Sps Moran vs CA

Facts: M who regularly purchased bulk fuel from P maintained 3 joint accounts
with Citytrust Bank, namely: Current Account No. 1 (CA1), Savings Account No. 1
(SA1), and Savings Account No. 2 (SA2).
M had a pre-authorized transfer (PAT) agreement with Citytrust wherein the former
have written authority to the latter to automatically transfer funds from their SA1
to their CA1 at any time whenever the funds in their current account were
insufficient to meet withdrawals from said current account.
On December 12, 1983, M drew a check for P50, 576.00 payable to P.
On December 13, 1983, M issued another check in the amount of P56, 090.00 in
favor of the same.
On December 14, 1983, P deposited the 2 aforementioned check to its account
with the PNB. In turn, PNB presented them for clearing and the record shows that
on December 14, 1983, the accounts has insufficient funds (CA1 had a zero
balance, while SA1 [covered by PAT] had an available balance of P26, 104.30 and
SA2 had an available balance of P43, 268.39). Hence the checks were
dishonoured.
On December 15, 1983 at 10:00 AM, M went to the bank as was his regular
practice and deposited in their SA2 the amounts of P10, 874.58 and P6, 754.25,
and he deposited likewise in the SA1 the amounts of P5, 900.00, P35, 100.00 and
30.00. The amount of P40,000.00 was then transferred by him from SA2 to their
CA1. At the same time, the amount of P66,666.00 was transferred from SA1 to the
same current account through PAT agreement.
Sometime on December 15 or 16, 1983 M was informed that that P refused to
deliver their orders on a credit basis because the two checks they had previously
issued were dishonored upon presentment for payment due to insufficiency of
funds. The non-delivery of orders forced petitioners to stop business operations,
allegedly causing them to suffer loss of earnings.
On December 16 or 17, 1983, P got the signature of M on an application for a
managers check so that the dishonoured checks could be redeemed and
presented the checks in payment for the two dishonoured checks.
On July 24, 1984, claimed P1,000,000.00 for moral damages.

Issue: WON the bank is liable for damages for its refusal to pay a check on
account of insufficient funds considering the fact that a deposit may be made later
in the day.

Held: No, Petitioners had no sufficient funds in their accounts when the bank
dishonoured the checks in question.

First, a check is a bill of exchange drawn on a bank payable on demand. Thus, a

check is a written order addressed to a bank or persons carrying on the business
of banking, by a party having money in their hands, requesting them to pay on
presentment, to a person named therein or to bearer or order, a named sum of
money.
Second, the relationship between the bank and the depositor is that of a debtor
and creditor. By virtue of the contract of deposit between the banker and its
depositor, the banker agrees to pay checks drawn by the depositor provided that
said depositor has money in the hands of the bank.
Thirdly, where the bank possesses funds of the depositor, it is bound to honor his
checks to the extent of the amount deposits. The failure of a bank to pay the
check of a merchant or a trader, when the deposit is sufficient, entitles the drawer
to substantial damages without any proof of actual damages. Conversely, a bank
is not liable for its refusal to pay a check on account of insufficient funds,
notwithstanding the fact that a deposit may be made later in the day. Before a
bank depositor may maintain a suit to recover a specific amount form his bank, he
must first show that he had on deposit sufficient funds to meet demand.
Considering the clearing process adopted, it is clear that the available balance on
December 14, 1983 was used by the bank in determining whether or not there
was sufficient cash deposited to fund the two checks. When Ms checks were
dishonored due to insufficiency of funds, the available balance of SA1 which was
the subject of the PAT agreement was not enough to cover either of the two
checks. On December 14, 1983, when PNB presented the checks for collection,
the available balance for SA1 was only P26, 104.30 while CA1had no available
balance. It was only on December 15, 1983 at around 10:00 AM that the
necessary funds were deposited, which unfortunately was too late to prevent the
dishonour of the checks.

G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
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. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981,
a letter of demand to the petitioner, threatening prosecution if the dishonored
check issued to it was not made good. It also withheld delivery of the order made
by the petitioner. Similar letters were sent to the petitioner by the Malabon Long
Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future
payments be made by it in cash or certified check. Meantime, action on the
pending orders of the petitioner with the other suppliers whose checks were
dishonored was also deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was rectified on
June 17, 1981, and the dishonored checks were paid after they were redeposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiff's right had been violated, he ordered the defendant to
pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees
and costs. 5 This decision was affirmed in toto by the respondent court. 6

The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled
to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the
omission by the defendant-appellee bank to credit appellant's deposit
of P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious,
fraudulent, wanton and gross bad faith and negligence on the part of
the 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
5

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
6

that could not be marred, more so since that case was ultimately settled. 10 It does
not appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him." As we have found that the petitioner has indeed
incurred loss through the fault of the private respondent, the proper remedy is the
award to it of moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be safe
in its custody and will even earn some interest for him. The ordinary person, with
equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for business entities like the petitioner, the bank is a trusted and
active associate that can help in the running of their affairs, not only in the form of
loans when needed but more often in the conduct of their day-to-day transactions
like the issuance or encashment of checks.
7

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.

Negotiable Instruments Case Digest: Gempesaw V. CA (1993)

Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)
FACTS:

Gempesaw owns and operates four grocery stores

to pay their debts of her supplies, she draws checks against her
account

she signed each and every crossed check without bothering to verify
the accuracy of the checks against the corresponding invoices because she
reposed full and implicit trust and confidence on her bookkeeper.

although the Bank notified her of all checks presented to and paid by
the bank, petitioner did not verify he correctness of the returned checks, much
less check if the payees actually received the checks in payment for the
supplies she received

It was only after the lapse of more 2 years that petitioner found out
about the fraudulent manipulations of her bookkeeper

November 7, 1984: Gempesaw made a written demand on respondent

drawee Bank to credit her account with the money value of the 82 checks
totalling P1,208.606.89 for having been wrongfully charged against her
account

January 23, 1985: Gempesaw filed against Philippine Bank of

Communications (drawee Bank) for recovery of the money value of 82 checks
charged against the Gempesaw's account on the ground that the payees'
indorsements were forgeries

RTC: dismissed the complaint

CA: affirmed

Gempesaw gross negligence = promixate cause of the loss

ISSUE: W/N Gempesaw has a right to recover the amount attributable to the
forgeries
HELD: NO. REMANDED to the trial court for the reception of evidence to determine
the exact amount of loss suffered by the petitioner, considering that she partly
benefited from the issuance of the questioned checks since the obligation for
which she issued them were apparently extinguished, such that only the excess
amount over and above the total of these actual obligations must be considered
as loss of which one half must be paid by respondent drawee bank to herein
petitioner.
9

Petitioner completed the checks by signing them as drawer and thereafter

authorized her employee Alicia Galang to deliver to payees
GR: drawee bank who has paid a check on which an indorsement has been
forged cannot charge the drawer's account for the amount of said check
EX: where the drawer is guilty of such negligence which causes the bank to
honor such a check or checks.
Under the NIL, the only kind of indorsement which stops the further
negotiation of an instrument is a restrictive indorsement which prohibits the
further negotiation thereof.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which

either chanrobles virtual law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or

negotiate must be written in express words at the back of the instrument, so
that any subsequent party may be forewarned that ceases to be negotiable.
However, the restrictive indorsee acquires the right to receive
payment and bring any action thereon as any indorser, but he can no longer
transfer his rights as such indorsee where the form of the indorsement does
not authorize him to do so.
When it violated its internal rules that second endorsements are not to be
accepted without the approval of its branch managers and it did accept the
same upon the mere approval of Boon, a chief accountant, it contravened the
tenor of its obligation at the very least, if it were not actually guilty of fraud or
negligence
drawee Bank did not discover the irregularity with respect to the acceptance
of checks with second indorsement for deposit even without the approval of
the branch manager despite periodic inspection conducted by a team of
auditors from the main office constitutes negligence on the part of the bank in
carrying out its obligations to its depositors

[G.R. No. 159590. October 18, 2004]

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner,
vs. CECILIA DIEZ CATALAN, respondent.
[G.R. No. 159591. October 18, 2004]
10

HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner, vs. CECILIA DIEZ

CATALAN, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us are two petitions for review on certiorari under Rule 45 of the Rules
of Court separately filed by the Hongkong and Shanghai Banking Corporation
Limited (HSBANK) and HSBC International Trustee Limited (HSBC TRUSTEE). They
seek the reversal of the consolidated Decision, [1] dated August 14, 2003, of the
Court of Appeals (CA) in CA-G.R. SP Nos. 75756 and 75757, which dismissed the
petitions for certiorari of herein petitioners assailing the Order, dated May 15,
2002, of the Regional Trial Court, Branch 44, Bacolod City (RTC) in Civil Case No.
01-11372 that denied their respective motions to dismiss the amended complaint
of respondent Cecilia Diez Catalan.
The factual antecedents are as follows:
On January 29, 2001, respondent filed before the RTC, a complaint for a sum of
money with damages against petitioner HSBANK, docketed as Civil Case No. 0111372, due to HSBANKs alleged wanton refusal to pay her the value of five
HSBANK checks issued by Frederick Arthur Thomson (Thomson) amounting to
HK$3,200,000.00.[2]
On
February
7, 2001,
summons
was
served on
HSBANK
at
the Enterprise Center,
Tower
I, Ayala
Avenue corner
Paseo
de
Roxas
[3]
St., Makati City. HSBANK filed a Motion for Extension of Time to File Answer or
Motion to Dismiss dated February 21, 2001.[4] Then, it filed a Motion to Dismiss,
dated March 8, 2001, on the grounds that (a) the RTC has no jurisdiction over the
subject matter of the complaint; (b) the RTC has not acquired jurisdiction for
failure of the plaintiff to pay the correct filing or docket fees; (c) the RTC has no
jurisdiction over the person of HSBANK; (d) the complaint does not state a cause
of action against HSBANK; and (e) plaintiff engages in forum-shopping.[5]
On September 10, 2001, Catalan filed an Amended Complaint impleading
petitioner HSBC TRUSTEE as co-defendant and invoking Article 19 of the Civil
Code as basis for her cause of action.[6]
The Amended Complaint alleges:

11

Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are
corporations duly organized under the laws of the British Virgin Islands with head
office at 1 Grenville Street, St. Helier Jersey, Channel Islands and with branch
offices at Level 12, 1 Queens Road Central, Hongkong and may be served with
summons and other court processes through their main office in Manila with
address at HSBC, the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de
Roxas Street, Makati City.
Sometime in March 1997, Thomson issued five HSBANK checks payable to
Catalan, to wit:
CHECK NO. DATE AMOUNT
807852 Mar. 15, 1997 $600,000.00
807853 Mar. 17, 1997 800,000.00
807854 Mar. 17, 1997 600,000.00
807855 Mar. 22, 1997 600,000.00
807856 Mar. 23, 1997 600,000.00
TOTAL $3,200,000.00
The checks when deposited were returned by HSBANK purportedly for reason
of payment stopped pending confirmation, despite the fact that the checks were
duly funded. On March 18, 1997, Thomson wrote a letter to a certain Ricky
Sousa[7] of HSBANK confirming the checks he issued to Catalan and requesting
that all his checks be cleared. On March 20, 1997, Thomson wrote another letter
to Sousa of HSBANK requesting an advice in writing to be sent to the Philippine
National Bank, through the fastest means, that the checks he previously issued to
Catalan were already cleared. Thereafter, Catalan demanded that HSBANK make
good the checks issued by Thomson. On May 16, 1997, Marilou A. Lozada,
personal secretary and attorney-in-fact of Thomson, wrote a letter to Sousa of
HSBANK informing him that HSBANKs failure to clear all the checks had saddened
Thomson
and
requesting
that
the
clearing
of
the
checks
be
facilitated. Subsequently, Thomson died and Catalan forwarded her demand to
HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC
TRUSTEE. Not satisfied, HSBC TRUSTEE through deceit and trickery, required
Catalan, as a condition for the acceptance of the checks, to submit the original
12

copies of the returned checks, purportedly, to hasten payment of her claim. HSBC
TRUSTEE succeeded in its calculated deception because on April 21, 1999,
Catalan and her former counsel went to Hongkong at their own expense to
personally deliver the originals of the returned checks to the officers of HSBC
TRUSTEE, anxious of receiving the money value of the checks but HSBC TRUSTEE
despite receipt of the original checks, refused to pay Catalans claim. Having seen
and received the original of the checks, upon its request, HSBC TRUSTEE is
deemed to have impliedly accepted the checks. Moreover, the refusal of HSBANK
and HSBC TRUSTEE to pay the checks is equivalent to illegal freezing of ones
deposit. On the assurance of HSBC TRUSTEE that her claim will soon be paid, as
she was made to believe that payments of the checks shall be made by HSBC
TRUSTEE upon sight, the unsuspecting Catalan left the originals of the checks with
HSBC TRUSTEE and was given only an acknowledgment receipt. Catalan made
several demands and after several more follow ups, on August 16, 1999, Phoenix
Lam, Senior Vice President of HSBC TRUSTEE, in obvious disregard of her valid
claim, informed Catalan that her claim is disapproved. No reason or explanation
whatsoever was made why her claim was disapproved, neither were the checks
returned to her. Catalan appealed for fairness and understanding, in the hope that
HSBC TRUSTEE would act fairly and justly on her claim but these demands were
met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a
last and final demand to HSBC TRUSTEE to remit the amount covered by the
checks but despite receipt of said letter, no payment was made. Clearly, the act of
the HSBANK and HSBC TRUSTEE in refusing to honor and pay the checks validly
issued by Thomson violates the abuse of rights principle under Article 19 of the
Civil Code which requires that everyone must act with justice, give everyone his
due and observe honesty and good faith. The refusal of HSBANK and HSBC
TRUSTEE to pay the checks without any valid reason is intended solely to
prejudice and injure Catalan. When they declined payment of the checks despite
instructions of the drawer, Thomson, to honor them, coupled with the fact that the
checks were duly funded, they acted in bad faith, thus causing damage to
Catalan. A person may not exercise his right unjustly or in a manner that is not in
keeping with honesty or good faith, otherwise he opens himself to liability for
abuse of right.[8]
Catalan prays that HSBANK and HSBC TRUSTEE be ordered to
pay P20,864,000.00 representing the value of the five checks at the rate of P6.52
per HK$1 as of January 29, 2001 for the acts of HSBANK and HSBC TRUSTEE in
refusing to pay the amount justly due her, in addition to moral and exemplary
damages, attorneys fees and litigation expenses.[9]

13

On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on

the grounds that: (a) the RTC has no jurisdiction over the subject matter of the
complaint since the action is a money claim for a debt contracted by Thomson
before his death which should have been filed in the estate or intestate
proceedings of Thomson; (b) Catalan engages in forum shopping by filing the suit
and at the same time filing a claim in the probate proceeding filed with another
branch of the RTC; (c) the amended complaint states no cause of action against
HSBANK since it has no obligation to pay the checks as it has not accepted the
checks and Catalan did not re-deposit the checks or make a formal protest; (d) the
RTC has not acquired jurisdiction over the person of HSBANK for improper service
of summons; and, (e) it did not submit to the jurisdiction of the RTC by filing a
motion for extension of time to file a motion to dismiss.[10]
Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered
to the In House Counsel of HSBANK (Makati Branch) at the Enterprise Center,
Tower 1, Ayala Avenue corner Paseo de Roxas, Makati. Without submitting itself to
the jurisdiction of the RTC, HSBC TRUSTEE filed a Special Appearance for Motion to
Dismiss Amended Complaint, dated October 29, 2001, questioning the jurisdiction
of the RTC over it.[11] HSBC TRUSTEE alleges that tender of summons through
HSBANK Makati did not confer upon the RTC jurisdiction over it because: (a) it is a
corporation separate and distinct from HSBANK; (b) it does not hold office at the
HSBANK Makati or in any other place in the Philippines; (c) it has not authorized
HSBANK Makati to receive summons for it; and, (d) it has no resident agent upon
whom summons may be served because it does not transact business in the
Philippines.
Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001,
attaching the Affidavit executed in Hongkong by Phoenix Lam, Senior VicePresident of HSBC TRUSTEE, attesting to the fact that: 1) HSBC TRUSTEE has not
done nor is it doing business in the Philippines; 2) it does not maintain any office
in Makati or anywhere in the Philippines; 3) it has not appointed any agent in
Philippines; and 4) HSBANK Makati has no authority to receive any summons or
court processes for HSBC TRUSTEE.[12]
On May 15, 2002, the RTC issued an Order denying the two motions to dismiss.
The RTC held that it has jurisdiction over the subject matter of the action
because it is an action for damages under Article 19 of the Civil Code for the acts
of unjustly refusing to honor the checks issued by Thomson and not a money
claim against the estate of Thomson; that Catalan did not engage in forumshopping because the elements thereof are not attendant in the case; that the
[13]

14

question of cause of action should be threshed out or ventilated during the

proceedings in the main action and after the plaintiff and defendants have
adduced evidence in their favor; that it acquired jurisdiction over the person of
defendants because the question of whether a foreign corporation is doing
business or not in the Philippines cannot be a subject of a Motion to Dismiss but
should be ventilated in the trial on the merits; and defendants voluntarily
submitted to the jurisdiction of the RTC setting up in their Motions to Dismiss other
grounds aside from lack of jurisdiction.
HSBANK and HSBC TRUSTEE filed separate motions for reconsideration [14] but
both proved futile as they were denied by the RTC in an Order dated December
20, 2002.[15]
On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE
in default for failure to file their answer to the amended complaint.
On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for
certiorari and/or prohibition with the CA, docketed as CA-G.R. SP Nos.
75756[16] and 75757,[17] respectively.
Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate
Answers ad cautelam, both dated March 18, 2003, as a precaution against being
declared in default and without prejudice to the separate petitions for certiorari
and/or prohibition then pending with the CA.[18]
Meanwhile, the two petitions for certiorari before the CA were consolidated
and after responsive pleadings were filed, the cases were deemed submitted for
decision.
In a consolidated Decision dated August 14, 2003, the CA dismissed the two
petitions for certiorari.[19] The CA held that the filing of petitioners answers before
the RTC rendered moot and academic the issue of the RTCs lack of jurisdiction
over the person of the petitioners; that the RTC has jurisdiction over the subject
matter since it is one for damages under Article 19 of the Civil Code for the
alleged unjust acts of petitioners and not a money claim against the estate of
Thomson; and, that the amended complaint states a cause of action under Article
19 of the Civil Code which could merit a favorable judgment if found to be
true. The CA noted that Catalan may have prayed for payment of the value of the
checks but ratiocinated that she merely used the value as basis for the
computation of the damages.
15

Hence, the present petitions.

In G.R. No. 159590, HSBANK submits the following assigned errors:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
COURT A QUO, ACTING AS AN (SIC) REGULAR COURT, HAS JURISDICTION OVER
THE AMENDED COMPLAINT SEEKING TO ORDER HSBC TRUSTEE, THE EXECUTOR
OF THE DECEASED FREDERICK ARTHUR THOMSON, TO PAY SUBJECT CHECKS
ISSUED BY THE LATE FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF
HIS INDEBTEDNESS TO CATALAN.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK AND HSBC
INTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION OF THE (SIC)
FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR
DAMAGES EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OF THE
CHECKS BECAUSE THE DEFENDANTS FAILED TO COMPLY WITH THE MANDATES OF
ARTICLE 19 OF THE NEW CIVIL CODE.
III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT
ALLEGATIONS IN THE AMENDED COMPLAINT MAKE OUT A CAUSE OF ACTION
WHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO BE TRUE, OR IN NOT
HOLDING THAT THE AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST
HSBANK, AS DRAWEE BANK.
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE
FACT THAT CATALAN ENGAGED IN FORUM SHOPPING BY FILING THE AMENDED
COMPLAINT WHILE HER PETITION FOR THE PROBATE OF THE SUPPOSED WILL OF
THE DECEASED FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER
BRANCH OF THE COURT A QUO.
V.

16

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT HSBANK

HAD SUBMITTED TO THE JURISDICTION OF THE COURT A QUO BY SUBMITTING AN
ANSWER TO THE AMENDED COMPLAINT.[20]
In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and
fifth errors as its own.[21] In addition, it claims that:
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE
DISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE THE
FACT IT HAS NOT BEEN DULY SERVED WITH SUMMONS. [22]
HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of
action for abuse of rights under Article 19 of the Civil Code; that her complaint,
under the guise of a claim for damages, is actually a money claim against the
estate of Thomson arising from checks issued by the latter in her favor in payment
of indebtedness.
HSBANK claims that the money claim should be dismissed on the ground of
forum-shopping since Catalan also filed a petition for probate of the alleged last
will of Thomson before RTC, Branch 48, Bacolod City, docketed as Spec. Proc No.
00-892. In addition, HSBANK imputes error upon the CA in holding that by filing an
answer to the amended complaint, petitioners are estopped from questioning the
jurisdiction of the RTC.
HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for
improper service of summons.
In her Comment, Catalan insists that her complaint is one for damages under
Article 19 of the Civil Code for the wanton refusal to honor and pay the value of
five checks issued by the Thomson amounting to HK$3,200,000.00. She argues
that the issue of jurisdiction has been rendered moot by petitioners participation
in the proceedings before the RTC.
Succinctly, the issues boil down to the following:
1) Does the complaint state a cause of action?
2) Did Catalan engage in forum-shopping by filing the complaint for damages
when she also filed a petition for probate of the alleged last will of Thomson with
another branch of the RTC? and,

17

3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary
thereto, did the filing of the answer before the RTC render the issue of lack of
jurisdiction moot and academic?
We shall resolve the issue in seriatim.
Does the complaint state a cause of action against HSBANK and HSBC
TRUSTEE?
The elementary test for failure to state a cause of action is whether the
complaint alleges facts which if true would justify the relief demanded. Stated
otherwise, may the court render a valid judgment upon the facts alleged therein?
[23]
The inquiry is into the sufficiency, not the veracity of the material allegations.
[24]
If the allegations in the complaint furnish sufficient basis on which it can be
maintained, it should not be dismissed regardless of the defense that may be
presented by the defendants.[25]
Catalan anchors her complaint for damages on Article 19 of the Civil Code. It
speaks of the fundamental principle of law and human conduct that a person
"must, in the exercise of his rights and in the performance of his duties, act with
justice, give every one his due, and observe honesty and good faith." It sets the
standards which may be observed not only in the exercise of ones rights but also
in the performance of ones duties. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the wrongdoer must be
held responsible.[26] But a right, though by itself legal because recognized or
granted by law as such, may nevertheless become the source of some illegality. A
person should be protected only when he acts in the legitimate exercise of his
right, that is, when he acts with prudence and in good faith; but not when he acts
with negligence or abuse.[27] There is an abuse of right when it is exercised for the
only purpose of prejudicing or injuring another. The exercise of a right must be in
accordance with the purpose for which it was established, and must not be
excessive or unduly harsh; there must be no intention to injure another.[28]
Thus, in order to be liable under the abuse of rights principle, three elements
must concur, to wit: (a) that there is a legal right or duty; (b) which is exercised in
bad faith; and (c) for the sole intent of prejudicing or injuring another.[29]
In this instance, after carefully examining the amended complaint, we are
convinced that the allegations therein are in the nature of an action based on tort
18

under Article 19 of the Civil Code. It is evident that Catalan is suing HSBANK and
HSBC TRUSTEE for unjustified and willful refusal to pay the value of the checks.
HSBANK is being sued for unwarranted failure to pay the checks
notwithstanding the repeated assurance of the drawer Thomson as to the
authenticity of the checks and frequent directives to pay the value thereof to
Catalan. Her allegations in the complaint that the gross inaction of HSBANK on
Thomsons instructions, as well as its evident failure to inform Catalan of the
reason for its continued inaction and non-payment of the checks, smack of
insouciance on its part, are sufficient statements of clear abuse of right for which
it may be held liable to Catalan for any damages she incurred resulting
therefrom. HSBANKs actions, or lack thereof, prevented Catalan from seeking
further redress with Thomson for the recovery of her claim while the latter was
alive.
HSBANK claims that Catalan has no cause of action because under Section 189
of the Negotiable Instruments Law, a check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and
the bank is not liable to the holder unless and until it accepts or certifies
it. However, HSBANK is not being sued on the value of the check itself but for how
it acted in relation to Catalans claim for payment despite the repeated directives
of the drawer Thomson to recognize the check the latter issued. Catalan may have
prayed that she be paid the value of the checks but it is axiomatic that what
determines the nature of an action, as well as which court has jurisdiction over it,
are the allegations of the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein.[30]
Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalans
claim. When Catalan parted with the checks as a requirement for the processing
of her claim, even going to the extent of traveling to Hongkong to deliver
personally the checks, HSBC TRUSTEE summarily disapproved her claim with nary
a reason. HSBC TRUSTEE gave no heed to Catalans incessant appeals for an
explanation. Her pleas fell on deaf and uncaring corporate ears. Clearly, HSBC
TRUSTEEs acts are anathema to the prescription for human conduct enshrined in
Article 19 of the Civil Code.
Did Catalan engage in forum-shopping?
It has been held that forum-shopping exists where a litigant sues the same
party against whom another action or actions for the alleged violation of the same
right and the enforcement of the same relief is/are still pending, the defense
19

of litis pendentia in one case is a bar to the others; and, a final judgment in one
would constitute res judicata and thus would cause the dismissal of the rest.[31]
Thus, there is forum-shopping when there exist: a) identity of parties, or at
least such parties as represent the same interests in both actions, b) identity of
rights asserted and relief prayed for, the relief being founded on the same facts,
and c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful would
amount to res judicata in the other.[32]
Applying the foregoing requisites to the case before us in relation to Spec. Proc
No. 00-892, the probate proceeding brought by Catalan before RTC, Branch 48,
Bacolod City, it is obvious that forum-shopping does not exist.
There is no identity of parties. HSBANK is not a party in the probate
proceeding. HSBC TRUSTEE is only a party in the probate proceeding because it is
the executor and trustee named in the Hongkong will of Thomson. HSBC TRUSTEE
is representing the interest of the estate of Thomson and not its own corporate
interest.
With respect to the second and third requisites, a scrutiny of the entirety of the
allegations of the amended complaint in this case reveals that the rights asserted
and reliefs prayed for therein are different from those pleaded in the probate
proceeding, such that a judgment in one case would not bar the prosecution of the
other case. Verily, there can be no forum-shopping where in one proceeding a
party raises a claim for damages based on tort and, in another proceeding a party
seeks the allowance of an alleged last will based on ones claim as an heir. After
all, the merits of the action for damages is not to be determined in the probate
proceeding and vice versa. Undeniably, the facts or evidence as would support
and establish the two causes of action are not the same.[33] Consequently,
HSBANKs reliance on the principle of forum-shopping is clearly misplaced.
Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
The Rules of Court provides that a court generally acquires jurisdiction over a
person through either a valid service of summons in the manner required by law
or the persons voluntary appearance in court.[34]
In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the
RTC held that both voluntarily submitted to the jurisdiction of the court by setting
up in their Motions to Dismiss other grounds aside from lack of jurisdiction. On the
20

other hand, the CA ruled that HSBANK and HSBC TRUSTEE are estopped from
challenging the jurisdiction of the RTC because they filed their respective answers
before the RTC.
We find that both lower courts overlooked Section 20 of Rule 14 of the 1997
Rules of Civil Procedure which provides that the inclusion in a motion to dismiss of
other grounds aside from lack of jurisdiction over the person of the defendant
shall not be deemed a voluntary appearance. Nonetheless, such omission does
not aid HSBANKs case.
It must be noted that HSBANK initially filed a Motion for Extension of Time to
File Answer or Motion to Dismiss.[35]HSBANK already invoked the RTCs jurisdiction
over it by praying that its motion for extension of time to file answer or a motion
to dismiss be granted. The Court has held that the filing of motions seeking
affirmative relief, such as, to admit answer, for additional time to file answer, for
reconsideration of a default judgment, and to lift order of default with motion for
reconsideration, are considered voluntary submission to the jurisdiction of the
court.[36] Consequently, HSBANKs expressed reservation in its Answer ad
cautelam that it filed the same as a mere precaution against being declared in
default, and without prejudice to the Petition for Certiorari and/or Prohibition xxx
now pending before the Court of Appeals [37] to assail the jurisdiction of the RTC
over it is of no moment. Having earlier invoked the jurisdiction of the RTC to
secure affirmative relief in its motion for additional time to file answer or motion to
dismiss, HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC
and is thereby estopped from asserting otherwise, even before this Court.
In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be
considered a voluntary submission to the jurisdiction of the RTC. It was a
conditional appearance, entered precisely to question the regularity of the service
of summons. It is settled that a party who makes a special appearance in court
challenging the jurisdiction of said court,e.g., invalidity of the service of summons,
cannot be considered to have submitted himself to the jurisdiction of the court.
[38]
HSBC TRUSTEE has been consistent in all its pleadings in assailing the service
of summons and the jurisdiction of the RTC over it. Thus, HSBC TRUSTEE cannot
be declared in estoppel when it filed an Answer ad cautelam before the RTC while
its petition for certiorari was pending before the CA. Such answer did not render
the petition for certiorari before the CA moot and academic. The Answer of HSBC
TRUSTEE was only filed to prevent any declaration that it had by its inaction
waived the right to file responsive pleadings.

21

Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing

under the laws of the British Virgin Islands. For proper service of summons on
foreign corporations, Section 12 of Rule 14 of the Revised Rules of Court provides:
SEC. 12. Service upon foreign private juridical entity. When the defendant is a
foreign private juridical entity which has transacted business in the Philippines,
service may be made on its resident agent designated in accordance with law for
that purpose, or if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines.
In French Oil Mill Machinery Co., Inc. vs. Court of Appeals,[39] we had occasion
to rule that it is not enough to merely allege in the complaint that a defendant
foreign corporation is doing business. For purposes of the rule on summons, the
fact of doing business must first be "established by appropriate allegations in the
complaint" and the court in determining such fact need not go beyond the
allegations therein.[40]
The allegations in the amended complaint subject of the present cases did not
sufficiently show the fact of HSBC TRUSTEEs doing business in the Philippines. It
does not appear at all that HSBC TRUSTEE had performed any act which would
give the general public the impression that it had been engaging, or intends to
engage in its ordinary and usual business undertakings in the country. Absent
from the amended complaint is an allegation that HSBC TRUSTEE had performed
any act in the country that would place it within the sphere of the courts
jurisdiction.
We have held that a general allegation, standing alone, that a party is doing
business in the Philippines does not make it so; a conclusion of fact or law cannot
be derived from the unsubstantiated assertions of parties notwithstanding the
demands of convenience or dispatch in legal actions, otherwise, the Court would
be guilty of sorcery; extracting substance out of nothingness.[41]
Besides, there is no allegation in the amended complaint that HSBANK is the
domestic agent of HSBC TRUSTEE to warrant service of summons upon it. Thus,
the summons tendered to the In House Counsel of HSBANK (Makati Branch) for
HSBC TRUSTEE was clearly improper.
There being no proper service of summons, the RTC cannot take cognizance of
the case against HSBC TRUSTEE for lack of jurisdiction over it. Any proceeding
undertaken by the RTC is therefore null and void. [42] Accordingly, the complaint
against HSBC TRUSTEE should have been dismissed for lack of jurisdiction over it.
22

WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the
Court of Appeals, dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the
petition for certiorari of the Hongkong and Shanghai Banking Corporation Limited
is AFFIRMED.
The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of
Appeals, dated August 14, 2003, in CA-G.R. SP No. 75756 dismissing the petition
for certiorari of the HSBC International Trustee Limited is REVERSED and SET
ASIDE. The Regional Trial Court, Branch 44, Bacolod City is declared without
jurisdiction to take cognizance of Civil Case No. 01-11372 against the HSBC
International Trustee Limited, and all its orders and issuances with respect to the
latter are hereby ANNULLED and SET ASIDE. The said Regional Trial Court is
hereby ORDERED to DESIST from maintaining further proceedings against the
HSBC International Trustee Limited in the case aforestated.
SO ORDERED

[G.R. No. 152720. February 17, 2005]

SOLIDBANK CORPORATION, petitioner,
CARMEN ARRIETA,respondents.

vs. Spouses

TEODULFO

and

DECISION
PANGANIBAN, J.:
A banks gross negligence in dishonoring a well-funded check, aggravated by
its unreasonable delay in repairing the error, calls for an award of moral and
exemplary damages. The resulting injury to the check writers reputation and
peace of mind needs to be recognized and compensated.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking
to reverse and set aside the March 28, 2001 Decision [2] and the February 5, 2002
Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 55002. The assailed
Decision disposed as follows:
23

WHEREFORE, the appeal is DISMISSED, with costs against defendant-appellant.

[4]

The CA denied reconsideration in its February 5, 2002 Resolution.

The Facts
The facts are summarized by the CA as follows:
Carmen Arrieta is a bank depositor of Solidbank Corporation under Checking
Account No. 123-1996. On March 1990, Carmen issued SBC Check No. 0293984
(Exh. A) in the amount of P330.00 in the name of Lopues Department Store in
payment of her purchases from said store. When the check was deposited by the
store to its account, the same was dishonored due to Account Closed (Exh. B)
despite the fact that at the time the check was presented for payment, Carmens
checking account was still active and backed up by a deposit of P1,275.20.
As a consequence of the checks dishonor, Lopues Department Store sent a
demand letter to Carmen (Exh. C) threatening her with criminal prosecution unless
she redeemed the check within five (5) days. To avoid criminal prosecution,
Carmen paid P330.00 in cash to the store, plus a surcharge of P33.00 for the
bouncing check, or a total of P363.00 (Exh. F).
Thereupon, Carmen filed a complaint against Solidbank Corporation for damages
alleging that the bank, by its carelessness and recklessness in certifying that her
account was closed despite the fact that it was still very much active and
sufficiently funded, had destroyed her good name and reputation and prejudiced
not only herself but also her family in the form of mental anguish, sleepless
nights, wounded feelings and social humiliation. She prayed that she be awarded
moral and exemplary damages as well as attorneys fees.
In its answer, the bank claimed that Carmen, contrary to her undertaking as a
depositor, failed to maintain the required balance of at least P1,000.00 on any day
of the month. Moreover, she did not handle her account in a manner satisfactory
to the bank. In view of her violations of the general terms and conditions
governing the establishment and operation of a current account, Carmens account
was recommended for closure. In any event, the bank claimed good faith in
declaring her account closed since one of the clerks, who substituted for the
regular clerk, committed an honest mistake when he thought that the subject
24

account was already closed when the ledger containing the said account could not
be found.
After trial, the lower court rendered its decision holding that Solidbank Corporation
was grossly negligent in failing to check whether or not Carmens account was still
open and viable at the time the transaction in question was made. Hence, the
bank was liable to Carmen for moral and exemplary damages, as well as attorneys
fees. It held that the bank was remiss in its duty to treat Carmens account with
the highest degree of care, considering the fiduciary nature of their relationship.
The dispositive portion of the decision reads:
WHEREFORE, the Court hereby renders judgment in favor of the plaintiff as
against the defendant-bank, and defendant-bank is ordered to pay moral
damages of P150,000.00; exemplary damages of P50,000.00; and attorneys fees
of P20,000.00, plus costs.
SO ORDERED.[5]

Ruling of the Court of Appeals

The CA debunked the contention of the bank that the latter was not liable.
According to petitioner, the dishonor of the check by reason of Account Closed
was an honest mistake of its employee. The appellate court held that the error
committed by the bank employee was imputable to the bank. Banks are obliged to
treat the accounts of their depositors with meticulous care, regardless of the
amount of the deposit. Failing in this duty, petitioner was found grossly negligent.
The failure of the bank to immediately notify Respondent Carmen Arrieta of its
unilateral closure of her account manifested bad faith, added the CA.
The appellate court likewise affirmed the award of moral damages. It held that
the banks wrongful act was the proximate cause of Carmens moral suffering. The
CA ruled that the lack of malice and bad faith on the part of petitioner did not
suffice to exculpate the latter from liability; the banks gross negligence amounted
to a wilful act. The trial courts award of exemplary damages and attorneys fees
was sustained in view of respondents entitlement to moral damages.
Hence, this Petition.[6]
Issues
25

Petitioner raises the following issues for our consideration:

I.
Whether or not x x x respondents are entitled to recovery of moral and exemplary
damages and attorneys fees.
II.
Whether or not the award of moral and exemplary damages and attorneys fees is
excessive, arbitrary and contrary to prevailing jurisprudence.[7]
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Petitioners Liability for Damages
Petitioner contends that the award of moral damages was erroneous because
of the failure of Respondent Carmen to establish that the dishonor of Check No.
0293984 on March 30, 1990 was the direct and only cause of the social
humiliation, extreme mental anguish, sleepless nights, and wounded feelings
suffered by [her]. It referred to an occasion fifteen days before, on March 15,
1990, during which another check (Check No. 0293983) she had issued had
likewise been dishonored.
According to petitioner, highly illogical was her claim that extreme mental
anguish and social humiliation resulted from the dishonor of Check No. 0293984,
as she claimed none from that of her prior Check No. 0293983, which had
allegedly been deposited by mistake by the payees wife. Given the circumstances,
petitioner adds that the dishonor of the check -- subject of the present case -- did
not really cause respondent mental anguish, sleepless nights and besmirched
reputation; and that her institution of this case was clearly motivated by
opportunism.
We are not persuaded.
The fact that another check Carmen had issued was previously dishonored
does not necessarily imply that the dishonor of a succeeding check can no longer
26

cause moral injury and personal hurt for which the aggrieved party may claim
damages. Such prior occurrence does not prove that respondent does not have a
good reputation that can be besmirched.[8]
The reasons for and the circumstances surrounding the previous issuance and
eventual dishonor of Check No. 0293983 are totally separate -- the payee of the
prior check was different -- from that of Check No. 0293984, subject of present
case. Carmen had issued the earlier check to accommodate a relative, [9] and the
succeeding one to pay for goods purchased from Lopues Department Store. That
she might not have suffered damages as a result of the first dishonored check
does not necessarily hold true for the second. In the light of sufficient evidence
showing that she indeed suffered damages as a result of the dishonor of Check
No. 0293984, petitioner may not be exonerated from liability.
Case law[10] lays out the following conditions for the award of moral damages:
(1) there is an injury -- whether physical, mental or psychological -- clearly
sustained by the claimant; (2) the culpable act or omission is factually
established; (3) the wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and (4) the award of damages is
predicated on any of the cases stated in Article 2219[11] of the Civil Code.
In the instant case, all four requisites have been established. First, these were
the findings of the appellate court: Carmen Arrieta is a bank depositor of
Solidbank Corporation of long standing. She works with the Central Negros Electric
Cooperative, Inc. (CENECO), as an executive secretary and later as department
secretary. She is a deaconess of the Christian Alliance Church in Bacolod City.
These are positions which no doubt elevate her social standing in the community.
Understandably -- and as sufficiently proven by her testimony -- she suffered
mental anguish, serious anxiety, besmirched reputation, wounded feelings and
social humiliation; and she suffered thus when the people she worked with -- her
friends, her family and even her daughters classmates -- learned and talked about
her bounced check.
Second, it is undisputed that the subject check was adequately funded, but
that petitioner wrongfully dishonored it.
Third, Respondent Carmen was able to prove that petitioners wrongful
dishonor of her check was the proximate cause of her embarrassment and
humiliation in her workplace, in her own home, and in the church where she
served as deaconess.
27

Proximate cause has been defined as any cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the
result complained of and without which would not have occurred x x x. [12] It is
determined from the facts of each case upon combined considerations of logic,
common sense, policy and precedent.[13]Clearly, had the bank accepted and
honored the check, Carmen would not have had to face the questions of -- and
explain her predicament to -- her office mates, her daughters, and the leaders and
members of her church.
Furthermore, the CA was in agreement with the trial court in ruling that her
injury arose from the gross negligence of petitioner in dishonoring her well-funded
check.
Unanimity of the CA and the trial court in their factual ascertainment of this
point bars us from supplanting their finding and substituting it with our own.
Settled is the doctrine that the factual determinations of the lower courts are
conclusive and binding upon this Court. [14] Verily, the review of cases brought
before the Supreme Court from the Court of Appeals is limited to errors of law.
[15]
None of the recognized exceptions to this principle has been shown to exist.
Fourth, treating Carmens account as closed, merely because the ledger could
not be found was a reckless act that could not simply be brushed off as an honest
mistake. We have repeatedly emphasized that the banking industry is impressed
with public interest. Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are even required of it. By the
nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of
its relationship with them. [16]
Petitioners negligence here was so gross as to amount to a wilful injury to
Respondent Carmen. Article 21 of the Civil Code states that any person who
wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
Further, Article 2219 provides for the recovery of moral damages for acts referred
to in the aforementioned Article 21. Hence, the bank is liable for moral damages
to respondent.[17]
The foregoing notwithstanding, we find the sum of P150,000 awarded by the
lower courts excessive. Moral damages are not intended to enrich the complainant
at the expense of the defendant.[18] Rather, these are awarded only to enable the
injured party to obtain means, diversions or amusements that will serve to
28

alleviate the moral suffering that resulted by reason of the defendants culpable
action.[19] The purpose of such damages is essentially indemnity or reparation, not
punishment or correction.[20] In other words, the award thereof is aimed at a
restoration within the limits of the possible, of the spiritual status quo ante;
[21]
therefore, it must always reasonably approximate the extent of injury and be
proportional to the wrong committed.[22]
Accordingly, the award of moral damages must be reduced to P20,000,[23] an
amount commensurate with the alleviation of the suffering caused by the
dishonored check that was issued for the amount of P330.
The law allows the grant of exemplary damages to set an example for the
public good.[24] The business of a bank is affected with public interest; thus, it
makes a sworn profession of diligence and meticulousness in giving irreproachable
service.[25] For this reason, the bank should guard against injury attributable to
negligence or bad faith on its part. [26] The banking sector must at all times
maintain a high level of meticulousness. The grant of exemplary damages is
justified[27]by the initial carelessness of petitioner, aggravated by its lack of
promptness in repairing its error. It was only on August 30, 1990, or a period of
five months from the erroneous dishonor of the check, when it wrote Lopues
Department Store a letter acknowledging the banks mistake. [28] In our view,
however, the award of P50,000 is excessive and should accordingly be reduced
to P20,000.[29]
The award of attorneys fees in the amount of P20,000 is proper, for
respondents were compelled to litigate to protect their rights.[30]
WHEREFORE,
the
Petition
is PARTLY
GRANTED and
the
assailed
Decision MODIFIED. Petitioners are ORDEREDto pay respondents P20,000 as moral
damages, P20,000 as exemplary damages, and P20,000 as attorneys fees.

29