#11 On different dates, Velasco made several inter-branch withdrawals from the dollar savings

account, to wit:
[G.R. NO. 166096 : September 11, 2008] PNB Branch Date Amount

PNB Legaspi November 7, 1995 US $2,000.00

PHILIPPINE NATIONAL BANK, Petitioner, v. RAMON BRIGIDO L. VELASCO, Respondent.
PNB Legaspi November 13, 3,329.97
DECISION 1995

REYES, R.T., J.: Cash Dept. November 23, 4,000.00

1995
THIS is a tale of a bank officer-depositor clinging to his position after violating bank
regulations and falsifying his passbook to cover up a false transaction. Total US $9,329.97
Mrs. Belen Velasco also withdrew several amounts on the dollar account, viz.:
PNB Branch Date Amount

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil PNB CEPZ December 6, 1995 US$11,494.00
Procedure seeking the reversal of the Decision1 and Resolution2 of the Court of Appeals
(CA). The appealed decision reversed those of the National Labor Relations Commission PNB Frisco January 2, 1996 1,292.32
(NLRC)3 and the Labor Arbiter4which dismissed the complaint for illegal dismissal and damages
of Ramon Brigido L. Velasco against Philippine National Bank (PNB). Total US$12,786.32
Subsequently, the dollar savings account of the spouses was closed.
The Facts
On February 6, 1996, in the course of conducting an audit at PNB Escolta Branch, Molina
Ramon Brigido L. Velasco, a PNB audit officer, and his wife, Belen Amparo E. Velasco, maintained D. Salvador, a member of the Internal Audit Department (IAD) of PNB, discovered that the inter-
Dollar Savings Account No. 010-714698-95 at PNB Escolta Branch. On June 30, 1995, while on branch withdrawal made on June 30, 1995 by Velasco at PNB Ligao, Albay Branch in the amount
official business at the Legazpi Branch, he went to the PNB Ligao, Albay of US$15,000.00 was not posted; and that no deposit of said amount had been credited to the
Branch and withdrew US$15,000.00 from the dollar savings account. At that time, the dollar savings account.
account had a balance of US$15,486.07. The Ligao Branch is an off-line branch, i.e., one with
no network connection or computer linkage with other PNB branches and the head office. The On February 7, 1996, Velasco was notified of the glitch when he reported at the IAD. He said it
transaction was evidenced by an Interoffice Savings Account Withdrawal Slip, also known as the was only in the evening that he was able to verify from his kin that the latter was not able to
Ticket Exchange Center (TEC).6 deposit in his account the US$15,000.00.7

On July 10, 1995, PNB Escolta Branch received the TEC covering the withdrawal. It was included The following day, or on February 8, 1996, Velasco went to Dolorita Donado, assistant vice
among the proofsheet entries of Cashier IV Ruben Francisco, Jr. The withdrawal was not, president of the Internal Audit Department and team leader of the Escolta Task Force, and
however, posted in the computer of the Escolta Branch when it received said advice. This delivered three (3) checks in the amount of US$5,000.00 each or a total of
means that the withdrawal was not recorded. Thus, the account of Velasco had US$15,000.00. However, Donato returned the checks to Velasco and instructed him that he
an overstatement of US$15,000.00. should personally deposit the checks.

Sometime in September 1995, while Velasco was on a provincial audit, he claimed calling On February 14, 1996, he deposited the checks and the amount was consequently applied to
through phone a kin in Manila who just arrived from abroad. This kin allegedly told him his unposted withdrawal of US$15,000.00.
that his New York-based brother, Gregorio Velasco, sent him various checks through his kin
totaling US$15,000.00 and that the checks would just be deposited in time in Velasco's account. Meanwhile, on February 9, 1996, PNB vice president, B.C. Hermoso, required8 Velasco to
submit a written explanation concerning the incident.
On October 6, 1995, Velasco updated his dollar savings account by depositing US$12.78,
reflecting a balance of US$15,486.01. He was allegedly satisfied with the updated balance, as On February 12, 1996, he submitted his sworn letter-explanation.9 He described the inter-
he thought that the US$15,000.00 in his account was the amount given by his brother. branch withdrawal at PNB Ligao, Albay Branch on June 30, 1995 as "no-book," i.e., without the
corresponding presentation to the bank teller of the savings passbook. He stated, among
others, that his withdrawal was accommodated as the statement of account showed a balance
of US$15,486.01, and that he is personally known to the officers and staff, being a former
colleague at the PNB Ligao, Albay Branch. Labor Arbiter, NLRC, and CA Dispositions

On February 27, 1996, PNB Ligao, Albay Branch division chief III, Rexor Quiambao, financial On July 9, 1999, Labor Arbiter Pablo C. Espiritu gave judgment, the dispositive portion of which
specialist II, Emma Gacer, and division chief II, Renato M. Letada, confirmed the "no-book" reads:
withdrawal.10 WHEREFORE,judgment is hereby rendered as follows:

On March 5, 1996, PNB formally charged Velasco with "Dishonesty, Grave Misconduct, and/or
Conduct Grossly Prejudicial to the Best Interest of the Service for the irregular handling of Dollar
Savings Account No. 010-714698-9"11 The administrative charge alleged that: (1) he transacted
a no-book withdrawal against his Dollar Savings Account No. 010-714698-9 at PNB Ligao, Albay
Branch in violation of Section 1216 of the Manual of Regulations for Banks; (2) in
transacting the no-book withdrawal, he failed to present any letter of introduction as required
under General Circular 3-72/92; (3) the irregular inter-branch withdrawal was aggravated by the
failure of Escolta Branch to post/enter the withdrawal into the computer upon receipt of the
TEC advice, resulting in the overstatement of the account balance by US$15,000.00; and (4)
since he was presumed to be fully aware that neither the deposit nor withdrawal of the
US$15,000.00 was reflected on the passbook, he was able to appropriate the amount for his
personal benefit, free of interest, to the damage and prejudice of PNB.12
On April 8, 1996, PNB withheld his rice and sugar subsidy, dental/optical/outpatient medical
benefits, consolidated medical benefits, commutation of hospitalization benefits, clothing
allowance, longevity pay, anniversary bonus, Christmas bonus and cash gift, performance
incentive award, and mid-year financial assistance.13 On April 10, 1996, he was placed under
preventive suspension for a period of ninety (90) days.14
1. Dismissing the complaint for illegal dismissal against respondents for want
of merit.
2. Ordering PNB to pay complainant unpaid wages for the period May 12, 1996
to October 31, 1996 in the amount of P103,796.00.
3. Dismissing complainant's claims for damages and other monetary claims for
lack of merit.
SO ORDERED.19
In his ruling, the Labor Arbiter opined that as an employee and officer of PNB for eighteen (18)
years, Velasco is expected to know bank procedures, including the expected entries in a savings
passbook. Even if it should be assumed that he presented his passbook when he withdrew
US$15,000.00 at the PNB Ligao Branch on June 30, 1995, he should have known that there was
something wrong with the amounts credited to his account when he made an update on
October 6, 1995. Being an audit officer, and fully aware of his withdrawal of US$15,000.00, he
should have made inquiries on the inconsistency of the entries in his passbook.20

On May 2, 1996, Velasco submitted his sworn Answer15 to the administrative charge against The Labor Arbiter also found as flimsy the argument that the additional US$15,000.00 was the
him. Unlike his previous answer, he here claimed that his withdrawal on June 30, 1995 was amount given to Velasco by his brother from the United States. As early as October 6,
"with passbook." As proof, he attached a copy of his passbook16 bearing the withdrawal entry 1995, when he updated his passbook, Velasco should have known that (1) his brother's checks
of US$15,000.00 on June 30, 1995. Explaining the inconsistency with his sworn letter- in the amount of US$15,000.00 have not been deposited in his dollar savings account and (2)
explanation on February 12, 1996, he said his initial answer was made he appears to have been improperly credited with US$15,000.00.21
under pressing circumstances. He was unable to find his passbook which was then kept
by his wife who could not be contacted at that moment. Moreover, the Labor Arbiter held that the entry in the passbook purportedly reflecting the
withdrawal of US$15,000.00 is a forgery. It was done to conform to the defense of Velasco that
On October 2, 1996, the Administrative Adjudication Office (AAO) of PNB composed of he presented his passbook on June 30, 1995.22
Fernando R. Mangubat, Jr., Wilfredo S. Verzosa, Celso D. Benologa, and Jesse L. Figueroa
exonerated Velasco of the charges of dishonesty and conduct prejudicial to the best interest of On the charge of illegal suspension, the Labor Arbiter held that the preventive suspension of
service. However, he was found guilty of grave misconduct, mitigated by length of service and Velasco was reasonable in view of the sensitive nature of his position. It was also necessary to
absence of actual loss to PNB. Thus, he was meted the penalty of forced resignation with protect the records of PNB.23 It follows that the withholding of his company benefits is
benefits.17 reasonable.24 Nonetheless, he should be paid his salary from May 12, 1996 up to October 31,
1996.25
On October 31, 1996, Velasco was formally notified of the findings of the AAO after its approval
by the management. As of that time, he had been employed with PNB for eighteen (18) years, His claim for damages and attorney's fees must be denied because PNB did not violate his
holding the position of Manager 1 of the IAD. He was earning P14,932.00 per month plus a rights.26
monthly allowance of P3,940.00 or a total salary of P18,872.00 per month.
Dissatisfied with the decision of the Labor Arbiter, both Velasco27 and PNB28 appealed to the
On December 22, 1997, he filed a Complaint18 against PNB for illegal suspension, illegal NLRC.
dismissal, and damages before the NLRC.
On July 31, 2000, the NLRC affirmed with modification the Labor Arbiter decision, disposing,
thus: PNB has filed the instant petition for review on certiorari, putting forth the following issues for
WHEREFORE, the decision appealed from is hereby MODIFIED to the extent that the award of Our resolution, viz.:
unpaid salaries is hereby REDUCED to the complainant's salaries from May 27, 1996 to July 31,
1996. Other dispositions in the appealed decision stands (sic) affirmed.29 I. WHETHER OR NOT THE COURT OF APPEALS ERRED AND GRAVELY ABUSED
In sustaining the Labor Arbiter, the NLRC held that Velasco's lack of knowledge of the non- ITS DISCRETION IN FINDING THAT RESPONDENT HAS BEEN ILLEGALLY
posting of his withdrawal is not credible. Even a cursory look at his passbook DISMISSED BY THE PETITIONERS.
shows that no deposit of US$15,000.00 was ever made. That there was still a balance of
more than US$15,000.00 in his account after the withdrawal he made on June 30, 1995 could II. WHETHER OR NOT THE COURT OF APPEALS ERRED AND GRAVELY ABUSED
only mean that the withdrawal was never posted. Worse, based also on the entries in his ITS DISCRETION IN DIRECTING PNB TO PAY RESPONDENT SEPARATION PAY
passbook, it is clear that the withdrawal on June 30, 1995 was a "no-book" transaction. The AND BACKWAGES.38 (Underscoring supplied)
withdrawal of US$15,000.00 was not taken into consideration in the determination of the
balance of June 30, 1995 and the succeeding dates. Thus, it is clear that the entry in question
was falsified. It was made merely to bolster his subsequent claim that he presented his We add a third issue which was raised by PNB before the CA but was, however, left unresolved:
passbook when he withdrew on June 30, 1995.30 whether Velasco took the correct recourse when he elevated the decision of the NLRC to the
CA by way of petition for review on certiorari under Rule 43.
The NLRC concluded that the falsification of the passbook shows deceit on the part of
Velasco. He took advantage of his position. The posting of the falsified entry could not have Our Ruling
been made without, or was at least facilitated by, his being an employee of the bank. Thus, his
subsequent withdrawals amounted to losses on the part of the bank. He made those I. Appeal does not lie from the decision of the NLRC.
withdrawals from his account with full knowledge that the balance of his passbook of
more than US$15,000.00 was attributed to the non-posting of the June 30, 1995 withdrawal.31 We first address the procedural question on the propriety of the Rule 43 petition. Rule 43
provides for appeal from quasi-judicial agencies to the CA by way of petition for review. Petition
The NLRC also held that he had been preventively suspended for more than thirty (30) for review on certiorari or appeal by certiorari is a recourse to the Supreme Court under Rule
days as of May 27, 1996. Since he was paid his salaries from August 1, 1996 to October 31, 45.
1996, he may recover only his salary from May 27, 1996 to July 31, 1996.32
The mode of appeal resorted to by Velasco is wrong because appeal is not the proper remedy
Like the Labor Arbiter, the NLRC held that Velasco may not recover damages. His dismissal was in elevating to the CA the decision of the NLRC. Section 2, Rule 43 of the 1997 Rules of Civil
not done oppressively or in bad faith. Neither was he subjected to unnecessary embarrassment Procedure is explicit that Rule 43 "shall not apply to judgments or final orders issued under the
or humiliation.33 Labor Code of the Philippines."

His motion for reconsideration having been denied, Velasco elevated the matter to the CA by The correct remedy that should have been availed of is the special civil action of certiorari under
way of petition for review on certiorari under Rule 43 of the Rules of Court.34 On April 22, 2004, Rule 65. As this Court held in the case of Pure Foods Corporation v. NLRC,39 "the party may also
the CA rendered the assailed decision, the fallo stating, thus: seasonably avail of the special civil action for certiorari, where the tribunal, board or
WHEREFORE, for the foregoing discussions, We REVERSE and SET ASIDE the findings of public officer exercising judicial functions has acted without or in excess of its jurisdiction, or with grave
respondent NLRC and Labor Arbiter and hereby enter a decision ordering PNB to pay petitioner abuse of discretion, and praying that judgment be rendered annulling or modifying the
a separation pay equivalent to half-month salary for every year of service, plus backwages from proceedings, as the law requires, of such tribunal, board or officer" 40 In any case, St.
the time of his illegal termination up to the finality of this decision. Martin Funeral Homes v. National Labor Relations Commission41 settled any doubt as to the
manner of elevating decisions of the NLRC to the CA by holding that "the legislative intendment
SO ORDERED.35 was that the special civil action ofcertiorari was and still is the proper vehicle for judicial review
According to the CA, the failure of Velasco to present his passbook and a letter of introduction of decisions of the NLRC"42
does not constitute misconduct. Assuming for the sake of argument that he committed a
serious misconduct in not properly monitoring his account with ordinary diligence and That the decision of the NLRC is not subject to appeal could have been a ground for the
prudence, the same may be said of PNB when it failed to make the necessary posting of his CA to dismiss the appeal of Velasco.43 But even assuming, arguendo, that his petition could be
withdrawal.36 Lastly, the alleged offense of Velasco is not work-related to constitute just cause liberally treated as one for certiorari under Rule 65, the recourse should not have prospered.
for his dismissal.37
II. Velasco committed serious misconduct, hence, his dismissal is justified.
Issues
Article 282 of the Labor Code enumerates the just causes where an employer may terminate
the services of an employee,44 to wit:
a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
b) Gross and habitual neglect by the employee of his duties;
c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly
authorized representative;
d) Commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representative; and
e) Other causes analogous to the foregoing.
In Austria v. National Labor Relations Commission,45 the Court defined misconduct as "improper
and wrongful conduct. It is the transgression of some established and definite rule of action, a
forbidden act, a dereliction of duty, willful in character, and implies wrongful intent and not
mere error in judgment"46In Camusv. Civil Service Board of Appeals,47 misconduct was described
as "wrong or improper conduct"48 It implies a wrongful intention and not a mere error of
judgment.49
Of course, ordinary misconduct would not justify the termination of the services of an
employee. The law is explicit that the misconduct should be serious. It is settled that in order
for misconduct to be serious, "it must be of such grave and aggravated character and not merely
trivial or unimportant"50 As amplified by jurisprudence, the misconduct must (1) be serious; (2)
relate to the performance of the employee's duties; and (3) show that the employee has
become unfit to continue working for the employer.51
Measured by the foregoing yardstick, We rule that Velasco committed serious misconduct that
warrants termination from employment.
A. The misconduct is serious. Velasco violated bank rules when he transacted a "no-book"
withdrawal by his failure to present his passbook to the PNB Ligao, Albay Branch on June 30,
1995. Section 1216 of the Manual of Regulations for Banks and Other Financial Intermediaries
state that "[b]anks are prohibited from issuing/accepting `withdrawal authority slips' or any
other similar instruments designed to effect withdrawals of savings deposits without following
the usual practice of requiring the depositors concerned to present their passbooks and
accomplishing the necessary withdrawal slips."
Further, he failed to present any letter of introduction as mandated under General Circular 3-
72-92 which requires that "[b]efore going out-of-town, the Depositor secures a Letter of
Introduction from the branch/office where his Peso Savings Account is maintained."
The presentation of passbook and letter of introduction is not without a valid reason. As aptly
stated by the IAD of PNB:
Considering that the PNB Ligao, Albay Branch is an offline branch, it is a must that an LOI and
the passbook be presented by the depositor before any withdrawal is allowed. This procedure
is required in order for the negotiating branch to determine or ascertain the available balance
and the specimen signature of the withdrawing party. Moreover, the maintaining branch upon
issuance of the LOI shall place a "hold" on the account in the computer as an internal control
procedure.52
True, a strict reading of General Circular 3-72-92 would lead one to conclude that only persons
with peso savings account are required to secure a letter of introduction. However, simple logic
dictates that those maintaining dollar savings account are also included. No cogent reason
would be served by the rule if only persons with peso savings account are required to get a
letter of introduction. Otherwise, there can be a circumvention of the rule. Nemo potest
facere per alium qud non potest facere per directum. No one is allowed to do indirectly what
he is prohibited to do directly. Sinuman ay hindi pinapayagang gawin nang hindi tuwiran ang
ipinagbabawal gawin nang tuwiran.
As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and
regulations, are strictly observed and applied by its officers in the day-to-day transactions. The
banking system is an indispensable institution in the modern world. It plays a vital role in
the economic life of every civilized nation. Whether banks act as mere passive entities for the
safekeeping and saving of money, or as active instruments of business and commerce, they have
become an ubiquitous presence among the citizenry, who have come to regard them with
respect and even gratitude and, most of all, confidence.53
The CA, however, opined that the failure of Velasco to abide by the rules is not serious
misconduct because (1) from the admission of PNB itself, allowing bank personnel who are out-
of-town to make a "no-book" transaction without a letter of introduction is considered
acommon practice, and (2) the approving officers of PNB Ligao Branch should have also been
administratively charged considering that the "no-book" transaction could not have pushed
through without their approval.54
In Santos v. San Miguel Corporation,55Petitioner, in his defense, cited the prolonged practice of
payroll personnel, including persons in managerial levels, of encashing personal checks. Finding
this argument unmeritorious, the Court held that "[p]rolonged practice of encashing personal
checks among respondent's payroll personnel does not excuse or justify petitioner's
misdeeds. Her willful and deliberate acts were in gross violation of respondent's policy against
encashment of personal checks of its personnel, embodied in its Cash Department
Memorandum dated September 6, 1989"56 The Court even added that petitioner "cannot feign
ignorance of such memorandum as she is duty-bound to keep abreast of company policies
related to financial matters within the corporation"57 We apply the same principle here.
Suffice it to state that the option of who to charge or punish belongs to PNB. As an employer,
PNB is given the latitude to determine who among its erring employees should be punished, to
what extent and what penalty to impose.58 Too, by charging Velasco, PNB is not estopped from
charging its other employees who might as well have been remiss with their job.
Of course, We are not unaware that Velasco had a change of heart. In his sworn Letter-
Explanation February 12, 1996, he admitted that his June 30, 1995 withdrawal of US$15,000.00
was a "no-book" transaction. However, in his sworn Answer dated April 30, 1996, he claimed
that he actually presented his passbook when he withdrew on June 30, 1995.
To recall, he was charged with dishonesty, grave misconduct, and/or conduct grossly prejudicial
to the best interest of the service for irregularly handling his dollar savings account. Thus, it is
safe to assume that when he prepared his February 12, 1996 sworn Letter-Explanation, the
circumstances surrounding his June 30, 1995 withdrawal at PNB Ligao, Albay Branch were still
fresh on his mind. The allegations against him were serious, which should have put him on
guard from preparing a haphazard explanation. He should have been mindful
that dire consequences would surely befall him should the charges against him be
proven. Lest it be forgotten, the no-book withdrawal was confirmed by the concerned officers
of PNB Ligao, Albay Branch, namely, Quiambao, Gacer, and Letada. These circumstances, taken
together, lead to no other conclusion than that Velasco changed his explanation from "no-book"
to "with book" transaction after realizing that he violated bank rules and regulations.
Perez v. People,59 is illustrative on this score. Perez, an acting municipal treasurer, submitted
two contradicting answers explaining the location of the missing funds under his custody and
control: the first, reiterating his previous verbal admission before the audit team that part of
the money was used to pay for the loan of his late brother, another portion was spent for the
food of his family, and the rest for his medicine; and the second, claiming that the alleged
missing amount was in the possession and custody of his accountable personnel at the time of
the audit examination.
This Court held that the sudden turnaround of Perez was merely an afterthought. He "only
changed his story to exonerate himself, after realizing that his first Answer put him in a hole, so
to speak"60 Neither did the Court believe that his alleged sickness affected the preparation of
his first Answer. Perez "presented no convincing evidence that his disease at the time he
formulated that Answer diminished his capacity to formulate a true, clear and coherent
response to any query. In fact, its contents merely reiterated his verbal explanation to the
auditing team on January 5, 1989 on how he disposed of the missing funds"61
We find no cogent reason to depart from Our ruling in Perez. The claim of Velasco that his
initial answer was made under pressing circumstances is too flimsy an excuse. It partakes of
the nature of an alibi. As such, it constitutes a self-serving negative evidence which cannot he
accorded greater evidentiary weight than the declaration of credible witnesses who testified on
affirmative matters.62 The Court has consistently frowned upon the defense of
alibi, and received it with caution, not only because it is inherently weak and unreliable but
also because it can be easily fabricated.63
Also worth noting is that Velasco never imputed any ill motive on the part of Rexor, Gacer, and
Letada who collectively narrated that the June 30, 1995 withdrawal was a no-book
transaction. They confirmed his earlier version that he did not present his passbook when he
withdrew the US$15,000.00 on June 30, 1995. In any case, the fact that he changed his stance
puts his credibility in doubt. Was he lying when he submitted his sworn letter-explanation of
February 12, 1996, or when he submitted his sworn Answer dated April 30,
1996? Allegans contraria non est audiendus. He is not to be heard who alleges things
contradictory to each other. Hindi dapat pakinggan ang nagsasabi ng mga bagay na salungat
sa isa't-isa.
Velasco did not only violate bank rules and regulations. What compounds his offense was his
unusual silence. He never informed PNB about the huge overstatement of US$15,000.00 in his
account. He updated his passbook on October 6, 1995 by depositing US$12.78. Thus, as early
as that date, he should have known that something was wrong with the credited balance in his
passbook and reported it immediately to the concerned officers of PNB. What he did, instead,
was to keep mum until PNB discovered the incident and notified him on February 7, 1996, or
almost eight (8) months after his no-book withdrawal on June 30, 1995.
With his silence, he clearly intended to gain at the expense of PNB. The omission to report is
not trivial or inconsequential because it gave him the opportunity to withdraw from his dollar
savings account more than its real balance, as what he actually did. He took advantage of the
overstatement of his account, instead of protecting the interest of the bank. It would be
impossible for him not to detect the error at the time he deposited US$12.78 on October 6,
1995, because his account had a big balance despite the fact that no large amount of money
was deposited.
His claim that he was satisfied with the updated balance of US$15,486.01 on October 6, 1995,
as he thought that the US$15,000.00 in his account was the amount given by his brother, is
simply unbelievable. It is a desperate attempt at exculpation. The deposit of the money from
his brother should have been reflected in the on-line computer of PNB. The deposit
would have also been posted for update upon the presentation of the passbook on October 6,
1995. No deposit of US$15,000.00 was, however, reflected in the passbook.
In Aboitiz Shipping Corporation v. Dela Serna,64Tiu v. National Labor Relations Commission,65Five
J Taxi v. National Labor Relations Commission,66 and Falguera v. Linsangan,67 among other
cases, this Court consistently held that factual findings of quasi-judicial agencies, which have
acquired expertise in matters entrusted to their jurisdiction, are accorded not only respect but
also finality if they are supported by substantial evidence.68 Thus, in the absence of proof that
the Labor Arbiter or the NLRC had gravely abused their discretion, this Court shall
deem conclusive and will not overturn their particular factual findings.69
The Labor Arbiter and the NLRC are in unison that Velasco transacted a no-book withdrawal and
failed to present a letter of introduction at PNB Ligao, Albay Branch on June 30, 1995. He also
forged his passbook to cover up his offense. Being duly supported by substantial evidence, We
sustain said finding. Fitness for continued employment cannot be compartmentalized into tight
little cubicles of aspects of character, conduct, and ability separate and independent of each
other. A service of irregularities, when combined, may constitute serious misconduct which is
a just cause for dismissal.70
B. The serious misconduct relates to the performance of duties. The CA ruled that the offense
of Velasco was not work-related and does not warrant dismissal. It likewise held that there is
no proof that his failure to be a good depositor affected his duties or performance as an
employee of PNB.71
At first glance, the acts committed by Velasco pertain only to his being a depositor of PNB. But
he has a dual personality. He was a depositor and, at the same time, an officer of the bank.
On one hand, he failed to present his passbook and a letter of introduction when he withdrew
US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious misconduct was
aggravated when he presented a falsified passbook to make it appear that he did not commit
any misdeed. On the other hand, he worked for PNB for eighteen (18) long years, his last
position having been as Manager 1 of the IAD. As such, he was involved in the examination
of the books of account of PNB. Thus,
when he violated bank rules and regulations and tried to cover up his infractions by falsifying
his passbook, he was not only committing them as a depositor but also, or rather more so, as
an officer of the bank. It is akin to falsification of time cards,72 and circulation of fake meal
tickets,73 which this Court held as a just cause for terminating the services of an employee.
C. Velasco has become unfit to continue working at PNB. Taken together, his acts render him
unfit to remain in the employ of the bank. That it is his first offense is of no moment because
he holds a managerial position. Employers are allowed wide latitude of discretion in terminating
managerial employees who, by virtue of their position, require full trust and confidence in the
performance of their duties.74 Managerial employees like Velasco are tasked to perform key
and sensitive functions and are bound by more exacting work ethics.75 Indeed, not even his
eighteen (18) years of service could exonerate him. As this Court held in Equitable PCIBank v.
Caguioa:76
The leniency sought by respondent on the basis of her 35 years of service to the bank must be
weighed in conjunction with the other considerations raised by petitioners. As that service has
been amply compensated, her plea for leniency cannot offset her dishonesty. Even government
employees who are validly dismissed from the service by reason of timely discovered offenses
are deprived of retirement benefits. Treating respondent in the same manner as the loyal and
code-abiding employees, despite the timely discovery of her Code violations, may indeed have
a demoralizing effect on the entire bank. Be it remembered that banks thrive on and endeavor
to retain public trust and confidence, every violation of which must thus be accompanied by
appropriate sanctions.77
III. The CA erred in directing PNB to pay Velasco separation pay and backwages. PNB has no
other liability to Velasco, except his unpaid wages from May 27, 1996 to July 31, 1996.
PNB was registered under the Corporation Code under SEC Reg. No. ASO 96-
005555 dated May 27, 1996.78 Thus, on that day, employees of
PNB came under the jurisdiction of the Labor Code, whose Sections 8 and 9 of Rule XXIII, Book
V of the Implementing Rules state:
Section 8. Preventive Suspension. - The employer may place the worker concerned under
preventive suspension if his continued employment poses a serious and imminent threat to the
life or property of the employer or his co-workers.
He is not entitled to separation and backwages because he was not illegally
dismissed.80 We note though that PNB was not at all insensitive to his plight, considering (1)
his restitution of the amount akin to no actual loss to the bank, and (2) his length of service of
eighteen (18) years.81 As stated earlier, PNB imposed on Velasco the penalty of forced
resignation with benefits, instead of dismissal. The records bear out that he was granted
P542,110.75 as separation benefits82 which was used to offset his loan in the bank, leaving an
outstanding balance of P167,625.82 as of May 27, 1997.83 We find that PNB acted humanely
under the circumstances.
One last word.
The law imposes great burdens on the employer. One needs only to look at the varied
provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working
man. The Labor Code is titled that way and not as "Employer Code." As one American ruling
puts it, the protection of labor is the highest office of our laws.84
Corollary to this, however, is the right of the employer to expect from the employee no less
than adequate work, diligence and good conduct.85 As Mr. Justice Joseph McKenna of the
United States Supreme Court said in Arizona Copper Co. v. Hammer,86 "[t]he difference between
the position of the employer and the employee, simply considering the latter as economically
weaker, is not a justification for the violation of the rights of the former" 87
WHEREFORE, the petition is GRANTED and the appealed
Decision REVERSED and SET ASIDE. The Decision of the National Labor Relations Commission
is REINSTATED.
SO ORDERED.
Chico-Nazario,*J., (Acting Chairperson), Tinga,** Velasco, Jr.,** and Nachura, JJ., concur.

Section 9. No preventive suspension shall last longer than thirty (30) days. The employer shall
thereafter reinstate the worker in his former or in a substantially equivalent position or the
employer may extend the period of suspension provided that during the period of extension,
he pays the wages and other benefits due to the worker. In such case, the worker shall not be
bound to reimburse the amount paid to him during the extension if the employer decides, after
completion of the hearing, to dismiss the worker.
PNB has the right to preventively suspend Velasco during the pendency of the administrative
case against him. It was obviously done as a measure of self-protection. It was necessary to
secure the vital records of PNB which, in view of the position of Velasco as internal auditor, are
easily accessible to him.

Velasco was preventively suspended for more than thirty (30) days as of May 27, 1996, while
the records bear that Velasco was paid his salaries from August 1, 1996 to October 31,
1996.79 Thus, the NLRC is correct in its holding that he may recover his salaries from May 27,
1996 to July 31, 1996.
#12
G.R. No. 170290 April 11, 2012
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,
vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing
the October 27, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 61316, entitled
"Citibank, N.A. and Bank of America, S.T. & N.A. v. Philippine Deposit Insurance Corporation."
The Facts
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality
created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of
America, S.T. & N.A. (BA) is a national banking association, both of which are duly organized and
existing under the laws of the United States of America and duly licensed to do business in the
Philippines, with offices in Makati City.3
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that
Citibank, in the course of its banking business, from September 30, 1974 to June 30, 1977,
received from its head office and other foreign branches a total of ₱11,923,163,908.00 in
dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with
corresponding maturity dates.4 These funds, which were lodged in the books of Citibank under
the account "Their Account-Head Office/Branches-Foreign Currency," were not reported to
PDIC as deposit liabilities that were subject to assessment for insurance.5 As such, in a letter
dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of ₱1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that
from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign
branches a total of ₱629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit
that were interest-bearing with corresponding maturity dates and lodged in their books under
the account "Due to Head Office/Branches."7 Because BA also excluded these from its deposit
liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance of ₱109,264.83
representing deficiency premium assessments for dollar deposits.8
Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a
petition for declaratory relief before the Court of First Instance (now the Regional Trial Court)
of Rizal on July 19, 1979 and December 11, 1979, respectively.9 In their petitions, Citibank and
BA sought a declaratory judgment stating that the money placements they received from their
head office and other foreign branches were not deposits and did not give rise to insurable
deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a
consequence, the deficiency assessments made by PDIC were improper and erroneous.10 The
cases were then consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its
Decision12 in favor of Citibank and BA, ruling that the subject money placements were not
deposits and did not give rise to insurable deposit liabilities, and that the deficiency assessments
issued by PDIC were improper and erroneous. Therefore, Citibank and BA were not liable to pay
the same. The RTC reasoned out that the money placements subject of the petitions were not
assessable for insurance purposes under the PDIC Charter because said placements were
deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and
Regulations,13 such deposits are excluded from the computation of deposit liabilities. Section
3(f) of the PDIC Charter likewise excludes from the definition of the term "deposit" any
obligation of a bank payable at the office of the bank located outside the Philippines. The RTC
further stated that there was no depositor-depository relationship between the respondents
and their head office or other branches. As a result, such deposits were not included as third-
party deposits that must be insured. Rather, they were considered inter-branch deposits which
were excluded from the assessment base, in accordance with the practice of the United States
Federal Deposit Insurance Corporation (FDIC) after which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27, 2005
Decision. In so ruling, the CA found that the money placements were received as part of the
bank’s internal dealings by Citibank and BA as agents of their respective head offices. This
showed that the head office and the Philippine branch were considered as the same entity.
Thus, no bank deposit could have arisen from the transactions between the Philippine branch
and the head office because there did not exist two separate contracting parties to act as
depositor and depositary.14 Secondly, the CA called attention to the purpose for the creation of
PDIC which was to protect the deposits of depositors in the Philippines and not the deposits of
the same bank through its head office or foreign branches.15 Thirdly, because there was no law
or jurisprudence on the treatment of inter-branch deposits between the Philippine branch of a
foreign bank and its head office and other branches for purposes of insurance, the CA was
guided by the procedure observed by the FDIC which considered inter-branch deposits as non-
assessable.16 Finally, the CA cited Section 3(f) of R.A. No. 3591, which specifically excludes
obligations payable at the office of the bank located outside the Philippines from the definition
of a deposit or an insured deposit. Since the subject money placements were made in the
respective head offices of Citibank and BA located outside the Philippines, then such placements
could not be subject to assessment under the PDIC Charter.17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar deposits are assessable for insurance
purposes under the PDIC Charter with the following assigned errors:
A.
The appellate court erred in ruling that the subject dollar deposits are money placements, thus,
they are not subject to the provisions of Republic Act No. 6426 otherwise known as the "Foreign
Currency Deposit Act of the Philippines."
B.
The appellate court erred in ruling that the subject dollar deposits are not covered by the PDIC
insurance.18
Respondents similarly identify only one issue in this case:
Whether or not the money placements subject matter of these petitions are assessable for
insurance purposes under the PDIC Act.19
The sole question to be resolved in this case is whether the funds placed in the Philippine branch
by the head office and foreign branches of Citibank and BA are insurable deposits under the
PDIC Charter and, as such, are subject to assessment for insurance premiums.
The Court’s Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and their individual foreign branches are
separate and independent entities. It insists that under American jurisprudence, a bank’s head
office and its branches have a principal-agent relationship only if they operate in the same
jurisdiction. In the case of foreign branches, however, no such relationship exists because the
head office and said foreign branches are deemed to be two distinct entities.20 Under Philippine
law, specifically, Section 3(b) of R.A. No. 3591, which defines the terms "bank" and "banking
institutions," PDIC contends that the law treats a branch of a foreign bank as a separate and
independent banking unit.21
The respondents, on the other hand, initially point out that the factual findings of the RTC and
the CA, with regard to the nature of the money placements, the capacity in which the same
were received by the respondents and the exclusion of inter-branch deposits from assessment,
can no longer be disturbed and should be accorded great weight by this Court.22 They also argue
that the money placements are not deposits. They postulate that for a deposit to exist, there
must be at least two parties – a depositor and a depository – each with a legal personality
distinct from the other. Because the respondents’ respective head offices and their branches
form only a single legal entity, there is no creditor-debtor relationship and the funds placed in
the Philippine branch belong to one and the same bank. A bank cannot have a deposit with
itself.23
This Court is of the opinion that the key to the resolution of this controversy is the relationship
of the Philippine branches of Citibank and BA to their respective head offices and their other
foreign branches.
The Court begins by examining the manner by which a foreign corporation can establish its
presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic
corporation, in which case such subsidiary would have its own separate and independent legal
personality to conduct business in the country. In the alternative, it may create a branch in the
Philippines, which would not be a legally independent unit, and simply obtain a license to do
business in the Philippines.24
In the case of Citibank and BA, it is apparent that they both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Their Philippine
branches are, as the name implies, merely branches, without a separate legal personality from
their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed
by the respondents in their respective branches in the Philippines should not be treated as
deposits made by third parties subject to deposit insurance under the PDIC Charter.
For lack of judicial precedents on this issue, the Court seeks guidance from American
jurisprudence.1âwphi1 In the leading case of Sokoloff v. The National City Bank of New
York,25 where the Supreme Court of New York held:
Where a bank maintains branches, each branch becomes a separate business entity with separate
books of account. A depositor in one branch cannot issue checks or drafts upon another branch
or demand payment from such other branch, and in many other respects the branches are
considered separate corporate entities and as distinct from one another as any other
bank. Nevertheless, when considered with relation to the parent bank they are not independent
agencies; they are, what their name imports, merely branches, and are subject to the supervision
and control of the parent bank, and are instrumentalities whereby the parent bank carries on its
business, and are established for its own particular purposes, and their business conduct and
policies are controlled by the parent bank and their property and assets belong to the parent
bank, although nominally held in the names of the particular branches. Ultimate liability for a
debt of a branch would rest upon the parent bank. [Emphases supplied]
This ruling was later reiterated in the more recent case of United States v. BCCI Holdings
Luxembourg26 where the United States Court of Appeals, District of Columbia Circuit,
emphasized that "while individual bank branches may be treated as independent of one
another, each branch, unless separately incorporated, must be viewed as a part of the parent
bank rather than as an independent entity."
In addition, Philippine banking laws also support the conclusion that the head office of a foreign
bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The
General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of
Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment
of all the liabilities of its Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order to provide effective protection of the interests of the
depositors and other creditors of Philippine branches of a foreign bank, the head office of such
branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch in the Philippines of
foreign bank shall have preferential rights to the assets of such branch in accordance with the
existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head office of foreign bank branches shall guarantee
prompt payment of all liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of
R.A. No. 3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter
referred to as the "Corporation" which shall insure, as herein provided, the deposits of all banks
which are entitled to the benefits of insurance under this Act, and which shall have the powers
hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured
deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment
of the PDIC:
Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of
the State to strengthen the mandatory deposit insurance coverage system to generate,
preserve, maintain faith and confidence in the country's banking system, and protect it from
illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms necessary for the
Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and
safeguarding the interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits, and in helping develop a sound and
stable banking system at all times.
The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has
already been sufficiently established by US jurisprudence and Philippine statutes that the head
office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of Citibank
suddenly closes for some reason. Citibank N.A. would then be required to answer for the deposit
liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the head
office and the branch are two separate entities and that the funds placed by the head office and
its foreign branches with the Philippine branch are considered deposits within the meaning of
the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office,
would be placed in the ridiculous position of having to reimburse itself, as depositor, for the
losses it may incur occasioned by the closure of Citibank Philippines. Surely our law makers could
not have envisioned such a preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a "bank" and
a "banking institution" in Section 3(b) of the PDIC Charter27 which explicitly states that the head
office of a foreign bank and its other branches are separate and distinct from their Philippine
branches.
There is no need to complicate the matter when it can be solved by simple logic bolstered by
law and jurisprudence. Based on the foregoing, it is clear that the head office of a bank and its
branches are considered as one under the eyes of the law. While branches are treated as
separate business units for commercial and financial reporting purposes, in the end, the head
office remains responsible and answerable for the liabilities of its branches which are under its
supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank
and BA, to insure the money placements made by their home office and other branches. Deposit
insurance is superfluous and entirely unnecessary when, as in this case, the institution holding
the funds and the one which made the placements are one and the same legal entity.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not money placements. Citing R.A. No. 6848,
it defines money placement as a deposit which is received with authority to invest. Because
there is no evidence to indicate that the respondents were authorized to invest the subject
dollar deposits, it argues that the same cannot be considered money placements.28 PDIC then
goes on to assert that the funds received by Citibank and BA are deposits, as contemplated by
Section 3(f) of R.A. No. 3591, for the following reasons: (1) the dollar deposits were received by
Citibank and BA in the course of their banking operations from their respective head office and
foreign branches and were recorded in their books as "Account-Head Office/Branches-Time
Deposits" pursuant to Central Bank Circular No. 343 which implements R.A. No. 6426; (2) the
dollar deposits were credited as dollar time accounts and were covered by Certificates of Dollar
Time Deposit which were interest-bearing and payable upon maturity, and (3) the respondents
maintain 100% foreign currency cover for their deposit liability arising from the dollar time
deposits as required by Section 4 of R.A. No. 6426.29
To refute PDIC’s allegations, the respondents explain the inter-branch transactions which
necessitate the creation of the accounts or placements subject of this case. When the Philippine
branch needs to procure foreign currencies, it will coordinate with a branch in another country
which handles foreign currency purchases. Both branches have existing accounts with their
head office and when a money placement is made in relation to the acquisition of foreign
currency from the international market, the amount is credited to the account of the Philippine
branch with its head office while the same is debited from the account of the branch which
facilitated the purchase. This is further documented by the issuance of a certificate of time
deposit with a stated interest rate and maturity date. The interest rate represents the cost of
obtaining the funds while the maturity date represents the date on which the placement must
be returned. On the maturity date, the amount previously credited to the account of the
Philippine branch is debited, together with the cost for obtaining the funds, and credited to the
account of the other branch. The respondents insist that the interest rate and maturity date are
simply the basis for the debit and credit entries made by the head office in the accounts of its
branches to reflect the inter-branch accommodation.30 As regards the maintenance of currency
cover over the subject money placements, the respondents point out that they maintain foreign
currency cover in excess of what is required by law as a matter of prudent banking practice.31
PDIC attempts to define money placement in order to impugn the respondents’ claim that the
funds received from their head office and other branches are money placements and not
deposits, as defined under the PDIC Charter. In the process, it loses sight of the important issue
in this case, which is the determination of whether the funds in question are subject to
assessment for deposit insurance as required by the PDIC Charter. In its struggle to find an
adequate definition of "money placement," PDIC desperately cites R.A. No. 6848, The Charter
of the Al-Amanah Islamic Investment Bank of the Philippines. Reliance on the said law is
unfounded because nowhere in the law is the term "money placement" defined. Additionally,
R.A. No. 6848 refers to the establishment of an Islamic bank subject to the rulings of Islamic
Shari’a to assist in the development of the Autonomous Region of Muslim Mindanao
(ARMM),32 making it utterly irrelevant to the case at bench. Since Citibank and BA are neither
Islamic banks nor are they located anywhere near the ARMM, then it should be painfully obvious
that R.A. No. 6848 cannot aid us in deciding this case.
Furthermore, PDIC heavily relies on the fact that the respondents documented the money
placements with certificates of time deposit to simply conclude that the funds involved are
deposits, as contemplated by the PDIC Charter, and are consequently subject to assessment for
deposit insurance. It is this kind of reasoning that creates non-existent obscurities in the law and
obstructs the prompt resolution of what is essentially a straightforward issue, thereby causing
this case to drag on for more than three decades.1âwphi1
Sec. 3(f) The term "deposit" means the unpaid balance of money or its equivalent received by a
bank in the usual course of business and for which it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift account or which is evidenced by its certificate of
deposit, and trust funds held by such bank whether retained or deposited in any department of
said bank or deposit in another bank, together with such other obligations of a bank as the
Board of Directors shall find and shall prescribe by regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as
part of the total deposits or of the insured deposits; Provided further, that any insured bank
which is incorporated under the laws of the Philippines may elect to include for insurance its
deposit obligation payable only at such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC,
after which PDIC was modelled, is also persuasive. Inter-branch deposits refer to funds of one
branch deposited in another branch and both branches are part of the same parent company
and it is the practice of the FDIC to exclude such inter-branch deposits from a bank’s total
deposit liabilities subject to assessment.34
All things considered, the Court finds that the funds in question are not deposits within the
definition of the PDIC Charter and are, thus, excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of
Appeals in CA-G.R. CV No. 61316 is AFFIRMED.

Noticeably, PDIC does not dispute the veracity of the internal transactions of the respondents
which gave rise to the issuance of the certificates of time deposit for the funds the subject of
the present dispute. Neither does it question the findings of the RTC and the CA that the money
placements were made, and were payable, outside of the Philippines, thus, making them fall
under the exclusions to deposit liabilities. PDIC also fails to impugn the truth of the testimony
of John David Shaffer, then a Fiscal Agent and Head of the Assessment Section of the FDIC, that
inter-branch deposits were excluded from the assessment base. Therefore, the determination
of facts of the lower courts shall be accepted at face value by this Court, following the well-
established principle that factual findings of the trial court, when adopted and confirmed by the
CA, are binding and conclusive on this Court, and will generally not be reviewed on appeal.33

As explained by the respondents, the transfer of funds, which resulted from the inter-branch
transactions, took place in the books of account of the respective branches in their head office
located in the United States. Hence, because it is payable outside of the Philippines, it is not
considered a deposit pursuant to Section 3(f) of the PDIC Charter:
# 13 Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the
G.R. No. 121413 January 29, 2001 third quarter of 1977.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND
AMERICA),petitioner, The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was
vs. subsequently cleared at the Central Bank. Upon presentment with the defendant
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents. Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.

G.R. No. 121479 January 29, 2001

The proceeds of the same Citibank check of the plaintiff was never paid to or received
FORD PHILIPPINES, INC., petitioner-plaintiff,
by the payee thereof, the Commissioner of Internal Revenue.
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents. 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
G.R. No. 128604 January 29, 2001 Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of
FORD PHILIPPINES, INC., petitioner, 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was
vs. duly received by the Bureau of Internal Revenue.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF
APPEALS, respondents. It is further admitted by defendant Citibank that during the time of the transactions
QUISUMBING, J.: 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
These consolidated petitions involve several fraudulently negotiated checks. plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in that,
on its face were two parallel lines and written in between said lines was the phrase
"Payee's Account Only"; and that defendant Citibank paid the full face value of the
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank,
check in the amount of P4,746,114.41 to the defendant IBAA.
CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank
(PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to
the Commissioner of Internal Revenue, which were embezzled allegedly by an organized It has been duly established that for the payment of plaintiff's percentage tax for the
syndicate.1âwphi1.nêt last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No.
18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila,
as the authorized agent bank of Metrobanl, Alabang branch to receive the tax
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1 of
payment of the plaintiff.
the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A.
and Insular Bank of Asia and America (now Philipppine Commercial International Bank), and the
August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the
Bank, to pay the amount of Citibank Check No. SN-04867. Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its
Ermita Branch. The latter accepted the check and sent it to the Central Clearing House
for clearing on the samd day, with the indorsement at the back "all prior indorsements
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the
and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented the
Court of Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford
check for payment to defendant Citibank on same date, December 19, 1977, and the
Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in
latter paid the face value of the check in the amount of P4,746,114.41. Consequently,
toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely
the amount of P4,746,114.41 was debited in plaintiff's account with the defendant
liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the
Citibank and the check was returned to the plaintiff.
plaintiff's Citibanl Check Numbers SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:
"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
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the
amount of 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 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 the same. Both defendants denied liability and
refused to pay.
 In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue "1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially severally, to pay the plaintiff the amount of P4,746,114.41 representing the
informed, among others, that its check in the amount of P4, 746,114.41 was not paid face value of plaintiff's Citibank Check No. SN-04867, with interest thereon
to the government or its authorized agent and instead encashed by unauthorized at the legal rate starting January 20, 1983, the date when the original
persons, hence, plaintiff has to pay the said amount within fifteen days from receipt complaint was filed until the amount is fully paid, plus costs;
of the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid
to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing "2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA
payment of plaintiff's percentage tax for the third quarter of 1977. (now PCI Bank) to reimburse defendant Citibank for whatever amount the
latter has paid or may pay to the plaintiff in accordance with next preceding
As a consequence of defendant's refusal to reimburse plaintiff of the payment it had paragraph;
made for the second time to the BIR of its percentage taxes, plaintiff filed on January
20, 1983 its original complaint before this Court. "3. The counterclaims asserted by the defendants against the plaintiff, as
well as that asserted by the cross-defendant against the cross-claimant are
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial dismissed, for lack of merits; and
International Bank (PCI Bank) with the latter as the surviving entity.
"4. With costs against the defendants.
Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check
No. SN-04867 in the amount of P4,746,114.41 "was in due course"; it merely relied SO ORDERED."6
on the clearing stamp of the depository/collecting bank, the defendant IBAA that "all
prior indorsements and/or lack of indorsements guaranteed"; and the proximate
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their
cause of plaintiff's injury is the gross negligence of defendant IBAA in indorsing the
respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the
plaintiff's Citibank check in question.
appellate court issued its judgment as follows:

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with
Check No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was
modifications.
maintaining a checking account with defendant Citibank."5

The court hereby renderes judgment:

Although it was not among the stipulated facts, an investigation by the National Bureau of
Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo
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 Revenue
(BIR). With Rivera's instruction, PCIBank replaced the check with two of its own Manager's
Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific
Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific
Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court
dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed
the third-party complaint against Godofredo Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the
amount of P4,746,114.41 representing the face value of plaintiff's Citibank
Check No. SN-04867, with interest thereon at the legal rate starting January
20, 1983, the date when the original complaint was filed until the amount
is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the
plaintiff as well as that asserted by the cross-defendant against the cross-
claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford
filed a "Motion for Partial Reconsideration." Both motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under
Rule 45.
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 casue of action had already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted on the
check drawn by respondent Ford on the said respondent's instructions, it
nevertheless found the petitioner liable to the said respondent for the full amount of
the said check.
II. Did the respondent court err when it did not find prescription in favor of the
petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same
decision and resolution of the Court of Appeals, and praying for the reinstatement in toto of the
decision of the trial court which found both PCIBank and Citibank jointly and severally liable for
the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the
drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check only
to the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to
the subject check, which was crossed and payable to "Payee's Account
Only."
3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross
negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
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
Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11
3. PCIBank is barred from raising issues of fact in the instant proceedings.12
4. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle
Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of
1979.
The facts as narrated by the Court of Appeals are as follows:
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 to the
Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the
said purpose.
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
payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A-
1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between,
which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR,
Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake
and spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings
forced Ford to pay the BIR a new, while an action was filed against Citibank and PCIBank for the
recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on
the modus operandi of the syndicate, as follows:
 "A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General
Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank
Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the same
of the payee, he 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 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.
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) while this worthless check was coursed through PCIB's main
office enroute to the Central Bank for clearing, replaced this worthless check with
FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover
the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the
fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch
with the total amount of the FORD check Exhibit 'A'. The same method was again
utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-16508] which
was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the
sahres of the other participating conspirators namely (1) CRISANTO BERNABE, the
mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORD's
Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de
Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who
passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-
manager at San Andres who performed the switching of checks in the clearing process
and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch; (6)
WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted
Castro in switching the checks in the clearing process and facilitated the opening of
the fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant
at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the fake and spurious revenue tax receipts to make it
appear that the BIR had received FORD's tax payments.
Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned
participants in 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 the original "Reynaldo Reyes" account and indubitably
identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank,
liable for the value of the two checks while adsolving PCIBank from any liability, disposing as
follows:
"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% interest thereon from date of first written demand until full
payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay the
defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as
attorney's fees and costs of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision
of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of
Appeals decision and its resolution dated March 5, 1997, with respect to the dismissal of the
complaint against PCIBank and holding Citibank solely responsible for the proceeds of Citibank
Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint against defendant
PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence
required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the selection
and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage
resulting to the plaintiff Ford as a consequence of the substitution of the check
consistent with Section 5 of Central Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in
due course the subject checks, it is liable, under Article 2154 of the Civil Code, to
return the money which it admits having received, and which was credited to it its
Central bank account.16
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 the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action already prescribed?
Note that in these cases, 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 of paying the checks to the CIR, for the settlement of the approprite
quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual
distribution among the mmbers of the syndicate. As to the unlawful negotiation of the check
the applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances
as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator 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. Though their own negligence, alowed the commission of the crime.
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, escaped
liability for the embezzlement of millions of pesos. We are thus left only with the task of
determining who of the present parties before us must bear the burden of loss of these millions.
It all boils down to thequestion of liability based on the degree of negligence among the parties
concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed
contributory negligence" that would defeat its claim for reimbursement, bearing ing mind that
its employees, Godofredo Rivera and Alexis Marindo, were among the members of the
syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate
the checks to his co-conspirators, instead of delivering them to the designated authorized
collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was
remiss in the supervision and control of its own employees, inasmuch as it only discovered the
syndicate's activities through the information given by the payee of the checks after an
unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert
the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the
subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims
that the proximate cause of the damge to Ford lies in its own officers and employees who
carried out the fradulent schemes and the transactions. These circumstances were not checked
by other officers of the company including its comptroller or internal auditor. PCIBank contends
that the inaction of Ford despite the enormity of the amount involved was a sheer negligence
and stated that, as between two innocent persons, one of 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.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was
no evidence presented before the trial court showing lack of diligence on the part of Ford. And,
citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if there was a finding
therein that the drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any
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.
On this point, jurisprudence regarding the imputed negligence of employer in a master-servant
relationship is instructive. Since a master may be held for his servant's wrongful act, the law
imputes to the master the act of the servant, and if that act is negligent or wrongful and
proximately results in injury to a third person, the negligence or wrongful conduct is the
negligence or wrongful conduct of the master, for which he is liable.18 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 superior and
will defeat the superior's action against the third person, asuming, of course that the
contributory negligence was the proximate cause of the injury of which complaint is made.19
Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's
General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of
the loss or damage. AS defined, proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause produces the injury and without the
result would not have occurred.20
It appears that although the employees of Ford initiated the transactions attributable to an
organized syndicate, in our view, their actions were not the proximate cause of encashing the
checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized
as the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to
recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check with PCIBank's
Manager's Check was not in theordinary course of business which could have prompted PCIBank
to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these
checks were made payable to the CIR. Both were crossed checks. These checks were apparently
turned around by Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, 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
perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.21 This rule likewise applies to the checks fraudulently negotiated or diverted
by the confidential employees who hold them in their possession.
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. SN-
04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we
have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was
coursed through the ordinary banking transaction, sent to Central Clearing with the
indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed," and
was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds
to the CIR, prepared two of its Manager's checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The
neglect of PCIBank employees to verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required
in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of 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 stated by the trial court, to
wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting bank of BIR, it has the responsibility to
make sure that the check in question is deposited in Payee's account only.
xxx xxx xxx
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 known to the defendant. It is very imprudent on the part of
the defendant IBAA to just rely on the alleged telephone call of the one Godofredo
Rivera and in his signature considering that the plaintiff is not a client of the defendant
IBAA."
It is a well-settled rule that the relationship between the payee or holder of commercial paper
and the bank to which it is sent for collection is, in the absence of an argreement to the contrary,
that of principal and agent.22 A bank which receives such paper for collection is the agent of the
payee or holder.23
Even considering arguendo, that the diversion of the amount of a check payable to the
collecting bank in behalf of the designated payee may be allowed, still such diversion must be
properly authorized by the payor. Otherwise stated, the diversion can be justified only by proof
of authority from the drawer, or that the drawer has clothed his agent with apparent authority
to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED
should render PCIBank liable because it made it pass through the clearing house and therefore
Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it. Thus,
Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank.
Since the questione dcrossed check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility to make sure that the check in
questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the
check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting
bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is
the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or lack of
indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord with the
ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made an
express guarantee on the validity of "all prior endorsements." Thus, stamped at the
back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff
would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As
the warranty has proven to be false and inaccurate, the defendant is liable for any
damage arising out of the falsity of its representation."25
Lastly, banking business requires that the one who first cashes and negotiates the check must
take some percautions to learn whether or not it is genuine. And if the one cashing the check
through indifference or othe circumstance assists the forger in committing 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 cashes a check drawn upon another
bank, without requiring proof as to the identity of persons presenting it, or making inquiries
with regard to them, cannot hold the proceeds against the drawee when the proceeds of the
checks were afterwards diverted to the hands of a third party. In such cases the drawee bank
has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who
encashed a check which had been forged or diverted and in turn received payment thereon
from the drawee, is guilty of negligence which proximately contributed to the success of the
fraud practiced on the drawee bank. The latter may recover from the holder the money paid on
the check.26
Having established that the collecting bank's negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check
No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary
course of business that would attribute to it the case of the embezzlement of Citibank Check
Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the two Ford
checks at all. The trial court held, thus:
"Neither is there any proof that defendant PCIBank contributed any official or
conscious participation in the process of the embezzlement. This Court is convinced
that the switching operation (involving the checks while in transit for "clearing") were
the clandestine or hidden actuations performed by the members of the syndicate in
their own personl, covert and private capacity and done without the knowledge of
the defendant PCIBank…"27
In this case, there was no evidence presented confirming the conscious particiapation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents within the course and scope
of their employment.28 A bank will be held 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 tortuous acts
of its officers even as regards that species of tort of which malice is an essential element. In this
case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched
by a syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check
Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager
of PCIBank's Meralco Branch, who helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the
same amount of Ford checks. The syndicate tampered with the checks and succeeded in
replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597
and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity or authority but for
their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit
by the frauds these officers or agents were enabled to perpetrate in the apparent course of
their employment; nor will t be permitted to shirk its responsibility for such frauds, even though
no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the course and apparent
scope of his employment or authority.29 And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series
of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of
sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment of Ford's checjs were
made in due course and legally in order. In its defense, Citibank claims the genuineness and due
execution of said checks, considering that Citibank (1) has no knowledge of any informity in the
issuance of the checks in question (2) coupled by the fact that said checks were sufficiently
funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank
(formerly IBAA), thus, it has the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR.
Citing Section 6232 of the Negotiable Instruments Law, Ford argues that by accepting the
instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its
acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the
check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by
Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship
existing between the two. Citibank, as the drawee bank breached its contractual obligation with
Ford and such degree of culpability contributed to the damage caused to the latter. On this
score, we agree with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying
the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from
the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not
bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this
been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and
16508 would have been discovered in time. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to ensure that the amount of the checks should
be paid only to its designated payee. The fact that the drawee bank did not discover the
irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its
depositors. The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.33
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank
and Citibank failed in their respective obligations and both were negligent in the selection and
supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597
AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of
said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount umportance such that
the appropriate standard of diligence must be very high, if not the highest, degree of
diligence.34 A bank's liability as obligor is not merely vicarious but primary, wherein the defense
of exercise of due diligence in the selection and supervision of its employees is of no moment. 35
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 and officials
is far greater than those of ordinary clerks and employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.38
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id 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.1âwphi1.nêt

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of Costs against Philippine Commercial International Bank and Citibank N.A.
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 SO ORDERED.
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 year 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, 1984, barely six years had lapsed. Thus, we conclude that Ford's 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 thet 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,
respondibility 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
#14
[G.R. NO. 132390 : May 21, 2004]
BPI FAMILY SAVINGS BANK, INC., Petitioner, v. FIRST METRO INVESTMENT
CORPORATION, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, assailing the Decision1 dated July 4, 1997 and
Resolution2 dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986, First Metro
Investment Corporation v. BPI Family Bank.
The facts as found by the trial court and affirmed by the Court of Appeals are as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
First Metro Investment Corporation (FMIC), respondent, is an investment house organized
under Philippine laws.Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a banking
corporation also organized under Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account no. 8401-07473-0 and deposited METROBANK check no. 898679 of P100 million with
BPI Family Bank*(BPI FB) San Francisco del Monte Branch (Quezon City). Ong made the deposit
upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch
Manager of BPI FB San Francisco del Monte Branch.Sebastians aim was to increase the deposit
level in his Branch.
BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per
annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will
maintain its deposit of P100 million for a period of one year on condition that the interest of
17% per annum is paid in advance.
This agreement between the parties was reached through their communications in writing.
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the latters
check deposit.
However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the
signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit,
FMIC, on September 12, 1989, issued BPI FB check no. 129077 for P86,057,646.72 payable to
itself and drawn on its deposit withBPI FB SFDM branch. But upon presentation for payment on
September 13, 1989, BPI FB dishonored the check as it was drawn against insufficient funds
(DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case No.
89-5280 against BPI FB. FMIC likewise caused the filing by the Office of the State Prosecutors of
an Information for estafa against Ong, de Asis, Sebastian and four others. However, the
Information was dismissed on the basis of a demurrer to evidence filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil Case No. 89-5280, the
dispositive portion of which reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to
pay:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
a.the amount of P80 million with interest at the legal rate from the time this complaint was filed
less P14,667,678.01;chanroblesvirtuallawlibrary
b.the amount of P100,000.00 as reasonable attorneys fees; andcralawlibrary
c.the cost.
SO ORDERED.
On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed
Decision with modification, thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, considering all the foregoing, this Court hereby modifies the decision of the trial
court and adjudges BPI Family Bank liable to First Metro Investment Corporation for the amount
of P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored.
Further, this 17% interest shall itself earn interest at 12% from October 4, 1989 until fully paid.
SO ORDERED.
BPI FB then filed a motion for reconsideration but was denied by the Court of Appeals.
In the instant petition, BPI FB ascribes to the Appellate Court the following assignments of
error:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT BETWEEN FMIC AND AN
OVERSTEPPING BRANCH MANAGER OF BPI FB, THE COURT OF APPEALS DECIDED THE APPEALED
CASE IN A MANNER NOT IN ACCORDANCE WITH LAW OR THE APPLICAPLE DECISIONS OF THE
HONORABLE COURT.
B.THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL ADMISSIONS MADE BY FMIC WHEN
IT CHARACTERIZED THE TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME DEPOSIT WHEN
IN FACT IT WAS AN INTEREST-BEARING CURRENT ACCOUNT WHICH, UNDER THE EXISTING BANK
REGULATIONS, WAS AN ILLEGAL TRANSACTION.
C.THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN RULING THAT BPI FB
CLOTHED ITS BRANCH MANAGER WITH APPARENT AUTHORITY TO ENTER INTO SUCH A
PATENTLY ILLEGAL ARRANGEMENT.
D.THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT REFUSED TO CONSIDER
THE NEGLIGENT ACTS COMMITTED BY FMIC ITSELF WHICH LED TO THE TRANSFER OF THE P80
MILLION FROM THE FMIC ACCOUNT TO THE TEVESTECO ACCOUNT.
E.THE COURT OF APPEALS DID NOT ADHERE TO SETTLED JURISPRUDENCE WHEN IT ADJUDGED
BPI FB LIABLE TO FMIC FOR AN AMOUNT WHICH WAS MORE THAN WHAT WAS CONTEMPLATED
OR PRAYED FOR IN FMICS COMPLAINT, MOTION FOR RECONSIDERATION OF THE TRIAL COURTS
DECISION AND APPEAL BRIEF.
F.IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS THAT THE COURT OF
APPEALS COMMITTED REVERSIBLE ERROR IN NOT ORDERING THE CONSOLIDATION OF THE
INSTANT CASE WITH THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE MAKATI
REGIONAL TRIAL COURT.
Petitioner BPI FB contends that the Court of Appeals erred in awarding the 17% per annum
interest corresponding to the amount deposited by respondent FMIC. Petitioner insists that
respondents deposit is not a special savings account similar to a time deposit, but actually a
demand deposit, withdrawable upon demand, proscribed from earning interest under Central
Bank Circular 777. Petitioner further contends that the transaction is not valid as its Branch
Manager, Jaime Sebastian, clearly overstepped his authority in entering into such an agreement
with respondents Executive Vice President.
We hold that the parties did not intend the deposit to be treated as a demand deposit but rather
as an interest-earning time deposit not withdrawable any time. This is quite obvious from the
communications between Jaime Sebastian, petitioners Branch Manager, and Antonio Ong,
respondents Executive Vice President. Both agreed that the deposit of P100 million was non-
withdrawable for one year upon payment in advance of the 17% per annum interest.
Respondents time deposit of P100 million was accepted by petitioner as shown by a deposit slip
prepared and signed by Ong himself who indicated therein the account number to which the
deposit is to be credited, the name of FMIC as depositor or account holder, the date of deposit,
and the amount of P100 million as deposit in check. Clearly, when respondent FMIC invested its
money with petitioner BPI FB, they intended the P100 million as a time deposit, to earn 17% per
annum interest and to remain intact until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as one the payment of which cannot legally be required
within such a specified number of days.3 ςrνll
In contrast, demand deposits are all those liabilities of the Bangko Sentral and of other banks
which are denominated in Philippine currency and are subject to payment in legal tender upon
demand by the presentation of (depositors) checks.4 ςrνll
While it may be true that barely one month and seven days from the date of deposit, respondent
FMIC demanded the withdrawal of P86,057,646.72 through the issuance of a check payable to
itself, the same was made as a result of the fraudulent and unauthorized transfer by petitioner
BPI FB of its P80 million deposit to Tevestecos savings account.Certainly, such was a normal
reaction of respondent as a depositor to petitioners failure in its fiduciary duty to treat its
account with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year
maturity date did not change the nature of its time deposit to one of demand deposit.
On another tack, petitioners argument that Central Bank regulations prohibit demand deposit
from earning interest is bereft of merit.
Under Central Bank Circular No. 22, Series of 1994, demand deposits shall not be subject to any
interest rate ceiling. This, in effect, is an open authority to pay interest on demand deposits,
such interest not being subject to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was
abolished and even allowed to float depending on the market conditions. Sections 1244 and
1244.1 of the Manual of Regulations of the Central Bank of the Philippines
provide:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate
ceiling.
Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon
withdrawal or in advance. Provided, however, That interest paid in advance shall not exceed the
interest for one year.
Thus, even assuming that respondents account with petitioner is a demand deposit, still it would
earn interest.
Going back to the unauthorized transfer of respondents funds to Tevesteco, in its attempt to
evade any liability therefor, petitioner now impugns the validity of the subject agreement on
the ground that its Branch Manager, Jaime Sebastian, overstepped the limits of his authority in
accepting respondents deposit with 17% interest per annum.We have held that if a corporation
knowingly permits its officer, or any other agent, to perform acts within the scope of an
apparent authority, holding him out to the public as possessing power to do those acts, the
corporation will, as against any person who has dealt in good faith with the corporation through
such agent, be estopped from denying such authority.5 We reiterated this doctrine in Prudential
Bank v. Court of Appeals,6 thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
A bank holding out its officers and agent as worthy of confidence will not be permitted to profit
by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or some other person for
his own ultimate benefit.
In Francisco v. Government Service Insurance System,7 we ruled:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Corporate transactions would speedily come to a standstill were every person dealing with a
corporation held duty-bound to disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed in Ramirez v. Orientalist
Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind
the situation as it presents itself to the third party with whom the contract is made.Naturally he
can have little or no information as to what occurs in corporate meetings; and he must
necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be sorry to announce
a doctrine which would permit the property of a man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth without recourse against the
corporation whose name and authority had been used in the manner disclosed in this case. As
already observed, it is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds
him out to the public as possessing power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through such agent, be estopped from
denying his authority; and where it is said if the corporation permits, this means the same as if
the thing is permitted by the directing power of the corporation.
Petitioner maintains that respondent should have first inquired whether the deposit of P100
Million and the fixing of the interest rate were pursuant to its (petitioners) internal procedures.
Petitioners stance is a futile attempt to evade an obligation clearly established by the intent of
the parties. What transpires in the corporate board room is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of respondents representative in failing to
find out the scope of authority of petitioners Branch Manager. Indeed, the public has the right
to rely on the trustworthiness of bank managers and their acts. Obviously, confidence in the
banking system, which necessarily includes reliance on bank managers, is vital in the economic
life of our society.
Significantly, the transaction was actually acknowledged and ratified by petitioner when it paid
respondent in advance the interest for one year. Thus, petitioner is estopped from denying that
it authorized its Branch Manager to enter into an agreement with respondents Executive Vice
President concerning the deposit with the corresponding 17% interest per annum.
Anent the award of interest, petitioner contends that such award is not in order as it had not
been prayed for by respondent in its complaint nor was it an issue agreed upon by the parties
during the pre-trial of the case. Nonetheless, the rule is well settled that when the obligation is
breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing, as in this
case. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.8 Besides, the matter of how much interest respondent is entitled to falls squarely
within the issues framed by the parties in their respective pleadings filed with the court a quo.
At any rate, courts may indeed grant the relief warranted by the allegations and proof even if
no such specific relief is prayed for if only to conclude a complete and thorough resolution of
the issues involved.9 ςrνll
Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case No.
89-4996 (filed by petitioner against Tevesteco) with Civil Case No. 89-5280 (the instant case).
According to petitioner, had there been consolidation of these two cases, it would have been
shown that the P80 Million transferred to Tevestecos account were proceeds of a loan extended
by respondent FMIC to Tevesteco. Suffice it to state that as found by both the trial court and
the Appellate Court, petitioners transfer of respondents P80M to Tevesteco was unauthorized
and tainted with fraud.
At this point, we must emphasize that this Court is not a trier of facts. Thus, we uphold the
finding of both lower courts that petitioner failed to exercise that degree of diligence required
by the nature of its obligations to its depositors. A bank is under obligation to treat the accounts
of its depositors with meticulous care, whether such account consists only of a few hundred
pesos or of million of pesos.10 Here, petitioner cannot claim it exercised such a degree of care
required of it and must, therefore, bear the consequence.
WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the Resolution
dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
#15 e. 167054 Sept. 29, 1990 4,093.40
G.R. No. 156940 December 14, 2004
f. 138792 ` Sept. 29, 1990 3,546.00
ASSOCIATED BANK (Now WESTMONT BANK), petitioner,
vs. g. 138774 Oct. 2, 1990 6,600.00
VICENTE HENRY TAN, respondent. h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
DECISION
"However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer,
PANGANIBAN, J.: informed the BANK to take positive steps regarding the matter for he has adequate
While banks are granted by law the right to debit the value of a dishonored check from a and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK
depositor’s account, they must do so with the highest degree of care, so as not to prejudice the did not bother nor offer any apology regarding the incident. Consequently, TAN, as
depositor unduly. plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial
Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF,
The Case against the BANK, as defendant.

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the January 27, "In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the
2003 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows: subject checks and alleged that his suppliers decreased in number for lack of trust. As
he has been in the business community for quite a time and has established a good
record of reputation and probity, plaintiff claimed that he suffered embarrassment,
"WHEREFORE, premises considered, the Decision dated December 3, 1996, of the
humiliation, besmirched reputation, mental anxieties and sleepless nights because of
Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case
the said unfortunate incident. [Respondent] further averred that he continuously lost
No. 892-AF is hereby AFFIRMED. Costs against the [petitioner]."3
profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by
The Facts way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorney’s fees plus
25% of the amount claimed including P1,000.00 per court appearance.
The CA narrated the antecedents as follows:
"Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same
"Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor was denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner]
of the Associated Bank (hereinafter referred to as the BANK). Sometime in September BANK on March 20, 1991 filed its Answer denying, among others, the allegations of
1990, he deposited a postdated UCPB check with the said BANK in the amount [respondent] and alleged that no banking institution would give an assurance to any
of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly of its client/depositor that the check deposited by him had already been cleared and
entered in his bank record thereby making his balance in the amount of P297,000.00, backed up by sufficient funds but it could only presume that the same has been
as of October 1, 1990, from his original deposit of P196,000.00. Allegedly, upon advice honored by the drawee bank in view of the lapse of time that ordinarily takes for a
and instruction of the BANK that the P101,000.00 check was already cleared and check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave
backed up by sufficient funds, TAN, on the same date, withdrew the sum notice to the [respondent] as to the return of his UCPB check deposit in the amount
of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the of P101,000.00, hence, on even date, [respondent] deposited the amount
amount of P50,000.00 making his existing balance in the amount of P107,793.45, of P50,000.00 to cover the returned check.
because he has issued several checks to his business partners, to wit:
"By way of affirmative defense, [petitioner] averred that [respondent] had no cause
CHECK NUMBERS DATE AMOUNT of action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent]
a. 138814 Sept. 29, 1990 P9,000.00
which was withdrawn by him prior to its clearing. [Petitioner] further averred that it
b. 138804 Oct. 8, 1990 9,350.00 has no liability with respect to the clearing of deposited checks as the clearing is being
c. 138787 Sept. 30, 1990 6,360.00 undertaken by the Central Bank and in accepting [the] check deposit, it merely
obligates itself as depositor’s collecting agent subject to actual payment by the
d. 138847 Sept. 29, 1990 21,850.00 drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the
 amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee
plus P500.00 per appearance and by way of attorney’s fees.
"Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended
Complaint reiterating substantially his allegations in the original complaint, except
that the name of the previous defendant ASSOCIATED BANK is now WESTMONT
BANK.
"Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor
of the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the
sum of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00
as attorney’s fees, plus the costs of this suit. In making said ruling, it was shown that
[respondent] was not officially informed about the debiting of the P101,000.00 [from] his
existing balance and that the BANK merely allowed the [respondent] to use the fund prior to
clearing merely for accommodation because the BANK considered him as one of its valued
clients. The trial court ruled that the bank manager was negligent in handling the particular
checking account of the [respondent] stating that such lapses caused all the inconveniences to
the [respondent]. The trial court also took into consideration that [respondent’s] mother was
originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but
[o]n one occasion, although his mother made a deposit, the same was not credited in her favor
but in the name of another."4
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank,
to debit the account of its client for a dishonored check; and whether it had informed
respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal
of the value of the deposited check prior to its clearing. Having done so, contrary to its obligation
to treat respondent’s account with meticulous care, the bank violated its own policy. It thereby
took upon itself the obligation to officially inform respondent of the status of his account before
unilaterally debiting the amount of P101,000. Without such notice, it is estopped from blaming
him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent would have had sufficient
funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by
petitioner to him is the proximate cause of his business woes and shame, for which it is liable
for damages.
Because of the bank’s negligence, the CA awarded respondent moral damages of P100,000. It
also granted him exemplary damages of P75,000 and attorney’s fees of P25,000.
Hence this Petition.5
Issue
In its Memorandum, petitioner raises the sole issue of "whether or not the petitioner, which is
acting as a collecting bank, has the right to debit the account of its client for a check deposit
which was dishonored by the drawee bank."6
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositor’s Account
Petitioner-bank contends that its rights and obligations under the present set of facts were
misappreciated by the CA. It insists that its right to debit the amount of the dishonored check
from the account of respondent is clear and unmistakable. Even assuming that it did not give
him notice that the check had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by respondent on
September 17, 1990, expressly stipulated that the bank was obligating itself merely as the
depositor’s collecting agent and -- until such time as actual payment would be made to it -- it
was reserving the right to charge against the depositor’s account any amount previously
credited. Respondent was allowed to withdraw the amount of the check prior to clearing,
merely as an act of accommodation, it added.
At the outset, we stress that the trial court’s factual findings that were affirmed by the CA are
not subject to review by this Court.7 As petitioner itself takes no issue with those findings, we
need only to determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any
withdrawals on the part of a depositor.8 The right of a collecting bank to debit a client’s account
for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings,
and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor.9 Thus, legal compensation under Article 127810 of the Civil Code may take place "when
all the requisites mentioned in Article 1279 are present,"11 as follows:
"(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
 (2) That both debts consist in a sum of money, or if the things due are consumable, clearing. That act certainly disregarded the clearance requirement of the banking system. Such
they be of the same kind, and also of the same quality if the latter has been stated; a practice is unusual, because a check is not legal tender or money;21 and its value can properly
be transferred to a depositor’s account only after the check has been cleared by the drawee
(3) That the two debts be due; bank.22

(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor."12
Under ordinary banking practice, after receiving a check deposit, a bank either immediately
credit the amount to a depositor’s account; or infuse value to that account only after the drawee
bank shall have paid such amount.23 Before the check shall have been cleared for deposit, the
collecting bank can only "assume" at its own risk -- as herein petitioner did -- that the check
would be cleared and paid out.

Nonetheless, the real issue here is not so much the right of petitioner to debit respondent’s
Reasonable business practice and prudence, moreover, dictated that petitioner should not have
account but, rather, the manner in which it exercised such right. The Court has held that even
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was
while the right of setoff is conceded, separate is the question of whether that remedy has
over and above his outstanding cleared balance of P196,793.45.24 Hence, the lower courts
properly been exercised.13
correctly appreciated the evidence in his favor.

The liability of petitioner in this case ultimately revolves around the issue of whether it properly
Obligation as
exercised its right of setoff. The determination thereof hinges, in turn, on the bank’s role and
Collecting Agent
obligations, first, as respondent’s depositary bank; and second, as collecting agent for the check
in question.
Indeed, the bank deposit slip expressed this reservation:
Obligation as
Depositary Bank "In receiving items on deposit, this Bank obligates itself only as the Depositor’s
Collecting agent, assuming no responsibility beyond carefulness in selecting
correspondents, and until such time as actual payments shall have come to its
In BPI v. Casa Montessori,14 the Court has emphasized that the banking business is impressed
possession, this Bank reserves the right to charge back to the Depositor’s account any
with public interest. "Consequently, the highest degree of diligence is expected, and high
amounts previously credited whether or not the deposited item is returned. x x x."25
standards of integrity and performance are even required of it. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors with meticulous care." 15
However, this reservation is not enough to insulate the bank from any liability. In the past, we
have expressed doubt about the binding force of such conditions unilaterally imposed by a bank
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals16 has
without the consent of the depositor.26 It is indeed arguable that "in signing the deposit slip, the
held that "the degree of diligence required of banks is more than that of a good father of a
depositor does so only to identify himself and not to agree to the conditions set forth at the
family where the fiduciary nature of their relationship with their depositors is
back of the deposit slip."27
concerned."17 Indeed, the banking business is vested with the trust and confidence of the public;
hence the "appropriate standard of diligence must be very high, if not the highest, degree of
diligence."18 The standard applies, regardless of whether the account consists of only a few Further, by the express terms of the stipulation, petitioner took upon itself certain obligations
hundred pesos or of millions.19 as respondent’s agent, consonant with the well-settled rule that the relationship between the
payee or holder of a commercial paper and the collecting bank is that of principal and
agent.28 Under Article 190929 of the Civil Code, such bank could be held liable not only for fraud,
The fiduciary nature of banking, previously imposed by case law,20 is now enshrined in Republic
but also for negligence.
Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the
State recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers
or agents within the course and scope of their employment.30 Due to the very nature of their
business, banks are expected to exercise the highest degree of diligence in the selection and
Did petitioner treat respondent’s account with the highest degree of care? From all indications,
supervision of their employees.31 Jurisprudence has established that the lack of diligence of a
it did not.
servant is imputed to the negligence of the employer, when the negligent or wrongful act of the
former proximately results in an injury to a third person;32 in this case, the depositor.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued
client, petitioner allowed the withdrawal of the face value of the deposited check prior to its
The manager of the bank’s Cabanatuan branch, Consorcia Santiago, categorically admitted that
she and the employees under her control had breached bank policies. They admittedly breached
those policies when, without clearance from the drawee bank in Baguio, they allowed
respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago
testified that respondent "was not officially informed about the debiting of the P101,000 from
his existing balance of P170,000 on October 2, 1990 x x x."33
Being the branch manager, Santiago clearly acted within the scope of her authority in
authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what
remains to be determined is whether her actions proximately caused respondent’s injury.
Proximate cause is that which -- in a natural and continuous sequence, unbroken by any efficient
intervening cause --produces the injury, and without which the result would not have
occurred.34
Let us go back to the facts as they unfolded. It is undeniable that the bank’s premature
authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid
succession and in a natural sequence -- the debiting of his account, the fall of his account
balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.
The CA correctly noted thus:
"x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that
his money was already cleared. Without such advice, [respondent] would not have
withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was
[petitioner’s] fault which allowed [respondent] to withdraw a huge sum which he
believed was already his.
"To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check.
Had the P101,000.00 not [been] debited, the subject checks would not have been
dishonored. Hence, we can say that [respondent’s] injury arose from the dishonor of
his well-funded checks. x x x."35
Aggravating matters, petitioner failed to show that it had immediately and duly informed
respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was
discernible from his act of depositing P50,000 on October 2, 1990, to augment his account and
allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank manager’s account, respondent
was considered a "valued client" whose checks had always been sufficiently funded from 1987
to 1990,36 until the October imbroglio. Thus, he deserved nothing less than an official notice of
the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a
general indorser37 and the procedure for a notice of dishonor,38 it was incumbent on the bank
to give proper notice to respondent. In Gullas v. National Bank,39 the Court emphasized:
"x x x [A] general indorser of a negotiable instrument engages that if the instrument
– the check in this case – is dishonored and the necessary proceedings for its dishonor
are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held
by a long line of authorities that notice of dishonor is necessary to charge an indorser
and that the right of action against him does not accrue until the notice is given.
"x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant. At this point recall that
Gullas was merely an indorser and had issued checks in good faith. As to a depositor
who has funds sufficient to meet payment of a check drawn by him in favor of a third
party, it has been held that he has a right of action against the bank for its refusal to
pay such a check in the absence of notice to him that the bank has applied the funds
so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank
of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the
situation is different, and notice should actually have been given him in order that he
might protect his interests."40
Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully
subscribe to the CA’s observations that it was not unusual for a well-reputed businessman like
him, who "ordinarily takes note of the amount of money he takes and releases," to immediately
deposit money in his current account to answer for the postdated checks he had issued.41
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and attorney’s fees,
we will no longer address these matters.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
#16
[G.R. NO. 158674 October 17, 2005]
LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS L. CAGUNGUN, VICENTE L.
CAGUNGUN, JR., RICARDO L. CAGUNGUN, EDUARDO L. CAGUNGUN, ROWENA L. CAGUNGUN,
ALVIN L. CAGUNGUN and ALMA L. CAGUNGUN, Petitioners, v.PLANTERS DEVELOPMENT
BANK, Respondent.
DECISION
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
are the decision1 of the Court of Appeals dated 25 March 2002 that modified the decision of the
Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 245-0-83, dated 26 June
1997, deleting the awards of moral and exemplary damages and finding that the mortgaged
loan was deemed paid and enjoining foreclosure, as well as reducing the awards for litigation
fees and expenses, and its Resolution2 dated 06 June 2003 denying petitioners Lapreciosisima
Cagungun, et al.'s motion for reconsideration.
The antecedents are summarized by the Court of Appeals in its decision as follows:
On September 1, 1987, the spouses Vicente Cagungun and Lapreciosisima Cagungun (or the
Cagungun spouses) filed suit with the Regional Trial Court of Olongapo City against the Country
Development Bank (or COUNTRY), and which was docketed as Civil Case No. 245-083 and
assigned to Branch 74. Vicente Cagungun has since died and was substituted as plaintiff on
August 8, 1984 by their children. On the other hand COUNTRY has entered into a merger and
reflective of this the party defendant has been changed to Planters Development Bank (or
PLANTERS) on September 1, 1987.
COUNTRY had opened an extension office in Olongapo City, and among their first customers
were the Cagungun spouses who had diverse business interests in the locality. They opened
some accounts, and for two (2) of which they were issued Savings Passbook No. 12241-16 in
the name of Puring's Dry Goods and Savings Passbook No. 38470-29 in the names of V/L
Cagungun.
It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law
Sarah Cagungun, that because of the exigencies of their businesses that required daily deposits
of the proceeds and of the trust that they have reposed with COUNTRY and its personnel, they
entrusted and left with them their said savings pass books. At least once a day the Branch
manager Ruperto Reyes or a certain Bong and Ding would come to get their funds and with the
agreement that these would be rounded off and deposited to their account while the odd
remainder would be applied to their loan. The arrangement apparently went well, until March
1981 when the Cagungun spouses received a letter from COUNTRY telling them that their loan
is past due and payment was demanded . . . or else. This prompted them to investigate, but this
was tedious and difficult because of lack of cooperation and even resistance from COUNTRY.
But with the help of friends in high places the Cagungun spouses were able to access and pry
information that in the year 1979 on the dates of October 8, 18, 20 and 31 and November 15,
and December 4 and 8, with the use of withdrawal slips a total of P220,000.00 was withdrawn
from their Savings Passbook No. 12241-16. These withdrawals were invalid for no such
withdrawal was authorized, made or received by the depositors, and the signatures of Vicente
Cagungun on the slips were forgeries. This was confirmed by Arcadio Ramos, Chief of the
Questioned Documents Division of the NBI when these were subjected to examination.
The side of PLANTERS was explicated by its employees, Internal Auditor Lilia Tactay, Branch
Manager Lolita Mendoza and Cashier Bella Lumanog. It was explained that the withdrawal
of P20,000.00 made on October 8, 1979 from Savings Account No. 12241-16 and the
withdrawals of a total of P30,000.00 from several of the other accounts of the spouses, were
placed on time deposits on the same date by Vicente Cagungun in five (5) accounts held with
their children. The other said withdrawals from Savings Account No. 12241-16 were made by
Vicente Cagungun in exchange for Manager's Checks made in the names of payees Santiago
Lee, Rosita Saldana, Benito Yap and Joaquin Aganda.3
The lower court ruled, among other things, that the withdrawals from Savings Account No.
12241-16 through seven (7) withdrawal slips4amounting to P220,000.00 were not made by
petitioners as the alleged signatures of Vicente Cagungun, Jr. appearing therein were falsified
as confirmed by the National Bureau of Investigation Handwriting Expert Arcadio Ramos. It
likewise considered petitioners to have paid their mortgage loan in the amount of P58,297.16
in view of their instruction to respondent to apply their funds in Savings Account No. 38470-29
thereto which were adequate for this purpose.
For not applying the savings of petitioners in Savings Account No. 38470-29 as payment to their
loan, thereby causing the threatened foreclosure of the real estate mortgage over their house
and lot, and for allowing the unauthorized withdrawals from Savings Account No. 12241-16
through falsified withdrawal slips, the lower court held respondent liable to pay moral damages.
For ignoring the two (2) demand letters of petitioners, the demand letter of petitioners' counsel
and the representations made by Pampanga Gov. Estelito Mendoza and Central Bank Governor
Jaime Laya, and for the attempt to cover up the misdeeds of its employees constituting malice
and bad faith, respondent was also ordered to pay exemplary damages as an example to others.
On account of these acts, respondent was also ordered to pay attorney's fees and the cost of
suit.
In its decision5 dated 26 June 1997, the lower court disposed of the case in this wise:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant
as follows:
1.) Enjoining the defendant from foreclosing the mortgage of plaintiffs property located at No.
88 Gordon Avenue, Pag-asa, Olongapo City;
2.) Ordering the defendant to pay plaintiffs the amount of P220,000.00 actual damages
representing the total amount withdrawn from their accounts plus twelve (12%) per cent
interest per annum from the date of the filing of the complaint until it shall have been fully paid;
3.) Considering plaintiffs mortgaged account in the amount of P58,297.16 to have been paid;
4.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 moral damages;
5.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 exemplary damages;
andcralawlibrary
6.) Ordering defendant to pay plaintiffs the amount of P50,000.00 litigation
expense, P50,000.00 attorney's fee plus the cost of suit.6
Aggrieved, respondent appealed to the Court of Appeals.
The Court of Appeals agreed that money was withdrawn from the deposits of petitioners
without their authority or knowledge, and that this was done by one or some of the personnel
of respondent. However, it held that petitioners are not free from the obligation to pay the
admitted loan (P58,297.16) for though the same was not paid for failure of respondent to
comply with the instruction to apply the remainder of the sums deposited to their loan, it
remained admittedly an unpaid obligation. It removed the awards for moral and exemplary
damages and reduced the awards for attorney's fees and litigation expenses.
The Court of Appeals promulgated its decision on 25 March 2002, the dispositive portion of
which reads:
WHEREFORE, the appealed decision is AFFIRMED, but with these MODIFICATONS (a) the
dispositions in Par. 1 and Par. 3 of the fallo deeming the mortgaged loan paid and enjoining
foreclosure, are DELETED; (b) the disposition in Par. 4 and Par. 5 of the fallo awarding moral and
exemplary damages, are DELETED; and (c) the awards of litigation fees and expenses are
REDUCED to a combined P30,000.00.7
The motion for reconsideration filed by petitioners was denied in a resolution dated 06 June
2003.8
Petitioners are now before us assailing the Decision and Resolution of the Court of Appeals
when the latter:
(A) DELETED THE PORTION OF THE RTC DECISION DECLARING THE MORTGAGED LOAN PAID
AND ENJOINING FORECLOSURE;
(B) DELETED THE AWARD OF MORAL AND EXEMPLARY DAMAGES; AND
(C) REDUCED THE LITIGATION FEES AND EXPENSES.9
Respondent filed a Comment10 on 04 September 2003 to which petitioners filed their
Reply11 dated 06 February 2004.
On 06 December 2004, the Court gave due course to the petition and required the parties to
submit their respective memoranda within thirty (30) days from notice.12 Both parties
complied.13
We first discuss the deletion made by the Court of Appeals of the awards of moral damages and
exemplary damages.
Petitioners maintain that the Court of Appeals erred in removing the award of moral damages
considering that it is settled jurisprudence that the same should be awarded when the injured
party suffers mental anguish and serious anxiety. They contend that the Court of Appeals failed
to appreciate the torment they suffered from the time they noticed their deposits were not
properly recorded until the receipt of respondent's letter threatening the foreclosure of their
residential house and lot for a loan of P58,000.00. They narrated that respondent bank refused
to give them copies of the ledgers of their deposits as well as copies of the withdrawal slips.
Despite the intercession of Pampanga Governor Estelito Mendoza and Central Bank Governor
Jaime Laya, respondent did not give them copies of the ledgers and withdrawal slips. It was only
after the Chief of the Criminal Investigation Service (CIS) of the Philippine Constabulary sent two
of his investigators, whom they authorized to look into the records of their deposits, that they
received copies thereof. They discovered therein that the sum of P220,000.00 was withdrawn
from their accounts by respondent bank through its employees by falsifying the signatures of
Vicente Cagungun, Jr. in seven withdrawal slips. Despite the forgeries, they refused to
acknowledge its liability. Thus, on 07 September 1983, in order to protect their rights,
petitioners were forced to file the instant case with prayer for issuance of a temporary
restraining order and/or writ of preliminary injunction to enjoin the foreclosure of their
property. Petitioners insist that respondent, in allowing withdrawals in their savings account
without their authority or knowledge, is guilty of gross negligence to which it is liable for moral
damages.
On the other hand, respondent maintains that the Court of Appeals was correct in deleting the
award of moral damages.
Respondent argues that it should not be faulted if petitioners had to experience inconveniences
in acquiring copies of ledgers of their deposits as well as copies of the withdrawal slips since
certain banking procedures must be observed. It likewise faults petitioners for not strictly
observing security rules of financial institutions in the care and custody of their passbooks, as
well as in the standard operating procedure for deposits and withdrawals which led to the
alleged improper recording of deposits and the alleged losses they incurred. It stresses that
passbooks should be securely kept by the owner but, in the case of petitioners, they openly
entrusted their passbooks to other people leaving them totally unable to monitor their
transactions. It added that there was absence of any actual injury on the part of the petitioners.
It asserts that it neither acted in bad faith nor took advantage of petitioners' deposit for its use
and benefit. It claims that petitioners failed to establish fraud on the part of respondent bank
as to make it liable for the alleged improper recording of deposits. It claims that petitioners
failed to present in court the persons (Bong or Ding) to whom they entrusted their money for
deposit and to prove that Ruperto Reyes, then Officer-In-Charge (O-I-C) of the Extension Office
of Country Development Bank, defrauded them by facilitating withdrawals for the benefit of the
bank. No proof was adduced to show that they verified if the persons to whom they delegated
to make the deposits faithfully performed the tasks in accordance with their intentions.
Respondent insists that it is the negligence of petitioners, not fraud on its part, which was the
reason that petitioners' deposits were not applied in accordance with their intentions resulting
to the (threatened) foreclosure of their mortgaged property.
From the foregoing reasons advanced by respondent bank, it is apparent that it is trying to pass
all the blame on petitioners for the unauthorized withdrawals amounting to P220,000.00 and
the non-applications of deposits to their loan.
This cannot be. The fact that petitioners left the custody of their passbooks to respondent,
through its employee O-I-C Ruperto Reyes, and that they entrusted to Bong or Ding their
deposits will not excuse respondent from being liable. Petitioners did these things because they
trusted and depended on respondent to take care of their accounts with it. If respondent bank
was really strict in enforcing the banking rule that the passbook must be kept by the depositor,
why did it not do so? For its failure, any anomaly or damage that might result therefrom should
be borne by it.
We, likewise, find untenable respondent's contention that petitioners should have presented
O-I-C Ruperto Reyes, Bong or Ding as witnesses to clear the air. On the contrary, it should have
been respondent's duty to present these persons they being their employees. It should have
presented these people, especially O-I-C Ruperto Reyes, who had custody of the passbooks, to
explain why unauthorized withdrawals were made and why the instruction to apply petitioners'
deposit to their loan was not complied with.
The bank was indeed grossly negligent when it allowed the sum of P220,000.00 to be withdrawn
through falsified withdrawal slips without petitioners' authority and knowledge and its failure
to comply with petitioners' instruction to apply their deposits on their loan. In so doing,
respondent bank breached the trust that petitioners reposed on it.
We agree in the findings of the two courts below that the unauthorized transactions were
committed by one or some of the employees of respondent bank for which it should be liable.
The evidence showed that respondent did not exercise the degree of diligence it ought to have
exercised in dealing with its clients - - diligence higher than that of a good father of a family. If
only respondent exercised such diligence, no anomaly or irregularity would have happened.
In the case of Philippine National Bank v. Pike,14 we discussed the degree of diligence imposed
on banks as follows:
With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more
than that of a good father of a family considering that the business of banking is imbued with
public interest due to the nature of their functions. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. Thus, the law imposes on banks
a high degree of obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of banking. Section 2 of Republic Act No. 8791, which took
effect on 13 June 2000, makes a categorical declaration that the State recognizes the "fiduciary
nature of banking that requires high standards of integrity and performance."
Though passed long after the unauthorized withdrawals in this case, the aforequoted provision
is a statutory affirmation of Supreme Court decisions already in esse at the time of such
withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals that
"the bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship."
Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals, we
clarified that said fiduciary relationship means that the bank's obligation to observe "highest
standards of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. Article 1172 of the New Civil
Code states that the degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a family. In every case, the depositor
expects the bank to treat his account with utmost fidelity, whether such accounts consists only
of a few hundred pesos or of millions of pesos.
Settled is the rule that gross negligence of a bank in the handling of its client's deposit amounts
to bad faith that calls for an award of moral damages. Moral damages are meant to compensate
the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly
caused.15
In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals from the
deposits of petitioners and its non-compliance with petitioners' instructions regarding the loan
payments constitute gross negligence which justifies the award of moral damages. As employer,
respondent is liable for the negligence or misdeed of its employees which caused petitioners to
have sleepless nights thinking about the threatened foreclosure of their house and lot. In
addition, the way respondent gave petitioners a hard time in securing copies of their withdrawal
slips and ledgers of their deposits is an indication of bad faith. Respondent could have easily
cooperated with petitioners by immediately furnishing the latter with documents they wanted.
This was not to be. Written communications from petitioners' lawyers and from the Central
Bank Governor were not sufficient in order that respondent will provide petitioners with the
documents they needed. It was only after two agents of the CIS of the Philippine Constabulary
went to the bank that respondent was obliged to give petitioners what they were asking for.
In culpa contractual or breach of contract, as in the case16 before us, moral damages are
recoverable only if the defendant has acted fraudulently or in bad faith,17 or is found guilty of
gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.18
In fine, the requisites on award of moral damages would require, firstly, evidence of besmirched
reputation or physical, mental or psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof that the wrongful act or omission
of the defendant is the proximate cause of the damages sustained by the claimant; and fourthly,
that the case is predicated on any of the instances expressed or envisioned by Article 221919 and
Article 2220 of the Civil Code.20
All these elements are present in the instant case.
There is no hard-and-fast rule in the determination of what would be a fair amount of moral
damages since each case must be governed by its own peculiar facts. The yardstick should be
that it is not palpably and scandalously excessive.21 We find the sum of P300,000.00 awarded
by the lower courts excessive. In our view, the award of P100,000.00 as moral damages is
reasonable and is in accord with our rulings in similar cases involving banks' negligence with
regard to the accounts of their depositors.22
Anent the removal by the Court of Appeals of the award of exemplary damages, we find the
same to be not in order.
The law allows the grant of exemplary damages to set an example for the public good.23 The
banking system has become an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of business and commerce, banks have
attained a ubiquitous presence among the people, who have come to regard them with respect
and even gratitude and most of all, confidence.24 For this reason, banks should guard against
injury attributable to negligence or bad faith on its part.25 The award of exemplary damages is
warranted by the failure of respondent bank to prevent the unauthorized withdrawals from
petitioners' deposits and its failure to properly apply the latter's deposits to their loan. We,
however, find the P300,000.00 awarded by the lower court to be excessive and should
accordingly be reduced to P50,000.00.
On the matter of attorney's fees and expenses of litigation, it is settled that the reasons or
grounds for the award thereof must be set forth in the decision of the court.26 An award of
attorney's fees, being an exception from the policy of not putting a premium or a penalty on the
right to litigate, has since been limited to the grounds specified by law.27 Article 220828 of the
Civil Code enumerates the instances where attorney's fees and expenses of litigation can be
recovered.
In the case at bar, the RTC clearly stated in its decision that petitioners are entitled to attorney's
fees and litigation expenses because they were compelled to litigate in order to protect their
interest. We agree. Moreover, there being an award for exemplary damages, it follows that
there should be an award of attorney's fees and litigation expenses. However, the awards
of P50,000.00 for attorney's fees and P50,000.00 for litigation expenses by the RTC are too
much, while the award of P30,000.00 of the Court of Appeals for both is too small. In as much
as this case has been pending for more than twenty (20) years, the award of P25,000.00 for
each will be sufficient.
Petitioners claim that the Court of Appeals erred in deleting the portions of the RTC decision
declaring their mortgage loan paid and enjoining foreclosure. They insist that they were able to
prove that the amounts of P30,000.00 and P118,000.00 were respectively withdrawn from their
accounts (SA No. 38470-29 and No. 12241-16) and that same were not applied as payment for
their loan. They maintain that by adding together said amounts, the sum thereof is sufficient to
pay their loan and to consider the real estate mortgage as discharged.
Looking at the complaint filed by petitioners, there is no allegation that said amounts were
withdrawn from their accounts and that same were not applied as payments for their loan.
Petitioners likewise did not ask in their prayer that said amounts be returned to them or that
they be used to off-set their indebtedness to respondent. Moreover, when petitioners tried to
prove this allegation, counsel for respondent objected29 and attempted to have the testimony
thereon stricken off the record on the ground of allegata et probata.30
Under Section 5, Rule 10 of the Revised Rules of Court,31 if evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings, the Court may allow the
pleadings to be amended freely when the presentation of the merits of the action will be
subserved thereby and the admission of such evidence would not prejudice the objecting party
in maintaining his action or defense upon the merit. Said section reads:
Sec. 5. Amendment to conform to or authorize presentation of evidence. 'When issues not
raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after judgment but failure to
amend does not affect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so freely when presentation of the merits of the action
will be subserved thereby and the objecting party fails to satisfy the court that the admission of
such evidence would prejudice him in maintaining his action or defense upon the merits. The
court may grant a continuance to enable the objecting party to meet such evidence.
It is thus clear that when there is an objection on the evidence presented because it is not within
the issues made by the pleadings, an amendment must be made before accepting such
evidence. If no amendment is made, the evidence objected to cannot be considered. In the case
before us, the trial court, there being an objection on the evidence being presented by
respondent, failed to order the amendment of the complaint. Thus, we are constrained not to
consider evidence regarding the P30,000.00 and P118,000.00 allegedly withdrawn from their
accounts. With this ruling, it follows that the outstanding loan of petitioners in the amount
of P58,297.16 remains unpaid.
As regards respondent's right to exercise its right to foreclosure of the real estate mortgage on
petitioners' property, we rule that respondent cannot exercise such right under the
circumstances obtaining. It will be the height of inequity if we allow such a thing. The evidence
is clear that the sum of P220,000.00 was withdrawn from petitioners' deposits without their
knowledge and authority. This amount is more than sufficient to pay for the loan had it not been
illegally withdrawn. Neither should petitioners be held liable for any interest on the remaining
balance of the loan considering that they could have easily settled their obligation with
respondent if they were not embroiled in the anomaly caused by respondent's employees.
Finally, payment for the remaining balance of the loan amounting to P58,297.16 should be
deducted from the actual damages awarded by the court.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The 25 March 2002
decision of the Court of Appeals modifying the decision of the Regional Trial Court of Olongapo
City is AFFIRMED with MODIFICATIONS. As modified, respondent Planters Development Bank is
ordered to pay petitioners the following: (1) P220,000.00 as actual damages representing the
total amount withdrawn from petitioners' accounts plus interest of 6% per annum to be
computed from the date of the filing of the complaint which interest rate shall become 12% per
annum from the time of finality of this judgment until actual payment; (2) P100,000.00 as moral
damages; (3) P50,000.00 as exemplary damages; and (4) P25,000.00 as attorney's fees
and P25,000.00 for litigation expenses. Respondent is enjoined from foreclosing the real estate
mortgage on petitioners' property located at No. 88 Gordon Avenue, Pag-asa, Olongapo City.
Payment for the outstanding loan of petitioners in the amount of P58,297.16 shall be deducted
from the damages awarded by the Court.

SO ORDERED.
#17
G.R. No. 136371 November 11, 2005
PRUDENTIAL BANK, Petitioner,
vs.
CHONNEY LIM, Respondent.
DECISION
Tinga, J.:
This treats of the petition for review on certiorari of the Decision1 of the Court of
Appeals,2 dated 31 July 1998, which affirmed with slight modification the Decision3 of the
Regional Trial Court (RTC),4 granting the action filed by respondent for recovery of sum of
money and damages.
Chonney Lim (respondent), the owner of Rikes Boutique located at Session Road, Baguio City,
maintained two (2) accounts with Prudential Bank (the bank), namely: Savings Account No.
11264 and Checking Account No. 1262. He availed of the bank’s automatic transfer system
wherein the funds from his savings account could be transferred to his checking account in case
the balance of the latter account was insufficient to cover the checks he issued.
On 14 March 1988, respondent deposited the amount of ₱34,000.00 with his savings account.
According to respondent, the following day, 15 March 1988, he deposited an equal amount with
the same savings account. The matter is the crux of contention between the parties, as the bank
has steadfastly denied having received the latter deposit from respondent.
On 24 May 1988, respondent issued a check against his current account in favor of the
Paluwagan ng Bayan Savings Bank (Paluwagan) in the sum of ₱2,830.00 in payment of his loan
with the said bank. On 25 May 1988, respondent drew another check against his checking
account to the order of Teodulo Crisologo in the amount of ₱10,000.00 as payment for a
business transaction with the latter.
The bank, however, dishonored both checks, claiming that respondent did not have sufficient
funds in his account with the bank. Upon learning that the first check paid to Paluwagan had
been dishonored, respondent wrote a letter5to the bank on 27 May 1988, asking it to recheck
its records. On 30 May 1988, the bank’s manager, Tolentino Opiniano (Opiniano), sent a reply
letter,6 offering, as an excuse for the dishonor of said check, the inadvertent earlier posting to
respondent’s account of a postdated check.7 While Opiniano apologized for respondent’s
inconvenience, he made no commitment to honor this first check.8
When the second dishonored check came to respondent’s knowledge, he immediately wrote a
letter9 to the bank, protesting the dishonor of the check. Opiniano sent a reply10 stating that as
per records, a deposit slip dated 15 March 1988 for ₱34,000.00 was received for deposit to
Savings Account No. 11264 on 14 March 1988.
Respondent denied having made only one deposit, insisting that he made two deposits of
₱34,000.00 each, one on 14 March and the other on 15 March. As proof, respondent presented
the two separate deposit slips covering the transactions, the first bearing the date 14 March
1988 while the second, the date 15 March 1988.
After the bank had conducted a thorough investigation, on 10 June 1988, Opiniano informed
respondent that two deposits were made on 14 March 1988, one for ₱34,000.00 and the other
for ₱1,000.00; and that two other deposits were made on 15 March 1988: ₱4,900.00 and
₱2,900.00. He maintained that although the deposit slip bearing the amount of ₱34,000.00 is
dated 15 March 1988, it was actually received the day before or on 14 March 1988. Thus, the
bank’s position is that only one deposit of ₱34,000.00 was made by respondent on 14 and 15
March 1988.11
In view of the bank’s adamant refusal to alter its stand, respondent filed a Complaint12 before
the RTC, Baguio City for the recovery of ₱34,000.00 representing his actual deposit and ₱300.00
as penalty charge, plus damages.
On 27 August 1991, the RTC rendered its Decision holding that respondent made two deposits
of ₱34,000.00 apiece. Thus, the RTC ordered the bank to pay the following amounts: ₱34,000,
representing the unposted deposit, with legal interest; ₱600.00, representing the service
charges unjustifiably imposed on respondent, with legal interest; ₱50,000.00 as moral damages;
₱25,000.00 as exemplary damages; and ₱10,000.00 as attorney’s fees, plus costs of suit.
On appeal, the Court of Appeals affirmed the decision of the trial court with modification as to
the award of moral damages, reducing it to ₱10,000.00. The testimony of the bank teller,
coupled with the fact that the two deposit slips listed different denominations of money totaling
₱34,000.00 per deposit slip, led the appellate court to conclude that there were indeed two
deposits of ₱34,000.00 each, one made on 14 March and the other on 15 March 1988.
Before this Court, the bank argues in the main that the award of damages by the appellate court
is groundless that consequently, the assailed decision is not in accord with law and
jurisprudence.13
As a rule, the findings of fact of the trial court when affirmed by the Court of Appeals are final
and conclusive on, and cannot be reviewed on appeal by, this Court as long as they are borne
out by the record or are based on substantial evidence. The Court is not a trier of facts, its
jurisdiction being limited to reviewing only errors of law that may have been committed by the
lower courts.14
Essentially, as intimated earlier, the issue in the instant case boils down to whether respondent
made a deposit of ₱34,000.00 on 15 March 1988, apart from the deposit of an equal amount
the day before, a factual question which was resolved in the affirmative by the RTC, which
finding was categorically affirmed by the Court of Appeals. The factual issue is beyond the
province of this Court to review or disturb. It is not the function of the Court to analyze or weigh
all over again the evidence or premises supportive of such factual determination. The Court has
consistently held that the findings of the Court of Appeals and other lower courts are, as a rule,
accorded great weight, if not binding upon it, save for the most compelling and cogent ATTY. GAYO:
reasons.15
Q: I am showing you Exhibit "C" and tell the Honorable Court if that is the duplicate of Exhibit
We find no justification to deviate from the factual findings of the trial court and the appellate "3" which you also stamped with the stamp of the bank?
court. The bank has utterly failed to convince us that the assailed findings are devoid of basis or
are not supported by substantial evidence. A: I am not sure if that is the real deposit slip made at the same day because they have the
practice to get another duplicate if their personal copy was lost, your Honor. This is my stamp
As found by the RTC, respondent indeed made two deposits of ₱34,000.00 on 14 and 15 March but I am not sure if this is the same.
1988, viz:
INTERPRETER:
On the pivotal issue of whether or not the plaintiff made only one (1) or two (2) deposits of
₱34,000.00—the first on March 14 and the second on March 15, 1988—the Court holds that, Witness referring to Exhibit "C".
from the evidence extant in the record, particularly the admissions of teller Merlita Susan Caasi,
the plaintiff has established his claim of having made two (2) deposits of ₱34,000.00. Thus, Caasi
ATTY. GAYO:
admitted that she impressed her rubber stamp, "Teller 2" and "duplicate" on both the Exhibits
"B" and "C" which are plaintiff’s file copies of two separate and different deposit slips for
₱34,000.00 each. Exhibit "B" is a deposit slip, dated March 14, 1988, for ₱34,000.00 consisting Q: But you are sure that this is your stamp as Teller No. 2 at that time?
of 300 pieces of ₱100 bills and 80 pieces of ₱50.00 bills; while Exhibit "C" is a deposit slip, dated
March 15, 1988, also for ₱34,000.00, but consisting of 340 pieces of ₱100 bills. It is only Exhibit A: It appears, it is.
"C" that appears to have been recorded by the defendant bank (Exhibit "3"). Since teller Caasi
acknowledged to have stamped both deposit slips, logic and reason dictates that she should be Q: I am showing you now that which we reserved the last time, the original of Exhibit "B", a copy
presumed to have received the amounts covered by them unless she could satisfactorily – an original copy of a deposit slip dated March 14, 1988, stamped with the stamp of the Bank
demonstrate the contrary which she, however, miserably failed to do. The fact that only one (1) Teller No. 2 and a duplicate. Now, can you now state to the Court that this was your stamp of
deposit of ₱34,000.00 is recorded in the teller’s validating machine and blotter, as well as in the the bank stamp?
ledger, passbook, bookkeeper’s machine tape and blotter, can not help her any for the crux
precisely of plaintiff’s complaint is defendant’s negligence in not recording his other deposit of
₱34,000.00.16 A: That is my stamp.

The appellate court similarly observed: Q: Even this word duplicate stamped also in this Exhibit "B", the original of Exhibit "B", is your
stamp?
On the basis of the evidence adduced by the parties, We are convinced that indeed, appellee
deposited ₱34,000.00 on March 14 and another ₱34,000.00 on March 15, 1988. These two A: Yes, it is my stamp."
different transactions are evidenced by two deposit slips marked as Exhibits "B" and "C". The
fact that appellant received the amount represented by each deposit slip can be inferred from Appellee also presented in evidence the reverse side of the deposit slip dated March 14, 1988
the testimony of Merlita Caasi, a bank teller: he described as follows:

ATTY. GAYO: "Q: On the front side of Exhibit "B", the amount of ₱34,000.00 cash appears. Is this explained
by any denomination of the same exhibit?
Q: And by stamping the duplicate copy of a depositor, in the case of Mr. Lim, who is in a practice
of always preparing a duplicate copy for his file, your mere stamping of the duplicate would A: Yes, your Honor.
indicate that you received the money deposited?
Q: You are referring to what part of the exhibit?
A: Yes, your Honor."
A: I am referring to Exhibit "B-1", Your Honor.
which must be read in conjunction with her testimony on cross-examination, thus:
Q: So that the ₱34,000.00 you deposited consisted of 300 pieces of ₱100.00 bills in the total
amount of ₱30,000.00; 80 pieces of ₱50.00 bills in the total amount of ₱4,000.00?
A: Yes. Your Honor."
In the same manner, appellee also presented the other side of the deposit slip dated March 15,
1988, thus:
"Q: On March 15, 1988, do you remember having again deposited another amount of
₱34,000.00 to your account with the defendant bank?
A: Yes. Your Honor.
Q: Do you have a copy? Do you have evidence to show?
A: Yes. Your Honor. I have here my deposit slip on March 15, 1988, for the amount of another
₱34,000.00.
Q: Is the denomination of the total deposit of P34,000.00 you made on March 15 shown in this
deposit slip?
A: Yes, Your Honor. It is shown at the back of the deposit slip.
Q: As what?
A: At the back of the deposit slip, your Honor. It shows that the ₱100.00 bills I deposited is 340
pieces, amounting to ₱34,000.00.
Q: Do you have a xerox copy of that?
A: Yes, Your Honor.
Atty. Gayo:
May we show both the original and the xerox copy. The xerox copy reflects the front page and
the reverse side of the deposit slip dated March 15, 1988. May we ask for an observation.
Atty. Munoz:
The xerox copy of the deposit slip dated March 15, 1988 in the sum of ₱34,000.00, together
with the reverse side is a faithful reproduction of the duplicate original presented.
Atty. Gayo:
May we respectfully pray that the front page of that deposit slip be marked as Exhibit "C" and
the reverse side as "Exhibit C-1".17
An examination of the deposit slips dated 14 March and 15 March 1988 reveals that while the
slips each cover deposits in the amount of ₱34,000.00, they list down different denominations
however. Evidently, the slips were not prepared simultaneously or concurrently. This fact
militates against the bank’s claim that one deposit slip is simply the duplicate of the other. To
sustain the bank’s hypothesis, we would have to conclude that respondent, with all deliberate
design, prepared two deposit slips and purposely wrote different denominations in them to
mislead the bank that the two deposit slips were separately executed on different occasions.
There is no evidence to support such a bizarre conclusion; thus, we are content to uphold the
findings of the triers of fact on this point.
The bank insists that the court misappreciated the import of the letter of Opiniano dated 10
June 1988. As we have earlier intimated, appreciation of evidence is the domain of the lower
courts. The testimonies of the witnesses presented by the bank deserve scant consideration in
the face of the overwhelming documentary evidence of respondent, i.e., the duplicate originals
of the deposit slips bearing the amount of ₱34,000.00 dated 14 and 15 March 1988,
respectively. Indeed, the bank failed to rebut the inexorable probative impact of the deposit
slips.
Article 1172 of the Civil Code ordains that responsibility arising from negligence in the
performance of an obligation is demandable. The failure of the bank’s employees to credit the
amount of ₱34,000.00 to respondent’s savings account, resulting as it did in the dishonor of
respondent’s checks, constitutes actionable negligence in law.
From another perspective, the negligence of the bank constitutes a breach of duty to its client.
It is worthy of note that the banking industry is impressed with public interest. As such, it must
observe a high degree of diligence and observe lofty standards of integrity and performance. By
the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with them.18
With the attending factual milieu, the imposition of damages on the errant bank is in order.
Presaging this course of action is the ruling in Simex International v. Court of Appeals,19 where
this Court rendered a telling discourse on the fiduciary responsibility of depository banks, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become
an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not
hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in
its custody and will even earn some interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for business entities like the petitioner,
the bank is a trusted and active associate that can help in the running of their affairs, not only
in the form of loans when needed but more often in the conduct of their day-to-day transactions
like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he
directs. A blunder on the part of the bank, such as the dishonor of a check without good reason,
can cause the depositor not a little embarrassment if not also financial loss and perhaps even
civil and criminal litigation.
The bank raises another issue, that concerning the postdated check which it had prematurely
posted25 and which it initially assumed, when it first wrote the respondent on 30 May 1988, to
be the cause of the dishonor of respondent’s check payable to Paluwagan.26 The bank argues
that the fact it prematurely honored such postdated check did not give rise to damages.27 This
argument is irrelevant. The act or omission of the bank that gives rise to damages in favor of
respondent is not the premature posting of the postdated check, but the fact that the bank did
not credit respondent’s second deposit of ₱34,000.00. Besides, this is the first time that said
issue was presented. As a rule, no issue may be raised on appeal unless it has been brought
before the lower tribunal for its consideration. Higher courts are precluded from entertaining
matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated
for the first time only in a motion for reconsideration or on appeal.28

The action for damages hinges on the resolution of whether respondent has sufficient funds in
his account when the checks were dishonored. Both the trial and appellate courts ruled that
had the bank credited the ₱34,000.00 deposit made by respondent on 15 March 1988, the
checks would not have been dishonored. Likewise, both courts found that moral damages were
in order.
WHEREFORE, the petition is denied. The Decision of the RTC dated 27 August 1991 in Civil Case
No. 1467-R is AFFIRMED IN FULL. Costs against petitioner.
SO ORDERED.

The concept of moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Although incapable of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendant's wrongful act or omission.20

Needless to say, the bank’s wrongful act caused injury to respondent. Credit is very important
to businessmen, and its loss or impairment needs to be recognized and compensated.21 This
Court in Leopoldo Araneta v. Bank of America22 highlights the importance of good credit in the
business community:

The financial credit of a businessman is a prized and valuable asset, it being a significant part of
the foundation of his business. Any adverse reflection thereon constitutes some material loss
to him. As stated in the case Atlanta National Bank vs. Davis, supra, citing 2 Morse Banks, Sec.
458, "it can hardly be possible that a customer's check can be wrongfully refused payment
without some impeachment of his credit, which must in fact be an actual injury, though he
cannot, from the nature of the case, furnish independent, distinct proof thereof."

Under the circumstances of this case, we find that the award of moral damages is proper but
the amount must be reverted back to ₱50,000.00 as ordered by the RTC, said court being in a
better position to assess the amount of damages to be imposed on the negligent bank.

Furthermore, we sustain the award of exemplary damages. Such damages are imposed by way
of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.23 The business of a bank is affected with public interest; thus, it makes
a sworn profession of diligence and meticulousness in giving irreproachable service. For this
reason, the bank should guard against injury attributable to negligence or bad faith on its part.
The banking sector must at all times maintain a high level of meticulousness.24 In view of the
bank’s negligence to record the deposit, the grant of exemplary damages is thus justified.
#18
G.R. No. 153784 October 25, 2005
ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA IV, Petitioners,
vs.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK (Now EQUITABLE
PCIBANK),Respondents.
DECISION
Tinga, J.:
Employees who abuse their position for fiduciary gain cannot be shielded from the
consequences of their wrongdoing even on account of the bank’s operational laxities that may
have provided the gateway for their shenanigans. Their misconduct provides the bank with
cause for the termination of their employment.
The facts follow.
Petitioners Romeo Cadiz ("Cadiz"), Carlito Bongkingki ("Bongkingki") and Prisco Gloria IV
("Gloria") were employed as signature verifier, bookkeeper, and foreign currency denomination
clerk/bookkeeper-reliever, respectively, in the main office branch (MOB) of Philippine
Commercial International Bank (respondent bank).
The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a complaint with PCIB
for the alleged non-receipt of a Six Hundred Dollar ($600.00) demand draft drawn against it
which was purchased by her husband from Hongkong and Shanghai Banking Corporation. Upon
verification, it was uncovered that the demand draft was deposited on 10 June 1988 with FCDU
Savings Account (S/A) No. 1083-4, an account under the name of Sonia Alfiscar (Alfiscar).
Further investigation revealed that the demand draft, together with four (4) other checks, was
made to appear as only one deposit covered by HSBC Check No. 979120 for One Thousand Two
Hundred Thirty-two Dollars (US$1,232.00).
The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz,
Bongkingki and Gloria allegedly verbally admitted their participation in a scheme to divert funds
intended for other accounts using the Savings Account of Alfiscar. Subsequently, Cadiz allegedly
paid Alqueza ₱12,690.00, the peso equivalent of US$600, but insisted that the corresponding
receipt be issued in Alfiscar’s name instead.
On account of these allegations, a special audit examination was conducted by the bank. On 31
January 1989, the internal auditors of the bank, headed by Lizza G. Baylon, submitted their
findings in an official report. The auditors determined that as early as July 1987, petitioner Cadiz
had reserved the savings account in the name of Sonia Alfiscar. The account was opened on 27
November 1987 and closed on 23 June 1988. Twenty-five (25) deposit slips involving the
account were posted by Bongkingki while sixteen (16) deposit slips were posted by Gloria. A
verification of the deposit slips yielded findings of miscoded checks, forged signatures, non-
validation of deposit slips by the tellers, wrongful deposit of second-endorsed checks into
foreign currency deposit accounts, the deposit slips which do not bear the required approval of
bank officers, and withdrawals made either on the day of deposit or the following banking day.1
In view of such findings, show-cause memoranda2 were served on petitioners, requiring them
to explain within seventy-two (72) hours why no disciplinary action should
be taken against them in connection with the results of the special audit examination. On 22
March 1989, petitioners submitted their written explanations.3 Not satisfied with their
explanations, respondent bank in memoranda4 all dated 22 June 1989 dismissed petitioners
from employment for violation of Article III Section 1 B-2 and Article III Section 1-C of the Code
of Discipline.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal on 18 September
1989. Labor Arbiter Ernesto S. Dinopol adjudged that petitioners were illegally dismissed and
ordered their reinstatement and payment of backwages. This conclusion was based on the
notices of dismissal, which, to the mind of the labor arbiter, was couched in general terms and
without explaining how the rules were violated. The labor arbiter also attributed petitioners’
acts in fraudulently coding several deposit slips as "1511" (immediately withdrawable) as mere
procedural inadequacies, with the fault attributable to respondent bank for its laxity.5
The labor arbiter’s Decision was reversed on appeal before the Second Division of the National
Labor Relations Commission (NLRC), which, in a Decision6 dated 30 June 1994, ordered the
dismissal of the petition. In doing so, the NLRC departed from the labor arbiter’s finding of facts
and concluded that petitioners were dismissed for just cause. Dismissing petitioners’ appeal,
the Court of Appeals Ninth Division similarly determined on the basis of substantial evidence
that petitioners were validly terminated in its own Decision7 dated 13 July 2001.
After the appellate court denied petitioner’s motion for reconsideration, the matter was
brought before this Court in a Petition for Review on Certiorari.8
The issues to be resolved are whether the Court of Appeals erred in not sustaining the findings
of the labor arbiter and upholding those of the NLRC and whether the Court of Appeals erred in
dismissing the petition by ignoring petitioners’ claims that they were dismissed without just
cause and due process.9
In its Comment,10 respondent bank seeks to have the petition dismissed inasmuch as all the
issues raised herein involve questions of fact. We note that as a general rule, only questions of
law may be brought upon this Court in a petition for review on certiorari under Rule 45 of the
Rules of Court. This Court is not a trier of facts, and as such is tasked to calibrate and assess the
probative weight of evidence adduced by the parties during trial all over again.11
However, if there are competing factual findings by the different triers of fact, such as those
made in this case by the labor arbiter on one hand, and those of the NLRC and Court of Appeals
on the other hand, this Court is compelled to go over the records of the case, as well as the
submissions of the parties, and resolve the factual issues.12 With this in mind, we shall now
proceed to examine the decisions under review.
The general thesis as laid down by the NLRC and Court of Appeals is that petitioners had
surreptitiously diverted funds deposited by depositors to S/A No. 1083-4 which was under their
control and disposition. On the other hand, a perusal of the labor arbiter’s Decision reveals a
different perspective from which the case was approached. While the labor arbiter conceded
that petitioners Bongkingki and Gloria had miscoded several deposit slips, rendering them
immediately withdrawable, he characterized the errors as "mere procedural inadequacies"
which were preventable had management exercised greater control over its employees.13
Far from petitioners’ thrust, the miscoding of deposit slips cannot be downplayed as "mere
procedural inadequacies." After all, it is such miscoding that precipitated the fraudulent
withdrawals in the first place. The act operated as the first indispensable step towards the
commission of fraud on the bank.
More disturbing though is the labor arbiter’s willingness to acquit petitioners of culpability on
account of the purported negligence of the bank. It is similar to concluding that the bank guards,
and not the burglars, bear primary culpability for a bank robbery. Whatever liability or
responsibility was expected of the bank stands as an issue separate from the liability of the
recreant bank employees. Even assuming that the bank observed less-than-ideal controls over
the security of its operations, such laxity does not serve as the carte blanche signal for the bank
employees to take advantage of safeguard control lapses and perpetrate chicanery on their
employer.
The labor arbiter also evaluated the bank’s claim that Cadiz had reimbursed the amount of $600
to the aggrieved depositor Alqueza while making it appear that it was Alfiscar who had actually
made the refund. In disbelieving this claim, the Labor Arbiter concluded that "it is unthinkable
for a lowly bank employee to impose his will upon his high and mighty employer."14
This pronouncement is revelatory of absurd logic. The notion that a lowly employee will never
countermand the will or interests of the employer is sufficiently rebutted by any labor law
casebook, any omnibus of our labor jurisprudence, and the evolution of the human experience
that disquiets persons from unhesitatingly acceding to the presumptive good faith of others. It
is an accepted premise of life and jurisprudence that persons are capable, upon impure
motivations, of taking advantage of others, whether their social lessers, equals, or betters. The
necessity of punishment arises from this flaw of human nature. This philosophic stance of the
labor arbiter actually obviates the nature of sin.
Obviously, we are hard-pressed to accord high regard to the labor arbiter’s discernment as a
trier of facts. Nonetheless, his claim that there were procedural flaws attending the dismissal of
petitioners warrants some deliberation.
The labor arbiter ruled that the notices of dismissal served on petitioners was insufficient as it
failed to specifically delineate how petitioners had violated the internal rules of the bank.
However, the notices do cite the rules which petitioners had violated and refer to the fact that
such violations occurred relating to S/A No. 1083-4 account of Sonia Alfiscar and/or Rosalinda
Alqueza.
There is no demand that the notices of dismissal themselves be couched in the form and
language of judicial or quasi-judicial decisions. What is required is that the employer conduct a
formal investigation process, with notices duly served on the employees informing them of the
fact of investigation, and subsequently, if warranted, a separate notice of dismissal.15 Through
the formal investigatory process, the employee must be accorded the right to present his/her
side, which must be considered and weighed by the employer. The employee must be
sufficiently apprised of the nature of the charge against him/her, so as to be able to intelligently
defend against the charges.
In the instant case, records show that respondent bank complied with the two-notice rule
prescribed in Article 277(b) of the Labor Code.16 Petitioners were given all avenues to present
their side and disprove the allegations of respondent bank. An informal meeting was held
between the branch manager of MOB, the three petitioners and Mr. Gener, the Vice-President
of the PCIB Employees Union. As per report, petitioners admitted having used Alfiscar’s account
to divert funds intended for other accounts. A special audit investigation was conducted to
determine the extent of the fraudulent transactions. Based on the results of the investigation,
respondent bank sent show-cause memoranda to petitioners, asking them to explain their
lapses, under pain of disciplinary action. The memoranda, which constitute the first notice,
specified the various questionable acts committed by petitioners.
Afterwards, petitioners submitted their respective replies to the memoranda. This very well
complies with the requirement for hearing, by which petitioners were afforded the opportunity
to defend themselves. The second notice came in the form of the termination memoranda,
informing petitioners of their dismissal from service. From the foregoing, it is clear that the
required procedural due process for their termination was strictly complied with.
All told, we hold that the factual appreciation and conclusions rendered by the labor arbiter are
not worthy of adoption by this Court. In contrast, from the factual determinations made by the
NLRC and the Court of Appeals, we accept the following facts as proven:
1. Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on respondent bank’s "new
account register."
2. Foreign denominated checks payable to other payees were diverted into the said account.
3. The various deposit slips, covering the said checks, did not bear the machine validation of any
of the tellers-in-charge.
4. The signatures of the MOB officers appearing on the said deposit slips were in fact forged.
5. The posting of said bank transactions bore the initials of petitioners Bongkingki or Gloria.
6. The deposit slips were coded as "1511" or "on-us check."
7. Petitioner Cadiz agreed to pay Alqueza the equivalent amount of $600.00 but it was made to
appear that Alfiscar paid the said amount.
8. In view of these findings, petitioners were served with show-cause memoranda asking them
to explain the lapses.
9. Finding their explanations unsatisfactory, petitioners were terminated from employment.
It is from these established facts that we consider the arguments now presented by petitioners.
In light of these facts, petitioners’ arguments hardly detract from the conclusion that their
behavior in the course of the discharge of their duties is clearly malfeasant, and constitutes
ground for their termination on account of just cause.
First, petitioners insist that the show-cause memoranda served on them did not impute any
fraudulent behavior, but merely lapses. We disagree.
The show-cause memoranda were occasioned by the confidential report prepared by Sandig,
as well as the findings of the special audit examination. The confidential report prepared by
Sandig addressed to the Vice-President of respondent bank pertains to the discovery of
fraudulent transactions on S/A No.1083-4 involving three employees of respondent bank. The
report detailed how the events transpired, including the admissions of petitioners. From there,
a special audit examination was conducted to make a thorough investigation of the questioned
account. The examination yielded conspicuous findings that anomalous transactions had taken
place involving petitioners.
There is jurisprudential support, as noted by the Court of Appeals in citing University of the East
v. NLRC18 that lack of material or pecuniary damages would not in any way mitigate a person’s
liability nor obliterate the loss of trust and confidence. In the case of Etcuban v. Sulpicio
Lines,19 this Court definitively ruled that:
. . . Whether or not the respondent bank was financially prejudiced is immaterial. Also, what
matters is not the amount involved, be it paltry or gargantuan; rather the fraudulent scheme in
which the petitioner was involved, which constitutes a clear betrayal of trust and confidence. .
..
Moreover, it cannot be discounted that as bank employees, the responsibilities of petitioners
are impressed with a high degree of public interest. Private persons entrust their fortunes to
banks, and it would cause a breakdown of the financial order if the judicial system were to leave
unsanctioned bank employees who treat depositor’s accounts as their own private kitty.
Still, petitioners insist that respondent bank never lost trust and confidence in them as it did not
place them under preventive suspension, and more tellingly, it even promoted them after the
labor arbiter had ordered their reinstatement. Preventive suspension, which is never obligatory
on the part of the employer, may be resorted to only when the continued employment of the
employee poses "a serious and imminent threat to the life or property of the employer or of his
co-workers."20 The bank points out that the Alfiscar account, through which the anomalous
transactions were coursed, was no longer active at the time the fraud was discovered.21 Clearly,
the bank had reason to conclude that the imminence of the threat posed by the employees was
not as vital as it would have been had the dubious account still been open.

As to the alleged promotions, the original employer, PCIB, admits that petitioners had been
Moreover, the show-cause memoranda respectively served on petitioners clearly indicate that
reinstated by reason of the Decision, but such act was by no means voluntary. PCIB however
they were being made to answer questions pertaining to possible anomalous behavior on their
does not rebut the allegations that Bongkingki and Cadiz were assigned to sensitive positions
part. For example, petitioners were asked to explain why they had posted the questioned
within the bank after their compulsory reinstatement. This may be so, but the fact that PCIB lost
deposits on the ledger, although there were no teller validations or teller stamps, and also on
no time in removing the employees from the plantilla after the NLRC reversed the labor
what basis they considered such transactions to be valid.17 On the other hand, the show-cause
arbiter’s Decision hardly evinces any continuing trust and confidence on the part of the bank, as
memorandum to Cadiz directly asks him to provide the personal details of Sonia Alfiscar, why
maintained by petitioners. Moreover, considering that these reinstated employees were, for
he went out of his way to make a special arrangement for the mysterious Alfiscar, and other
the meantime, regular employees of the bank, it is within the discretion of PCIB to reassign them
questions pertaining to the Alfiscar accounts.
as it sees fit, taking into account the circumstances.

We thus cannot give credence to the averments of petitioners that the memoranda pertain to
Moreover, it would simply be temerarious for the Court to sanction the reinstatement of bank
"lapses", and not fraudulent transactions. The bank could not have been expected to conclude
employees who have clearly engaged in anomalous banking practices. The particular fiduciary
outright that petitioners were guilty of fraud, despite all the indicia that they indeed were.
responsibilities reposed on banks and its employees cannot be emphasized enough. The
Certainly, the purpose of the show-cause memoranda was to afford petitioners the opportunity
fiduciary nature of banking22 is enshrined in Republic Act No. 8791 or the General Banking Law
to acquit themselves of culpable responsibility. It would have been quite irresponsible for the
of 2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature of
bank to have premised the queries therein on irretractable conclusions that petitioners had
banking that requires high standards of integrity and performance."23 The bank must not only
been guilty of anomalous transactions.
exercise "high standards of integrity and performance," it must also ensure that its employees
do likewise because this is the only way to ensure that the bank will comply with its fiduciary
Second, petitioners contend that they should be relieved of any liability considering that duty.24
respondent bank did not suffer a pecuniary loss. This claim must obviously fail.
All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of trust
and confidence is one of the just causes for termination by employer under Article 282 of the
Labor Code. The breach of trust must be willful, meaning it must be done intentionally,
knowingly, and purposely, without justifiable excuse.25 Ideally, loss of confidence applies only
to cases involving employees occupying positions of trust and confidence or to those situations
where the employee is routinely charged with the care and custody of the employer’s money
or property.26 Utmost trust and confidence are deemed to have been reposed on petitioners by
virtue of the nature of their work.

The facts as established, as well as the need to assert the public interest in safeguarding against
bank fraud, militate against the present petition.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.

SO ORDERED.
#19
G.R. No. 157049 August 11, 2010
CITYTRUST BANKING CORPORATION (now Bank of the Philippine Islands), Petitioner,
vs.
CARLOS ROMULO N. CRUZ, Respondent.
RESOLUTION
BERSAMIN, J.:
Under review is the decision promulgated on October 8, 2002 in C.A.- G.R. CV No.
48928,1 whereby the Court of Appeals (CA) affirmed the decision dated January 13, 1995 of the
Regional Trial Court (RTC), Branch 91, in Quezon City,2 finding the petitioner liable to pay to the
respondent moral damages of ₱100,000.00, exemplary damages of ₱20,000.00, and attorney’s
fees of ₱20,000.00.
In the time material to the case, the respondent, an architect and businessman, maintained
savings and checking accounts at the petitioner’s Loyola Heights Branch. The savings account
was considered closed due to the oversight committed by one of the latter’s tellers. The closure
resulted in the extreme embarrassment of the respondent, for checks that he had issued could
not be honored although his savings account was sufficiently funded and the accounts were
maintained under the petitioner’s check-o-matic arrangement (whereby the current account
was maintained at zero balance and the funds from the savings account were automatically
transferred to the current account to cover checks issued by the depositor like the respondent).
Unmoved by the petitioner’s apologies and the adjustment made on his accounts by its
employees, the respondent sued in the RTC to claim damages from the petitioner.
After trial, the RTC ruled in the respondent’s favor, and ordered the petitioner to pay him
₱100,000.00 as moral damages, ₱20,000.00 as exemplary damage, and ₱20,0000.00 as
attorney’s fees. The RTC found that the petitioner had failed to properly supervise its teller; and
that the petitioner’s negligence had made the respondent suffer serious anxiety,
embarrassment and humiliation, entitling him to damages.3
The petitioner appealed to the Court of Appeals (CA), arguing that the RTC erred in ordering it
to pay moral and exemplary damages.
However, the CA affirmed the RTC, explaining that the erroneous closure of the respondent’s
account would not have been committed in the first place if the petitioner had not been careless
in supervising its employees. According to the CA, "the fiduciary relationship and the extent of
diligence that is to be expected from a banking institution, like herein appellant Citytrust, in
handling the accounts of its depositors cannot be relaxed behind the shadow of an employee
whether or not he/she is new on the job."4 Moreover, the CA said that the negligence of the
petitioner’s personnel was the proximate cause that had set in motion the events leading to the
damage caused to the respondent; hence, the RTC correctly opined that "while a bank is not
expected to be infallible, it must bear the blame for not discovering the mistake of its teller for
lack of proper supervision."5
The petitioner sought reconsideration, but the CA denied its motion for reconsideration for lack
of merit.
Hence, this appeal, in which the petitioner maintains that there were "decisive fact situations
showing excusable negligence and good faith"6 that did not justify the award of moral and
exemplary damages and attorney’s fees.
The petition has no merit.
Firstly, the errors sought to be reviewed focused on the correctness of the factual findings of
the CA. Such review will require the Court to again assess the facts. Yet, the Court is not a trier
of facts. Thus, the appeal is not proper, for only questions of law can be elevated to the Court
via petition for review on certiorari.7
Secondly, nothing from the petitioner’s arguments persuasively showed that the RTC and the
CA erred. The findings of both lower courts were fully supported by the evidence adduced.
Unquestionably, the petitioner, being a banking institution, had the direct obligation to
supervise very closely the employees handling its depositors’ accounts, and should always be
mindful of the fiduciary nature of its relationship with the depositors. Such relationship required
it and its employees to record accurately every single transaction, and as promptly as possible,
considering that the depositors’ accounts should always reflect the amounts of money the
depositors could dispose of as they saw fit, confident that, as a bank, it would deliver the
amounts to whomever they directed.8 If it fell short of that obligation, it should bear the
responsibility for the consequences to the depositors, who, like the respondent, suffered
particular embarrassment and disturbed peace of mind from the negligence in the handling of
the accounts.
Thirdly, in several decisions of the Court,9 the banks, defendants therein, were made liable for
negligence, even without sufficient proof of malice or bad faith on their part, and the Court
awarded moral damages of ₱100,000.00 each time to the suing depositors in proper
consideration of their reputation and their social standing. The respondent should be similarly
awarded for the damage to his reputation as an architect and businessman.1avvphi1
Lastly, the CA properly affirmed the RTC’s award of exemplary damages and attorney’s fees. It
is never overemphasized that the public always relies on a bank’s profession of diligence and
meticulousness in rendering irreproachable service.10 Its failure to exercise diligence and
meticulousness warranted its liability for exemplary damages and for reasonable attorney’s
fees.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision rendered on
October 8, 2002 by the Court of Appeals.
Costs of suit to be paid by the petitioner.
SO ORDERED.
#20
G.R. No. 173780 March 21, 2011
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
MARINA B. CUSTODIO, Respondent.
DECISION
SERENO, J.:
This civil case is essentially a demand by a bank for the recovery of a sum of money from one of
its tellers who allegedly failed to account for funds entrusted to her, amounting to six hundred
thousand pesos (PhP600,000).
Petitioner Metropolitan Bank and Trust Company (Metrobank) is a banking corporation. On the
other hand, respondent Marina Custodio is a bank teller employed at the Laoag City branch of
petitioner Metrobank.1
On 13 June 1995 at 8:18 a.m.,2 respondent Custodio reported for work in petitioner bank’s
branch in Laoag City.3 At the start of the banking day, respondent Custodio received loose
money (picos)4 for the day’s business and was assigned as Teller No. 3.5 In the course of
performing her duties, respondent Custodio handled several cash transactions with the
customers on behalf of petitioner bank.6
At 12:10 p.m., a cash transfer of two hundred thousand pesos (PhP200,000) was made from
Teller No. 1 to respondent Custodio.7 Petitioner Metrobank explained that, usually, a transfer
of money from one teller to another occurs if the latter "needs money, maybe to pay for the
withdrawal."8 However, petitioner bank pointed out that it was unnecessary for respondent
Custodio to borrow from another teller at that time, since respondent had sufficient cash on
hand to cover a withdrawal in the same amount as the cash transfer.9
At 12:25 p.m., respondent Custodio was reported to have taken her lunch break alone and
returned to work thereafter at 1:12 p.m.10
The security guard for the Laoag City branch of petitioner Metrobank, Mr. Hannibal Jara,
testified that respondent Custodio would ordinarily go out for lunch at noon with another teller,
Ms. Mary Paula Castro.11 However, he explained that the two employees did not go out for
lunch together that day, since another teller was on leave.12 Mr. Jara also noticed that when
respondent Custodio went out for lunch, she was carrying a shoulder bag and a paper bag.13 He,
however, did not check the contents of the bags carried by respondent.14
At the close of banking hours, respondent Custodio balanced her transactions for the day and
turned over the funds to the bank’s cash custodian, Ms. Marinel Castro, in the amount of two
million one hundred thirteen thousand five hundred pesos (PhP2,113,500).15 Ms. Marinel
Castro acknowledged receipt of the bundled cash turned over and signed a Cash Transfer Slip.16
around 5:05 p.m., after all tellers had turned over their cash on hand,17 Ms. Castro discovered
that there was a shortage amounting to PhP600,000.18 She notified Mr. Adriano Lucas, the
branch manager, of the missing money.19 The latter then instructed the cashier and the
accountant to review all cash transactions to find out the reason for the cash
shortage.20 However, no errors were found in the records of the transactions, and the shortage
was confirmed.21
Thereafter, Mr. Lucas instructed all bank employees to check all desks, drawers and even
personal bags.22 The guards were likewise instructed to search anybody going out of the office
from that time on.23 However, the missing money was not found.24 Thus, the amount "CASH IN
VAULT" was reported to be short of PhP600,000.25
Respondent Custodio left work that day, together with some of the employees, at 8:30 p.m.26
Later on, petitioner Metrobank alleged that it was able to recover eight bill wrappers only for
bundles of five-hundred-peso bills (without the bills thereunder) that purportedly corresponded
to the missing four hundred thousand pesos (PhP400,000).27 These bill wrappers bore a rubber
stamp "PEPT-3" for Teller No. 3.28 Respondent Custodio countered that the discovery of the bill
wrappers being attributed to her care was never mentioned at the time the cash shortage
occurred, and that these wrappers could have been obtained subsequently by stamping
unmarked ones.29
Respondent Custodio was allowed to continue to render services as a teller in petitioner bank’s
Laoag City branch from 14 June 1995 to 23 June 1995.30 She argued that had she been found
responsible for the cash shortage, then she would not have been allowed to continue working
as a teller on subsequent days.31
On 15 June 1995, investigators from the regional office of petitioner Metrobank as well as from
its Department of Internal Affairs, Head Office, arrived at the Laoag City branch to investigate
the cash shortage.32 On a one-on-one basis, the investigators confronted the employees,
including respondent Custodio.33 After these meetings, Ms. Castro, the cash custodian,
allegedly admitted that she received and acknowledged the cash bundles and signed the Cash
Transfer Slip for the funds turned over by respondent Custodio.34
On 16 June 1995, employees of the Laoag City branch of petitioner Metrobank – including the
new accounts clerk, the remittance clerk and all the other tellers – were made to take polygraph
tests at the National Bureau of Investigation, except for respondent Custodio.35 Respondent was
eight months pregnant at that time and, thus, was not required to take the lie detector test.36
On 22 June 1995, petitioner Metrobank filed a Complaint for a sum of money with ex-parte
application for a writ of preliminary attachment, praying that respondent Custodio pay the
amount of PhP600,000, including attorney’s fees and costs of suit.37 The trial court subsequently
granted the application for a writ of preliminary attachment against the properties of
respondent Custodio.38
On 23 June 1995 at around 1:30 p.m., while respondent Custodio was performing her duties as
a teller, she was served the trial court’s summons39 and a copy of petitioner Metrobank’s
Complaint, including the attachment writ.40
After she was served the summons, respondent Custodio was supposedly caught bringing out a
teller’s copy of the journal print transactions with the related cash transfer slips for that
particular banking day (23 June 1995).41 These bank records were confiscated from respondent
Custodio, when they were discovered in her dress pocket during a body search done on all
employees leaving the office.42
Respondent teller later explained that she had mistakenly brought out these records because
she was no longer allowed to go inside the teller’s cage to file the transaction journal, after she
was served the summons and Complaint.43 She claimed that, at that time, she was confused by
the bank’s Complaint filed against her, so she placed the transaction journal in her right
pocket.44 It was admitted by the bank manager, however, that no cash shortage occurred on
that day.45
Thereafter, respondent Custodio was relegated to a non-accountable position.46
Because of her alleged attempt to take the journal print transactions, Mr. Lucas, the branch
manager, recommended that respondent Custodio be preventively suspended.47 Thereafter,
respondent received an Inter-Office Letter48requiring her to explain why no disciplinary action
should be meted out to her for her attempt to "surreptiously bring out bank records." 49 After
respondent teller filed her explanation, petitioner Metrobank found it unacceptable and
suspended her from work for seven days without pay.50
On 27 June 1995, respondent Custodio requested from petitioner Metrobank a copy of the Cash
Transfer Slip that was signed by the cash custodian, Ms. Castro. 51 In reply, Mr. Lucas notified
respondent that her request would be sent to the Head Office of petitioner Metrobank for
approval.52 This request was, however, not acted upon by petitioner.53 Despite respondent’s
motion to have the Cash Transfer Slip produced in the trial proceedings54 and the manifestation
of petitioner Metrobank’s counsel that it would present the slip,55 the document was not
entered into the records.
On 06 July 1995, respondent Custodio filed an Answer with Compulsory Counterclaim, denying
the allegations of petitioner Metrobank that she was responsible for the cash
shortage.56 Respondent argued that Ms. Castro, not she, was the one who incurred the cash
shortage, since the loss was discovered only after the cash and other accountabilities were
turned over to her, as cash custodian.57
After the case was submitted for decision,58 the trial court rendered its Decision granting
petitioner Metrobank’s Complaint and ordering respondent Custodio to pay the amount of six
hundred thousand pesos (PhP600,000) plus interest.59
On 06 August 2003, respondent teller subsequently filed a Notice of Appeal.60
On 29 July 2004, respondent Custodio, thru her counsel Atty. Oliver Cachapero, filed a Brief for
the Appellant.61Meanwhile, petitioner Metrobank submitted a Brief for the Appellee on 15
September 2004.62
On 16 July 2006, the Court of Appeals (10th Division)63 found respondent Custodio’s appeal
meritorious and reversed the trial court’s Decision:
WHEREFORE, the appeal being meritorious, the assailed decision dated July 25, 2003 of the RTC,
Branch 11, Laoag City, in Civil Case No. 10814 is REVERSED and SET ASIDE. Consequently, the
plaintiff-appellee’s complaint against defendant-appellant is DISMISSED.64
On 10 August 2006, petitioner Metrobank, through the Sediego & Associates Law Office, in
collaboration with Atty. Cachapero, filed in this Court a Motion for Extension of Time to File
Petition for Review on Certiorari.65 On 28 August 2006, Atty. Cachapero informed the Court that
he had withdrawn as counsel for petitioner Metrobank.66
Respondent Custodio averred, however, that she received, through counsel, a separate Petition
for Review on Certiorari filed by petitioner Metrobank’s counsel, Atty. Cachapero, on 07 August
2006.67
Within the thirty-day extension period granted by the Court,68 petitioner Metrobank filed the
Petition for Review under Rule 45, through its new counsel of record, Sediego & Associates Law
Office.69 On 30 October 2007, respondent Custodio submitted her Comment on the instant
Petition.70 In response, petitioner Metrobank subsequently filed a Reply on 31 January 2008.71
After the instant Petition was given due course,72 the parties submitted their respective
memoranda.73
Before resolving the substantial legal issue, the Court will first resolve the procedural matters
with respect to the propriety of raising questions of fact in the instant Petition and the receipt
by respondent Custodio of another Petition through Atty. Cachapero.
In a petition for review on certiorari filed under Rule 45, the issues that can be raised are limited
only to questions of law.74 Questions of fact are not reviewable in a Rule 45
petition.75 Nonetheless, this rule permits of exceptions, which the Court has long since
recognized.76
Unless the party availing of the remedy clearly demonstrates at the first opportunity that the
appeal falls under any of the established exceptions, a Rule 45 petition that raises pure
questions of fact shall be subject to dismissal by the Court, since it is principally not a trier of
facts. Although the emerging trend in the Court’s rulings is to afford all party-litigants the
amplest opportunity for the proper and just determination of their cause,77 this is not a license
for erring litigants to violate the rules with impunity.78
Respondent Custodio reasons that the bank’s Petition before the Court seeks a review of factual
issues, and that such kind of review is not countenanced by the Rules.79 Although she recognizes
the exceptions to the prohibition against raising a question of fact in a Rule 45 petition,
respondent insists that the instant Petition fails to measure up to any of them, which would
have permitted a review of the factual circumstances of the case.80 Respondent Custodio’s bare
allegation that the present controversy81 does not fall within the established exceptions fails to
convince the Court.
The difference in appreciation by the trial court and the appellate court of the evidence with
respect to the circumstances surrounding the cash shortage is prima facie justification for the
Court to review the facts and the records of the case. While factual issues are not within the
province of this Court, as it is not a trier of facts and is not required to examine or contrast the
oral and documentary evidence de novo, this Court has the authority to review and, in proper
cases, reverse the factual findings of lower courts when the findings of fact of the trial court are
in conflict with those of the appellate court.82
In her Comment, respondent Custodio likewise assails the separate Petition she received from
Atty. Cachapero, the former counsel of petitioner Metrobank.83 She claims that the separate
Petition should not be entertained by the Court, since there is no proof of payment of the docket
fees or proof of service. Moreover, the Petition coming from Atty. Cachapero should preclude
the instant Petition filed by the bank’s new counsel, Sediego & Associates. Aside from the fact
that this issue is not raised in respondent’s Memorandum, nothing in the record shows that the
separate Petition signed by Atty. Cachapero was ever filed and docketed with the Court.
Courts will not entertain and act on petitions that have yet to be properly filed, even if a copy
has been served on the other party. Moreover, the separate Petition that came into the hands
of respondent has no bearing on this case, since Atty. Cachapero has already withdrawn as
counsel for petitioner Metrobank. Therefore, the Court will only confine itself to the instant
Petition, which was duly filed by the bank’s new counsel and submitted within the extended
reglamentary period, after docket fees were paid and the Court had given due course to it.84
The Court now proceeds to the substantial merits of the case.
The resolution of the instant Petition hinges on whether there is a preponderance of evidence
to establish that respondent Custodio incurred a cash shortage of PhP600,000 at the close of
the banking day on 13 June 1995 and is therefore liable to pay petitioner Metrobank the said
amount.85
In civil cases such as in the instant action for a sum of money, petitioner Metrobank carries the
burden of proof and must establish its cause of action by a preponderance of evidence.86 The
concept of preponderance of evidence refers to evidence that is of greater weight or more
convincing, than that which is offered in opposition to it; at bottom, it means probability of
truth.87
The Court sustains the appellate court’s finding that petitioner Metrobank failed to discharge
its burden of proving that respondent Custodio was responsible for the cash shortage. Petitioner
Metrobank’s evidence on record does not sufficiently establish that respondent Custodio took
the funds that were entrusted to her as a bank teller.
The issue of respondent Custodio’s civil liability for the cash shortage turns on whether she is
the proximate or direct cause of the loss. There is nothing on record that will show that there
were any missing bundles of one-thousand-peso and five-hundred-peso bills when respondent
Custodio turned over the funds to the cash custodian, Ms. Marinel Castro. As the appellate court
correctly found, the Cash Transfer Slip was the best evidence that respondent Custodio had
properly turned over the amounts in her care, and that the cash custodian received them
without any shortage.88
Although the Cash Transfer Slip was not introduced in evidence, Ms. Castro admitted having
signed it. Had there been any cash shortage at that point, then the cash custodian could have
refused to sign the Cash Transfer Slip, and respondent Custodio could have been required to
account for any missing funds. However, having acknowledged receipt of the funds from
respondent, it is reasonably presumed that Ms. Castro found nothing out of order in
respondent’s records of cash transactions and the amounts transferred.
Petitioner Metrobank admits the existence of the cash transfer slip and the custodian’s
signature thereon. It reasons, though, that it was not unusual for the custodian to sign the slip
without counting the money, since she trusted her co-employees. Petitioner seeks to impress
upon this Court that the custodian’s negligence was in good faith and should not exonerate
respondent Custodio from the cash shortage.
As the Court of Appeals correctly surmised, Ms. Castro’s procedural lapse in trusting her co-
employees by automatically signing the cash transfer slip without ensuring its correctness
contributed significantly to the loss of the bank’s money.89 The proper accounting of funds
through the cash transfer slip was precisely instituted as a safety mechanism to trace the flow
of money from one employee to another. Specifically, the cash transfer slip was meant to ensure
that the tellers had properly counted the money that they turned over to the cash custodian.90 If
Ms. Castro, as cash custodian, had not been remiss in her responsibilities, petitioner Metrobank
would have been able to identify who among the tellers failed to turn over the proper amount
as reflected in the Cash Transfer Slip. The cash custodian is not to be admonished for reposing
her trust in her co-employees; nonetheless, she was negligent, insofar as ignoring established
bank procedures meant to prevent loss, especially when one of her co-employees had broken
that trust.
The Court of Appeals underscored the "highest degree of diligence" from the banking business,
considering that it is impressed with public interest and of paramount importance.91 However,
as petitioner Metrobank pointed out,92 the exacting standard of diligence required by the
appellate court pertains to the relationship between a bank and a depositor, and not between
a bank and its employees. In this case, no depositors were affected, as the transactions during
that day were accounted for, and no error was found in the recording thereof. The relevant
standard of diligence that we need to examine here is that of a bank teller who was entrusted
monies by the bank and who may have failed to account for them.93 In this case, petitioner
Metrobank was unable to prove that respondent Custodio failed to exercise the necessary
degree of diligence that would justify the bank’s action for damages. Respondent Custodio was
not remiss in her duties as all her dealings with the bank’s money were clearly reflected on the
records of the bank.
If petitioner bank had to attribute any negligence on the part of its employees, then it should
have set its sights on the acts and/or omissions of Ms. Marinel Castro, the cash Custodian, and
Mr. Hanibal Jara, the security guard. If theft of the money cannot be established, and negligence
is the only legal phenomenon that is evident on the records, then the proximate cause of the
loss of the bank’s PhP600,000 is Ms. Castro, who, as cash custodian, disregarded established
procedures and blindly signed the teller’s cash transfer slips without counting the money turned
over to her. Meanwhile, Mr. Jara failed to inspect respondent Custodio’s belongings as she left
the bank on that day for lunch.1ªvvph!1 Despite his own suspicions of respondent teller’s
conduct, he ignored them and decided not to check the bags. This omission can conceivably be
considered as a grave omission of his duties as a security guard. The Court of Appeals succinctly
explained both matters in this wise:
The foregoing circumstance is not sufficient basis for the court to assume that the said paper
and should bag contained the cash shortage (P600,000). Ordinary diligence dictates that as a
security guard, Jara should have checked and inspected the things of all the bank employees,
especially those who were in charge of handling money before going out of the premises. Upon
seeing a teller going out for lunch with an expandable shoulder bag and paper bag, prudence
dictates that the security guard should have inspected and checked the teller’s bags. Bu the
security guard failed to do so. It should be noted that the security guard’s testimony reveals that
the said shoulder bag had been used by appellant even prior to June 13, 1995, and on said days,
there were no shortages.
xxx
The signature of the cash custodian in the transfer slip means that the amount reflected therein
corresponds to the bills turned over to her. The cash transfer slip is the best evidence that
appellant turned over the amount of P2,113,500.00 on June 13, 1995. The cash transfer slip
signed by the cash custodian was not presented despite the written requires of appellant.
However, the existence of the signed transfer slip was admitted by the cash custodian. She even
admitted that she did not follow the bank’s standard operating procedure to count the money
delivered by the teller to her before signing the cash transfer slip, x x x.
xxx
In her testimony, the cash custodian, attested that it was not only the cash transfer slip of
appellant which she signed without counting the money submitted to her, but also those of the
other tellers. Under the circumstance, it cannot be determined at what point of the transactions
the shortage occurred. But the cash custodian was negligent in not following the standard
operating procedure of the bank. Her negligence was the root cause why the cash shortage was
not discovered earlier because, had she counted first the money bills delivered to her before
signing the cash transfer slip, the shortage could have been detected. x x x94 (Emphasis supplied)
Verily, it is highly doubtful that Ms. Castro and Mr. Jara had performed the necessary care and
caution required of bank employees in this instance, which directly contributed to the loss of
PhP600,000 for petitioner Metrobank.
Considering the failure of the cash custodian and the security guard to abide by the procedural
safeguards, petitioner bank is now left to find other evidence to determine the person liable for
the cash shortage. The Court, however, is not sufficiently convinced that petitioner Metrobank
has introduced a preponderance of circumstantial evidence to show that respondent Custodio
was liable for the missing bundles of cash worth PhP600,000.
As regards respondent’s receipt of PhP200,000 from another teller during the course of the
business day, it was never demonstrated that the cash transfer was highly irregular. Neither was
it conclusively proven that respondent took the money that was transferred by the other teller.
During one of the hearings, Mr. Lucas, the branch manager, explained that it was unusual for
respondent Custodio to have requested a cash transfer, considering that she had sufficient
funds to cover the amount.95 However, as the appellate court explained, the trial court should
not have considered his testimony in this respect, since the judge had ordered that particular
statement stricken out during the trial court proceedings.96 A fact elicited from a witness during
testimony cannot be considered in the disposition of the case if it has been ordered stricken
out, unless it is established by any other evidence on record.97
Even if the Court were to take cognizance of the bank manager’s statement, the unusual cash
transfer does not tend to prove that respondent Custodio took the money. There was no reason
why respondent Custodio would appropriate several bundles of cash from another teller,
because the transfer would be reflected in her transaction journals and those of the other teller
anyway. Besides, respondent would be held to account for all the transactions and funds at the
end of the banking day. If at all, the cash transfer, which was reflected in the records, indicated
a movement of funds from one teller to another, but did not establish the movement from the
bank’s coffers to respondent Custodio’s pockets. In any case, based on the transaction journal,
no error was found in the records, as all the entries were duly accounted for by respondent
Custodio and the other teller.
The security guard’s testimony that respondent Custodio left for lunch alone with an
expandable shoulder bag and a paper bag is inadequate proof for the Court to believe that she
carted away the missing cash. Although she ordinarily took her lunch break at noon with another
teller – Ms. Mary Castro – the same security guard explained that respondent deviated from
her usual practice, because one of the tellers was on leave. Presumably, respondent Custodio
had to take her lunch alone, rather than go with Ms. Castro. Otherwise, the branch would have
been left under-staffed and unable to serve the branch’s clients fully. The daily time records
submitted by petitioner Metrobank even show that there were other instances in which
respondent did not have lunch together with her co-teller, yet, no cash shortage was reported.98
On the other hand, the bags carried by respondent Custodio when she went out for lunch were
never inspected by the security guard. The latter failed to search these bags, which could have
determined whether respondent teller had carried away the bank’s missing money during her
break. As it were, the security guard saw nothing unusual or out of the ordinary, with respect to
respondent Custodio’s bags that would have aroused his suspicion and prompt him to inspect
her belongings before she left.
Meanwhile, the eight wrappers of five-hundred-peso bills allegedly recovered by petitioner
Metrobank are likewise of doubtful credibility and are inconclusive in determining liability. The
bill wrappers bear the stamp assigned to Teller No. 3, who is respondent Custodio. Yet, as
respondent explains, these stamped wrappers can easily be procured by stamping unmarked
bill wrappers with tools and materials that are readily available to petitioner Metrobank.
Moreover, the wrappers offered into evidence by petitioner bank do not bear respondent
Custodio’s initials to prove that the bundles of money which these wrappers correspond to were
in respondent’s care, as is the common practice in the branch and as testified to by the cash
custodian, Ms. Castro:
Q: Madam witness, going over Exhibit G, you claim that these bill wrappers belong to defendant
Marina Custodio because all these bill wrappers are stamped "PEPT-3"?
A: Yes, sir.
Q: Despite the fact that Marina Custodio did not affix her signature on these bill wrappers, you
claim that these belong to her just by the mere stamp?
A: Yes, sir.
Q: Is it not a fact, madam witness, that the date when these ball wrappers are turned over to
you is supposed to be reflected?
A: It is supposed to reflect the date, sir; in fact, it is supposed to contain their signatures.99
Moreover, the circumstances surrounding the discovery of these bill wrappers by petitioner
Metrobank remain unclear. Despite the bank manager’s instructions and the bank employees’
efforts in conducting a thorough search for the missing cash bundles, neither the money nor
the bill wrappers were found on the day of the cash shortage. The cash custodian who identified
these bill wrappers did not explain how she came to discover them.100
In addition, respondent Custodio was never confronted with these wrappers when the cash
shortage was discovered. Neither were the wrappers presented to her when the bank’s
investigators conducted a one-on-one meeting with the employees two days after the incident.
Not even a report by the investigation team of petitioner Metrobank regarding the incident was
submitted to show when the bill wrappers were discovered, or when respondent Custodio was
suspected of taking the money.101
It appears highly unlikely that respondent Custodio would be able to cart away several bundles
of cash without being detected at all, only to carelessly leave the purported wrappers of the
stolen cash, wrappers stamped with marks that might lead to her identity. The sudden
appearance of these bill wrappers begs the question as to where and when they were
discovered by petitioner Metrobank. If these empty bill wrappers were allegedly found to be
under the account of respondent Custodio soon after the cash shortage was discovered, then
there was no reason for petitioner Metrobank to have allowed her to continue with her duties
in handling bank funds. Yet, respondent Custodio was subsequently permitted to report for
work after the incident until 23 June 1995.1âwphi1
Contrary to the bank’s assertions in the Complaint,102 respondent Custodio was never asked to
account for and/or turn over the missing money. Neither did the bank, prior to the service of
the summons and the complaint, demand that she return the money. Respondent Custodio was
only informed that she was accused of stealing the missing funds when the summons was
served upon her on 23 June 1995.103 Indeed, after the discovery of the cash shortage, every
employee was held suspect,104 and respondent was never singled out for the loss until
petitioner bank filed the Complaint with the trial court.
Petitioner Metrobank also argues that respondent Custodio’s prior involvement in a cash
shortage in its Cubao branch is admissible as evidence to prove a scheme or habit on her part.105
The general evidentiary rule is that evidence that one did or did not do a certain thing at one
time is not admissible to prove that one did or did not do the same or a similar thing at another
time.106 However, evidence of similar acts may be received to prove a specific intent or
knowledge, identity, plan system, scheme, habit, custom or usage and the like.107 In Citibank
N.A., (Formerly First National City Bank) v. Sabeniano, the Court explained the rationale for this
rule:
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a
person has committed the same or similar acts at some prior time affords, as a general rule, no
logical guaranty that he committed the act in question. This is so because, subjectively, a man's
mind and even his modes of life may change; and, objectively, the conditions under which he
may find himself at a given time may likewise change and thus induce him to act in a different
way. Besides, if evidence of similar acts are to be invariably admitted, they will give rise to a
multiplicity of collateral issues and will subject the defendant to surprise as well as confuse the
court and prolong the trial.108
Evidence of similar acts may frequently become relevant, especially to actions based on fraud
and deceit, because it sheds light on the state of mind or knowledge of a person; it provides
insight into such person's motive or intent; it uncovers a scheme, design or plan, or it reveals a
mistake.109
In this case however, respondent Custodio’s prior involvement in a cash shortage in the bank’s
Cubao branch does not conclusively prove that she is responsible for the loss of PhP600,000 in
the Laoag City branch, subject of the instant case.
Although the previous cash shortage in Cubao could possibly shed light on the intent, scheme
or habit of respondent Custodio, that previous cash shortage is not sufficient to affirm a
definitive finding of fact that she took the funds in the Laoag City branch. If the prior cash
shortage in Cubao showed a reasonable intent or habit on the part of respondent, then there
was no reason for petitioner Metrobank to continue to employ her, considering the degree of
trust and confidence required of a bank teller. Nevertheless, respondent Custodio continued to
serve the bank even after the case in petitioner Metrobank’s Cubao branch. Her continued
employment was an affirmation that she was still worthy of the bank’s trust, insofar as she was Regrettably, the evidence offered by petitioner Metrobank is insufficient to convince to the
allowed to continue to handle sums of money in the Laoag City branch. Court that the probability of respondent Custodio’s having taken the money is greater than its
having been taken by another employee. Verily, weighing the evidence on record, the Court
With respect to the taking of the journal transaction slip by respondent Custodio, no correlation finds that petitioner Metrobank failed in its burden of proving by a preponderance of evidence
was ever established between this incident and the cash shortage subject of the instant case. that respondent Custodio took PhP600,000 from petitioner Metrobank and is liable to return
The same journal transaction slip, which respondent allegedly attempted to take away, has to the amount to the latter.
do with transactions occurring on 23 June 1995. It does not pertain to the transactions on 13
June 1995, the day of the cash shortage. No reasonable explanation has been offered regarding In view of the foregoing, the Court DENIES the instant Petition for Review filed by Metropolitan
how this incident is relevant to the instant case or how it tends to prove that respondent Bank and Trust Company. The Court of Appeals’ 14 July 2006 Decision, which dismissed the
Custodio was the one responsible for a cash shortage that occurred ten days earlier. This complaint against respondent Marina Custodio, is hereby AFFIRMED.
incident was distinct and separate from the cash shortage, as shown by the fact that she was
subsequently penalized with a seven-day preventive suspension for the incident on 23 June SO ORDERED.
1995, a penalty that is not the subject of the instant proceedings.
MARIA LOURDES P. A. SERENO
In any event, respondent Custodio sufficiently explains that the incident arose from confusion Associate Justice
on her part. It is understandable that at the time she was caught with the journal transaction
slip, she was just confronted with petitioner Metrobank’s serious accusations that she had taken
the missing funds. When the complaint was presented to her and she was barred from entering
the teller’s cage, respondent must have been so confused that she mistakenly placed the
transaction journals in her pocket. That no cash shortage occurred at that time emphasizes that
there was no direct and causal link between the transaction journal slip and the cash shortage.

It is not denied that petitioner Metrobank discovered the lost money after all the tellers had
turned over their cash for the day, and the cash custodian had signed the Cash Transfer Slip.
Without the cash custodian counting the money before signing the Cash Transfer Slip, many
probabilities arise.110 The shortage may have occurred even prior to the turnover of the cash by
respondent Custodio. The missing cash may have also resulted from the transfers done by the
other tellers, and not necessarily by respondent Custodio. It may have been taken away during
the counting of the money by the cash custodian and the other tellers themselves.

Petitioner Metrobank even argued that respondent Custodio may have taken the money after
the cash custodian had returned the amounts turned over to the tellers and other employees
for sorting and counting.111 To begin with, this position is directly contrary to petitioner
Metrobank’s theory that respondent Custodio carried away the money in the morning of 13
June 1995. In addition, the cash custodian had asked for assistance from the other bank
employees to speed up the counting and sorting, which necessarily opens the possibility that
any of those involved could have been a suspect as well.112 Respondent Custodio even argued
that the money she had counted and sorted were funds turned over by other tellers, and not
the same funds she herself had given to the cash custodian.113 More disconcerting is the failure
of the cash custodian to even remember who were the employees who had helped her in
counting the cash at that time, since everybody was in a hurry to go home.114 The procedural
shortcuts resorted to by petitioner bank’s employees threw open the doors to a multitude of
probable scenarios, leading to ambiguity in determining civil liability.1âwphi1

The secondary and incidental facts offered by petitioner Metrobank do not prove the primary
factual issue that it wishes to establish in demanding the instant relief from the courts – that
respondent Custodio took the money.