BANKING LAWS - Assignment no.
4
G.R. No. 97626 March 14, 1997
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON,
DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP.,
represented by ROMEO LIPANA, its President & General
Manager, respondents.
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision dated February 28,
1991 1 rendered by public respondent Court of Appeals which affirmed the
Decision dated November 15, 1985 of the Regional Trial Court, National
Capital Judicial Region, Branch CLX (160), Pasig City, in Civil Case No.
27288 entitled "Rommel's Marketing Corporation, etc. v. Philippine Bank of
Commerce, now absorbed by Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent Rommel's
Marketing Corporation (RMC for brevity), represented by its President and
General Manager Romeo Lipana, to recover from the former Philippine Bank
of Commerce (PBC for brevity), now absorbed by the Philippine Commercial
International Bank, the sum of P304,979.74 representing various deposits it
had made in its current account with said bank but which were not credited to
its account, and were instead deposited to the account of one Bienvenido
Cotas, allegedly due to the gross and inexcusable negligence of the petitioner
bank.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-
01980-3 and 53-01748-7, with the Pasig Branch of PBC in connection with its
business of selling appliances.
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latter's agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the
AL Ilagan-Malipol AB, MD
name of the depositor or current account holder, the date of the deposit, and
the amount of the deposit either in cash or checks. The deposit slip has an
upper portion or stub, which is detached and given to the depositor or his
agent; the lower portion is retained by the bank. In some instances, however,
the deposit slips are prepared in duplicate by the depositor. The original of the
deposit slip is retained by the bank, while the duplicate copy is returned or
given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have
entrusted RMC funds in the form of cash totalling P304,979.74 to his
secretary, Irene Yabut, for the purpose of depositing said funds in the current
accounts of RMC with PBC. It turned out, however, that these deposits, on all
occasions, were not credited to RMC's account but were instead deposited to
Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise
maintains an account with the same bank. During this period, petitioner bank
had, however, been regularly furnishing private respondent with monthly
statements showing its current accounts balances. Unfortunately, it had never
been the practice of Romeo Lipana to check these monthly statements of
account reposing complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would accomplish
two (2) copies of the deposit slip, an original and a duplicate. The original
showed the name of her husband as depositor and his current account number.
On the duplicate copy was written the account number of her husband but the
name of the account holder was left blank. PBC's teller, Azucena Mabayad,
would, however, validate and stamp both the original and the duplicate of
these deposit slips retaining only the original copy despite the lack of
information on the duplicate slip. The second copy was kept by Irene Yabut
allegedly for record purposes. After validation, Yabut would then fill up the
name of RMC in the space left blank in the duplicate copy and change the
account number written thereon, which is that of her husband's, and make it
appear to be RMC's account number, i.e., C.A. No. 53-01980-3. With the
daily remittance records also prepared by Ms. Yabut and submitted to private
respondent RMC together with the validated duplicate slips with the latter's
name and account number, she made her company believe that all the while
the amounts she deposited were being credited to its account when, in truth
and in fact, they were being deposited by her and credited by the petitioner
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BANKING LAWS - Assignment no. 4
bank in the account of Cotas. This went on in a span of more than one (1) year
without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank
the return of its money, but as its demand went unheeded, it filed a collection
suit before the Regional Trial Court of Pasig, Branch 160. The trial court
found petitioner bank negligent and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine
Bank of Commerce, now absorbed by defendant Philippine Commercial &
Industrial Bank, and defendant Azucena Mabayad to pay the plaintiff, jointly
and severally, and without prejudice to any criminal action which may be
instituted if found warranted:
1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest
thereon at the legal rate from the filing of the complaint;
2. A sum equivalent to 14% thereof, as exemplary damages;
3. A sum equivalent to 25% of the total amount due, as and for attorney's fees;
and
4. Costs.
Defendants' counterclaim is hereby dismissed for lack of merit. 2
On appeal, the appellate court affirmed the foregoing decision with
modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED in the sense
that the awards of exemplary damages and attorney's fees specified therein are
eliminated and instead, appellants are ordered to pay plaintiff, in addition to
the principal sum of P304,979.74 representing plaintiff's lost deposit plus
legal interest thereon from the filing of the complaint, P25,000.00 attorney's
fees and costs in the lower court as well as in this Court. 3
Hence, this petition anchored on the following grounds:
AL Ilagan-Malipol AB, MD
1) The proximate cause of the loss is the negligence of respondent Rommel
Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest
employee.
2) The failure of respondent Rommel Marketing Corporation to cross-check
the bank's statements of account with its own records during the entire period
of more than one (1) year is the proximate cause of the commission of
subsequent frauds and misappropriation committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by respondent Rommel
Marketing Corporation are falsified and are not proof that the amounts
appearing thereon were deposited to respondent Rommel Marketing
Corporation's account with the bank,
4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to
cover up her fraudulent acts against respondent Rommel Marketing
Corporation, and not as records of deposits she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause
of the loss, to the tune of P304,979.74, suffered by the private respondent
RMC petitioner bank's negligence or that of private respondent's?
Petitioners submit that the proximate cause of the loss is the negligence of
respondent RMC and Romeo Lipana in entrusting cash to a dishonest
employee in the person of Ms. Irene Yabut. 5 According to them, it was
impossible for the bank to know that the money deposited by Ms. Irene Yabut
belong to RMC; neither was the bank forewarned by RMC that Yabut will be
depositing cash to its account. Thus, it was impossible for the bank to know
the fraudulent design of Yabut considering that her husband, Bienvenido
Cotas, also maintained an account with the bank. For the bank to inquire into
the ownership of the cash deposited by Ms. Irene Yabut would be irregular.
Otherwise stated, it was RMC's negligence in entrusting cash to a dishonest
employee which provided Ms. Irene Yabut the opportunity to defraud RMC. 6
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BANKING LAWS - Assignment no. 4
Private respondent, on the other hand, maintains that the proximate cause of
the loss was the negligent act of the bank, thru its teller Ms. Azucena
Mabayad, in validating the deposit slips, both original and duplicate,
presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact that one of
the deposit slips was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties,
is called a quasi-delict and is governed by the provisions of this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by the
plaintiff; (b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and effect
between the fault or negligence of the defendant and the damages incurred by
the plaintiff. 7
In the case at bench, there is no dispute as to the damage suffered by the
private respondent (plaintiff in the trial court) RMC in the amount of
P304,979.74. It is in ascribing fault or negligence which caused the damage
where the parties point to each other as the culprit.
Negligence is the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent and reasonable
man would do. The seventy-eight (78)-year-old, yet still relevant, case
of Picart v. Smith, 8 provides the test by which to determine the existence of
negligence in a particular case which may be stated as follows: Did the
defendant in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. The law here in effect adopts
the standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a
AL Ilagan-Malipol AB, MD
given case is not determined by reference to the personal judgment of the
actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence
and determines liability by that.
Applying the above test, it appears that the bank's teller, Ms. Azucena
Mabayad, was negligent in validating, officially stamping and signing all the
deposit slips prepared and presented by Ms. Yabut, despite the glaring fact
that the duplicate copy was not completely accomplished contrary to the self-
imposed procedure of the bank with respect to the proper validation of deposit
slips, original or duplicate, as testified to by Ms. Mabayad herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs.
Mabayad your important duties and functions?
A: I accept current and savings deposits from depositors and encashments.
Q: Now in the handling of current account deposits of bank clients, could you
tell us the procedure you follow?
A: The client or depositor or the authorized representative prepares a deposit
slip by filling up the deposit slip with the name, the account number, the date,
the cash breakdown, if it is deposited for cash, and the check number, the
amount and then he signs the deposit slip.
Q: Now, how many deposit slips do you normally require in accomplishing
current account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the deposit although some of our
clients prepare the deposit slip in duplicate.
Q: Now in accomplishing current account deposits from your clients, what do
you issue to the depositor to evidence the deposit made?
A: We issue or we give to the clients the depositor's stub as a receipt of the
deposit.
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BANKING LAWS - Assignment no. 4
Q: And who prepares the deposit slip?
A: The depositor or the authorized representative sir?
Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with
the deposit slip?
A: The depositor's stub is connected with the deposit slip or the bank's copy.
In a deposit slip, the upper portion is the depositor's stub and the lower
portion is the bank's copy, and you can detach the bank's copy from the
depositor's stub by tearing it sir.
Q: Now what do you do upon presentment of the deposit slip by the depositor
or the depositor's authorized representative?
A: We see to it that the deposit slip 9 is properly accomplished and then we
count the money and then we tally it with the deposit slip sir.
Q: Now is the depositor's stub which you issued to your clients validated?
A: Yes, sir. 10 [Emphasis ours]
Clearly, Ms. Mabayad failed to observe this very important procedure. The
fact that the duplicate slip was not compulsorily required by the bank in
accepting deposits should not relieve the petitioner bank of responsibility. The
odd circumstance alone that such duplicate copy lacked one vital information
that of the name of the account holder should have already put Ms.
Mabayad on guard. Rather than readily validating the incomplete duplicate
copy, she should have proceeded more cautiously by being more probing as to
the true reason why the name of the account holder in the duplicate slip was
left blank while that in the original was filled up. She should not have been so
naive in accepting hook, line and sinker the too shallow excuse of Ms. Irene
Yabut to the effect that since the duplicate copy was only for her personal
record, she would simply fill up the blank space later on. 11 A "reasonable man
of ordinary prudence" 12 would not have given credence to such explanation
and would have insisted that the space left blank be filled up as a condition
AL Ilagan-Malipol AB, MD
for validation. Unfortunately, this was not how bank teller Mabayad
proceeded thus resulting in huge losses to the private respondent.
Negligence here lies not only on the part of Ms. Mabayad but also on the part
of the bank itself in its lackadaisical selection and supervision of Ms.
Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio,
then Manager of the Pasig Branch of the petitioner bank and now its Vice-
President, to the effect that, while he ordered the investigation of the incident,
he never came to know that blank deposit slips were validated in total
disregard of the bank's validation procedures, viz:
Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the
bank on the deposit slips and they validated the same with the machine, the
fact that those deposit slips were unfilled up, is there any report similar to
that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the
blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir. 13
Prescinding from the above, public respondent Court of Appeals aptly
observed:
xxx xxx xxx
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BANKING LAWS - Assignment no. 4
It was in fact only when he testified in this case in February, 1983, or after the
lapse of more than seven (7) years counted from the period when the funds in
question were deposited in plaintiff's accounts (May, 1975 to July, 1976) that
bank manager Bonifacio admittedly became aware of the practice of his teller
Mabayad of validating blank deposit slips. Undoubtedly, this is gross, wanton,
and inexcusable negligence in the appellant bank's supervision of its
employees. 14
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of
the petitioner bank in the selection and supervision of its bank teller, which
was the proximate cause of the loss suffered by the private respondent, and
not the latter's act of entrusting cash to a dishonest employee, as insisted by
the petitioners.
Proximate cause is determined on the facts of each case upon mixed
considerations of logic, common sense, policy and precedent. 15 Vda. de
Bataclan v. Medina, 16 reiterated in the case of Bank of the Phil. Islands
v. Court of Appeals, 17 defines proximate cause as "that cause, which, in
natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred. . . ." In this case, absent the act of Ms. Mabayad in negligently
validating the incomplete duplicate copy of the deposit slip, Ms. Irene Yabut
would not have the facility with which to perpetrate her fraudulent scheme
with impunity. Apropos, once again, is the pronouncement made by the
respondent appellate court, to wit:
. . . . Even if Yabut had the fraudulent intention to misappropriate the funds
entrusted to her by plaintiff, she would not have been able to deposit those
funds in her husband's current account, and then make plaintiff believe that it
was in the latter's accounts wherein she had deposited them, had it not been
for bank teller Mabayad's aforesaid gross and reckless negligence. The latter's
negligence was thus the proximate, immediate and efficient cause that
brought about the loss claimed by plaintiff in this case, and the failure of
plaintiff to discover the same soon enough by failing to scrutinize the monthly
statements of account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut had already
AL Ilagan-Malipol AB, MD
completed when she deposited plaintiff's money to the account of her husband
instead of to the latter's accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred to, at
times as "supervening negligence" or as "discovered peril"), petitioner bank
was indeed the culpable party. This doctrine, in essence, states that where
both parties are negligent, but the negligent act of one is appreciably later in
time than that of the other, or when it is impossible to determine whose fault
or negligence should be attributed to the incident, the one who had the last
clear opportunity to avoid the impending harm and failed to do so is
chargeable with the consequences thereof. 19Stated differently, the rule would
also mean that an antecedent negligence of a person does not preclude the
recovery of damages for the supervening negligence of, or bar a defense
against liability sought by another, if the latter, who had the last fair chance,
could have avoided the impending harm by the exercise of due
diligence. 20 Here, assuming that private respondent RMC was negligent in
entrusting cash to a dishonest employee, thus providing the latter with the
opportunity to defraud the company, as advanced by the petitioner, yet it
cannot be denied that the petitioner bank, thru its teller, had the last clear
opportunity to avert the injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
At this juncture, it is worth to discuss the degree of diligence ought to be
exercised by banks in dealing with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104a)
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BANKING LAWS - Assignment no. 4
In the case of banks, however, the degree of diligence required is more than
that of a good father of a family. Considering the fiduciary nature of their
relationship with their depositors, banks are duty bound to treat the accounts
of their clients with the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 in
every case, the depositor expects the bank to treat his account with the utmost
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 as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the failure to
duly credit him his deposits as soon as they are made, can cause the depositor
not a little embarrassment if not financial loss and perhaps even civil and
criminal litigation.
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 before us, it is apparent that the petitioner
bank was remiss in that duty and violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-
check the bank's statements of account with its own records during the entire
period of more than one (1) year is the proximate cause of the commission of
subsequent frauds and misappropriation committed by Ms. Irene Yabut.
We do not agree.
While it is true that had private respondent checked the monthly statements of
account sent by the petitioner bank to RMC, the latter would have discovered
the loss early on, such cannot be used by the petitioners to escape liability.
This omission on the part of the private respondent does not change the fact
that were it not for the wanton and reckless negligence of the petitioners'
employee in validating the incomplete duplicate deposit slips presented by
Ms. Irene Yabut, the loss would not have occurred. Considering, however,
AL Ilagan-Malipol AB, MD
that the fraud was committed in a span of more than one (1) year covering
various deposits, common human experience dictates that the same would not
have been possible without any form of collusion between Ms. Yabut and
bank teller Mabayad. Ms. Mabayad was negligent in the performance of her
duties as bank teller nonetheless. Thus, the petitioners are entitled to claim
reimbursement from her for whatever they shall be ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied that, indeed, private
respondent was likewise negligent in not checking its monthly statements of
account. Had it done so, the company would have been alerted to the series of
frauds being committed against RMC by its secretary. The damage would
definitely not have ballooned to such an amount if only RMC, particularly
Romeo Lipana, had exercised even a little vigilance in their financial affairs.
This omission by RMC amounts to contributory negligence which shall
mitigate the damages that may be awarded to the private respondent 23 under
Article 2179 of the New Civil Code, to wit:
. . . When the plaintiff's own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.
In view of this, we believe that the demands of substantial justice are satisfied
by allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded
by the respondent appellate court, except the award of P25,000.00 attorney's
fees, shall be borne by private respondent RMC; only the balance of 60%
needs to be paid by the petitioners. The award of attorney's fees shall be borne
exclusively by the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is modified
by reducing the amount of actual damages private respondent is entitled to by
40%. Petitioners may recover from Ms. Azucena Mabayad the amount they
would pay the private respondent. Private respondent shall have recourse
against Ms. Irene Yabut. In all other respects, the appellate court's decision is
AFFIRMED.
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BANKING LAWS - Assignment no. 4
Proportionate costs.
SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Separate Opinions
PADILLA, J., dissenting:
I regret that I cannot join the majority in ruling that the proximate cause of the
damage suffered by Rommel's Marketing Corporation (RMC) is mainly "the
wanton and reckless negligence of the petitioner's employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene Yabut" (Decision, p.
15). Moreover, I find it difficult to agree with the ruling that "petitioners are
entitled to claim reimbursement from her (the bank teller) for whatever they
shall be ordered to pay in this case."
It seems that an innocent bank teller is being unduly burdened with what
should fall on Ms. Irene Yabut, RMC's own employee, who should have been
charged with estafa or estafa through falsification of private document.
Interestingly, the records are silent on whether RMC had ever filed any
criminal case against Ms. Irene Yabut, aside from the fact that she does not
appear to have been impleaded even as a party defendant in any civil case for
damages. Why is RMC insulating Ms. Irene Yabut from liability when in fact
she orchestrated the entire fraud on RMC, her employer?
To set the record straight, it is not completely accurate to state that from 5
May 1975 to 16 July 1976, Miss Irene Yabut had transacted with PCIB (then
PBC) through only one teller in the person of Azucena Mabayad. In fact,
when RMC filed a complaint for estafa before the Office of the Provincial
Fiscal of Rizal, it indicted all the tellers of PCIB in the branch who were
accused of conspiracy to defraud RMC of its current account deposits. (See
Annex B, Rollo p. 22 and 47).
Even private respondent RMC, in its Comment, maintains that "when the
petitioner's tellers" allowed Irene Yabut to carry out her modus
AL Ilagan-Malipol AB, MD
operandi undetected over a period of one year, "their negligence cannot but
be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This rules out the
possibility that there may have been some form of collusion between Yabut
and bank teller Mabayad. Mabayad was just unfortunate that private
respondent's documentary evidence showed that she was the attending teller
in the bulk of Yabut's transactions with the bank.
Going back to Yabut's modus operandi, it is not disputed that each time Yabut
would transact business with PBC's tellers, she would accomplish two (2)
copies of the current account deposit slip. PBC's deposit slip, as issued in
1975, had two parts. The upper part was called the depositor's stub and the
lower part was called the bank copy. Both parts were detachable from each
other. The deposit slip was prepared and signed by the depositor or his
representative, who indicated therein the current account number to which the
deposit was to be credited, the name of the depositor or current account
holder, the date of the deposit, and the amount of the deposit either in cash or
in checks. (Rollo, p. 137)
Since Yabut deposited money in cash, the usual bank procedure then was for
the teller to count whether the cash deposit tallied with the amount written
down by the depositor in the deposit slip. If it did, then the teller proceeded to
verify whether the current account number matched with the current account
name as written in the deposit slip.
In the earlier days before the age of full computerization, a bank normally
maintained a ledger which served as a repository of accounts to which debits
and credits resulting from transactions with the bank were posted from books
of original entry. Thus, it was only after the transaction was posted in the
ledger that the teller proceeded to machine validate the deposit slip and then
affix his signature or initial to serve as proof of the completed transaction.
It should be noted that the teller validated the depositor's stub in the upper
portion and the bank copy on the lower portion on both the original and
duplicate copies of the deposit slips presented by Yabut. The teller, however,
detached the validated depositor's stub on the original deposit slip and
allowed Yabut to retain the whole validated duplicate deposit slip that bore the
same account number as the original deposit slip, but with the account name
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BANKING LAWS - Assignment no. 4
purposely left blank by Yabut, on the assumption that it would serve no other
purpose but for a personal record to complement the original validated
depositor's stub.
Thus, when Yabut wrote the name of RMC on the blank account name on the
validated duplicate copy of the deposit slip, tampered with its account
number, and superimposed RMC's account number, said act only served to
cover-up the loss already caused by her to RMC, or after the deposit slip was
validated by the teller in favor of Yabut's husband. Stated otherwise, when
there is a clear evidence of tampering with any of the material entries in a
deposit slip, the genuineness and due execution of the document become an
issue in resolving whether or not the transaction had been fair and regular and
whether the ordinary course of business had been followed by the bank.
It is logical, therefore, to conclude that the legal or proximate cause of RMC's
loss was when Yabut, its employee, deposited the money of RMC in her
husband's name and account number instead of that of RMC, the rightful
owner of such deposited funds. Precisely, it was the criminal act of Yabut that
directly caused damage to RMC, her employer, not the validation of the
deposit slip by the teller as the deposit slip was made out by Yabut in her
husband's name and to his account.
Even if the bank teller had required Yabut to completely fill up the duplicate
deposit slip, the original deposit slip would nonetheless still be validated
under the account of Yabut's husband. In fine, the damage had already been
done to RMC when Yabut deposited its funds in the name and account
number of her husband with petitioner bank. It is then entirely left to
speculation what Yabut would have done afterwards like tampering both
the account number and the account name on the stub of the original deposit
slip and on the duplicate copy in order to cover up her crime.
Under the circumstances in this case, there was no way for PBC's bank tellers
to reasonably foresee that Yabut might or would use the duplicate deposit slip
to cover up her crime. In the first place, the bank tellers were absolutely
unaware that a crime had already been consummated by Yabut when her
transaction by her sole doing was posted in the ledger and validated by the
AL Ilagan-Malipol AB, MD
teller in favor of her husband's account even if the funds deposited belonged
to RMC.
The teller(s) in this case were not in any way proven to be parties to the crime
either as accessories or accomplices. Nor could it be said that the act of
posting and validation was in itself a negligent act because the teller(s) simply
had no choice but to accept and validate the deposit as written in the original
deposit slip under the account number and name of Yabut's husband. Hence,
the act of validating the duplicate copy was not the proximate cause of RMC's
injury but merely a remote cause which an independent cause or agency
merely took advantage of to accomplish something which was not the
probable or natural effect thereof. That explains why Yabut still had to tamper
with the account number of the duplicate deposit slip after filling in the name
of RMC in the blank space.
Coming now to the doctrine of "last clear chance," it is my considered view
that the doctrine assumes that the negligence of the defendant was subsequent
to the negligence of the plaintiff and the same must be the proximate cause of
the injury. In short, there must be a last and a clear chance, not a
last possible chance, to avoid the accident or injury. It must have been a
chance as would have enabled a reasonably prudent man in like position to
have acted effectively to avoid the injury and the resulting damage to himself.
In the case at bar, the bank was not remiss in its duty of sending monthly bank
statements to private respondent RMC so that any error or discrepancy in the
entries therein could be brought to the bank's attention at the earliest
opportunity. Private respondent failed to examine these bank statements not
because it was prevented by some cause in not doing so, but because it was
purposely negligent as it admitted that it does not normally check bank
statements given by banks.
It was private respondent who had the last and clear chance to prevent any
further misappropriation by Yabut had it only reviewed the status of its
current accounts on the bank statements sent to it monthly or regularly. Since
a sizable amount of cash was entrusted to Yabut, private respondent should, at
least, have taken ordinary care of its concerns, as what the law presumes. Its
8
BANKING LAWS - Assignment no. 4
negligence, therefore, is not contributory but the immediate and proximate
cause of its injury.
I vote to grant the petition.
Separate Opinions
PADILLA, J., dissenting:
I regret that I cannot join the majority in ruling that the proximate cause of the
damage suffered by Rommel's Marketing Corporation (RMC) is mainly "the
wanton and reckless negligence of the petitioner's employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene Yabut" (Decision, p.
15). Moreover, I find it difficult to agree with the ruling that "petitioners are
entitled to claim reimbursement from her (the bank teller) for whatever they
shall be ordered to pay in this case."
It seems that an innocent bank teller is being unduly burdened with what
should fall on Ms. Irene Yabut, RMC's own employee, who should have been
charged with estafa or estafa through falsification of private document.
Interestingly, the records are silent on whether RMC had ever filed any
criminal case against Ms. Irene Yabut, aside from the fact that she does not
appear to have been impleaded even as a party defendant in any civil case for
damages. Why is RMC insulating Ms. Irene Yabut from liability when in fact
she orchestrated the entire fraud on RMC, her employer?
To set the record straight, it is not completely accurate to state that from 5
May 1975 to 16 July 1976, Miss Irene Yabut had transacted with PCIB (then
PBC) through only one teller in the person of Azucena Mabayad. In fact,
when RMC filed a complaint for estafa before the Office of the Provincial
Fiscal of Rizal, it indicted all the tellers of PCIB in the branch who were
accused of conspiracy to defraud RMC of its current account deposits. (See
Annex B, Rollo p. 22 and 47).
Even private respondent RMC, in its Comment, maintains that "when the
petitioner's tellers" allowed Irene Yabut to carry out her modus
operandi undetected over a period of one year, "their negligence cannot but
AL Ilagan-Malipol AB, MD
be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This rules out the
possibility that there may have been some form of collusion between Yabut
and bank teller Mabayad. Mabayad was just unfortunate that private
respondent's documentary evidence showed that she was the attending teller
in the bulk of Yabut's transactions with the bank.
Going back to Yabut's modus operandi, it is not disputed that each time Yabut
would transact business with PBC's tellers, she would accomplish two (2)
copies of the current account deposit slip. PBC's deposit slip, as issued in
1975, had two parts. The upper part was called the depositor's stub and the
lower part was called the bank copy. Both parts were detachable from each
other. The deposit slip was prepared and signed by the depositor or his
representative, who indicated therein the current account number to which the
deposit was to be credited, the name of the depositor or current account
holder, the date of the deposit, and the amount of the deposit either in cash or
in checks. (Rollo, p. 137)
Since Yabut deposited money in cash, the usual bank procedure then was for
the teller to count whether the cash deposit tallied with the amount written
down by the depositor in the deposit slip. If it did, then the teller proceeded to
verify whether the current account number matched with the current account
name as written in the deposit slip.
In the earlier days before the age of full computerization, a bank normally
maintained a ledger which served as a repository of accounts to which debits
and credits resulting from transactions with the bank were posted from books
of original entry. Thus, it was only after the transaction was posted in the
ledger that the teller proceeded to machine validate the deposit slip and then
affix his signature or initial to serve as proof of the completed transaction.
It should be noted that the teller validated the depositor's stub in the upper
portion and the bank copy on the lower portion on both the original and
duplicate copies of the deposit slips presented by Yabut. The teller, however,
detached the validated depositor's stub on the original deposit slip and
allowed Yabut to retain the whole validated duplicate deposit slip that bore the
same account number as the original deposit slip, but with the account name
purposely left blank by Yabut, on the assumption that it would serve no other
9
BANKING LAWS - Assignment no. 4
purpose but for a personal record to complement the original validated
depositor's stub.
Thus, when Yabut wrote the name of RMC on the blank account name on the
validated duplicate copy of the deposit slip, tampered with its account
number, and superimposed RMC's account number, said act only served to
cover-up the loss already caused by her to RMC, or after the deposit slip was
validated by the teller in favor of Yabut's husband. Stated otherwise, when
there is a clear evidence of tampering with any of the material entries in a
deposit slip, the genuineness and due execution of the document become an
issue in resolving whether or not the transaction had been fair and regular and
whether the ordinary course of business had been followed by the bank.
It is logical, therefore, to conclude that the legal or proximate cause of RMC's
loss was when Yabut, its employee, deposited the money of RMC in her
husband's name and account number instead of that of RMC, the rightful
owner of such deposited funds. Precisely, it was the criminal act of Yabut that
directly caused damage to RMC, her employer, not the validation of the
deposit slip by the teller as the deposit slip was made out by Yabut in her
husband's name and to his account.
Even if the bank teller had required Yabut to completely fill up the duplicate
deposit slip, the original deposit slip would nonetheless still be validated
under the account of Yabut's husband. In fine, the damage had already been
done to RMC when Yabut deposited its funds in the name and account
number of her husband with petitioner bank. It is then entirely left to
speculation what Yabut would have done afterwards like tampering both
the account number and the account name on the stub of the original deposit
slip and on the duplicate copy in order to cover up her crime.
Under the circumstances in this case, there was no way for PBC's bank tellers
to reasonably foresee that Yabut might or would use the duplicate deposit slip
to cover up her crime. In the first place, the bank tellers were absolutely
unaware that a crime had already been consummated by Yabut when her
transaction by her sole doing was posted in the ledger and validated by the
teller in favor of her husband's account even if the funds deposited belonged
to RMC.
AL Ilagan-Malipol AB, MD
The teller(s) in this case were not in any way proven to be parties to the crime
either as accessories or accomplices. Nor could it be said that the act of
posting and validation was in itself a negligent act because the teller(s) simply
had no choice but to accept and validate the deposit as written in the original
deposit slip under the account number and name of Yabut's husband. Hence,
the act of validating the duplicate copy was not the proximate cause of RMC's
injury but merely a remote cause which an independent cause or agency
merely took advantage of to accomplish something which was not the
probable or natural effect thereof. That explains why Yabut still had to tamper
with the account number of the duplicate deposit slip after filling in the name
of RMC in the blank space.
Coming now to the doctrine of "last clear chance," it is my considered view
that the doctrine assumes that the negligence of the defendant was subsequent
to the negligence of the plaintiff and the same must be the proximate cause of
the injury. In short, there must be a last and a clear chance, not a
last possible chance, to avoid the accident or injury. It must have been a
chance as would have enabled a reasonably prudent man in like position to
have acted effectively to avoid the injury and the resulting damage to himself.
In the case at bar, the bank was not remiss in its duty of sending monthly bank
statements to private respondent RMC so that any error or discrepancy in the
entries therein could be brought to the bank's attention at the earliest
opportunity. Private respondent failed to examine these bank statements not
because it was prevented by some cause in not doing so, but because it was
purposely negligent as it admitted that it does not normally check bank
statements given by banks.
It was private respondent who had the last and clear chance to prevent any
further misappropriation by Yabut had it only reviewed the status of its
current accounts on the bank statements sent to it monthly or regularly. Since
a sizable amount of cash was entrusted to Yabut, private respondent should, at
least, have taken ordinary care of its concerns, as what the law presumes. Its
negligence, therefore, is not contributory but the immediate and proximate
cause of its injury.
I vote to grant the petition.
10
BANKING LAWS - Assignment no. 4
G.R. No. 105836 March 7, 1994
SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners,
vs.
THE HON. COURT OF APPEALS and CITYTRUST BANKING
CORPORATION, respondents.
REGALADO, J.:
Petitioner spouses George and Librada Moran are the owners of the Wack-
Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-
Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel
and other related products from Petrophil Corporation on cash on delivery
(COD) basis. Orders for bulk fuel and other related products were made by
telephone and payments were effected by personal checks upon delivery. 1
Petitioners maintained three joint accounts, namely one current account (No.
37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372)
with the Shaw Boulevard branch of Citytrust Banking Corporation. As a
special privilege to the Morans, whom it considered as valued clients, the
bank allowed them to maintain a zero balance in their current account.
Transfers from Saving Account No. 1037002387 to their current account
could be made only with their prior authorization, but they gave written
authority to Citytrust to automatically transfer funds from their Savings
Account No. 1037001372 to their Current Account No. 37-00066-7 at any
time whenever the funds in their current account were insufficient to meet
withdrawals from said current account. Such arrangement for automatic
transfer of funds was called a pre-authorized transfer (PAT) agreement. 2
The PAT letter-agreement entered into by the parties on March 19, 1982
contained the following provisions:
xxx xxx xxx
AL Ilagan-Malipol AB, MD
1. The transfer may be effected on the day following the overdrawing of the
current account, but the check/s would be honored if the savings account has
sufficient balance to cover the overdraft.
2. The regular charges on overdraft, and activity fees will be imposed by the
Bank.
3. This is merely an accommodation on our part and we have the right, at all
times and for any reason whatsoever, to refuse to effect transfer of funds at
our sole and absolute option and discretion, reserving our right to terminate
this arrangement at any time without written notice to you.
4. You hold CITYTRUST free and harmless for any and all omissions or
oversight in executing this automatic transfer of funds; . . . 3
xxx xxx xxx
On December 12, 1983, petitioners, through Librada Moran, drew a check
(Citytrust No. 041960) for P50,576.00 payable to Petrophil
Corporation. 4 The next day, December 13, 1983, petitioners, again through
Librada Moran, issued another check (Citytrust No. 041962) in the amount of
P56,090.00 in favor of the same corporation. 5 The total sum of the two
checks was P106,666.00.
On December 14, 1983, Petrophil Corporation deposited the two
aforementioned checks to its account with the Pandacan branch of the
Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan
branch presented them for clearing with the Philippine Clearing House
Corporation in the afternoon of the same day. The records show that on
December 14, 1983, Current Account No. 37-00066-7 had a zero balance,
while Savings Account No. 1037001372 (covered by the PAT) had an
available balance of
P26,104.30 6 and Savings Account No. 1037002387 had an available balance
of P43,268.39.7
At about ten o'clock in the morning of the following day, December 15, 1983,
petitioner George Moran went to the bank, as was his regular practice, to
11
BANKING LAWS - Assignment no. 4
personally oversee their daily transactions with the bank. He deposited in
their Savings Account No. 1037002387 the amounts of P10,874.58 and
P6,754.25, 8 and he likewise deposited in their Savings Account No.
1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. 9 The amount
of P40,000.00 was then transferred by him from Saving Account No.
1037002387 to their current account by means of a pro forma withdrawal
form (a debit memorandum), which was provided by the bank, authorizing the
latter to make the necessary transfer. At the same time, the amount of
P66,666.00 was transferred from Savings Account No. 1037001372 to the
same current account through the pre-authorized transfer (PAT) agreement. 10
Sometime on December 15 or 16, 1983 George Moran was informed by his
wife Librada, that Petrophil refused to deliver their orders on a credit basis
because the two checks they had previously issued were dishonored upon
presentment for payment. Apparently, the bank dishonored the checks due to
"insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to
temporarily stop business operations, allegedly causing them to suffer loss of
earnings. In addition, Petrophil cancelled their credit accommodation, forcing
them to pay for their purchases in cash. 12 George Moran, furious and upset,
demanded an explanation from Raul Diaz, the branch manager. Failing to get
a sufficient explanation, he talked to a certain Villareal, a bank officer, who
allegedly told him that Amy Belen Ragodo, the customer service officer, had
committed a "grave error". 13
On December 16 or 17, 1983, Diaz went to the Moran residence to get the
signatures of the petitioners on an application for a manager's check so that
the dishonored checks could be redeemed. Diaz then went to Petrophil to
personally present the checks in payment for the two dishonored checks. 14
In a chance meeting around May or June, 1984, George Moran learned from
one Constancio Magno, credit manager of Petrophil, that the latter received
from Citytrust, through Diaz, a letter dated December 16, 1983, notifying
them that the two aforementioned checks were "inadvertently dishonored . . .
due to operational error." Said letter was received by Petrophil on January 4,
1984. 15
AL Ilagan-Malipol AB, MD
On July 24, 1984, or a little over six months after the incident, petitioners,
through counsel, wrote Citytrust claiming that the bank's dishonor of the
checks caused them besmirched business and personal reputation, shame and
anxiety, hence they were contemplating the filing of the necessary legal
actions unless the bank issued a certification clearing their name and paid
them P1,000,000.00 as moral damages. 16
The bank did not act favorably on their demands, hence petitioners filed a
complaint for damages on September 8, 1984, with the Regional Trial Court,
Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case
No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that
the case filed against it was unfounded and unjust.
After trial, a decision dated October 9, 1989 was rendered by the trial court
dismissing both the complaint and the counterclaim. 17 On appeal, the Court
of Appeals rendered judgment in CA-G.R. CV No. 25009 on October 9, 1989
affirming the decision of the trial court. 18
We start some basic and accepted rules, statutory and doctrinal. A check is a
bill of exchange drawn on a bank payable on demand. 19 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. 20
Fixed savings and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. 21 In other words,
the relationship between the bank and the depositor is that of a debtor and
creditor. 22 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. 23
Hence, where the bank possesses funds of a depositor, it is bound to honor his
checks to the extent of the amount of his 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. 24
12
BANKING LAWS - Assignment no. 4
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. 25 Before a bank depositor may maintain a suit to recover a specific
amount from his bank, he must first show that he had on deposit sufficient
funds to meet his demand. 26
The present action for damages accordingly hinges on the resolution of the
inquiry as to whether or not petitioners had sufficient funds in their accounts
when the bank dishonored the checks in question. In view of the factual
findings of the two lower courts the correctness of which are challenged by
what appear to be plausible, arguments, we feel that the same should properly
be resolved by us. This would necessarily require us to inquire into both the
savings and current accounts of petitioners in relation to the PAT arrangement.
On December 14, 1983, when PNB, Pandacan branch, presented the checks
for collection, the available balance for Savings Account No. 1037001372
was P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero
balance. On December 15, 1983, at approximately ten o'clock in the morning,
petitioners, through George Moran, learned that P66,666.00 from Saving
Account No. 1037001372 was transferred to their current account. Another
P40,000.00 was transferred from Saving Accounts No. 1037002387 to the
current account. Considering that the transfers were by then sufficient to
cover the two checks, it is asserted by petitioners that such fact should have
prevented the dishonor of the checks. It appears, however, that it was not so.
As explained by respondent court in its decision, Gerard E. Rionisto, head of
the centralized clearing unit of Citytrust, detailed on the witness stand the
standard clearing procedure adopted by respondent bank and the Philippine
Clearing House Corporation, to wit:.
Q: Let me again re-phase the question. Most of (sic) these two checks issued
by Mrs. Librada Moran under the accounts of the plaintiffs with Citytrust
Banking Corporation were drawn dated December 12, 1983 and December
13, 1983(and) these two (2) checks were made payable to Petrophil
Corporation. On record, Petrophil Corporation presented these two (2) checks
for clearing with PNB Pandacan Branch on December 14, 1983. Now in
AL Ilagan-Malipol AB, MD
accordance with the bank, what would happen with these checks drawn with
(sic) PNB on December 14, 1983?.
A: So these checks will now be presented by PNB with the Philippine
Clearing House on December 14, and then the Philippine Clearing House
will process it until midnight of December 14. Citytrust will send a clearing
representative to the Philippine Clearing House at around 2:00 o'clock in the
morning of December 15 and then get the checks. The checks will now be
processed at the Citytrust Computer at around 3:00 o'clock in the morning of
December 14 (sic)but it will be processed for balance of Citytrust as of
December 14 because for one, we have not opened on December 15 at 3:00
o'clock. Under the clearing house rules, we are supposed to process it on the
date it was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27
Considering the clearing process adopted, as explained in the aforequoted
testimony, 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, although what was stamped on the dorsal
side of the two checks in question was "DAIF/12-15-83," since December 15,
1983 was the actual date when the checks were processed. As earlier stated,
when petitioners' checks were dishonored due to insufficiency of funds, the
available balance of Savings Account No. 1037001372, which was the subject
of the PAT agreement, was not enough to cover either of the two checks. On
December 14, 1983, when PNB, Pandacan branch presented the checks for
collection, the available balance for Savings Account No. 1037001372, to
repeat, was only P26,104.30 while Current Account No. 37-0006-7 had no
available balance. It was only on December 15, 1983 at around ten o'clock in
the morning that the necessary funds were deposited, which unfortunately was
too late to prevent the dishonor of the checks.
Petitioners argue that public respondent, by relying heavily on Rionisto's
testimony, failed to consider the fact that the witness himself admitted that he
had no personal knowledge surrounding the dishonor of the two checks in
question. Thus, although he knew the standard clearing procedure, it does not
necessarily mean that the same procedure was adopted with regard to the two
checks.
13
BANKING LAWS - Assignment no. 4
We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a
disputable presumption in law that the ordinary course of business has been
followed. In the absence of a contrary showing, it is presumed that the acts in
question were in conformity with the usual conduct of business. In the case at
bar, petitioners failed to present countervailing evidence to rebut the
presumption that the checks involved underwent the same regular process for
clearing of checks followed by the bank since 1983.
Petitioner had no reason to complain, for they alone were at fault. A drawer
must remember his responsibilities every time he issues a check. He must
personally keep track of his available balance in the bank and not rely on the
bank to notify him of the necessity to fund certain check she previously
issued. A check, as distinguished from an ordinary bill of exchange, is
supposed to be drawn against a previous deposit of funds for it is ordinarily
intended for immediately payment. 28
Moreover, between the time of the issuance of said checks on December 12
and 13 and the time of their presentment on December 14, petitioners had, at
the very least, twenty-four hours to replenish their balance in the bank.
As previously noted, it was only during business hours in the morning of
December 15, 1983, that P66,666.00 was automatically transferred from
Savings Account No. 1037001372 to Current Account No. 37-00066-7, and
another P40,000.00 was transferred from Savings Account No. 1037002387
to the same current by a debit memorandum. Petitioners argue that if indeed
the checks were dishonored in the early morning of December 15, 1983, the
bank would not have automatically transferred P66,666.00 to said current
account. They theorize that the checks having already been dishonored, there
was no necessity to put into effect the pre-authorized transfer agreement.
That theory is incorrect. When the transfer from both savings accounts to the
current account were made, they were done in the hope that the checks may
be retrieved, thus preventing their dishonor. Unfortunately, respondent bank
did not succeed in effectuating its good intentions. The transfers were made to
preserve its relations with petitioners whom it knew were valued clients,
hence it wanted to prevent the dishonor of their checks, if the same was at all
AL Ilagan-Malipol AB, MD
possible. Although not admitting fault, it tried its best to make sure that the
checks would not bounce.
Under similar circumstances, it was held in Whitman vs. First National
Bank 29 that a bank performs its full duty where, upon the receipt of a check
drawn against an account in which there are insufficient funds to pay it in full,
it endeavors to induce the drawer to make good his account so that the check
can be paid, and failing in this, it protests the check on the following morning
and notifies its correspondent bank by the telegraph of the protest. It cannot,
therefore, be held liable to the payee and holder of the check for not
protesting it upon the day when it was received. In fact, the court added that
the bank did more that it was required to do by making an effort to induce the
drawer to deposit sufficient money to make the check good, and by notifying
its correspondent of the dishonor of the check by telegram.
Petitioners maintain that at the time the checks were dishonored, they had
already deposited sufficient funds to cover said checks. To prove their point,
petitioners quoted in their petition the following testimony of said witness
Rionisto, to wit:
Q: Now according to you, you would receive the checks from (being
deposited to) the collecting bank which in this particular example was the
Pandacan Branch of PNB which in turn will deliver it to the Philippine
Clearing House and the Philippine Clearing House will deliver it to your
office around 12:00 o'clock of December . . . ?
A: Around 2:00 o'clock of December 15. We sent a clearing representative.
Q: And the checks will be processed in accordance with the balance available
as of December 14?
A: Yes, sir.
Q: And naturally you will place there "drawn against insufficient funds,
December 14, 1983"?
A: Yes, sir.
14
BANKING LAWS - Assignment no. 4
Q: Are you sure about that?
A: Yes, sir . . . (tsn, September 9, 1988, p. 14) 30
Obviously witness Rionisto was merely confused as to the dates (December
14 and 15) because it did not jibe with his previous testimony, wherein he
categorically stated that "the checks will now be processed as the Citytrust
Computer at around 3:00 in the morning of December 14 (sic) but it will be
processed for balance of Citytrust as of December 14 because for one, we
have not opened on December 15 at 3:00 o'clock. Under the clearing house
rules, we are supposed to process it on the date it was presented for
clearing." 31 Analyzing the procedure he had previously explained, and
analyzing his testimony in its entirety and not in truncated portions, it would
logically and ineluctably appear that he actually meant December 15, and not
December 14.
In the early morning of every business day, prior to banking hours, the various
branches of Citytrust would receive a computer printout called the "rejected
transactions" report from the head office. The report contains, among others, a
listing of "checks to be funded." When Citytrust, Shaw Boulevard branch,
received said report in the early morning of December 15, 1983, the two
checks involved were included in the "checks to be funded." That report was
used by the bank as its basis in dishonoring the two checks in question.
Petitioner contends that the bank erred when it did so because on previous
occasions, the report was merely used by the bank as a basis for determining
whether or not it was necessary to notify them of the need to deposit certain
amounts in their accounts.
Amy Belen Rogado, a bank employee, testified that she would normally copy
the details stated in the report and transfer in on a "pink slip." These pink slips
were then given to George Moran. In turn, George Moran testified that he
would deposit the necessary funds stated in the pink slips. As a matter of fact,
so petitioner asseverated, not a single check written on the notices was ever
dishonored after he had funded said checks with the bank. Thus, petitioner
argues, the checks were not yet dishonored after the bank received the report
in the early morning of December 15, 1983.
AL Ilagan-Malipol AB, MD
Said argument does not persuade. If ever petitioners on previous occasions
were given notices every time a check was presented for clearing and
payment and there were no adequate funds in their accounts, these were, at
most, mere accommodations on the part of respondent bank. It was not a
requirement or a general banking practice, hence non-compliance therewith
could not lay the bank open to blame or rebuke. Legally, the bank had all the
right to dishonor the checks because there were no sufficient funds to speak of
in the first place. If the demand is by check, a drawer must have to his credit
enough to cover the demand. If his credit with the bank is less than the
amount on the face of the check, the bank may lawfully refuse payment. 32
Pursuing this matter further, the bank could also not be faulted for not
accepting either of the two checks. The first check issued was in the amount
of P50,576.00, while the second one was for P56,090.00. Savings Account
No. 1307001372 then had a balance of only P26,104.30. This being the case,
Citytrust could not be expected to accept for payment either one of the two
checks nor partially honor one check.
A bank is under no obligation to make part payment on a check, up to only the
amount of the drawer's funds, where the check is drawn for an amount larger
than what the drawer has on deposit. Such a practice of paying checks in part
has never existed. Upon partial payment, the check holder could not be called
upon to surrender the check, and the bank would be without a voucher
affording a certain means of showing the payment. The rule is based on
commercial convenience, and any rule that would work such manifest
inconvenience should not be recognized. A check is intended not only to
transfer a right to the amount named in it, but to serve the further purpose of
affording evidence for the bank of the payment of such amount when the
check is taken up. 33
On the other hand, assuming arguendo that Savings Account No.
1037002387, which is not covered by a pre-arranged automatic transfer
agreement, had enough amount deposited to cover both checks (which is not
so in this case), the bank still had no obligation to honor said checks as there
was then no authority given to it to make the transfer of funds. Where a
depositor has two accounts with a bank, an open account and a savings
account, and draws a check upon the open account for more money than the
15
BANKING LAWS - Assignment no. 4
account contains, the bank may rightfully refuse to pay the check, and is
under no duty to make up the deficiency from the savings account. 34
We are agree with respondent Court of Appeals in its assessment and
interpretation of the nature of the letter of Citytrust to Petrophil, dated
December 16, 1983. As aptly and correctly stated by said court, ". . . the letter
is not an admission of liability as it was written merely to maintain the
goodwill and continued patronage of plaintiff-appellants. (This) cannot be
characterized as baseless, considering the totality of the circumstances
surrounding its writing." 35
In the present case, the actions taken by the bank after the incident clearly
show that there was neither malice nor bad faith, but rather a clear intent to
mollify an obviously agitated client. Raul Diaz, the branch manager, even
went for this purpose to the Moran residence to facilitate their application for
a manager's check. Later, he went to the Petrophil Corporation to personally
redeem the checks. Still later, the letter was sent by respondent bank to
Petrophil explaining that the dishonor of the checks was due to "operational
error." However, we reiterate, it would be a mistake to construe that letter as
an admission of guilt on the part of the bank. It knew that it was confronted
with a client who obviously was not willing to admit any fault on his part,
although the facts show otherwise. Thus, respondent bank ran the risk of
losing the business of an important and influential member of the financial
community if it did not do anything to assuage the feelings of petitioners.
Respondent Court of Appeals perceptively observed that "all these somehow
pacified plaintiffs-appellants (herein petitioners) for they did not thereafter
take immediate punitive action against the defendant-appellee (herein private
respondent). As pointed out by the court a quo, it took plaintiffs-appellants
about six (6) months after the dishonor of the checks to demand that
defendant-appellee pay them P1,000,000.00 as damages. At that time,
plaintiffs-appellants had discovered the letter of Mr. Diaz attributing the
dishonor of their checks to 'operational error'. The attempt to unduly ride on
the letter of Mr. Diaz speaks for itself." 36
On the above premises which irresistibly commend themselves to our
acceptance, we find no cogent and sufficient to award actual, moral, or
exemplary damages to petitioners. Although we take judicial notice of the fact
that there is a fiduciary relationship between a bank and its depositors, as well
as the extent of diligence expected of it in handling the accounts entrusted to
its care, 37 the bank may not be held responsible for such damages in the
absence of fraud, bad faith, malice, or wanton attitude. 38
WHEREFORE, finding no reversible error in the judgment appealed from,
the same is hereby AFFIRMED, with costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Nocon and Puno, JJ., concur.

It will be recalled that the credit standing of the Morans with Petrophil
Corporation was involved, which fact, more than anything, displeased them,
to say the least. On demand of petitioners that their names be cleared, the
bank considered it more prudent to send the letter. It never realized that it
would thereafter be used by petitioners as one of the bases of their legal
action. It will be noted that there was no reason for the bank to send the letter
to Petrophil Corporation since the latter was not a client nor was it demanding
any explanation. Clearly, therefore, the letter was merely intended to
accommodate the request of the Morans and was part of the series of damage-
control measures taken by the bank to placate petitioners.

AL Ilagan-Malipol AB, MD 16
BANKING LAWS - Assignment no. 4
G.R. No. L-37467 December 11, 1933
SAN CARLOS MILLING CO., LTD., plaintiff-appellant,
vs.
BANK OF THE PHILIPPINE ISLANDS and CHINA BANKING
CORPORATION, defendants-appellees.
HULL, J.:
Plaintiff corporation, organized under the laws of the Territory of Hawaii, is
authorized to engaged in business in the Philippine Islands, and maintains its
main office in these Islands in the City of Manila.
The business in the Philippine Islands was in the hands of Alfred D. Cooper,
its agent under general power of attorney with authority of substitution. The
principal employee in the Manila office was one Joseph L. Wilson, to whom
had been given a general power of attorney but without power of substitution.
In 1926 Cooper, desiring to go on vacation, gave a general power of attorney
to Newland Baldwin and at the same time revoked the power of Wilson
relative to the dealings with the Bank of the Philippine Islands, one of the
banks in Manila in which plaintiff maintained a deposit.
About a year thereafter Wilson, conspiring together with one Alfredo Dolores,
a messenger-clerk in plaintiff's Manila office, sent a cable gram in code to the
company in Honolulu requesting a telegraphic transfer to the China Banking
Corporation of Manila of $100,00. The money was transferred by cable, and
upon its receipt the China Banking Corporation, likewise a bank in which
plaintiff maintained a deposit, sent an exchange contract to plaintiff
corporation offering the sum of P201,000, which was then the current rate of
exchange. On this contract was forged the name of Newland Baldwin and
typed on the body of the contract was a note:lawphil.net
Please send us certified check in our favor when transfer is received.
A manager's check on the China Banking Corporation for P201,000 payable
to San Carlos Milling Company or order was receipted for by Dolores. On the
AL Ilagan-Malipol AB, MD
same date, September 28, 1927, the manger's check was deposited with the
Bank of the Philippine Islands by the following endorsement:
For deposit only with Bank of the Philippine Islands, to credit of account of
San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
The endorsement to which the name of Newland Baldwin was affixed was
spurious.
The Bank of the Philippine Islands thereupon credited the current account of
plaintiff in the sum of P201,000 and passed the cashier's check in the ordinary
course of business through the clearing house, where it was paid by the China
Banking Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a
letter, purporting to be signed by Newland Baldwin, directing that P200,000
in bills of various denominations, named in the letter, be packed for shipment
and delivery the next day. The next day, Dolores witnessed the counting and
packing of the money, and shortly afterwards returned with the check for the
sum of P200,000, purporting to be signed by Newland Baldwin as agent.
Plaintiff had frequently withdrawn currency for shipment to its mill from the
Bank of the Philippine Islands but never in so large an amount, and according
to the record, never under the sole supervision of Dolores as the
representative of plaintiff.
Before delivering the money, the bank asked Dolores for P1 to cover the cost
of packing the money, and he left the bank and shortly afterwards returned
with another check for P1, purporting to be signed by Newland Baldwin.
Whereupon the money was turned over to Dolores, who took it to plaintiff's
office, where he turned the money over to Wilson and received as his share,
P10,000.
17
BANKING LAWS - Assignment no. 4
Shortly thereafter the crime was discovered, and upon the defendant bank
refusing to credit plaintiff with the amount withdrawn by the two forged
checks of P200,000 and P1, suit was brought against the Bank of the
Philippine Islands, and finally on the suggestion of the defendant bank, an
amended complaint was filed by plaintiff against both the Bank of the
Philippine Islands and the China Banking Corporation.
At the trial the China Banking Corporation contended that they had drawn a
check to the credit of the plaintiff company, that the check had been endorsed
for deposit, and that as the prior endorsement had in law been guaranteed by
the Bank of the Philippine Islands, when they presented the cashier's check to
it for payment, the China Banking Corporation was absolved even if the
endorsement of Newland Baldwin on the check was a forgery.
The Bank of the Philippine Islands presented many special defenses, but in
the main their contentions were that they had been guilty of no negligence,
that they had dealt with the accredited representatives of the company in the
due course of business, and that the loss was due to the dishonesty of
plaintiff's employees and the negligence of plaintiff's general agent.
In plaintiff's Manila office, besides the general agent, Wilson, and Dolores,
most of the time there was employed a woman stenographer and cashier. The
agent did not keep in his personal possession either the code-book or the
blank checks of either the Bank of the Philippine Islands or the China
Banking Corporation. Baldwin was authorized to draw checks on either of the
depositaries. Wilson could draw checks in the name of the plaintiff on the
China Banking Corporation.
After trial in which much testimony was taken, the trial court held that the
deposit of P201,000 in the Bank of the Philippine Islands being the result of a
forged endorsement, the relation of depositor and banker did not exist, but the
bank was only a gratuitous bailee; that the Bank of the Philippine Islands
acted in good faith in the ordinary course of its business, was not guilty of
negligence, and therefore under article 1902 of the Civil Code which should
control the case, plaintiff could not recover; and that as the cause of loss was
the criminal actions of Wilson and Dolores, employees of plaintiff, and as
Newland Baldwin, the agent, had not exercised adequate supervision over
AL Ilagan-Malipol AB, MD
plaintiff's Manila office, therefore plaintiff was guilty of negligence, which
ground would likewise defeat recovery.
From the decision of the trial court absolving the defendants, plaintiff brings
this appeal and makes nine assignments of error which we do not deem it
necessary to discuss in detail.
There is a mild assertion on the part of the defendant bank that the disputed
signatures of Newland Baldwin were genuine and that he had been in the
habit of signing checks in blank and turning the checks so signed over to
Wilson.
The proof as to the falsity of the questioned signatures of Baldwin places the
matter beyond reasonable doubt, nor is it believed that Baldwin signed checks
in blank and turned them over to Wilson.
As to the China Banking Corporation, it will be seen that it drew its check
payable to the order of plaintiff and delivered it to plaintiff's agent who was
authorized to receive it. A bank that cashes a check must know to whom it
pays. In connection with the cashier's check, this duty was therefore upon the
Bank of the Philippine Islands, and the China Banking Corporation was not
bound to inspect and verify all endorsements of the check, even if some of
them were also those of depositors in that bank. It had a right to rely upon the
endorsement of the Bank of the Philippine Islands when it gave the latter bank
credit for its own cashier's check. Even if we would treat the China Banking
Corporation's cashier's check the same as the check of a depositor and attempt
to apply the doctrines of the Great Eastern Life Insurance Co. vs. Hongkong
& Shanghai Banking Corporation and National Bank (43 Phil., 678), and
hold the China Banking Corporation indebted to plaintiff, we would at the
same time have to hold that the Bank of the Philippine Islands was indebted
to the China Banking Corporation in the same amount. As, however, the
money was in fact paid to plaintiff corporation, we must hold that the China
Banking Corporation is indebted neither to plaintiff nor to the Bank of the
Philippine Islands, and the judgment of the lower court far as it absolves the
China Banking Corporation from responsibility is affirmed.
18
BANKING LAWS - Assignment no. 4
Returning to the relation between plaintiff and the Bank of the Philippine
Islands, we will now consider the effect of the deposit of P201,000. It must be
noted that this was not a presenting of the check for cash payment but for
deposit only. It is a matter of general knowledge that most endorsements for
deposit only, are informal. Most are by means of a rubber stamp. The bank
would have been justified in accepting the check for deposit even with only a
typed endorsement. It accepted the check and duly credited plaintiff's account
with the amount on the face of the check. Plaintiff was not harmed by the
transaction as the only result was the removal of that sum of money from a
bank from which Wilson could have drawn it out in his own name to a bank
where Wilson would not have authority to draw checks and where funds
could only be drawn out by the check of Baldwin.
Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine
Islands said in part:
". . . we now leave to demand that you pay over to us the entire amount of
said manager's check of two hundred one thousand (P201,000) pesos, together
with interest thereon at the agreed rate of 3 per cent per annum on daily
balances of our credit in account current with your bank to this date. In the
event of your refusal to pay, we shall claim interest at the legal rate of 6 per
cent from and after the date of this demand inasmuch as we desire to
withdraw and make use of the money." Such language might well be treated
as a ratification of the deposit.
The contention of the bank that it was a gratuitous bailee is without merit. In
the first place, it is absolutely contrary to what the bank did. It did not take it
up as a separate account but it transferred the credit to plaintiff's current
account as a depositor of that bank. Furthermore, banks are not gratuitous
bailees of the funds deposited with them by their customers. Banks are run for
gain, and they solicit deposits in order that they can use the money for that
very purpose. In this case the action was neither gratuitous nor was it a
bailment.
On the other hand, we cannot agree with the theory of plaintiff that the Bank
of the Philippine Islands was an intermeddling bank. In the many cases cited
by plaintiff where the bank that cashed the forged endorsement was held as an
AL Ilagan-Malipol AB, MD
intermeddler, in none was the claimant a regular depositor of the bank, nor in
any of the cases cited, was the endorsement for deposit only. It is therefore
clear that the relation of plaintiff with the Bank of the Philippine Islands in
regard to this item of P201,000 was that of depositor and banker, creditor and
debtor.
We now come to consider the legal effect of payment by the bank to Dolores
of the sum of P201,000, on two checks on which the name of Baldwin was
forged as drawer. As above stated, the fact that these signatures were forged is
beyond question. It is an elementary principle both of banking and of the
Negotiable Instruments Law 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. (7 C.J., 683.)
There is no act of the plaintiff that led the Bank of the Philippine Islands
astray. If it was in fact lulled into a false sense of security, it was by the
effrontery of Dolores, the messenger to whom it entrusted this large sum of
money.
The bank paid out its money because it relied upon the genuineness of the
purported signatures of Baldwin. These, they never questioned at the time its
employees should have used care. In fact, even today the bank represents that
it has a relief that they are genuine signatures.
The signatures to the check being forged, under section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of
any value to the defendant.
It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the
two forged checks.
The judgment absolving the Bank of the Philippine Islands must therefore be
reversed, and a judgment entered in favor of plaintiff-appellant and against
19
BANKING LAWS - Assignment no. 4
the Bank of the Philippine Islands, defendant-appellee, for the sum of
P200,001, with legal interest thereon from December 23,1928, until payment,
together with costs in both instances. So ordered.

AL Ilagan-Malipol AB, MD 20
BANKING LAWS - Assignment no. 4
[G.R. No. 156940. December 14, 2004]
ASSOCIATED BANK (Now WESTMONT BANK), petitioner,
vs. VICENTE HENRY TAN, respondent.
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a
dishonored check from a depositors account, they must do so with the highest
degree of care, so as not to prejudice the depositor unduly.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court,
assailing the January 27, 2003 Decision[2] of the Court of Appeals (CA) in
CA-GR CV No. 56292. The CA disposed as follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996,
of the Regional Trial Court of Cabanatuan City, Third Judicial Region,
Branch 26, in Civil Case No. 892-AF is hereby AFFIRMED. Costs against
the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-
creditor of the Associated Bank (hereinafter referred to as the
BANK). Sometime in September 1990, he deposited a postdated UCPB check
with the said BANK in the amount of P101,000.00 issued to him by a certain
Willy Cheng from Tarlac. The check was duly entered in his bank record
thereby making his balance in the amount of P297,000.00, as of October 1,
1990, from his original deposit of P196,000.00. Allegedly, upon advice and
AL Ilagan-Malipol AB, MD
instruction of the BANK that the P101,000.00 check was already cleared and
backed up by sufficient funds, TAN, on the same date, withdrew the sum
of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited
the amount of P50,000.00 making his existing balance in the amount
of P107,793.45, because he has issued several checks to his business partners,
to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that
the checks he issued bounced for insufficiency of funds. Thereafter, TAN,
thru his lawyer, informed the BANK to take positive steps regarding the
matter for he has adequate and sufficient funds to pay the amount of the
subject checks. Nonetheless, the BANK did not bother nor offer any apology
regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for
Damages on December 19, 1990, with the Regional Trial Court of
Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF,
against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to
pay the subject checks and alleged that his suppliers decreased in number for
lack of trust. As he has been in the business community for quite a time and
has established a good record of reputation and probity, plaintiff claimed that
he suffered embarrassment, humiliation, besmirched reputation, mental
anxieties and sleepless nights because of the said unfortunate
incident. [Respondent] further averred that he continuously lost profits in the
amount of P250,000.00. [Respondent] therefore prayed for exemplary
21
BANKING LAWS - Assignment no. 4
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00
by way of moral damages, P250,000.00 as lost profits, P50,000.00 as
attorneys fees plus 25% of the amount claimed including P1,000.00 per court
appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but
the same was denied for lack of merit in an Order dated March 7,
1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its Answer
denying, among others, the allegations of [respondent] and alleged that no
banking institution would give an assurance to any of its client/depositor that
the check deposited by him had already been cleared and backed up by
sufficient funds but it could only presume that the same has been honored by
the drawee bank in view of the lapse of time that ordinarily takes for a check
to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave
notice to the [respondent] as to the return of his UCPB check deposit in the
amount of P101,000.00, hence, on even date, [respondent] deposited the
amount of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no
cause of action against it and argued that it has all the right to debit the
account of the [respondent] by reason of the dishonor of the check deposited
by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the
clearing of deposited checks as the clearing is being undertaken by the
Central Bank and in accepting [the] check deposit, it merely obligates itself as
depositors collecting agent subject to actual payment by the drawee
bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the
amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance
fee plus P500.00 per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an
Amended Complaint reiterating substantially his allegations in the original
complaint, except that the name of the previous defendant ASSOCIATED
BANK is now WESTMONT BANK.
AL Ilagan-Malipol AB, MD
Trial ensured and thereafter, the court rendered its Decision dated December
3, 1996 in favor of the [respondent] and against the [petitioner], ordering the
latter to pay the [respondent] the sum of P100,000.00 by way of moral
damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys fees,
plus the costs of this suit. In making said ruling, it was shown that
[respondent] was not officially informed about the debiting of
the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for
accommodation because the BANK considered him as one of its valued
clients. The trial court ruled that the bank manager was negligent in handling
the particular checking account of the [respondent] stating that such lapses
caused all the inconveniences to the [respondent]. The trial court also took
into consideration that [respondents] mother was originally maintaining with
the x x x BANK [a] current account as well as [a] time deposit, but [o]n one
occasion, although his mother made a deposit, the same was not credited in
her favor but in the name of another.[4]
Petitioner appealed to the CA on the issues of whether it was within its
rights, as collecting bank, to debit the account of its client for a dishonored
check; and whether it had informed respondent about the dishonor prior to
debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its
clearing. Having done so, contrary to its obligation to treat respondents
account with meticulous care, the bank violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his
account before unilaterally debiting the amount of P101,000. Without such
notice, it is estopped from blaming him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent
would have had sufficient funds for the postdated checks he had issued. Thus,
the supposed accommodation accorded by petitioner to him is the proximate
cause of his business woes and shame, for which it is liable for damages.
22
BANKING LAWS - Assignment no. 4
Because of the banks negligence, the CA awarded respondent moral
damages of P100,000. It also granted him exemplary damages of P75,000 and
attorneys fees of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the
petitioner, which is acting as a collecting bank, has the right to debit the
account of its client for a check deposit which was dishonored by the drawee
bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present
set of facts were misappreciated by the CA. It insists that its right to debit the
amount of the dishonored check from the account of respondent is clear and
unmistakable. Even assuming that it did not give him notice that the check
had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished
by respondent on September 17, 1990, expressly stipulated that the bank was
obligating itself merely as the depositors collecting agent and -- until such
time as actual payment would be made to it -- it was reserving the right to
charge against the depositors account any amount previously
credited. Respondent was allowed to withdraw the amount of the check prior
to clearing, merely as an act of accommodation, it added.
AL Ilagan-Malipol AB, MD
At the outset, we stress that the trial courts factual findings that were
affirmed by the CA are not subject to review by this Court. [7] As petitioner
itself takes no issue with those findings, we need only to determine the legal
consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the
payment of any withdrawals on the part of a depositor. [8] The right of a
collecting bank to debit a clients account for the value of a dishonored check
that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor.[9] Thus, legal compensation under Article
1278[10] of the Civil Code may take place when all the requisites mentioned in
Article 1279 are present,[11] as follows:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.[12]
Nonetheless, the real issue here is not so much the right of petitioner to
debit respondents account but, rather, the manner in which it exercised such
right. The Court has held that even while the right of setoff is conceded,
separate is the question of whether that remedy has properly been exercised.
[13]
23
BANKING LAWS - Assignment no. 4
The liability of petitioner in this case ultimately revolves around the issue
of whether it properly exercised its right of setoff. The determination thereof
hinges, in turn, on the banks role and obligations, first, as respondents
depositary bank; and second, as collecting agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking
business is impressed with public interest. Consequently, the highest degree
of diligence is expected, and high standards of integrity and performance are
even required of it. By the nature of its functions, a bank is under obligation
to treat the accounts of its depositors with meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce
v. Court of Appeals[16] has held that the degree of diligence required of banks
is more than that of a good father of a family where the fiduciary nature of
their relationship with their depositors is concerned.[17] Indeed, the banking
business is vested with the trust and confidence of the public; hence the
appropriate standard of diligence must be very high, if not the highest, degree
of diligence.[18] The standard applies, regardless of whether the account
consists of only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is
now enshrined in Republic Act No. 8791 or the General Banking Law of
2000. Section 2 of the law specifically says that the State recognizes the
fiduciary nature of banking that requires high standards of integrity and
performance.
Did petitioner treat respondents account with the highest degree of
care? From all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of
accommodation to a valued client, petitioner allowed the withdrawal of the
face value of the deposited check prior to its clearing. That act certainly
disregarded the clearance requirement of the banking system. Such a practice
is unusual, because a check is not legal tender or money; [21] and its value can
AL Ilagan-Malipol AB, MD
properly be transferred to a depositors account only after the check has been
cleared by the drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a
bank either immediately credit the amount to a depositors account; or infuse
value to that account only after the drawee bank shall have paid such amount.
[23]
Before the check shall have been cleared for deposit, the collecting bank
can only assume at its own risk -- as herein petitioner did -- that the check
would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that
petitioner should not have authorized the withdrawal by respondent
of P240,000 on October 1, 1990, as this amount was over and above his
outstanding cleared balance of P196,793.45.[24] Hence, the lower courts
correctly appreciated the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors
Collecting agent, assuming no responsibility beyond carefulness in selecting
correspondents, and until such time as actual payments shall have come to its
possession, this Bank reserves the right to charge back to the Depositors
account any amounts previously credited whether or not the deposited item is
returned. x x x."[25]
However, this reservation is not enough to insulate the bank from any
liability. In the past, we have expressed doubt about the binding force of such
conditions unilaterally imposed by a bank without the consent of the
depositor.[26] It is indeed arguable that in signing the deposit slip, the depositor
does so only to identify himself and not to agree to the conditions set forth at
the back of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself
certain obligations as respondents agent, consonant with the well-settled rule
24
BANKING LAWS - Assignment no. 4
that the relationship between the payee or holder of a commercial paper and
the collecting bank is that of principal and agent. [28] Under Article 1909[29] of
the Civil Code, such bank could be held liable not only for fraud, but also for
negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.[30] Due to the very nature of their business, banks are expected to
exercise the highest degree of diligence in the selection and supervision of
their employees.[31] Jurisprudence has established that the lack of diligence of
a servant is imputed to the negligence of the employer, when the negligent or
wrongful act of the former proximately results in an injury to a third person;
[32]
in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago,
categorically admitted that she and the employees under her control had
breached bank policies.They admittedly breached those policies when,
without clearance from the drawee bank in Baguio, they allowed respondent
to withdraw on October 1, 1990, the amount of the check
deposited. Santiago testified that respondent was not officially informed about
the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly acted within the scope of her
authority in authorizing the withdrawal and the subsequent debiting without
notice.Accordingly, what remains to be determined is whether her actions
proximately caused respondents injury. Proximate cause is that which -- in a
natural and continuous sequence, unbroken by any efficient intervening cause
--produces the injury, and without which the result would not have occurred.
[34]
Let us go back to the facts as they unfolded. It is undeniable that the
banks premature authorization of the withdrawal by respondent on October 1,
1990, triggered -- in rapid succession and in a natural sequence -- the debiting
of his account, the fall of his account balance to insufficient levels, and the
subsequent dishonor of his own checks for lack of funds. The CA correctly
noted thus:
AL Ilagan-Malipol AB, MD
x x x [T]he depositor x x x withdrew his money upon the advice by
[petitioner] that his money was already cleared. Without such advice,
[respondent] would not have withdrawn the sum of P240,000.00. Therefore, it
cannot be denied that it was [petitioners] fault which allowed [respondent] to
withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the
check. Had the P101,000.00 not [been] debited, the subject checks would not
have been dishonored. Hence, we can say that [respondents] injury arose from
the dishonor of his well-funded checks. x x x.[35]
Aggravating matters, petitioner failed to show that it had immediately
and duly informed respondent of the debiting of his account. Nonetheless, it
argues that the giving of notice was discernible from his act of
depositing P50,000 on October 2, 1990, to augment his account and allow the
debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers
account, respondent was considered a valued client whose checks had always
been sufficiently funded from 1987 to 1990,[36] until the October
imbroglio. Thus, he deserved nothing less than an official notice of the
precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law
regarding the liability of a general indorser[37] and the procedure for a notice
of dishonor,[38] it was incumbent on the bank to give proper notice to
respondent. In Gullas v. National Bank,[39] the Court emphasized:
x x x [A] general indorser of a negotiable instrument engages that if the
instrument the check in this case is dishonored and the necessary proceedings
for its dishonor are duly taken, he will pay the amount thereof to the holder
(Sec. 66) It has been held by a long line of authorities that notice of dishonor
is necessary to charge an indorser and that the right of action against him does
not accrue until the notice is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of
dishonor, and without waiting for any action by Gullas, the bank made use of
the money standing in his account to make good for the treasury warrant. At
25
BANKING LAWS - Assignment no. 4
this point recall that Gullas was merely an indorser and had issued checks in
good faith. As to a depositor who has funds sufficient to meet payment of a
check drawn by him in favor of a third party, it has been held that he has a
right of action against the bank for its refusal to pay such a check in the
absence of notice to him that the bank has applied the funds so deposited in
extinguishment of past due claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser
the situation is different, and notice should actually have been given him in
order that he might protect his interests.[40]

Third, regarding the deposit of P50,000 made by respondent on October

2, 1990, we fully subscribe to the CAs observations that it was not unusual for
a well-reputed businessman like him, who ordinarily takes note of the amount
of money he takes and releases, to immediately deposit money in his current
account to answer for the postdated checks he had issued.[41]

Damages

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

WHEREFORE, the Petition is DENIED and the assailed

Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

AL Ilagan-Malipol AB, MD 26
BANKING LAWS - Assignment no. 4
On March 31, 1993, respondent and Rodrigo Cawili went to petitioners branch
G.R. No. 157833 at Shaw Boulevard, Mandaluyong City where Elma Capistrano, the branch manager,
personally attended to them. Upon Elmas instructions, Lita Sagun, the bank teller,
BANK OF THE prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50, drawn against
PHILIPPINE ISLANDS, Present: the account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to
Petitioner, respondent in the presence of Elma.
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
The following day, April 1, 1993, respondent returned to petitioners branch
AZCUNA, and
at Shaw Boulevard to encash the cashiers check but it was dishonored. Elma informed
-versus- GARCIA, JJ.
him that Marissas account was closed on that date.

Promulgated:
Despite respondents insistence, the bank officers refused to encash the check and
October 15, 2007 tried to retrieve it from respondent. He then called his lawyer who advised him to deposit
GREGORIO C. ROXAS, the check in his (respondents) account at Citytrust, Ortigas Avenue. However, the check
Respondent. was dishonored on the ground Account Closed.

x--------------------------------------------------------------------------x
On September 23, 1993, respondent filed with the Regional Trial Court, Branch
SANDOVAL-GUTIERREZ, J.:
263, Pasig City a complaint for sum of money against petitioner, docketed as Civil Case
No. 63663. Respondent prayed that petitioner be ordered to pay the amount of the check,
For our resolution is the instant Petition for Review on Certiorari assailing the
damages and cost of the suit.
Decision[1] of the Court of Appeals (Fourth Division) dated February 13, 2003 in CA-
G.R. CV No. 67980.

In its answer, petitioner specifically denied the allegations in the complaint,

claiming that it issued the check by mistake in good faith; that its dishonor was due to
The facts of the case, as found by the trial court and affirmed by the Court of
lack of consideration; and that respondents remedy was to sue Rodrigo Cawili who
Appeals, are:
purchased the check. As a counterclaim, petitioner prayed that respondent be ordered to
pay attorneys fees and expenses of litigation.

Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he

delivered stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As payment
Petitioner filed a third-party complaint against spouses Cawili. They were later
therefor, spouses Cawili issued a personal check in the amount of P348,805.50. However,
declared in default for their failure to file their answer.
when respondent tried to encash the check, it was dishonored by the drawee
bank. Spouses Cawili then assured him that they would replace the bounced check with a
cashiers check from the Bank of the Philippine Islands (BPI), petitioner.
After trial, the RTC rendered a Decision, the dispositive portion of which reads:

AL Ilagan-Malipol AB, MD 27
BANKING LAWS - Assignment no. 4
WHEREFORE, in view of the foregoing premises, this Court hereby
renders judgment in favor of herein plaintiff and orders the defendant,
Bank of the Philippine Islands, to pay Gerardo C. Roxas:
1) The sum of P348,805.50, the face value of the cashiers
check, with legal interest thereon computed from April 1,
1993 until the amount is fully paid;
2) The sum of P50,000.00 for moral damages;
3) The sum of P50,000.00 as exemplary damages to serve as an
example for the public good;
4) The sum of P25,000.00 for and as attorneys fees; and the
5) Costs of suit.
As to the third-party complaint, third-party defendants
Spouses Rodrigo and Marissa Cawili are hereby ordered to indemnify
defendant Bank of the Philippine Islands such amount(s) adjudged and
actually paid by it to herein plaintiff Gregorio C. Roxas, including the
costs of suit.
SO ORDERED.
On appeal, the Court of Appeals, in its Decision, affirmed the trial courts
judgment.
Hence, this petition.
Petitioner ascribes to the Court of Appeals the following errors: (1) in finding
that respondent is a holder in due course; and (2) in holding that it (petitioner) is liable to
respondent for the amount of the cashiers check.
Section 52 of the Negotiable Instruments Law provides:
AL Ilagan-Malipol AB, MD
SEC. 52. What constitutes a holder in due course. A holder in
due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue and
without notice that it had been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of person
negotiating it.
As a general rule, under the above provision, every holder is presumed prima facie to be
a holder in due course. One who claims otherwise has the onus probandito prove that one
or more of the conditions required to constitute a holder in due course are lacking. In
this case, petitioner contends that the element of value is not present, therefore,
respondent could not be a holder in due course.
Petitioners contention lacks merit. Section 25 of the same law states:
SEC. 25. Value, what constitutes. Value is any consideration sufficient
to support a simple contract. An antecedent or pre-existing debt
constitutes value; and is deemed as such whether the instrument is
payable on demand or at a future time.
In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea
Surety & Insurance Co., Inc.,[2] this Court ruled that value in general terms may be some
right, interest, profit or benefit to the party who makes the contract or some forbearance,
detriment, loan, responsibility, etc. on the other side. Here, there is no dispute that
respondent received Rodrigo Cawilis cashiers check as payment for
the formers vegetable oil. The fact that it was Rodrigo who purchased the cashiers check
from petitioner will not affect respondents status as a holder for value since the check
28
BANKING LAWS - Assignment no. 4
was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily,
the Court of Appeals did not err in concluding that respondent is a holder in due course
of the cashiers check.

Furthermore, it bears emphasis that the disputed check is a cashiers

check. In International Corporate Bank v. Spouses Gueco,[3] this Court held that a
cashiers check is really the banks own check and may be treated as a promissory note
with the bank as the maker. The check becomes the primary obligation of the bank
which issues it and constitutes a written promise to pay upon demand. In New
Pacific Timber & Supply Co. Inc. v. Seeris,[4] this Court took judicial notice of the well-
known and accepted practice in the business sector that a cashiers check is deemed as
cash. This is because the mere issuance of a cashiers check is considered acceptance
thereof.

In view of the above pronouncements, petitioner bank became liable to

respondent from the moment it issued the cashiers check. Having been accepted by
respondent, subject to no condition whatsoever, petitioner should have paid the same
upon presentment by the former.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals
(Fourth Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs against petitioner.

SO ORDERED.

AL Ilagan-Malipol AB, MD 29
BANKING LAWS - Assignment no. 4

BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202 debited by petitioner BPI from her account. She likewise prayed for damages and

attorneys fees.
Petitioner, Present:

PUNO, C.J., Chairperson,

- versus - SANDOVAL-GUTIERREZ, Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
CORONA,
AZCUNA, and Templonuevo, third-party defendant and herein also a private respondent, demanded from
GARCIA, JJ. the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred

Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of

COURT OF APPEALS, ANNABELLE A. three (3) checks, which were allegedly payable to him, but which were deposited with the
SALAZAR, and JULIO R. TEMPLONUEVO, Promulgated:
Respondents. petitioner bank to private respondent Salazars account (Account No. 0203-1187-67)
January 25, 2007 without his knowledge and corresponding endorsement.
x---------------------------------------------------------------------------x

AZCUNA, J.: Accepting that Templonuevos claim was a valid one, petitioner BPI froze

This is a petition for review under Rule 45 of the Rules of Court seeking the Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services,

reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, instead of Account No. 0203-1187-67 where the checks were deposited, since this

1998, of the Court of Appeals in CA-G.R. CV No. 42241. account was already closed by private respondent Salazar or had an insufficient balance.

The facts[3] are as follows:

Private respondent Salazar was advised to settle the matter with Templonuevo but

they did not arrive at any settlement. As it appeared that private respondent Salazar was
A.A. Salazar Construction and Engineering Services filed an action for a sum of
not entitled to the funds represented by the checks which were deposited and accepted for
money with damages against herein petitioner Bank of the Philippine Islands (BPI) on
deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No.
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City.
0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a
The complaint was later amended by substituting the name of Annabelle A. Salazar as the
cashiers check. The difference between the value of the checks (P267,692.50) and the
real party in interest in place of A.A. Salazar Construction and Engineering Services.
amount actually debited from her account (P267,707.70) represented bank charges in
Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-
connection with the issuance of a cashiers check to Templonuevo.
Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70)
AL Ilagan-Malipol AB, MD 30
BANKING LAWS - Assignment no. 4
The counterclaim is hereby ordered DISMISSED for lack of
factual basis.
In the answer to the third-party complaint, private respondent Templonuevo
The third-party complaint [filed by petitioner] is hereby likewise
admitted the payment to him of P267,692.50 and argued that said payment was to correct ordered DISMISSED for lack of merit.

the malicious deposit made by private respondent Salazar to her private account, and that Third-party defendants [i.e., private respondent Templonuevos]
counterclaim is hereby likewise DISMISSED for lack of factual basis.
petitioner banks negligence and tolerance regarding the matter was violative of the

primary and ordinary rules of banking. He likewise contended that the debiting or taking SO ORDERED.[4]

of the reimbursed amount from the account of private respondent Salazar by petitioner On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held

BPI was a matter exclusively between said parties and may be pursuant to banking rules that respondent Salazar was entitled to the proceeds of the three (3) checks

and regulations, but did not in any way affect him. The debiting from another account of notwithstanding the lack of endorsement thereon by the payee. The CA concluded that

private respondent Salazar, considering that her other account was effectively closed, was Salazar and Templonuevo had previously agreed that the checks payable to JRT

not his concern. Construction and Trading[5] actually belonged to Salazar and would be deposited to her

account, with petitioner acquiescing to the arrangement.[6]

After trial, the RTC rendered a decision, the dispositive portion of which reads Petitioner therefore filed this petition on these grounds:

thus:
WHEREFORE, premises considered, judgment is hereby I.
rendered in favor of the plaintiff [private respondent Salazar] and against The Court of Appeals committed reversible error in misinterpreting
the defendant [petitioner BPI] and ordering the latter to pay as follows: Section 49 of the Negotiable Instruments Law and Section 3 (r and s)
of Rule 131 of the New Rules on Evidence.
1. The amount of P267,707.70 with 12% interest
thereon from September 16, 1991 until the said II.
amount is fully paid; The Court of Appeals committed reversible error in NOT applying the
2. The amount of P30,000.00 as and for actual provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of
damages; BPI.
3. The amount of P50,000.00 as and for moral
damages; III.
4. The amount of P50,000.00 as and for exemplary The Court of Appeals committed a reversible error in holding, based on
damages; a misapprehension of facts, that the account from which BPI debited
5. The amount of P30,000.00 as and for attorneys the amount of P267,707.70 belonged to a corporation with a separate
fees; and and distinct personality.
6. Costs of suit.
IV.

AL Ilagan-Malipol AB, MD 31
BANKING LAWS - Assignment no. 4
The Court of Appeals committed a reversible error in holding, based
entirely on speculations, surmises or conjectures, that there was an should not have presumed that Salazar was a transferee for value within
agreement between SALAZAR and TEMPLONUEVO that checks
the contemplation of Section 49 of the Negotiable Instruments Law,
payable to TEMPLONUEVO may be deposited by SALAZAR to her
personal account and that BPI was privy to this agreement. [8]
as the latter applies only to a holder defined under Section 191of the
V.
The Court of Appeals committed reversible error in holding, based same.[9]
entirely on speculation, surmises or conjectures, that SALAZAR
suffered great damage and prejudice and that her business standing was
eroded. 2. Salazar failed to adduce sufficient evidence to prove that her
VI. possession of the three checks was lawful despite her allegations that
The Court of Appeals erred in affirming instead of reversing the
decision of the lower court against BPI and dismissing SALAZARs these checks were deposited pursuant to a prior internal arrangement
complaint.
with Templonuevo and that petitioner was privy to the arrangement.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.[7] 3. The CA should have applied the Civil Code provisions on legal

compensation because in deducting the subject amount from Salazars

The issues center on the propriety of the deductions made by account, petitioner was merely rectifying the undue payment it made

petitioner from private respondent Salazars account. Stated otherwise, does a upon the checks and exercising its prerogative to alter or modify an

collecting bank, over the objections of its depositor, have the authority to erroneous credit entry in the regular course of its business.

withdraw unilaterally from such depositors account the amount it had

previously paid upon certain unendorsed order instruments deposited by the 4. The debit of the amount from the account of A.A. Salazar

depositor to another account that she later closed? Construction and Engineering Services was proper even though the

value of the checks had been originally credited to the personal account

Petitioner argues thus: of Salazar because A.A. Salazar Construction and Engineering Services,

an unincorporated single proprietorship, had no separate and distinct

1. There is no presumption in law that a check payable to order, when personality from Salazar.
found in the possession of a person who is neither a payee nor the

indorsee thereof, has been lawfully transferred for value. Hence, the CA

AL Ilagan-Malipol AB, MD 32
BANKING LAWS - Assignment no. 4
(3) Equitable Banking Corporation Check No. 32380638
5. Assuming the deduction from Salazars account was improper, the dated August 28, 1990 for the amount of P154,800.00;
CA should not have dismissed petitioners third-party complaint against

Templonuevo because the latter would have the legal duty to return to
(b) That these checks which had an aggregate amount of P267,692.50
petitioner the proceeds of the checks which he previously received from
were payable to the order of JRT Construction and Trading, the name and style under
it.
which Templonuevo does business;

6. There was no factual basis for the award of damages to Salazar. (c) That despite the lack of endorsement of the designated payee upon

such checks, Salazar was able to deposit the checks in her personal savings account with
The petition is partly meritorious.
petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate
First, the issue raised by petitioner requires an inquiry into the factual findings
occasions over a span of eight months in 1990; and
made by the CA. The CAs conclusion that the deductions from the bank account of A.A.
(e) That Templonuevo only protested the purportedly unauthorized
Salazar Construction and Engineering Services were improper stemmed from its finding
encashment of the checks after the lapse of one year from the date of the last check.[10]
that there was no ineffective payment to Salazar which would call for the exercise of

petitioners right to set off against the formers bank deposits. This finding, in turn, was
Petitioner concedes that when it credited the value of the checks to the account
drawn from the pleadings of the parties, the evidence adduced during trial and upon the
of private respondent Salazar, it made a mistake because it failed to notice the lack of
admissions and stipulations of fact made during the pre-trial, most significantly the
endorsement thereon by the designated payee. The CA, however, did not lend credence
following:
to this claim and concluded that petitioners actions were deliberate, in view of its

(a) That Salazar previously had in her possession the following checks: admission that the mistake was committed three times on three separate occasions,

indicating acquiescence to the internal arrangement between Salazar and Templonuevo.

(1) Solid Bank Check No. CB766556 dated January 30, The CA explained thus:
1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in It was quite apparent that the three checks which appellee
the amount of P55,180.00; and, Salazar deposited were not indorsed. Three times she deposited them to
her account and three times the amounts borne by these checks were
AL Ilagan-Malipol AB, MD 33
BANKING LAWS - Assignment no. 4
credited to the same. And in those separate occasions, the bank did not
return the checks to her so that she could have them indorsed. Neither value or weight, or rejected as feeble or spurious, or whether or not the proofs on one
did the bank question her as to why she was depositing the checks to her
side or the other are clear and convincing and adequate to establish a proposition in issue,
account considering that she was not the payee thereof, thus allowing us
to come to the conclusion that defendant-appellant BPI was fully aware are questions of fact. The same holds true for questions on whether or not the body of
that the proceeds of the three checks belong to appellee.
proofs presented by a party, weighed and analyzed in relation to contrary evidence
For if the bank was not privy to the agreement between Salazar
and Templonuevo, it is most unlikely that appellant BPI (or any bank for submitted by the adverse party may be said to be strong, clear and convincing, or
that matter) would have accepted the checks for deposit on three whether or not inconsistencies in the body of proofs of a party are of such gravity as to
separate times nary any question. Banks are most finicky over accepting
checks for deposit without the corresponding indorsement by their justify refusing to give said proofs weight all these are issues of fact which are not
payee. In fact, they hesitate to accept indorsed checks for deposit if the
depositor is not one they know very well.[11] reviewable by the Court.[15]

This rule, however, is not absolute and admits of certain exceptions, namely: a)
The CA likewise sustained Salazars position that she received the checks from
when the conclusion is a finding grounded entirely on speculations, surmises, or
Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows:
conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c)
If there was indeed no arrangement between Templonuevo and
the plaintiff over the three questioned checks, it baffles us why it was when there is a grave abuse of discretion; d) when the judgment is based on a
only on August 31, 1991 or more than a year after the third and last
check was deposited that he demanded for the refund of the total amount misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in
of P267,692.50.
making its findings, went beyond the issues of the case and the same are contrary to the
A prudent man knowing that payment is due him would have admissions of both appellant and appellee; g) when the findings of the CA are contrary to
demanded payment by his debtor from the moment the same became due
and demandable. More so if the sum involved runs in hundreds of those of the trial court; h) when the findings of fact are conclusions without citation of
thousand of pesos. By and large, every person, at the very moment he
learns that he was deprived of a thing which rightfully belongs to him, specific evidence on which they are based; i) when the finding of fact of the CA is
would have created a big fuss. He would not have waited for a year
premised on the supposed absence of evidence but is contradicted by the evidence on
within which to do so. It is most inconceivable that Templonuevo did not
do this.[12] record; and j) when the CA manifestly overlooked certain relevant facts not disputed by

the parties and which, if properly considered, would justify a different conclusion. [16]
Generally, only questions of law may be raised in an appeal by certiorari under

Rule 45 of the Rules of Court. [13] Factual findings of the CA are entitled to great weight
In the present case, the records do not support the finding made by the CA and
and respect, especially when the CA affirms the factual findings of the trial court.
the trial court that a prior arrangement existed between Salazar and Templonuevo
[14]
Such questions on whether certain items of evidence should be accorded probative
AL Ilagan-Malipol AB, MD 34
BANKING LAWS - Assignment no. 4
regarding the transfer of ownership of the checks. This fact is crucial as Salazars
entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby
the payee or indorsee delivers a negotiable instrument for value without indorsing it,
thus:
Transfer without indorsement; effect of- Where the holder of an
instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made. [17]
It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available among prior
parties. Thus, if the transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and also the right, as holder
of the legal title, to maintain legal action against the maker or acceptor or other party
liable to the transferor. The underlying premise of this provision, however, is that a valid
transfer of ownership of the negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor
of holders since they are neither payees nor indorsees of such instruments. The weight of
authority is that the mere possession of a negotiable instrument does not in itself
AL Ilagan-Malipol AB, MD
conclusively establish either the right of the possessor to receive payment, or of the right
of one who has made payment to be discharged from liability. Thus, something more
than mere possession by persons who are not payees or indorsers of the instrument is
necessary to authorize payment to them in the absence of any other facts from which the
authority to receive payment may be inferred.[18]
The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-
year delay in demanding reimbursement for the proceeds of the same. To the Courts
mind, however, such period of delay is not of such unreasonable length as to estop
Templonuevo from asserting ownership over the checks especially considering that it
was readily apparent on the face of the instruments[19] that these were crossed checks.
In State Investment House v. IAC,[20] the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only deposited in the
bank; (2) that the check may be negotiated only once - to one who has an account with a
bank; and (3) that the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that such holder must inquire if the check
has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction
with Salazars possession of the checks, it cannot be said that the presumption of
ownership in Templonuevos favor as the designated payee therein was sufficiently
overcome. This is consistent with the principle that if instruments payable to named
35
BANKING LAWS - Assignment no. 4
payees or to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own right. [21]
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the
benefit of Salazar because the term given does not pertain merely to a transfer of physical
possession of the instrument. The phrase given or indorsed in the context of a negotiable
instrument refers to the manner in which such instrument may be negotiated. Negotiable
instruments are negotiated by transfer to one person or another in such a manner as to
constitute the transferee the holder thereof. If payable to bearer it is negotiated by
delivery. If payable to order it is negotiated by the indorsement completed by delivery.
[22]
The present case involves checks payable to order. Not being a payee or indorsee of
the checks, private respondent Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to
transfer the instrument without indorsement. Precisely because the situation is abnormal,
it is but fair to the maker and to prior holders to require possessors to prove without the
aid of an initial presumption in their favor, that they came into possession by virtue of a
legitimate transaction with the last holder.[23] Salazar failed to discharge this burden, and
the return of the check proceeds to Templonuevo was therefore warranted under the
circumstances despite the fact that Templonuevo may not have clearly demonstrated that
he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also
is the fact that petitioner stamped on the back of the checks the words: "All prior
endorsements and/or lack of endorsements guaranteed," thereby making the assurance
AL Ilagan-Malipol AB, MD
that it had ascertained the genuineness of all prior endorsements. Having assumed the
liability of a general indorser, petitioners liability to the designated payee cannot be
denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars
account for the value of the checks it previously credited in her favor. It is of no moment
that the account debited by petitioner was different from the original account to which
the proceeds of the check were credited because both admittedly belonged to Salazar, the
former being the account of the sole proprietorship which had no separate and distinct
personality from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:[24]
A bank generally has a right of set-off over the deposits therein
for the payment of any withdrawals on the part of a depositor. The right
of a collecting bank to debit a client's account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the Civil
Code provides that "[f]ixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan.
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation under
Article 1278 of the Civil Code may take place "when all the requisites
mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
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BANKING LAWS - Assignment no. 4
(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.
While, however, it is conceded that petitioner had the right of set-off over the
amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it
acted judiciously is an entirely different matter.[25] As businesses affected with public
interest, and because of the nature of their functions, banks are under obligation to treat
the accounts of their depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.[26] In this regard, petitioner was clearly remiss in its
duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of
these checks three times on three separate occasions. This negates petitioners claim that
it merely made a mistake in crediting the value of the checks to Salazars account and
instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of
ownership of checks and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct. [27] The taking and collection of a check
without the proper indorsement amount to a conversion of the check by the bank.[28]
AL Ilagan-Malipol AB, MD
More importantly, however, solely upon the prompting of Templonuevo, and
with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner
debited the account held in the name of the sole proprietorship of Salazar without even
serving due notice upon her. This ran contrary to petitioners assurances to private
respondent Salazar that the account would remain untouched, pending the resolution of
the controversy between her and Templonuevo. [29] In this connection, the CA cited the
letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks
Pasig/Ortigas branch, to private respondent Salazar informing her that her account had
been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to
conclude that Account No. 0201-0588-48 will remain frozen or
untouched until herein [Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two weeks (eleven days to be
precise) from the time that letter was written, [petitioner] bank issued a
cashiers check in the name of Julio R. Templonuevo of the J.R.T.
Construction and Trading for the sum of P267,692.50 (Exhibit 8) and
debited said amount from Ms. Arcillas account No. 0201-0588-48 which
was supposed to be frozen or controlled. Such a move by BPI is, to Our
minds, a clear case of negligence, if not a fraudulent, wanton and
reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several
checks drawn against the account of A.A. Salazar Construction and Engineering Services
prior to any notice of deduction being served. The CA sustained private respondent
Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn against
the said account. As can be expected, the said checks bounced. To prove
37
BANKING LAWS - Assignment no. 4
this, plaintiff-appellee presented as exhibits photocopies of checks
dated September 8, 1991, October 28, 1991, and November 14, WHEREFORE, the petition is partially GRANTED. The assailed Decision
1991 (Exhibits D, E and F respectively)[30] dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals

These checks, it must be emphasized, were subsequently dishonored, thereby
causing private respondent Salazar undue embarrassment and inflicting damage to her
standing in the business community. Under the circumstances, she was clearly not given
the opportunity to protect her interest when petitioner unilaterally withdrew the above
amount from her account without informing her that it had already done so.
in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the
Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven
Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar,
which portion is REVERSED and SET ASIDE. In all other respects, the same
are AFFIRMED.

No costs.
For the above reasons, the Court finds no reason to disturb the award of damages

granted by the CA against petitioner. This whole incident would have been avoided had SO ORDERED.
petitioner adhered to the standard of diligence expected of one engaged in the banking

business. A depositor has the right to recover reasonable moral damages even if the

banks negligence may not have been attended with malice and bad faith, if the former

suffered mental anguish, serious anxiety, embarrassment and humiliation. [31] Moral

damages are not meant to enrich a complainant at the expense of defendant. It is only

intended to alleviate the moral suffering she has undergone. The award of exemplary

damages is justified, on the other hand, when the acts of the bank are attended by malice,

bad faith or gross negligence. The award of reasonable attorneys fees is proper where

exemplary damages are awarded. It is proper where depositors are compelled to litigate

to protect their interest.[32]

AL Ilagan-Malipol AB, MD 38