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SIMEX INTERNATIONAL v CA 6. Check No.

215477 dated June 9, 1981, in favor of Sea-Land


CRUZ, J.: Services, Inc. in the amount of P27,024.45:

We are concerned in this case with the question of damages, 7. Check No. 215412 dated June 10, 1981, in favor of Baguio
specifically moral and exemplary damages. The negligence of the Country Club Corporation in the amount of P4,385.02: and
private respondent has already been established. All we have to
ascertain is whether the petitioner is entitled to the said damages 8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta
and, if so, in what amounts. Bayla in the amount of P6,275.00. 2

The parties agree on the basic facts. The petitioner is a private As a consequence, the California Manufacturing Corporation sent on
corporation engaged in the exportation of food products. It buys June 9, 1981, a letter of demand to the petitioner, threatening
these products from various local suppliers and then sells them prosecution if the dishonored check issued to it was not made good.
abroad, particularly in the United States, Canada and the Middle It also withheld delivery of the order made by the petitioner. Similar
East. Most of its exports are purchased by the petitioner on credit. letters were sent to the petitioner by the Malabon Long Life Trading,
on June 15, 1981, and by the G. and U. Enterprises, on June 10,
The petitioner was a depositor of the respondent bank and 1981. Malabon also canceled the petitioner's credit line and
maintained a checking account in its branch at Romulo Avenue, demanded that future payments be made by it in cash or certified
Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its check. Meantime, action on the pending orders of the petitioner with
account in the said bank the amount of P100,000.00, thus increasing the other suppliers whose checks were dishonored was also
its balance as of that date to P190,380.74. 1 Subsequently, the deferred.
petitioner issued several checks against its deposit but was suprised
to learn later that they had been dishonored for insufficient funds. The petitioner complained to the respondent bank on June 10, 1981.
3 Investigation disclosed that the sum of P100,000.00 deposited by
The dishonored checks are the following: the petitioner on May 25, 1981, had not been credited to it. The error
was rectified on June 17, 1981, and the dishonored checks were
1. Check No. 215391 dated May 29, 1981, in favor of California paid after they were re-deposited. 4
Manufacturing Company, Inc. for P16,480.00:
In its letter dated June 20, 1981, the petitioner demanded reparation
2. Check No. 215426 dated May 28, 1981, in favor of the from the respondent bank for its "gross and wanton negligence." This
Bureau of Internal Revenue in the amount of P3,386.73: demand was not met. The petitioner then filed a complaint in the then
Court of First Instance of Rizal claiming from the private respondent
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg moral damages in the sum of P1,000,000.00 and exemplary
Pedreño in the amount of P7,080.00; damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00: After trial, Judge Johnico G. Serquinia rendered judgment holding
that moral and exemplary damages were not called for under the
5. Check No. 215474 dated June 10, 1981, in favor of Malabon circumstances. However, observing that the plaintiff's right had been
Longlife Trading Corporation in the amount of P12,953.00: violated, he ordered the defendant to pay nominal damages in the

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amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 We also note that while stressing the rectification made by the
This decision was affirmed in toto by the respondent court. 6 respondent bank, the decision practically ignored the prejudice
suffered by the petitioner. This was simply glossed over if not,
The respondent court found with the trial court that the private indeed, disbelieved. The fact is that the petitioner's credit line was
respondent was guilty of negligence but agreed that the petitioner canceled and its orders were not acted upon pending receipt of
was nevertheless not entitled to moral damages. It said: actual payment by the suppliers. Its business declined. Its reputation
was tarnished. Its standing was reduced in the business community.
The essential ingredient of moral damages is proof of bad faith (De All this was due to the fault of the respondent bank which was
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the undeniably remiss in its duty to the petitioner.
omission by the defendant-appellee bank to credit appellant's deposit
of P100,000.00 on May 25, 1981. But the bank rectified its records. It Article 2205 of the Civil Code provides that actual or compensatory
credited the said amount in favor of plaintiff-appellant in less than a damages may be received "(2) for injury to the plaintiff s business
month. The dishonored checks were eventually paid. These standing or commercial credit." There is no question that the
circumstances negate any imputation or insinuation of malicious, petitioner did sustain actual injury as a result of the dishonored
fraudulent, wanton and gross bad faith and negligence on the part of checks and that the existence of the loss having been established
the defendant-appellant. "absolute certainty as to its amount is not required." 7 Such injury
should bolster all the more the demand of the petitioner for moral
It is this ruling that is faulted in the petition now before us. damages and justifies the examination by this Court of the validity
and reasonableness of the said claim.
This Court has carefully examined the facts of this case and finds
that it cannot share some of the conclusions of the lower courts. It We agree that moral damages are not awarded to penalize the
seems to us that the negligence of the private respondent had been defendant but to compensate the plaintiff for the injuries he may
brushed off rather lightly as if it were a minor infraction requiring no have suffered. 8 In the case at bar, the petitioner is seeking such
more than a slap on the wrist. We feel it is not enough to say that the damages for the prejudice sustained by it as a result of the private
private respondent rectified its records and credited the deposit in respondent's fault. The respondent court said that the claimed losses
less than a month as if this were sufficient repentance. The error are purely speculative and are not supported by substantial
should not have been committed in the first place. The respondent evidence, but if failed to consider that the amount of such losses
bank has not even explained why it was committed at all. It is true need not be established with exactitude precisely because of their
that the dishonored checks were, as the Court of Appeals put it, nature. Moral damages are not susceptible of pecuniary estimation.
"eventually" paid. However, this took almost a month when, properly, Article 2216 of the Civil Code specifically provides that "no proof of
the checks should have been paid immediately upon presentment. pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why
As the Court sees it, the initial carelessness of the respondent bank, the determination of the amount to be awarded (except liquidated
aggravated by the lack of promptitude in repairing its error, justifies damages) is left to the sound discretion of the court, according to
the grant of moral damages. This rather lackadaisical attitude toward "the circumstances of each case."
the complaining depositor constituted the gross negligence, if not
wanton bad faith, that the respondent court said had not been From every viewpoint except that of the petitioner's, its claim of moral
established by the petitioner. damages in the amount of P1,000,000.00 is nothing short of
preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a

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corporation is not as a rule entitled to moral damages because, not Art. 2232. In contracts and quasi-contracts, the court may
being a natural person, it cannot experience physical suffering or award exemplary damages if the defendant acted in a wanton,
such sentiments as wounded feelings, serious anxiety, mental fraudulent, reckless, oppressive, or malevolent manner.
anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its The banking system is an indispensable institution in the modern
social humiliation. 9 world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
We shall recognize that the petitioner did suffer injury because of the saving of money or as active instruments of business and commerce,
private respondent's negligence that caused the dishonor of the banks have become an ubiquitous presence among the people, who
checks issued by it. The immediate consequence was that its have come to regard them with respect and even gratitude and, most
prestige was impaired because of the bouncing checks and of all, confidence. Thus, even the humble wage-earner has not
confidence in it as a reliable debtor was diminished. The private hesitated to entrust his life's savings to the bank of his choice,
respondent makes much of the one instance when the petitioner was knowing that they will be safe in its custody and will even earn some
sued in a collection case, but that did not prove that it did not have a interest for him. The ordinary person, with equal faith, usually
good reputation that could not be marred, more so since that case maintains a modest checking account for security and convenience
was ultimately settled. 10 It does not appear that, as the private in the settling of his monthly bills and the payment of ordinary
respondent would portray it, the petitioner is an unsavory and expenses. As for business entities like the petitioner, the bank is a
disreputable entity that has no good name to protect. trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in
Considering all this, we feel that the award of nominal damages in the conduct of their day-to-day transactions like the issuance or
the sum of P20,000.00 was not the proper relief to which the encashment of checks.
petitioner was entitled. Under Article 2221 of the Civil Code, "nominal
damages are adjudicated in order that a right of the plaintiff, which In every case, the depositor expects the bank to treat his account
has been violated or invaded by the defendant, may be vindicated or with the utmost fidelity, whether such account consists only of a few
recognized, and not for the purpose of indemnifying the plaintiff for hundred pesos or of millions. The bank must record every single
any loss suffered by him." As we have found that the petitioner has transaction accurately, down to the last centavo, and as promptly as
indeed incurred loss through the fault of the private respondent, the possible. This has to be done if the account is to reflect at any given
proper remedy is the award to it of moral damages, which we time the amount of money the depositor can dispose of as he sees
impose, in our discretion, in the same amount of P20,000.00. fit, confident that the bank will deliver it as and to whomever he
directs. A blunder on the part of the bank, such as the dishonor of a
Now for the exemplary damages. check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and
The pertinent provisions of the Civil Code are the following: criminal litigation.

Art. 2229. Exemplary or corrective damages are imposed, by The point is that as a business affected with public interest and
way of example or correction for the public good, in addition to the because of the nature of its functions, the bank is under obligation to
moral, temperate, liquidated or compensatory damages. treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. In the case at
bar, it is obvious that the respondent bank was remiss in that duty
and violated that relationship. What is especially deplorable is that,

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having been informed of its error in not crediting the deposit in but modified the decision by deleting the award of exemplary
question to the petitioner, the respondent bank did not immediately damages, attorneys fees, expenses of litigation and cost of suit.
correct it but did so only one week later or twenty-three days after the
deposit was made. It bears repeating that the record does not The Facts
contain any satisfactory explanation of why the error was made in the
first place and why it was not corrected immediately after its Solidbank is a domestic banking corporation organized and existing
discovery. Such ineptness comes under the concept of the wanton under Philippine laws. Private respondent L.C. Diaz and Company,
manner contemplated in the Civil Code that calls for the imposition of CPAs (L.C. Diaz), is a professional partnership engaged in the
exemplary damages. practice of accounting.

After deliberating on this particular matter, the Court, in the exercise Sometime in March 1976, L.C. Diaz opened a savings account with
of its discretion, hereby imposes upon the respondent bank Solidbank, designated as Savings Account No. S/A 200-16872-6.
exemplary damages in the amount of P50,000.00, "by way of
example or correction for the public good," in the words of the law. It On 14 August 1991, L.C. Diaz through its cashier, Mercedes
is expected that this ruling will serve as a warning and deterrent Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990
against the repetition of the ineptness and indefference that has and a savings (checks) deposit slip for P50. Macaraya instructed the
been displayed here, lest the confidence of the public in the banking messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the
system be further impaired. money with Solidbank. Macaraya also gave Calapre the Solidbank
ACCORDINGLY, the appealed judgment is hereby MODIFIED and passbook.
the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00, and Calapre went to Solidbank and presented to Teller No. 6 the two
exemplary damages in the amount of P50,000.00 plus the original deposit slips and the passbook. The teller acknowledged receipt of
award of attorney's fees in the amount of P5,000.00, and costs. the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words
SO ORDERED. DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE.
Since the transaction took time and Calapre had to make another
CONSOLIDATED BANK AND TRUST CORPORATION v CA deposit for L.C. Diaz with Allied Bank, he left the passbook with
Solidbank. Calapre then went to Allied Bank. When Calapre returned
CARPIO, J.: to Solidbank to retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook.[3] Calapre went back to L.C. Diaz and
The Case reported the incident to Macaraya.

Before us is a petition for review of the Decision[1] of the Court of Macaraya immediately prepared a deposit slip in duplicate copies
Appeals dated 27 October 1998 and its Resolution dated 11 May with a check of P200,000. Macaraya, together with Calapre, went to
1999. The assailed decision reversed the Decision[2] of the Regional Solidbank and presented to Teller No. 6 the deposit slip and check.
Trial Court of Manila, Branch 8, absolving petitioner Consolidated The teller stamped the words DUPLICATE and SAVING TELLER 6
Bank and Trust Corporation, now known as Solidbank Corporation SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit
(Solidbank), of any liability. The questioned resolution of the slip. When Macaraya asked for the passbook, Teller No. 6 told
appellate court denied the motion for reconsideration of Solidbank Macaraya that someone got the passbook but she could not
remember to whom she gave the passbook. When Macaraya asked

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Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October
someone shorter than Calapre got the passbook. Calapre was then 1998, the Court of Appeals issued its Decision reversing the decision
standing beside Macaraya. of the trial court.

Teller No. 6 handed to Macaraya a deposit slip dated 14 August On 11 May 1999, the Court of Appeals issued its Resolution denying
1991 for the deposit of a check for P90,000 drawn on Philippine the motion for reconsideration of Solidbank. The appellate court,
Banking Corporation (PBC). This PBC check of L.C. Diaz was a however, modified its decision by deleting the award of exemplary
check that it had long closed.[4] PBC subsequently dishonored the damages and attorneys fees.
check because of insufficient funds and because the signature in the
check differed from PBCs specimen signature. Failing to get back the The Ruling of the Trial Court
passbook, Macaraya went back to her office and reported the matter
to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez. In absolving Solidbank, the trial court applied the rules on savings
account written on the passbook. The rules state that possession of
The following day, 15 August 1991, L.C. Diaz through its Chief this book shall raise the presumption of ownership and any payment
Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop or payments made by the bank upon the production of the said book
any transaction using the same passbook until L.C. Diaz could open and entry therein of the withdrawal shall have the same effect as if
a new account.[5] On the same day, Diaz formally wrote Solidbank to made to the depositor personally.[9]
make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August At the time of the withdrawal, a certain Noel Tamayo was not only in
1991, of P300,000 from its savings account. The withdrawal slip for possession of the passbook, he also presented a withdrawal slip with
the P300,000 bore the signatures of the authorized signatories of the signatures of the authorized signatories of L.C. Diaz. The
L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, specimen signatures of these persons were in the signature cards.
however, denied signing the withdrawal slip. A certain Noel Tamayo The teller stamped the withdrawal slip with the words Saving Teller
received the P300,000. No. 5. The teller then passed on the withdrawal slip to Genere
Manuel (Manuel) for authentication. Manuel verified the signatures
In an Information[6] dated 5 September 1991, L.C. Diaz charged its on the withdrawal slip. The withdrawal slip was then given to another
messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with officer who compared the signatures on the withdrawal slip with the
Estafa through Falsification of Commercial Document. The Regional specimen on the signature cards. The trial court concluded that
Trial Court of Manila dismissed the criminal case after the City Solidbank acted with care and observed the rules on savings
Prosecutor filed a Motion to Dismiss on 4 August 1992. account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused. The trial court pointed out that the burden of proof now shifted to L.C.
Diaz to prove that the signatures on the withdrawal slip were forged.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a The trial court admonished L.C. Diaz for not offering in evidence the
Sum of Money against Solidbank with the Regional Trial Court of National Bureau of Investigation (NBI) report on the authenticity of
Manila, Branch 8. After trial, the trial court rendered on 28 December the signatures on the withdrawal slip for P300,000. The trial court
1994 a decision absolving Solidbank and dismissing the complaint. believed that L.C. Diaz did not offer this evidence because it is
derogatory to its action.

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Another provision of the rules on savings account states that the The dispositive portion of the decision of the trial court reads:
depositor must keep the passbook under lock and key.[10] When
another person presents the passbook for withdrawal prior to IN VIEW OF THE FOREGOING, judgment is hereby rendered
Solidbanks receipt of the notice of loss of the passbook, that person DISMISSING the complaint.
is considered as the owner of the passbook. The trial court ruled that
the passbook presented during the questioned transaction was now The Court further renders judgment in favor of defendant bank
out of the lock and key and presumptively ready for a business pursuant to its counterclaim the amount of Thirty Thousand Pesos
transaction.[11] (P30,000.00) as attorneys fees.

Solidbank did not have any participation in the custody and care of With costs against plaintiff.
the passbook. The trial court believed that Solidbanks act of allowing
the withdrawal of P300,000 was not the direct and proximate cause SO ORDERED.[12]
of the loss. The trial court held that L.C. Diazs negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diazs The Ruling of the Court of Appeals
negligence: (1) the possession of the passbook by a person other
than the depositor L.C. Diaz; (2) the presentation of a signed The Court of Appeals ruled that Solidbanks negligence was the
withdrawal receipt by an unauthorized person; and (3) the proximate cause of the unauthorized withdrawal of P300,000 from
possession by an unauthorized person of a PBC check long closed the savings account of L.C. Diaz. The appellate court reached this
by L.C. Diaz, which check was deposited on the day of the fraudulent conclusion after applying the provision of the Civil Code on quasi-
withdrawal. delict, to wit:

The trial court debunked L.C. Diazs contention that Solidbank did not Article 2176. Whoever by act or omission causes damage to another,
follow the precautionary procedures observed by the two parties there being fault or negligence, is obliged to pay for the damage
whenever L.C. Diaz withdrew significant amounts from its account. done. Such fault or negligence, if there is no pre-existing contractual
L.C. Diaz claimed that a letter must accompany withdrawals of more relation between the parties, is called a quasi-delict and is governed
than P20,000. The letter must request Solidbank to allow the by the provisions of this chapter.
withdrawal and convert the amount to a managers check. The bearer
must also have a letter authorizing him to withdraw the same The appellate court held that the three elements of a quasi-delict are
amount. Another person driving a car must accompany the bearer so present in this case, namely: (a) damages suffered by the plaintiff;
that he would not walk from Solidbank to the office in making the (b) fault or negligence of the defendant, or some other person for
withdrawal. The trial court pointed out that L.C. Diaz disregarded whose acts he must respond; and (c) the connection of cause and
these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz effect between the fault or negligence of the defendant and the
withdrew P82,554 without any separate letter of authorization or any damage incurred by the plaintiff.
communication with Solidbank that the money be converted into a
managers check. The Court of Appeals pointed out that the teller of Solidbank who
received the withdrawal slip for P300,000 allowed the withdrawal
The trial court further justified the dismissal of the complaint by without making the necessary inquiry. The appellate court stated that
holding that the case was a last ditch effort of L.C. Diaz to recover the teller, who was not presented by Solidbank during trial, should
P300,000 after the dismissal of the criminal case against Ilagan. have called up the depositor because the money to be withdrawn
was a significant amount. Had the teller called up L.C. Diaz,

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Solidbank would have known that the withdrawal was unauthorized. appellate court deleted the award of exemplary damages and
The teller did not even verify the identity of the impostor who made attorneys fees. Invoking Article 2231[14] of the Civil Code, the
the withdrawal. Thus, the appellate court found Solidbank liable for appellate court ruled that exemplary damages could be granted if the
its negligence in the selection and supervision of its employees. defendant acted with gross negligence. Since Solidbank was guilty of
simple negligence only, the award of exemplary damages was not
The appellate court ruled that while L.C. Diaz was also negligent in justified. Consequently, the award of attorneys fees was also
entrusting its deposits to its messenger and its messenger in leaving disallowed pursuant to Article 2208 of the Civil Code. The expenses
the passbook with the teller, Solidbank could not escape liability of litigation and cost of suit were also not imposed on Solidbank.
because of the doctrine of last clear chance. Solidbank could have
averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to The dispositive portion of the Resolution reads as follows:
verify the withdrawal.
WHEREFORE, foregoing considered, our decision dated October 27,
The appellate court ruled that the degree of diligence required from 1998 is affirmed with modification by deleting the award of exemplary
Solidbank is more than that of a good father of a family. The damages and attorneys fees, expenses of litigation and cost of suit.
business and functions of banks are affected with public interest.
Banks are obligated to treat the accounts of their depositors with SO ORDERED.[15]
meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank Hence, this petition.
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The Issues
The dispositive portion of the decision of the Court of Appeals reads:
Solidbank seeks the review of the decision and resolution of the
WHEREFORE, premises considered, the decision appealed from is Court of Appeals on these grounds:
hereby REVERSED and a new one entered.
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
1. Ordering defendant-appellee Consolidated Bank and Trust PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS
Corporation to pay plaintiff-appellant the sum of Three Hundred TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT
Thousand Pesos (P300,000.00), with interest thereon at the rate of BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF
12% per annum from the date of filing of the complaint until paid, the P300,000.00 TO RESPONDENTS MESSENGER EMERANO
sum of P20,000.00 as exemplary damages, and P20,000.00 as ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
attorneys fees and expenses of litigation as well as the cost of suit; PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT,
and NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A
BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
2. Ordering the dismissal of defendant-appellees counterclaim in the BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
amount of P30,000.00 as attorneys fees. SAVINGS ACCOUNT.

SO ORDERED.[13] II. THE COURT OF APPEALS ERRED IN APPLYING THE


DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT
Acting on the motion for reconsideration of Solidbank, the appellate PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO
court affirmed its decision but modified the award of damages. The WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT

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THE TWO SIGNATURES OF RESPONDENT ON THE The contract between the bank and its depositor is governed by the
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE provisions of the Civil Code on simple loan.[17] Article 1980 of the
RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND Civil Code expressly provides that x x x savings x x x deposits of
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE money in banks and similar institutions shall be governed by the
SELECTION AND SUPERVISION OF ITS MESSENGER provisions concerning simple loan. There is a debtor-creditor
EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS relationship between the bank and its depositor. The bank is the
AND OTHER FINANCIAL DOCUMENTS. debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT savings deposit agreement between the bank and the depositor is
THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE the contract that determines the rights and obligations of the parties.
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE The law imposes on banks high standards in view of the fiduciary
EMERANO ILAGAN. nature of banking. Section 2 of Republic Act No. 8791 (RA 8791),[18]
which took effect on 13 June 2000, declares that the State
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE recognizes the fiduciary nature of banking that requires high
DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE standards of integrity and performance.[19] This new provision in the
2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING general banking law, introduced in 2000, is a statutory affirmation of
THAT PETITIONER BANKS NEGLIGENCE WAS ONLY Supreme Court decisions, starting with the 1990 case of Simex
CONTRIBUTORY.[16] International v. Court of Appeals,[20] holding that the bank is under
obligation to treat the accounts of its depositors with meticulous care,
The Ruling of the Court always having in mind the fiduciary nature of their relationship.[21]

The petition is partly meritorious. This fiduciary relationship means that the banks obligation to observe
high standards of integrity and performance is deemed written into
Solidbanks Fiduciary Duty under the Law every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of
The rulings of the trial court and the Court of Appeals conflict on the diligence higher than that of a good father of a family. Article 1172 of
application of the law. The trial court pinned the liability on L.C. Diaz the Civil Code states that the degree of diligence required of an
based on the provisions of the rules on savings account, a obligor is that prescribed by law or contract, and absent such
recognition of the contractual relationship between Solidbank and stipulation then the diligence of a good father of a family.[22] Section
L.C. Diaz, the latter being a depositor of the former. On the other 2 of RA 8791 prescribes the statutory diligence required from banks
hand, the Court of Appeals applied the law on quasi-delict to that banks must observe high standards of integrity and performance
determine who between the two parties was ultimately negligent. The in servicing their depositors. Although RA 8791 took effect almost
law on quasi-delict or culpa aquiliana is generally applicable when nine years after the unauthorized withdrawal of the P300,000 from
there is no pre-existing contractual relationship between the parties. L.C. Diazs savings account, jurisprudence[23] at the time of the
withdrawal already imposed on banks the same high standard of
We hold that Solidbank is liable for breach of contract due to diligence required under RA No. 8791.
negligence, or culpa contractual.
However, the fiduciary nature of a bank-depositor relationship does
not convert the contract between the bank and its depositors from a

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simple loan to a trust agreement, whether express or implied. Failure the passbook is presumptively its owner. If the tellers give the
by the bank to pay the depositor is failure to pay a simple loan, and passbook to the wrong person, they would be clothing that person
not a breach of trust.[24] The law simply imposes on the bank a presumptive ownership of the passbook, facilitating unauthorized
higher standard of integrity and performance in complying with its withdrawals by that person. For failing to return the passbook to
obligations under the contract of simple loan, beyond those required Calapre, the authorized representative of L.C. Diaz, Solidbank and
of non-bank debtors under a similar contract of simple loan. Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to
The fiduciary nature of banking does not convert a simple loan into a the party authorized to receive the same.
trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks In culpa contractual, once the plaintiff proves a breach of contract,
to offer the lowest possible interest rate to depositors while charging there is a presumption that the defendant was at fault or negligent.
the highest possible interest rate on their own borrowers. The The burden is on the defendant to prove that he was not at fault or
interest spread or differential belongs to the bank and not to the negligent. In contrast, in culpa aquiliana the plaintiff has the burden
depositors who are not cestui que trust of banks. If depositors are of proving that the defendant was negligent. In the present case, L.C.
cestui que trust of banks, then the interest spread or income belongs Diaz has established that Solidbank breached its contractual
to the depositors, a situation that Congress certainly did not intend in obligation to return the passbook only to the authorized
enacting Section 2 of RA 8791. representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the
Solidbanks Breach of its Contractual Obligation passbook to Calapre. The burden was on Solidbank to prove that
there was no negligence on its part or its employees.
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is Solidbank failed to discharge its burden. Solidbank did not present to
demandable. For breach of the savings deposit agreement due to the trial court Teller No. 6, the teller with whom Calapre left the
negligence, or culpa contractual, the bank is liable to its depositor. passbook and who was supposed to return the passbook to him. The
record does not indicate that Teller No. 6 verified the identity of the
Calapre left the passbook with Solidbank because the transaction person who retrieved the passbook. Solidbank also failed to adduce
took time and he had to go to Allied Bank for another transaction. in evidence its standard procedure in verifying the identity of the
The passbook was still in the hands of the employees of Solidbank person retrieving the passbook, if there is such a procedure, and that
for the processing of the deposit when Calapre left Solidbank. Teller No. 6 implemented this procedure in the present case.
Solidbanks rules on savings account require that the deposit book
should be carefully guarded by the depositor and kept under lock Solidbank is bound by the negligence of its employees under the
and key, if possible. When the passbook is in the possession of principle of respondeat superior or command responsibility. The
Solidbanks tellers during withdrawals, the law imposes on Solidbank defense of exercising the required diligence in the selection and
and its tellers an even higher degree of diligence in safeguarding the supervision of employees is not a complete defense in culpa
passbook. contractual, unlike in culpa aquiliana.[25]

Likewise, Solidbanks tellers must exercise a high degree of diligence The bank must not only exercise high standards of integrity and
in insuring that they return the passbook only to the depositor or his performance, it must also insure that its employees do likewise
authorized representative. The tellers know, or should know, that the because this is the only way to insure that the bank will comply with
rules on savings account provide that any person in possession of its fiduciary duty. Solidbank failed to present the teller who had the

BANKING LAWS (Diligence Required of Banks Cases) Page 9


duty to return to Calapre the passbook, and thus failed to prove that We do not subscribe to the appellate courts theory that the proximate
this teller exercised the high standards of integrity and performance cause of the unauthorized withdrawal was the tellers failure to call up
required of Solidbanks employees. L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to
call up L.C. Diaz to confirm the withdrawal. There is no arrangement
Proximate Cause of the Unauthorized Withdrawal between Solidbank and L.C. Diaz to this effect. Even the agreement
between Solidbank and L.C. Diaz pertaining to measures that the
Another point of disagreement between the trial and appellate courts parties must observe whenever withdrawals of large amounts are
is the proximate cause of the unauthorized withdrawal. The trial court made does not direct Solidbank to call up L.C. Diaz.
believed that L.C. Diazs negligence in not securing its passbook
under lock and key was the proximate cause that allowed the There is no law mandating banks to call up their clients whenever
impostor to withdraw the P300,000. For the appellate court, the their representatives withdraw significant amounts from their
proximate cause was the tellers negligence in processing the accounts. L.C. Diaz therefore had the burden to prove that it is the
withdrawal without first verifying with L.C. Diaz. We do not agree with usual practice of Solidbank to call up its clients to verify a withdrawal
either court. of a large amount of money. L.C. Diaz failed to do so.

Proximate cause is that cause which, in natural and continuous Teller No. 5 who processed the withdrawal could not have been put
sequence, unbroken by any efficient intervening cause, produces the on guard to verify the withdrawal. Prior to the withdrawal of
injury and without which the result would not have occurred.[26] P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC
Proximate cause is determined by the facts of each case upon mixed check, which later bounced. The impostor apparently deposited a
considerations of logic, common sense, policy and precedent.[27] large amount of money to deflect suspicion from the withdrawal of a
much bigger amount of money. The appellate court thus erred when
L.C. Diaz was not at fault that the passbook landed in the hands of it imposed on Solidbank the duty to call up L.C. Diaz to confirm the
the impostor. Solidbank was in possession of the passbook while it withdrawal when no law requires this from banks and when the teller
was processing the deposit. After completion of the transaction, had no reason to be suspicious of the transaction.
Solidbank had the contractual obligation to return the passbook only
to Calapre, the authorized representative of L.C. Diaz. Solidbank Solidbank continues to foist the defense that Ilagan made the
failed to fulfill its contractual obligation because it gave the passbook withdrawal. Solidbank claims that since Ilagan was also a messenger
to another person. of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the
Solidbanks failure to return the passbook to Calapre made possible following statements in the Booking and Information Sheet of
the withdrawal of the P300,000 by the impostor who took possession Emerano Ilagan:
of the passbook. Under Solidbanks rules on savings account, mere
possession of the passbook raises the presumption of ownership. It xxx Ilagan also had with him (before the withdrawal) a forged check
was the negligent act of Solidbanks Teller No. 6 that gave the of PBC and indicated the amount of P90,000 which he deposited in
impostor presumptive ownership of the passbook. Had the passbook favor of L.C. Diaz and Company. After successfully withdrawing this
not fallen into the hands of the impostor, the loss of P300,000 would large sum of money, accused Ilagan gave alias Rey (Noel Tamayo)
not have happened. Thus, the proximate cause of the unauthorized his share of the loot. Ilagan then hired a taxicab in the amount of
withdrawal was Solidbanks negligence in not returning the passbook P1,000 to transport him (Ilagan) to his home province at Bauan,
to Calapre. Batangas. Ilagan extravagantly and lavishly spent his money but a
big part of his loot was wasted in cockfight and horse racing. Ilagan

BANKING LAWS (Diligence Required of Banks Cases) Page 10


was apprehended and meekly admitted his guilt.[28] (Emphasis
supplied.) Mitigated Damages

L.C. Diaz refutes Solidbanks contention by pointing out that the Under Article 1172, liability (for culpa contractual) may be regulated
person who withdrew the P300,000 was a certain Noel Tamayo. Both by the courts, according to the circumstances. This means that if the
the trial and appellate courts stated that this Noel Tamayo presented defendant exercised the proper diligence in the selection and
the passbook with the withdrawal slip. supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of
We uphold the finding of the trial and appellate courts that a certain damages. In this case, L.C. Diaz was guilty of contributory
Noel Tamayo withdrew the P300,000. The Court is not a trier of negligence in allowing a withdrawal slip signed by its authorized
facts. We find no justifiable reason to reverse the factual finding of signatories to fall into the hands of an impostor. Thus, the liability of
the trial court and the Court of Appeals. The tellers who processed Solidbank should be reduced.
the deposit of the P90,000 check and the withdrawal of the P300,000
were not presented during trial to substantiate Solidbanks claim that In Philippine Bank of Commerce v. Court of Appeals,[33] where the
Ilagan deposited the check and made the questioned withdrawal. Court held the depositor guilty of contributory negligence, we
Moreover, the entry quoted by Solidbank does not categorically state allocated the damages between the depositor and the bank on a 40-
that Ilagan presented the withdrawal slip and the passbook. 60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz
must shoulder 40% of the actual damages awarded by the appellate
Doctrine of Last Clear Chance court. Solidbank must pay the other 60% of the actual damages.

The doctrine of last clear chance states that where both parties are WHEREFORE, the decision of the Court of Appeals is AFFIRMED
negligent but the negligent act of one is appreciably later than that of with MODIFICATION. Petitioner Solidbank Corporation shall pay
the other, or where it is impossible to determine whose fault or private respondent L.C. Diaz and Company, CPAs only 60% of the
negligence caused the loss, the one who had the last clear actual damages awarded by the Court of Appeals. The remaining
opportunity to avoid the loss but failed to do so, is chargeable with 40% of the actual damages shall be borne by private respondent
the loss.[29] Stated differently, the antecedent negligence of the L.C. Diaz and Company, CPAs. Proportionate costs.
plaintiff does not preclude him from recovering damages caused by
the supervening negligence of the defendant, who had the last fair SO ORDERED.
chance to prevent the impending harm by the exercise of due
diligence.[30] METROPOLITAN BANK AND TRUST CORPORATION v CA

We do not apply the doctrine of last clear chance to the present CHICO-NAZARIO, J.:
case. Solidbank is liable for breach of contract due to negligence in
the performance of its contractual obligation to L.C. Diaz. This is a Before this Court is a Petition for Review on Certiorari, filed by
case of culpa contractual, where neither the contributory negligence petitioner Metropolitan Bank and Trust Company (Metrobank)
of the plaintiff nor his last clear chance to avoid the loss, would seeking to reverse and set aside the Decision1 of the Court of
exonerate the defendant from liability.[31] Such contributory Appeals dated 8 March 2002 and its Resolution dated 26 July 2002
negligence or last clear chance by the plaintiff merely serves to affirming the Decision of the Regional Trial Court (RTC) of Manila,
reduce the recovery of damages by the plaintiff but does not Branch 13 dated 4 September 1998. The dispositive portion of the
exculpate the defendant from his breach of contract.[32] Court of Appeals Decision reads:

BANKING LAWS (Diligence Required of Banks Cases) Page 11


WHEREFORE, the assailed decision dated September 4, 1998 is Hence, Cabilzo demanded that Metrobank re-credit the amount of
AFFIRMED with modifications (sic) that the awards for exemplary P91,000.00 to his account. Metrobank, however, refused reasoning
damages and attorney’s fees are hereby deleted. that it has to refer the matter first to its Legal Division for appropriate
action. Repeated verbal demands followed but Metrobank still failed
Petitioner Metrobank is a banking institution duly organized and to re-credit the amount of P91,000.00 to Cabilzo’s account.7
existing as such under Philippine laws.2
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s demand8 to Metrobank for the payment of P90,000.00, after
clients who maintained a current account with Metrobank Pasong deducting the original value of the check in the amount of P1,000.00.
Tamo Branch.3 Such written demand notwithstanding, Metrobank still failed or
refused to comply with its obligation.
On 12 November 1994, Cabilzo issued a Metrobank Check No.
985988, payable to "CASH" and postdated on 24 November 1994 in Consequently, Cabilzo instituted a civil action for damages against
the amount of One Thousand Pesos (P1,000.00). The check was Metrobank before the RTC of Manila, Branch 13. In his Complaint
drawn against Cabilzo’s Account with Metrobank Pasong Tamo docketed as Civil Case No. 95-75651, Renato D. Cabilzo v.
Branch under Current Account No. 618044873-3 and was paid by Metropolitan Bank and Trust Company, Cabilzo prayed that in
Cabilzo to a certain Mr. Marquez, as his sales commission.4 addition to his claim for reimbursement, actual and moral damages
plus costs of the suit be awarded in his favor.9
Subsequently, the check was presented to Westmont Bank for
payment. Westmont Bank, in turn, indorsed the check to Metrobank For its part, Metrobank countered that upon the receipt of the said
for appropriate clearing. After the entries thereon were examined, check through the PCHC on 14 November 1994, it examined the
including the availability of funds and the authenticity of the signature genuineness and the authenticity of the drawer’s signature appearing
of the drawer, Metrobank cleared the check for encashment in thereon and the technical entries on the check including the amount
accordance with the Philippine Clearing House Corporation (PCHC) in figures and in words to determine if there were alterations,
Rules. erasures, superimpositions or intercalations thereon, but none was
noted. After verifying the authenticity and propriety of the aforesaid
On 16 November 1994, Cabilzo’s representative was at Metrobank entries, including the indorsement of the collecting bank located at
Pasong Tamo Branch to make some transaction when he was asked the dorsal side of the check which stated that, "all prior indorsements
by a bank personnel if Cabilzo had issued a check in the amount of and lack of indorsement guaranteed," Metrobank cleared the
P91,000.00 to which the former replied in the negative. On the check.10
afternoon of the same date, Cabilzo himself called Metrobank to
reiterate that he did not issue a check in the amount of P91,000.00 Anent thereto, Metrobank claimed that as a collecting bank and the
and requested that the questioned check be returned to him for last indorser, Westmont Bank should be held liable for the value of
verification, to which Metrobank complied.5 the check. Westmont Bank indorsed the check as the an unqualified
indorser, by virtue of which it assumed the liability of a general
Upon receipt of the check, Cabilzo discovered that Metrobank Check indorser, and thus, among others, warranted that the instrument is
No. 985988 which he issued on 12 November 1994 in the amount of genuine and in all respect what it purports to be.
P1,000.00 was altered to P91,000.00 and the date 24 November
1994 was changed to 14 November 1994.6

BANKING LAWS (Diligence Required of Banks Cases) Page 12


In addition, Metrobank, in turn, claimed that Cabilzo was partly Cabilzo the sum of P90,000 with legal interest of 6 percent per
responsible in leaving spaces on the check, which, made the annum from November 16, 1994 until payment is made plus P20,000
fraudulent insertion of the amount and figures thereon, possible. On attorney’s fees, exemplary damages of P50,000, and costs of the
account of his negligence in the preparation and issuance of the suit.16
check, which according to Metrobank, was the proximate cause of
the loss, Cabilzo cannot thereafter claim indemnity by virtue of the Aggrieved, Metrobank appealed the adverse decision to the Court of
doctrine of equitable estoppel. Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent
Thus, Metrobank demanded from Cabilzo, for payment in the amount alteration of the check. Elaborating, Metrobank maintained that by
of P100,000.00 which represents the cost of litigation and attorney’s reason of its unqualified indorsement, Westmont Bank warranted that
fees, for allegedly bringing a frivolous and baseless suit. 11 the check in question is genuine, valid and subsisting and that upon
presentment the check shall be accepted according to its tenor.
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against
Westmont Bank on account of its unqualified indorsement stamped Even more, Metrobank argued that in clearing the check, it was not
at the dorsal side of the check which the former relied upon in remiss in the performance of its duty as the drawee bank, but rather,
clearing what turned out to be a materially altered check. it exercised the highest degree of diligence in accordance with the
generally accepted banking practice. It further insisted that the
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was entries in the check were regular and authentic and alteration could
then filed by Westmont bank because another case involving the not be determined even upon close examination.
same cause of action was pending before a different court. The said
case arose from an action for reimbursement filed by Metrobank In a Decision17 dated 8 March 2002, the Court of Appeals affirmed
before the Arbitration Committee of the PCHC against Westmont with modification the Decision of the court a quo, similarly finding
Bank, and now the subject of a Petition for Review before the RTC of Metrobank liable for the amount of the check, without prejudice,
Manila, Branch 19. however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The
In an Order14 dated 4 February 1997, the trial court granted the decretal portion of the Decision reads:
Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia. WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with the modifications (sic) that the awards for exemplary
On 4 September 1998, the RTC rendered a Decision15 in favor of damages and attorney’s fees are hereby deleted.18
Cabilzo and thereby ordered Metrobank to pay the sum of
P90,000.00, the amount of the check. In stressing the fiduciary Similarly ill-fated was Metrobank’s Motion for Reconsideration which
nature of the relationship between the bank and its clients and the was also denied by the appellate court in its Resolution19 issued on
negligence of the drawee bank in failing to detect an apparent 26 July 2002, for lack of merit.
alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The Metrobank now poses before this Court this sole issue:
dispositive portion of the Decision reads:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
WHEREFORE, judgment is rendered ordering defendant HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE
Metropolitan Bank and Trust Company to pay plaintiff Renato

BANKING LAWS (Diligence Required of Banks Cases) Page 13


ALTERATIONS ON THE SUBJECT CHECK BEARING THE (b) The sum payable, either for principal or interest;
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
(c) The time or place of payment;
We resolve to deny the petition.
(d) The number or the relation of the parties;
An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument (e) The medium or currency in which payment is to be made;
that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an Or which adds a place of payment where no place of payment is
incomplete instrument relating to the obligation of a party.20 In other specified, or any other change or addition which alters the effect of
words, a material alteration is one which changes the items which the instrument in any respect is a material alteration.
are required to be stated under Section 1 of the Negotiable
Instruments Law. In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed
Section 1 of the Negotiable Instruments Law provides: from 24 November 1994 to 14 November 1994. Apparently, since the
entries altered were among those enumerated under Section 1 and
Section 1. Form of negotiable instruments. - An instrument to be 125, namely, the sum of money payable and the date of the check,
negotiable must conform to the following requirements: the instant controversy therefore squarely falls within the purview of
material alteration.
(a) It must be in writing and signed by the maker or drawer;
Now, having laid the premise that the present petition is a case of
(b) Must contain an unconditional promise or order to pay a sum material alteration, it is now necessary for us to determine the effect
certain in money; of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the
(c) Must be payable on demand or at a fixed determinable future Negotiable Instrument Law will shed us some light in threshing out
time; this issue:

(d) Must be payable to order or to bearer; and Section 124. Alteration of instrument; effect of. – Where a negotiable
instrument is materially altered without the assent of all parties liable
(e) Where the instrument is addressed to a drawee, he must be thereon, it is avoided, except as against a party who has himself
named or otherwise indicated therein with reasonable certainty. made, authorized, and assented to the alteration and subsequent
indorsers.
Also pertinent is the following provision in the Negotiable Instrument
Law which states: But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
Section 125. What constitutes material alteration. – Any alteration enforce the payment thereof according to its original tenor.
which changes: (Emphasis ours.)

(a) The date; Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or

BANKING LAWS (Diligence Required of Banks Cases) Page 14


implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which We never fail to stress the remarkable significance of a banking
could have otherwise prevented the loss. As correctly ruled by the institution to commercial transactions, in particular, and to the
appellate court, Cabilzo was never remiss in the preparation and country’s economy in general. The banking system is an
issuance of the check, and there were no indicia of evidence that indispensable institution in the modern world and plays a vital role in
would prove otherwise. Indeed, Cabilzo placed asterisks before and the economic life of every civilized nation. Whether as mere passive
after the amount in words and figures in order to forewarn the entities for the safekeeping and saving of money or as active
subsequent holders that nothing follows before and after the amount instruments of business and commerce, banks have become an
indicated other than the one specified between the asterisks. ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, most of all, confidence.24
The degree of diligence required of a reasonable man in the exercise
of his tasks and the performance of his duties has been faithfully Thus, even the humble wage-earner does not hesitate to entrust his
complied with by Cabilzo. In fact, he was wary enough that he filled life's savings to the bank of his choice, knowing that they will be safe
with asterisks the spaces between and after the amounts, not only in its custody and will even earn some interest for him. The ordinary
those stated in words, but also those in numerical figures, in order to person, with equal faith, usually maintains a modest checking
prevent any fraudulent insertion, but unfortunately, the check was still account for security and convenience in the settling of his monthly
successfully altered, indorsed by the collecting bank, and cleared by bills and the payment of ordinary expenses. As for a businessman
the drawee bank, and encashed by the perpetrator of the fraud, to like the respondent, the bank is a trusted and active associate that
the damage and prejudice of Cabilzo. can help in the running of his affairs, not only in the form of loans
when needed but more often in the conduct of their day-to-day
Verily, Metrobank cannot lightly impute that Cabilzo was negligent transactions like the issuance or encashment of checks.25
and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of In every case, the depositor expects the bank to treat his account
evidence to support such conclusion. The doctrine of equitable with the utmost fidelity, whether such account consists only of a few
estoppel states that when one of the two innocent persons, each hundred pesos or of millions. The bank must record every single
guiltless of any intentional or moral wrong, must suffer a loss, it must transaction accurately, down to the last centavo, and as promptly as
be borne by the one whose erroneous conduct, either by omission or possible. This has to be done if the account is to reflect at any given
commission, was the cause of injury.21 Metrobank’s reliance on this time the amount of money the depositor can dispose of as he sees
dictum, is misplaced. For one, Metrobank’s representation that it is fit, confident that the bank will deliver it as and to whomever he
an innocent party is flimsy and evidently, misleading. At the same directs.26
time, Metrobank cannot asseverate that Cabilzo was negligent and
this negligence was the proximate cause22 of the loss in the The point is that as a business affected with public interest and
absence of even a scintilla proof to buttress such claim. Negligence because of the nature of its functions, the bank is under obligation to
is not presumed but must be proven by the one who alleges it.23 treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The
Undoubtedly, Cabilzo was an innocent party in this instant appropriate degree of diligence required of a bank must be a high
controversy. He was just an ordinary businessman who, in order to degree of diligence, if not the utmost diligence.27
facilitate his business transactions, entrusted his money with a bank,
not knowing that the latter would yield a substantial amount of his In the present case, it is obvious that Metrobank was remiss in that
deposit to fraud, for which Cabilzo can never be faulted. duty and violated that relationship. As observed by the Court of

BANKING LAWS (Diligence Required of Banks Cases) Page 15


Appeals, there are material alterations on the check that are visible degree of diligence in the selection and supervision of their
to the naked eye. Thus: employees.31

x x x The number "1" in the date is clearly imposed on a white figure In addition, the bank on which the check is drawn, known as the
in the shape of the number "2". The appellant’s employees who drawee bank, is under strict liability to pay to the order of the payee
examined the said check should have likewise been put on guard as in accordance with the drawer’s instructions as reflected on the face
to why at the end of the amount in words, i.e., after the word "ONLY", and by the terms of the check. Payment made under materially
there are 4 asterisks, while at the beginning of the line or before said altered instrument is not payment done in accordance with the
phrase, there is none, even as 4 asterisks have been placed before instruction of the drawer.
and after the word "CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS ONLY" have When the drawee bank pays a materially altered check, it violates
noticeably been erased with typing correction paper, leaving white the terms of the check, as well as its duty to charge its client’s
marks, over which the word "NINETY" was superimposed. The same account only for bona fide disbursements he had made. Since the
can be said of the numeral "9" in the amount "91,000", which is drawee bank, in the instant case, did not pay according to the
superimposed over a whitish mark, obviously an erasure, in lieu of original tenor of the instrument, as directed by the drawer, then it has
the asterisk which was deleted to insert the said figure. The no right to claim reimbursement from the drawer, much less, the right
appellant’s employees should have again noticed why only 2 to deduct the erroneous payment it made from the drawer’s account
asterisks were placed before the amount in figures, while 3 asterisks which it was expected to treat with utmost fidelity.
were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words Metrobank vigorously asserts that the entries in the check were
"ONE THOUSAND PESOS ONLY." The letters of the word carefully examined: The date of the instrument, the amount in words
"NINETY" are likewise a little bigger when compared with the letters and figures, as well as the drawer’s signature, which after
of the words "ONE THOUSAND PESOS ONLY".28 verification, were found to be proper and authentic and was thus
cleared. We are not persuaded. Metrobank’s negligence consisted in
Surprisingly, however, Metrobank failed to detect the above the omission of that degree of diligence required of a bank owing to
alterations which could not escape the attention of even an ordinary the fiduciary nature of its relationship with its client. Article 1173 of
person. This negligence was exacerbated by the fact that, as found the Civil Code provides:
by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks The fault or negligence of the obligor consists in the omission of that
indorsed for payment against drawer’s accounts.29 Obviously, the diligence which is required by the nature of the obligation and
employee allowed by Metrobank to examine the check was not verse corresponds with the circumstances of the persons, of the time and
and competent to handle such duty. These factual findings of the trial of the place. x x x.
court is conclusive upon this court especially when such findings was
affirmed the appellate court.30 Beyond question, Metrobank failed to comply with the degree
required by the nature of its business as provided by law and
Apropos thereto, we need to reiterate that by the very nature of their jurisprudence. If indeed it was not remiss in its obligation, then it
work the degree of responsibility, care and trustworthiness expected would be inconceivable for it not to detect an evident alteration
of their employees and officials is far better than those of ordinary considering its vast knowledge and technical expertise in the
clerks and employees. Banks are expected to exercise the highest intricacies of the banking business. This Court is not completely
unaware of banks’ practices of employing devices and techniques in

BANKING LAWS (Diligence Required of Banks Cases) Page 16


order to detect forgeries, insertions, intercalations, superimpositions manner contemplated under the Civil Code which warrants the
and alterations in checks and other negotiable instruments so as to imposition of exemplary damages, "by way of example or correction
safeguard their authenticity and negotiability. Metrobank cannot now for the public good," in the words of the law. It is expected that this
feign ignorance nor claim diligence; neither can it point its finger at ruling will serve as a stern warning in order to deter the repetition of
the collecting bank, in order to evade liability. similar acts of negligence, lest the confidence of the public in the
banking system be further eroded. 32
Metrobank argues that Westmont Bank, as the collecting bank and
the last indorser, shall bear the loss. Without ruling on the matter WHEREFORE, premises considered, the instant Petition is DENIED.
between the drawee bank and the collecting bank, which is already The Decision dated 8 March 2002 and the Resolution dated 26 July
under the jurisdiction of another tribunal, we find that Metrobank 2002 of the Court of Appeals are AFFIRMED with modification that
cannot rely on such indorsement, in clearing the questioned check. exemplary damages in the amount of P50,000.00 be awarded. Costs
The corollary liability of such indorsement, if any, is separate and against the petitioner.
independent from the liability of Metrobank to Cabilzo.
SO ORDERED.
The reliance made by Metrobank on Westmont Bank’s indorsement
is clearly inconsistent, if not totally offensive to the dictum that being PNB v PIKE
impressed with public interest, banks should exercise the highest
degree of diligence, if not utmost diligence in dealing with the CHICO-NAZARIO, J.:
accounts of its own clients. It owes the highest degree fidelity to its
clients and should not therefore lightly rely on the judgment of other This petition for review on certiorari under Rule 45 of the 1997 Rules
banks on occasions where its clients money were involve, no matter of Civil Procedure, as amended, seeks to reverse the Decision[1]
how small or substantial the amount at stake. dated 19 December 2002, and the Resolution[2] dated 02 April 2003,
both of the Court of Appeals, in CA-G.R. CV No. 59389, which
Metrobank’s contention that it relied on the strength of collecting affirmed with modification the Decision[3] rendered by the Regional
bank’s indorsement may be merely a lame excuse to evade liability, Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in
or may be indeed an actual banking practice. In either case, such act Civil Case No. 94-68821 in favor of herein respondent Norman Pike
constitutes a deplorable banking practice and could not be allowed (Pike).
by this Court bearing in mind that the confidence of public in general
is of paramount importance in banking business. The case stemmed from a complaint[4] filed by herein respondent
Pike for damages[5] against Philippine National Bank (PNB) on 04
What is even more deplorable is that, having been informed of the January 1994.
alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full Complainant Pike often traveled to and from Japan as a gay
blown litigation to push through, to the prejudice of its client. Anyway, entertainer in said country. Sometime in 1991, he opened U.S. Dollar
Metrobank is not left with no recourse for it can still run after the one Savings Account No. 0265-704591-0 with herein petitioner PNB
who made the alteration or with the collecting bank, which it had Buendia branch for which he was issued a corresponding passbook.
already done. It bears repeating that the records are bare of The complaint alleged in substance that before complainant Pike left
evidence to prove that Cabilzo was negligent. We find no justifiable for Japan on 18 March 1993, he kept the aforementioned passbook
reason therefore why Metrobank did not immediately reimburse his inside a cabinet under lock and key, in his home; that on 19 April
account. Such ineptness comes within the concept of wanton 1993, a few hours after he arrived from Japan, he discovered that

BANKING LAWS (Diligence Required of Banks Cases) Page 17


some of his valuables were missing including the passbook; that he to be transmitted by his Talent Manager and Choreographer, Joy
immediately reported the incident to the police which led to the arrest Davasol who shall present pre-signed withdrawal slips bearing his
and prosecution of a certain Mr. Joy Manuel Davasol; that (Pikes) signature. . .
complainant Pike also discovered that Davasol made two (2)
unauthorized withdrawals from his U.S. Dollar Savings Account No. On April 19, 1993, a certain Josephine Balmaceda, who claimed to
0265-704591-0, both times at the PNB Buendia branch on the be plaintiffs sister executed an affidavit . . . . stating therein that they
following dates: discovered today (April 19, 1993) the lost (sic) of her brothers
passbook issued by PNB on account of robbery, committed in the
DATE residence/office of her brother, promptly reporting the matter to the
AMOUNT police authorities and her brother cannot report the matter to the
31 March 1993 Bank because he was currently in Japan and therefore requesting
$3,500.00 the Bank to issue a hold-order on her brothers passbook.
05 April 1993
4,000.00 But a copy of an alarm (Police) Report dated April 19, 1993. . . stated
TOTAL that plaintiff (who was the one who reported the matter) after one
$7,500.00 month in Japan, he (complainant) arrived yesterday. . .

that on several occasions, complainant Pike went to defendant PNBs


Buendia branch and verbally protested the unauthorized withdrawals On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiffs
and likewise demanded the return of the total withdrawn amount of counsel sent a demand letter to VP Violeta T. Suquila (then VP and
U.S. $7,500.00, on the ground that he never authorized anybody to Manager of PNB Buendia Branch) demanding the bank to credit
withdraw from his account as the signatures appearing on the back the amount of US$7,500.00 which were withdrawn on March
subject withdrawal slips were clearly forgeries; that defendant PNB 31, 1993 and April 5, 1993, because his clients signatures were
refused to credit said amount back to complainants U.S. Dollar forged and the withdrawal made thereon were unauthorized. . .
Savings Account without justifiable reason, and instead, defendant
bank wrote him that it exercised due diligence in the handling of said On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss
account; and that on 06 May 1993, complainant Pike wrote (sic) Dollar Account Passbook and requested the PNB to replace the
defendant PNB simply to request that the hold-account be lifted so same and allow him to make withdrawals thereon. He stated that his
that he may withdraw the remaining balance left in his U.S.$ Savings passbook was stolen together with other valuables which he
Account and nothing else. discovered only in the early morning of April 19, 1993. . .

On the other hand, defendant PNB alleged, in its Motion to On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed
Dismiss[6] of 18 April 1994, a counterstatement of facts. Its factual to the Manager of PNB, Buendia Branch the full contents of said
allegations read: letter hereto quoted as follows:

. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, May 6, 1993
together with a certain Joy Davasol went to see PNB AVP Mr. The Manager
Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of Philippine National Bank
$2,000.00. Mr. Pike also informed AVP Val that he is leaving for Buendia Branch
abroad (Japan) and made verbal instruction to honor all withdrawals Paseo de Roxas cor. Gil Puyat Street

BANKING LAWS (Diligence Required of Banks Cases) Page 18


Makati, Metro Manila The trial court, in its decision dated 10 January 1997, made the
following findings of fact:
Sir: . . . [T]hat the bank is responsible for such unauthorized withdrawals.
In connection with the request of my sister, Mrs. Josephine P. The court is not impressed with the defense put up by the bank. Its
Balmaceda for the hold-order on my dollar savings passbook No. contention that the withdrawals were authorized by the plaintiff
265-704591-0, I am now requesting your good office to lift the same because there was an arrangement between the bank represented
so I can withdraw the remaining balance of my passbook which was by its Asst. Vice President Lorenzo Bal, Jr. and the depositor
reported lost sometime in March of this year. Norman Y. Pike to the effect that pre-signed withdrawal slips, that is,
I also promise not to hold responsible the bank and its officers for the withdrawal slip signed by the depositor in the presence of Mr. Bal
withdrawal made on my dollar savings passbook on March 19 and whereby it would be made to appear that it was the depositor himself
April 5, 1993 respectively as a result of the lost (sic) of my passbook. who presented the same to the bank despite the fact that it was
another person who presented the same should be honored by the
Sgd. NORMAN Y. PIKE bank cannot be sanctioned by the court. Firstly, the court is not
Depositor satisfied that there was indeed such an arrangement. . . It is Mr. Bals
Philippine Passport contention that such an arrangement although not ordinarily entered
No. H918022 into is still a legal procedure of the bank and is resorted to
Issued at Manila on accommodate the depositors specially honored and valued depositor
Sept. 6, 1990 at that.
Place of Issuance ---
The court compared the signatures in the questioned withdrawal
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed slips with the known signatures of the depositor and is convinced that
by defendant bank to withdraw the remaining balance from his the signatures in the unauthorized withdrawal slips do not
passbook . correspond to the true signatures of the depositor.

A letter dated May 18, 1993 was sent to Plaintiffs counsel by PNB From the evidence that it received, the court is convinced that the
stating that the Bank regrets that it cannot accede to such request bank was negligent in the performance of its duties such that
inasmuch as the Bank exercised due diligence of a good father to his unauthorized withdrawals were made in the deposit of plaintiff
family in the handling of transactions covering the deposit account of Norman Y. Pike.[7]
Mr. Pike .
The dispositive portion of the trial courts decision reads:
On July 2, 1993, Plaintiffs counsel sent a letter to PNB Vice Pres.
Suquila denying that his client made any such promise not to hold WHEREFORE and considering the foregoing, judgment is hereby
responsible the bank and its officers for the withdrawal made . rendered in favor of the plaintiff and against the defendant and
ordering the defendant to pay the following:
A letter dated July 29, 1993 was sent to Plaintiffs counsel by VP 1. US$7,500.00 plus interest thereon at the rate of 12% per
Suquila stating that plaintiffs withdrawal of the remaining balance of annum until the full amount is paid;
his account with the Bank effectively estops him from claiming on the 2. P25,000.00 for and as attorneys fees;
alleged unauthorized withdrawals. 3. P50,000.00 as moral damages and P50,000.00 as
exemplary damages; and
4. Plus the costs of suit.[8]

BANKING LAWS (Diligence Required of Banks Cases) Page 19


portion of the withdrawal slips, which form was issued by the bank
Defendant PNBs motion for reconsideration was subsequently itself.
denied by the court a quo.[9]
A perusal of the records discloses that appellee had previously
On appeal, the Court of Appeals issued the assailed decision dated authorized withdrawals by a representative. However, these
19 December 2002, affirming the findings of the RTC that indeed withdrawals were properly accompanied by a withdrawal by a
defendant-appellant PNB was negligent in exercising the diligence representative form aside from a handwritten request by appellee to
required of a business imbued with public interest such as that of the allow such withdrawals by his representative, or a typewritten letter-
banking industry, however, it modified the rate of interest and award request for withdrawal by a representative. Certainly, appellant
for damages, to wit: lacked the due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding
WHEREFORE, premises considered, the Decision dated January 10, business as banking.
1997 issued by the Regional Trial Court of Manila, Branch 7, in Civil
Case No. 94-68821, is hereby AFFIRMED with MODIFICATION, as In its desire to be exonerated from liability, appellant advances the
follows: argument that, granting negligence on its part, appellee condoned
1. Ordering appellant, the Philippine National Bank, Buendia Branch, this negligence as shown in his letter dated May 6, 1993, wherein
to refund appellee the amount of $7,500.00 plus interest of 6% per appellee purportedly undertook, not to hold the bank and its officers
annum to be computed from the date of the filing of the complaint responsible for the unauthorized withdrawals from his account.
which interest rate shall become 12% per annum from the time the
judgment in this case becomes final and executory until its We do not agree. It should be emphasized that while the appellee
satisfaction; admitted signing the letter dated May 6, 1993, he, however, denied
2. The award for moral damages is reduced to P20,000.00; and having undertook (sic) to exonerate the appellant from liability for the
3. The award for exemplary damages is likewise reduced to unauthorized withdrawals. Appellee questioned the second
P20,000.00. paragraph of the said letter as being superimposed so that his
Costs against appellant.[10] signature overlapped the text of the second paragraph of said letter.
A waiver of right, in order to be valid, should be in a language that
The appellate court held that. clearly manifests his desire to do so. In the instant case, appellees
filing of the instant action is inconsistent with appellants contention
that he had waived his right to question appellants negligent act of
Appellant claims that appellee personally talked to its officers to allow allowing the unauthorized withdrawals from his account.[11]
Joy Manuel Davasol to make withdrawals. Appellee even left pre-
signed withdrawal slips before he went to Japan. However, appellant Defendant-appellant PNB filed a motion for reconsideration. In a
could have told appellee to authorize the withdrawal by a Resolution dated 02 April 2003, the Court of Appeals denied said
representative by indicating the same at the space provided at the motion.
back portion of the withdrawal slip. This operational flaw was
observed by the trial court, when it ruled: Hence, this petition.

The court cannot also understand why the bank did not require the Petitioner PNB now seeks the review of the aforequoted decision
correct, proper and the usual procedure of requiring a depositor who and resolution of the Court of Appeals predicated on the following
is withdrawing the money through a representative to fill up the back issues:

BANKING LAWS (Diligence Required of Banks Cases) Page 20


I. containing said waiver was intercalated by some other person, thus,
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT amounting no waiver at all, as held by the courts a quo.
PROPERLY APPLIED IN THIS CASE;
II. are questions of fact and not of law. Inexorably, these issues call for
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY an inquiry into the facts and evidence on record. This, as we have so
PROVEN THAT THE SIGNATURES APPEARING ON THE TWO (2) often held, we cannot do.
QUESTIONED PRE-SIGNED WITHDRAWAL SLIP FORMS ARE
ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE Elementary is the rule that this Court is not the appropriate venue to
132 OF THE REVISED RULES OF COURT; and consider anew the factual issues as it is not a trier of facts, and, it
III. generally does not weigh anew the evidence already passed upon by
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN the Court of Appeals.[14] When this Court is tasked to go over once
BE AWARDED AGAINST A PARTY IN GOOD FAITH. more the evidence presented by both parties, and analyze, assess
and weigh them to ascertain if the trial court and the appellate court
Petitioner PNB contends that due to the verbal instructions[12] of were correct in according superior credit to this or that piece of
respondent Pike, a valued depositor, it allowed the withdrawal by evidence of one party or the other, the Court cannot and will not do
another person. Plus, the fact that said respondent withdrew the the same.[15] Such task is foreclosed by the rule enunciated under
remaining balance in his US Savings Account and executed a waiver Section 1 of Rule 45[16] of the Rules of Court:
releasing petitioner PNB from any liability due to the loss of the funds
should rightly negate a finding of negligence on its part. Accordingly, SECTION 1. Filing of petition with Supreme Court. - . . . The petition
petitioner PNB claims that the appellate court, as well as the trial shall raise only questions of law[17] which must be distinctly set
court erred in holding that the withdrawals in question were forth.
unauthorized as the signatures appearing on the subject withdrawal
slips were forgeries. Petitioner PNB, therefore, argues that it should We have oft ruled that factual findings of the Court of Appeals are
not be held liable for the amount withdrawn from the account of conclusive on the parties and not reviewable by this Court and they
respondent Pike in the sum of $7,500.00, as well as for moral and carry even more weight when the Court of Appeals affirms the factual
exemplary damages. findings of the trial court,[18] and in the absence of any showing that
the findings complained of are totally devoid of support in the
A priori, it is quite evident that the petition is anchored on a plea to evidence on record, or that they are so glaringly erroneous as to
review or re-examine the factual conclusions reached by the trial constitute serious abuse of discretion, such findings must stand. The
court and affirmed by the Court of Appeals, and for this Court to hold courts a quo are in a much better position to evaluate properly the
otherwise. Whether: evidence.
1) respondent Pikes signatures appearing on the pertinent
withdrawal slips used by Joy Manuel Davasol[13] to withdraw the Finding no other alternative but to affirm their finding that petitioner
amount of $7,500.00, were forgeries, as found by the trial court and PNB negligently allowed the unauthorized withdrawals subject of the
affirmed by the Court of Appeals, or were authentic as claimed by case at bar, the instant petition for review must necessarily fail.
petitioner bank; and
2) respondent Pike in fact executed a waiver absolving petitioner At this juncture, it bears emphasizing that negligence of banking
bank from any legal responsibility due to the unauthorized institutions should never be countenanced. The negligence here lies
withdrawals, as maintained by petitioner bank, or the paragraph in the lackadaisical attitude exhibited by employees of petitioner PNB
in their treatment of respondent Pikes US Dollar Savings Account

BANKING LAWS (Diligence Required of Banks Cases) Page 21


that resulted in the unauthorized withdrawal of $7,500.00. A: And banking is a fast transaction between the depositor and the
Nevertheless, though its employees may be the ones negligent, a bank.
banks liability as an obligor is not merely vicarious but primary, as Q: And then, is the use of the back portion of the withdrawal slip with
banks are expected to exercise the highest degree of diligence in the a heading of authorization?
selection and supervision of their employees,[19] and having such A: Normally, a depositor and the bank agrees on certain terms that if
obligation, this Court cannot ignore the circumstances surrounding you allow withdrawal from his account, his or her account, its enough
the case at bar how the employees of petitioner PNB turned their that the signature of the depositor appears on both spaces in the
heads, nay, closed their eyes to the suspicious circumstances front side of the withdrawal slip. Even if you do not have the back
enfolding the two withdrawals subject of the case at bar. It may even portion of the withdrawal slip.
be said that they went out of their ways to disregard standard Q: You are very sure of that?
operating procedures formulated to ensure the security of each and A: Yes, sir.
every account that they are handling. Petitioner PNB does not deny Q: And that has been done with the other withdrawal slip of Norman
that the withdrawal slips used were in breach of standard operating Pike as stated or as shown in the Statement of Account?
procedures of banks in the ordinary and usual course of banking A: Yes, sir.
operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal, Q: That withdrawal made by representative?
Assistant Vice President of Petitioner PNBs Buendia branch, on A: Yes, sir.
cross-examination[20] he stated thus:
Q: Mr. Witness, when the original of Exhibit B[21] was presented to From the foregoing, petitioner PNBs witness was utterly remiss in
you for approval, how many signatures of depositor appears protecting the banks client, as well as the bank itself, when he
thereon? allowed an account holder to make it appear as if he was the one
A: Two (2) signatures appears (sic) on the face of the withdrawal slip. actually withdrawing from an account and actually receiving the
Q: When it (sic) was (sic) presented to you immediately? withdrawn amount. Ordinarily, banks allow withdrawal by someone
A: Yes, sir. who is not the account holder so long as the account holder
Q: Are you sure of that? authorizes his representative to withdraw and receive from his
A: Yes, sir. Because it was pre signed withdrawal slip. account by signing on the space provided particularly for such
Q: What does the signature appear, the word recipient means? transactions, usually found at the back of withdrawal slips. As fittingly
A: Received. found by the courts a quo, if indeed, respondent Pike signed the
Q: So, what you are saying is that, the depositor here signed this withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNBs
even before receiving the amount? AVP at its Buendia branch, why did he not call respondent Pikes
A: Because before the withdrawal was made, Mr. Pike, the depositor attention and refer him to the space provided for authorizing
came to the bank when he withdrew the $2,000.00 and instructed me representatives to withdraw from and receive the proceeds of such
or requested us even the supervisor to honor all withdrawal slip. withdrawal? Or, at the very least, sign or initial the same so that he
Q: And this is a regular procedure? could identify the pre-signed withdrawal slips made by Mr. Pike?
A: Yes, sir. Q: You are also saying that on March 15, 1993, you likewise met Joy
Q: Are you sure of that? Manuel Dabasol?
A: Yes, sir. A: Yes, sir.
Q: Do you have written manual on this particular procedure, Mr. Q: And you (sic) also saying on March 15, 1993, you also met
Witness? Norman Pike, the depositor.
A: Of course, that includes in the Rules and regulations of the bank. A: Yes, sir.
Q: Are you are (sic) are very sure of that? Q: And when did you first met (sic) Norman Pike?

BANKING LAWS (Diligence Required of Banks Cases) Page 22


A: March 15 when he withdrew $2,000.00. specimen signature card of respondent Pike and that he met
Q: That was the first time? respondent Pike just once so that he cannot seem to recall what the
A: First time, yes. latter looks like. The ensuing quoted testimony of the same witness
Q: And Mr. Norman Pike was already transacting with you long will justify a finding of negligence amounting to bad faith, to wit:
before that day, is this correct? For how long was he transacting with Q: And you also met Joy Manuel Dabasol on March 15?
you? A: Yes, sir.
A: That was my first time. Q: And can you describe Joy Manuel Dabasol?
Q: That was the first time. What I mean is, that he was transacting A: I cannot recall his face but then he is a Talnt manager, because
with the PNB, Buendia Branch long before you met him? there are so many depositors in the bank.
A: Maybe. ...
Q: And the withdrawal made on April 5, 1993 which you approved, Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you
you did not look at Exhibit C, the Savings Signature Card Individual? verbal authority to honor withdrawal by Joy Manuel Dabasol?
A: We do not look at that, that is kept in the vault. A: Yes, sir.
Q: Yes or no? Q: Why did you not require then that Mr. Pike instead sign the
A: No, sir. authorization portion and that the name of Joy Manuel Dabasol
Q: And Mr. witness, Exhibit C-1[22] which is being kept at your vault, appear thereon with his signature.
also contains a picture? ...
A: Yes, sir A: I required Mr. Norman Pike to sign the withdrawal slip on the face
Q: And the picture of the depositor? of the withdrawal slip.
A: Yes, sir. Q: But not the authorization portion of the said withdrawal slip?
Q: And are you familiar with the identity of the depositor Norman ...
Pike? A: No, because that is sufficient already.
A: What particular identity? Q: And is this your normal procedure, Mr. witness? This particular
Q: His appearance? procedure that you conducted?
A: He is gay looking fellow. A: I dont think so.
COURT: Answer. You are familiar with his physical appearance? Q: Mr. witness, when on April 5, 1993, when Joy Dabasol came to
A: Not so much. Because there are so much depositor (sic) in the the office and according to you, you do not remember him, is that
bank.[23] [Emphasis ours.] correct?
A: I cannot recall his face.
By his own testimony, the witness negated the very reason for the ...
banks bizarre accommodation of the alleged verbal request of Q: And he just showed you a withdrawal slip, is this correct?
respondent Pike that he was a valued client. From the aforequoted, it A: Yes, on April 5.
appears that the witness, Lorenzo Bal, was not even reasonably Q: Did you require him to produce any Identification Card, yes or no?
familiar with respondent Pike, yet, he was ready, willing and able to A: No.
accommodate the verbal request of said depositor. Worse still, the Q: And how did you know then that it was Joy Dabasol who was
witness still approved the withdrawal transaction without asking for making the withdrawal on April 5?
any proof of identification for the reason that: 1) Davasol was in A: Because the presigned withdrawal slip was presented to me.
possession of a pre-signed withdrawal slip; and 2) the witness Q: Is that all your basis?
recognized the signature of respondent Pike even after admitting that A: Yes, sir. Because his signature appears.
he did not bother to counter check the signature on the slip with the ...

BANKING LAWS (Diligence Required of Banks Cases) Page 23


Q: Mr. witness, this alleged authority given to you by Norman Pike to largely depends on the confidence of the people in the honesty and
honor withdrawal by Joy Manuel Dabasol, was that in writing? efficiency of banks. Thus, the law imposes on banks a high degree of
A: It was verbally requested. obligation to treat the accounts of its depositors with meticulous care,
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal always having in mind the fiduciary nature of banking. Section 2 of
authorities? Republic Act No. 8791,[25] which took effect on 13 June 2000,
A: Yes. makes a categorical declaration that the State recognizes the
Q: Is that Standard Operating Procedure? fiduciary nature of banking that requires high standards of integrity
A: It is not SPO, but when you knew the client, Your Honor, you have and performance.[26]
to honor also the trust and confidence. Let us say if you
Q: According to you, you met Norman Pike only on March 15, 1993 Though passed long after the unauthorized withdrawals in this case,
and immediately you allowed him to withdraw through pre-signed the aforequoted provision is a statutory affirmation of Supreme Court
withdrawal slip? decisions already in esse at the time of such withdrawals. We
A: Yes, Your Honor. Because a depositor requested you to honor his elucidated in the 1990 case of Simex International, Inc. v. Court of
signature, you have to do that or else willand besides the request is Appeals,[27] that the bank is under obligation to treat the accounts of
for purpose of expediency, Your Honor. Because most often than its depositors with meticulous care, always having in mind the
that, he is out of the country, in Japan. And his Talent Manager is the fiduciary nature of their relationship.[28]
one managing the recruiting agency. The money will be used in the
operating expenses. Likewise, in the case of The Consolidated Bank and Trust
... Corporation v. Court of Appeals,[29] we clarified that said fiduciary
Q: You did not even bother to look at the Savings Signature Card relationship means that the banks obligation to observe highest
Individual, yes or no? standards of integrity and performance is deemed written into every
A: No, sir.[24] [Emphases supplied.] deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence
Having admitted that pre-signed withdrawal slips do not constitute higher than that of a good father of a family. Article 1172 of the New
the normal procedure with respect to withdrawals by representatives Civil Code states that the degree of diligence required of an
should have already put petitioner PNBs employees on guard. obligor[30] is that prescribed by law or contract, and absent such
Rather than readily validating and permitting said withdrawals, they stipulation then the diligence of a family. In every case, the depositor
should have proceeded more cautiously. Clearly, petitioner banks expects the bank to treat his account with the utmost fidelity, whether
employee, Lorenzo T. Bal, an Assistant Vice President at that, was such accounts consist only of a few hundred pesos or of millions of
exceedingly careless in his treatment of respondent Pikes savings pesos.[31]
account.
Anent the issue of the propriety of the award of damages in this
From the foregoing, the evidence clearly showed that the petitioner case, petitioner PNB asseverates that there was no evidence to
bank did not exercise the degree of diligence that it ought to have prove that respondent Pike suffered anguish, embarrassment and
exercised in dealing with their clients. mental sufferings[32] due to its acts in allowing the alleged
unauthorized withdrawals. And, having relied on the instructions of a
With banks, the degree of diligence required, contrary to the position valued depositor, petitioner PNB likewise avers that its actions were
of petitioner PNB, is more than that of a good father of a family made in good faith, for this reason, there is no factual basis for said
considering that the business of banking is imbued with public award.
interest due to the nature of their functions. The stability of banks

BANKING LAWS (Diligence Required of Banks Cases) Page 24


Petitioner PNBs assertions fail to impress us.
Finally, the aforestated grant of exemplary damages entitles
The award of moral and exemplary damages is left to the sound respondent Pike the award of attorney's fees in the amount of
discretion of the court, and if such discretion is well exercised, as in P20,000.00 and the award of P10,000.00 for litigation expenses.[42]
this case, it will not be disturbed on appeal.[33] In the case of
Philippine Telegraph & Telephone Corporation v. Court of WHEREFORE, the instant petition is DENIED. The assailed Decision
Appeals,[34] we had the occasion to reiterate the conditions to be dated 19 December 2002, and the Resolution dated 02 April 2003,
met in order that moral damages may be recovered. In said case we both of the Court of Appeals, in CA-G.R. CV No. 59389, which
stated: affirmed with modification the Decision rendered by the Regional
Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in
An award of moral damages would require, firstly, evidence of Civil Case No. 94-68821, are hereby AFFIRMED with the
besmirched reputation, or physical, mental or psychological suffering MODIFICATION that petitioner PNB is directed to pay respondent
sustained by the claimant; secondly, a culpable act or omission Pike additional 1) P20,000.00 representing attorneys fees; and 2)
factually established; thirdly, proof that the wrongful act or omission P10,000.00 representing expenses of litigation. Costs against
of the defendant is the proximate cause of the damages sustained by petitioner PNB.
the claimant; and fourthly, that the case is predicated on any of the
instances expressed or envisioned by Articles 2219[35] and 2220[36] SO ORDERED.
of the Civil Code.
BPI v LIFETIME MARKETING
Specifically, in culpa contractual or breach of contract, as here, moral TINGA, J.:
damages are recoverable only if the defendant has acted
fraudulently or in bad faith,[37] or is found guilty of gross negligence The Bank of the Philippine Islands (BPI) seeks the reversal of the
amounting to bad faith,[38] or in wanton disregard of his contractual Decision1 of the Court of Appeals dated 31 July 2006 in CA-G.R. CV
obligations.[39] Verily, the breach must be wanton, reckless, No. 62769 which ordered it to pay Lifetime Marketing Corporation
malicious, or in bad faith, oppressive or abusive.[40] (LMC) actual damages in the amount of P2,075,695.50 on account
of its gross negligence in handling LMC's account.
There is no reason to disturb the trial courts finding of petitioner
banks employees negligence in their treatment of respondent Pikes The following facts, quoted from the decision of the Court of Appeals,
account. In the case on hand, the Court of Appeals sustained, and are undisputed:
rightly so, that an award of moral damages is warranted. For, as
found by said appellate court, citing the case of Prudential Bank v. On October 22, 1981, Lifetime Marketing Corporation (LMC, for
Court of Appeals,[41] the banks negligence is a result of lack of due brevity), opened a current account with the Bank of the Philippine
care and caution required of managers and employees of a firm Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as
engaged in so sensitive and demanding business, as banking, Account No. 3101-0680-63. In this account, the "sales agents" of
hence, the award of P20,000.00 as moral damages, is proper. LMC would have to deposit their collections or payments to the latter.
As a result, LMC and BPI, made a special arrangement that the
The award of exemplary damages is also proper as a warning to former's agents will accomplish three (3) copies of the deposit slips,
petitioner PNB and all concerned not to recklessly disregard their the third copy to be retained and held by the teller until LMC's
obligation to exercise the highest and strictest diligence in serving authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta
their depositors Ancajas, shall retrieve them on the following banking day.

BANKING LAWS (Diligence Required of Banks Cases) Page 25


PBC Check No. 158076, CBC Check No. 484027, CBC Check No.
Sometime in 1986, LMC availed of the BPI's inter-branch banking 484017, CBC Check No. 484023 and CBC Check No. 218190.
network services in Metro Manila, whereby the former's agents could
make [a] deposit to any BPI branch in Metro Manila under the same A verification with BPI by LMC showed that Alice Laurel made check
account. Under this system, BPI's bank tellers were no longer deposits with the named BPI branches and, after the check deposit
obliged to retain the extra copy of the deposit slips instead, they will slips were machine-validated, requested the teller to reverse the
rely on the machine-validated deposit slip, to be submitted by LMC's transactions. Based on general banking practices, however, the
agents. For its part, BPI would send to LMC a monthly bank cancellation of deposit or payment transactions upon request by any
statement relating to the subject account. This practice was observed depositor or payor, requires that all copies of the deposit slips must
and complied with by the parties. be retrieved or surrendered to the bank. This practice, in effect,
cancels the deposit or payment transaction, thus, it leaves no
As a business practice, the registered sales agents or the Lifetime evidence for any subsequent claim or misrepresentation made by
Educational Consultants of LMC, can get the books from the latter on any innocent third person. Notwithstanding this, the verbal requests
consignment basis, then they would go directly to their clients to sell. of Alice Laurel and her husband to reverse the deposits even after
These agents or Lifetime Educational Consultants would then pay to the deposit slips were already received and consummated were
LMC, seven (7) days after they pick up all the books to be sold. accommodated by BPI tellers.
Since LMC have several agents around the Philippines, it required to
remit their payments through BPI, where LMC maintained its current Alice Laurel presented the machine-validated deposit slips to LMC
account. It has been LMC's practice to require its agents to present a which, on the strength thereof, considered her account paid. LMC
validated deposit slip and, on that basis, LMC would issue to the even granted her certain privileges or prizes based on the deposits
latter an acknowledgement receipt. she made.

Alice Laurel, is one of LMC's "Educational Consultants" or agents. The total aggregate amount covered by Alice Laurel's deposit slips
On various dates covering the period from May, [sic] 1991 up to was Two Million Seven Hundred Sixty Seven Thousand, Five
August, 1992, Alice Laurel deposited checks to LMC's subject Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC
account at different branches of BPI, specifically: at the paid Laurel the total sum of Five Hundred Sixty Thousand Seven
Harrison/Buendia branch-8 checks; at Arrangue branch-4 checks; at Hundred Twenty Six Pesos (P560,726.00) by way of "sales discount
Araneta branch-1 check; at Binondo branch-3 checks; at Ermita and promo prizes."
branch-5 checks; at Cubao Shopping branch-1 check; at Escolta
branch-4 checks; at the Malate branch-2 checks; at Taft Avenue The above fraudulent transactions of Alice Laurel and her husband
branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San was made possible through BPI teller's failure to retrieve the
Juan branch, at West Avenue and Commonwealth Quezon City duplicate original copies of the deposit slips from the former, every
branch- 2 checks; and at Vito Cruz branch-2 checks. time they ask for cancellation or reversal of the deposit or payment
transaction.
Each check thus deposited were retrieved by Alice Laurel after the
deposit slips were machine-validated, except the following thirteen Upon discovery of this fraud in early August 1992, LMC made
(13) checks, which bore no machine validation, to wit: CBC Check queries from the BPI branches involved. In reply to said queries, BPI
No. 484004, RCBC Check No. 419818, CBC Check No. 484042, branch managers formally admitted that they cancelled, without the
FEBTC Check No. 171857, RCBC Check No. 419847, CBC Check permission of or due notice to LMC, the deposit transactions made
No. 484053, MBTC Check No. 080726, CBC Check No. 484062,

BANKING LAWS (Diligence Required of Banks Cases) Page 26


by Alice and her husband, and based only upon the latter's verbal promo prizes" to Alice Laurel. Failing this, there was allegedly no
request or representation. basis for the award of actual damages. Moreover, the actual
damages should not have been increased because the decision of
Thereafter, LMC immediately instituted a criminal action for Estafa the trial court became conclusive as regards LMC when it did not
against Alice Laurel and her husband Thomas Limoanco, before the appeal the said decision.
Regional Trial Court of Makati, Branch 65, docketed as Criminal
Case No. 93-7970 to 71, entitled People of the Philippines v. Thomas BPI further avers that LMC's negligence in considering the machine-
Limoanco and Alice Laurel. This case for estafa, however, was validated check deposit slips as evidence of Alice Laurel's payment
archived because summons could not be served upon the spouses was the proximate cause of its own loss. Allegedly, by allowing its
as they have absconded. Thus, the BPI's apparent reluctance to agents to make deposits with other BPI branches, LMC violated its
admit liability and settle LMC's claim for damages, and a hopeless own special arrangement with BPI's Greenhills-EDSA branch for the
case of recovery from Alice Laurel and her husband, has left LMC, latter to hold on to an extra copy of the deposit slip for pick up by
with no option but to recover damages from BPI. LMC's authorized representatives. BPI points out that the deposits
were in check and not in cash. As such, LMC should have borne in
On July 24, 1995, LMC, through its representative, Miss Consolacion mind that the machine validation in the deposit slips is still subject to
C. Rogacion, the President of the company, filed a Complaint for the sufficiency of the funds in the drawers' account. Furthermore,
Damages against BPI, docketed as Civil Case No. 95-1106, and was LMC allegedly ignored the express notice indicated in its monthly
raffled to Regional Trial Court of Makati City, Branch 141. bank statements and consequently failed to check the accuracy of
the transactions reflected therein.
After trial on the merits, the court a quo rendered a Decision in favor
of LMC. The dispositive portion of which reads, as follows: In its Manifestation of Compliance by Respondent on the Order
Dated 20 June 2007 Received on 29 July 2007 to Submit
WHEREFORE, decision is hereby rendered ordering defendant bank Comment,6 dated 9 August 2007, LMC insists that it is indeed
to pay plaintiff actual damages equitably reduced to one (1) million entitled to the actual damages awarded to it by the appellate court.
pesos plus attorney's fees of P100,000.00.
BPI filed a Reply7 dated 15 January 2008, in reiteration of its
No pronouncement as to costs. submissions.

SO ORDERED.2 We have repeatedly emphasized that the banking industry is


impressed with public interest. Of paramount importance thereto is
Only BPI filed an appeal. The Court of Appeals affirmed the decision the trust and confidence of the public in general. Accordingly, the
of the trial court but increased the award of actual damages to highest degree of diligence is expected, and high standards of
P2,075,695.50 and deleted the award of P100,000.00 as attorney's integrity and performance are required of it. By the nature of its
fees.3 Citing public interest, the appellate court denied functions, a bank is under obligation to treat the accounts of its
reconsideration in a Resolution4 dated 30 January 2007. depositors with meticulous care, always having in mind the fiduciary
nature of its relationship with them.8 The fiduciary nature of banking,
In this Petition for Review5 dated 19 March 2007, BPI insists that previously imposed by case law, is now enshrined in Republic Act
LMC should have presented evidence to prove not only the amount No. 8791 or the General Banking Law of 2000. Section 2 thereof
of the checks that were deposited and subsequently reversed, but specifically says that the state recognizes the fiduciary nature of
also the actual delivery of the books and the payment of "sales and banking that requires high standards of integrity and performance.9

BANKING LAWS (Diligence Required of Banks Cases) Page 27


banks are duty-bound to treat the accounts of their clients with the
Whether BPI observed the highest degree of care in handling LMC's highest degree of care.13
account is the subject of the inquiry in this case.
BPI cannot escape liability because of LMC's failure to scrutinize the
LMC sought recovery from BPI on a cause of action based on tort. monthly statements sent to it by the bank. This omission does not
Article 2176 of the Civil Code provides, "Whoever by act or omission change the fact that were it not for the wanton and reckless
causes damage to another, there being fault or negligence, is negligence of BPI's tellers in failing to require the surrender of the
obliged to pay for the damage done. Such fault or negligence if there machine-validated deposit slips before reversing the deposit
is no pre-existing contractual relation between the parties, is called a transactions, the loss would not have occurred. BPI's negligence is
quasi-delict and is governed by the provisions of this Chapter." There undoubtedly the proximate cause of the loss. Proximate cause is that
are three elements of quasi-delict: (a) fault or negligence of the cause which, in a natural and continuous sequence, unbroken by
defendant, or some other person for whose acts he must respond; any efficient intervening cause, produces the injury, and without
(b) damages suffered by the plaintiff; and (c) the connection of cause which the result would not have occurred.14
and effect between the fault or negligence of the defendant and the
damages incurred by the plaintiff.10 It is also true, however, that LMC should have been more vigilant in
managing and overseeing its own financial affairs. The damages
In this case, both the trial court and the Court of Appeals found that awarded to it were correctly reduced on account of its own
the reversal of the transactions in question was unilaterally contributory negligence in accordance with Article 1172 of the Civil
undertaken by BPI's tellers without following normal banking Code.15
procedure which requires them to ensure that all copies of the
deposit slips are surrendered by the depositor. The machine- Parenthetically, we find no merit in BPI's allegation that LMC should
validated deposit slips do not show that the transactions have been have presented evidence of delivery of the books and payment of
cancelled, leading LMC to rely on these slips and to consider Alice sales and promo prizes to Alice Laurel. The evidence presented by
Laurel's account as already paid. LMC in the form of BPI's own admission that the deposit transactions
were
Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the reversed at the instance of Alice Laurel and her husband, coupled
conduct of human affairs, would do, or the doing of something which with the machine-validated deposit slips16 which were supposed to
a prudent and reasonable man would not do.11 Negligence in this have been deposited to LMC's account but were cancelled without its
case lies in the tellers' disregard of the validation procedures in place knowledge and consent, sufficiently form the bases for the actual
and BPI's utter failure to supervise its employees. Notably, BPI's damages claimed because they are the very same documents relied
managers admitted in several correspondences with LMC that the upon by LMC in considering Alice Laurel's account paid and in
deposit transactions were cancelled without LMC's knowledge and granting her monetary privileges and prizes.
consent and based only upon the request of Alice Laurel and her
husband.12 Be that as it may, we find the appellate court's decision increasing
the award of actual damages in favor of LMC improper since the
It is well to reiterate that the degree of diligence required of banks is latter did not appeal from the decision of the trial court. It is well-
more than that of a reasonable man or a good father of a family. In settled that a party who does not appeal from the decision may not
view of the fiduciary nature of their relationship with their depositors, obtain any affirmative relief from the appellate court other than what
he has obtained from the lower court whose decision is brought up

BANKING LAWS (Diligence Required of Banks Cases) Page 28


on appeal. The exceptions to this rule, such as where there are (1) the forged checks in the amount of ₱547,115.00 after deductions
errors affecting the lower court's jurisdiction over the subject matter, subject to REIMBURSEMENT from third party defendant Yabut who
(2) plain errors not specified, and (3) clerical errors, do not apply in is likewise ORDERED to pay the other half to plaintiff corporation
this case.17 [Casa Montessori Internationale (CASA)]."4

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV The assailed Resolution denied all the parties’ Motions for
No. 62769 dated 31 July 2006 and its Resolution dated January 30, Reconsideration.
2007 are AFFIRMED with the MODIFICATION that the Bank of the
Philippine Islands is ordered to pay actual damages to Lifetime The Facts

Marketing Corporation in the amount of One Million Pesos The facts of the case are narrated by the CA as follows:
(P1,000,000.00). No pronouncement as to costs.
"On November 8, 1982, plaintiff CASA Montessori International5
SO ORDERED. opened Current Account No. 0291-0081-01 with defendant BPI[,]
with CASA’s President Ms. Ma. Carina C. Lebron as one of its
BPI v CASA MONTESSORI authorized signatories.

PANGANIBAN, J.: "In 1991, after conducting an investigation, plaintiff discovered that
nine (9) of its checks had been encashed by a certain Sonny D.
By the nature of its functions, a bank is required to take meticulous Santos since 1990 in the total amount of ₱782,000.00, on the
care of the deposits of its clients, who have the right to expect high following dates and amounts:
standards of integrity and performance from it.
‘Check No. Date Amount
Among its obligations in furtherance thereof is knowing the 1. 839700 April 24, 1990 ₱ 43,400.00
signatures of its clients. Depositors are not estopped from 2. 839459 Nov. 2, 1990 110,500.00
questioning wrongful withdrawals, even if they have failed to question 3. 839609 Oct. 17, 1990 47,723.00
those errors in the statements sent by the bank to them for 4. 839549 April 7, 1990 90,700.00
verification. 5. 839569 Sept. 23, 1990 52,277.00
6. 729149 Mar. 22, 1990 148,000.00
The Case 7. 729129 Mar. 16, 1990 51,015.00
8. 839684 Dec. 1, 1990 140,000.00
Before us are two Petitions for Review1 under Rule 45 of the Rules 9. 729034 Mar. 2, 1990 98,985.00
of Court, assailing the March 23, 2001 Decision2 and the August 17, Total --
2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. ₱ 782,600.006
63561. The decretal portion of the assailed Decision reads as "It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
follows: Branch [was] a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. Third
"WHEREFORE, upon the premises, the decision appealed from is party defendant voluntarily admitted that he forged the signature of
AFFIRMED with the modification that defendant bank [Bank of the Ms. Lebron and encashed the checks. "The PNP Crime Laboratory
Philippine Islands (BPI)] is held liable only for one-half of the value of conducted an examination of the nine (9) checks and concluded that

BANKING LAWS (Diligence Required of Banks Cases) Page 29


the handwritings thereon compared to the standard signature of Ms.
Lebron were not written by the latter. "1. The Honorable Court of Appeals erred when it ruled that ‘there is
no showing that [BPI], although negligent, acted in bad faith x x x’
"On March 4, 1991, plaintiff filed the herein Complaint for Collection thus denying the prayer for the award of attorney’s fees, moral
with Damages against defendant bank praying that the latter be damages and exemplary damages to [CASA]. The Honorable Court
ordered to reinstate the amount of ₱782,500.007 in the current and also erred when it did not order [BPI] to pay interest on the amounts
savings accounts of the plaintiff with interest at 6% per annum. due to [CASA].

"On February 16, 1999, the RTC rendered the appealed decision in "2. The Honorable Court of Appeals erred when it declared that
favor of the plaintiff."8 [CASA] was likewise negligent in the case at bar, thus warranting its
conclusion that the loss in the amount of ₱547,115.00 be
Ruling of the Court of Appeals ‘apportioned between [CASA] and [BPI] x x x.’"11

Modifying the Decision of the Regional Trial Court (RTC), the CA These issues can be narrowed down to three. First, was there
apportioned the loss between BPI and CASA. The appellate court forgery under the Negotiable Instruments Law (NIL)? Second, were
took into account CASA’s contributory negligence that resulted in the any of the parties negligent and therefore precluded from setting up
undetected forgery. It then ordered Leonardo T. Yabut to reimburse forgery as a defense? Third, should moral and exemplary damages,
BPI half the total amount claimed; and CASA, the other half. It also attorney’s fees, and interest be awarded?
disallowed attorney’s fees and moral and exemplary damages.
The Court’s Ruling
Hence, these Petitions.9
The Petition in GR No. 149454 has no merit, while that in GR No.
Issues 149507 is partly meritorious.

In GR No. 149454, Petitioner BPI submits the following issues for our First Issue:
consideration:
Forged Signature Wholly Inoperative
"I. The Honorable Court of Appeals erred in deciding this case NOT
in accord with the applicable decisions of this Honorable Court to the Section 23 of the NIL provides:
effect that forgery cannot be presumed; that it must be proved by
clear, positive and convincing evidence; and that the burden of proof "Section 23. Forged signature; effect of. -- When a signature is
lies on the party alleging the forgery. forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right x x x to enforce
"II. The Honorable Court of Appeals erred in deciding this case not in payment thereof against any party thereto, can be acquired through
accord with applicable laws, in particular the Negotiable Instruments or under such signature, unless the party against whom it is sought
Law (NIL) which precludes CASA, on account of its own negligence, to enforce such right is precluded from setting up the forgery or want
from asserting its forgery claim against BPI, specially taking into of authority."12
account the absence of any negligence on the part of BPI."10
Under this provision, a forged signature is a real13 or absolute
In GR No. 149507, Petitioner CASA submits the following issues: defense,14 and a person whose signature on a negotiable

BANKING LAWS (Diligence Required of Banks Cases) Page 30


instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise Therefore, to fall within the ambit of Section 12, quoted above, there
to it.15 must be an arrest or a deprivation of freedom, with "questions
propounded on him by the police authorities for the purpose of
The counterfeiting of any writing, consisting in the signing of eliciting admissions, confessions, or any information."30 The said
another’s name with intent to defraud, is forgery.16 constitutional provision does "not apply to spontaneous statements
made in a voluntary manner"31 whereby an individual orally admits
In the present case, we hold that there was forgery of the drawer’s to authorship of a crime.32 "What the Constitution proscribes is the
signature on the check. compulsory or coercive disclosure of incriminating facts."33

First, both the CA17 and the RTC18 found that Respondent Yabut Moreover, the right against self-incrimination34 under Section 17 of
himself had voluntarily admitted, through an Affidavit, that he had Article III35 of the Constitution, which is ordinarily available only in
forged the drawer’s signature and encashed the checks.19 He never criminal prosecutions, extends to all other government proceedings --
refuted these findings.20 That he had been coerced into admission including civil actions, legislative investigations,36 and administrative
was not corroborated by any evidence on record.21 proceedings that possess a criminal or penal aspect37 -- but not to
private investigations done by private individuals. Even in such
Second, the appellate and the trial courts also ruled that the PNP government proceedings, this right may be waived,38 provided the
Crime Laboratory, after its examination of the said checks,22 had waiver is certain; unequivocal; and intelligently, understandingly and
concluded that the handwritings thereon -- compared to the standard willingly made.39
signature of the drawer -- were not hers.23 This conclusion was the
same as that in the Report24 that the PNP Crime Laboratory had If in these government proceedings waiver is allowed, all the more is
earlier issued to BPI -- the drawee bank -- upon the latter’s request. it so in private investigations. It is of no moment that no criminal case
has yet been filed against Yabut. The filing thereof is entirely up to
Indeed, we respect and affirm the RTC’s factual findings, especially the appropriate authorities or to the private individuals upon whom
when affirmed by the CA, since these are supported by substantial damage has been caused. As we shall also explain later, it is not
evidence on record.25 mandatory for CASA -- the plaintiff below -- to implead Yabut in the
civil case before the lower court.
Voluntary Admission Not Violative of Constitutional Rights
Under these two constitutional provisions, "[t]he Bill of Rights40 does
The voluntary admission of Yabut did not violate his constitutional not concern itself with the relation between a private individual and
rights (1) on custodial investigation, and (2) against self- another individual. It governs the relationship between the individual
incrimination. and the State."41 Moreover, the Bill of Rights "is a charter of liberties
for the individual and a limitation upon the power of the [S]tate."42
In the first place, he was not under custodial investigation.26 His These rights43 are guaranteed to preclude the slightest coercion by
Affidavit was executed in private and before private individuals.27 the State that may lead the accused "to admit something false, not
The mantle of protection under Section 12 of Article III of the 1987 prevent him from freely and voluntarily telling the truth."44
Constitution28 covers only the period "from the time a person is
taken into custody for investigation of his possible participation in the Yabut is not an accused here. Besides, his mere invocation of the
commission of a crime or from the time he is singled out as a suspect aforesaid rights "does not automatically entitle him to the
in the commission of a crime although not yet in custody."29 constitutional protection."45 When he freely and voluntarily

BANKING LAWS (Diligence Required of Banks Cases) Page 31


executed46 his Affidavit, the State was not even involved. Such whether the document has been actually executed, this rule does not
Affidavit may therefore be admitted without violating his constitutional apply; and testimonial as well as any other secondary evidence is
rights while under custodial investigation and against self- admissible.59 Carina Lebron herself, the drawer’s authorized
incrimination. signatory, testified many times that she had never signed those
checks. Her testimonial evidence is admissible; the checks have not
Clear, Positive and Convincing Examination and Evidence been actually executed. The genuineness of her handwriting is
proved, not only through the court’s comparison of the questioned
The examination by the PNP, though inconclusive, was nevertheless handwritings and admittedly genuine specimens thereof,60 but
clear, positive and convincing. above all by her.

Forgery "cannot be presumed."47 It must be established by clear, The failure of CASA to produce the original checks neither gives rise
positive and convincing evidence.48 Under the best evidence rule as to the presumption of suppression of evidence61 nor creates an
applied to documentary evidence like the checks in question, no unfavorable inference against it.62 Such failure merely authorizes
secondary or substitutionary evidence may inceptively be introduced, the introduction of secondary evidence63 in the form of microfilm
as the original writing itself must be produced in court.49 But when, copies. Of no consequence is the fact that CASA did not present the
without bad faith on the part of the offeror, the original checks have signature card containing the signatures with which those on the
already been destroyed or cannot be produced in court, secondary checks were compared.64 Specimens of standard signatures are not
evidence may be produced.50 Without bad faith on its part, CASA limited to such a card. Considering that it was not produced in
proved the loss or destruction of the original checks through the evidence, other documents that bear the drawer’s authentic
Affidavit of the one person who knew of that fact51 -- Yabut. He signature may be resorted to.65 Besides, that card was in the
clearly admitted to discarding the paid checks to cover up his possession of BPI -- the adverse party.
misdeed.52 In such a situation, secondary evidence like microfilm
copies may be introduced in court. We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive comparison
The drawer’s signatures on the microfilm copies were compared with that would establish forgery;66 and that a comparison based on a
the standard signature. PNP Document Examiner II Josefina de la mere reproduction of the document under controversy cannot
Cruz testified on cross-examination that two different persons had produce reliable results.67 We have also said, however, that a judge
written them.53 Although no conclusive report could be issued in the cannot merely rely on a handwriting expert’s testimony,68 but should
absence of the original checks,54 she affirmed that her findings were also exercise independent judgment in evaluating the authenticity of
90 percent conclusive.55 According to her, even if the microfilm a signature under scrutiny.69 In the present case, both the RTC and
copies were the only basis of comparison, the differences were the CA conducted independent examinations of the evidence
evident.56 Besides, the RTC explained that although the Report was presented and arrived at reasonable and similar conclusions. Not
inconclusive, no conclusive report could have been given by the only did they admit secondary evidence; they also appositely
PNP, anyway, in the absence of the original checks.57 This considered testimonial and other documentary evidence in the form
explanation is valid; otherwise, no such report can ever be relied of the Affidavit.
upon in court.
The best evidence rule admits of exceptions and, as we have
Even with respect to documentary evidence, the best evidence rule discussed earlier, the first of these has been met.70 The result of
applies only when the contents of a document -- such as the examining a questioned handwriting, even with the aid of experts
drawer’s signature on a check -- is the subject of inquiry.58 As to and scientific instruments, may be inconclusive;71 but it is a non

BANKING LAWS (Diligence Required of Banks Cases) Page 32


sequitur to say that such result is not clear, positive and convincing. Neither Waiver nor Estoppel Results from Failure to Report Error in
The preponderance of evidence required in this case has been Bank Statement
satisfied.72
The monthly statements issued by BPI to its clients contain a notice
Second Issue: worded as follows: "If no error is reported in ten (10) days, account
will be correct."80 Such notice cannot be considered a waiver, even
Negligence Attributable to BPI Alone if CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period.
Having established the forgery of the drawer’s signature, BPI -- the
drawee -- erred in making payments by virtue thereof. The forged This notice is a simple confirmation81 or "circularization" -- in
signatures are wholly inoperative, and CASA -- the drawer whose accounting parlance -- that requests client-depositors to affirm the
authorized signatures do not appear on the negotiable instruments -- accuracy of items recorded by the banks.82 Its purpose is to obtain
cannot be held liable thereon. Neither is the latter precluded from from the depositors a direct corroboration of the correctness of their
setting up forgery as a real defense. account balances with their respective banks.83 Internal or external
auditors of a bank use it as a basic audit procedure84 -- the results
Clear Negligence in Allowing Payment Under a Forged Signature of which its client-depositors are neither interested in nor privy to -- to
test the details of transactions and balances in the bank’s records.85
We have repeatedly emphasized that, since the banking business is Evidential matter obtained from independent sources outside a bank
impressed with public interest, of paramount importance thereto is only serves to provide greater assurance of reliability86 than that
the trust and confidence of the public in general. Consequently, the obtained solely within it for purposes of an audit of its own financial
highest degree of diligence73 is expected,74 and high standards of statements, not those of its client-depositors.
integrity and performance are even required, of it.75 By the nature of
its functions, a bank is "under obligation to treat the accounts of its Furthermore, there is always the audit risk that errors would not be
depositors with meticulous care,76 always having in mind the detected87 for various reasons. One, materiality is a consideration in
fiduciary nature of their relationship."77 audit planning;88 and two, the information obtained from such a
substantive test is merely presumptive and cannot be the basis of a
BPI contends that it has a signature verification procedure, in which valid waiver.89 BPI has no right to impose a condition unilaterally
checks are honored only when the signatures therein are verified to and thereafter consider failure to meet such condition a waiver.
be the same with or similar to the specimen signatures on the Neither may CASA renounce a right90 it has never possessed.91
signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that Every right has subjects -- active and passive. While the active
degree of diligence required78 of a bank. It cannot now feign subject is entitled to demand its enforcement, the passive one is
ignorance, for very early on we have already ruled that a bank is duty-bound to suffer such enforcement.92
"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 On the one hand, BPI could not have been an active subject,
own funds, and cannot ordinarily charge the amount so paid to the because it could not have demanded from CASA a response to its
account of the depositor whose name was forged."79 In fact, BPI notice. Besides, the notice was a measly request worded as follows:
was the same bank involved when we issued this ruling seventy "Please examine x x x and report x x x."93 CASA, on the other hand,
years ago. could not have been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose not to respond.

BANKING LAWS (Diligence Required of Banks Cases) Page 33


Pursuant to its prime duty to ascertain well the genuineness of the
Estoppel precludes individuals from denying or asserting, by their signatures of its client-depositors on checks being encashed, BPI is
own deed or representation, anything contrary to that established as "expected to use reasonable business prudence."108 In the
the truth, in legal contemplation.94 Our rules on evidence even make performance of that obligation, it is bound by its internal banking
a juris et de jure presumption95 that whenever one has, by one’s rules and regulations that form part of the contract it enters into with
own act or omission, intentionally and deliberately led another to its depositors.109
believe a particular thing to be true and to act upon that belief, one
cannot -- in any litigation arising from such act or omission -- be Unfortunately, it failed in that regard. First, Yabut was able to open a
permitted to falsify that supposed truth.96 bank account in one of its branches without privity;110 that is,
without the proper verification of his corresponding identification
In the instant case, CASA never made any deed or representation papers. Second, BPI was unable to discover early on not only this
that misled BPI. The former’s omission, if any, may only be deemed irregularity, but also the marked differences in the signatures on the
an innocent mistake oblivious to the procedures and consequences checks and those on the signature card. Third, despite the
of periodic audits. Since its conduct was due to such ignorance examination procedures it conducted, the Central Verification
founded upon an innocent mistake, estoppel will not arise.97 A Unit111 of the bank even passed off these evidently different
person who has no knowledge of or consent to a transaction may not signatures as genuine. Without exercising the required prudence on
be estopped by it.98 "Estoppel cannot be sustained by mere its part, BPI accepted and encashed the eight checks presented to it.
argument or doubtful inference x x x."99 CASA is not barred from As a result, it proximately contributed to the fraud and should be held
questioning BPI’s error even after the lapse of the period given in the primarily liable112 for the "negligence of its officers or agents when
notice. acting within the course and scope of their employment."113 It must
bear the loss.
Loss Borne by Proximate Source of Negligence
CASA Not Negligent in Its Financial Affairs
For allowing payment100 on the checks to a wrongful and fictitious
payee, BPI -- the drawee bank -- becomes liable to its depositor- In this jurisdiction, the negligence of the party invoking forgery is
drawer. Since the encashing bank is one of its branches,101 BPI can recognized as an exception114 to the general rule that a forged
easily go after it and hold it liable for reimbursement.102 It "may not signature is wholly inoperative.115 Contrary to BPI’s claim, however,
debit the drawer’s account103 and is not entitled to indemnification we do not find CASA negligent in handling its financial affairs. CASA,
from the drawer."104 In both law and equity, when one of two we stress, is not precluded from setting up forgery as a real defense.
innocent persons "must suffer by the wrongful act of a third person,
the loss must be borne by the one whose negligence was the Role of Independent Auditor
proximate cause of the loss or who put it into the power of the third
person to perpetrate the wrong."105 The major purpose of an independent audit is to investigate and
determine objectively if the financial statements submitted for audit
Proximate cause is determined by the facts of the case.106 "It is that by a corporation have been prepared in accordance with the
cause which, in natural and continuous sequence, unbroken by any appropriate financial reporting practices116 of private entities. The
efficient intervening cause, produces the injury, and without which relationship that arises therefrom is both legal and moral.117 It
the result would not have occurred."107 begins with the execution of the engagement letter118 that embodies
the terms and conditions of the audit and ends with the fulfilled

BANKING LAWS (Diligence Required of Banks Cases) Page 34


expectation of the auditor’s ethical119 and competent performance Moreover, there was a time gap between the period covered by the
in all aspects of the audit.120 bank statement and the date of its actual receipt. Lebron personally
received the December 1990 bank statement only in January
The financial statements are representations of the client; but it is the 1991134 -- when she was also informed of the forgery for the first
auditor who has the responsibility for the accuracy in the recording of time, after which she immediately requested a "stop payment order."
data that underlies their preparation, their form of presentation, and She cannot be faulted for the late detection of the forged December
the opinion121 expressed therein.122 The auditor does not assume check. After all, the bank account with BPI was not personal but
the role of employee or of management in the client’s conduct of corporate, and she could not be expected to monitor closely all its
operations123 and is never under the control or supervision124 of finances. A preschool teacher charged with molding the minds of the
the client. youth cannot be burdened with the intricacies or complexities of
corporate existence.
Yabut was an independent auditor125 hired by CASA. He handled
its monthly bank reconciliations and had access to all relevant There is also a cutoff period such that checks issued during a given
documents and checkbooks.126 In him was reposed the client’s127 month, but not presented for payment within that period, will not be
trust and confidence128 that he would perform precisely those reflected therein.135 An experienced auditor with intent to defraud
functions and apply the appropriate procedures in accordance with can easily conceal any devious scheme from a client unwary of the
generally accepted auditing standards.129 Yet he did not meet these accounting processes involved by manipulating the cash balances
expectations. Nothing could be more horrible to a client than to on record -- especially when bank transactions are numerous, large
discover later on that the person tasked to detect fraud was the same and frequent. CASA could only be blamed, if at all, for its
one who perpetrated it. unintelligent choice in the selection and appointment of an auditor --
a fault that is not tantamount to negligence.
Cash Balances Open to Manipulation
Negligence is not presumed, but proven by whoever alleges it.136 Its
It is a non sequitur to say that the person who receives the monthly mere existence "is not sufficient without proof that it, and no other
bank statements, together with the cancelled checks and other cause,"137 has given rise to damages.138 In addition, this fault is
debit/credit memoranda, shall examine the contents and give notice common to, if not prevalent among, small and medium-sized
of any discrepancies within a reasonable time. Awareness is not business entities, thus leading the Professional Regulation
equipollent with discernment. Commission (PRC), through the Board of Accountancy (BOA), to
require today not only accreditation for the practice of public
Besides, in the internal accounting control system prudently installed accountancy,139 but also the registration of firms in the practice
by CASA,130 it was Yabut who should examine those documents in thereof. In fact, among the attachments now required upon
order to prepare the bank reconciliations.131 He owned his working registration are the code of good governance140 and a sworn
papers,132 and his output consisted of his opinion as well as the statement on adequate and effective training.141
client’s financial statements and accompanying notes thereto. CASA
had every right to rely solely upon his output -- based on the terms of The missing checks were certainly reported by the bookkeeper142 to
the audit engagement -- and could thus be unwittingly duped into the accountant143 -- her immediate supervisor -- and by the latter to
believing that everything was in order. Besides, "[g]ood faith is the auditor. However, both the accountant and the auditor, for
always presumed and it is the burden of the party claiming otherwise reasons known only to them, assured the bookkeeper that there
to adduce clear and convincing evidence to the contrary."133 were no irregularities.

BANKING LAWS (Diligence Required of Banks Cases) Page 35


The bookkeeper144 who had exclusive custody of the gross that it amounts to malice157 can be imputed to BPI. Bad faith,
checkbooks145 did not have to go directly to CASA’s president or to under the law, "does not simply connote bad judgment or
BPI. Although she rightfully reported the matter, neither an negligence;158 it imports a dishonest purpose or some moral
investigation was conducted nor a resolution of it was arrived at, obliquity and conscious doing of a wrong, a breach of a known duty
precisely because the person at the top of the helm was the culprit. through some motive or interest or ill will that partakes of the nature
The vouchers, invoices and check stubs in support of all check of fraud."159
disbursements could be concealed or fabricated -- even in collusion -
- and management would still have no way to verify its cash As a general rule, a corporation -- being an artificial person without
accountabilities. feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages,160 because it
Clearly then, Yabut was able to perpetrate the wrongful act through cannot experience physical suffering and mental anguish.161
no fault of CASA. If auditors may be held liable for breach of contract However, for breach of the fiduciary duty required of a bank, a
and negligence,146 with all the more reason may they be charged corporate client may claim such damages when its good reputation is
with the perpetration of fraud upon an unsuspecting client. CASA besmirched by such breach, and social humiliation results
had the discretion to pursue BPI alone under the NIL, by reason of therefrom.162 CASA was unable to prove that BPI had debased the
expediency or munificence or both. Money paid under a mistake may good reputation of,163 and consequently caused incalculable
rightfully be recovered,147 and under such terms as the injured party embarrassment to, the former. CASA’s mere allegation or
may choose. supposition thereof, without any sufficient evidence on record,164 is
not enough.
Third Issue:
Exemplary Damages Also Denied
Award of Monetary Claims
We also deny CASA’s claim for exemplary damages.
Moral Damages Denied
Imposed by way of correction165 for the public good,166 exemplary
We deny CASA’s claim for moral damages. damages cannot be recovered as a matter of right.167 As we have
said earlier, there is no bad faith on the part of BPI for paying the
In the absence of a wrongful act or omission,148 or of fraud or bad checks of CASA upon forged signatures. Therefore, the former
faith,149 moral damages cannot be awarded.150 The adverse result cannot be said to have acted in a wanton, fraudulent, reckless,
of an action does not per se make the action wrongful, or the party oppressive or malevolent manner.168 The latter, having no right to
liable for it. One may err, but error alone is not a ground for granting moral damages, cannot demand exemplary damages.169
such damages.151 While no proof of pecuniary loss is necessary
therefor -- with the amount to be awarded left to the court’s Attorney’s Fees Granted
discretion152 -- the claimant must nonetheless satisfactorily prove
the existence of its factual basis153 and causal relation154 to the Although it is a sound policy not to set a premium on the right to
claimant’s act or omission.155 litigate,170 we find that CASA is entitled to reasonable attorney’s
fees based on "factual, legal, and equitable justification."171
Regrettably, in this case CASA was unable to identify the particular
instance -- enumerated in the Civil Code -- upon which its claim for When the act or omission of the defendant has compelled the plaintiff
moral damages is predicated.156 Neither bad faith nor negligence so to incur expenses to protect the latter’s interest,172 or where the

BANKING LAWS (Diligence Required of Banks Cases) Page 36


court deems it just and equitable,173 attorney’s fees may be deficiency shall be supplied" by its provisions. A perusal of these
recovered. In the present case, BPI persistently denied the claim of three statutes unmistakably shows that the award of interest under
CASA under the NIL to recredit the latter’s account for the value of our civil law is justified.
the forged checks. This denial constrained CASA to incur expenses
and exert effort for more than ten years in order to protect its WHEREFORE, the Petition in GR No. 149454 is hereby DENIED,
corporate interest in its bank account. Besides, we have already and that in GR No. 149507 PARTLY GRANTED. The assailed
cautioned BPI on a similar act of negligence it had committed Decision of the Court of Appeals is AFFIRMED with modification: BPI
seventy years ago, but it has remained unrelenting. Therefore, the is held liable for ₱547,115, the total value of the forged checks less
Court deems it just and equitable to grant ten percent (10%)174 of the amount already recovered by CASA from Leonardo T. Yabut,
the total value adjudged to CASA as attorney’s fees. plus interest at the legal rate of six percent (6%) per annum --
compounded annually, from the filing of the complaint until paid in
Interest Allowed full; and attorney’s fees of ten percent (10%) thereof, subject to
reimbursement from Respondent Yabut for the entire amount,
For the failure of BPI to pay CASA upon demand and for compelling excepting attorney’s fees. Let a copy of this Decision be furnished
the latter to resort to the courts to obtain payment, legal interest may the Board of Accountancy of the Professional Regulation
be adjudicated at the discretion of the Court, the same to run from Commission for such action as it may deem appropriate against
the filing175 of the Complaint.176 Since a court judgment is not a Respondent Yabut. No costs.
loan or a forbearance of recovery, the legal interest shall be at six
percent (6%) per annum.177 "If the obligation consists in the SO ORDERED.
payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, PHILIPPINE BANK OF COMMERCE v CA
shall be the payment of x x x legal interest, which is six percent per
annum."178 The actual base for its computation shall be "on the HERMOSISIMA, JR., J.:
amount finally adjudged,"179 compounded180 annually to make up
for the cost of money181 already lost to CASA. Challenged in this petition for review is the Decision dated February
28, 19911 rendered by public respondent Court of Appeals which
Moreover, the failure of the CA to award interest does not prevent us affirmed the Decision dated November 15, 1985 of the Regional Trial
from granting it upon damages awarded for breach of contract.182 Court, National Capital Judicial Region, Branch CLX (160), Pasig
Because BPI evidently breached its contract of deposit with CASA, City, in Civil Case No. 27288 entitled "Rommel's Marketing
we award interest in addition to the total amount adjudged. Under Corporation, etc. v. Philippine Bank of Commerce, now absorbed by
Section 196 of the NIL, any case not provided for shall be "governed Philippine Commercial and Industrial Bank."
by the provisions of existing legislation or, in default thereof, by the
rules of the law merchant."183 Damages are not provided for in the The case stemmed from a complaint filed by the private respondent
NIL. Thus, we resort to the Code of Commerce and the Civil Code. Rommel's Marketing Corporation (RMC for brevity), represented by
Under Article 2 of the Code of Commerce, acts of commerce shall be its President and General Manager Romeo Lipana, to recover from
governed by its provisions and, "in their absence, by the usages of the former Philippine Bank of Commerce (PBC for brevity), now
commerce generally observed in each place; and in the absence of absorbed by the Philippine Commercial International Bank, the sum
both rules, by those of the civil law."184 This law being silent, we of P304,979.74 representing various deposits it had made in its
look at Article 18 of the Civil Code, which states: "In matters which current account with said bank but which were not credited to its
are governed by the Code of Commerce and special laws, their account, and were instead deposited to the account of one

BANKING LAWS (Diligence Required of Banks Cases) Page 37


Bienvenido Cotas, allegedly due to the gross and inexcusable would, however, validate and stamp both the original and the
negligence of the petitioner bank. duplicate of these deposit slips retaining only the original copy
despite the lack of information on the duplicate slip. The second copy
RMC maintained two (2) separate current accounts, Current Account was kept by Irene Yabut allegedly for record purposes. After
Nos. 53-01980-3 and 53-01748-7, with the Pasig Branch of PBC in validation, Yabut would then fill up the name of RMC in the space left
connection with its business of selling appliances. 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
In the ordinary and usual course of banking operations, current RMC's account number, i.e., C.A. No. 53-01980-3. With the daily
account deposits are accepted by the bank on the basis of deposit remittance records also prepared by Ms. Yabut and submitted to
slips prepared and signed by the depositor, or the latter's agent or private respondent RMC together with the validated duplicate slips
representative, who indicates therein the current account number to with the latter's name and account number, she made her company
which the deposit is to be credited, the name of the depositor or believe that all the while the amounts she deposited were being
current account holder, the date of the deposit, and the amount of credited to its account when, in truth and in fact, they were being
the deposit either in cash or checks. The deposit slip has an upper deposited by her and credited by the petitioner bank in the account
portion or stub, which is detached and given to the depositor or his of Cotas. This went on in a span of more than one (1) year without
agent; the lower portion is retained by the bank. In some instances, private respondent's knowledge.
however, the deposit slips are prepared in duplicate by the depositor.
The original of the deposit slip is retained by the bank, while the Upon discovery of the loss of its funds, RMC demanded from
duplicate copy is returned or given to the depositor. petitioner bank the return of its money, but as its demand went
unheeded, it filed a collection suit before the Regional Trial Court of
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims Pasig, Branch 160. The trial court found petitioner bank negligent
to have entrusted RMC funds in the form of cash totalling and ruled as follows:
P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with PBC. It WHEREFORE, judgment is hereby rendered sentencing defendant
turned out, however, that these deposits, on all occasions, were not Philippine Bank of Commerce, now absorbed by defendant
credited to RMC's account but were instead deposited to Account Philippine Commercial & Industrial Bank, and defendant Azucena
No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise Mabayad to pay the plaintiff, jointly and severally, and without
maintains an account with the same bank. During this period, prejudice to any criminal action which may be instituted if found
petitioner bank had, however, been regularly furnishing private warranted:
respondent with monthly statements showing its current accounts
balances. Unfortunately, it had never been the practice of Romeo 1. The sum of P304,979.72, representing plaintiffs lost deposit,
Lipana to check these monthly statements of account reposing plus interest thereon at the legal rate from the filing of the complaint;
complete trust and confidence on petitioner bank.
2. A sum equivalent to 14% thereof, as exemplary damages;
Irene Yabut's modus operandi is far from complicated. She would
accomplish two (2) copies of the deposit slip, an original and a 3. A sum equivalent to 25% of the total amount due, as and for
duplicate. The original showed the name of her husband as attorney's fees; and
depositor and his current account number. On the duplicate copy
was written the account number of her husband but the name of the 4. Costs.
account holder was left blank. PBC's teller, Azucena Mabayad,

BANKING LAWS (Diligence Required of Banks Cases) Page 38


Defendants' counterclaim is hereby dismissed for lack of merit.2 the private respondent RMC — petitioner bank's negligence or that
of private respondent's?
On appeal, the appellate court affirmed the foregoing decision with
modifications, viz: Petitioners submit that the proximate cause of the loss is the
negligence of respondent RMC and Romeo Lipana in entrusting
WHEREFORE, the decision appealed from herein is MODIFIED in cash to a dishonest employee in the person of Ms. Irene Yabut.5
the sense that the awards of exemplary damages and attorney's fees According to them, it was impossible for the bank to know that the
specified therein are eliminated and instead, appellants are ordered money deposited by Ms. Irene Yabut belong to RMC; neither was the
to pay plaintiff, in addition to the principal sum of P304,979.74 bank forewarned by RMC that Yabut will be depositing cash to its
representing plaintiff's lost deposit plus legal interest thereon from account. Thus, it was impossible for the bank to know the fraudulent
the filing of the complaint, P25,000.00 attorney's fees and costs in design of Yabut considering that her husband, Bienvenido Cotas,
the lower court as well as in this Court.3 also maintained an account with the bank. For the bank to inquire
into the ownership of the cash deposited by Ms. Irene Yabut would
Hence, this petition anchored on the following grounds: be irregular. Otherwise stated, it was RMC's negligence in entrusting
cash to a dishonest employee which provided Ms. Irene Yabut the
1) The proximate cause of the loss is the negligence of opportunity to defraud RMC.6
respondent Rommel Marketing Corporation and Romeo Lipana in
entrusting cash to a dishonest employee. 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.
2) The failure of respondent Rommel Marketing Corporation to Azucena Mabayad, in validating the deposit slips, both original and
cross-check the bank's statements of account with its own records duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding
during the entire period of more than one (1) year is the proximate the fact that one of the deposit slips was not completely
cause of the commission of subsequent frauds and misappropriation accomplished.
committed by Ms. Irene Yabut.
We sustain the private respondent.
3) The duplicate copies of the deposit slips presented by
respondent Rommel Marketing Corporation are falsified and are not Our law on quasi-delicts states:
proof that the amounts appearing thereon were deposited to
respondent Rommel Marketing Corporation's account with the bank, Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
4) The duplicate copies of the deposit slips were used by Ms. damage done. Such fault or negligence, if there is no pre-existing
Irene Yabut to cover up her fraudulent acts against respondent contractual relation between the parties, is called a quasi-delict and
Rommel Marketing Corporation, and not as records of deposits she is governed by the provisions of this Chapter.
made with the bank.4
There are three elements of a quasi-delict: (a) damages suffered by
The petition has no merit. the plaintiff; (b) fault or negligence of the defendant, or some other
person for whose acts he must respond; and (c) the connection of
Simply put, the main issue posited before us is: What is the cause and effect between the fault or negligence of the defendant
proximate cause of the loss, to the tune of P304,979.74, suffered by and the damages incurred by the plaintiff.7

BANKING LAWS (Diligence Required of Banks Cases) Page 39


In the case at bench, there is no dispute as to the damage suffered A: The client or depositor or the authorized representative
by the private respondent (plaintiff in the trial court) RMC in the prepares a deposit slip by filling up the deposit slip with the name,
amount of P304,979.74. It is in ascribing fault or negligence which the account number, the date, the cash breakdown, if it is deposited
caused the damage where the parties point to each other as the for cash, and the check number, the amount and then he signs the
culprit. deposit slip.

Negligence is the omission to do something which a reasonable Q: Now, how many deposit slips do you normally require in
man, guided by those considerations which ordinarily regulate the accomplishing current account deposit, Mrs. Mabayad?
conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would do. The seventy-eight (78)- A: The bank requires only one copy of the deposit although
year-old, yet still relevant, case of Picart v. Smith,8 provides the test some of our clients prepare the deposit slip in duplicate.
by which to determine the existence of negligence in a particular
case which may be stated as follows: Did the defendant in doing the Q: Now in accomplishing current account deposits from your
alleged negligent act use that reasonable care and caution which an clients, what do you issue to the depositor to evidence the deposit
ordinarily prudent person would have used in the same situation? If made?
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 A: We issue or we give to the clients the depositor's stub as a
discreet paterfamilias of the Roman law. The existence of negligence receipt of the deposit.
in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers Q: And who prepares the deposit slip?
what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that. A: The depositor or the authorized representative sir?

Applying the above test, it appears that the bank's teller, Ms. Q: Where does the depositor's stub comes (sic) from Mrs.
Azucena Mabayad, was negligent in validating, officially stamping Mabayad, is it with the deposit slip?
and signing all the deposit slips prepared and presented by Ms.
Yabut, despite the glaring fact that the duplicate copy was not A: The depositor's stub is connected with the deposit slip or the
completely accomplished contrary to the self-imposed procedure of bank's copy. In a deposit slip, the upper portion is the depositor's
the bank with respect to the proper validation of deposit slips, original stub and the lower portion is the bank's copy, and you can detach
or duplicate, as testified to by Ms. Mabayad herself, thus: the bank's copy from the depositor's stub by tearing it sir.

Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Q: Now what do you do upon presentment of the deposit slip by
Mrs. Mabayad your important duties and functions? the depositor or the depositor's authorized representative?

A: I accept current and savings deposits from depositors and A: We see to it that the deposit slip9 is properly accomplished
encashments. and then we count the money and then we tally it with the deposit
slip sir.
Q: Now in the handling of current account deposits of bank
clients, could you tell us the procedure you follow? Q: Now is the depositor's stub which you issued to your clients
validated?

BANKING LAWS (Diligence Required of Banks Cases) Page 40


A: Yes, sir. 10 [Emphasis ours] A: No it was not reported.

Clearly, Ms. Mabayad failed to observe this very important Q: You did not know that any one in the bank tellers or cashiers
procedure. The fact that the duplicate slip was not compulsorily validated the blank deposit slip?
required by the bank in accepting deposits should not relieve the
petitioner bank of responsibility. The odd circumstance alone that A: I am not aware of that.
such duplicate copy lacked one vital information — that of the name
of the account holder — should have already put Ms. Mabayad on Q: It is only now that you are aware of that?
guard. Rather than readily validating the incomplete duplicate copy,
she should have proceeded more cautiously by being more probing A: Yes, sir. 13
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. Prescinding from the above, public respondent Court of Appeals
She should not have been so naive in accepting hook, line and aptly observed:
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 xxx xxx xxx
simply fill up the blank space later on. 11 A "reasonable man of
ordinary prudence" 12 would not have given credence to such It was in fact only when he testified in this case in February, 1983, or
explanation and would have insisted that the space left blank be after the lapse of more than seven (7) years counted from the period
filled up as a condition for validation. Unfortunately, this was not how when the funds in question were deposited in plaintiff's accounts
bank teller Mabayad proceeded thus resulting in huge losses to the (May, 1975 to July, 1976) that bank manager Bonifacio admittedly
private respondent. became aware of the practice of his teller Mabayad of validating
blank deposit slips. Undoubtedly, this is gross, wanton, and
Negligence here lies not only on the part of Ms. Mabayad but also on inexcusable negligence in the appellant bank's supervision of its
the part of the bank itself in its lackadaisical selection and employees. 14
supervision of Ms. Mabayad. This was exemplified in the testimony
of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the It was this negligence of Ms. Azucena Mabayad, coupled by the
petitioner bank and now its Vice-President, to the effect that, while he negligence of the petitioner bank in the selection and supervision of
ordered the investigation of the incident, he never came to know that its bank teller, which was the proximate cause of the loss suffered by
blank deposit slips were validated in total disregard of the bank's the private respondent, and not the latter's act of entrusting cash to a
validation procedures, viz: dishonest employee, as insisted by the petitioners.

Q: Did he ever tell you that one of your cashiers affixed the Proximate cause is determined on the facts of each case upon mixed
stamp mark of the bank on the deposit slips and they validated the considerations of logic, common sense, policy and precedent. 15
same with the machine, the fact that those deposit slips were unfilled Vda. de Bataclan v. Medina, 16 reiterated in the case of Bank of the
up, is there any report similar to that? Phil. Islands v. Court of Appeals, 17 defines proximate cause as "that
cause, which, in natural and continuous sequence, unbroken by any
A: No, it was not the cashier but the teller. efficient intervening cause, produces the injury, and without which
the result would not have occurred. . . ." In this case, absent the act
Q: The teller validated the blank deposit slip? of Ms. Mabayad in negligently validating the incomplete duplicate

BANKING LAWS (Diligence Required of Banks Cases) Page 41


copy of the deposit slip, Ms. Irene Yabut would not have the facility At this juncture, it is worth to discuss the degree of diligence ought to
with which to perpetrate her fraudulent scheme with impunity. be exercised by banks in dealing with their clients.
Apropos, once again, is the pronouncement made by the respondent
appellate court, to wit: The New Civil Code provides:

. . . . Even if Yabut had the fraudulent intention to misappropriate the Art. 1173. The fault or negligence of the obligor consists in the
funds entrusted to her by plaintiff, she would not have been able to omission of that diligence which is required by the nature of the
deposit those funds in her husband's current account, and then make obligation and corresponds with the circumstances of the persons, of
plaintiff believe that it was in the latter's accounts wherein she had the time and of the place. When negligence shows bad faith, the
deposited them, had it not been for bank teller Mabayad's aforesaid provisions of articles 1171 and 2201, paragraph 2, shall apply.
gross and reckless negligence. The latter's negligence was thus the
proximate, immediate and efficient cause that brought about the loss If the law or contract does not state the diligence which is to be
claimed by plaintiff in this case, and the failure of plaintiff to discover observed in the performance, that which is expected of a good father
the same soon enough by failing to scrutinize the monthly statements of a family shall be required. (1104a)
of account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut had In the case of banks, however, the degree of diligence required is
already completed when she deposited plaintiff's money to the more than that of a good father of a family. Considering the fiduciary
account of her husband instead of to the latter's accounts. 18 nature of their relationship with their depositors, banks are duty
bound to treat the accounts of their clients with the highest degree of
Furthermore, under the doctrine of "last clear chance" (also referred care. 21
to, at times as "supervening negligence" or as "discovered peril"),
petitioner bank was indeed the culpable party. This doctrine, in As elucidated in Simex International (Manila), Inc. v. Court of
essence, states that where both parties are negligent, but the Appeals, 22 in every case, the depositor expects the bank to treat his
negligent act of one is appreciably later in time than that of the other, account with the utmost fidelity, whether such account consists only
or when it is impossible to determine whose fault or negligence of a few hundred pesos or of millions. The bank must record every
should be attributed to the incident, the one who had the last clear single transaction accurately, down to the last centavo, and as
opportunity to avoid the impending harm and failed to do so is promptly as possible. This has to be done if the account is to reflect
chargeable with the consequences thereof. 19 Stated differently, the at any given time the amount of money the depositor can dispose as
rule would also mean that an antecedent negligence of a person he sees fit, confident that the bank will deliver it as and to whomever
does not preclude the recovery of damages for the supervening he directs. A blunder on the part of the bank, such as the failure to
negligence of, or bar a defense against liability sought by another, if duly credit him his deposits as soon as they are made, can cause the
the latter, who had the last fair chance, could have avoided the depositor not a little embarrassment if not financial loss and perhaps
impending harm by the exercise of due diligence. 20 Here, assuming even civil and criminal litigation.
that private respondent RMC was negligent in entrusting cash to a
dishonest employee, thus providing the latter with the opportunity to The point is that as a business affected with public interest and
defraud the company, as advanced by the petitioner, yet it cannot be because of the nature of its functions, the bank is under obligation to
denied that the petitioner bank, thru its teller, had the last clear treat the accounts of its depositors with meticulous care, always
opportunity to avert the injury incurred by its client, simply by having in mind the fiduciary nature of their relationship. In the case
faithfully observing their self-imposed validation procedure. before us, it is apparent that the petitioner bank was remiss in that
duty and violated that relationship.

BANKING LAWS (Diligence Required of Banks Cases) Page 42


plaintiff may recover damages, but the courts shall mitigate the
Petitioners nevertheless aver that the failure of respondent RMC to damages to be awarded.
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 In view of this, we believe that the demands of substantial justice are
cause of the commission of subsequent frauds and misappropriation satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
committed by Ms. Irene Yabut. damage awarded by the respondent appellate court, except the
award of P25,000.00 attorney's fees, shall be borne by private
We do not agree. respondent RMC; only the balance of 60% needs to be paid by the
petitioners. The award of attorney's fees shall be borne exclusively
While it is true that had private respondent checked the monthly by the petitioners.
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 WHEREFORE, the decision of the respondent Court of Appeals is
petitioners to escape liability. This omission on the part of the private modified by reducing the amount of actual damages private
respondent does not change the fact that were it not for the wanton respondent is entitled to by 40%. Petitioners may recover from Ms.
and reckless negligence of the petitioners' employee in validating the Azucena Mabayad the amount they would pay the private
incomplete duplicate deposit slips presented by Ms. Irene Yabut, the respondent. Private respondent shall have recourse against Ms.
loss would not have occurred. Considering, however, that the fraud Irene Yabut. In all other respects, the appellate court's decision is
was committed in a span of more than one (1) year covering various AFFIRMED.
deposits, common human experience dictates that the same would
not have been possible without any form of collusion between Ms. Proportionate costs.
Yabut and bank teller Mabayad. Ms. Mabayad was negligent in the
performance of her duties as bank teller nonetheless. Thus, the SO ORDERED.
petitioners are entitled to claim reimbursement from her for whatever
they shall be ordered to pay in this case. Bellosillo, Vitug and Kapunan, JJ., concur.

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 Separate Opinions
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 PADILLA, J., dissenting:
omission by RMC amounts to contributory negligence which shall
mitigate the damages that may be awarded to the private respondent I regret that I cannot join the majority in ruling that the proximate
23 under Article 2179 of the New Civil Code, to wit: cause of the damage suffered by Rommel's Marketing Corporation
(RMC) is mainly "the wanton and reckless negligence of the
. . . When the plaintiff's own negligence was the immediate and petitioner's employee in validating the incomplete duplicate deposit
proximate cause of his injury, he cannot recover damages. But if his slips presented by Ms. Irene Yabut" (Decision, p. 15). Moreover, I
negligence was only contributory, the immediate and proximate find it difficult to agree with the ruling that "petitioners are entitled to
cause of the injury being the defendant's lack of due care, the

BANKING LAWS (Diligence Required of Banks Cases) Page 43


claim reimbursement from her (the bank teller) for whatever they was to be credited, the name of the depositor or current account
shall be ordered to pay in this case." holder, the date of the deposit, and the amount of the deposit either
in cash or in checks. (Rollo, p. 137)
It seems that an innocent bank teller is being unduly burdened with
what should fall on Ms. Irene Yabut, RMC's own employee, who Since Yabut deposited money in cash, the usual bank procedure
should have been charged with estafa or estafa through falsification then was for the teller to count whether the cash deposit tallied with
of private document. Interestingly, the records are silent on whether the amount written down by the depositor in the deposit slip. If it did,
RMC had ever filed any criminal case against Ms. Irene Yabut, aside then the teller proceeded to verify whether the current account
from the fact that she does not appear to have been impleaded even number matched with the current account name as written in the
as a party defendant in any civil case for damages. Why is RMC deposit slip.
insulating Ms. Irene Yabut from liability when in fact she orchestrated
the entire fraud on RMC, her employer? In the earlier days before the age of full computerization, a bank
normally maintained a ledger which served as a repository of
To set the record straight, it is not completely accurate to state that accounts to which debits and credits resulting from transactions with
from 5 May 1975 to 16 July 1976, Miss Irene Yabut had transacted the bank were posted from books of original entry. Thus, it was only
with PCIB (then PBC) through only one teller in the person of after the transaction was posted in the ledger that the teller
Azucena Mabayad. In fact, when RMC filed a complaint for estafa proceeded to machine validate the deposit slip and then affix his
before the Office of the Provincial Fiscal of Rizal, it indicted all the signature or initial to serve as proof of the completed transaction.
tellers of PCIB in the branch who were accused of conspiracy to
defraud RMC of its current account deposits. (See Annex B, Rollo p. It should be noted that the teller validated the depositor's stub in the
22 and 47). upper portion and the bank copy on the lower portion on both the
original and duplicate copies of the deposit slips presented by Yabut.
Even private respondent RMC, in its Comment, maintains that "when The teller, however, detached the validated depositor's stub on the
the petitioner's tellers" allowed Irene Yabut to carry out her modus original deposit slip and allowed Yabut to retain the whole validated
operandi undetected over a period of one year, "their negligence duplicate deposit slip that bore the same account number as the
cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This original deposit slip, but with the account name purposely left blank
rules out the possibility that there may have been some form of by Yabut, on the assumption that it would serve no other purpose but
collusion between Yabut and bank teller Mabayad. Mabayad was just for a personal record to complement the original validated depositor's
unfortunate that private respondent's documentary evidence showed stub.
that she was the attending teller in the bulk of Yabut's transactions
with the bank. Thus, when Yabut wrote the name of RMC on the blank account
name on the validated duplicate copy of the deposit slip, tampered
Going back to Yabut's modus operandi, it is not disputed that each with its account number, and superimposed RMC's account number,
time Yabut would transact business with PBC's tellers, she would said act only served to cover-up the loss already caused by her to
accomplish two (2) copies of the current account deposit slip. PBC's RMC, or after the deposit slip was validated by the teller in favor of
deposit slip, as issued in 1975, had two parts. The upper part was Yabut's husband. Stated otherwise, when there is a clear evidence of
called the depositor's stub and the lower part was called the bank tampering with any of the material entries in a deposit slip, the
copy. Both parts were detachable from each other. The deposit slip genuineness and due execution of the document become an issue in
was prepared and signed by the depositor or his representative, who resolving whether or not the transaction had been fair and regular
indicated therein the current account number to which the deposit

BANKING LAWS (Diligence Required of Banks Cases) Page 44


and whether the ordinary course of business had been followed by had to tamper with the account number of the duplicate deposit slip
the bank. after filling in the name of RMC in the blank space.

It is logical, therefore, to conclude that the legal or proximate cause Coming now to the doctrine of "last clear chance," it is my considered
of RMC's loss was when Yabut, its employee, deposited the money view that the doctrine assumes that the negligence of the defendant
of RMC in her husband's name and account number instead of that was subsequent to the negligence of the plaintiff and the same must
of RMC, the rightful owner of such deposited funds. Precisely, it was be the proximate cause of the injury. In short, there must be a last
the criminal act of Yabut that directly caused damage to RMC, her and a clear chance, not a last possible chance, to avoid the accident
employer, not the validation of the deposit slip by the teller as the or injury. It must have been a chance as would have enabled a
deposit slip was made out by Yabut in her husband's name and to reasonably prudent man in like position to have acted effectively to
his account. avoid the injury and the resulting damage to himself.

Even if the bank teller had required Yabut to completely fill up the In the case at bar, the bank was not remiss in its duty of sending
duplicate deposit slip, the original deposit slip would nonetheless still monthly bank statements to private respondent RMC so that any
be validated under the account of Yabut's husband. In fine, the error or discrepancy in the entries therein could be brought to the
damage had already been done to RMC when Yabut deposited its bank's attention at the earliest opportunity. Private respondent failed
funds in the name and account number of her husband with to examine these bank statements not because it was prevented by
petitioner bank. It is then entirely left to speculation what Yabut would some cause in not doing so, but because it was purposely negligent
have done afterwards — like tampering both the account number as it admitted that it does not normally check bank statements given
and the account name on the stub of the original deposit slip and on by banks.
the duplicate copy — in order to cover up her crime.
It was private respondent who had the last and clear chance to
Under the circumstances in this case, there was no way for PBC's prevent any further misappropriation by Yabut had it only reviewed
bank tellers to reasonably foresee that Yabut might or would use the the status of its current accounts on the bank statements sent to it
duplicate deposit slip to cover up her crime. In the first place, the monthly or regularly. Since a sizable amount of cash was entrusted
bank tellers were absolutely unaware that a crime had already been to Yabut, private respondent should, at least, have taken ordinary
consummated by Yabut when her transaction by her sole doing was care of its concerns, as what the law presumes. Its negligence,
posted in the ledger and validated by the teller in favor of her therefore, is not contributory but the immediate and proximate cause
husband's account even if the funds deposited belonged to RMC. of its injury.

The teller(s) in this case were not in any way proven to be parties to I vote to grant the petition.
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 Separate Opinions
the deposit as written in the original deposit slip under the account
number and name of Yabut's husband. Hence, the act of validating PADILLA, J., dissenting:
the duplicate copy was not the proximate cause of RMC's injury but
merely a remote cause which an independent cause or agency I regret that I cannot join the majority in ruling that the proximate
merely took advantage of to accomplish something which was not cause of the damage suffered by Rommel's Marketing Corporation
the probable or natural effect thereof. That explains why Yabut still (RMC) is mainly "the wanton and reckless negligence of the

BANKING LAWS (Diligence Required of Banks Cases) Page 45


petitioner's employee in validating the incomplete duplicate deposit copy. Both parts were detachable from each other. The deposit slip
slips presented by Ms. Irene Yabut" (Decision, p. 15). Moreover, I was prepared and signed by the depositor or his representative, who
find it difficult to agree with the ruling that "petitioners are entitled to indicated therein the current account number to which the deposit
claim reimbursement from her (the bank teller) for whatever they was to be credited, the name of the depositor or current account
shall be ordered to pay in this case." holder, the date of the deposit, and the amount of the deposit either
in cash or in checks. (Rollo, p. 137)
It seems that an innocent bank teller is being unduly burdened with
what should fall on Ms. Irene Yabut, RMC's own employee, who Since Yabut deposited money in cash, the usual bank procedure
should have been charged with estafa or estafa through falsification then was for the teller to count whether the cash deposit tallied with
of private document. Interestingly, the records are silent on whether the amount written down by the depositor in the deposit slip. If it did,
RMC had ever filed any criminal case against Ms. Irene Yabut, aside then the teller proceeded to verify whether the current account
from the fact that she does not appear to have been impleaded even number matched with the current account name as written in the
as a party defendant in any civil case for damages. Why is RMC deposit slip.
insulating Ms. Irene Yabut from liability when in fact she orchestrated
the entire fraud on RMC, her employer? In the earlier days before the age of full computerization, a bank
normally maintained a ledger which served as a repository of
To set the record straight, it is not completely accurate to state that accounts to which debits and credits resulting from transactions with
from 5 May 1975 to 16 July 1976, Miss Irene Yabut had transacted the bank were posted from books of original entry. Thus, it was only
with PCIB (then PBC) through only one teller in the person of after the transaction was posted in the ledger that the teller
Azucena Mabayad. In fact, when RMC filed a complaint for estafa proceeded to machine validate the deposit slip and then affix his
before the Office of the Provincial Fiscal of Rizal, it indicted all the signature or initial to serve as proof of the completed transaction.
tellers of PCIB in the branch who were accused of conspiracy to
defraud RMC of its current account deposits. (See Annex B, Rollo p. It should be noted that the teller validated the depositor's stub in the
22 and 47). upper portion and the bank copy on the lower portion on both the
original and duplicate copies of the deposit slips presented by Yabut.
Even private respondent RMC, in its Comment, maintains that "when The teller, however, detached the validated depositor's stub on the
the petitioner's tellers" allowed Irene Yabut to carry out her modus original deposit slip and allowed Yabut to retain the whole validated
operandi undetected over a period of one year, "their negligence duplicate deposit slip that bore the same account number as the
cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This original deposit slip, but with the account name purposely left blank
rules out the possibility that there may have been some form of by Yabut, on the assumption that it would serve no other purpose but
collusion between Yabut and bank teller Mabayad. Mabayad was just for a personal record to complement the original validated depositor's
unfortunate that private respondent's documentary evidence showed stub.
that she was the attending teller in the bulk of Yabut's transactions
with the bank. Thus, when Yabut wrote the name of RMC on the blank account
name on the validated duplicate copy of the deposit slip, tampered
Going back to Yabut's modus operandi, it is not disputed that each with its account number, and superimposed RMC's account number,
time Yabut would transact business with PBC's tellers, she would said act only served to cover-up the loss already caused by her to
accomplish two (2) copies of the current account deposit slip. PBC's RMC, or after the deposit slip was validated by the teller in favor of
deposit slip, as issued in 1975, had two parts. The upper part was Yabut's husband. Stated otherwise, when there is a clear evidence of
called the depositor's stub and the lower part was called the bank tampering with any of the material entries in a deposit slip, the

BANKING LAWS (Diligence Required of Banks Cases) Page 46


genuineness and due execution of the document become an issue in merely took advantage of to accomplish something which was not
resolving whether or not the transaction had been fair and regular the probable or natural effect thereof. That explains why Yabut still
and whether the ordinary course of business had been followed by had to tamper with the account number of the duplicate deposit slip
the bank. after filling in the name of RMC in the blank space.

It is logical, therefore, to conclude that the legal or proximate cause Coming now to the doctrine of "last clear chance," it is my considered
of RMC's loss was when Yabut, its employee, deposited the money view that the doctrine assumes that the negligence of the defendant
of RMC in her husband's name and account number instead of that was subsequent to the negligence of the plaintiff and the same must
of RMC, the rightful owner of such deposited funds. Precisely, it was be the proximate cause of the injury. In short, there must be a last
the criminal act of Yabut that directly caused damage to RMC, her and a clear chance, not a last possible chance, to avoid the accident
employer, not the validation of the deposit slip by the teller as the or injury. It must have been a chance as would have enabled a
deposit slip was made out by Yabut in her husband's name and to reasonably prudent man in like position to have acted effectively to
his account. avoid the injury and the resulting damage to himself.

Even if the bank teller had required Yabut to completely fill up the In the case at bar, the bank was not remiss in its duty of sending
duplicate deposit slip, the original deposit slip would nonetheless still monthly bank statements to private respondent RMC so that any
be validated under the account of Yabut's husband. In fine, the error or discrepancy in the entries therein could be brought to the
damage had already been done to RMC when Yabut deposited its bank's attention at the earliest opportunity. Private respondent failed
funds in the name and account number of her husband with to examine these bank statements not because it was prevented by
petitioner bank. It is then entirely left to speculation what Yabut would some cause in not doing so, but because it was purposely negligent
have done afterwards — like tampering both the account number as it admitted that it does not normally check bank statements given
and the account name on the stub of the original deposit slip and on by banks.
the duplicate copy — in order to cover up her crime.
It was private respondent who had the last and clear chance to
Under the circumstances in this case, there was no way for PBC's prevent any further misappropriation by Yabut had it only reviewed
bank tellers to reasonably foresee that Yabut might or would use the the status of its current accounts on the bank statements sent to it
duplicate deposit slip to cover up her crime. In the first place, the monthly or regularly. Since a sizable amount of cash was entrusted
bank tellers were absolutely unaware that a crime had already been to Yabut, private respondent should, at least, have taken ordinary
consummated by Yabut when her transaction by her sole doing was care of its concerns, as what the law presumes. Its negligence,
posted in the ledger and validated by the teller in favor of her therefore, is not contributory but the immediate and proximate cause
husband's account even if the funds deposited belonged to RMC. of its injury.

The teller(s) in this case were not in any way proven to be parties to I vote to grant the petition.
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 REYES v CA
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 DE LEON, JR., J.:
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 Before us is a petition for review of the Decision1 dated July 22,
merely a remote cause which an independent cause or agency 1994 and Resolution2 dated December 29, 1994 of the Court of

BANKING LAWS (Diligence Required of Banks Cases) Page 47


Appeals3 affirming with modification the Decision4 dated November 209968 in the sum applied for, that is, One Thousand Six Hundred
12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch Ten Australian Dollars (AU$ 1,610.00), payable to the order of the
64, which dismissed the complaint for damages of petitioners 20th Asian Racing Conference Secretariat of Sydney, Australia, and
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against addressed to Westpac-Sydney as the drawee bank.1âwphi1.nêt
respondent Far East Bank and Trust Company.
On August 10, 1988, upon due presentment of the foreign exchange
The undisputed facts of the case are as follows: demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: "xxx No
In view of the 20th Asian Racing Conference then scheduled to be account held with Westpac." Meanwhile, on August 16, 1988,
held in September, 1988 in Sydney, Australia, the Philippine Racing Wespac-New York sent a cable to respondent bank informing the
Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said latter that its dollar account in the sum of One Thousand Six Hundred
conference. Petitioner Gregorio H. Reyes, as vice-president for Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19,
finance, racing manager, treasurer, and director of PRCI, sent 1988, in response to PRCI's complaint about the dishonor of the said
Godofredo Reyes, the club's chief cashier, to the respondent bank to foreign exchange demand draft, respondent bank informed Westpac-
apply for a foreign exchange demand draft in Australian dollars. Sydney of the issuance of the said demand draft FXDD No. 209968,
drawn against the Wespac-Sydney and informing the latter to be
Godofredo went to respondent bank's Buendia Branch in Makati City reimbursed from the respondent bank's dollar account in Westpac-
to apply for a demand draft in the amount One Thousand Six New York. The respondent bank on the same day likewise informed
Hundred Ten Australian Dollars (AU$1,610.00) payable to the order Wespac-New York requesting the latter to honor the reimbursement
of the 20th Asian Racing Conference Secretariat of Sydney, claim of Wespac-Sydney. On September 14, 1988, upon its second
Australia. He was attended to by respondent bank's assistant presentment for payment, FXDD No. 209968 was again dishonored
cashier, Mr. Yasis, who at first denied the application for the reason by Westpac-Sydney for the same reason, that is, that the respondent
that respondent bank did not have an Australian dollar account in bank has no deposit dollar account with the drawee Wespac-Sydney.
any bank in Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCI's urgent need to remit On September 17, 1988 and September 18, 1988, respectively,
Australian dollars to Sydney. Yasis of respondent bank then informed petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes
Godofredo of a roundabout way of effecting the requested remittance left for Australia to attend the said racing conference. When
to Sydney thus: the respondent bank would draw a demand draft petitioner Gregorio H. Reyes arrived in Sydney in the morning of
against Westpac Bank in Sydney, Australia (Westpac-Sydney for September 18, 1988, he went directly to the lobby of Hotel Regent
brevity) and have the latter reimburse itself from the U.S. dollar Sydney to register as a conference delegate. At the registration desk,
account of the respondent in Westpac Bank in New York, U.S.A. in the presence of other delegates from various member of the
(Westpac-New York for brevity). This arrangement has been conference secretariat that he could not register because the foreign
customarily resorted to since the 1960's and the procedure has exchange demand draft for his registration fee had been dishonored
proven to be problem-free. PRCI and the petitioner Gregorio H. for the second time. A discussion ensued in the presence and within
Reyes, acting through Godofredo, agreed to this arrangement or the hearing of many delegates who were also registering. Feeling
approach in order to effect the urgent transfer of Australian dollars terribly embarrassed and humiliated, petitioner Gregorio H. Reyes
payable to the Secretariat of the 20th Asian Racing Conference. asked the lady member of the conference secretariat that he be
shown the subject foreign exchange demand draft that had been
On July 28, 1988, the respondent bank approved the said application dishonored as well as the covering letter after which he promised
of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. that he would pay the registration fees in cash. In the meantime he

BANKING LAWS (Diligence Required of Banks Cases) Page 48


demanded that he be given his name plate and conference kit. The On November 12, 1992, the trial court rendered judgment in favor of
lady member of the conference secretariat relented and gave him his the defendant (respondent bank) and against the plaintiffs (herein
name plate and conference kit. It was only two (2) days later, or on petitioners), the dispositive portion of which states:
September 20, 1988, that he was given the dishonored demand draft
and a covering letter. It was then that he actually paid in cash the WHEREFORE, judgment is hereby rendered in favor of the
registration fees as he had earlier promised. defendant, dismissing plaintiff's complaint, and ordering plaintiffs to
pay to defendant, on its counterclaim, the amount of P50,000.00, as
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat- reasonable attorney's fees. Costs against the plaintiff.
Reyes arrived in Sydney. She too was embarassed and humiliated at
the registration desk of the conference secretariat when she was told SO ORDERED.5
in the presence and within the hearing of other delegates that she
could not be registered due to the dishonor of the subject foreign The petitioners appealed the decision of the trial court to the Court of
exchange demand draft. She felt herself trembling and unable to look Appeals. On July 22, 1994, the appellate court affirmed the decision
at the people around her. Fortunately, she saw her husband, coming of the trial court but in effect deleted the award of attorney's fees to
toward her. He saved the situation for her by telling the secretariat the defendant (herein respondent bank) and the pronouncement as
member that he had already arranged for the payment of the to the costs. The decretal portion of the decision of the appellate
registration fee in cash once he was shown the dishonored demand court states:
draft. Only then was petitioner Puyat-Reyes given her name plate
and conference kit. WHEREFORE, the judgment appealed from, insofar as it dismissed
plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED
At the time the incident took place, petitioner Consuelo Puyat-Reyes and SET ASIDE in all other respect. No special pronouncement as to
was a member of the House of Representatives representing the costs.
lone Congressional District of Makati, Metro Manila. She has been
an officer of the Manila Banking Corporation and was cited by SO ORDERED.6
Archbishop Jaime Cardinal Sin as the top lady banker of the year in
connection with her conferment of the Pro-Ecclesia et Pontifice According to the appellate court, there is no basis to hold the
Award. She has also been awarded a plaque of appreciation from respondent bank liable for damages for the reason that it exerted
the Philippine Tuberculosis Society for her extraordinary service as every effort for the subject foreign exchange demand draft to be
the Society's campaign chairman for the ninth (9th) consecutive year. honored. The appellate court found and declared that:

On November 23, 1988, the petitioners filed in the Regional Trial xxx xxx xxx
Court of Makati, Metro Manila, a complaint for damages, docketed as
Civil Case No. 88-2468, against the respondent bank due to the Thus, the Bank had every reason to believe that the transaction
dishonor of the said foreign exchange demand draft issued by the finally went through smoothly, considering that its New York account
respondent bank. The petitioners claim that as a result of the had been debited and that there was no miscommunication between
dishonor of the said demand draft, they were exposed to it and Westpac-New York. SWIFT is a world wide association used
unnecessary shock, social humiliation, and deep mental anguish in a by almost all banks and is known to be the most reliable mode of
foreign country, and in the presence of an international audience. communication in the international banking business. Besides, the
above procedure, with the Bank as drawer and Westpac-Sydney as
drawee, and with Westpac-New York as the reimbursement Bank

BANKING LAWS (Diligence Required of Banks Cases) Page 49


had been in place since 1960s and there was no reason for the Bank THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
to suspect that this particular demand draft would not be honored by PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING
Westpac-Sydney. THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS
A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE
From the evidence, it appears that the root cause of the DRAWER THEREOF.
miscommunications of the Bank's SWIFT message is the erroneous
decoding on the part of Westpac-Sydney of the Bank's SWIFT III
message as an MT799 format. However, a closer look at the Bank's
Exhs. "6" and "7" would show that despite what appears to be an THE HONORABLE COURT OF APPEALS ERRED IN NOT
asterick written over the figure before "99", the figure can still be HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE
distinctly seen as a number "1" and not number "7", to the effect that EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE
Westpac-Sydney was responsible for the dishonor and not the Bank. TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE
DRAWEE BANK.8
Moreover, it is not said asterisk that caused the misleading on the
part of the Westpac-Sydney of the numbers "1" to "7", since Exhs. The petitioners contend that due to the fiduciary nature of the
"6" and "7" are just documentary copies of the cable message sent to relationship between the respondent bank and its clients, the
Wespac-Sydney. Hence, if there was mistake committed by respondent should have exercised a higher degree of diligence than
Westpac-Sydney in decoding the cable message which caused the that expected of an ordinary prudent person in the handling of its
Bank's message to be sent to the wrong department, the mistake affairs as in the case at bar. The appellate court, according to
was Westpac's, not the Bank's. The Bank had done what an ordinary petitioners, erred in applying the standard of diligence of an ordinary
prudent person is required to do in the particular situation, although prudent person only. Petitioners also claim that the respondent bank
appellants expect the Bank to have done more. The Bank having violate Section 61 of the Negotiable Instruments Law9 which
done everything necessary or usual in the ordinary course of banking provides the warranty of a drawer that "xxx on due presentment, the
transaction, it cannot be held liable for any embarrassment and instrument will be accepted or paid, or both, according to its tenor
corresponding damage that appellants may have incurred.7 xxx." Thus, the petitioners argue that respondent bank should be
held liable for damages for violation of this warranty. The petitioners
xxx xxx xxx pray this Court to re-examine the facts to cite certain instances of
negligence.
Hence, this petition, anchored on the following assignment of errors:
It is our view and we hold that there is no reversible error in the
I decision of the appellate court.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING Section 1 of Rule 45 of the Revised Rules of Court provides that
PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY "(T)he petition (for review) shall raise only questions of law which
APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY must be distinctly set forth." Thus, we have ruled that factual findings
PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF of the Court of Appeals are conclusive on the parties and not
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS. reviewable by this Court – and they carry even more weight when the
Court of Appeals affirms the factual findings of the trial court.10
II

BANKING LAWS (Diligence Required of Banks Cases) Page 50


The courts a quo found that respondent bank did not misrepresent respondent bank, thinking that the problem was with the
that it was maintaining a deposit account with Westpac-Sydney. reimbursement and without any idea that it was due to
Respondent bank's assistant cashier explained to Godofredo Reyes, miscommunication, re-confirmed the authority of Westpac-New York
representing PRCI and petitioner Gregorio H. Reyes, how the to debit its dollar account for the purpose of reimbursing Westpac-
transfer of Australian dollars would be effected through Westpac- Sydney.13 Respondent bank also sent two (2) more cable messages
New York where the respondent bank has a dollar account to to Westpac-New York inquiring why the demand draft was not
Westpac-Sydney where the subject foreign exchange demand draft honored.14
(FXDD No. 209968) could be encashed by the payee, the 20th Asian
Racing Conference Secretariat. PRCI and its Vice-President for With these established facts, we now determine the degree of
finance, petitioner Gregorio H. Reyes, through their said diligence that banks are required to exert in their commercial
representative, agreed to that arrangement or procedure. In other dealings. In Philippine Bank of Commerce v. Court of Appeals15
words, the petitioners are estopped from denying the said upholding a long standing doctrine, we ruled that the degree of
arrangement or procedure. Similar arrangements have been a long diligence required of banks, is more than that of a good father of a
standing practice in banking to facilitate international commercial family where the fiduciary nature of their relationship with their
transactions. In fact, the SWIFT cable message sent by respondent depositors is concerned. In other words banks are duty bound to
bank to the drawee bank, Westpac-Sydney, stated that it may claim treat the deposit accounts of their depositors with the highest degree
reimbursement from its New York branch, Westpac-New York, where of care. But the said ruling applies only to cases where banks act
respondent bank has a deposit dollar account. The facts as found by under their fiduciary capacity, that is, as depositary of the deposits of
the courts a quo show that respondent bank did not cause an their depositors. But the same higher degree of diligence is not
erroneous transmittal of its SWIFT cable message to Westpac- expected to be exerted by banks in commercial transactions that do
Sydney. It was the erroneous decoding of the cable message on the not involve their fiduciary relationship with their depositors.
part of Westpac-Sydney that caused the dishonor of the subject
foreign exchange demand draft. An employee of Westpac-Sydney in Considering the foregoing, the respondent bank was not required to
Sydney, Australia mistakenly read the printed figures in the SWIFT exert more than the diligence of a good father of a family in regard to
cable message of respondent bank as "MT799" instead of as the sale and issuance of the subject foreign exchange demand draft.
"MT199". As a result, Westpac-Sydney construed the said cable The case at bar does not involve the handling of petitioners' deposit,
message as a format for a letter of credit, and not for a demand draft. if any, with the respondent bank. Instead, the relationship involved
The appellate court correct found that "the figure before '99' can still was that of a buyer and seller, that is, between the respondent bank
be distinctly seen as a number '1' and not number '7'." Indeed, the as the seller of the subject foreign exchange demand draft, and PRCI
line of a "7" is in a slanting position while the line of a "1" is in a as the buyer of the same, with the 20th Asian Racing conference
horizontal position. Thus, the number "1" in "MT199" cannot be Secretariat in Sydney, Australia as the payee thereof. As earlier
construed as "7".11 mentioned, the said foreign exchange demand draft was intended for
the payment of the registration fees of the petitioners as delegates of
The evidence also shows that the respondent bank exercised that the PRCI to the 20th Asian Racing Conference in Sydney.
degree of diligence expected of an ordinary prudent person under
the circumstances obtaining. Prior to the first dishonor of the subject The evidence shows that the respondent bank did everything within
foreign exchange demand draft, the respondent bank advised its power to prevent the dishonor of the subject foreign exchange
Westpac-New York to honor the reimbursement claim of Westpac- demand draft. The erroneous reading of its cable message to
Sydney and to debit the dollar account12 of respondent bank with Westpac-Sydney by an employee of the latter could not have been
the former. As soon as the demand draft was dishonored, the foreseen by the respondent bank. Being unaware that its employee

BANKING LAWS (Diligence Required of Banks Cases) Page 51


erroneously read the said cable message, Westpac-Sydney merely
stated that the respondent bank has no deposit account with it to
cover for the amount of One Thousand Six Hundred Ten Australian
Dollar (AU $1610.00) indicated in the foreign exchange demand
draft. Thus, the respondent bank had the impression that Westpac-
New York had not yet made available the amount for reimbursement
to Westpac-Sydney despite the fact that respondent bank has a
sufficient deposit dollar account with Westpac-New York. That was
the reason why the respondent bank had to re-confirm and
repeatedly notify Westpac-New York to debit its (respondent bank's)
deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of
the said demand draft.

In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault
of the respondent bank, whereas the petitioners appeared to be
under estoppel as earlier mentioned, it is no longer necessary to
discuss the alleged application of Section 61 of the Negotiable
Instruments Law to the case at bar. In any event, it was established
that the respondent bank acted in good faith and that it did not cause
the embarrassment of the petitioners in Sydney, Australia. Hence,
the Court of Appeals did not commit any reversable error in its
challenged decision.

WHEREFORE, the petition is hereby DENIED, and the assailed


decision of the Court of Appeals is AFFIRMED. Costs against the
petitioners.

SO ORDERED.

BANKING LAWS (Diligence Required of Banks Cases) Page 52