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BANCO DE ORO-EPCI, INC.,* G.R. No.

179901 Because the petition was sufficient in form and substance, a stay order[12] was issued on
Petitioner, September 28, 2003.[13] However, the proposed rehabilitation plan for JAPRL and RFC was
Present: eventually rejected by the Quezon City RTC in an order dated May 9, 2005.[14]

PUNO, C.J., Chairperson,


CARPIO, CIVIL CASE NO. 03-991
- v e r s u s - CORONA,
AZCUNA** and
LEONARDO-DECASTRO,JJ. Because JAPRL ignored its demand for payment, petitioner filed a complaint for
sum of money with an application for the issuance of a writ of preliminary attachment
JAPRL DEVELOPMENT against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21,
CORPORATION, RAPID 2003.[15] Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL)
FORMING CORPORATION altered and falsified its financial statements.[16]
and JOSE U. AROLLADO, The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary
Respondents. Promulgated: attachment) for lack of merit as petitioner was unable to substantiate its allegations.
Nevertheless, it ordered the service of summons on respondents. [17] Pursuant to the said
April 14, 2008 order, summonses were issued against respondents and were served upon them.

x-----------------------------------------x Respondents moved to dismiss the complaint due to an allegedly invalid service of
summons.[18] Because the officers return stated that an administrative assistant had received
DECISION the summons,[19] JAPRL and RFC argued that Section 11, Rule 14 of the Rules of
Court[20] contained an exclusive list of persons on whom summons against a corporation
must be served.[21] An administrative assistant was not one of them. Arollado, on the other
CORONA, J.: hand, cited Section 6, Rule 14 thereof[22] which mandated personal service of summons on an
individual defendant.[23]

This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of The Makati RTC, in its October 10, 2005 order,[24] noted that because corporate officers are
Appeals (CA) in CA-G.R. SP No. 95659 and its resolution[3] denying reconsideration. often busy, summonses to corporations are usually received only by administrative assistants
or secretaries of corporate officers in the regular course of business. Hence, it denied the
After evaluating the financial statements of respondent JAPRL Development motion for lack of merit.
Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,[4] petitioner Banco de Oro-EPCI, Inc.
extended credit facilities to it amounting to P230,000,000[5] on March 28, 2003. Respondents Respondents moved for reconsideration[25] but withdrew it before the Makati RTC could
Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties. resolve the matter.[26]

Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust
receipts soon after the approval of its loan.[6] Petitioner later learned from MRM RTC SEC CASE NO. 68-2008-C
Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial
statements. It allegedly bloated its sales revenues to post a big income from operations for
the concerned fiscal years to project itself as a viable investment. [7] The information alarmed On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the
petitioner. Citing relevant provisions of the Trust Receipt Agreement, [8] it demanded RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRLs petition sufficient in form
immediate payment of JAPRLs outstanding obligations amounting to P194,493,388.98.[9] and in substance, the Calamba RTC issued a stay order[27] on March 13, 2006.
SP PROC. NO. Q-03-064
In view of the said order, respondents hastily moved to suspend the proceedings in
Civil Case No. 03-991 pending in the Makati RTC.[28]
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the
Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC). [10] It disclosed that it On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC
had been experiencing a decline in sales for the three preceding years and a staggering loss in but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily
2002.[11] liable with JAPRL and RFC, the proceedings against him should continue. [29]Respondents
moved for reconsideration[30] but it was denied.[31]
Banks are entities engaged in the lending of funds obtained through deposits [45] from the
On August 11, 2006, respondents filed a petition for certiorari[32] in the CA alleging public.[46] They borrow the publics excess money (i.e., deposits) and lend out the
that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and same.[47] Banks therefore redistribute wealth in the economy by channeling idle savings to
July 7, 2006 orders.[33] They asserted that the court did not acquire jurisdiction over their profitable investments.
persons due to defective service of summons. Thus, the Makati RTC could not hear the
complaint for sum of money.[34] Banks operate (and earn income) by extending credit facilities financed primarily by deposits
from the public.[48] They plough back the bulk of said deposits into the economy in the form
In its June 7, 2007 decision, the CA held that because the summonses were served of loans.[49] Since banks deal with the publics money, their viability depends largely on their
on a mere administrative assistant, the Makati RTC never acquired jurisdiction over ability to return those deposits on demand. For this reason, banking is undeniably imbued
respondents. Thus, it granted the petition.[35] with public interest. Consequently, much importance is given to sound lending practices and
good corporate governance.[50]
Petitioner moved for reconsideration but it was denied. [36] Hence, this petition.
Protecting the integrity of the banking system has become, by large, the
Petitioner asserts that respondents maliciously evaded the service of summonses responsibility of banks. The role of the public, particularly individual borrowers, has not been
to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of
employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to obtaining loans without intending to pay the same.
avoid the payment of their obligations.[37]
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its
We grant the petition. financial statements in order to obtain its credit facilities. Considering the amount of
petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of or not respondents indeed committed fraud in securing the credit accomodation.
the Makati RTC over their persons (i.e.,whether or not the service of summons was validly
made). Therefore, it was only the October 10, 2005 order of the said trial court which they in A finding of fraud will change the whole picture. In this event, petitioner can use
effect assailed.[38] However, because they withdrew their motion for reconsideration of the the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.
said order, it became final. Moreover, the petition was filed 10 months and 1 day after the
assailed order was issued by the Makati RTC,[39] way past the 60 days allowed by the Rules of
The protective remedy of rehabilitation was never intended to be a refuge of a
Court. For these reasons, the said petition should have been dismissed outright by the CA.
debtor guilty of fraud.
More importantly, when respondents moved for the suspension of proceedings in
Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against
Calamba RTC), they waived whatever defect there was in the service of summons and were the three respondents guided by Section 40 of the General Banking Law which states:
deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC.[40]
Section 40. Requirement for Grant of Loans or Other Credit
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC Accommodations. Before granting a loan or other credit
suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. accommodation, a bank must ascertain that the debtor is capable of
Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all fulfilling his commitments to the bank.
actions or claims against the corporation seeking rehabilitation[41] from the date of its
issuance until the dismissal of the petition or termination of the rehabilitation Towards this end, a bank may demand from its credit applicants a
proceedings.[42] statement of their assets and liabilities and of their income and
The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if expenditures and such information as may be prescribed by law or
there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can by rules and regulations of the Monetary Board to enable the bank
demand payment from the surety solidarily liable with the corporation seeking to properly evaluate the credit application which includes the
rehabilitation.[43] corresponding financial statements submitted for taxation purposes
to the Bureau of Internal Revenue. Should such statements prove to
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of be false or incorrect in any material detail, the bank may terminate
preventing, or at least delaying, the collection of their legitimate obligations. Their any loan or credit accommodation granted on the basis of said
reprehensible scheme impeded the speedy dispensation of justice. More importantly, statements and shall have the right to demand immediate
however, considering the amount involved, respondents utterly disregarded the significance repayment or liquidation of the obligation.
of a stable and efficient banking system to the national economy.[44]
In formulating the rules and regulations under this Section, the
Monetary Board shall recognize the peculiar characteristics of
microfinancing, such as cash flow-based lending to the basic sectors
that are not covered by traditional collateral. (emphasis supplied)

Under this provision, banks have the right to annul any credit accommodation or loan, and
demand the immediate payment thereof, from borrowers proven to be guilty of
fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and
other appropriate damages.[51]
Finally, considering that respondents failed to pay the four trust receipts, the Makati City
Prosecutor should investigate whether or not there is probable cause to indict respondents
for violation of Section 13 of the Trust Receipts Law.[52]

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31,
2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET
ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with
the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other
respondents if warranted.

SO ORDERED.
[G.R. No. 128703. October 18, 2000] legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with
usurious interests.

Defendants claimed that since ASIA PACIFIC could not directly engage in banking
business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to
TEODORO BAAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners, them without violating banking laws: first, Cenen Dizon would secure a promissory note
vs. ASIA PACIFICFINANCE CORPORATION,[1] substituted by INTERNATIONAL from Teodoro Baas with a face value of P390,000.00 payable in installments; second, ASIA
CORPORATE BANK now known as UNIONBANK OF THE PHILIPPINES, respondent. PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon
with the 14% usurious interest on the loan or P54,000.00 discounted and collected in
DECISION advance by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient collateral to
answer for the loan in case of default in payment and execute a continuing guaranty to
BELLOSILLO, J.:
assure continuous and prompt payment of the loan. Defendants also alleged that out of the
loan of P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC
C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review seek the deducted the discounted interest, service handling charges, insurance premium, registration
reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack and notarial fees.
of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific
Finance Corporation in the amount of P87,637.50 at 14% interest per annum in addition Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be
to attorney's fees and costs of suit, as well as its 21 March 1997 Resolution denying delayed in meeting his monthly amortization on account of business reverses and promised
reconsideration thereof.[2] to pay instead in February 1981. Cenen Dizon made good his promise and tendered payment
to ASIA PACIFIC in an amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC
On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a attempted to impose a 3% interest for every month of delay, which he flatly refused to pay
complaint for a sum of money with prayer for a writ of replevin against Teodoro Baas, C. G. for being usurious.
Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro Baas executed
a Promissory Note in favor of C. G. Dizon Construction whereby for value received he Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender
promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in to it the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would
installments of "P32,500.00 every 25th day of the month starting from September 25, 1980 treat the former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed
up to August 25, 1981."[3] and accepted the offer. Defendants averred that the value of the bulldozer crawler tractors
was more than adequate to cover their obligation to ASIA PACIFIC.
Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA
PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its corporate Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant
officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, C. G. Dizon Construction for the surrender of the bulldozer crawler tractors subject of
executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were
Bulldozer Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA actually turned over by defendants - D8-14A and D8-2U - which units were subsequently
PACIFIC.[4] Moreover, Cenen Dizon executed on 25 August 1980 a Continuing foreclosed by ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and
Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder.
Dizon Construction.[5]
During the pendency of the case, defendant Teodoro Baas passed away, and on motion
In compliance with the provisions of the Promissory Note, C. G. Dizon Construction of the remaining defendants, the trial court dismissed the case against him. On the other
made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 September hand, ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after
1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total the disputed Promissory Note was assigned and/or transferred by ASIA PACIFIC to
of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of International Corporate Bank. Later, International Corporate Bank merged with Union Bank
the remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen of the Philippines. As the surviving entity after the merger, and having succeeded to all the
Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, rights and interests of International Corporate Bank in this case, Union Bank of the
and P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC Philippines was substituted as a party in lieu of International Corporate Bank.[6]
sued Teodoro Baas, C. G. Dizon Construction and Cenen Dizon.
On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding
While defendants (herein petitioners) admitted the genuineness and due execution of the defendants jointly and severally liable for the unpaid balance of the obligation under
the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's
nevertheless maintained that these documents were never intended by the parties to be fees equivalent to 25% of the monetary award.[7]
On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court Indubitably, what is prohibited by law is for investment companies to lend funds
thus - obtained from the public through receipts of deposit, which is a function of banking
institutions. But here, the funds supposedly "lent" to petitioners have not been shown to
Defendant-appellants' contention that the instruments were executed merely as a have been obtained from the public by way of deposits, hence, the inapplicability of banking
subterfuge to skirt banking laws is an untenable defense. If that were so then they too were laws.
parties to the illegal scheme. Why should they now be allowed to take advantage of their On petitioners' submission that the true intention of the parties was to enter into a
own knavery to escape the liabilities that their own chicanery created? contract of loan, we have examined the Promissory Note and failed to discern anything
therein that would support such theory. On the contrary, we find the terms and conditions
Defendant-appellants also want us to believe their story that there was an agreement of the instrument clear, free from any ambiguity, and expressive of the real intent and
between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer agreement of the parties. We quote the pertinent portions of the Promissory Note -
crawler tractors to the latter, the defendant-appellants' obligation would fully be
extinguished. Again, nothing but the word that comes out between the teeth supports such FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G. Dizon Construction,
story. Why did they not write down such an important agreement? Is it believable that Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390,000.00), Philippine
seasoned businessmen such as the defendant-appellant Cenen G. Dizon and the other Currency in the following manner:
officers of the appellant corporation would deliver the bulldozers without a receipt of
acquittance from the plaintiff-appellee x x x x In our book, that is not credible.
P32,500.00 due every 25th of the month starting from September 25, 1980 up to August 25,
1981.
The pivotal issues raised are: (a) Whether the disputed transaction between
petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and (b) Whether
the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment I/We agree that if any of the said installments is not paid as and when it respectively falls
of petitioners' obligation. due, all the installments covered hereby and not paid as yet shall forthwith become due and
payable at the option of the holder of this note with interest at the rate of 14% per annum on
On the first issue, petitioners insist that ASIA PACIFIC was organized as an investment each unpaid installment until fully paid.
house which could not engage in the lending of funds obtained from the public through
receipt of deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing If any amount due on this note is not paid at its maturity and this note is placed in the hands
Undertaking were not intended to be valid and binding on the parties as they were merely of an attorney for collection, I/We agree to pay in addition to the aggregate of the principal
devices to conceal their real intention which was to enter into a contract of loan in violation amount and interest due, a sum equivalent to TEN PERCENT (10%) thereof as Attorney's fees,
of banking laws. in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the
We reject the argument. An investment company refers to any issuer which is or holds said principal amount and interest due x x x x
itself out as being engaged or proposes to engage primarily in the business of investing,
reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Makati, Metro Manila, August 25, 1980.
SecuritiesAct,[9] securities "shall include x x x x commercial papers evidencing indebtedness of
any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, (Sgd) Teodoro Baas
transferred or in any manner conveyed to another with or without recourse, such
as promissory notes x x x x" Clearly, the transaction between petitioners
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE, C.G. DIZON
and respondent was one involving not a loan but purchase of receivables at a discount,
CONSTRUCTION, INC.
well within the purview of "investing, reinvesting or trading in securities" which an
investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a
violation of the General Banking Act.[10] Moreover, Sec. 2 of the General Banking Act provides By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
in part - President VP/Treasurer

Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were duly
Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage acknowledged before a notary public and, as such, have in their favor the presumption of
in the lending of funds obtained from the public through the receipt of deposits of any kind, regularity. To contradict them there must be clear, convincing and more than merely
and all entities regularly conducting such operations shall be considered as banking preponderant evidence.In the instant case, the records do not show even a preponderance
institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of of evidence in favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing
other pertinent laws (underscoring supplied). Undertaking were never intended by the parties to be legal, valid and binding. Notarial
documents are evidence of the facts in clear and unequivocal manner therein expressed.[11]
Interestingly, petitioners' assertions were based mainly on the self-serving testimony of sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the
Cenen Dizon, and not on any other independent evidence. His testimony is not only unpaid balance of P267,637.50, petitioners are still liable for the deficiency.
unconvincing, as found by the trial court and the Court of Appeals, but also self-defeating in
light of the documents presented by respondent, i.e., Promissory Note, Deed of Chattel Barring therefore a showing that the findings complained of are totally devoid of
Mortgage and Continuing Undertaking, the accuracy, correctness and due execution of which support in the records, or that they are so glaringly erroneous as to constitute serious abuse
were admitted by petitioners. Oral evidence certainly cannot prevail over the written of discretion, we see no valid reason to discard them. More so in this case where the findings
agreements of the parties. The courts need only rely on the faces of the written contracts to of both the trial court and the appellate court coincide with each other on the matter.
determine their true intention on the principle that when the parties have reduced their With regard to the computation of petitioners' liability, the records show that
agreements in writing, it is presumed that they have made the writings the only repositories petitioners actually paid to respondent a total sum of P130,000.00 in addition to
and memorials of their true agreement. the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public
The second issue deals with a question of fact. We have ruled often enough that it is auction. Deducting these amounts from the principal obligation of P390,000.00 leaves a
not the function of this Court to analyze and weigh the evidence all over again, its jurisdiction balance of P80,000.00, to which must be added P7,637.50 accrued interests and charges as
being limited to reviewing errors of law that might have been committed by the lower of 20 March 1981, or a total unpaid balance of P87,637.50 for which petitioners are jointly
court.[12] At any rate, while we are not a trier of facts, hence, not required as a rule to look and severally liable.Furthermore, the unpaid balance should earn 14% interest per annum as
into the factual bases of the assailed decision of the Court of Appeals, we did so just the stipulated in the Promissory Note, computed from 20 March 1981 until fully paid.
same in this case if only to satisfy petitioners that we have carefully studied and evaluated On the amount of attorney's fees which under the Promissory Note is equivalent to
the case, all too mindful of the tenacity and vigor with which the parties, through their 25% of the principal obligation and interests due, it is not, strictly speaking, the attorney's
respective counsel, have pursued this case for nineteen (19) years. fees recoverable as between the attorney and his client regulated by the Rules of
Petitioners contend that the parties already had a verbal understanding wherein ASIA Court. Rather, the attorney's fees here are in the nature of liquidated damages and the
PACIFIC actually agreed to consider petitioners' account closed and the principal obligation stipulation therefor is aptly called a penal clause. It has been said that so long as such
fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors. stipulation does not contravene the law, morals and public order, it is strictly binding upon
the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce
We are not persuaded. Again, other than the bare allegations of petitioners, the the judgment by execution.[15]
records are bereft of any evidence of the supposed agreement. As correctly observed by the
Court of Appeals, it is unbelievable that the parties entirely neglected to write down such an Nevertheless, it appears that petitioners' failure to fully comply with their part of the
important agreement. Equally incredulous is the fact that petitioner Cenen Dizon, a bargain was not motivated by ill will or malice, but due to financial distress occasioned by
seasoned businessman, readily consented to deliver the bulldozers to respondent without a legitimate business reverses. Petitioners in fact paid a total of P130,000.00 in three (3)
corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon installments, and even went to the extent of voluntarily turning over to respondent their
himself negates the supposed verbal understanding between the parties - heavy equipment consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to
settle their indebtedness in full. Article 1229 of the New Civil Code specifically empowers the
Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of judge to equitably reduce the civil penalty when the principal obligation has
the seizure order? been partly or irregularly complied with. Upon the foregoing premise, we hold that the
reduction of the attorney's fees from 25% to 15% of the unpaid principal plus interests is in
A: There was no seizure order. Atty. Carag during that time said if I surrender the two order.
equipment, we might finally close a deal if the equipment would come up to the
balance of the loan. So I voluntarily surrendered, I pulled them from the job site Finally, while we empathize with petitioners, we cannot close our eyes to the
and returned them to APCOR x x x x overriding considerations of the law on obligations and contracts which must be upheld and
honored at all times. Petitioners have undoubtedly benefited from the transaction; they
Q: You mentioned a certain Atty. Carag, who is he? cannot now be allowed to impugn its validity and legality to escape the fulfillment of a valid
A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked and binding obligation.
with Atty. Carag, we have a verbal agreement if I surrender the equipment it might WHEREFORE, no reversible error having been committed by the Court of Appeals, its
suffice to pay off the debt so I did just that (underscoring ours).[13] assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are
In other words, there was no binding and perfected contract between petitioners and AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are ordered
respondent regarding the settlement of the obligation, but only a conditional one, a mere jointly and severally to pay respondent Asia Pacific Finance Corporation, substituted by
conjecture in fact, depending on whether the value of the tractors to be surrendered would International Corporate Bank (now known as Union Bank of the Philippines), P87,637.50
equal the balance of the loan plus interests. And since the bulldozer crawler tractors were representing the unpaid balance on the Promissory Note, with interest at fourteen percent
(14%) per annum computed from 20 March 1981 until fully paid, and fifteen percent (15%) of
the principal obligation and interests due by way of attorney's fees. Costs against
petitioners.

SO ORDERED.
[G.R. No. 112392. February 29, 2000] should he fail to return that amount within seven (7) days, the matter would be referred to
the banks lawyers for appropriate action to protect the banks interest.[11] This was followed
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. by a letter of the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00.[12]
NAPIZA, respondents.
In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating that he
DECISION deposited the check "for clearing purposes" only to accommodate Chan. He added:

YNARES-SANTIAGO, J.: "Further, please take notice that said check was deposited on September
3, 1984 and withdrawn on October 23, 1984, or a total period of fifty (50)
days had elapsed at the time of withdrawal. Also, it may not be amiss to
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R.
mention here that I merely signed an authority to withdraw said deposit
CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,[2] which
subject to its clearing, the reason why the transaction is not reflected in
dismissed the complaint filed by petitioner Bank of the Philippine Islands against private
the passbook of the account. Besides, I did not receive its proceeds as
respondent Benjamin C. Napiza for sum of money. Sdaad
may be gleaned from the withdrawal slip under the captioned signature
of recipient.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187[3] which he maintained in petitioner banks Buendia
If at all, my obligation on the transaction is moral in nature, which (sic) I
Avenue Extension Branch, Continental Bank Managers Check No. 00014757[4] dated August
have been and is (sic) still exerting utmost and maximum efforts to collect
17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00)
from Mr. Henry Chan who is directly liable under the
and duly endorsed by private respondent on its dorsal side.[5] It appears that the check
circumstances. Scsdaad
belonged to a certain Henry Chan who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of accommodation and for
the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan xxx......xxx......xxx."
a signed blank withdrawal slip, with the understanding that as soon as the check is cleared,
both of them would go to the bank to withdraw the amount of the check upon private On August 12, 1986, petitioner filed a complaint against private respondent, praying for the
respondents presentation to the bank of his passbook. return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from
date of demand to date of full payment, a sum equivalent to 20% of the total amount due as
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, attorney's fees, and litigation and/or costs of suit.
one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings
Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal
Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant slip with the understanding that the amount deposited would be withdrawn only after the
manager, Teresita Lindo.[6] check in question has been cleared. He likewise alleged that he instructed the party to whom
he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance
On November 20, 1984, petitioner received communication from the Wells Fargo Bank so that he could lend that party his passbook for the purpose of withdrawing the amount of
International of New York that the said check deposited by private respondent was a $2,500.00. However, without his knowledge, said party was able to withdraw the amount of
counterfeit check[7] because it was "not of the type or style of checks issued by Continental $2,541.67 from his dollar savings account through collusion with one of petitioners
Bank International."[8] Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with
Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is which to clear the bank draft in question." Petitioner should have disallowed the withdrawal
private respondents son, to inform his father that the check bounced.[9] Reyes himself sent a because his passbook was not presented. He claimed that petitioner had no one to blame
telegram to private respondent regarding the dishonor of the check. In turn, private except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the
respondents son wrote to Reyes stating that the check had been assigned "for encashment" amount in the check "by mistake" x x x "if not altogether due to collusion and/or bad faith on
to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank
instruction of Chan. He also said that upon learning of the dishonor of the check, his father procedures," by way of counterclaim, private respondent prayed for moral damages of
immediately tried to contact Chan but the latter was out of town.[10] P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per appearance in
court.
Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On
December 18, 1984, Reyes reminded private respondent of his sons promise and warned that
Private respondent also filed a motion for admission of a third party complaint against Chan. The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where
He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the this Court stated that a personal check is not legal tender or money, and held that the check
amount of $2,500.00 even without private respondents passbook. Thus, private respondent deposited in this case must be cleared before its value could be properly transferred to
prayed that third party defendant Chan be made to refund to him the amount withdrawn private respondent's account.
and to pay attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.
Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner
Petitioner filed a comment on the motion for leave of court to admit the third party filed this petition for review on certiorari, raising the following issues:
complaint, wherein it asserted that per paragraph 2 of the Rules and Regulations governing
BPI savings accounts, private respondent alone was liable "for the value of the credit given on 1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
account of the draft or check deposited." It contended that private respondent was estopped WARRANTIES AS A GENERAL INDORSER.
from disclaiming liability because he himself authorized the withdrawal of the amount by
signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED
unduly delay the disposition of the main case asserting that private respondents claim could
BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON.
be ventilated in another case.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN


Private respondent replied that for the parties to obtain complete relief and to avoid
ALLOWING THE WITHDRAWAL.
multiplicity of suits, the motion to admit third party complaint should be granted.
Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing
private respondent to actively participate in locating Chan. After private respondent failed to Petitioner claims that private respondent, having affixed his signature at the dorsal side of
comply, the trial court, on May 18, 1988, dismissed the third party complaint without the check, should be liable for the amount stated therein in accordance with the following
prejudice. provision of the Negotiable Instruments Law (Act No. 2031):

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court "SEC. 66. Liability of general indorser. Every indorser who indorses
held that petitioner could not hold private respondent liable based on the checks face value without qualification, warrants to all subsequent holders in due course
alone. To so hold him liable "would render inutile the requirement of clearance from the
drawee bank before the value of a particular foreign check or draft can be credited to the (a)......The matters and things mentioned in subdivisions (a), (b), and (c)
account of a depositor making such deposit." The lower court further held that "it was of the next preceding section; and
incumbent upon the petitioner to credit the value of the check in question to the account of
the private respondent only upon receipt of the notice of final payment and should not have (b)......That the instrument is at the time of his indorsement, valid and
authorized the withdrawal from the latters account of the value or proceeds of the check." subsisting.
Having admitted that it committed a "mistake" in not waiting for the clearance of the check
before authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss. Supremax And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored, and the necessary proceedings on dishonor be
On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held duly taken, he will pay the amount thereof to the holder, or to any
that petitioner committed "clear gross negligence" in allowing Ruben Gayon, Jr. to withdraw subsequent indorser who may be compelled to pay it."
the money without presenting private respondents passbook and, before the check was
cleared and in crediting the amount indicated therein in private respondents account. It
stressed that the mere deposit of a check in private respondents account did not mean that Section 65, on the other hand, provides for the following warranties of a person negotiating
the check was already private respondents property. The check still had to be cleared and its an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and
proceeds can only be withdrawn upon presentation of a passbook in accordance with the in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior
banks rules and regulations. Furthermore, petitioners contention that private respondent parties had capacity to contract.[15] In People v. Maniego,[16] this Court described the
warranted the checks genuineness by endorsing it is untenable for it would render useless liabilities of an indorser as follows: Juris
the clearance requirement. Likewise, the requirement of presentation of a passbook to
ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, "Appellants contention that as mere indorser, she may not be liable on
these requirements are designed to protect the bank from deception or fraud. account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right to enforce payment of the instrument for the full
amount thereof against all parties liable thereon. Among the parties 5.......Withdrawals may be made by draft, mail or telegraphic transfer in
liable thereon is an indorser of the instrument, i.e., a person placing his currency of the account at the request of the depositor in writing on the
signature upon an instrument otherwise than as a maker, drawer or withdrawal slip or by authenticated cable. Such request must indicate the
acceptor * * unless he clearly indicated by appropriate words his name of the payee/s, amount and the place where the funds are to be
intention to be bound in some other capacity. Such an indorser who paid. Any stamp, transmission and other charges related to such
indorses without qualification, inter alia engages that on due withdrawals shall be for the account of the depositor and shall be paid by
presentment, * * (the instrument) shall be accepted or paid, or both, as him/her upon demand. Withdrawals may also be made in the form of
the case may be, according to its tenor, and that if it be dishonored, and travellers checks and in pesos. Withdrawals in the form of notes/bills are
the necessary proceedings on dishonor be duly taken, he will pay the allowed subject however, to their (availability).
amount thereof to the holder, or any subsequent indorser who may be
compelled to pay it. Maniego may also be deemed an accommodation 6.......Deposits shall not be subject to withdrawal by check, and may be
party in the light of the facts, i.e., a person who has signed the instrument withdrawn only in the manner above provided, upon presentation of the
as maker, drawer, acceptor, or indorser, without receiving value therefor, depositors savings passbook and with the withdrawal form supplied by
and for the purpose of lending his name to some other person. As such, the Bank at the counter."[19] Scjuris
she is under the law liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew *
Under these rules, to be able to withdraw from the savings account deposit under the
* (her) to be only an accommodation party, although she has the right,
Philippine foreign currency deposit system, two requisites must be presented to petitioner
after paying the holder, to obtain reimbursement from the party
bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the
accommodated, since the relation between them is in effect that of
depositors passbook. Private respondent admits that he signed a blank withdrawal slip
principal and surety, the accommodation party being the surety."
ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the
payee, the amount to be withdrawn and the place where such withdrawal should be made.
It is thus clear that ordinarily private respondent may be held liable as an indorser of the That the withdrawal slip was in fact a blank one with only private respondents two signatures
check or even as an accommodation party.[17]However, to hold private respondent liable for affixed on the proper spaces is buttressed by petitioners allegation in the instant petition
the amount of the check he deposited by the strict application of the law and without that had private respondent indicated therein the person authorized to receive the money,
considering the attending circumstances in the case would result in an injustice and in the then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(i)n
erosion of the public trust in the banking system. The interest of justice thus demands failing to do so (i.e., naming his authorized agent), he practically authorized any possessor
looking into the events that led to the encashment of the check. thereof to write any amount and to collect the same."[20]

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the Such contention would have been valid if not for the fact that the withdrawal slip itself
opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or
signature on the withdrawal slip, the personality of private respondents son and the lapse of Agnes C. de Guzman." Such being the case, petitioners personnel should have been duly
more than fifty (50) days from date of deposit of the Continental Bank draft, without the warned that Gayon, who was also employed in petitioners Buendia Ave. Extension
same being returned yet."[18] We hold, however, that the propriety of the withdrawal should branch,[21] was not the proper payee of the proceeds of the check. Otherwise, either Ramon
be gauged by compliance with the rules thereon that both petitioner bank and its depositors or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of
are duty-bound to observe. course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon
the person who can withdraw the amount indicated in the check. Private respondent does
In the passbook that petitioner issued to private respondent, the following rules on not deny having signed such authority. However, considering petitioners clear admission that
withdrawal of deposits appear: the withdrawal slip was a blank one except for private respondents signature, the
unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
"4.......Withdrawals must be made by the depositor personally but in intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to
some exceptional circumstances, the Bank may allow withdrawal by withdraw the amount. Under these facts, there could not have been a principal-agent
another upon the depositors written authority duly authenticated; and relationship between private respondent and Gayon so as to render the former liable for the
neither a deposit nor a withdrawal will be permitted except upon the amount withdrawn.
presentation of the depositors savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank. Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be
signed and presented with the corresponding foreign currency savings passbook by the
depositor in person. For withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the passbook when withdrawing
an amount cannot be given mere lip service even though the person making the withdrawal officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the
is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so checks with the drawee bank, the Philippine National Bank in New York, on account of the
that, for the protection of the banks interest and as a reminder to the depositor, the "special treatment" that Boncan received from the personnel of Banco Atlanticos foreign
withdrawal shall be entered in the depositors passbook. The fact that private respondents department. The Court held that the encashment of the checks without prior clearance is
passbook was not presented during the withdrawal is evidenced by the entries therein "contrary to normal or ordinary banking practice specially so where the drawee bank is a
showing that the last transaction that he made with the bank was on September 3, 1984, the foreign bank and the amounts involved were large." Accordingly, the Court approved the
date he deposited the controversial check in the amount of $2,500.00.[22] Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks that
was withdrawn by Boncan.
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the
passbook. Thus: Said ruling brings to light the fact that the banking business is affected with public interest.
By the nature of its functions, a bank is under obligation to treat the accounts of its
"2.......All deposits will be received as current funds and will be repaid in depositors "with meticulous care, always having in mind the fiduciary nature of their
the same manner; provided, however, that deposits relationship."[27] As such, in dealing with its depositors, a bank should exercise its functions
ofdrafts, checks, money orders, etc. will be accepted as subject to not only with the diligence of a good father of a family but it should do so with the highest
collection only and credited to the account only upon receipt of the notice degree of care.[28]
of final payment. Collection charges by the Banks foreign correspondent
in effecting such collection shall be for the account of the depositor. If the In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit,
account has sufficient balance, the collection shall be debited by the Bank failed to exercise the diligence of a good father of a family. In total disregard of its own rules,
against the account. If, for any reason, the proceeds of the deposited petitioners personnel negligently handled private respondents account to petitioners
checks, drafts, money orders, etc., cannot be collected or if the Bank is detriment. As this Court once said on this matter:
required to return such proceeds, the provisional entry therefor made by
the Bank in the savings passbook and its records shall be deemed "Negligence is the omission to do something which a reasonable man,
automatically cancelled regardless of the time that has elapsed, and guided by those considerations which ordinarily regulate the conduct of
whether or not the defective items can be returned to the depositor; and human affairs, would do, or the doing of something which a prudent and
the Bank is hereby authorized to execute immediately the necessary reasonable man would do. The seventy-eight (78)-year-old, yet still
corrections, amendments or changes in its record, as well as on the relevant, case of Picart v. Smith, provides the test by which to determine
savings passbook at the first opportunity to reflect such cancellation." the existence of negligence in a particular case which may be stated as
(Italics and underlining supplied.) Jurissc follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would
As correctly held by the Court of Appeals, in depositing the check in his name, private have used in the same situation? If not, then he is guilty of negligence.
respondent did not become the outright owner of the amount stated therein. Under the The law here in effect adopts the standard supposed to be supplied by
above rule, by depositing the check with petitioner, private respondent was, in a way, merely the imaginary conduct of the discreet pater-familias of the Roman law.
designating petitioner as the collecting bank. This is in consonance with the rule that a The existence of negligence in a given case is not determined by
negotiable instrument, such as a check, whether a managers check or ordinary check, is not reference to the personal judgment of the actor in the situation before
legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner shall him. The law considers what would be reckless, blameworthy, or
credit the amount in private respondents account or infuse value thereon only after the negligent in the man of ordinary intelligence and prudence and
drawee bank shall have paid the amount of the check or the check has been cleared for determines liability by that."[29]
deposit. Again, this is in accordance with ordinary banking practices and with this Courts
pronouncement that "the collecting bank or last endorser generally suffers the loss because Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely
it has the duty to ascertain the genuineness of all prior endorsements considering that the over and above the aggregate amount of private respondents dollar deposits that had yet to
act of presenting the check for payment to the drawee is an assertion that the party making be cleared. The banks ledger on private respondents account shows that before he deposited
the presentment has done its duty to ascertain the genuineness of the $2,500.00, private respondent had a balance of only $750.00.[30] Upon private respondents
endorsements."[24] The rule finds more meaning in this case where the check involved is deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a
drawn on a foreign bank and therefore collection is more difficult than when the drawee deposit resulting in the corresponding total balance of $3,250.00.[31] On September 10, 1984,
bank is a local one even though the check in question is a managers check.[25] Misjuris the amount of $600.00 and the additional charges of $10.00 were indicated therein as
withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of
In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, $11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was
Spain, paid the amounts represented in three (3) checks to Virginia Boncan, the finance entered as withdrawn with a balance of $109.92.[32] On November 19, 1984 the word "hold"
was written beside the balance of $109.92.[33] That must have been the time when Reyes,
petitioners branch manager, was informed unofficially of the fact that the check deposited
was a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the following day,
November 20, 1984.[34] According to Reyes, Wells Fargo Bank International handled the
clearing of checks drawn against U.S. banks that were deposited with petitioner.[35] Jjlex

From these facts on record, it is at once apparent that petitioners personnel allowed the
withdrawal of an amount bigger than the original deposit of $750.00 and the value of the
check deposited in the amount of $2,500.00 although they had not yet received notice from
the clearing bank in the United States on whether or not the check was funded. Reyes
contention that after the lapse of the 35-day period the amount of a deposited check could
be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time
before a depositor could make a withdrawal,[36] is untenable. Said practice amounts to a
disregard of the clearance requirement of the banking system.

While it is true that private respondents having signed a blank withdrawal slip set in motion
the events that resulted in the withdrawal and encashment of the counterfeit check, the
negligence of petitioners personnel was the proximate cause of the loss that petitioner
sustained. Proximate cause, which is determined by a mixed consideration of logic, common
sense, policy and precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the
result would not have occurred."[37] The proximate cause of the withdrawal and eventual loss
of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such
withdrawal in disregard of its own rules and the clearing requirement in the banking system.
In so doing, petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.
PHILIPPINE SAVINGS BANK, G.R. No. 177526 On the respective due dates of each check, Chowkings acting accounting manager, Rino T.
Petitioner, Manzano, endorsed and encashed said checks with the Bustos branch of respondent
Present: PSBank.[3]
YNARES-SANTIAGO, J.,
Chai All the five checks were honored by defendant Santos, even with only the endorsement of
rperson, Manzano approving them. The signatures of the other authorized officers of respondent
- versus - AUSTRIA-MARTINEZ, corporation were absent in the five (5) checks, contrary to usual banking
CHICO-NAZARIO, practice.[4] Unexpectedly, Manzano absconded with and misappropriated the check
NACHURA, and proceeds.[5]
REYES, JJ.
When Chowking found out Manzanos scheme, it demanded reimbursement from
CHOWKING FOOD Promulgated: PSBank.[6] When PSBank refused to pay, Chowking filed a complaint[7] for a sum of money
CORPORATION, with damages before the RTC. Likewise impleaded were PSBanks president, Antonio S.
Respondent. July 4, 2008 Abacan, and Bustos branch head, Santos.[8]

x--------------------------------------------------x Both PSBank and Santos filed cross claims and third party complaints against
Manzano.[9] Despite all diligent efforts, summonses were not served upon third party
DECISION defendant Manzano. Santos did not take any further action and her third party complaint
was archived.[10]

REYES, R.T., J.: Meanwhile, petitioner caused the service of its summons on the cross-claim and third party
complaints through publication. On its subsequent motion, Manzano was declared in default
for failure to file a responsive pleading.[11]
IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang
isang kakatuwang katangian ng isang hangal ay punahin ang kamalian ng iba at Respondent filed a motion for summary judgment. Petitioner opposed the
kalimutan naman ang sa kanya. motion. On February 1, 1995, the trial court denied the motion via an order of even date.[12]

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) In its Answer, petitioner did not controvert the foregoing facts, but denied liability to
reinstating the Decision of the Regional Trial Court (RTC), Manila, Branch 5. The RTC ordered respondent for the encashed checks.[13]Petitioner bank maintained it exercised due diligence
petitioner Philippine Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to in the supervision of all its employees. It even dismissed defendant Santosafter she was
reimburse respondent Chowking Food Corporation (Chowking) the amount corresponding to found guilty of negligence in the performance of her duties.[14]
five (5) illegally encashed checks.
Defendant Santos, on the other hand, denied that she had been negligent in her job. She
The Facts averred that she merely followed the banks practice of honoring respondents checks even if
accompanied only by Manzanos endorsement.[15]
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of
Chowking five (5) PSBank checks with the following numbers, dates and denominations: Defendant Abacan likewise denied any liability to respondent. He alleged that, as president
and officer of petitioner bank, he played no role in the transactions complained of. [16] Thus,
Check No. Amount Date respondent has no cause of action against him.
017069 P 44,120.00 15 March 1989
053528 P135,052.87 09 May 1989 Petitioner, Santos and Abacan were unanimous in asserting that respondent is
074602 P160,138.12 08 August 1989 estopped from claiming reimbursement and damages since it was negligent in allowing
074631 P159,634.13 08 August 1989 Manzano to take hold, endorse, and encash its checks. Petitioner pointed out that the
017096 P 60,036.74 10 August 1989[2] proximate cause of respondents loss was its own negligence.[17]

The total amount of the subject checks reached P556,981.86. RTC Disposition

On August 24, 1998, the RTC rendered judgment in favor of respondent, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor b. To pay an attorneys fee equivalent to
of plaintiff and as against defendant Philippine Savings Bank and Erlinda 20% of the total amount due the
O. Santos ordering the said defendants to pay plaintiff, jointly and plaintiff;
severally:
c. To pay an amount of P100,000.00 the
1. The amount of P556,981.86 plus interest at the plaintiff for actual and
rate of 12% per annum from August 15, compensatory damages, plus the
1989 until said amount shall have been paid; costs of this suit.
2. 20% of the total amount due plaintiff as attorneys
fees; SO ORDERED.[19]
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiffs unrealized Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
profits.
CA Disposition
The complaint with respect to defendant Antonio Abacan, Jr. as
well as his counterclaim and cross claim are hereby DISMISSED. In its appeal, respondent Chowking contended, inter alia, that the RTC erred in
ruling that the proximate cause of the loss was its own negligence; and that its claim was
With respect to the cross claim of defendant PSBank against barred by estoppel.
Erlinda Santos and its third-party complaint against Rino T. Manzano,
both Santos and Manzano are hereby ordered to jointly and severally,
reimburse defendant PSBank whatever amount the latter shall be
constrained to pay plaintiff in connection with this case. On January 31, 2007, the CA granted the appeal, disposing as follows:

SO ORDERED.[18] WHEREFORE, the instant appeal is GRANTED. The order


appealed from is hereby SET ASIDE and the 24 August 1998 decision is
consequently REINSTATED with modification that the awards of attorneys
Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11, fees, exemplary damages, and alleged P1,000,000.00 unrealized profits of
1999, the RTC reversed its earlier ruling and held that it was respondents own negligence the appellant are DELETED.
that was the proximate cause of the loss. The fallo of the amended RTCdecision now reads:
IT IS SO ORDERED.[20]
In light of the foregoing grounds and observations, the Decision
of August 24, 1998, by this Court is accordingly modified as follows: The CA held that both petitioner PSBank and Santos should bear the loss. Said the
appellate court:
1. Ordering the dismissal of the complaint by the
plaintiff Chowking Food Corporation against the It is admitted that PSB cashed, over the counter, the checks of
defendants, Philippine Savings Bank (PSBank) the appellant indorsed by Manzano alone. Since there is no more dispute
and Erlinda Santos for lack of basis in fact and on the negligent act of Santos in honoring the appellants checks, over the
law; counter, despite the proper indorsements, the categorical finding of
negligence against her, remaining unrebutted, is deemed
2. Ordering the third party defendant, Regino or Rino established. This in effect warrants a finding that Santos is liable for
T. Manzano to pay the plaintiff Chowking Food damages to the appellant. The lower court therefore erred in dismissing
Corporation, the following: the complaint against her.[21]

a. To reimburse the plaintiff the amount Further, the CA held that:


of P556,981.86 plus interest at the
rate of 12% per annum from August Contrary to PSBs contention that it should not be held liable
15, 1989, until said amount has because it neither consented to nor had knowledge of Santos (sic)
been fully satisfied;
violations, such liability of Santos is solidary with PSB pursuant to Article The CA ratiocinated:
2176 in relation to Article 2180 of the Civil Code which states:
x x x Had Santos not been remiss in verifying the indorsements of the
Art. 2176. Whoever by act or omission causes damage checks involved, she would not have cashed the same because Manzano,
to another, there being fault or negligence, is obliged whose only signature appears therein, is apparently not an authorized
to pay for the damage done.... signatory of the appellant x x x had every means to determine the validity
Art. 2180. The obligation imposed by Art. 2176 is of those indorsements but for one reason or another she was neglectful
demandable not only for one's own acts or omissions of her duty x x x as admitted by PSB, such over the counter encashments
but also for those of persons for whom one is are not even sanctioned by its policies but Santos simply ignored the
responsible. same. It appears clear that Santos let the opportunity slip by when an
exercise of ordinary prudence expected of bank employees would have
xxxx sufficed to prevent the loss.[23]

Employers shall be liable for the damage caused by


their employees and household helpers acting within Issues
the scope of their assigned tasks even though the
former are not engaged in any business or activity. Petitioner has resorted to the present recourse and assigns to the CA the following
errors:
xxxx
I
The responsibility treated of in this article shall cease THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT
when the persons herein mentioned prove that they RESPONDENT WAS ESTOPPED FROM ASSERTING ITS CLAIM AGAINST
observed all the diligence of a good father of a family PETITIONER.
to prevent damage. II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE
x x x However, with banks like PSB, the degree of diligence required is THAT RESPONDENT'S NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS
more than that of a good father of a family considering that the business OWN LOSS. (Underscoring supplied)
of banking is imbued with public interest due to the nature of its
functions. Highest degree of diligence is needed which PSB, in this case, Our Ruling
failed to observe.
x x x Its argument that it should no be held responsible for the negligent The doctrine of equitable estoppel or estoppel in pais finds no application in the present
acts of Santos because those were independent acts x x x perpetrated case. The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines),
without its knowledge and consent is without basis in fact and in Inc. v. Court of Appeals:[24]
law. Assuming that PSB did not err in hiring Santos for her position, its
lack of supervision over her made it solidarily liable for the unauthorized Under the doctrine of estoppel, an admission or representation
encashment of the checks involved. In the supervision of employees, the is rendered conclusive upon the person making it, and cannot be denied
employer must formulate standard operating procedures, monitor their or disproved as against the person relying thereon. A party may not go
implementation and impose disciplinary measures for the breach back on his own acts and representations to the prejudice of the other
thereof. The appellee, in this case, presented no evidence that it party who relied upon them. In the law of evidence, whenever a party
formulated rules/guidelines for the proper performance of functions of has, by his own declaration, act, or omission, intentionally and
its employees and that it strictly implemented and monitored compliance deliberately led another to believe a particular thing true, to act upon
therewith. x x x[22] such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.[25]
The CA also disagreed with petitioners contention that respondents own negligence was the
proximate cause of its loss. The CA opined that even assuming that respondent was also The principle received further elaboration in Maneclang v. Baun:[26]
negligent in allowing Manzano to encash its checks, petitioner had the last clear chance to
avert injury and loss to respondent. This could have been done if petitioner, through Santos, In estoppel by pais, as related to the party sought to be
faithfully and carefully observed its encashment rules and procedures. estopped, it is necessary that there be a concurrence of the following
requisites: (a) conduct amounting to false representation or concealment
of material facts or at least calculated to convey the impression that the estoppel, when misapplied, becomes a most effective weapon to accomplish an injustice,
facts are otherwise than, and inconsistent with, those which the party inasmuch as it shuts a mans mouth from speaking the truth.[32]
subsequently attempts to assert; (b) intent, or at least expectation that
this conduct shall be acted upon, or at least influenced by the other Petitioner failed to prove that it has observed the due diligence required of banks under
party; and (c) knowledge, actual or constructive of the actual facts.[27] the law. Contrary to petitioners view, its negligence is the proximate cause of respondents
loss.
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the
doctrine must have been misled to ones prejudice. That is the final and, in reality, most It cannot be over emphasized that the banking business is impressed with public
important of the elements of equitable estoppel.[28] It is this element that is lacking here. interest. Of paramount importance is the trust and confidence of the public in general in the
banking industry. Consequently, the diligence required of banks is more than that of a
We agree with the CA that Chowking did not make any false representation or concealment Roman pater familias or a good father of a family.[33] The highest degree of diligence is
of material facts in relation to the encashments of the previous checks. As adverted to expected.[34]
earlier, respondent may have allowed Manzano to previously encash its checks, but it has
always been accompanied with the endorsements of the other authorized
signatories. Respondent did not allow petitioner to have its checks encashed without the
signature of all of its authorized signatories.

The CA pointed out: In its declaration of policy, the General Banking Law of 2000[35] requires of banks
the highest standards of integrity and performance. Needless to say, a bank is under
We find at the back of those checks, whereon indorsement obligation to treat the accounts of its depositors with meticulous care.[36] The fiduciary
usually appears, the signature of Manzano together with other nature of the relationship between the bank and the depositors must always be of
signature/signatures though mostly are illegible. It appears then that, paramount concern.[37]
assuming the appellant impliedly tolerated the act of Manzano in
indorsing the checks, it did not allow Manzano alone to indorse its checks Petitioner, through Santos, was clearly negligent when it honored respondents
as what actually happened in this case because his previous checks with the lone endorsement of Manzano. In the similar case of Philippine Bank of
indorsements were coupled with other indorsements of the appellants Commerce v. Court of Appeals,[38] an employee of Rommels Marketing Corporation (RMC)
signatories. There is, therefore, no sufficient evidence to sustain PSBs was able to illegally deposit in a different account the checks of the corporation. This Court
submission. On this score alone, the defense of estoppel must found that it was the bank tellers failure to exercise extraordinary diligence to validate the
fail.[29] (Underscoring and emphasis supplied) deposit slips that caused the crime to be perpetrated.

Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,[30] the The Court held thus:
Court enumerated the elements of estoppel in this wise:
Negligence here lies not only on the part of Ms. Mabayad but also on the
x x x As related to the party claiming the estoppel, the essential part of the bank itself in its lackadaisical selection and supervision of Ms.
elements are (1) lack of knowledge and of the means of knowledge of the Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio,
truth as the facts in question; (2) reliance, in good faith, upon the conduct then Manager of the Pasig Branch of the petitioner bank and now its
and statements of the party to be estopped; (3) action or inaction based Vice-President, to the effect that, while he ordered the investigation of
thereon of such character as to change the position or status of the party the incident, he never came to know that blank deposit slips were
claiming the estoppel, to his injury, detriment or prejudice.[31] validated in total disregard of the bank's validation procedures, viz.:

Here, the first two elements are wanting. Petitioner has knowledge of the truth and the Q: Did he ever tell you that one of your cashiers
means to it as to the proper endorsements necessary in encashing respondents affixed the stamp mark of the bank on the
checks. Respondent has an account with petitioner bank and, as such, is privy to the proper deposit slips and they validated the same with
signatories to endorse respondents checks. the machine, the fact that those deposit slips
were unfilled up, is there any report similar to
Neither can petitioner claim good faith. that?
A: No, it was not the cashier but the teller.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the
conclusive proof that its essential elements are present, estoppel must fail. Because Q: The teller validated the blank deposit slip?
A: No it was not reported. Unfortunately, it failed in that regard. x x x Without exercising
the required prudence on its part, BPI accepted and encashed the eight
Q: You did not know that any one in the bank tellers checks presented to it. As a result, it proximately contributed to the
or cashiers validated the blank deposit slip? fraud and should be held primarily liable for the negligence of its
A: I am not aware of that. officers or agents when acting within the course and scope of their
employment. It must bear the loss.[43]
Q: It is only now that you are aware of that?
A: Yes, Sir. WHEREFORE, the petition is DENIED for lack of merit.

xxxx SO ORDERED.

It was this negligence x x x coupled by the negligence of the


petitioner bank in the selection and supervision of its bank teller, which
was the proximate cause of the loss suffered by private respondent, and
not the latters act of entrusting cash to a dishonest employee, as insisted
by the petitioners.[39]

Proximate cause is determined by the facts of the case. It is that cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred.[40]

Measured by the foregoing yardstick, the proximate cause of the loss is not
respondents alleged negligence in allowing Manzano to take hold and encash respondents
checks. The proximate cause is petitioners own negligence in the supervision of its
employees when it overlooked the irregular practice of encashing checks even without the
requisite endorsements.

In Bank of the Philippine Islands v. Casa Montessori Internationale,[41] this Court


similarly held:

For allowing payment on the checks to a wrongful and fictitious


payee, BPI the drawee bank becomes liable to its depositor-drawer. Since
the encashing bank is one of its branches, BPI can easily go after it and
hold it liable for reimbursement. x x x In both law and equity, when one
of two innocent persons must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third
person to perpetrate the wrong.[42]

Further, the Court ruled:

Pursuant to its prime duty to ascertain well the genuineness of


the signatures of its client-depositors on checks being encashed, BPI is
expected to use reasonable business prudence. In the performance of
that obligation, it is bound by its internal banking rules and regulations
that form part of the contract it enters into with its depositors.
[G.R. No. 149454. May 28, 2004] The facts of the case are narrated by the CA as follows:

On November 8, 1982, plaintiff CASA Montessori International[5] opened Current Account No.
0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE and its authorized signatories.
LEONARDO T. YABUT, respondents.
In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had
been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00,
on the following dates and amounts:
[G.R. No. 149507. May 28, 2004]
Check No. Date Amount

1. 839700 April 24, 1990 P 43,400.00


CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE
ISLANDS, respondent.
2. 839459 Nov. 2, 1990 110,500.00

DECISION
3. 839609 Oct. 17, 1990 47,723.00
PANGANIBAN, J.:
4. 839549 April 7, 1990 90,700.00
By the nature of its functions, a bank is required to take meticulous care of the deposits
of its clients, who have the right to expect high standards of integrity and performance from 5. 839569 Sept. 23, 1990 52,277.00
it. Among its obligations in furtherance thereof is knowing the signatures of its
clients.Depositors are not estopped from questioning wrongful withdrawals, even if they 6. 729149 Mar. 22, 1990 148,000.00
have failed to question those errors in the statements sent by the bank to them for
verification.
7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00


The Case
9. 729034 Mar. 2, 1990 98,985.00
Before us are two Petitions for Review[1] under Rule 45 of the Rules of Court, assailing
the March 23, 2001 Decision[2] and the August 17, 2001 Resolution[3] of the Court of Appeals Total -- P 782,600.00[6]
(CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows:
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious
WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the name used by third party defendant Leonardo T. Yabut who worked as external auditor of
modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron
one-half of the value of the forged checks in the amount of P547,115.00 after deductions and encashed the checks.
subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to
The PNP Crime Laboratory conducted an examination of the nine (9) checks and
pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)].[4]
concluded that the handwritings thereon compared to the standard signature of Ms. Lebron
were not written by the latter.
The assailed Resolution denied all the parties Motions for Reconsideration.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages
against defendant bank praying that the latter be ordered to reinstate the amount
of P782,500.00[7] in the current and savings accounts of the plaintiff with interest at 6% per
The Facts annum.
On February 16, 1999, the RTC rendered the appealed decision in favor of the The Courts Ruling
plaintiff.[8]

The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly
meritorious.
Ruling of the Court of Appeals

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss First Issue:
between BPI and CASA. The appellate court took into account CASAs contributory negligence Forged Signature Wholly Inoperative
that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI
half the total amount claimed; and CASA, the other half. It also disallowed attorneys fees and
moral and exemplary damages. Section 23 of the NIL provides:

Hence, these Petitions.[9]


Section 23. Forged signature; effect of. -- When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right x x x to enforce payment thereof against any party thereto, can be acquired through or
Issues under such signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.[12]

In GR No. 149454, Petitioner BPI submits the following issues for our consideration: Under this provision, a forged signature is a real[13] or absolute defense,[14] and a
person whose signature on a negotiable instrument is forged is deemed to have never
I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the become a party thereto and to have never consented to the contract that allegedly gave rise
applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; to it.[15]
that it must be proved by clear, positive and convincing evidence; and that the burden of
proof lies on the party alleging the forgery. The counterfeiting of any writing, consisting in the signing of anothers name with
intent to defraud, is forgery.[16]
II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable In the present case, we hold that there was forgery of the drawers signature on the
laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of check.
its own negligence, from asserting its forgery claim against BPI, specially taking into account
the absence of any negligence on the part of BPI.[10] First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawers signature and
encashed the checks.[19] He never refuted these findings.[20] That he had been coerced into
In GR No. 149507, Petitioner CASA submits the following issues: admission was not corroborated by any evidence on record. [21]

1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI], Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory,
although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys after its examination of the said checks,[22] had concluded that the handwritings thereon --
fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred compared to the standard signature of the drawer -- were not hers.[23] This conclusion was
when it did not order [BPI] to pay interest on the amounts due to [CASA]. the same as that in the Report[24] that the PNP Crime Laboratory had earlier issued to BPI --
the drawee bank -- upon the latters request.
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by
in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 the CA, since these are supported by substantial evidence on record.[25]
be apportioned between [CASA] and [BPI] x x x.[11]

These issues can be narrowed down to three. First, was there forgery under the
Voluntary Admission Not
Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore
Violative of Constitutional Rights
precluded from setting up forgery as a defense? Third, should moral and exemplary damages,
attorneys fees, and interest be awarded?
The voluntary admission of Yabut did not violate his constitutional rights (1) on The examination by the PNP, though inconclusive, was nevertheless clear, positive and
custodial investigation, and (2) against self-incrimination. convincing.

In the first place, he was not under custodial investigation. [26] His Affidavit was Forgery cannot be presumed.[47] It must be established by clear, positive and
executed in private and before private individuals.[27] The mantle of protection under Section convincing evidence.[48] Under the best evidence rule as applied to documentary evidence
12 of Article III of the 1987 Constitution[28] covers only the period from the time a person is like the checks in question, no secondary or substitutionary evidence may inceptively be
taken into custody for investigation of his possible participation in the commission of a crime introduced, as the original writing itself must be produced in court.[49] But when, without bad
or from the time he is singled out as a suspect in the commission of a crime although not yet faith on the part of the offeror, the original checks have already been destroyed or cannot be
in custody.[29] produced in court, secondary evidence may be produced. [50] Without bad faith on its part,
CASA proved the loss or destruction of the original checks through the Affidavit of the one
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest person who knew of that fact[51] -- Yabut. He clearly admitted to discarding the paid checks to
or a deprivation of freedom, with questions propounded on him by the police authorities for cover up his misdeed.[52] In such a situation, secondary evidence like microfilm copies may be
the purpose of eliciting admissions, confessions, or any information.[30] The said introduced in court.
constitutional provision does not apply to spontaneous statements made in a voluntary
manner[31] whereby an individual orally admits to authorship of a crime.[32] What the The drawers signatures on the microfilm copies were compared with the standard
Constitution proscribes is the compulsory or coercive disclosure of incriminating facts.[33] signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that
two different persons had written them.[53] Although no conclusive report could be issued in
Moreover, the right against self-incrimination[34] under Section 17 of Article III[35] of the the absence of the original checks,[54] she affirmed that her findings were 90 percent
Constitution, which is ordinarily available only in criminal prosecutions, extends to all other conclusive.[55] According to her, even if the microfilm copies were the only basis of
government proceedings -- including civil actions, legislative investigations,[36] and comparison, the differences were evident.[56] Besides, the RTC explained that although the
administrative proceedings that possess a criminal or penal aspect[37] -- but not to private Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in
investigations done by private individuals. Even in such government proceedings, this right the absence of the original checks.[57] This explanation is valid; otherwise, no such report can
may be waived,[38] provided the waiver is certain; unequivocal; and intelligently, ever be relied upon in court.
understandingly and willingly made.[39]
Even with respect to documentary evidence, the best evidence rule applies only when
If in these government proceedings waiver is allowed, all the more is it so in private the contents of a document -- such as the drawers signature on a check -- is the subject of
investigations. It is of no moment that no criminal case has yet been filed against Yabut. The inquiry.[58] As to whether the document has been actually executed, this rule does not apply;
filing thereof is entirely up to the appropriate authorities or to the private individuals upon and testimonial as well as any other secondary evidence is admissible. [59] Carina Lebron
whom damage has been caused. As we shall also explain later, it is not mandatory for CASA -- herself, the drawers authorized signatory, testified many times that she had never signed
the plaintiff below -- to implead Yabut in the civil case before the lower court. those checks. Her testimonial evidence is admissible; the checks have not been actually
Under these two constitutional provisions, [t]he Bill of Rights [40] does not concern itself executed.The genuineness of her handwriting is proved, not only through the courts
with the relation between a private individual and another individual. It governs the comparison of the questioned handwritings and admittedly genuine specimens
relationship between the individual and the State.[41] Moreover, the Bill of Rights is a charter thereof,[60] but above all by her.
of liberties for the individual and a limitation upon the power of the [S]tate. [42] These The failure of CASA to produce the original checks neither gives rise to the presumption
rights[43] are guaranteed to preclude the slightest coercion by the State that may lead the of suppression of evidence[61] nor creates an unfavorable inference against it.[62] Such failure
accused to admit something false, not prevent him from freely and voluntarily telling the merely authorizes the introduction of secondary evidence[63] in the form of microfilm
truth.[44] copies.Of no consequence is the fact that CASA did not present the signature card containing
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights does the signatures with which those on the checks were compared. [64] Specimens of standard
not automatically entitle him to the constitutional protection.[45] When he freely and signatures are not limited to such a card. Considering that it was not produced in evidence,
voluntarily executed[46] his Affidavit, the State was not even involved. Such Affidavit may other documents that bear the drawers authentic signature may be resorted to. [65] Besides,
therefore be admitted without violating his constitutional rights while under custodial that card was in the possession of BPI -- the adverse party.
investigation and against self-incrimination. We have held that without the original document containing the allegedly forged
signature, one cannot make a definitive comparison that would establish forgery; [66] and that
a comparison based on a mere reproduction of the document under controversy cannot
Clear, Positive and Convincing produce reliable results.[67] We have also said, however, that a judge cannot merely rely on a
Examination and Evidence handwriting experts testimony,[68] but should also exercise independent judgment in
evaluating the authenticity of a signature under scrutiny. [69] In the present case, both the RTC
and the CA conducted independent examinations of the evidence presented and arrived at
reasonable and similar conclusions. Not only did they admit secondary evidence; they also The monthly statements issued by BPI to its clients contain a notice worded as follows:
appositely considered testimonial and other documentary evidence in the form of the If no error is reported in ten (10) days, account will be correct.[80] Such notice cannot be
Affidavit. considered a waiver, even if CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first
of these has been met.[70] The result of examining a questioned handwriting, even with the This notice is a simple confirmation[81] or circularization -- in accounting parlance -- that
aid of experts and scientific instruments, may be inconclusive;[71] but it is a non sequiturto say requests client-depositors to affirm the accuracy of items recorded by the banks.[82] Its
that such result is not clear, positive and convincing. The preponderance of evidence purpose is to obtain from the depositors a direct corroboration of the correctness of their
required in this case has been satisfied.[72] account balances with their respective banks.[83] Internal or external auditors of a bank use it
as a basic audit procedure[84] -- the results of which its client-depositors are neither
interested in nor privy to -- to test the details of transactions and balances in the banks
records.[85] Evidential matter obtained from independent sources outside a bank only serves
Second Issue: to provide greater assurance of reliability[86] than that obtained solely within it for purposes
Negligence Attributable to BPI Alone of an audit of its own financial statements, not those of its client-depositors.

Furthermore, there is always the audit risk that errors would not be detected [87] for
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making various reasons. One, materiality is a consideration in audit planning;[88] and two, the
payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the information obtained from such a substantive test is merely presumptive and cannot be the
drawer whose authorized signatures do not appear on the negotiable instruments -- cannot basis of a valid waiver.[89] BPI has no right to impose a condition unilaterally and thereafter
be held liable thereon. Neither is the latter precluded from setting up forgery as a real consider failure to meet such condition a waiver. Neither may CASA renounce a right[90] it has
defense. never possessed.[91]

Every right has subjects -- active and passive. While the active subject is entitled to
demand its enforcement, the passive one is duty-bound to suffer such enforcement.[92]
Clear Negligence
in Allowing Payment On the one hand, BPI could not have been an active subject, because it could not have
Under a Forged Signature demanded from CASA a response to its notice.Besides, the notice was a measly request
worded as follows: Please examine x x x and report x x x. [93] CASA, on the other hand, could
not have been a passive subject, either, because it had no obligation to respond. It could -- as
We have repeatedly emphasized that, since the banking business is impressed with it did -- choose not to respond.
public interest, of paramount importance thereto is the trust and confidence of the public in
Estoppel precludes individuals from denying or asserting, by their own deed or
general. Consequently, the highest degree of diligence[73] is expected,[74] and high standards
representation, anything contrary to that established as the truth, in legal
of integrity and performance are even required, of it.[75] By the nature of its functions, a bank
contemplation.[94] Our rules on evidence even make a juris et de jure presumption[95] that
is under obligation to treat the accounts of its depositors with meticulous care, [76] always
whenever one has, by ones own act or omission, intentionally and deliberately led another to
having in mind the fiduciary nature of their relationship.[77]
believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation
BPI contends that it has a signature verification procedure, in which checks are arising from such act or omission -- be permitted to falsify that supposed truth.[96]
honored only when the signatures therein are verified to be the same with or similar to the
In the instant case, CASA never made any deed or representation that misled BPI. The
specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight
formers omission, if any, may only be deemed an innocent mistake oblivious to the
instances of forgery. Its negligence consisted in the omission of that degree of diligence
procedures and consequences of periodic audits. Since its conduct was due to such ignorance
required[78] of a bank. It cannot now feign ignorance, for very early on we have already ruled
founded upon an innocent mistake, estoppel will not arise. [97] A person who has no
that a bank is bound to know the signatures of its customers; and if it pays a forged check, it
knowledge of or consent to a transaction may not be estopped by it.[98] Estoppel cannot be
must be considered as making the payment out of its own funds, and cannot ordinarily
sustained by mere argument or doubtful inference x x x.[99] CASA is not barred from
charge the amount so paid to the account of the depositor whose name was forged. [79] In
questioning BPIs error even after the lapse of the period given in the notice.
fact, BPI was the same bank involved when we issued this ruling seventy years ago.

Loss Borne by
Neither Waiver nor Estoppel
Proximate Source
Results from Failure to
of Negligence
Report Error in Bank Statement
For allowing payment[100] on the checks to a wrongful and fictitious payee, BPI -- the The financial statements are representations of the client; but it is the auditor who has
drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its the responsibility for the accuracy in the recording of data that underlies their preparation,
branches,[101] BPI can easily go after it and hold it liable for reimbursement. [102] It may not their form of presentation, and the opinion[121] expressed therein.[122] The auditor does not
debit the drawers account[103] and is not entitled to indemnification from the drawer.[104] In assume the role of employee or of management in the clients conduct of operations[123] and
both law and equity, when one of two innocent persons must suffer by the wrongful act of a is never under the control or supervision[124] of the client.
third person, the loss must be borne by the one whose negligence was the proximate cause
of the loss or who put it into the power of the third person to perpetrate the wrong.[105] Yabut was an independent auditor[125] hired by CASA. He handled its monthly bank
reconciliations and had access to all relevant documents and checkbooks.[126] In him was
Proximate cause is determined by the facts of the case.[106] It is that cause which, in reposed the clients[127] trust and confidence[128] that he would perform precisely those
natural and continuous sequence, unbroken by any efficient intervening cause, produces the functions and apply the appropriate procedures in accordance with generally accepted
injury, and without which the result would not have occurred.[107] auditing standards.[129] Yet he did not meet these expectations.Nothing could be more
horrible to a client than to discover later on that the person tasked to detect fraud was the
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its same one who perpetrated it.
client-depositors on checks being encashed, BPI is expected to use reasonable business
prudence.[108] In the performance of that obligation, it is bound by its internal banking rules
and regulations that form part of the contract it enters into with its depositors.[109]
Cash Balances
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in Open to Manipulation
one of its branches without privity;[110] that is, without the proper verification of his
corresponding identification papers. Second, BPI was unable to discover early on not only this
irregularity, but also the marked differences in the signatures on the checks and those on the It is a non sequitur to say that the person who receives the monthly bank statements,
signature card. Third, despite the examination procedures it conducted, the Central together with the cancelled checks and other debit/credit memoranda, shall examine the
Verification Unit[111] of the bank even passed off these evidently different signatures as contents and give notice of any discrepancies within a reasonable time. Awareness is not
genuine.Without exercising the required prudence on its part, BPI accepted and encashed equipollent with discernment.
the eight checks presented to it. As a result, it proximately contributed to the fraud and
should be held primarily liable[112] for the negligence of its officers or agents when acting Besides, in the internal accounting control system prudently installed by CASA, [130] it
within the course and scope of their employment.[113] It must bear the loss. was Yabut who should examine those documents in order to prepare the bank
reconciliations.[131] He owned his working papers,[132] and his output consisted of his opinion
as well as the clients financial statements and accompanying notes thereto. CASA had every
right to rely solely upon his output -- based on the terms of the audit engagement -- and
CASA Not Negligent could thus be unwittingly duped into believing that everything was in order. Besides, [g]ood
in Its Financial Affairs faith is always presumed and it is the burden of the party claiming otherwise to adduce clear
and convincing evidence to the contrary.[133]

In this jurisdiction, the negligence of the party invoking forgery is recognized as an Moreover, there was a time gap between the period covered by the bank statement
exception[114] to the general rule that a forged signature is wholly inoperative. [115] Contrary to and the date of its actual receipt. Lebron personally received the December 1990 bank
BPIs claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we statement only in January 1991[134] -- when she was also informed of the forgery for the first
stress, is not precluded from setting up forgery as a real defense. time, after which she immediately requested a stop payment order. She cannot be faulted
for the late detection of the forged December check. After all, the bank account with BPI was
not personal but corporate, and she could not be expected to monitor closely all its
finances. A preschool teacher charged with molding the minds of the youth cannot be
Role of Independent Auditor burdened with the intricacies or complexities of corporate existence.

There is also a cutoff period such that checks issued during a given month, but not
The major purpose of an independent audit is to investigate and determine objectively presented for payment within that period, will not be reflected therein.[135] An experienced
if the financial statements submitted for audit by a corporation have been prepared in auditor with intent to defraud can easily conceal any devious scheme from a client unwary of
accordance with the appropriate financial reporting practices[116] of private entities. The the accounting processes involved by manipulating the cash balances on record -- especially
relationship that arises therefrom is both legal and moral.[117] It begins with the execution of when bank transactions are numerous, large and frequent. CASA could only be blamed, if at
the engagement letter[118] that embodies the terms and conditions of the audit and ends with all, for its unintelligent choice in the selection and appointment of an auditor -- a fault that is
the fulfilled expectation of the auditors ethical[119] and competent performance in all aspects not tantamount to negligence.
of the audit.[120]
Negligence is not presumed, but proven by whoever alleges it.[136] Its mere existence is imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or
not sufficient without proof that it, and no other cause, [137] has given rise to damages.[138] In negligence;[158] it imports a dishonest purpose or some moral obliquity and conscious doing
addition, this fault is common to, if not prevalent among, small and medium-sized business of a wrong, a breach of a known duty through some motive or interest or ill will that partakes
entities, thus leading the Professional Regulation Commission (PRC), through the Board of of the nature of fraud.[159]
Accountancy (BOA), to require today not only accreditation for the practice of public
accountancy,[139] but also the registration of firms in the practice thereof. In fact, among the As a general rule, a corporation -- being an artificial person without feelings, emotions
attachments now required upon registration are the code of good governance[140] and a and senses, and having existence only in legal contemplation -- is not entitled to moral
sworn statement on adequate and effective training.[141] damages,[160] because it cannot experience physical suffering and mental
anguish.[161] However, for breach of the fiduciary duty required of a bank, a corporate client
The missing checks were certainly reported by the bookkeeper[142] to the may claim such damages when its good reputation is besmirched by such breach, and social
accountant[143] -- her immediate supervisor -- and by the latter to the auditor. However, both humiliation results therefrom.[162] CASA was unable to prove that BPI had debased the good
the accountant and the auditor, for reasons known only to them, assured the bookkeeper reputation of,[163] and consequently caused incalculable embarrassment to, the
that there were no irregularities. former. CASAs mere allegation or supposition thereof, without any sufficient evidence on
record,[164] is not enough.
The bookkeeper[144] who had exclusive custody of the checkbooks[145] did not have to
go directly to CASAs president or to BPI. Although she rightfully reported the matter, neither
an investigation was conducted nor a resolution of it was arrived at, precisely because the
person at the top of the helm was the culprit. The vouchers, invoices and check stubs in Exemplary Damages Also Denied
support of all check disbursements could be concealed or fabricated -- even in collusion --
and management would still have no way to verify its cash accountabilities.
We also deny CASAs claim for exemplary damages.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If
auditors may be held liable for breach of contract and negligence, [146] with all the more Imposed by way of correction[165] for the public good,[166] exemplary damages cannot
reason may they be charged with the perpetration of fraud upon an unsuspecting be recovered as a matter of right.[167] As we have said earlier, there is no bad faith on the part
client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be
munificence or both. Money paid under a mistake may rightfully be recovered,[147] and under said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent
such terms as the injured party may choose. manner.[168] The latter, having no right to moral damages, cannot demand exemplary
damages.[169]

Third Issue:
Award of Monetary Claims Attorneys Fees Granted

Although it is a sound policy not to set a premium on the right to litigate, [170] we find
Moral Damages Denied that CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable
justification.[171]

We deny CASAs claim for moral damages. When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest,[172] or where the court deems it just and
In the absence of a wrongful act or omission,[148] or of fraud or bad faith,[149] moral equitable,[173] attorneys fees may be recovered. In the present case, BPI persistently denied
damages cannot be awarded.[150] The adverse result of an action does not per se make the the claim of CASA under the NIL to recredit the latters account for the value of the forged
action wrongful, or the party liable for it. One may err, but error alone is not a ground for checks. This denial constrained CASA to incur expenses and exert effort for more than ten
granting such damages.[151] While no proof of pecuniary loss is necessary therefor -- with the years in order to protect its corporate interest in its bank account. Besides, we have already
amount to be awarded left to the courts discretion[152] -- the claimant must nonetheless cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has
satisfactorily prove the existence of its factual basis[153] and causal relation[154] to the remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent
claimants act or omission.[155] (10%)[174] of the total value adjudged to CASA as attorneys fees.
Regrettably, in this case CASA was unable to identify the particular instance --
enumerated in the Civil Code -- upon which its claim for moral damages is
predicated.[156] Neither bad faith nor negligence so gross that it amounts to malice[157] can be Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort
to the courts to obtain payment, legal interest may be adjudicated at the discretion of the
Court, the same to run from the filing[175] of the Complaint.[176] Since a court judgment is not
a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per
annum.[177] If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, 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 amount finally adjudged,[179]compounded[180] annually to
make up for the cost of money[181] already lost to CASA.

Moreover, the failure of the CA to award interest does not prevent us from granting it
upon damages awarded for breach of contract.[182]Because BPI evidently breached its
contract of deposit with CASA, we award interest in addition to the total amount
adjudged. Under Section 196 of the NIL, any case not provided for shall be governed 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 NIL. Thus, we resort to the Code of
Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce
shall be governed by its provisions and, in their absence, by the usages of commerce
generally observed in each place; and in the absence of both rules, by those of the civil
law.[184] This law being silent, we look at Article 18 of the Civil Code, which states: In matters
which are governed by the Code of Commerce and special laws, their deficiency shall be
supplied by its provisions. A perusal of these three statutes unmistakably shows that the
award of interest under our civil law is justified.

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No.
149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with
modification: BPI is held liable for P547,115, the total value of the forged checks less the
amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of
six percent (6%) per annum -- compounded annually, from the filing of the complaint until
paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting attorneys fees. Let a copy of this Decision
be furnished the Board of Accountancy of the Professional Regulation Commission for such
action as it may deem appropriate against Respondent Yabut. No costs.

SO ORDERED.
G.R. No. 171845 October 10, 2012 On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses
Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on
SPOUSES GODFREY and GERARDINA SERFINO, Petitioners, deposit and the payment of damages, with a prayer for preliminary attachment.
vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE On April 26, 1996, Grace withdrew ₱ 150,000.00 from her savings account with FEBTC. On
ISLANDS, Respondent. the same day, the spouses Serfino sent another letter to FEBTC informing it of the pending
action; attached to the letter was a copy of the complaint filed as Civil Case No. 95-9344.
DECISION
During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were
BRION, J.: turning over the balance of the deposit in FEBTC (amounting to ₱ 54,534.00) to the spouses
Serfino as partial payment of their obligation under the compromise judgment. The RTC
issued an order dated July 30, 1997, authorizing FEBTC to turn over the balance of the
Before the Court is a petition for review on certiorari, 1 filed under Rule 45 of the Rules of
deposit to the spouses Serfino.
Court, assailing the decision2 dated February 23, 2006 of the Regional Trial Court (RTC) of
Bacolod City, Branch 41, in Civil Case No. 95-9344.
On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez,
Grace and Dante liable for fraudulently diverting the amount due the spouses Serfino, but
FACTUAL ANTECEDENTS
(b) absolving FEBTC from any liability for allowing Grace to withdraw the deposit. The RTC
declared that FEBTC was not a party to the compromise judgment; FEBTC was thus not
The present case traces its roots to the compromise judgment dated October 24, 19953 of chargeable with notice of the parties’ agreement, as there was no valid court order or
the RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an processes requiring it to withhold payment of the deposit. Given the nature of bank deposits,
action for collection of sum of money instituted by the petitioner spouses Godfrey and FEBTC was primarily bound by its contract of loan with Grace. There was, therefore, no legal
Gerardina Serfino (collectively, spouses Serfino) against the spouses Domingo and Magdalena justification for the bank to refuse payment of the account, notwithstanding the claim of the
Cortez (collectively, spouses Cortez). By way of settlement, the spouses Serfino and the spouses Serfino as stated in their three letters.
spouses Cortez executed a compromise agreement on October 20, 1995, in which the
spouses Cortez acknowledged their indebtedness to the spouses Serfino in the amount of ₱
THE PARTIES’ ARGUMENTS
108,245.71. To satisfy the debt, Magdalena bound herself "to pay in full the judgment debt
out of her retirement benefits[.]"4 Payment of the debt shall be made one (1) week after
Magdalena has received her retirement benefits from the Government Service Insurance The spouses Serfino appealed the RTC’s ruling absolving FEBTC from liability for allowing
System (GSIS). In case of default, the debt may be executed against any of the properties of the withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that
the spouses Cortez that is subject to execution, upon motion of the spouses Serfino.5 After only a court order or process can justify the withholding of the deposit in Grace’s name. Since
finding that the compromise agreement was not contrary to law, morals, good custom, public FEBTC was informed of their adverse claim after they sent three letters, they claim that:
order or public policy, the RTC approved the entirety of the parties’ agreement and issued a
compromise judgment based thereon.6 The debt was later reduced to ₱ 155,000.00 from ₱ Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to:
197,000.00 (including interest), with the promise that the spouses Cortez would pay in full 1. Withhold payment of the deposit until there is a reasonable opportunity to institute legal
the judgment debt not later than April 23, 1996.7 proceedings to contest ownership; and 2) give prompt notice of the adverse claim to the
depositor. The bank may be held liable to the adverse claimant if it disregards the notice of
No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited adverse claim and pays the depositor.
her retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the
respondent, Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Grace’s When the bank has reasonable notice of a bona fide claim that money deposited with it is
savings account with FEBTC amounted to ₱ 245,830.37, the entire deposit coming from the property of another than the depositor, it should withhold payment until there is
Magdalena’s retirement benefits.8 That same day, the spouses Serfino’s counsel sent two reasonable opportunity to institute legal proceedings to contest the ownership.9 (emphases
letters to FEBTC informing the bank that the deposit in Grace’s name was owned by the and underscoring supplied)
spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez. The
letter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses Aside from the three letters, FEBTC should be deemed bound by the compromise judgment,
Cortez until its actual ownership has been resolved in court. since Article 1625 of the Civil Code states that an assignment of credit binds third persons if it
appears in a public instrument.10 They conclude that FEBTC, having been notified of their
adverse claim, should not have allowed Grace to withdraw the deposit.
While they acknowledged that bank deposits are governed by the Civil Code provisions on that FEBTC was duty bound to protect their right by preventing the withdrawal of the deposit
loan, the spouses Serfino allege that the provisions on voluntary deposits should apply by since the bank had been notified of the assignment and of their claim.
analogy in this case, particularly Article 1988 of the Civil Code, which states:
We find no basis to support the spouses Serfino’s claim of ownership of the deposit.
Article 1988. The thing deposited must be returned to the depositor upon demand, even
though a specified period or time for such return may have been fixed. "An assignment of credit is an agreement by virtue of which the owner of a credit, known as
the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and
This provision shall not apply when the thing is judicially attached while in the depositary’s without the consent of the debtor, transfers his credit and accessory rights to another,
possession, or should he have been notified of the opposition of a third person to the known as the assignee, who acquires the power to enforce it to the same extent as the
return or the removal of the thing deposited. In these cases, the depositary must assignor could enforce it against the debtor. It may be in the form of sale, but at times it may
immediately inform the depositor of the attachment or opposition. constitute a dation in payment, such as when a debtor, in order to obtain a release from his
debt, assigns to his creditor a credit he has against a third person."12 As a dation in payment,
Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the assignment of credit operates as a mode of extinguishing the obligation;13 the delivery
the depositor if notified of a third party’s adverse claim. and transmission of ownership of a thing (in this case, the credit due from a third person) by
the debtor to the creditor is accepted as the equivalent of the performance of the
obligation.14
By allowing Grace to withdraw the deposit that is due them under the compromise
judgment, the spouses Serfino claim that FEBTC committed an actionable wrong that
entitles them to the payment of actual and moral damages. The terms of the compromise judgment, however, did not convey an intent to equate the
assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the payment
of the debt due the spouses Serfino (the obligation). There was actually no assignment of
FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not
credit; if at all, the compromise judgment merely identified the fund from which payment
bound by the compromise judgment, but only by its contract of loan with its depositor. As a
for the judgment debt would be sourced:
loan, the bank deposit is owned by the bank; hence, the spouses Serfino’s claim of ownership
over it is erroneous.
(c) That before the plaintiffs file a motion for execution of the decision or order based [on
this] Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s]
Based on these arguments, the case essentially involves a determination of the obligation of
herself to pay in full the judgment debt out of her retirement benefits as Local [T]reasury
banks to a third party who claims rights over a bank deposit standing in the name of
Operation Officer in the City of Bacolod, Philippines, upon which full payment, the plaintiffs
another.
waive, abandon and relinquish absolutely any of their claims for attorney’s fees stipulated in
the Promissory Note (Annex "A" to the Complaint).15 [emphasis ours]
THE COURT’S RULING
Only when Magdalena has received and turned over to the spouses Serfino the portion of her
We find the petition unmeritorious and see no reason to reverse the RTC’s ruling. retirement benefits corresponding to the debt due would the debt be deemed paid.

Claim for actual damages not In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was
meritorious because there could be extinguished by the execution of the deeds of assignment. The Court ruled in the affirmative,
no pecuniary loss that should be given that, in the deeds involved, the respondent (the debtor) assigned to the petitioner (the
compensated if there was no creditor) her credits "to make good" the balance of her obligation; the parties agreed to
assignment of credit relieve the respondent of her obligation to pay the balance of her account, and for the
petitioner to collect the same from the respondent’s debtors.17 The Court concluded that the
The spouses Serfino’s claim for damages against FEBTC is premised on their claim of respondent’s obligation to pay the balance of her accounts with the petitioner was
ownership of the deposit with FEBTC. The deposit consists of Magdalena’s retirement extinguished, pro tanto, by the deeds of assignment of credit executed by the respondent in
benefits, which the spouses Serfino claim to have been assigned to them under the favor of the petitioner.18
compromise judgment. That the retirement benefits were deposited in Grace’s savings
account with FEBTC supposedly did not divest them of ownership of the amount, as "the In the present case, the judgment debt was not extinguished by the mere designation in the
money already belongs to the [spouses Serfino] having been absolutely assigned to them and compromise judgment of Magdalena’s retirement benefits as the fund from which payment
constructively delivered by virtue of the x x x public instrument[.]"11 By virtue of shall be sourced. That the compromise agreement authorizes recourse in case of default on
the assignment of credit, the spouses Serfino claim ownership of the deposit, and they posit other executable properties of the spouses Cortez, to satisfy the judgment debt, further
supports our conclusion that there was no assignment of Magdalena’s credit with the GSIS that is better addressed by the other branches of government, particularly, the Bangko
that would have extinguished the obligation. Sentral ng Pilipinas, which is the agency that supervises the operations and activities of
banks, and which has the power to issue "rules of conduct or the establishment of standards
The compromise judgment in this case also did not give the supposed assignees, the spouses of operation for uniform application to all institutions or functions covered[.]"25 To adopt this
Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the spouses rule will have significant implications on the banking industry and practices, as the American
Serfino are prohibited from enforcing their claim until after the lapse of one (1) week from experience has shown. Recognizing that the rule imposing duty on banks to freeze the
Magdalena’s receipt of her retirement benefits: deposit upon notice of adverse claim adopts a policy adverse to the bank and its functions,
and opens it to liability to both the depositor and the adverse claimant,26 many American
states have since adopted adverse claim statutes that shifted or, at least, equalized the
(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise
burden. Essentially, these statutes do not impose a duty on banks to freeze the deposit upon
Agreement executed until after one (1) week from receipt by the defendant, Magdalena
a mere notice of adverse claim; they first require either a court order or an indemnity
Cortez of her retirement benefits from the [GSIS] but fails to pay within the said period the
bond.27
defendants’ judgment debt in this case, in which case [this] Compromise Agreement [may be]
executed upon any property of the defendants that are subject to execution upon motion by
the plaintiffs.19 In the absence of a law or a rule binding on the Court, it has no option but to uphold the
existing policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption
of a judicially-imposed rule giving third parties with unverified claims against the deposit of
An assignment of credit not only entitles the assignee to the credit itself, but also gives him
another a better right over the deposit. As current laws provide, the bank’s contractual
the power to enforce it as against the debtor of the assignor.
relations are with its depositor, not with the third party;28 "a bank is under obligation to treat
the accounts of its depositors with meticulous care and always to have in mind the fiduciary
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim nature of its relationship with them."29 In the absence of any positive duty of the bank to an
ownership of the retirement benefits that were deposited with FEBTC. Without ownership adverse claimant, there could be no breach that entitles the latter to moral damages.
rights over the amount, they suffered no pecuniary loss that has to be compensated by
actual damages. The grant of actual damages presupposes that the claimant suffered a duly
WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and
proven pecuniary loss.20
the decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41,
in Civil Case No. 95-9344 is AFFIRMED. Costs against the petitioners.
Claim for moral damages not
meritorious because no duty exists
SO ORDERED.
on the part of the bank to protect
interest of third person claiming
deposit in the name of another

Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in
Article 21 of the Civil Code.21 Article 21 of the Civil Code, in conjunction with Article 19 of the
Civil Code, is part of the cause of action known in this jurisdiction as "abuse of rights." The
elements of abuse of rights are: (a) there is a legal right or duty; (b) exercised in bad faith;
and (c) for the sole intent of prejudicing or injuring another.1âwphi1

The spouses Serfino invoke American common law that imposes a duty upon a bank
receiving a notice of adverse claim to the fund in a depositor’s account to freeze the
account for a reasonable length of time, sufficient to allow the adverse claimant to
institute legal proceedings to enforce his right to the fund.22 In other words, the bank has a
duty not to release the deposits unreasonably early after a third party makes known his
adverse claim to the bank deposit. Acknowledging that no such duty is imposed by law in this
jurisdiction, the spouses Serfino ask the Court to adopt this foreign rule.23

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules
governing pleading, practice and procedure in all courts.24 The rule reflects a matter of policy
[G.R. No. 121413. January 29, 2001] N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied
proceeds of the plaintiffs Citibank Check Numbers SN-10597 and 16508.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND I. G.R. Nos. 121413 and 121479
AMERICA), petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and
CITIBANK, N.A., respondents.
The stipulated facts submitted by the parties as accepted by the Court of Appeals are
as follows:

[G.R. No. 121479. January 29, 2001] On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in
the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment
of plaintiffs percentage or manufacturers sales taxes for the third quarter of 1977.

FORD PHILIPPINES, INC., petitioner-plaintiff, vs. COURT OF APPEALS and CITIBANK, N.A. The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents. subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank,
the proceeds of the check was paid to IBAA as collecting or depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the
[G.R. No. 128604. January 29, 2001] payee thereof, the Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue,


the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of
FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE COMMERCIAL its percentage/manufacturers sales taxes for the third quarter of 1977 and that said second
INTERNATIONAL BANK and THE COURT OF APPEALS, respondents. payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of
Internal Revenue.
DECISION

QUISUMBING, J.: It is further admitted by defendant Citibank that during the time of the transactions in
question, plaintiff had been maintaining a checking account with defendant Citibank; that
Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the
These consolidated petitions involve several fraudulently negotiated checks. Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel
The original actions a quo were instituted by Ford Philippines to recover from the lines and written in between said lines was the phrase Payees Account Only; and that
drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to
International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several the defendant IBAA.
checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by
an organized syndicate. It has been duly established that for the payment of plaintiffs percentage tax for the last
quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002,
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized
Decision[1] of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford Philippines, Inc. vs. agent bank of Metrobank, Alabang Branch to receive the tax payment of the plaintiff.
Citibank, N.A. and Insular Bank of Asia and America (now Philippine Commercial International
Bank), and the August 8, 1995 Resolution,[2] ordering the collecting bank, Philippine
On December 19, 1977, plaintiffs Citibank Check No. SN-04867, together with the Revenue
Commercial International Bank, to pay the amount of Citibank Check No. SN-04867.
Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Branch. The latter accepted the check and sent it to the Central Clearing House for clearing
Decision[3] of the Court of Appeals and its March 5, 1997 Resolution[4]in CA-G.R. No. 28430 on the same day, with the indorsement at the back all prior indorsements and/or lack of
entitled Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank, indorsements guaranteed. Thereafter, defendant IBAA presented the check for payment to
affirming in toto the judgment of the trial court holding the defendant drawee bank, Citibank, defendant Citibank on same date, December 19, 1977, and the latter paid the face value of
the check in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was Ford, with leave of court, filed a third-party complaint before the trial court impleading
debited in plaintiffs account with the defendant Citibank and the check was returned to the Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the
plaintiff. court dismissed the complaint against PBC for lack of cause of action. The court likewise
dismissed the third-party complaint against Godofredo Rivera because he could not be
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of served with summons as the NBI declared him as a fugitive from justice.
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate
letters dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter On June 15, 1989, the trial court rendered its decision, as follows:
that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said
checks, then plaintiff shall hold the defendants liable for reimbursement of the face value of Premises considered, judgment is hereby rendered as follows:
the same. Both defendants denied liability and refused to pay.
1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue severally, to pay the plaintiff the amount of P4,746,114.41 representing the
addressed to the plaintiff - supposed to be Exhibit D, the latter was officially informed, face value of plaintiffs Citibank Check No. SN-04867, with interest thereon at
among others, that its check in the amount of P4,746,114.41 was not paid to the government the legal rate starting January 20, 1983, the date when the original complaint
or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to was filed until the amount is fully paid, plus costs;
pay the said amount within fifteen days from receipt of the letter. Upon advice of the
plaintiffs lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue, the 2. On defendant Citibanks cross-claim: ordering the cross-defendant IBAA (now
amount of P4,746,114.41, representing payment of plaintiffs percentage tax for the third PCI BANK) to reimburse defendant Citibank for whatever amount the latter
quarter of 1977. has paid or may pay to the plaintiff in accordance with the next preceding
paragraph;
As a consequence of defendants refusal to reimburse plaintiff of the payment it had made for 3. The counterclaims asserted by the defendants against the plaintiff, as well as
the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its that asserted by the cross-defendant against the cross-claimant are
original complaint before this Court. dismissed, for lack of merits; and

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial 4. With costs against the defendants.
International Bank (PCI Bank) with the latter as the surviving entity.
SO ORDERED.[6]
Defendant Citibank maintains that; the payment it made of plaintiffs Citibank Check No. SN-
04867 in the amount of P4,746,114.41 was in due course; it merely relied on the clearing Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated
stamp of the depository/collecting bank, the defendant IBAA that all prior indorsements their respective petitions for review on certiorari to the Court of Appeals. On March 27, 1995,
and/or lack of indorsements guaranteed; and the proximate cause of plaintiffs injury is the the appellate court issued its judgment as follows:
gross negligence of defendant IBAA in indorsing the plaintiffs Citibank check in question.
WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank Check No. modifications.
SN-04867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking
account with defendant Citibank.[5] The court hereby renders judgment:

Although it was not among the stipulated facts, an investigation by the National Bureau of 1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank
Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo N.A. is concerned;
Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the
check because there was an error in the computation of the tax due to the Bureau of Internal 2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of
Revenue (BIR). With Riveras instruction, PCIBank replaced the check with two of its own P4,746,114.41 representing the face value of plaintiffs Citibank Check No. SN-
Managers Checks (MCs). Alleged members of a syndicate later deposited the two MCs with 04867, with interest thereon at the legal rate starting January 20, 1983. the
the Pacific Banking Corporation. date when the original complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the plaintiff II. PCIBank is liable to petitioner Ford considering that:
as well as that asserted by the cross-defendant against the cross-claimant, for
lack of merits. 1. There were no instructions from petitioner Ford to deliver the proceeds of the
subject check to a person other than the payee named therein, the
Costs against the defendant IBAA (now PCI Bank). Commissioner of the Bureau of Internal Revenue; thus, PCIBanks only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
IT IS SO ORDERED.[7] Internal Revenue.[10]

2. PCIBank which affixed its indorsement on the subject check (All prior
PCIBank moved to reconsider the above-quoted decision of the Court of Appeals, while indorsement and/or lack of indorsement guaranteed), is liable as collecting
Ford filed a Motion for Partial Reconsideration. Both motions were denied for lack of merit. bank.[11]
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari 3. PCIBank is barred from raising issues of fact in the instant proceedings.[12]
under Rule 45.
4. Petitioner Fords cause of action had not prescribed.[13]
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the
Twelfth Division of the Court of Appeals contending that it merely acted on the instruction of
Ford and such cause of action had already prescribed.
II. G.R. No. 128604

PCIBank sets forth the following issues for consideration:

I. Did the respondent court err when, after finding that the petitioner acted on The same syndicate apparently embezzled the proceeds of checks intended, this time,
the check drawn by respondent Ford on the said respondents instructions, it to settle Fords percentage taxes appertaining to the second quarter of 1978 and the first
nevertheless found the petitioner liable to the said respondent for the full quarter of 1979.
amount of the said check.
The facts as narrated by the Court of Appeals are as follows:
II. Did the respondent court err when it did not find prescription in favor of the
petitioner.[8] Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of 1978 payable
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was
same decision and resolution of the Court of Appeals, and praying for the reinstatement in issued for the said purpose.
toto of the decision of the trial court which found both PCIBank and Citibank jointly and
severally liable for the loss. On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and
In G.R. No. 121479, appellant Ford presents the following propositions for payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A-
consideration: 1697160 was issued for the said purpose.

I. Respondent Citibank is liable to petitioner Ford considering that: Both checks were crossed checks and contain two diagonal lines on its upper left
corner between which were written the words payable to the payees account only.
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the
the subject check and a depositor of respondent Citibank, an absolute and BIR, Region 4-B, demanded for the said tax payments the corresponding periods above-
contractual duty to pay the proceeds of the subject check only to the payee mentioned.
thereof, the Commissioner of Internal Revenue.
As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were considered
2. Respondent Citibank failed to observe its duty as banker with respect to the fake and spurious. This anomaly was confirmed by the NBI upon the initiative of the BIR. The
subject check, which was crossed and payable to Payees Account Only. findings forced Ford to pay the BIR anew, while an action was filed against Citibank and
PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
3. Respondent Citibank raises an issue for the first time on appeal; thus the same
should not be considered by the Honorable Court. The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings
on the modus operandi of the syndicate, as follows:
4. As correctly held by the trial court, there is no evidence of gross negligence on
the part of petitioner Ford.[9]
A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger attorneys fees and expenses of litigation, and to pay the defendant, PCIB (on its counterclaim
Accountant. As such, he prepared the plaintiffs check marked Ex. A [Citibank Check No. SN- to crossclaim) the sum of P300,000.00 as attorneys fees and costs of litigation, and pay the
10597] for payment to the BIR. Instead, however, of delivering the same to the payee, he costs.
passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of
the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself SO ORDERED.[15]
subsequently opened a Checking Account in the name of a fictitious person denominated as
Reynaldo Reyes in the Meralco Branch of PCIBank where Dulay works as Assistant Manager.
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the
decision of the trial court. Hence, this petition.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank
of America Check in exactly the same amount as the first FORD check (Exh. A, P5,851,706.37) Petitioner Ford prays that judgment be rendered setting aside the portion of the Court
while this worthless check was coursed through PCIBs main office enroute to the Central of Appeals decision and its resolution dated March 5, 1997, with respect to the dismissal of
Bank for clearing, replaced this worthless check with FORDs Exhibit A and accordingly the complaint against PCIBank and holding Citibank solely responsible for the proceeds of
tampered the accompanying documents to cover the replacement. As a result, Exhibit A was Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73
cleared by defendant CITIBANK, and the fictitious deposit account of Reynaldo Reyes was respectively.
credited at the PCIB Meralco Branch with the total amount of the FORD check Exhibit A. The
Ford avers that the Court of Appeals erred in dismissing the complaint against
same method was again utilized by the syndicate in profiting from Exh. B [Citibank Check No.
defendant PCIBank considering that:
SN-16508] which was subsequently pilfered by Alexis Marindo, Riveras Assistant at FORD.
I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence
From this Reynaldo Reyes account, Castro drew various checks distributing the shares of the required to be exercised by it as a banking institution.
other participating conspirators namely (1) CRISANTO BERNABE, the mastermind who
formulated the method for the embezzlement; (2) RODOLFO R. DE LEON a customs broker II. Defendant PCIBank clearly failed to observe the diligence required in the
who negotiated the initial contact between Bernabe, FORDs Godofredo Rivera and PCIBs selection and supervision of its officers and employees.
Remberto Castro; (3) JUAN CASTILLO who assisted de Leon in the initial arrangements; (4) III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or
GODOFREDO RIVERA, FORDs accountant who passed on the first check (Exhibit A) to Castro; damage resulting to the plaintiff Ford as a consequence of the substitution of
(5) REMBERTO CASTRO, PCIBs pro-manager at San Andres who performed the switching of the check consistent with Section 5 of Central Bank Circular No. 580 series of
checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB 1977.
Meralco Branch; (6) WINSTON DULAY, PCIBs Assistant Manager at its Meralco Branch, who
assisted Castro in switching the checks in the clearing process and facilitated the opening of IV. Assuming arguendo that defendant PCIBank did not accept, endorse or
the fictitious Reynaldo Reyes bank account; (7) ALEXIS MARINDO, Riveras Assistant at FORD, negotiate in due course the subject checks, it is liable, under Article 2154 of
who gave the second check (Exh. B) to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent the Civil Code, to return the money which it admits having received, and
who provided the fake and spurious revenue tax receipts to make it appear that the BIR had which was credited to it in its Central Bank account.[16]
received FORDs tax payments.
The main issue presented for our consideration by these petitions could be simplified
as follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and
Several other persons and entities were utilized by the syndicate as conduits in the the drawee bank (Citibank) the value of the checks intended as payment to the
disbursements of the proceeds of the two checks, but like the aforementioned participants in Commissioner of Internal Revenue? Or has Fords cause of action already prescribed?
the conspiracy, have not been impleaded in the present case. The manner by which the said
funds were distributed among them are traceable from the record of checks drawn against Note that in these cases, the checks were drawn against the drawee bank, but the title
the original Reynaldo Reyes account and indubitably identify the parties who illegally of the person negotiating the same was allegedly defective because the instrument was
benefited therefrom and readily indicate in what amounts they did so.[14] obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to
the payee. It was established that instead of paying the checks to the CIR, for the settlement
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, of the appropriate quarterly percentage taxes of Ford, the checks were diverted and
Citibank, liable for the value of the two checks while absolving PCIBank from any liability, encashed for the eventual distribution among the members of the syndicate. As to the
disposing as follows: unlawful negotiation of the check the applicable law is Section 55 of the Negotiable
Instruments Law (NIL), which provides:
WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse
plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6% When title defective -- The title of a person who negotiates an instrument is defective within
interest thereon from date of first written demand until full payment, plus P300,000.00 the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he On this point, jurisprudence regarding the imputed negligence of employer in a master-
negotiates it in breach of faith or under such circumstances as amount to a fraud. servant relationship is instructive. Since a master may be held for his servants wrongful act,
the law imputes to the master the act of the servant, and if that act is negligent or wrongful
Pursuant to this provision, it is vital to show that the negotiation is made by the and proximately results in injury to a third person, the negligence or wrongful conduct is the
perpetrator in breach of faith amounting to fraud. The person negotiating the checks must negligence or wrongful conduct of the master, for which he is liable.[18] The general rule is
have gone beyond the authority given by his principal. If the principal could prove that there that if the master is injured by the negligence of a third person and by the concurring
was no negligence in the performance of his duties, he may set up the personal defense to contributory negligence of his own servant or agent, the latters negligence is imputed to his
escape liability and recover from other parties who, through their own negligence, allowed superior and will defeat the superiors action against the third person, assuming, of course
the commission of the crime. that the contributory negligence was the proximate cause of the injury of which complaint is
made.[19]
In this case, we note that the direct perpetrators of the offense, namely the embezzlers
belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, Accordingly, we need to determine whether or not the action of Godofredo Rivera,
escaped liability for the embezzlement of millions of pesos. We are thus left only with the Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate
task of determining who of the present parties before us must bear the burden of loss of cause of the loss or damage. As defined, proximate cause is that which, in the natural and
these millions. It all boils down to the question of liability based on the degree of negligence continuous sequence, unbroken by any efficient, intervening cause produces the injury, and
among the parties concerned. without which the result would not have occurred.[20]

Foremost, we must resolve whether the injured party, Ford, is guilty of the imputed It appears that although the employees of Ford initiated the transactions attributable
contributory negligence that would defeat its claim for reimbursement, bearing in mind that to an organized syndicate, in our view, their actions were not the proximate cause of
its employees, Godofredo Rivera and Alexis Marindo, were among the members of the encashing the checks payable to the CIR. The degree of Fords negligence, if any, could not be
syndicate. characterized as the proximate cause of the injury to the parties.

Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to The Board of Directors of Ford, we note, did not confirm the request of Godofredo
negotiate the checks to his co-conspirators, instead of delivering them to the designated Rivera to recall Citibank Check No. SN-04867. Riveras instruction to replace the said check
authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact with PCIBanks Managers Check was not in the ordinary course of business which could have
that Ford was remiss in the supervision and control of its own employees, inasmuch as it only prompted PCIBank to validate the same.
discovered the syndicates activities through the information given by the payee of the checks As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established
after an unreasonable period of time. that these checks were made payable to the CIR. Both were crossed checks. These checks
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera were apparently turned around by Fords employees, who were acting on their own personal
to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As capacity.
to the subsequent run-around of funds of Citibank Check Nos. SN-10597 and 16508, PCIBank Given these circumstances, the mere fact that the forgery was committed by a drawer-
claims that the proximate cause of the damage to Ford lies in its own officers and employees payors confidential employee or agent, who by virtue of his position had unusual facilities for
who carried out the fraudulent schemes and the transactions. These circumstances were not perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the
checked by other officers of the company, including its comptroller or internal bank to shift the loss to the drawer-payor, in the absence of some circumstance raising
auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount estoppel against the drawer.[21] This rule likewise applies to the checks fraudulently
involved was a sheer negligence and stated that, as between two innocent persons, one of negotiated or diverted by the confidential employees who hold them in their possession.
whom must suffer the consequences of a breach of trust, the one who made it possible, by
his act of negligence, must bear the loss. With respect to the negligence of PCIBank in the payment of the three checks involved,
separately, the trial courts found variations between the negotiation of Citibank Check No.
For its part, Ford denies any negligence in the performance of its duties. It avers that SN-04867 and the misapplication of total proceeds of Checks SN-10597 and
there was no evidence presented before the trial court showing lack of diligence on the part 16508. Therefore, we have to scrutinize, separately, PCIBanks share of negligence when the
of Ford. And, citing the case of Gempesaw vs. Court of Appeals,[17] Ford argues that even if syndicate achieved its ultimate agenda of stealing the proceeds of these checks.
there was a finding therein that the drawer was negligent, the drawee bank was still ordered
to pay damages.

Furthermore, Ford contends that Godofredo Rivera was not authorized to make any G.R. Nos. 121413 and 121479
representation in its behalf, specifically, to divert the proceeds of the checks. It adds that
Citibank raised the issue of imputed negligence against Ford for the first time on
appeal. Thus, it should not be considered by this Court.
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It Indeed, the crossing of the check with the phrase Payees Account Only, is a warning
was coursed through the ordinary banking transaction, sent to Central Clearing with the that the check should be deposited only in the account of the CIR. Thus, it is the duty of the
indorsement at the back all prior indorsements and/or lack of indorsements guaranteed, and collecting bank PCIBank to ascertain that the check be deposited in payees account
was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and
proceeds to the CIR, prepared two of its Managers checks and enabled the syndicate to to know its depositors before it could make the clearing indorsement all prior indorsements
encash the same. and/or lack of indorsement guaranteed.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,[24] we
checks. The neglect of PCIBank employees to verify whether his letter requesting for the ruled:
replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care
and prudence required in the circumstances. Anent petitioners liability on said instruments, this court is in full accord with the ruling of the
Furthermore, it was admitted that PCIBank is authorized to collect the payment of PCHCs Board of Directors that:
taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted instructions given by the payor or its agent. As aptly In presenting the checks for clearing and for payment, the defendant made an express
stated by the trial court, to wit: guarantee on the validity of all prior endorsements. Thus, stamped at the back of the checks
are the defendants clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank], which ENDORSEMENTS GUARANTEED.Without such warranty, plaintiff would not have paid on the
claimed to be a depository/collecting bank of the BIR, it has the responsibility to make sure checks.
that the check in question is deposited in Payees account only.
No amount of legal jargon can reverse the clear meaning of defendants warranty. As the
xxxxxxxxx warranty has proven to be false and inaccurate, the defendant is liable for any damage
arising out of the falsity of its representation.[25]

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only
from its principal BIR and not from any other person especially so when that person is not Lastly, banking business requires that the one who first cashes and negotiates the
known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely check must take some precautions to learn whether or not it is genuine. And if the one
on the alleged telephone call of one Godofredo Rivera and in his signature to the authenticity cashing the check through indifference or other circumstance assists the forger in committing
of such signature considering that the plaintiff is not a client of the defendant IBAA. the fraud, he should not be permitted to retain the proceeds of the check from the drawee
whose sole fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason, a bank which
It is a well-settled rule that the relationship between the payee or holder of cashes a check drawn upon another bank, without requiring proof as to the identity of
commercial paper and the bank to which it is sent for collection is, in the absence of an persons presenting it, or making inquiries with regard to them, cannot hold the proceeds
agreement to the contrary, that of principal and agent.[22] A bank which receives such paper against the drawee when the proceeds of the checks were afterwards diverted to the hands
for collection is the agent of the payee or holder.[23] of a third party. In such cases the drawee bank has a right to believe that the cashing bank (or
Even considering arguendo, that the diversion of the amount of a check payable to the the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity
collecting bank in behalf of the designated payee may be allowed, still such diversion must be of the negotiation of the checks. Thus, one who encashed a check which had been forged or
properly authorized by the payor. Otherwise stated, the diversion can be justified only by diverted and in turn received payment thereon from the drawee, is guilty of negligence
proof of authority from the drawer, or that the drawer has clothed his agent with apparent which proximately contributed to the success of the fraud practiced on the drawee bank. The
authority to receive the proceeds of such check. latter may recover from the holder the money paid on the check.[26]

Citibank further argues that PCI Banks clearing stamp appearing at the back of the Having established that the collecting banks negligence is the proximate cause of the
questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of
GUARANTEED should render PCIBank liable because it made it pass through the clearing Citibank Check No. SN-04867.
house and therefore Citibank had no other option but to pay it. Thus, Citibank asserts that
the proximate cause of Fords injury is the gross negligence of PCIBank. Since the questioned
crossed check was deposited with PCIBank, which claimed to be a depository/collecting bank G.R. No. 128604
of the BIR, it had the responsibility to make sure that the check in question is deposited in
Payees account only.
The trial court and the Court of Appeals found that PCIBank had no official act in the infirmity in the issuance of the checks in question (2) coupled by the fact that said checks
ordinary course of business that would attribute to it the case of the embezzlement of were sufficiently funded and (3) the endorsement of the Payee or lack thereof was
Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the
hold the two Ford checks at all. The trial court held, thus: same.

For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute
Neither is there any proof that defendant PCIBank contributed any official or conscious and contractual duty to pay the proceeds of the subject check only to the payee thereof, the
participation in the process of the embezzlement. This Court is convinced that the switching CIR. Citing Section 62[32] of the Negotiable Instruments Law, Ford argues that by accepting
operation (involving the checks while in transit for clearing) were the clandestine or hidden the instrument, the acceptor which is Citibank engages that it will pay according to the tenor
actuations performed by the members of the syndicate in their own personal, covert and of its acceptance, and that it will pay only to the payee, (the CIR), considering the fact that
private capacity and done without the knowledge of the defendant PCIBank.[27] here the check was crossed with annotation Payees Account Only.

In this case, there was no evidence presented confirming the conscious participation of As ruled by the Court of Appeals, Citibank must likewise answer for the damages
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the
the wrongful or tortuous acts and declarations of its officers or agents within the course and contractual relationship existing between the two. Citibank, as the drawee bank breached its
scope of their employment.[28] A bank will be held liable for the negligence of its officers or contractual obligation with Ford and such degree of culpability contributed to the damage
agents when acting within the course and scope of their employment. It may be liable for the caused to the latter. On this score, we agree with the respondent courts ruling.
tortuous acts of its officers even as regards that species of tort of which malice is an essential
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before
element. In this case, we find a situation where the PCIBank appears also to be the victim of
paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is
the scheme hatched by a syndicate in which its own management employees had
clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and
participated.
16508 do not bear any initials.Citibank failed to notice and verify the absence of the clearing
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank stamps. Had this been duly examined, the switching of the worthless checks to Citibank
Check Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank
Manager of PCIBanks Meralco Branch, who helped Castro open a Checking account of a had indeed failed to perform what was incumbent upon it, which is to ensure that the
fictitious person named Reynaldo Reyes. Castro deposited a worthless Bank of America Check amount of the checks should be paid only to its designated payee. The fact that the drawee
in exactly the same amount of Ford checks. The syndicate tampered with the checks and bank did not discover the irregularity seasonably, in our view, constitutes negligence in
succeeded in replacing the worthless checks and the eventual encashment of Citibank Check carrying out the banks duty to its depositors. The point is that as a business affected with
Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant public interest and because of the nature of its functions, the bank is under obligation to
Manager apparently performed their activities using facilities in their official capacity or treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
authority but for their personal and private gain or benefit. nature of their relationship.[33]

A bank holding out its officers and agents as worthy of confidence will not be permitted Thus, invoking the doctrine of comparative negligence, we are of the view that both
to profit by the frauds these officers or agents were enabled to perpetrate in the apparent PCIBank and Citibank failed in their respective obligations and both were negligent in the
course of their employment; nor will it be permitted to shirk its responsibility for such frauds, selection and supervision of their employees resulting in the encashment of Citibank Check
even though no benefit may accrue to the bank therefrom. For the general rule is that a bank Nos. SN 10597 and 16508. Thus, we are constrained to hold them equally liable for the loss of
is liable for the fraudulent acts or representations of an officer or agent acting within the the proceeds of said checks issued by Ford in favor of the CIR.
course and apparent scope of his employment or authority.[29] And if an officer or employee
Time and again, we have stressed that banking business is so impressed with public
of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness
interest where the trust and confidence of the public in general is of paramount importance
lodged with his bank for collection, the bank is liable for his misappropriation of such sum.[30]
such that the appropriate standard of diligence must be very high, if not the highest, degree
Moreover, as correctly pointed out by Ford, Section 5[31] of Central Bank Circular No. of diligence.[34] A banks liability as obligor is not merely vicarious but primary, wherein the
580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for defense of exercise of due diligence in the selection and supervision of its employees is of no
the account of sending bank, which in this case is PCIBank. moment.[35]

But in this case, responsibility for negligence does not lie on PCIBanks shoulders alone. Banks handle daily transactions involving millions of pesos.[36] By the very nature of
their work the degree of responsibility, care and trustworthiness expected of their employees
The evidence on record shows that Citibank as drawee bank was likewise negligent in and officials is far greater than those of ordinary clerks and employees. [37] Banks are
the performance of its duties. Citibank failed to establish that its payment of Fords checks expected to exercise the highest degree of diligence in the selection and supervision of their
were made in due course and legally in order. In its defense, Citibank claims the genuineness employees.[38]
and due execution of said checks, considering that Citibank (1) has no knowledge of any
On the issue of prescription, PCIBank claims that the action of Ford had prescribed
because of its inability to seek judicial relief seasonably, considering that the alleged
negligent act took place prior to December 19, 1977 but the relief was sought only in 1983,
or seven years thereafter.

The statute of limitations begins to run when the bank gives the depositor notice of the
payment, which is ordinarily when the check is returned to the alleged drawer as a voucher
with a statement of his account,[39] and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing.[40]

Our laws on the matter provide that the action upon a written contract must be
brought within ten years from the time the right of action accrues.[41]Hence, the reckoning
time for the prescriptive period begins when the instrument was issued and the
corresponding check was returned by the bank to its depositor (normally a month
thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of
Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when
Citibank paid the face value of the check in the amount of P4,746,114.41. Since the original
complaint for the cause of action was filed on January 20, 1983, barely six years had
lapsed. Thus, we conclude that Fords cause of action to recover the amount of Citibank
Check No. SN 04867 was seasonably filed within the period provided by law.

Finally, we also find that Ford is not completely blameless in its failure to detect the
fraud. Failure on the part of the depositor to examine its passbook, statements of account,
and cancelled checks and to give notice within a reasonable time (or as required by statute)
of any discrepancy which it may in the exercise of due care and diligence find therein, serves
to mitigate the banks liability by reducing the award of interest from twelve percent (12%) to
six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines,
responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the
circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the
damages that he may recover.[42]

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 25017, are AFFIRMED. PCIBank, known formerly as Insular Bank of Asia and America,
is declared solely responsible for the loss of the proceeds of Citibank Check No. SN 04867 in
the amount P4,746,114.41, which shall be paid together with six percent (6%) interest
thereon to Ford Philippines Inc. from the date when the original complaint was filed until said
amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are
MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed
until full payment of said amount.

Costs against Philippine Commercial International Bank and Citibank, N.A.

SO ORDERED.
[G.R. No. 125536. March 16, 2000] Upon her return from the province, private respondent was surprised to learn of the
dishonor of the check. She went to the Valenzuela Branch of Prudential Bank on July 4, 1988,
PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA TUPASI-VALENZUELA to inquire why her check was dishonored. She approached one Albert Angeles Reyes, the
joined by husband Francisco Valenzuela, respondents. Ed-pm-is officer in charge of current account, and requested him for the ledger of her current account.
Private respondent discovered a debit of P300.00 penalty for the dishonor of her Prudential
Check No. 983395. She asked why her check was dishonored when there were sufficient
DECISION
funds in her account as reflected in her passbook. Reyes told her that there was no need to
review the passbook because the bank ledger was the best proof that she did not have
QUISUMBING, J.: sufficient funds. Then, he abruptly faced his typewriter and started typing. S-jcj

This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Later, it was found out that the check in the amount of P35,271.60 deposited by private
Decision dated January 31, 1996, and the Resolution dated July 2, 1997, of the Court of respondent on June 1, 1988, was credited in her savings account only on June 24, 1988, or
Appeals in CA G.R. CV No. 35532, which reversed the judgment of the Regional Trial Court of after a period of 23 days. Thus the P11,500.00 check was redeposited by Lhuillier on June 24,
Valenzuela, Metro Manila, Branch 171, in Civil Case No. 2913-V-88, dismissing the private 1988, and properly cleared on June 27, 1988.
respondent's complaint for damages.[1]
Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi
In setting aside the trial court's decision, the Court of Appeals disposed as follows: and Lhuillier that the bank was at fault. Since this was not the first incident private
respondent had experienced with the bank, private respondent was unmoved by the bank's
"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE apologies and she commenced the present suit for damages before the RTC of Valenzuela.
and, another rendered ordering the appellee bank to pay appellant the
sum of P100,000.00 by way of moral damages; P50,000.00 by way of After trial, the court rendered a decision on August 30, 1991, dismissing the complaint of
exemplary damages, P50,000.00 for and as attorney's fees; and to pay private respondent, as well as the counterclaim filed by the defendant, now petitioner.
the costs. Jjs-c
Undeterred, private respondent appealed to the Court of Appeals. On January 31, 1996,
SO ORDERED."[2] respondent appellate court rendered a decision in her favor, setting aside the trial court's
decision and ordering herein petitioner to pay private respondent the sum of P100,000.00 by
The facts of the case on record are as follows: way of moral damages; P50,000.00 exemplary damages; P50,000.00 for and as attorney's
fees; and to pay the costs.[3]
Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and Current
Account No. 01016-3 in the Valenzuela Branch of petitioner Prudential Bank, with automatic Petitioner filed a timely motion for reconsideration but it was denied. Hence, this petition,
transfer of funds from the savings account to the current account. raising the following issues:

On June 1, 1988, herein private respondent deposited in her savings account Check No. 666B I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH
(104561 of even date) the amount of P35,271.60, drawn against the Philippine Commercial GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
International Bank (PCIB). Taking into account that deposit and a series of withdrawals, DEVIATING FROM ESTABLISHED JURISPRUDENCE IN REVERSING THE
private respondent as of June 21, 1988 had a balance of P35,993.48 in her savings account DISMISSAL JUDGMENT OF THE TRIAL COURT AND INSTEAD AWARDED
and P776.93 in her current account, or total deposits of P36,770.41, with petitioner. Sc-jj MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES. Supr-
eme
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount of
P11,500.00 post-dated June 20, 1988, in favor of one Belen Legaspi. It was issued to Legaspi II. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN
as payment for jewelry which private respondent had purchased. Legaspi, who was in jewelry GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION
trade, endorsed the check to one Philip Lhuillier, a businessman also in the jewelry business. WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL
When Lhuillier deposited the check in his account with the PCIB, Pasay Branch, it was COURT, AWARDED MORAL DAMAGES IN THE AMOUNT OF P100,000.00.
dishonored for being drawn against insufficient funds. Lhuillier's secretary informed the
secretary of Legaspi of the dishonor. The latter told the former to redeposit the check. III. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN
Legaspi's secretary tried to contact private respondent but to no avail. GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION,
WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL extent of diligence expected of the former in handling the accounts entrusted to its care,
COURT, AWARDED P50,000.00 BY WAY OF EXEMPLARY DAMAGES. Co-urt thus: Lex-juris

IV. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED "In every case, the depositor expects the bank to treat his account with
WITH GRAVE ABUSE OF DISCRETION WHERE EVEN IN THE ABSENCE OF the utmost fidelity, whether such account consists only of a few hundred
EVIDENCE, AWARDED ATTORNEY'S FEES. pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This
Simply stated, the issue is whether the respondent court erred and gravely abused its has to be done if the account is to reflect at any given time the amount of
discretion in awarding moral and exemplary damages and attorney's fees to be paid by money the depositor can dispose of as he sees fit, confident that the
petitioner to private respondent. bank will deliver it as and to whomever he directs. A blunder on the part
of bank, such as the dishonor of a check without good reason, can cause
the depositor not a little embarrassment if not also financial loss and
Petitioner claims that generally the factual findings of the lower courts are final and binding
perhaps even civil and criminal litigation.
upon this Court. However, there are exceptions to this rule. One is where the trial court and
the Court of Appeals had arrived at diverse factual findings.[4] Petitioner faults the
respondent court from deviating from the basic rule that finding of facts by the trial court is The point is that as a business affected with public interest and because
entitled to great weight, because the trial court had the opportunity to observe the of the nature of its functions, the bank is under obligation to treat the
deportment of witness and the evaluation of evidence presented during the trial. Petitioner account of its depositors with meticulous care, always having in mind the
contends that the appellate court gravely abused its discretion when it awarded damages to fiduciary nature of their relationship. x x x"
the plaintiff, even in the face of lack of evidence to prove such damages, as found by the trial
court. In the recent case of Philippine National Bank vs. Court of Appeals,[8] we held that "a bank is
under obligation to treat the accounts of its depositors with meticulous care whether such
Firstly, petitioner questions the award of moral damages. It claims that private respondent account consists only of a few hundred pesos or of millions of pesos. Responsibility arising
did not suffer any damage upon the dishonor of the check. Petitioner avers it acted in good from negligence in the performance of every kind of obligation is demandable. While
faith. It was an honest mistake on its part, according to petitioner, when misposting of petitioner's negligence in this case may not have been attended with malice and bad faith,
private respondent's deposit on June 1, 1988, happened. Further, petitioner contends that nevertheless, it caused serious anxiety, embarrassment and humiliation". Hence we ruled
private respondent may not "claim" damages because the petitioner's manager and other that the offended party in said case was entitled to recover reasonable moral damages.
employee had profusely apologized to private respondent for the error. They offered to
make restitution and apology to the payee of the check, Legaspi, as well as the alleged Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains
endorsee, Lhuillier. Regrettably, it was private respondent who declined the offer and that petitioner has committed a serious mistake. It dishonored the check issued by the
allegedly said, that there was nothing more to it, and that the matter had been put to private respondent who turned out to have sufficient funds with petitioner. The bank's
rest.[5]Jle-xj negligence was the result of lack of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business as banking. Accordingly,
Admittedly, as found by both the respondent appellate court and the trial court, petitioner the award of moral damages by the respondent Court of Appeals could not be said to be in
bank had committed a mistake. It misposted private respondent's check deposit to another error nor in grave abuse of its discretion. Juri-smis
account and delayed the posting of the same to the proper account of the private
respondent. The mistake resulted to the dishonor of the private respondent's check. The trial There is no hard-and-fast rule in the determination of what would be a fair amount of moral
court found "that the misposting of plaintiffs check deposit to another account and the damages since each case must be governed by its own peculiar facts. The yardstick should be
delayed posting of the same to the account of the plaintiff is a clear proof of lack of that it is not palpably and scandalously excessive. In our view, the award of P100,000.00 is
supervision on the part of the defendant bank."[6] Similarly, the appellate court also found reasonable, considering the reputation and social standing of private respondent Leticia T.
that "while it may be true that the bank's negligence in dishonoring the properly funded Valenzuela.[9]
check of appellant might not have been attended with malice and bad faith, as appellee
[bank] submits, nevertheless, it is the result of lack of due care and caution expected of an The law allows the grant of exemplary damages by way of example for the public
employee of a firm engaged in so sensitive and accurately demanding task as banking." [7] good.[10] The public relies on the banks' sworn profession of diligence and meticulousness in
giving irreproachable service. The level of meticulousness must be maintained at all times by
In Simex International (Manila), Inc, vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank the banking sector. Hence, the Court of Appeals did not err in awarding exemplary damages.
of Philippine Islands vs. IAC, et al., 206SCRA 408, 412-413 (1992), this Court had occasion to In our view, however, the reduced amount of P20,000.00 is more appropriate. Jj-juris
stress the fiduciary nature of the relationship between a bank and its depositors and the
The award of attorney's fees is also proper when exemplary damages are awarded and since
private respondent was compelled to engage the services of a lawyer and incurred expenses
to protect her interest.[11] The standards in fixing attorney's fees are: (1) the amount and the
character of the services rendered; (2) labor, time and trouble involved; (3) the nature and
importance of the litigation and business in which the services were rendered; (4) the
responsibility imposed; (5) the amount of money and the value of the property affected by
the controversy or involved in the employment; (6) the skill and the experience called for in
the performance of the services; (7) the professional character and the social standing of the
attorney; (8) the results secured, it being a recognized rule that an attorney may properly
charge a much larger fee when it is contingent than when it is not.[12] In this case, all the
aforementioned weighed, and considering that the amount involved in the controversy is
only P36,770.41, the total deposit of private respondent which was misposted by the bank,
we find the award of respondent court of P50,000.00 for attorney's fees, excessive and
reduce the same to P30,000.00.

WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED, with
MODIFICATION. The petitioner is ordered to pay P100,000.00 by way of moral damages in
favor of private respondent Leticia T. Valenzuela. It is further ordered to pay her exemplary
damages in the amount of P20,000.00 and P30,000.00, attorney's fees. Jksm

Costs against petitioner.

SO ORDERED.