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Simex International (Manila), Inc.

v CA
183 SCRA 360 (1990) 1. Thus, For MORAL DAMAGES
• We agree that moral damages are not awarded to
Doctrine: A bank may be held liable for damages by reason of its penalize the defendant but to compensate the plaintiff for the injuries
unjustified dishonor of a check, which caused damage to its client’s he may have suffered.
credit standing. The bank must record every single transaction • In the case at bar, the petitioner is seeking such damages
accurately, down to the last centavo, and as promptly as possible. for the prejudice sustained by it as a result of the private
This has to be done if the account is to reflect at any given time the respondent's fault.
amount of money the depositor can dispose of as he sees fit, • The respondent court said that the claimed losses are
confident that the bank will deliver it as and to whomever he directs. purely speculative and are not supported by substantial evidence,
The bank is a fiduciary of the depositor’s money. but it failed to consider that the amount of such losses need not be
established with exactitude precisely because of their nature.
Facts: • Moral damages are not susceptible of pecuniary
• Simex International is a private corporation engaged in the estimation. Article 2216 of the Civil Code specifically provides that
exportation of food products. It buys these products from various "no proof of pecuniary loss is necessary in order that moral, nominal,
local suppliers and then sells them abroad to the Middle East and temperate, liquidated or exemplary damages may be adjudicated."
the United States. That is why the determination of the amount to be awarded (except
• Most of its exports are purchased by the petitioner on liquidated damages) is left to the sound discretion of the court,
credit. Simex was a depositor of the Far East Savings Bank and according to "the circumstances of each case."
maintained a checking account in its branch in Cubao, Quezon City • Moreover, a corporation is not as a rule entitled to moral
which issued several checks against its deposit but was surprised damages because, not being a natural person, it cannot experience
to learn later that they had been dishonored for insufficient funds. physical suffering or such sentiments as wounded feelings, serious
• As a consequence, several suppliers sent a letter of anxiety, mental anguish and moral shock. The only exception to this
demand to the petitioner, threatening prosecution if the dishonored rule is where the corporation has a good reputation that is debased,
check issued to it was not made good and also withheld delivery of resulting in its social humiliation.
the order made by the petitioner. o We shall recognize that the petitioner did suffer injury
• One supplier also cancelled the petitioner’s credit line and because of the private respondent's negligence that caused the
demanded that future payments be made by it in cash or certified dishonor of the checks issued by it.
check. o The immediate consequence was that its prestige was
• The petitioner complained to the respondent bank. impaired because of the bouncing checks and confidence in it as a
Investigation disclosed that the sum of P100,000.00 deposited by reliable debtor was diminished.
the petitioner on May 25, 1981, had not been credited to it. The error o The private respondent makes much of the one instance
was rectified only a month after, and the dishonored checks were when the petitioner was sued in a collection case, but that did not
paid after they were re-deposited. prove that it did not have a good reputation that could not be marred,
• SIMEX sent demand letter for reparation against TRB, more so since that case was ultimately settled.
which was not met, thus a complaint was filed in CFI Rizal by o It does not appear that, as the private respondent would
SIMEX. portray it, the petitioner is an unsavory and disreputable entity that
• The court denied the moral & exemplary damages but has no good name to protect.
upheld and ordered TRB to pay for nominal damages in the amount
of P20,000.00 plus attys fees & costs, which was then affirmed by Considering all this, we feel that the award of nominal damages in
the CA. the sum of P20,000.00 was not the proper relief to which the
o The CA found with the trial court that the private petitioner was entitled. Under Article 2221 of the Civil Code,
respondent was guilty of negligence but agreed that the petitioner "nominal damages are adjudicated in order that a right of the
was nevertheless not entitled to moral damages. It said: The plaintiff, which has been violated or invaded by the defendant, may
essential ingredient of moral damages is proof of bad faith (De be vindicated or recognized, and not for the purpose of indemnifying
Aparicio vs. Parogurga, 150 SCRA 280). the plaintiff for any loss suffered by him." As we have found that the
Indeed, there was the omission by the defendant-appellee petitioner has indeed incurred loss through the fault of the private
bank to credit appellant'sdeposit of P100,000.00 on May 25, 1981. respondent, the proper remedy is the award to it of moral damages,
But the bank rectified its records. It credited the said amount in favor which we impose, in our discretion, in the same amount of
of plaintiff-appellant in less than a month. The dishonored checks P20,000.00.
were eventually paid. These circumstances negate any imputation
or insinuation of malicious, fraudulent, wanton and gross bad faith 2. Now for exemplary damages
and negligence on the part of the defendant-appellant. The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed,
Issue: Whether or not the bank can be held liable for negligence by way of example or correction for the public good, in addition to
by reason of its unjustified dishonor of a check the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may
HELD: YES. Award SIMEX with moral damages (P20,000) and award exemplary damages if the defendant acted in a wanton,
exemplary damages (P50,000). fraudulent, reckless, oppressive, or malevolent manner.
The initial carelessness of the respondent bank, aggravated by the o What is especially deplorable is that, having been
lack of promptitude in repairing its error, justifies the grant of moral informed of its error in not crediting the deposit in question to the
damages. There was also prejudice suffered by SIMEX in the fact petitioner, the respondent bank did not immediately correct it but did
that the petitioner's credit line was canceled and its orders were not so only one week later or twenty-three days after the deposit was
acted upon pending receipt of actual payment by the suppliers. Its made.
business declined. Its reputation was tarnished. Its standing was o It bears repeating that the record does not contain any
reduced in the business community. All this was due to the fault of satisfactory explanation of why the error was made in the first place
the respondent bank which was undeniably remiss in its duty to the and why it was not corrected immediately after its discovery.
petitioner. o Such ineptness comes under the concept of the wanton
• In the case at bar, it is obvious that the respondent bank manner contemplated in the Civil Code that calls for the imposition
was remiss in that duty and violated that relationship. of exemplary damages.

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bank will deliver it as and to whomever he directs. The bank is a
fiduciary of the depositor’s money.

Facts: Simex International is a private corporation engaged in the


SIMEX INTERNATIONAL V. CA (G.R. NO. 88013) exportation of food products. It buys these products from various
Facts: local suppliers and then sells them abroad to the Middle East and
the United States. Most of its exports are purchased by the petitioner
Petitioner, a private corporation engaged in the exportation of food on credit. Simex was a depositor of the Far East Savings Bank and
products, was a depositor maintaining a checking account with maintained a checking account in its branch in Cubao, Quezon City
respondent Traders Royal Bank. Petitioner deposited to its account which issued several checks against its deposit but was surprised
increasing its balance and subsequently, issued several checks but to learn later that they had been dishonored for insufficient funds.
was surprised to learn that it had been dishonored for insufficient As a consequence, several suppliers sent a letter of demand to the
funds. As a consequence, petitioner received demand letters from petitioner, threatening prosecution if the dishonored check issued to
its suppliers for the dishonored checks. Investigation disclosed that it was not made good and also withheld delivery of the order made
the deposit was not credited to it. The error was rectified and the by the petitioner. One supplier also cancelled the petitioner’s credit
dishonored checks were consequently paid. Petitioner demanded line and demanded that future payments be made by it in cash or
reparation from respondent bank for its gross and wanton certified check. The petitioner complained to the respondent bank.
negligence but the later did not heed. Petitioner then filed before the Investigation disclosed that the sum of P100,000.00 deposited by
RTC which later held that respondent bank was guilty of negligence the petitioner on May 25, 1981, had not been credited to it. The error
but petitioner nonetheless was not entitled to moral damages. CA was rectified only a month after, and the dishonored checks were
affirmed. paid after they were re-deposited. The petitioner then filed a
complaint in the then Court of First Instance of Rizal against the
Issue: bank for its gross and wanton negligence.

Whether or not petitioner is entitled to damages due to respondent Issue: Whether or not the bank can be held liable for negligence
bank’s negligence. by reason of its unjustified dishonor of a check

Ruling: YES. Held: The depositor expects the bank to treat his account with the
utmost fidelity whether such account consists only of a few hundred
As the Court sees it, the initial carelessness of the respondent bank, pesos or of millions. The bank must record every single transaction
aggravated by the lack of promptitude in repairing its error, justifies accurately, down to the last centavo, and as promptly as possible.
the grant of moral damages. This rather lackadaisical attitude This has to be done if the account is to reflect at any given time the
toward the complaining depositor constituted the gross negligence, amount of money the depositor can dispose of as he sees fit,
if not wanton bad faith, that the respondent court said had not been confident that the bank will deliver it as and to whomever he directs.
established by the petitioner. We shall recognize that the petitioner A blunder on the part of the bank, such as the dishonour of a check
did suffer injury because of the private respondent’s negligence that without good reason, can cause the depositor not a little
caused the dishonor of the checks issued by it. The immediate embarrassment if not also financial loss and perhaps even civil and
consequence was that its prestige was impaired because of the criminal litigation.
bouncing checks and confidence in it as a reliable debtor was
diminished.

The point is that as a business affected with public interest and Article 2205 of the Civil Code provides that actual or compensatory
because of the nature of its functions, the bank is under obligation damages may be received “(2) for injury to the plaintiff s business
to treat the accounts of its depositors with meticulous care, always standing or commercial credit.” There is no question that the
having in mind the fiduciary nature of their relationship. In the case petitioner did sustain actual injury as a result of the dishonored
at bar, it is obvious that the respondent bank was remiss in that duty checks and that the existence of the loss having been established
and violated that relationship. What is especially deplorable is that, “absolute certainty as to its amount is not required.” 7 Such injury
having been informed of its error in not crediting the deposit in should bolster all the more the demand of the petitioner for moral
question to the petitioner, the respondent bank did not immediately damages and justifies the examination by this Court of the validity
correct it but did so only one week later or twenty-three days after and reasonableness of the said claim.
the deposit was made. It bears repeating that the record does not
contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its
discovery. Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the imposition
of exemplary damages.

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Simex International (Manila) Inc. vs. Court of Appeals G.R. No.
88013, March 19, 1990
MARCH 16, 2014 LEAVE A COMMENT
A bank may be held liable for damages by reason of its unjustified
dishonor of a check, which caused damage to its client’s credit
standing. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the
2
PCIB V. CA
350 SCRA 446 Banking business requires that the one who first cashes and
negotiates the check must take some precautions to learn whether
FACTS: or not it is genuine. And if the one cashing the check through
Ford Philippines filed actions to recover from the drawee bank indifference or other circumstance assists the forger in committing
Citibank and collecting bank PCIB the value of several the fraud, he should not be permitted to retain the proceeds of the
checks payable to the Commissioner of Internal Revenue which check from the drawee whose sole fault was that it did not discover
were embezzled allegedly by an organized syndicate. What the forgery or the defect in the title of the person negotiating the
prompted this action was the drawing of a check by Ford, instrument before paying the check.
which it deposited to PCIB as payment and was debited from
their Citibank account. It later on found out that the payment wasn’t Facts: This case is composed of three consolidated petitions
received by the Commissioner. Meanwhile, according to the involving several checks, payable to the Bureau of Internal
NBI report, one of the checks issued by petitioner was withdrawn Revenue, but was embezzled allegedly by an organized syndicate.
from PCIB for alleged mistake in the amount to be paid. This was On October 19, 1977, plaintiff Ford issued a Citibank check
replaced with manager’s check by PCIB, which were allegedly amounting to P4,746,114.41 in favor of the Commissioner of
stolen by the syndicate and deposited in their own account. Internal Revenue for the payment of manufacturer’s taxes. The
check was deposited with defendant IBAA (now PCIB),
The trial court decided in favor of Ford. subsequently cleared the Central Bank, and paid by Citibank to
IBAA.
ISSUE:
Has Ford the right to recover the value of the checks intended as The proceeds never reached BIR, so plaintiff was compelled to
payment to CIR? make a second payment. Defendant refused to reimburse plaintiff,
and so the latter filed a complaint. An investigation revealed that the
HELD: check was recalled by Godofredo Rivera, the general ledger
The checks were drawn against the drawee bank but the title of the accountant of Ford, and was replaced by a manager’s check.
person negotiating the same was allegedly defective because the Alleged members of a syndicate deposited the two manager’s
instrument was obtained by fraud and unlawful means, and the checks with Pacific Banking Corporation. Ford filed a third party
proceeds of the checks were not remitted to the payee. It was complaint against Rivera and PBC. The case against PBC was
established that instead paying the dismissed. The case against Rivera was likewise dismissed
Commissioner, the checks were diverted and encashed for the because summons could not be served. The trial court held Citibank
eventual distribution among members of the syndicate. and PCIB jointly and severally liable to Ford, but the Court of
Appeals only held PCIB liable.
Pursuant to this, it is vital to show that the negotiation is made
by the perpetrator in breach of faith amounting to fraud. The person On another case, Ford drew two checks in favor of the
negotiating the checks must have gone beyond the authority given Commissioner of Internal Revenue, amounting to P5,851,706.37
by his principal. If the principal could prove that there was no and P6,311,591.73. Both are crossed checks payable to payee’s
negligence in the performance of his duties, he may set up the account only. The checks never reached BIR, so plaintiff was
personal defense to escape liability and recover from other compelled to make second payments. Plaintiff instituted an action
parties who, through their own negligence, allowed the commission for recovery against PCIB and Citibank. On investigation of NBI, the
of the crime. modus operandi was discovered. Gorofredo Rivera made the
checks but instead of delivering them to BIR, passed it to Castro,
It should be resolved if Ford is guilty of the imputed contributory who was the manager of PCIB San Andres. Castro opened a
negligence that would defeat its claim for reimbursement, bearing in checking account in the name of a fictitious person “Reynaldo
mind that its employees were among the members of the syndicate. Reyes”. Castro deposited a worthless Bank of America check with
It appears although the employees of Ford initiated the the same amount as that issued by Ford. While being routed to the
transactions attributable to the organized syndicate, their actions Central Bank for clearing, the worthless check was replaced by the
were not the proximate cause of encashing the checks payable genuine one from Ford.
to CIR. The degree of Ford’s negligence couldn’t be
characterized as the proximate cause of the injury to parties. Issues: 1) Whether there is contributory negligence on the part of
The mere fact that the forgery was committed by a drawer- Ford
payor’s confidential employee or agent, who by virtue of his position
had unusual facilities for perpetrating the fraud and imposing the 2) Has petitioner Ford the right to recover from the collecting bank
forged paper upon the bank, doesn’t entitle the bank to shift the loss (PCIBank) and the drawee bank (Citibank) the value of the checks
to the drawer-payor, in the absence of some circumstance raising intended as payment to the Commissioner of Internal Revenue?
estoppel against the drawer.
Held:
Note: not only PCIB but also Citibank is responsible for
negligence. Citibank was negligent in the performance of its duties 1) Whether there is contributory negligence on the part of Ford
as a drawee bank. It failed to establish its payments of Ford’s
checks were made in due course and legally in order. The general rule is that if the master is injured by the negligence of
a third person and by the concuring contributory negligence of his
own servant or agent, the latter’s negligence is imputed to his
PCIB v. CA G. R. Nos. 121413 and 121479 G. R. No. 128604 superior and will defeat the superior’s action against the third
MARCH 16, 2014 LEAVE A COMMENT person, asuming, of course that the contributory negligence was the
The mere fact that the forgery was committed by a drawer-payor’s proximate cause of the injury of which complaint is made. As
confidential employee or agent, who by virtue of his position had defined, proximate cause is that which, in the natural and
unusual facilities for perpertrating the fraud and imposing the forged continuous sequence, unbroken by any efficient, intervening cause
paper upon the bank, does notentitle the bank toshift the loss to the produces the injury and without the result would not have occurred.
drawer-payor, in the absence of some circumstance raising It appears that although the employees of Ford initiated the
estoppel against the drawer. transactions attributable to an organized syndicate, in our view, their

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actions were not the proximate cause of encashing the checks
payable to the CIR. The degree of Ford’s negligence, if any, could FACTS:
not be characterized as the proximate cause of the injury to the Ford Philippines drew and issued Citibank Check. No. SN 04867 on
parties. The mere fact that the forgery was committed by a drawer- October 19, 1977, Citibank Check No. SN 10597 on July 19, 1978
payor’s confidential employee or agent, who by virtue of his position and Citibank Check No. SN-16508 on April 20, 1979, all in favor of
had unusual facilities for perpertrating the fraud and imposing the the Commissioner of Internal Revenue (CIR) for payment of its
forged paper upon the bank, does notentitle the bank toshift the loss percentage taxes. The checks were crossed and deposited with the
to the drawer-payor, in the absence of some circumstance raising IBAA, now PCIB, BIR's authorized collecting bank. The first check
estoppel against the drawer. This rule likewise applies to the checks was cleared containing an indorsement that "all prior indorsements
fraudulently negotiated or diverted by the confidential employees and/or lack of indorsements guaranteed." The same, however, was
who hold them in their possession. replaced with two (2) IBAA's managers' checks based on a call and
letter request made by Godofredo Rivera, Ford's General Ledger
Accountant, on an alleged error in the computation of the tax due
without IBAA verifying the authority of Rivera. These manager's
(2) We have to scrutinize, separately, PCIBank’s share of checks were later deposited in another bank and misappropriated
negligence when the syndicate achieved its ultimate agenda of by the syndicate. The last two checks were cleared by the Citibank
stealing the proceeds of these checks. but failed to discover that the clearing stamps do not bear any
initials. The proceeds of the checks were also illegally diverted or
On record, PCIBank failed to verify the authority of Mr. Rivera to switched by officers of PCIB — members of the syndicate, who
negotiate the checks. The neglect of PCIBank employees to verify eventually encashed them. Ford, which was compelled to pay anew
whether his letter requesting for the replacement of the Citibank the percentage taxes, sued in two actions for collection against the
Check No. SN-04867 was duly authorized, showed lack of care and two banks on January 20, 1983, barely six years from the date the
prudence required in the circumstances. Furthermore, it was first check was returned to the drawer. The direct perpetrators of the
admitted that PCIBank is authorized to collect the payment of crime are now fugitives from justice.
taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty
bound to consult its principal regarding the unwarranted instructions DECISION OF LOWER COURTS:
given by the payor or its agent. It is a well-settled rule that the 1st case:
relationship between the payee or holder of commercial paper and (1) Trial Court: Citibank and IBAA were jointly and severally liable
the bank to which it is sent for collection is, in the absence of an for the checks (2) CA: only IBAA (PCIB) solely liable for the amount
argreement to the contrary, that of principal and agent. A bank which of the first check
receives such paper for collection is the agent of the payee or 2nd case:
holder. (1) Trial Court: absolved PCIB from liability and held that only the
Citibank is liable for the checks issued by Ford
Indeed, the crossing of the check with the phrase “Payee’s Account (2) Court of Appeals: held both banks liable for negligence in the
Only,” is a warning that the check should be deposited only in the selection and supervision of their employees resulting in the
account of the CIR. Thus, it is the duty of the collecting bank erroneous encashment of the checks.
PCIBank to ascertain that the check be deposited in payee’s ISSUE:
account only. Therefore, it is the collecting bank (PCIBank) which is Has petitioner Ford the right to recover from the collecting bank
bound to scrutinize the check and to know its depositors before it (PCIBank) and the drawee bank (Citibank) the value of the checks
could make the clearing indorsement “all prior indorsements and/or intended as payment to the Commissioner of Internal Revenue? Or
lack of indorsement guaranteed”. has Ford's cause of action already prescribed?
page5image54520 page5image54680
Lastly, banking business requires that the one who first cashes and RULING:
negotiates the check must take some precautions to learn whether
or not it is genuine. And if the one cashing the check through A. Citibank Check No. SN-04867
indifference or other circumstance assists the forger in committing
the fraud, he should not be permitted to retain the proceeds of the FORD
check from the drawee whose sole fault was that it did not discover Ford, is guilty of the "imputed contributory negligence" that would
the forgery or the defect in the title of the person negotiating the defeat its claim for reimbursement, bearing in mind that its
instrument before paying the check. For this reason, a bank which employees, Godofredo Rivera and Alexis Marindo, were among the
cashes a check drawn upon another bank, without requiring proof members of the syndicate.
as to the identity of persons presenting it, or making inquiries with although the employees of Ford initiated the transactions
regard to them, cannot hold the proceeds against the drawee when attributable to an organized syndicate, in our view, their actions
the proceeds of the checks were afterwards diverted to the hands were not the proximate cause of encashing the checks payable to
of a third party. In such cases the drawee bank has a right to believe the CIR. The degree of Ford's negligence, if any, could not be
that the cashing bank (or the collecting bank) had, by the usual characterized as the proximate cause of the injury to the parties.
proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which IBAA/PCIB
had been forged or diverted and in turn received payment thereon As agent of the BIR (the payee of the check), defendant IBAA should
from the drawee, is guilty of negligence which proximately receive instructions only from its principal BIR and not from any
contributed to the success of the fraud practiced on the drawee other person especially so when that person is not known to the
bank. The latter may recover from the holder the money paid on the defendant. It is very imprudent on the part of the defendant IBAA to
check. just rely on the alleged telephone call of one (Godofredo Rivera and
in his signature to the authenticity of such signature considering that
the plaintiff is not a client of the defendant IBAA."
PCIB v CA (Torts) Even considering arguendo, that the diversion of the amount of a
PCIB v CA [G.R. No. 121413. January 29, 2001.] PHILIPPINE check payable to the collecting bank in behalf of the designated
COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK payee may be allowed, still such diversion must be properly
OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS authorized by the payor. Otherwise stated, the diversion can be
and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents. justified only by proof of authority from the drawer, or that the drawer

4
has clothed his agent with apparent authority to receive the shall reduce the damages he may recover against the collecting
proceeds of such check. bank.
The crossing of the check with the phrase "Payee's Account Only," Since a master may be held for his servant's wrongful act, the law
is a warning that the check should be deposited only in the account imputes to the master the act of the servant, and if that act is
of the CIR. Thus, it is the duty of the collecting bank PCIBank to negligent or wrongful and proximately results in injury to a third
ascertain that the check be deposited in payee's account only. person, the negligence or wrongful conduct is the negligence or
Therefore, it is the collecting bank (PCIBank) which is bound to wrongful conduct of the master, for which he is liable. The general
scrutinize the check and to know its depositors before it could make rule is that if the master is injured by the negligence of a third person
the clearing indorsement "all prior indorsements and/or lack of and by the concurring contributory negligence of his own servant or
indorsement guaranteed". agent, the latter's negligence is imputed to his superior and will
PCIBank is liable in the amount corresponding to the proceeds of defeat the superior's action against the third person, assuming, of
Citibank Check No. SN-04867. course that the contributory negligence was the proximate cause of
the injury of which complaint is made.
Citibank Given these circumstances, the mere fact that the forgery was
None committed by a drawer- payor's confidential employee or agent, who
by virtue of his position had unusual facilities for perpetrating the
B. Citibank Check Numbers SN-10597 and 16508 fraud and imposing the forged paper upon the bank, does not entitle
the bank to shift the loss to the drawer-payor, in the absence of
PCIBank some circumstance raising estoppel against the drawer. This rule
Section 5 31 of Central Bank Circular No. 580, Series of 1977 likewise applies to the checks fraudulently negotiated or diverted by
provides that any theft affecting items in transit for clearing, shall be the confidential employees who hold them in their possession.
for the account of sending bank, which in this case is PCIBank. As a general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents
Citibank within the course and scope of their employment. A bank will be held
negligent in the performance of its duties. Citibank failed to establish liable for the negligence of its officers or agents when acting within
that its payment of Ford's checks were made in due course and the course and scope of their employment. It may be liable for the
legally in order. In its defense, Citibank claims the genuineness and tortuous acts of its officers even as regards that species of tort of
due execution of said checks, considering that Citibank (1) has no which malice is an essential element. A bank holding out its officers
knowledge of any infirmity in the issuance of the checks in question and agents as worthy of confidence will not be permitted to profit by
(2) coupled by the fact that said checks were sufficiently funded and the frauds these officers or agents were enabled to perpetrate in the
(3) the endorsement of the Payee or lack thereof was guaranteed apparent course of their employment; nor will it be permitted to shirk
by PCIBank (formerly IBAA), thus, it has the obligation to honor and its responsibility for such frauds, even though no benefit may accrue
pay the same. to the bank therefrom. For the general rule is that a bank is liable for
As the drawee bank breached its contractual obligation with Ford the fraudulent acts or representations of an officer or agent acting
and such degree of culpability contributed to the damage caused to within the course and apparent scope of his employment or
the latter. It failed to perform what was incumbent upon it, which is authority. And if an officer or employee of a bank, in his official
to ensure that the amount of the checks should be paid only to its capacity, receives money to satisfy an evidence of indebtedness
designated payee. lodged with his bank for collection, the bank is liable for his
Invoking the doctrine of comparative negligence, we are of the view misappropriation of such sum.
that both PCIBank and Citibank failed in their respective obligations
and both were negligent in the selection and supervision of their CONTRIBUTORY NEGLIGENCE OF PLAINTIFF SHALL REDUCE
employees resulting in the encashment of Citibank Check Nos. SN DAMAGES HE MAY RECOVER. — Finally, we also find that Ford
10597 and 16508. Thus, we are constrained to hold them equally is not completely blameless in its failure to detect the fraud. Failure
liable for the loss of the proceeds of said checks issued by Ford in on the part of the depositor to examine its passbook, statements of
favor of the CIR. Time and again, we have stressed that banking account, and cancelled checks and to give notice within a
business is so impressed with public interest where the trust and reasonable time (or as required by statute) of any discrepancy which
confidence of the public in general is of paramount importance such it may in the exercise of due care and diligence find therein, serves
that the appropriate standard of diligence must be very high, if not to mitigate the banks' liability by reducing the award of interest from
the highest, degree of diligence. A bank's liability as obligor is not twelve percent (12%) to six percent (6%) per annum. As provided in
merely vicarious but primary, wherein the defense of exercise of due Article 1172 of the Civil Code of the Philippines, responsibility
diligence in the selection and supervision of its employees is of no arising from negligence in the performance of every kind of
moment. Banks handle daily transactions involving millions of obligation is also demandable, but such liability may be regulated
pesos. By the very nature of their work the degree of responsibility, by the courts, according to the circumstances. In quasi-delicts, the
care and trustworthiness expected of their employees and officials contributory negligence of the plaintiff shall reduce the damages that
is far greater than those of ordinary clerks and employees. Banks he may recover.
are expected to exercise the highest degree of diligence in the
selection and supervision of their employees. Philippine Commercial International Bank vs Court of Appeals
The relationship between a holder of a commercial paper and the (2001)
bank to which it is sent for collection is that of a principal and an March 9, 2012
agent and the diversion of the amount of the check is justified only 0FacebookTwitterPinterest0LinkedIn0Email0
by proof of authority from the drawer; that in crossed checks, the ADVERTISEMENTS
collecting bank is bound to scrutinize the check and know its
depositors before clearing indorsement; that as a general rule,
banks are liable for wrongful or tortuous acts of its agents within the
scope and in the course of their employment; that failure of the
drawee bank to seasonably discover irregularity in the checks
constitutes negligence and renders the bank liable for loss of
proceeds of the checks; that an action upon a check prescribes in 350 SCRA 446 – Mercantile Law – Negotiable Instruments Law –
ten (10) years; and that the contributory negligence of the drawer Rights of the Holder – What Constitutes a Holder in Due Course –
Negligence of the Collecting Bank and the Drawee Bank

5
There are three cases consolidated here: G.R. No. 121413 (PCIB As a general rule, a bank is liable for the negligent or tortuous act of
vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and its employees within the course and apparent scope of their
Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and employment or authority. Hence, PCIB is liable for the fraudulent act
PCIB and CA). of its employee who set up the savings account under a fictitious
name.
G.R. No. 121413/G.R. No. 121479
Citibank is likewise liable because it was negligent in the
In October 1977, Ford Philippines drew a Citibank check in the performance of its obligations with respect to its agreement with
amount of P4,746,114.41 in favor of the Commissioner of the Ford. The checks which were drawn against Ford’s account with
Internal Revenue (CIR). The check represents Ford’s tax payment Citibank clearly states that they are payable to the CIR only yet
for the third quarter of 1977. On the face of the check was written Citibank delivered said payments to PCIB. Citibank however argues
“Payee’s account only” which means that the check cannot be that the checks were indorsed by PCIB to Citibank and that the latter
encashed and can only be deposited with the CIR’s savings account has nothing to do but to pay it. The Supreme Court cited Section 62
(which is with Metrobank). The said check was however presented of the Negotiable Instruments Law which mandates the Citibank, as
to PCIB and PCIB accepted the same. PCIB then indorsed the an acceptor of the checks, to engage in paying the checks according
check for clearing to Citibank. Citibank cleared the check and paid to the tenor of the acceptance which is to deliver the payment to the
PCIB P4,746,114.41. CIR later informed Ford that it never received “payee’s account only”.
the tax payment.
But the Supreme Court ruled that in the consolidated cases, that
An investigation ensued and it was discovered that Ford’s PCIB and Citibank are not the only negligent parties. Ford is also
accountant Godofredo Rivera, when the check was deposited with negligent for failing to examine its passbook in a timely manner
PCIB, recalled the check since there was allegedly an error in the which could have avoided further loss. But this negligence is not the
computation of the tax to be paid. PCIB, as instructed by Rivera, proximate cause of the loss but is merely contributory.
replaced the check with two of its manager’s checks. Nevertheless, this mitigates the liability of PCIB and Citibank hence
the rate of interest, with which PCIB and Citibank is to pay Ford, is
It was further discovered that Rivera was actually a member of a lowered from 12% to 6% per annum.
syndicate and the manager’s checks were subsequently deposited
with the Pacific Banking Corporation by other members of the
syndicate. Thereafter, Rivera and the other members became Negotiable Instruments Digest: PHILIPPINE COMMERCIAL
fugitives of justice. INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND
AMERICA) V. COURT OF APPEALS and FORD PHILIPPINES,
G.R. No. 128604 INC. and CITIBANK, N.A.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly
In July 1978 and in April 1979, Ford drew two checks in the amounts INSULAR BANK OF ASIA AND AMERICA) V. COURT OF
of P5,851,706.37 and P6,311,591.73 respectively. Both checks are APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.
again for tax payments. Both checks are for “Payee’s account only”
or for the CIR’s bank savings account only with Metrobank. Again, [G.R. No. 121413. January 29, 2001] (350 SCRA 446)
these checks never reached the CIR.

In an investigation, it was found that these checks were embezzled FACTS:


by the same syndicate to which Rivera was a member. It was These consolidated petitions arose from the action filed by BIR
established that an employee of PCIB, also a member of the against Citibank and PCIBank for the recovery of the amount of
syndicate, created a PCIB account under a fictitious name upon Citibank Check Numbers SN-10597 and 16508. Said checks, both
which the two checks, through high end manipulation, were crossed checks were alleged to have been negotiated fraudulently
deposited. PCIB unwittingly endorsed the checks to Citibank which by an organized syndicate between and among two employees of
the latter cleared. Upon clearing, the amount was withdrawn from Ford (General Ledger Accountant and his assistant), and PCIBank
the fictitious account by syndicate members. officers.
It was established that instead of paying the crossed checks,
ISSUE: What are the liabilities of each party? containing two diagonal lines on its upper left corner between which
were written the words payable to the payees account only, to the
HELD: G.R. No. 121413/G.R. No. 121479 CIR for the settlement of the appropriate quarterly percentage taxes
of Ford, the checks were diverted and encashed for the eventual
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, distribution among the members of the syndicate. Citibank Check
as a collecting bank has been negligent in verifying the authority of No. SN-10597 amounted to P5,851,706.37, while Citibank Check
Rivera to negotiate the check. It failed to ascertain whether or not No. SN-16508 amounted to P6,311,591.73.
Rivera can validly recall the check and have them be replaced with It was found that the pro-manager of San Andres Branch of
PCIB’s manager’s checks as in fact, Ford has no knowledge and did PCIBank, Remberto Castro, received Citibank Check Numbers SN
not authorize such. A bank (in this case PCIB) which cashes a check 10597 and 16508. He passed the checks to a co-conspirator, an
drawn upon another bank (in this case Citibank), without requiring Assistant Manager of PCIBanks Meralco Branch, who helped
proof as to the identity of persons presenting it, or making inquiries Castro open a Checking account of a fictitious person named
with regard to them, cannot hold the proceeds against the drawee Reynaldo Reyes. Castro deposited a worthless Bank of America
when the proceeds of the checks were afterwards diverted to the Check in exactly the same amount of Ford checks. The syndicate
hands of a third party. Hence, PCIB is liable for the amount of the tampered with the checks and succeeded in replacing the worthless
embezzled check. checks and the eventual encashment of Citibank Check Nos. SN
10597 and 16508. The PCIBank Pro-manager, Castro, and his co-
G.R. No. 128604 conspirator Assistant Manager apparently performed their activities
using facilities in their official capacity or authority but for their
PCIB and Citibank are liable for the amount of the checks on a 50- personal and private gain or benefit.
50 basis.

6
The trial court and the Court of Appeals found that PCIBank had no Ford drew and issued a crossed check in favor of the Commissioner
official act in the ordinary course of business that would attribute to of Internal Revenue (CIR) as payment of its percentage or
it the case of the embezzlement of Citibank Check Numbers SN- manufacturer’s sales taxes. The check was deposited with
10597 and 16508, because PCIBank did not actually receive nor Philippine Commercial International Bank (PCIBank) and was
hold the two Ford checks at all. Neither is there any proof that subsequently cleared. Upon presentment with Citibank, the
defendant PCIBank contributed any official or conscious proceeds were paid to PCIBank. In a letter by the Acting CIR, Ford
participation in the process of the embezzlement. The Court is was officially informed that its check was not paid to the government
convinced that the switching operation (involving the checks while or its authorized agent but were encashed by unauthorized persons.
in transit for clearing) were the clandestine or hidden actuations An investigation revealed that Ford’s general ledger accountant had
performed by the members of the syndicate in their own personal, recalled the check purportedly because of an error in the
covert and private capacity and done without the knowledge of the computation of the tax due. With his instruction, PCIBank replaced
defendant PCIBank. the check with two of its own Manager’s Checks which were
The evidence on record shows that Citibank as drawee bank was subsequently deposited with another bank.
likewise negligent in the performance of its duties. Citibank failed to
establish that its payment of Fords checks were made in due course ISSUE(S):
and legally in order. It likewise appears that although the employees Whether or not PCIBank is liable to reimburse Ford for the payment
of Ford initiated the transactions attributable to an organized of the crossed check.
syndicate, their actions were not the proximate cause of encashing
the checks. RULING:
ISSUE: YES. The crossing of the check with the phrase “Payee’s Account
Has petitioner Ford the right to recover from the collecting bank Only,” is a warning that the check should be deposited only in the
(PCIBank) and the drawee bank (Citibank) the value of the checks account of the CIR. Thus, it is the duty of the collecting bank
intended as payment to the Commissioner of Internal Revenue? PCIBank to ascertain that the check be deposited in payee’s
HELD: account only. It is bound to scrutinize the check and to know its
YES. The mere fact that the forgery was committed by a drawer- depositors before it could make the clearing indorsement “all prior
payors confidential employee or agent, who by virtue of his position indorsements and/or lack of indorsement guaranteed.” Having
had unusual facilities for perpetrating the fraud and imposing the established that the collecting bank’s negligence is the proximate
forged paper upon the bank, does NOT entitle the bank to shift the cause of the loss, we conclude that PCIBank is liable in the amount
loss to the drawer-payor, in the absence of some circumstance corresponding to the proceeds of the forged check.
raising estoppel against the drawer. This rule likewise applies to the
checks fraudulently negotiated or diverted by the confidential Negotiable Instruments Case Digest: Philippine Commercial
employees who hold them in their possession. International Bank V CA (2001)
In this case, there was no evidence presented confirming the
conscious participation of PCIBank in the embezzlement. As a
general rule, however, a banking corporation is liable for the G.R. No. 121413,121479,128604 January 29, 2001
wrongful or tortuous acts and declarations of its officers or agents Lessons Applicable: Liabilities of the Parties (Negotiable
within the course and scope of their employment. A bank will be held Instruments Law)
liable for the negligence of its officers or agents when acting within
the course and scope of their employment. It may be liable for the FACTS:
tortuous acts of its officers even as regards that species of tort of These consolidated petitions involve several fraudulently negotiated
which malice is an essential element. In this case, we find a situation checks
where the PCIBank appears also to be the victim of the scheme October 19, 1977: Ford drew and issued its Citibank Check of
hatched by a syndicate in which its own management employees P4,746,114.41, in favor of the Commissioner of Internal Revenue
had participated. (CIR) as payment of percentage or manufacturer's sales taxes for
A bank holding out its officers and agents as worthy of confidence the third quarter of 1977
will not be permitted to profit by the frauds these officers or agents check was deposited with the IBAA (now PCIBank) and was
were enabled to perpetrate in the apparent course of their subsequently cleared at the Central Bank
employment; nor will it be permitted to shirk its responsibility for such Ford, with leave of court, filed a third-party complaint before the trial
frauds, even though no benefit may accrue to the bank therefrom. court impleading Pacific Banking Corporation (PBC) and Godofredo
For the general rule is that a bank is liable for the fraudulent acts or Rivera, as third party defendants
representations of an officer or agent acting within the course and dismissed the complaint against PBC for lack of cause of action
apparent scope of his employment or authority. And if an officer or dismissed the third-party complaint against Godofredo Rivera
employee of a bank, in his official capacity, receives money to because he could not be served with summons as a "fugitive from
satisfy an evidence of indebtedness lodged with his bank for justice"
collection, the bank is liable for his misappropriation of such sum. trial court: Citibank and IBAA (now PCI Bank), jointly and severally,
Citibank must likewise answer for the damages incurred by Ford on to pay the Ford
Citibank Checks Numbers SN 10597 and 16508, because of the April 20, 1979, Ford drew another Citibank Check of P6,311,591.73,
contractual relationship existing between the two. Citibank, as the representing the payment of percentage tax for the first quarter of
drawee bank breached its contractual obligation with Ford and such 1979 payable to the CIR
degree of culpability contributed to the damage caused to the latter. Both checks were "crossed checks" and contain two diagonal lines
PCIBank and Citibank are thus liable for and must share the loss, on its upper corner between, which were written the words "payable
(concerning the proceeds of Citibank Check Numbers SN 10597 to the payee's account only."
and 16508 totaling P12,163,298.10) on a fifty-fifty ratio. The checks never reached the payee, CIR
As far as the BIR is concernced, the said two BIR Revenue Tax
PCI Bank v CA; G.R. No. 121413; 29 Jan 2001; 350 SCRA 446 Receipts were considered "fake and spurious".
Published on 26 January 2018 in Legal Chyme by Claudine forced Ford to pay the BIR anew, while an action was filed against
Citibank and PCIBank for recovery
RTC: Mr. Godofredo Rivera was employed by FORD as its General
FACTS: Ledger Accountant. He prepared the check for payment to the BIR.
Instead, of delivering to the payee, he gave it to Remberto Castro,

7
a co-conspirator who was a pro-manager of PCIB. Castro opened the switching operation (involving the checks while in transit for
a Checking Account in the name of a fictitious person "Reynaldo "clearing") were the clandestine or hidden actuations performed by
Reyes" with connivance of Dulay, assistant manager of PCIB the members of the syndicate in their own personl, covert and
After an initial deposit of P100 to validate the account, Castro private capacity and done without the knowledge of the defendant
deposited a worthless Bank of America Check in exactly the same PCIBank…
amount as the first FORD check while this worthless check was clearing stamps at the back of Citibank Check do not bear any
coursed through PCIB's main office enroute to the Central Bank for initials
clearing, replaced this worthless check with Ford's and accordingly Citibank failed to notice and verify the absence of the clearing
tampered the accompanying documents to cover the replacement. stamps
As a result, Ford's check was cleared by CITIBANK, and the For this reason, Citibank had indeed failed to perform what was
fictitious deposit account of 'Reynaldo Reyes' was credited at the incumbent upon it, which is to ensure that the amount of the checks
PCIB should be paid only to its designated payee. The fact that the
December 9, 1988: RTC Citibank (drawee bank) liable for the value drawee bank did not discover the irregularity seasonably, in our
of the 2 checks while absolving PCIBank (collecting bank) from any view, consitutes negligence in carrying out the bank's duty to its
liability depositors.
ISSUE: W/N Ford can hold both PCIB and Citibank liable invoking the doctrine of comparative negligence, both PCIBank and
Citibank failed in their respective obligations and both were
HELD: YES. CA AFFIRMED. PCIBank, know formerly as Insular negligent in the selection and supervision of their employees
Bank of Asia and America, id declared solely responsible for the loss resulting in the encashment
of the proceeds of Citibank Check in the amount P4,746,114.41. hold them equally liable for the loss of the proceeds of the checks
However, MODIFIED as follows: PCIBank and Citibank are issued by Ford in favor of the CIR
adjudged liable for and must share the loss, concerning the The statute of limitations begins to run when the bank gives the
proceeds of Citibank Check Numbers SN 10597 and 16508 on a 50- depositor notice of the payment, which is ordinarily when the check
50 ratio to pay Ford is returned to the alleged drawer as a voucher with a statement of
GR: if the master is injured by the negligence of a third person and his account, and an action upon a check is ordinarily governed by
by the concuring contributory negligence of his own servant or the statutory period applicable to instruments in writing.
agent, the latter's negligence is imputed to his superior and will Our laws on the matter provide that the action upon a written
defeat the superior's action against the third person, asuming, of contract must be brought within ten year from the time the right of
course that the contributory negligence was the proximate cause of action accrues hence, the reckoning time for the prescriptive period
the injury of which complaint is made. begins when the instrument was issued and the corresponding
although the employees of Ford initiated the transactions check was returned by the bank to its depositor (normally a month
attributable to an organized syndicate, in our view, their actions thereafter).
were not the proximate cause of encashing the checks payable to Applying the same rule, the cause of action for the recovery of the
the CIR proceeds of Citibank Check No. SN 04867 would normally be a
degree of Ford's negligence, if any, could not be characterized as month after December 19, 1977, when Citibank paid the face value
the proximate cause of the injury to the parties of the check in the amount of P4,746,114.41. Since the original
Rivera's instruction to replace the check with PCIBank's Manager's complaint for the cause of action was filed on January 20, 1984,
Check was not in the ordinary course of business which could have barely six years had lapsed. Thus, we conclude that Ford's cause of
prompted PCIBank to validate the same. action to recover the amount of Citibank Check No. SN 04867 was
checks were made payable to the CIR seasonably filed within the period provided by law.
Both were crossed checks Failure on the part of the FORD depositor to examine its passbook,
These checks were apparently turned around by Ford's emploees, statements of account, and cancelled checks and to give notice
who were acting on their own personal capacity. within a reasonable time (or as required by statute) of any
Given these circumstances, the mere fact that the forgery was discrepancy which it may in the exercise of due care and diligence
committed by a drawer-payor's confidential employee or agent, who find therein, serves to mitigate the banks' liability by reducing the
by virtue of his position had unusual facilities for perpertrating the award of interest from twelve percent (12%) to six percent (6%) per
fraud and imposing the forged paper upon the bank, does not entitle annum.
the bank to shift the loss to the drawer-payor, in the absence of Article 1172 of the Civil Code of the Philippines, respondibility
some circumstance raising estoppel against the drawer. arising from negligence in the performance of every kind of
This rule likewise applies to the checks fraudulently negotiated or obligation is also demandable, but such liability may be regulated
diverted by the confidential employees who hold them in their by the courts, according to the circumstances. In quasi-delicts, the
possession. contributory negligence of the plaintiff shall reduce the damages that
Furthermore, it was admitted that PCIBank is authorized to collect he may recover.
the payment of taxpayers in behalf of the BIR.
As an agent of BIR, PCIBank is duty bound to consult its principal PCIB v. CA
regarding the unwarranted instructions given by the payor or its G.R. No. 121413
agent January 29, 2001
Otherwise stated, the diversion can be justified only by proof of Secs. 55 and 56: Holder in Good Faith
authority from the drawer, or that the drawer has clothed his agent
with apparent authority to receive the proceeds of such check. FACTS: This case involves defendant Ford who drew and issued a
it is the duty of the collecting bank PCIBank to ascertain that the citibank check in the amount of 4,746,114.41 in favor of the
check be deposited in payee's account only. Therefore, it is the Commission of Internal Revenue as payment of their percentage or
collecting bank (PCIBank) which is bound to scruninize the check manufacturer’s sales taxes for the third quarter of 1977. The checks
and to know its depositors before it could make the clearing were then deposited to IBAA (now PCI Bank) and were
indorsement "all prior indorsements and/or lack of indorsement subsequently cleared at the Central Bank. Upon presentment with
guaranteed". Citibank, the proceeds of the check were paid to IBAA as collecting
PCIBank did not actually receive nor hold the 2 Ford checks at all. bank. However, the proceeds of the check were never paid to CIR.
Neither is there any proof that defendant PCIBank contributed any The plaintiff was prompted by the CIR to make a second payment
official or conscious participation in the process of the of its manufacturer’s sales taxes for 1977. Ford together with the
embezzlement. check and the Revenue Tax Receipt was deposited with defendant

8
IBAA and later accepted the check and sent to the Central Clearing
House. After presentment of the check for payment to Citibank, the
latter paid for the face value and was debited to defendant’s account
with Citibank. Plaintiff then discovered that the amount was not paid
to CIR which prompted Ford to notify the latter that in case it will be
re-assessed by the BIR for payment of the taxes covered by the said
checks, plaintiff shall hold the defendants liable for reimbursement
for the value of the check. Both IBAA and Citibank denied liability
and refused to pay—even after BIR notified the parties. IBAA was
then merged with PCIBank. Upon investigation of the NBI,
Godofredo Rivera, the General Ledger Accountant of Ford recalled
the check since there was an error with the computation. With
Rivera’s instruction, PCIBank replaced the check with two of its own
Manager’s check. Subsequently, alleged members of a syndicate
later deposited the two MCs with Pacific Banking Corporation. Ford
then filed a third-part complaint before the trial court imploding
Pacific Banking Corporation and Godofredo Rivera. The RTC
favored Ford and asked Citibank and PCIBank liable. Upon appeal,
CA modified the judgment making IBAA solely liable. Hence, this
petition

The same syndicate apparently embezzled the proceeds of the


check to settle Ford’s percentage taxes for 1978-1979. The RTC
rendered Citibank liable to reimburse Ford at total of 12,163,298.10
PHP.

ISSUE: Whether or not petitioner Ford the right to recover from the
collecting bank (PCIBank) the drawee bank the value of the checks
intended as payment to the Commission of Internal Revenue or is
he already prescribed.

HELD: Yes, Ford can recover from PCIBank along with Citibank.
The checks were drawn against the drawee bank but the title of the
person negotiating the same was allegedly defective because the
instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It was
established that instead paying the Commissioner, the checks were
diverted and encashed for the eventual distribution among members
of the syndicate. Pursuant to this, it is vital to show that the
negotiation is made by the perpetrator in breach of faith amounting
to fraud. The person negotiating the checks must have gone
beyond the authority given by his principal. If the principal could
prove that there was no negligence in the performance of his
duties, he may set up the personal defense to escape liability
and recover from other parties who, through their own negligence,
allowed the commission of the crime. It should be resolved if Ford
is guilty of the imputed contributory negligence that would defeat
its claim for reimbursement, bearing in mind that its employees were
among the members of the syndicate. It appears although the
employees of Ford initiated the transactions attributable to the
organized syndicate, their actions were not the proximate cause
of encashing the checks payable to CIR. The degree of Ford’s
negligence couldn’t be characterized as the proximate cause of
the injury to parties. The mere fact that the forgery was
committed by a drawer-payor’s confidential employee or agent,
who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, doesn’t
entitle the bank to shift the loss to the drawer-payor, in the absence
of some circumstance raising estoppel against the drawer.

9
CA-Agro Industrial Devt Corp vs CA 219 SCRA 426 installment basis. Among the terms and conditions of the agreement
Facts: were that the titles to the lots shall be transferred to the petitioner
On July 3, 1979, petitioner (through its President- Sergio Aguirre) upon full payment of the purchase price and that the owner's copies
and the Spouses Ramon and Paula Pugao entered into an of the certificates of titles thereto, shall be deposited in a safety
agreement whereby the former purchase two parcel of lands from deposit box of any bank. Petitioner and the Pugaos then rented
the latter. It was paid of downpayment while the balance was Safety Deposit Box of private respondent Security Bank and Trust
covered by there postdated checks. Among the terms and Company. Thereafter, a certain Mrs. Margarita Ramos offered to
conditions embodied in the agreement were the titles shall be buy from the petitioner the two (2) parcels of land. Ramos
transferred to the petitioner upon full payment of the price and the demanded the execution of a deed of sale, which necessarily
owner's copies of the certificate of titles shall be deposited in a entailed the production of the certificates of title. In view thereof,
safety deposit box of any bank. Petitioner and the Pugaos then Aguirre, accompanied by the Pugao’s, then proceeded to the
rented Safety Deposit box of private respondent Security Bank and respondent Bank to open the safety deposit box and get the
Trust Company. certificates of title. However, when opened in the presence of the
Bank's representative, the box yielded no such certificates. Mrs.
Thereafter, a certain Margarita Ramos offered to buy from the Ramos withdrew her offer and consequence thereof, petitioner
petitioner. Mrs Ramos demand the execution of a deed of sale which allegedly failed to realize the profit prompting them to file for
necessarily entailed the production of the certificate of titles. In view complaint against the respondent.
thereof, Aguirre, accompanied by the Pugaos, then proceed to the
respondent Bank to open the safety deposit box and get the The RTC ruled in favor of the respondent bank. The CA affirmed the
certificate of titles. However, when opened in the presence of the assailed decision on the ground that the contract executed by the
Bank's representative, the box yielded no such certificate. Because petitioner and the bank is a contract of lease, thus the bank has
of the delay in the reconstitution of the title, Mrs Ramos withdrew neither possession nor control over the contents of the safety
her earlier offer to purchase. deposit box. Hence, this present petition.

Hence this petition. Issue: WON the contract entered into by Ca-Agro Industrial
Development Corp. and Security Bank and Trust Company is a
Issue: contract of rent.
Whether or not the contract of rent between a commercial bank and
another party for the use of safety deposit box can be considered Ruling:
alike to a lessor-lessee relationship. No, the SC held that the contract for the rent of the safety deposit
box executed by the parties is not an ordinary contract of lease as
Ruling: defined in Article 1643 of the Civil Code which states that, in the
The petitioner is correct in making the contention that the contract lease of things, one of the parties binds himself to give to another
for the rent of the deposit box is not a ordinary contract of lease as the enjoyment or use of a thing for a price certain, and for a period
defined in Article 1643 of the Civil Code. However, the Court do not which may be definite or indefinite. It cannot be characterized as an
really subscribe to its view that the same is a contract of deposit that ordinary contract of lease under Article 1643 because the full and
is to be strictly governed by the provisions in Civil Code on Deposit; absolute possession and control of the safety deposit box was not
the contract in the case at bar is a special kind of deposit. It cannot given to the joint renters - the petitioner and the Pugaos. The guard
be characterized as an ordinary contract of lease under Article 1643 key of the box remained with the respondent Bank; without this key,
because the full and absolute possession and control of the safety neither of the renters could open the box. On the other hand, the
deposit box was not given to the joint renters- the petitioner and the respondent Bank could not likewise open the box without the
Pugaos. The guard key of the box remained with the respondent renter's key.
bank; without this key, neither of the renters could open the box. On
the other hand, the respondent bank could not likewise open the box
without the renter's key. The Court further assailed that the CA AGRO-INDUSTRIAL DEVELOPMENT CORP. v. THE
petitioner is correct in applying American Jurisprudence. Herein, the HONORABLE COURT OF APPEALS and SECURITY BANK AND
prevailing view is that the relation between the a bank renting out TRUST COMPANY
safe deposits boxes and its customer with respect to the contents of G.R. No. 90027, March 3, 1993, THIRD DIVISION (DAVIDE, JR.,
the box is that of a bail or/ and bailee, the bailment being for hire J.)
and mutual benefits. That prevailing rule has been adopted in
Section 72 of the General Banking Act. FACTS:
Section 72. In addition to the operations specifically authorized CA Agro-Industrial Development Corp. (CA Agro)
elsewhere in this Act, banking institutions other that building and purchased two (2) parcels of land from the spouses Ramon and
loan associations may perform the following services: Paula Pugao (Pugaos). CA Agro paid a downpayment and issued
(a) Receive in custody funds, document and valuable objects and three (3) post-dated checks covering the balance of the price. It was
rents safety deposits taxes for the safeguard of such effects. contracted that the titles to the lots shall be transferred to CA Agro
xxx xxx xxx upon full payment of the purchase price and that the owner's copies
The bank shall perform the services permitted under subsections (a) of the certificates of titles thereto shall be deposited in a safety
(b) and (c) of this section as depositories or as agents. deposit box of any bank. The same could be withdrawn only upon
the joint signatures of a representative of CA Agro and the Pugaos
upon full payment of the purchase price.
CA Agro-Industrial Development Corp. vs CA
G.R. No. 90027 March 3, 1993 Forthwith, CA Agro and the Pugaos rented Safety Deposit
Box of Security Bank and Trust Company (Bank). For this purpose,
Doctrine: Contract of rent of a safety deposit box is a special kind of they both signed a contract of lease containing the following
deposit, which is not to be strictly governed by the provision on conditions:
deposit. 13. The bank is not a depositary of the contents of the safe and it
has neither the possession nor control of the same.
Facts: 14. The bank has no interest whatsoever in said contents, except
Petitioner, CA Agro-Industrial Development Corp, and spouses herein expressly provided, and it assumes absolutely no liability in
Ramon and Pallia Pugao entered into an agreement whereby the connection therewith.
former purchased from the latter two (2) parcels of land in

10
After the execution of the contract, two (2) renter's keys were given instruments which earn interest if such documents are kept in a
to the renters — one to CA Agro and the other to the Pugaos. A rented safety deposit box.
guard key remained in the possession of the Bank. The safety
deposit box has two (2) keyholes, one for the guard key and the The prevailing rule in American Jurisprudence is that the relation
other for the renter's key, and can be opened only with the use of between a bank renting out safe-deposit boxes and its customer
both keys. with respect to the contents of the box is that of a bailor and bailee,
the bailment being for hire and mutual benefit. While, in the context
Thereafter, a certain Mrs. Margarita Ramos (Ramos) offered to buy of our laws, particularly Section 72(a) of the General Banking Act
from CA Agro the two (2) lots at a price that will yield a profit for the (now Section 52) which authorizes banking institutions to rent out
latter. Accordingly, Ramos demanded the execution of a deed of safety deposit boxes, it is clear that the prevailing rule in the United
sale which necessarily entailed the production of the certificates of States has been adopted.
title. In view thereof, CA Agro, accompanied by the Pugaos, then Sec. 72. In addition to the operations specifically authorized
proceeded to the bank to open the safety deposit box and get the elsewhere in this Act, banking institutions other than building and
certificates of title. However, when opened in the presence of the loan associations may perform the following services:
Bank's representative, the box yielded no such certificates. As a (a) Receive in custody funds, documents, and valuable objects, and
result, Ramos withdrew her offer to buy the lots. rent safety deposit boxes for the safeguarding of such effects.
xxx xxx xxx
As a consequence, CA Agro failed to realize the expected profit, The banks shall perform the services permitted under subsections
thus, it filed a complaint for damages against the Bank. The Bank in (a), (b) and (c) of this section as depositories or as agents. . . .
its answer with a counterclaim invoked paragraphs 13 and 14 of the
contract of lease for its defense. Nevertheless, the primary function is still found within the
parameters of a contract of deposit, and, in relation to Article 1306
In due course, the trial court rendered a decision against CA Agro of the Civil Code, the parties thereto may establish such stipulations,
on the ground that the provisions of the contract of lease are binding clauses, terms and conditions as they may deem convenient,
on the parties, and that under said paragraphs, the Bank has no provided they are not contrary to law, morals, good customs, public
liability for the loss of the certificates of title. order or public policy. Thus, the depositary's responsibility for the
safekeeping of the objects deposited in this case is governed by
On Appeal, the Court of Appeals affirmed the appealed decision Title I, Book IV of the Civil Code. Accordingly, the depositary would
principally on the theory that the contract executed by CA Agro and be liable if, in performing its obligation, it is found guilty of fraud,
the Bank is in the nature of a contract of lease by virtue of which CA negligence, delay or contravention of the tenor of the agreement,
Agro and its co-renter were given control over the safety deposit box and in the absence of any stipulation prescribing the degree of
and its contents while the Bank retained no right to open the said diligence required, that of a good father of a family is to be observed.
box because it had neither the possession nor control over it and its Corollary, any stipulation exempting the depositary from any liability
contents, thus, the contract is governed by Article 1643 in relation arising from the loss of the thing deposited on account of fraud,
to Article 1975 of the Civil Code. negligence or delay would be void for being contrary to law and
public policy.
Hence, CA Agro elevated the case to the Supreme Court under Rule Furthermore, it is not correct to assert that the Bank has neither the
45 of the Rules of Court maintaining that regardless of possession nor control of the contents of the box since in fact; the
nomenclature, the contract for the rent of the safety deposit box is safety deposit box itself is located in its premises and is under its
actually a contract of deposit governed by Title XII, Book IV of the absolute control. Moreover, the Bank keeps the guard key to the
Civil Code. said box and renters cannot open their respective boxes unless the
Bank cooperates by presenting and using this guard key. Clearly
ISSUE: then, to the extent above stated, conditions 13 and 14 in the contract
in question are void and ineffective.
Whether the contractual relation between a commercial However, the Court reached the same conclusion which the Court
bank and another party in a contract of rent of a safety deposit box of Appeals arrived at but on grounds quite different from those relied
with respect to its contents placed by the latter one of bailor and upon by the latter. The Bank's exoneration cannot be based on or
bailee or one of lessor and lessee proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof was
HELD: presented to show that Bank was aware of the agreement between
CA Agro and the Pugaos to the effect that the certificates of title
Petition PARTIALLY GRANTED were withdrawable from the safety deposit box only upon both
parties' joint signatures, and that no evidence was submitted to
The contractual relation between a commercial bank and reveal that the loss of the certificates of title was due to the fraud or
another party in a contract of rent of a safety deposit box with negligence of the Bank. Since both CA Agro and the Pugaos agreed
respect to its contents placed by the latter is one of a bailor and that each should have one (1) renter's key, it was obvious that either
bailee, the bailment being for hire and mutual benefit, and it is not of them could ask the Bank for access to the safety deposit box and,
an ordinary deposit but special kind of deposit. with the use of such key and the Bank's own guard key, could open
the said box, without the other renter being present.
The contract for the rent of the safety deposit box is not an ordinary Since, however, CA Agro cannot be blamed for the filing of the
contract of lease as defined in Article 1643 of the Civil Code. It complaint and no bad faith on its part had been established, the trial
cannot be characterized as an ordinary contract of lease under court erred in condemning the CA Agro to pay the Bank attorney's
Article 1643 because the full and absolute possession and control fees. To this extent, the Decision of Court of Appeals was modified.
of the safety deposit box was not given to the joint renters. However,
the Court does not fully subscribe to the view that the same is a
contract of deposit that is to be strictly governed by the provisions in
the Civil Code on deposit; the contract in this case is a special kind
of deposit.

Neither could Article 1975 be invoked as an argument against the


deposit theory. Obviously, the first paragraph of such provision
cannot apply to a depositary of certificates, bonds, securities or

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