1.

Simex
We feel it is not enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The error should not have
been committed in the first place. The respondent bank has not even explained why it was
committed at all. It is true that the dishonored checks were, as the Court of Appeals put it,
"eventually" paid. However, this took almost a month when, properly, the checks should have
been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical
attitude toward the complaining depositor constituted the gross negligence, if not wanton bad
faith, that the respondent court said had not been established by the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received
"(2) for injury to the plaintiff s business standing or commercial credit." There is no question that
the petitioner did sustain actual injury as a result of the dishonored checks and that the
existence of the loss having been established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more the demand of the petitioner for moral
damages and justifies the examination by this Court of the validity and reasonableness of the
said claim.
Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social humiliation.
Not nominal

Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As
we have found that the petitioner has indeed incurred loss through the fault of the private
respondent, the proper remedy is the award to it of moral damages, which we impose, in our
discretion, in the same amount of P20,000.00.
Diligence

In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money
the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without
good reason, can cause the depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is
obvious that the respondent bank was remiss in that duty and violated that relationship. What is
especially deplorable is that, having been informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did not immediately correct it but did so only one
week later or twenty-three days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in the first place and
why it was not corrected immediately after its discovery. Such ineptness comes under the
concept of the wanton manner contemplated in the Civil Code that calls for the imposition of
exemplary damages.
2. Reyes

Degree of diligence

With these established facts, we now determine the degree of diligence that banks are required to
exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appealsi[15]
upholding a long standing doctrine, we ruled 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. In other words banks are duty bound to treat the deposit accounts
of their depositors with the highest degree of care. But the said ruling applies only to cases
where banks act under their fiduciary capacity, that is, as depositary of the deposits of their
depositors. But the same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a
good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft.
The case at bar does not involve the handling of petitioners deposit, if any, with the respondent bank.
Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank
as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the
20th Asian Racing Conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned,
the said foreign exchange demand draft was intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.

The evidence shows that the respondent bank did everything within its power to prevent the dishonor
of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-
Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being
unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated
that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six
Hundred Ten Australian Dollar (AU$1610.00) indicated in the foreign exchange demand draft. Thus, the
respondent bank had the impression that Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar
account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and
repeatedly notify Westpac-New York to debit its (respondent banks) deposit dollar account with it and
to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said
demand draft.

3. BPI
Certificates of deposit

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a

sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the
depositor, or to some other person or his order, whereby the relation of debtor and creditor between
the bank and the depositor is created.35 In particular, the certificates of deposit contain provisions on
the amount of interest, period of maturity, and manner of termination. Specifically, they stressed that
endorsement and presentation of the certificate of deposit is indispensable to their termination. In
other words, the accounts may only be terminated upon endorsement and presentation of the
certificates of deposit. Without the requisite presentation of the certificates of deposit, BPI may not
terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two steps. First,
it must ensure the identity of the account holder. Second, BPI must demand the surrender of the
certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability measure
to other co-depositors. By requiring the presentation of the certificates prior to termination, the other
depositors may rely on the fact that their investments in the interest-yielding accounts may not be
indiscriminately withdrawn by any of their co-depositors. This protective mechanism likewise benefits
the bank, which shields it from liability upon showing that it released the funds in good faith to an
account holder who possesses the certificates. Without the presentation of the certificates of deposit,
BPI may not validly terminate the certificates of deposit.

It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share in
proceeds. Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by making it
appear that the funds were withdrawn from another account.

BPI did not only fail to exercise that degree of diligence required by the nature of its business, it also
exercised its functions with bad faith and manifest partiality against Tarcila. The bank even recognized
an affidavit of loss whose allegations, the bank knew, were false. This aspect of the transactions
opens up other issues that we do not here decide because they are outside the scope of the case
before us.

This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity Agreement
on the basis of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine resting on the
theory that courts will not aid parties who base their cause of action on their own immoral or illegal
acts.56 When two parties, acting together, commit an illegal or wrongful act, the party held responsible
for the act cannot recover from the other, because both have been equally culpable and the damage
resulted from their joint offense.57

4. PNB

At this juncture, it bears e mphasizing that negligence of banking

institutions should never be countenanced. The negligence here lies
in the lackadaisical attitude exhibited by employees of petitioner PNB
in their treatment of respondent Pikes US Dollar Savings Account that
resulted in the unauthorized withdrawal of $7,500.00. Nevertheless,
though its employees may be the ones negligent, a banks liability as
an obligor is not merely vicarious but primary, as banks are expected
to exercise the highest degree of diligence in the selecti on and
supervision of their employees,[19] and having such obligation, this
Court cannot ignore the circumstances surrounding the case at bar
how the employees of petitioner PNB turned their heads, nay, closed
their eyes to the suspicious circumstances enfolding the two
withdrawals subject of the case at bar. It may even be said that they
went out of their ways to disregard standard operating procedures
formulated to ensure the security of each and every account that
they are handling. Petitioner PNB does not deny that the withdrawal
slips used were in breach of standard operating procedures of banks
in the ordinary and usual course of banking operations

From the foregoing, petitioner PNBs witness was utterly remiss in

protecting the banks client, as well as the bank itself, when he allowed

an account holder to make it appear as if he was the one actually

withdrawing from an account and actually receiving the withdrawn

amount. Ordinarily, banks allow withdrawal by someone who is not the

account holder so long as the account holder authorizes his

representative to withdraw and receive from his account by signing on

the space provided particularly for such tr ansactions, usually found at

the back of withdrawal slips. As fittingly found by the courts a quo, if

indeed, respondent Pike signed the withdrawal slips in the presence of

Mr. Lorenzo Bal, petitioner PNBs AVP at its Buendia branch, why did

he not call respondent Pikes attention and refer him to the space

provided for authorizing representatives to withdraw from and receive

the proceeds of such withdrawal? Or, at the very least, sign or initial

the same so that he could identify the pre -signed withdrawal slips made

by Mr. Pike?

5. Far East bank

The facts, as found by the court a quo and the appellate court, do not establish that, in the
exercise of this right, petitioner bank committed an abuse thereof. Specifically, the second and
third elements for abuse of rights are not attendant in the present case. The evidence presented by
petitioner bank negates the existence of bad faith or malice on its part in closing the respondent’s
account on April 4, 1988 because on the said date the same was already overdrawn. The
respondent issued four checks, all due on April 4, 1988, amounting to ₱7,410.00 when the
balance of his current account deposit was only ₱6,981.43. Thus, he incurred an overdraft of
₱428.57 which resulted in the dishonor of his Check No. 2434886. Further, petitioner bank
showed that in 1986, the current account of the respondent was overdrawn 156 times due to his
issuance of checks against insufficient funds.13 In 1987, the said account was overdrawn 117
times for the same

reason.14 Again, in 1988, 26 times.15 There were also several instances when the respondent
issued checks deliberately using a signature different from his specimen signature on file with
petitioner bank.16 All these circumstances taken together justified the petitioner bank’s closure of
the respondent’s account on April 4, 1988 for "improper handling."

It is observed that nowhere under its rules and regulations is petitioner bank required to notify the
respondent, or any depositor for that matter, of the closure of the account for frequently drawing
checks against insufficient funds. No malice or bad faith could be imputed on petitioner bank for so
acting since the records bear out that the respondent had indeed been improperly and irregularly
handling his account not just a few times but hundreds of times. Under the circumstances, petitioner
bank could not be faulted for exercising its right in accordance with the express rules and regulations
governing the current accounts of its depositors. Upon the opening of his account, the respondent had
agreed to be bound by these terms and conditions.

6. Ursal
Banks cannot merely rely on certificates of title in ascertaining the status of
mortgaged properties; as their business is impressed with public interest, they are
expected to exercise more care and prudence in their dealings than private
individuals.[31] Indeed, the rule that persons dealing with registered lands can
rely solely on the certificate of title does not apply to banks.

The reason is that, the contract between petitioner and the Monesets being one of
Contract to Sell Lot and House, petitioner, under the circumstances, never acquired
ownership over the property and her rights were limited to demand for specific
performance from the Monesets, which at this juncture however is no longer
feasible as the property had already been sold to other persons.

A contract to sell is a bilateral contract whereby the prospective seller, while

expressly reserving the ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment
of the purchase price.

In this case, petitioner instituted an action for Declaration of Non-Effectivity

of Mortgage with Damages four years from the date of her last installment and only
as a reaction to the foreclosure proceedings instituted by respondent Bank. After the
Monesets failed to deliver the TCT, petitioner merely stopped paying installments
and did not institute an action for specific performance, neither did she consign
payment of the remaining balance as proof of her willingness and readiness to
comply with her part of the obligation. As we held in San Lorenzo Development
Corp. vs. Court of Appeals,[50] the perfected contract to sell imposed on the vendee
the obligation to pay the balance of the purchase price. There being an obligation to
pay the price, the vendee should have made the proper tender of payment and
consignation of the price in court as required by law. Consignation of the amounts
due in court is essential in order to extinguish the vendees obligation to pay the
balance of the purchase price.[51] Since there is no indication in the records that
petitioner even attempted to make the proper consignation of the amounts due, the
obligation on the part of the Monesets to transfer ownership never acquired
obligatory force.

In other words, petitioner did not acquire ownership over the subject property
as she did not pay in full the equal price of the contract to sell. Further, the Monesets
breach did not entitle petitioner to any preferential treatment over the property
especially when such property has been sold to other persons.

7. security credit

Section 2 of the General Banking Act. Indeed, a bank has been defined as:

... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to
facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title
& Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills
of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338).
(Banks & Banking, by Zellmann Vol. 1, p. 46).

Moreover, it has been held that:

An investment company which loans out the money of its customers, collects the interest
and charges a commission to both lender and borrower, is a bank. (Western Investment
Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)

... any person engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions is exercised.
 (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9
C.J.S. 30.)

Accordingly, defendant corporation has violated the law by engaging in banking without
securing the administrative authority required in Republic Act No. 337.

8. Central Bank

Again, the aforementioned order would seem to assume that an illegal banking transaction, of the
kind contemplated in the contested action of the officers of the Bank, must always connote the
existence of a "victim." If this term is used to denote a party whose interests have been actually
injured, then the assumption is not necessarily justified. The law requiring compliance with
certain requirements before anybody can engage in banking obviously seeks to protect the public
against actual, as well as potential, injury. Similarly, we are not aware of any rule limiting the
use of warrants to papers or effects which cannot be secured otherwise.

The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the
Organization consisted of isolated transactions, distinct and different from the type of business in
which it is generally engaged. In such case, it may be necessary to specify or identify the parties
involved in said isolated transactions, so that the search and seizure be limited to the records
pertinent thereto. Such, however, is not the situation confronting us. The records suggest clearly
that the transactions objected to by the Bank constitute the general pattern of the business of the
Organization. Indeed, the main purpose thereof, according to its By-laws, is "to extend financial
assistance, in the form of loans, to its members," with funds deposited by them.

It is true, that such funds are referred to — in the Articles of Incorporation and the By-laws — as
their "savings." and that the depositors thereof are designated as "members," but, even a cursory
examination of said documents will readily show that anybody can be a depositor and thus be a
"participating member." In other words, the Organization is, in effect, open to the "public" for
deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power
to so dispose of said funds is placed under the exclusive authority of the "founder members," and
"participating members" are expressly denied the right to vote or be voted for, their "privileges
and benefits," if any, being limited to those which the board of trustees may, in its discretion,
determine from time to time. As a consequence, the "membership" of the "participating
members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers
or evils which Republic Act No. 337 seeks to forestall, by exacting compliance with the
requirements of said Act, before the transactions in question could be undertaken.

It is interesting to note, also, that the Organization does not seriously contest the main facts, upon
which the action of the Bank is based. The principal issue raised by the Organization is
predicated upon the theory that the aforementioned transactions of the Organization do not
amount to " banking," as the term is used in Republic Act No. 337. We are satisfied, however, in
the light of the circumstance obtaining in this case, that the Municipal Judge did not commit a
grave abuse of discretion in finding that there was probable cause that the Organization had
violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that,
accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and
seizure complained of have not been proven to be unreasonable.