G.R. No.

93849 December 20, 1991 Producers Bank of

the Phil. C 987955 do. do. 49,090.00
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs. Equitable Banking 27624963 do. do. 14,965.00
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and Phil. Bank of
LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant. Comm. 1915852 do. do. 63,900.00

The Solicitor General for plaintiff-appellee. -do- 1915855 do. do. 59,800.00
Leoncio T. Mercado for accused-appellant.
-do- 1915856 do. do. 65,880.00

MEDIALDEA, J.: or all in the total amount of P575,504.00, are good and covered with
sufficient funds in the banks, and by means of other similar deceits with the
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and
Talabis, were charged with the crime of estafa in Criminal Case No. 44080 before the Lucila Talabis, in their capacities as officer-in-charge, branch accountant and
Regional Trial Court of Manila, Branch 35. The information filed in said case reads, as bank branch cashier, respectively, of said bank (Home Savings Bank),
follows (pp. 8-9, Rollo): induced and succeeded in inducing the management of the said bank to
accept said checks as deposits, all the said accused well knowing that his
(Dick Ong y Chan's) representations and manifestations are false and untrue
That in (sic) or about and during the period comprised between December 6,
and were made solely for the purpose of defrauding the said bank, and, in
1978 and January 31, 1979, both dates inclusive, in the City of Manila,
accordance with the conspiracy, his co-accused Lino Morfe y Gutierrez,
Philippines, the said accused, conspiring and confederating together and
Ricardo Villara and Lucila Talabis, facilitated the opening of a savings
helping one another, did then and there wilfully, unlawfully and feloniously
account in the name of accused Dick Ong y Chan and, thereafter, approved
defraud the Home Savings Bank in the following manner, to wit: the said
said deposits; that on the strength of such deposits made and the opening of
accused Dick Ong y Chan, by means of false manifestations and fraudulent
an account, the said accused were able to withdraw the total amount of
representations which he made to the management of the Home Savings
P575,504.00, which once in their possession, with intent defraud, they
Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said
City, to the effect that the following checks, to wit: thereafter wilfully, unlawfully and feloniously misappropriated, misapplied
and converted to their own personal use and benefit, to the damage and
prejudice of said Home Savings Bank in the said amount of P575,504.00,
Philippine Currency.
NAME OF CHECK NUMBER PAYBLE TO DATE AMOUNT
Metropolitan Bank Contrary to law.
& Trust Co 82508 Cash 1/30/79 P49,500.00

On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as
Equitable Bank 27624961 do. do. 14,569.00
accused Lino Morfe y Gutierrez is concerned, on the ground that after a
reinvestigation, it was found that the evidence against him is not sufficient to sustain
Phil. Bank of Comm T1907249 do. do. 59,600.00
the allegations contained in the information (p. 54, Records). On October 31, 1979, the
trial court granted the motion (p. 6 Records).
-do- T1907249 do. do. 67,400.00
China Banking
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty
Corp. QCO86174A do. 1/31/79 69,850.00
to the crime charged. After trial on the merits, the trial court rendered its decision on
Pacific Banking
January 11, 1990, the dispositive portion of which reads, as follows (p. 26, Rollo):
Corp. PCB 238056 S do. 1/31/79 60,890.00

1
 WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y official of the Bank. But all of those uncleared checks deposited by Dick Ong
CHAN guilty beyond reasonable doubt, as principal, of ESTAFA defined prior to January 3, 1979 and against which he was allowed to withdraw were
under No. 2 (d) of Article 315 of the Revised Penal Code, as amended by subsequently honored and paid by the drawee banks. (TSN, Mar. 9, 1981,
Republic Act 4885, and penalized under the lst paragraph of the same Code pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)
as amended by Presidential Decree No. 818, and sentencing said accused to
RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and On January 30, 1979, Dick Ong issued and deposited in his savings account
Ricardo Villaran, their guilt of (sic) the felony charged against them not with the Bank the following checks:
having been established beyond reasonable doubt; (3) ordering accused Dick
Ong to pay the Home Saving Bank and Trust Company the sum of
P559,381.34 as partial reparation of the damage caused to said Bank; (4)
ordering forfeited in favor of the Home Savings Bank and Trust Company Drawee Bank Check No. Payee Amount
the sum of P16,122.66 the positive balance remaining outstanding in Savings 1. Metropolitan Bank &
Account No. 6-1981 of accused Dick Ong with, and in the possession of, said Trust Co. 82508 Cash P49,500.00
Bank to complete the reparation of the damage caused by Dick Ong to the
Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and 2. Equitable Bank 27624961 Cash 14,569.00
(6) ordering two-thirds (2/3) of the costs charged de oficio.
3. Phil. Bank of Comm. T-1907265 Cash 59,600.00
SO ORDERED.
4. Phil. Bank of Comm. T-1907249 Cash 67,400.00
On February 15, 1990, the accused-appellant filed a motion for reconsideration. On
March 22, 1990, he filed a supplemental memorandum in support of the motion for
TOTAL P191,069-00
reconsideration. On April 3, 1990, said motion was denied for lack of merit (pp. 575-
576, Records). Hence, the present appeal by Dick Ong y Chan.
Afterwards but before these checks could be cleared and the Bank could
collect their amounts from the drawee banks, Lucila Talabis allowed and
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
approved the withdrawal of Dick Ong against the amounts of said checks.
(TSN, Mar. 18, 1981, pp. 47-48.)
Accused Dick Ong was one of the depositors of the Home Savings Bank and
Trust Company in its Aurea Annex Branch at Rizal Avenue, Sta. Cruz,
On the following day, January 31, 1979, Dick Ong also issued and deposited
Manila, hereafter, to be referred to as the Bank. He opened his savings
in his savings account with the Bank the following check;
account on December 6, 1978, under the Bank's Saving Account No. 6-1981,
with an initial deposit of P22.14 in cash and P10,000.00 in (a) check.

On the same date, December 6, 1978, without his check undergoing the usual Drawee Bank Check No. Payee Amount
and reglamentary (sic) clearance, which normally takes about five working
days, Dick Ong was allowed to withdraw from his savings account with the 1. China Banking Corporation QC08617A Cash P69,850.00
Bank the sum of P5,000.00. The corresponding withdrawal slip was signed 2. Pacific Banking
and approved by Lino Morfe, then the Branch Manager, and accused Lucila Corporation PCB238056 S Cash 60,890.00
Talabis, the Branch Cashier.
3. Producers Bank of the Phil. C987955 Cash 49,090.00
That initial transaction was followed by other similar transactions where
Dick Ong, upon depositing checks in his savings account with the Bank, was 4. Equitable Banking 27624963 Cash 14,965.00
allowed to withdraw against those uncleared checks and uncollected
deposits. The withdrawals were authorized and approved by accused 5. Phil. Bank of
Ricardo Villaran and Lucila Talabis, sometimes jointly, sometimes by aither Communications 1915852 Cash 639,000.01
(aic) of them alone, and at other times by one of them together with another 6. Phil. Bank of 1915855 Cash 59,860.00

2
 Communications
7. Phil. Bank of
Communications 1915856 Cash 65,880.00
TOTAL P384,435.00
Subsequently, but before said seven checks were cleared and the Bank had
collected their amounts, Lucila Talabis and then officer in charge of the Bank
Grace Silao allowed and approved the withdrawals of Dick Ong against the
amounts of these seven checks. (TSN, lbid., pp. 47-48.)
However, when the Bank presented those eleven checks issued and
deposited by Dick Ong on January 30, 1979 and January 3l, 1979 and against
which he made withdrawals against (sic) their amounts, to their respective
drawee banks for payment, they were all dishonored for lack or
insufficiency of funds. (TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp.
74-75.)
The accused-appellant neither took the witness stand to testify in his behalf, nor
presented any witness to testify in his favor. Instead, he offered the following
documents (p. 20, Rollo):
1. Exhibit 1 — Ong. — The letter dated June 27, 1980 of the Central Bank
Governor to all banks authorized to accept demand deposits, enjoining strict
compliance with Monetary Board Resolution No. 2202 dated December 21,
1979, prohibiting, as a matter of policy, drawing against uncollected deposits
effective July 1, 1980.
2. Exhibit 2 — Ong. — The Memorandum of the Central Bank Governor
dated July 9, 1980, to all banks for their guidance, that Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of
policy, drawing against uncollected deposits effective July 1, 1980, covers
drawing against demand deposits as well as withdrawals from savings
deposits.
3. Exhibits 3 — Ong. — and 3-a. — Clippings from the Bulletin Today issue
on July 25, 1980 regarding on (sic) ban on DAUD (drawn against uncollected
deposits) effective July 1, 1980, and the one-day loan which replaced the
DAUD arrangement.
4. Exhibit 4 — Ong. — The sworn statement of Lino Morfe before the
METROCOM taken on February 11, 1979.
5. Exhibit 5 — Ong. — The letter dated July 6, 1979, of Lino Morfe to the
Assistant Fiscal of Manila, transmitting his (Morfe's) affidavit.
6. Exhibits 5-a — Ong to 5-a-3-Ong. — Affidavit of Lino Morfe sworn on
June 28, 1979.
7. Exhibit 5-b — Ong. — The Bank's Memorandum dated January 31, 1979,
to all Branch Manager/Extension Office O.I.C. (sic) requiring them to
furnish the Head Office of the Bank every Monday and Thursday with a list
of all "drawn against" and "encashment" acommodations (sic) of P1,000.00
and above granted by the Branch during the week.
8. Exhibit 6 — Ong. — The sworn statement of accused Dick Ong.
On the other hand, accused Lucila Talabis admitted that she approved the
withdrawals of the accused-appellant against uncleared checks. However, she
explained that her approval thereof was in accordance with the instruction of then
bank manager Lino Morfe; that this accommodation given or extended to the
accused-appellant had been going on even before she started giving the same
accommodation; that this was common practice in the bank; that she approved those
withdrawals together with one other bank official, namely, either the bank manager,
the bank accountant, the other bank cashier, or the bank assistant cashier; and that
they reported those withdrawals against, and the dishonor of, the subject checks
always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able
to withdraw against his uncleared checks because of the accommodations extended to
him by bank officials Lino Morfe, co-accused Lucila Talabis, Grace Silao, Precy
Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits
was a common practice in branches of the Bank; that on December 14, 1978, the
accused-appellant withdrew the sum of P75,000.00 against his uncleared checks; that
on December 21, 1978, the accused-appellant deposited several checks in the total
amount of P197,000.00 and withdrew on the same date the sum of P120,000.00; that
on January 23, 1979, the accused-appellant again deposited several checks in the
aggregate sum of P260,000.00 and withdrew also on the same date, the amount of
P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-
appellant against his uncollected deposits.
In this appeal, the accused-appellant assigns the following errors committed by the
trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before
clearance and collection of the corresponding amounts thereof by the depository bank
from the drawee banks is deceit or fraud constituting estafa under Article 315,
paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing
3
criminal intent to defraud the depository bank; and not a case which is civil in nature
governed solely by the Negotiable Instruments Law;
2) it stated that he issued and deposited the subject checks when he is not the issuer,
maker, nor drawer thereof but merely an indorser; hence, his liability, if any, is that of
a general indorser under the Negotiable Instruments Law;
3) it convicted him on mere presumption, without any evidence that he had prior
knowledge of the lack or insufficiency of funds in the drawee banks to cover the
amounts of the subject checks; and
4) it failed to consider that a general indorser under the Negotiable Instruments Law
warrants payment of the value of the checks indorsed by him; no damage could have
been suffered by the depository bank because he had offered payment thereof.
To support the aforementioned assignment of errors, the accused-appellant alleges
that based on the testimonies of co-accused Lucila Talabis and Ricardo Villaran, he
did not employ any deceit or fraud on the Bank because the practice of deposit and
withdrawal against uncleared checks and uncollected deposits was tolerated by it. As
soon as he learned of the dishonor of the subject checks, he offered to pay the
amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and put up as
security his property. The subject checks were not in payment of an obligation but
were deposited in his savings account. He was merely a general indorser of the
subject checks and this being the case, his obligations as such, if any, should be
governed by Section 66 of the Negotiable Instruments Law. * The subject checks were
issued or drawn by his customers and paid to him. He could not have had any
knowledge as to the sufficiency of their funds in the drawee banks.
The Office of the Solicitor General disputes the allegations of the accused-appellant.
According to it, by reason of the accused-appellant's antecedent acts of issuing and
depositing check and withdrawing the amounts thereof before clearing by the drawee
banks, which checks were later honored and paid by drawee banks, he was able to
gain the trust and confidence the Bank, such that the practice, albeit contrary to sound
banking policy, was tolerated by the Bank. After thus having gained the trust and
confidence of the Bank, the accused-appellant issued and deposited the subject
checks, the amounts of which he later withdrew, fully aware that he had no sufficient
funds to cover the amounts of said checks in the drawee banks. Contrary to the
accused-appellant's allegation, the trial court found that he issued and deposited the
subject checks in his savings account. As drawer of the subject checks, the accused-
appellant had the obligation to maintain funds in his current account in the drawee
banks sufficient to cover the amounts thereof or, in case of dishonor, to deposit within
three (3) days from receipt notice of dishonor, the amounts necessary to cover the
check. The testimony of Felix Hocson, Senior Vice President and Treasurer of the
Bank, apart from being hearsay, does not prove that the accused-appellant made an
offer to pay the amounts covered by the subject checks. Even assuming arguendo that
accused-appellant made an offer to pay the amounts covered by the subject checks,
said offer is not sufficient to rebut the prima facie evidence of deceit. There is no
showing that the accused-appellant deposited the amounts necessary to cover the
subject checks within three (3) days from receipt of notice from Bank and/or the
payee or holder that said checks have been dishonored. The damage suffered by the
Bank consists in its inability to make use of the P575,504.00 it had delivered to the
accused-appellant.
We are convinced that the accused-appellant is innocent of the crime charged against
him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act
No. 4885, provides:
Art. 315. Swindling (estafa) — Any person who shall defraud another by any
of the means mentioned hereinbelow shall be punished by:
..., provided that in the four cases mentioned, the fraud be
committed by any of the following means:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent
acts executed prior to or simultaneously with the commission of the
fraud:
xxx xxx xxx
(d) By post-dating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount
necessary to cover his check within three (3) days from receipt of
notice from the bank and/or the payee or holder that said check
has been dishonored for lack or insufficiency of funds shall be
prima facie evidence of deceit constituting false pretense or
fraudulent act.
The following are the elements of this kind of estafa: (1) postdating or
issuance of a check in payment of an obligation contracted at the time the
check was issued; (2) lack or insufficiency of funds to cover the check; and
(3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No. 76212,
April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29,
1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490,
4
November 20, 1978, 86 SCRA 568). Based thereon, the trial court concluded or rather, two of those checks are in the account of Mr. Dick
that the guilt of the accused-appellant has "been duly established by the Ong but the other checks are not in his account.
required quantum of evidence adduced by the People against (him)" (p.
22, Rollo). We shall confine Our discussion only on the first element because Court —
there is no argument that the second and third elements are present in this
case. For an orderly discussion of this element, We will divide it into two (2)
Q: In other words, there are checks where the depositor
parts: first, "postdating or issuance of a check," and second, "in payment of
himself was also Mr. Dick Ong?
an obligation contracted at the time the check was issued."

A: Could I go over the checks, Your Honor.

Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of
the Revised Penal Code is concerned with the act of "postdating
or issuance of a check," the accused-appellant raises the defense that he was Q: Is it indicated there?
neither the issuer nor drawer of the subject checks, but only an indorser
thereof. Thus, his liability, if any, should be governed by the provision of the A: Yes, Your Honor, it.is.
Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he
could not have had any knowledge as to the sufficiency of the drawers' Q: All right, go over the checks.
funds in their respective banks. The Office of the Solicitor General contend's
that the trial court found as a fact that the accused-appellant issued the
A: There is one check, Your Honor. It is a China Banking
subject checks.
Corporation check in the amount of P69,850.00 (Witness
referring to Exhibit "Z").
The contention of the Office of the Solicitor General is accurate only in part.
In the trial court's disquisition on the liability of the accused-appellant, it
Q: Now, why do you say that the current checking
said (p. 22, Rollo):
account or current account was opened by Mr. Dick Ong
himself.
There is no question that on January 30, 1979, accused Dick
Ong issued or used and indorsed, and deposited in his Savings
A: Because he is the drawer of the check, Your
Account No. 6-1981 with the Bank the four checks ... .
Honor.(emphasis supplied)

There is likewise no dispute that on the following date, January 31,

Thus, the fact established by the prosecution and adopted by the
1979, Dick Ong issued or used and indorsed, and deposited in his
trial court is that the subject checks were either issued or indorsed by
savings account with the Bank seven checks ... . (emphasis
the accused-appellant.
supplied)

On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and
a witness for the prosecution, testified that (pp. 101-103, tsn, January 7,
1981):
Court —
Q: You mentioned these checks, Mr. Witness. Did you or
anybody for that matter ever verify the actual depositors
of these checks whether it is Mr. Dick Ong himself.?
A: Yes, Your Honor. Our Vice-President for Bank
Operations verified said checks and found out that one of
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently
reiterated in the case of Zagado v. Court of Appeals, G.R. No. 76612,
September 29, 1989, 178 SCRA 146, We declared the accused-
appellant, who only negotiated the check drawn by another, guilty
of estafa. This case of People v. Isleta, et al. was relied upon by the
trial court in its order dated April 3, 1990, which denied the
accused-appellant's motion for reconsideration based on the same
defense. The trial court erred in doing so. It must have overlooked
the ratio decidendi of the aforementioned case. We held the accused-
appellant therein guilty of estafa because he "had guilty knowledge
of the fact that (the drawer) had no funds in the bank when he
negotiated the (subject) check" (at p. 334). In the present case, the
prosecution failed to prove that the accused-appellant had such
5
knowledge with respect to the subject checks that he indorsed. In
applying Our decisions, it is not enough that courts take into
account only the facts and the dispositive portions thereof. It is
imperative that the rationale of these decisions be read and
comprehended thoroughly.
It goes without saying that with respect to the subject checks
wherein the accused-appellant was the issuer/drawer, the first part
of the first element of Article 315, paragraph 2(d) of the Revised
Penal Code is applicable. However, this statement will lose its
significance in Our next discussion.
Regarding the second part of the first element of Article 315,
paragraph 2(d) of the Revised Penal Code, the accused-appellant
alleges that when he deposited the subject checks in his savings
account, it was clearly not in payment of an obligation to the Bank.
The Office of the Solicitor General misses this point of the accused-
appenant.
This single argument of the accused-appellant spells tilting the
scale to his advantage. In several cases, We were categorical that
bank deposits are in the nature of irregular deposits. They are really
loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated loans and are to
be covered by the law on loans. Current and savings deposits are
loans to a bank because it can use the same (Serrano v. Central
Bank of the Philippines, et al., G.R. No. 30511, February 14, 1980, 96
SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central
Bank of the Philippines v Morfe, etc., et al., G.R. No. L-38427, March
12, 1975, 63 SC 114; Guingona, Jr., et al. v. The City Fiscal of Manila,
et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577).
The elements of estafa in general are: (1) that the accused defrauded
another (a) by abuse of confidence, or (b) by means of deceit; and
(2) that damage or prejudice capable of pecuniary estimation is
caused to the offended party or third person. Aside from the
elements that We have discussed earlier, in the crime of estafa by
postdating or issuing a bad check, deceit and damage are essential
elements of the offense and have to be established with satisfactory
proof to warrant conviction (U.S v. Rivera, 23 Phil. 383; People, et
al. v. Grospe, etc., et al., G.R No. 74053-54, January 20, 1988,157
SCRA 154; Buaya v. Polo etc., et al., G.R. No. 75079, January 26,
1989, 169 SCRA 471).
In this connection, the Office of the Solicitor General advances the
view that by reason of the accused-appellant's antecedent acts of
issuing and depositing checks, and withdrawing the amounts
thereof before clearing by the drawee banks, which checks were
later honored and paid by the drawee banks, he was able to gain
the trust and confidence of the Bank, such that the practice, albeit
contrary to sound banking policy, was tolerated by the Bank. After
thus having gained the trust and confidence of the Bank, he issued
and deposited the subject checks, the amounts of which he later
withdrew, fully aware that he had no sufficient funds to cover the
amounts of said checks in the drawee banks.
This view is not supported by the facts of this case. Rather, the
evidence for the prosecution proved that the Bank on its own
accorded him a drawn against uncollected deposit (DAUD)
privilege without need of any pretensions on his part (pp. 7-
8, supra). Moreover, this privilege was not only for the subject
checks, but for other past transactions. Fernando Esguerra and Felix
Hocson even testified that in some instances prior to July 1, 1980,
especially where the depositor is an important client, the Bank
relaxed its rule and internal policy against uncleared checks and
uncollected deposits, and allowed such depositor to withdraw
against his uncleared checks and uncollected deposits. Admittedly,
the accused-appellant was one of the important depositors of the
Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in
fact acted fraudulently, he could not have done so without the
active cooperation of the Banks employees. Therefore, since Lucila
Talabis and Ricardo Villaran were declared innocent of the crimes
charged against them, the same should be said for the accused-
appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983,
122 SCRA 588). True it is that the Bank suffered damage in the
amount of P575,504.00 but the accused-appellant's liability thereon
is only civil.
One additional statement made by the trial court in its decision
requires correction. It said that "[t]he circumstances that the drawer
of a check had insufficient or no funds in the drawee bank to cover
the amount of his check at the time of its issuance and he did not
inform the payee or holder of such fact, are sufficient to make him
liable for estafa" (p. 23, Rollo). This statement is no longer
controlling. We have clarified in the case of People v. Sabio, Sr., etc.,
et al., supra, that Republic Act No. 4885 has eliminated the
requirement under the old provision for the drawer to inform the
payee that he had no funds in the bank or the funds deposited by
him were not sufficient to cover the amount of the check.
6
We, therefore, find that the guilt of the accused-appellant for the
crime of estafa under Article 315, paragraph 2(d) of the Revised
Penal Code has not been proven beyond reasonable doubt.
However, We find him civilly liable to the bank in the amount of
P575,504.00, less the balance remaining in his savings account with
it (p. 26, Rollo), with legal interest from the date of the filing of this
case until full payment.

ACCORDINGLY, the decision and order appealed from are hereby

SET ASIDE. The accused-appellant is ACQUITTED of the crime
charged against him but ordered to pay the aforementioned
amount. No costs.

SO ORDERED.

7
G.R. No. L-60033 April 4, 1984 and Loan Association, Inc., namely Homero Gonzales, Juan Merino,
Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz,
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA Paulino B. Dionisio, and one John Doe) with estafa and violation of
SANTOS, petitioners, Central Bank Circular No. 364 and related Central Bank regulations
vs. on foreign exchange transactions, allegedly committed as follows
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY (Petition, Annex "A"):têñ.£îhqwâ£
FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
"From March 20, 1979 to March, 1981, David
invested with the Nation Savings and Loan
Association, (hereinafter called NSLA) the sum of
MAKASIAR, Actg. C.J.:ñé+.£ªwph!1 P1,145,546.20 on nine deposits, P13,531.94 on
savings account deposits (jointly with his sister,
Denise Kuhne), US$10,000.00 on time deposit,
This is a petition for prohibition and injunction with a prayer for the immediate US$15,000.00 under a receipt and guarantee of
issuance of restraining order and/or writ of preliminary injunction filed by payment and US$50,000.00 under a receipt dated
petitioners on March 26, 1982. June 8, 1980 (au jointly with Denise Kuhne), that
David was induced into making the aforestated
On March 31, 1982, by virtue of a court resolution issued by this Court on the same investments by Robert Marshall an Australian
date, a temporary restraining order was duly issued ordering the respondents, their national who was allegedly a close associate of
officers, agents, representatives and/or person or persons acting upon their petitioner Guingona Jr., then NSLA President,
(respondents') orders or in their place or stead to refrain from proceeding with the petitioner Martin, then NSLA Executive Vice-
preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of President of NSLA and petitioner Santos, then
Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed NSLA General Manager; that on March 21, 1981
a motion to lift restraining order which was denied in the resolution of this Court N LA was placed under receivership by the
dated May 18, 1983. Central Bank, so that David filed claims
therewith for his investments and those of his
As can be gleaned from the above, the instant petition seeks to prohibit public sister; that on July 22, 1981 David received a
respondents from proceeding with the preliminary investigation of I.S. No. 81-31938, report from the Central Bank that only
in which petitioners were charged by private respondent Clement David, with estafa P305,821.92 of those investments were entered in
and violation of Central Bank Circular No. 364 and related regulations regarding the records of NSLA; that, therefore, the
foreign exchange transactions principally, on the ground of lack of jurisdiction in that respondents in I.S. No. 81-31938 misappropriated
the allegations of the charged, as well as the testimony of private respondent's the balance of the investments, at the same time
principal witness and the evidence through said witness, showed that petitioners' violating Central Bank Circular No. 364 and
obligation is civil in nature. related Central Bank regulations on foreign
exchange transactions; that after demands,
petitioner Guingona Jr. paid only P200,000.00,
For purposes of brevity, We hereby adopt the antecedent facts narrated by the
Solicitor General in its Comment dated June 28,1982, as follows:têñ.£îhqw⣠thereby reducing the amounts misappropriated
to P959,078.14 and US$75,000.00."

On December 23,1981, private respondent David filed I.S. No. 81-

31938 in the Office of the City Fiscal of Manila, which case was
assigned to respondent Lota for preliminary investigation (Petition,
p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one
Robert Marshall and the following directors of the Nation Savings
Petitioners, Martin and Santos, filed a joint counter-affidavit
(Petition, Annex' B') in which they stated the following.têñ.£îhqwâ£
"That Martin became President of NSLA in
March 1978 (after the resignation of Guingona,
Jr.) and served as such until October 30, 1980,
while Santos was General Manager up to
8
 November 1980; that because NSLA was urgently
in need of funds and at David's insistence, his
investments were treated as special- accounts
with interest above the legal rate, an recorded in
separate confidential documents only a portion of
which were to be reported because he did not
want the Australian government to tax his total
earnings (nor) to know his total investments; that
all transactions with David were recorded except
the sum of US$15,000.00 which was a personal
loan of Santos; that David's check for
US$50,000.00 was cleared through Guingona, Jr.'s
dollar account because NSLA did not have one,
that a draft of US$30,000.00 was placed in the
name of one Paz Roces because of a pending
transaction with her; that the Philippine Deposit
Insurance Corporation had already reimbursed
David within the legal limits; that majority of the
stockholders of NSLA had filed Special
Proceedings No. 82-1695 in the Court of First
Instance to contest its (NSLA's) closure; that after
NSLA was placed under receivership, Martin
executed a promissory note in David's favor and
caused the transfer to him of a nine and on behalf
(9 1/2) carat diamond ring with a net value of
P510,000.00; and, that the liabilities of NSLA to
David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex'
C') stated the following:têñ.£îhqwâ£
"That he had no hand whatsoever in the
transactions between David and NSLA since he
(Guingona Jr.) had resigned as NSLA president
in March 1978, or prior to those transactions; that
he assumed a portion o; the liabilities of NSLA to
David because of the latter's insistence that he
placed his investments with NSLA because of his
faith in Guingona, Jr.; that in a Promissory Note
dated June 17, 1981 (Petition, Annex "D") he
(Guingona, Jr.) bound himself to pay David the
sums of P668.307.01 and US$37,500.00 in stated
installments; that he (Guingona, Jr.) secured
payment of those amounts with second
mortgages over two (2) parcels of land under a
deed of Second Real Estate Mortgage (Petition,
Annex "E") in which it was provided that the
mortgage over one (1) parcel shall be cancelled
upon payment of one-half of the obligation to
David; that he (Guingona, Jr.) paid P200,000.00
and tendered another P300,000.00 which David
refused to accept, hence, he (Guingona, Jr.) filed
Civil Case No. Q-33865 in the Court of First
Instance of Rizal at Quezon City, to effect the
release of the mortgage over one (1) of the two
parcels of land conveyed to David under second
mortgages."
At the inception of the preliminary investigation before respondent
Lota, petitioners moved to dismiss the charges against them for
lack of jurisdiction because David's claims allegedly comprised a
purely civil obligation which was itself novated. Fiscal Lota denied
the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners
filed the instant petition because: (a) the production of the
Promisory Notes, Banker's Acceptance, Certificates of Time
Deposits and Savings Account allegedly showed that the
transactions between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated when
Guingona, Jr. and Martin assumed them; and (b) David's principal
witness allegedly testified that the duplicate originals of the
aforesaid instruments of indebtedness were all on file with NSLA,
contrary to David's claim that some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available
administrative remedies because to do so would be futile (Petition,
p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is
whether public respondents acted without jurisdiction when they investigated the
charges (estafa and violation of CB Circular No. 364 and related regulations regarding
foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature
and therefore, public respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of
the City Fiscal of Manila by private respondent David against petitioners Teopisto
Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert
9
Marshall and the other directors of the Nation Savings and Loan Association, will
show that from March 20, 1979 to March, 1981, private respondent David, together
with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association
the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and
Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits
covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.).
It appears further that private respondent David, together with his sister, made
investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under
receivership on March 21, 1981, petitioners Guingona and Martin, upon the request of
private respondent David, assumed the obligation of the bank to private respondent
David by executing on June 17, 1981 a joint promissory note in favor of private
respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80,
rec.). This promissory note was based on the statement of account as of June 30, 1981
prepared by the private respondent (p. 81, rec.). The amount of indebtedness
assumed appears to be bigger than the original claim because of the added interest
and the inclusion of other deposits of private respondent's sister in the amount of
P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the
said indebtedness, and petitioner Guingona executed another promissory note
antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of
P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor of
private respondent (p. 25, rec.). The aforesaid promissory notes were executed as a
result of deposits made by Clement David and Denise Kuhne with the Nation
Savings and Loan Association.
Furthermore, the various pleadings and documents filed by private respondent
David, before this Court indisputably show that he has indeed invested his money on
time and savings deposits with the Nation Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on
nine. and savings deposits with the aforesaid bank, the contract that was perfected
was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article
1980 of the New Civil Code provides that:têñ.£îhqwâ£
Article 1980. Fixed, savings, and current deposits of-money in
banks and similar institutions shall be governed by the provisions
concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We
said:têñ.£îhqwâ£
It should be noted that fixed, savings, and current deposits of
money in banks and similar institutions are hat true deposits. are
considered simple loans and, as such, are not preferred credits (Art.
1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan
Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific
Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375;
Fletcher American National Bank vs. Ang Chong UM 66 PWL 385;
Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL
429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:têñ.£îhqwâ£
Bank deposits are in the nature of irregular deposits. They are
really 'loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and are
to be covered by the law on loans (Art. 1980 Civil Code Gullas vs.
Phil. National Bank, 62 Phil. 519). Current and saving deposits, are
loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests will respondent Overseas
Bank of Manila was in reality a creditor of the respondent Bank and
not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is
failure to pay its obligation as a debtor and not a breach of trust arising
from a depositary's failure to return the subject matter of the
deposit(Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and
Loan Association is that of creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the contract
and it can make use of the amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals. While the Bank has the obligation
to return the amount deposited, it has, however, no obligation to return or deliver
the same money that was deposited. And, the failure of the Bank to return the amount
deposited will not constitute estafa through misappropriation punishable under
Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil
liability over which the public respondents have no- jurisdiction.
WE have already laid down the rule that:têñ.£îhqwâ£
In order that a person can be convicted under the above-quoted
provision, it must be proven that he has the obligation to deliver
or return the some money, goods or personal property that he
received Petitioners had no such obligation to return the same
money, i.e., the bills or coins, which they received from private
10
 respondents. This is so because as clearly as stated in criminal
complaints, the related civil complaints and the supporting sworn
statements, the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the
Civil Code.têñ.£îhqwâ£
"Art. 1933. — By the contract of loan, one of the
parties delivers to another, either something not
consumable so that the latter may use the same
for a certain time- and return it, in which case the
contract is called a commodatum; or money
or other consumable thing, upon the condition that the
same amount of the same kind and quality shall he
paid in which case the contract is simply called a loan
or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a
stipulation to pay interest.
"In commodatum the bailor retains the
ownership of the thing loaned while in simple loan,
ownership passes to the borrower.
"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."
It can be readily noted from the above-quoted provisions that in simple
loan (mutuum), as contrasted to commodatum the borrower acquires
ownership of the money, goods or personal property borrowed Being the
owner, the borrower can dispose of the thing borrowed (Article 248, Civil
Code) and his act will not be considered misappropriation thereof' (Yam
vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of
private respondent David would constitute a violation of paragraph 1(b) of Article
315 of the Revised Penal Code, nevertheless any incipient criminal liability was
deemed avoided, because when the aforesaid bank was placed under receivership by
the Central Bank, petitioners Guingona and Martin assumed the obligation of the
bank to private respondent David, thereby resulting in the novation of the original
contractual obligation arising from deposit into a contract of loan and converting the
original trust relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach of trust but would
merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may
however, prevent the rise of criminal liability as long as it occurs prior to the filing of
the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69
[1968]) We held that:têñ.£îhqwâ£
As pointed out in People vs. Nery, novation prior to the filing of the
criminal information — as in the case at bar — may convert the
relation between the parties into an ordinary creditor-debtor
relation, and place the complainant in estoppel to insist on the
original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581
[1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ),
declaring that:têñ.£îhqwâ£
The novation theory may perhaps apply prior to the filling of the
criminal information in court by the state prosecutors because up to
that time the original trust relation may be converted by the parties
into an ordinary creditor-debtor situation, thereby placing the
complainant in estoppel to insist on the original trust. But after the
justice authorities have taken cognizance of the crime and instituted
action in court, the offended party may no longer divest the
prosecution of its power to exact the criminal liability, as
distinguished from the civil. The crime being an offense against the
state, only the latter can renounce it (People vs. Gervacio, 54 Off.
Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil.
620).
It may be observed in this regard that novation is not one of the
means recognized by the Penal Code whereby criminal liability can
be extinguished; hence, the role of novation may only be to either
prevent the rise of criminal habihty or to cast doubt on the true
nature of the original basic transaction, whether or not it was such
that its breach would not give rise to penal responsibility, as when
money loaned is made to appear as a deposit, or other similar
disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs.
Villareal, 27 Phil. 481).
11
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a
promissory note on June 17, 1981 assuming the obligation of the bank to private
respondent David; while the criminal complaint for estafa was filed on December 23,
1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long
before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but
there will still be a civil liability on the part of petitioners Guingona and Martin to
pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank
Circular No. 364 and other related regulations regarding foreign exchange
transactions by accepting foreign currency deposit in the amount of US$75,000.00
without authority from the Central Bank. They contend however, that the US dollars
intended by respondent David for deposit were all converted into Philippine
currency before acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a
deposit of bank draft issued in his name in the amount of US$50,000.00 with the
Nation Savings and Loan Association, the same had to be cleared first and converted
into Philippine currency. Accordingly, the bank draft was endorsed by respondent
David to petitioner Guingona, who in turn deposited it to his dollar account with the
Security Bank and Trust Company. Petitioner Guingona merely accommodated the
request of the Nation Savings and loan Association in order to clear the bank draft
through his dollar account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner Guingona authorized Nation
Savings and Loan Association to withdraw the same in order to be utilized by the
bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos
before they were accepted and deposited in Nation Savings and Loan Association,
because the bank is presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that the transaction was
regular and fair, in the absence of a clear and convincing evidence to the contrary (see
paragraphs p and q, Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners
despite the fact that it was raised. in petitioners' reply filed on May 7, 1982 to private
respondent's comment and in the July 27, 1982 reply to public respondents' comment
and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding
more support to the conclusion that the US$75,000.00 were really converted into
Philippine currency before they were accepted and deposited into Nation Savings
and Loan Association. Considering that this might adversely affect his case,
respondent David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature
and that there is no clear showing that they engaged in foreign exchange transactions,
We hold that the public respondents acted without jurisdiction when they
investigated the charges against the petitioners. Consequently, public respondents
should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the Ministry of Justice,
would work great injustice to petitioners and would render meaningless the proper
administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of
prohibition and injunction, this court has recognized the resort to the extraordinary
writs of prohibition and injunction in extreme cases, thus:têñ.£îhqwâ£
On the issue of whether a writ of injunction can restrain the
proceedings in Criminal Case No. 3140, the general rule is that
"ordinarily, criminal prosecution may not be blocked by court
prohibition or injunction." Exceptions, however, are allowed in the
following instances:têñ.£îhqwâ£
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law
in an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional
rights;
"5. in proper cases, because the statute relied
upon is unconstitutional or was held invalid" (
Primicias vs. Municipality of Urdaneta,
Pangasinan, 93 SCRA 462, 469-470 [1979]; citing
Ramos vs. Torres, 25 SCRA 557 [1968]; and
Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held
that:têñ.£îhqwâ£
The writs of certiorari and prohibition, as extraordinary legal
remedies, are in the ultimate analysis, intended to annul void
12
 proceedings; to prevent the unlawful and oppressive exercise of
legal authority and to provide for a fair and orderly administration
of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took
cognizance of a petition for certiorari and prohibition although the
accused in the case could have appealed in due time from the order
complained of, our action in the premises being based on the public
welfare policy the advancement of public policy. In Dimayuga vs.
Fajardo, 43 Phil. 304, We also admitted a petition to restrain the
prosecution of certain chiropractors although, if convicted, they
could have appealed. We gave due course to their petition for the
orderly administration of justice and to avoid possible oppression
by the strong arm of the law. And in Arevalo vs. Nepomuceno, 63
Phil. 627, the petition for certiorari challenging the trial court's
action admitting an amended information was sustained despite
the availability of appeal at the proper time.

WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY

RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS
AGAINST THE PRIVATE RESPONDENT.

SO ORDERED.1äwphï1.ñët

13
[G.R. No. 156940. December 14, 2004] CHECK NUMBERS DATE AMOUNT

a. 138814 Sept. 29, 1990 P9,000.00

ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE
HENRY TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored
check from a depositors account, they must do so with the highest degree of care, so
as not to prejudice the depositor unduly.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
assailing the January 27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV
No. 56292. The CA disposed as follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in
Civil Case No. 892-AF is hereby AFFIRMED. Costs against the [petitioner].[3]
The Facts
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds.Thereafter, TAN, thru his lawyer,
informed the BANK to take positive steps regarding the matter for he has adequate
and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK
did not bother nor offer any apology regarding the incident.Consequently, TAN, as
plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional
Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No.
892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the
subject checks and alleged that his suppliers decreased in number for lack of trust. As
he has been in the business community for quite a time and has established a good
record of reputation and probity, plaintiff claimed that he suffered embarrassment,
humiliation, besmirched reputation, mental anxieties and sleepless nights because of
the said unfortunate incident. [Respondent] further averred that he continuously lost
profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way
of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of
the amount claimed including P1,000.00 per court appearance.

The CA narrated the antecedents as follows:

Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same
was denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner]
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor BANK on March 20, 1991 filed its Answer denying, among others, the allegations of
of the Associated Bank (hereinafter referred to as the BANK). Sometime in September [respondent] and alleged that no banking institution would give an assurance to any
1990, he deposited a postdated UCPB check with the said BANK in the amount of its client/depositor that the check deposited by him had already been cleared and
of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was backed up by sufficient funds but it could only presume that the same has been
duly entered in his bank record thereby making his balance in the amount honored by the drawee bank in view of the lapse of time that ordinarily takes for a
of P297,000.00, as of October 1, 1990, from his original deposit check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave
of P196,000.00. Allegedly, upon advice and instruction of the BANK that notice to the [respondent] as to the return of his UCPB check deposit in the amount
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, of P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00
on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A to cover the returned check.
day after, TAN deposited the amount of P50,000.00 making his existing balance in the
amount of P107,793.45, because he has issued several checks to his business partners,
to wit:
14
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of
action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent]
which was withdrawn by him prior to its clearing. [Petitioner] further averred that it
has no liability with respect to the clearing of deposited checks as the clearing is being
undertaken by the Central Bank and in accepting [the] check deposit, it merely
obligates itself as depositors collecting agent subject to actual payment by the drawee
bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount
of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00
per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended
Complaint reiterating substantially his allegations in the original complaint, except
that the name of the previous defendant ASSOCIATED BANK is now WESTMONT
BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996
in favor of the [respondent] and against the [petitioner], ordering the latter to pay the
[respondent] the sum of P100,000.00 by way of moral damages, P75,000.00 as
exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In making
said ruling, it was shown that [respondent] was not officially informed about the
debiting of the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for accommodation
because the BANK considered him as one of its valued clients. The trial court ruled
that the bank manager was negligent in handling the particular checking account of
the [respondent] stating that such lapses caused all the inconveniences to the
[respondent]. The trial court also took into consideration that [respondents] mother
was originally maintaining with the x x x BANK [a] current account as well as [a]
time deposit, but [o]n one occasion, although his mother made a deposit, the same
was not credited in her favor but in the name of another.[4]
Petitioner appealed to the CA on the issues of whether it was within its rights,
as collecting bank, to debit the account of its client for a dishonored check; and
whether it had informed respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized
the withdrawal of the value of the deposited check prior to its clearing. Having done
so, contrary to its obligation to treat respondents account with meticulous care, the
bank violated its own policy. It thereby took upon itself the obligation to officially
inform respondent of the status of his account before unilaterally debiting the amount
of P101,000. Without such notice, it is estopped from blaming him for failing to fund
his account.
The CA opined that, had the P101,000 not been debited, respondent would have
had sufficient funds for the postdated checks he had issued. Thus, the supposed
accommodation accorded by petitioner to him is the proximate cause of his business
woes and shame, for which it is liable for damages.
Because of the banks negligence, the CA awarded respondent moral damages
of P100,000. It also granted him exemplary damages of P75,000 and attorneys fees
of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the
petitioner, which is acting as a collecting bank, has the right to debit the account of its
client for a check deposit which was dishonored by the drawee bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of
facts were misappreciated by the CA. It insists that its right to debit the amount of the
dishonored check from the account of respondent is clear and unmistakable.Even
assuming that it did not give him notice that the check had been dishonored, such
right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by
respondent on September 17, 1990, expressly stipulated that the bank was obligating
itself merely as the depositors collecting agent and -- until such time as actual
payment would be made to it -- it was reserving the right to charge against the
depositors account any amount previously credited. Respondent was allowed to
withdraw the amount of the check prior to clearing, merely as an act of
accommodation, it added.
15
 At the outset, we stress that the trial courts factual findings that were affirmed
by the CA are not subject to review by this Court.[7] As petitioner itself takes no issue
with those findings, we need only to determine the legal consequence, based on the
established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment
of any withdrawals on the part of a depositor.[8] The right of a collecting bank to debit
a clients account for the value of a dishonored check that has previously been
credited has fairly been established by jurisprudence. To begin with, Article 1980 of
the Civil Code provides that [f]ixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be that
of creditor and debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil
Code may take place when all the requisites mentioned in Article 1279 are
present,[11] as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.[12]
Nonetheless, the real issue here is not so much the right of petitioner to debit
respondents account but, rather, the manner in which it exercised such right. The
Court has held that even while the right of setoff is conceded, separate is the question
of whether that remedy has properly been exercised.[13]
The liability of petitioner in this case ultimately revolves around the issue of
whether it properly exercised its right of setoff. The determination thereof hinges, in
turn, on the banks role and obligations, first, as respondents depositary bank;
and second, as collecting agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business
is impressed with public interest.Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required of it. By
the nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court
of Appeals[16] has held that the degree of diligence required of banks is more than that
of a good father of a family where the fiduciary nature of their relationship with their
depositors is concerned.[17] Indeed, the banking business is vested with the trust and
confidence of the public; hence the appropriate standard of diligence must be very
high, if not the highest, degree of diligence.[18] The standard applies, regardless of
whether the account consists of only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now
enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of
the law specifically says that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance.
Did petitioner treat respondents account with the highest degree of care? From
all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of
accommodation to a valued client, petitioner allowed the withdrawal of the face
value of the deposited check prior to its clearing. That act certainly disregarded the
clearance requirement of the banking system. Such a practice is unusual, because a
check is not legal tender or money;[21]and its value can properly be transferred to a
depositors account only after the check has been cleared by the drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a
bank either immediately credit the amount to a depositors account; or infuse value to
that account only after the drawee bank shall have paid such amount. [23] Before
the check shall have been cleared for deposit, the collecting bank can only assume at
its own risk -- as herein petitioner did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner
should not have authorized the withdrawal by respondent of P240,000 on October 1,
1990, as this amount was over and above his outstanding cleared balance
of P196,793.45.[24] Hence, the lower courts correctly appreciated the evidence in his
favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
16
In receiving items on deposit, this Bank obligates itself only as the Depositors
Collecting agent, assuming no responsibility beyond carefulness in selecting
correspondents, and until such time as actual payments shall have come to its
possession, this Bank reserves the right to charge back to the Depositors account any
amounts previously credited whether or not the deposited item is returned. x x x." [25]
However, this reservation is not enough to insulate the bank from any
liability. In the past, we have expressed doubt about the binding force of such
conditions unilaterally imposed by a bank without the consent of the depositor.[26] It
is indeed arguable that in signing the deposit slip, the depositor does so only to
identify himself and not to agree to the conditions set forth at the back of the deposit
slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself
certain obligations as respondents agent, consonant with the well-settled rule that the
relationship between the payee or holder of a commercial paper and the collecting
bank is that of principal and agent.[28] Under Article 1909[29] of the Civil Code, such
bank could be held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.[30] Due to the very nature of their business, banks are expected to
exercise the highest degree of diligence in the selection and supervision of their
employees.[31] Jurisprudence has established that the lack of diligence of a servant is
imputed to the negligence of the employer, when the negligent or wrongful act of the
former proximately results in an injury to a third person;[32] in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically
admitted that she and the employees under her control had breached bank
policies. They admittedly breached those policies when, without clearance from the
drawee bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the
amount of the check deposited.Santiago testified that respondent was not officially
informed about the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly acted within the scope of her
authority in authorizing the withdrawal and the subsequent debiting without
notice. Accordingly, what remains to be determined is whether her actions
proximately caused respondents injury. Proximate cause is that which -- in a natural
and continuous sequence, unbroken by any efficient intervening cause --produces the
injury, and without which the result would not have occurred. [34]
Let us go back to the facts as they unfolded. It is undeniable that the banks
premature authorization of the withdrawal by respondent on October 1, 1990,
triggered -- in rapid succession and in a natural sequence -- the debiting of his
account, the fall of his account balance to insufficient levels, and the subsequent
dishonor of his own checks for lack of funds. The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that
his money was already cleared. Without such advice, [respondent] would not have
withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was
[petitioners] fault which allowed [respondent] to withdraw a huge sum which he
believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the
check. Had the P101,000.00 not [been] debited, the subject checks would not have
been dishonored. Hence, we can say that [respondents] injury arose from the
dishonor of his well-funded checks.x x x.[35]
Aggravating matters, petitioner failed to show that it had immediately and duly
informed respondent of the debiting of his account. Nonetheless, it argues that the
giving of notice was discernible from his act of depositing P50,000 on October 2, 1990,
to augment his account and allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers
account, respondent was considered a valued client whose checks had always been
sufficiently funded from 1987 to 1990,[36] until the October imbroglio. Thus, he
deserved nothing less than an official notice of the precarious condition of his
account.
Second, under the provisions of the Negotiable Instruments Law regarding the
liability of a general indorser[37] and the procedure for a notice of dishonor,[38] it was
incumbent on the bank to give proper notice to respondent. In Gullas v. National
Bank,[39] the Court emphasized:
x x x [A] general indorser of a negotiable instrument engages that if the instrument
the check in this case is dishonored and the necessary proceedings for its dishonor are
duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by a
long line of authorities that notice of dishonor is necessary to charge an indorser and
that the right of action against him does not accrue until the notice is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant. At this point recall that
Gullas was merely an indorser and had issued checks in good faith. As to a depositor who has
funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been
held that he has a right of action against the bank for its refusal to pay such a check in the
absence of notice to him that the bank has applied the funds so deposited in extinguishment of
past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas.,
203.) However this may be, as to an indorser the situation is different, and notice should
actually have been given him in order that he might protect his interests.[40]
Third, regarding the deposit of P50,000 made by respondent on October 2, 1990,
we fully subscribe to the CAs observations that it was not unusual for a well-reputed
17
businessman like him, who ordinarily takes note of the amount of money he takes
and releases, to immediately deposit money in his current account to answer for the
postdated checks he had issued.[41]

Damages

Inasmuch as petitioner does not contest the basis for the award of damages and
attorneys fees, we will no longer address these matters.

WHEREFORE, the Petition is DENIED and the assailed

Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

18
EQUITABLE PCI BANK,* G.R. No. 171545 deflation.[14] Consequently, the RTC ordered the use of the 1996 dollar exchange rate
AIMEE YU and BEJAN in computing respondents' dollar-denominated loans.[15] Lastly, because the business
LIONEL APAS, reputation of respondents was (allegedly) severely damaged when Equitable froze
Petitioners, Present: their accounts,[16] the trial court awarded moral and exemplary damages to them.[17]
PUNO, C.J., Chairperson,
- v e r s u s - SANDOVAL-GUTIERREZ, The dispositive portion of the February 5, 2004 RTC decision[18] provided:
CORONA, WHEREFORE, premises considered, judgment is hereby rendered:
AZCUNA and
LEONARDO-DE A) Ordering [Equitable] to reinstate and return the amount of
CASTRO, JJ. [respondents'] deposit placed on hold status;
NG SHEUNG NGOR** doing
business under the name B) Ordering [Equitable] to pay [respondents] the sum of P12
and style KEN MARKETING, Promulgated: [m]illion [p]esos as moral damages;
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO, C) Ordering [Equitable] to pay [respondents] the sum of P10
Respondents. December 19, 2007 [m]illion [p]esos as exemplary damages;

D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x to pay [respondents], jointly and severally, the sum of
[t]wo [m]illion [p]esos as moral and exemplary damages;
DECISION
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas],
CORONA, J.: jointly and severally, to pay [respondents'] attorney's fees
in the sum of P300,000; litigation expenses in the sum
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of of P50,000 and the cost of suit;
Appeals (CA) in CA-G.R. SP No. 83112 and its resolution[3] denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing
Division, Inc. and Benjamin E. Go filed an action for annulment and/or reformation to pay [Equitable] the unpaid principal obligation for the
of documents and contracts[5] against petitioner Equitable PCI Bank (Equitable) and peso loan as well as the unpaid obligation for the dollar
its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), denominated loan;
Branch 16 of Cebu City.[6] They claimed that Equitable induced them to avail of its G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to
peso and dollar credit facilities by offering low interest rates [7] so they accepted pay [Equitable] interest as follows:
Equitable's proposal and signed the bank's pre-printed promissory notes on various
dates beginning 1996. They, however, were unaware that the documents contained 1) 12% per annum for the peso loans;
identical escalation clauses granting Equitable authority to increase interest rates
without their consent.[8] 2) 8% per annum for the dollar loans. The basis for the
payment of the dollar obligation is the conversion rate
Equitable, in its answer, asserted that respondents knowingly accepted all the terms of P26.50 per dollar availed of at the time of incurring
and conditions contained in the promissory notes.[9] In fact, they continuously availed of the obligation in accordance with Article 1250 of
of and benefited from Equitable's credit facilities for five years. [10] the Civil Code of the Philippines;

After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 H) Dismissing [Equitable's] counterclaim except the payment
alone, Equitable restructured respondents' loans amounting to US$228,200 of the aforestated unpaid principal loan obligations and
and P1,000,000.[11] The trial court, however, invalidated the escalation clause interest.
contained therein because it violated the principle of mutuality of
contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso SO ORDERED.[19]
during the intervening period[13] and declared the existence of extraordinary

19

Equitable and respondents filed their respective notices of appeal. [20]
In the March 1, 2004 order of the RTC, both notices were denied due course because
Equitable and respondents failed to submit proof that they paid their respective
appeal fees.[21]
WHEREFORE, premises considered, the appeal
interposed by defendants from the Decision in the above-entitled
case is DENIED due course. As of February 27, 2004, the Decision
dated February 5, 2004, is considered final and executory in so far
as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned.[22] (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC[23] on
the ground that it did in fact pay the appeal fees. Respondents, on the other hand,
prayed for the issuance of a writ of execution.[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for
reconsideration for lack of merit[25] and ordered the issuance of a writ of execution in
favor of respondents.[26] According to the RTC, because respondents did not move for
the reconsideration of the previous order (denying due course to the parties notices of
appeal),[27] the February 5, 2004 decision became final and executory as to both parties
and a writ of execution against Equitable was in order. [28]
A writ of execution was thereafter issued[29] and three real properties of Equitable
were levied upon.[30]
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1,
2004 order.[31] It, however, withdrew that petition on March 30, 2004 [32] and instead
filed a petition for certiorari with an application for an injunction in the CA to enjoin
the implementation and execution of the March 24, 2004 omnibus order.[33]
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of
preliminary injunction was correspondingly issued.[34]
Notwithstanding the writ of injunction, the properties of Equitable previously levied
upon were sold in a public auction on July 1, 2004. Respondents were the highest
bidders and certificates of sale were issued to them.[35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite
the sheriffs who conducted the sale in contempt for proceeding with the auction
despite the injunction order of the CA.[36]
On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found
Equitable guilty of forum shopping because the bank filed its petition for certiorari in
the CA several hours before withdrawing its petition for relief in the
RTC.[38] Moreover, Equitable failed to disclose, both in the statement of material dates
and certificate of non-forum shopping (attached to its petition for certiorari in the
CA), that it had a pending petition for relief in the RTC.[39]
Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for
relief was withdrawn on the same day the petition for certiorari was filed.[42] It
likewise avers that its petition for certiorari was meritorious because the RTC
committed grave abuse of discretion in issuing the March 24, 2004 omnibus order
which was based on an erroneous assumption. The March 1, 2004 order denying its
notice of appeal for non payment of appeal fees was erroneous because it had in fact
paid the required fees.[43] Thus, the RTC, by issuing its March 24, 2004 omnibus order,
effectively prevented Equitable from appealing the patently wrong February 5, 2004
decision.[44]
This petition is meritorious.
EQUITABLE
WAS NOT
GUILTY OF
FORUM
SHOPPING
Forum shopping exists when two or more actions involving the same transactions,
essential facts and circumstances are filed and those actions raise identical issues,
subject matter and causes of action.[45] The test is whether, in two or more pending
cases, there is identity of parties, rights or causes of actions and reliefs. [46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did
not have identical causes of action. The petition for relief from the denial of its notice
of appeal was based on the RTCs judgment or final order preventing it from taking an
appeal by fraud, accident, mistake or excusable negligence.[47] On the other hand, its
petition for certiorari in the CA, a special civil action, sought to correct the grave
abuse of discretion amounting to lack of jurisdiction committed by the RTC. [48]
In a petition for relief, the judgment or final order is rendered by a court
with competent jurisdiction. In a petition for certiorari, the order is rendered by a
court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum shopping
when it moved to withdraw its petition for relief in the RTC on the same day (in fact
just four hours and forty minutes after) it filed the petition for certiorari in the CA.
Even if Equitable failed to disclose that it had a pending petition for relief in the RTC,
20
it rectified what was doubtlessly a careless oversight by withdrawing the petition for
relief just a few hours after it filed its petition for certiorari in the CA ― a clear
indication that it had no intention of maintaining the two actions at the same time.
THE TRIAL
COURT
COMMITTED
GRAVE ABUSE
OF
DISCRETION
IN ISSUING ITS
MARCH 1, 2004
AND
MARCH 24, 2004
ORDERS
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial function has acted without or
in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is
no appeal, nor any plain, speedy or adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and
granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and a
sworn certificate of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial or
quasi-judicial functions acted without or in excess of his
or its jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and
2. that there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused his
discretion and that abuse amounted to an evasion of positive duty or a virtual refusal
to perform a duty enjoined by law or to act at all in contemplation of law, as where
the power was exercised in an arbitrary and despotic manner by reason of passion or
hostility.[49]
The March 1, 2004 order denied due course to the notices of appeal of both Equitable
and respondents. However, it declared that the February 5, 2004 decision was final
and executory only with respect to Equitable.[50] As expected, the March 24, 2004
omnibus order denied Equitable's motion for reconsideration and granted
respondents' motion for the issuance of a writ of execution.[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004
decision. Not only that. The execution of the decision was undertaken with indecent
haste, effectively obviating or defeating Equitable's right to avail of possible legal
remedies. No matter how we look at it, the RTC committed grave abuse of discretion
in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the
ordinary course of law, we hold that there was none. The RTC denied due course to
its notice of appeal in the March 1, 2004 order. It affirmed that denial in the March 24,
2004 omnibus order. Hence, there was no way Equitable could have possibly
appealed the February 5, 2004 decision.[52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that
petition was not a plain, speedy and adequate remedy in the ordinary course of
law.[53] A petition for relief under Rule 38 is an equitable remedy allowed only in
exceptional circumstances or where there is no other available or adequate remedy.[54]
Thus, we grant Equitable's petition for certiorari and consequently give due course to
its appeal.
EQUITABLE
RAISED PURE
QUESTIONS OF
LAW IN ITS
PETITIONFOR
REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of
law.[55] There is a question of law when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue does not
call for the probative value of the evidence presented, the truth or falsehood of facts
being admitted.[56]
21
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTCs February 5, 2004 decision. Equitable
points out that that decision was patently erroneous, specially the exorbitant award
of damages, as it was inconsistent with existing law and jurisprudence. [57]
THE
PROMISSORY
NOTES
WERE VALID
The RTC upheld the validity of the promissory notes despite respondents
assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by
one party.[58] The participation of the other party is limited to affixing his signature or
his adhesion to the contract.[59] For this reason, contracts of adhesion are strictly
construed against the party who drafted it.[60]
It is erroneous, however, to conclude that contracts of adhesion are invalid per
se. They are, on the contrary, as binding as ordinary contracts. A party is in reality
free to accept or reject it. A contract of adhesion becomes void only when the
dominant party takes advantage of the weakness of the other party, completely
depriving the latter of the opportunity to bargain on equal footing. [61]
That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But they
did not. Instead, they continuously availed of Equitable's credit facilities for five long
years.
While the RTC categorically found that respondents had outstanding dollar- and
peso-denominated loans with Equitable, it, however, failed to ascertain the total
amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial court
did not explain how it arrived at the amounts of US$228,200
and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji,[63] we
reiterated that this Court is not a trier of facts and it shall pass upon them only for
compelling reasons which unfortunately are not present in this case. [64] Hence, we
ordered the partial remand of the case for the sole purpose of determining the
amount of actual damages.[65]
ESCALATION
CLAUSE
VIOLATED THE
PRINCIPLE OF
MUTUALITY OF
CONTRACTS
Escalation clauses are not void per se. However, one which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement is void. Clauses of that nature violate the principle of mutuality of
contracts.[66]Article 1308[67] of the Civil Code holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of
them.[68]
For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the
applicable maximum rate of interest is increased by law or
by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if
the applicable maximum rate of interest is reduced by law
or by the Monetary Board (de-escalation clause).[69]
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent
extensions shall be at such rate as shall be determined by the
bank.[70]
Equitable dictated the interest rates if the term (or period for repayment) of
the loan was extended. Respondents had no choice but to accept them. This was a
violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause
did not contain the necessary provisions for validity, that is, it neither provided that
the rate of interest would be increased only if allowed by law or the Monetary Board,
nor allowed de-escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine
National Bank[71] we held that, because the escalation clause was annulled, the
principal amount of the loan was subject to the original or stipulated rate of interest.
Upon maturity, the amount due was subject to legal interest at the rate of 12% per
annum.[72]
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for
their dollar-denominated loans and 20% p.a. for their peso-denominated loans from
22
January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of
12% p.a. on all amounts due.
THERE WAS NO
EXTRAORDINA
RY DEFLATION
Extraordinary inflation exists when there is an unusual decrease in the purchasing
power of currency (that is, beyond the common fluctuation in the value of currency)
and such decrease could not be reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.[73]
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should intervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
1. that there was an official declaration of extraordinary
inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP);[74]
2. that the obligation was contractual in nature;[75] and
3. that the parties expressly agreed to consider the effects
of the extraordinary inflation or deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose out
of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation).[77] The RTC never mentioned that there was a such stipulation
either in the promissory note or loan agreement. Therefore, respondents should pay
their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.[78]
THE AWARD OF
MORAL AND
EXEMPLARY
DAMAGES
LACKEDBASIS
Moral damages are in the category of an award designed to compensate the claimant
for actual injury suffered, not to impose a penalty to the wrongdoer. [79] To be entitled
to moral damages, a claimant must prove:
1. That he or she suffered besmirched reputation, or
physical, mental or psychological suffering sustained by
the claimant;
2. That the defendant committed a wrongful act or
omission;
3. That the wrongful act or omission was the proximate
cause of the damages the claimant sustained;
4. The case is predicated on any of the instances expressed
or envisioned by Article 2219[80] and 2220[81]. [82]
In culpa contractual or breach of contract, moral damages are recoverable
only if the defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations.[83] The breach must be wanton, reckless, malicious or in bad
faith, and oppressive or abusive.[84]
The RTC found that respondents did not pay Equitable the interest due on February
9, 2001 (or any month thereafter prior to the maturity of the loan)[85] or the amount
due (principal plus interest) due on July 9, 2001.[86]Consequently, Equitable applied
respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.[87] For this reason, a bank has the right to set-off the deposits in its hands for
the payment of a depositor's indebtedness.[88]
Respondents indeed defaulted on their obligation. For this reason, Equitable had the
option to exercise its legal right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded that Equitable acted
fraudulently or in bad faith or in wanton disregard of its contractual obligations
despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their
loans. There was therefore absolutely no basis for the award of moral damages to
them.
Neither was there reason to award exemplary damages. Since respondents were not
entitled to moral damages, neither should they be awarded exemplary
23
damages.[89] And if respondents were not entitled to moral and exemplary damages,
neither could they be awarded attorney's fees and litigation expenses.[90]

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals
in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City
in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered with grave
abuse of discretion amounting to lack or excess of jurisdiction. All proceedings
undertaken pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil
Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI
Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course.

The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in
Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby
entered:

1. ordering respondents Ng Sheung Ngor, doing business under the

name and style of Ken Marketing, Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated
loans from January 10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated
loans from January 10, 2001 to July 9, 2001;[91]
c) pursuant to our ruling in Eastern Shipping Lines v. Court
of Appeals,[92] the total amount due on July 9, 2001 shall
earn legal interest at 12% p.a. from the time petitioner
Equitable PCI Bank demanded payment, whether
judicially or extra-judicially; and
d) after this Decision becomes final and executory, the
applicable rate shall be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute
the exact amounts due on the respective dollar-denominated and peso-denominated
loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division and Benjamin E. Go.

SO ORDERED.

24
G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in
CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati,
Branch 139,2 which dismissed the complaint filed by petitioner Bank of the Philippine
Islands against private respondent Benjamin C. Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit
Unit (FCDU) Savings Account No. 028-1873 which he maintained in petitioner bank's
Buendia Avenue Extension Branch, Continental Bank Manager's Check No.
000147574 dated August 17, 1984, payable to "cash" in the amount of Two Thousand
Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its
dorsal side.5 It appears that the check belonged to a certain Henry who went to the
office of private respondent and requested him to deposit the check in his dollar
account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip,
with the understanding that as soon as the check is cleared, both of them would go to
the bank to withdraw the amount of the check upon private respondent's
presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23,
1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU
Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount
was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly
initialed by the branch assistant manager, Teresita Lindo.6
On November 20, 1984, petitioner received communication from the Wells Fargo
Bank International of New York that the said check deposited by private respondent
was a counterfeit check7 because it was "not of the type or style of checks issued by
Continental Bank International."8 Consequently, Mr. Ariel Reyes, the manager of
petitioner's Buendia Avenue Extension Branch, instructed one of its employees,
Benjamin D. Napiza IV, who is private respondent's son, to inform his father that the
check bounced.9 Reyes himself sent a telegram to private respondent regarding the
dishonor of the check. In turn, private respondent's son wrote to Reyes stating that
the check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C.
de Guzman after it shall have been cleared upon instruction of Chan. He also said
that upon learning of the dishonor of the check, his father immediately tried to
contact Chan but the latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00 to petitioner
bank. On December 18, 1984, Reyes reminded private respondent of his son's promise
and warned that should he fail to return that amount within seven (7) days, the
matter would be referred to the bank's lawyers for appropriate action to protect the
bank's interest.11 This was followed by a letter of the bank's lawyer dated April 8,
1985 demanding the return of the $2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20, 198513 stating
that he deposited the check "for clearing purposes" only to accommodate Chan. He
added:
Further, please take notice that said check was deposited on September 3, 1984 and
withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the
time of withdrawal. Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the reason why the
transaction is not reflected in the passbook of the account. Besides, I did not receive
its proceeds as may be gleaned from the withdrawal slip under the captioned
signature of recipient.1âwphi1.nêt
If at all, my obligation on the transaction is moral in nature, which (sic) I have been
and is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan
who is directly liable under the circumstances.
xxx xxx xxx
On August 12, 1986, petitioner filed a complaint against private respondent, praying
for the return of the amount of $2,500.00 or the prevailing peso equivalent plus legal
interest from date of demand to date of full payment, a sum equivalent to 20% of the
total amount due as attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise alleged that
he instructed the party to whom he issued the signed blank withdrawal slip to return
it to him after the bank draft's clearance so that he could lend that party his passbook
for the purpose of withdrawing the amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar
savings account through collusion with one of petitioner's employees. Private
respondent added that he had "given the Plaintiff fifty one (51) days with which to
clear the bank draft in question." Petitioner should have disallowed the withdrawal
because his passbook was not presented. He claimed that petitioner had no one to
blame except itself "for being grossly negligent;" in fact, it had allegedly admitted
having paid the amount in the check "by mistake" . . . "if not altogether due to
collusion and/or bad faith on the part of (its) employees." Charging petitioner with
"apparent ignorance of routine bank procedures," by way of counterclaim, private
respondent prayed for moral damages of P100,000.00, exemplary damages of
P50,000.00 and attorney's fees of 30% of whatever amount that would be awarded to
him plus an honorarium of P500.00 per appearance in court.
25
Private respondent also filed a motion for admission of a third party complaint
against Chan. He alleged that "thru strategem and/or manipulation," Chan was able
to withdraw the amount of $2,500.00 even without private respondent's passbook.
Thus, private respondent prayed that third party defendant Chan be made to refund
to him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party
complaint, whenever it asserted that per paragraph 2 of the Rules and Regulations
governing BPI savings accounts, private respondent alone was liable "for the value of
the credit given on account of the draft or check deposited." It contended that private
respondent was estopped from disclaiming liability because he himself authorized
the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for
the denial of the said motion so as not to unduly delay the disposition of the main
case asserting that private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid
multiplicity of suits, the motion to admit third party complaint should be granted.
Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987
directing private respondent to actively participate in locating Chan. After private
respondent failed to comply, the trial court, on May 18, 1988, dismissed the third
party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower
court held that petitioner could not hold private respondent liable based on the
check's face value alone. To so hold him liable "would render inutile the requirement
of "clearance" from the drawee bank before the value of a particular foreign check or
draft can be credited to the account of a depositor making such deposit." The lower
court further held that "it was incumbent upon the petitioner to credit the value of the
check in question to the account of the private respondent only upon receipt of the
notice of final payment and should not have authorized the withdrawal from the
latter's account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before authorizing
the withdrawal of its value or proceeds, petitioner should suffer the resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The appellate
court held that petitioner committed "clears gross negligence" in allowing Ruben
Gayon, Jr. to withdraw the money without presenting private respondent's passbook
and, before the check was cleared and in crediting the amount indicated therein in
private respondent's account. It stressed that the mere deposit of a check in private
respondent's account did not mean that the check was already private respondent's
property. The check still had to be cleared and its proceeds can only be withdrawn
upon presentation of a passbook in accordance with the bank's rules and regulations.
Furthermore, petitioner's contention that private respondent warranted the check's
genuineness by endorsing it is untenable for it would render useless the clearance
requirement. Likewise, the requirement of presentation of a passbook to ascertain the
propriety of the accounting reflected would be a meaningless exercise. After all, these
requirements are designed to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v.
IAC,14 where this Court stated that a personal check is not legal tender or money,
and held that the check deposited in this case must be cleared before its value could
be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals' Decision,
petitioner filed this petition for review on certiorari, raising the following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN
RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING
THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the dorsal
side of the check, should be liable for the amount stated therein in accordance with
the following provision of the Negotiable Instruments Law (Act No. 2031):
Sec. 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.
Sec. 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it, and (c) that all prior parties had capacity to contract.15 In People v.
Maniego,16 this Court described the liabilities of an indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on account of the
dishonor of the checks indorsed by her, is likewise untenable. Under the law, the
holder or last indorsee of a negotiable instrument has the right "to enforce payment of
the instrument for the full amount thereof against all parties liable thereon. Among
26
the "parties liable thereon." Is an indorser of the instrument, i.e., "a person placing his
signature upon an instrument otherwise than as a maker, drawer or acceptor * *
unless he clearly indicated by appropriate words his intention to be bound in some
other capacity." Such an indorser "who indorses without qualification," inter alia
"engages that on due presentment, * * (the instrument) 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 any subsequent indorser who may be compelled to pay it." Maniego
may also be deemed an "accommodation party" in the light of the facts, i.e., a person
"who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value thereof, and for the purpose of lending his name to some other
person." As such, she is under the law "liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew * * (her) to be
only an accommodation party," although she has the right, after paying the holder, to
obtain reimbursement from the party accommodated, "since the relation between
them is in effect that of principal and surety, the accommodation party being the
surety.
It is thus clear that ordinarily private respondent may be held liable as an indorser of
the check or even as an accommodation party.17 However, to hold private
respondent liable for the amount of the check he deposited by the strict application of
the law and without considering the attending circumstances in the case would result
in an injustice and in the erosion of the public trust in the banking system. The
interest of justice thus demands looking into the events that led to the encashment of
the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented
the opportunity for the withdrawal of the amount in question." Petitioner relied "on
the genuine signature on the withdrawal slip, the personality of private respondent's
son and the lapse of more than fifty (50) days from date of deposit of the Continental
Bank draft, without the same being returned yet."18 We hold, however, that the
propriety of the withdrawal should be gauged by compliance with the rules thereon
that both petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on
withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally but in some exceptional
circumstances, the Bank may allow withdrawal by another upon the depositor's
written authority duly authenticated; and neither a deposit nor a withdrawal will be
permitted except upon the presentation of the depositor's savings passbook, in which
the amount deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the
account at the request of the depositor in writing on the withdrawal slip or by
authenticated cable. Such request must indicate the name of the payee/s, amount and
the place where the funds are to be paid. Any stamp, transmission and other charges
related to such withdrawals shall be for the account of the depositor and shall be paid
by him/her upon demand. Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills are allowed subject
however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only
in the manner above provided, upon presentation of the depositor's savings passbook
and with the withdrawal form supplied by the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account deposit under the
Philippine foreign currency deposit system, two requisites must be presented to
petitioner bank by the person withdrawing an amount: (a) a duly filled-up
withdrawal slip, and (b) the depositor's passbook. Private respondent admits he
signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the
request for withdrawal must name the payee, the amount to be withdrawn and the
place where such withdrawal should be made. That the withdrawal slip was in fact a
blank one with only private respondent's two signatures affixed on the proper spaces
is buttressed by petitioner's allegation in the instant petition that had private
respondent indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(I)n
failing to do so (i.e., naming his authorized agent), he practically authorized any
possessor thereof to write any amount and to collect the same."20
Such contention would have been valid if not for the fact that the withdrawal slip
itself indicates a special instruction that the amount is payable to "Ramon A. de
Guzman &/or Agnes C. de Guzman." Such being the case, petitioner's personnel
should have been duly warned that Gayon, who was also employed in petitioner's
Buendia Ave. Extension branch,21 was not the proper payee of the proceeds of the
check. Otherwise, either Ramon or Agnes de Guzman should have issued another
authority to Gayon for such withdrawal. Of course, at the dorsal side of the
withdrawal slip is an "authority to withdraw" naming Gayon the person who can
withdraw the amount indicated in the check. Private respondent does not deny
having signed such authority. However, considering petitioner's clear admission that
the withdrawal slip was a blank one except for private respondent's signature, the
unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have been a
principal-agent relationship between private respondent and Gayon so as to render
the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt
must be signed and presented with the corresponding foreign currency savings
passbook by the depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back." The requirement of
presentation of the passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is authorized by the depositor
to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection
27
of the bank's interest and as a reminder to the depositor, the withdrawal shall be
entered in the depositor's passbook. The fact that private respondent's passbook was
not presented during the withdrawal is evidenced by the entries therein showing that
the last transaction that he made with the bank was on September 3, 1984, the date he
deposited the controversial check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another rule that is
printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the same
manner; provided, however, that deposits of drafts, checks, money orders, etc. will be
accented as subject to collection only and credited to the account only upon receipt of
the notice of final payment. Collection charges by the Bank's foreign correspondent in
effecting such collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the account. If,
for any reason, the proceeds of the deposited checks, drafts, money orders, etc.,
cannot be collected or if the Bank is required to return such proceeds, the provisional
entry therefor made by the Bank in the savings passbook and its records shall be
deemed automatically cancelled regardless of the time that has elapsed, and whether
or not the defective items can be returned to the depositor; and the Bank is hereby
authorized to execute immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first opportunity to reflect such
cancellation. (Emphasis and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated therein.
Under the above rule, by depositing the check with petitioner, private respondent
was, in a way, merely designating petitioner as the collecting bank. This is in
consonance with the rule that a negotiable instrument, such as a check, whether a
manager's check or ordinary check, is not legal tender.23 As such, after receiving the
deposit, under its own rules, petitioner shall credit the amount in private
respondent's account or infuse value thereon only after the drawee bank shall have
paid the amount of the check or the check has been cleared for deposit. Again, this is
in accordance with ordinary banking practices and with this Court's pronouncement
that "the collecting bank or last endorser generally suffers the loss because has the
duty to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of the
endorsements."24 The rule finds more meaning in this case where the check involved
is drawn on a foreign bank and therefore collection is more difficult than when the
drawee bank is a local one even though the check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in
Madrid, Spain, paid the amounts represented in three (3) checks to Virginia Boncan,
the finance officer of the Philippine Embassy in Madrid. The bank did so without
previously clearing the checks with the drawee bank, the Philippine National Bank in
New York, on account of the "special treatment" that Boncan received from the
personnel of Banco Atlantico's foreign department. The Court held that the
encashment of the checks without prior clearance is "contrary to normal or ordinary
banking practice specially so where the drawee bank is a foreign bank and the
amounts involved were large." Accordingly, the Court approved the Auditor
General's denial of Banco Atlantico's claim for payment of the value of the checks that
was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with public
interest. By the nature of its functions, a bank is under obligation to treat the accounts
of its depositors "with meticulous care, always having in mind the fiduciary nature of
their relationship."27 As such, in dealing with its depositors, a bank should exercise
its functions not only with the diligence of a good father of a family but it should do
so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's
deposit, failed to exercise the diligence of a good father of a family. In total disregard
of its own rules, petitioner's personnel negligently handled private respondent's
account to petitioner's detriment. As this Court once said on this matter:
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, provides that 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
pater-familias 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.29
Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondent's dollar
deposits that had yet to be cleared. The bank's ledger on private respondent's account
shows that before he deposited $2,500.00, private respondent had a balance of only
$750.00.30 Upon private respondent's deposit of $2,500.00 on September 3, 1984, that
amount was credited in his ledger as a deposit resulting in the corresponding total
balance of $3,250.00.31 On September 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein as withdrawn thereby leaving a
balance $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the
ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn
with a balance of $109.92.32 On November 19, 1984 the word "hold" was written
beside the balance of $109.92.33 That must have been the time when Reyes,
petitioner's branch manager, was informed unofficially of the fact that the check
deposited was a counterfeit, but petitioner's Buendia Ave. Extension Branch received
28
a copy of the communication thereon from Wells Fargo Bank International in New
York the following day, November 20, 1984.34 According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that were
deposited with petitioner.35

From these facts on record, it is at once apparent that petitioner's personnel allowed
the withdrawal of an amount bigger than the original deposit of $750.00 and the
value of the check deposited in the amount of $2,500.00 although they had not yet
received notice from the clearing bank in the United States on whether or not the
check was funded. Reyes' contention that after the lapse of the 35-day period the
amount of a deposited check could be withdrawn even in the absence of a clearance
thereon, otherwise it could take a long time before a depositor could make a
withdrawal,36 is untenable. Said practice amounts to a disregard of the clearance
requirement of the banking system.

While it is true that private respondent's having signed a blank withdrawal slip set in
motion the events that resulted in the withdrawal and encashment of the counterfeit
check, the negligence of petitioner's personnel was the proximate cause of the loss
that petitioner sustained. Proximate cause, which is determined by a mixed
consideration of logic, common sense, policy and precedent, is "that cause, which, in
natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred."37 The
proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner's part was its personnel's negligence in allowing such withdrawal in
disregard of its own rules and the clearing requirement in the banking system. In so
doing, petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting
damage.1âwphi1.nêt

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.

29
PHILIPPINE SAVINGS BANK, G.R. No. 177526 The total amount of the subject checks reached P556,981.86.
Petitioner,
Present: On the respective due dates of each check, Chowkings acting accounting manager,
YNARES-SANTIAGO, J., Rino T. Manzano, endorsed and encashed said checks with the Bustos branch
Chai of respondent PSBank.[3]
rperson,
- versus - AUSTRIA-MARTINEZ, All the five checks were honored by defendant Santos, even with only the
CHICO-NAZARIO, endorsement of Manzano approving them. The signatures of the other authorized
NACHURA, and officers of respondent corporation were absent in the five (5) checks, contrary to usual
REYES, JJ. banking practice.[4] Unexpectedly, Manzano absconded with and misappropriated the
check proceeds.[5]
CHOWKING FOOD Promulgated:
CORPORATION, When Chowking found out Manzanos scheme, it demanded reimbursement from
Respondent. July 4, 2008 PSBank.[6] When PSBank refused to pay, Chowking filed a complaint[7] for a sum of
money with damages before the RTC. Likewise impleaded were PSBanks president,
x--------------------------------------------------x Antonio S. Abacan, and Bustos branch head, Santos.[8]

DECISION Both PSBank and Santos filed cross claims and third party complaints against
Manzano.[9] Despite all diligent efforts, summonses were not served upon third party
defendant Manzano. Santos did not take any further action and her third party
REYES, R.T., J.: complaint was archived.[10]

Meanwhile, petitioner caused the service of its summons on the cross-claim and third
IT is the peculiar quality of a fool to perceive the fault of others and to forget his party complaints through publication. On its subsequent motion, Manzano was
own. Ang isang kakatuwang katangian ng isang hangal ay punahin ang kamalian ng declared in default for failure to file a responsive pleading. [11]
iba at kalimutan naman ang sa kanya.
Respondent filed a motion for summary judgment. Petitioner opposed the
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals motion. On February 1, 1995, the trial court denied the motion via an order of even
(CA) reinstating the Decision of the Regional Trial Court date.[12]
(RTC), Manila, Branch 5. The RTC ordered petitioner Philippine Savings Bank
(PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse respondent In its Answer, petitioner did not controvert the foregoing facts, but denied liability to
Chowking Food Corporation (Chowking) the amount corresponding to five (5) respondent for the encashed checks.[13] Petitioner bank maintained it exercised due
illegally encashed checks. diligence in the supervision of all its employees. It even dismissed
defendant Santos after she was found guilty of negligence in the performance of her
The Facts duties.[14]

Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in Defendant Santos, on the other hand, denied that she had been negligent in her
favor of Chowking five (5) PSBank checks with the following numbers, dates and job. She averred that she merely followed the banks practice of honoring respondents
denominations: checks even if accompanied only by Manzanos endorsement.[15]

Check No. Amount Date Defendant Abacan likewise denied any liability to respondent. He alleged that, as
017069 P 44,120.00 15 March 1989 president and officer of petitioner bank, he played no role in the transactions
053528 P135,052.87 09 May 1989 complained of.[16] Thus, respondent has no cause of action against him.
074602 P160,138.12 08 August 1989
074631 P159,634.13 08 August 1989 Petitioner, Santos and Abacan were unanimous in asserting that respondent
017096 P 60,036.74 10 August 1989[2] is estopped from claiming reimbursement and damages since it was negligent in

30
allowing Manzano to take hold, endorse, and encash its checks. Petitioner pointed out 1. Ordering the dismissal of the complaint by the
that the proximate cause of respondents loss was its own negligence. [17] plaintiff Chowking Food Corporation
against the defendants, Philippine Savings
RTC Disposition Bank (PSBank) and Erlinda Santos for lack
of basis in fact and law;
On August 24, 1998, the RTC rendered judgment in favor of respondent, the
dispositive portion of which reads: 2. Ordering the third party defendant, Regino or
Rino T. Manzano to pay the plaintiff
WHEREFORE, premises considered, judgment is hereby rendered Chowking Food Corporation, the following:
in favor of plaintiff and as against defendant Philippine Savings
Bank and Erlinda O. Santos ordering the said defendants to pay a. To reimburse the plaintiff the
plaintiff, jointly and severally: amount of P556,981.86 plus
interest at the rate of 12% per
1. The amount of P556,981.86 plus interest at the annum from August 15, 1989,
rate of 12% per annum from August 15, until said amount has been fully
1989 until said amount shall have been satisfied;
paid;
2. 20% of the total amount due plaintiff as b. To pay an attorneys fee equivalent
attorneys fees; to 20% of the total amount due
3. The sum of P100,000.00 as exemplary damages; the plaintiff;
4. The sum of P1,000,000.00 for plaintiffs
unrealized profits. c. To pay an amount of P100,000.00 the
plaintiff for actual and
The complaint with respect to defendant Antonio Abacan, compensatory damages, plus the
Jr. as well as his counterclaim and cross claim are hereby costs of this suit.
DISMISSED.
SO ORDERED.[19]
With respect to the cross claim of defendant PSBank
against Erlinda Santos and its third-party complaint against Rino T. Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
Manzano, both Santos and Manzano are hereby ordered to jointly
and severally, reimburse defendant PSBank whatever amount the CA Disposition
latter shall be constrained to pay plaintiff in connection with this
case. In its appeal, respondent Chowking contended, inter alia, that the RTC erred
in ruling that the proximate cause of the loss was its own negligence; and that its
SO ORDERED.[18] claim was barred by estoppel.

Aggrieved, petitioner filed a motion for reconsideration. Through an Order

dated January 11, 1999, the RTCreversed its earlier ruling and held that it was
respondents own negligence that was the proximate cause of the loss.The fallo of the
amended RTC decision now reads:
In light of the foregoing grounds and observations, the
Decision of August 24, 1998, by this Court is accordingly modified
as follows:
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order
appealed from is hereby SET ASIDE and the 24 August
1998 decision is consequently REINSTATED with modification that
the awards of attorneys fees, exemplary damages, and
alleged P1,000,000.00 unrealized profits of the appellant are
DELETED.

31
 IT IS SO ORDERED.[20]
The CA held that both petitioner PSBank and Santos should bear the
loss. Said the appellate court:
It is admitted that PSB cashed, over the counter, the checks
of the appellant indorsed by Manzano alone. Since there is no more
dispute on the negligent act of Santos in honoring the appellants
checks, over the counter, despite the proper indorsements, the
categorical finding of negligence against her, remaining
unrebutted, is deemed established. This in effect warrants a finding
that Santos is liable for damages to the appellant. The lower court
therefore erred in dismissing the complaint against her.[21]
Further, the CA held that:
Contrary to PSBs contention that it should not be held
liable because it neither consented to nor had knowledge
of Santos (sic) violations, such liability of Santos is solidary
with PSB pursuant to Article 2176 in relation to Article 2180 of the
Civil Code which 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....
Art. 2180. The obligation imposed by Art. 2176 is
demandable not only for one's own acts or
omissions but also for those of persons for whom
one is responsible.
xxxx
Employers shall be liable for the damage caused
by their employees and household helpers acting
within the scope of their assigned tasks even
though the former are not engaged in any
business or activity.
xxxx
The responsibility treated of in this article shall
cease when the persons herein mentioned prove
that they observed all the diligence of a good
father of a family to prevent damage.
x x x However, with banks like PSB, the degree of diligence
required is more than that of a good father of a family considering
that the business of banking is imbued with public interest due to
the nature of its functions. Highest degree of diligence is needed
which PSB, in this case, failed to observe.
x x x Its argument that it should no be held responsible for the
negligent acts of Santos because those were independent acts x x x
perpetrated without its knowledge and consent is without basis in
fact and in law. Assuming that PSB did not err in hiring Santos for
her position, its lack of supervision over her made it solidarily
liable for the unauthorized encashment of the checks involved. In
the supervision of employees, the employer must formulate
standard operating procedures, monitor their implementation and
impose disciplinary measures for the breach thereof. The appellee,
in this case, presented no evidence that it formulated
rules/guidelines for the proper performance of functions of its
employees and that it strictly implemented and monitored
compliance therewith. x x x[22]
The CA also disagreed with petitioners contention that respondents own negligence
was the proximate cause of its loss. The CA opined that even assuming that
respondent was also negligent in allowing Manzano to encash its checks, petitioner
had the last clear chance to avert injury and loss to respondent. This could have been
done if petitioner, through Santos, faithfully and carefully observed its encashment
rules and procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of
the checks involved, she would not have cashed the same because
Manzano, whose only signature appears therein, is apparently not
an authorized signatory of the appellant x x x had every means to
determine the validity of those indorsements but for one reason or
another she was neglectful of her duty x x x as admitted by PSB,
such over the counter encashments are not even sanctioned by its
policies but Santos simply ignored the same. It appears clear
that Santos let the opportunity slip by when an exercise of ordinary
prudence expected of bank employees would have sufficed to
prevent the loss.[23]
Issues
Petitioner has resorted to the present recourse and assigns to the CA the
following errors:
I
32
 THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT RESPONDENT WAS ESTOPPEDFROM
ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID
NOT RULE THAT RESPONDENT'S NEGLIGENCE WAS THE
PROXIMATE CAUSE OF ITS OWN LOSS. (Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in the
present case. The equitable doctrine of estoppel was explained by this Court in Caltex
(Philippines), Inc. v. Court of Appeals:[24]
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them. In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, to act upon such belief, he
cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v. Baun:[26]
In estoppel by pais, as related to the party sought to be
estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct amounting to false representation
or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (b) intent, or
at least expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts.[27]
Estoppel may vary somewhat in definition, but all authorities agree that a party
invoking the doctrine must have been misled to ones prejudice. That is the final and,
in reality, most important of the elements of equitable estoppel. [28] It is this element
that is lacking here.
We agree with the CA that Chowking did not make any false representation or
concealment of material facts in relation to the encashments of the previous
checks. As adverted to earlier, respondent may have allowed Manzano to previously
encash its checks, but it has always been accompanied with the endorsements of the
other authorized signatories. Respondent did not allow petitioner to have its
checks encashed without the signature of all of its authorized signatories.
The CA pointed out:
We find at the back of those checks, whereon indorsement
usually appears, the signature of Manzano together with other
signature/signatures though mostly are illegible. It appears then that,
assuming the appellant impliedly tolerated the act of Manzano in
indorsing the checks, it did not allow Manzano alone to indorse its
checks as what actually happened in this case because his previous
indorsements were coupled with other indorsements of the
appellants signatories. There is, therefore, no sufficient evidence to
sustain PSBs submission. On this score alone, the defense of
estoppel must fail.[29](Underscoring and emphasis supplied)
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v.
Luz,[30] the Court enumerated the elements of estoppel in this wise:
x x x As related to the party claiming the estoppel, the
essential elements are (1) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (2) reliance, in good
faith, upon the conduct and statements of the party to be estopped;
(3) action or inaction based thereon of such character as to change
the position or status of the party claiming the estoppel, to his
injury, detriment or prejudice.[31]
Here, the first two elements are wanting. Petitioner has knowledge of the truth and
the means to it as to the proper endorsements necessary in encashing respondents
checks. Respondent has an account with petitioner bank and, as such, is privy to the
proper signatories to endorse respondents checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the
conclusive proof that its essential elements are present, estoppel must fail. Because
estoppel, when misapplied, becomes a most effective weapon to accomplish an
injustice, inasmuch as it shuts a mans mouth from speaking the truth.[32]
Petitioner failed to prove that it has observed the due diligence required of banks
under the law. Contrary to petitioners view, its negligence is the proximate cause of
respondents loss.
It cannot be over emphasized that the banking business is impressed with
public interest. Of paramount importance is the trust and confidence of the public in
general in the banking industry. Consequently, the diligence required of banks is
33
more than that of a Roman pater familias or a good father of a family.[33] The highest
degree of diligence is expected.[34]
In its declaration of policy, the General Banking Law of 2000[35] requires of
banks the highest standards of integrity and performance. Needless to say, a bank is
under obligation to treat the accounts of its depositors with meticulous care.[36] The
fiduciary nature of the relationship between the bank and the depositors must always
be of paramount concern.[37]
Petitioner, through Santos, was clearly negligent when it honored
respondents checks with the lone endorsement of Manzano. In the similar case
of Philippine Bank of Commerce v. Court of Appeals,[38] an employee of Rommels
Marketing Corporation (RMC) was able to illegally deposit in a different account the
checks of the corporation. This Court found that it was the bank tellers failure to
exercise extraordinary diligence to validate the deposit slips that caused the crime to
be perpetrated.
The Court held thus:
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: 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.
xxxx
It was this negligence x x x 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 private
respondent, and not the latters act of entrusting cash to a dishonest
employee, as insisted by the petitioners.[39]
Proximate cause is determined by the facts of the case. It 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. [40]
Measured by the foregoing yardstick, the proximate cause of the loss is not
respondents alleged negligence in allowing Manzano to take hold and encash
respondents checks. The proximate cause is petitioners own negligence in the
supervision of its employees when it overlooked the irregular practice of encashing
checks even without the requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,[41] this Court
similarly held:
For allowing payment on the checks to a wrongful and
fictitious payee, BPI the drawee bank becomes liable to its
depositor-drawer. Since the encashing bank is one of its branches,
BPI can easily go after it and hold it liable for reimbursement. x x x
In both law and equity, when one of two innocent persons must
suffer by the wrongful act of a third person, the loss must be borne
by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the
wrong.[42]
Further, the Court ruled:
Pursuant to its prime duty to ascertain well the
genuineness of the signatures of its client-depositors on checks
being encashed, BPI is expected to use reasonable business
prudence. In the performance of that obligation, it is bound by its
internal banking rules and regulations that form part of the contract
it enters into with its depositors.
Unfortunately, it failed in that regard. x x x Without
exercising the required prudence on its part, BPI accepted and
encashed the eight checks presented to it. As a result, it
34
proximately contributed to the fraud and should be held
primarily liable for the negligence of its officers or agents when
acting within the course and scope of their employment. It must
bear the loss.[43]

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.

35
[G.R. No. 149454. May 28, 2004] The Facts

The facts of the case are narrated by the CA as follows:

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI
INTERNATIONALE and LEONARDO T. YABUT, respondents. On November 8, 1982, plaintiff CASA Montessori International[5] opened Current
Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma.
Carina C. Lebron as one of its authorized signatories.

[G.R. No. 149507. May 28, 2004] In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its
checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount
of P782,000.00, on the following dates and amounts:

CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE Check No. Date Amount
PHILIPPINE ISLANDS, respondent.
1. 839700 April 24, 1990 P 43,400.00
DECISION

PANGANIBAN, J.: 2. 839459 Nov. 2, 1990 110,500.00

By the nature of its functions, a bank is required to take meticulous care of the 3. 839609 Oct. 17, 1990 47,723.00
deposits of its clients, who have the rightto expect high standards of integrity
and performance from it. Among its obligations in furtherance thereof is knowing 4. 839549 April 7, 1990 90,700.00
the signatures of its clients. Depositors are not estopped from questioning wrongful
withdrawals, even if they have failed to question those errors in the statements sent 5. 839569 Sept. 23, 1990 52,277.00
by the bank to them for verification.
6. 729149 Mar. 22, 1990 148,000.00

The Case 7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

Before us are two Petitions for Review[1] under Rule 45 of the Rules of Court,
assailing the March 23, 2001 Decision[2]and the August 17, 2001 Resolution[3] of the
Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed
Decision reads as follows:
WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with
the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held
liable only for one-half of the value of the forged checks in the amount of P547,115.00
after deductions subject to REIMBURSEMENT from third party defendant Yabut who
is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori
Internationale (CASA)].[4]
The assailed Resolution denied all the parties Motions for Reconsideration.
9. 729034 Mar. 2, 1990 98,985.00
Total -- P 782,600.00[6]
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a
fictitious name used by third party defendant Leonardo T. Yabut who worked as
external auditor of CASA. Third party defendant voluntarily admitted that he forged
the signature of Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and
concluded that the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter.

36
 On March 4, 1991, plaintiff filed the herein Complaint for Collection with
Damages against defendant bank praying that the latter be ordered to reinstate the
amount of P782,500.00[7] in the current and savings accounts of the plaintiff with
interest at 6% per annum.
On February 16, 1999, the RTC rendered the appealed decision in favor of the
plaintiff.[8]
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned
the loss between BPI and CASA. The appellate court took into account CASAs
contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the
other half. It also disallowed attorneys fees and moral and exemplary damages.
Hence, these Petitions.[9]
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:
I. The Honorable Court of Appeals erred in deciding this case NOT in accord with
the applicable decisions of this Honorable Courtto the effect that forgery cannot be
presumed; that it must be proved by clear, positive and convincing evidence; and that
the burden of proof lies on the party alleging the forgery.
II. The Honorable Court of Appeals erred in deciding this case not in accord with
applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes
CASA, on account of its own negligence, from asserting its forgery claim against BPI,
specially taking into account the absence of any negligence on the part of BPI.[10]
In GR No. 149507, Petitioner CASA submits the following issues:
1. The Honorable Court of Appeals erred when it ruled that there is no showing that
[BPI], although negligent, acted in bad faith x x x thus denying the prayer for the
award of attorneys fees, moral damages and exemplary damages to [CASA]. The
Honorable Court also erred when it did not order [BPI] to pay interest on the
amounts due to [CASA].
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise
negligent in the case at bar, thus warranting its conclusion that the loss in the amount
of P547,115.00 be apportioned between [CASA] and [BPI] x x x.[11]
These issues can be narrowed down to three. First, was there forgery under the
Negotiable Instruments Law (NIL)?Second, were any of the parties negligent and
therefore precluded from setting up forgery as a defense? Third, should moral and
exemplary damages, attorneys fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is
partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
Section 23. Forged signature; effect of. -- When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right x x x to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.[12]
Under this provision, a forged signature is a real[13] or absolute defense,[14] and a
person whose signature on a negotiable instrument is forged is deemed to have never
become a party thereto and to have never consented to the contract that allegedly
gave rise to it.[15]
The counterfeiting of any writing, consisting in the signing of anothers name
with intent to defraud, is forgery.[16]
In the present case, we hold that there was forgery of the drawers signature on
the check.
First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawers signature
and encashed the checks.[19] He never refuted these findings.[20] That he had been
coerced into admission was not corroborated by any evidence on record. [21]
37
 Second, the appellate and the trial courts also ruled that the PNP Crime
Laboratory, after its examination of the said checks,[22] had concluded that the
handwritings thereon -- compared to the standard signature of the drawer -- were not
hers.[23] This conclusion was the same as that in the Report[24] that the PNP Crime
Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when
affirmed by the CA, since these are supported by substantial evidence on record.[25]
Voluntary Admission Not
Violative of Constitutional Rights
The voluntary admission of Yabut did not violate his constitutional rights (1) on
custodial investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation.[26] His Affidavit was
executed in private and before private individuals.[27] The mantle of protection under
Section 12 of Article III of the 1987 Constitution[28] covers only the period from the
time a person is taken into custody for investigation of his possible participation in
the commission of a crime or from the time he is singled out as a suspect in the
commission of a crime although not yet in custody.[29]
Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with questions propounded on him by the police
authorities for the purpose of eliciting admissions, confessions, or any
information.[30] The said constitutional provision does not apply to spontaneous
statements made in a voluntary manner[31]whereby an individual orally admits to
authorship of a crime.[32] What the Constitution proscribes is the compulsory or
coercive disclosure of incriminating facts.[33]
Moreover, the right against self-incrimination[34] under Section 17 of Article
III[35] of the Constitution, which is ordinarily available only in criminal prosecutions,
extends to all other government proceedings -- including civil actions, legislative
investigations,[36] and administrative proceedings that possess a criminal or penal
aspect[37] -- but not to private investigations done by private individuals. Even in such
government proceedings, this right may be waived,[38] provided the waiver is certain;
unequivocal; and intelligently, understandingly and willingly made.[39]
If in these government proceedings waiver is allowed, all the more is it so in
private investigations. It is of no moment that no criminal case has yet been filed
against Yabut. The filing thereof is entirely up to the appropriate authorities or to the
private individuals upon whom damage has been caused. As we shall also explain
later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the
civil case before the lower court.
Under these two constitutional provisions, [t]he Bill of Rights[40] does not
concern itself with the relation between a private individual and another
individual. It governs the relationship between the individual and the
State.[41] Moreover, the Bill of Rights is a charter of liberties for the individual and a
limitation upon the power of the [S]tate.[42] These rights[43] are guaranteed to preclude
the slightest coercion by the State that may lead the accused to admit something false,
not prevent him from freely and voluntarily telling the truth. [44]
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights
does not automatically entitle him to the constitutional protection. [45] When he freely
and voluntarily executed[46] his Affidavit, the State was not even involved.Such
Affidavit may therefore be admitted without violating his constitutional rights while
under custodial investigation and against self-incrimination.
Clear, Positive and Convincing
Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear,
positive and convincing.
Forgery cannot be presumed.[47] It must be established by clear, positive and
convincing evidence.[48] Under the best evidence rule as applied to documentary
evidence like the checks in question, no secondary or substitutionary evidence may
inceptively be introduced, as the original writing itself must be produced in
court.[49] But when, without bad faith on the part of the offeror, the original checks
have already been destroyed or cannot be produced in court, secondary evidence
may be produced.[50] Without bad faith on its part, CASA proved the loss or
destruction of the original checks through the Affidavit of the one person who knew
of that fact[51] -- Yabut. He clearly admitted to discarding the paid checks to cover up
his misdeed.[52] In such a situation, secondary evidence like microfilm copies may be
introduced in court.
The drawers signatures on the microfilm copies were compared with the
standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-
examination that two different persons had written them.[53] Although no conclusive
report could be issued in the absence of the original checks,[54] she affirmed that her
findings were 90 percent conclusive.[55]According to her, even if the microfilm copies
were the only basis of comparison, the differences were evident. [56] Besides, the RTC
explained that although the Report was inconclusive, no conclusive report could have
been given by the PNP, anyway, in the absence of the original checks. [57] This
explanation is valid; otherwise, no such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only
when the contents of a document -- such as the drawers signature on a check -- is the
subject of inquiry.[58] As to whether the document has been actually executed, this
rule does not apply; and testimonial as well as any other secondary evidence is
38
admissible.[59] Carina Lebron herself, the drawers authorized signatory, testified
many times that she had never signed those checks. Her testimonial evidence is
admissible; the checks have not been actually executed. The genuineness of her
handwriting is proved, not only through the courts comparison of the questioned
handwritings and admittedly genuine specimens thereof,[60] but above all by her.
The failure of CASA to produce the original checks neither gives rise to the
presumption of suppression of evidence[61]nor creates an unfavorable inference
against it.[62] Such failure merely authorizes the introduction of secondary
evidence[63]in the form of microfilm copies. Of no consequence is the fact that CASA
did not present the signature card containing the signatures with which those on the
checks were compared.[64] Specimens of standard signatures are not limited to such a
card. Considering that it was not produced in evidence, other documents that bear
the drawers authentic signature may be resorted to. [65] Besides, that card was in the
possession of BPI -- the adverse party.
We have held that without the original document containing the allegedly
forged signature, one cannot make a definitive comparison that would establish
forgery;[66] and that a comparison based on a mere reproduction of the document
under controversy cannot produce reliable results. [67] We have also said, however,
that a judge cannot merely rely on a handwriting experts testimony,[68] but should
also exercise independent judgment in evaluating the authenticity of a signature
under scrutiny.[69] In the present case, both the RTC and the CA conducted
independent examinations of the evidence presented and arrived at reasonable and
similar conclusions. Not only did they admit secondary evidence; they also appositely
considered testimonial and other documentary evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier,
the first of these has been met.[70] The result of examining a questioned handwriting,
even with the aid of experts and scientific instruments, may be inconclusive; [71] but it
is a non sequitur to say that such result is not clear, positive and convincing. The
preponderance of evidence required in this case has been satisfied. [72]
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in
making payments by virtue thereof.The forged signatures are wholly inoperative, and
CASA -- the drawer whose authorized signatures do not appear on the negotiable
instruments -- cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.
Clear Negligence
in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since the banking business is impressed
with public interest, of paramount importance thereto is the trust and confidence of
the public in general. Consequently, the highest degree of diligence[73] is
expected,[74] and high standards of integrity and performance are even required, of
it.[75] By the nature of its functions, a bank is under obligation to treat the accounts of
its depositors with meticulous care,[76] always having in mind the fiduciary nature of
their relationship.[77]
BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or similar
to the specimen signatures on the signature cards. Nonetheless, it still failed to detect
the eight instances of forgery. Its negligence consisted in the omission of that degree
of diligence required[78]of a bank. It cannot now feign ignorance, for very early on we
have already ruled that a bank is bound to know the signatures of its customers; and
if it pays a forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged.[79] In fact, BPI was the same bank involved when
we issued this ruling seventy years ago.
Neither Waiver nor Estoppel
Results from Failure to
Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as
follows: If no error is reported in ten (10) days, account will be correct. [80] Such notice
cannot be considered a waiver, even if CASA failed to report the error. Neither is it
estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation[81] or circularization -- in accounting
parlance -- that requests client-depositors to affirm the accuracy of items recorded by
the banks.[82] Its purpose is to obtain from the depositors a direct corroboration of the
correctness of their account balances with their respective banks.[83] Internal or
external auditors of a bank use it as a basic audit procedure[84] -- the results of which
its client-depositors are neither interested in nor privy to -- to test the details of
transactions and balances in the banks records.[85] Evidential matter obtained from
independent sources outside a bank only serves to provide greater assurance of
reliability[86] than that obtained solely within it for purposes of an audit of its own
financial statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be
detected[87] for various reasons. One, materiality is a consideration in audit
planning;[88] and two, the information obtained from such a substantive test is merely
39
presumptive and cannot be the basis of a valid waiver.[89] BPI has no right to impose a
condition unilaterally and thereafter consider failure to meet such condition a
waiver. Neither may CASA renounce a right[90] it has never possessed.[91]
Every right has subjects -- active and passive. While the active subject is entitled
to demand its enforcement, the passive one is duty-bound to suffer such
enforcement.[92]
On the one hand, BPI could not have been an active subject, because it could not
have demanded from CASA a response to its notice. Besides, the notice was a measly
request worded as follows: Please examine x x x and report x x x.[93] CASA, on the
other hand, could not have been a passive subject, either, because it had no obligation
to respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that established as the truth, in legal
contemplation.[94] Our rules on evidence even make a juris et de
jure presumption[95] that whenever one has, by ones own act or omission,
intentionally and deliberately led another to believe a particular thing to be true and
to act upon that belief, one cannot -- in any litigation arising from such act or
omission -- be permitted to falsify that supposed truth.[96]
In the instant case, CASA never made any deed or representation that misled
BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious
to the procedures and consequences of periodic audits. Since its conduct was due to
such ignorance founded upon an innocent mistake, estoppel will not arise. [97] A
person who has no knowledge of or consent to a transaction may not be estopped by
it.[98] Estoppel cannot be sustained by mere argument or doubtful inference x x
x.[99] CASA is not barred from questioning BPIs error even after the lapse of the
period given in the notice.
Loss Borne by
Proximate Source
of Negligence
For allowing payment[100] on the checks to a wrongful and fictitious payee, BPI --
the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is
one of its branches,[101] BPI can easily go after it and hold it liable for
reimbursement.[102] It may not debit the drawers account[103] and is not entitled to
indemnification from the drawer.[104] In both law and equity, when one of two
innocent persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it
into the power of the third person to perpetrate the wrong.[105]
Proximate cause is determined by the facts of the case.[106] It 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.[107]
Pursuant to its prime duty to ascertain well the genuineness of the signatures of
its client-depositors on checks being encashed, BPI is expected to use reasonable
business prudence.[108] In the performance of that obligation, it is bound by its internal
banking rules and regulations that form part of the contract it enters into with its
depositors.[109]
Unfortunately, it failed in that regard. First, Yabut was able to open a bank
account in one of its branches without privity;[110] that is, without the proper
verification of his corresponding identification papers. Second, BPI was unable to
discover early on not only this irregularity, but also the marked differences in the
signatures on the checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification Unit[111] of the bank
even passed off these evidently different signatures as genuine. Without exercising
the required prudence on its part, BPI accepted and encashed the eight checks
presented to it. As a result, it proximately contributed to the fraud and should be held
primarily liable[112] for the negligence of its officers or agents when acting within the
course and scope of their employment.[113] It must bear the loss.
CASA Not Negligent
in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as
an exception[114] to the general rule that a forged signature is wholly
inoperative.[115] Contrary to BPIs claim, however, we do not find CASA negligent in
handling its financial affairs. CASA, we stress, is not precluded from setting up
forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and determine
objectively if the financial statements submitted for audit by a corporation have been
prepared in accordance with the appropriate financial reporting practices[116]of
private entities. The relationship that arises therefrom is both legal and moral.[117] It
begins with the execution of the engagement letter[118] that embodies the terms and
conditions of the audit and ends with the fulfilled expectation of the auditors
ethical[119] and competent performance in all aspects of the audit.[120]
The financial statements are representations of the client; but it is the auditor
who has the responsibility for the accuracy in the recording of data that underlies
40
their preparation, their form of presentation, and the opinion [121] expressed
therein.[122]The auditor does not assume the role of employee or of management in the
clients conduct of operations[123] and is never under the control or supervision[124] of
the client.
Yabut was an independent auditor[125]
hired by CASA. He handled its monthly
bank reconciliations and had access to all relevant documents and checkbooks.[126] In
him was reposed the clients[127] trust and confidence[128] that he would perform
precisely those functions and apply the appropriate procedures in accordance with
generally accepted auditing standards.[129] Yet he did not meet these
expectations. Nothing could be more horrible to a client than to discover later on that
the person tasked to detect fraud was the same one who perpetrated it.
Cash Balances
Open to Manipulation
It is a non sequitur to say that the person who receives the monthly bank
statements, together with the cancelled checks and other debit/credit memoranda,
shall examine the contents and give notice of any discrepancies within a reasonable
time. Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by
CASA,[130] it was Yabut who should examine those documents in order to prepare the
bank reconciliations.[131] He owned his working papers,[132] and his output consisted
of his opinion as well as the clients financial statements and accompanying notes
thereto. CASA had every right to rely solely upon his output -- based on the terms of
the audit engagement -- and could thus be unwittingly duped into believing that
everything was in order. Besides, [g]ood faith is always presumed and it is the
burden of the party claiming otherwise to adduce clear and convincing evidence to
the contrary.[133]
Moreover, there was a time gap between the period covered by the bank
statement and the date of its actual receipt.Lebron personally received the December
1990 bank statement only in January 1991[134] -- when she was also informed of the
forgery for the first time, after which she immediately requested a stop payment
order. She cannot be faulted for the late detection of the forged December check. After
all, the bank account with BPI was not personal but corporate, and she could not be
expected to monitor closely all its finances. A preschool teacher charged with
molding the minds of the youth cannot be burdened with the intricacies or
complexities of corporate existence.
There is also a cutoff period such that checks issued during a given month, but
not presented for payment within that period, will not be reflected therein. [135] An
experienced auditor with intent to defraud can easily conceal any devious scheme
from a client unwary of the accounting processes involved by manipulating the cash
balances on record -- especially when bank transactions are numerous, large and
frequent. CASA could only be blamed, if at all, for its unintelligent choice in the
selection and appointment of an auditor -- a fault that is not tantamount to
negligence.
Negligence is not presumed, but proven by whoever alleges it.[136] Its mere
existence is not sufficient without proof that it, and no other cause,[137] has given rise
to damages.[138] In addition, this fault is common to, if not prevalent among, small
and medium-sized business entities, thus leading the Professional Regulation
Commission (PRC), through the Board of Accountancy (BOA), to require today not
only accreditation for the practice of public accountancy,[139] but also the registration
of firms in the practice thereof. In fact, among the attachments now required upon
registration are the code of good governance[140] and a sworn statement on adequate
and effective training.[141]
The missing checks were certainly reported by the bookkeeper [142] to the
accountant[143] -- her immediate supervisor -- and by the latter to the
auditor. However, both the accountant and the auditor, for reasons known only to
them, assured the bookkeeper that there were no irregularities.
The bookkeeper[144] who had exclusive custody of the checkbooks[145] did not
have to go directly to CASAs president or to BPI. Although she rightfully reported
the matter, neither an investigation was conducted nor a resolution of it was arrived
at, precisely because the person at the top of the helm was the culprit. The vouchers,
invoices and check stubs in support of all check disbursements could be concealed or
fabricated -- even in collusion -- and management would still have no way to verify
its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of
CASA. If auditors may be held liable for breach of contract and negligence, [146] with
all the more reason may they be charged with the perpetration of fraud upon an
unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by
reason of expediency or munificence or both. Money paid under a mistake may
rightfully be recovered,[147] and under such terms as the injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission,[148] or of fraud or bad
faith,[149] moral damages cannot be awarded.[150] The adverse result of an action does
not per se make the action wrongful, or the party liable for it. One may err, but error
41
alone is not a ground for granting such damages.[151] While no proof of pecuniary loss
is necessary therefor -- with the amount to be awarded left to the courts
discretion[152] -- the claimant must nonetheless satisfactorily prove the existence of its
factual basis[153] and causal relation[154] to the claimants act or omission.[155]
Regrettably, in this case CASA was unable to identify the particular instance --
enumerated in the Civil Code -- upon which its claim for moral damages is
predicated.[156] Neither bad faith nor negligence so gross that it amounts to
malice[157]can be imputed to BPI. Bad faith, under the law, does not simply connote
bad judgment or negligence;[158] it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a known duty through some
motive or interest or ill will that partakes of the nature of fraud. [159]
As a general rule, a corporation -- being an artificial person without feelings,
emotions and senses, and having existence only in legal contemplation -- is not
entitled to moral damages,[160] because it cannot experience physical suffering and
mental anguish.[161] However, for breach of the fiduciary duty required of a bank, a
corporate client may claim such damages when its good reputation is besmirched by
such breach, and social humiliation results therefrom.[162] CASA was unable to prove
that BPI had debased the good reputation of,[163] and consequently caused
incalculable embarrassment to, the former. CASAs mere allegation or supposition
thereof, without any sufficient evidence on record,[164] is not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction[165] for the public good,[166] exemplary damages
cannot be recovered as a matter of right.[167] As we have said earlier, there is no bad
faith on the part of BPI for paying the checks of CASA upon forged
signatures.Therefore, the former cannot be said to have acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.[168]The latter, having no right to moral
damages, cannot demand exemplary damages.[169]
Attorneys Fees Granted
Although it is a sound policy not to set a premium on the right to litigate,[170] we
find that CASA is entitled to reasonable attorneys fees based on factual, legal, and
equitable justification.[171]
When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest,[172] or where the court deems it just and
equitable,[173] attorneys fees may be recovered. In the present case, BPI persistently
denied the claim of CASA under the NIL to recredit the latters account for the value
of the forged checks. This denial constrained CASA to incur expenses and exert effort
for more than ten years in order to protect its corporate interest in its bank
account. Besides, we have already cautioned BPI on a similar act of negligence it had
committed seventy years ago, but it has remained unrelenting. Therefore, the Court
deems it just and equitable to grant ten percent (10%)[174] of the total value adjudged
to CASA as attorneys fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter
to resort to the courts to obtain payment, legal interest may be adjudicated at the
discretion of the Court, the same to run from the filing[175] of the Complaint.[176] Since
a court judgment is not a loan or a forbearance of recovery, the legal interest shall be
at six percent (6%) per annum.[177] If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of x x x legal interest, which is six
percent per annum.[178] The actual base for its computation shall be on the amount
finally adjudged,[179] compounded[180] annually to make up for the cost of
money[181] already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us from
granting it upon damages awarded for breach of contract.[182] Because BPI evidently
breached its contract of deposit with CASA, we award interest in addition to the total
amount adjudged. Under Section 196 of the NIL, any case not provided for shall be
governed by the provisions of existing legislation or, in default thereof, by the rules of
the law merchant.[183] Damages are not provided for in the NIL. Thus, we resort to the
Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce,
acts of commerce shall be governed by its provisions and, in their absence, by the
usages of commerce generally observed in each place; and in the absence of both
rules, by those of the civil law.[184] This law being silent, we look at Article 18 of the
Civil Code, which states: In matters which are governed by the Code of Commerce
and special laws, their deficiency shall be supplied by its provisions. A perusal of
these three statutes unmistakably shows that the award of interest under our civil law
is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR
No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals
is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the
forged checks less the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum -- compounded annually,
from the filing of the complaint until paid in full; and attorneys fees of ten percent
(10%) thereof, subject to reimbursement from Respondent Yabut for the entire
amount, excepting attorneys fees.Let a copy of this Decision be furnished the Board of
42
Accountancy of the Professional Regulation Commission for such action as it may
deem appropriate against Respondent Yabut. No costs.

SO ORDERED.

43
G.R. No. 171845 October 10, 2012
SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,
vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE
PHILIPPINE ISLANDS, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari, 1 filed under Rule 45 of the Rules
of Court, assailing the decision2 dated February 23, 2006 of the Regional Trial
Court (RTC) of Bacolod City, Branch 41, in Civil Case No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment dated October 24,
19953 of the RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No.
95-9880 was an action for collection of sum of money instituted by the petitioner
spouses Godfrey and Gerardina Serfino (collectively, spouses Serfino) against the
spouses Domingo and Magdalena Cortez (collectively, spouses Cortez). By way of
settlement, the spouses Serfino and the spouses Cortez executed a compromise
agreement on October 20, 1995, in which the spouses Cortez acknowledged their
indebtedness to the spouses Serfino in the amount of ₱ 108,245.71. To satisfy the debt,
Magdalena bound herself "to pay in full the judgment debt out of her retirement
benefits[.]"4 Payment of the debt shall be made one (1) week after Magdalena has
received her retirement benefits from the Government Service Insurance System
(GSIS). In case of default, the debt may be executed against any of the properties of
the spouses Cortez that is subject to execution, upon motion of the spouses
Serfino.5 After finding that the compromise agreement was not contrary to law,
morals, good custom, public order or public policy, the RTC approved the entirety of
the parties’ agreement and issued a compromise judgment based thereon.6 The debt
was later reduced to ₱ 155,000.00 from ₱ 197,000.00 (including interest), with the
promise that the spouses Cortez would pay in full the judgment debt not later than
April 23, 1996.7
No payment was made as promised. Instead, Godfrey discovered that Magdalena
deposited her retirement benefits in the savings account of her daughter-in-law,
Grace Cortez, with the respondent, Far East Bank and Trust Company, Inc. (FEBTC).
As of April 23, 1996, Grace’s savings account with FEBTC amounted to ₱ 245,830.37,
the entire deposit coming from Magdalena’s retirement benefits. 8 That same day, the
spouses Serfino’s counsel sent two letters to FEBTC informing the bank that the
deposit in Grace’s name was owned by the spouses Serfino by virtue of an
assignment made in their favor by the spouses Cortez. The letter requested FEBTC
to prevent the delivery of the deposit to either Grace or the spouses Cortez until its
actual ownership has been resolved in court.
On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the
spouses Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of
money on deposit and the payment of damages, with a prayer for preliminary
attachment.
On April 26, 1996, Grace withdrew ₱ 150,000.00 from her savings account with
FEBTC. On the same day, the spouses Serfino sent another letter to FEBTC informing
it of the pending action; attached to the letter was a copy of the complaint filed as
Civil Case No. 95-9344.
During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that
they were turning over the balance of the deposit in FEBTC (amounting to ₱
54,534.00) to the spouses Serfino as partial payment of their obligation under the
compromise judgment. The RTC issued an order dated July 30, 1997, authorizing
FEBTC to turn over the balance of the deposit to the spouses Serfino.
On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses
Cortez, Grace and Dante liable for fraudulently diverting the amount due the spouses
Serfino, but (b) absolving FEBTC from any liability for allowing Grace to withdraw
the deposit. The RTC declared that FEBTC was not a party to the compromise
judgment; FEBTC was thus not chargeable with notice of the parties’ agreement, as
there was no valid court order or processes requiring it to withhold payment of the
deposit. Given the nature of bank deposits, FEBTC was primarily bound by its
contract of loan with Grace. There was, therefore, no legal justification for the bank to
refuse payment of the account, notwithstanding the claim of the spouses Serfino as
stated in their three letters.
THE PARTIES’ ARGUMENTS
The spouses Serfino appealed the RTC’s ruling absolving FEBTC from liability for
allowing the withdrawal of the deposit. They allege that the RTC cited no legal basis
for declaring that only a court order or process can justify the withholding of the
deposit in Grace’s name. Since FEBTC was informed of their adverse claim after they
sent three letters, they claim that:
Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the
bank to: 1. Withhold payment of the deposit until there is a reasonable opportunity to
institute legal proceedings to contest ownership; and 2) give prompt notice of the
adverse claim to the depositor. The bank may be held liable to the adverse claimant if
it disregards the notice of adverse claim and pays the depositor.
44
When the bank has reasonable notice of a bona fide claim that money deposited
with it is the property of another than the depositor, it should withhold payment
until there is reasonable opportunity to institute legal proceedings to contest the
ownership.9 (emphases and underscoring supplied)
Aside from the three letters, FEBTC should be deemed bound by the compromise
judgment, since Article 1625 of the Civil Code states that an assignment of credit
binds third persons if it appears in a public instrument.10 They conclude that FEBTC,
having been notified of their adverse claim, should not have allowed Grace to
withdraw the deposit.
While they acknowledged that bank deposits are governed by the Civil Code
provisions on loan, the spouses Serfino allege that the provisions on voluntary
deposits should apply by analogy in this case, particularly Article 1988 of the Civil
Code, which states:
Article 1988. The thing deposited must be returned to the depositor upon demand,
even though a specified period or time for such return may have been fixed.
This provision shall not apply when the thing is judicially attached while in the
depositary’s possession, or should he have been notified of the opposition of a third
person to the return or the removal of the thing deposited. In these cases, the
depositary must immediately inform the depositor of the attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is not obliged to return the
thing to the depositor if notified of a third party’s adverse claim.
By allowing Grace to withdraw the deposit that is due them under the compromise
judgment, the spouses Serfino claim that FEBTC committed an actionable wrong
that entitles them to the payment of actual and moral damages.
FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it
is not bound by the compromise judgment, but only by its contract of loan with its
depositor. As a loan, the bank deposit is owned by the bank; hence, the spouses
Serfino’s claim of ownership over it is erroneous.
Based on these arguments, the case essentially involves a determination of the
obligation of banks to a third party who claims rights over a bank deposit standing
in the name of another.
THE COURT’S RULING
We find the petition unmeritorious and see no reason to reverse the RTC’s ruling.
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit
The spouses Serfino’s claim for damages against FEBTC is premised on their claim of
ownership of the deposit with FEBTC. The deposit consists of Magdalena’s retirement
benefits, which the spouses Serfino claim to have been assigned to them under the
compromise judgment. That the retirement benefits were deposited in Grace’s
savings account with FEBTC supposedly did not divest them of ownership of the
amount, as "the money already belongs to the [spouses Serfino] having been
absolutely assigned to them and constructively delivered by virtue of the x x x public
instrument[.]"11 By virtue of the assignment of credit, the spouses Serfino claim
ownership of the deposit, and they posit that FEBTC was duty bound to protect their
right by preventing the withdrawal of the deposit since the bank had been notified of
the assignment and of their claim.
We find no basis to support the spouses Serfino’s claim of ownership of the
deposit.
"An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dation in payment, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor. It may be in the form
of sale, but at times it may constitute a dation in payment, such as when a debtor, in
order to obtain a release from his debt, assigns to his creditor a credit he has against
a third person."12 As a dation in payment, the assignment of credit operates as a
mode of extinguishing the obligation;13 the delivery and transmission of ownership
of a thing (in this case, the credit due from a third person) by the debtor to the
creditor is accepted as the equivalent of the performance of the obligation. 14
The terms of the compromise judgment, however, did not convey an intent to equate
the assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the
payment of the debt due the spouses Serfino (the obligation). There was actually no
assignment of credit; if at all, the compromise judgment merely identified the fund
from which payment for the judgment debt would be sourced:
(c) That before the plaintiffs file a motion for execution of the decision or order based
[on this] Compromise Agreement, the defendant, Magdalena Cortez undertake[s]
and bind[s] herself to pay in full the judgment debt out of her retirement
benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines,
upon which full payment, the plaintiffs waive, abandon and relinquish absolutely
any of their claims for attorney’s fees stipulated in the Promissory Note (Annex "A" to
the Complaint).15 [emphasis ours]
45
Only when Magdalena has received and turned over to the spouses Serfino the
portion of her retirement benefits corresponding to the debt due would the debt be
deemed paid.
In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was
extinguished by the execution of the deeds of assignment. The Court ruled in the
affirmative, given that, in the deeds involved, the respondent (the debtor) assigned to
the petitioner (the creditor) her credits "to make good" the balance of her obligation;
the parties agreed to relieve the respondent of her obligation to pay the balance of her
account, and for the petitioner to collect the same from the respondent’s
debtors.17 The Court concluded that the respondent’s obligation to pay the balance of
her accounts with the petitioner was extinguished, pro tanto, by the deeds of
assignment of credit executed by the respondent in favor of the petitioner. 18
In the present case, the judgment debt was not extinguished by the mere
designation in the compromise judgment of Magdalena’s retirement benefits as the
fund from which payment shall be sourced. That the compromise agreement
authorizes recourse in case of default on other executable properties of the spouses
Cortez, to satisfy the judgment debt, further supports our conclusion that there was
no assignment of Magdalena’s credit with the GSIS that would have extinguished the
obligation.
The compromise judgment in this case also did not give the supposed assignees, the
spouses Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the
spouses Serfino are prohibited from enforcing their claim until after the lapse of one
(1) week from Magdalena’s receipt of her retirement benefits:
(d) That the plaintiffs shall refrain from having the judgment based upon this
Compromise Agreement executed until after one (1) week from receipt by the
defendant, Magdalena Cortez of her retirement benefits from the [GSIS] but fails to
pay within the said period the defendants’ judgment debt in this case, in which case
[this] Compromise Agreement [may be] executed upon any property of the
defendants that are subject to execution upon motion by the plaintiffs. 19
An assignment of credit not only entitles the assignee to the credit itself, but also
gives him the power to enforce it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly
claim ownership of the retirement benefits that were deposited with FEBTC. Without
ownership rights over the amount, they suffered no pecuniary loss that has to be
compensated by actual damages. The grant of actual damages presupposes that the
claimant suffered a duly proven pecuniary loss.20
Claim for moral damages not
meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred
to in Article 21 of the Civil Code.21 Article 21 of the Civil Code, in conjunction with
Article 19 of the Civil Code, is part of the cause of action known in this jurisdiction as
"abuse of rights." The elements of abuse of rights are: (a) there is a legal right or duty;
(b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.1âwphi1
The spouses Serfino invoke American common law that imposes a duty upon a bank
receiving a notice of adverse claim to the fund in a depositor’s account to freeze the
account for a reasonable length of time, sufficient to allow the adverse claimant to
institute legal proceedings to enforce his right to the fund.22 In other words, the
bank has a duty not to release the deposits unreasonably early after a third party
makes known his adverse claim to the bank deposit. Acknowledging that no such
duty is imposed by law in this jurisdiction, the spouses Serfino ask the Court to adopt
this foreign rule.23
To adopt the foreign rule, however, goes beyond the power of this Court to
promulgate rules governing pleading, practice and procedure in all courts. 24 The rule
reflects a matter of policy that is better addressed by the other branches of
government, particularly, the Bangko Sentral ng Pilipinas, which is the agency that
supervises the operations and activities of banks, and which has the power to issue
"rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered[.]"25 To adopt this rule will have
significant implications on the banking industry and practices, as the American
experience has shown. Recognizing that the rule imposing duty on banks to freeze
the deposit upon notice of adverse claim adopts a policy adverse to the bank and its
functions, and opens it to liability to both the depositor and the adverse
claimant,26 many American states have since adopted adverse claim statutes that
shifted or, at least, equalized the burden. Essentially, these statutes do not impose a
duty on banks to freeze the deposit upon a mere notice of adverse claim; they first
require either a court order or an indemnity bond.27
In the absence of a law or a rule binding on the Court, it has no option but to uphold
the existing policy that recognizes the fiduciary nature of banking. It likewise rejects
the adoption of a judicially-imposed rule giving third parties with unverified claims
against the deposit of another a better right over the deposit. As current laws provide,
the bank’s contractual relations are with its depositor, not with the third party; 28 "a
bank is under obligation to treat the accounts of its depositors with meticulous care
and always to have in mind the fiduciary nature of its relationship with them." 29 In
the absence of any positive duty of the bank to an adverse claimant, there could be no
breach that entitles the latter to moral damages.
46
WHEREFORE, in view of the foregoing, the petition for review
on certiorari is DENIED, and the decision dated February 23, 2006 of the Regional
Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344 is AFFIRMED. Costs
against the petitioners.

SO ORDERED.

47
[G.R. No. 121413. January 29, 2001]
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS
and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.
[G.R. No. 121479. January 29, 2001]
FORD PHILIPPINES, INC., petitioner-plaintiff, vs. COURT OF APPEALS and
CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents.
[G.R. No. 128604. January 29, 2001]
FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE
COMMERCIAL INTERNATIONAL BANK and THE COURT OF
APPEALS, respondents.
DECISION
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from
the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine
Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and
America], the value of several checks payable to the Commissioner of Internal
Revenue, which were embezzled allegedly by an organized syndicate.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995
Decision[1] of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford
Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now
Philippine Commercial International Bank), and the August 8, 1995
Resolution,[2] ordering the collecting bank, Philippine Commercial International Bank,
to pay the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996
Decision[3] of the Court of Appeals and its March 5, 1997 Resolution [4] in CA-G.R. No.
28430 entitled Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial
International Bank, affirming in toto the judgment of the trial court holding the
defendant drawee bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds of the plaintiffs Citibank
Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of
Appeals are as follows:
On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-
04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal
Revenue as payment of plaintiffs percentage or manufacturers sales taxes for the
third quarter of 1977.
The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant
Citibank, the proceeds of the check was paid to IBAA as collecting or depository
bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received
by the payee thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal
Revenue, the plaintiff was compelled to make a second payment to the Bureau of
Internal Revenue of its percentage/manufacturers sales taxes for the third quarter of
1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was
duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions
in question, plaintiff had been maintaining a checking account with defendant
Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the
plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in
that, on its face were two parallel lines and written in between said lines was the
phrase Payees Account Only; and that defendant Citibank paid the full face value of
the check in the amount of P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of plaintiffs percentage tax for the
last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No.
18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila,
48
as the authorized agent bank of Metrobank, Alabang Branch to receive the tax
payment of the plaintiff.
On December 19, 1977, plaintiffs Citibank Check No. SN-04867, together with the
Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its
Ermita Branch. The latter accepted the check and sent it to the Central Clearing House
for clearing on the same day, with the indorsement at the back all prior indorsements
and/or lack of indorsements guaranteed. Thereafter, defendant IBAA presented the
check for payment to defendant Citibank on same date, December 19, 1977, and the
latter paid the face value of the check in the amount of P4,746,114.41. Consequently,
the amount of P4,746,114.41 was debited in plaintiffs account with the defendant
Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the
amount of P4,746,114.41 was not paid to the Commissioner of Internal
Revenue. Hence, in separate letters dated October 26, 1979, addressed to the
defendants, the plaintiff notified the latter that in case it will be re-assessed by the BIR
for the payment of the taxes covered by the said checks, then plaintiff shall hold the
defendants liable for reimbursement of the face value of the same. Both defendants
denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue
addressed to the plaintiff - supposed to be Exhibit D, the latter was officially
informed, among others, that its check in the amount of P4,746,114.41 was not paid to
the government or its authorized agent and instead encashed by unauthorized
persons, hence, plaintiff has to pay the said amount within fifteen days from receipt
of the letter. Upon advice of the plaintiffs lawyers, plaintiff on March 11, 1982, paid to
the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of
plaintiffs percentage tax for the third quarter of 1977.
As a consequence of defendants refusal to reimburse plaintiff of the payment it had
made for the second time to the BIR of its percentage taxes, plaintiff filed on January
20, 1983 its original complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial
International Bank (PCI Bank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiffs Citibank Check
No. SN-04867 in the amount of P4,746,114.41 was in due course; it merely relied on
the clearing stamp of the depository/collecting bank, the defendant IBAA that all
prior indorsements and/or lack of indorsements guaranteed; and the proximate cause
of plaintiffs injury is the gross negligence of defendant IBAA in indorsing the
plaintiffs Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank
Check No. SN-04867 was paid to defendant IBAA as collecting bank, plaintiff was
maintaining a checking account with defendant Citibank.[5]
Although it was not among the stipulated facts, an investigation by the National
Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867 was
recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He
purportedly needed to hold back the check because there was an error in the
computation of the tax due to the Bureau of Internal Revenue (BIR). With Riveras
instruction, PCIBank replaced the check with two of its own Managers Checks
(MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific
Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party
defendants. But the court dismissed the complaint against PBC for lack of cause of
action. The court likewise dismissed the third-party complaint against Godofredo
Rivera because he could not be served with summons as the NBI declared him as a
fugitive from justice.
On June 15, 1989, the trial court rendered its decision, as follows:
Premises considered, judgment is hereby rendered as follows:
1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount of P4,746,114.41 representing
the face value of plaintiffs Citibank Check No. SN-04867, with interest
thereon at the legal rate starting January 20, 1983, the date when the
original complaint was filed until the amount is fully paid, plus costs;
2. On defendant Citibanks cross-claim: ordering the cross-defendant IBAA
(now PCI BANK) to reimburse defendant Citibank for whatever
amount the latter has paid or may pay to the plaintiff in accordance
with the next preceding paragraph;
3. The counterclaims asserted by the defendants against the plaintiff, as
well as that asserted by the cross-defendant against the cross-claimant
are dismissed, for lack of merits; and
4. With costs against the defendants.
SO ORDERED.[6]
Not satisfied with the said decision, both defendants, Citibank and PCIBank,
elevated their respective petitions for review on certiorari to the Court of Appeals. On
March 27, 1995, the appellate court issued its judgment as follows:
49
WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision
with modifications.
The court hereby renders judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the
amount of P4,746,114.41 representing the face value of plaintiffs
Citibank Check No. SN-04867, with interest thereon at the legal rate
starting January 20, 1983. the date when the original complaint was
filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the
plaintiff as well as that asserted by the cross-defendant against the
cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED.[7]
PCIBank moved to reconsider the above-quoted decision of the Court of
Appeals, while Ford filed a Motion for Partial Reconsideration. Both motions were
denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by
certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of
the Twelfth Division of the Court of Appeals contending that it merely acted on the
instruction of Ford and such cause of action had already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted
on the check drawn by respondent Ford on the said respondents
instructions, it nevertheless found the petitioner liable to the said
respondent for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in favor
of the petitioner.[8]
In a counter move, Ford filed its petition docketed as G.R. No. 121479,
questioning the same decision and resolution of the Court of Appeals, and praying
for the reinstatement in toto of the decision of the trial court which found both
PCIBank and Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the
drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check
only to the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to
the subject check, which was crossed and payable to Payees Account
Only.
3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross
negligence on the part of petitioner Ford.[9]
II. PCIBank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the proceeds
of the subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBanks only
obligation is to deliver the proceeds to the Commissioner of the Bureau
of Internal Revenue.[10]
2. PCIBank which affixed its indorsement on the subject check (All prior
indorsement and/or lack of indorsement guaranteed), is liable as
collecting bank.[11]
3. PCIBank is barred from raising issues of fact in the instant
proceedings.[12]
4. Petitioner Fords cause of action had not prescribed.[13]
II. G.R. No. 128604
The same syndicate apparently embezzled the proceeds of checks intended, this
time, to settle Fords percentage taxes appertaining to the second quarter of 1978 and
the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
50
 Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No.
28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the
amount of P6,311,591.73, representing the payment of percentage tax for the first
quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR
Revenue Tax Receipt No. A-1697160 was issued for the said purpose.
Both checks were crossed checks and contain two diagonal lines on its upper left
corner between which were written the words payable to the payees account only.
The checks never reached the payee, CIR. Thus, in a letter dated February 28,
1980, the BIR, Region 4-B, demanded for the said tax payments the corresponding
periods above-mentioned.
As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were
considered fake and spurious. This anomaly was confirmed by the NBI upon the
initiative of the BIR. The findings forced Ford to pay the BIR anew, while an action
was filed against Citibank and PCIBank for the recovery of the amount of Citibank
Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its
findings on the modus operandi of the syndicate, as follows:
A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General
Ledger Accountant. As such, he prepared the plaintiffs check marked Ex. A [Citibank
Check No. SN-10597] for payment to the BIR. Instead, however, of delivering the
same to the payee, he passed on the check to a co-conspirator named Remberto
Castro who was a pro-manager of the San Andres Branch of PCIB.*In connivance with
one Winston Dulay, Castro himself subsequently opened a Checking Account in the
name of a fictitious person denominated as Reynaldo Reyes in the Meralco Branch of
PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a
worthless Bank of America Check in exactly the same amount as the first FORD check
(Exh. A, P5,851,706.37) while this worthless check was coursed through PCIBs main
office enroute to the Central Bank for clearing, replaced this worthless check with
FORDs Exhibit A and accordingly tampered the accompanying documents to cover
the replacement. As a result, Exhibit A was cleared by defendant CITIBANK, and the
fictitious deposit account of Reynaldo Reyes was credited at the PCIB Meralco Branch
with the total amount of the FORD check Exhibit A. The same method was again
utilized by the syndicate in profiting from Exh. B [Citibank Check No. SN-16508]
which was subsequently pilfered by Alexis Marindo, Riveras Assistant at FORD.
From this Reynaldo Reyes account, Castro drew various checks distributing the
shares of the other participating conspirators namely (1) CRISANTO BERNABE, the
mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORDs
Godofredo Rivera and PCIBs Remberto Castro; (3) JUAN CASTILLO who assisted de
Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORDs accountant who
passed on the first check (Exhibit A) to Castro; (5) REMBERTO CASTRO, PCIBs pro-
manager at San Andres who performed the switching of checks in the clearing
process and opened the fictitious Reynaldo Reyes account at the PCIB Meralco
Branch; (6) WINSTON DULAY, PCIBs Assistant Manager at its Meralco Branch, who
assisted Castro in switching the checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes bank account; (7) ALEXIS MARINDO,
Riveras Assistant at FORD, who gave the second check (Exh. B) to Castro;
(8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided the fake and spurious
revenue tax receipts to make it appear that the BIR had received FORDs tax
payments.
Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned
participants in the conspiracy, have not been impleaded in the present case. The
manner by which the said funds were distributed among them are traceable from the
record of checks drawn against the original Reynaldo Reyes account and indubitably
identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so.[14]
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-
bank, Citibank, liable for the value of the two checks while absolving PCIBank from
any liability, disposing as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to
reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its
complaint, with 6% interest thereon from date of first written demand until full
payment, plus P300,000.00 attorneys fees and expenses of litigation, and to pay the
defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as
attorneys fees and costs of litigation, and pay the costs.
SO ORDERED.[15]
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in
toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the
Court of Appeals decision and its resolution dated March 5, 1997, with respect to the
dismissal of the complaint against PCIBank and holding Citibank solely responsible
for the proceeds of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73
and P6,311,591.73 respectively.
51
 Ford avers that the Court of Appeals erred in dismissing the complaint against
defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the
diligence required to be exercised by it as a banking institution.
II. Defendant PCIBank clearly failed to observe the diligence required in
the selection and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss
or damage resulting to the plaintiff Ford as a consequence of the
substitution of the check consistent with Section 5 of Central Bank
Circular No. 580 series of 1977.
IV. Assuming arguendo that defendant PCIBank did not accept, endorse or
negotiate in due course the subject checks, it is liable, under Article
2154 of the Civil Code, to return the money which it admits having
received, and which was credited to it in its Central Bank account. [16]
The main issue presented for our consideration by these petitions could be
simplified as follows: Has petitioner Ford the right to recover from the collecting
bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as
payment to the Commissioner of Internal Revenue? Or has Fords cause of action
already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but
the title of the person negotiating the same was allegedly defective because the
instrument was obtained by fraud and unlawful means, and the proceeds of the
checks were not remitted to the payee. It was established that instead of paying the
checks to the CIR, for the settlement of the appropriate quarterly percentage taxes of
Ford, the checks were diverted and encashed for the eventual distribution among the
members of the syndicate. As to the unlawful negotiation of the check the applicable
law is Section 55 of the Negotiable Instruments Law (NIL), which provides:
When title defective -- The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances
as amount to a fraud.
Pursuant to this provision, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud.The person negotiating the checks
must have gone beyond the authority given by his principal. If the principal could
prove that there was no negligence in the performance of his duties, he may set up
the personal defense to escape liability and recover from other parties who, through
their own negligence, allowed the commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the
embezzlers belonging to a syndicate, are now fugitives from justice. They have, even
if temporarily, escaped liability for the embezzlement of millions of pesos. We are
thus left only with the task of determining who of the present parties before us must
bear the burden of loss of these millions. It all boils down to the question of liability
based on the degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the
imputed contributory negligence that would defeat its claim for reimbursement,
bearing in mind that its employees, Godofredo Rivera and Alexis Marindo, were
among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo
Rivera, to negotiate the checks to his co-conspirators, instead of delivering them to
the designated authorized collecting bank (Metrobank-Alabang) of the payee,
CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of
its own employees, inasmuch as it only discovered the syndicates activities through
the information given by the payee of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized
Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of
using it to pay the BIR. As to the subsequent run-around of funds of Citibank Check
Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damage to
Ford lies in its own officers and employees who carried out the fraudulent schemes
and the transactions. These circumstances were not checked by other officers of the
company, including its comptroller or internal auditor. PCIBank contends that the
inaction of Ford despite the enormity of the amount involved was a sheer negligence
and stated that, as between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible, by his act of
negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers
that there was no evidence presented before the trial court showing lack of diligence
on the part of Ford. And, citing the case of Gempesaw vs. Court of Appeals,[17] Ford
argues that even if there was a finding therein that the drawer was negligent, the
drawee bank was still ordered to pay damages.
Furthermore, Ford contends that Godofredo Rivera was not authorized to make
any representation in its behalf, specifically, to divert the proceeds of the checks. It
adds that Citibank raised the issue of imputed negligence against Ford for the first
time on appeal. Thus, it should not be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of employer in a
master-servant relationship is instructive. Since a master may be held for his servants
wrongful act, the law imputes to the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury to a third person, the
negligence or wrongful conduct is the negligence or wrongful conduct of the master,
for which he is liable.[18] The general rule is that if the master is injured by the
negligence of a third person and by the concurring contributory negligence of his
own servant or agent, the latters negligence is imputed to his superior and will defeat
the superiors action against the third person, assuming, of course that the
52
contributory negligence was the proximate cause of the injury of which complaint is
made.[19]
Accordingly, we need to determine whether or not the action of Godofredo
Rivera, Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was
the proximate cause of the loss or damage. As defined, proximate cause is that which,
in the natural and continuous sequence, unbroken by any efficient, intervening cause
produces the injury, and without which the result would not have occurred.[20]
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the
proximate cause of encashing the checks payable to the CIR. The degree of Fords
negligence, if any, could not be characterized as the proximate cause of the injury to
the parties.
The Board of Directors of Ford, we note, did not confirm the request of
Godofredo Rivera to recall Citibank Check No. SN-04867.Riveras instruction to
replace the said check with PCIBanks Managers Check was not in the ordinary course
of business which could have prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was
established that these checks were made payable to the CIR. Both were crossed
checks. These checks were apparently turned around by Fords employees, who were
acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a
drawer-payors confidential employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of
some circumstance raising estoppel against the drawer.[21] This rule likewise applies
to the checks fraudulently negotiated or diverted by the confidential employees who
hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks
involved, separately, the trial courts found variations between the negotiation of
Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-
10597 and 16508.Therefore, we have to scrutinize, separately, PCIBanks share of
negligence when the syndicate achieved its ultimate agenda of stealing the proceeds
of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita
Branch. It was coursed through the ordinary banking transaction, sent to Central
Clearing with the indorsement at the back all prior indorsements and/or lack of
indorsements guaranteed, and was presented to Citibank for payment. Thereafter
PCIBank, instead of remitting the proceeds to the CIR, prepared two of its Managers
checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. The neglect of PCIBank employees to verify whether his letter requesting for
the replacement of the Citibank Check No. SN-04867 was duly authorized, showed
lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment
of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to
consult its principal regarding the unwarranted instructions given by the payor or its
agent. As aptly stated by the trial court, to wit:
x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting bank of the BIR, it has the responsibility
to make sure that the check in question is deposited in Payees account only.
xxxxxxxxx
As agent of the BIR (the payee of the check), defendant IBAA should receive
instructions only from its principal BIR and not from any other person especially so
when that person is not known to the defendant. It is very imprudent on the part of
the defendant IBAA to just rely on the alleged telephone call of one Godofredo Rivera
and in his signature to the authenticity of such signature considering that the plaintiff
is not a client of the defendant IBAA.
It is a well-settled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the absence of
an agreement to the contrary, that of principal and agent.[22] A bank which receives
such paper for collection is the agent of the payee or holder. [23]
Even considering arguendo, that the diversion of the amount of a check payable
to the collecting bank in behalf of the designated payee may be allowed, still such
diversion must be properly authorized by the payor. Otherwise stated, the diversion
can be justified only by proof of authority from the drawer, or that the drawer has
clothed his agent with apparent authority to receive the proceeds of such check.
Citibank further argues that PCI Banks clearing stamp appearing at the back of
the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK
OF INDORSEMENTS GUARANTEED should render PCIBank liable because it made
it pass through the clearing house and therefore Citibank had no other option but to
pay it. Thus, Citibank asserts that the proximate cause of Fords injury is the gross
negligence of PCIBank. Since the questioned crossed check was deposited with
PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the
responsibility to make sure that the check in question is deposited in Payees account
only.
53
 Indeed, the crossing of the check with the phrase Payees Account Only, is a
warning that the check should be deposited only in the account of the CIR. Thus, it is
the duty of the collecting bank PCIBank to ascertain that the check be deposited in
payees account only.Therefore, it is the collecting bank (PCIBank) which is bound to
scrutinize the check and to know its depositors before it could make the clearing
indorsement all prior indorsements and/or lack of indorsement guaranteed.
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,[24] we
ruled:
Anent petitioners liability on said instruments, this court is in full accord with the
ruling of the PCHCs Board of Directors that:
In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of all prior endorsements. Thus, stamped at the back of the
checks are the defendants clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff
would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendants warranty. As
the warranty has proven to be false and inaccurate, the defendant is liable for any
damage arising out of the falsity of its representation.[25]
Lastly, banking business requires that the one who first cashes and negotiates
the check must take some precautions to learn whether or not it is genuine. And if the
one cashing the check through indifference or other circumstance assists the forger in
committing the fraud, he should not be permitted to retain the proceeds of the check
from the drawee whose sole fault was that it did not discover the forgery or the defect
in the title of the person negotiating the instrument before paying the check. For this
reason, a bank which cashes a check drawn upon another bank, without requiring
proof as to the identity of persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when the proceeds of the checks
were afterwards diverted to the hands of a third party. In such cases the drawee bank
has a right to believe that the cashing bank (or the collecting bank) had, by the usual
proper investigation, satisfied itself of the authenticity of the negotiation of the
checks. Thus, one who encashed a check which had been forged or diverted and in
turn received payment thereon from the drawee, is guilty of negligence which
proximately contributed to the success of the fraud practiced on the drawee bank. The
latter may recover from the holder the money paid on the check. [26]
Having established that the collecting banks negligence is the proximate cause
of the loss, we conclude that PCIBank is liable in the amount corresponding to the
proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act
in the ordinary course of business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank
did not actually receive nor hold the two Ford checks at all. The trial court held, thus:
Neither is there any proof that defendant PCIBank contributed any official or
conscious participation in the process of the embezzlement.This Court is convinced
that the switching operation (involving the checks while in transit for clearing) were
the clandestine or hidden actuations performed by the members of the syndicate in
their own personal, covert and private capacity and done without the knowledge of
the defendant PCIBank.[27]
In this case, there was no evidence presented confirming the conscious
participation of PCIBank in the embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and declarations of its officers
or agents within the course and scope of their employment.[28] A bank will be held
liable for the negligence of its officers or agents when acting within the course and
scope of their employment. It may be liable for the tortuous acts of its officers even as
regards that species of tort of which malice is an essential element. In this case, we
find a situation where the PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management employees had participated.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received
Citibank Check Numbers SN 10597 and 16508. He passed the checks to a co-
conspirator, an Assistant Manager of PCIBanks Meralco Branch, who helped Castro
open a Checking account of a fictitious person named Reynaldo Reyes. Castro
deposited a worthless Bank of America Check in exactly the same amount of Ford
checks. The syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity or
authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds these officers or agents were enabled to perpetrate in
the apparent course of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of
his employment or authority.[29] And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebtedness lodged with his bank
for collection, the bank is liable for his misappropriation of such sum. [30]
Moreover, as correctly pointed out by Ford, Section 5[31] of Central Bank Circular
No. 580, Series of 1977 provides that any theft affecting items in transit for clearing,
shall be for the account of sending bank, which in this case is PCIBank.
54
 But in this case, responsibility for negligence does not lie on PCIBanks shoulders
alone.
The evidence on record shows that Citibank as drawee bank was likewise
negligent in the performance of its duties. Citibank failed to establish that its payment
of Fords checks were made in due course and legally in order. In its defense, Citibank
claims the genuineness and due execution of said checks, considering that Citibank
(1) has no knowledge of any infirmity in the issuance of the checks in question (2)
coupled by the fact that said checks were sufficiently funded and (3) the endorsement
of the Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has
the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an
absolute and contractual duty to pay the proceeds of the subject check only to the
payee thereof, the CIR. Citing Section 62[32] of the Negotiable Instruments Law, Ford
argues that by accepting the instrument, the acceptor which is Citibank engages that
it will pay according to the tenor of its acceptance, and that it will pay only to the
payee, (the CIR), considering the fact that here the check was crossed with annotation
Payees Account Only.
As ruled by the Court of Appeals, Citibank must likewise answer for the
damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508,
because of the contractual relationship existing between the two. Citibank, as the
drawee bank breached its contractual obligation with Ford and such degree of
culpability contributed to the damage caused to the latter. On this score, we agree
with the respondent courts ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508
before paying the amount of the proceeds thereof to the collecting bank of the
BIR. One thing is clear from the record: the clearing stamps at the back of Citibank
Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and
verify the absence of the clearing stamps. Had this been duly examined, the switching
of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed failed to perform what was
incumbent upon it, which is to ensure that the amount of the checks should be paid
only to its designated payee. The fact that the drawee bank did not discover the
irregularity seasonably, in our view, constitutes negligence in carrying out the banks
duty to its depositors. 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.[33]
Thus, invoking the doctrine of comparative negligence, we are of the view that
both PCIBank and Citibank failed in their respective obligations and both were
negligent in the selection and supervision of their employees resulting in the
encashment of Citibank Check Nos. SN 10597 and 16508. Thus, we are constrained to
hold them equally liable for the loss of the proceeds of said checks issued by Ford in
favor of the CIR.
Time and again, we have stressed that banking business is so impressed with
public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be very
high, if not the highest, degree of diligence.[34] A banks liability as obligor is not
merely vicarious but primary, wherein the defense of exercise of due diligence in the
selection and supervision of its employees is of no moment.[35]
Banks handle daily transactions involving millions of pesos. [36] By the very
nature of their work the degree of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those of ordinary clerks and
employees.[37] Banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.[38]
On the issue of prescription, PCIBank claims that the action of Ford had
prescribed because of its inability to seek judicial relief seasonably, considering that
the alleged negligent act took place prior to December 19, 1977 but the relief was
sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice
of the payment, which is ordinarily when the check is returned to the alleged drawer
as a voucher with a statement of his account,[39] and an action upon a check is
ordinarily governed by the statutory period applicable to instruments in writing.[40]
Our laws on the matter provide that the action upon a written contract must be
brought within ten years from the time the right of action accrues.[41] Hence, the
reckoning time for the prescriptive period begins when the instrument was issued
and the corresponding check was returned by the bank to its depositor (normally a
month thereafter). Applying the same rule, the cause of action for the recovery of the
proceeds of Citibank Check No. SN 04867 would normally be a month after
December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action was filed on January
20, 1983, barely six years had lapsed. Thus, we conclude that Fords cause of action to
recover the amount of Citibank Check No. SN 04867 was seasonably filed within the
period provided by law.
Finally, we also find that Ford is not completely blameless in its failure to detect
the fraud. Failure on the part of the depositor to examine its passbook, statements of
account, and cancelled checks and to give notice within a reasonable time (or as
required by statute) of any discrepancy which it may in the exercise of due care and
diligence find therein, serves to mitigate the banks liability by reducing the award of
interest from twelve percent (12%) to six percent (6%) per annum. As provided in
Article 1172 of the Civil Code of the Philippines, responsibility arising from
negligence in the performance of every kind of obligation is also demandable, but
such liability may be regulated by the courts, according to the circumstances. In
quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages
that he may recover.[42]
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 25017, are AFFIRMED.PCIBank, known formerly as Insular Bank of
55
Asia and America, is declared solely responsible for the loss of the proceeds of
Citibank Check No. SN 04867 in the amount P4,746,114.41, which shall be paid
together with six percent (6%) interest thereon to Ford Philippines Inc. from the date
when the original complaint was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No.
28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and
must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597
and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED
to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon,
from the date the complaint was filed until full payment of said amount.

Costs against Philippine Commercial International Bank and Citibank, N.A.

SO ORDERED.

56
[G.R. No. 125536. March 16, 2000]
PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA
TUPASI-VALENZUELA joined by husband Francisco Valenzuela, respondents. Ed-
pm-is
DECISION
QUISUMBING, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set
aside the Decision dated January 31, 1996, and the Resolution dated July 2, 1997, of
the Court of Appeals in CA G.R. CV No. 35532, which reversed the judgment of the
Regional Trial Court of Valenzuela, Metro Manila, Branch 171, in Civil Case No. 2913-
V-88, dismissing the private respondent's complaint for damages.[1]
In setting aside the trial court's decision, the Court of Appeals disposed as follows:
"WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE and, another rendered ordering the appellee bank to
pay appellant the sum of P100,000.00 by way of moral damages;
P50,000.00 by way of exemplary damages, P50,000.00 for and as
attorney's fees; and to pay the costs. Jjs-c
SO ORDERED."[2]
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and
Current Account No. 01016-3 in the Valenzuela Branch of petitioner Prudential Bank,
with automatic transfer of funds from the savings account to the current account.
On June 1, 1988, herein private respondent deposited in her savings account Check
No. 666B (104561 of even date) the amount of P35,271.60, drawn against the
Philippine Commercial International Bank (PCIB). Taking into account that deposit
and a series of withdrawals, private respondent as of June 21, 1988 had a balance of
P35,993.48 in her savings account and P776.93 in her current account, or total deposits
of P36,770.41, with petitioner. Sc-jj
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the
amount of P11,500.00 post-dated June 20, 1988, in favor of one Belen Legaspi. It was
issued to Legaspi as payment for jewelry which private respondent had purchased.
Legaspi, who was in jewelry trade, endorsed the check to one Philip Lhuillier, a
businessman also in the jewelry business. When Lhuillier deposited the check in his
account with the PCIB, Pasay Branch, it was dishonored for being drawn against
insufficient funds. Lhuillier's secretary informed the secretary of Legaspi of the
dishonor. The latter told the former to redeposit the check. Legaspi's secretary tried to
contact private respondent but to no avail.
Upon her return from the province, private respondent was surprised to learn of the
dishonor of the check. She went to the Valenzuela Branch of Prudential Bank on July
4, 1988, to inquire why her check was dishonored. She approached one Albert
Angeles Reyes, the officer in charge of current account, and requested him for the
ledger of her current account. Private respondent discovered a debit of P300.00
penalty for the dishonor of her Prudential Check No. 983395. She asked why her
check was dishonored when there were sufficient funds in her account as reflected in
her passbook. Reyes told her that there was no need to review the passbook because
the bank ledger was the best proof that she did not have sufficient funds. Then, he
abruptly faced his typewriter and started typing. S-jcj
Later, it was found out that the check in the amount of P35,271.60 deposited by
private respondent on June 1, 1988, was credited in her savings account only on June
24, 1988, or after a period of 23 days. Thus the P11,500.00 check was redeposited by
Lhuillier on June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to
Legaspi and Lhuillier that the bank was at fault. Since this was not the first incident
private respondent had experienced with the bank, private respondent was unmoved
by the bank's apologies and she commenced the present suit for damages before the
RTC of Valenzuela.
After trial, the court rendered a decision on August 30, 1991, dismissing the
complaint of private respondent, as well as the counterclaim filed by the defendant,
now petitioner.
Undeterred, private respondent appealed to the Court of Appeals. On January 31,
1996, respondent appellate court rendered a decision in her favor, setting aside the
trial court's decision and ordering herein petitioner to pay private respondent the
sum of P100,000.00 by way of moral damages; P50,000.00 exemplary damages;
P50,000.00 for and as attorney's fees; and to pay the costs. [3]
Petitioner filed a timely motion for reconsideration but it was denied. Hence, this
petition, raising the following issues:
I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS
ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OF JURISDICTION IN DEVIATING FROM
ESTABLISHED JURISPRUDENCE IN REVERSING THE
DISMISSAL JUDGMENT OF THE TRIAL COURT AND INSTEAD
57
 AWARDED MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEY'S FEES. Supr-eme
II. WHETHER OR NOT THE RESPONDENT COURT OF
APPEALS ACTED IN GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL
COURT, AWARDED MORAL DAMAGES IN THE AMOUNT OF
P100,000.00.
III. WHETHER OR NOT THE RESPONDENT COURT OF
APPEALS ACTED IN GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION, WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL
COURT, AWARDED P50,000.00 BY WAY OF EXEMPLARY
DAMAGES. Co-urt
IV. WHETHER OR NOT THE RESPONDENT COURT OF
APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
WHERE EVEN IN THE ABSENCE OF EVIDENCE, AWARDED
ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent court erred and gravely abused its
discretion in awarding moral and exemplary damages and attorney's fees to be paid
by petitioner to private respondent.
Petitioner claims that generally the factual findings of the lower courts are final and
binding upon this Court. However, there are exceptions to this rule. One is where the
trial court and the Court of Appeals had arrived at diverse factual
findings.[4]Petitioner faults the respondent court from deviating from the basic rule
that finding of facts by the trial court is entitled to great weight, because the trial court
had the opportunity to observe the deportment of witness and the evaluation of
evidence presented during the trial. Petitioner contends that the appellate court
gravely abused its discretion when it awarded damages to the plaintiff, even in the
face of lack of evidence to prove such damages, as found by the trial court.
Firstly, petitioner questions the award of moral damages. It claims that private
respondent did not suffer any damage upon the dishonor of the check. Petitioner
avers it acted in good faith. It was an honest mistake on its part, according to
petitioner, when misposting of private respondent's deposit on June 1, 1988,
happened. Further, petitioner contends that private respondent may not "claim"
damages because the petitioner's manager and other employee had profusely
apologized to private respondent for the error. They offered to make restitution and
apology to the payee of the check, Legaspi, as well as the alleged endorsee, Lhuillier.
Regrettably, it was private respondent who declined the offer and allegedly said, that
there was nothing more to it, and that the matter had been put to rest. [5]Jle-xj
Admittedly, as found by both the respondent appellate court and the trial court,
petitioner bank had committed a mistake. It misposted private respondent's check
deposit to another account and delayed the posting of the same to the proper account
of the private respondent. The mistake resulted to the dishonor of the private
respondent's check. The trial court found "that the misposting of plaintiffs check
deposit to another account and the delayed posting of the same to the account of the
plaintiff is a clear proof of lack of supervision on the part of the defendant
bank."[6] Similarly, the appellate court also found that "while it may be true that the
bank's negligence in dishonoring the properly funded check of appellant might not
have been attended with malice and bad faith, as appellee [bank] submits,
nevertheless, it is the result of lack of due care and caution expected of an employee
of a firm engaged in so sensitive and accurately demanding task as banking." [7]
In Simex International (Manila), Inc, vs. Court of Appeals, 183 SCRA 360, 367
(1990), and Bank of Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-413
(1992), this Court had occasion to stress the fiduciary nature of the relationship
between a bank and its depositors and the extent of diligence expected of the former
in handling the accounts entrusted to its care, thus: Lex-juris
"In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect
at any given time the amount of money the depositor can dispose
of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of bank, such as the
dishonor of a check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation
to treat the account of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. x x x"
In the recent case of Philippine National Bank vs. Court of Appeals,[8] we held that "a
bank is under obligation to treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the performance of every kind of obligation
is demandable. While petitioner's negligence in this case may not have been attended
with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and
58
humiliation". Hence we ruled that the offended party in said case was entitled to pay her exemplary damages in the amount of P20,000.00 and P30,000.00, attorney's
recover reasonable moral damages. fees. Jksm

Even if malice or bad faith was not sufficiently proved in the instant case, the fact Costs against petitioner.
remains that petitioner has committed a serious mistake. It dishonored the check
issued by the private respondent who turned out to have sufficient funds with SO ORDERED.
petitioner. The bank's negligence was the result of lack of due care and caution
required of managers and employees of a firm engaged in so sensitive and
demanding business as banking. Accordingly, the award of moral damages by the
respondent Court of Appeals could not be said to be in error nor in grave abuse of its
discretion. Juri-smis

There is no hard-and-fast rule in the determination of what would be a fair amount of

moral damages since each case must be governed by its own peculiar facts. The
yardstick should be that it is not palpably and scandalously excessive. In our view,
the award of P100,000.00 is reasonable, considering the reputation and social standing
of private respondent Leticia T. Valenzuela.[9]

The law allows the grant of exemplary damages by way of example for the public
good.[10] The public relies on the banks' sworn profession of diligence and
meticulousness in giving irreproachable service. The level of meticulousness must be
maintained at all times by the banking sector. Hence, the Court of Appeals did not err
in awarding exemplary damages. In our view, however, the reduced amount of
P20,000.00 is more appropriate. Jj-juris

The award of attorney's fees is also proper when exemplary damages are awarded
and since private respondent was compelled to engage the services of a lawyer and
incurred expenses to protect her interest.[11] The standards in fixing attorney's fees
are: (1) the amount and the character of the services rendered; (2) labor, time and
trouble involved; (3) the nature and importance of the litigation and business in
which the services were rendered; (4) the responsibility imposed; (5) the amount of
money and the value of the property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in the performance of the
services; (7) the professional character and the social standing of the attorney; (8) the
results secured, it being a recognized rule that an attorney may properly charge a
much larger fee when it is contingent than when it is not.[12] In this case, all the
aforementioned weighed, and considering that the amount involved in the
controversy is only P36,770.41, the total deposit of private respondent which was
misposted by the bank, we find the award of respondent court of P50,000.00 for
attorney's fees, excessive and reduce the same to P30,000.00.

WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED,

with MODIFICATION. The petitioner is ordered to pay P100,000.00 by way of moral
damages in favor of private respondent Leticia T. Valenzuela. It is further ordered to

59