note to the order of Don Fernando Maulini, value
received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.
The first question for resolution on this appeal is whether or not,
under the Negotiable Instruments Law, an indorser of a negotiable
promissory note may, in an action brought by his indorsee, show,
by parol evidence, that the indorsement was wholly without
consideration and that, in making it, the indorser acted as agent for
the indorsee, as a mere vehicle of transfer of the naked title from
the maker to the indorsee, for which he received no consideration
whatever.
The learned trial court, although it received parol evidence on the
subject provisionally, held, on the final decision of the case, that
such evidence was not admissible to alter, very, modify or
contradict the terms of the contract of indorsement, and, therefore,
refused to consider the evidence thus provisionally received, which
tended to show that, by verbal agreement between the indorser
and the indorsee, the indorser, in making the indorsement, was
acting as agent for the indorsee, as a mere vehicle for the
transference of naked title, and that his indorsement was wholly
without consideration. The court also held that it was immaterial
whether there was a consideration for the transfer or not, as the
indorser, under the evidence offered, was an accommodation
indorser.
We are of the opinion that the trial court erred in both
findings.1awphil.net
In the first place, the consideration of a negotiable promissory note,
or of any of the contracts connected therewith, like that of any
other written instrument, is, between the immediate parties to the
contract, open to attack, under proper circumstances, for the
purpose of showing an absolute lack or failure of consideration.
It seems, according to the parol evidence provisionally admitted on
the trial, that the defendant was a broker doing business in the city
of Manila and that part of his business consisted in looking up and
ascertaining persons who had money to loan as well as those who
desired to borrow money and, acting as a mediary, negotiate a loan
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between the two. He had done much business with the plaintiff and
the borrower, as well as with many other people in the city of
Manila, prior to the matter which is the basis of this action, and was
well known to the parties interested. According to his custom in
transactions of this kind, and the arrangement made in this
particular case, the broker obtained compensation for his services
of the borrower, the lender paying nothing therefor. Sometimes this
was a certain per cent of the sum loaned; at other times it was a
part of the interest which the borrower was to pay, the latter paying
1 per cent and the broker per cent. According to the method
usually followed in these transactions, and the procedure in this
particular case, the broker delivered the money personally to the
borrower, took note in his own name and immediately transferred it
by indorsement to the lender. In the case at bar this was done at
the special request of the indorsee and simply as a favor to him,
the latter stating to the broker that he did not wish his name to
appear on the books of the borrowing company as a lender of
money and that he desired that the broker take the note in his own
name, immediately transferring to him title thereto by indorsement.
This was done, the note being at once transferred to the lender.
According to the evidence referred to, there never was a moment
when Serrano was the real owner of the note. It was always the
note of the indorsee, Maulini, he having furnished the money which
was the consideration for the note directly to the maker and being
the only person who had the slightest interest therein, Serrano, the
broker, acting solely as an agent, a vehicle by which the naked title
to the note passed fro the borrower to the lender. The only payment
that the broker received was for his services in negotiating the
loan. He was paid absolutely nothing for becoming responsible as
an indorser on the paper, nor did the indorsee lose, pay or forego
anything, or alter his position thereby.
Nor was the defendant an accommodation indorser. The learned
trial court quoted that provision of the Negotiable Instruments Law
which defines an accommodation party as "one who has signed the
instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking
the instrument knew the same to be only an accommodation
party." (Act No. 2031, sec. 29.)
We are of the opinion that the trial court misunderstood this
definition. The accommodation to which reference is made in the
section quoted is not one to the person who takes the note that
is, the payee or indorsee, but one to the maker or indorser of the
note. It is true that in the case at bar it was an accommodation to
the plaintiff, in a popular sense, to have the defendant indorse the
note; but it was not the accommodation described in the law, but,
rather, a mere favor to him and one which in no way bound
Serrano. In cases of accommodation indorsement the indorser
makes the indorsement for the accommodation of the maker. Such
an indorsement is generally for the purpose of better securing the
payment of the note that is, he lend his name to the maker, not
to the holder. Putting it in another way: An accommodation note is
one to which the accommodation party has put his name, without
consideration, for the purpose of accommodating some other party
who is to use it and is expected to pay it. The credit given to the
accommodation part is sufficient consideration to bind the
accommodation maker. Where, however, an indorsement is made
as a favor to the indorsee, who requests it, not the better to secure
payment, but to relieve himself from a distasteful situation, and
where the only consideration for such indorsement passes from the
indorser to the indorsee, the situation does not present one
creating an accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the indorsement.
The prohibition in section 285 of the Code of Civil Procedure does
not apply to a case like the one before us. The purpose of that
prohibition is to prevent alternation, change, modification or
contradiction of the terms of a written instrument, admittedly
existing, by the use of parol evidence, except in the cases
specifically named in the section. The case at bar is not one where
the evidence offered varies, alters, modifies or contradicts
the terms of the contract of indorsement admittedly existing. The
evidence was not offered for that purpose. The purpose was to
show that no contract of indorsement ever existed; that the minds
of the parties never met on the terms of such contract; that they
never mutually agreed to enter into such a contract; and that there
never existed a consideration upon which such an agreement could
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be founded. The evidence was not offered to vary, alter, modify, or

contradict the terms of an agreement which it is admitted existed
between the parties, but to deny that there ever existed any
agreement whatever; to wipe out all apparent relations between
the parties, and not to vary, alter or contradict theterms of a
relation admittedly existing; in other words, the purpose of the
parol evidence was to demonstrate, not that the indorser did not
intend to make the particular indorsement which he did make; not
that he did not intend to make the indorsement in the terms made;
but, rather, to deny the reality of any indorsement; that a relation
of any kind whatever was created or existed between him and the
indorsee by reason of the writing on the back of the instrument;
that no consideration ever passed to sustain an indorsement of any
kind whatsoever.
The contention has some of the appearances of a case in which an
indorser seeks prove forgery. Where an indorser claims that his
name was forged, it is clear that parol evidence is admissible to
prove that fact, and, if he proves it, it is a complete defense, the
fact being that the indorser never made any such contract, that no
such relation ever existed between him and the indorsee, and that
there was no consideration whatever to sustain such a contract. In
the case before us we have a condition somewhat similar. While the
indorser does not claim that his name was forged, he does claim
that it was obtained from him in a manner which, between the
parties themselves, renders, the contract as completely inoperative
as if it had been forged.
Parol evidence was admissible for the purpose named.1awphil.net
There is no contradiction of the evidence offered by the defense
and received provisionally by the court. Accepting it as true the
judgment must be reversed.
The judgment appealed from is reversed and the complaint
dismissed on the merits; no special finding as to costs.
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29475 entitled, "Town Savings and Loan Bank, Inc. vs. Spouses
Miguel Hipolito and Alicia N. Hipolito" reversing the decision dated
September 14, 1990 of the Regional Trial Court of Bulacan which
declared that the Hipolitos were accommodation parties on the
promissory note and holding them liable to pay Town Savings And
Loan Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were
granted, a loan in the amount of P700,000.00 with interest of 24%
per annum for which they executed and delivered to Town Savings
and Loan Bank (or TSLB) a promissory note with a maturity period
of three (3) years and an acceleration clause upon default in the
payment of any amortization, plus a penalty of 36% and 10%
attorney's fees, if the note were referred to an attorney for
collection. For failure to keep current their monthly payments on
the account, the obligors were deemed to have defaulted on May
24, 1984. Notices of past due account and demands for payment
were sent but ignored. At the time of the institution of the action on
March 12, 1986, the unpaid obligation amounted to P1,114,983.40.
G.R. No. 106011 June 17, 1993

TOWN SAVINGS AND LOAN BANK, INC., petitioner, vs. THE
COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND
ALICIA N. HIPOLITO, respondents.
GRIO-AQUINO, J.:
This is a petition for review on certiorari to set aside the decision
dated March 12, 1992, of the Court of Appeals in CA-G.R. CV No.
The Hipolitos denied being personally liable on the P700,000.00

promissory note which they executed. The loan was allegedly for
the account of Pilarita H. Reyes, the sister of Miguel Hipolito. She
was the real party-in-interest. The Hipolitos, not having received
any part of the loan, were mere guarantors for Pilarita. They
allegedly signed the promissory note because they were persuaded
to do so by Joey Santos, President of TSLB. When they received the
demand letters, they confronted him but they were told that the
Bank had to observe the formality of sending notices and demand
letters. The real purpose was only to pressure Pilarita to comply
with her undertaking.
Insisting that they were mere guarantors, the Hipolitos vehemently
protested against being dragged into the litigation as principal
parties. As a result of the unfounded suit, they allegedly incurred
actual damages estimated at P200,000.00 and attorney's fees of
P30,000.00.
In a decision dated September 14, 1990, Judge Zotico A. Toleto of
the RTC of Malolos, Branch 18, held the respondents (then
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defendants) spouses Miguel and Alicia Hipolito,
accommodation parties on the promissory note.
liable
as
Hipolitos are liable to the bank on the promissory note that they
signed to accommodate Pilarita.
The spouses appealed to the Court of Appeals. In a decision dated

March 12, 1992, the Court of Appeals found that the Hipolitos did
not accommodate Pilarita but the TSLB, whose lending authority
was restricted by the size of its loan portfolio. The Hipolitos were
relieved from any liability to TSLB.
Respondent appellate court erred in giving credence to Hipolito's

allegation that it was the bank's president who induced him to sign
the promissory note so that the bank would not violate the Central
Bank's regulation limiting the amount that TSLB could lend out.
Besides being self-serving, Hipolito's testimony was uncorroborated
by any other evidence on record, therefore, it should have been
received with extreme caution. The Court is convinced that the
intention of respondents Hipolitos in signing the promissory note
was not so much to enable the Bank to grant a loan to Pilarita but
for the latter to be able to obtain the full amount of the loan that
she needed at the time.
Hence, this petition for review by TSLB.

The lone issue in this case is whether the Hipolitos are liable on the
promissory note which they executed in favor of the petitioner.
We hold for the petitioner.
An accommodation party is one who has signed the
instrument as marker, drawer, indorser, without receiving
value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument
to a holder for value, notwithstanding such holder, at the
time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect
a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but
assumes liability to the other parties thereto because he
wants to accommodate another. (The Phil. Bank of
Commerce vs. Aruego, 102 SCRA 530, 539, 540.)
In this case, there is no question that the private respondents
signed the promissory note in order to enable Pilarita H. Reyes, who
is Miguel Hipolito's sister, to borrow the total sum of P1.4 million
from TSLB. As observed by both the trial court and the appellate
court, the actual beneficiary of the loan was Pilarita H. Reyes and
no other. The Hipolitos accommodated her by signing a promissory
note for half of the loan that she applied for because TSLB may not
lend any single borrower more than the authorized limit of its loan
portfilio. Under Section 29 of the Negotiable Instruments Law, the
It is not credible that a Bank would want so much to lend money to

a borrower that it would go out of its way to convince another
person (respondent Miguel Hipolito) to accommodate the borrower
(Pilarita H. Reyes). In the ordinary course of things, the borrower,
Pilarita, not the Bank, would have requested her brother Miguel to
accommodate her so she could have the P1.4 million that she
wanted to borrow from the Bank.
The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the
appellate court in reversing the decision of the trial court, is not
applicable to this case. In that case, the evidence showed that the
indorser (the loan broker Serrano) in making the indorsement to the
lender, Maulini, was acting as agent for the latter or, as a mere
vehicle for the transference of the naked title from the borrower or
maker of the note (Moreno). Furthermore, his indorsement was
wholly without consideration. We ruled that Serrano was not an
accommodation indorser; he was not liable on the note.
. . . Where, however, an indorsement is made as a favor to
the indorsee, who requests it, not the better to secure
payment, but to relieve himself from a distasteful situation,
and where the only consideration for such indorsement
passes from the indorser to the indorsee, the situation does
not present one creating an accommodation indorsement,
nor one where there is a consideration sufficient to sustain
an action on the indorsement. (p. 644.)
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Unlike the Maulini case, there was no agreement here, written or
verbal, that in signing the promissory note, Miguel and Alicia
Hipolito were acting as agents for the money lender the Bank. The
consideration of the note signed by the Hipolitos was received by
them through Pilarita. They acted as agents of Pilarita, not of the
bank. They signed the promissory note as favor to Pilarita, to help
her raise the funds that she needed. It was Pilarita whom they
accommodated, not the bank, contrary to the erroneous finding of
the appellate court.
WHEREFORE, the petition for review is GRANTED. The appealed
decision of the Court of Appeals is hereby REVERSED and that of
the trial court is REINSTATED. Costs against the private
respondents.
SO ORDERED.
G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals
from the order of the Court of First Instance of Manila, Branch XIII,
in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default, 1 and from the order of said court in the
same case denying his motion to set aside the judgment rendered
after he was declared in default. 2 These two appeals of the
defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO.
27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by
the Court of Appeals to file one consolidated record on appeal of
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals,
First Division, certified the consolidated appeal to the Supreme
Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted
against Jose M. Aruego Civil Case No. 42066 for the recovery of the
total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to
3/8% for every thirty (30) days or fraction thereof plus attorney's
fees equivalent to 10% of the total amount due and costs. 6 The
complaint filed by the Philippine Bank of Commerce contains
twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different
dates covering the period from August 28, 1950 to March 14,
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1951. 7 The sum sought to be recovered represents the cost of the
printing of "World Current Events," a periodical published by the
defendant. To facilitate the payment of the printing the defendant
obtained a credit accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer, Encal Press and
Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for
acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank
also required defendant Aruego to execute a trust receipt in favor
of said bank wherein said defendant undertook to hold in trust for
plaintiff the periodicals and to sell the same with the promise to
turn over to the plaintiff the proceeds of the sale of said publication
to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the
summons on December 2, 1959. 9 On December 14, 1959
defendant filed an urgent motion for extension of time to plead,
and set the hearing on December 16, 1959. 10 At the hearing, the
court denied defendant's motion for extension. Whereupon, the
defendant filed a motion to dismiss the complaint on December 17,
1959 on the ground that the complaint states no cause of action
because:
a) When the various bills of exchange were presented to the
defendant as drawee for acceptance, the amounts thereof had
already been paid by the plaintiff to the drawer (Encal Press and
Photo Engraving), without knowledge or consent of the defendant
drawee.
b) In the case of a bill of exchange, like those involved in the case
at bar, the defendant drawee is an accommodating party only for
the drawer (Encal Press and Photo-Engraving) and win be liable in
the event that the accommodating party (drawer) fails to pay its
obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22,
1959, copy of which was received by the defendant on December
24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for
reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its
order dismissing the complaint and set the case for hearing on
March 15, 1960 at 8:00 in the morning. 14 A copy of the order
setting aside the order of dismissal was received by the defendant
on March 11, 1960 at 5:00 o'clock in the afternoon according to the
affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to
postpone the trial of the case on the ground that there having been
no answer as yet, the issues had not yet been joined. 15 On the
same date, the defendant filed his answer to the complaint
interposing the following defenses: That he signed the document
upon which the plaintiff sues in his capacity as President of the
Philippine Education Foundation; that his liability is only secondary;
and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare
the defendant in default on the ground that the defendant should
have filed his answer on March 11, 1960. He contends that by filing
his answer on March 12, 1960, defendant was one day late. 17 On
March 19, 1960 the trial court declared the defendant in
default. 18 The defendant learned of the order declaring him in
default on March 21, 1960. On March 22, 1960 the defendant filed a
motion to set aside the order of default alleging that although the
order of the court dated March 7, 1960 was received on March 11,
1960 at 5:00 in the afternoon, it could not have been reasonably
expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially
because the order of the court dated March 7, 1960 was brought to
the attention of counsel only in the early hours of March 12, 1960.
The defendant also alleged that he has a good and substantial
defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated
March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon
and the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's
motion on March 25, 1960. 20 On May 6, 1960, the trial court
rendered judgment sentencing the defendant to pay to the plaintiff
the sum of P35,444.35 representing the total amount of his
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obligation to the said plaintiff under the twenty-two (22) causes of
action alleged in the complaint as of November 15, 1957 and the
sum of P10,000.00 as attorney's fees. 21
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS
IN DEFAULT.
II
On May 9, 1960 the defendant filed a notice of appeal from the

order dated March 25, 1961 denying his motion to set aside the
order declaring him in default, an appeal bond in the amount of
P60.00, and his record on appeal. The plaintiff filed his opposition to
the approval of defendant's record on appeal on May 13, 1960. The
following day, May 14, 1960, the lower court dismissed defendant's
appeal from the order dated March 25, 1960 denying his motion to
set aside the order of default. 22 On May 19, 1960, the defendant
filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed
the defendant's motion for reconsideration of the order dismissing
appeal. 24 On May 21, 1960, the trial court reconsidered its previous
order dismissing the appeal and approved the defendant's record
on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the
defendant that the record on appeal filed ed by the defendant was
forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment
rendered after he was declared in default reiterating the same
ground previously advanced by him in his motion for relief from the
order of default. 27 Upon opposition of the plaintiff filed on June 3,
1960, 28 the trial court denied the defendant's motion to set aside
the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the
court denying his motion to set aside the judgment by default, his
appeal bond, and his record on appeal. The defendant's record on
appeal was approved by the trial court on June 25, 1960. 30 Thus,
the defendant had two appeals with the Court of Appeals: (1)
Appeal from the order of the lower court denying his motion to set
aside the order of default docketed as CA-G.R. NO. 27734-R; (2)
Appeal from the order denying his motion to set aside the judgment
by default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO

DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE
WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST
DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION
FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY
DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment
taken against him through his mistake, inadvertence, surprise or
excusable neglect, he must show to the court that he has a
meritorious defense. 32 In other words, in order to set aside the
order of default, the defendant must not only show that his failure
to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint
together with the summons on December 2, 1960; that on
December 17, 1960, the last day for filing his answer, Aruego filed
a motion to dismiss; that on December 22, 1960 the lower court
dismissed the complaint; that on January 23, 1960, the plaintiff filed
a motion for reconsideration and on March 7, 1960, acting upon the
motion for reconsideration, the trial court issued an order setting
aside the order of dismissal; that a copy of the order was received
by the defendant on March 11, 1960 at 5:00 o'clock in the
afternoon as shown in the affidavit of the deputy sheriff; and that
on the following day, March 12, 1960, the defendant filed his
answer to the complaint.
The failure then of the defendant to file his answer on the last day
for pleading is excusable. The order setting aside the dismissal of
the complaint was received at 5:00 o'clock in the afternoon. It was
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therefore impossible for him to have filed his answer on that same
day because the courts then held office only up to 5:00 o'clock in
the afternoon. Moreover, the defendant immediately filed his
answer on the following day.
However, while the defendant successfully proved that his failure to
answer was due to excusable negligence, he has failed to show that
he has a meritorious defense. The defendant does not have a good
and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the
plaintiff's complaint in a representative capacity, as the then
President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal,"
printed by Encal Press and Photo-Engraving, drawer of the said bills
of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal
obligor, but as accommodation or additional party obligor, to add to
the security of said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of the face value
is advanced to the drawer only upon acceptance of the same by
the drawee, in the case in question, payment for the supposed bills
of exchange were made before acceptance; so that in effect,
although these documents are labelled bills of exchange, legally
they are not bills of exchange but mere instruments evidencing
indebtedness of the drawee who received the face value thereof,
with the defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed
bills of exchange as an agent of the Philippine Education
Foundation Company where he is president. Section 20 of the
Negotiable Instruments Law provides that "Where the instrument
contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal or in a representative capacity,
he is not liable on the instrument if he was duly authorized; but the
mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not
exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that
nowhere has he disclosed that he was signing as a representative
of the Philippine Education Foundation Company. 34 He merely
signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO
For failure to disclose his principal, Aruego is personally liable for
the drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after
a showing that the drawer is incapable of paying. This contention is
also without merit.
An accommodation party is one who has signed the instrument as
maker, drawer, indorser, without receiving value therefor and for
the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of the taking of the instrument knew him
to be only an accommodation party. 35 In lending his name to the
accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives
no part of the consideration for the instrument but assumes liability
to the other parties thereto because he wants to accommodate
another. In the instant case, the defendant signed as a
drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a lawyer, he should
not have signed as an acceptor/drawee. In doing so, he became
primarily and personally liable for the drafts.
The defendant also contends that the drafts signed by him were not
really bills of exchange but mere pieces of evidence of
indebtedness because payments were made before acceptance.
This is also without merit. Under the Negotiable Instruments Law, a
bill of exchange is an unconditional order in writting addressed by
one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to
bearer. 36 As long as a commercial paper conforms with the
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definition of a bill of exchange, that paper is considered a bill of

exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but
not in the determination of whether a commercial paper is a bill of
exchange or not.
It is evident then that the defendant's appeal can not prosper. To
grant the defendant's prayer will result in a new trial which will
serve no purpose and will just waste the time of the courts as well
as of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of
the Court of First Instance of Manila denying the petition for relief
from the judgment rendered in said case is hereby affirmed,
without pronouncement as to costs.
SO ORDERED.
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Immediately, RCBC honored the P8-million check and allowed CMC
to withdraw the same.3
On the next banking day, January 12, 1981, GCDC issued a "Stop
Payment Order" to SBTC, claiming that the P8-million check was
released to a third party by mistake. Consequently, SBTC
dishonored and returned the managers check to RCBC. Thereafter,
the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks clearing
balance.4
G.R. No. 170984
January 30, 2009
SECURITY BANK AND TRUST COMPANY, Petitioner, vs. RIZAL

COMMERCIAL BANKING CORPORATION, Respondent.
x-------------------------x
G.R. No. 170987
January 30, 2009
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.

SECURITY BANK AND TRUST COMPANY, Respondent.
On February 13, 1981, RCBC filed a complaint5 for damages against

SBTC with the then Court of First Instance of Rizal, Branch XXII. Said
case was docketed as Civil Case No. 1081 and later transferred to
the Regional Trial Court (RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House,
RCBC and SBTC stopped returning the checks to each other. By way
of a temporary arrangement pending resolution of the case, the P8million check was equally divided between, and credited to, RCBC
and SBTC.6
QUISUMBING, Acting C.J.:
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a

Decision7 in favor of RCBC. The dispositive portion of the decision
reads:
Before us are opposing parties petitions for review of the

Decision1 dated March 29, 2005 and Resolution2 dated December
12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two
petitions are herein consolidated as they stem from the same set of
factual circumstances.
PREMISES CONSIDERED, the Court renders judgment in favor of

plaintiff [RCBC] and finds defendant SBTC justly liable to [RCBC] and
sentences [SBTC] to pay [RCBC] the amount of:
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC)
issued a managers check for P8 million, payable to "CASH," as
proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC). On the same day, the P8-million
check, along with other checks, was deposited by Continental
Manufacturing Corporation (CMC) in its Current Account No. 0109022888 with Rizal Commercial Banking Corporation (RCBC).
1. PhP4,000,000.00 as and for actual damages;

2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
SO ORDERED.8
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On appeal, the Court of Appeals affirmed with modification the
above Decision, to wit:
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

FAILING TO CONSIDER THAT THE CHECKS DEPOSITED WITH
RCBC THE PROCEEDS OF WHICH WERE IMMEDIATELY
WITHDRAWN
TO
HONOR
THE
43
CHECKS
TOTALING P49,017,669.66
DRAWN
BY
CONTINENTAL
MANUFACTURING CORPORATION ON ITS CURRENT ACCOUNT
WERE NOT ALL MANAGERS CHECK[S] BUT INCLUDED
ORDINARY
CHECKS
IN
THE
TOTAL
AMOUNT
OF
PhP15,436,140.81.
VI.

FAILING TO CONSIDER THAT EACH OF THE 43 CHECKS
DRAWN
BY
THE
CONTINENTAL
MANUFACTURING
CORPORATION WERE ALL HONORED BY RCBC ON THE BASIS
OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY
CHECKS DEPOSITED ON THAT DAY OF 9 JANUARY 1981.
VII.

HOLDING THAT THE RCBC IS A HOLDER IN DUE COURSE.
VIII.

HOLDING THAT TO DETERMINE WHETHER OR NOT A BANK IS
A HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE
INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION OF
CENTRAL BANK RULES AND REGULATIONS.

HOLDING THAT SBTC WAITED FOR THREE (3) DAYS TO
NOTIFY THE RCBC OF THE STOP PAYMENT ORDER.
IX.

FAILING TO NOTE THAT THE MANAGERS CHECK IN
QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC AND
WAS NOT ENCASHED BY THE PAYEE.

HOLDING THAT SBTC SHOULD HAVE FIRST ACQUIRED
PERSONAL KNOWLEDGE OF THE FACTS WHICH GAVE RISE
TO THE REQUEST FOR THE STOP PAYMENT ORDER BEFORE
HONORING SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN

REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS
BASED SOLELY ON SPECULATION, CONJECTURE AND
GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN

HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY
DAMAGES.
WHEREFORE, the
appealed
Decision
is AFFIRMED with MODIFICATION. Appellant Security Bank and
Trust Co. shall pay appellee Rizal Commercial Banking Corporation
not only the principal amount of P4,000,000.00 but also interest
thereon at (6%) per annum covering appellees unearned income
on interest computed from the time of filing of the complaint on
February 13, 1981 to the date of finality of this Decision. For lack of
factual and legal basis, the award of attorneys fees is DELETED.
SO ORDERED.9
Now for our resolution are the opposing parties petitions for review
on certiorari of the abovecited decision. On its part, SBTC alleges
the following to support its petition:
I.
II.
III.
IV.

REFUSING TO APPLY THE LAW BECAUSE, IN ITS OPINION, TO
DO SO WOULD "RESULT IN AN INJUSTICE."

FAILING TO CONSIDER THAT PRIOR TO THE DEPOSIT OF THE
CHECKS WORTH PhP53 MILLION, RCBC WAS HOLDING 43
CHECKS
TOTALING P49,017,669.66
DRAWN
BY
CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS
CURRENT ACCOUNT WHEN THE BALANCE OF THAT
ACCOUNT WAS A MERE P573.62.
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XII.

HOLDING SBTC LIABLE FOR THE ATTORNEYS FEES OF RCBC
[SIC].10
On RCBCs part, the following issues are submitted for resolution:

I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS

CHECK IT ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY

DAMAGES EQUIVALENT TO THE INTEREST INCOME LOST AS
A RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR ITS
OWN MANAGERS CHECK, AS WELL AS FOR EXEMPLARY
DAMAGES AND ATTORNEYS FEES.11
Simply stated, we find that in these consolidated petitions, the legal

issues for our resolution are: (1) Is SBTC liable to RCBC for the
remaining P4 million? and (2) Is SBTC liable to pay for lost interest
income on the remaining P4 million, exemplary damages and
attorneys fees?
RCBC avers that the managers check issued by SBTC is
substantially as good as the money it represents because by its
peculiar character, its issuance has the effect of an advance
acceptance. RCBC claims that it is a holder in due course when it
credited the P8-million managers check to CMCs account.
Accordingly, RCBC asserts that SBTCs refusal to honor its obligation
justifies RCBC claim for lost interest income, exemplary damages
and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary
Board Resolution No. 2202 of the Central Bank of the Philippines
mandating all banks to verify the genuineness and validity of all
checks before allowing drawings of the same. SBTC insists that
RCBC should bear the consequences of allowing CMC to withdraw
the amount of the check before it was cleared. 12
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by
SBTC is not just an ordinary check but a managers check. A
managers check is one drawn by a banks manager upon the bank
itself. It stands on the same footing as a certified check, 13 which is
deemed to have been accepted by the bank that certified it. 14 As
the banks own check, a managers check becomes the primary
obligation of the bank and is accepted in advance by the act of its
issuance.15
In this case, RCBC, in immediately crediting the amount of P8
million to CMCs account, relied on the integrity and honor of the
check as it is regarded in commercial transactions. Where the
questioned check, which was payable to "Cash," appeared regular
on its face, and the bank found nothing unusual in the transaction,
as the drawer usually issued checks in big amounts made payable
to cash, RCBC cannot be faulted in paying the value of the
questioned check.16
In our considered view, SBTC cannot escape liability by invoking
Monetary Board Resolution No. 2202 dated December 21, 1979,
prohibiting drawings against uncollected deposits. For we must
point out that the Central Bank at that time issued a Memorandum
dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. In its pertinent portion, said Memorandum
reads:
"MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No.
2202 dated December 31, 1979 prohibiting, as a matter of
policy, drawing against uncollected deposit effective July 1,
1980,uncollected
deposits
representing managers
cashiers/
treasurers checks, treasury warrants, postal money orders and
duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits
as well as withdrawals from savings deposits."17
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Thus, it is clear from the July 9, 1980 Memorandum that banks were
given the discretion to allow immediate drawings on uncollected
deposits of managers checks, among others. Consequently, RCBC,
in allowing the immediate withdrawal against the subject
managers check, only exercised a prerogative expressly granted to
it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July
9, 1980 Memorandum alters the extraordinary nature of the
managers check and the relative rights of the parties thereto.
SBTCs liability as drawer remains the same by drawing the
instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the
instrument will be accepted, or paid, or both, according to its
tenor.18
Concerning RCBCs claim for lost interest income on the
remaining P4 million, this is already covered by the amount of
damages in the form of legal interest of 6%, based on Article
220019 and 220920 of the Civil Code of the Philippines, as awarded
by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory
damages, we also find merit in the need to award exemplary
damages in order to set an example for the public good. The
banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business
and commerce, banks have attained an ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and, above all, trust and confidence. 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. SBTC
having failed in this respect, the award of exemplary damages to
RCBC in the amount ofP50,000.00 is warranted.21
Pursuant to current jurisprudence, with the finding of liability for
exemplary
damages,
attorneys
fees
in
the
amount
of P25,000.0022 must also be awarded against SBTC and in favor of
RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and
Resolution dated December 12, 2005 of the Court of Appeals in CAG.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION.
Security Bank and Trust Company is ordered to pay Rizal
Commercial Banking Corporation: (1) the remaining P4,000,000.00,
with legal interest thereon at six percent (6%) per annum from the
time of filing of the complaint on February 13, 1981 to the date of
finality of this Decision; (2) exemplary damages of P50,000.00; and
(3) attorneys fees of P25,000.00.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 133179
March 27, 2008
ALLIED BANKING CORPORATION, Petitioner, vs. LIM SIO WAN,

METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at
times bend over backwards that they unwittingly expose
themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse
the Court of Appeals (CAs) Decision promulgated on March 18,
19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied
Banking Corporation, et al. The CA Decision modified the Decision
14
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dated November 15, 19932 of the Regional Trial Court (RTC), Branch
63 in Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as
follows:
On November 14, 1983, respondent Lim Sio Wan deposited with
petitioner Allied Banking Corporation (Allied) at its Quintin Paredes
Branch in Manila a money market placement of PhP 1,152,597.35
for a term of 31 days to mature on December 15, 1983, 3 as
evidenced by Provisional Receipt No. 1356 dated November 14,
1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called
up Cristina So, an officer of Allied, and instructed the latter to preterminate Lim Sio Wans money market placement, to issue a
managers check representing the proceeds of the placement, and
to give the check to one Deborah Dee Santos who would pick up
the check.5 Lim Sio Wan described the appearance of Santos so
that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form
for a managers check to be issued. 7 The bank issued Managers
Check No. 035669 for PhP 1,158,648.49, representing the proceeds
of Lim Sio Wans money market placement in the name of Lim Sio
Wan, as payee.8 The check was cross-checked "For Payees Account
Only" and given to Santos.9
Thereafter, the managers check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent Metropolitan
Bank and Trust Co. (Metrobank), 10 with the forged signature of Lim
Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money
market placement for PhP 2 million with respondent Producers
Bank. Santos was the money market trader assigned to handle
FCCs account.12 Such deposit is evidenced by Official Receipt No.
31756813 and a Letter dated September 21, 1983 of Santos
addressed to Angie Lazo of FCC, acknowledging receipt of the
placement.14 The placement matured on October 25, 1983 and was
rolled-over until December 5, 1983 as evidenced by a Letter dated
October 25, 1983.15 When the placement matured, FCC demanded
the payment of the proceeds of the placement. 16 On December 5,
1983, the same date that So received the phone call instructing her
to pre-terminate Lim Sio Wans placement, the managers check in
the name of Lim Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCCs money market
placement with Producers Bank.17 In other words, the Allied check
was deposited with Metrobank in the account of FCC as Producers
Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the
Philippine Clearing House Corporation (PCHC) Rules and
Regulations, Metrobank stamped a guaranty on the check, which
reads: "All prior endorsements and/or lack of endorsement
guaranteed."18
The check was sent to Allied through the PCHC. Upon the
presentment of the check, Allied funded the check even without
checking the authenticity of Lim Sio Wans purported indorsement.
Thus, the amount on the face of the check was credited to the
account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second
money market placement to mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money
market placement, Lim Sio Wan went to Allied to withdraw it. 21 She
was then informed that the placement had been pre-terminated
upon her instructions. She denied giving any instructions and
receiving the proceeds thereof. She desisted from further
complaints when she was assured by the banks manager that her
money would be recovered.22
When Lim Sio Wans second placement matured on January 9,
1984, So called Lim Sio Wan to ask for the latters instructions on
the second placement. Lim Sio Wan instructed So to roll-over the
placement for another 30 days. 23On January 24, 1984, Lim Sio Wan,
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realizing that the promise that her money would be recovered
would not materialize, sent a demand letter to Allied asking for the
payment of the first placement.24 Allied refused to pay Lim Sio Wan,
claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos. 25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated
February 13, 198426 docketed as Civil Case No. 6757 against Allied
to recover the proceeds of her first money market placement.
Sometime in February 1984, she withdrew her second placement
from Allied.
Allied filed a third party complaint27 against Metrobank and Santos.
In turn, Metrobank filed a fourth party complaint 28 against FCC. FCC
for its part filed a fifth party complaint 29 against Producers Bank.
Summonses were duly served upon all the parties except for
Santos, who was no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the
check, Allied informed Metrobank that the signature on the check
was forged.31 Thus, Metrobank withheld the amount represented by
the check from FCC. Later on, Metrobank agreed to release the
amount to FCC after the latter executed an Undertaking, promising
to indemnify Metrobank in case it was made to reimburse the
amount.32
Lim Sio Wan thereafter filed an amended complaint to include
Metrobank as a party-defendant, along with Allied. 33The RTC
admitted the amended complaint despite the opposition of
Metrobank.34 Consequently, Allieds third party complaint against
Metrobank was converted into a cross-claim and the latters fourth
party complaint against FCC was converted into a third party
complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay
plaintiff the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount
of P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount
of P173,792.20 by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is
DISMISSED.
Likewise defendant Metrobanks third-party complaint as against
Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against
Producers Bank is also DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed
Decision on March 18, 1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is
MODIFIED. Judgment is rendered ordering and sentencing
defendant-appellant Allied Banking Corporation to pay sixty (60%)
percent and defendant-appellee Metropolitan Bank and Trust
Company forty (40%) of the amount of P1,158,648.49 plus 12%
interest per annum from March 16, 1984 until fully paid. The moral
damages, attorneys fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.
16
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SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan
did not authorize [Allied] to pre-terminate the initial placement and
to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank
of any liability for the reimbursement of amount adjudged
demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to
the extent of 60% of amount adjudged demandable in clear
disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank. 38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts
that Allied was not authorized to release the proceeds of Lim Sio
Wans money market placement to Santos. Allied clearly raises a
question of fact. When the CA affirms the findings of fact of the
RTC, the factual findings of both courts are binding on this Court. 39
We also agree with the CA when it said that it could not disturb the
trial courts findings on the credibility of witness So inasmuch as it
was the trial court that heard the witness and had the opportunity
to observe closely her deportment and manner of testifying. Unless
the trial court had plainly overlooked facts of substance or value,
which, if considered, might affect the result of the case, 40 we find it
best to defer to the trial court on matters pertaining to credibility of
witnesses.
Additionally, this Court has held that the matter of negligence is
also a factual question.41 Thus, the finding of the RTC, affirmed by
the CA, that the respective parties were negligent in the exercise of
their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim
Sio Wan. Fundamental and familiar is the doctrine that the
relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay
to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the
nature of a simple loan or mutuum. 42 More succinctly, in Citibank,
N.A. (Formerly First National City Bank) v. Sabeniano, this Court
ruled that a money market placement is a simple loan or
mutuum.43 Further, we defined a money market in Cebu
International Finance Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a middle
man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the
petitioner and the private respondent is in the nature of a loan. 44
Lim Sio Wan, as creditor of the bank for her money market
placement, is entitled to payment upon her request, or upon
17
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maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of Allied to
Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when
obligations are considered extinguished, thus:
Art. 1231. Obligations are extinguished:
1. By payment or performance;
2. By the loss of the thing due;
3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor
and debtor;
5. By compensation;
6. By novation.
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim
Sio Wan did not authorize the release of her money market
placement to Santos and the bank had been negligent in so doing,
there is no question that the obligation of Allied to pay Lim Sio Wan
had not been extinguished. Art. 1240 of the Code states that
"payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person
authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish
the obligation as to the creditor, if there is no fault or negligence
which can be imputed to the latter. Even when the debtor acted in
utmost good faith and by mistake as to the person of his creditor,
or through error induced by the fraud of a third person, the
payment to one who is not in fact his creditor, or authorized to
receive such payment, is void, except as provided in Article 1241.
Such payment does not prejudice the creditor, and accrual of
interest is not suspended by it.45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money
market placement, the bank still has an obligation to pay her at six
percent (6%) interest from March 16, 1984 until the payment
thereof.
We cannot, however, say outright that Allied is solely liable to Lim
Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of
Lim Sio Wans money. It points out that Metrobank guaranteed all
prior indorsements inscribed on the managers check, and without
Metrobanks guarantee, the present controversy would never have
occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the
proceeds of the check is paid to the proper party is, aside from
being an efficient intervening cause, also the last negligent act, x x
x contributory to the injury caused in the present case, which
thereby leads to the conclusion that it is the collecting bank,
Metrobank that is the proximate cause of the alleged loss of the
plaintiff in the instant case.46
We are not persuaded.
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."47 Thus, there is an efficient supervening event if the
event breaks the sequence leading from the cause to the ultimate
result. To determine the proximate cause of a controversy, the
question that needs to be asked is: If the event did not happen,
would the injury have resulted? If the answer is NO, then the event
is the proximate cause.
18
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In the instant case, Allied avers that even if it had not issued the
check payment, the money represented by the check would still be
lost because of Metrobanks negligence in indorsing the check
without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law
provides:
Section 66. Liability of general indorser.Every indorser who
indorses without qualification, warrants to all subsequent holders in
due course;
a) The matters and things mentioned in subdivisions (a),
(b) and (c) of the next preceding section; and
b) That the instrument is at the time of his indorsement
valid and subsisting;
And in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be according to its
tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it.
But when the negotiation is by delivery only, the warranty extends
in favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to
persons negotiating public or corporation securities, other than bills
and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects
what it purports to be" covers all the defects in the instrument
affecting the validity thereof, including a forged indorsement. Thus,
the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged.
We held in a line of cases that "a collecting bank which indorses a
check bearing a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor." 48
However, this general rule is subject to exceptions. One such
exception is when the issuance of the check itself was attended
with negligence. Thus, in the cases cited above where the
collecting bank is generally held liable, in two of the cases where
the checks were negligently issued, this Court held the institution
issuing the check just as liable as or more liable than the collecting
bank.
c) That all prior parties had capacity to contract;
In isolated cases where the checks were deposited in an account

other than that of the payees on the strength of forged
indorsements, we held the collecting bank solely liable for the
whole amount of the checks involved for having indorsed the same.
In Republic Bank v. Ebrada, 49 the check was properly issued by the
Bureau of Treasury. While in Banco de Oro Savings and Mortgage
Bank (Banco de Oro) v. Equitable Banking Corporation, 50 Banco de
Oro admittedly issued the checks in the name of the correct
payees. And in Traders Royal Bank v. Radio Philippines Network,
Inc.,51 the checks were issued at the request of Radio Philippines
Network, Inc. from Traders Royal Bank.1avvphi1
d) That he has no knowledge of any fact which would

impair the validity of the instrument or render it
valueless.
However, in Bank of the Philippine Islands v. Court of Appeals, we

said that the drawee bank is liable for 60% of the amount on the
face of the negotiable instrument and the collecting bank is liable
Section 65. Warranty where negotiation by delivery, so forth.

Every person negotiating an instrument by delivery or by a
qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it
purports to be;
b) That he has a good title of it;
19
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for 40%. We also noted the relative negligence exhibited by two
banks, to wit:
Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption
of negligence in the selection and supervision of their employees. It
was the gross negligence of the employees of both banks which
resulted in the fraud and the subsequent loss. While it is true that
petitioner BPIs negligence may have been the proximate cause of
the loss, respondent CBCs negligence contributed equally to the
success of the impostor in encashing the proceeds of the forged
checks. Under these circumstances, we apply Article 2179 of the
Civil Code to the effect that while respondent CBC may recover its
losses, such losses are subject to mitigation by the courts.
(See Phoenix Construction Inc. v. Intermediate Appellate Courts,
148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we
rule that the demands of substantial justice are satisfied by
allocating the loss of P2,413,215.16 and the costs of the arbitration
proceeding in the amount of P7,250.00 and the cost of litigation on
a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the
issuing institution and the collecting bank should equally share the
liability for the loss of amount represented by the checks concerned
due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty
percent-fifty percent (50%-50%). Due to the negligence of the
Province of Tarlac in releasing the checks to an unauthorized person
(Fausto Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close to three
years and in not properly ascertaining why the retired hospital
cashier was collecting checks for the payee hospital in addition to
the hospitals real cashier, respondent Province contributed to the
loss amounting to P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can only
recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as
indorser of the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness of all prior indorsements,
including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the
genuineness of the payees indorsement.53
A reading of the facts of the two immediately preceding cases
would reveal that the reason why the bank or institution which
issued the check was held partially liable for the amount of the
check was because of the negligence of these parties which
resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in
issuing the managers check and in transmitting it to Santos
without even a written authorization. 54 In fact, Allied did not even
ask for the certificate evidencing the money market placement or
call up Lim Sio Wan at her residence or office to confirm her
instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allieds negligence must be
considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of
funds would have resulted. In fact, there would have been no
issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank
as the last indorser of the check. When Metrobank indorsed the
check in compliance with the PCHC Rules and Regulations 55 without
verifying the authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked
payable to payees account only,56 its negligent and cavalier
indorsement contributed to the easier release of Lim Sio Wans
money and perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the instant case, both
banks cannot be adjudged as equally liable. Hence, the 60:40 ratio
of the liabilities of Allied and Metrobank, as ruled by the CA, must
be upheld.
20
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FCC, having no participation in the negotiation of the check and in
the forgery of Lim Sio Wans indorsement, can raise the real
defense of forgery as against both banks.57
As to Producers Bank, Allied Banks argument that Producers Bank
must be held liable as employer of Santos under Art. 2180 of the
Civil Code is erroneous. Art. 2180 pertains to the vicarious liability
of an employer for quasi-delicts that an employee has committed.
Such provision of law does not apply to civil liability arising from
delict.
One also cannot apply the principle of subsidiary liability in Art. 103
of the Revised Penal Code in the instant case. Such liability on the
part of the employer for the civil aspect of the criminal act of the
employee is based on the conviction of the employee for a crime.
Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of
Producers Bank, the same is correct. Allied correctly claims in its
petition that Producers Bank should reimburse Allied for whatever
judgment that may be rendered against it pursuant to Art. 22 of the
Civil Code, which provides: "Every person who through an act of
performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without
just cause or legal ground, shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we
ruled that "[t]here is unjust enrichment when a person unjustly
retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of
justice, equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust
enrichment, thus: "Under Article 22 of the Civil Code, there is unjust
enrichment when (1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with damages to another."59
In the instant case, Lim Sio Wans money market placement in
Allied Bank was pre-terminated and withdrawn without her consent.
Moreover, the proceeds of the placement were deposited in
Producers Banks account in Metrobank without any justification. In
other words, there is no reason that the proceeds of Lim Sio Wans
placement should be deposited in FCCs account purportedly as
payment for FCCs money market placement and interest in
Producers Bank.lavvphil With such payment, Producers Banks
indebtedness to FCC was extinguished, thereby benefitting the
former. Clearly, Producers Bank was unjustly enriched at the
expense of Lim Sio Wan. Based on the facts and circumstances of
the case, Producers Bank should reimburse Allied and Metrobank
for the amounts the two latter banks are ordered to pay Lim Sio
Wan.
It cannot be validly claimed that FCC, and not Producers Bank,
should be considered as having been unjustly enriched. It must be
remembered that FCCs money market placement with Producers
Bank was already due and demandable; thus, Producers Banks
payment thereof was justified. FCC was entitled to such payment.
As earlier stated, the fact that the indorsement on the check was
forged cannot be raised against FCC which was not a part in any
stage of the negotiation of the check. FCC was not unjustly
enriched.
From the facts of the instant case, we see that Santos could be the
architect of the entire controversy. Unfortunately, since summons
had not been served on Santos, the courts have not acquired
jurisdiction over her.60 We, therefore, cannot ascribe to her liability
in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank
for the amount of the check plus 12% interest per annum, moral
damages, attorneys fees, and costs of suit which Allied and
Metrobank are adjudged to pay Lim Sio Wan based on a proportion
of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998
CA Decision in CA-G.R. CV No. 46290 and the November 15, 1993
RTC Decision in Civil Case No. 6757 are AFFIRMED with
MODIFICATION.
21
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Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced,

as follows:
MODIFIED. Judgment is rendered ordering and sentencing
defendant-appellant Allied Banking Corporation to pay sixty (60%)
percent and defendant-appellee Metropolitan Bank and Trust
Company forty (40%) of the amount of P1,158,648.49 plus 12%
interest per annum from March 16, 1984 until fully paid. The moral
damages, attorneys fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby
ordered to pay Allied and Metrobank the aforementioned amounts.
The liabilities of the parties are concurrent and independent of each
other.
SO ORDERED.
[G.R. No. 138569. September 11, 2003]

THE
CONSOLIDATED
BANK
and
TRUST
CORPORATION, petitioner, vs. COURT OF APPEALS and L.C.
DIAZ and COMPANY, CPAs,respondents.
CARPIO, J.:
22
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The Case
informed him that somebody got the passbook. [3] Calapre went
back to L.C. Diaz and reported the incident to Macaraya.
Before us is a petition for review of the Decision [1] of the Court

of Appeals dated 27 October 1998 and its Resolution dated 11 May
1999. The assailed decision reversed the Decision[2] of the Regional
Trial Court of Manila, Branch 8, absolving petitioner Consolidated
Bank and Trust Corporation, now known as Solidbank Corporation
(Solidbank), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank
but modified the decision by deleting the award of exemplary
damages, attorneys fees, expenses of litigation and cost of suit.
Macaraya immediately prepared a deposit slip in duplicate

copies with a check ofP200,000. Macaraya, together with Calapre,
went to Solidbank and presented to Teller No. 6 the deposit slip and
check. The teller stamped the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6
told Macaraya that someone got the passbook but she could not
remember to whom she gave the passbook. When Macaraya asked
Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that
someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
The Facts
Teller No. 6 handed to Macaraya a deposit slip dated 14 August

1991 for the deposit of a check for P90,000 drawn on Philippine
Banking Corporation (PBC). This PBC check of L.C. Diaz was a check
that it had long closed. [4] PBC subsequently dishonored the check
because of insufficient funds and because the signature in the
check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the
matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
Solidbank is a domestic banking corporation organized and

existing under Philippine laws. Private respondent L.C. Diaz and
Company, CPAs (L.C. Diaz), is a professional partnership engaged in
the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account
with Solidbank, designated as Savings Account No. S/A 200-168726.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes
Macaraya (Macaraya), filled up a savings (cash) deposit slip
for P990 and a savings (checks) deposit slip for P50.Macaraya
instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to
deposit the money with Solidbank. Macaraya also gave Calapre the
Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two
deposit slips and the passbook. The teller acknowledged receipt of
the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since
the transaction took time and Calapre had to make another deposit
for L.C. Diaz with Allied Bank, he left the passbook with
Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6
The following day, 15 August 1991, L.C. Diaz through its Chief
Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop
any transaction using the same passbook until L.C. Diaz could open
a new account.[5] On the same day, Diaz formally wrote Solidbank
to make the same request. It was also on the same day that L.C.
Diaz learned of the unauthorized withdrawal the day before, 14
August 1991, of P300,000 from its savings account. The withdrawal
slip for the P300,000 bore the signatures of the authorized
signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain
Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged
its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola
with Estafa through Falsification of Commercial Document. The
Regional Trial Court of Manila dismissed the criminal case after the
City Prosecutor filed a Motion to Dismiss on 4 August 1992.
23
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On 24 August 1992, L.C. Diaz through its counsel demanded
from Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery
of a Sum of Money against Solidbank with the Regional Trial Court
of Manila, Branch 8. After trial, the trial court rendered on 28
December 1994 a decision absolving Solidbank and dismissing the
complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27
October 1998, the Court of Appeals issued its Decision reversing
the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution
denying the motion for reconsideration of Solidbank. The appellate
court, however, modified its decision by deleting the award of
exemplary damages and attorneys fees.
The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on
savings account written on the passbook. The rules state that
possession of this book shall raise the presumption of ownership
and any payment or payments made by the bank upon the
production of the said book and entry therein of the withdrawal
shall have the same effect as if made to the depositor personally. [9]
At the time of the withdrawal, a certain Noel Tamayo was not
only in possession of the passbook, he also presented a withdrawal
slip with the signatures of the authorized signatories of L.C.
Diaz. The specimen signatures of these persons were in the
signature cards. The teller stamped the withdrawal slip with the
words Saving Teller No. 5. The teller then passed on the withdrawal
slip to Genere Manuel (Manuel) for authentication. Manuel verified
the signatures on the withdrawal slip. The withdrawal slip was then
given to another officer who compared the signatures on the
withdrawal slip with the specimen on the signature cards. The trial
court concluded that Solidbank acted with care and observed the
rules on savings account when it allowed the withdrawal
of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted
to L.C. Diaz to prove that the signatures on the withdrawal slip were
forged. The trial court admonished L.C. Diaz for not offering in
evidence the National Bureau of Investigation (NBI) report on the
authenticity of the signatures on the withdrawal slip
for P300,000. The trial court believed that L.C. Diaz did not offer
this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that
the depositor must keep the passbook under lock and key. [10] When
another person presents the passbook for withdrawal prior to
Solidbanks receipt of the notice of loss of the passbook, that person
is considered as the owner of the passbook. The trial court ruled
that the passbook presented during the questioned transaction was
now out of the lock and key and presumptively ready for a business
transaction.[11]
Solidbank did not have any participation in the custody and
care of the passbook. The trial court believed that Solidbanks act of
allowing the withdrawal of P300,000 was not the direct and
proximate cause of the loss. The trial court held that L.C. Diazs
negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook
by a person other than the depositor L.C. Diaz; (2) the presentation
of a signed withdrawal receipt by an unauthorized person; and (3)
the possession by an unauthorized person of a PBC check long
closed by L.C. Diaz, which check was deposited on the day of the
fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank
did not follow the precautionary procedures observed by the two
parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request
Solidbank to allow the withdrawal and convert the amount to a
managers check. The bearer must also have a letter authorizing
him to withdraw the same amount. Another person driving a car
must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court
pointed out that L.C. Diaz disregarded these precautions in its past
withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without
any separate letter of authorization or any communication with
Solidbank that the money be converted into a managers check.
24
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The trial court further justified the dismissal of the complaint
by holding that the case was a last ditch effort of L.C. Diaz to
recover P300,000 after the dismissal of the criminal case against
Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank
pursuant to its counterclaim the amount of Thirty Thousand Pesos
(P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the
proximate cause of the unauthorized withdrawal of P300,000 from
the savings account of L.C. Diaz. The appellate court reached this
conclusion after applying the provision of the Civil Code on quasidelict, to wit:
Article 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict
are present in this case, namely: (a) damages suffered by the
plaintiff; (b) fault or negligence of the defendant, or some other
person for whose acts he must respond; and (c) the connection of
cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank
who received the withdrawal slip for P300,000 allowed the
withdrawal without making the necessary inquiry.The appellate
court stated that the teller, who was not presented by Solidbank
during trial, should have called up the depositor because the
money to be withdrawn was a significant amount. Had the teller
called up L.C. Diaz, Solidbank would have known that the
withdrawal was unauthorized. The teller did not even verify the
identity of the impostor who made the withdrawal. Thus, the
appellate court found Solidbank liable for its negligence in the
selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also
negligent in entrusting its deposits to its messenger and its
messenger in leaving the passbook with the teller,Solidbank could
not escape liability because of the doctrine of last clear chance.
Solidbank could have averted the injury suffered by L.C. Diaz had it
called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required
from Solidbank is more than that of a good father of a family. The
business and functions of banks are affected with public interest.
Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals
reads:
hereby REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and
Trust Corporation to pay plaintiff-appellant the sum of
Three Hundred Thousand Pesos (P300,000.00), with
interest thereon at the rate of 12% per annum from the
date of filing of the complaint until paid, the sum
of P20,000.00 as exemplary damages, and P20,000.00
as attorneys fees and expenses of litigation as well as
the cost of suit; and
25
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2. Ordering
the
dismissal
of
defendant-appellees
counterclaim in the amount of P30,000.00 as attorneys
fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate
court affirmed its decision but modified the award of damages. The
appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231 [14] of the Civil Code, the
appellate court ruled that exemplary damages could be granted if
the defendant acted with gross negligence. Since Solidbank was
guilty of simple negligence only, the award of exemplary damages
was not justified. Consequently, the award of attorneys fees was
also disallowed pursuant to Article 2208 of the Civil Code. The
expenses of litigation and cost of suit were also not imposed on
Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27,
1998 is affirmed with modification by deleting the award of
exemplary damages and attorneys fees, expenses of litigation and
cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the
Court of Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED
PRIVATE RESPONDENT BY TELEPHONE BEFORE IT
ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENTS MESSENGER EMERANO ILAGAN,
SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS
ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH
MANDATES THAT A BANK TELLER SHOULD FIRST CALL
UP
THE
DEPOSITOR
BEFORE
ALLOWING
A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS
ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANKS TELLER HAD THE LAST
OPPORTUNITY TO WITHHOLD THE WITHDRAWAL
WHEN IT IS UNDISPUTED THAT THE TWO
SIGNATURES OF RESPONDENT ON THE WITHDRAWAL
SLIP ARE GENUINE AND PRIVATE RESPONDENTS
PASSBOOK
WAS
DULY
PRESENTED,
AND
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN
THE
SELECTION
AND
SUPERVISION
OF
ITS
MESSENGER EMERANO ILAGAN, AND IN THE
SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT
THE INSTANT CASE IS A LAST DITCH EFFORT OF
PRIVATE RESPONDENT TO RECOVER ITS P300,000.00
AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
DAMAGES AWARDED AGAINST PETITIONER UNDER
ARTICLE
2197
OF
THE
CIVIL
CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER
BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY. [16]
The Ruling of the Court

The petition is partly meritorious.
26
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9 CASES
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict
on the application of the law. The trial court pinned the liability on
L.C. Diaz based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and
L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally
applicable when there is no pre-existing contractual relationship
between the parties.
We hold that Solidbank is liable for breach of contract due to
negligence, or culpa contractual.
The contract between the bank and its depositor is governed
by the provisions of the Civil Code on simple loan. [17] Article 1980 of
the Civil Code expressly provides that x x x savings x x x deposits
of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations
of the parties.
The law imposes on banks high standards in view of the
fiduciary nature of banking.Section 2 of Republic Act No. 8791 (RA
8791),[18] which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation
of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals,[20] holding that the bank is
under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of
their relationship.[21]
This fiduciary relationship means that the banks obligation to
observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good
father of a family.[22]Section 2 of RA 8791 prescribes the statutory
diligence required from banks that banks must observe high
standards of integrity and performance in servicing their
depositors.Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of theP300,000 from L.C. Diazs savings
account, jurisprudence[23] at the time of the withdrawal already
imposed on banks the same high standard of diligence required
under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship
does not convert the contract between the bank and its depositors
from a simple loan to a trust agreement, whether express or
implied. Failure by the bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust. [24] The law simply imposes on
the bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple loan,
beyond those required of non-bank debtors under a similar contract
of simple loan.
The fiduciary nature of banking does not convert a simple loan
into a trust agreement because banks do not accept deposits to
enrich depositors but to earn money for themselves. The law allows
banks to offer the lowest possible interest rate to depositors while
charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank
and not to the depositors who are not cestui que trust of banks. If
depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress
certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility
arising from negligence in the performance of every kind of
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obligation is demandable. For breach of the savings deposit
agreement due to negligence, or culpa contractual, the bank is
liable to its depositor.
Calapre left the passbook with Solidbank because the
transaction took time and he had to go to Allied Bank for another
transaction. The passbook was still in the hands of the employees
of Solidbank for the processing of the deposit when Calapre left
Solidbank.Solidbanks rules on savings account require that the
deposit book should be carefully guarded by the depositor and kept
under lock and key, if possible. When the passbook is in the
possession of Solidbanks tellers during withdrawals, the law
imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of
diligence in insuring that they return the passbook only to the
depositor or his authorized representative. The tellers know, or
should know, that the rules on savings account provide that any
person in possession of the passbook is presumptively its owner. If
the tellers give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person. For failing to
return the passbook to Calapre, the authorized representative of
L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe
such high degree of diligence in safeguarding the passbook, and in
insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not
at fault or negligent. In contrast, in culpa aquiliana the plaintiff has
the burden of proving that the defendant was negligent. In the
present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning
the passbook to Calapre. The burden was on Solidbank to prove
that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not
present to the trial court Teller No. 6, the teller with whom Calapre
left the passbook and who was supposed to return the passbook to
him. The record does not indicate that Teller No. 6 verified the
identity of the person who retrieved the passbook. Solidbank also
failed to adduce in evidence its standard procedure in verifying the
identity of the person retrieving the passbook, if there is such a
procedure, and that Teller No. 6 implemented this procedure in the
present case.
Solidbank is bound by the negligence of its employees under
the principle ofrespondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity
and performance, it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply
with its fiduciary duty. Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus failed to prove
that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate
courts is the proximate cause of the unauthorized withdrawal. The
trial court believed that L.C. Diazs negligence in not securing its
passbook under lock and key was the proximate cause that allowed
the impostor to withdraw the P300,000. For the appellate court, the
proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree
with either court.
Proximate cause is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces
the injury and without which the result would not have occurred.
[26]
Proximate cause is determined by the facts of each case upon
mixed considerations of logic, common sense, policy and
precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the
hands of the impostor.Solidbank was in possession of the passbook
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while it was processing the deposit. After completion of the
transaction, Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized representative of L.C.
Diaz. Solidbank failed to fulfill its contractual obligation because it
gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made
possible the withdrawal of the P300,000 by the impostor who took
possession of the passbook. Under Solidbanks rules on savings
account, mere possession of the passbook raises the presumption
of ownership. It was the negligent act of Solidbanks Teller No. 6 that
gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss
of P300,000 would not have happened. Thus, the proximate cause
of the unauthorized withdrawal was Solidbanks negligence in not
returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the
proximate cause of the unauthorized withdrawal was the tellers
failure to call up L.C. Diaz to verify the withdrawal. Solidbank did
not have the duty to call up L.C. Diaz to confirm the withdrawal.
There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz
pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank
to call up L.C. Diaz.
There is no law mandating banks to call up their clients
whenever their representatives withdraw significant amounts from
their accounts. L.C. Diaz therefore had the burden to prove that it is
the usual practice of Solidbank to call up its clients to verify a
withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been
put on guard to verify the withdrawal. Prior to the withdrawal
of P300,000, the impostor deposited with Teller No. 6 the P90,000
PBC check, which later bounced. The impostor apparently
deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court
thus erred when it imposed on Solidbank the duty to call up L.C.
Diaz to confirm the withdrawal when no law requires this from
banks and when the teller had no reason to be suspicious of the
transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a
messenger of L.C. Diaz, he was familiar with its teller so that there
was no more need for the teller to verify the withdrawal. Solidbank
relies on the following statements in the Booking and Information
Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check
of PBC and indicated the amount of P90,000 which he deposited in
favor of L.C. Diaz and Company. After successfully withdrawing this
large sum of money, accused Ilagan gave alias Rey (Noel Tamayo)
his share of the loot. Ilagan then hired a taxicab in the amount of
P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a
big part of his loot was wasted in cockfight and horse racing. Ilagan
was apprehended and meekly admitted his guilt. [28] (Emphasis
supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the
person who withdrew the P300,000 was a certain Noel
Tamayo. Both the trial and appellate courts stated that this Noel
Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a
certain Noel Tamayo withdrew the P300,000. The Court is not a trier
of facts. We find no justifiable reason to reverse the factual finding
of the trial court and the Court of Appeals. The tellers who
processed the deposit of the P90,000 check and the withdrawal of
the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the
questioned withdrawal. Moreover, the entry quoted by Solidbank
does not categorically state that Ilagan presented the withdrawal
slip and the passbook.
Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties
are negligent but the negligent act of one is appreciably later than
that of the other, or where it is impossible to determine whose fault
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or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with
the loss.[29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due
diligence.[30]
shall pay private respondent L.C. Diaz and Company, CPAs only
60% of the actual damages awarded by the Court of Appeals.The
remaining 40% of the actual damages shall be borne by private
respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
We do not apply the doctrine of last clear chance to the present

case. Solidbank is liable for breach of contract due to negligence in
the performance of its contractual obligation to L.C. Diaz. This is a
case of culpa contractual, where neither the contributory
negligence of the plaintiff nor his last clear chance to avoid the
loss, would exonerate the defendant from liability. [31] Such
contributory negligence or last clear chance by the plaintiff merely
serves to reduce the recovery of damages by the plaintiff but does
not exculpate the defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be
regulated by the courts, according to the circumstances. This
means that if the defendant exercised the proper diligence in the
selection and supervision of its employee, or if the plaintiff was
guilty of contributory negligence, then the courts may reduce the
award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the liability
of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,
where the Court held the depositor guilty of contributory
negligence, we allocated the damages between the depositor and
the bank on a 40-60 ratio. Applying the same ruling to this case, we
hold that L.C. Diaz must shoulder 40% of the actual damages
awarded by the appellate court. Solidbank must pay the other 60%
of the actual damages.
[33]
WHEREFORE, the decision of the Court of Appeals

is AFFIRMED withMODIFICATION. Petitioner Solidbank Corporation
G.R. No. 97626 March 14, 1997

PHILIPPINE BANK OF COMMERCE, now absorbed by
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, ROGELIO
LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, et
al., petitioners, vs. THE COURT OF APPEALS, ROMMEL'S
MARKETING CORP., represented by ROMEO LIPANA, its
President & General Manager, respondents.
HERMOSISIMA, JR., J.:
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Challenged in this petition for review is the Decision dated February
28, 1991 1 rendered by public respondent Court of Appeals which
affirmed the Decision dated November 15, 1985 of the Regional
Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig
City, in Civil Case No. 27288 entitled "Rommel's Marketing
Corporation, etc. v. Philippine Bank of Commerce, now absorbed by
Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent
Rommel's Marketing Corporation (RMC for brevity), represented by
its President and General Manager Romeo Lipana, to recover from
the former Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank, the sum
of P304,979.74 representing various deposits it had made in its
current account with said bank but which were not credited to its
account, and were instead deposited to the account of one
Bienvenido Cotas, allegedly due to the gross and inexcusable
negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current
Account Nos. 53-01980-3 and 53-01748-7, with the Pasig Branch of
PBC in connection with its business of selling appliances.
In the ordinary and usual course of banking operations, current
account deposits are accepted by the bank on the basis of deposit
slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number
to which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of
the deposit either in cash or checks. The deposit slip has an upper
portion or stub, which is detached and given to the depositor or his
agent; the lower portion is retained by the bank. In some instances,
however, 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.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims
to have entrusted RMC funds in the form of cash totalling
P304,979.74 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 Account
No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise
maintains an account with the same bank. During this period,
petitioner bank had, however, been regularly furnishing private
respondent with monthly statements showing its current accounts
balances. Unfortunately, it had never been the practice of Romeo
Lipana to check these monthly statements of account reposing
complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would
accomplish two (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, i.e., C.A. No. 53-01980-3. 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 one (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 before the Regional Trial Court of
Pasig, Branch 160. The trial court found petitioner bank negligent
and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing
defendant Philippine Bank of Commerce, now absorbed by
defendant Philippine Commercial & Industrial Bank, and
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defendant Azucena Mabayad to pay the plaintiff, jointly and
severally, and without prejudice to any criminal action which
may be instituted if found warranted:
1. The sum of P304,979.72, representing plaintiffs
lost deposit, plus interest thereon at the legal
rate from the filing of the complaint;
2. A sum equivalent to 14% thereof, as exemplary
damages;
3. A sum equivalent to 25% of the total amount due,
as and for attorney's fees; and
4. Costs.
Defendants' counterclaim is hereby dismissed for lack of
merit. 2
On appeal, the appellate court affirmed the foregoing decision with
modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED
in the sense that the awards of exemplary damages and
attorney's fees specified therein are eliminated and instead,
appellants are ordered to pay plaintiff, in addition to the
principal sum of P304,979.74 representing plaintiff's lost
deposit plus legal interest thereon from the filing of the
complaint, P25,000.00 attorney's fees and costs in the lower
court as well as in this Court. 3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of
respondent Rommel Marketing Corporation and Romeo
Lipana in entrusting cash to a dishonest employee.
2) The failure of respondent Rommel Marketing Corporation
to cross-check the bank's statements of account with its
own records during the entire period of more than one
(1) year is the proximate cause of the commission of
subsequent frauds and misappropriation committed by
Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by
respondent Rommel Marketing Corporation are falsified
and are not proof that the amounts appearing thereon
were deposited to respondent Rommel Marketing
Corporation's account with the bank,
4) The duplicate copies of the deposit slips were used by
Ms. Irene Yabut to cover up her fraudulent acts against
respondent Rommel Marketing Corporation, and not as
records of deposits she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is the
proximate cause of the loss, to the tune of P304,979.74, suffered by
the private respondent RMC petitioner bank's negligence or that
of private respondent's?
Petitioners submit that the proximate cause of the loss is the
negligence of respondent RMC and Romeo Lipana in entrusting
cash to a dishonest employee in the person of Ms. Irene
Yabut. 5 According to them, it was impossible for the bank to know
that the money deposited by Ms. Irene Yabut belong to RMC;
neither was the bank forewarned by RMC that Yabut will be
depositing cash to its account. Thus, it was impossible for the bank
to know the fraudulent design of Yabut considering that her
husband, Bienvenido Cotas, also maintained an account with the
bank. For the bank to inquire into the ownership of the cash
deposited by Ms. Irene Yabut would be irregular. Otherwise stated,
it was RMC's negligence in entrusting cash to a dishonest employee
which provided Ms. Irene Yabut the opportunity to defraud RMC. 6
Private respondent, on the other hand, maintains that the
proximate cause of the loss was the negligent act of the bank, thru
its teller Ms. Azucena Mabayad, in validating the deposit slips, both
original and duplicate, presented by Ms. Yabut to Ms. Mabayad,
notwithstanding the fact that one of the deposit slips was not
completely accomplished.
We sustain the private respondent.
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Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of
this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by
the plaintiff; (b) fault or negligence of the defendant, or some other
person for whose acts he must respond; and (c) the connection of
cause and effect between the fault or negligence of the defendant
and the damages incurred by the plaintiff. 7
In the case at bench, there is no dispute as to the damage suffered
by the private respondent (plaintiff in the trial court) RMC in the
amount of P304,979.74. It is in ascribing fault or negligence which
caused the damage where the parties point to each other as the
culprit.
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 seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, 8 provides
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. The law here
in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.
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, as testified to by Ms. Mabayad herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs.
Mabayad your important duties and functions?
A: I accept current and savings deposits from depositors and
encashments.
Q: Now in the handling of current account deposits of bank clients,
could you tell us the procedure you follow?
A: The client or depositor or the authorized representative prepares
a deposit slip by filling up the deposit slip with the name, the
account number, the date, the cash breakdown, if it is deposited for
cash, and the check number, the amount and then he signs the
deposit slip.
Q: Now, how many deposit slips do you normally require in
accomplishing current account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the deposit although some of
our clients prepare the deposit slip in duplicate.
Q: Now in accomplishing current account deposits from your clients,
what do you issue to the depositor to evidence the deposit made?
A: We issue or we give to the clients the depositor's stub as a
receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized representative sir?
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Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad,
is it with the deposit slip?
proceeded thus resulting in huge losses to the private

respondent.
A: The depositor's stub is connected with the deposit slip or the

bank's copy. In a deposit slip, the upper portion is the depositor's
stub and the lower portion is the bank's copy, and you can detach
the bank's copy from the depositor's stub by tearing it sir.
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 Mr. Romeo Bonifacio, 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, viz:
Q: Now what do you do upon presentment of the deposit slip by the

depositor or the depositor's authorized representative?
A: We see to it that the deposit slip 9 is properly accomplished and
then we count the money and then we tally it with the deposit slip
sir.
Q: Now is the depositor's stub which you issued to your clients
validated?
A: Yes, sir.
10
[Emphasis ours]
Clearly, 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. 11 A "reasonable man of ordinary
prudence" 12 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
Q: Did he ever tell you that one of your cashiers affixed the stamp
mark of the bank on the deposit slips and they validated the same
with the machine, the fact that those deposit slips were unfilled up,
is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers
validated the blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir.
13
Prescinding from the above, public respondent Court of Appeals

aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in February,
1983, or after the lapse of more than seven (7) years
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counted from the period when the funds in question were
deposited in plaintiff's accounts (May, 1975 to July, 1976)
that bank manager Bonifacio 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. 14
It was this negligence of Ms. Azucena Mabayad, coupled by the
negligence of the petitioner bank in the selection and supervision of
its bank teller, which was the proximate cause of the loss suffered
by the private respondent, and not the latter's act of entrusting
cash to a dishonest employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon
mixed considerations of logic, common sense, policy and
precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated in the case
of Bank of the Phil. Islands v. Court of Appeals, 17defines proximate
cause as "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. Apropos, once again, is the pronouncement
made by the respondent appellate court, to wit:
. . . . Even if Yabut had the fraudulent intention to
misappropriate the funds entrusted to her by plaintiff, she
would not have been able to deposit those funds in her
husband's current account, and then make plaintiff believe
that it was in the latter's accounts wherein she had
deposited them, had it not been for bank teller Mabayad's
aforesaid gross and reckless negligence. The latter's
negligence was thus the proximate, immediate and efficient
cause that brought about the loss claimed by plaintiff in this
case, and the failure of plaintiff to discover the same soon
enough by failing to scrutinize the monthly statements of
account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut
had already completed when she deposited plaintiff's money
to the account of her husband instead of to the latter's
accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred
to, at times as "supervening negligence" or as "discovered peril"),
petitioner bank was indeed the culpable party. 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. 19Stated
differently, the rule would also mean that an antecedent negligence
of a person does not preclude the recovery of damages for the
supervening negligence of, or bar a defense against liability sought
by another, if the latter, who had the last fair chance, could have
avoided the impending harm by the exercise of due
diligence. 20 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.
At this juncture, it is worth to discuss the degree of diligence ought
to be exercised by banks in dealing with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in
the omission of that diligence which is required by the
nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
When negligence shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of
a good father of a family shall be required. (1104a)
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In the case of banks, however, the degree of diligence required is
more than that of a good father of a family. Considering the
fiduciary nature of their relationship with their depositors, banks
are duty bound to treat the accounts of their clients with
the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court of
Appeals, 22 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 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 failure to duly credit him his deposits as soon as they are made,
can cause the depositor not a little embarrassment if not 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
before us, it is apparent that the petitioner bank was remiss in that
duty and violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to
cross-check the bank's statements of account with its own records
during the entire period of more than one (1) year is the proximate
cause
of
the
commission
of
subsequent
frauds
and
misappropriation committed by Ms. Irene Yabut.
We do not agree.
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. Considering,
however, that the fraud was committed in a span of more than one
(1) year covering various deposits, common human experience
dictates that the same would not have been possible without any
form of collusion between Ms. Yabut and bank teller Mabayad. Ms.
Mabayad was negligent in the performance of her duties as bank
teller nonetheless. Thus, the petitioners are entitled to claim
reimbursement from her for whatever they shall be ordered to pay
in this case.
The foregoing notwithstanding, 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 Romeo
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 23 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, we believe 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.
WHEREFORE, the decision of the respondent Court of Appeals is
modified by reducing the amount of actual damages private
36
COMMREV - NEGO
9 CASES
respondent is entitled to by 40%. Petitioners may recover from Ms.

Azucena Mabayad the amount they would pay the private
respondent. Private respondent shall have recourse against Ms.
Irene Yabut. In all other respects, the appellate court's decision is
AFFIRMED.
Proportionate costs.
SO ORDERED.
37

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We jointly and severally agree to pay to the order of Don

Manila, June 5, 1912.

The note was indorsed on the back as follows:

be founded. The evidence was not offered to vary, alter, modify, or

G.R. No. 106011 June 17, 1993

The Hipolitos denied being personally liable on the P700,000.00

The spouses appealed to the Court of Appeals. In a decision dated

Respondent appellate court erred in giving credence to Hipolito's

Hence, this petition for review by TSLB.

It is not credible that a Bank would want so much to lend money to

G.R. Nos. L-25836-37 January 31, 1981

On May 9, 1960 the defendant filed a notice of appeal from the

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO

definition of a bill of exchange, that paper is considered a bill of

G.R. No. 170984

January 30, 2009

SECURITY BANK AND TRUST COMPANY, Petitioner, vs. RIZAL

January 30, 2009

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.

On February 13, 1981, RCBC filed a complaint5 for damages against

QUISUMBING, Acting C.J.:

On May 9, 2000, the RTC of Makati City, Branch 143, rendered a

Before us are opposing parties petitions for review of the

PREMISES CONSIDERED, the Court renders judgment in favor of

1. PhP4,000,000.00 as and for actual damages;

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN

On RCBCs part, the following issues are submitted for resolution:

WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS

WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY

Simply stated, we find that in these consolidated petitions, the legal

G.R. No. 133179

March 27, 2008

ALLIED BANKING CORPORATION, Petitioner, vs. LIM SIO WAN,

c) That all prior parties had capacity to contract;

In isolated cases where the checks were deposited in an account

d) That he has no knowledge of any fact which would

However, in Bank of the Philippine Islands v. Court of Appeals, we

Section 65. Warranty where negotiation by delivery, so forth.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced,

[G.R. No. 138569. September 11, 2003]

Before us is a petition for review of the Decision [1] of the Court

Macaraya immediately prepared a deposit slip in duplicate

Teller No. 6 handed to Macaraya a deposit slip dated 14 August

Solidbank is a domestic banking corporation organized and

The Ruling of the Trial Court

The Ruling of the Court of Appeals

The Ruling of the Court

Solidbanks Breach of its Contractual Obligation

Proximate Cause of the Unauthorized Withdrawal

Doctrine of Last Clear Chance

We do not apply the doctrine of last clear chance to the present