Banking Cases Batch 1

BANKING FULL CASES JULY 7, 2015
GR 880313 simex intl vs ca

118492 reyes vs ca
rp vs security credit L-20583
central bank vs morfe L-20119
BPI family vs franco 123498
bpi vs ca 104612
Vitug vs Ca 82027
BPI vs IAC 206 scra 408
Go vs IAC 197 scra 22 1991
firestone vs ca 113236
PBCom v CA 269 scra 695 1997
salvacion vs CB 94723
rcbc v de castro 168 scra 49
1. Check No. 215391 dated May 29, 1981, in favor of California

Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the
Bureau of Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreo in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00:
G.R. No. 88013 March 19, 1990
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land

Services, Inc. in the amount of P27,024.45:
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
7. Check No. 215412 dated June 10, 1981, in favor of Baguio

Country Club Corporation in the amount of P4,385.02: and
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral
and exemplary damages. The negligence of the private respondent has already
been established. All we have to ascertain is whether the petitioner is entitled to
the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation
engaged in the exportation of food products. It buys these products from various
local suppliers and then sells them abroad, particularly in the United States,
Canada and the Middle East. Most of its exports are purchased by the petitioner
on credit.
The petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981,
the petitioner deposited to its account in the said bank the amount of P100,000.00,
thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the
petitioner issued several checks against its deposit but was suprised to learn later
that they had been dishonored for insufficient funds.
The dishonored checks are the following:
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta

Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9,
1981, a letter of demand to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It also withheld delivery of the
order made by the petitioner. Similar letters were sent to the petitioner by the
Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises,
on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded
that future payments be made by it in cash or certified check. Meantime, action on
the pending orders of the petitioner with the other suppliers whose checks were
dishonored was also deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was rectified on
June 17, 1981, and the dishonored checks were paid after they were redeposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiff's right had been violated, he ordered the defendant to
pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees
and costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to
moral damages. It said:
The essential ingredient of moral damages is proof of bad faith
(De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was
the omission by the defendant-appellee bank to credit
appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said amount in favor of
plaintiff-appellant in less than a month. The dishonored checks
were eventually paid. These circumstances negate any
imputation or insinuation of malicious, fraudulent, wanton and
gross bad faith and negligence on the part of the defendantappellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot
share some of the conclusions of the lower courts. It seems to us that the
negligence of the private respondent had been brushed off rather lightly as if it
were a minor infraction requiring no more than a slap on the wrist. 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.
We also note that while stressing the rectification made by the respondent bank,
the decision practically ignored the prejudice suffered by the petitioner. This was
simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's
credit line was canceled and its orders were not acted upon pending receipt of
actual payment by the suppliers. Its business declined. Its reputation was
tarnished. Its standing was reduced in the business community. All this was due to
the fault of the respondent bank which was undeniably remiss in its duty to 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.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar,
the petitioner is seeking such damages for the prejudice sustained by it as a result
of the private respondent's fault. The respondent court said that the claimed losses
are purely speculative and are not supported by substantial evidence, but if failed
to consider that the amount of such losses need not be established with exactitude
precisely because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is left to the sound discretion
of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in
the amount of P1,000,000.00 is nothing short of preposterous. Its business
certainly is not that big, or its name that prestigious, to sustain such an extravagant
pretense. 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. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was impaired because of the
bouncing checks and confidence in it as a reliable debtor was diminished. The
private respondent makes much of the one instance when the petitioner was sued
in a collection case, but that did not prove that it did not have a good reputation
that could not be marred, more so since that case was ultimately settled. 10 It does
not appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. 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.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by
way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust
his life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses. As for
business entities like the petitioner, the bank is a trusted and active associate that
can help in the running of their affairs, not only in the form of loans when needed
but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
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.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the
amount of P50,000.00, "by way of example or correction for the public good," in
the words of the law. It is expected that this ruling will serve as a warning and
deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further
impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
respondent is ordered to pay the petitioner, in lieu of nominal damages, moral
damages in the amount of P20,000.00, and exemplary damages in the amount of
P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00,
and costs.
SO ORDERED.
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
BOTTOMLINE: You got preexisting 90K and you deposited 100K, but it was not
updated by the bank, 8 checks bounced and you lost business partners. (burn
down the bank? hahaha) Can you demand moral and exemplary damages?
FACTS: We are concerned in this case with the question of damages, specifically
moral and exemplary damages The petitioner is a private corporation engaged in
the exportation of food products. It buys these products from various local
suppliers and then sells them abroad, particularly in the United States, Canada and
the Middle East. Most of its exports are purchased by the petitioner on credit. The
petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, account in the said bank the amount of
P100,000.00, thus increasing its balance as of that date to P190,380.74. , the
petitioner issued several checks against its deposit but was surprised to learn later
that they had been dishonored for insufficient funds. There were 8 dishonored
checks.

The California Manufacturing Corporation sent on June 9, 1981, a letter
of demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good. . Malabon also canceled the petitioner's credit line
and demanded that future payments be made by it in cash or certified check The
petitioner complained to the respondent bank on June 10, 1981. 3 Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25,
1981, had not been credited to it. The error was rectified on June 17, 1981, and the
dishonored checks were paid after they were re-deposited , the petitioner
demanded reparation from the respondent bank for its "gross and wanton
negligence." This demand was not met. Court of First Instance of Rizal claiming
from the private respondent moral damages in the sum of P1,000,000.00 and
exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary
damages were not called for under the circumstances. However, observing that the
plaintiff's right had been violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs.
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to
moral damages 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.
ISSUE: After all that you went through, the judge only awarded you 20k and 5k,
can you demand for 1,000,000 damage?
RULING:
We also note that while stressing the rectification made by the respondent bank,
the decision practically ignored the prejudice suffered 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."
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered From every
viewpoint except that of the petitioner's, its claim of moral damages in the amount
of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that
big, or its name that prestigious, to sustain such an extravagant pretense
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. 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." 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.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the
amount of P50,000.00, ACCORDINGLY, the appealed judgment is hereby
MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original award of attorney's fees in
the amount of P5,000.00, and costs.
SECOND DIVISION
[G.R. No. 118492. August 15, 2001]
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,

vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND
TRUST COMPANY,respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1] dated July 22, 1994 and
Resolution[2] dated December 29, 1994 of the Court of Appeals [3] affirming with
modification the Decision[4] dated November 12, 1992 of the Regional Trial Court
of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages
of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against
respondent Far East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI,
for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H.
Reyes, as vice-president for finance, racing manager, treasurer, and director of
PRCI, sent Godofredo Reyes, the clubs chief cashier, to the respondent bank to
apply for a foreign exchange demand draft in Australian dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20 th Asian Racing
Conference Secretariat of Sydney, Australia. He was attended to by respondent
banks assistant cashier, Mr. Yasis, who at first denied the application for the
reason that respondent bank did not have an Australian dollar account in any bank
in Sydney. Godofredo asked if there could be a way for respondent bank to
accommodate PRCIs urgent need to remit Australian dollars to Sydney. Yasis of
respondent bank then informed Godofredo of a roundabout way of effecting the

requested remittance to Sydney thus: the respondent bank would draw a demand
draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity)
and have the latter reimburse itself from the U.S. dollar account of the respondent
in Westpac Bank in New York, U.S.A (Westpac-New York for brevity). This
arrangement has been customarily resorted to since the 1960s and the procedure
has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting
through Godofredo, agreed to this arrangement or approach in order to effect the
urgent transfer of Australian dollars payable to the Secretariat of the 20 th Asian
Racing Conference.
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the
sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00), payable to the order of the 20 th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee
bank.
On August 10, 1988, upon due presentment of the foreign exchange demand
draft, denominated as FXDD No. 209968, the same was dishonored, with the
notice of dishonor stating the following: xxx No account held with Westpac.
Meanwhile, on August 16, 1988, Westpac-New York sent a cable to respondent
bank informing the latter that its dollar account in the sum of One Thousand Six
Hundred Ten Australian Dollars (AU$1,610.00) was debited. On August 19,
1988, in response to PRCIs complaint about the dishonor of the said foreign
exchange demand draft, respondent bank informed Westpac-Sydney of the
issuance of the said demand draft FXDD No. 209968, drawn against the WestpacSydney and informing the latter to be reimbursed from the respondent banks
dollar account in Westpac-New York. The respondent bank on the same day
likewise informed Westpac-New York requesting the latter to honor the
reimbursement claim of Westpac-Sydney. On September 14, 1988, upon its
second presentment for payment, FXDD No. 209968 was again dishonored by
Westpac-Sydney for the same reason, that is, that the respondent bank has no
deposit dollar account with the drawee Westpac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend
the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney
in the morning of September 18, 1988, he went directly to the lobby of Hotel
Regent Sydney to register as a conference delegate. At the registration desk, in the
presence of other delegates from various member countries, he was told by a lady
member of the conference secretariat that he could not register because the foreign
exchange demand draft for his registration fee had been dishonored for the second
time. A discussion ensued in the presence and within the hearing of many
delegates who were also registering. Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the conference secretariat
that he be shown the subject foreign exchange demand draft that had been
dishonored as well as the covering letter after which he promised that he would
pay the registration fees in cash. In the meantime he demanded that he be given
his name plate and conference kit. The lady member of the conference secretariat
relented and gave him his name plate and conference kit. It was only two (2) days
later, or on September 20, 1988, that he was given the dishonored demand draft
and a covering letter. It was then that he actually paid in cash the registration fees
as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was embarrassed and humiliated at the registration
desk of the conference secretariat when she was told in the presence and within
the hearing of other delegates that she could not be registered due to the dishonor
of the subject foreign exchange demand draft. She felt herself trembling and
unable to look at the people around her. Fortunately, she saw her husband coming
toward her. He saved the situation for her by telling the secretariat member that he
had already arranged for the payment of the registration fees in cash once he was
shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given
her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a
member of the House of Representatives representing the lone Congressional
District of Makati, Metro Manila. She has been an officer of the Manila Banking
Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady
banker of the year in connection with her conferment of the Pro-Ecclesia et
Pontifice Award. She has also been awarded a plaque of appreciation from the
Philippine Tuberculosis Society for her extraordinary service as the Societys
campaign chairman for the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of
Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 882468, against the respondent bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank. The petitioners claim that
as a result of the dishonor of the said demand draft, they were exposed to
unnecessary shock, social humiliation, and deep mental anguish in a foreign
country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein petitioners), the
dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing
plaintiffs complaint, and ordering plaintiffs to pay to defendant, on its
counterclaim, the amount of P50,000.00, as reasonable attorneys fees. Costs
against the plaintiff.
SO ORDERED.[5]
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial
court but in effect deleted the award of attorneys fees to the defendant (herein
respondent bank) and the pronouncement as to the costs. The decretal portion of
the decision of the appellate court states:

WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in
all other respect. No special pronouncement as to costs.
SO ORDERED.[6]
According to the appellate court, there is no basis to hold the respondent
bank liable for damages for the reason that it exerted every effort for the subject
foreign exchange demand draft to be honored.The appellate court found and
declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited and
that there was no miscommunication between it and Westpac-New York. SWIFT
is a world wide association used by almost all banks and is known to be the most
reliable mode of communication in the international banking business. Besides,
the above procedure, with the Bank as drawer and Westpac-Sydney as drawee,
and with Westpac-New York as the reimbursement Bank had been in place since
1960s and there was no reason for the Bank to suspect that this particular demand
draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the
Banks SWIFT message is the erroneous decoding on the part of Westpac-Sydney
of the Banks SWIFT message as an MT799 format. However, a closer look at the
Banks Exhs. 6 and 7 would show that despite what appears to be an asterisk
written over the figure before 99, the figure can still be distinctly seen as a number
1 and not number 7, to the effect that Westpac-Sydney was responsible for the
dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the
Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just documentary
copies of the cable message sent to Westpac-Sydney. Hence, if there was mistake
committed by Westpac-Sydney in decoding the cable message which caused the
Banks message to be sent to the wrong department, the mistake was Westpacs, not
the Banks. The Bank had done what an ordinary prudent person is required to do
in the particular situation, although appellants expect the Bank to have done more.
The Bank having done everything necessary or usual in the ordinary course of
banking transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.[7]
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING

PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY
APPLYING THE STANDARD OF DILIGENCE OF AN ORDINARY
PRUDENT PERSON WHEN IN TRUTH A HIGHER DEGREE OF
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE
FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A
BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE
DISHONOR OF THE DEMAND DRAFT WAS DUE TO PRIVATE
RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK. [8]
The petitioners contend that due to the fiduciary nature of the relationship
between the respondent bank and its clients, the respondent bank should have
exercised a higher degree of diligence than that expected of an ordinary prudent
person in the handling of its affairs as in the case at bar. The appellate court,
according to petitioners, erred in applying the standard of diligence of an ordinary
prudent person only. Petitioners also claim that the respondent bank violated
Section 61 of the Negotiable Instruments Law[9] which provides the warranty of a
drawer that xxx on due presentment, the instrument will be accepted or paid, or
both, according to its tenor xxx. Thus, the petitioners argue that respondent bank
should be held liable for damages for violation of this warranty. The petitioners
pray this Court to re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of
the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he
petition (for review) shall raise only questions of law which must be distinctly set
forth. Thus, we have ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court and they carry even
more weight when the Court of Appeals affirms the factual findings of the trial
court.[10]
The courts a quo found that respondent bank did not misrepresent that it was
maintaining a deposit account with Westpac-Sydney. Respondent banks assistant
cashier explained to Godofredo Reyes, representating PRCI and petitioner
Gregorio H. Reyes, how the transfer of Australian dollars would be effected
through Westpac-New York where the respondent bank has a dollar account to

Westpac-Sydney where the subject foreign exchange demand draft (FXDD No.
209968) could be encashed by the payee, the 20 th Asian Racing Conference
Secretatriat. PRCI and its Vice-President for finance, petitioner Gregorio H.
Reyes, through their said representative, agreed to that arrangement or
procedure. In other words, the petitioners are estopped from denying the said
arrangement or procedure. Similar arrangements have been a long standing
practice in banking to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the drawee bank, WestpacSydney, stated that it may claim reimbursement from its New York branch,
Westpac-New York where respondent bank has a deposit dollar account.
The facts as found by the courts a quo show that respondent bank did not
cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It
was the erroneous decoding of the cable message on the part of Westpac-Sydney
that caused the dishonor of the subject foreign exchange demand draft. An
employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed
figures in the SWIFT cable message of respondent bank as MT799 instead of as
MT199. As a result, Westpac-Sydney construed the said cable message as a
format for a letter of credit, and not for a demand draft. The appellate court
correctly found that the figure before 99 can still be distinctly seen as a number 1
and not number 7. Indeed, the line of a 7 is in a slanting position while the line of
a 1 is in a horizontal position. Thus, the number 1 in MT199 cannot be construed
as 7.[11]
The evidence also shows that the respondent bank exercised that degree of
diligence expected of an ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject foreign exchange demand draft,
the respondent bank advised Westpac-New York to honor the reimbursement
claim of Westpac-Sydney and to debit the dollar account[12] of respondent bank
with the former.As soon as the demand draft was dishonored, the respondent
bank, thinking that the problem was with the reimbursement and without any idea
that it was due to miscommunication, re-confirmed the authority of Westpac-New
York to debit its dollar account for the purpose of reimbursing WestpacSydney.[13] Respondent bank also sent two (2) more cable messages to WestpacNew York inquiring why the demand draft was not honored.[14]
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 Appeals[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 20 th 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 20 th 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.
In view of all the foregoing, and considering that the dishonor of the subject
foreign exchange demand draft is not attributable to any fault of the respondent
bank, whereas the petitioners appeared to be under estoppel as earlier mentioned,
it is no longer necessary to discuss the alleged application of Section 61 of the
Negotiable Instruments Law to the case at bar. In any event, it was established
that the respondent bank acted in good faith and that it did not cause the
embarrassment of the petitioners in Sydney, Australia. Hence, the Court of
Appeals did not commit any reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision
of the Court of Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.
Reyes VS. CA
Facts: By virtue of the erroneous reading of the cable message by its employee,
Westpac- Sydney asserted that the respondent Bank had no deposit account with it
to cover for the amount of AU$1610.00 indicated in the foreign exchange demand
draft. Consequently, the respondent Bank had the impression that Westpac- New
York had not yet made available the amount for reimbursement to Westpac
Sidney despite the fact that Respondent Bank has a sufficient deposit dollar
account with Westpac New York. Nevertheless, the demand draft was not
served. Can the Respondent Bank be held liable?
Held: No, when the circumstances show that all efforts were made by the

respondent bank to avoid such mistakes.
In Phil. Bank of Commerce v. CA, upholding a long standing doctrine, it was
ruled that the degree of diligence required of bank is more than that of 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 test the deposit accounts of
their depositors. But the same higher degree of diligence is not expected to be
executed by banks in commercial instruction that do not involve their fiduciary
relationship with their depositors.
Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20583
January 23, 1967
REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO
T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN
BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D.
BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents.
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for
petitioner.
Sycip, Salazar, Luna, Manalo & Feliciano for respondents.
Natalio M. Balboa and F. E. Evangelista for the receiver.
CONCEPCION, C.J.:
This is an original quo warranto proceeding, initiated by the Solicitor General, to
dissolve the Security and Acceptance Corporation for allegedly engaging in
banking operations without the authority required therefor by the General Banking
Act (Republic Act No. 337). Named as respondents in the petition are, in addition
to said corporation, the following, as alleged members of its Board of Directors
and/or Executive Officers, namely:
NAME
Pablo Tanjutco
Director
Arturo Soriano
Director
Ruben Beltran
Director
Bienvenido V. Zapa
Director & Vice-President
Pilar G. Resuello
Director & Secretary-Treasurer
Ricardo D. Balatbat
Director & Auditor
Jose R. Sebastian
Director & Legal Counsel
Vito Tanjutco Jr.
Director & Personnel Manager
The record shows that the Articles of Incorporation of defendant

corporation1 were registered with the Securities and Exchange Commission on
March 27, 1961; that the next day, the Board of Directors of the corporation
adopted a set of by-laws,2 which were filed with said Commission on April 5,
1961; that on September 19, 1961, the Superintendent of Banks of the Central
Bank of the Philippines asked its legal counsel an opinion on whether or not said
corporation is a banking institution, within the purview of Republic Act No. 337;
that, acting upon this request, on October 11, 1961, said legal counsel rendered an
opinion resolving the query in the affirmative; that in a letter, dated January 15,
1962, addressed to said Superintendent of Banks, the corporation through its
president, Rosendo T. Resuello, one of defendants herein, sought a
reconsideration of the aforementioned opinion, which reconsideration was denied
on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had
applied with the Securities and Exchange Commission for the registration and
licensing of its securities under the Securities Act; that, before acting on this
application, the Commission referred it to the Central Bank, which, in turn, gave
the former a copy of the above-mentioned opinion, in line with which, the
Commission advised the corporation on December 5, 1961, to comply with the
requirements of the General Banking Act; that, upon application of members of
the Manila Police Department and an agent of the Central Bank, on May 18, 1962,
the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant
thereto, members of the intelligence division of the Central Bank and of the
Manila Police Department searched the premises of the corporation and seized
documents and records thereof relative to its business operations; that, upon the
return of said warrant, the seized documents and records were, with the authority
of the court, placed under the custody of the Central Bank of the Philippines; that,
upon examination and evaluation of said documents and records, the intelligence
division of the Central Bank submitted, to the Acting Deputy Governor thereof, a
memorandum dated September 10, 1962, finding that the corporation is:
POSITION
Rosendo T. Resuello President & Chairman of the Board
1. Performing banking functions, without requisite certificate of authority

from the Monetary Board of the Central Bank, in violation of Secs. 2 and

6 of Republic Act 337, in that it is soliciting and accepting deposit from
the public and lending out the funds so received;
2. Soliciting and accepting savings deposits from the general
public when the company's articles of incorporation authorize it only to
engage primarily in financing agricultural, commercial and industrial
projects, and secondarily, in buying and selling stocks and bonds of any
corporation, thereby exceeding the scope of its powers and authority as
granted under its charter; consequently such acts are ultra-vires:
3. Soliciting subscriptions to the corporate shares of stock and accepting
deposits on account thereof, without prior registration and/or licensing
of such shares or securing exemption therefor, in violation of the
Securities Act; and
4. That being a private credit and financial institution, it should come
under the supervision of the Monetary Board of the Central Bank, by
virtue of the transfer of the authority, power, duties and functions of the
Secretary of Finance, Bank Commissioner and the defunct Bureau of
Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic
Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.)
that upon examination and evaluation of the same records of the
corporation, as well as of other documents and pertinent pipers obtained
elsewhere, the Superintendent of Banks, submitted to the Monetary
Board of the Central Bank a memorandum dated August 28, 1962,
stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence
Division, contained in his Memorandum to the Governor dated May 23,
1962 and in accordance with the written instructions of Governor
Castillo dated May 31, 1962, an examination of the books and records of
the Security Credit and Loans Organizations, Inc. seized by the
combined MPD-CB team was conducted by this Department. The
examination disclosed the following findings:
a. Considering the extent of its operations, the Security Credit
and Acceptance Corporation, Inc.,receives deposits from the
public regularly. Such deposits are treated in the Corporation's
financial statements as conditional subscription to capital stock.
Accumulated deposits of P5,000 of an individual depositor may
be converted into stock subscription to the capital stock of the
Security Credit and Acceptance Corporation at the option of the
depositor. Sale of its shares of stock or subscriptions to its
capital stock are offered to the public as part of its regular
operations.
b. That out of the funds obtained from the public through the
receipt of deposits and/or the sale of securities, loans are made
regularly to any person by the Security Credit and Acceptance
Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the
examination made by Examiners of this Department of the seized books
and records of the Corporation is attached hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General
Banking Act, defines the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in
the lending of funds obtained from the public through the
receipts of deposits or the sale of bonds, securities, or
obligations of any kind and all entities regularly conducting
operations shall be considered as banking institutions and shall
be subject to the provisions of this Act, of the Central Bank Act,
and of other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security
Credit and Acceptance Corporation isregularly lending funds obtained
from the receipt of deposits and/or the sale of securities. The
Corporation therefore is performing 'banking functions' as contemplated
in Republic Act No. 337, without having first complied with the
provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board
decide and declare:
1. That the Security Credit and Acceptance Corporation is performing
banking functions without having first complied with the provisions of
Republic Act No. 337, otherwise known as the General Banking Act, in
violation of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor
(Legal Counsel) for whatever legal actions are warranted, including, if
warranted criminal action against the Persons criminally liable and/orquo
warranto proceedings with preliminary injunction against the
Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on
September 14, 1962, the Monetary Board promulgated its Resolution No.
1095, declaring that the corporation is performing banking operations,

without having first complied with the provisions of Sections 2 and 6 of
Republic Act No. 337;3that on September 25, 1962, the corporation was
advised of the aforementioned resolution, but, this notwithstanding, the
corporation, as well as the members of its Board of Directors and the
officers of the corporation, have been and still are performing the
functions and activities which had been declared to constitute illegal
banking operations; that during the period from March 27, 1961 to May
18, 1962, the corporation had established 74 branches in principal cities
and towns throughout the Philippines; that through a systematic and
vigorous campaign undertaken by the corporation, the same had
managed to induce the public to open 59,463 savings deposit accounts
with an aggregate deposit of P1,689,136.74; that, in consequence of the
foregoing deposits with the corporation, its original capital stock of
P500,000, divided into 20,000 founders' shares of stock and 80,000
preferred shares of stock, both of which had a par value of P5.00 each,
was increased, in less than one (1) year, to P3,000,000 divided into
130,000 founders' shares and 470,000 preferred shares, both with a par
value of P5.00 each; and that, according to its statement of assets and
liabilities, as of December 31, 1961, the corporation had a capital stock
aggregating P1,273,265.98 and suffered, during the year 1961, a loss of
P96,685.29. Accordingly, on December 6, 1962, the Solicitor General
commenced this quo warranto proceedings for the dissolution of the
corporation, with a prayer that, meanwhile, a writ of preliminary
injunction be issued ex parte, enjoining the corporation and its branches,
as well as its officers and agents, from performing the banking operations
complained of, and that a receiver be appointed pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent of
Banks of the Central Bank of the Philippines was appointed by this Court receiver
pendente lite of defendant corporation, and upon the filing of the requisite bond,
said officer assumed his functions as such receiver on September 16, 1963.
defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as

proposed president, vice-president, secretary-treasurer, auditor and legal counsel,
respectively; that said additional officers had never assumed their respective
offices because of the pendency of the approval of said application for conversion;
that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco
had subsequently withdrawn from the proposed mortgage and savings bank; that
on November 29, 1962 or before the commencement of the present
proceedings the corporation and defendants Rosendo T. Resuello and Pilar G.
Resuello had instituted Civil Case No. 52342 of the Court of First Instance of
Manila against Purificacion Santos and other members of the savings plan of the
corporation and the City Fiscal for a declaratory relief and an injunction; that on
December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing
the defendants in said case No. 52342 and their representatives or agents to refrain
from prosecuting the plaintiff spouses and other officers of the corporation by
reason of or in connection with the acceptance by the same of deposits under its
savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342,
on December 6, 1962, the Court of First Instance of Manila had appointed Jose
Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said
Ramirez qualified as such receiver, after filing the requisite bond; that, except as
to one of the defendants in said case No. 52342, the issues therein have already
been joined; that the failure of the corporation to honor the demands for
withdrawal of its depositors or members of its savings plan and its former
employees was due, not to mismanagement or misappropriation of corporate
funds, but to an abnormal situation created by the mass demand for withdrawal of
deposits, by the attachment of property of the corporation by its creditors, by the
suspension by debtors of the corporation of the payment of their debts thereto and
by an order of the Securities and Exchange Commission dated September 26,
1962, to the corporation to stop soliciting and receiving deposits; and that the
withdrawal of deposits of members of the savings plan of the corporation was
understood to be subject, as to time and amounts, to the financial condition of the
corporation as an investment firm.
In their answer, defendants admitted practically all of the allegations of fact made
in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito,
Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the
corporation, as well as the validity of the opinion, ruling, evaluation and
conclusions, rendered, made and/or reached by the legal counsel and the
intelligence division of the Central Bank, the Securities and Exchange
Commission, and the Superintendent of Banks of the Philippines, or in Resolution
No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the
Municipal Court of Manila, and of the search and seizure made thereunder. By
way of affirmative allegations, defendants averred that, as of July 7, 1961, the
Board of Directors of the corporation was composed of defendants Rosendo T.
Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the
corporation had filed with the Superintendent of Banks an application for
conversion into a Security Savings and Mortgage Bank, with defendants Zapa,
Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as
proposed directors, in addition to the defendants first named above, with
In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the
anniversary publication of defendant corporation showed that defendants Pablo
Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D.
Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors
thereof; that this is confirmed by the minutes of a meeting of stockholders of the
corporation, held on September 27, 1962, showing that said defendants had been
elected officers thereof; that the views of the legal counsel of the Central Bank, of
the Securities and Exchange Commission, the Intelligence Division, the
Superintendent of Banks and the Monetary Board above referred to have been
expressed in the lawful performance of their respective duties and have not been
assailed or impugned in accordance with law; that neither has the validity of
Search Warrant No. A-1019 been contested as provided by law; that the only
assets of the corporation now consist of accounts receivable amounting
approximately to P500,000, and its office equipment and appliances, despite its
increased capitalization of P3,000,000 and its deposits amounting to not less than
P1,689,136.74; and that the aforementioned petition of the corporation, in Civil

Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is
now highly improper, the defendants having already committed infractions and
violations of the law justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite
authority to engage in banking, defendants deny that its transactions partake of the
nature of banking operations. It is conceded, however, that, in consequence of a
propaganda campaign therefor, a total of 59,463 savings account deposits have
been made by the public with the corporation and its 74 branches, with an
aggregate deposit of P1,689,136.74, which has been lent out to such persons as
the corporation deemed suitable therefor. It is clear that these transactions partake
of the nature of banking, as the term is used in Section 2 of the General Banking
Act. Indeed, a bank has been defined as:
jurisdiction, concurrently with courts of first instance, to hear and decide quo
warranto cases and, that, consequently, it is discretionary for us to entertain the
present case or to require that the issues therein be taken up in said Civil Case No.
52342. The Veraguth case cited by herein defendants, in support of the second
alternative, is not in point, because in said case there were issues of fact which
required the presentation of evidence, and courts of first instance are, in general,
better equipped than appellate courts for the taking of testimony and the
determination of questions of fact. In the case at bar, there is, however, no dispute
as to the principal facts or acts performed by the corporation in the conduct of its
business. The main issue here is one of law, namely, the legal nature of said facts
or of the aforementioned acts of the corporation. For this reason, and because
public interest demands an early disposition of the case, we have deemed it best to
determine the merits thereof.
... 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).
Wherefore, the writ prayed for should be, as it is hereby granted and defendant
corporation is, accordingly, ordered dissolved. The appointment of receiver herein
issued pendente lite is hereby made permanent, and the receiver is, accordingly,
directed to administer the properties, deposits, and other assets of defendant
corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the
Rules of Court. It is so ordered.
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.)
Republic of the Philippines vs. Security Credit and Acceptance Corporation G.R.
No. L-20583, January 23, 1967
MARCH 16, 2014LEAVE A COMMENT
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. It is
... 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.)
conceded that a total of 59,463 savings account deposits have been made by the
Accordingly, defendant corporation has violated the law by engaging in

banking without securing the administrative authority required in
Republic Act No. 337.
deemed suitable therefore. It is clear that these transactions partake of the
public with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation
nature of banking, as the term is used in Section 2 of the General Banking Act.
Facts: The Solicitor General filed a petition for quo warranto to dissolve the
That the illegal transactions thus undertaken by defendant corporation warrant its
dissolution is apparent from the fact that the foregoing misuser of the corporate
funds and franchise affects the essence of its business, that it is willful and has
been repeated 59,463 times, and that its continuance inflicts injury upon the
public, owing to the number of persons affected thereby.
It is urged, however, that this case should be remanded to the Court of First
Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil.
266). In this connection, it should be noted that this Court is vested with original
Security and Acceptance Corporation, alleging that the latter was engaging in
banking operations without the authority required therefor by the General Banking
Act (Republic Act No. 337). Pursuant to a search warrant issued by MTC Manila,
members of Central Bank intelligence division and Manila police seized
documents and records relative to the business operations of the corporation. After

examination of the same, the intelligence division of the Central Bank submitted a
deposit of P1,689,136.74, which has been lent out to such persons as the
memorandum to the then Acting Deputy Governor of Central Bank finding that
corporation deemed suitable therefore. It is clear that these transactions partake of
the corporation is engaged in banking operations. It was found that Security and
the nature of banking, as the term is used in Section 2 of the General Banking Act.
Acceptance Corporation established 74 branches in principal cities and towns
Hence, defendant corporation has violated the law by engaging in banking without
throughout the Philippines; that through a systematic and vigorous campaign
securing the administrative authority required in Republic Act No. 337.
undertaken by the corporation, the same had managed to induce the public to open
59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74;
That the illegal transactions thus undertaken by defendant corporation warrant its
Accordingly, the Solicitor General commenced this quo warranto proceedings for
dissolution is apparent from the fact that the foregoing misuser of the corporate
the dissolution of the corporation, with a prayer that, meanwhile, a writ of
funds and franchise affects the essence of its business, that it is willful and has
preliminary injunction be issued ex parte, enjoining the corporation and its
been repeated 59,463 times, and that its continuance inflicts injury upon the
branches, as well as its officers and agents, from performing the banking
public, owing to the number of persons affected thereby.
operations complained of, and that a receiver be appointed pendente lite.

SUPREME COURT
Manila
Superintendent of Banks of the Central Bank was then appointed by the Supreme
Court as receiver pendente lite of defendant corporation.
EN BANC
In their defense, Security and Acceptance Corporation averred that the the
corporation had filed with the Superintendent of Banks an application for
conversion into a Security Savings and Mortgage Bank, with defendants Zapa,
Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as
proposed directors.
Issue:
Whether or not defendant corporation was engaged in banking
G.R. No. L-20119
June 30, 1967
CENTRAL BANK OF THE PHILIPPINES, petitioner,

vs.
THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL
SAVING AND LOAN ORGANIZATION, INC., respondents.
Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.
Halili, Bolinao, Bolinao and Associates for respondents.
CONCEPCION, C.J.:
operations.
Held.
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. It is conceded that a total of 59,463 savings account deposits have been
made by the public with the corporation and its 74 branches, with an aggregate
This is an original action for certiorari, prohibition and injunction, with

preliminary injunction, against an order of the Court of First Instance of Manila,
the dispositive part of which reads:
WHEREFORE, upon the petitioner filing an injunction bond in the
amount of P3,000.00, let a writ of preliminary preventive and/or
mandatory injunction issue, restraining the respondents, their agents or
representatives, from further searching the premises and properties and

from taking custody of the various documents and papers of the
petitioner corporation, whether in its main office or in any of its
branches; and ordering the respondent Central Bank and/or its corespondents to return to the petitioner within five (5) days from service
on respondents of the writ of preventive and/or mandatory injunction, all
the books, documents, and papers so far seized from the petitioner
pursuant to the aforesaid search warrant.1wph1.t
Such institutions violate Section. 2 of the General Banking Act, Republic Act No.
337, should they engage in the "lending of funds obtained from the public through
the receipts of deposits or the sale of bonds, securities or obligations of any kind"
without authority from the Monetary Board. Their activities and operations are not
supervised by the Superintendent of Banks and persons dealing with such
institutions do so at their risk.
CENTRAL BANK OF THE PHILIPPINES
Upon the filing of the petition herein and of the requisite bond, we issued, on
August 14, 1962, a writ of preliminary injunction restraining and prohibiting
respondents herein from enforcing the order above quoted.
The main respondent in this case, the First Mutual Savings and Loan
Organization, Inc. hereinafter referred to as the Organization is a registered
non-stock corporation, the main purpose of which, according to its Articles of
Incorporation, dated February 14, 1961, is "to encourage . . . and implement
savings and thrift among its members, and to extend financial assistance in the
form of loans," to them. The Organization has three (3) classes of
"members,"1 namely: (a) founder members who originally joined the
organization and have signed the pre-incorporation papers with the
exclusive right to vote and be voted for ; (b) participating members
with "no right to vote or be voted for" to which category all other members
belong; except (c) honorary members, so made by the board of trustees, "at the
exclusive discretion" thereof due to "assistance, honor, prestige or help
extended in the propagation" of the objectives of the Organization without any
pecuniary expenses on the part of said honorary members.
On February 14, 1962, the legal department of the Central Bank of the Philippines
hereinafter referred to as the Bank rendered an opinion to the effect that the
Organization and others of similar nature are banking institutions, falling within
the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank
caused to be published in the newspapers the following:
ANNOUNCEMENT
To correct any wrong impression which recent newspaper reports on "savings and
loan associations" may have created in the minds of the public and other
interested parties, as well as to answer numerous inquiries from the public, the
Central Bank of the Philippines wishes to announce that all "savings and loan
associations" now in operation and other organizations using different corporate
names, but engaged in operations similar in nature to said "associations" HAVE
NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE
CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS
FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR
TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE
PHILIPPINES.
Moreover, on April 23, 1962, the Governor of the Bank directed the coordination
of "the investigation and gathering of evidence on the activities of the savings and
loan associations which are operating contrary to law." Soon thereafter, or on May
18, 1962, a member of the intelligence division of the Bank filed with the
Municipal Court of Manila a verified application for a search warrant against the
Organization, alleging that "after close observation and personal investigation, the
premises at No. 2745 Rizal Avenue, Manila" in which the offices of the
Organization were housed "are being used unlawfully," because said
Organization is illegally engaged in banking activities, "by receiving deposits of
money for deposit, disbursement, safekeeping or otherwise or transacts the
business of a savings and mortgage bank and/or building and loan association . . .
without having first complied with the provisions of Republic Act No. 337" and
that the articles, papers, or effects enumerated in a list attached to said application,
as Annex A thereof.3 are kept in said premises, and "being used or intended to be
used in the commission of a felony, to wit: violation of Sections 2 and 6 of
Republic Act No. 337."4 Said articles, papers or effects are described in the
aforementioned Annex A, as follows:
I. BOOKS OF ORIGINAL ENTRY
(1) General Journal
(2) Columnar Journal or Cash Book
(a) Cash Receipts Journal or Cash Receipt Book
(b) Cash Disbursements Journal or Cash Disbursement Book
II. BOOKS OF FINAL ENTRY
(1) General Ledger
(2) Individual Deposits and Loans Ledgers
(3) Other Subsidiary Ledgers

III. OTHER ACCOUNTING RECORDS
(2) By-Laws
(1) Application for Membership
(3) Prospectus, Brochures Etc.
(2) Signature Card
(4) And other documents and articles which are being used or intended to
be used in unauthorized banking activities and operations contrary to
law.
(3) Deposit Slip

(4) Passbook Slip
(5) Withdrawal Slip
(6) Tellers Daily Deposit Report
(7) Application for Loan Credit Statement
Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as
Judge of the said municipal court, issued the warrant above referred
to,5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue,
Manila, and the seizure of the foregoing articles, there being "good and sufficient
reasons to believe" upon examination, under oath, of a detective of the Manila
Police Department and said intelligence officer of the Bank that the
Organization has under its control, in the address given, the aforementioned
articles, which are the subject of the offense adverted to above or intended to be
used as means for the commission of said off offense.
(8) Credit Report

(9) Solicitor's Report
(10) Promissory Note
(11) I n d o r s e m e n t
(12) Co-makers' Statements
(13) Chattel Mortgage Contracts
Forthwith, or on the same date, the Organization commenced Civil Case No.
50409 of the Court of First Instance of Manila, an original action for "certiorari,
prohibition, with writ of preliminary injunction and/or writ of preliminary
mandatory injunction," against said municipal court, the Sheriff of Manila, the
Manila Police Department, and the Bank, to annul the aforementioned search
warrant, upon the ground that, in issuing the same, the municipal court had acted
"with grave abuse of discretion, without jurisdiction and/or in excess of
jurisdiction" because: (a) "said search warrant is a roving commission general in
its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . .
permits the unreasonable search and seizure of documents which have no relation
whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines
has any jurisdiction to try a criminal case against a corporation . . ."
(14) Real Estate Mortgage Contracts

(15) Trial Balance
(16) Minutes Book Board of Directors
IV. FINANCIAL STATEMENTS
(1) Income and Expenses Statements
The Organization, likewise, prayed that, pending hearing of the case on the merits,
a writ of preliminary injunction be issued ex parte restraining the aforementioned
search and seizure, or, in the alternative, if the acts complained of have been
partially performed, that a writ of preliminary mandatory injunction be forthwith
issuedex parte, ordering the preservation of the status quo of the parties, as well as
the immediate return to the Organization of the documents and papers so far
seized under, the search warrant in question. After due hearing, on the petition for
said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the
branch of the Court of First Instance of Manila to which said Case No. 50409 had
been assigned, issued, on July 2, 1962, the order complained of.
(2) Balance Sheet or Statement of Assets and Liabilities

V. OTHERS
(1) Articles of Incorporation
Within the period stated in said order, the Bank moved for a reconsideration
thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced,
in the Supreme Court, the present action, against Judge Morfe and the
Organization, alleging that respondent Judge had acted with grave abuse of
discretion and in excess of his jurisdiction in issuing the order in question.

At the outset, it should be noted that the action taken by the Bank, in causing the
aforementioned search to be made and the articles above listed to be seized, was
predicated upon the theory that the Organization was illegally engaged in banking
by receiving money for deposit, disbursement, safekeeping or otherwise, or
transacting the business of a savings and mortgage bank and/or building and loan
association, without first complying with the provisions of R.A. No. 337, and
that the order complained of assumes that the Organization had violated sections 2
and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in
question to be unreasonable, through the following process of reasoning: the
deposition given in support of the application for a search warrant states that the
deponent personally knows that the premises of the Organization, at No. 2745
Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes.
Respondent judge deduce, from this premise, that the deponent " knows specific
banking transactions of the petitioner with specific persons," and, then concluded
that said deponent ". . . could have, if he really knew of actual violation of the law,
applied for a warrant to search and seize only books" or records:
covering the specific purportedly illegal banking transactions of the
petitioner with specific persons who are the supposed victims of said
illegal banking transactions according to his knowledge. To authorize
and seize all the records listed in Annex A to said application for search
warrant, without reference to specific alleged victims of the purported
illegal banking transactions, would be to harass the petitioner, and its
officers with a roving commission or fishing expedition for evidence
which could be discovered by normal intelligence operations or
inspections (not seizure) of books and records pursuant to Section 4 of
Republic Act No 337 . . ."
The concern thus shown by respondent judge for the civil liberty involved is,
certainly, in line with the function of courts, as ramparts of justice and liberty and
deserves the greatest encouragement and warmest commendation. It lives up to
the highest traditions of the Philippine Bench, which underlies the people's faith in
and adherence to the Rule of Law and the democratic principle in this part of the
World.
At the same time, it cannot be gainsaid the Constitutional injunction against
unreasonable searches and seizures seeks to forestall, not purely abstract or
imaginary evils, but specific and concrete ones. Indeed, unreasonableness is, in
the very nature of things, a condition dependent upon the circumstances
surrounding each case, in much the same way as the question whether or not
"probable cause" exists is one which must be decided in the light of the conditions
obtaining in given situations.
Referring particularly to the one at bar, it is not clear from the order complained
of whether respondent Judge opined that the above mentioned statement of the
deponent to the effect that the Organization was engaged in the transactions
mentioned in his deposition deserved of credence or not. Obviously, however,
a mere disagreement with Judge Cancino, who issued the warrant, on the
credibility of said statement, would not justify the conclusion that said municipal
Judge had committed a grave abuse of discretion, amounting to lack of
jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the
witness to mention particular individuals does not necessarily prove that he had no
personal knowledge of specific illegal transactions of the Organization, for the
witness might be acquainted with specific transactions, even if the names of the
individuals concerned were unknown to him.
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.
Depending on the circumstances, while in one instance the particular
wording of the warrant may make it assume the character of a general warrant, in
another context it may be considered perfectly alright.
Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of
preliminary mandatory injunction issued in compliance therewith are hereby
annulled, and the writ of preliminary injunction issued by this Court on August
14, 1962, accordingly, made permanent, with costs against respondent First
Mutual Savings and Loan Organization, Inc. It is so ordered.
SW only for one offense, if issued for more than two, it is void. Scatter
shot warrant.
In illegal possession of shabu, marijuana, paraphernalia- one SW ok!
July 5, 2013 Leave a comment
SW may be partially void
CENTRAL BANK v. MORFE
Undetermined amount of marijuana ok!
FACTS: First Mutual Savings and Loan Organization encourage savings among
Purpose of Particularity of Description:
CENTRAL BANK v. MORFE
its members and extend financial assistance thru loans. Central bank said that the
Organization and others with similar nature are banking institutions and that the
1.
Org have never been authorized. CB applied for SW because of the Orgs illegal
receipt of deposits of money for deposit, disbursementswithout compliance
with RA 337. The SW includes articles such as book of original entryand
Readily identify the items to be seized, thus prevent them from seizing the wrong
items
2.
Leave officers with no discretion regarding articles to be seized and thus prevent
unreasonable searches and seizure
others. They said that the SW is general in its terms and that the use of the word
and others permits the unreasonable search and seizure of documents which
Not required that technical precision of description be required
narcotics paraphernalia, any and all narcotics, and a quantity of loose
have no relation to any specific criminal act.
HELD: SW is upheld.
heroin- ok!
and the like- not necessarily general warrant
separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a
series of transactions.
Where should the requisite description appear- in the caption or body of
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco)

opened a savings and current account with BPI-FB. Soon thereafter, or on August
25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit
account with the same branch of BPI-FB with a deposit of P100,000,000.00, to
mature one year thence.
the warrant? Body sufficient.
What if theres discrepancy between the address in the caption and in the
body? Not sufficient to invalidate. It is sufficient as long as you can identify the
place intended and distinguish it from other places in the community.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 123498
November 23, 2007
BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care
and utmost fidelity. We reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court
of Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which affirmed with
modification the judgment2 of the Regional Trial Court, Branch 55, Manila
(Manila RTC), in Civil Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI
Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in
conspiracy with other individuals,3 some of whom opened and maintained
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a

current,4 savings,5 and time deposit,6 with BPI-FB. The current and savings
accounts were respectively funded with an initial deposit ofP500,000.00 each,
while the time deposit account had P1,000,000.00 with a maturity date of August
31, 1990. The total amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate
Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB
SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was
part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account
and credited to Tevestecos current account pursuant to an Authority to Debit
purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the Authority to
Debit were forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the
Authority to Debit, personally declared his signature therein to be a forgery.
Unfortunately, Tevesteco had already effected several withdrawals from its
current account (to which had been credited the P80,000,000.00 covered by the
forged Authority to Debit) amounting to P37,455,410.54, including
the P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of
FMICs forgery claim, BPI-FB, thru its Senior Vice-President, Severino
Coronacion, instructed Jesus Arangorin10 to debit Francos savings and current
accounts for the amounts remaining therein.11 However, Francos time deposit
account could not be debited due to the capacity limitations of BPI-FBs
computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB current
account were dishonored upon presentment for payment, and stamped with a
notation "account under garnishment." Apparently, Francos current account was
garnished by virtue of an Order of Attachment issued by the Regional Trial Court
of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had
been filed by BPI-FB against Franco et al.,14 to recover the P37,455,410.54
representing Tevestecos total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented for payment
at BPI-FB prior to Francos receipt of notice that his accounts were under

garnishment.15 In fact, at the time the Notice of Garnishment dated September 27,
1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case
where the writ of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second
Amended Complaint in Civil Case No. 89-4996, that Franco was impleaded in the
Makati case.16 Immediately, upon receipt of such copy, Franco filed a Motion to
Discharge Attachment which the Makati RTC granted on May 16, 1990. The
Order Lifting the Order of Attachment was served on BPI-FB on even date, with
Franco demanding the release to him of the funds in his savings and current
accounts. Jesus Arangorin, BPI-FBs new manager, could not forthwith comply
with the demand as the funds, as previously stated, had already been debited
because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM
Branch indicated that the current account record was "not on file."
With respect to Francos savings account, it appears that Franco agreed to an
arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings
account was temporarily transferred to Domingo Quiaoits savings account,
subject to its immediate return upon issuance of a certificate of deposit which
Quiaoit needed in connection with his visa application at the Taiwan Embassy. As
part of the arrangement, Sebastian retained custody of Quiaoits savings account
passbook to ensure that no withdrawal would be effected therefrom, and to
preserve Francos deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB
deducted the amount of P63,189.00 from the remaining balance of the time
deposit account representing advance interest paid to him.
These transactions spawned a number of cases, some of which we had already
resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount
of P80,000,000.00 debited from its account.17 The case eventually reached this
Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment
Corporation,18 we upheld the finding of the courts below that BPI-FB failed to
exercise the degree of diligence required by the nature of its obligation to treat the
accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to
FMIC for the debited amount in its time deposit. It was ordered to
pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until
fully restored. In turn, the 17% shall itself earn interest at 12% from October 4,
1989 until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica
(Buenaventura, et al.),19 recipients of a P500,000.00 check proceeding from
the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting
withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa,
Caloocan City Branch. Likewise, when the case was elevated to this Court
docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no
right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB liable
therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed
to be the perpetrators of the multi-million peso scam.22 In the criminal case,
Franco, along with the other accused, except for Manuel Bienvenida who was still
at large, were acquitted of the crime of Estafa as defined and penalized under
Article 351, par. 2(a) of the Revised Penal Code. 23 However, the civil
case24 remains under litigation and the respective rights and liabilities of the
parties have yet to be adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze
his accounts and release his deposits therein, the latter filed on June 4, 1990 with
the Manila RTC the subject suit. In his complaint, Franco prayed for the following
reliefs: (1) the interest on the remaining balance25 of his current account which
was eventually released to him on October 31, 1991; (2) the balance 26 on his
savings account, plus interest thereon; (3) the advance interest27 paid to him which
had been deducted when he pre-terminated his time deposit account; and (4) the
payment of actual, moral and exemplary damages, as well as attorneys fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing the
accounts of Franco and refusing to release his deposits, claiming that it had a
better right to the amounts which consisted of part of the money allegedly
fraudulently withdrawn from it by Tevesteco and ending up in Francos accounts.
BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the
introduction facilitated by Franco between George Daantos and Eladio Teves, on
the one hand, and Jaime Sebastian, on the other, spoke volumes of Francos
participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of
which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor
of [Franco] and against [BPI-FB], ordering the latter to pay to the former the
following sums:
1. P76,500.00 representing the legal rate of interest on the amount
of P450,000.00 from May 18, 1990 to October 31, 1991;
2. P498,973.23 representing the balance on [Francos] savings account as
of May 18, 1990, together with the interest thereon in accordance with
the banks guidelines on the payment therefor;
3. P30,000.00 by way of attorneys fees; and

4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal
anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective appeals before the
CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral
and exemplary damages, and the diminutive award of attorneys fees. In affirming
with modification the lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby
AFFIRMED with modification ordering [BPI-FB] to pay [Franco] P63,189.00
representing the interest deducted from the time deposit of plaintiffappellant.P200,000.00 as moral damages and P100,000.00 as exemplary damages,
deleting the award of nominal damages (in view of the award of moral and
exemplary damages) and increasing the award of attorneys fees from P30,000.00
to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco
had a better right to the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his
current account; (3) Franco can recover the P400,000.00 deposit in Quiaoits
savings account; (4) the dishonor of Francos checks was not legally in order; (5)
BPI-FB is liable for interest on Francos time deposit, and for moral and
exemplary damages; and (6) BPI-FBs counter-claim has no factual and legal
anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that BPI-FB
cannot unilaterally freeze Francos accounts and preclude him from withdrawing
his deposits. However, contrary to the appellate courts ruling, we hold that
Franco is not entitled to unearned interest on the time deposit as well as to moral
and exemplary damages.
First. On the issue of who has a better right to the deposits in Francos accounts,
BPI-FB urges us that the legal consequence of FMICs forgery claim is that the
money transferred by BPI-FB to Tevesteco is its own, and considering that it was
able to recover possession of the same when the money was redeposited by
Franco, it had the right to set up its ownership thereon and freeze Francos
accounts.
BPI-FB contends that its position is not unlike that of an owner of personal
property who regains possession after it is stolen, and to illustrate this point, BPIFB gives the following example: where Xs television set is stolen by Y who
thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set
to X, the latter would have the right to keep possession of the property and
preclude Z from recovering possession thereof. To bolster its position, BPI-FB
cites Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of the
same.
If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned
in Article 559 of the Civil Code pertains to a specific or determinate thing. 30 A
determinate or specific thing is one that is individualized and can be identified or
distinguished from others of the same kind.31
In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible.32 The quality of being
fungible depends upon the possibility of the property, because of its nature or the
will of the parties, being substituted by others of the same kind, not having a
distinct individuality.33
Significantly, while Article 559 permits an owner who has lost or has been
unlawfully deprived of a movable to recover the exact same thing from the current
possessor, BPI-FB simply claims ownership of the equivalent amount of money,
i.e., the value thereof, which it had mistakenly debited from FMICs account and
credited to Tevestecos, and subsequently traced to Francos account. In fact, this
is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its
claim on the money itself which passed from one account to another, commencing
with the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership, 34 and
this characteristic is all the more manifest in the instant case which involves
money in a banking transaction gone awry. Its primary function is to pass from
hand to hand as a medium of exchange, without other evidence of its
title.35 Money, which had passed through various transactions in the general
course of banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal
property, BPI-FBs illustrative example, ostensibly based on Article 559, is
inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of
Franco, but not as a legal consequence of its unauthorized transfer of FMICs
deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit of
money in banks is governed by the Civil Code provisions on simple loan or
mutuum.36 As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Francos deposits, but such
ownership is coupled with a corresponding obligation to pay him an equal amount
on demand.37 Although BPI-FB owns the deposits in Francos accounts, it cannot
prevent him from demanding payment of BPI-FBs obligation by drawing checks
against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he
had every right as creditor to expect that those checks would be honored by BPIFB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts
of Franco based on its mere suspicion that the funds therein were proceeds of the
multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or
any bank for that matter, the right to take whatever action it pleases on deposits
which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.
reason, can cause the depositor not a little embarrassment if not also financial loss
their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to
know the signatures of its customers. Having failed to detect the forgery in the
Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco
transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees
of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the
authenticity of the signature in the Authority to Debit, effected the transfer
of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account
was a time deposit and it had already paid advance interest to FMIC. Considering
that there is as yet no indubitable evidence establishing Francos participation in
the forgery, he remains an innocent party. As between him and BPI-FB, the latter,
which made possible the present predicament, must bear the resulting loss or
inconvenience.
Our pronouncement in Simex International (Manila), Inc. v. Court of

Appeals38 continues to resonate, thus:
Second. With respect to its liability for interest on Francos current account, BPIFB argues that its non-compliance with the Makati RTCs Order Lifting the Order
of Attachment and the legal consequences thereof, is a matter that ought to be
taken up in that court.
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust
his lifes savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses. x x x.
The argument is tenuous. We agree with the succinct holding of the appellate
court in this respect. The Manila RTCs order to pay interests on Francos current
account arose from BPI-FBs unjustified refusal to comply with its obligation to
pay Franco pursuant to their contract of mutuum. In other words, from the time
BPI-FB refused Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12% began to
accrue thereon.39
In every case, the depositor expects the bank to treat his account with the utmost
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 directs. A
blunder on the part of the bank, such as the dishonor of the check without good
Undeniably, the Makati RTC is vested with the authority to determine the legal
consequences of BPI-FBs non-compliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from
ruling on BPI-FBs liability to Franco for payment of interest based on its
continued and unjustified refusal to perform a contractual obligation upon
demand. After all, this was the core issue raised by Franco in his complaint before
the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find no
reason to depart from the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his
account are actually owned by Franco who simply accommodated Jaime
Sebastians request to temporarily transfer P400,000.00 from Francos savings
account to Quiaoits account.40 His testimony cannot be characterized as hearsay
as the records reveal that he had personal knowledge of the arrangement made
between Franco, Sebastian and himself.41
BPI-FB makes capital of Francos belated allegation relative to this particular
arrangement. It insists that the transaction with Quiaoit was not specifically
alleged in Francos complaint before the Manila RTC. However, it appears that
BPI-FB had impliedly consented to the trial of this issue given its extensive crossexamination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence.
When issues not raised by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to amend does
not affect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is now within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to
be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to
recover the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the
trial, unequivocally disclaimed ownership of the funds in his account, and pointed
to Franco as the actual owner thereof. Clearly, Francos action for the recovery of
his deposits appropriately covers the deposits in Quiaoits account.
Garnishment only on September 27, 1989, several days after the two checks he
issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was
premature for BPI-FB to freeze Francos accounts without even awaiting service
of the Makati RTCs Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of
attachment cannot be made without including in the main suit the owner of the
property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court
specifically provides that "no levy or attachment pursuant to the writ issued x x x
shall be enforced unless it is preceded, or contemporaneously accompanied, by
service of summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The Makati
RTC had yet to acquire jurisdiction over the person of Franco when BPI-FB
garnished his accounts.43 Effectively, therefore, the Makati RTC had no authority
yet to bind the deposits of Franco through the writ of attachment, and
consequently, there was no legal basis for BPI-FB to dishonor the checks issued
by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for
the advance interest it deducted from Francos time deposit account, and for moral
as well as exemplary damages, we find it proper to reinstate the ruling of the trial
court, and allow only the recovery of nominal damages in the amount
of P10,000.00. However, we retain the CAs award of P75,000.00 as attorneys
fees.
In granting Francos prayer for interest on his time deposit account and for moral
and exemplary damages, the CA attributed bad faith to BPI-FB because it (1)
completely disregarded its obligation to Franco; (2) misleadingly claimed that
Francos deposits were under garnishment; (3) misrepresented that Francos
current account was not on file; and (4) refused to return the P400,000.00 despite
the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the
dishonor of Francos checks respectively dated September 11 and 18, 1989 was
legally in order in view of the Makati RTCs supplemental writ of attachment
issued on September 14, 1989. It posits that as the party that applied for the writ
of attachment before the Makati RTC, it need not be served with the Notice of
Garnishment before it could place Francos accounts under garnishment.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
The argument is specious. In this argument, we perceive BPI-FBs clever but

transparent ploy to circumvent Section 4,42 Rule 13 of the Rules of Court. It
should be noted that the strict requirement on service of court papers upon the
parties affected is designed to comply with the elementary requisites of due
process. Franco was entitled, as a matter of right, to notice, if the requirements of
due process are to be observed. Yet, he received a copy of the Notice of
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (Emphasis supplied.)
Article 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonable foreseen at the time the obligation was constituted.

We find, as the trial court did, that BPI-FB acted out of the impetus of selfprotection and not out of malevolence or ill will. BPI-FB was not in the corrupt
state of mind contemplated in Article 2201 and should not be held liable for all
damages now being imputed to it for its breach of obligation. For the same reason,
it is not liable for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it
partakes of the nature of fraud.44 We have held that it is a breach of a known duty
through some motive of interest or ill will.45 In the instant case, we cannot
attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court
found, there was no denial whatsoever by BPI-FB of the existence of the accounts.
The computer-generated document which indicated that the current account was
"not on file" resulted from the prior debit by BPI-FB of the deposits. The remedy
of freezing the account, or the garnishment, or even the outright refusal to honor
any transaction thereon was resorted to solely for the purpose of holding on to the
funds as a security for its intended court action, 46 and with no other goal but to
ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith,47 moral
damages cannot be awarded; and that 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 alone
is not a ground for granting such damages.48
An award of moral damages contemplates the existence of the following
requisites: (1) there must be an injury clearly sustained by the claimant, whether
physical, mental or psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award for
damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.49
Franco could not point to, or identify any particular circumstance in Article 2219
of the Civil Code,50 upon which to base his claim for moral damages.1wphi1
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral
damages under Article 2220 of the Civil Code for breach of contract. 51
We also deny the claim for exemplary damages. Franco should show that he is
entitled to moral, temperate, or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded to
him.52 As there is no basis for the award of moral damages, neither can exemplary
damages be granted.
While it is a sound policy not to set a premium on the right to litigate, 53 we,
however, find that Franco is entitled to reasonable attorneys fees for having been
compelled to go to court in order to assert his right. Thus, we affirm the CAs
grant of P75,000.00 as attorneys fees.
Attorneys fees may be awarded when a party is compelled to litigate or incur
expenses to protect his interest,54or when the court deems it just and
equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of
Franco despite the Makati RTCs Order Lifting the Order of Attachment and
Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings
account. This refusal constrained Franco to incur expenses and litigate for almost
two (2) decades in order to protect his interests and recover his deposits.
Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as
attorneys fees. The award is reasonable in view of the complexity of the issues
and the time it has taken for this case to be resolved.56
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila
RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled to
recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a
result of Francos suit is, as already pointed out, of its own making. Accordingly,
the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION
that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.
BPI vs Court of Appeals, 538 SCRA 184, GR No. 123498, November 23, 2007
Posted by Pius Morados on January 12, 2012
(Negotiable Instruments Money as a medium of exchange)
Facts: Franco opened 3 accounts with BPI with the total amount of
P2,000,000.00. The said amount used to open these accounts is traceable to a
check issued by Tevesteco. The funding for the P2,000,000.00 check was part of
the P80,000,000.00 debited by BPI from FMICs account (with a deposit of
P100,000,000.00) and credited to Tevestecos account pursuant to an Authority to
Debit which was allegedly forged as claimed by FMIC.
Tevesteco effected several withdrawals already from its account amounting to
P37,455,410.54 including the P2,000,000.00 paid to Franco.
Franco issued two checks which were dishonoured upon presentment for payment
due to garnishment of his account filed by BPI.

BPI claimed that it had a better right to the amounts which consisted of part of the
money allegedly fraudulently withdrawn from it by Tevesteco and ending up in
Francos account. BPI urges us that the legal consequence of FMICs forgery
claim is that the money transferred by BPI to Tevesteco is its own, and
considering that it was able to recover possession of the same when the money
was redeposited by Franco, it had the right to set up its ownership thereon and
freeze Francos accounts.
Issue: WON the bank has a better right to the deposits in Francos account.
Held: No. Significantly, while Article 559 permits an owner who has lost or has
been unlawfully deprived of a movable to recover the exact same thing from the
current possessor, BPI simply claims ownership of the equivalent amount of
money, i.e., the value thereof, which it had mistakenly debited from FMICs
account and credited to Tevestecos, and subsequently traced to Francos account.
Money bears no earmarks of peculiar ownership, and this characteristic is all the
more manifest in the instant case which involves money in a banking transaction
gone awry. Its primary function is to pass from hand to hand as a medium of
exchange, without other evidence of its title. Money, which had been passed
through various transactions in the general course of banking business, even if of
traceable origin, is no exception.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-ininterest of
COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and
BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:

The petitioner urges us to review and set aside the amended Decision 1 of 6 March
1992 of respondent Court of Appeals in CA- G.R. CV No. 25739 which modified
the Decision of 15 November 1990 of Branch 19 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42967, entitled Bank of the Philippine
Islands (successor-in-interest of Commercial Bank and Trust Company) versus
Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had
affirmed the dismissal of the complaint but had granted the defendants'
counterclaim for P331,261.44 which represents the outstanding balance of their
account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts
were duly established:
Private respondents Eastern Plywood Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one
joint bank account ("and/or" account) with the Commercial Bank and Trust Co.
(CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands
(BPI). Sometime in March 1975, a joint checking account ("and" account) with
Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds
withdrawn from the account of Eastern and/or Lim. Various amounts were later
deposited or withdrawn from the joint account of Velasco and Lim. The money
therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of
the account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity
Undertaking executed by Lim for himself and as President and General Manager
of Eastern, 2 one-half of this amount was provisionally released and transferred to
one of the bank accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from
CBTC as "Additional Working Capital," evidenced by the "Disclosure Statement
on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its
branch manager, Ceferino Jimenez, and Eastern, through Lim, as its President and
General Manager. 4 The loan was payable on demand with interest at 14% per
annum.
For this loan, Eastern issued on the same day a negotiable promissory note for
P73,000.00 payable on demand to the order of CBTC with interest at 14% per
annum. 5 The note was signed by Lim both in his own capacity and as President
and General Manager of Eastern. No reference to any security for the loan appears
on the note. In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" meaning unsecured, while the line with
the words "this loan is wholly/partly secured by" is followed by the typewritten
words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint
account of Velasco and Lim with a balance of P331,261.44.

In addition, Eastern and Lim, and CBTC signed another document entitled
"Holdout Agreement," also dated 18 August 1978, 6 wherein it was stated that "as
security for the Loan [Lim and Eastern] have offered [CBTC] and the latter
accepts a holdout on said [Current Account No. 2310-011-42 in the joint names of
Lim and Velasco] to the full extent of their alleged interests therein as these may
appear as a result of final and definitive judicial action or a settlement between
and among the contesting parties thereto." 7 Paragraph 02 of the Agreement
provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust
[CBTC], when and if their alleged interests in the Account
Balance shall have been established with finality, ample and
sufficient power as shall be necessary to retain said Account
Balance and enable Comtrust to apply the Account Balance for
the purpose of liquidating the Loan in respect of principal
and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of
Comtrust to declare the loan payable on demand at any time,
nor shall the existence hereof and the non-resolution of the
dispute between the contending parties in respect of entitlement
to the Account Balance, preclude Comtrust from instituting an
action for recovery against Eastply and/or Mr. Lim in the event
the Loan is declared due and payable and Eastply and/or Mr.
Lim shall default in payment of all obligations and liabilities
thereunder.
In the meantime, a case for the settlement of Velasco's estate was filed with
Branch 152 of the RTC of Pasig, entitled "In re Intestate Estate of Mariano
Velasco," and docketed as Sp. Proc. No. 8959. In the said case, the whole balance
of P331,261.44 in the aforesaid joint account of Velasco and Lim was being
claimed as part of Velasco's estate. On 9 September 1986, the intestate court
granted the urgent motion of the heirs of Velasco to withdraw the deposit under
the joint account of Lim and Velasco and authorized the heirs to divide among
themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI
filed with the RTC of Manila a complaint against Lim and Eastern demanding
payment of the promissory note for P73,000.00. The complaint was docketed as
Civil Case No. 87- 42967 and was raffled to Branch 19 of the said court, then
presided over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in turn,
filed a counterclaim against BPI for the return of the balance in the disputed
account subject of the Holdout Agreement and the interests thereon after
deducting the amount due on the promissory note.
After due proceedings, the trial court rendered its decision on

15 November 1990 dismissing the complaint because BPI failed to make out its
case. Furthermore, it ruled that "the promissory note in question is subject to the
'hold-out' agreement," 10 and that based on this agreement, "it was the duty of
plaintiff Bank [BPI] to debit the account of the defendants under the promissory
note to set off the loan even though the same has no fixed maturity." 11 As to the
defendants' counterclaim, the trial court, recognizing the fact that the entire
amount in question had been withdrawn by Velasco's heirs pursuant to the order
of the intestate court in Sp. Proc. No. 8959, denied it because the "said claim
cannot be awarded without disturbing the resolution" of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal
was docketed as CA-G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the
decision of the trial court. It, however, failed to rule on the defendants' (private
respondents') partial appeal from the trial court's denial of their counterclaim.
Upon their motion for reconsideration, the Court of Appeals promulgated on 6
March 1992 an Amended Decision 13 wherein it ruled that the settlement of
Velasco's estate had nothing to do with the claim of the defendants for the return
of the balance of their account with CBTC/BPI as they were not privy to that case,
and that the defendants, as depositors of CBTC/BPI, are the latter's creditors;
hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No.
8959 when the said account was claimed by Velasco's estate. It then ordered BPI
"to pay defendants the amount of P331,261.44 representing the outstanding
balance in the bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout
Agreement in question was subject to a suspensive condition stated therein, viz.,
that the "P331,261.44 shall become a security for respondent Lim's promissory
note only if respondents' Lim and Eastern Plywood Corporation's interests to that
amount are established as a result of a final and definitive judicial action or a
settlement between and among the contesting parties thereto." 15 Hence, BPI
asserts, the Court of Appeals erred in affirming the trial court's decision
dismissing the complaint on the ground that it was the duty of CBTC to debit the
account of the defendants to set off the amount of P73,000.00 covered by the
promissory note.
Private respondents Eastern and Lim dispute the "suspensive condition" argument
of the petitioner. They interpret the findings of both the trial and appellate courts
that the money deposited in the joint account of Velasco and Lim came from
Eastern and Lim's own account as a finding that the money deposited in the joint
account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood
Corporation and/or Benigno Lim." And because the latter are the rightful owners
of the money in question, the suspensive condition does not find any application
in this case and the bank had the duty to set off this deposit with the loan. They
add that the ruling of the lower court that they own the disputed amount is the

final and definitive judicial action required by the Holdout Agreement; hence, the
petitioner can only hold the amount of P73,000.00 representing the security
required for the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents
filed a Rejoinder thereto.
We gave due course to the petition and required the parties to submit
simultaneously their memoranda.
The key issues in this case are whether BPI can demand payment of the loan of
P73,000.00 despite the existence of the Holdout Agreement and whether BPI is
still liable to the private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for P73,000.00. On its
face, the note is an unconditional promise to pay the said amount, and as stated by
the respondent Court of Appeals, "[t]here is no question that the promissory note
is a negotiable instrument." 17 It further correctly ruled that BPI was not a holder
in due course because the note was not indorsed to BPI by the payee, CBTC. Only
a negotiation by indorsement could have operated as a valid transfer to make BPI
a holder in due course. It acquired the note from CBTC by the contract of merger
or sale between the two banks. BPI, therefore, took the note subject to the Holdout
Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the
Holdout Agreement. It is clear from paragraph 02 thereof that CBTC, or BPI as its
successor-in-interest, had every right to demand that Eastern and Lim settle their
liability under the promissory note. It cannot be compelled to retain and apply the
deposit in Lim and Velasco's joint account to the payment of the note. What the
agreement conferred on CBTC was a power, not a duty. Generally, a bank is
under no duty or obligation to make the application. 18 To apply the deposit to the
payment of a loan is a privilege, a right of set-off which the bank has the option to
exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the
agreement, CBTC was not in any way precluded from demanding payment from
Eastern and from instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of enforcing its claim on the
note. When it demanded payment of the debt directly from Eastern and Lim, BPI
had opted not to exercise its right to apply part of the deposit subject of the
Holdout Agreement to the payment of the promissory note for P73,000.00. Its suit
for the enforcement of the note was then in order and it was error for the trial
court to dismiss it on the theory that it was set off by an equivalent portion in C/A
No. 2310-001-42 which BPI should have debited. The Court of Appeals also erred
in affirming such dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.

The Court of Appeals correctly decided on the counterclaim. The counterclaim of
Eastern and Lim for the return of the P331,261.44 20 was equivalent to a demand
that they be allowed to withdraw their deposit with the bank. Article 1980 of the
Civil Code expressly provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions
concerning simple loan." In Serrano vs. Central Bank of the Philippines, 21we
held that bank deposits are in the nature of irregular deposits; they are really loans
because they earn interest. The relationship then between a depositor and a bank is
one of creditor and debtor. The deposit under the questioned account was an
ordinary bank deposit; hence, it was payable on demand of the depositor. 22
The account was proved and established to belong to Eastern even if it was
deposited in the names of Lim and Velasco. As the real creditor of the bank,
Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be
relieved of its duty to pay Eastern simply because it already allowed the heirs of
Velasco to withdraw the whole balance of the account. The petitioner should not
have allowed such withdrawal because it had admitted in the Holdout Agreement
the questioned ownership of the money deposited in the account. As early as 12
May 1979, CBTC was notified by the Corporate Secretary of Eastern that the
deposit in the joint account of Velasco and Lim was being claimed by them and
that one-half was being claimed by the heirs of Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs
of Velasco to withdraw the account. BPI was not specifically ordered to release
the account to the said heirs; hence, it was under no judicial compulsion to do so.
The authorization given to the heirs of Velasco cannot be construed as a final
determination or adjudication that the account belonged to Velasco. We have
ruled that when the ownership of a particular property is disputed, the
determination by a probate court of whether that property is included in the estate
of a deceased is merely provisional in character and cannot be the subject of
execution. 24
Because the ownership of the deposit remained undetermined, BPI, as the debtor
with respect thereto, had no right to pay to persons other than those in whose
favor the obligation was constituted or whose right or authority to receive
payment is indisputable. The payment of the money deposited with BPI that will
extinguish its obligation to the creditor-depositor is payment to the person of the
creditor or to one authorized by him or by the law to receive it. 25 Payment made
by the debtor to the wrong party does not extinguish the obligation as to the
creditor who is without fault or negligence, even if the debtor acted in utmost
good faith and by mistake as to the person of the creditor, or through error
induced by fraud of a third person. 26 The payment then by BPI to the heirs of
Velasco, even if done in good faith, did not extinguish its obligation to the true
depositor, Eastern.

In the light of the above findings, the dismissal of the petitioner's complaint is
reversed and set aside. The award on the counterclaim is sustained subject to a
modification of the interest.
WHEREFORE, the instant petition is partly GRANTED. The challenged
amended decision in CA-G.R. CV No. 25735 is hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the
promissory note for P73,000.00 with interest at:
(a) 14% per annum on the principal,
computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which had
accrued up to the date of the filing of the
complaint, computed from that date until
payment pursuant to Article 2212 of the Civil
Code.
(2) The award of P331,264.44 in favor of the private
respondents shall bear interest at the rate of 12% per
annum computed from the filing of the counterclaim.
No pronouncement as to costs.
SO ORDERED.
BANK OF THE PHILIPPINE ISLANDS

vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and
BENIGNO D. LIM
G.R. No. 104612
May 10, 1994
FACTS:
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim
(Lim), an officer and stockholder of Eastern, held at least one joint bank account
with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of
petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint
checking account with Lim in the amount of P120,000.00 was opened by Mariano
Velasco with funds withdrawn from the account of Eastern and/or Lim. Various
amounts were later deposited or withdrawn from the joint account of Velasco and
Lim.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of
the account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity
Undertaking executed by Lim for himself and as President and General Manager
of Eastern, one-half of this amount was provisionally released and transferred to
one of the bank accounts of Eastern with CBTC.
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC
as "Additional Working Capital," evidenced by the "Disclosure Statement on
Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its
branch manager. . The loan was payable on demand with interest at 14% per
annum.
For this loan, Eastern issued on the same day a negotiable promissory note for
P73,000.00 payable on demand to the order of CBTC with interest at 14% per
annum.
In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" meaning unsecured, while the line with
the words "this loan is wholly/partly secured by" is followed by the typewritten
words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint
account of Velasco and Lim with a balance of P331,261.44.
Eastern and Lim, and CBTC signed another document entitled "Holdout
Agreement," dated 18 August 1978, wherein it was stated that "as security for
the Loan have offered [CBTC] and the latter accepts a holdout on said [Current
Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full
extent of their alleged interests therein as these may appear as a result of final and
definitive judicial action or a settlement between and among the contesting parties
thereto."
Sometime in 1980, CBTC was merged with BPI. On December 2, 1987, BPI
filed with the RTC of Manila a complaint against Lim and Eastern demanding
payment of the promissory note for P73,000.00. Defendants Lim and Eastern, in
turn, filed a counterclaim against BPI for the return of the balance in the disputed
account subject of the Holdout Agreement and the interests thereon after
deducting the amount due on the promissory note.
the trial court ruled that "the promissory note in question is subject to the 'holdout' agreement," and that based on this agreement, "it was the duty of plaintiff
Bank [BPI] to debit the account of the defendants under the promissory note to set
off the loan even though the same has no fixed maturity." As to the defendants'
counterclaim, the trial court, recognizing the fact that the entire amount in
question had been withdrawn by Velasco's heirs pursuant to the order of the
intestate court in denied it because the "said claim cannot be awarded without
disturbing the resolution" of the intestate court.
On 23 January 1991, the Court of Appeals rendered a decision affirming the
decision of the trial court. it ruled that the settlement of Velasco's estate had
nothing to do with the claim of the defendants for the return of the balance of their
account with CBTC/BPI as they were not privy to that case, and that the
defendants, as depositors of CBTC/BPI, are the latter's creditors; hence,

CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959
when the said account was claimed by Velasco's estate. It then ordered BPI "to
pay defendants the amount of P331,261.44 representing the outstanding balance in
the bank account of defendants."
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout
Agreement in question was subject to a suspensive condition the "P331,261.44
shall become a security for respondent Lim's promissory note only if respondents'
Lim and Eastern Plywood Corporation's interests to that amount are established as
a result of a final and definitive judicial action or a settlement between and among
the contesting parties thereto.
Issues:
can BPI demand payment of the loan of P73,000.00 despite the existence of the
Holdout Agreement and
is BPI still liable to the private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.
Decision:
Yes The collection suit of BPI is based on the promissory note for P73,000.00. On
its face, the note is an unconditional promise to pay the said amount, and as stated
by the respondent Court of Appeals, further correctly ruled that BPI was not a
holder in due course because the note was not indorsed to BPI by the payee,
CBTC. Only a negotiation by indorsement could have operated as a valid transfer
to make BPI a holder in due course. It acquired the note from CBTC by the
contract of merger or sale between the two banks. BPI, therefore, took the note
subject to the Holdout Agreement.
It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-ininterest, had every right to demand that Eastern and Lim settle their liability under
the promissory note. It cannot be compelled to retain and apply the deposit in Lim
and Velasco's joint account to the payment of the note. What the agreement
conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or
obligation to make the application. To apply the deposit to the payment of a loan
is a privilege, a right of set-off which the bank has the option to exercise.
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the
agreement, CBTC was not in any way precluded from demanding payment from
Eastern and from instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of enforcing its claim on the
note. When it demanded payment of the debt directly from Eastern and Lim, BPI
had opted not to exercise its right to apply part of the deposit subject of the
Holdout Agreement to the payment of the promissory note for P73,000.00.
Yes. The account was proved and established to belong to Eastern even if it was
deposited in the names of Lim and Velasco. As the real creditor of the bank,
Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be
relieved of its duty to pay Eastern simply because it already allowed the heirs of
Velasco to withdraw the whole balance of the account.
As early as 12 May 1979, CBTC was notified by the Corporate Secretary of
Eastern that the deposit in the joint account of Velasco and Lim was being claimed
by them and that one-half was being claimed by the heirs of Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs
of Velasco to withdraw the account. BPI was not specifically ordered to release
the account to the said heirs; hence, it was under no judicial compulsion to do so.
The authorization given to the heirs of Velasco cannot be construed as a final
determination or adjudication that the account belonged to Velasco. We have ruled
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 82027 March 29, 1990
ROMARICO G. VITUG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINOCORONA, respondents.
Rufino B. Javier Law Office for petitioner.
Quisumbing, Torres & Evangelista for private respondent.
SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court 1 involving the
probate of the two wills of the late Dolores Luchangco Vitug, who died in New
York, U. S.A., on November 10, 1980, naming private respondent Rowena
Faustino-Corona executrix. In our said decision, we upheld the appointment of
Nenita Alonte as co-special administrator of Mrs. Vitug's estate with her (Mrs.
Vitug's) widower, petitioner Romarico G. Vitug, pending probate.
On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from
the probate court to sell certain shares of stock and real properties belonging to the
estate to cover allegedly his advances to the estate in the sum of P667,731.66, plus
interests, which he claimed were personal funds. As found by the Court of
Appeals, 2the alleged advances consisted of P58,147.40 spent for the payment of
estate tax, P518,834.27 as deficiency estate tax, and P90,749.99 as "increment
thereto." 3 According to Mr. Vitug, he withdrew the sums of P518,834.27 and
P90,749.99 from savings account No. 35342-038 of the Bank of America, Makati,
Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that
the same funds withdrawn from savings account No. 35342-038 were conjugal
partnership properties and part of the estate, and hence, there was allegedly no
ground for reimbursement. She also sought his ouster for failure to include the
sums in question for inventory and for "concealment of funds belonging to the
estate." 4
Vitug insists that the said funds are his exclusive property having acquired the
same through a survivorship agreement executed with his late wife and the bank
on June 19, 1970. The agreement provides:
We hereby agree with each other and with the BANK OF
AMERICAN NATIONAL TRUST AND SAVINGS
ASSOCIATION (hereinafter referred to as the BANK), that all
money now or hereafter deposited by us or any or either of us
with the BANK in our joint savings current account shall be the
property of all or both of us and shall be payable to and
collectible or withdrawable by either or any of us during our
lifetime, and after the death of either or any of us shall belong to
and be the sole property of the survivor or survivors, and shall
be payable to and collectible or withdrawable by such survivor
or survivors.
We further agree with each other and the BANK that the receipt
or check of either, any or all of us during our lifetime, or the
receipt or check of the survivor or survivors, for any payment or
withdrawal made for our above-mentioned account shall be
valid and sufficient release and discharge of the BANK for such
payment or withdrawal. 5
The trial courts 6 upheld the validity of this agreement and granted "the motion to
sell some of the estate of Dolores L. Vitug, the proceeds of which shall be used to
pay the personal funds of Romarico Vitug in the total sum of P667,731.66 ... ." 7
On the other hand, the Court of Appeals, in the petition for certiorari filed by the
herein private respondent, held that the above-quoted survivorship agreement
constitutes a conveyance mortis causa which "did not comply with the formalities
of a valid will as prescribed by Article 805 of the Civil Code," 8 and secondly,
assuming that it is a mere donation inter vivos, it is a prohibited donation under
the provisions of Article 133 of the Civil Code. 9
The dispositive portion of the decision of the Court of Appeals states:
WHEREFORE, the order of respondent Judge dated November
26, 1985 (Annex II, petition) is hereby set aside insofar as it
granted private respondent's motion to sell certain properties of
the estate of Dolores L. Vitug for reimbursement of his alleged
advances to the estate, but the same order is sustained in all

other respects. In addition, respondent Judge is directed to
include provisionally the deposits in Savings Account No.
35342-038 with the Bank of America, Makati, in the inventory
of actual properties possessed by the spouses at the time of the
decedent's death. With costs against private respondent. 10
In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on
the strength of our decisions inRivera v. People's Bank and Trust
Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of
"survivorship agreements" and considering them as aleatory contracts. 13
The petition is meritorious.
The conveyance in question is not, first of all, one of mortis causa, which should
be embodied in a will. A will has been defined as "a personal, solemn, revocable
and free act by which a capacitated person disposes of his property and rights and
declares or complies with duties to take effect after his death." 14 In other words,
the bequest or device must pertain to the testator. 15 In this case, the monies
subject of savings account No. 35342-038 were in the nature of conjugal funds In
the case relied on, Rivera v. People's Bank and Trust Co., 16 we rejected claims
that a survivorship agreement purports to deliver one party's separate properties in
favor of the other, but simply, their joint holdings:
xxx xxx xxx
... Such conclusion is evidently predicated on the assumption
that Stephenson was the exclusive owner of the funds-deposited
in the bank, which assumption was in turn based on the facts (1)
that the account was originally opened in the name of
Stephenson alone and (2) that Ana Rivera "served only as
housemaid of the deceased." But it not infrequently happens that
a person deposits money in the bank in the name of another; and
in the instant case it also appears that Ana Rivera served her
master for about nineteen years without actually receiving her
salary from him. The fact that subsequently Stephenson
transferred the account to the name of himself and/or Ana
Rivera and executed with the latter the survivorship agreement
in question although there was no relation of kinship between
them but only that of master and servant, nullifies the
assumption that Stephenson was the exclusive owner of the
bank account. In the absence, then, of clear proof to the
contrary, we must give full faith and credit to the certificate of
deposit which recites in effect that the funds in question
belonged to Edgar Stephenson and Ana Rivera; that they were
joint (and several) owners thereof; and that either of them could
withdraw any part or the whole of said account during the

lifetime of both, and the balance, if any, upon the death of
either, belonged to the survivor. 17
xxx xxx xxx
In Macam v. Gatmaitan, 18 it was held:
xxx xxx xxx
This Court is of the opinion that Exhibit C is an aleatory
contract whereby, according to article 1790 of the Civil Code,
one of the parties or both reciprocally bind themselves to give or
do something as an equivalent for that which the other party is
to give or do in case of the occurrence of an event which is
uncertain or will happen at an indeterminate time. As already
stated, Leonarda was the owner of the house and Juana of the
Buick automobile and most of the furniture. By virtue of Exhibit
C, Juana would become the owner of the house in case
Leonarda died first, and Leonarda would become the owner of
the automobile and the furniture if Juana were to die first. In this
manner Leonarda and Juana reciprocally assigned their
respective property to one another conditioned upon who might
die first, the time of death determining the event upon which the
acquisition of such right by the one or the other depended. This
contract, as any other contract, is binding upon the parties
thereto. Inasmuch as Leonarda had died before Juana, the latter
thereupon acquired the ownership of the house, in the same
manner as Leonarda would have acquired the ownership of the
automobile and of the furniture if Juana had died first. 19
commonly denominated in banking parlance as an "and/or" account. In the case at

bar, when the spouses Vitug opened savings account No. 35342-038, they merely
put what rightfully belonged to them in a money-making venture. They did not
dispose of it in favor of the other, which would have arguably been sanctionable
as a prohibited donation. And since the funds were conjugal, it can not be said that
one spouse could have pressured the other in placing his or her deposits in the
money pool.
The validity of the contract seems debatable by reason of its "survivor-take-all"
feature, but in reality, that contract imposed a mere obligation with a term, the
term being death. Such agreements are permitted by the Civil Code. 24
Under Article 2010 of the Code:
ART. 2010. By an aleatory contract, one of the parties or both
reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to occur at
an indeterminate time.
Under the aforequoted provision, the fulfillment of an aleatory contract depends
on either the happening of an event which is (1) "uncertain," (2) "which is to
occur at an indeterminate time." A survivorship agreement, the sale of a
sweepstake ticket, a transaction stipulating on the value of currency, and insurance
have been held to fall under the first category, while a contract for life annuity or
pension under Article 2021, et sequentia, has been categorized under the
second. 25 In either case, the element of risk is present. In the case at bar, the risk
was the death of one party and survivorship of the other.
However, as we have warned:
xxx xxx xxx

xxx xxx xxx
There is no showing that the funds exclusively belonged to one party, and hence it
must be presumed to be conjugal, having been acquired during the existence of
the marita. relations. 20
Neither is the survivorship agreement a donation inter vivos, for obvious reasons,
because it was to take effect after the death of one party. Secondly, it is not a
donation between the spouses because it involved no conveyance of a spouse's
own properties to the other.
It is also our opinion that the agreement involves no modification petition of the
conjugal partnership, as held by the Court of Appeals, 21 by "mere
stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal
property relations. Certainly, the spouses are not prohibited by law to invest
conjugal property, say, by way of a joint and several bank account, more
But although the survivorship agreement is per se not contrary

to law its operation or effect may be violative of the law. For
instance, if it be shown in a given case that such agreement is a
mere cloak to hide an inofficious donation, to transfer property
in fraud of creditors, or to defeat the legitime of a forced heir, it
may be assailed and annulled upon such grounds. No such vice
has been imputed and established against the agreement
involved in this case. 26
xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed
for such unlawful purposes, or, as held by the respondent court, in order to
frustrate our laws on wills, donations, and conjugal partnership.
The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased
her husband, the latter has acquired upon her death a vested right over the
amounts under savings account No. 35342-038 of the Bank of America. Insofar as
the respondent court ordered their inclusion in the inventory of assets left by Mrs.
Vitug, we hold that the court was in error. Being the separate property of
petitioner, it forms no more part of the estate of the deceased.
WHEREFORE, the decision of the respondent appellate court, dated June 29,
1987, and its resolution, dated February 9, 1988, are SET ASIDE.
No costs.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 69162 February 21, 1992

BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and the SPOUSES
ARTHUR CANLAS and VIVIENE CANLAS,respondents.
trial court to the private respondents for an error of a bank teller which resulted in
the dishonor of two small checks which the private respondents had issued against
their joint current account. This petition for review of that decision was filed by
the Bank.
The respondent spouses, Arthur and Vivienne Canlas, opened a joint current
account No. 210-520-73 on April 25, 1977 in the Quezon City branch of the
Commercial Bank and Trust Company of the Philippines (CBTC) with an initial
deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal
checking account No. 210-442-41 in the same branch.
When the respondent spouses opened their joint current account, the "new
accounts" teller of the bank pulled out from the bank's files the old and existing
signature card of respondent Arthur Canlas for Current Account No. 210-442-41
for use as I D and reference. By mistake, she placed the old personal account
number of Arthur Canlas on the deposit slip for the new joint checking account of
the spouses so that the initial deposit of P2,250 for the joint checking account was
miscredited to Arthur's personal account (p. 9, Rollo). The spouses subsequently
deposited other amounts in their joint account.
However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April
1977 and another check for P1,160.00 on June 1, 1977, one of the checks was
dishonored by the bank for insufficient funds and a penalty of P20 was deducted
from the account in both instances. In view of the overdrawings, the bank tried to
call up the spouses at the telephone number which they had given in their
application form, but the bank could not contact them because they actually reside
in Porac, Pampanga. The city address and telephone number which they gave to
the bank belonged to Mrs. Canlas' parents.
On December 15, 1977, the private respondents filed a complaint for damages
against CBTC in the Court of First Instance of Pampanga (p. 113, Rollo).
On February 27, 1978, the bank filed a motion to dismiss the complaint for
improper venue. The motion was denied.
Leonen, Ramirez & Associates for petitioner.

L. Emmanuel B. Canilao for private respondents.
GRIO-AQUINO, J.:
In a decision dated September 3, 1984, the Intermediate Appellate Court (now
Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A. Canlas, et al.,
Plaintiff-Appellees vs. Commercial Bank and Trust Company of the Philippines,
Defendant-Appellant," reduced to P105,000 the P465,000 damage-award of the
During the pendency of the case, the Bank of the Philippine Islands (BPI) and
CBTC were merged. As the surviving corporation under the merger agreement
and under Section 80 (5) of the Corporation Code of the Philippines, BPI took
over the prosecution and defense of any pending claims, actions or proceedings by
and against CBTC.
On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision
against BPI, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing
defendant to pay the plaintiff the following:

1. P 5,000.00 as actual damages;
2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for
plaintiff Vivienne S. Canlas representing moral damages;
3. P 150.000.00 as exemplary damages;
4. P 10,000.00 as attorney's fees; and
5. Costs. (p. 36, Rollo).
On appeal, the Intermediate Appellate Court deleted the actual damages and
reduced the other awards. The dispositive portion of its decision reads:
WHEREFORE, the judgment appealed from is hereby modified
as follows:
1. The award of P50,000.00 in actual damages is herewith
deleted.
2. Moral damages of P50,000.00 is awarded to plaintiffsappellees Arthur Canlas and Vivienne S. Canlas, not P50,000.00
each.
3. Exemplary damages is likewise reduced to the sum of
P50,000.00 and attorney's fees to P5,000.00.
Costs against the defendants appellant. (p. 40, Rollo.)
Petitioner filed this petition for review alleging that the appellate court erred in
holding that:
1. The venue of the case had been properly laid at Pampanga in
the light of private respondents' earlier declaration that Quezon
City is their true residence.
2. The petitioner was guilty of gross negligence in the handling
of private respondents' bank account.
3. Private respondents are entitled to the moral and exemplary
damages and attorney's fees adjudged by the respondent
appellate court.
On the question of venue raised by petitioner, it is evident that personal actions
may be instituted in the Court of First Instance (now Regional Trial Court) of the
province where the defendant or any of the defendants resides or may be found, or
where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff
(Section 2[b], Rule 4 of the Rules of Court). In this case, there was ample proof
that the residence of the plaintiffs is B. Sacan, Porac, Pampanga (p. 117, Rollo).
The city address of Mrs. Canlas' parents was placed by the private respondents in
their application for a joint checking account, at the suggestion of the new
accounts teller, presumably to facilitate mailing of the bank statements and
communicating with the private respondents in case any problems should arise
involving the account. No waiver of their provincial residence for purposes of
determining the venue of an action against the bank may be inferred from the socalled "misrepresentation" of their true residence.
The appellate court based its award of moral and exemplary damages, and
attorney's fees on its finding that the mistake committed by the new accounts
teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said court
further stressed that it cannot absolve the petitioner from liability for damages to
the private respondents, even on the assumption of an honest mistake on its part,
because of the embarrassment that even an honest mistake can cause its depositors
(p. 31, Rollo).
There is no merit in petitioner's argument that it should not be considered
negligent, much less held liable for damages on account of the inadvertence of its
bank employee for Article 1173 of the Civil Code only requires it to exercise the
diligence of a good father of family.
In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367),
this Court stressed the fiduciary nature of the relationship between a bank and its
depositors and the extent of diligence expected of it in handling the accounts
entrusted to its care.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. A blunder on the part of the bank,
such as the dishonor of a check without good reason, can cause
the depositor not a little embarrassment if not also financial loss
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship. . . .

The bank is not expected to be infallible but, as correctly observed by respondent
Appellate Court, in this instance, it must bear the blame for not discovering the
mistake of its teller despite the established procedure requiring the papers and
bank books to pass through a battery of bank personnel whose duty it is to check
and countercheck them for possible errors. Apparently, the officials and
employees tasked to do that did not perform their duties with due care, as may be
gathered from the testimony of the bank's lone witness, Antonio Enciso, who
casually declared that "the approving officer does not have to see the account
numbers and all those things.Those are very petty things for the approving
manager to look into" (p. 78, Record on Appeal). Unfortunately, it was a "petty
thing," like the incorrect account number that the bank teller wrote on the initial
deposit slip for the newly-opened joint current account of the Canlas spouses, that
sparked this half-a-million-peso damage suit against the bank.
While the bank's negligence may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to
the private respondents for which they are entitled to recover reasonable moral
damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The
award of reasonable attorney's fees is proper for the private respondents were
compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the
absence of malice and bad faith renders the award of exemplary damages
improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA
778).
damages against petitioner bank. Petitioner bank argues that it is not considered
negligent and liable for damages on account of the inadvertence of its bank
employee considered that it was an honest mistake and not tainted with malice and
bad faith.
Issue: WON the petitioner bank was guilty of gross negligence in the handling of
private respondents bank account.
Held: There is no merit in petitioners argument that it should not be considered
negligent, much less held liable for damages on account of the inadvertence of its
bank employee for Article 1173 of the Civil Code only requires it to exercise the
diligence of a good father of a family.
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
(Simex vs CA, 183 SCRA 360).
SUPREME COURT
Manila
WHEREFORE, the petition for review is granted. The appealed decision is

MODIFIED by deleting the award of exemplary damages to the private
respondents. In all other respects, the decision of the Intermediate Appellate
Court, now Court of Appeals, is AFFIRMED. No costs.
THIRD DIVISION
SO ORDERED.
BPI vs. IAC, 206 SCRA 408, February 21, 1992
Posted by Pius Morados on August 22, 2012
(Bank; Negligence; Meticulous Care in treatment of accounts)
Facts: When the respondent spouses opened their joint current account, the new
accounts teller of the bank by mistake, placed the old existing separate personal
G.R. No. L-68138
May 13, 1991
AGUSTIN Y. GO and THE CONSOLIDATED BANK AND TRUST

CORPORATION (Solidbank), petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and FLOVERTO
JAZMIN, respondents.
account number of Arthur Canlas on the deposit slip for the new joint checking
account of the spouses so that the initial deposit for the joint checking account
was miscredited to Arthurs personal account .
Because of this, one of the checks issued by one of the spouse was dishonoured
for insufficient funds prompting private respondents to file a complaint for
C.M. De los Reyes & Associates for petitioners.

Millora & Maningding Law Offices for private respondent.

FERNAN, C.J.:
The instant petition for review on certiorari questions the propriety of the
respondent appellate court's award of nominal damages and attorney's fees to
private respondent whose name was used by a syndicate in encashing two U.S.
treasury checks at petitioner bank.
On June 29, 1976 or more than a year later, the two dollar cheeks were returned to
Solidbank with the notation that the amounts were altered. 3 Consequently, Go
reported the matter to the Philippine Constabulary in Baguio City.
Floverto Jazmin is an American citizen and retired employee of the United States
Federal Government. He had been a visitor in the Philippines since 1972 residing
at 34 Maravilla Street, Mangatarem, Pangasinan. Aspensionado of the U.S.
government, he received annuity checks in the amounts of $ 67.00 for disability
and $ 620.00 for retirement through the Mangatarem post office. He used to
encash the checks at the Prudential Bank branch at Clark Air Base, Pampanga.
On August 3, 1976, Jazmin received radio messages requiring him to appear

before the Philippine Constabulary headquarters in Benguet on September 7, 1976
for investigation regarding the complaint filed by Go against him for estafa by
passing altered dollar checks. Initially, Jazmin was investigated by constabulary
officers in Lingayen, Pangasinan and later, at Camp Holmes, La Trinidad,
Benguet. He was shown xerox copies of U.S. Government checks Nos. 5-449-076
and 5-448-890 payable to the order of Floverto Jasmin in the respective amounts
of $1,810.00 and $913.40. The latter amount was actually for only $13.40; while
the records do not show the unaltered amount of the other treasury check.
In January, 1975, Jazmin failed to receive one of the checks on time thus
prompting him to inquire from the post offices at Mangatarem and Dagupan City.
As the result of his inquiries proved unsatisfactory, on March 4, 1975, Jazmin
wrote the U.S. Civil Service Commission, Bureau of Retirement at Washington,
D.C. complaining about the delay in receiving his check. Thereafter, he received a
substitute check which he encashed at the Prudential Bank at Clark Air Base.
Jazmin denied that he was the person whose name appeared on the checks; that he
received the same and that the signature on the indorsement was his. He likewise
denied that he opened an account with Solidbank or that he deposited and
encashed therein the said checks. Eventually, the investigators found that the
person named "Floverto Jazmin" who made the deposit and withdrawal with
Solidbank was an impostor.
Meanwhile, on April 22, 1975, Agustin Go, in his capacity as branch manager of
the then Solidbank (which later became the Consolidated Bank and Trust
Corporation) in Baguio City, allowed a person named "Floverto Jazmin" to open
Savings Account No. BG 5206 by depositing two (2) U. S. treasury checks Nos.
5-449-076 and 5-448-890 in the respective amounts of $1810.00 and
$913.40 1 equivalent to the total amount of P 20,565.69, both payable to the order
of Floverto Jasmin of Maranilla St., Mangatarem, Pangasinan and drawn on the
First National City Bank, Manila.
On September 24, 1976, Jazmin filed with the then Court of First Instance of
Pangasinan, Branch II at Lingayen a complaint against Agustin Y. Go and the
Consolidated Bank and Trust Corporation for moral and exemplary damages in
the total amount of P90,000 plus attorney's fees of P5,000. He alleged therein that
Go allowed the deposit of the dollar checks and the withdrawal of their peso
equivalent "without ascertaining the identity of the depositor considering the
highly suspicious circumstances under which said deposit was made; that instead
of taking steps to establish the correct identity of the depositor, Go "immediately
and recklessly filed (the) complaint for estafa through alteration of dollar check"
against him; that Go's complaint was "an act of vicious and wanton recklessness
and clearly intended for no other purpose than to harass and coerce the plaintiff
into paying the peso equivalent of said dollar checks to the CBTC branch office in
Baguio City" so that Go would not be "disciplined by his employer;" that by
reason of said complaint, he was "compelled to present and submit himself" to
investigations by the constabulary authorities; and that he suffered humiliation
and embarrassment as a result of the filing of the complaint against him as well as
"great inconvenience" on account of his age (he was a septuagenarian) and the
distance between his residence and the constabulary headquarters. He averred that
his peace of mind and mental and emotional tranquility as a respected citizen of
the community would not have suffered had Go exercised "a little prudence" in
ascertaining the identity of the depositor and, for the "grossly negligent and
reckless act" of its employee, the defendant CBTC should also be held
responsible. 4
The savings account was opened in the ordinary course of business. Thus, the
bank, through its manager Go, required the depositor to fill up the information
sheet for new accounts to reflect his personal circumstances. The depositor
indicated therein that he was Floverto Jazmin with mailing address at
Mangatarem, Pangasinan and home address at Maravilla St., Mangatarem,
Pangasinan; that he was a Filipino citizen and a security officer of the US Army
with the rank of a sergeant bearing AFUS Car No. H-2711659; that he was
married to Milagros Bautista; and that his initial deposit was P3,565.35. He wrote
CSA No. 138134 under remarks or instructions and left blank the spaces under
telephone number, residence certificate/alien certificate of registration/passport,
bank and trade performance and as to who introduced him to the bank. 2 The
depositor's signature specimens were also taken.
Thereafter, the deposited checks were sent to the drawee bank for clearance.
Inasmuch as Solidbank did not receive any word from the drawee bank, after three
(3) weeks, it allowed the depositor to withdraw the amount indicated in the
checks.
In their answer, the defendants contended that the plaintiff had no cause of action
against them because they acted in good faith in seeking the "investigative

assistance" of the Philippine Constabulary on the swindling operations against
banks by a syndicate which specialized in the theft, alteration and encashment of
dollar checks. They contended that contrary to plaintiff s allegations, they verified
the signature of the depositor and their tellers conducted an Identity check. As
counterclaim, they prayed for the award of P100,000 as compensatory and moral
damages; P20,000 as exemplary damages; P20,000 as attorney's fees and P5,000
as litigation, incidental expenses and costs. 5
In its decision of March 27, 1978 6 the lower court found that Go was negligent in
failing to exercise "more care, caution and vigilance" in accepting the checks for
deposit and encashment. It noted that the checks were payable to the order of
Floverto Jasmin, Maranilla St., Mangatarem, Pangasinan and not to
Floverto Jazmin, Maravilla St., Mangatarem, Pangasinan and that the differences
in name and address should have put Go on guard. It held that more care should
have been exercised by Go in the encashment of the U.S. treasury checks as there
was no time limit for returning them for clearing unlike in ordinary checks
wherein a two to three-week limit is allowed.
Emphasizing that the main thrust of the complaint was "the failure of the
defendants to take steps to ascertain the identity of the depositor," the court noted
that the depositor was allegedly a security officer while the plaintiff was a retireepensioner. It considered as "reckless" the defendants' filing of the complaint with
the Philippine Constabulary noting that since the article on a fake dollar check
ring appeared on July 18, 1976 in the Baguio Midland Courier, it was only on
August 24, 1976 or more than a month after the bank had learned of the altered
checks that it filed the complaint and therefore, it had sufficient time to ascertain
the identity of the depositor.
The court also noted that instead of complying with the Central Bank Circular
Letter of January 17, 1973 requesting all banking institutions to report to the
Central Bank all crimes involving their property within 48 hours from knowledge
of the crime, the bank reported the matter to the Philippine Constabulary.
Finding that the plaintiff had sufficiently shown that prejudice had been caused to
him in the form of mental anguish, moral shock and social humiliation on account
of the defendants' gross negligence, the court, invoking Articles 2176, 2217 and
2219 (10) in conjunction with Article 21 of the Civil Code, ruled in favor of the
plaintiff. The dispositive portion of the decision states:
WHEREFORE, this Court finds for plaintiff and that he is entitled to the
reliefs prayed for in the following manner: Defendant Agustin Y. Co and
the CONSOLIDATED BANK AND TRUST CORPORATION are
hereby ordered to pay, jointly and severally, to the plaintiff the amount of
SIX THOUSAND PESOS (P6,000.00) as moral damages; ONE
THOUSAND PESOS (P1,000.00) as attorney's fees and costs of
litigation and to pay the costs and defendant AGUSTIN Y. Go in
addition thereto in his sole and personal capacity to pay the plaintiff the
amount of THREE THOUSAND PESOS (P3,000.00) as exemplary

damages, all with interest at six (6) percent per annum until fully paid.
SO ORDERED.
The defendants appealed to the Court of Appeals. On January 24, 1984, said court
(then named Intermediate Appellate Court) rendered a decision 7 finding as
evident negligence Go's failure to notice the substantial difference in the identity
of the depositor and the payee in the check, concluded that Go's negligence in the
performance of his duties was "the proximate cause why appellant bank was
swindled" and that denouncing the crime to the constabulary authorities "merely
aggravated the situation." It ruled that there was a cause of action against the
defendants although Jazmin had nothing to do with the alteration of the checks,
because he suffered damages due to the negligence of Go. Hence, under Article
2180 of the Civil Code, the bank shall be held liable for its manager's negligence.
The appellate court, however, disallowed the award of moral and exemplary
damages and granted nominal damages instead. It explained thus:
While it is true that denouncing a crime is not negligence under which a
claim for moral damages is available, still appellants are liable under the
law for nominal damages. The fact that appellee did not suffer from any
loss is of no moment for nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the
defendant, maybe vindicated or recognized and not for the purpose of
indemnifying the plaintiff for any loss suffered by him (Article 2221,
New Civil Code). These are damages recoverable where a legal right is
technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind, or where there has been a
breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown (Elgara vs. Sandijas, 27 Phil.
284). They are not intended for indemnification of loss suffered but for
the vindication or recognition of a right violated or invaded (Ventanilla
vs. Centeno, L-14333, January 28, 1961). And, where the plaintiff as in
the case at bar, the herein appellee has established a cause of action, but
was not able to adduce evidence showing actual damages then nominal
damages may be recovered (Sia vs. Espenilla CA-G.R. Nos. 4520045201-R, April 21, 1975). Consequently, since appellee has no right to
claim for moral damages, then he may not likewise be entitled to
exemplary damages (Estopa vs. Piansay, No. L-14503, September 30,
1960). Considering that he had to defend himself in the criminal charges
filed against him, and that he was constrained to file the instant case, the
attorney's fees to be amended (sic) to plaintiff should be increased to
P3,000.00.
Accordingly, the appellate court ordered Go and Consolidated Bank and Trust
Corporation to pay jointly and severally Floverto Jazmin only NOMINAL

DAMAGES in the sum of Three Thousand Pesos (P 3,000.00) with interest at six
(6%) percent per annum until fully paid and One Thousand Pesos (P 1,000.00) as
attorney's fees and costs of litigation.
conclusion than that the bank through its employees (including the tellers who
allegedly conducted an identification check on the depositor) was grossly
negligent in handling the business transaction herein involved.1wphi1
Go and the bank filed a motion for the reconsideration of said decision contending
that in view of the finding of the appellate court that "denouncing a crime is not
negligence under which a claim for moral damages is available," the award of
nominal damages is unjustified as they did not violate or invade Jazmin's rights.
Corollarily, there being no negligence on the part of Go, his employer may not be
held liable for nominal damages.
While at that stage of events private respondent was still out of the picture, it
definitely was the start of his consequent involvement as his name was illegally
used in the illicit transaction. Again, knowing that its viability depended on the
confidence reposed upon it by the public, the bank through its employees should
have exercised the caution expected of it.
The motion for reconsideration having been denied, Go and the bank interposed
the instant petition for review oncertiorari arguing primarily that the employer
bank may not be held "co-equally liable" to pay nominal damages in the absence
of proof that it was negligent in the selection of and supervision over its
employee. 8
The facts of this case reveal that damages in the form of mental anguish, moral
shock and social humiliation were suffered by private respondent only after the
filing of the petitioners' complaint with the Philippine Constabulary. It was only
then that he had to bear the inconvenience of travelling to Benguet and Lingayen
for the investigations as it was only then that he was subjected to embarrassment
for being a suspect in the unauthorized alteration of the treasury checks. Hence, it
is understandable why petitioners appear to have overlooked the facts antecedent
to the filing of the complaint to the constabulary authorities and to have put undue
emphasis on the appellate court's statement that "denouncing a crime is not
negligence."
Although this Court has consistently held that there should be no penalty on the
right to litigate and that error alone in the filing of a case be it before the courts or
the proper police authorities, is not a ground for moral damages, 9 we hold that
under the peculiar circumstances of this case, private respondent is entitled to an
award of damages.
Indeed, it would be unjust to overlook the fact that petitioners' negligence was the
root of all the inconvenience and embarrassment experienced by the private
respondent albeit they happened after the filing of the complaint with the
constabulary authorities. Petitioner Go's negligence in fact led to the swindling of
his employer. Had Go exercised the diligence expected of him as a bank officer
and employee, he would have noticed the glaring disparity between the payee's
name and address on the treasury checks involved and the name and address of
the depositor appearing in the bank's records. The situation would have been
different if the treasury checks were tampered with only as to their amounts
because the alteration would have been unnoticeable and hard to detect as the
herein altered check bearing the amount of $ 913.40 shows. But the error in the
name and address of the payee was very patent and could not have escaped the
trained eyes of bank officers and employees. There is therefore, no other
In crimes and quasi-delicts, the defendant shall be liable for all damages which
are the natural and probable consequences of the act or omission complained of. It
is not necessary that such damages have been foreseen or could have reasonably
been foreseen by the defendant. 10 As Go's negligence was the root cause of the
complained inconvenience, humiliation and embarrassment, Go is liable to private
respondents for damages.
Anent petitioner bank's claim that it is not "co-equally liable" with Go for
damages, under the fifth paragraph of Article 2180 of the Civil Code,
"(E)mployers shall be liable for the damages caused by their employees . . . acting
within the scope of their assigned tasks." Pursuant to this provision, the bank is
responsible for the acts of its employee unless there is proof that it exercised the
diligence of a good father of a family to prevent the damage. 11 Hence, the burden
of proof lies upon the bank and it cannot now disclaim liability in view of its own
failure to prove not only that it exercised due diligence to prevent damage but that
it was not negligent in the selection and supervision of its employees.
WHEREFORE, the decision of the respondent appellate court is hereby affirmed.
Costs against the petitioners.
SO ORDERED.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 113236
March 5, 2001
FIRESTONE TIRE & RUBBER COMPANY OF THE

PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of
Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the
Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestone's complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial court,
are as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate
of authority issued by the Central Bank of the Philippines, and among its
activities, accepts savings and time deposits. Said defendant had as one
of its client-depositors the Fojas-Arca Enterprises Company ("FojasArca" for brevity). Fojas-Arca maintaining a special savings account
with the defendant, the latter authorized and allowed withdrawals of
funds therefrom through the medium of special withdrawal slips. These
are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised
Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to
purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone products from
plaintiff with a total amount of P4,896,000.00. In payment of these
purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal
slips drawn upon the defendant. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of them were
honored and paid by the defendant. This singular circumstance made
plaintiff believe [sic] and relied [sic] on the fact that the succeeding
special withdrawal slips drawn upon the defendant would be equally
sufficiently funded. Relying on such confidence and belief and as a direct
consequence thereof, plaintiff extended to Fojas-Arca other purchases on
credit of its products.
On the following dates Fojas-Arca purchased Firestone products on
credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding
special withdrawal slips in payment thereof drawn upon the defendant, to
wit:
DATE
WITHDRAWAL
SLIP NO.
AMOUNT
June 15, 1978
42127
P1,198,092.80
July 15, 1978
42128
940,190.00
Aug. 15, 1978
42129
880,000.00
Sep. 15, 1978
42130
981,500.00
These were likewise deposited by plaintiff in its current account with

Citibank and in turn the Citibank forwarded it [sic] to the defendant for
payment and collection, as it had done in respect of the previous special
withdrawal slips. Out of these four (4) withdrawal slips only withdrawal
slip No. 42130 in the amount of P981,500.00 was honored and paid by
the defendant in October 1978. Because of the absence for a long period
coupled with the fact that defendant honored and paid withdrawal slips
No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's
belief was all the more strengthened that the other withdrawal slips were
likewise sufficiently funded, and that it had received full value and
payment of Fojas-Arca's credit purchased then outstanding at the time.
On this basis, plaintiff was induced to continue extending to Fojas-Arca
further purchase on credit of its products as per agreement (Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank that
special withdrawal slips No. 42127 dated June 15, 1978 for
P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00
were dishonored and not paid for the reason 'NO ARRANGEMENT.' As
a consequence, the Citibank debited plaintiff's account for the total sum
of P2,078,092.80 representing the aggregate amount of the above-two
special withdrawal slips. Under such situation, plaintiff averred that the
pecuniary losses it suffered is caused by and directly attributable to
defendant's gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand
upon the defendant for the satisfaction of the damages suffered by it. And
due to defendant's refusal to pay plaintiff's claim, plaintiff has been
constrained to file this complaint, thereby compelling plaintiff to incur
litigation expenses and attorney's fees which amount are recoverable
from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant
asserted, inter alia that the transactions mentioned by plaintiff are that of
plaintiff and Fojas-Arca only, [in] which defendant is not involved;
Vehemently, it was denied by defendant that the special withdrawal slips
were honored and treated as if it were checks, the truth being that when
the special withdrawal slips were received by defendant, it only verified
whether or not the signatures therein were authentic, and whether or not
the deposit level in the passbook concurred with the savings ledger, and
whether or not the deposit is sufficient to cover the withdrawal; if
plaintiff treated the special withdrawal slips paid by Fojas-Arca as
checks then plaintiff has to blame itself for being grossly negligent in
treating the withdrawal slips as check when it is clearly stated therein
that the withdrawal slips are non-negotiable; that defendant is not a privy
to any of the transactions between Fojas-Arca and plaintiff for which
reason defendant is not duty bound to notify nor give notice of anything
to plaintiff. If at first defendant had given notice to plaintiff it is merely

an extension of usual bank courtesy to a prospective client; that
defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff has
no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional Trial
Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was
dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that
respondent Luzon Development Bank was liable for damages under Article
21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent: 1)
the acceptance and payment of the special withdrawal slips without the
presentation of the depositor's passbook thereby giving the impression that the
withdrawal slips are instruments payable upon presentment; 2) giving the special
withdrawal slips the general appearance of checks; and 3) the failure of
respondent bank to seasonably warn petitioner that it would not honor two of the
four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It
denied the appeal and affirmed the judgment of the trial court. According to the
appellate court, respondent bank notified the depositor to present the passbook
whenever it received a collection note from another bank, belying petitioner's
claim that respondent bank was negligent in not requiring a passbook under the
subject transaction. The appellate court also found that the special withdrawal
slips in question were not purposely given the appearance of checks, contrary to
petitioner's assertions, and thus should not have been mistaken for checks. Lastly,
the appellate court ruled that the respondent bank was under no obligation to
inform petitioner of the dishonor of the special withdrawal slips, for to do so
would have been a violation of the law on the secrecy of bank deposits.
in turn deposited these withdrawal slips with Citibank. The latter credited the
same to petitioner's current account, then presented the slips for payment to
respondent bank. It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips
Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively,
were refused payment by respondent bank due to insufficiency of Fojas-Arca's
funds on deposit. That information came about six months from the time FojasArca purchased tires from petitioner using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips from petitioner's account,
causing the alleged pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question
were non-negotiable.9 Hence, the rules governing the giving of immediate notice
of dishonor of negotiable instruments do not apply in this case. 10 Petitioner itself
concedes this point.11 Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank could not be
expected immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent
Luzon Development Bank, had honored and paid the previous withdrawal slips,
automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of
the withdrawal slips. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute for
money.12 The withdrawal slips in question lacked this character.
Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development]
Bank was free from any fault or negligence regarding the dishonor, or in
failing to give fair and timely advice of the dishonor, of the
twointermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code.8
The issue for our consideration is whether or not respondent bank should be held
liable for damages suffered by petitioner, due to its allegedly belated notice of
non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal slips
drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner
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.13 The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips
would be honored and paid immediately. By doing so, it failed in its fiduciary
duty to treat the accounts of its clients with the highest degree of care. 14
In the ordinary and usual course of banking operations, current account deposits
are accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor
or current account holder, the date of the deposit, and the amount of the
deposit either in cash or in check.15

The withdrawal slips deposited with petitioner's current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted
them as such, Citibank and petitioner as account-holder must bear the risks
attendant to the acceptance of these instruments. Petitioner and Citibank could not
now shift the risk and hold private respondent liable for their admitted mistake.
No. Withdrawal slips in question were non negotiable instrument. Hence,

the rules governing the giving immediate notice of dishonor of negotiable
instrument do not apply. The essence of negotiability which characterizes a
negotiable paper as a credit instrument lies in its freedom to circulate freely as a
substitute for money. The withdrawal slips in question lacked this character.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals
in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.

SUPREME COURT
Manila
SO ORDERED.
FIRST DIVISION
Firestone Tire & rubber Co. vs. Court of Appeals
GR No. 113236
March 5, 2001
Quisumbing, J.:
G.R. No. 97626 March 14, 1997
Facts:
Forjas-Arca Enterprise Company is maintaining a special savings account
with Luzon Development Bank, the latter authorized and allowed withdrawals of
funds though the medium of special withdrawal slips. These are supplied by
Fojas-Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber
Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In turn,
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE

COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA
DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP.,
represented by ROMEO LIPANA, its President & General
Manager, respondents.
these were deposited by the Firsestone to its bank account in Citibank. With this,
relying on such confidence and belief Firestone extended to Fojas-Arca other
purchase on credit of its products but several withdrawal slips were dishonored
HERMOSISIMA, JR., J.:
and not paid. As a consequence, Citibank debited the plaintiffs account

representing the aggregate amount of the two dishonored special withdrawal slips.
Fojas-Arca averred that the pecuniary losses it suffered are a caused by and
directly attributes to defendants gross negligence as a result Fojas-Arca filed a
complaint.
Issue:
Whether or not the acceptance and payment of the special withdrawal slips
without the presentation of the depositors passbook thereby giving the impression
that it is a negotiable instrument like a check.
Held:
Challenged in this petition for review is the Decision dated February 28,
1991 1 rendered by public respondent Court of Appeals which affirmed the
Decision dated November 15, 1985 of the Regional Trial Court, National Capital
Judicial Region, Branch CLX (160), Pasig City, in Civil Case No. 27288 entitled
"Rommel's Marketing Corporation, etc. v. Philippine Bank of Commerce, now
absorbed by Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent Rommel's
Marketing Corporation (RMC for brevity), represented by its President and
General Manager Romeo Lipana, to recover from the former Philippine Bank of
Commerce (PBC for brevity), now absorbed by the Philippine Commercial
International Bank, the sum of P304,979.74 representing various deposits it had
made in its current account with said bank but which were not credited to its
account, and were instead deposited to the account of one Bienvenido Cotas,
allegedly due to the gross and inexcusable negligence of the petitioner bank.

RMC maintained two (2) separate current accounts, Current Account Nos. 5301980-3 and 53-01748-7, with the Pasig Branch of PBC in connection with its
business of selling appliances.
In the ordinary and usual course of banking operations, current account deposits
are accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor
or current account holder, the date of the deposit, and the amount of the deposit
either in cash or checks. The deposit slip has an upper portion or stub, which is
detached and given to the depositor or his agent; the lower portion is retained by
the bank. In some instances, however, the deposit slips are prepared in duplicate
by the depositor. The original of the deposit slip is retained by the bank, while the
duplicate copy is returned or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have
entrusted RMC funds in the form of cash totalling P304,979.74 to his secretary,
Irene Yabut, for the purpose of depositing said funds in the current accounts of
RMC with PBC. It turned out, however, that these deposits, on all occasions, were
not credited to RMC's account but were instead deposited to Account No. 5301734-7 of Yabut's husband, Bienvenido Cotas who likewise maintains an
account with the same bank. During this period, petitioner bank had, however,
been regularly furnishing private respondent with monthly statements showing its
current accounts balances. Unfortunately, it had never been the practice of Romeo
Lipana to check these monthly statements of account reposing complete trust and
confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would accomplish two
(2) copies of the deposit slip, an original and a duplicate. The original showed the
name of her husband as depositor and his current account number. On the
duplicate copy was written the account number of her husband but the name of the
account holder was left blank. PBC's teller, Azucena Mabayad, would, however,
validate and stamp both the original and the duplicate of these deposit slips
retaining only the original copy despite the lack of information on the duplicate
slip. The second copy was kept by Irene Yabut allegedly for record purposes.
After validation, Yabut would then fill up the name of RMC in the space left
blank in the duplicate copy and change the account number written thereon, which
is that of her husband's, and make it appear to be RMC's account number, i.e.,
C.A. No. 53-01980-3. With the daily remittance records also prepared by Ms.
Yabut and submitted to private respondent RMC together with the validated
duplicate slips with the latter's name and account number, she made her company
believe that all the while the amounts she deposited were being credited to its
account when, in truth and in fact, they were being deposited by her and credited
by the petitioner bank in the account of Cotas. This went on in a span of more
than one (1) year without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the
return of its money, but as its demand went unheeded, it filed a collection suit
before the Regional Trial Court of Pasig, Branch 160. The trial court found
petitioner bank negligent and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing
defendant Philippine Bank of Commerce, now absorbed by
defendant Philippine Commercial & Industrial Bank, and
defendant Azucena Mabayad to pay the plaintiff, jointly and
severally, and without prejudice to any criminal action which
may be instituted if found warranted:
1. The sum of P304,979.72, representing plaintiffs lost deposit,
plus interest thereon at the legal rate from the filing of the
complaint;
2. A sum equivalent to 14% thereof, as exemplary damages;
3. A sum equivalent to 25% of the total amount due, as and for
attorney's fees; and
4. Costs.
Defendants' counterclaim is hereby dismissed for lack of merit. 2
On appeal, the appellate court affirmed the foregoing decision with
modifications, viz:
WHEREFORE, the decision appealed from herein is
MODIFIED in the sense that the awards of exemplary damages
and attorney's fees specified therein are eliminated and instead,
appellants are ordered to pay plaintiff, in addition to the
principal sum of P304,979.74 representing plaintiff's lost
deposit plus legal interest thereon from the filing of the
complaint, P25,000.00 attorney's fees and costs in the lower
court as well as in this Court. 3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of
respondent Rommel Marketing Corporation and Romeo Lipana
in entrusting cash to a dishonest employee.
2) The failure of respondent Rommel Marketing Corporation to
cross-check the bank's statements of account with its own
records during the entire period of more than one (1) year is the

proximate cause of the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by
respondent Rommel Marketing Corporation are falsified and are
not proof that the amounts appearing thereon were deposited to
respondent Rommel Marketing Corporation's account with the
bank,
4) The duplicate copies of the deposit slips were used by Ms.
Irene Yabut to cover up her fraudulent acts against respondent
Rommel Marketing Corporation, and not as records of deposits
she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause of the
loss, to the tune of P304,979.74, suffered by the private respondent RMC
petitioner bank's negligence or that of private respondent's?
Petitioners submit that the proximate cause of the loss is the negligence of
respondent RMC and Romeo Lipana in entrusting cash to a dishonest employee in
the person of Ms. Irene Yabut. 5 According to them, it was impossible for the bank
to know that the money deposited by Ms. Irene Yabut belong to RMC; neither
was the bank forewarned by RMC that Yabut will be depositing cash to its
account. Thus, it was impossible for the bank to know the fraudulent design of
Yabut considering that her husband, Bienvenido Cotas, also maintained an
account with the bank. For the bank to inquire into the ownership of the cash
deposited by Ms. Irene Yabut would be irregular. Otherwise stated, it was RMC's
negligence in entrusting cash to a dishonest employee which provided Ms. Irene
Yabut the opportunity to defraud RMC. 6
Private respondent, on the other hand, maintains that the proximate cause of the
loss was the negligent act of the bank, thru its teller Ms. Azucena Mabayad, in
validating the deposit slips, both original and duplicate, presented by Ms. Yabut to
Ms. Mabayad, notwithstanding the fact that one of the deposit slips was not
completely accomplished.
existing contractual relation between the parties, is called

a quasi-delict and is governed by the provisions of this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by the plaintiff;
(b) fault or negligence of the defendant, or some other person for whose acts he
must respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damages incurred by the plaintiff. 7
In the case at bench, there is no dispute as to the damage suffered by the private
respondent (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in
ascribing fault or negligence which caused the damage where the parties point to
each other as the culprit.
Negligence is the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would
do. The seventy-eight (78)-year-old, yet still relevant, case of Picart
v. Smith, 8 provides the test by which to determine the existence of negligence in a
particular case which may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The law considers what
would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.
Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad,
was negligent in validating, officially stamping and signing all the deposit slips
prepared and presented by Ms. Yabut, despite the glaring fact that the duplicate
copy was not completely accomplished contrary to the self-imposed procedure of
the bank with respect to the proper validation of deposit slips, original or
duplicate, as testified to by Ms. Mabayad herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will
you please tell us Mrs. Mabayad your
important duties and functions?
We sustain the private respondent.

Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-
A: I accept current and savings deposits from

depositors and encashments.
Q: Now in the handling of current account
deposits of bank clients, could you tell us the
procedure you follow?

A: The client or depositor or the authorized
representative prepares a deposit slip by
filling up the deposit slip with the name, the
account number, the date, the cash
breakdown, if it is deposited for cash, and the
check number, the amount and then he signs
the deposit slip.
Q: Now, how many deposit slips do you
normally require in accomplishing current
account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the
deposit although some of our clients prepare
the deposit slip in duplicate.
Q: Now in accomplishing current account
deposits from your clients, what do you issue
to the depositor to evidence the deposit made?
A: We issue or we give to the clients the
depositor's stub as a receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized
representative sir?
Q: Where does the depositor's stub comes
(sic) from Mrs. Mabayad, is it with the deposit
slip?
A: The depositor's stub is connected with the
deposit slip or the bank's copy. In a deposit
slip, the upper portion is the depositor's stub
and the lower portion is the bank's copy, and
you can detach the bank's copy from the
depositor's stub by tearing it sir.
Q: Now what do you do upon presentment of
the deposit slip by the depositor or the
depositor's authorized representative?
A: We see to it that the deposit slip 9 is
properly accomplished and then we count the
money and then we tally it with the deposit

slip sir.
Q: Now is the depositor's stub which you
issued to your clients validated?
A: Yes, sir. 10 [Emphasis ours]
Clearly, Ms. Mabayad failed to observe this very important procedure.
The fact that the duplicate slip was not compulsorily required by the
bank in accepting deposits should not relieve the petitioner bank of
responsibility. The odd circumstance alone that such duplicate copy
lacked one vital information that of the name of the account holder
should have already put Ms. Mabayad on guard. Rather than readily
validating the incomplete duplicate copy, she should have proceeded
more cautiously by being more probing as to the true reason why the
name of the account holder in the duplicate slip was left blank while that
in the original was filled up. She should not have been so naive in
accepting hook, line and sinker the too shallow excuse of Ms. Irene
Yabut to the effect that since the duplicate copy was only for her
personal record, she would simply fill up the blank space later on. 11 A
"reasonable man of ordinary prudence" 12 would not have given credence
to such explanation and would have insisted that the space left blank be
filled up as a condition for validation. Unfortunately, this was not how
bank teller Mabayad proceeded thus resulting in huge losses to the
private respondent.
Negligence here lies not only on the part of Ms. Mabayad but also on the part of
the bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This
was exemplified in the testimony of 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. 13
Prescinding from the above, public respondent Court of Appeals aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in February,
1983, or after the lapse of more than seven (7) years counted
from the period when the funds in question were deposited in
plaintiff's accounts (May, 1975 to July, 1976) that bank manager
Bonifacio admittedly became aware of the practice of his teller
Mabayad of validating blank deposit slips. Undoubtedly, this is
gross, wanton, and inexcusable negligence in the appellant
bank's supervision of its employees. 14
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the
petitioner bank in the selection and supervision of its bank teller, which was the
proximate cause of the loss suffered by the private respondent, and not the latter's
act of entrusting cash to a dishonest employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed
considerations of logic, common sense, policy and precedent. 15 Vda. de Bataclan
v. Medina, 16 reiterated in the case of Bank of the Phil. Islands v. Court of
Appeals, 17 defines proximate cause as "that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred. . . ." In this case,
absent the act of Ms. Mabayad in negligently validating the incomplete duplicate
copy of the deposit slip, Ms. Irene Yabut would not have the facility with which
to perpetrate her fraudulent scheme with impunity. Apropos, once again, is the
pronouncement made by the respondent appellate court, to wit:
. . . . Even if Yabut had the fraudulent intention to
misappropriate the funds entrusted to her by plaintiff, she would
not have been able to deposit those funds in her husband's
current account, and then make plaintiff believe that it was in
the latter's accounts wherein she had deposited them, had it not
been for bank teller Mabayad's aforesaid gross and reckless

negligence. The latter's negligence was thus the proximate,
immediate and efficient cause that brought about the loss
claimed by plaintiff in this case, and the failure of plaintiff to
discover the same soon enough by failing to scrutinize the
monthly statements of account being sent to it by appellant bank
could not have prevented the fraud and misappropriation which
Irene Yabut had already completed when she deposited
plaintiff's money to the account of her husband instead of to the
latter's accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred to, at times as
"supervening negligence" or as "discovered peril"), petitioner bank was indeed the
culpable party. This doctrine, in essence, states that where both parties are
negligent, but the negligent act of one is appreciably later in time than that of the
other, or when it is impossible to determine whose fault or negligence should be
attributed to the incident, the one who had the last clear opportunity to avoid the
impending harm and failed to do so is chargeable with the consequences
thereof.19 Stated differently, the rule would also mean that an antecedent
negligence of a person does not preclude the recovery of damages for the
supervening negligence of, or bar a defense against liability sought by another, if
the latter, who had thelast fair chance, could have avoided the impending harm by
the exercise of due diligence. 20 Here, assuming that private respondent RMC was
negligent in entrusting cash to a dishonest employee, thus providing the latter with
the opportunity to defraud the company, as advanced by the petitioner, yet it
cannot be denied that the petitioner bank, thru its teller, had the last clear
opportunity to avert the injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
At this juncture, it is worth to discuss the degree of diligence ought to be
exercised by banks in dealing with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2,
shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required. (1104a)
In the case of banks, however, the degree of diligence required is more than that
of a good father of a family. Considering the fiduciary nature of their relationship

with their depositors, banks are duty bound to treat the accounts of their clients
with the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 in
every case, the depositor expects the bank to treat his account with the utmost
reflect at any given time the amount of money the depositor can dispose as he sees
fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the failure to duly credit him his deposits
as soon as they are made, can cause the depositor not a little embarrassment if not
financial loss and perhaps even civil and criminal litigation.
their relationship. In the case before us, it is apparent that the petitioner bank was
remiss in that duty and violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-check
the bank's statements of account with its own records during the entire period of
more than one (1) year is the proximate cause of the commission of subsequent
frauds and misappropriation committed by Ms. Irene Yabut.
omission by RMC amounts to contributory negligence which shall mitigate the

damages that may be awarded to the private respondent 23 under Article 2179 of
the New Civil Code, to wit:
. . . When the plaintiff's own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if
his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant's lack of due
care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded.
In view of this, we believe that the demands of substantial justice are
satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
damage awarded by the respondent appellate court, except the award of
P25,000.00 attorney's fees, shall be borne by private respondent RMC;
only the balance of 60% needs to be paid by the petitioners. The award of
attorney's fees shall be borne exclusively by the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is modified by
reducing the amount of actual damages private respondent is entitled to by 40%.
Petitioners may recover from Ms. Azucena Mabayad the amount they would pay
the private respondent. Private respondent shall have recourse against Ms. Irene
Yabut. In all other respects, the appellate court's decision is AFFIRMED.
Proportionate costs.
We do not agree.
SO ORDERED.
While it is true that had private respondent checked the monthly statements of
account sent by the petitioner bank to RMC, the latter would have discovered the
loss early on, such cannot be used by the petitioners to escape liability. This
omission on the part of the private respondent does not change the fact that were it
not for the wanton and reckless negligence of the petitioners' employee in
validating the incomplete duplicate deposit slips presented by Ms. Irene Yabut,
the loss would not have occurred. Considering, however, that the fraud was
committed in a span of more than one (1) year covering various deposits, common
human experience dictates that the same would not have been possible without
any form of collusion between Ms. Yabut and bank teller Mabayad. Ms. Mabayad
was negligent in the performance of her duties as bank teller nonetheless. Thus,
the petitioners are entitled to claim reimbursement from her for whatever they
shall be ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied that, indeed, private
respondent was likewise negligent in not checking its monthly statements of
account. Had it done so, the company would have been alerted to the series of
frauds being committed against RMC by its secretary. The damage would
definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs. This
EN BANC
[G.R. No. 94723. August 21, 1997]
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and

Natural Guardian, and Spouses FEDERICO N. SALVACION, JR.,
and EVELINA E. SALVACION, petitioners, vs. CENTRAL BANK
OF THE PHILIPPINES, CHINA BANKING CORPORATION and
GREG BARTELLI y NORTHCOTT, respondents.
DECISION
TORRES, JR., J.:

In our predisposition to discover the original intent of a statute, courts
become the unfeeling pillars of the status quo. Little do we realize that statutes or
even constitutions are bundles of compromises thrown our way by their
framers. Unless we exercise vigilance, the statute may already be out of tune and
irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued
restraining the respondents from applying and enforcing Section 113 of
Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
Acct.); 3.) Dollar Account China Banking Corp., US $/A#54105028-2; 4.) ID122-30-8877; 5.) Philippine Money (P234.00) cash; 6.) Door Keys 6
pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed
against Greg Bartelli, Criminal Case No. 801 for Serious Illegal Detention and
Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On the
same day, petitioners filed with the Regional Trial Court of Makati Civil Case No.
89-3214 for damages with preliminary attachment against Greg Bartelli. On
February 24, 1989, the day there was a scheduled hearing for Bartellis petition for
bail the latter escaped from jail.
1.) Declaring the respective rights and duties of petitioners

and respondents;
On February 28, 1989, the court granted the fiscals Urgent Ex-Parte Motion
for the Issuance of Warrant of Arrest and Hold Departure Order. Pending the
arrest of the accused Greg Bartelli y Northcott, the criminal cases were archived
in an Order dated February 28, 1989.
2.) Adjudging Section 113 of Central Bank Circular No.

960 as contrary to the provision of the Constitution, hence
void; because its provision that Foreign currency deposits
shall be exempt from attachment, garnishment, or any other
order to process of any court, legislative body, government
agency or any administrative body whatsoever
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated
February 22, 1989 granting the application of herein petitioners, for the issuance
of the writ of preliminary attachment. After petitioners gave Bond No. JCL (4)
1981 by FGU Insurance Corporation in the amount P100,000.00, a Writ of
Preliminary Attachment was issued by the trial court on February 28, 1989.
i.) has taken away the right of petitioners to have the

bank deposit of defendant Greg Bartelli y Northcott
garnished to satisfy the judgment rendered in
petitioners favor in violation of substantive due process
guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue
favor or a class privilege in violation of the equal
protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the
herein respondent Greg Bartelli y Northcott since
criminals could escape civil liability for their wrongful
acts by merely converting their money to a foreign
currency and depositing it in a foreign currency deposit
account with an authorized bank.
The antecedents facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed
and lured petitioner Karen Salvacion, then 12 years old to go with him to his
apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to
February 7, 1989 and was able to rape the child once on February 4, and three
times each day on February 5, 6, and 7, 1989. On February 7, 1989, after
policemen and people living nearby, rescued Karen, Greg Bartelli was arrested
and detained at the Makati Municipal Jail. The policemen recovered from Bartelli
the following items: 1.) Dollar Check No. 368, Control No. 0210006781166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of

Garnishment on China Banking Corporation. In a letter dated March 13, 1989 to
the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act
No. 1405 as its answer to the notice of garnishment served on it. On March 15,
1989, Deputy Sheriff of Makati Armando de Guzman sent his reply to China
Banking Corporation saying that the garnishment did not violate the secrecy of
bank deposits since the disclosure is merely incidental to a garnishment properly
and legally made by virtue of a court order which has placed the subject deposits
in custodia legis. In answer to this letter of the Deputy Sheriff of Makati, China
Banking Corporation, in a letter dated March 20, 1989, invoked Section 113 of
Central Bank Circular No. 960 to the effect that the dollar deposits of defendant
Greg Bartelli are exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative
body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the
Central Bank in a letter dated April 25, 1989 on whether Section 113 of CB
Circular No. 960 has any exception or whether said section has been repealed or
amended since said section has rendered nugatory the substantive right of the
plaintiff to have the claim sought to be enforced by the civil action secured by
way of the writ of preliminary attachment as granted to the plaintiff under Rule 57
of the Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino

12 Pres. Osmea Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
This is in reply to your letter dated April 25, 1989 regarding your
inquiry on Section 113, CB Circular No. 960 (1983).
The cited provision is absolute in application. It does not admit of any
exception, nor has the same been repealed nor amended.
The purpose of the law is to encourage dollar accounts within the
countrys banking system which would help in the development of the
economy. There is no intention to render futile the basic rights of a
person as was suggested in your subject letter. The law may be harsh as
some perceive it, but it is still the law. Compliance is, therefore,
enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director[1]
Meanwhile, on April 10, 1989, the trial court granted petitioners motion for
leave to serve summons by publication in the Civil Case No. 89-3214 entitled
Karen Salvacion. et al. vs. Greg Bartelli y Northcott. Summons with the complaint
was published in the Manila Times once a week for three consecutive
weeks. Greg Bartelli failed to file his answer to the complaint and was declared in
default on August 7, 1989. After hearing the case ex-parte, the court rendered
judgment in favor of petitioners on March 29, 1990, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and
against defendant, ordering the latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as
moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and
Evelina E. Salvacion the amount of P150,000.00 each or a total
of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorneys fees in an amount equivalent to 25% of the total
amount of damages herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondents Greg Bartelli which gave rise to the award
were related in graphic detail by the trial court in its decision as follows:
The defendant in this case was originally detained in the municipal jail
of Makati but was able to escape therefrom on February 24, 1989 as per
report of the Jail Warden of Makati to the Presiding Judge, Honorable
Manuel M. Cosico of the Regional Trial Court of Makati, Branch 136,
where he was charged with four counts of Rape and Serious Illegal
Detention (Crim. Cases Nos. 802 to 805).Accordingly, upon motion of
plaintiffs, through counsel, summons was served upon defendant by
publication in the Manila Times, a newspaper of general circulation as
attested by the Advertising Manager of the Metro Media Times, Inc.,
the publisher of the said newspaper. Defendant, however, failed to file
his answer to the complaint despite the lapse of the period of sixty (60)
days from the last publication; hence, upon motion of the plaintiffs
through counsel, defendant was declared in default and plaintiffs were
authorized to present their evidence ex parte.
In support of the complaint, plaintiffs presented as witness the minor
Karen E. Salvacion, her father, Federico N. Salacion, Jr., a certain
Joseph Aguilar and a certain Liberato Mandulio, who gave the
following testimony:
Karen took her first year high school in St. Marys Academy in Pasay City but has
recently transferred to Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema
Square, with her friend Edna Tangile whiling away her free time. At about 3:30
p.m. while she was finishing her snack on a concrete bench in front of Plaza Fair,
an American approached her. She was then alone because Edna Tangile had
already left, and she was about to go home. (TSN, Aug. 15, 1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He sat
beside her when he talked to her. He said he was a Math teacher and told her that
he has a sister who is a nurse in New York. His sister allegedly has a daughter
who is about Karens age and who was with him in his house along Kalayaan
Avenue. (TSN, Aug. 15, 1989, pp. 4-5).
The American asked Karen what was her favorite subject and she told him its
Pilipino. He then invited her to go with him to his house where she could teach
Pilipino to his niece. He even gave her a stuffed toy to persuade her to teach his
niece. (Id., pp.5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the
defendants house along Kalayaan Avenue. (Id., p.6)

When they reached the apartment house, Karen notices that defendants alleged
niece was not outside the house but defendant told her maybe his niece was
inside. When Karen did not see the alleged niece inside the house, defendant told
her maybe his niece was upstairs, and invited Karen to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became
nervous because his niece was not there. Defendant got a piece of cotton cord and
tied Karens hands with it, and then he undressed her. Karen cried for help but
defendant strangled her. He took a packing tape and he covered her mouth with it
and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the
door. He tied her feet and hands spread apart to the bed posts. He knelt in front of
her and inserted his finger in her sex organ.She felt severe pain. She tried to shout
but no sound could come out because there were tapes on her mouth. When
defendant withdrew his finger it was full of blood and Karen felt more pain after
the withdrawal of the finger. (Id., p.8)
He then got a Johnsons Baby Oil and he applied it to his sex organ as well as to
her sex organ. After that he forced his sex organ into her but he was not able to do
so. While he was doing it, Karen found it difficult to breathe and she perspired a
lot while feeling severe pain. She merely presumed that he was able to insert his
sex organ a little, because she could not see. Karen could not recall how long the
defendant was in that position. (Id., pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to
take a shower and he untied her hands. Karen could only hear the sound of the
water while the defendant, she presumed, was in the bathroom washing his sex
organ. When she took a shower more blood came out from her. In the meantime,
defendant changed the mattress because it was full of blood. After the shower,
Karen was allowed by defendant to sleep. She fell asleep because she got tired
crying. The incident happened at about 4:00 p.m. Karen had no way of
determining the exact time because defendant removed her watch.Defendant did
not care to give her food before she went to sleep. Karen woke up at about 8:00
oclock the following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after breakfast of biscuit and coke
at about 8:30 to 9:00 a.m. defendant raped Karen while she was still bleeding. For
lunch, they also took biscuit and coke.She was raped for the second time at about
12:00 to 2:00 p.m. In the evening, they had rice for dinner which defendant had
stored downstairs; it was he who cooked the rice that is why it looks like
lugaw. For the third time, Karen was raped again during the night. During those
three times defendant succeeded in inserting his sex organ but she could not say
whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her
hands and feet nor put a tape on her mouth anymore but she did not cry for help
for fear that she might be killed; besides, all those windows and doors were
closed. And even if she shouted for help, nobody would hear her. She was so
afraid that if somebody would hear her and would be able to call a police, it was
still possible that as she was still inside the house, defendant might kill
her. Besides, the defendant did not leave that Sunday, ruling out her chance to call
for help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the morning
for thirty minutes after breakfast of biscuits; again in the afternoon; and again in
the evening. At first, Karen did not know that there was a window because
everything was covered by a carpet, until defendant opened the window for
around fifteen minutes or less to let some air in, and she found that the window
was covered by styrofoam and plywood. After that, he again closed the window
with a hammer and he put the styrofoam, plywood, and carpet back. (Id., pp. 1415)
That Monday evening, Karen had a chance to call for help, although defendant left
but kept the door closed. She went to the bathroom and saw a small window
covered by styrofoam and she also spotted a small hole. She stepped on the bowl
and she cried for help through the hole. She cried: Maawa na po kayo sa
akin. Tulungan nyo akong makalabas dito. Kinidnap ako! Somebody heard her. It
was a woman, probably a neighbor, but she got angry and said she
was istorbo. Karen pleaded for help and the woman told her to sleep and she will
call the police. She finally fell asleep but no policeman came. (TSN, Aug. 15,
1989, pp. 15-16)
She woke up at 6:00 oclock the following morning, and she saw defendant in bed,
this time sleeping. She waited for him to wake up. When he woke up, he again got
some food but he always kept the door locked. As usual, she was merely fed with
biscuit and coke. On that day, February 7, 1989, she was again raped three
times. The first at about 6:30 to 7:00 a.m., the second at about 8:30 9:00, and the
third was after lunch at 12:00 noon. After he had raped her for the second time he
left but only for a short while. Upon his return, he caught her shouting for help but
he did not understand what she was shouting about. After she was raped the third
time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the
bathroom and shouted for help. After shouting for about five minutes, she heard
many voices. The voices were asking for her name and she gave her name as
Karen Salvacion. After a while, she heard a voice of a woman saying they will
just call the police. They were also telling her to change her clothes. She went
from the bathroom to the room but she did not change her clothes being afraid that
should the neighbors call the police and the defendant see her in different clothes,
he might kill her. At that time she was wearing a T-shirt of the American bacause
the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and opened the door. He asked her if she had asked
for help because there were many policemen outside and she denied it. He told her
to change her clothes, and she did change to the one she was wearing on

Saturday. He instructed her to tell the police that she left home and willingly; then
he went downstairs but he locked the door. She could hear people conversing but
she could not understand what they were saying. (Id., p. 19)
When she heard the voices of many people who were conversing downstairs, she
knocked repeatedly at the door as hard as she could. She heard somebody going
upstairs and when the door was opened, she saw a policeman. The policeman
asked her name and the reason why she was there. She told him she was
kidnapped. Downstairs, he saw about five policemen in uniform and the defendant
was talking to them. Nakikipag-areglo po sa mga pulis, Karen added. The
policeman told him to just explain at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the
house. They rode the car of a certain person she called Kuya Boy together with
defendant, the policeman, and two of her neighbors whom she called Kuya Bong
Lacson and one Ate Nita. They were brought to Sub-Station I and there she was
investigated by a policeman. At about 2:00 a.m., her father arrived, followed by
her mother together with some of their neighbors. Then they were brought to the
second floor of the police headquarters. (Id., p. 21)
At the headquarters, she was asked several questions by the investigator. The
written statement she gave to the police was marked Exhibit A. Then they
proceeded to the National Bureau of Investigation together with the investigator
and her parents. At the NBI, a doctor, a medico-legal officer, examined her private
parts. It was already 3:00 in early morning, of the following day when they
reached the NBI, (TSN, Aug. 15, 1989, p. 22) The findings of the medicolegal officer has been marked as Exhibit B.
She was studying at the St. Marys Academy in Pasay City at the time of the
Incident but she subsequently transferred to Apolinario Mabini, Arellano
University, situated along Taft Avenue, because she was ashamed to be the
subject of conversation in the school. She first applied for transfer to Jose Abad
Santos, Arellano University along Taft Avenue near the Light Rail Transit Station
but she was denied admission after she told the school the true reason for her
transfer. The reason for their denial was that they might be implicated in the
case. (TSN, Aug. 15, 1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her brother
and sister anymore, and she is always in a state of shock; she has been absentminded and is ashamed even to go out of the house. (TSN, Sept. 12, 1989, p.
10) She appears to be restless or sad. (Id., p. 11) The father prays for P500,000.00
moral damages for Karen for this shocking experience which probably, she would
always recall until she reaches old age, and he is not sure if she could ever recover
from this experience. (TSN, Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice

was published in the Manila Bulletin once a week for three consecutive
weeks. After the lapse of fifteen (15) days from the date of the last publication of
the notice of judgment and the decision of the trial court had become final,
petitioners tried to execute on Bartellis dollar deposit with China Banking
Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular
No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to
two:
May this Court entertain the instant petition despite the fact that original
jurisdiction in petitions for declaratory relief rests with the lower court? She
Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as
amended by P.D. 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank
Circular No. 960 providing that Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever. should be
adjudged as unconstitutional on the grounds that: 1.) it has taken away the right of
petitioners to have the bank deposit of defendant Greg Bartelli y Northcott
garnished to satisfy the judgment rendered in petitioners favor in violation of
substantive due process guaranteed by the Constitution; 2.) it has given foreign
currency depositors an undue favor or a class privilege n violation of the equal
protection clause of the Constitution; 3.) it has provided a safe haven for criminals
like the herein respondent Greg Bartelli y Northcott since criminal could escape
civil liability for their wrongful acts by merely converting their money to a foreign
currency and depositing it in a foreign currency deposit account with an
authorized bank; and 4.) The Monetary Board, in issuing Section 113 of Central
Bank Circular No. 960 has exceeded its delegated quasi- legislative power when it
took away: a.) the plaintiffs substantive right to have the claim sought to be
enforced by the civil action secured by way of the writ of preliminary attachment
as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive
right to have the judgment credit satisfied by way of the writ of execution out of
the bank deposit of the judgment debtor as granted to the judgment creditor by
Rule 39 of the Revised Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the
Monetary Board in issuing Section 113 of CB Circular No. 960 did not exceed its
power or authority because the subject Section is copied verbatim from a portion
of R.A. No. 6426 as amended by P.D. 1246. Hence, it was not the Monetary
Board that grants exemption from attachment or garnishment to foreign currency
deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the
substantive due process guaranteed by the Constitution because a.) it was based on
a law; b.) the law seems to be reasonable; c.) it is enforced according to regular
methods of procedure; and d.) it applies to all members of a class.

Expanding, the Central Bank said; that one reason for exempting the foreign
currency deposits from attachment, garnishment or any other order process of any
court, is to assure the development and speedy growth of the Foreign Currency
Deposit System and the Offshore Banking System in the Philippines; that another
reason is to encourage the inflow of foreign currency deposits into the banking
institutions thereby placing such institutions more in a position to properly
channel the same to loans and investments in the Philippines, thus directly
contributing to the economic development of the country; that the subject section
is being enforced according to the regular methods of procedure; and that it
applies to all currency deposits made by any person and therefore does not violate
the equal protection clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is
needed to promote the public interest and the general welfare; that the State
cannot just stand idly by while a considerable segment of the society suffers from
economic distress; that the State had to take some measures to encourage
economic development; and that in so doing persons and property may be
subjected to some kinds of restraints or burdens to secure the general welfare or
public interest. Respondent Central Bank also alleges that Rule 39 and Rule 57 of
the Revised Rules of Court provide that some properties are exempted from
execution/attachment especially provided by law and R.A. No. 6426 as amended
is such a law, in that it specifically provides, among others, that foreign currency
deposits shall be exempted from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative
body whatsoever.
For its part, respondent China Banking Corporation, aside from giving
reasons similar to that of respondent Central Bank, also stated that respondent
China Bank is not unmindful of the inhuman sufferings experienced by the minor
Karen E. Salvacion from the beastly hands of Greg Bartelli; that it is not only too
willing to release the dollar deposit of Bartelli which may perhaps partly mitigate
the sufferings petitioner has undergone; but it is restrained from doing so in view
of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960; and that
despite the harsh effect to these laws on petitioners, CBC has no other alternative
but to follow the same.
This court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But
this petition for declaratory relief can only be entertained and treated as a petition
for mandamus to require respondents to honor and comply with the writ of
execution in Civil Case No. 89-3214.
The Court has no original and exclusive jurisdiction over a petition for
declatory relief.[2] However, exceptions to this rule have been recognized. Thus,
where the petition has far-reaching implications and raises questions that should
be resolved, it may be treated as one for mandamus. [3]
Here is a child, a 12-year old girl, who in her belief that all Americans are
good and in her gesture of kindness by teaching his alleged niece the Filipino
language as requested by the American, trustingly went with said stranger to his
apartment, and there she was raped by said American tourist Greg Bartelli. Not
once, but ten times. She was detained therein for four (4) days. This American
tourist was able to escape from the jail and avoid punishment. On the other hand,
the child, having received a favorable judgment in the Civil Case for damages in
the amount of more than P1,000,000.00, which amount could alleviate the
humiliation, anxiety, and besmirched reputation she had suffered and may
continue to suffer for a long, long time; and knowing that this person who had
wronged her has the money, could not, however get the award of damages
because of this unreasonable law. This questioned law, therefore makes futile the
favorable judgment and award of damages that she and her parents fully
deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it
was indoubtedly a shocking and traumatic experience she had
undergone which could haunt her mind for a long, long time, the mere
recall of which could make her feel so humiliated, as in fact she had
been actually humiliated once when she was refused admission at the
Abad Santos High School, Arellano University, where she sought to
transfer from another school, simply because the school authorities of
the said High School learned about what happened to her and allegedly
feared that they might be implicated in the case.
xxx
The reason for imposing exemplary or corrective damages is due to the
wanton and bestial manner defendant had committed the acts of rape
during a period of serious illegal detention of his hapless victim, the
minor Karen Salvacion whose only fault was in her being so naive and
credulous to believe easily that defendant, an American national, could
not have such a bestial desire on her nor capable of committing such
heinous crime. Being only 12 years old when that unfortunate incident
happened, she has never heard of an old Filipino adage that in every
forest there is a snake, xxx.[4]
If Karens sad fate had happened to anybodys own kin, it would be difficult
for him to fathom how the incentive for foreign currency deposit could be more
important than his childs right to said award of damages; in this case, the victims
claim for damages from this alien who had the gall to wrong a child of tender
years of a country where he is mere visitor. This further illustrates the flaw in the
questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time
when the countrys economy was in a shambles; when foreign investments were
minimal and presumably, this was the reason why said statute was enacted. But
the realities of the present times show that the country has recovered
economically; and even if not, the questioned law still denies those entitled to due
process of law for being unreasonable and oppressive. The intention of the
questioned law may be good when enacted. The law failed to anticipate the

inquitous effects producing outright injustice and inequality such as as the case
before us.
It has thus been said thatBut I also know,[5] that laws and institutions must go hand in hand with
the progress of the human mind. As that becomes more developed, more
enlightened, as new discoveries are made, new truths are disclosed and
manners and opinions change with the change of circumstances,
institutions must advance also, and keep pace with the times We might
as well require a man to wear still the coat which fitted him when a boy,
as civilized society to remain ever under the regimen of their barbarous
ancestors.
In his comment, the Solicitor General correctly opined, thus:
"The present petition has far-reaching implications on the right of a
national to obtain redress for a wrong committed by an alien who takes
refuge under a law and regulation promulgated for a purpose which
does not contemplate the application thereof envisaged by the
allien. More specifically, the petition raises the question whether the
protection against attachment, garnishment or other court process
accorded to foreign currency deposits PD No. 1246 and CB Circular
No. 960 applies when the deposit does not come from a lender or
investor but from a mere transient who is not expected to maintain the
deposit in the bank for long.
The resolution of this question is important for the protection of
nationals who are victimized in the forum by foreigners who are merely
passing through.
xxx
xxx Respondents China Banking Corporation and Central Bank of the
Philippines refused to honor the writ of execution issued in Civil Case
No. 89-3214 on the strength of the following provision of Central Bank
Circular No. 960:
Sec. 113 Exemption from attachment. Foreign currency
deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act
No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the
Central Bank shall promulgate such rules and regulations as
may be necessary to carry out the provisions of this Act
which shall take effect after the publication of such rules
and regulations in the Official Gazette and in a newspaper
of national circulation for at least once a week for three

consecutive weeks. In case the Central Bank promulgates
new rules and regulations decreasing the rights of
depositors, the rules and regulations at the time the deposit
was made shall govern.
The aforecited Section 113 was copied from Section 8 of Republic Act
No. 6426. As amended by P.D. 1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. -- All
foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall
such foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or
office whether judicial or administrative or legislative or
any other entity whether public or private: Provided,
however, that said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency
or any administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment,
garnishment and other court process to foreign currency deposits is
stated in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by
Presidential Decree No. 1035, certain Philippine banking
institutions and branches of foreign banks are authorized to
accept deposits in foreign currency;
WHEREAS, under provisions of Presidential Decree No.
1034 authorizing the establishment of an offshore banking
system in the Philippines, offshore banking units are also
authorized to receive foreign currency deposits in certain
cases;
WHEREAS, in order to assure the development and
speedy growth of the Foreign Currency Deposit System and
the Offshore Banking System in the Philippines, certain
incentives were provided for under the two Systems such as
confidentiality subject to certain exceptions and tax
exemptions on the interest income of depositors who are
nonresidents and are not engaged in trade or business in the
Philippines;
WHEREAS, making absolute the protective cloak of
confidentiality over such foreign currency deposits,

exempting such deposits from tax, and guaranteeing the
vested right of depositors would better encourage the
inflow of foreign currency deposits into the banking
institutions authorized to accept such deposits in the
Philippines thereby placing such institutions more in a
position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to
the economic development of the country;
Thus, one of the principal purposes of the protection accorded to foreign
currency deposits is to assure the development and speedy growth of the
Foreign Currency Deposit system and the Offshore Banking in the
Philippines (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn,
the purposes of PD No. 1034 are as follows:
transactions and participate in the grant of foreign currency

loans to resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency
lending authority of the said depository banks under RA
6426 and apply to their transactions the same taxes as
would be applicable to transaction of the proposed offshore
banking units;
It is evident from the above [Whereas clauses] that the Offshore
Banking System and the Foreign Currency Deposit System were
designed to draw deposits from foreign lenders and investors (Vide
second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is
these depositors that are induced by the two laws and given protection
and incentives by them.
WHEREAS, conditions conducive to the establishment of

an offshore banking system, such as political stability, a
growing economy and adequate communication facilities,
among others, exist in the Philippines;
Obviously, the foreign currency deposit made by a transient or a tourist

is not the kind of deposit encourage by PD Nos. 1034 and 1035 and
given incentives and protection by said laws because such depositor
stays only for a few days in the country and, therefore, will maintain his
deposit in the bank only for a short time.
WHEREAS, it is in the interest of developing countries to

have as wide access as possible to the sources of capital
funds for economic development;
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He

deposited his dollars with respondent China Banking Corporation only
for safekeeping during his temporary stay in the Philippines.
WHEREAS, an offshore banking system based in the

Philippines will be advantageous and beneficial to the
country by increasing our links with foreign lenders,
facilitating the flow of desired investments into the
Philippines, creating employment opportunities and
expertise in international finance, and contributing to the
national development effort.
For the reasons stated above, the Solicitor General thus submits that the
dollar deposit of respondent Greg Bartelli is not entitled to the
protection of Section 113 of Central Bank Circular No. 960 and PD No.
1246 against attachment, garnishment or other court processes. [6]
WHEREAS, the geographical location, physical and human

resources, and other positive factors provide the Philippines
with the clear potential to develop as another financial
center in Asia;
On the other hand, the Foreign Currency Deposit system was created by
PD No. 1035. Its purpose are as follows:
WHEREAS, the establishment of an offshore banking
system in the Philippines has been authorized under a
separate decree;
WHEREAS, a number of local commercial banks, as
depository bank under the Foreign Currency Deposit Act
(RA No. 6426), have the resources and managerial
competence to more actively engage in foreign exchange
In fine, the application of the law depends on the extent of its

justice. Eventually, if we rule that the questioned Section 113 of Central Bank
Circular No. 960 which exempts from attachment, garnishment, or any other order
or process of any court. Legislative body, government agency or any
administrative body whatsoever, is applicable to a foreign transient, injustice
would result especially to a citizen aggrieved by a foreign guest like accused Greg
Bartelli. This would negate Article 10 of the New Civil Code which provides that
in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. Ninguno non deue
enriquecerse tortizerzmente con damo de otro.Simply stated, when the statute is
silent or ambiguous, this is one of those fundamental solutions that would respond
to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377)
It would be unthinkable, that the questioned Section 113 of Central Bank
No. 960 would be used as a device by accused Greg Bartelli for wrongdoing, and
in so doing, acquitting the guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar
against Peso? Upholding the final and executory judgment of the lower court
against the Central Bank Circular protecting the foreign depositor? Shielding or

protecting the dollar deposit of a transient alien depositor against injustice to a
national and victim of a crime? This situation calls for fairness legal tyranny.
We definitely cannot have both ways and rest in the belief that we have
served the ends of justice.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No.
960 and PD No. 1246, insofar as it amends Section 8 of R.A. 6426 are hereby held
to be INAPPLICABLE
to this case because
of its peculiar
circumstances. Respondents are hereby REQUIRED to COMPLY with the writ of
execution issued in Civil Case No. 89-3214, Karen Salvacion, et al. vs. Greg
Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to
petitioners the dollar deposit of respondent Greg Bartelli y Northcott in such
amount as would satisfy the judgment.
government agency or any administrative body, whatsoever. Central Bank of the

Philippines affirmed the defense of CBC.
ISSUE:
Whether or not Sec. 113 of Central Bank Circular 960 and Sec. 8 of RA 6426
amended by PD 1246 otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient.
HELD:
NO. The provisions of Section 113 of CB Circular No. 960 and PD No. 1246,
insofar as it amends Section 8 of R.A. No. 6426 are hereby held to be
SO ORDERED.
INAPPLICABLE to this case because of its peculiar circumstances.

KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and
Natural Guardian, and Spouses FEDERICO N. SALVACION, JR., and
EVELINA
E.
SALVACION, petitioners,
vs.
CENTRAL
RATIO:
[T]he application of the law depends on the extent of its justice. Eventually, if we
rule that the questioned Section 113 of Central Bank Circular No. 960 which
BANK
OF
THE
PHILIPPINES,
CHINA
BANKING
CORPORATION and GREG BARTELLI y NORTHCOTT,respondents.

Ponente: TORRES, JR.
FACTS:
Respondent Greg Bartelli y Northcott, an American tourist, coaxed and lured the
12-year old petitioner Karen Salvacion to go with him in his apartment where the
former repeatedly raped latter. After the rescue, policemen recovered dollar and
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is
applicable to a foreign transient, injustice would result especially to a citizen
aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article
10 of the New Civil Code which provides that in case of doubt in the
interpretation or application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.
peso checks including a foreign currency deposit from China Banking

Corporation (CBC). Writ of preliminary attachment and hold departure order were
issued. Notice of Garnishment was served by the Deputy Sheriff to CBC which
later invoked R.A. No. 1405 as its answer to it. Deputy Sheriff sent his reply to
CBC saying that the garnishment did not violate the secrecy of bank deposits
since the disclosure is merely incidental to a garnishment properly and legally
made by virtue of a court order which has placed the subject deposits in custodia
legis. CBC replied and invoked Section 113 of Central Bank Circular No. 960 to
the effect that the dollar deposits of Greg Bartelli are exempt from attachment,
garnishment, or any other order or process of any court, legislative body,
Ninguno non deue enriquecerse tortizeramente con dano de otro. Simply

stated, when the statute is silent or ambiguous, this is one of those fundamental
solutions that would respond to the vehement urge of conscience. It would be
unthinkable, that the questioned Section 113 of Central Bank No. 960 would be
used as a device by accused Greg Bartelli for wrongdoing, and in so doing,
acquitting the guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against
Peso? Upholding the final and executory judgment of the lower court against the
Central Bank Circular protecting the foreign depositor? Shielding or protecting

the dollar deposit of a transient alien depositor against injustice to a national and
victim of a crime? This situation calls for fairness against legal tyranny.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 154200
July 24, 2007
NATIONAL ELECTRIFICATION ADMINISTRATION and its BOARD

OF ADMINISTRATORS, Petitioners,
vs.
DANILO MORALES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J>:
The sole issue for resolution in the Petition for Review on Certiorari1 before us is
whether the Court of Appeals (CA) committed an error of law in its July 4, 2002
Decision2 in CA-G.R. SP No. 62919 in ordering the implementation of a writ of
execution against the funds of the National Electrification Administration (NEA).
There being no dispute as to the facts,3 the following findings of the CA are
adopted:4
Danilo Morales and 105 other employees5 (Morales, et al.) of the NEA filed with
the Regional Trial Court (RTC), Branch 88, Quezon City, a class suit6 against
their employer for payment of rice allowance, meal allowance,
medical/dental/optical allowance, childrens allowance and longevity pay
purportedly authorized under Republic Act (R.A.) No. 6758. 7 In its December 16,
1999 Decision,8 the RTC ordered NEA, thus:
WHEREFORE, foregoing considered, the petition is hereby GRANTED directing
the respondent NEA, its Board of Administrators to forthwith settle the claims of
the petitioners and other employees similarly situated and extend to them the
benefits and allowances to which they are entitled but which until now they have
been deprived of as enumerated under Section 5 of DBM CCC No. 10 and their
inclusion in the Provident Funds Membership, retroactive from the date of their
appointments up to the present or until their separation from the service.
No costs.
SO ORDERED.9
Upon motion of Morales, et al., the RTC issued a Writ of Execution dated
February 22, 2000,10 which reads:
NOW, THEREFORE, you are hereby directed to cause respondents National
Electrification Administration (NEA) and its Board of Administrators with
principal office address at 1050 CDC Bldg., Quezon Avenue, Quezon City to
forthwith settle the claims of the petitioners and other employees similarly
situated and extend to them the benefits and allowances to which they are entitled
but which until now they have been deprived of as enumerated under Sec. 5 of
DBM CCC No. 10 and you are further directed to cause their inclusion in the
Provident Fund Membership, retroactive from the date of their appointments up to
the present or until their separation from the service. 11
Thereafter, a Notice of Garnishment12 was issued against the funds of NEA with
Development Bank of the Philippines (DBP) to the extent of P16,581,429.00.
NEA filed a Motion to Quash Writs of Execution/Garnishment, 13 claiming that the
garnished public funds are exempt from execution under Section 4 14 of
Presidential Decree (P.D.) No. 1445,15 but manifesting that it is willing to pay the
claims of Morales, et al.,16 only that it has no funds to cover the same, although it
already requested the Department of Budget and Management (DBM) for a
supplemental budget.17
In its Order of May 17, 2000, the RTC denied the Motion to Quash but, at the
same time, held in abeyance the implementation of the Writ of Execution, thus:
WHEREFORE, the motion to quash writs of execution/ garnishment is DENIED
but the implementation of the judgment is placed on hold for ninety (90) days
reckoned from this day. The respondents are directed to formally inform this
Court and the petitioners of the prospect of obtaining funds from Department of
Budget and Management within 30 days from receipt and every 30 days
thereafter, until the 90 day period has lapsed.
The motion to direct DBP to release to the petitioners the NEA funds garnished
earlier amounting to P16,591.429 is also DENIED.
SO ORDERED.18 (Emphasis ours)
Morales, et al. filed a Partial Motion for Reconsideration19 but the RTC denied
it.20
Meanwhile, in a letter dated June 28, 2000, former DBM Secretary Benjamin E.
Diokno informed NEA Administrator Conrado M. Estrella III of the denial of the
NEA request for a supplemental budget on the ground that the claims under R.A.

No. 6758 which the RTC had ordered to be settled cannot be paid because
Morales, et al. are not "incumbents of positions as of July 1, 1989 who are
actually receiving and enjoying such benefits."21
Moreover, in an Indorsement dated March 23, 2000, the Commission on Audit
(COA) advised NEA against making further payments in settlement of the claims
of Morales, et al.. Apparently, COA had already passed upon claims similar to
those of Morales, et al. in its earlier "Decision No. 95-074" dated January 25,
1995. Portions of the Indorsement read as follows:
This Office concurs with the above view. The court may have exceeded its
jurisdiction when it entertained the petition for the entitlement of the after-hired
employees which had already been passed upon by this Commission in COA
Decision No. 95-074 dated January 25, 1995. There, it was held that: "the
adverse action of this Commission sustaining the disallowance made by the
Auditor, NEA, on the payment of fringe benefits granted to NEA
employees hired from July 1, 1989 to October 31, 1989 is hereby reconsidered.
Accordingly, subject disallowance is lifted."
Thus, employees hired after the extended date of October 31, 1989, pursuant to
the above COA decision cannot defy that decision by filing a petition for
mandamus in the lower court. Presidential Decree No. 1445 and the 1987
Constitution prescribe that the only mode for appeal from decisions of this
Commission is on certiorari to the Supreme Court in the manner provided by
law and the Rules of Court. Clearly, the lower court had no jurisdiction when it
entertained the subject case of mandamus. And void decisions of the lower court
can never attain finality, much less be executed. Moreover, COA was not made
a party thereto, hence, it cannot be compelled to allow the payment of claims on
the basis of the questioned decision.
On July 18, 2000, Morales, et al. filed a Motion for an Order to Implement Writ
of Execution, pointing out that the reason cited in the May 17, 2000 RTC Order
for suspension of the implementation of the writ of execution no longer exists
given that DBM already denied NEAs request for funding.24 They also filed a
Petition to Cite NEA Board of Administrators Mario Tiaoqui, Victoria
Batungbacal, Federico Puno and Remedios Macalingcag in Contempt of
Court25 for allegedly withholding appropriations to cover their claims.
Acting first on the petition for contempt, the RTC issued a Resolution dated
December 11, 2000, to wit:
The court is aware of its order dated May 17, 2000, particularly the directive upon
respondents to inform this court and the petitioners of the prospect of obtaining
funds from the Department of Budget and Management within the period
specified. From the comments of the respondents, it appears they did or are
doing their best to secure the needed funds to satisfy the judgment sought to be
enforced. In this regard, Administrative Circular No. 10-2000 of the Supreme
Court provides:
"In order to prevent possible circumvention of the rules and procedures of the
Commission on Audit, judges are hereby enjoined to observe utmost caution,
prudence and judiciousness in the issuance of writs of execution to satisfy money
judgments against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San
Diego (31 SCRA 617, 625 [1970], this Court explicitly stated:
PREMISES CONSIDERED, the auditor of NEA should post-audit the

disbursement vouchers on the bases of this Commission's decision particularly the
above-cited COA Decision No. 94-074 [sic] and existing rules and regulations, as
if there is no decision of the court in the subject special civil action for mandamus.
At the same time, management should be informed of the intention of this Office
to question the validity of the court decision before the Supreme Court through
the Office of the Solicitor General.22 (Emphasis ours)
"The universal rule that where the State gives its consent to be sued by private
parties either by general or special law, it may limit claimant's action only up to
the completion of proceedings anterior to the stage of execution and the power of
the court ends when the judgment is rendered, since government funds and
properties may not be seized under writs of execution or garnishment to satisfy
such judgment, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding
appropriation as required by law. The functions and public services rendered by
the State cannot be allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects as appropriated by law."
Parenthetically, the records at hand do not indicate when Morales, et al. were
appointed. Even the December 16, 1999 RTC Decision is vague for it merely
states that they were appointed after June 30, 1989, which could mean that they
were appointed either before the cut-off date of October 31, 1989 or after.23 Thus,
there is not enough basis for this Court to determine that the foregoing COA
Decision No. 95-074 adversely affects Morales, et al..Moreover, the records do
not show whether COA actually questioned the December 16, 1999 RTC Decision
before this Court.
Moreover, it is settled jurisprudence that upon determination of State liability, the

prosecution, enforcement or satisfaction thereof must still be pursued in
accordance with the rules and procedures laid down in P.D. No. 1445, otherwise
known as the Government Auditing Code of the Philippines (Department of
Agriculture v. NLRC, 227 SCRA 693, 701-02 [1993] citing Republic v. Villasor,
54 SCRA 84 [1973]). All money claims against the Government must "first be
filed with the Commission on Audit which must act upon it within sixty days.
Rejection of the claim will authorize the claimant to elevate the matter to the

Supreme Court on certiorari and in effect sue the State thereby (P.D. 1445,
Sections 49-50)."
judgment requiring petitioners to settle the claims of respondents in accordance

with existing regulations of the COA.
WHEREFORE, foregoing considered, petition to cite respondents in contempt of

court is premature, hence the same is hereby DENIED.
In its plain text, the December 16, 1999 RTC Decision merely directs petitioners
to "settle the claims of [respondents] and other employees similarly situated."34 It
does not require petitioners to pay a certain sum of money to respondents. The
judgment is only for the performance of an act other than the payment of money,
implementation of which is governed by Section 11, Rule 39 of the Rules of
Court, which provides:
SO ORDERED.26 (Emphasis ours)

Subsequently, the RTC issued an Order dated January 8, 2001, denying the
Motion for an Order to Implement Writ of Execution, citing the same SC
Administrative Circular No. 10-2000.
Upon a Petition for Certiorari27 filed by Morales, et al., the CA rendered the July
4, 2002 Decision assailed herein, the decretal portion of which reads:
WHEREFORE, the petition is hereby GRANTED. The Order dated January 8,
2001 and the Resolution of December 11, 2000 of the public respondent Judge are
declared NULL and VOID.
Section 11. Execution of special judgments. - When a judgment requires the

performance of any act other than those mentioned in the two preceding sections,
a certified copy of the judgment shall be attached to the writ of execution and
shall be served by the officer upon the party against whom the same is rendered,
or upon any other person required thereby, or by law, to obey the same, and such
party or person may be punished for contempt if he disobeys such judgment.
Garnishment cannot be employed to implement such form of judgment. Under
Section 9 of Rule 39, to wit:
Accordingly, the respondent judge is directed to implement the Writ of Execution

relative thereto.
Section 9. Execution of judgments for money, how enforced. -
SO ORDERED..28
xxxx
The CA held that NEA can no longer take shelter under the provisions of P.D. No.
1445 and SC Administrative Circular No. 10-2000 because it is a governmentowned or controlled corporation (GOCC) created under P.D. No. 269, effective
August 6, 1973.29 Citing Philippine National Bank v. Court of Industrial
Relations,30 the CA held that, as such GOCC, petitioner NEA may be subjected to
court processes just like any other corporation; specifically, its properties may be
proceeded against by way of garnishment or levy.31
NEA and its Board of Directors (petitioners) immediately filed herein petition for
review. It is their contention that the CA erred in directing implementation of the
writ of execution on two grounds: first, execution is premature as Morales, et al.
(respondents) have yet to file their judgment claim with the COA in accordance
with P.D. No. 1445 and SC Administrative Circular No. 10-2000;32 and second,
execution is not feasible without DBM as an indispensable party to the petition
for certiorari for it is said department which can certify that funds are available to
cover the judgment claim.33
The petition is meritorious.
Indeed, respondents cannot proceed against the funds of petitioners because the
December 16, 1999 RTC Decision sought to be satisfied is not a judgment for a
specific sum of money susceptible of execution by garnishment; it is a special
(c) Garnishment of debts and credits. - The officer may levy on debts due the
judgment obligor and other credits, including bank deposits, financial interests,
royalties, commissions and other personal property not capable of manual delivery
in the possession or control of third parties. Levy shall be made by serving notice
upon the person owing such debts or having in his possession or control such
credits to which the judgment obligor is entitled. The garnishment shall cover
only such amount as will satisfy the judgment and all lawful fees.
Garnishment is proper only when the judgment to be enforced is one for payment
of a sum of money.
The RTC exceeded the scope of its judgment when, in its February 22, 2000 Writ
of Execution, it directed petitioners to "extend to [respondents] the benefits and
allowances to which they are entitled but which until now they have been
deprived of as enumerated under Sec. 5 of DBM CCC No. 10 and x x x to cause
their inclusion in the Provident Fund Membership." 35 Worse, it countenanced the
issuance of a notice of garnishment against the funds of petitioners with DBP to
the extent of P16,581,429.00 even when no such amount was awarded in its
December 16, 1999 Decision.

However, in its subsequent Orders dated May 17, 2000 and January 8, 2001, the
RTC attempted to set matters right by directing the parties to now await the
outcome of the legal processes for the settlement of respondents claims.
That is only right.
Without question, petitioner NEA is a GOCC36 -- a juridical personality separate
and distinct from the government, with capacity to sue and be sued.37 As such
GOCC, petitioner NEA cannot evade execution; its funds may be garnished or
levied upon in satisfaction of a judgment rendered against it. 38 However, before
execution may proceed against it, a claim for payment of the judgment award
must first be filed with the COA.39
Under Commonwealth Act No. 327,40 as amended by Section 26 of P.D. No.
1445, it is the COA which has primary jurisdiction to examine, audit and settle
"all debts and claims of any sort" due from or owing the Government or any of its
subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries.41 With respect to money claims
arising from the implementation of R.A. No. 6758, their allowance or
disallowance is for COA to decide, subject only to the remedy of appeal by
petition forcertiorari to this Court.42
All told, the RTC acted prudently in halting implementation of the writ of
execution to allow the parties recourse to the processes of the COA. It may be that
the tenor of the March 23, 2000 Indorsement issued by COA already spells doom
for respondents claims; but it is not for this Court to preempt the action of the
COA on the post-audit to be conducted by it per its Indorsement dated March 23,
2000.1avvphi1
In fine, it was grave error for the CA to reverse the RTC and direct immediate
implementation of the writ of execution through garnishment of the funds of
petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the
Court of Appeals is REVERSED andSET ASIDE. The Resolution dated
December 11, 2000 and Order dated January 8, 2001 of the Regional Trial Court,
Branch 88, Quezon City in Special Civil Action No. Q-99-38275
are REINSTATED.
SO ORDERED.

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BANKING FULL CASES JULY 7, 2015

GR 880313 simex intl vs ca

1. Check No. 215391 dated May 29, 1981, in favor of California

G.R. No. 88013 March 19, 1990

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

7. Check No. 215412 dated June 10, 1981, in favor of Baguio

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

[G.R. No. 118492. August 15, 2001]

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

THE HONORABLE COURT OF APPEALS ERRED IN FINDING

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

Republic of the Philippines

January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner,

Director & Vice-President

Director & Secretary-Treasurer

Director & Auditor

Director & Legal Counsel

Vito Tanjutco Jr.

Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant

Rosendo T. Resuello President & Chairman of the Board

1. Performing banking functions, without requisite certificate of authority

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as

BANKING FULL CASES JULY 7, 2015

Moreover, it has been held that:

... any person engaged in the business carried on by banks of deposit, of

Accordingly, defendant corporation has violated the law by engaging in

deemed suitable therefore. It is clear that these transactions partake of the

BANKING FULL CASES JULY 7, 2015

corporation deemed suitable therefore. It is clear that these transactions partake of

Acceptance Corporation established 74 branches in principal cities and towns

throughout the Philippines; that through a systematic and vigorous campaign

securing the administrative authority required in Republic Act No. 337.

the dissolution of the corporation, with a prayer that, meanwhile, a writ of

preliminary injunction be issued ex parte, enjoining the corporation and its

public, owing to the number of persons affected thereby.

operations complained of, and that a receiver be appointed pendente lite.

Republic of the Philippines

Whether or not defendant corporation was engaged in banking

G.R. No. L-20119

June 30, 1967

CENTRAL BANK OF THE PHILIPPINES, petitioner,

An investment company which loans out the money of its customers,

This is an original action for certiorari, prohibition and injunction, with

BANKING FULL CASES JULY 7, 2015

BANKING FULL CASES JULY 7, 2015

(1) Application for Membership

(3) Prospectus, Brochures Etc.

(2) Signature Card

(3) Deposit Slip

(8) Credit Report

(14) Real Estate Mortgage Contracts

(2) Balance Sheet or Statement of Assets and Liabilities

BANKING FULL CASES JULY 7, 2015