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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46208

April 5, 1990

FIDELITY SAVINGS AND MORTGAGE BANK, petitioner,


vs.
HON. PEDRO D. CENZON, in his capacity as Presiding Judge of the Court of First Instance of Manila (Branch XL) and SPOUSES TIMOTEO
AND OLIMPIA SANTIAGO, respondents.
Agapito S. Fajardo and Marino E. Eslao for petitioner.
Leovillo C. Agustin Law Offices for private respondents.

REGALADO, J.:
The instant petition seeks the review, on pure questions of law, of the decision rendered by the Court of First Instance of Manila (now Regional Trial
Court), Branch XL, on December 3, 1976 in Civil Case No. 84800,1ordering herein petitioner to pay private respondents the following amounts:
(a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid;
(b) P30,000,00 as exemplary damages; and
(c) P10,000.00 as and for attorney's fees.
The payment by the defendant Fidelity Savings and Mortgage Bank of the aforementioned sums of money shall be subject to the Bank Liquidation Rules
and Regulations embodied in the Order of the Court of First Instance of Manila, Branch XIII, dated October 3, 1972, Civil Case No. 86005, entitled, "IN
RE: Liquidation of the Fidelity Savings Bank versus Central Bank of the Philippines, Liquidator."
With costs against the defendant Fidelity Savings and Mortgage Bank.
SO ORDERED.
Private respondents instituted this present action for a sum of money with damages against Fidelity Savings and Mortgage Bank, Central Bank of the
Philippines, Eusebio Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr., Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and
Ernani A. Pacana. On motion of herein private respondents, as plaintiffs, the amended complaint was dismissed without prejudice against defendants
Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. 2 In its aforesaid decision of December 3, 1976, the court a quo dismissed the
complaint as against defendants Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna.
Back on August 10, 1973, the plaintiffs (herein private respondents) and the defendants Fidelity Savings and Mortgage Bank (petitioner herein), Central
Bank of the Philippines and Bibiana E. Lacuna had filed in said case in the lower court a partial stipulation of facts, as follows:
COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and OLIMPIA R. SANTIAGO, herein defendants FIDELITY SAVINGS AND
MORTGAGE BANK and the CENTRAL BANK OF THE PHILIPPINES, and herein defendant BIBIANA E. LACUNA, through their respective
undersigned counsel, and before this Honorable Court most respectfully submit the following Partial Stipulation of Facts:
1. That herein plaintiffs are husband and wife, both of legal age, and presently residing at No. 480 C. de la Paz Street, Sta. Elena, Marikina,
Rizal;
2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation duly organized and existing under and by virtue of the laws of
the Philippines; that defendant Central Bank of the Philippines is a corporation duly organized and existing under and by virtue of the laws of
the Philippines;
3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of No. 42 East Lawin Street, Philamlife Homes, Quezon City, said
defendant was an assistant Vice-President of the defendant fidelity Savings and Mortgage Bank,
4. That sometime on May 16, 1968, here in plaintiffs deposited with the defendant Fidelity Savings Bank the amount of FIFTY THOUSAND
PESOS (P50,000.00) under Savings Account No. 16-0536; that likewise, sometime on July 6, 1968, herein plaintiff,- deposited with the
defendant Fidelity Savings and Mortgage Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No.

0210; that the aggregate amount of deposits of the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE HUNDRED
THOUSAND PESOS (P100,000.00);
5. That on February 18, 1969, the Monetary Board, after finding the report of the Superintendent of Banks, that the condition of the defendant
Fidelity Savings and Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350 deciding, among others, as follows:
1) To forbid the Fidelity Savings Bank to do business in the Philippines;
2) To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary Board, of the Bank's assets
6. That pursuant to the above-cited instructions of the Monetary Board, the Superintendent of Banks took charge in the name of the Monetary
Board, of the assets of defendant Fidelity Savings Bank on February 19, 1969; and that since that date up to this date, the Superintendent of
Banks (now designated as Director, Department of Commercial and Savings Banks) has been taking charge of the assets of defendant
Fidelity Savings and Mortgage Bank;
7. That sometime on October 10, 1969 the Philippine Deposit Insurance Corporation paid the plaintiffs the amount of TEN THOUSAND
PESOS (P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a deposit balance of
P90,000.00;
8. That on December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of the affairs of defendant Fidelity
Savings Bank;
9. That on January 25, 1972, the Solicitor General of the Philippines filed a "Petition for Assistance and Supervision in Liquidation" of the
affairs of the defendant Fidelity Savings and Mortgage Bank with the Court of First Instance of Manila, assigned to Branch XIII and docketed
as Civil Case No. 86005;
10. That on October 3, 1972, the Liquidation Court promulgated the Bank Rules and Regulations to govern the liquidation of the affairs of
defendant Fidelity Savings and Mortgage Bank, prescribing the rules on the conversion of the Bank's assets into money, processing of claims
against it and the manner and time of distributing the proceeds from the assets of the Bank;
11. That the liquidation proceedings has not been terminated and is still pending up to the present;
12. That herein plaintiffs, through their counsel, sent demand letters to herein defendants, demanding the immediate payment of the
aforementioned savings and time deposits.
WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of Facts be approved by this Honorable Court, without prejudice to
the presentation of additional documentary or testimonial evidence by herein parties.
Manila, Philippines, August 10, 1973. 3
Assigning error in the judgment of the lower court quoted ab antecedents, petitioner raises two questions of law, to wit:
1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay interest on unpaid deposits even after its
closure by the Central Bank by reason of insolvency without violating the provisions of the Civil Code on preference of credits; and
2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay moral and exemplary damages, attorney's
fees and costs when the insolvency is caused b the anomalous real estate transactions without violating the provisions of the Civil Code on preference
of credits.
There is merit in the petition.
It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the Central Bank of the
Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational.
In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we held that:
It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited
with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend
money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking
and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated
interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are
aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the
obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank.
This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon. Court of Appeals and Julian R. Cordero. 5 and in the recent
cases of Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila vs. Court of appeals, et al. 6

From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits which accrued from the time it was
prohibited by the Central Bank to continue with its banking operations, that is, when Resolution No. 350 to that effect was issued on February 18, 1969.
The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors to earn interest up to the
date of its closure on February 18, 1969, 7 in line with the doctrine laid down in the jurisprudence above cited.
Although petitioner's formulation of the second issue that it poses is slightly inaccurate and defective, we likewise find the awards of moral and
exemplary damages and attorney's fees to be erroneous.
The trial court found, and it is not disputed, that there was no fraud or bad faith on the part of petitioner bank and the other defendants in accepting the
deposits of private respondents. Petitioner bank could not even be faulted in not immediately returning the amount claimed by private respondents
considering that the demand to pay was made and Civil Case No. 84800 was filed in the trial court several months after the Central Bank had ordered
petitioner's closure. By that time, petitioner bank was no longer in a position to comply with its obligations to its creditors, including herein private
respondents. Even the trial court had to admit that petitioner bank failed to pay private respondents because it was already insolvent. 8 Further, this case
is not one of the specified or analogous cases wherein moral damages may be recovered. 9
There is no valid basis for the award of exemplary damages which is supposed to serve as a warning to other banks from dissipating their assets in
anomalous transactions. It was not proven by private respondents, and neither was there a categorical finding made by the trial court, that petitioner
bank actually engaged in anomalous real estate transactions. The same were raised only during the testimony of the bank examiner of the Central
Bank, 10 but no documentary evidence was ever presented in support thereof. Hence, it was error for the lower court to impose exemplary damages
upon petitioner bank since, in contracts, such sanction requires that the offending party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. 11 Neither does this case present the situation where attorney's fees may be awarded. 12
In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore, not be held responsible for damages which may be
reasonably attributed to the non-performance of the obligation. 13Consequently, we reiterate that under the premises and pursuant to the aforementioned
provisions of law, it is apparent that private respondents are not justifiably entitled to the payment of moral and exemplary damages and attorney's fees.
While we tend to agree with petitioner bank that private respondents' claims should he been filed in the liquidation proceedings in Civil Case No. 86005,
entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank," pending before Branch XIII of the then Court of First Instance of Manila, we do
not believe that the decision rendered in the instant case would be violative of the legal provisions on preference and concurrence of credits. As the trial
court puts it:
. . . But this order of payment should not be understood as raising these deposits to the category of preferred credits of the defendant Fidelity
Savings and Mortgage Bank but shall be paid in accordance with the Bank Liquidation Rules and Regulations embodied in the Order of the.
Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh. 3). . . . 14
WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity Savings and Mortgage Bank is hereby declared liable to pay private
respondents Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued interest in accordance with the terms of Savings Account Deposit No.
16-0536 (Exhibit A) and Certificate of Time Deposit No. 0210 (Exhibit B) until February 18, 1969. The awards for moral and exemplary damages, and
attorney's fees are hereby DELETED. No costs.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
SPECIAL FORMER FIRST DIVISION
G.R. No. 73882 October 22, 1987
ROSA CANCIO, petitioner,
vs.
HON. COURT OF TAX APPEALS and HON. COMMISSIONER OF CUSTOMS, respondents.

MELENCIO-HERRERA, J.:
Before us is petitioner's Motion for Reconsideration of this Court's Resolution of August 11, 1986, which denied for lack of merit her Petition for Review
on certiorari of respondent Court of Tax Appeals' (CTA) Decision in C.T.A. Case No. 3398.
During the pendency of this case, or on April 23, 1986, petitioner had passed away and her legal heirs were ordered substituted in her stead and Jose
Cancio, Jr., was appointed guardian ad-litem for the minors Ma. Irene and Roberto, both surnamed Cancio, in this Court's Resolution of August 11, 1986.
There is no substantial dispute on the background facts and the evidentiary aspects Vol the controversy, summarized in said
Decision as follows:
The records show that claimant Mrs. Rosa Cancio bearing Philippine Passport No. 11797799 while clearing through the PreBoarding (AVSECOM) Area of MIA with her husband and three (3) children to board PR 306 for Hongkong in the morning of June
12, 1981, was apprehended with One Hundred Two Thousand Nine Hundred Dollars (US$102,900.00) in cash, six hundred dollars
(US$600.00) in two travelers checks, and one thousand five hundred (Pl,500.00) Pesos; that such apprehension was effected only
thru an alarm sounded by the scanner (metal detecting device) of the AVSECOM men, when Mrs. Cancio who did not declare her
currency had already passed the Customs inspection area; that subject currencies were placed and concealed inside the two fairlysized carton boxes for local chocolates, securely wrapped and taped with tin foil-back paper; and, that in view of claimant's failure,
upon being required, to present the Central Bank Authority, the said currencies were accordingly confiscated and a seizure Receipt
No. 013 was issued to her; hence, this seizure proceedings.
At the hearing of this case, claimant, thru counsel, presented certified xerox copy of her Bank Book (Exhibit "I") for foreign currency
deposit with the Philippine Commercial and Industrial Bank under Account FCDU No. 0265, dollar remittances in telegraphic
transfers from abroad for deposits in her account from May 13, 1981 to May 21, 1981, and withdrawal cards (Exhibit "l-A" to "1-E",
inclusive), attesting to the fact that claimant Rosa Cancio had withdrawn from her FCDU Account a certain amount of United States
currency which tended to show that claimant herein was a foreign currency depositor pursuant to the provisions of Republic Act No.
6426, as implemented by Central Bank Circular No. 343. And herein claimant testified that because her foreign currency deposit
could not be withdrawn at one time, she made her withdrawal on several occasions starting from May 14, 1981 up to May 27, 1981
when she closed her account preparatory to her departure which was scheduled in the morning of June 12, 1981 for Hongkong; that
from Hongkong, she and her family intended to proceed to the United States for medical treatment of her heart ailment as advised
by her two attending physicians from the UST Hospital; that the US currency that they were carrying and confiscated from them on
June 12, 1981 was intended principally for such medical purpose and for other miscellaneous and necessary expenses, and, that
the subject currencies were concealed and hidden by them inside the two chocolate boxes solely for security reasons. 1
By reason of the forfeiture decreed by respondent Commissioner of Customs of both the foreign and local currencies due to petitioner's failure to present
a Central Bank (CB) authority to bring said currencies out of the country, petitioner appealed to respondent Court of Tax Appeals. The latter Court
affirmed the forfeiture of the US$102,900.00 in cash, and US$600.00 in travellers' checks for having been in violation of Central Bank Circulars Nos. 265
and 534, in relation to Section 2530(f) of the Tariff and Customs Code, as amended. It reversed, however, the forfeiture of P1,500.00 on the ground that
since petitioner was travelling with her husband and three (3) children, the said amount did not exceed the P500.00 at that each traveller is allowed to
bring out of the country without a CB permit pursuant to paragraph 4 of CB Circular No. 383.
Petitioner's unimpugned evidence shows that she was a foreign currency depositor at the Philippine Commercial and Industrial Bank at Makati, Metro
Manila, and that the subject foreign currency was part of the total amount of US$116,000.00 she had withdrawn from said bank from May 14 to 27, 1981
for her travel and medical expenses in the United States via Hongkong. 2 Admitted, too, is the fact that petitioner failed to present to the apprehending
customs authorities a Central Bank authority to bring out of the country the said currencies while at the pre-boarding area of the Manila International
Airport on June 12, 1981 on her scheduled flight to Hongkong together with her husband and three children.

The primordial issue for resolution is whether or not respondent Court had committed reversible error in upholding the forfeiture of the foreign currencies
in question.
A second look at the facts and the equity of the case, the pertinent laws, and the CB Circulars involved constrains us to rule in the affirmative and,
accordingly, to grant reconsideration of our Resolution of August 11, 1986 denying review.
It is true that in so far as the exportation or taking out of foreign currency from the country is concerned, Central Bank Circular No. 265, issued on
November 20, 1968, particularly paragraph 3 thereof, mandates:
3. No person shall take out or export from the Philippines foreign currency or any other foreign exchange except as otherwise
authorized by the Central Bank.
Similarly, Central bank Circular No. 534, issued on July 19, 1976, reiterates and provides in Sec. 3 thereof as follows:
Sec. 3. Unless specifically authorized by the Central Bank or allowed under existing international agreements or Central Bank
regulations, no person shall take or transmit or attempt to take or transmit foreign exchange, in any form out of the Philippines only,
through other persons, through the mails, or through international carriers.
The provisions of this Section shall not apply to tourists and non-resident temporary visitors who are taking or sending out of the
Philippines their own foreign exchange brought in by them.
However, peculiar to the present controversy is the fact that, as stated previously, petitioner is a foreign currency depositor. Relevant and applicable to
her is the following provision of the "Foreign Currency Deposit Act of the Philip pines" (Republic Act No. 6426, as amended), which took effect upon its
approval on April 4,1972:
SEC. 5. Withdrawability and transferability of deposits. There shall be no restriction on the withdrawal by the depositor of his
deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank.11
(Emphasis Ours).
Under the foregoing provision, the transferability abroad of foreign currency deposits is unrestricted. Only one exception is provided for therein, which is,
any restriction " from the contract between the depositor and the bank." Neither is a Central Bank authority required for the transferability abroad of
foreign currency deposits.
Attention is called, however, to the implementing rules and regulations to said Republic Act 6426, as embodied in CB Circular No. 343 issued on April 24,
1972, which provides:
SEC. 11. Withdrawability and Liquidity of Deposits.
a. x x x x x x x x x
b. Subject only to the terms of the contract between the bank and the depositor, the latter shall have a general license to
withdraw his deposit, notwithstanding any change in policy or regulations.
xxx xxx xxx
(Emphaisis supplied)
Respondent Court has taken the position that the foregoing provision its the right of the depositor to that of withdrawal and withholds from him the right
of transferability abroad. That is not so. Circular-Letter, dated August 3, 1978, issued by the Central Bank reads in explicit terms:
TO: ALL BANKS AUTHORIZED TO ACCEPT FOREIGN CURRENCY DEPOSITS UNDER THE PROVISIONS OF RA 6426, AS AMENDED AND
PRESIDENTIAL DECREE NO. 1035.
Effective immediately, the banks authorized to accept foreign currency deposits under the provisions of RA 6426, as amended, and
PD 1035 and as implemented by Central Bank Circular 343 and 547, are hereby instructed to advise their foreign currency
depositors who are withdrawing funds for travel purposes to carry with them the certificate of withdrawal that the banks shall issue.
The travellers shall present the certifications to the Customs and Central Bank personnel at the MIA, if requested.
The banks shall issue a uniform certification, as follows:
___________________

Date
TO WHOM IT MAY CONCERN:
This certifies that ________________________whose signature appears below has withdrawn today, the amount of
____________in cash (US$ _______________) and Travellers Check (US$___________________________) against his/her
foreign currency account maintained with us.
The funds herein withdrawn are represented to be used in connection with the depositor's foreign travel scheduled on or about
____________________197_________.
___________________________
(Signature of Authorized
Official OverPrinted Name)
_______________________
(Signature of Depositor)
Please be guided accordingly.
(SGD.)
R.D.RUIZ
Director
It is a fact that petitioner could not present a certificate of withdrawal at the Manila International Airport when she was about to depart. As she had
explained, however, she was unaware of this requirement. And if she had wrapped her dollar currency inside a chocolate box it was for "security
reasons." Besides, as instructed in the Circular-Letter abovequoted, it is the authorized depository bank which should advise its depositors to carry with
them the certificate of withdrawal. At any rate, respondent Court has found that petitioner has presented in evidence her foreign currency bank
book 3 and her withdrawal cards. 4 These may be considered as substantial compliance for purposes of this case.
Indeed, given the underlying objective of the Foreign Currency Deposit Act, as amended, which is to attract and invite the deposit of foreign currencies
which are acceptable as part of the international reserve in duly authorized banks in order that they may be put into the stream of the banking system, it
would be to defeat the very purpose of the law to place undue restrictions on the transferability of such funds. The countervailing effect would be to
discourage prospective foreign currency depositors to the detriment of the banking system.
In fine, Central Bank Circulars Nos. 265 and 534 requiring prior Central Bank authority for the taking out of the country of foreign currency should not be
made to encompass foreign currency depositors whose rights are expressly defined and guaranteed in a special law, the Foreign Currency Deposit Act
(RA 6426, as amended). As a foreign currency depositor, therefore, petitioner cannot be adjudged to have violated the aforestated Central Bank
Circulars. It follows that neither is there room for the application of Section 2530(f) of the Tariff and Customs Code, as amended, which provides for the
forfeiture of any article and other objects, the exportation of which is effected or attempted contrary to law.
This is not to condone petitioner's failure to declare the foreign currency she was carrying out of the country but just to stress that the Foreign Currency
Deposit Act grants petitioner the right of transferability of her funds abroad except that she was not advised by her bank to secure, and consequently
was unable to present, the necessary certificate of withdrawal from said bank.
ACCORDINGLY, the Decision of respondent Court of Tax Appeals is hereby SET ASIDE in so far as it upheld the forfeiture by respondent Commissioner
of Customs of the sums of US$102,900.00 in cash, and US$600.00 in traveller's checks, which amounts should now be returned to petitioner's heirs, but
AFFIRMED in so far as it reversed the forfeiture by the same official of the sum of P1,500.00. No costs.
SO ORDERED.
Yap, Actg. C.J., Narvasa, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
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.

TORRES, JR., J.:


In our predisposition to discover the "original intent" of a statute, courts become the unfeeling pillars of the status quo. Ligle 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:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the Constitution, hence void; because its
provision 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
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 antecedent 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.
021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account China Banking Corp.,
US$/A#54105028-2; 4.) ID-122-30-8877; 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
Bartelli's petition for bail the latter escaped from jail.

On February 28, 1989, the court granted the fiscal's 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.
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 of
P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on February 28, 1989.
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 or 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. Osmena 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 country's 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 a 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 exparte, 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 attorney's 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 respondent 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 witnesses the minor Karen E. Salvacion, her father, Federico N. Salvacion, Jr., a
certain Joseph Aguilar and a certain Liberato Madulio, who gave the following testimony:
Karen took her first year high school in St. Mary's 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 Karen's
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 it's 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 defendant's house along Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's 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 Karen's 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 Johnson's 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 o'clock the following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a 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 the 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 the
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 a 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. 14-15)
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 no po kayo so akin. Tulungan n'yo 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 o'clock 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 for 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 because the
latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he 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
as 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 the early morning of the following day when they
reached the NBI. (TSN, Aug. 15, 1989, p. 22) The findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's 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 absent-minded 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 Bartelli's 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? Should
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 in 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 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; 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 or
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 foreign 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
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 of 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.
This Court has no original and exclusive jurisdiction over a petition for declaratory 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 undoubtedly 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 xxx 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 a 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, . . . . 4
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom how the incentive for foreign currency deposit could be
more important than his child's rights to said award of damages; in this case, the victim's claim for damages from this alien who had the gall to wrong a
child of tender years of a country where he is a 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 country's 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 iniquitous effects producing outright injustice and inequality
such as the case before us.
It has thus been said that
But 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 alien. More specifically, the petition raises the question whether the protection against attachment, garnishment or other court
process accorded to foreign currency deposits by 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 or tourist 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 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 the 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 of deposits 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 rights 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:
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;
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;
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.
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 purposes 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
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 deposits that are induced by the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged 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.
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.
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
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 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. (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 against 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. No. 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.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Francisco and Panganiban, JJ., concur.
Padilla, J., took no part.
Mendoza and Hermosisima, Jr., JJ., are on leave.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 189206

June 8, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,


vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK,
HANAREUM BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC., Respondents.
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing the quashal by the Regional Trial
Court (RTC) of Makati of a subpoena for the production of bank ledger. This case is incident to Civil Case No. 99-1853, which is the main case for
collection of sum of money with damages filed by Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank
of the Philippines, and Westmont Bank (now United Overseas Bank), collectively known as "the Banks" against Domsat Holdings, Inc. (Domsat) and the
Government Service Insurance System (GSIS). Said case stemmed from a Loan Agreement,2 whereby the Banks agreed to lend United States (U.S.)
$11 Million to Domsat for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the International Organization of Space
Communications (Intersputnik).3
The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the
Banks. We quote the terms of the Surety Bond in its entirety.4
Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE SYSTEM, as
Administrator of the GENERAL INSURANCE FUND, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with
principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held and firmly bound unto the OBLIGEES: LAND BANK OF THE
PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila:
TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul,
Korea; and FIRST MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN MILLION
DOLLARS ($11,000,000.00) for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators,
successors and assigns, jointly and severally, firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement with the aforementioned OBLIGEES
to fully and faithfully
Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2) year lease of a
Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered into by the parties.
This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above stated sum to secure the full and
faithful performance on his part of said contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements
stipulated in said contract/agreements, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.

WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.
DOMSAT HOLDINGS, INC.
Principal

GOVERNMENT SERVICE INSURANCE SYSTEM


General Insurance Fund

By:

By:

CAPT. RODRIGO A. SILVERIO


President

AMALIO A. MALLARI
Senior Vice-President
General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of
rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial
Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. 5 The Banks filed a complaint
before the RTC of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce the
following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records,
files, books, deeds, papers, notes and other data and materials relating to the account or transactions of DOMSAT Holdings, Inc. with or
through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT Holdings, Inc. with or through the
Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said
applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas Bank), any and all documents,
records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of Philippine Agila Satellite, Inc.
with or through the Westmont bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with or through the Westmont Bank
(now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in
his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records
or otherwise.6
The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by the banks on three grounds: 1) the subpoena is
unreasonable, oppressive and does not establish the relevance of the documents sought; 2) request for the documents will violate the Law on Secrecy
of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of the documents.8 Domsat also joined the banks motion to quash
through its Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We quote the pertinent
portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as amended. The law declares bank deposits
to be "absolutely confidential" except: x x x (6) In cases where the money deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The loan was secured by defendant
GSIS which was the surety. It is the contention of defendant GSIS that the proceeds of the loan was deviated to purposes other than to what the loan
was extended. The quashal of the subpoena would deny defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED.10
On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the banks.11 On 1 September 2003 however, the
trial court granted the second motion for reconsideration filed by the banks. The previous subpoenas issued were consequently quashed. 12 The trial
court invoked the ruling in Intengan v. Court of Appeals,13 where it was ruled that foreign currency deposits are absolutely confidential and may be
examined only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS was denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised the following arguments in support of
its petition:
I.
Respondent Judge acted with grave abuse of discretion when it favorably considered respondent banks (second) Motion for Reconsideration dated July
9, 2003 despite the fact that it did not contain a notice of hearing and was therefore a mere scrap of paper.

II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in ruling in his Orders dated September 1
and December 30, 2003 that the US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is covered by the secrecy of bank
deposit.
III.
Since both respondent banks and respondent Domsat have disclosed during the trial the US$11,000,000.00 deposit, it is no longer secret and
confidential, and petitioner GSIS right to inquire into what happened to such deposit can not be suppressed. 14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed the filing and acceptance of the
second motion for reconsideration. The appellate court also underscored the fact that GSIS did not raise the defect of lack of notice in its opposition to
the second motion for reconsideration. The appellate court held that failure to timely object to the admission of a defective motion is considered a waiver
of its right to do so.
The Court of Appeals declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank Secrecy Law. We quote the
pertinent portion of the Decision:
It is our considered opinion that Domsats deposit of $11,000,000.00 in Westmont Bank is covered by the Bank Secrecy Law, as such it cannot be
examined, inquired or looked into without the written consent of its owner. The ruling in Van Twest vs. Court of Appeals was rendered during the
effectivity of CB Circular No. 960, Series of 1983, under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign
currency deposit account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of Circular 960 has not been reenacted in the later Circulars. What is applicable now is the decision in Intengan vs. Court of Appeals where the Supreme Court has ruled that the under
R.A. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of
the depositor. Petitioner, therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has already been
superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking system of foreign exchange, including
proceeds of foreign borrowings. This requirement, however, can no longer be found in later circulars.
In its Reply to respondent banks comment, petitioner appears to have conceded that what is applicable in this case is CB Circular 1389. Obviously,
under CB 1389, proceeds of foreign borrowings are no longer required to be surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsats $11,000,000.00 loan from
respondent banks was intended to be paid to a foreign supplier Intersputnik and, therefore, should have been paid directly to Intersputnik and not
deposited into Westmont Bank. The fact that it was deposited to the local bank Westmont Bank, petitioner claims violates the circular and makes the
deposit lose its confidentiality status under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion quoted by
the petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign exchange. The above-said provision relied upon by
the petitioner does not in any manner prescribe the conditions before any foreign currency deposit can be entitled to the confidentiality provisions of R.A.
6426.15
Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is not the written consent
contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for cashiers or managers checks by Domsat
through Westmont Bank, as well as a copy of an Agreement and/or Contract and/or Memorandum between Domsat and/or Philippine Agila Satellite and
Intersputnik for the acquisition and/or lease of a Gorizon Satellite. The appellate court believed that the production of these documents does not involve
the examination of Domsats account since it will never be known how much money was deposited into it or withdrawn therefrom and how much remains
therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is hereby modified in that the quashal of
the subpoena for the production of Domsats bank ledger in Westmont Bank is upheld while respondent court is hereby ordered to issue subpoena
duces tecum ad testificandum directing the records custodian of Westmont Bank to bring to court the following documents:
a) applications for cashiers or managers checks by respondent Domsat through Westmont Bank from January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine Agila Satellite and Intersputnik
for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16

GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant petition ascribing grave abuse of
discretion on the part of the Court of Appeals in ruling that Domsats deposit with Westmont Bank cannot be examined and in finding that the banks
second motion for reconsideration in Civil Case No. 99-1853 is procedurally acceptable. 17
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision and Resolution of the Court of Appeals.
Petitioner availed of the improper remedy as the appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a
special civil action under Rule 65.18 Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary
course of law. That action is not a substitute for a lost appeal in general; it is not allowed when a party to a case fails to appeal a judgment to the proper
forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is grave abuse of discretion. Accordingly, when a party
adopts an improper remedy, his petition may be dismissed outright.20lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It anchored its argument on Republic Act No. 1405 or the
"Law on Secrecy of Bank Deposits," which allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the
litigation. GSIS asserts that the subject matter of the litigation is the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease
of a Russian satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS contends, is
contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues
that the whereabouts of the U.S. $11 Million is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should
be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11 Million will greatly prejudice and
burden the GSIS pension fund considering that a substantial portion of this fund is earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on the grounds that it is pro forma and
did not conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil Procedure. 21
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or permission to GSIS to examine its
bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat deposit is a foreign currency deposit,
thus covered by Republic Act No. 6426. Under said law, only the consent of the depositor shall serve as the exception for the disclosure of his/her
deposit.
The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals. They justify the issuance of the
subpoena as an interlocutory matter which may be reconsidered anytime and that the pro forma rule has no application to interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for the production of Domsats bank
ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an appeal from the other portions of the decision, particularly for the
production of applications for cashiers or managers checks by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract
and/or memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the latter
became final and executory.
GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426 to oppose it. The core issue is
which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981 and further amended by
Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government
of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by Presidential Decree No.
1246, provides:
Section 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 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. (As amended by PD No. 1035, and further amended by PD No. 1246,
prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed. These are under any of the
following instances: a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery
or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of
the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent

court.22 On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the
written permission of the depositor.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose
of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be
properly utilized by banks in authorized loans to assist in the economic development of the country.23 It covers all bank deposits in the Philippines and no
distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the other
hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.24 It is a special law designed especially for foreign
currency deposits in the Philippines. A general law does not nullify a specific or special law. Generalia specialibus non derogant. 25 Therefore, it is beyond
cavil that Republic Act No. 6426 applies in this case.
Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency deposits, such as U.S. dollar
deposits, the applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to competitor banks. Bank records,
including dollar deposits of petitioners, purporting to establish the deception practiced by the officers, were annexed to the complaint. Petitioners now
complained that Citibank violated Republic Act No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law
therefore is not Republic Act No. 1405 but Republic Act No. 6426.
The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where respondent accused his daughter of stealing his
dollar deposits with Citibank. The latter allegedly received the checks from Citibank and deposited them to her account in China Bank. The subject
checks were presented in evidence. A subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the
Citibank dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on
secrecy of foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written
permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, he has the right to inquire into the said deposits.
Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the
bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act. 27
The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was diverted to a
purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan
proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the
matter.
The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that the judge may, in the exercise of his
sound discretion, grant the second motion for reconsideration despite its being pro forma. The appellate court correctly relied on precedents where this
Court set aside technicality in favor of substantive justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect
of lack of notice in its opposition to the second motion of reconsideration, thus it can be considered a waiver of the defect.
WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009 Resolution of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.

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:
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:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00.

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 defendant-appellant.
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 wageearner 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.
Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

Republic of the Philippines


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.
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 damageaward of the 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.
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 plaintiffs-appellees 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 so-called "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
and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. . . .
The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not
discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for possible errors. 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).
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.
SO ORDERED. Narvasa, C.J., Cruz and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 112392

February 29, 2000

BANK OF THE PHILIPPINE ISLANDS, petitioner,


vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139,2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C.
Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187 3 which he maintained in
petitioner bank's Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in the
amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. 5 It appears that the check
belonged to a certain Henry who went to the office of private respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip,
with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private
respondent's presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and
Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo.6
On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private
respondent was a counterfeit check7 because it was "not of the type or style of checks issued by Continental Bank International."8 Consequently, Mr.
Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private
respondent's son, to inform his father that the check bounced.9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check.
In turn, private respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately
tried to contact Chan but the latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of
his son's promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the bank's lawyers for
appropriate action to protect the bank's interest.11 This was followed by a letter of the bank's lawyer dated April 8, 1985 demanding the return of the
$2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20, 198513 stating that he deposited the check "for clearing purposes" only to
accommodate Chan. He added:
Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23, 1984, or a total period of fifty
(50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to withdraw said
deposit subject to its clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its
proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient.1wphi1.nt

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost and maximum efforts to
collect from Mr. Henry Chan who is directly liable under the circumstances.
xxx

xxx

xxx

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioner's employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank
draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He claimed that petitioner had no one to
blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" . . . "if not altogether
due to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorney's fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan
was able to withdraw the amount of $2,500.00 even without private respondent's passbook. Thus, private respondent prayed that third party defendant
Chan be made to refund to him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party complaint, whenever it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by
signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that
private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party complaint should
be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private respondent liable
based on the check's face value alone. To so hold him liable "would render inutile the requirement of "clearance" from the drawee bank before the value
of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal from the latter's account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner committed "clears gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondent's passbook and, before the check was cleared and in crediting
the amount indicated therein in private respondent's account. It stressed that the mere deposit of a check in private respondent's account did not mean
that the check was already private respondent's property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of
a passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's contention that private respondent warranted the check's
genuineness by endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of presentation of a passbook
to ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank
from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,14 where this Court stated that a personal check is not legal tender
or money, and held that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this petition for review on certiorari, raising the following
issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that
the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to
contract.15 In People v. Maniego,16 this Court described the liabilities of an indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the instrument for the full
amount thereof against all parties liable thereon. Among the "parties liable thereon." Is an indorser of the instrument, i.e., "a person placing his
signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention
to be bound in some other capacity." Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, *
* (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any subsequent indorser who may be compelled to
pay it." Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value thereof, and for the purpose of lending his name to some other person." As such,
she is under the law "liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew *
* (her) to be only an accommodation party," although she has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and surety, the accommodation party being the surety.
It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.17 However, to hold
private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondent's son and the lapse of more than fifty (50) days
from date of deposit of the Continental Bank draft, without the same being returned yet." 18 We hold, however, that the propriety of the withdrawal should
be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may allow withdrawal by another
upon the depositor's written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation
of the depositor's savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the
withdrawal slip or by authenticated cable. Such request must indicate the name of the payee/s, amount and the place where the funds are to
be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by
him/her upon demand. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the manner above provided, upon presentation of the
depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. Private
respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee,
the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private
respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition that had private respondent
indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that
"(I)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write any amount and to collect the same." 20

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to
"Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioner's personnel should have been duly warned that Gayon, who was
also employed in petitioner's Buendia Ave. Extension branch,21 was not the proper payee of the proceeds of the check. Otherwise, either Ramon or
Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an
"authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having signed
such authority. However, considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature, the
unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was
allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private respondent
and Gayon so as to render the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and
as a reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that private respondent's passbook was not
presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3,
1984, the date he deposited the controversial check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the same manner; provided, however, that deposits of drafts, checks,
money orders, etc. will be accented as subject to collection only and credited to the account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks,
drafts, money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry therefor made by the
Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether
or not the defective items can be returned to the depositor; and the Bank is hereby authorized to execute immediately the necessary
corrections, amendments or changes in its record, as well as on the savings passbook at the first opportunity to reflect such cancellation.
(Emphasis and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of the amount
stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not
legal tender.23 As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondent's account or infuse value
thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with
ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because has the duty
to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 24 The rule finds more meaning in this case
where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the
check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three (3) checks to
Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank,
the Philippine National Bank in New York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign
department. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so
where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor General's denial of Banco
Atlantico's claim for payment of the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship." 27 As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of
care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to exercise the diligence of a good father of a family. In
total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to petitioner's detriment. As this Court once said
on this matter:
Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides that test by which to determine the existence of negligence in a particular case which may be stated
as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that. 29

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent's
dollar deposits that had yet to be cleared. The bank's ledger on private respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's deposit of $2,500.00 on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total balance of $3,250.00.31 On September 10, 1984, the amount of $600.00 and the additional
charges of $10.00 were indicated therein as withdrawn thereby leaving a balance $2,640.00. On September 30, 1984, an interest of $11.59 was
reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. 32 On November 19, 1984
the word "hold" was written beside the balance of $109.92.33 That must have been the time when Reyes, petitioner's branch manager, was informed
unofficially of the fact that the check deposited was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the communication
thereon from Wells Fargo Bank International in New York the following day, November 20, 1984.34 According to Reyes, Wells Fargo Bank International
handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.35
From these facts on record, it is at once apparent that petitioner's personnel allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes' contention that after the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal, 36 is untenable.
Said practice amounts to a disregard of the clearance requirement of the banking system.
While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of
the counterfeit check, the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." 37 The proximate cause of the
withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of
its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.1wphi1.nt
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.

FIRST DIVISION
[ G.R. No. 138569, September 11, 2003 ]
THE CONSOLIDATED BANK AND TRUST CORPORATION, PETITIONER, VS. COURT OF APPEALS AND L.C. DIAZ AND
COMPANY, CPA'S, RESPONDENTS.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May
1999. The assailed decision reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated
Bank and Trust Corporation, now known as Solidbank Corporation ("Solidbank"), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary
damages, attorney's fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and
Company, CPA's ("L.C. Diaz"), is a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya ("Macaraya"), filled up a savings (cash) deposit slip for P990
and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre ("Calapre"), to deposit
the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of
the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words
"DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE." Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that "somebody got the passbook." [3] Calapre went back to
L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to
Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words "DUPLICATE" and "SAVING TELLER
6 SOLIDBANK HEAD OFFICE" on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told
Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller
No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine
Banking Corporation ("PBC"). This PBC check of L.C. Diaz was a check that it had "long closed." [4] PBC subsequently dishonored the
check because of insufficient funds and because the signature in the check differed from PBC's specimen signature. Failing to get
back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel
Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz ("Diaz"), called up Solidbank to stop
any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz formally wrote
Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day
before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip.
A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan ("Ilagan") and one Roscon Verdazola
with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the
City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of
Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the
complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the
decision of the trial court.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate
court, however, modified its decision by deleting the award of exemplary damages and attorney's fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that "possession
of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the
said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally." [9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip
with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature
cards. The teller stamped the withdrawal slip with the words "Saving Teller No. 5." The teller then passed on the withdrawal slip to
Genere Manuel ("Manuel") for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then
given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court
concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000
from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were
forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation ("NBI") report on the
authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the passbook "under lock and key." [10] When
another person presents the passbook for withdrawal prior to Solidbank's receipt of the notice of loss of the passbook, that person is
considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was
"now out of the lock and key and presumptively ready for a business transaction." [11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbank's act of
allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diaz's
negligence caused the unauthorized withdrawal. Three facts establish L.C. Diaz's negligence: (1) the possession of the passbook by
a person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3)
the possession by an unauthorized person of a PBC check "long closed" by L.C. Diaz, which check was deposited on the day of the
fraudulent withdrawal.
The trial court debunked L.C. Diaz's contention that Solidbank did not follow the precautionary procedures observed by the two
parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a
manager's check. The bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car
must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed
out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any
separate letter of authorization or any communication with Solidbank that the money be converted into a manager's check.
The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to recover
P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos
(P30,000.00) as attorney's fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbank's negligence was the proximate cause of the unauthorized withdrawal of P300,000 from
the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasidelict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the
plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of
cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial,
should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz,
Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who
made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its
employees.

The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in
leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of "last clear chance." Solidbank
could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The
business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found
Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.
1.

Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three
Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing
of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorney's fees and
expenses of litigation as well as the cost of suit; and

2.

Ordering the dismissal of defendant-appellee's counterclaim in the amount of P30,000.00 as attorney's fees.

SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages.
The appellate court deleted the award of exemplary damages and attorney's fees. Invoking Article 2231 [14] of the Civil Code, the
appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was
guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorney's fees was
also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on
Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of
exemplary damages and attorney's fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:
I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS
TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00 TO RESPONDENT'S MESSENGER EMERANO ILAGAN, SINCE THERE IS NO
AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING
LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

II.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANK'S TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS
UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND
PRIVATE RESPONDENT'S PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT
IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS
CHECKS AND OTHER FINANCIAL DOCUMENTS.

III.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS
EMPLOYEE EMERANO ILAGAN.

IV.

THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER
ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK'S NEGLIGENCE
WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court

The petition is partly meritorious.


Solidbank's Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C.

Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and
L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable
when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. [17] Article 1980 of the
Civil Code expressly provides that "x x x savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan." There is a debtor-creditor relationship between the bank and its depositor. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand.
The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA
8791"),[18] which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance."[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that
"the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature
of their relationship."[21]
This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and performance" is deemed
written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks - that banks must observe "high standards of
integrity and performance" in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diaz's savings account, jurisprudence [23] at the time of the withdrawal already imposed on
banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors
from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract
of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to
enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors
while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and
not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbank's Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that "responsibility arising from negligence in the performance of every kind of obligation is
demandable." For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the "transaction took time" and he had to go to Allied Bank for another
transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbank's rules on savings account require that the "deposit book should be carefully guarded by the depositor and
kept under lock and key, if possible." When the passbook is in the possession of Solidbank's tellers during withdrawals, the law
imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbank's tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor
or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff
has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached
its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove
that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left
the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the
identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying
the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in
the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise "high standards of integrity and performance," it must also insure that its employees do likewise
because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the "high standards of integrity and
performance" required of Solidbank's employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The
trial court believed that L.C. Diaz's negligence in not securing its passbook under lock and key was the proximate cause that allowed
the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the teller's negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred. [26] Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent. [27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while
it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook
only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbank's failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took
possession of the passbook. Under Solidbank's rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbank's Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had
the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of
the unauthorized withdrawal was Solidbank's negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate court's theory that the proximate cause of the unauthorized withdrawal was the teller's failure
to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is
no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C.
Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their
accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a
withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal of
P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited
a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred
when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when
the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger
of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on
the following statements in the Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited
in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at
Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbank's contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo.
Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of
facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who
processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate
Solidbank's claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank
does not categorically state that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than
that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss. [29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last
fair chance to prevent the impending harm by the exercise of due diligence. [30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in
the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory
negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability.[31] Such
contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does
not exculpate the defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, "liability (for culpa contractual) may be regulated by the courts, according to the circumstances." This means
that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that
L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual
damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPA's only 60% of the actual damages awarded by the Court of Appeals. The remaining
40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPA's. Proportionate costs. SO
ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 133710

January 13, 2004

PHILIPPINE BANKING CORPORATION, petitioner,


vs.
COURT OF APPEALS and AMALIO L. SARMIENTO, doing business under the firm name "A.L. SARMIENTO CONSTRUCTION," respondents.
DECISION
CORONA, J.:
Before us is a petition for review seeking the reversal of the decision of the Court of Appeals1 dated October 22, 1997, which affirmed with modification
the decision of the Regional Trial Court, Branch 20, Makati City, dismissing the complaint filed by petitioner Philippine Banking Corporation against
private respondent Amalio L. Sarmiento, as well as the resolution of the Court of the Appeals dated May 14, 1998 denying petitioners motion for
reconsideration.
The facts follow.
Amalio L. Sarmiento, registered owner of A.L. Sarmiento Construction, applied for a loan from Philippine Banking Corporation in the sum of P4,126,000,
evidenced by promissory note no. 626-84. Pursuant thereto, Sarmiento obligated himself to pay the amount with interest at the rate of 29% per annum.
Additionally, it was stipulated that if payment was not made upon maturity of the loan, penalty charges of 1% per month and 25% of the total amount due
would be charged against him. Sarmiento signed the aforesaid promissory note together with the disclosure statement on loan/credit transaction
provided by the bank.
Sarmiento failed to pay the aforesaid obligation on maturity, prompting Philippine Banking Corporation to send him a letter of demand dated January 2,
1989. Despite the demand, however, Sarmiento still failed to settle his indebtedness. Thus, on February 20, 1989, Philippine Banking Corporation filed a
complaint for a sum of money against him. In his answer, Sarmiento denied that he received the proceeds of the loan transaction and prayed that the
case against him be dismissed.
On August 26, 1991, the trial court rendered its decision, thus:
WHEREFORE, in view of the foregoing, plaintiff has miserably failed to prove its case by preponderance of evidence. The above-entitled case
is ordered dismissed with costs against plaintiff.
Judgment over counterclaim in the sum of P30,000.00 as attorneys fees and P20,000.00 as litigation expenses is hereby awarded in favor of
the defendant. No moral or exemplary damages adjudged.2
On September 25, 1991, Philippine Banking Corporation filed a motion for new trial which the trial court subsequently granted despite the opposition of
Sarmiento.
On August 3, 1992, after the reception of evidence, the trial court rendered a decision finding the evidence adduced by the bank to be insufficient to
substantiate its claim. The trial court reinstated its earlier dismissal of the case against Sarmiento and denied Philippine Banking Corporations
subsequent motion for reconsideration.
Aggrieved, Philippine Banking Corporation appealed to the Court of Appeals raising the following assignments of error:
First Assignment of Error
THE TRIAL COURT ERRED IN NOT FINDING THAT PLAINTIFF-APPELLANT HAS ESTABLISHED ITS CAUSE OF ACTION WITH AN
OVERWHELMING PREPONDERANCE OF EVIDENCE
Second Assignment of Error
THE TRIAL COURT ERRED IN CONCLUDING THAT WHEN PLAINTIFF-APPELLANT WITHDREW THE AMOUNT OF P4,126,000.00
SIMULTANEOUSLY TO THE TIME THAT IT CREDITED THE SAME TO DEFENDANTS ACCOUNT, PLAINTIFF BANK ABORTED THE LOAN
TRANSACTION UNDER PROMISSORY NOTE 626-84
Third Assignment of Error

THE TRIAL COURT SERIOUSLY ERRED IN AWARDING DEFENDANT-APPELLEE P30,000.00 AS ATTORNEYS FEES AND P20,000.00 AS
LITIGATION EXPENSES, THE SAME BEING WITHOUT FACTUAL AND LEGAL BASIS, AND EXCESSIVE UNDER THE CIRCUMSTANCES. 3
On October 22, 1997, the Court of Appeals affirmed with modification the trial courts decision:
WHEREFORE, the August 3, 1992 decision appealed from is MODIFIED to delete the trial courts award of attorneys fees. The rest is
AFFIRMED in toto.4
Hence, the instant petition anchoring its plea for reversal on the following errors allegedly committed by the Court of Appeals:
IN NOT HOLDING THAT PETITIONER HAS OVERCOME ITS BURDEN OF PROOF THROUGH THE PRESENTATION OF OVERWHELMING
PREPONDERANCE OF EVIDENCE ESTABLISHING ITS CAUSE OF ACTION
IN NOT HOLDING THAT THE RESPONDENTS EVIDENCE FAILED TO SUCCESSFULLY CONTROVERT HIS OWN JUDICIAL ADMISSION OF THE
GENUINENESS AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS UPON WHICH THE PETITIONERS CAUSE OF ACTION IS BASED
IN NOT HOLDING THAT THE SUBJECT PROMISSORY NOTE WAS EXECUTED BY THE RESPONDENT FOR A VALID CONSIDERATION
IN NOT HOLDING THAT PETITIONERS EVIDENCE HAS SUFFICIENTLY SHOWN THAT THE RESPONDENT RECEIVED THE PROCEEDS OF THE
SUBJECT PROMISSORY NOTE
IN AWARDING LITIGATION EXPENSES FOR P20,000.00 WITHOUT LEGAL BASIS.
Petitioner contends that the appellate court incorrectly upheld the trial courts misinterpretation of the clear import of the entries in the bank statement.
Said document showed that the proceeds of the loan obtained by respondent Sarmiento under promissory note no. 626-64 had been credited to his
current account no. 1025-00815-0 maintained at petitioners New Manila Branch in the name of A.L. Sarmiento Construction. Petitioner further alleges
that its cause of action against respondent Sarmiento was predicated upon actionable documents, the due execution and authenticity of which
respondent admitted. Thus, no proof was required of petitioner to establish the contents of the said documents because such judicial admissions of
respondent created a prima facie case in petitioners favor.
We disagree.
It is undisputed that respondent Sarmiento signed the promissory note and the accompanying disclosure statement on loan/credit transaction. But said
pieces of evidence proved only the existence of such documents. There was even no question as to that because respondent Sarmiento himself
admitted the due execution thereof. The important issue was whether or not respondent Sarmiento actually received the proceeds of the subject loan so
as to make him liable therefor, a matter which should have been ventilated before the trial court.
The trial court did in fact make a finding that the documentary evidence of petitioner failed to prove anything showing that respondent indeed received
the proceeds of the loan. The Court of Appeals affirmed the conclusions of the trial court and declared:
A pre-existing obligation, it may be conceded, constitutes value and may, of and by itself, serve as valuable and sufficient consideration for a
contract such as the loan sued upon. As an essential element of a contract, however, the same should have been satisfactorily proved by the
appellant particularly when, as in the instant case, the absence of consideration was precisely put in issue by the pleadings and
was buttressed by both oral and documentary evidence. Having failed in this material respect, the appellants withdrawal of the amount
supposedly credited to the appellees account was understandably interpreted by the court a quo as a termination/cancellation of the loan the
latter applied for. Considering further that contracts without consideration do not exist in contemplation of law and produce no effect
whatsoever (Article 1352, Civil Code of the Philippines), the trial, likewise, correctly dismissed the appellants case. 5 (emphasis supplied)
A statement in a written instrument regarding the payment of consideration is merely in the nature of a receipt and may be contradicted. 6 Respondent
Sarmiento denied having received the proceeds of the loan and in factpresented evidence showing that on the day petitioner claimed to have credited
the subject amount, it was again debited or withdrawn by petitioner, admittedly upon the instruction of the officials from petitioners head office. Petitioner
attempted to controvert this fact by claiming that the proceeds of the loan were applied to respondents previous obligations to the bank. But we find
nothing in the records showing that respondent had other obligations to which the proceeds of the loan could or should have been applied. Moreover,
petitioner failed to explain just exactly what said obligations were or to what extent the purported proceeds were applied in satisfaction thereof.What
appeared clearly was that the proceeds of the loan were deposited then withdrawn the same day by petitioner itself, thus negating its claim that
respondent actually received it. Petitioner therefore failed to establish its case against respondent Sarmiento.
Be that as it may, the general rule is that only questions of law may be raised in a petition for review on certiorari. The appellate jurisdiction of this Court
in cases brought to it from the Court of Appeals is limited to reviewing and correcting the errors of law committed by the latter, the findings of fact of the
Court of Appeals being final and conclusive. In other words, the power of this Court is limited to determining whether the legal conclusions drawn from
the findings of fact are correct. Barring a showing that the findings of fact complained of are totally devoid of support in the records, such determination
must stand for the Court is neither expected nor required to examine or refute the oral and documentary evidence submitted by the parties. 7
Finally, the award of litigation expenses in the sum of P20,000 should be deleted for lack of legal basis.
WHEREFORE, the instant petition for certiorari is hereby DENIED. The assailed decision and resolution of the Court of Appeals are AFFIRMED, subject
to the MODIFICATION that the award of P20,000 as litigation expenses is hereby deleted.

SO ORDERED.
Vitug, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129015

August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner,


vs.
FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

DECISION

TINGA, J.:
Called to fore in the present petition is a classic textbook question if a bank pays out on a forged check, is it liable to reimburse the drawer from whose
account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked tenuous reasoning to acquit the
bank of liability. We reverse, applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Bian, Laguna, maintained a current account with
defendant Far East Bank and Trust Company1 ("FEBTC") at the latters Bel-Air, Makati branch.2 The sole signatory to Samsung Constructions account
was Jong Kyu Lee ("Jong"), its Project Manager,3 while the checks remained in the custody of the companys accountant, Kyu Yong Lee ("Kyu").4
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check,
payable to cash and drawn against Samsung Constructions current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Constructions account. After ascertaining there were
enough funds to cover the check,5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the
specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on the
check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards. 6
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officers
approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked the signature on the check as
against that on the signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to
Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III ("Sempio"), the assistant accountant of Samsung Construction,
was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu
showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check
was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks
encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a check in the amount
of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had not prepared such a check for
Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. 7 He reported the matter to Jong, who then proceeded to
the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he
would be reimbursed for the amount of the check.8Jong proceeded to the police station and consulted with his lawyers.9 Subsequently, a criminal case
for qualified theft was filed against Sempio before the Laguna court. 10
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00), with interest.11 In response, FEBTC said that it was still conducting an investigation on the matter.
Unsatisfied, Samsung Construction filed aComplaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the
payment of the amount debited as a result of the questioned check plus interest, and attorneys fees.12 The case was docketed as Civil Case No. 9261506 before the Regional Trial Court ("RTC") of Manila, Branch 9.13
During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs signature was forged. Samsung Corporation,
which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her
examination, she concluded that Jongs signature had been forged on the check. On the other hand, FEBTC, which had sought the assistance of the
Philippine National Police (PNP),14 presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jongs signature on the check was genuine.15
Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In aDecision dated 25 April 1994, the RTC held
that Jongs signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung Constructions account the amount of

Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest tolled from the time the complaint was filed, and
attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of Appeals rendered
a Decision,16 reversing the RTC Decision and absolving FEBTC from any liability. The Court of Appeals held that the contradictory findings of the NBI
and the PNP created doubt as to whether there was forgery.17 Moreover, the appellate court also held that assuming there was forgery, it occurred due to
the negligence of Samsung Construction, imputing blame on the accountant Kyu for lack of care and prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access thereto.18 The Court of Appeals invoked the ruling in PNB v. National City Bank of New York19 that, if
a loss, which must be borne by one or two innocent persons, can be traced to the neglect or fault of either, such loss would be borne by the negligent
party, even if innocent of intentional fraud.20
Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned the RTCs finding of forgery. It
also contends that the appellate court erred in finding that it had been negligent in safekeeping the check, and in applying the equity principle enunciated
in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to examine the record to draw out the
correct conclusions. Upon examination of the record, and based on the applicable laws and jurisprudence, we reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority. (Emphasis supplied)
The general rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such signature" is ineffectual or
does not discharge the instrument.21 If payment is made, the drawee cannot charge it to the drawers account. The traditional justification for the result is
that the drawee is in a superior position to detect a forgery because he has the makers signature and is expected to know and compare it. 22 The rule
has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file.
Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party
to spread the risk to insurance.23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the privilege of drawing checks in the ordinary course of
business, the relationship between the bank and the depositor is that of debtor and creditor. So far as the legal relationship between the two is
concerned, the situation is the same as though the bank had borrowed money from the depositor, agreeing to repay it on demand, or had
bought goods from the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the same sense that any
debtor owes money to his creditor. Added to this, in the case of bank and depositor, there is, of course, the banks obligation to pay checks
drawn by the depositor in proper form and presented in due course. When the bank receives the deposit, it impliedly agrees to pay only upon
the depositors order. When the bank pays a check, on which the depositors signature is a forgery, it has failed to comply with its contract in
this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the
depositor himself. And yet, if a bank pays the check, it is paying out its own money and not the depositors.
The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the loss. Even in a case where the forged
check was drawn by the depositors partner, the loss was placed upon the bank. The case referred to is Robinson v. Security Bank, Ark., 216
S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank for money which had been deposited to the plaintiffs credit
and which the bank had paid out on checks bearing forgeries of the plaintiffs signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine months after discovering the forgery,
before notifying the bank, did not, as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from holding the
bank liable. xxx
This rule of liability can be stated briefly in these words: "A bank is bound to know its depositors signature." The rule is variously expressed in
the many decisions in which the question has been considered. But they all sum up to the proposition that a bank must know the signatures of
those whose general deposits it carries.24
By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts still affirm this well-entrenched
standard. Nickles, in his book Negotiable Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw against the customers account by specifying whose
signature is necessary on checks that are chargeable against the customers account. Therefore, a check drawn against the account of an
individual customer that is signed by someone other than the customer, and without authority from her, is not properly payable and is not
chargeable to the customers account, inasmuch as any "unauthorized signature on an instrument is ineffective" as the signature of the person
whose name is signed.25

Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is forged. 26 On the premise that
Jongs signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the
bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank
has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. 27 The forgery may be so near like
the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check. 28
Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed to be genuine until it is proved
to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be done by convincing testimony and effective illustrations. 29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by
handwriting experts from the NBI and the PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-Obsequio v. Court of Appeals, 230
SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by clear, positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponents expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore cannot be placed merely on the fact that there are colliding opinions of two experts, both
clothed with the presumption of official duty, in order to draw a conclusion, especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has long deferred to the appellate
court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through the minutiae that scatters the
factual field. In failing to thoroughly evaluate the evidence before it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was
sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves a stern rebuke. Yet, the appellate courts error in this case
warrants special attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted as a governing standard by every court in
the land, barely any actionable claim would prosper, defeated as it would be by the mere invocation of the existence of a contrary "expert" opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and explained its reason behind the
conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that the testimony of the NBI
document examiner is more credible because the testimony of the PNP Crime Laboratory Services document examiner reveals that there are
a lot of differences in the questioned signature as compared to the standard specimen signature. Furthermore, as testified to by Ms. Rhoda
Flores, NBI expert, the manner of execution of the standard signatures used reveals that it is a free rapid continuous execution or stroke as
shown by the tampering terminal stroke of the signatures whereas the questioned signature is a hesitating slow drawn execution stroke.
Clearly, the person who executed the questioned signature was hesitant when the signature was made.30
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that "apparently, there [are] differences on that questioned signature and the
standard signatures."31 This Court, in examining the signatures, makes a similar finding. The PNP expert excused the noted "differences" by asserting
that they were mere "variations," which are normal deviations found in writing. 32 Yet the RTC, which had the opportunity to examine the relevant
documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert
as unconvincing. During the trial, she was confronted several times with apparent differences between strokes in the questioned signature and the
genuine samples. Each time, she would just blandly assert that these differences were just "variations,"33 as if the mere conjuration of the word would
sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing alone, would be of little or no value unless supported by sufficiently
cogent reasons which might amount almost to a demonstration.34
The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward stroke in the signature, or "the
point to the short stroke of the terminal in the capital letter L," as referred to by the PNP examiner who had marked it in her comparison chart as "point
no. 6." To the plain eye, such upward final stroke consists of a vertical line which forms a ninety degree (90) angle with the previous stroke. Of the
twenty one (21) other genuine samples examined by the PNP, at least nine (9) ended with an upward stroke.35 However, unlike the questioned signature,
the upward strokes of eight (8) of these signatures are looped, while the upward stroke of the seventh 36 forms a severe forty-five degree (45) with the
previous stroke. The difference is glaring, and indeed, the PNP examiner was confronted with the inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the "s" stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke "s" is pointing directly upwards?
A: There is none in the standard signature, sir.37
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere variation, 38 the same excuse she
proffered for the other marked differences noted by the Court and the counsel for petitioner.39

There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP experts. The NBI expert, Rhoda Flores,
clearly qualifies as an expert witness. A document examiner for fifteen years, she had been promoted to the rank of Senior Document Examiner with the
NBI, and had held that rank for twelve years prior to her testimony. She had placed among the top five examinees in the Competitive Seminar in
Question Document Examination, conducted by the NBI Academy, which qualified her as a document examiner.40She had trained with the Royal
Hongkong Police Laboratory and is a member of the International Association for Identification.41 As of the time she testified, she had examined more
than fifty to fifty-five thousand questioned documents, on an average of fifteen to twenty documents a day.42 In comparison, PNP document examiner
Perez admitted to having examined only around five hundred documents as of her testimony.43
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method consisting of analysis, recognition, comparison
and evaluation of the writing habits with the use of instruments such as a magnifying lense, a stereoscopic microscope, and varied lighting substances.
She also prepared enlarged photographs of the signatures in order to facilitate the necessary comparisons. 44 She compared the questioned signature as
against ten (10) other sample signatures of Jong. Five of these signatures were executed on checks previously issued by Jong, while the other five
contained in business letters Jong had signed.45 The NBI found that there were significant differences in the handwriting characteristics existing between
the questioned and the sample signatures, as to manner of execution, link/connecting strokes, proportion characteristics, and other identifying details. 46
The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in its Decisions. While the Court of Appeals disagreed
and upheld the findings of the PNP, it failed to convincingly demonstrate why such findings were more credible than those of the NBI expert. As a
throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to examine the specimen signature card signed by Jong, which
was relied upon by the employees of FEBTC in authenticating Jongs signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any sample signature duly established as that of the persons whose signature was
forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature cards. The crucial
fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes
relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the signature on the check was not his. 47 The assertion may
seem self-serving at first blush, yet it cannot be ignored that Jong was in the best position to know whether or not the signature on the check was his.
While his claim should not be taken at face value, any averments he would have on the matter, if adjudged as truthful, deserve primacy in consideration.
Jongs testimony is supported by the findings of the NBI examiner. They are also backed by factual circumstances that support the conclusion that the
assailed check was indeed forged. Judicial notice can be taken that is highly unusual in practice for a business establishment to draw a check for close
to a million pesos and make it payable to cash or bearer, and not to order. Jong immediately reported the forgery upon its discovery. He filed the
appropriate criminal charges against Sempio, the putative forger.48
Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law. The Court of Appeals concluded that Samsung Construction was negligent, and invoked the doctrines that "where a loss must be
borne by one of two innocent person, can be traced to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any
intentional fraud, through whose means it has succeeded49 or who put into the power of the third person to perpetuate the wrong."50 Applying these rules,
the Court of Appeals determined that it was the negligence of Samsung Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III, an assistant accountant
employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly stole the blank check and who presumably is
responsible for its encashment through a forged signature of Jong Kyu Lee. Sempio was assistant to the Korean accountant who was in
possession of the blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean accountant been
more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to effect the forgery.
Besides, Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the
date the check was encashed, he was there to certify that it was a genuine check issued to purchase equipment for the company.51
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. 52 Yet, we
are unable to conclude that Samsung Construction was guilty of negligence in this case. The appellate court failed to explain precisely how the Korean
accountant was negligent or how more care and prudence on his part would have prevented the forgery. We cannot sustain this "tar and feathering"
resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such partys
negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and
minds of their employees. The Courts pronouncement in PCI Bank v. Court of Appeals53 applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor,
in the absence of some circumstance raising estoppel against the drawer.54
Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank checks. Jong did testify that his
accountant, Kyu, kept the checks inside a "safety box,"55 and no contrary version was presented by FEBTC. However, such testimony cannot prove that
the checks were indeed kept in a safety box, as Jongs testimony on that point is hearsay, since Kyu, and not Jong, would have the personal knowledge
as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung Constructions part. The presumption
remains that every person takes ordinary care of his concerns,56 and that the ordinary course of business has been followed.57 Negligence is not
presumed, but must be proven by him who alleges it.58 While the complaint was lodged at the instance of Samsung Construction, the matter it had to
prove was the claim it had alleged - whether the check was forged. It cannot be required as well to prove that it was not negligent, because the legal
presumption remains that ordinary care was employed.

Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. While the payee, as in this case,
may not have the personal knowledge as to the standard procedures observed by the drawer, it well has the means of disputing the presumption of
regularity. Proving a negative fact may be "a difficult office,"59 but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to
dispute the presumption of ordinary care exercised by Samsung Construction, hence we cannot agree with the Court of Appeals finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part of the bank in its
acceptance and payment of the forged check. However, the degree of diligence exercised by the bank would be irrelevant if the drawer is not precluded
from setting up the defense of forgery under Section 23 by his own negligence. The rule of equity enunciated in PNB v. National City Bank of New
York, 60 as relied upon by the Court of Appeals, deserves careful examination.
The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the forged signature is held to bear
the loss, because he has been negligent in failing to recognize that the handwriting is not that of his customer. But it follows obviously
that if the payee, holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a negligence prior to that
of the banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may lose his right to cast the loss
upon the banker.61 (Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only
when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence
between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction
was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does
not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the
opportunity, abstract some of the check blanks, forges the depositors signature and collect on the checks from the bank.62 And for another, in point of
fact Samsung Construction was not negligent at all since it reported the forgery almost immediately upon discovery.63
It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the drawer, but of indorsers. The same
circumstance attends PNB v. Court of Appeals,64 which was also cited by the Court of Appeals. It is accepted that a forged signature of the drawer differs
in treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in a
position to verify the drawers signature by comparison with one in his hands, but has ordinarily no opportunity to verify an indorsement. 65
Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the drawers signature or a forged
indorsement. But the bank may, as a general rule, recover back the money which it has paid on a check bearing a forged indorsement,
whereas it has not this right to the same extent with reference to a check bearing a forgery of the drawers signature. 66
The general rule imputing liability on the drawee who paid out on the forgery holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might as well comment on the banks
performance of its duty. It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of
the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand pesos require only the approval of the
teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer; and should the amount exceed
one hundred thousand pesos, the concurrence of two bank officers is required. 67
In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person.68 Moreover, the check was presented for payment by one Roberto Gonzaga, who was not designated as
the payee of the check, and who did not carry with him any written proof that he was authorized by Samsung Construction to encash the check.
Gonzaga, a stranger to FEBTC, was not even an employee of Samsung Construction. 69 These circumstances are already suspicious if taken
independently, much more so if they are evaluated in concurrence. Given the shadiness attending Gonzagas presentment of the check, it was not
sufficient for FEBTC to have merely complied with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of
the check, and of the authority of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone to verify the check. 70 She added
that calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank, but an "extra effort." 71 Even
assuming that such personal verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the
absence of any proof of verification from the drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at the
bank at the time the check was presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf of Samsung Construction. It was
even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the phone over to Sempio. 72 However, the
only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio personally,73 and had met Sempio for
the first time only on the day the check was encashed.74 In fact, Velez had to inquire with the other officers of the bank as to whether Sempio was
actually known to the employees of the bank.75 Obviously, Velez had no personal knowledge as to the past relationship between FEBTC and Sempio,
and any averments of her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not present as a witness any other employee of
their Bel-Air branch, including those who supposedly had transacted with Sempio before.

Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances
attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest
degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who
transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.76
Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the
questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not
precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the
payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge
the amount so paid to the account of the depositor.77 A bank is liable, irrespective of its good faith, in paying a forged check. 78
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is REVERSED, and the Decision of the
Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 125585

June 8, 2005

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG and LEON M. BANAAG, JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B. SALAZAR, CONSUELO CRUZ and ROSALINA CRUZBAUTISTA, and the REGISTER OF DEEDS of Meycauayan, Bulacan,Respondents.
DECISION
Tinga, J.:
Before this Court is a Rule 45 petition assailing the D E C I S I O N1 dated 29 September 1994 of the Court of Appeals that reversed the D E C I S I O
N2 dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court declared Transfer Certificates of Title (TCTs) No.
T-9326-P(M) and No. T-9327-P(M) as void ab initio and ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in the name of
Eduardo Manlapat (Eduardo), petitioners predecessor-in-interest.
The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located at Panghulo, Obando, Bulacan. The property had
been originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise in 1916. It remained unregistered until 8 October 1976 when
OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent issued in Eduardos name3 that was entered in the Registry of Deeds of
Meycauayan, Bulacan.4 The subject lot is adjacent to a fishpond owned by one
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes). 5
On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an area of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled "Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo (Kasulatan)"6 which was signed by Eduardo himself as
vendor and his wife Engracia Aniceto with a certain Santiago Enriquez signing as witness. The deed was notarized by Notary Public Manolo Cruz. 7 On 4
April 1963, the Kasulatan was registered with the Register of Deeds of Bulacan.8
On 18 March 1981, another Deed of Sale9 conveying another portion of the subject lot consisting of 50 square meters as right of way was executed by
Eduardo in favor of Ricardo in order to reach the portion covered by the first sale executed in 1954 and to have access to his fishpond from the
provincial road.10 The deed was signed by Eduardo himself and his wife Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat.
The same was also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.11
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo, executed a mortgage with the Rural Bank of San
Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag deposited the owners duplicate certificate of OCT No. P153(M) with the bank.
On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the name of Eduardo. 12 His heirs, the Cruzes, were not
immediately aware of the consummated sale between Eduardo and Ricardo.
Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon,
Anselmo, Teresita and Gloria, all surnamed Manlapat.13 Neither did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of their
predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about the sale and the issuance of the OCT in the name of Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners on the mortgage and obtain the surrender of the OCT.
The Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the matter to
the barangay captain of BarangayPanghulo, Obando, Bulacan. During the hearing, petitioners were informed that the Cruzes had a legal right to the
property covered by OCT and needed the OCT for the purpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.14
Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went to RBSP which had custody of the owners duplicate
certificate of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar), the Cruzes
sought to borrow the owners duplicate certificate for the purpose of photocopying the same and thereafter showing a copy thereof to the Register of
Deeds. Salazar allowed the Cruzes to bring the owners duplicate certificate outside the bank premises when the latter showed the Kasulatan.15 The
Cruzes returned the owners duplicate certificate on the same day after having copied the same. They then brought the copy of the OCT to Register of
Deeds Jose Flores (Flores) of Meycauayan and showed the same to him to secure his legal opinion as to how the Cruzes could legally protect their
interest in the property and register the same.16 Flores suggested the preparation of a subdivision plan to be able to segregate the area purchased by
Ricardo from Eduardo and have the same covered by a separate title.17
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by Flores.18 Relying on the suggestions of Flores and Arandilla, the Cruzes hired

two geodetic engineers to prepare the corresponding subdivision plan. The subdivision plan was presented to the Land Management Bureau, Region III,
and there it was approved by a certain Mr. Pambid of said office on 21 July 1989.
After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked for the owners duplicate certificate from Salazar.
The Cruzes informed him that the presentation of the owners duplicate certificate was necessary, per advise of the Register of Deeds, for the
cancellation of the OCT and the issuance in lieu thereof of two separate titles in the names of Ricardo and Eduardo in accordance with the approved
subdivision plan.19 Before giving the owners duplicate certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal
counsel of RBSP, to secure from the latter a clearance to borrow the title. Atty. Santiago would give the clearance on the condition that only Cruzes put
up a substitute collateral, which they did.20 As a result, the Cruzes got hold again of the owners duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title they
had earlier given as substitute collateral. After securing the new separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M)
through the barangay captain and paid the real property tax for 1989.22
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector, Department III of the Central Bank of the Philippines, inquiring
whether they committed any violation of existing bank laws under the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply
letter advising the Cruzes, since the matter is between them and the bank, to get in touch with the bank for the final settlement of the case. 23
In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation. It was only then that he learned of the dealings of
the Cruzes with the bank which eventually led to the subdivision of the subject lot and the issuance of two separate titles thereon. In exchange for the full
payment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the name of Eduardo. 24
As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina CruzBautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy Registrar, Meycauayan Branch of the Registry
of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by Rural Bank of San Pascual, Inc. against the spouses
Ricardo Cruz and Consuelo Cruz, et al.25
After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs of Eduardo, the dispositive portion of which reads:
WHEREFORE, premised from the foregoing, judgment is hereby rendered:
1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as void ab initio and ordering the Register of Deeds,
Meycauayan Branch to cancel said titles and to restore Original Certificate of Title No. P-153(M) in the name of plaintiffs predecessor-ininterest Eduardo Manlapat;
2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz and Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of
Eduardo Manlapat, jointly and severally, the following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED."26
The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this matter, it ruled that petitioners were bona
fide mortgagors of an unclouded title bearing no annotation of any lien and/or encumbrance. This fact, according to the trial court, was confirmed by the
bank when it accepted the mortgage unconditionally on 25 November 1981. It found that petitioners were complacent and unperturbed, believing that
the title to their property, while serving as security for a loan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice,
said title was subdivided into two portions, leaving them a portion of 455 square meters from the original total area of 1,058 square meters, all because
of the fraudulent and negligent acts of respondents and RBSP. The trial court ratiocinated that even assuming that a portion of the subject lot was sold

by Eduardo to Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes which eventually led to the subdivision of the
OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of petitioners. 27
Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of negligence in letting the Cruzes borrow the owners
duplicate certificate of the OCT. Neither the bank nor its manager had business entrusting to strangers titles mortgaged to it by other persons for
whatever reason. It was a clear violation of the mortgage and banking laws, the trial court concluded.
The trial court also ruled that although Salazar was personally responsible for allowing the title to be borrowed, the bank could not escape liability for it
was guilty of contributory negligence. The evidence showed that RBSPs legal counsel was sought for advice regarding respondents request. This could
only mean that RBSP through its lawyer if not through its manager had known in advance of the Cruzes intention and still it did nothing to prevent the
eventuality. Salazar was not even summarily dismissed by the bank if he was indeed the sole person to blame. Hence, the banks claim for damages
must necessarily fail.28
The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of its declaration that reconveyance was in order. As to
Flores, his work being ministerial as Deputy Register of the Bulacan Registry of Deeds, the trial court absolved him of any liability with a stern warning
that he should deal with his future transactions more carefully and in the strictest sense as a responsible government official. 29
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court of Appeals. The appellate court, however, reversed the
decision of the RTC. The decretal text of the decision reads:
THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costs against the appellees.
SO ORDERED.30
The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 or before the 1981 mortgage, Eduardo already sold to
Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals noted, is even supported by a document of sale
signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered with the Register of Deeds of Bulacan. The appellate court
also found that on 18 March 1981, for the second time, Eduardo sold to Ricardo a separate area containing 50 square meters, as a road right-ofway.31 Clearly, the OCT was issued only after the first sale. It also noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even
of the banks counsel.32Hence, the imposition of damages cannot be justified, the Cruzes themselves being the owners of the property. Certainly,
Eduardo misled the bank into accepting the entire area as a collateral since the 603-square meter portion did not anymore belong to him. The appellate
court, however, concluded that there was no conspiracy between the bank and Salazar.33
Hence, this petition for review on certiorari.
Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a) can a mortgagor be compelled to receive from the
mortgagee a smaller portion of the originally encumbered title partitioned during the subsistence of the mortgage, without the knowledge of, or authority
derived from, the registered owner; (b) can the mortgagee question the veracity of the registered title of the mortgagor, as noted in the owners duplicate
certificate, and thus, deliver the certificate to such third persons, invoking an adverse, prior, and unregistered claim against the registered title of the
mortgagor; (c) can an adverse prior claim against a registered title be noted, registered and entered without a competent court order; and (d) can belief
of ownership justify the taking of property without due process of law?34
The kernel of the controversy boils down to the issue of whether the cancellation of the OCT in the name of the petitioners predecessor-in-interest and
its splitting into two separate titles, one for the petitioners and the other for the Cruzes, may be accorded legal recognition given the peculiar factual
backdrop of the case. We rule in the affirmative.
Private respondents (Cruzes) own
the portion titled in their names
Consonant with law and justice, the ultimate denouement of the property dispute lies in the determination of the respective bases of the warring claims.
Here, as in other legal disputes, what is written generally deserves credence.
A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of ownership over the portion of Lot No. 2204 with
an area of 553 square meters. The duly notarized instrument of conveyance was executed in 1954 to which no less than Eduardo was a signatory. The
execution of the deed of sale was rendered beyond doubt by Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.35These documents
make the affirmance of the right of the Cruzes ineluctable. The apparent irregularity, however, in the obtention of the owners duplicate certificate from
the bank, later to be presented to the Register of Deeds to secure the issuance of two new TCTs in place of the OCT, is another matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of
ownership based on the sale would not hold water. The Court is not persuaded.
Registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly to bind third persons. 36 The
principal purpose of registration is merely to notify other persons not parties to a contract that a transaction involving the property had been entered into.
Where the party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the same land, his knowledge of that
prior unregistered interest has the effect of registration as to him.37
Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The conveyance shall not be valid against any
person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third persons having actual notice or knowledge thereof. 38 Not only

are petitioners the heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo. Thus, the annotation of the
adverse claim of the Cruzes on the OCT is no longer required to bind the heirs of Eduardo, petitioners herein.
Petitioners had no right to constitute
mortgage over disputed portion
The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article 2085 of the New Civil
Code.39 The mortgagor must be the owner, otherwise the mortgage is void.40 In a contract of mortgage, the mortgagor remains to be the owner of the
property although the property is subjected to a lien.41 A mortgage is regarded as nothing more than a mere lien, encumbrance, or security for a debt,
and passes no title or estate to the mortgagee and gives him no right or claim to the possession of the property.42 In this kind of contract, the property
mortgaged is merely delivered to the mortgagee to secure the fulfillment of the principal obligation.43 Such delivery does not empower the mortgagee to
convey any portion thereof in favor of another person as the right to dispose is an attribute of ownership.44 The right to dispose includes the right to
donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the property, cannot dispose of the whole or part thereof nor cause
the impairment of the security in any manner without violating the foregoing rule.45 The mortgagee only owns the mortgage credit, not the property
itself.46
Petitioners submit as an issue whether a mortgagor may be compelled to receive from the mortgagee a smaller portion of the lot covered by the
originally encumbered title, which lot was partitioned during the subsistence of the mortgage without the knowledge or authority of the mortgagor as
registered owner. This formulation is disingenuous, baselessly assuming, as it does, as an admitted fact that the mortgagor is the owner of the
mortgaged property in its entirety. Indeed, it has not become a salient issue in this case since the mortgagor was not the owner of the entire mortgaged
property in the first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of Eduardo, without any annotation of any prior disposition
or encumbrance. However, the property was sufficiently shown to be not entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent
upon perusal of the records is that the OCT was issued in 1976, long after the Kasulatan was executed way back in 1954. Thus, a portion of the property
registered in Eduardos name arising from the grant of free patent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud
cannot be accorded judicial sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not apply where fraud attended the issuance of the title, as
was conclusively established in this case. The Torrens title does not furnish a shied for fraud.47 Registration does not vest title. It is not a mode of
acquiring ownership but is merely evidence of such title over a particular property. It does not give the holder any better right than what he actually has,
especially if the registration was done in bad faith. The effect is that it is as if no registration was made at all. 48 In fact, this Court has ruled that a decree
of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the landnot to the right of
ownership thereofwhich was not annotated on the certificate of title issued thereon.49
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of the Cruzes and the other for the portion retained by
petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No. 1529 or the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary instrument shall be registered by the Register of Deeds, unless
the owners duplicate certificate is presented with such instrument, except in cases expressly provided for in this Decree or upon order of the court, for
cause shown.
The production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, shall be conclusive
authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of registration in
accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming
under him, in favor of every purchaser for value and in good faith.
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, any subsequent registration
procured by the presentation of a forged duplicate certificate of title, or a forged deed or instrument, shall be null and void. (emphasis supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted
that the provision speaks of forged duplicate certificate of title and forged deed or instrument. Neither instance obtains in this case. What the Cruzes
presented before the Register of Deeds was the very genuine owners duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with
RBSP. Likewise, the instruments of conveyance are authentic, not forged. Section 53 has never been clearer on the point that as long as the owners
duplicate certificate is presented to the Register of Deeds together with the instrument of conveyance, such presentation serves as conclusive authority
to the Register of Deeds to issue a transfer certificate or make a memorandum of registration in accordance with the instrument.
The records of the case show that despite the efforts made by the Cruzes in persuading the heirs of Eduardo to allow them to secure a separate TCT on
the claimed portion, their ownership being amply evidenced by theKasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged the sales
in favor of Ricardo, the heirs adamantly rejected the notion of separate titling. This prompted the Cruzes to approach the bank manager of RBSP for the
purpose of protecting their property right. They succeeded in persuading the latter to lend the owners duplicate certificate. Despite the apparent
irregularity in allowing the Cruzes to get hold of the owners duplicate certificate, the bank officers consented to the Cruzes plan to register the deeds of
sale and secure two new separate titles, without notifying the heirs of Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the manner of acquiring the owners duplicate for purposes of
issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central Bank officer, in rendering an opinion on the legal feasibility of the
process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of the owners duplicate certificate, whenever any
voluntary instrument is presented for registration, and the same shall be conclusive authority from the registered owner to the Register of Deeds to enter
a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding
upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending of the owners duplicate certificate constitutes fraud
within the ambit of the third paragraph of Section 53 which could nullify the eventual issuance of the TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where the property was mortgaged. Through its manager
and legal officer, they were assured of recovery of the claimed parcel of land since they are the successors-in-interest of the real owner thereof. Relying
on the bank officers opinion as to the legality of the means sought to be employed by them and the suggestion of the Central Bank officer that the matter
could be best settled between them and the bank, the Cruzes pursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds
eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the property that rightfully belongs to them only because of the bank officers
acquiescence thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo without the banks approval. Banks, their business
being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving
registered lands.50 The highest degree of diligence is expected, and high standards of integrity and performance are even required of it.51
Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title of the mortgagor as noted in the owners duplicate
certificate, and, thus, he cannot deliver the certificate to such third persons invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor. The strength of this argument is diluted by the peculiar factual milieu of the case.
A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not expected to conduct an
exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking institutions. A mortgagee-bank must exercise due
diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives
to the premises of the land offered as collateral and to investigate who the real owners thereof are.52
Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their business is one affected
with public interest. Banks keep in trust money belonging to their depositors, which they should guard against loss by not committing any act of
negligence that amounts to lack of good faith. Absent good faith, banks would be denied the protective mantle of the land registration statute, Act 496,
which extends only to purchasers for value and good faith, as well as to mortgagees of the same character and description. 53 Thus, this Court clarified
that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.54
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a portion of land covered by the title. Simple rationalization would dictate that a
mortgagee-bank has no right to deliver to any stranger any property entrusted to it other than to those contractually and legally entitled to its possession.
Although we cannot dismiss the banks acknowledgment of the Cruzes claim as legitimized by instruments of conveyance in their possession, we
nonetheless cannot sanction how the bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the banks cooperative stance facilitated the
issuance of the TCTs. To make matters worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is
unthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized as legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the disputed TCTs. We cannot find fault on the part
of the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly sanctioned by law. It is thus ministerial on the part of the
Register of Deeds to issue TCT if the deed of conveyance and the original owners duplicate are presented to him as there appears on theface of the
instruments no badge of irregularity or nullity.55 If there is someone to blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose
manager and legal officer helped the Cruzes to facilitate the issuance of the TCTs.1avvphi1
The bank should not have allowed complete strangers to take possession of the owners duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it liable for damages under Article 1170 and
other relevant provisions of the Civil Code.56

In the absence of evidence, the damages that may be awarded may be in the form of nominal damages. 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.57 This award rests on the mortgagors right to rely on the banks observance of the highest diligence in the conduct
of its business. The act of RBSP of entrusting to respondents the owners duplicate certificate entrusted to it by the mortgagor without even notifying the
mortgagor and absent any prior investigation on the veracity of respondents claim and
character is a patent failure to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every
banks mandate to observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also the right to be afforded due
process before deprivation or diminution of his property is effected as the OCT was still in the name of Eduardo. Notice and hearing are indispensable
elements of this right which the bank miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the courts below and the parties is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the validity of the dispositions of the subject property and the mortgage thereon.
Eduardo was issued a title in 1976 on the basis of his free patent application. Such application implies the recognition of the public dominion character of
the land and, hence, the five (5)-year prohibition imposed by the Public Land Act against alienation or encumbrance of the land covered by a free patent
or homestead58 should have been considered.
The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March 1981 is obviously covered by the proscription, the
free patent having been issued on 8 October 1976. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the
free patent holder. InPhilippine National Bank v. De los Reyes,59 this Court ruled squarely on the point, thus:
While the law bars recovery in a case where the object of the contract is contrary to law and one or both parties acted in bad faith, we cannot here apply
the doctrine of in pari delicto which admits of an exception, namely, that when the contract is merely prohibited by law, not illegal per se, and the
prohibition is designed for the protection of the party seeking to recover, he is entitled to the relief prayed for whenever public policy is enhanced thereby.
Under the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the
homesteader that portion of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the
Public Land Act was sold and not merely encumbered, within the prohibited period.60
The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two (22) years before the issuance of the patent in 1976.
Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where the sale or transfer took place before the filing
of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such situation, neither the prohibition nor the
rationale therefor which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by
shielding him from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the
government could give the title to him.
The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few months past the period of
prohibition.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural Bank of San Pascual is
hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages. Respondents Consuelo Cruz and Rosalina CruzBautista are hereby DIVESTED of title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordingly ORDERED to segregate, the
portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in the approved plan covering the lot, marked as Exhibit "A", and to issue a
new title covering the said portion in the name of the petitioners at the expense of the petitioners. No costs.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
SECOND DIVISION
G.R. No. 157845 September 20, 2005
PHILIPPINE NATIONAL BANK, Petitioners,
vs.
NORMAN Y. PIKE, Respondent.
DECISION
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeks to reverse the Decision 1 dated 19
December 2002, and the Resolution2 dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the
Decision3 rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor of herein
respondent Norman Pike (Pike).
The case stemmed from a complaint4 filed by herein respondent Pike for damages5 against Philippine National Bank (PNB) on 04 January 1994.
Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in 1991, he opened U.S. Dollar Savings Account No.
0265-704591-0 with herein petitioner PNB Buendia branch for which he was issued a corresponding passbook. The complaint alleged in substance that
before complainant Pike left for Japan on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and key, in his home; that
on 19 April 1993, a few hours after he arrived from Japan, he discovered that some of his valuables were missing including the passbook; that he
immediately reported the incident to the police which led to the arrest and prosecution of a certain Mr. Joy Manuel Davasol; that complainant Pike also
discovered that Davasol made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account No. 0265-704591-0, both times at the PNB
Buendia branch on the following dates:

DATE

AMOUNT

31 March 1993

$3,500.00

05 April 1993

4,000.00

TOTAL

$7,500.00

that on several occasions, complainant Pike went to defendant PNBs Buendia branch and verbally protested the unauthorized withdrawals and likewise
demanded the return of the total withdrawn amount of U.S. $7,500.00, on the ground that he never authorized anybody to withdraw from his account as
the signatures appearing on the subject withdrawal slips were clearly forgeries; that defendant PNB refused to credit said amount back to complainants
U.S. Dollar Savings Account without justifiable reason, and instead, defendant bank wrote him that it exercised due diligence in the handling of said
account; and that on 06 May 1993, complainant Pike wrote defendant PNB simply to request that the hold-account be lifted so that he may withdraw the
remaining balance left in his U.S.$ Savings Account and nothing else.
On the other hand, defendant PNB alleged, in its Motion to Dismiss6 of 18 April 1994, a counterstatement of facts. Its factual allegations read:
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, together with a certain Joy Davasol went to see PNB AVP Mr. Lorenzo T. Val (sic),
Jr. purposely to withdraw the amount of $2,000.00. Mr. Pike also informed AVP Val that he is leaving for abroad (Japan) and made verbal instruction to
honor all withdrawals to be transmitted by his Talent Manager and Choreographer, Joy Davasol who shall present pre-signed withdrawal slips bearing
his (Pikes) signature. . .
On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiffs sister executed an affidavit . . . . stating therein that they discovered
today (April 19, 1993) the lost (sic) of her brothers passbook issued by PNB on account of robbery, committed in the residence/office of her brother,
promptly reporting the matter to the police authorities and her brother cannot report the matter to the Bank because he was currently in Japan and
therefore requesting the Bank to issue a hold-order on her brothers passbook.
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was the one who reported the matter) after one month in Japan,
he (complainant) arrived yesterday. . .

On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiffs counsel sent a demand letter to VP Violeta T. Suquila (then VP and Manager of PNB
Buendia Branch) demanding the bank to credit back the amount of US$7,500.00 which were withdrawn on March 31, 1993 and April 5, 1993, because
his clients signatures were forged and the withdrawal made thereon were unauthorized. . .
On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic) Dollar Account Passbook and requested the PNB to replace the same and
allow him to make withdrawals thereon. He stated that his passbook was stolen together with other valuables which he discovered only in the early
morning of April 19, 1993. . .
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB, Buendia Branch the full contents of said letter hereto
quoted as follows:
May 6, 1993
The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
Sir:
In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-order on my dollar savings passbook No. 265-704591-0, I am now
requesting your good office to lift the same so I can withdraw the remaining balance of my passbook which was reported lost sometime in March of this
year.
I also promise not to hold responsible the bank and its officers for the withdrawal made on my dollar savings passbook on March 19 and April 5, 1993
respectively as a result of the lost (sic) of my passbook.
Sgd. NORMAN Y. PIKE
Depositor
Philippine Passport
No. H918022
Issued at Manila on
Sept. 6, 1990
Place of Issuance
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to withdraw the remaining balance from his passbook .
A letter dated May 18, 1993 was sent to Plaintiffs counsel by PNB stating that the Bank regrets that it cannot accede to such request inasmuch as
the Bank exercised due diligence of a good father to his family in the handling of transactions covering the deposit account of Mr. Pike .
On July 2, 1993, Plaintiffs counsel sent a letter to PNB Vice Pres. Suquila denying that his client made any such promise not to hold responsible the
bank and its officers for the withdrawal made .
A letter dated July 29, 1993 was sent to Plaintiffs counsel by VP Suquila stating that plaintiffs withdrawal of the remaining balance of his account with
the Bank effectively estops him from claiming on the alleged unauthorized withdrawals.
The trial court, in its decision dated 10 January 1997, made the following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not impressed with the defense put up by the bank. Its contention that
the withdrawals were authorized by the plaintiff because there was an arrangement between the bank represented by its Asst. Vice President Lorenzo
Bal, Jr. and the depositor Norman Y. Pike to the effect that pre-signed withdrawal slips, that is, withdrawal slip signed by the depositor in the presence of
Mr. Bal whereby it would be made to appear that it was the depositor himself who presented the same to the bank despite the fact that it was another
person who presented the same should be honored by the bank cannot be sanctioned by the court. Firstly, the court is not satisfied that there was

indeed such an arrangement. . . It is Mr. Bals contention that such an arrangement although not ordinarily entered into is still a legal procedure of the
bank and is resorted to accommodate the depositors specially honored and valued depositor at that.
...
The court compared the signatures in the questioned withdrawal slips with the known signatures of the depositor and is convinced that the signatures in
the unauthorized withdrawal slips do not correspond to the true signatures of the depositor.
From the evidence that it received, the court is convinced that the bank was negligent in the performance of its duties such that unauthorized
withdrawals were made in the deposit of plaintiff Norman Y. Pike.7
The dispositive portion of the trial courts decision reads:
WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant and ordering the defendant
to pay the following:
1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is paid;
2. P25,000.00 for and as attorneys fees;
3. P50,000.00 as moral damages and P50,000.00 as exemplary damages; and
4. Plus the costs of suit.8
Defendant PNBs motion for reconsideration was subsequently denied by the court a quo.9
On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002, affirming the findings of the RTC that indeed defendantappellant PNB was negligent in exercising the diligence required of a business imbued with public interest such as that of the banking industry, however,
it modified the rate of interest and award for damages, to wit:
WHEREFORE, premises considered, the Decision dated January 10, 1997 issued by the Regional Trial Court of Manila, Branch 7, in Civil Case No. 9468821, is hereby AFFIRMED with MODIFICATION, as follows:
1. Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee the amount of $7,500.00 plus interest of 6% per annum to be
computed from the date of the filing of the complaint which interest rate shall become 12% per annum from the time the judgment in this case becomes
final and executory until its satisfaction;
2. The award for moral damages is reduced to P20,000.00; and
3. The award for exemplary damages is likewise reduced to P20,000.00.
Costs against appellant.10
The appellate court held that:
Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to make withdrawals. Appellee even left pre-signed
withdrawal slips before he went to Japan. However, appellant could have told appellee to authorize the withdrawal by a representative by indicating the
same at the space provided at the back portion of the withdrawal slip. This operational flaw was observed by the trial court, when it ruled:
The court cannot also understand why the bank did not require the correct, proper and the usual procedure of requiring a depositor who is withdrawing
the money through a representative to fill up the back portion of the withdrawal slips, which form was issued by the bank itself.
A perusal of the records discloses that appellee had previously authorized withdrawals by a representative. However, these withdrawals were properly
accompanied by a "withdrawal by a representative" form aside from a handwritten request by appellee to allow such withdrawals by his representative,
or a typewritten letter-request for withdrawal by a representative. Certainly, appellant lacked the due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business as banking.
In its desire to be exonerated from liability, appellant advances the argument that, granting negligence on its part, appellee condoned this negligence as
shown in his letter dated May 6, 1993, wherein appellee purportedly undertook, not to hold the bank and its officers responsible for the unauthorized
withdrawals from his account.
We do not agree. It should be emphasized that while the appellee admitted signing the letter dated May 6, 1993, he, however, denied having undertook
(sic) to exonerate the appellant from liability for the unauthorized withdrawals. Appellee questioned the second paragraph of the said letter as being
superimposed so that his signature overlapped the text of the second paragraph of said letter. A waiver of right, in order to be valid, should be in a
language that clearly manifests his desire to do so. In the instant case, appellees filing of the instant action is inconsistent with appellants contention
that he had waived his right to question appellants negligent act of allowing the unauthorized withdrawals from his account. 11

Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02 April 2003, the Court of Appeals denied said motion.
Hence, this petition.
Petitioner PNB now seeks the review of the aforequoted decision and resolution of the Court of Appeals predicated on the following issues:
I.
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN THIS CASE;
II.
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY PROVEN THAT THE SIGNATURES APPEARING ON THE TWO (2) QUESTIONED PRESIGNED WITHDRAWAL SLIP FORMS ARE ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE 132 OF THE REVISED RULES OF
COURT; and
III.
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST A PARTY IN GOOD FAITH.
Petitioner PNB contends that due to the verbal instructions12 of respondent Pike, a valued depositor, it allowed the withdrawal by another person. Plus,
the fact that said respondent withdrew the remaining balance in his US Savings Account and executed a waiver releasing petitioner PNB from any
liability due to the loss of the funds should rightly negate a finding of negligence on its part. Accordingly, petitioner PNB claims that the appellate court,
as well as the trial court erred in holding that the withdrawals in question were unauthorized as the signatures appearing on the subject withdrawal slips
were forgeries. Petitioner PNB, therefore, argues that it should not be held liable for the amount withdrawn from the account of respondent Pike in the
sum of $7,500.00, as well as for moral and exemplary damages.
A priori, it is quite evident that the petition is anchored on a plea to review or re-examine the factual conclusions reached by the trial court and affirmed
by the Court of Appeals, and for this Court to hold otherwise. Whether:
1) respondent Pikes signatures appearing on the pertinent withdrawal slips used by Joy Manuel Davasol 13 to withdraw the amount of $7,500.00, were
forgeries, as found by the trial court and affirmed by the Court of Appeals, or were authentic as claimed by petitioner bank; and
2) respondent Pike in fact executed a waiver absolving petitioner bank from any legal responsibility due to the unauthorized withdrawals, as maintained
by petitioner bank, or the paragraph containing said waiver was intercalated by some other person, thus, amounting no waiver at all, as held by the
courts a quo.
are questions of fact and not of law. Inexorably, these issues call for an inquiry into the facts and evidence on record. This, as we have so often held, we
cannot do.
Elementary is the rule that this Court is not the appropriate venue to consider anew the factual issues as it is not a trier of facts, and, it generally does
not weigh anew the evidence already passed upon by the Court of Appeals. 14When this Court is tasked to go over once more the evidence presented by
both parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or
that piece of evidence of one party or the other, the Court cannot and will not do the same.15 Such task is foreclosed by the rule enunciated under
Section 1 of Rule 4516 of the Rules of Court:
SECTION 1. Filing of petition with Supreme Court. - . . . The petition shall raise only questions of law17 which must be distinctly set forth.
We have oft "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," 18 and in the absence of any showing that the findings complained of
are totally devoid of support in the evidence on record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings
must stand. The courts a quo are in a much better position to evaluate properly the evidence.
Finding no other alternative but to affirm their finding that petitioner PNB negligently allowed the unauthorized withdrawals subject of the case at bar, the
instant petition for review must necessarily fail.
At this juncture, it bears emphasizing that negligence of banking institutions should never be countenanced. The negligence here lies in the lackadaisical
attitude exhibited by employees of petitioner PNB in their treatment of respondent Pikes US Dollar Savings Account that resulted in the unauthorized
withdrawal of $7,500.00. Nevertheless, though its employees may be the ones negligent, a banks liability as an obligor is not merely vicarious but
primary, as banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees, 19 and having such
obligation, this Court cannot ignore the circumstances surrounding the case at bar how the employees of petitioner PNB turned their heads, nay,
closed their eyes to the suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may even be said that they went out of their
ways to disregard standard operating procedures formulated to ensure the security of each and every account that they are handling. Petitioner PNB
does not deny that the withdrawal slips used were in breach of standard operating procedures of banks in the ordinary and usual course of banking
operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner PNBs Buendia branch, on crossexamination20 he stated thus:
Q: Mr. Witness, when the original of Exhibit "B"21 was presented to you for approval, how many signatures of depositor appears thereon?

A: Two (2) signatures appears (sic) on the face of the withdrawal slip.
Q: When it (sic) was (sic) presented to you immediately?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir. Because it was pre signed withdrawal slip.
Q: What does the signature appear, the word recipient means?
A: Received.
Q: So, what you are saying is that, the depositor here signed this even before receiving the amount?
A: Because before the withdrawal was made, Mr. Pike, the depositor came to the bank when he withdrew the $2,000.00 and instructed me or requested
us even the supervisor to honor all withdrawal slip.
Q: And this is a regular procedure?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir.
Q: Do you have written manual on this particular procedure, Mr. Witness?
A: Of course, that includes in the Rules and regulations of the bank.
Q: Are you are (sic) are very sure of that?
A: And banking is a fast transaction between the depositor and the bank.
Q: And then, is the use of the back portion of the withdrawal slip with a heading of authorization?
A: Normally, a depositor and the bank agrees on certain terms that if you allow withdrawal from his account, his or her account, its enough that the
signature of the depositor appears on both spaces in the front side of the withdrawal slip. Even if you do not have the back portion of the withdrawal slip.
Q: You are very sure of that?
A: Yes, sir.
Q: And that has been done with the other withdrawal slip of Norman Pike as stated or as shown in the Statement of Account?
A: Yes, sir.
Q: That withdrawal made by representative?
A: Yes, sir.
From the foregoing, petitioner PNBs witness was utterly remiss in protecting the banks client, as well as the bank itself, when he allowed an account
holder to make it appear as if he was the one actually withdrawing from an account and actually receiving the withdrawn amount. Ordinarily, banks allow
withdrawal by someone who is not the account holder so long as the account holder authorizes his representative to withdraw and receive from his
account by signing on the space provided particularly for such transactions, usually found at the back of withdrawal slips. As fittingly found by the
courts a quo, if indeed, respondent Pike signed the withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNBs AVP at its Buendia branch, why
did he not call respondent Pikes attention and refer him to the space provided for authorizing representatives to withdraw from and receive the proceeds
of such withdrawal? Or, at the very least, sign or initial the same so that he could identify the pre-signed withdrawal slips made by Mr. Pike?
Q: You are also saying that on March 15, 1993, you likewise met Joy Manuel Dabasol?
A: Yes, sir.

Q: And you (sic) also saying on March 15, 1993, you also met Norman Pike, the depositor,
A: Yes, sir.
Q: And when did you first met (sic) Norman Pike?
A: March 15 when he withdrew $2,000.00.
Q: That was the first time?
A: First time, yes.
Q: And Mr. Norman Pike was already transacting with you long before that day, is this correct? For how long was he transacting with you?
A: That was my first time.
Q: That was the first time. What I mean is, that he was transacting with the PNB, Buendia Branch long before you met him?
A: Maybe.

Q: And the withdrawal made on April 5, 1993 which you approved, you did not look at Exhibit "C", the Savings Signature Card Individual?
A: We do not look at that, that is kept in the vault.
Q: Yes or no?
A: No, sir.

Q: And Mr. witness, Exhibit "C-1"22 which is being kept at your vault, also contains a picture?
A: Yes, sir.
Q: And the picture of the depositor?
A: Yes, sir.
Q: And are you familiar with the identity of the depositor Norman Pike?
A: What particular identity?
Q: His appearance?
A: He is gay looking fellow.
COURT: Answer. You are familiar with his physical appearance?
A: Not so much. Because there are so much depositor (sic) in the bank.23 [Emphasis ours.]
By his own testimony, the witness negated the very reason for the banks bizarre "accommodation" of the alleged verbal request of respondent Pike
that he was a "valued client." From the aforequoted, it appears that the witness, Lorenzo Bal, was not even reasonably familiar with respondent Pike,
yet, he was ready, willing and able to accommodate the verbal request of said depositor. Worse still, the witness still approved the withdrawal transaction
without asking for any proof of identification for the reason that: 1) Davasol was in possession of a pre-signed withdrawal slip; and 2) the witness
"recognized" the signature of respondent Pike even after admitting that he did not bother to counter check the signature on the slip with the specimen
signature card of respondent Pike and that he met respondent Pike just once so that he cannot seem to recall what the latter looks like. The ensuing
quoted testimony of the same witness will justify a finding of negligence amounting to bad faith, to wit:
Q: And you also met Joy Manuel Dabasol on March 15?
A: Yes, sir.

Q: And can you describe Joy Manuel Dabasol?


A: I cannot recall his face but then he is a Talent manager, because there are so many depositors in the bank.
...
Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you verbal authority to honor withdrawal by Joy Manuel Dabasol?
A: Yes, sir.
Q: Why did you not require then that Mr. Pike instead sign the authorization portion and that the name of Joy Manuel Dabasol appear thereon with his
signature?
...
A: I required Mr. Norman Pike to sign the withdrawal slip on the face of the withdrawal slip.
Q: But not the authorization portion of the said withdrawal slip?
...
A: No, because that is sufficient already.
Q: And is this your normal procedure, Mr. witness? This particular procedure that you conducted?
A: I dont think so.
Q: Mr. witness, when on April 5, 1993, when Joy Dabasol came to the office and according to you, you do not remember him, is that correct?
A: I cannot recall his face.
...
Q: And he just showed you a withdrawal slip, is this correct?
A: Yes, on April 5.
Q: Did you require him to produce any Identification Card, yes or no?
A: No.
Q: And how did you know then that it was Joy Dabasol who was making the withdrawal on April 5?
A: Because the presigned withdrawal slip was presented to me.
Q: Is that all your basis?
A: Yes, sir. Because his signature appears.
...
Q: Mr. witness, this alleged authority given to you by Norman Pike to honor withdrawal by Joy Manuel Dabasol, was that in writing?
A: It was verbally requested.
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal authorities?
A: Yes.
Q: Is that Standard Operating Procedure?
A: It is not SPO, but when you knew the client, Your Honor, you have to honor also the trust and confidence. Let us say if you

Q: According to you, you met Norman Pike only on March 15, 1993 and immediately you allowed him to withdraw through pre-signed withdrawal slip?
A: Yes, Your Honor. Because a depositor requested you to honor his signature, you have to do that or else willand besides the request is for purpose
of expediency, Your Honor. Because most often than that, he is out of the country, in Japan. And his Talent Manager is the one managing the recruiting
agency. The money will be used in the operating expenses.
...
Q: You did not even bother to look at the Savings Signature Card Individual, yes or no?
A: No, sir.24 [Emphases supplied.]
Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to withdrawals by representatives should have
already put petitioner PNBs employees on guard. Rather than readily validating and permitting said withdrawals, they should have proceeded more
cautiously. Clearly, petitioner banks employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless in his treatment of
respondent Pikes savings account.
From the foregoing, the evidence clearly showed that the petitioner bank did not exercise the degree of diligence that it ought to have exercised in
dealing with their clients.
With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than that of a good father of a family considering that the
business of banking is imbued with public interest due to the nature of their functions. The stability of banks largely depends on the confidence of the
people in the honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of banking. Section 2 of Republic Act No. 8791, 25 which took effect on 13 June 2000, makes
a categorical declaration that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." 26
Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a statutory affirmation of Supreme Court decisions
already in esse at the time of such withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals,27 that "the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." 28
Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals,29 we clarified that said fiduciary relationship means that the
banks obligation to observe "highest standards of integrity and performance" is deemed written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the
New Civil Code states that the degree of diligence required of an obligor 30 is that prescribed by law or contract, and absent such stipulation then the
diligence of a family. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such accounts consist only of a
few hundred pesos or of millions of pesos.31
Anent the issue of the propriety of the award of damages in this case, petitioner PNB asseverates that there was no evidence to prove that respondent
Pike "suffered anguish, embarrassment and mental sufferings"32 due to its acts in allowing the alleged unauthorized withdrawals. And, having relied on
the instructions of a valued depositor, petitioner PNB likewise avers that its actions were made in good faith, for this reason, there is no factual basis for
said award.
Petitioner PNBs assertions fail to impress us.
The award of moral and exemplary damages is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not
be disturbed on appeal.33 In the case of Philippine Telegraph & Telephone Corporation v. Court of Appeals,34 we had the occasion to reiterate the
conditions to be met in order that moral damages may be recovered. In said case we stated:
An award of moral damages would require, firstly, evidence of besmirched reputation, or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate
cause of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Articles
221935 and 222036 of the Civil Code.
Specifically, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the defendant has acted fraudulently or in bad
faith,37 or is found guilty of gross negligence amounting to bad faith,38or in wanton disregard of his contractual obligations.39 Verily, the breach must be
wanton, reckless, malicious, or in bad faith, oppressive or abusive.40
There is no reason to disturb the trial courts finding of petitioner banks employees negligence in their treatment of respondent Pikes account. In the
case on hand, the Court of Appeals sustained, and rightly so, that an award of moral damages is warranted. For, as found by said appellate court, citing
the case of Prudential Bank v. Court of Appeals,41 "the banks negligence is a result of lack of due care and caution required of managers and employees
of a firm engaged in so sensitive and demanding business, as banking, hence, the award ofP20,000.00 as moral damages, is proper.
The award of exemplary damages is also proper as a warning to petitioner PNB and all concerned not to recklessly disregard their obligation to exercise
the highest and strictest diligence in serving their depositors.
Finally, the aforestated grant of exemplary damages entitles respondent Pike the award of attorney's fees in the amount of P20,000.00 and the award of
P10,000.00 for litigation expenses.42

WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 December 2002, and the Resolution dated 02 April 2003, both of the
Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision rendered by the Regional Trial Court (RTC), Branch 07 of
Manila, dated 10 January 1997, in Civil Case No. 94-68821, are hereby AFFIRMED with the modification that petitioner PNB is directed to pay
respondent Pike additional 1) P20,000.00 representing attorneys fees; and 2) P10,000.00 representing expenses of litigation. Costs against petitioner
PNB.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
SECOND DIVISION
G.R. No. 153784 October 25, 2005
ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA IV, Petitioners,
vs.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK (Now EQUITABLE PCIBANK), Respondents.
DECISION
Tinga, J.:
Employees who abuse their position for fiduciary gain cannot be shielded from the consequences of their wrongdoing even on account of the banks
operational laxities that may have provided the gateway for their shenanigans. Their misconduct provides the bank with cause for the termination of their
employment.
The facts follow.
Petitioners Romeo Cadiz ("Cadiz"), Carlito Bongkingki ("Bongkingki") and Prisco Gloria IV ("Gloria") were employed as signature verifier, bookkeeper,
and foreign currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch (MOB) of Philippine Commercial International Bank
(respondent bank).
The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a complaint with PCIB for the alleged non-receipt of a Six Hundred Dollar
($600.00) demand draft drawn against it which was purchased by her husband from Hongkong and Shanghai Banking Corporation. Upon verification, it
was uncovered that the demand draft was deposited on 10 June 1988 with FCDU Savings Account (S/A) No. 1083-4, an account under the name of
Sonia Alfiscar (Alfiscar). Further investigation revealed that the demand draft, together with four (4) other checks, was made to appear as only one
deposit covered by HSBC Check No. 979120 for One Thousand Two Hundred Thirty-two Dollars (US$1,232.00).
The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz, Bongkingki and Gloria allegedly verbally admitted their
participation in a scheme to divert funds intended for other accounts using the Savings Account of Alfiscar. Subsequently, Cadiz allegedly paid
Alqueza P12,690.00, the peso equivalent of US$600, but insisted that the corresponding receipt be issued in Alfiscars name instead.
On account of these allegations, a special audit examination was conducted by the bank. On 31 January 1989, the internal auditors of the bank, headed
by Lizza G. Baylon, submitted their findings in an official report. The auditors determined that as early as July 1987, petitioner Cadiz had reserved the
savings account in the name of Sonia Alfiscar. The account was opened on 27 November 1987 and closed on 23 June 1988. Twenty-five (25) deposit
slips involving the account were posted by Bongkingki while sixteen (16) deposit slips were posted by Gloria. A verification of the deposit slips yielded
findings of miscoded checks, forged signatures, non-validation of deposit slips by the tellers, wrongful deposit of second-endorsed checks into foreign
currency deposit accounts, the deposit slips which do not bear the required approval of bank officers, and withdrawals made either on the day of deposit
or the following banking day.1
In view of such findings, show-cause memoranda2 were served on petitioners, requiring them to explain within seventy-two (72) hours why no
disciplinary action should
be taken against them in connection with the results of the special audit examination. On 22 March 1989, petitioners submitted their written
explanations.3 Not satisfied with their explanations, respondent bank in memoranda4 all dated 22 June 1989 dismissed petitioners from employment for
violation of Article III Section 1 B-2 and Article III Section 1-C of the Code of Discipline.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal on 18 September 1989. Labor Arbiter Ernesto S. Dinopol adjudged that
petitioners were illegally dismissed and ordered their reinstatement and payment of backwages. This conclusion was based on the notices of dismissal,
which, to the mind of the labor arbiter, was couched in general terms and without explaining how the rules were violated. The labor arbiter also attributed
petitioners acts in fraudulently coding several deposit slips as "1511" (immediately withdrawable) as mere procedural inadequacies, with the fault
attributable to respondent bank for its laxity.5
The labor arbiters Decision was reversed on appeal before the Second Division of the National Labor Relations Commission (NLRC), which, in
a Decision6 dated 30 June 1994, ordered the dismissal of the petition. In doing so, the NLRC departed from the labor arbiters finding of facts and
concluded that petitioners were dismissed for just cause. Dismissing petitioners appeal, the Court of Appeals Ninth Division similarly determined on the
basis of substantial evidence that petitioners were validly terminated in its own Decision7 dated 13 July 2001.
After the appellate court denied petitioners motion for reconsideration, the matter was brought before this Court in a Petition for Review on Certiorari. 8
The issues to be resolved are whether the Court of Appeals erred in not sustaining the findings of the labor arbiter and upholding those of the NLRC and
whether the Court of Appeals erred in dismissing the petition by ignoring petitioners claims that they were dismissed without just cause and due
process.9

In its Comment,10 respondent bank seeks to have the petition dismissed inasmuch as all the issues raised herein involve questions of fact. We note that
as a general rule, only questions of law may be brought upon this Court in a petition for review on certiorari under Rule 45 of the Rules of Court. This
Court is not a trier of facts, and as such is tasked to calibrate and assess the probative weight of evidence adduced by the parties during trial all over
again.11
However, if there are competing factual findings by the different triers of fact, such as those made in this case by the labor arbiter on one hand, and
those of the NLRC and Court of Appeals on the other hand, this Court is compelled to go over the records of the case, as well as the submissions of the
parties, and resolve the factual issues.12 With this in mind, we shall now proceed to examine the decisions under review.
The general thesis as laid down by the NLRC and Court of Appeals is that petitioners had surreptitiously diverted funds deposited by depositors to S/A
No. 1083-4 which was under their control and disposition. On the other hand, a perusal of the labor arbiters Decision reveals a different perspective
from which the case was approached. While the labor arbiter conceded that petitioners Bongkingki and Gloria had miscoded several deposit slips,
rendering them immediately withdrawable, he characterized the errors as "mere procedural inadequacies" which were preventable had management
exercised greater control over its employees.13
Far from petitioners thrust, the miscoding of deposit slips cannot be downplayed as "mere procedural inadequacies." After all, it is such miscoding that
precipitated the fraudulent withdrawals in the first place. The act operated as the first indispensable step towards the commission of fraud on the bank.
More disturbing though is the labor arbiters willingness to acquit petitioners of culpability on account of the purported negligence of the bank. It is similar
to concluding that the bank guards, and not the burglars, bear primary culpability for a bank robbery. Whatever liability or responsibility was expected of
the bank stands as an issue separate from the liability of the recreant bank employees. Even assuming that the bank observed less-than-ideal controls
over the security of its operations, such laxity does not serve as the carte blanche signal for the bank employees to take advantage of safeguard control
lapses and perpetrate chicanery on their employer.
The labor arbiter also evaluated the banks claim that Cadiz had reimbursed the amount of $600 to the aggrieved depositor Alqueza while making it
appear that it was Alfiscar who had actually made the refund. In disbelieving this claim, the Labor Arbiter concluded that "it is unthinkable for a lowly
bank employee to impose his will upon his high and mighty employer." 14
This pronouncement is revelatory of absurd logic. The notion that a lowly employee will never countermand the will or interests of the employer is
sufficiently rebutted by any labor law casebook, any omnibus of our labor jurisprudence, and the evolution of the human experience that disquiets
persons from unhesitatingly acceding to the presumptive good faith of others. It is an accepted premise of life and jurisprudence that persons are
capable, upon impure motivations, of taking advantage of others, whether their social lessers, equals, or betters. The necessity of punishment arises
from this flaw of human nature. This philosophic stance of the labor arbiter actually obviates the nature of sin.
Obviously, we are hard-pressed to accord high regard to the labor arbiters discernment as a trier of facts. Nonetheless, his claim that there were
procedural flaws attending the dismissal of petitioners warrants some deliberation.
The labor arbiter ruled that the notices of dismissal served on petitioners was insufficient as it failed to specifically delineate how petitioners had violated
the internal rules of the bank. However, the notices do cite the rules which petitioners had violated and refer to the fact that such violations occurred
relating to S/A No. 1083-4 account of Sonia Alfiscar and/or Rosalinda Alqueza.
There is no demand that the notices of dismissal themselves be couched in the form and language of judicial or quasi-judicial decisions. What is
required is that the employer conduct a formal investigation process, with notices duly served on the employees informing them of the fact of
investigation, and subsequently, if warranted, a separate notice of dismissal.15 Through the formal investigatory process, the employee must be
accorded the right to present his/her side, which must be considered and weighed by the employer. The employee must be sufficiently apprised of the
nature of the charge against him/her, so as to be able to intelligently defend against the charges.
In the instant case, records show that respondent bank complied with the two-notice rule prescribed in Article 277(b) of the Labor Code. 16 Petitioners
were given all avenues to present their side and disprove the allegations of respondent bank. An informal meeting was held between the branch
manager of MOB, the three petitioners and Mr. Gener, the Vice-President of the PCIB Employees Union. As per report, petitioners admitted having used
Alfiscars account to divert funds intended for other accounts. A special audit investigation was conducted to determine the extent of the fraudulent
transactions. Based on the results of the investigation, respondent bank sent show-cause memoranda to petitioners, asking them to explain their lapses,
under pain of disciplinary action. The memoranda, which constitute the first notice, specified the various questionable acts committed by petitioners.
Afterwards, petitioners submitted their respective replies to the memoranda. This very well complies with the requirement for hearing, by which
petitioners were afforded the opportunity to defend themselves. The second notice came in the form of the termination memoranda, informing petitioners
of their dismissal from service. From the foregoing, it is clear that the required procedural due process for their termination was strictly complied with.
All told, we hold that the factual appreciation and conclusions rendered by the labor arbiter are not worthy of adoption by this Court. In contrast, from the
factual determinations made by the NLRC and the Court of Appeals, we accept the following facts as proven:
1. Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on respondent banks "new account register."
2. Foreign denominated checks payable to other payees were diverted into the said account.
3. The various deposit slips, covering the said checks, did not bear the machine validation of any of the tellers-in-charge.
4. The signatures of the MOB officers appearing on the said deposit slips were in fact forged.

5. The posting of said bank transactions bore the initials of petitioners Bongkingki or Gloria.
6. The deposit slips were coded as "1511" or "on-us check."
7. Petitioner Cadiz agreed to pay Alqueza the equivalent amount of $600.00 but it was made to appear that Alfiscar paid the said amount.
8. In view of these findings, petitioners were served with show-cause memoranda asking them to explain the lapses.
9. Finding their explanations unsatisfactory, petitioners were terminated from employment.
It is from these established facts that we consider the arguments now presented by petitioners. In light of these facts, petitioners arguments hardly
detract from the conclusion that their behavior in the course of the discharge of their duties is clearly malfeasant, and constitutes ground for their
termination on account of just cause.
First, petitioners insist that the show-cause memoranda served on them did not impute any fraudulent behavior, but merely lapses. We disagree.
The show-cause memoranda were occasioned by the confidential report prepared by Sandig, as well as the findings of the special audit examination.
The confidential report prepared by Sandig addressed to the Vice-President of respondent bank pertains to the discovery of fraudulent transactions on
S/A No.1083-4 involving three employees of respondent bank. The report detailed how the events transpired, including the admissions of petitioners.
From there, a special audit examination was conducted to make a thorough investigation of the questioned account. The examination yielded
conspicuous findings that anomalous transactions had taken place involving petitioners.
Moreover, the show-cause memoranda respectively served on petitioners clearly indicate that they were being made to answer questions pertaining to
possible anomalous behavior on their part. For example, petitioners were asked to explain why they had posted the questioned deposits on the ledger,
although there were no teller validations or teller stamps, and also on what basis they considered such transactions to be valid. 17 On the other hand, the
show-cause memorandum to Cadiz directly asks him to provide the personal details of Sonia Alfiscar, why he went out of his way to make a special
arrangement for the mysterious Alfiscar, and other questions pertaining to the Alfiscar accounts.
We thus cannot give credence to the averments of petitioners that the memoranda pertain to "lapses", and not fraudulent transactions. The bank could
not have been expected to conclude outright that petitioners were guilty of fraud, despite all the indicia that they indeed were. Certainly, the purpose of
the show-cause memoranda was to afford petitioners the opportunity to acquit themselves of culpable responsibility. It would have been quite
irresponsible for the bank to have premised the queries therein on irretractable conclusions that petitioners had been guilty of anomalous transactions.
Second, petitioners contend that they should be relieved of any liability considering that respondent bank did not suffer a pecuniary loss. This claim must
obviously fail.
There is jurisprudential support, as noted by the Court of Appeals in citing University of the East v. NLRC18 that lack of material or pecuniary damages
would not in any way mitigate a persons liability nor obliterate the loss of trust and confidence. In the case of Etcuban v. Sulpicio Lines,19 this Court
definitively ruled that:
. . . Whether or not the respondent bank was financially prejudiced is immaterial. Also, what matters is not the amount involved, be it paltry or
gargantuan; rather the fraudulent scheme in which the petitioner was involved, which constitutes a clear betrayal of trust and confidence. . . .
Moreover, it cannot be discounted that as bank employees, the responsibilities of petitioners are impressed with a high degree of public interest. Private
persons entrust their fortunes to banks, and it would cause a breakdown of the financial order if the judicial system were to leave unsanctioned bank
employees who treat depositors accounts as their own private kitty.
Still, petitioners insist that respondent bank never lost trust and confidence in them as it did not place them under preventive suspension, and more
tellingly, it even promoted them after the labor arbiter had ordered their reinstatement. Preventive suspension, which is never obligatory on the part of
the employer, may be resorted to only when the continued employment of the employee poses "a serious and imminent threat to the life or property of
the employer or of his co-workers."20 The bank points out that the Alfiscar account, through which the anomalous transactions were coursed, was no
longer active at the time the fraud was discovered.21 Clearly, the bank had reason to conclude that the imminence of the threat posed by the employees
was not as vital as it would have been had the dubious account still been open.
As to the alleged promotions, the original employer, PCIB, admits that petitioners had been reinstated by reason of the Decision, but such act was by no
means voluntary. PCIB however does not rebut the allegations that Bongkingki and Cadiz were assigned to sensitive positions within the bank after their
compulsory reinstatement. This may be so, but the fact that PCIB lost no time in removing the employees from the plantilla after the NLRC reversed the
labor arbiters Decision hardly evinces any continuing trust and confidence on the part of the bank, as maintained by petitioners. Moreover, considering
that these reinstated employees were, for the meantime, regular employees of the bank, it is within the discretion of PCIB to reassign them as it sees fit,
taking into account the circumstances.
Moreover, it would simply be temerarious for the Court to sanction the reinstatement of bank employees who have clearly engaged in anomalous
banking practices. The particular fiduciary responsibilities reposed on banks and its employees cannot be emphasized enough. The fiduciary nature of
banking22 is enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and performance." 23 The bank must not only exercise "high standards of integrity and
performance," it must also ensure that its employees do likewise because this is the only way to ensure that the bank will comply with its fiduciary duty.24
All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of trust and confidence is one of the just causes for termination by
employer under Article 282 of the Labor Code. The breach of trust must be willful, meaning it must be done intentionally, knowingly, and purposely,

without justifiable excuse.25 Ideally, loss of confidence applies only to cases involving employees occupying positions of trust and confidence or to those
situations where the employee is routinely charged with the care and custody of the employers money or property.26 Utmost trust and confidence are
deemed to have been reposed on petitioners by virtue of the nature of their work.
The facts as established, as well as the need to assert the public interest in safeguarding against bank fraud, militate against the present petition.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
SECOND DIVISION
G.R. No. 157314 July 29, 2005
FAR EAST BANK AND TRUST COMPANY, NOW BANK OF THE PHILIPPINE ISLANDS, Petitioners,
vs.
THEMISTOCLES PACILAN, JR., Respondent.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari filed by Far East Bank and Trust Company (now Bank of the Philippines Islands) seeking the
reversal of the Decision1 dated August 30, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 36627 which ordered it, together with its branch
accountant, Roger Villadelgado, to pay respondent Themistocles Pacilan, Jr.2 the total sum of P100,000.00 as moral and exemplary damages. The
assailed decision affirmed with modification that of the Regional Trial Court (RTC) of Negros Occidental, Bacolod City, Branch 54, in Civil Case No.
4908. Likewise sought to be reversed and set aside is the Resolution dated January 17, 2003 of the appellate court, denying petitioner banks motion for
reconsideration.
The case stemmed from the following undisputed facts:
Respondent Pacilan opened a current account with petitioner banks Bacolod Branch on May 23, 1980. His account was denominated as Current
Account No. 53208 (0052-00407-4). The respondent had since then issued several postdated checks to different payees drawn against the said
account. Sometime in March 1988, the respondent issued Check No. 2434886 in the amount of P680.00 and the same was presented for payment to
petitioner bank on April 4, 1988.
Upon its presentment on the said date, Check No. 2434886 was dishonored by petitioner bank. The next day, or on April 5, 1988, the respondent
deposited to his current account the amount of P800.00. The said amount was accepted by petitioner bank; hence, increasing the balance of the
respondents deposit to P1,051.43.
Subsequently, when the respondent verified with petitioner bank about the dishonor of Check No. 2434866, he discovered that his current account was
closed on the ground that it was "improperly handled." The records of petitioner bank disclosed that between the period of March 30,
1988 and April 5, 1988, the respondent issued four checks, to wit: Check No. 2480416 for P6,000.00; Check No. 2480419 for P50.00; Check No.
2434880 for P680.00 and; Check No. 2434886 for P680.00, or a total amount ofP7,410.00. At the time, however, the respondents current account with
petitioner bank only had a deposit ofP6,981.43. Thus, the total amount of the checks presented for payment on April 4, 1988 exceeded the balance of
the respondents deposit in his account. For this reason, petitioner bank, through its branch accountant, Villadelgado, closed the respondents current
account effective the evening of April 4, 1988 as it then had an overdraft of P428.57. As a consequence of the overdraft, Check No. 2434886 was
dishonored.
On April 18, 1988, the respondent wrote to petitioner bank complaining that the closure of his account was unjustified. When he did not receive a reply
from petitioner bank, the respondent filed with the RTC of Negros Occidental, Bacolod City, Branch 54, a complaint for damages against petitioner bank
and Villadelgado. The case was docketed as Civil Case No. 4908. The respondent, as complainant therein, alleged that the closure of his current
account by petitioner bank was unjustified because on the first banking hour of April 5, 1988, he already deposited an amount sufficient to fund his
checks. The respondent pointed out that Check No. 2434886, in particular, was delivered to petitioner bank at the close of banking hours on April 4,
1988 and, following normal banking procedure, it
(petitioner bank) had until the last clearing hour of the following day, or on April 5, 1988, to honor the check or return it, if not funded. In disregard of this
banking procedure and practice, however, petitioner bank hastily closed the respondents current account and dishonored his Check No. 2434886.
The respondent further alleged that prior to the closure of his current account, he had issued several other postdated checks. The petitioner banks act of
closing his current account allegedly preempted the deposits that he intended to make to fund those checks. Further, the petitioner banks act exposed
him to criminal prosecution for violation of Batas Pambansa Blg. 22.
According to the respondent, the indecent haste that attended the closure of his account was patently malicious and intended to embarrass him. He
claimed that he is a Cashier of Prudential Bank and Trust Company, whose branch office is located just across that of petitioner bank, and a prominent
and respected leader both in the civic and banking communities. The alleged malicious acts of petitioner bank besmirched the respondents reputation
and caused him "social humiliation, wounded feelings, insurmountable worries and sleepless nights" entitling him to an award of damages.
In their answer, petitioner bank and Villadelgado maintained that the respondents current account was subject to petitioner banks Rules and
Regulations Governing the Establishment and Operation of Regular Demand
Deposits which provide that "the Bank reserves the right to close an account if the depositor frequently draws checks against insufficient funds and/or
uncollected deposits" and that "the Bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for
any reason."3

They showed that the respondent had improperly and irregularly handled his current account. For example, in 1986, the respondents account was
overdrawn 156 times, in 1987, 117 times and in 1988, 26 times. In all these instances, the account was overdrawn due to the issuance of checks against
insufficient funds. The respondent had also signed several checks with a different signature from the specimen on file for dubious reasons.
When the respondent made the deposit on April 5, 1988, it was obviously to cover for issuances made the previous day against an insufficiently funded
account. When his Check No. 2434886 was presented for payment on April 4, 1988, he had already incurred an overdraft; hence, petitioner bank
rightfully dishonored the same for insufficiency of funds.
After due proceedings, the court a quo rendered judgment in favor of the respondent as it ordered the petitioner bank and Villadelgado, jointly and
severally, to pay the respondent the amounts of P100,000.00 as moral damages and P50,000.00 as exemplary damages and costs of suit. In so ruling,
the court a quo also cited petitioner banks rules and regulations which state that "a charge of P10.00 shall be levied against the depositor for any check
that is taken up as a returned item due to insufficiency of funds on the date of receipt from the clearing office even if said check is honored and/or
covered by sufficient deposit the following banking day." The same rules and regulations also provide that "a check returned for insufficiency of funds for
any reason of similar import may be subsequently recleared for one more time only, subject to the same charges."
According to the court a quo, following these rules and regulations, the respondent, as depositor, had the right to put up sufficient funds for a check that
was taken as a returned item for insufficient funds the day following the receipt of said check from the clearing office. In fact, the said check could still be
recleared for one more time. In previous instances, petitioner bank notified the respondent when he incurred an overdraft and he would then deposit
sufficient funds the following day to cover the overdraft. Petitioner bank thus acted unjustifiably when it immediately closed the respondents account on
April 4, 1988 and deprived him of the opportunity to reclear his check or deposit sufficient funds therefor the following day.
As a result of the closure of his current account, several of the respondents checks were subsequently dishonored and because of this, the respondent
was humiliated, embarrassed and lost his credit standing in the business community. The court a quo further ratiocinated that even
granting arguendo that petitioner bank had the right to close the respondents account, the manner which attended the closure constituted an abuse of
the
said right. Citing Article 19 of the Civil Code of the Philippines which states that "[e]very person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good faith" and Article 20 thereof which states that "[e]very person who,
contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same," the court a quo adjudged petitioner bank of
acting in bad faith. It held that, under the foregoing circumstances, the respondent is entitled to an award of moral and exemplary damages.
The decretal portion of the court a quos decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. Ordering the defendants [petitioner bank and Villadelgado], jointly and severally, to pay plaintiff [the respondent] the sum of P100,000.00 as moral
damages;
2. Ordering the defendants, jointly and severally, to pay plaintiff the sum of P50,000.00 as exemplary damages plus costs and expenses of the suit; and
3. Dismissing [the] defendants counterclaim for lack of merit.
SO ORDERED.4
On appeal, the CA rendered the Decision dated August 30, 2002, affirming with modification the decision of the court a quo.
The appellate court substantially affirmed the factual findings of the court a quo as it held that petitioner bank unjustifiably closed the respondents
account notwithstanding that its own rules and regulations
allow that a check returned for insufficiency of funds or any reason of similar import, may be subsequently recleared for one more time, subject to
standard charges. Like the court a quo, the appellate court observed that in several instances in previous years, petitioner bank would inform the
respondent when he incurred an overdraft and allowed him to make a timely deposit to fund the checks that were initially dishonored for insufficiency of
funds. However, on April 4, 1988, petitioner bank immediately closed the respondents account without even notifying him that he had incurred an
overdraft. Even when they had already closed his account on April 4, 1988, petitioner bank still accepted the deposit that the respondent made on April
5, 1988, supposedly to cover his checks.
Echoing the reasoning of the court a quo, the CA declared that even as it may be conceded that petitioner bank had reserved the right to close an
account for repeated overdrafts by the respondent, the exercise of that right must never be despotic or arbitrary. That petitioner bank chose to close the
account outright and return the check, even after accepting a deposit sufficient to cover the said check, is contrary to its duty to handle the respondents
account with utmost fidelity. The exercise of the right is not absolute and good faith, at least, is required. The manner by which petitioner bank closed the
account of the respondent runs afoul of Article 19 of the Civil Code which enjoins every person, in the exercise of his rights, "to give every one his due,
and observe honesty and good faith."

The CA concluded that petitioner banks precipitate and imprudent closure of the respondents account had caused him, a respected officer of several
civic and banking associations, serious anxiety and humiliation. It had, likewise, tainted his credit standing. Consequently, the award of damages is
warranted. The CA, however, reduced the amount of damages awarded by the court a quo as it found the same to be excessive:

We, however, find excessive the amount of damages awarded by the RTC. In our view the reduced amount ofP75,000.00 as moral damages
and P25,000.00 as exemplary damages are in order. Awards for damages are not meant to enrich the plaintiff-appellee [the respondent] at the expense
of defendants-appellants [the petitioners], but to obviate the moral suffering he has undergone. The award is aimed at the restoration, within limits
possible, of the status quo ante, and should be proportionate to the suffering inflicted.5
The dispositive portion of the assailed CA decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION that the award of moral damages is reduced
to P75,000.00 and the award of exemplary damages reduced to P25,000.00.
SO ORDERED.6
Petitioner bank sought the reconsideration of the said decision but in the assailed Resolution dated January 17, 2003, the appellate court denied its
motion. Hence, the recourse to this Court.
Petitioner bank maintains that, in closing the account of the respondent in the evening of April 4, 1988, it acted in good faith and in accordance with the
rules and regulations governing the operation of a
regular demand deposit which reserves to the bank "the right to close an account if the depositor frequently draws checks against insufficient funds
and/or uncollected deposits." The same rules and regulations also provide that "the depositor is not entitled, as a matter of right, to overdraw on this
deposit and the bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for any reason."
It cites the numerous instances that the respondent had overdrawn his account and those instances where he deliberately signed checks using a
signature different from the specimen on file. Based on these facts, petitioner bank was constrained to close the respondents account for improper and
irregular handling and returned his Check No. 2434886 which was presented to the bank for payment on April 4, 1988.
Petitioner bank further posits that there is no law or rule which gives the respondent a legal right to make good his check or to deposit the corresponding
amount to cover said check within 24 hours after the same is dishonored or returned by the bank for having been drawn against insufficient funds. It
vigorously denies having violated Article 19 of the Civil Code as it insists that it acted in good faith and in accordance with the pertinent banking rules
and regulations.
The petition is impressed with merit.
A perusal of the respective decisions of the court a quo and the appellate court show that the award of damages in the respondents favor was anchored
mainly on Article 19 of the Civil Code which, quoted anew below, reads:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.
The elements of abuse of rights are the following: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another.7 Malice or bad faith is at the core of the said provision.8 The law always presumes good faith and any person who seeks
to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill-motive. 9 Good faith refers to the state
of the mind which is manifested by the acts of the individual concerned. It consists of the intention to abstain from taking an unconscionable and
unscrupulous advantage of another.10 Bad faith does not simply connote bad judgment or simple negligence, dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of known duty due to some motives or interest or ill-will that partakes of the nature of fraud. 11Malice connotes
ill-will or spite and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive. 12
Undoubtedly, petitioner bank has the right to close the account of the respondent based on the following provisions of its Rules and Regulations
Governing the Establishment and Operation of Regular Demand Deposits:
10) The Bank reserves the right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits.

12)
However, it is clearly understood that the depositor is not entitled, as a matter of right, to overdraw on this deposit and the bank reserves the right at any
time to return checks of the depositor which are drawn against insufficient funds or for any other reason.
The facts, as found by the court a quo and the appellate court, do not establish that, in the exercise of this right, petitioner bank committed an abuse
thereof. Specifically, the second and third elements for abuse of rights are not attendant in the present case. The evidence presented by petitioner bank
negates the existence of bad faith or malice on its part in closing the respondents account on April 4, 1988 because on the said date the same was
already overdrawn. The respondent issued four checks, all due on April 4, 1988, amounting to P7,410.00 when the balance of his current account
deposit was only P6,981.43. Thus, he incurred an overdraft of P428.57 which resulted in the dishonor of his Check No. 2434886. Further, petitioner bank
showed that in 1986, the current account of the respondent was overdrawn 156 times due to his issuance of checks against insufficient funds. 13 In 1987,
the said account was overdrawn 117 times for the same

reason.14 Again, in 1988, 26 times.15 There were also several instances when the respondent issued checks deliberately using a signature different from
his specimen signature on file with petitioner bank.16 All these circumstances taken together justified the petitioner banks closure of the respondents
account on April 4, 1988 for "improper handling."
It is observed that nowhere under its rules and regulations is petitioner bank required to notify the respondent, or any depositor for that matter, of the
closure of the account for frequently drawing checks against insufficient funds. No malice or bad faith could be imputed on petitioner bank for so acting
since the records bear out that the respondent had indeed been improperly and irregularly handling his account not just a few times but hundreds of
times. Under the circumstances, petitioner bank could not be faulted for exercising its right in accordance with the express rules and regulations
governing the current accounts of its depositors. Upon the opening of his account, the respondent had agreed to be bound by these terms and
conditions.
Neither the fact that petitioner bank accepted the deposit made by the respondent the day following the closure of his account constitutes bad faith or
malice on the part of petitioner bank. The same could be characterized as simple negligence by its personnel. Said act, by itself, is not constitutive of
bad faith.
The respondent had thus failed to discharge his burden of proving bad faith on the part of petitioner bank or that it was motivated by ill-will or spite in
closing his account on April 4, 1988 and in inadvertently accepting his deposit on April 5, 1988.
Further, it has not been shown that these acts were done by petitioner bank with the sole intention of prejudicing and injuring the respondent. It is
conceded that the respondent may have suffered damages as a result of the closure of his current account. However, there is a material distinction
between damages and injury. The Court had the occasion to explain the distinction between damages and injury in this wise:
Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from the injury; and damages are the recompense or
compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the
result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages
resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a
breach of duty which the defendant owed to the plaintiff a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The
underlying basis for the award of tort damages is the premise that the individual was injured in contemplation of law. Thus, there must first be a breach of
some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of
the injury.17
Whatever damages the respondent may have suffered as a consequence, e.g., dishonor of his other insufficiently funded checks, would have to be
borne by him alone. It was the respondents repeated improper
and irregular handling of his account which constrained petitioner bank to close the same in accordance with the rules and regulations governing its
depositors current accounts. The respondents case is clearly one of damnum absque injuria.
WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2002 and Resolution dated January 17, 2003 of the Court of Appeals in CAG.R. CV No. 36627 are REVERSED AND SET ASIDE.
SO ORDERED.
ROMEO J. CALLEJO, SR.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146918

May 2, 2006

CITIBANK, N.A., Petitioner,


vs.
SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO CABAMONGAN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated January 26, 2001 and the Resolution2dated July 30, 2001 of the Court of
Appeals (CA) in CA-G.R. CV No. 59033.
The factual background of the case is as follows:
On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign currency time deposit in trust for their sons Luis, Jr. and
Lito at the Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days or until February 14,
1994, at 2.5625 per cent interest per annum.3 Prior to maturity, or on November 10, 1993, a person claiming to be Carmelita went to the Makati branch
and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay
Credit Card.4 She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the
transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. 5Since the said
person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document in favor of Citibank, pursuant
to Citibank's internal procedure, before the money was released to her.6 The release and waiver document7 was not notarized on that same day but the
money was nonetheless given to the person withdrawing.8 The transaction lasted for about 40 minutes.9
After said person left, San Pedro realized that she left behind an identification card.10 Thus, San Pedro called up Carmelita's listed address at No. 48
Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the card picked up.11 Marites, the wife of Lito, received San Pedro's
call and was stunned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that
time.12 The Cabamongan spouses work and reside in California. Marites made an overseas call to Carmelita to inform her about what happened. 13 The
Cabamongan spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an unidentified person broke in at the
couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box was missing,
but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and
identification cards were also missing.14 It was only then that the Cabamongan spouses realized that their passports and bank deposit certificates were
lost.15
Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that Carmelita was in the United States and did not
preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California
residence. San Pedro told the spouses to submit the necessary documents to support their claim but Citibank concluded nonetheless that Carmelita
indeed preterminated her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through counsel, made a formal demand upon
Citibank for payment of their preterminated deposit in the amount of $55,216.69 with legal interests. 16 In a letter dated November 28, 1994, Citibank,
through counsel, refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper
identification and verification.17
On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the Regional Trial Court of Makati for Specific Performance
with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC). 18
In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject deposit was released to Carmelita only upon
proper identification and verification.19
At the pre-trial conference the parties failed to arrive at an amicable settlement.20 Thus, trial on the merits ensued.
For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents Examiner II of the Philippine National Police (PNP) Crime
Laboratory in Camp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the
deposit account since she was in California at the time of the incident. 21 Negre testified that an examination of the questioned signature and the samples
of the standard signatures of Carmelita submitted in the RTC showed a significant divergence. She concluded that they were not written by one and the
same person.22
For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-Charge of Security and Management Division. Both
San Pedro and Cabalatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper
identification and verification.23
On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:
1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372) amounting to $55,216.69 or its Phil. Currency
equivalent plus interests from August 16, 1993 until fully paid;
2) Moral damages of P50,000.00;
3) Attorney's fees of P50,000.00; and
4) Cost of suit.
SO ORDERED.24
The RTC reasoned that:
xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita
Cabamongan on the questioned documents has been categorically established by the handwriting expert. xxx Defendant bank was clearly remiss in its
duty and obligations to treat plaintiff's account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation
to treat the accounts of their depositors with meticulous care. This is the reason for their established procedure of requiring several specimen signatures
and recent picture from potential depositors. For every transaction, the depositor's signature is passed upon by personnel to check and countercheck
possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy.25
Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider the decision by praying for an
increase of the amount of the damages awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the motion for partial
reconsideration and amended the dispositive portion of the decision as follows:
From the foregoing, and considering all the evidence laid down by the parties, the dispositive portion of the court's decision dated July 1, 1997 is hereby
amended and/or modified to read as follows:
WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:
1) the principal amount of their foreign currency deposit (Reference No. 6022214372) amounting to $55,216.69 or its Philippine currency
equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid.
2) moral damages in the amount of P200,000.00;
3) exemplary damages in the amount of P100,000.00;
4) attorney's fees of P100,000.00;
5) litigation expenses of P200,000.00;
6) cost of suit.
SO ORDERED.28
Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033.29 On January 26, 2001, the CA rendered a decision sustaining
the finding of the RTC that Citibank was negligent, ratiocinating in this wise:
In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated on 10 November 1993. But Carmelita Cabamongan,
who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, California, had shown through her Certificate of Employment and her
Daily Time Record from the [sic] January to December 1993 that she was in the United States at the time of the incident.
Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the deposit despite claims to the contrary. Its basis for saying
so is the fact that the person who made the transaction on the incident mentioned presented a valid passport and three (3) other identification cards. The
attending account officer examined these documents and even interviewed said person. She was satisfied that the person presenting the documents
was indeed Carmelita Cabamongan. However, such conclusion is belied by these following circumstances.
First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would not have been an insurmountable obstacle
as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver
document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the
money to the impostor without having the said document notarized on the flimsy excuse that another department of the bank was in charge of
notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At the very least, the conduct of
the bank amounts to negligence.

Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported that upon comparing the authentic
signatures of Carmelita Cabamongan on file with the bank with the signatures made by the person claiming to be Cabamongan on the documents
required for the termination of the deposit, she noticed that one letter in the latter [sic] signatures was different from that in the standard signatures. She
requested said person to sign again and scrutinized the identification cards presented. Presumably, San Pedro was satisfied with the second set of
signatures made as she eventually authorized the termination of the deposit. However, upon examination of the signatures made during the incident by
the Philippine National Police (PNP) Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document Examiner
Florenda Negre were established and she satisfactorily testified on her findings during the trial, we have no reason to doubt the validity of her findings.
Again, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to
ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous
situation. Undoubtedly, the bank could have done a better job.
Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees could have been duped by an impostor. San Pedro
admitted in her testimony that the woman she dealt with did not resemble the pictures appearing on the identification cards presented but San Pedro still
went on with the sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also
considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a
mole. These explanations do not account for the disparity between the pictures and the actual appearance of the impostor. That said person was
allowed to withdraw the money anyway is beyond belief.
The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to
check and countercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover
mistakes of its employees despite established bank procedure involving a battery of personnel designed to minimize if not eliminate errors. In the instant
case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure when she did not have the waiver document
notarized. She also openly courted disaster by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented,
as well as the disparities between the signatures made during the transaction and those on file with the bank. But even if San Pedro was negligent, why
must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and unrectified? 30
The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date from which legal interest of 12% is to run, it should
be counted from September 16, 1994 when extrajudicial demand was made. As to moral damages, the CA reduced it to P100,000.00 and deleted the
awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads:
WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November 1997, are hereby AFFIRMED with the
MODIFICATION that the legal interest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages
amounting to P100,000.00 and litigation expenses amounting to P200,000.00 are deleted; and moral damages is reduced to P100,000.00.
Costs against defendant.
SO ORDERED.31
The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the decision. 32 On July 30, 2001, the
CA granted in part said motion and modified its decision as follows:
1. The actual damages in amount of $55,216.69, representing the amount of appellees' foreign currency time deposit shall earn an interest of
2.5625% for the period 16 August 1993 to 14 February 1994, as stipulated in the contract;
2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest at the legal rate of 12% per annum, and;
3. The award of moral damages is reduced to P50,000.00.33
Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The Cabamongan spouses' petition, docketed as G.R. No.
149234, was denied by the Court per its Resolution dated October 17, 2001.34 On the other hand, Citibank's petition was given due course by the Court
per Resolution dated December 10, 2001 and the parties were required to submit their respective memoranda.35
Citibank poses the following errors for resolution:
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THE LOWER
COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS.
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING
MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD.
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMOUNT OF US$55,216.69 SHOULD
EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT.36
Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was negligent since the said courts failed to appreciate
the extra diligence of a good father of a family exercised by Citibank thru San Pedro.

As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral damages since moral damages can be awarded only
in cases of breach of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that
Citibank acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on
account thereof, is not a ground for awarding moral damages.
On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis
to pay the interest rate of 12% per annum from September 16, 1994 until full payment because as of said date there was no legal ground yet for the
Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issued declaring that Citibank is obliged to return the
principal amount of US$55,216.69 when the right to demand payment starts and legal interest starts to run.
On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence. As to the interest rate, they submit
that the stipulated interest of 2.5635% should apply for the 182-day contract period from August 16, 1993 to February 14, 1993; thereafter, 12% should
apply. They further contend that the RTC's award of exemplary damages of P100,000.00 should be maintained. They submit that the CA erred in treating
the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in litigating their claim against Citibank. They
also contend that the CA erred in reducing the award of moral damages in view of the degree of mental anguish and emotional fears, anxieties and
nervousness suffered by them.37
Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,38 wherein it posits that, assuming that it was negligent, the
Cabamongan spouses were guilty of contributory negligence since they failed to notify Citibank that they had migrated to the United States and were
residents thereat and after having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of the
disappearance of the bank certificate, their passports and other identification cards, then the fraud would not have been perpetuated and the losses
avoided. It further argues that since the Cabamongan spouses are guilty of contributory negligence, the doctrine of last clear chance is inapplicable.
Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of the doctrine of last clear chance cannot
pass muster since these contentions were raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said
contention were neither pleaded in the petition for review and the memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed
with the CA. To consider the alleged facts and arguments raised belatedly in a supplemental pleading to herein petition for review at this very late stage
in the proceedings would amount to trampling on the basic principles of fair play, justice and due process. 391avvphil.net
The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust
and confidence of the public in general. Consequently, the highest degree of diligence 40 is expected,41 and high standards of integrity and performance
are even required, of it.42By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 43 always
having in mind the fiduciary nature of their relationship."44
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its
signature verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The
Court has held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged."45 Such principle equally
applies here.
Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving millions of pesos. 46 By the very nature of
their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and
employees.47 Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 48
The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing
discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit,
the pretermination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing
the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages.
As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the
interest rate of 6%, not 12%, applies.
The Court does not agree.
The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on simple loan govern the contract between a
bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan." Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the
depositor being the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand.
The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines set forth in Eastern Shipping Lines, Inc.
v. Court of Appeals49 to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit. 50
Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per
annum counted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract period from
August 16, 1993 to February 14, 1994. For the period from the date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12%
shall apply. As for the intervening period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing granted by Citibank shall
apply since the time deposit provided for roll over upon maturity of the principal and interest. 51
As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant
has acted fraudulently or in bad faith,52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations.53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses' account despite the noted discrepancies in
Carmelita's signature and photograph, the absence of the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross
negligence amounting to bad faith under Article 2220 of the Civil Code.
There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own
peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.54 The amount of P50,000.00 awarded by the CA is reasonable
and just. Moreover, said award is deemed final and executory insofar as respondents are concerned considering that their petition for review had been
denied by the Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234.
Finally, Citibank contends that the award of attorney's fees should be deleted since such award appears only in the dispositive portion of the decision of
the RTC and the latter failed to elaborate, explain and justify the same.
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if
the same were to be granted. Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are
not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. 55 The award of attorney's
fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within
the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the
decision.56 They must be clearly explained and justified by the trial court in the body of its decision. Consequently, the award of attorney's fees should be
deleted.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution areAFFIRMED with MODIFICATIONS, as follows:
1. The interest shall be computed as follows:
a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time deposit shall earn
interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994;
b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and the interest earned as of February 14,
1994 shall earn interest at the rate then prevailing granted by Citibank;
c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the interest earned as of September 15,
1994, shall earn interest at the legal rate of 12% per annum;
2. The award of attorney's fees is DELETED.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 156132

October 12, 2006

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing business under the name and style of
FNCB Finance, petitioners,
vs.
MODESTA R. SABENIANO, respondent.

DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the Revised Rules of Court, of the Decision2 of the Court of Appeals in CA-G.R.
CV No. 51930, dated 26 March 2002, and the Resolution,3 dated 20 November 2002, of the same court which, although modifying its earlier Decision,
still denied for the most part the Motion for Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation duly authorized and existing under the laws of the
United States of America and licensed to do commercial banking activities and perform trust functions in the Philippines.
Petitioner Investor's Finance Corporation, which did business under the name and style of FNCB Finance, was an affiliate company of petitioner
Citibank, specifically handling money market placements for its clients. It is now, by virtue of a merger, doing business as part of its successor-in-interest,
BPI Card Finance Corporation. However, so as to consistently establish its identity in the Petition at bar, the said petitioner shall still be referred to herein
as FNCB Finance.4
Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Regrettably, the business relations among the parties
subsequently went awry.
On 8 August 1985, respondent filed a Complaint5 against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati
City. Respondent claimed to have substantial deposits and money market placements with the petitioners, as well as money market placements with the
Ayala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondent's
accounts with petitioner Citibank. Respondent alleged that petitioners refused to return her deposits and the proceeds of her money market placements
despite her repeated demands, thus, compelling respondent to file Civil Case No. 11336 against petitioners for "Accounting, Sum of Money and
Damages." Respondent eventually filed an Amended Complaint6 on 9 October 1985 to include additional claims to deposits and money market
placements inadvertently left out from her original Complaint.
In their joint Answer7 and Answer to Amended Complaint,8 filed on 12 September 1985 and 6 November 1985, respectively, petitioners admitted that
respondent had deposits and money market placements with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (CitibankGeneva). Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank, for which she executed Promissory Notes
(PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market
placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter
exercised its right to off-set or compensate respondent's outstanding loans with her deposits and money market placements, pursuant to the Declaration
of Pledge and the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed respondent Sabeniano of the
foregoing compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore surprised when six years later, in
1985, respondent and her counsel made repeated requests for the withdrawal of respondent's deposits and money market placements with petitioner
Citibank, including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed
for the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and attorney's fees.
When the parties failed to reach a compromise during the pre-trial hearing,9 trial proper ensued and the parties proceeded with the presentation of their
respective evidence. Ten years after the filing of the Complaint on 8 August 1985, a Decision 10 was finally rendered in Civil Case No. 11336 on 24 August
1995 by the fourth Judge11who handled the said case, Judge Manuel D. Victorio, the dispositive portion of which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiff's [respondent
Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said defendant [petitioner
Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per annum, compounded
yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment;

(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount
of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there
shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned the
findings of the RTC that she was still indebted to petitioner Citibank, as well as the failure of the RTC to order petitioners to render an accounting of
respondent's deposits and money market placements with them. On the other hand, petitioners argued that petitioner Citibank validly compensated
respondent's outstanding loans with her dollar accounts with Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its favor.
Petitioners also alleged that the RTC erred in not declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision12 affirming with modification the RTC Decision in Civil Case No. 11336, dated 24 August
1995, and ruling entirely in favor of respondent in this wise
Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is herebyAFFIRMED with MODIFICATION, as
follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellant's dollar deposit with
Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the
plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until
fully paid, or its peso equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant, the setoff of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-appellant's money market placements, savings account and
current accounts, the former is hereby ordered to return the same, in accordance with the terms and conditions agreed upon by the
contending parties as evidenced by the certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March
1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March
1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June
1977, P500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June
1977, P500,000.00 with 17% interest per annum;
(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala Investment &
Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded
yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND
PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages,
and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorney's fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the other, made separate attempts to bring the
aforementioned Decision of the Court of Appeals, dated 26 March 2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and instead,
filed immediately with this Court on 3 May 2002 a Motion for Extension of Time to File a Petition for Review,13 which, after payment of the docket and
other lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion, respondent alleged that she received a copy of the assailed
Court of Appeals Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to file her Petition for Review. Since she
informed her counsel of her desire to pursue an appeal of the Court of Appeals Decision only on 29 April 2002, her counsel neither had enough time to
file a motion for reconsideration of the said Decision with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state
the exact extension period respondent was requesting for.
Since this Court did not act upon respondent's Motion for Extension of Time to file her Petition for Review, then the period for appeal continued to run
and still expired on 3 May 2002.14 Respondent failed to file any Petition for Review within the prescribed period for appeal and, hence, this Court issued
a Resolution,15 dated 13 November 2002, in which it pronounced that

G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitioner failed to file the intended petition for
review on certiorari within the period which expired on May 3, 2002, the Court Resolves to DECLARE THIS CASE
TERMINATED and DIRECT the Division Clerk of Court toINFORM the parties that the judgment sought to be reviewed has become final and
executory.
The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in CA-G.R. CV No. 51930, dated 26 March 2002.
Acting upon the said Motion, the Court of Appeals issued the Resolution,16dated 20 November 2002, modifying its Decision of 26 March 2002, as follows

WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of
the assailed Decision's dispositive portion is hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002 and 20 November 2002, respectively,
petitioners filed the present Petition, docketed as G.R. No. 156132. The Petition was initially denied 17 by this Court for failure of the petitioners to attach
thereto a Certification against Forum Shopping. However, upon petitioners' Motion and compliance with the requirements, this Court resolved 18to
reinstate the Petition.
The Petition presented fourteen (14) assignments of errors allegedly committed by the Court of Appeals in its Decision, dated 26 March 2002, involving
both questions of fact and questions of law which this Court, for the sake of expediency, discusses jointly, whenever possible, in the succeeding
paragraphs.
I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the Decision of the Court of Appeals, dated 26 March
2002, final and executory, pertains to respondent Sabeniano alone.
Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first the argument, persistently advanced by
respondent in her pleadings on record, as well as her numerous personal and unofficial letters to this Court which were no longer made part of the
record, that the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already become final and executory by virtue of
the Resolution of this Court in G.R. No. 152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to respondent's Motion for Extension of Time to File a Petition for Review. Respondent,
though, did not file her supposed Petition. Thus, after the lapse of the prescribed period for the filing of the Petition, this Court issued the Resolution,
dated 13 November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002, final and executory. It should be pointed out, however,
that the Resolution, dated 13 November 2002, referred only to G.R. No. 152985, respondent's appeal, which she failed to perfect through the filing of a
Petition for Review within the prescribed period. The declaration of this Court in the same Resolution would bind respondent solely, and not petitioners
which filed their own separate appeal before this Court, docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part,
should be bound by the findings of fact and law of the Court of Appeals, including the monetary amounts consequently awarded to her by the appellate
court in its Decision, dated 26 March 2002; and she can no longer refute or assail any part thereof. 19
This Court already explained the matter to respondent when it issued a Resolution 20 in G.R. No. 156132, dated 2 February 2004, which addressed her
Urgent Motion for the Release of the Decision with the Implementation of the Entry of Judgment in the following manner
[A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we resolved to grant the motion, reinstate the petition and require
Sabeniano to file a comment thereto in our Resolution of June 23, 2003. Sabeniano filed a Comment dated July 17, 2003 to which Citibank
and FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, the proceedings in G.R. No. 156132. She cannot
feign ignorance of the proceedings therein and claim that the Decision of the Court of Appeals has become final and executory. More
precisely, the Decision became final and executory only with regard to Sabeniano in view of her failure to file a petition for review within the
extended period granted by the Court, and not to Citibank and FNCB Finance whose Petition for Reviewwas duly reinstated and is now
submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.)
To sustain the argument of respondent would result in an unjust and incongruous situation wherein one party may frustrate the efforts of the opposing
party to appeal the case by merely filing with this Court a Motion for Extension of Time to File a Petition for Review, ahead of the opposing party, then not
actually filing the intended Petition.21The party who fails to file its intended Petition within the reglementary or extended period should solely bear the
consequences of such failure.
Respondent Sabeniano did not commit forum shopping.

Another issue that does not directly involve the merits of the present Petition, but raised by petitioners, is whether respondent should be held liable for
forum shopping.
Petitioners contend that respondent committed forum shopping on the basis of the following facts:
While petitioners' Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26 March 2002, was still pending before the Court of
Appeals, respondent already filed with this Court on 3 May 2002 her Motion for Extension of Time to File a Petition for Review of the same Court of
Appeals Decision, docketed as G.R. No. 152985. Thereafter, respondent continued to participate in the proceedings before the Court of Appeals in CAG.R. CV No. 51930 by filing her Comment, dated 17 July 2002, to petitioners' Motion for Reconsideration; and a Rejoinder, dated 23 September 2002, to
petitioners' Reply. Thus, petitioners argue that by seeking relief concurrently from this Court and the Court of Appeals, respondent is undeniably guilty of
forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment.22 The test for determining forum shopping is whether in the two (or more) cases
pending, there is an identity of parties, rights or causes of action, and relief sought. 23 To guard against this deplorable practice, Rule 7, Section 5 of the
revised Rules of Court imposes the following requirement
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the complaint or other initiatory
pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best
of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of
the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but
shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after hearing. The submission of a
false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as cause for
administrative sanctions.
Although it may seem at first glance that respondent was simultaneously seeking recourse from the Court of Appeals and this Court, a careful and closer
scrutiny of the details of the case at bar would reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a Motion for Extension of Time within which to file
her Petition for Review. For unexplained reasons, respondent failed to submit to this Court her intended Petition within the reglementary period.
Consequently, this Court was prompted to issue a Resolution, dated 13 November 2002, declaring G.R. No. 152985 terminated, and the therein assailed
Court of Appeals Decision final and executory. G.R. No. 152985, therefore, did not progress and respondent's appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this Court, upon the timely filing of which, the case before this Court commences;
much in the same way a case is initiated by the filing of a Complaint before the trial court. The Petition for Review establishes the identity of parties,
rights or causes of action, and relief sought from this Court, and without such a Petition, there is technically no case before this Court. The Motion filed
by respondent seeking extension of time within which to file her Petition for Review does not serve the same purpose as the Petition for Review itself.
Such a Motion merely presents the important dates and the justification for the additional time requested for, but it does not go into the details of the
appealed case.
Without any particular idea as to the assignments of error or the relief respondent intended to seek from this Court, in light of her failure to file her
Petition for Review, there is actually no second case involving the same parties, rights or causes of action, and relief sought, as that in CA-G.R. CV No.
51930.
It should also be noted that the Certification against Forum Shopping is required to be attached to the initiatory pleading, which, in G.R. No. 152985,
should have been respondent's Petition for Review. It is in that Certification wherein respondent certifies, under oath, that: (a) she has not commenced
any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of her knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action or claim, that she is presenting a complete statement of the present status
thereof; and (c) if she should thereafter learn that the same or similar action or claim has been filed or is pending, she shall report that fact within five
days therefrom to this Court. Without her Petition for Review, respondent had no obligation to execute and submit the foregoing Certification against
Forum Shopping. Thus, respondent did not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she mislead this Court as to the
pendency of another similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002, essentially ruled in favor of respondent, does not necessarily
preclude her from appealing the same. Granted that such a move is ostensibly irrational, nonetheless, it does not amount to malice, bad faith or abuse of
the court processes in the absence of further proof. Again, it should be noted that the respondent did not file her intended Petition for Review. The
Petition for Review would have presented before this Court the grounds for respondent's appeal and her arguments in support thereof. Without said
Petition, any reason attributed to the respondent for appealing the 26 March 2002 Decision would be grounded on mere speculations, to which this
Court cannot give credence.
II

As an exception to the general rule, this Court takes cognizance of questions of fact raised in the Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals by virtue of Rule 45 of the Revised
Rules of Court is limited to reviewing errors of law. Findings of fact of the Court of Appeals are conclusive upon this Court. There are, however,
recognized exceptions to the foregoing rule, namely: (1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
interference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.24
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are contrary to those of the RTC,25 thus, resulting in its substantial modification of the
trial court's Decision, and a ruling entirely in favor of the respondent. In addition, petitioners invoked in the instant Petition for Review several exceptions
that would justify this Court's review of the factual findings of the Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact; findings of
fact which went beyond the issues raised on appeal before it; as well as findings of fact premised on the supposed absence of evidence and
contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the evidence on record in order to settle questions of fact raised in
the Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case No. 11336, dated 24 August 1995, was not the same judge who heard
and tried the case, does not, by itself, render the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said case. In the course of its trial, the case was
presided over by four (4) different RTC judges.26 It was Judge Victorio, the fourth judge assigned to the case, who wrote the RTC Decision, dated 24
August 1995. In his Decision,27 Judge Victorio made the following findings
After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to believe the plaintiff's assertion that the
promissory notes as well as the deeds of assignments of her FNCB Finance money market placements were simulated. The evidence is
overwhelming that the plaintiff received the proceeds of the loans evidenced by the various promissory notes she had signed. What is more,
there was not an iota of proof save the plaintiff's bare testimony that she had indeed applied for loan with the Development Bank of the
Philippines.
More importantly, the two deeds of assignment were notarized, hence they partake the nature of a public document. It makes more than
preponderant proof to overturn the effect of a notarial attestation. Copies of the deeds of assignments were actually filed with the Records
Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with the defendant Bank in the total amount
of P1,920,000.00 exclusive of interests and penalty charges (Exhibits "28", "31", "32", and "33").
In fine, this Court hereby finds that the defendants had established the genuineness and due execution of the various promissory notes
heretofore identified as well as the two deeds of assignments of the plaintiff's money market placements with defendant FNCB Finance, on the
strength of which the said money market placements were applied to partially pay the plaintiff's past due obligation with the defendant Bank.
Thus, the total sum of P1,053,995.80 of the plaintiff's past due obligation was partially offset by the said money market placement leaving a
balance of P1,069,847.40 as of 5 September 1979 (Exhibit "34").
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R. CV No. 51930, dated 26 March 2002, "that
the ponente of the herein assailed Decision is not the Presiding Judge who heard and tried the case."28 This brings us to the question of whether the fact
alone that the RTC Decision was rendered by a judge other than the judge who actually heard and tried the case is sufficient justification for the
appellate court to disregard or set aside the findings in the Decision of the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a disputable presumption that the RTC Decision was rendered by the judge in the regular
performance of his official duties. While the said presumption is only disputable, it is satisfactory unless contradicted or overcame by other
evidence.29 Encompassed in this presumption of regularity is the presumption that the RTC judge, in resolving the case and drafting his Decision,
reviewed, evaluated, and weighed all the evidence on record. That the said RTC judge is not the same judge who heard the case and received the
evidence is of little consequence when the records and transcripts of stenographic notes (TSNs) are complete and available for consideration by the
former.
In People v. Gazmen,30 this Court already elucidated its position on such an issue
Accused-appellant makes an issue of the fact that the judge who penned the decision was not the judge who heard and tried the case and
concludes therefrom that the findings of the former are erroneous. Accused-appellant's argument does not merit a lengthy discussion. It is
well-settled that the decision of a judge who did not try the case is not by that reason alone erroneous.

It is true that the judge who ultimately decided the case had not heard the controversy at all, the trial having been conducted by then Judge
Emilio L. Polig, who was indefinitely suspended by this Court. Nonetheless, the transcripts of stenographic notes taken during the trial were
complete and were presumably examined and studied by Judge Baguilat before he rendered his decision. It is not unusual for a judge who did
not try a case to decide it on the basis of the record. The fact that he did not have the opportunity to observe the demeanor of the witnesses
during the trial but merely relied on the transcript of their testimonies does not for that reason alone render the judgment erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a better position to observe the witnesses on the stand and determine by
their demeanor whether they are telling the truth or mouthing falsehood, it does not necessarily follow that a judge who was not present during
the trial cannot render a valid decision since he can rely on the transcript of stenographic notes taken during the trial as basis of his decision.
Accused-appellant's contention that the trial judge did not have the opportunity to observe the conduct and demeanor of the witnesses since
he was not the same judge who conducted the hearing is also untenable. While it is true that the trial judge who conducted the hearing would
be in a better position to ascertain the truth and falsity of the testimonies of the witnesses, it does not necessarily follow that a judge who was
not present during the trial cannot render a valid and just decision since the latter can also rely on the transcribed stenographic notes taken
during the trial as the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the witness is whether or not such is in conformity with knowledge and
consistent with the experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). Further, the credibility of witnesses can also be
assessed on the basis of the substance of their testimony and the surrounding circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A
critical evaluation of the testimony of the prosecution witnesses reveals that their testimony accords with the aforementioned tests, and carries
with it the ring of truth end perforce, must be given full weight and credit.
Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same judge who heard the case and received the evidence
therein would not render the findings in the said Decision erroneous and unreliable. While the conduct and demeanor of witnesses may sway a trial court
judge in deciding a case, it is not, and should not be, his only consideration. Even more vital for the trial court judge's decision are the contents and
substance of the witnesses' testimonies, as borne out by the TSNs, as well as the object and documentary evidence submitted and made part of the
records of the case.
This Court proceeds to making its own findings of fact.
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, has become final and executory as to the respondent, due
to her failure to interpose an appeal therefrom within the reglementary period, she is already bound by the factual findings in the said Decision. Likewise,
respondent's failure to file, within the reglementary period, a Motion for Reconsideration or an appeal of the Resolution of the Court of Appeals in the
same case, dated 20 November 2002, which modified its earlier Decision by deleting paragraph 3(v) of its dispositive portion, ordering petitioners to
return to respondent the proceeds of her money market placement with AIDC, shall already bar her from questioning such modification before this Court.
Thus, what is for review before this Court is the Decision of the Court of Appeals, dated 26 March 2002, as modified by the Resolution of the same court,
dated 20 November 2002.
Respondent alleged that she had several deposits and money market placements with petitioners. These deposits and money market placements, as
determined by the Court of Appeals in its Decision, dated 26 March 2002, and as modified by its Resolution, dated 20 November 2002, are as follows
Deposit/Placement

Amount

Dollar deposit with Citibank-Geneva

$ 149,632.99

Money market placement with Citibank, evidenced by Promissory Note (PN) No. 23356 (which cancels
and supersedes PN No. 22526), earning 14.5% interest per annum (p.a.)

P 318,897.34

Money market placement with Citibank, evidenced by PN No. 23357 (which cancels and supersedes PN
No. 22528), earning 14.5% interest p.a.

P 203,150.00

Money market placement with FNCB Finance, evidenced by PN No. 5757 (which cancels and supersedes
PN No. 4952), earning 17% interest p.a.

P 500,000.00

Money market placement with FNCB Finance, evidenced by PN No. 5758 (which cancels and supersedes
PN No. 2962), earning 17% interest p.a.

P 500,000.00

This Court is tasked to determine whether petitioners are indeed liable to return the foregoing amounts, together with the appropriate interests and
penalties, to respondent. It shall trace respondent's transactions with petitioners, from her money market placements with petitioner Citibank and
petitioner FNCB Finance, to her savings and current accounts with petitioner Citibank, and to her dollar accounts with Citibank-Geneva.
Money market placements with petitioner Citibank
The history of respondent's money market placements with petitioner Citibank began on 6 December 1976, when she made a placement of P500,000.00
as principal amount, which was supposed to earn an interest of 16% p.a. and for which PN No. 20773 was issued. Respondent did not yet claim the
proceeds of her placement and, instead, rolled-over or re-invested the principal and proceeds several times in the succeeding years for which new PNs

were issued by petitioner Citibank to replace the ones which matured. Petitioner Citibank accounted for respondent's original placement and the
subsequent roll-overs thereof, as follows
Date
(mm/dd/yyyy)

PN No.

Cancels PN No.

Maturity Date
(mm/dd/yyyy)

12/06/1976

20773

None

01/13/1977

500,000.00

16%

01/14/1977

21686

20773

02/08/1977

508,444.44

15%

22526

21686

03/16/1977

313,952.59

15-3/4%

22528

21686

03/16/1977

200,000.00

15-3/4%

23356

22526

04/20/1977

318,897.34

14-1/2%

23357

22528

04/20/1977

203,150.00

14-1/2%

02/09/1977

03/17/1977

Amount
(P)

Interest
(p.a.)

Petitioner Citibank alleged that it had already paid to respondent the principal amounts and proceeds of PNs No. 23356 and 23357, upon their
maturity. Petitioner Citibank further averred that respondent used theP500,000.00 from the payment of PNs No. 23356 and 23357,
plus P600,000.00 sourced from her other funds, to open two time deposit (TD) accounts with petitioner Citibank, namely, TD Accounts No.
17783 and 17784.
Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and 23357 it issued in favor of respondent for
her money market placements. In fact, it admitted the genuineness and due execution of the said PNs, but qualified that they were no longer
outstanding.31 In Hibberd v. Rohde and McMillian,32 this Court delineated the consequences of such an admission
By the admission of the genuineness and due execution of an instrument, as provided in this section, is meant that the party whose
signature it bears admits that he signed it or that it was signed by another for him with his authority; that at the time it was signed it
was in words and figures exactly as set out in the pleading of the party relying upon it; that the document was delivered; and that
any formal requisites required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are waived by him.
Hence, such defenses as that the signature is a forgery (Puritan Mfg. Co.vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern
Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92);
or that it was unauthorized, as in the case of an agent signing for his principal, or one signing in behalf of a partnership (Country
Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs.Lantz, 137 Mich., 441) or of a corporation
(Merchant vs. International Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes
Co., 162 Mich., 509); or that, in the case of the latter, that the corporation was authorized under its charter to sign the instrument
(Merchant vs. International Banking Corporation, supra); or that the party charged signed the instrument in some other capacity than
that alleged in the pleading setting it out (Payne vs.National Bank, 16 Kan., 147); or that it was never delivered (Hunt vs. Weir, 29
Ill., 83; Elbring vs.Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire Association of Philadelphia vs.Ruby, 60 Neb.,
216) are cut off by the admission of its genuineness and due execution.
The effect of the admission is such that in the case of a promissory note a prima facie case is made for the plaintiff which dispenses
with the necessity of evidence on his part and entitles him to a judgment on the pleadings unless a special defense of new matter,
such as payment, is interposed by the defendant (Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To
Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x x x
Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested, respondent was able to establish prima facie that
petitioner Citibank is liable to her for the amounts stated therein. The assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such resting on petitioner Citibank. Respondent having proved the existence of
the obligation, the burden of proof was upon petitioner Citibank to show that it had been discharged.33 It has already been established by this
Court that
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Where the debtor
introduces some evidence of payment, the burden of going forward with the evidence as distinct from the general burden of proof
shifts to the creditor, who is then under the duty of producing some evidence of non-payment. 34
Reviewing the evidence on record, this Court finds that petitioner Citibank failed to satisfactorily prove that PNs No. 23356 and 23357 had
already been paid, and that the amount so paid was actually used to open one of respondent's TD accounts with petitioner Citibank.
Petitioner Citibank presented the testimonies of two witnesses to support its contention of payment: (1) That of Mr. Herminio Pujeda, 35 the
officer-in-charge of loans and placements at the time when the questioned transactions took place; and (2) that of Mr. Francisco Tan, 36 the
former Assistant Vice-President of Citibank, who directly dealt with respondent with regard to her deposits and loans.
The relevant portion37 of Mr. Pujeda's testimony as to PNs No. 23356 and 23357 (referred to therein as Exhibits No. "47" and "48,"
respectively) is reproduced below

Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of several documents
involving transactions between the plaintiff and the defendant. Now, were you able to make your own memorandum
regarding all these transactions?
A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological sequence of events.
Court:
Are you trying to say that you have personal knowledge or participation to these transactions?
A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some of the documents bear my
signature.
Court:
And this resume or summary that you have prepared is based on purely your recollection or documents?
A Based on documents, your Honor.
Court:
Are these documents still available now?
A Yes, your honor.
Court:
Better present the documents.
Atty. Mabasa:
Yes, your Honor, that is why your Honor.
Atty. Mabasa:
Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your personal recollection about all
the transactions involved between Modesta Sabeniano and defendant City Bank [sic] in this case. Now, would you tell us what
happened to the money market placements of Modesta Sabeniano that you have earlier identified in Exhs. "47" and "48"?
A The transactions which I said earlier were terminated and booked to time deposits.
Q And you are saying time deposits with what bank?
A With First National Citibank.
Q Is it the same bank as Citibank, N.A.?
A Yes, sir.
Q And how much was the amount booked as time deposit with defendant Citibank?
A In the amount of P500,000.00.
Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. "47" and "48", were there other time
deposits opened by Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit for P600,000.00.
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit placements with Citibank in
the amount of P500,000.00 which is the proceeds of Exh. "47" and "48" and another P600,000.00, is it not?

A Yes, sir.
Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit with Citibank, N.A. came
[sic] from?
A She funded it directly.
Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money coming from Mrs. Modesta Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and 23357 (referred to therein as Exhibits "E" and "F,"
respectively), as follows
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits "A" to "F", which are Exhibits of the plaintiff. Now,
do I understand from you that the original amount is Five Hundred Thousand and thereafter renewed in the succeeding exhibits?
Mr. Tan : Yes, Sir.
Atty. Mabasa : Alright, after these Exhibits "E" and "F" matured, what happened thereafter?
Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits "E" and "F"?
Before anything else, it should be noted that when Mr. Pujeda's testimony before the RTC was made on 12 March 1990 and Mr. Tan's
deposition in Hong Kong was conducted on 3 September 1990, more than a decade had passed from the time the transactions they were
testifying on took place. This Court had previously recognized the frailty and unreliability of human memory with regards to figures after the
lapse of five years.38 Taking into consideration the substantial length of time between the transactions and the witnesses' testimonies, as well
as the undeniable fact that bank officers deal with multiple clients and process numerous transactions during their tenure, this Court is
reluctant to give much weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and 23357 and the use
by respondent of the proceeds thereof for opening TD accounts. This Court finds it implausible that they should remember, after all these
years, this particular transaction with respondent involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not give any
reason as to why, from among all the clients they had dealt with and all the transactions they had processed as officers of petitioner Citibank,
they specially remembered respondent and her PNs No. 23356 and 23357. Their testimonies likewise lacked details on the circumstances
surrounding the payment of the two PNs and the opening of the time deposit accounts by respondent, such as the date of payment of the two
PNs, mode of payment, and the manner and context by which respondent relayed her instructions to the officers of petitioner Citibank to use
the proceeds of her two PNs in opening the TD accounts.
Moreover, while there are documentary evidences to support and trace respondent's money market placements with petitioner Citibank, from
the original PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357, there is an evident absence of any documentary
evidence on the payment of these last two PNs and the use of the proceeds thereof by respondent for opening TD accounts. The paper trail
seems to have ended with the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based their
testimonies, not just on their memories but also on the documents on file, the supposed documents on which they based those portions of
their testimony on the payment of PNs No. 23356 and 23357 and the opening of the TD accounts from the proceeds thereof, were never
presented before the courts nor made part of the records of the case. Respondent's money market placements were of substantial
amounts consisting of the principal amount of P500,000.00, plus the interest it should have earned during the years of placement and it is
difficult for this Court to believe that petitioner Citibank would not have had documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990,39 petitioners' counsel attempted to present in evidence a document that would
supposedly support the claim of petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by respondent to open one of
her two TD accounts in the amount ofP500,000.00. Respondent's counsel objected to the presentation of the document since it was a mere
"xerox" copy, and was blurred and hardly readable. Petitioners' counsel then asked for a continuance of the hearing so that they can have time
to produce a better document, which was granted by the court. However, during the next hearing and continuance of Mr. Pujeda's testimony
on 12 March 1990, petitioners' counsel no longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is obligated to her for the amounts stated in PNs No. 23356 and
23357, and as petitioner Citibank failed to present sufficient proof of payment of the said PNs and the use by the respondent of the proceeds
thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are still outstanding and petitioner Citibank is still liable
to respondent for the amounts stated therein.
The significance of this Court's declaration that PNs No. 23356 and 23357 are still outstanding becomes apparent in the light of petitioners'
next contentions that respondent used the proceeds of PNs No. 23356 and 23357, together with additional money, to open TD Accounts No.
17783 and 17784 with petitioner Citibank; and, subsequently, respondent pre-terminated these TD accounts and transferred the proceeds
thereof, amounting to P1,100,000.00, to petitioner FNCB Finance for money market placements. While respondent's money market
placements with petitioner FNCB Finance may be traced back with definiteness to TD Accounts No. 17783 and 17784, there is only flimsy and
unsubstantiated connection between the said TD accounts and the supposed proceeds paid from PNs No. 23356 and 23357. With PNs No.
23356 and 23357 still unpaid, then they represent an obligation of petitioner Citibank separate and distinct from the obligation of petitioner
FNCB Finance arising from respondent's money market placements with the latter.

Money market placements with petitioner FNCB Finance


According to petitioners, respondent's TD Accounts No. 17783 and 17784, in the total amount ofP1,100,000.00, were supposed to mature on
15 March 1978. However, respondent, through a letter dated 28 April 1977,40 pre-terminated the said TD accounts and transferred all the
proceeds thereof to petitioner FNCB Finance for money market placement. Pursuant to her instructions, TD Accounts No. 17783 and 17784
were pre-terminated and petitioner Citibank (then still named First National City Bank) issued Manager's Checks (MC) No. 199253 41 and
19925142 for the amounts of P500,000.00 and P600,00.00, respectively. Both MCs were payable to Citifinance (which, according to Mr.
Pujeda,43 was one with and the same as petitioner FNCB Finance), with the additional notation that "A/C MODESTA R. SABENIANO."
Typewritten on MC No. 199253 is the phrase "Ref. Proceeds of TD 17783," and on MC No. 199251 is a similar phrase, "Ref. Proceeds of TD
17784." These phrases purportedly established that the MCs were paid from the proceeds of respondent's pre-terminated TD accounts with
petitioner Citibank. Upon receipt of the MCs, petitioner FNCB Finance deposited the same to its account with Feati Bank and Trust Co., as
evidenced by the rubber stamp mark of the latter found at the back of both MCs. In exchange, petitioner FNCB Finance booked the amounts
received as money market placements, and accordingly issued PNs No. 4952 and 4962, for the amounts of P500,000.00 and P600,000.00,
respectively, payable to respondent's savings account with petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1 June 1977. Once
again, respondent rolled-over several times the principal amounts of her money market placements with petitioner FNCB Finance, as follows
Date
(mm/dd/yyyy)

PN No.

Cancels PN No.

Maturity Date
(mm/dd/yyyy)

4952

None

06/01/1977

500,000.00

17%

4962

None

06/01/1977

600,000.00

17%

5757

4952

08/31/1977

500,000.00

17%

5758

4962

08/31/1977

500,000.00

17%

8167

5757

08/25/1978

500,000.00

14%

8169

5752

08/25/1978

500,000.00

14%

04/29/1977

06/02/1977

08/31/1977

Amount
(P)

Interest
(p.a.)

As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts of her money market placements as she chose to
receive the interest income therefrom. Petitioner FNCB Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00, matured
on 1 June 1977, respondent received a partial payment of the principal which, together with the interest, amounted to P102,633.33;44 thus, only the
amount of P500,000.00 from PN No. 4962 was rolled-over to PN No. 5758.
Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity, were rolled over to PNs No. 8167 and 8169,
respectively. PN No. 816745 expressly canceled and superseded PN No. 5757, while PN No. 816946 also explicitly canceled and superseded PN No.
5758. Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal amounts and interests covered by PNs No. 5757
and 5758 when these were already canceled and superseded. It is now incumbent upon this Court to determine what subsequently happened to PNs
No. 8167 and 8169.
Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts and interests of PNs No. 8167 and 8169 upon their
maturity. All the checks were payable to respondent's savings account with petitioner Citibank, with the following details
Date of Issuance
(mm/dd/yyyy)

Check No.

Amount
(P)

Notation

09/01/1978

76962

12,833.34 Interest payment on PN#08167

09/01/1978

76961

12,833.34 Interest payment on PN#08169

09/05/1978

77035

500,000.00 Full payment of principal on PN#08167 which is hereby cancelled

09/05/ 1978

77034

500,000.00 Full payment of principal on PN#08169 which is hereby cancelled

Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance together with a memo, 47 dated 6 September 1978, from Mr.
Tan of petitioner Citibank, to a Mr. Bobby Mendoza of petitioner FNCB Finance. According to the memo, the two checks, in the total amount
of P1,000,000.00, were to be returned to respondent's account with instructions to book the said amount in money market placements for one more
year. Pursuant to the said memo, Checks No. 77035 and 77034 were invested by petitioner FNCB Finance, on behalf of respondent, in money market
placements for which it issued PNs No. 20138 and 20139. The PNs each covered P500,000.00, to earn 11% interest per annum, and to mature on 3
September 1979.
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of "Citibank N.A. A/C Modesta Sabeniano," in the amount
of P1,022,916.66, as full payment of the principal amounts and interests of both PNs No. 20138 and 20139 and, resultantly, canceling the said
PNs.48 Respondent actually admitted the issuance and existence of Check No. 100168, but with the qualification that the proceeds thereof were turned
over to petitioner Citibank.49 Respondent did not clarify the circumstances attending the supposed turn over, but on the basis of the allegations of
petitioner Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was used by it to liquidate respondent's outstanding
loans. Therefore, the determination of whether or not respondent is still entitled to the return of the proceeds of PNs No. 20138 and 20139 shall be
dependent on the resolution of the issues raised as to the existence of the loans and the authority of petitioner Citibank to use the proceeds of the said
PNs, together with respondent's other deposits and money market placements, to pay for the same.
Savings and current accounts with petitioner Citibank

Respondent presented and submitted before the RTC deposit slips and bank statements to prove deposits made to several of her accounts with
petitioner Citibank, particularly, Accounts No. 00484202, 59091, and 472-751, which would have amounted to a total of P3,812,712.32, had there been
no withdrawals or debits from the said accounts from the time the said deposits were made.
Although the RTC and the Court of Appeals did not make any definitive findings as to the status of respondent's savings and current accounts with
petitioner Citibank, the Decisions of both the trial and appellate courts effectively recognized only the P31,079.14 coming from respondent's savings
account which was used to off-set her alleged outstanding loans with petitioner Citibank.50
Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14 of respondent's savings account with petitioner Citibank,
and that respondent failed to move for reconsideration or to appeal this particular finding of fact by the trial and appellate courts, it is already binding
upon this Court. Respondent is already precluded from claiming any greater amount in her savings and current accounts with petitioner Citibank. Thus,
this Court shall limit itself to determining whether or not respondent is entitled to the return of the amount ofP31,079.14 should the off-set thereof by
petitioner Citibank against her supposed loans be found invalid.
Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC her own computations of her money market placements and dollar accounts
with Citibank-Geneva, purportedly amounting to a total of United States (US) $343,220.98, as of 23 June 1985. 51 In her Memorandum filed with the RTC,
she claimed a much bigger amount of deposits and money market placements with Citibank-Geneva, totaling US$1,336,638.65. 52 However, respondent
herself also submitted as part of her formal offer of evidence the computation of her money market placements and dollar accounts with CitibankGeneva as determined by the latter.53 Citibank-Geneva accounted for respondent's money market placements and dollar accounts as follows
MODESTA SABENIANO &/OR
==================
US$

30'000.--

Principal Fid. Placement

+ US$

339.06

- US$

95.--

US$

30'244.06

Total proceeds on 25.10.1979

US$

114'000.--

Principal Fid. Placement

+ US$

1'358.50

Interest at 4,125% p.a. from 12.07. 25.10.79

- US$

41.17

US$

115'317.33

Total proceeds on 25.10.1979

US$

145'561.39

Total proceeds of both placements on 25.10.1979

+ US$

11'381.31

US$

156'942.70

Total funds available

- US$

149'632.99

Transfer to Citibank Manila on 26.10.1979


(counter value of Pesos 1'102'944.78)

US$

7'309.71

Balance in current accounts

- US$

6'998.84

Transfer to Citibank Zuerich ac no. 121359 on March


13, 1980

US$

310.87

Interest at 3,875% p.a. from 12.07. 25.10.79


Commission (minimum)

Commission

total of both current accounts

various charges including closing charges

According to the foregoing computation, by 25 October 1979, respondent had a total of US$156,942.70, from which, US$149,632.99 was transferred by
Citibank-Geneva to petitioner Citibank in Manila, and was used by the latter to off-set respondent's outstanding loans. The balance of respondent's
accounts with Citibank-Geneva, after the remittance to petitioner Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a
transfer to another account with Citibank-Zuerich, in the amount of US$6,998.84, and by payment of various bank charges, including closing charges, in
the amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave more credence to the computation of Citibank-Geneva as to the
status of respondent's accounts with the said bank, rather than the one prepared by respondent herself, which was evidently self-serving. Once again,
this Court shall limit itself to determining whether or not respondent is entitled to the return of the amount of US$149,632.99 should the off-set thereof by
petitioner Citibank against her alleged outstanding loans be found invalid. Respondent cannot claim any greater amount since she did not perfect an
appeal of the Decision of the Court of Appeals, dated 26 March 2002, which found that she is entitled only to the return of the said amount, as far as her
accounts with Citibank-Geneva is concerned.
III
Petitioner Citibank was able to establish by preponderance of evidence the existence of respondent's loans.
Petitioners' version of events
In sum, the following amounts were used by petitioner Citibank to liquidate respondent's purported outstanding loans

Description

Amount

Principal and interests of PNs No. 20138 and 20139


(money market placements with petitioner FNCB Finance)

P 1,022,916.66

Savings account with petitioner Citibank

31,079.14

Dollar remittance from Citibank-Geneva (peso equivalent of


US$149,632.99)

1,102,944.78

Total

P 2,156,940.58

According to petitioner Citibank, respondent incurred her loans under the circumstances narrated below.
As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in the principal amount ofP200,000.00, for which she executed
PN No. 31504.54 Petitioner Citibank extended to her several other loans in the succeeding months. Some of these loans were paid, while others were
rolled-over or renewed. Significant to the Petition at bar are the loans which respondent obtained from July 1978 to January 1979, appropriately covered
by PNs (first set).55 The aggregate principal amount of these loans was P1,920,000.00, which could be broken down as follows

PN No.

Date of Issuance
(mm/dd/yyyy)

Date of Maturity
(mm/dd/yyyy)

Principal
Amount

Date of Release
(mm/dd/yyyy)

MC No.

32935

07/20/1978

09/18/1978

P 400,000.00

33751

10/13/1978

12/12/1978

100,000.00

33798

10/19/1978

11/03/1978

100,000.00

10/19/1978

226285

34025

11/15/1978

01/15/1979

150,000.00

11/16/1978

226439

34079

11/21/1978

01/19/1979

250,000.00

11/21/1978

226467

34192

12/04/1978

01/18/1979

100,000.00

12/05/1978

228057

34402

12/26/1978

02/23/1979

300,000.00

12/26/1978

228203

34534

01/09/1979

03/09/1979

150,000.00

01/09/1979

228270

34609

01/17/1979

03/19/1979

150,000.00

01/17/1979

228357

34740

01/30/1979

03/30/1979

220,000.00

01/30/1979

228400

Total

07/20/1978

220701

Unrecovered

P 1,920,000.00

When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-over or renewed several times, necessitating the
execution by respondent of new PNs in favor of petitioner Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second set), 56 the
principal amount of which remained atP1,920,000.00

PN No.

Date of Issuance
(mm/dd/yyyy)

Date of Maturity
(mm/dd/yyyy)

Principal Amount

34510
01/01/1979

03/02/1979

P 400,000.00

34509

01/02/1979

03/02/1979

100,000.00

34534

01/09/1979

03/09/1979

150,000.00

34612

01/19/1979

03/16/1979

150,000.00

01/26/1979

03/12/1979

100,000.00

34741

35689

02/23/1979

05/29/1979

300,000.00

35694

03/19/1979

05/29/1979

150,000.00

35695

03/19/1979

05/29/1979

100,000.00

356946

03/20/1979

05/29/1979

250,000.00

35697

03/30/1979

05/29/1979

220,000.00

Total

P 1,920,000.00

All the PNs stated that the purpose of the loans covered thereby is "To liquidate existing obligation," except for PN No. 34534, which stated for its
purpose "personal investment."
Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of Assignment of her money market placements with petitioner
FNCB Finance. On 2 March 1978, respondent executed in favor of petitioner Citibank a Deed of Assignment 57 of PN No. 8169, which was issued by
petitioner FNCB Finance, to secure payment of the credit and banking facilities extended to her by petitioner Citibank, in the aggregate principal amount
of P500,000.00. On 9 March 1978, respondent executed in favor of petitioner Citibank another Deed of Assignment, 58 this time, of PN No. 8167, also
issued by petitioner FNCB Finance, to secure payment of the credit and banking facilities extended to her by petitioner Citibank, in the aggregate
amount of P500,000.00. When PNs No. 8167 and 8169, representing respondent's money market placements with petitioner FNCB Finance, matured
and were rolled-over to PNs No. 20138 and 20139, respondent executed new Deeds of Assignment,59 in favor of petitioner Citibank, on 25 August 1978.
According to the more recent Deeds, respondent assigned PNs No. 20138 and 20139, representing her rolled-over money market placements with
petitioner FNCB Finance, to petitioner Citibank as security for the banking and credit facilities it extended to her, in the aggregate principal amount
ofP500,000.00 per Deed.
In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance, respondent also executed a Declaration of
Pledge,60 in which she supposedly pledged "[a]ll present and future fiduciary placements held in my personal and/or joint name with Citibank,
Switzerland," to secure all claims the petitioner Citibank may have or, in the future, acquire against respondent. The petitioners' copy of the Declaration
of Pledge is undated, while that of the respondent, a copy certified by a Citibank-Geneva officer, bore the date 24 September 1979. 61
When respondent failed to pay the second set of PNs upon their maturity, an exchange of letters ensued between respondent and/or her
representatives, on one hand, and the representatives of petitioners, on the other.
The first letter62 was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that

Despite our repeated requests and follow-up, we regret you have not granted us with any response or payment.
We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other charges due and demandable. If you still fail
to settle this obligation by 4/27/79, we shall have no other alternative but to refer your account to our lawyers for legal action to protect the
interest of the bank.
Respondent sent a reply letter63 dated 26 April 1979, printed on paper bearing the letterhead of respondent's company, MC Adore International Palace,
the body of which reads
This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due. Pursuant to our representation with
you over the telephone through Mr. F. A. Tan, you allow us to pay the interests due for the meantime.
Please accept our Comtrust Check in the amount of P62,683.33.

Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the Development Bank of the Philippines
in the amount of P11-M. This loan has already been recommended for approval and would be submitted to the Board of Governors. In fact, to
further facilitate the early release of this loan, we have presented and furnished Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you grant us our request for a little more time.
A week later or on 3 May 1979, a certain C. N. Pugeda, designated as "Executive Secretary," sent a letter 64 to petitioner Citibank, on behalf of
respondent. The letter was again printed on paper bearing the letterhead of MC Adore International Palace. The pertinent paragraphs of the said letter
are reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the interest and penalty charges on her loan
in the aggregate amount of P1,920,000.00 with maturity date of all promissory notes at June 30, 1979. As she has personally discussed with
you yesterday, this date will more or less assure you of early settlement.
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another check with amount resulting from the
new computation. Also, to facilitate the processing of the same, may we request for another set of promissory notes for the signature of Mrs.
Sabeniano and to cancel the previous ones she has signed and forwarded to you.
This was followed by a telegram,65 dated 5 June 1979, and received by petitioner Citibank the following day. The telegram was sent by a Dewey G.
Soriano, Legal Counsel. The telegram acknowledged receipt of the telegram sent by petitioner Citibank regarding the "re-past due obligation" of
McAdore International Palace. However, it reported that respondent, the President and Chairman of MC Adore International Palace, was presently
abroad negotiating for a big loan. Thus, he was requesting for an extension of the due date of the obligation until respondent's arrival on or before 31
July 1979.
The next letter,66 dated 21 June 1979, was signed by respondent herself and addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance.
Respondent wrote therein
Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million, both PNs will mature on 9/3/1979.
This is to authorize you to release the accrued quarterly interests payment from my captioned placements and forward directly to Citibank,
Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my outstanding loan with Citibank.
Please note that the captioned two placements are continuously pledged/hypothecated to Citibank, Manila to support my personal outstanding
loan. Therefore, please do not release the captioned placements upon maturity until you have received the instruction from Citibank, Manila.
On even date, respondent sent another letter67 to Mr. Tan of petitioner Citibank, stating that
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding balance from my captioned accounts and credit the amount to my loan
outstanding account with you.
Unlike respondent's earlier letters, both letters, dated 21 June 1979, are printed on plain paper, without the letterhead of her company, MC Adore
International Palace.
By 5 September 1979, respondent's outstanding and past due obligations to petitioner Citibank totaledP2,123,843.20, representing the principal
amounts plus interests. Relying on respondent's Deeds of Assignment, petitioner Citibank applied the proceeds of respondent's money market
placements with petitioner FNCB Finance, as well as her deposit account with petitioner Citibank, to partly liquidate respondent's outstanding loan
balance,68 as follows
Respondent's outstanding obligation (principal and interest)
Less:

P2,123,843.20

Proceeds from respondent's money market placements


with petitioner FNCB Finance (principal and interest)

(1,022,916.66)

Deposits in respondent's bank accounts with petitioner


Citibank
Balance of respondent's obligation

(31,079.14)
P1,069,847.40

Mr. Tan of petitioner Citibank subsequently sent a letter,69 dated 28 September 1979, notifying respondent of the status of her loans and the foregoing
compensation which petitioner Citibank effected. In the letter, Mr. Tan informed respondent that she still had a remaining past-due obligation in the
amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the amount by 15 October 1979, then petitioner Citibank shall
proceed to off-set the unpaid amount with respondent's other collateral, particularly, a money market placement in Citibank-Hongkong.

On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the letterhead of MC Adore International Palace, as regards
the P1,920,000.00 loan account supposedly of MC Adore Finance & Investment, Inc., and requested for a statement of account covering the principal
and interest of the loan as of 31 October 1979. She stated therein that the loan obligation shall be paid within 60 days from receipt of the statement of
account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by the office of petitioner Citibank, with a letter, dated 9
October 1979, and printed on paper with the letterhead of MC Adore International Palace, which authorized the bearer thereof to represent the
respondent in settling the overdue account, this time, purportedly, of MC Adore International Palace Hotel. The letter was signed by respondent as the
President and Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank, sent a letter to respondent, dated 31 October 1979,
informing her that petitioner Citibank had effected an off-set using her account with Citibank-Geneva, in the amount of US$149,632.99, against her
"outstanding, overdue, demandable and unpaid obligation" to petitioner Citibank. Atty. Agcaoili claimed therein that the compensation or off-set was
made pursuant to and in accordance with the provisions of Articles 1278 through 1290 of the Civil Code. He further declared that respondent's obligation
to petitioner Citibank was now fully paid and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner Citibank's building at Paseo de Roxas St., Makati, Metro Manila. Petitioners
submitted a Certification70 to this effect, dated 17 January 1991, issued by the Chief of the Arson Investigation Section, Fire District III, Makati Fire
Station, Metropolitan Police Force. The 7thfloor of petitioner Citibank's building housed its Control Division, which was in charge of keeping the necessary
documents for cases in which it was involved. After compiling the documentary evidence for the present case, Atty. Renato J. Fernandez, internal legal
counsel of petitioner Citibank, forwarded them to the Control Division. The original copies of the MCs, which supposedly represent the proceeds of the
first set of PNs, as well as that of other documentary evidence related to the case, were among those burned in the said fire. 71
Respondent's version of events
Respondent disputed petitioners' narration of the circumstances surrounding her loans with petitioner Citibank and the alleged authority she gave for the
off-set or compensation of her money market placements and deposit accounts with petitioners against her loan obligation.
Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in particular). Although she admitted that she obtained several
loans from petitioner Citibank, these only amounted to P1,150,000.00, and she had already paid them. She secured from petitioner Citibank two loans
of P500,000.00 each. She executed in favor of petitioner Citibank the corresponding PNs for the loans and the Deeds of Assignment of her money
market placements with petitioner FNCB Finance as security.72 To prove payment of these loans, respondent presented two provisional receipts of
petitioner Citibank No. 19471,73 dated 11 August 1978, and No. 12723,74 dated 10 November 1978 both signed by Mr. Tan, and acknowledging
receipt from respondent of several checks in the total amount of P500,744.00 and P500,000.00, respectively, for "liquidation of loan."
She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for which she executed PN No. 34534, on 9 January 1979.
Thus, she admitted to receiving the proceeds of this loan via MC No. 228270. She invested the loan amount in another money market placement with
petitioner FNCB Finance. In turn, she used the very same money market placement with petitioner FNCB Finance as security for her P150,000.00 loan
from petitioner Citibank. When she failed to pay the loan when it became due, petitioner Citibank allegedly forfeited her money market placement with
petitioner FNCB Finance and, thus, the loan was already paid.75
Respondent likewise questioned the MCs presented by petitioners, except for one (MC No. 228270 in particular), as proof that she received the
proceeds of the loans covered by the first set of PNs. As recounted in the preceding paragraph, respondent admitted to obtaining a loan of P150,000.00,
covered by PN No. 34534, and receiving MC No. 228270 representing the proceeds thereof, but claimed that she already paid the same. She denied
ever receiving MCs No. 220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467 (for the loan of P250,000.00, covered by PN
No. 34079), and pointed out that the checks did not bear her indorsements. She did not deny receiving all other checks but she interposed that she
received these checks, not as proceeds of loans, but as payment of the principal amounts and/or interests from her money market placements with
petitioner Citibank. She also raised doubts as to the notation on each of the checks that reads "RE: Proceeds of PN#[corresponding PN No.]," saying
that such notation did not appear on the MCs when she originally received them and that the notation appears to have been written by a typewriter
different from that used in writing all other information on the checks (i.e., date, payee, and amount).76 She even testified that MCs were not supposed to
bear notations indicating the purpose for which they were issued.
As to the second set of PNs, respondent acknowledged having signed them all. However, she asserted that she only executed these PNs as part of the
simulated loans she and Mr. Tan of petitioner Citibank concocted. Respondent explained that she had a pending loan application for a big amount with
the Development Bank of the Philippines (DBP), and when Mr. Tan found out about this, he suggested that they could make it appear that the
respondent had outstanding loans with petitioner Citibank and the latter was already demanding payment thereof; this might persuade DBP to approve
respondent's loan application. Mr. Tan made the respondent sign the second set of PNs, so that he may have something to show the DBP investigator
who might inquire with petitioner Citibank as to respondent's loans with the latter. On her own copies of the said PNs, respondent wrote by hand the
notation, "This isa (sic) simulated non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown to DBP representative. itwill (sic)
be returned to me if the P11=M (sic) loan for MC Adore Palace Hotel is approved by DBP."77
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both sides to this case, it is this Court's assessment that respondent did
indeed have outstanding loans with petitioner Citibank at the time it effected the off-set or compensation on 25 July 1979 (using respondent's savings
deposit with petitioner Citibank), 5 September 1979 (using the proceeds of respondent's money market placements with petitioner FNCB Finance) and
26 October 1979 (using respondent's dollar accounts remitted from Citibank-Geneva). The totality of petitioners' evidence as to the existence of the said
loans preponderates over respondent's. Preponderant evidence means that, as a whole, the evidence adduced by one side outweighs that of the
adverse party.78
Respondent's outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner Citibank.

The second set of PNs is a mere renewal of the prior loans originally covered by the first set of PNs, except for PN No. 34534. The first set of PNs is
supported, in turn, by the existence of the MCs that represent the proceeds thereof received by the respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the respondent specifically named as payee. MCs checks are
drawn by the bank's manager upon the bank itself and regarded to be as good as the money it represents.79 Moreover, the MCs were crossed checks,
with the words "Payee's Account Only."
In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's
bank which, in turn, must present it for payment against the drawee bank in the course of normal banking hours. The crossed check cannot be
presented for payment, but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account. 80 The effect
of crossing a check was described by this Court in Philippine Commercial International Bank v. Court of Appeals81
[T]he crossing of a check with the phrase "Payee's Account Only" is a warning that the check should be deposited in the account of the payee.
Thus, it is the duty of the collecting bank PCI Bank to ascertain that the check be deposited in payee's account only. It is bound to scrutinize
the check and to know its depositors before it can make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed."
The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts and cleared by the Clearing Office of the
Central Bank of the Philippines, as evidenced by the stamp marks and notations on the said checks. The crossed MCs are already in the possession of
petitioner Citibank, the drawee bank, which was ultimately responsible for the payment of the amount stated in the checks. Given that a check is more
than just an instrument of credit used in commercial transactions for it also serves as a receipt or evidence for the drawee bank of the cancellation of the
said check due to payment,82 then, the possession by petitioner Citibank of the said MCs, duly stamped "Paid" gives rise to the presumption that the said
MCs were already paid out to the intended payee, who was in this case, the respondent.
This Court finds applicable herein the presumptions that private transactions have been fair and regular,83 and that the ordinary course of business has
been followed.84 There is no question that the loan transaction between petitioner Citibank and the respondent is a private transaction. The transactions
revolving around the crossed MCs from their issuance by petitioner Citibank to respondent as payment of the proceeds of her loans; to its deposit in
respondent's accounts with several different banks; to the clearing of the MCs by an independent clearing house; and finally, to the payment of the MCs
by petitioner Citibank as the drawee bank of the said checks are all private transactions which shall be presumed to have been fair and regular to all
the parties concerned. In addition, the banks involved in the foregoing transactions are also presumed to have followed the ordinary course of business
in the acceptance of the crossed MCs for deposit in respondent's accounts, submitting them for clearing, and their eventual payment and cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence.85 Respondent, however, was unable to present sufficient and credible evidence to dispute these presumptions.
It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to receiving one as proceeds of a loan (MC No.
228270), denied receiving two (MCs No. 220701 and 226467), and admitted to receiving all the rest, but not as proceeds of her loans, but as return on
the principal amounts and interests from her money market placements.
Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN No. 34534. Although the principal amount of the
loan is P150,000.00, respondent only received P146,312.50, because the interest and handling fee on the loan transaction were already deducted
therefrom.86 Stamps and notations at the back of MC No. 228270 reveal that it was deposited at the Bank of the Philippine Islands (BPI), Cubao Branch,
in Account No. 0123-0572-28.87 The check also bore the signature of respondent at the back.88 And, although respondent would later admit that she did
sign PN No. 34534 and received MC No. 228270 as proceeds of the loan extended to her by petitioner Citibank, she contradicted herself when, in an
earlier testimony, she claimed that PN No. 34534 was among the PNs she executed as simulated loans with petitioner Citibank. 89
Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said checks were crossed for payee's account only, and
that they were actually deposited, cleared, and paid, then the presumption would be that the said checks were properly deposited to the account of
respondent, who was clearly named the payee in the checks. Respondent's bare allegations that she did not receive the two checks fail to convince this
Court, for to sustain her, would be for this Court to conclude that an irregularity had occurred somewhere from the time of the issuance of the said
checks, to their deposit, clearance, and payment, and which would have involved not only petitioner Citibank, but also BPI, which accepted the checks
for deposit, and the Central Bank of the Philippines, which cleared the checks. It falls upon the respondent to overcome or dispute the presumption that
the crossed checks were issued, accepted for deposit, cleared, and paid for by the banks involved following the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondent's signature at the back does not negate deposit thereof in her account. The
liability for the lack of indorsement on the MCs no longer fall on petitioner Citibank, but on the bank who received the same for deposit, in this case, BPI
Cubao Branch. Once again, it must be noted that the MCs were crossed, for payee's account only, and the payee named in both checks was none other
than respondent. The crossing of the MCs was already a warning to BPI to receive said checks for deposit only in respondent's account. It was up to BPI
to verify whether it was receiving the crossed MCs in accordance with the instructions on the face thereof. If, indeed, the MCs were deposited in
accounts other than respondent's, then the respondent would have a cause of action against BPI.90
BPI further stamped its guarantee on the back of the checks to the effect that, "All prior endorsement and/or Lack of endorsement guaranteed." Thus,
BPI became the indorser of the MCs, and assumed all the warranties of an indorser,91 specifically, that the checks were genuine and in all respects what
they purported to be; that it had a good title to the checks; that all prior parties had capacity to contract; and that the checks were, at the time of their
indorsement, valid and subsisting.92 So even if the MCs deposited by BPI's client, whether it be by respondent herself or some other person, lacked the
necessary indorsement, BPI, as the collecting bank, is bound by its warranties as an indorser and cannot set up the defense of lack of indorsement as
against petitioner Citibank, the drawee bank.93
Furthermore, respondent's bare and unsubstantiated denial of receipt of the MCs in question and their deposit in her account is rendered suspect when
MC No. 220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very same account in which MC No. 228270 (which
respondent admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs No. 228203, 228357, and 228400 (which respondent
admitted to receiving as proceeds from her money market placements) were deposited. Likewise, MC No. 226467 was deposited in Account No. 0121-

002-43 of BPI Cubao Branch, to which MCs No. 226285 and 226439 (which respondent admitted to receiving as proceeds from her money market
placements) were deposited. It is an apparent contradiction for respondent to claim having received the proceeds of checks deposited in an account,
and then deny receiving the proceeds of another check deposited in the very same account.
Another inconsistency in respondent's denial of receipt of MC No. 226467 and her deposit of the same in her account, is her presentation of Exhibit
"HHH," a provisional receipt which was supposed to prove that respondent turned over P500,000.00 to Mr. Tan of petitioner Citibank, that the said
amount was split into three money market placements, and that MC No. 226467 represented the return on her investment from one of these
placements.94Because of her Exhibit "HHH," respondent effectively admitted receipt of MC No. 226467, although for reasons other than as proceeds of a
loan.
Neither can this Court give credence to respondent's contention that the notations on the MCs, stating that they were the proceeds of particular PNs,
were not there when she received the checks and that the notations appeared to be written by a typewriter different from that used to write the other
information on the checks. Once more, respondent's allegations were uncorroborated by any other evidence. Her and her counsel's observation that the
notations on the MCs appear to be written by a typewriter different from that used to write the other information on the checks hardly convinces this
Court considering that it constitutes a mere opinion on the appearance of the notation by a witness who does not possess the necessary expertise on
the matter. In addition, the notations on the MCs were written using both capital and small letters, while the other information on the checks were written
using capital letters only, such difference could easily confuse an untrained eye and lead to a hasty conclusion that they were written by different
typewriters.
Respondent's testimony, that based on her experience transacting with banks, the MCs were not supposed to include notations on the purpose for which
the checks were issued, also deserves scant consideration. While respondent may have extensive experience dealing with banks, it still does not qualify
her as a competent witness on banking procedures and practices. Her testimony on this matter is even belied by the fact that the other MCs issued by
petitioner Citibank (when it was still named First National City Bank) and by petitioner FNCB Finance, the existence and validity of which were not
disputed by respondent, also bear similar notations that state the reason for which they were issued.
Respondent presented several more pieces of evidence to substantiate her claim that she received MCs No. 226285, 226439, 226467, 226057, 228357,
and 228400, not as proceeds of her loans from petitioner Citibank, but as the return of the principal amounts and payment of interests from her money
market placements with petitioners. Part of respondent's exhibits were personal checks95 drawn by respondent on her account with Feati Bank & Trust
Co., which she allegedly invested in separate money market placements with both petitioners, the returns from which were paid to her via MCs No.
226285 and 228400. Yet, to this Court, the personal checks only managed to establish respondent's issuance thereof, but there was nothing on the face
of the checks that would reveal the purpose for which they were issued and that they were actually invested in money market placements as respondent
claimed.
Respondent further submitted handwritten notes that purportedly computed and presented the returns on her money market placements, corresponding
to the amount stated in the MCs she received from petitioner Citibank. Exhibit "HHH-1"96 was a handwritten note, which respondent attributed to Mr. Tan
of petitioner Citibank, showing the breakdown of her BPI Check for P500,000.00 into three different money market placements with petitioner Citibank.
This Court, however, noticed several factors which render the note highly suspect. One, it was written on the reversed side of Provisional Receipt No.
12724 of petitioner Citibank which bore the initials of Mr. Tan acknowledging receipt of respondent's BPI Check No. 120989 for P500,000.00; but the
initials on the handwritten note appeared to be that of Mr. Bobby Mendoza of petitioner FNCB Finance.97 Second, according to Provisional Receipt No.
12724, BPI Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements with petitioner Citibank for the period of
60 days. Since all these money market placements were made through one check deposited on the same day, 10 November 1978, it made no sense
that the handwritten note at the back of Provisional Receipt No. 12724 provided for different dates of maturity for each of the money market placements
(i.e., 16 November 1978, 17 January 1979, and 21 November 1978), and such dates did not correspond to the 60 day placement period stated on the
face of the provisional receipt. And third, the principal amounts of the money market placements as stated in the handwritten note
P145,000.00, P145,000.00 andP242,000.00 totaled P532,000.00, and was obviously in excess of the P500,000.00 acknowledged on the face of
Provisional Receipt No. 12724.
Exhibits "III" and "III-1," the front and bank pages of a handwritten note of Mr. Bobby Mendoza of petitioner FNCB Finance, 98 also did not deserve much
evidentiary weight, and this Court cannot rely on the truth and accuracy of the computations presented therein. Mr. Mendoza was not presented as a
witness during the trial before the RTC, so that the document was not properly authenticated nor its contents sufficiently explained. No one was able to
competently identify whether the initials as appearing on the note were actually Mr. Mendoza's.
Also, going by the information on the front page of the note, this Court observes that payment of respondent's alleged money market placements with
petitioner FNCB Finance were made using Citytrust Checks; the MCs in question, including MC No. 228057, were issued by petitioner Citibank.
Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and petitioner Citibank may be affiliates of one another, they each
remained separate and distinct corporations, each having its own financial system and records. Thus, this Court cannot simply assume that one
corporation, such as petitioner Citibank or Citytrust, can issue a check to discharge an obligation of petitioner FNCB Finance. It should be recalled that
when petitioner FNCB Finance paid for respondent's money market placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and
20139, petitioner FNCB Finance issued its own checks.
As a last point on this matter, if respondent truly had money market placements with petitioners, then these would have been evidenced by PNs issued
by either petitioner Citibank or petitioner FNCB Finance, acknowledging the principal amounts of the investments, and stating the applicable interest
rates, as well as the dates of their of issuance and maturity. After respondent had so meticulously reconstructed her other money market placements
with petitioners and consolidated the documentary evidence thereon, she came surprisingly short of offering similar details and substantiation for these
particular money market placements.
Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it proceeds to analyze her evidence of payment
thereof.
In support of respondent's assertion that she had already paid whatever loans she may have had with petitioner Citibank, she presented as evidence
Provisional Receipts No. 19471, dated 11 August 1978, and No. 12723, dated 10 November 1978, both of petitioner Citibank and signed by Mr. Tan, for
the amounts of P500,744.00 andP500,000.00, respectively. While these provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank,
received respondent's checks as payment for her loans, they failed to specifically identify which loans were actually paid. Petitioner Citibank was able to

present evidence that respondent had executed several PNs in the years 1978 and 1979 to cover the loans she secured from the said bank. Petitioner
Citibank did admit that respondent was able to pay for some of these PNs, and what it identified as the first and second sets of PNs were only those
which remained unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were actually applied to the PNs in
either the first or second set; a fact that, unfortunately, cannot be determined from the provisional receipts submitted by respondent since they only
generally stated that the checks received by Mr. Tan were payment for respondent's loans.
Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the bank was made using checks, since the checks
would still be subject to clearing. The purpose for the provisional receipts was merely to acknowledge the delivery of the checks to the possession of the
bank, but not yet of payment.99This bank practice finds legitimacy in the pronouncement of this Court that a check, whether an MC or an ordinary check,
is not legal tender and, therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc. v. Court of Appeals, 100 this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as
payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9
Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank would have been dependent on whether the checks delivered by respondent
were actually cleared and paid for by the drawee banks.
As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different means. In her formal offer of exhibits, respondent
submitted a deposit slip of petitioner Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No. 5785 for P150,000.00.101 In her Formal
Offer of Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the presentation of the said deposit slip was to prove that she
already paid her loan covered by PN No. 34534.102 In her testimony before the RTC three years later, on 28 November 1991, she changed her story.
This time she narrated that the loan covered by PN No. 34534 was secured by her money market placement with petitioner FNCB Finance, and when
she failed to pay the said PN when it became due, the security was applied to the loan, therefore, the loan was considered paid. 103 Given the foregoing,
respondent's assertion of payment of PN No. 34534 is extremely dubious.
According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere renewals of the unpaid PNs in the first set, which was
why the PNs stated that they were for the purpose of liquidating existing obligations. PN No. 34534, however, which was part of the first set, was still
valid and subsisting and so it was included in the second set without need for its renewal, and it still being the original PN for that particular loan, its
stated purpose was for personal investment.104 Respondent essentially admitted executing the second set of PNs, but they were only meant to cover
simulated loans. Mr. Tan supposedly convinced her that her pending loan application with DBP would have a greater chance of being approved if they
made it appear that respondent urgently needed the money because petitioner Citibank was already demanding payment for her simulated loans.
Respondent's defense of simulated loans to escape liability for the second set of PNs is truly a novel one.1wphi1 It is regrettable, however, that she
was unable to substantiate the same. Yet again, respondent's version of events is totally based on her own uncorroborated testimony. The notations on
the second set of PNs, that they were non-negotiable simulated notes, were admittedly made by respondent herself and were, thus, self-serving. Equally
self-serving was respondent's letter, written on 7 October 1985, or more than six years after the execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs, together with the letters relating thereto, which Mr. Tan purportedly asked her to execute.
Respondent further failed to present any proof of her alleged loan application with the DBP, and of any circumstance or correspondence wherein the
simulated or fictitious PNs were indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers and available documentation, consistently treated the said PNs as regular
loans accepted, approved, and paid in the ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled out and signed, including the disclosure statement
found at the back of the said PNs, in adherence to the Central Bank requirement to disclose the full finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he dealt directly with respondent; he facilitated the
loans; and the PNs, at least in the second set, were signed by respondent in his presence.105
Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the signatures on the PNs were verified against
respondent's specimen signature with the bank.106
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was responsible for booking respondent's loans. Booking the loans
means recording it in the General Ledger. She explained the procedure for booking loans, as follows: The account officer, in the Marketing Department,
deals directly with the clients who wish to borrow money from petitioner Citibank. The Marketing Department will forward a loan booking checklist,
together with the borrowing client's PNs and other supporting documents, to the loan pre-processor, who will check whether the details in the loan
booking checklist are the same as those in the PNs. The documents are then sent to Signature Control for verification of the client's signature in the
PNs, after which, they are returned to the loan pre-processor, to be forwarded finally to the loan processor. The loan processor shall book the loan in the
General Ledger, indicating therein the client name, loan amount, interest rate, maturity date, and the corresponding PN number. Since she booked
respondent's loans personally, Ms. Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of petitioner Citibank requested her to
prepare an accounting of respondent's loans, which she did, and which was presented as Exhibit "120" for the petitioners. The figures from the said
exhibit were culled from the bookings in the General Ledger, a fact which respondent's counsel was even willing to stipulate. 107
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control Department of petitioner Citibank. She was presented by petitioner
Citibank to expound on the microfilming procedure at the bank, since most of the copies of the PNs were retrieved from microfilm. Microfilming of the
documents are actually done by people at the Operations Department. At the end of the day or during the day, the original copies of all bank documents,
not just those pertaining to loans, are microfilmed. She refuted the possibility that insertions could be made in the microfilm because the microfilm is
inserted in a cassette; the cassette is placed in the microfilm machine for use; at the end of the day, the cassette is taken out of the microfilm machine

and put in a safe vault; and the cassette is returned to the machine only the following day for use, until the spool is full. This is the microfilming procedure
followed everyday. When the microfilm spool is already full, the microfilm is developed, then sent to the Control Department, which double checks the
contents of the microfilms against the entries in the General Ledger. The Control Department also conducts a random comparison of the contents of the
microfilms with the original documents; a random review of the contents is done on every role of microfilm. 108
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially working as a secretary in the Personnel Group; then as a
secretary to the Personnel Group Head; a Service Assistant with the Marketing Group, in 1972 to 1974, dealing directly with corporate and individual
clients who, among other things, secured loans from petitioner Citibank; the Head of the Collection Group of the Foreign Department in 1974 to 1976;
the Head of the Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit up to the early 1980s; and, thereafter, she established
operations training for petitioner Citibank in the Asia-Pacific Region responsible for the training of the officers of the bank. She testified on the standard
loan application process at petitioner Citibank. According to Ms. Rubio, the account officer or marketing person submits a proposal to grant a loan to an
individual or corporation. Petitioner Citibank has a worldwide policy that requires a credit committee, composed of a minimum of three people, which
would approve the loan and amount thereof. There can be no instance when only one officer has the power to approve the loan application. When the
loan is approved, the account officer in charge will obtain the corresponding PNs from the client. The PNs are sent to the signature verifier who would
validate the signatures therein against those appearing in the signature cards previously submitted by the client to the bank. The Operations Unit will
check and review the documents, including the PNs, if it is a clean loan, and securities and deposits, if it is collateralized. The loan is then recorded in
the General Ledger. The Loans and Placements Department will not book the loans without the PNs. When the PNs are liquidated, whether they are
paid or rolled-over, they are returned to the client.109 Ms. Rubio further explained that she was familiar with respondent's accounts since, while she was
still the Head of the Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of respondent's outstanding obligations. 110 She thus
calculated respondent's outstanding loans, which was sent as an attachment to Mr. Tan's letter to respondent, dated 28 September 1979, and presented
before the RTC as Exhibits "34-B" and "34-C."111
Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by other people working for respondent, had
consistently recognized that respondent owed petitioner Citibank money.
In consideration of the foregoing discussion, this Court finds that the preponderance of evidence supports the existence of the respondent's loans, in the
principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled that the term "preponderance of evidence" should not be wholly
dependent on the number of witnesses, there are certain instances when the number of witnesses become the determining factor
The preponderance of evidence may be determined, under certain conditions, by the number of witnesses testifying to a particular fact or state
of facts. For instance, one or two witnesses may testify to a given state of facts, and six or seven witnesses of equal candor, fairness,
intelligence, and truthfulness, and equally well corroborated by all the remaining evidence, who have no greater interest in the result of the
suit, testify against such state of facts. Then the preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines, 100
Tenn. 524, 66 Am. St. Rep., 761.)112
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals summarily dismissing the documentary evidence submitted by petitioners
based on its broad and indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of proof must be produced. Accordingly, for documentary evidence, the
contents of a document are best proved by the production of the document itself,113 to the exclusion of any secondary or substitutionary evidence.114
The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which reads
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a document, no evidence shall be
admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to
produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of
time and the fact sought to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only when the subject of the inquiry is the contents of the document. The scope of
the rule is more extensively explained thus
But even with respect to documentary evidence, the best evidence rule applies only when the content of such document is the subject of the
inquiry. Where the issue is only as to whether such document was actually executed, or exists, or on the circumstances relevant to or
surrounding its execution, the best evidence rule does not apply and testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin,
op. cit., p. 78). Any other substitutionary evidence is likewise admissible without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition it is offered not as documentary, but as real, evidence. Parol evidence
of the fact of execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al., 91 Phil 565). x x x 115

In Estrada v. Desierto,116 this Court had occasion to rule that


It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the Philippine Daily Inquirer on February
4-6, 2001. In doing so, the Court, did not, however, violate the best evidence rule. Wigmore, in his book on evidence, states that:
"Production of the original may be dispensed with, in the trial court's discretion, whenever in the case in hand the opponent does not bona fide
dispute the contents of the document and no other useful purpose will be served by requiring production.24
"x x x x
"In several Canadian provinces, the principle of unavailability has been abandoned, for certain documents in which ordinarily no real dispute
arised. This measure is a sensible and progressive one and deserves universal adoption (post, sec. 1233). Its essential feature is that a copy
may be used unconditionally, if the opponent has been given an opportunity to inspect it." (Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and weighed in evidence the photocopies and microfilm copies of the PNs, MCs,
and letters submitted by the petitioners to establish the existence of respondent's loans. The terms or contents of these documents were never the point
of contention in the Petition at bar. It was respondent's position that the PNs in the first set (with the exception of PN No. 34534) never existed, while the
PNs in the second set (again, excluding PN No. 34534) were merely executed to cover simulated loan transactions. As for the MCs representing the
proceeds of the loans, the respondent either denied receipt of certain MCs or admitted receipt of the other MCs but for another purpose. Respondent
further admitted the letters she wrote personally or through her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she
claimed that these letters were just meant to keep up the ruse of the simulated loans. Thus, respondent questioned the documents as to their existence
or execution, or when the former is admitted, as to the purpose for which the documents were executed, matters which are, undoubtedly, external to the
documents, and which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by petitioners regarding the existence of
respondent's loans, it should be borne in mind that the rule admits of the following exceptions under Rule 130, Section 5 of the revised Rules of Court
SEC. 5. When the original document is unavailable. When the original document has been lost or destroyed, or cannot be produced in court,
the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a
copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was established through the testimonies of witnesses, such as Mr. Tan, before whom
most of the documents were personally executed by respondent. The original PNs also went through the whole loan booking system of petitioner
Citibank from the account officer in its Marketing Department, to the pre-processor, to the signature verifier, back to the pre-processor, then to the
processor for booking.117 The original PNs were seen by Ms. Dondoyano, the processor, who recorded them in the General Ledger. Mr. Pujeda
personally saw the original MCs, proving respondent's receipt of the proceeds of her loans from petitioner Citibank, when he helped Attys. Cleofe and
Fernandez, the bank's legal counsels, to reconstruct the records of respondent's loans. The original MCs were presented to Atty. Cleofe who used the
same during the preliminary investigation of the case, sometime in years 1986-1987. The original MCs were subsequently turned over to the Control and
Investigation Division of petitioner Citibank.118
It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it moved to a new office. Citibank did not make a
similar contention; instead, it explained that the original copies of the PNs were returned to the borrower upon liquidation of the loan, either through
payment or roll-over. Petitioner Citibank proffered the excuse that they were still looking for the documents in their storage or warehouse to explain the
delay and difficulty in the retrieval thereof, but not their absence or loss. The original documents in this case, such as the MCs and letters, were
destroyed and, thus, unavailable for presentation before the RTC only on 7 October 1987, when a fire broke out on the 7th floor of the office building of
petitioner Citibank. There is no showing that the fire was intentionally set. The fire destroyed relevant documents, not just of the present case, but also of
other cases, since the 7th floor housed the Control and Investigation Division, in charge of keeping the necessary documents for cases in which petitioner
Citibank was involved.
The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies of the PNs, MCs, and letters by the petitioners as
secondary evidence to establish the existence of respondent's loans, as an exception to the best evidence rule.
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following pronouncement
Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy
vs. City Bank, N.A., et al, promulgated on 15 January 1990, asdisturbing taking into consideration the similarities of the fraud, machinations,
and deceits employed by the defendant-appellant Citibank and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of Francisco Tan in CA-G.R. CV No.
15934 were affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22 August 1990 entitled Citibank, N.A., vs. Court of
Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9) Promissory Notes were indeed executed with
considerations, the doubts, coupled by the findings and conclusions of this Court in CA-G.R. CV No. 15934 and the Supreme Court in G.R.
No. 93350. should be construed against herein defendants-appellants Citibank and FNCB Finance.

What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed Decision to the Decision 119 of its Third Division in
CA-G.R. CV No. 15934 (or the Dy case), when there is an absolute lack of legal basis for doing such.
Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the only connection between the Dy case and the
one at bar. Not only did the Dy case tackle transactions between parties other than the parties presently before this Court, but the transactions are
absolutely independent and unrelated to those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank amounting toP7,000,000.00, secured to the extent
of P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband
were unaware of the said loans and the mortgage of their properties. The transactions were carried out exclusively between Caedo and Mr. Tan of
petitioner Citibank. The RTC found Mr. Tan guilty of fraud for his participation in the questionable transactions, essentially because he allowed Caedo to
take out the signature cards, when these should have been signed by the Dy spouses personally before him. Although the Dy spouses' signatures in the
PNs and Third Party Real Estate Mortgage were forged, they were approved by the signature verifier since the signature cards against which they were
compared to were also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally responsible for the
forgeries, which, in the narration of the facts, were more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved who could have perpetrated any fraud or forgery in her loan
transactions. Although respondent attempted to raise suspicion as to the authenticity of her signatures on certain documents, these were nothing more
than naked allegations with no corroborating evidence; worse, even her own allegations were replete with inconsistencies. She could not even establish
in what manner or under what circumstances the fraud or forgery was committed, or how Mr. Tan could have been directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third Division in the Dy case, it should not have given the said case much
weight when it rendered the assailed Decision, since the former does not constitute a precedent. The Court of Appeals, in the challenged Decision, did
not apply any legal argument or principle established in the Dy case but, rather, adopted the findings therein of wrongdoing or misconduct on the part of
herein petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as against herein petitioners should be made based on the factual
background and pieces of evidence submitted in this case, not those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for the present case, but rather as evidence of similar
acts committed by petitioner Citibank and Mr. Tan. A basic rule of evidence, however, states that, "Evidence that one did or did not do a certain thing at
one time is not admissible to prove that he did or did not do the same or similar thing at another time; but it may be received to prove a specific intent or
knowledge, identity, plan, system, scheme, habit, custom or usage, and the like." 120 The rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person has committed the same or similar acts
at some prior time affords, as a general rule, no logical guaranty that he committed the act in question. This is so because, subjectively, a
man's mind and even his modes of life may change; and, objectively, the conditions under which he may find himself at a given time may
likewise change and thus induce him to act in a different way. Besides, if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant to surprise as well as confuse the court and prolong the trial. 121
The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot be used to prove specific intent, knowledge, identity,
plan, system, scheme, habit, custom or usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the present case.
IV
The liquidation of respondent's outstanding loans were valid in so far as petitioner Citibank used respondent's savings account with the bank
and her money market placements with petitioner FNCB Finance; but illegal and void in so far as petitioner Citibank used respondent's dollar
accounts with Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code provides
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to
the debtor.

There is little controversy when it comes to the right of petitioner Citibank to compensate respondent's outstanding loans with her deposit account. As
already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At the same time, respondent was the creditor
of petitioner Citibank, as far as her deposit account was concerned, since bank deposits, whether fixed, savings, or current, should be considered as
simple loan or mutuum by the depositor to the banking institution.122 Both debts consist in sums of money. By June 1979, all of respondent's PNs in the
second set had matured and became demandable, while respondent's savings account was demandable anytime. Neither was there any retention or
controversy over the PNs and the deposit account commenced by a third person and communicated in due time to the debtor concerned. Compensation
takes place by operation of law,123 therefore, even in the absence of an expressed authority from respondent, petitioner Citibank had the right to effect,
on 25 June 1979, the partial compensation or off-set of respondent's outstanding loans with her deposit account, amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the money market placements and bank account used by petitioner Citibank to
complete the compensation or off-set of respondent's outstanding loans, which came from persons other than petitioner Citibank.
Respondent's money market placements were with petitioner FNCB Finance, and after several roll-overs, they were ultimately covered by PNs No.
20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive
of the principal amounts and interests. As to these money market placements, respondent was the creditor and petitioner FNCB Finance the debtor;
while, as to the outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently, legal compensation, under Article 1278
of the Civil Code, would not apply since the first requirement for a valid compensation, that each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's money market placements with petitioner FNCB Finance
by virtue of the Deeds of Assignment executed by respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of petitioners' failure to produce the original copies thereof in violation of the
best evidence rule. This Court again finds itself in disagreement in the application of the best evidence rule by the appellate court.
To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the presentation of the original copy of the document only
when the context thereof is the subject of inquiry in the case. Respondent does not question the contents of the Deeds of Assignment. While she
admitted the existence and execution of the Deeds of Assignment, dated 2 March 1978 and 9 March 1978, covering PNs No. 8169 and 8167 issued by
petitioner FNCB Finance, she claimed, as defense, that the loans for which the said Deeds were executed as security, were already paid. She denied
ever executing both Deeds of Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139. These are again issues collateral to the contents
of the documents involved, which could be proven by evidence other than the original copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance were notarized documents, thus, admissible in
evidence. Rule 132, Section 30 of the Rules of Court provides that
SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided by law, may be presented in
evidence without further proof, the certificate of acknowledgement being prima facie evidence of the execution of the instrument or document
involved.
Significant herein is this Court's elucidation in De Jesus v. Court of Appeals,124 which reads
On the evidentiary value of these documents, it should be recalled that the notarization of a private document converts it into a public one and
renders it admissible in court without further proof of its authenticity (Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a public
document duly executed and entered in the proper registry is presumed to be valid and genuine until the contrary is shown by clear and
convincing proof (Asido vs. Guzman, 57 Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil 241 [1902];Favor vs. Court of Appeals, 194 SCRA 308
[1991]). As such, the party challenging the recital of the document must prove his claim with clear and convincing evidence (Diaz vs. Court of
Appeals, 145 SCRA 346 [1986]).
The rule on the evidentiary weight that must be accorded a notarized document is clear and unambiguous. The certificate of acknowledgement in the
notarized Deeds of Assignment constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this presumption fell on
respondent. She could have presented evidence of any defect or irregularity in the execution of the said documents 125 or raised questions as to the verity
of the notary public's acknowledgment and certificate in the Deeds. 126 But again, respondent admitted executing the Deeds of Assignment, dated 2
March 1978 and 9 March 1978, although claiming that the loans for which they were executed as security were already paid. And, she assailed the
Deeds of Assignment, dated 25 August 1978, with nothing more than her bare denial of execution thereof, hardly the clear and convincing evidence
required to trounce the presumption of due execution of a notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal copies thereof from the National Archives. 127 Mr.
Renato Medua, an archivist, working at the Records Management and Archives Office of the National Library, testified that the copies of the Deeds
presented before the RTC were certified literal copies of those contained in the Notarial Registries of the notary publics concerned, which were already
in the possession of the National Archives. He also explained that he could not bring to the RTC the Notarial Registries containing the original copies of
the Deeds of Assignment, because the Department of Justice (DOJ) Circular No. 97, dated 8 November 1968, prohibits the bringing of original
documents to the courts to prevent the loss of irreplaceable and priceless documents. 128
Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority given by the respondent to petitioner Citibank to
use as security for her loans her money her market placements with petitioner FNCB Finance, represented by PNs No. 8167 and 8169, later to be rolledover as PNs No. 20138 and 20139. These Deeds of Assignment constitute the law between the parties, and the obligations arising therefrom shall have
the force of law between the parties and should be complied with in good faith.129 Standard clauses in all of the Deeds provide that

The ASSIGNOR and the ASSIGNEE hereby further agree as follows:


xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the ASSIGNEE is fully authorized
and empowered to collect and receive the PLACEMENT (or so much thereof as may be necessary) and apply the same in payment
of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and from time to time, upon request by the ASSIGNEE,
the ASSIGNOR will promptly execute and deliver any and all such further instruments and documents as may be necessary to
effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the PLACEMENT or so much
thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with terms and provisions hereof. 130
Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it finally used the proceeds of PNs No. 20138 and
20139, paid by petitioner FNCB Finance, to partly pay for respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or offset under Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled Deeds of Assignment, they were, in reality, more of a pledge by respondent to
petitioner Citibank of her credit due from petitioner FNCB Finance by virtue of her money market placements with the latter. According to Article 2118 of
the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due. He shall
apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, so that petitioner Citibank collected from
petitioner FNCB Finance the proceeds thereof, which included the principal amounts and interests earned by the money market placements, amounting
to P1,022,916.66, and applied the same against respondent's outstanding loans, leaving no surplus to be delivered to respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondent's savings account and the total application of the proceeds of PNs No. 20138 and 20139 to respondent's
outstanding loans, there still remained a balance of P1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar accounts with
Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of Pledge supposedly executed by respondent in its favor.
Certain principles of private international law should be considered herein because the property pledged was in the possession of an entity in a foreign
country, namely, Citibank-Geneva. In the absence of any allegation and evidence presented by petitioners of the specific rules and laws governing the
constitution of a pledge in Geneva, Switzerland, they will be presumed to be the same as Philippine local or domestic laws; this is known as processual
presumption.131
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the Declaration of
Pledge unnotarized. This Court would think that petitioner Citibank would take greater cautionary measures with the preparation and execution of the
Declaration of Pledge because it involved respondent's "all present and future fiduciary placements" with a Citibank branch in another country,
specifically, in Geneva, Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be notarized to be effective, even
so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized documents, and petitioner Citibank must
discharge the burden of proving due execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of the Declaration of
Pledge submitted by petitioner Citibank before the RTC was undated.132 It presented only a photocopy of the pledge because it already forwarded the
original copy thereof to Citibank-Geneva when it requested for the remittance of respondent's dollar accounts pursuant thereto. Respondent, on the
other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September
1979.133 Respondent, however, presented her passport and plane tickets to prove that she was out of the country on the said date and could not have
signed the pledge. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but could not provide an explanation as to how
and why the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before
him, he could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the
respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is dated 24 September
1979, and this Court shall abide by the presumption that the written document is truly dated. 134 Since it is undeniable that respondent was out of the
country on 24 September 1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted in favor of Citibank, N.A.,
otherwise referred to therein as the Bank. It should be noted, however, that in the space which should have named the pledgor, the name of petitioner
Citibank was typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires against Citibank, N.A.,
Manila (full name and address of the Debtor), regardless of the legal cause or the transaction (for example current account, securities
transactions, collections, credits, payments, documentary credits and collections) which gives rise thereto, and including principal, all
contractual and penalty interest, commissions, charges, and costs.

The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever filled-out the form? Yes, it could
be a possibility. Nonetheless, considering the value of such a document, the mistake as to a significant detail in the pledge could only be committed with
gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the authenticity and due execution of the same. The Declaration of
Pledge had passed through the hands of several bank officers in the country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring
mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a forgery. When a document is
assailed on the basis of forgery, the best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is admissible other than the original
document itself except in the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies of documents are
inadmissible pursuant to the best evidence rule. This is especially true when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the
party alleging forgery. The best evidence of a forged signature in an instrument is the instrument itself reflecting the alleged forged signature.
The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of
the person whose signature is theorized upon to have been forged. Without the original document containing the alleged forged signature, one
cannot make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction of the
document under controversy cannot produce reliable results.135
Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined by experts. Yet, despite
several Orders by the RTC,136 petitioner Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that CitibankGeneva had possession of the original copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct
entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and resources to convince
Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court
that it had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give
it back, when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the presentation of a
mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner Citibank has nil probative
value.137In addition, even if this Court cannot make a categorical finding that respondent's signature on the original copy of the pledge was forged, it is
persuaded that petitioner Citibank willfully suppressed the presentation of the original document, and takes into consideration the presumption that the
evidence willfully suppressed would be adverse to petitioner Citibank if produced.138
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondent's dollar accounts with Citibank-Geneva
and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself
admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the
debtor; and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were
evidently not the principal creditor of each other.
Therefore, this Court declares that the remittance of respondent's dollar accounts from Citibank-Geneva and the application thereof to her outstanding
loans with petitioner Citibank was illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to respondent the amount of
US$149,632,99 from her Citibank-Geneva accounts, or its present equivalent value in Philippine currency; and, at the same time, respondent continues
to be obligated to petitioner Citibank for the balance of her outstanding loans which, as of 5 September 1979, amounted to P1,069,847.40.
V
The parties shall be liable for interests on their monetary obligations to each other, as determined herein.
In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of her money market placements, represented by PNs No.
23356 and 23357, amounting to P318,897.34 and P203,150.00, respectively, earning an interest of 14.5% per annum as stipulated in the
PNs,139 beginning 17 March 1977, the date of the placements.
Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its equivalent in Philippine currency, which had been
remitted from her Citibank-Geneva accounts. These dollar accounts, consisting of two fiduciary placements and current accounts with Citibank-Geneva
shall continue earning their respective stipulated interests from 26 October 1979, the date of their remittance by Citibank-Geneva to petitioner Citibank in
Manila and applied against respondent's outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which amounted to P1,069,847.40 as of 5 September
1979. These loans continue to earn interest, as stipulated in the corresponding PNs, from the time of their respective maturity dates, since the supposed
payment thereof using respondent's dollar accounts from Citibank-Geneva is deemed illegal, null and void, and, thus, ineffective.
VI
Petitioner Citibank shall be liable for damages to respondent.
Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and attorney's fees in favor of respondent. They argued
that the RTC did not award any damages, and respondent, in her appeal before the Court of Appeals, did not raise in issue the absence of such.
While it is true that the general rule is that only errors which have been stated in the assignment of errors and properly argued in the brief shall be
considered, this Court has also recognized exceptions to the general rule, wherein it authorized the review of matters, even those not assigned as errors
in the appeal, if the consideration thereof is necessary in arriving at a just decision of the case, and there is a close inter-relation between the omitted

assignment of error and those actually assigned and discussed by the appellant. 140 Thus, the Court of Appeals did not err in awarding the damages
when it already made findings that would justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect legal compensation of respondent's local deposits, as well as its right to the
proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to partly extinguish respondent's outstanding loans, it finds that
petitioner Citibank did commit wrong when it failed to pay and properly account for the proceeds of respondent's money market placements, evidenced
by PNs No. 23356 and 23357, and when it sought the remittance of respondent's dollar accounts from Citibank-Geneva by virtue of a highly-suspect
Declaration of Pledge to be applied to the remaining balance of respondent's outstanding loans. It bears to emphasize that banking is impressed with
public interest and its fiduciary character requires high standards of integrity and performance.141 A bank is under the obligation to treat the accounts of
its depositors with meticulous care whether such accounts consist only of a few hundred pesos or of millions of pesos. 142 The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible.143 Petitioner Citibank evidently failed to exercise the required degree
of care and transparency in its transactions with respondent, thus, resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her investments and deposits for more than two decades. During this span of years,
respondent had found herself in desperate need of the amounts wrongfully withheld from her. In her testimony 144 before the RTC, respondent narrated
Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman, will you tell us again what are the
businesses you are engaged into [sic]?
A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am also the President and Chairman of
the Board of Macador [sic] Co. and Business Inc. which operates the Macador [sic] International Palace Hotel. I am also the President of the
Macador [sic] International Palace Hotel, and also the Treasures Home Industries, Inc. which I am the Chairman and president of the Board
and also operating affiliated company in the name of Treasures Motor Sales engaged in car dealers [sic] like Delta Motors, we are the dealers
of the whole Northern Luzon and I am the president of the Disto Company, Ltd., based in Hongkong licensed in Honkong [sic] and now
operating in Los Angeles, California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or community organization for social and civil activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an officer of the Chamber of Real Estate
Business Association; I am also an officer of the Chatholic [sic] Women's League and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?
A I was also a candidate for Mayo last January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan.
Q What happened to your businesses you mentioned as a result of your failure to recover you [sic] investments and bank deposits from the
defendants?
A They are not all operating, in short, I was hampered to push through the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and what remain inactive?
A Of all the company [sic] that I have, only the Disto Company that is now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of Region I, what happened to this?
A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still pending and because I don't have financial
resources I was not able to push through the case. I just have it pending in the Comelec.
Q Now, do these things also affect your social and civic activities?

A Yes sir, definitely.


Q How?
A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I was awarded as the most outstanding
businesswoman of the year in 1976 but when this money was not given back to me I was not able to comply with the commitments that I have
promised to these associations that I am engaged into [sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social humiliation suffered by the respondent, the award of moral
damages is but proper. However, this Court reduces the amount thereof toP300,000.00, for the award of moral damages is meant to compensate for the
actual injury suffered by the respondent, not to enrich her.145
Having failed to exercise more care and prudence than a private individual in its dealings with respondent, petitioner Citibank should be liable for
exemplary damages, in the amount of P250,000.00, in accordance with Article 2229146 and 2234147 of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to an award of attorney's fees. 148Additionally, attorney's fees may be
awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party.149 In this case,
an award of P200,000.00 attorney's fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to petitioners.1wphi1 Respondent was compelled to institute the present case in the
exercise of her rights and in the protection of her interests. In fact, although her Complaint before the RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in her favor. Any injury resulting from the exercise of one's rights is damnum absque injuria.150
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated
26 March 2002, as already modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDEREDto return to respondent the
principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four
Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest
of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from
respondent's Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the same against respondent's outstanding
loans with the latter, is DECLAREDillegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its
equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary
placements and current accounts involved, beginning 26 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos (P300,000.00);
exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorney's fees in the amount of Two Hundred
Thousand Pesos (P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the respective dates of their maturity
to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty
Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn interest, at the rates stipulated in the
corresponding PNs, from 5 September 1979 until payment thereof.
SO ORDERED.
Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, and Callejo, Sr., JJ., concur.