G.R. No.

171628, June 13, 2011

ARMANDO V. ALANO [DECEASED], SUBSTITUTED BY ELENA ALANO-TORRES,* PETITIONER, VS.
PLANTER'S DEVELOPMENT BANK, AS SUCCESSOR-IN-INTEREST OF MAUNLAD SAVINGS AND LOAN
ASSOCIATION, INC.,*** RESPONDENT.

DECISION
DEL CASTILLO, J.:
"No one can give what he does not have" (Nemo dat quod non habet).

This Amended Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court assails the June 9, 2005
Decision [2] and the February 21, 2006 Resolution [3] of the Court of Appeals (CA) in CA G.R. CV No. 58554.

Factual Antecedents

Petitioner Armando V. Alano and his brother, the late Agapito V. Alano, Jr., inherited from their father a parcel of
land located at Gov. Forbes St., Sampaloc, Manila. [4]

On June 30, 1988, petitioner executed a Special Power of Attorney [5] authorizing his brother to sell their property
in Manila. From the proceeds of the sale, the brothers purchased on September 22, 1988 a residential house
located at No. 60 Encarnacion St., BF Homes, Quezon City. [6] The title of the Quezon City property, however, was
not immediately transferred to them because the duplicate and original copies of the title were destroyed by a fire
that gutted the Quezon City Hall Building. [7]

On June 27, 1990, Agapito V. Alano, Jr. died leaving behind his wife, Lydia J. Alano (Lydia), and four legitimate
children, who adjudicated to themselves the property in Quezon City. [8] Consequently, title to the said property
was reconstituted as Transfer Certificate of Title (TCT) No. 18990 and registered solely in the names of Lydia and
her four children. [9] This prompted petitioner to execute an Affidavit of Adverse Claim [10] which was annotated on
TCT No. 18990. [11] But because of the assurance of his nieces that they would put things right, petitioner agreed
to delay the filing of a case in court. [12]

Meanwhile, Lydia filed with the Register of Deeds of Quezon City an Affidavit of Cancellation of Adverse Claim, [13]
which caused the cancellation of the adverse claim annotated on TCT No. 18990. [14] Thereafter, by virtue of a
Deed of Absolute Sale [15] allegedly executed by her children in her favor, TCT No. 18990 was cancelled and a new
one, TCT No. 90388, was issued solely in her name. [16]

On February 8, 1994, Slumberworld, Inc., represented by its President, Melecio A. Javier, and Treasurer, Lydia,
obtained from Maunlad Savings and Loan Association, Inc. a loan of P2.3 million, secured by a Real Estate
Mortgage [17] over the property covered by TCT No. 90388. [18]

On April 20, 1994, petitioner filed a Complaint [19] against Lydia, Melecio A. Javier, Maunlad Savings and Loan
Association, Inc. and the Register of Deeds of Quezon City before the Regional Trial Court (RTC) of Quezon City,
which was raffled to Branch 92. Petitioner sought the cancellation of TCT No. 90388, the issuance of a new title in
his name for his one-half share of the Quezon City property, and the nullification of real estate mortgage insofar as
his one-half share is concerned. [20]

Defendants Maunlad Savings and Loan Association, Inc. and the Register of Deeds of Quezon City filed their
respective Answers. [21] Defendants Lydia and Melecio A. Javier, however, failed to file their respective
Answers. Thus, the RTC in an Order [22] dated August 29, 1994 declared them in default.

Ruling of the Regional Trial Court

On September 12, 1996, the RTC rendered its Decision [23] declaring petitioner the owner of one-half of the subject
property since an implied trust exists between him and the heirs of his brother. [24] The RTC, however, sustained
the validity of the real estate mortgage. [25] According to the RTC, Maunlad Savings and Loan Association, Inc. had
the right to rely on the Torrens title as there was no reason for it to doubt the mortgagor's ownership over the
subject property. [26] Accordingly, the fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring plaintiff Armando Alano the owner of one-half of the property in question;

2. Ordering the Register of Deeds of Quezon City to cancel TCT No. 90388 issued in the name of Lydia J. Alano and
the corresponding owner's duplicate certificate and to issue a new one in the names of Armando V. Alano, single[,]
Page 1 of 36
½ share pro indiviso and Lydia Alano, widow, ½ share pro indiviso with the corresponding mortgage lien
annotation in favor of the Maunlad Savings and Loan [Association,] Inc. upon finality of this decision;

3. Ordering the defendant Maunlad Savings and Loan [Association,] Inc. to surrender [the] owner's duplicate copy
of TCT No. 90388 to the Register of Deeds of Quezon City for cancellation upon finality of this decision;

4. Ordering defendants Lydia J. Alano and Melecio Javier to jointly and severally pay the plaintiff the sum of
P20,000.00 as attorney's fees and to pay the costs of suit.

SO ORDERED. [27]

Dissatisfied, petitioner moved for partial reconsideration [28] but the RTC denied the same in its Order [29] dated
February 24, 1997.

Ruling of the Court of Appeals

Petitioner appealed [30] to the CA but to no avail. The CA found Maunlad Savings and Loan Association, Inc. to be a
mortgagee in good faith since it took the necessary precautions to ascertain the status of the property sought to be
mortgaged as well as the identity of the mortgagor by conducting an ocular inspection of the property and
requiring the submission of documents, such as the latest tax receipts and tax clearance. [31] The CA thus disposed
of the appeal as follows:
WHEREFORE, premises considered, the appeal is hereby DISMISSED for lack of merit. The September 12, 1996
Decision of the Regional Trial Court of Quezon City, Branch 92, is hereby AFFIRMED.

SO ORDERED. [32]

Petitioner sought reconsideration [33] but the CA denied the same in its Resolution [34] dated February 21, 2006.
Issues

Hence, the present recourse, petitioner raising the following issues:

I. WHETHER THE REAL ESTATE MORTGAGE EXECUTED BY DEFENDANT LYDIA J. ALANO WAS VALID AND
BINDING WITH RESPECT TO PETITIONER'S CO-OWNER'S SHARE IN THE SUBJECT PROPERTY.
II. WHETHER DEFENDANT MAUNLAD SAVINGS AND LOAN ASSOCIATION, INC. WAS AN INNOCENT
MORTGAGEE IN GOOD FAITH.
III. WHETHER PETITIONER MAY RIGHTFULLY BE MADE TO SUFFER THE CONSEQUENCES OF DEFENDANT
LYDIA J. ALANO'S WRONGFUL ACT OF MORTGAGING THE SUBJECT PROPERTY. [35]

Petitioner's Arguments

Petitioner insists that Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith as it failed to
exercise due diligence in inspecting and ascertaining the status of the mortgaged property. Petitioner calls
attention to the testimony of Credit Investigator Carlos S. Mañosca, who admitted that when he inspected the
mortgaged property, he only checked the finishing of the house and the number of rooms. [36] Hence, he failed to
see petitioner's apartment at the back portion of the property. [37] Moreover, the fact that there was an adverse
claim annotated on the previous title of the property should have alerted Maunlad Savings and Loan Association,
Inc. to conduct further investigation to verify the ownership of the mortgaged property. [38] All these prove that
Maunlad Savings and Loan Association, Inc. was not a mortgagee in good faith. Corollarily, pursuant to Articles
2085 [39] and 493 [40] of the Civil Code, the real estate mortgage executed by Lydia is void insofar as petitioner's
share in the mortgaged property is concerned. [41]

Respondent's Arguments

Respondent contends that the issue of whether Maunlad Savings and Loan Association, Inc. is a mortgagee in good
faith is a question of fact, which is beyond the jurisdiction of this Court. [42] As to petitioner's allegation that there
was a separate apartment at the back portion of the property, respondent claims that this was never raised during
the trial or on appeal. [43] Hence, it is barred by estoppel. [44]

Respondent further claims that Maunlad Savings and Loan Association, Inc. has no obligation to look beyond the
title considering that there was no adverse claim annotated on TCT No. 90388 covering the mortgaged property.

Page 2 of 36
[45]And since the mortgaged property was occupied by the mortgagor Lydia, there was also no need for Maunlad
Savings and Loan Association, Inc. to verify the extent of her possessory rights. [46]
Our Ruling

The petition has merit.

The instant case is an exception to the

rule that factual issues may not be raised in a
petition under Rule 45 of the Rules of Court.

The rule that only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of
Court is not without exception. A review of factual issues is allowed when there is a misapprehension of facts or
when the inference drawn from the facts is manifestly mistaken. [47] This case falls under exception.

Maunlad Savings and Loan Association,

Inc. is not a mortgagee in good faith.

The general rule that a mortgagee need not look beyond the title does not apply to banks and other financial
institutions as greater care and due diligence is required of them. [48] Imbued with public interest, they "are
expected to be more cautious than ordinary individuals." [49] Thus, before approving a loan, the standard practice
for banks and other financial institutions is to conduct an ocular inspection of the property offered to be mortgaged
and verify the genuineness of the title to determine the real owner or owners thereof. [50] Failure to do so makes
them mortgagees in bad faith.

In this case, petitioner contends that Maunlad Savings and Loan Association, Inc. failed to exercise due diligence in
inspecting and ascertaining the status of the mortgaged property because during the ocular inspection, the credit
investigator failed to ascertain the actual occupants of the subject property and to discover petitioner's apartment
at the back portion of the subject property. [51]

Indeed, the existence of petitioner's apartment at the back portion of the subject property was never brought up
before the trial court and the appellate court. Nevertheless, we find petitioner's allegation of negligence
substantiated by the testimony of the credit investigator, to wit:

Q You said also that you inspected the property that was offered as collateral which is a house and lot located
at Encarnacion Street, BF Homes. Did you enter the property?
A Yes, ma'am.

Q And then you found out that the property was the home of Mrs. Lydia Alano and her children?
A Yes, ma'am.

ATTY. JAVELLANA
Q And you also saw that her brother-in-law Armando Alano was also residing there?
A I do not recall if he was there, ma'am.

Q You did not see him there?

When we went there ma'am, we only checked on the finishing of the house and also checked as
A
to the number of bedrooms and number of CR, ma'am.

Q You did not verify who were actually residing there?

A No, ma'am.

You said that you also conducted a neighborhood checking, did you ask the neighbor who were residing in
Q
that property?
A Yes, and we were told that Lydia Alano was the one residing there, ma'am.

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 Q You did not verify from them as to whether anybody else was residing there?
A No, ma'am. [52] (Emphasis supplied).

Clearly, while the credit investigator conducted an ocular inspection of the property as well as a "neighborhood
checking" and found the subject property occupied by the mortgagor Lydia and her children, [53] he, however,
failed to ascertain whether the property was occupied by persons other than the mortgagor. Had he done so, he
would have discovered that the subject property is co-owned by petitioner and the heirs of his brother. Since
Maunlad Savings and Loan Association, Inc. was remiss in its duty in ascertaining the status of the property to be
mortgaged and verifying the ownership thereof, it is deemed a mortgagee in bad faith. Consequently, the real
estate mortgage executed in its favor is valid only insofar as the share of the mortgagor Lydia in the subject
property. We need not belabor that under Article 493 [54] of the Civil Code, a co-owner can alienate only his pro
indiviso share in the co-owned property, and not the share of his co-owners.

WHEREFORE, the petition is hereby GRANTED. The assailed June 9, 2005 Decision and the February 21, 2006
Resolution of the Court of Appeals in CA G.R. CV No. 58554 are SET ASIDE. The September 12, 1996 Decision of
the Regional Trial Court of Quezon City, Branch 92, is hereby MODIFIED by declaring the mortgage in favor of
respondent Maunlad Savings and Loan Association, Inc. NULL and VOID insofar as the ½ share of petitioner in the
subject property is concerned, and ordering the annotation of the mortgage lien in favor of respondent only on the
½ share of Lydia J. Alano in the subject property.

SO ORDERED.

G.R. NO. 160843, July 11, 2006

CHINA BANKING CORPORATION, PETITIONER, VS. MARIA G. LAGON, REPRESENTED BY ARMANDO G.
LAGON AND/OR JOSE LAGON, JR., RESPONDENT.

DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated August 21, 2003 of the Court of Appeals in CA-G.R. CV No.
60853, which reversed and set aside the Joint Decision[2] dated April 3, 1998 of the Regional Trial Court of
Bayombong, Nueva Vizcaya, Branch 27, in Civil Cases Nos. 5158 and 5192, and the Resolution[3] dated November
14, 2003, denying reconsideration.

Representatives of Maria Lagon (the Lagons) in her behalf as the owner of three parcels of land covered by
Transfer Certificates of Title (TCT) Nos. T-56875 and T-11593 and Original Certificate of Title (OCT) No. P-1228,
filed two complaints docketed as Civil Case No. 5158 and Civil Case No. 5192. Both were filed by the Lagons
against Jao Bio Tong, China Banking Corporation (CBC) and the Acting Provincial Sheriff of Nueva Vizcaya. While
Civil Case No. 5158 involved lots covered by TCT Nos. T-56875 and T-11593, Civil Case No. 5192 involves only a
lot covered by OCT No. P-1228, both put in issue the authenticity of the Special Power of Attorney dated May 13,
1983 purportedly executed by Maria Lagon in favor of Jao and, hence the validity of the mortgage over the lots
covered by the said titles executed by Jao on behalf of Maria and in favor of CBC. The Lagons prayed for the
declaration of nullity of the special power of attorney allegedly executed by Maria in favor of Jao and the nullity of
the real estate mortgage executed by Jao to CBC. They also asked for the issuance of an injunctive writ and
damages. Eventually the two cases were heard jointly.

For their part, Jao and CBC insist the signature of Maria in the special power of attorney was authentic. In
response, CBC filed a counterclaim for the payment of the loans of Maria and damages. CBC also filed a cross-claim
against Jao.

During trial the following facts were established:

Sometime in 1981, Jao asked for credit accommodation from petitioner for P300,000 to be secured by a parcel of
land under TCT No. T-30817 in Mariveles Street, Quezon City. The land was in the name of Maria Lagon. Jao
represented that he had a special power of attorney, which he used previously to mortgage the same property to
Metropolitan Bank and Trust Company (Metrobank). He proposed that the proceeds of the loan be used to pay
P83,496.21 to Metrobank. Petitioner paid the Metrobank loan and the mortgage in favor of Metrobank was
cancelled.

Subsequently, petitioner granted Jao a loan line of P1,000,000, secured by a mortgage on the lot covered by TCT
No. T-30817. He first borrowed P300,000. Under the same loan line, Jao availed of four additional loans, P300,000
on June 22, 1983; P500,000 on June 22, 1983; P50,000 on September 5, 1983; and P50,000 on December 12,
Page 4 of 36
1983. The proceeds of the loan were applied to the obligations of respondent Maria with the Rural Bank of Ilagan,
Inc. and of Jao with the Vizcaya Savings and Loan Association, Inc. The latter was secured by mortgages over the
lots covered by TCT Nos. T-56875 and T-11593, both owned by Maria.

On July 28, 1983, the property under TCT No. T-30817 was substituted with three parcels of land covered by TCT
Nos. T-56875 and T-11593 and OCT No. P-1228, the herein contested three parcels. Jao presented two special
powers of attorney to mortgage the three parcels of land.

The loans of Maria and Jao matured but were unpaid. Thus, petitioner CBC prepared petitions for extra-judicial
foreclosure of the mortgaged properties, naming Maria and Jao as defendants. However, no foreclosure took place
because the Regional Trial Court of Bayombong, Nueva Vizcaya, Branch 27, upon filing of the Lagons, issued a
temporary restraining order preventing the holding of the auction sale.[4]

Meanwhile, Jao died while the cases were still on trial before Branch 27. Respondent Maria Lagon died in 1995.

On April 3, 1998, Branch 27 dismissed the complaints finding that there was sufficient evidence that the signatures
were authentic. The trial court ruled as follows:
WHEREFORE, judgment is hereby rendered in favor of defendants China Banking Corporation (CBC) and Jao Bio
Tong ordering:

(1) the dismissal of the complaint against both defendants and the cross-claim of defendant CBC against Jao;
(2) ordering the plaintiff to pay to the defendant CBC the sum of P19,180,331.14 which is the total amount of the
plaintiff's obligation under all the Promissory Notes (Exhibits "118-CBC", "119-CBC" and "120-CBC") plus the late
payment penalty of 1/10 of 1% of the total amount due and the interest at 26% per annum until all the said
obligation is fully paid, or, if the plaintiff can not pay this sum, and the penalty for late payment and the interest,
ordering the sale of the lots covered by TCT Nos. T-56875 and 11593 belonging to the plaintiff and the foreclosure
of the lot covered by OCT No. P-1228 also belonging to the plaintiff and the proceeds thereof applied to the
payment of the above-stated obligation in its totality;
(3) if after the sale of the mortgaged property, there is still a deficiency on the above-stated obligation, ordering
the plaintiff to pay such deficiency;
(4) ordering the plaintiff to pay to the defendant bank CBC the sum of P50,000.00 as and for attorney's fees;
(5) ordering the plaintiff to pay to the defendant bank CBC the sum of P42,073.20 as actual damages;
(6) ordering the plaintiff to pay the costs of the suit.
SO ORDERED.[5]
On appeal, the Court of Appeals on August 21, 2003, reversed and set aside the decision of the trial court and
declared the special powers of attorney and the real estate mortgages null and void. The Court of Appeals held that
Jao and petitioner failed to establish the due execution and authenticity of the special powers of attorney because
Jao admitted that these were notarized without the personal appearance of respondent before the notary public.
The Court of Appeals gave credence to the testimony of respondent's expert witness, NBI Questioned Document
Examiner Bienvenido Albacea over the testimony of petitioner's expert witness, Atty. Desiderio A. Pagui.

Petitioner's motion for reconsideration was denied. In this petition, petitioner raises the following issues:
I.
THE TESTIMONY OF PRIVATE PRACTISING DOCUMENT EXAMINER, ATTY. DESIDERIO PAGUI, AS AGAINST THAT OF
THE NBI QUESTIONED EXAMINER BIENVENIDO ALBACEA, OUGHT TO HAVE BEEN GIVEN SUPERIOR CREDENCE
AND GREATER WEIGHT ON APPEAL, BECAUSE:
(a) THE TRIAL COURT IS IN A BETTER POSITION TO EXAMINE THE REAL EVIDENCE, AND OBSERVE THE
DEMEANOR OF THE WITNESSES, AND CAN THEREFORE DISCERN IF THEY ARE TELLING THE TRUTH OR NOT.

(b) THE CREDIBILITY OF ATTY. DESIDERIO PAGUI AS AN EXPERT ON QUESTIONED DOCUMENTS WAS NOT EVEN
RAISED AS AN ISSUE IN THE APPEAL BRIEF OF RESPONDENT MARIA LAGON.

(c) IN CONTRAST, THE EXAMINATION CONDUCTED BY NBI DOCUMENT EXAMINER ALBACEA-

i. USED STANDARDS THAT WERE NOT ADEQUATE, APPROPRIATE AND CONTEMPORANEOUS;

ii. DID NOT COMPLY WITH THE FOUR (4) REQUIREMENTS TO THE "PROPER CONDITIONS UNDER WHICH
SCIENTIFIC HANDWRITING IDENTIFICATION MAY LEAD TO AN ACCURATE FINDING AND UNDER WHICH A
HANDWRITING EXPERT MAY BE ABLE TO RENDER AN ACCURATE OPINION.

(d) NBI DOCUMENT EXAMINER ALBACEA WAS IN FACT TECHNICALLY HIRED BY RESPONDENT LAGON THROUGH

Page 5 of 36
HER ATTORNEY-IN-FACT, ARMANDO LAGON, BY THE DEFRAYAL OF HIS TRAVELLING, LODGING AND OTHER
EXPENSES.
II.

RESPONDENT MARIA LAGON IS ESTOPPED FROM CONTESTING THE VALIDITY OF THE SPECIAL POWER OF
ATTORNEY AND THE REAL ESTATE MORTGAGES, BECAUSE:
(a) THROUGH THE PREVIOUS AUTHORITY (SPECIAL POWER OF ATTORNEY) TO DEFENDANT JAO BIO TONG TO
DEAL WITH "HER" PROPERTIES, RESPONDENT MARIA LAGON HELD OUT SAID DEFENDANT JAO BIO TONG AS HER
DULY AUTHORIZED ATTORNEY-IN-FACT.

(b) THE PROCEEDS OF THE LOANS OBTAINED FROM PETITIONER CBC WERE USED TO PAY OFF THE MORTGAGE
OBLIGATIONS OF RESPONDENT MARIA LAGON AND DEFENDANT JAO BIO TONG WITH OTHER BANKING
INSTITUTION.[6]
Simply stated, two issues are for resolution now: (1) Are the special powers of attorney (SPAs) of Jao spurious,
given the allegation of forgery? (2) Are the real estate mortgages executed by Jao valid? Both depend on the
threshold issue of credibility of respondent's expert witness, Bienvenido Albacea vis-á-vis petitioner's expert
witness, Desiderio A. Pagui.

Primarily, what petitioner questions is the credibility of Albacea as an expert witness. As petitioner claims, which
the trial court sustained, Atty. Pagui's testimony should be given more weight since the trial court was in a better
position to examine real and testimonial evidence. Besides, according to petitioner the credibility of Atty. Pagui was
never raised as an issue in respondent's appeal brief.

Moreover, according to petitioner, respondent clothed Jao with apparent authority as her agent, hence, she cannot
now be permitted to deny the authority of Jao to the prejudice of innocent third parties. In addition, petitioner
points out that respondent is estopped from questioning the validity of the mortgages because the loans were used
to pay the obligation of Maria Lagon with other banks.

Respondent's representatives counter that Atty. Pagui was a biased witness because he was hired by petitioner as
a practicing private document examiner. Significantly, they point out that respondent Maria was in the United
States at the time the SPAs were allegedly signed before the notary public in Nueva Vizcaya. They conclude that
the irregularity in the notarization shows that the SPAs were spurious and the respondent's signatures were
forgeries.

Respondent's representatives also add that contrary to the claim that Maria benefited from the loan, Maria's estate
ended up more heavily burdened since only a small portion of the loan obtained by Jao were applied to Maria's
obligations. Therefore, Maria's representatives should not be estopped from questioning the mortgages.

To begin with, the issue of whether the SPAs are authentic is a question of fact, that may be reviewed by this Court
only under exceptional circumstances[7] like when, as in this case, the findings of facts of the Court of Appeals are
at variance with those of the trial court.[8]

We have held in prior cases that generally, a notarized instrument is admissible in evidence without further proof
of its due execution and is conclusive as to the truthfulness of its contents,[9] and has in its favor the presumption
of regularity.[10] However, this presumption is not absolute and may be rebutted by clear and convincing
evidence.[11]

In his testimony, Jao admitted that the SPAs were not signed in the presence of the notary public, but pre-signed
by respondent in the United States. Likewise, respondent neither appeared personally before the notary public nor
acknowledged to him that the instrument was her own free and voluntary act and deed, contrary to what appears
in the SPAs' acknowledgement. Patently then, the notarization was irregular and could not be given probative
value.

As the respondent has repudiated the signatures in the SPAs and it was shown that she did not acknowledge these
before the notary public, the burden of proof to show the SPAs' authenticity, genuineness and due execution lay
with petitioner. In our view, petitioner failed in this task. The contrasting testimony of the experts on the
authenticity of the signatures of Maria could not benefit either side, considering the admission that the notarial
requisites had not been adhered to.

Finally, with respect to the credibility of the handwriting expert, courts are not bound to give probative value or
evidentiary value to the opinions of handwriting experts, as resort to handwriting experts is not mandatory. [12] The
courts may place whatever weight they choose upon such testimonies in accordance with the facts of the case. [13]
Page 6 of 36
In this case, resort to handwriting experts would not benefit either of the parties, considering the conflicting
testimonies of the expert witnesses and as earlier mentioned the fact that the notarial requirements had not been
met.

We are also not persuaded by petitioner's argument that respondent benefited from the loan. Assuming that
indeed part of the loan was used to pay for Maria's own loan, still the incontrovertible fact remains that the SPAs
were spurious and the mortgage unauthorized.

Moreover, petitioner could not be considered a mortgagee in good faith. It had knowledge that respondent was in
the United States at the time the SPAs were allegedly executed, yet, it did not question their due execution.
Though petitioner is not expected to conduct an exhaustive investigation on the history of the mortgagor's title, it
cannot be excused from the duty of exercising the due diligence required of a banking institution. [14] Banks are
expected to exercise more care and prudence than private individuals in their dealings, even those that involve
registered lands, for their business is affected with public interest.[15]

WHEREFORE, the petition is DENIED. The Decision dated August 21, 2003 and the Resolution dated November
14, 2003 of the Court of Appeals in CA-G.R. CV No. 60853 are hereby AFFIRMED.
Costs against petitioner.

SO ORDERED.

G.R. No. 177803, August 03, 2015

SPOUSES EMILIANO L. JALBAY, SR. AND MAMERTA C. JALBAY, PETITIONERS, VS. PHILIPPINE
NATIONAL BANK, RESPONDENT.

DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45 of the Rules of Court which petitioners spouses Emiliano L. Jalbay, Sr.
and Mamerta C. Jalbay (the Spouses Jalbay) filed, seeking the reversal of the Court of Appeals (CA) Decision[1]
dated November 29, 2006 and its Resolution[2] dated April 27, 2007 in CA-G.R. CV No. 80896. The CA reversed
the Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 100, which declared the real estate
mortgage in favor of respondent Philippine National Bank (PNB) null and void.

The facts of the case are as follows:

The subject property is a 257-square-meter lot at Del-Nacia Ville No. 4, Sauyo Road, Novaliches, Quezon City
registered under the names of the Spouses Jalbay. On June 11, 1988, the Transfer Certificate of Title (TCT)
covering said property was destroyed when the Office of the Quezon City Register of Deeds was gutted by
fire. Upon reconstitution, the title was issued in the name of “Emiliano Jalbay, married to Mamerta C. Jalbay,” and
because the Spouses Jalbay were then working and residing abroad, the title was released to their daughter,
Virginia Agus.

Sometime in 1993, Virginia and her husband, Danilo Agus (the Spouses Agus), applied for a loan with PNB, Ermita
Branch, in order to acquire additional funds for their garments business operating under the name of VJA
Garments. As a security, the Spouses Agus constituted a real estate mortgage over the subject lot, which they
represented as being owned by siblings Emiliano Jalbay, Jr., and Teresita Jalbay-Cinco. The aforesaid borrowers,
however, failed to settle their loan obligation. As a result, PNB foreclosed the mortgage over the property. It
likewise emerged as the highest bidder at the public auction.

Subsequently, during a short vacation in the country, the Spouses Jalbay learned about the mortgage and
foreclosure of their property. Contending that the real estate mortgage and the proceedings for its foreclosure
were invalid for lack of consent of the real registered owners, the Spouses Jalbay filed a complaint against PNB
before the Quezon City RTC. The case was docketed as Civil Case No. Q-97-30800. They likewise sought to
prevent the bank from consolidating its ownership over the parcel of land during the pendency of the case.

On April 3, 2003, the RTC declared the assailed real estate mortgage as null and void and the foreclosure
proceedings without force and effect.

Aggrieved, PNB and the Spouses Agus appealed the case before the CA for the reversal of the RTC ruling. On
November 29, 2006, the appellate court reversed and set aside the decision of the RTC and ordered the dismissal
of the complaint.
Page 7 of 36
The Spouses Jalbay thus filed a Motion for Reconsideration but the same was denied. Hence, the instant petition.

The Spouses Jalbay mainly posit that PNB did not act with the requisite diligence when it approved the loan
application of the Spouses Agus, Emiliano, Jr., and Cinco. They claim that the RTC was correct in finding that PNB
was not a mortgagee in good faith, making the mortgage constituted on the subject lot null and void.

The petition lacks merit.

In reversing the RTC Decision, the CA held that PNB followed standard banking practices in allowing the assailed
loan. According to it, PNB cannot be said to have acted with haste in approving the loan application since the bank
caused the subject property to be inspected and appraised, and even conducted a careful credit investigation on
the Spouses Agus, Emiliano, Jr., and Cinco. Victorio Sison, PNB’s Vice-President and Ermita Branch Manager,
testified on the witness stand:
xxx
Q. Aside from this loan application, what other document, if any, Mr. Witness, did the third-party defendants
submit to you for your consideration?
A. They also submitted their transfer certificate of title which will serve as collateral to the loans.
x x xx
Q. x x x Now, after this transfer certificate of title which you identified were submitted to you, what happened
next to the loan application of the third party defendant?
A. We processed the loan and we asked the assistance of the credit department to appraise the property and
conduct investigation on the borrowers and/or mortgagors.
Q. Was such appraisal and inspection done as directed by you?
A. It was requested by the branch headed by me to the credit department, whose functions are independent
from the branch.
Q. Do you have any proof to show that indeed there was appraisal and investigation conducted as requested by
you?
A. I think so because once we requested the credit department they submit their appraisal report within one or
two weeks.
xxx
Q. After this Inspection and Appraisal Report was submitted to you together with other loan documents, what
happened next to the loan application of third-party defendants?
A. After the appraisal report and the investigation report were submitted to us, we processed the loan and
accordingly we deliberated the loan. We found nothing wrong with both appraisal and investigation reports.
Q. And so, after you found nothing wrong in the loan application, what happened next?
A. We approve the application, we required them to submit the original TCT. After which we prepared the
corresponding Credit Agreement, the R.E.M. and we sent that to the Register of Deeds for registration. After
the Register of Deeds registered, then the parties concerned signed the Credit Agreement. We gave them
also the Promissory Note for them to sign as evidence that the money or funds will be released to them. [4]

Verily, PNB exerted the necessary diligence in granting the loan and entering into the assailed real estate
mortgage. Not only did it require Emiliano, Jr., Cinco, and the Spouses Agus to submit their biodata, duly
accomplished loan application and the TCT covering the mortgaged lot, it likewise caused the subject property to
be inspected and appraised, and conducted a thorough credit investigation on the persons of the borrowers.

True, banks, in handling real estate transactions, are required to exert a higher degree of diligence, care, and
prudence than individuals. Unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to exercise due diligence
before entering into a mortgage contract.[5] Indeed, there is a situation where, despite the fact that the mortgagor
is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure
sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good
faith," wherein buyers or mortgagees dealing with property covered by a Torrens Certificate of Title are no longer
required to go beyond what appears on the face of the title.[6] However, the rule that persons dealing with
registered lands can rely solely on the certificate of title is not applicable to banks. Thus, before approving a loan
application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the veracity of the title to determine its real owners. An ocular inspection is
necessary to protect the true owner of the property as well as innocent third parties with a right, interest or claim
Page 8 of 36
thereon from a usurper who may have acquired a fraudulent certificate of title.[7]

Here, the Court finds that PNB has complied with the required degree of diligence, prudence, and care in dealing
with the mortgagor. There was also no sign or circumstance which could have possibly triggered suspicion on the
bank’s part. Aside from the fact that the certificate of title to the subject lot is authentic and issued in the name of
Emiliano Jalbay, he also appeared to have been the one occupying said property. Hence, there is no compelling
reason to depart from the assailed rulings of the appellate court.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals dated
November 29, 2006 and its Resolution dated April 27, 2007 in CA-G.R. CV No. 80896 are AFFIRMED.

SO ORDERED.

G.R. NO. 146918, May 02, 2006

CITIBANK, N.A., PETITIONER, PRESENT: VS. SPOUSES LUIS AND CARMELITA CABAMONGAN AND THEIR
SONS LUIS CABAMONGAN, JR. AND LITO CABAMONGAN, RESPONDENTS.

DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision[1] dated January 26, 2001 and the
Resolution[2] dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033.

The factual background of the case is as follows:

On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign currency time
deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch, with Reference No. 60-
22214372, in the amount of $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per cent
interest per annum.[3] Prior to maturity, or on November 10, 1993, a person claiming to be Carmelita went to the
Makati branch and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of
America Versatele Card, an ATM card and a Mabuhay Credit Card.[4] She filled up the necessary forms for pre-
termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being
processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. [5]
Since the said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release
and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was
released to her.[6] The release and waiver document[7] was not notarized on that same day but the money was
nonetheless given to the person withdrawing.[8] The transaction lasted for about 40 minutes.[9]

After said person left, San Pedro realized that she left behind an identification card.[10] Thus, San Pedro called up
Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to
have the card picked up.[11] Marites, the wife of Lito, received San Pedro's call and was stunned by the news that
Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that
time.[12] The Cabamongan spouses work and reside in California. Marites made an overseas call to Carmelita to
inform her about what happened.[13] The Cabamongan spouses were shocked at the news. It seems that sometime
between June 10 and 16, 1993, an unidentified person broke in at the couple's residence at No. 3268 Baldwin Park
Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box was missing, but later
on, they discovered that other items, such as their passports, bank deposit certificates, including the subject
foreign currency deposit, and identification cards were also missing.[14] It was only then that the Cabamongan
spouses realized that their passports and bank deposit certificates were lost.[15]

Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that Carmelita was in
the United States and did not preterminate their deposit and that the person who did so was an impostor who
could have also been involved in the break-in of their California residence. San Pedro told the spouses to submit
the necessary documents to support their claim but Citibank concluded nonetheless that Carmelita indeed
preterminated her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through counsel,
made a formal demand upon Citibank for payment of their preterminated deposit in the amount of $55,216.69 with
legal interests.[16] In a letter dated November 28, 1994, Citibank, through counsel, refused the Cabamongan
spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper
identification and verification.[17]

On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the Regional Trial Court
of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150

Page 9 of 36
(RTC).[18]

In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject deposit
was released to Carmelita only upon proper identification and verification.[19]

At the pre-trial conference the parties failed to arrive at an amicable settlement.[20] Thus, trial on the merits
ensued.

For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents Examiner II of the
Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon City, testified. The Cabamongan
spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was in
California at the time of the incident.[21] Negre testified that an examination of the questioned signature and the
samples of the standard signatures of Carmelita submitted in the RTC showed a significant divergence. She
concluded that they were not written by one and the same person.[22]

For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-Charge of Security
and Management Division. Both San Pedro and Cabalatungan testified that proper bank procedure was followed
and the deposit was released to Carmelita only upon proper identification and verification.[23]

On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the
dispositive portion of which reads, thus:
WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:

1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372) amounting to $55,216.69
or its Phil. Currency equivalent plus interests from August 16, 1993 until fully paid;
2) Moral damages of P50,000.00;
3) Attorney's fees of P50,000.00; and
4) Cost of suit.
SO ORDERED.[24]
The RTC reasoned that:
xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the
signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by
the handwriting expert. xxx Defendant bank was clearly remiss in its duty and obligations to treat plaintiff's
account with the highest degree of care, considering the nature of their relationship. Banks are under the
obligation to treat the accounts of their depositors with meticulous care. This is the reason for their established
procedure of requiring several specimen signatures and recent picture from potential depositors. For every
transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities
and therefore must bear the blame when they fail to detect the forgery or discrepancy. [25]
Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider
the decision by praying for an increase of the amount of the damages awarded.[26] Citibank opposed the motion.[27]
On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dispositive
portion of the decision as follows:
From the foregoing, and considering all the evidence laid down by the parties, the dispositive portion of the court's
decision dated July 1, 1997 is hereby amended and/or modified to read as follows:
WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:

1) the principal amount of their foreign currency deposit (Reference No. 6022214372) amounting to $55,216.69 or
its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16,
1993 until fully paid.
2) moral damages in the amount of P200,000.00;
3) exemplary damages in the amount of P100,000.00;
4) attorney's fees of P100,000.00;
5) litigation expenses of P200,000.00;
6) cost of suit.
SO ORDERED.[28]
Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033.[29] On January 26, 2001, the
CA rendered a decision sustaining the finding of the RTC that Citibank was negligent, ratiocinating in this wise:
In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated on 10
November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in

Page 10 of 36
Baldwin Park, California, had shown through her Certificate of Employment and her Daily Time Record from the
[sic] January to December 1993 that she was in the United States at the time of the incident.

Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the deposit despite
claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident
mentioned presented a valid passport and three (3) other identification cards. The attending account officer
examined these documents and even interviewed said person. She was satisfied that the person presenting the
documents was indeed Carmelita Cabamongan. However, such conclusion is belied by these following
circumstances.

First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would not
have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the
deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank.
However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered
the money to the impostor without having the said document notarized on the flimsy excuse that another
department of the bank was in charge of notarization. The said procedure was obviously for the protection of the
bank but it deliberately ignored such precaution. At the very least, the conduct of the bank amounts to negligence.

Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported that
upon comparing the authentic signatures of Carmelita Cabamongan on file with the bank with the signatures made
by the person claiming to be Cabamongan on the documents required for the termination of the deposit, she
noticed that one letter in the latter [sic] signatures was different from that in the standard signatures. She
requested said person to sign again and scrutinized the identification cards presented. Presumably, San Pedro was
satisfied with the second set of signatures made as she eventually authorized the termination of the deposit.
However, upon examination of the signatures made during the incident by the Philippine National Police (PNP)
Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document Examiner
Florenda Negre were established and she satisfactorily testified on her findings during the trial, we have no reason
to doubt the validity of her findings. Again, the bank's negligence is patent. San Pedro was able to detect
discrepancies in the signatures but she did not exercise additional precautions to ascertain the identity of the
person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the
anomalous situation. Undoubtedly, the bank could have done a better job.

Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees could have been
duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not resemble the
pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction.
She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also
considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the
pictures on the identification cards had a mole. These explanations do not account for the disparity between the
pictures and the actual appearance of the impostor. That said person was allowed to withdraw the money anyway
is beyond belief.

The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of
bank personnel, whose duty is to check and countercheck transactions for possible errors. While a bank is not
expected to be infallible, it must bear the blame for failing to discover mistakes of its employees despite
established bank procedure involving a battery of personnel designed to minimize if not eliminate errors. In the
instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure
when she did not have the waiver document notarized. She also openly courted disaster by ignoring discrepancies
between the actual appearance of the impostor and the pictures she presented, as well as the disparities between
the signatures made during the transaction and those on file with the bank. But even if San Pedro was negligent,
why must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and
unrectified?[30]
The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date from which
legal interest of 12% is to run, it should be counted from September 16, 1994 when extrajudicial demand was
made. As to moral damages, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and
litigation expenses. Thus, the dispositive portion of the CA decision reads:
WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November 1997, are hereby
AFFIRMED with the MODIFICATION that the legal interest for actual damages awarded in the amount of
$55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation
expenses amounting to P200,000.00 are deleted; and moral damages is reduced to P100,000.00.

Costs against defendant.

SO ORDERED.[31]
Page 11 of 36
The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the
decision.[32] On July 30, 2001, the

CA granted in part said motion and modified its decision as follows:

1. The actual damages in amount of $55,216.69, representing the amount of appellees' foreign currency time
deposit shall earn an interest of 2.5625% for the period 16 August 1993 to 14 February 1994, as stipulated
in the contract;
2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest at the legal rate
of 12% per annum, and;
3. The award of moral damages is reduced to P50,000.00.[33]
Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The Cabamongan spouses'
petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001. [34] On
the other hand, Citibank's petition was given due course by the Court per Resolution dated December 10, 2001 and
the parties were required to submit their respective memoranda.[35]

Citibank poses the following errors for resolution:

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE
MISAPPREHENSION OF FACTS.
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL
COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID
AWARD.
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMOUNT OF
US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994
UNTIL FULL PAYMENT.[36]
Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was negligent
since the said courts failed to appreciate the extra diligence of a good father of a family exercised by Citibank thru
San Pedro.

As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral damages since
moral damages can be awarded only in cases of breach of contract where the bank has acted willfully, fraudulently
or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully, fraudulently or in bad
faith and mere negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on account
thereof, is not a ground for awarding moral damages.

On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625%
per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994
until full payment because as of said date there was no legal ground yet for the Cabamongan spouses to demand
payment of the principal and it is only after a final judgment is issued declaring that Citibank is obliged to return
the principal amount of US$55,216.69 when the right to demand payment starts and legal interest starts to run.

On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence.
As to the interest rate, they submit that the stipulated interest of 2.5635% should apply for the 182-day contract
period from August 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further contend that the
RTC's award of exemplary damages of P100,000.00 should be maintained. They submit that the CA erred in
treating the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses
in litigating their claim against Citibank. They also contend that the CA erred in reducing the award of moral
damages in view of the degree of mental anguish and emotional fears, anxieties and nervousness suffered by
them.[37]

Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,[38] wherein it posits that,
assuming that it was negligent, the Cabamongan spouses were guilty of contributory negligence since they failed
to notify Citibank that they had migrated to the United States and were residents thereat and after having been
victims of a burglary, they should have immediately assessed their loss and informed Citibank of the disappearance
of the bank certificate, their passports and other identification cards, then the fraud would not have been
perpetuated and the losses avoided. It further argues that since the Cabamongan spouses are guilty of
contributory negligence, the doctrine of last clear chance is inapplicable.

Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of the
doctrine of last clear chance cannot pass muster since these contentions were raised for the first time only in their
Supplemental Memorandum. Indeed, the records show that said contention were neither pleaded in the petition for
Page 12 of 36
review and the memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed with the CA.
To consider the alleged facts and arguments raised belatedly in a supplemental pleading to herein petition for
review at this very late stage in the proceedings would amount to trampling on the basic principles of fair play,
justice and due process.[39]

The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest
degree of diligence[40] is expected,[41] and high standards of integrity and performance are even required, of it.[42]
By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous
care,[43] always having in mind the fiduciary nature of their relationship."[44]

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of
deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the forgery. Its
negligence consisted in the omission of that degree of diligence required of banks. The Court has held that a bank
is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making
the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged."[45] Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving
millions of pesos.[46] By the very nature of their works the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and employees.[47] Banks are
expected to exercise the highest degree of diligence in the selection and supervision of their employees. [48]

The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted
disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be
Carmelita and the failure to surrender the original certificate of time deposit, the pretermination of the account was
allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing
the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank
is liable for damages.

As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or
forbearance of money and therefore, the interest rate of 6%, not 12%, applies.

The Court does not agree.

The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on simple
loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides
that ". . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the
depositor being the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the
depositor on demand.

The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines set
forth in Eastern Shipping Lines, Inc. v. Court of Appeals[49] to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. 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. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to run only from
Page 13 of 36
 the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.[50]
Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence
thereof, the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated interest
rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to February 14, 1994.
For the period from the date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12%
shall apply. As for the intervening period between February 15, 1994 to September 15, 1994, the rate of interest
then prevailing granted by Citibank shall apply since the time deposit provided for roll over upon maturity of the
principal and interest.[51]

As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages
are recoverable only if the defendant has acted fraudulently or in bad faith,[52] or is found guilty of gross
negligence amounting to bad faith, or in wanton disregard of his contractual obligations. [53] The act of Citibank's
employee in allowing the pretermination of Cabamongan spouses' account despite the noted discrepancies in
Carmelita's signature and photograph, the absence of the original certificate of time deposit and the lack of
notarized waiver dormant, constitutes gross negligence amounting to bad faith under Article 2220 of the Civil
Code.

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.[54] The amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is
deemed final and executory insofar as respondents are concerned considering that their petition for review had
been denied by the Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234.

Finally, Citibank contends that the award of attorney's fees should be deleted since such award appears only in the
dispositive portion of the decision of the RTC and the latter failed to elaborate, explain and justify the same.

Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must
be reasonable, just and equitable if the same were to be granted. Attorney's fees as part of damages are not
meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to litigate. [55] The award of
attorney's fees is the exception rather than the general rule. As such, it is necessary for the court to make findings
of facts and law that would bring the case within the exception and justify the grant of such award. The matter of
attorney's fees cannot be mentioned only in the dispositive portion of the decision.[56] They must be clearly
explained and justified by the trial court in the body of its decision. Consequently, the award of attorney's fees
should be deleted.

WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution are AFFIRMED
with MODIFICATIONS, as follows:
1. The interest shall be computed as follows:
a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time
deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February
14, 1994;
b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and the interest
earned as of February 14, 1994 shall earn interest at the rate then prevailing granted by Citibank;
c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the interest earned
as of September 15, 1994, shall earn interest at the legal rate of 12% per annum;
2. The award of attorney's fees is DELETED.
No pronouncement as to costs.

SO ORDERED.

Page 14 of 36
G.R. No. 132390, May 21, 2004
BPI FAMILY SAVINGS BANK, INC., PETITIONER, VS. 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 Decision[1] dated July 4, 1997 and Resolution[2] dated January 28, 1998 of the Court of
Appeals in CA-G.R. CV No. 44986, “First Metro Investment Corporation vs. BPI Family Bank.”

The facts as found by the trial court and affirmed by the Court of Appeals are as follows:

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. Sebastian’s 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 latter’s 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 FMIC’s 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 with BPI 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:
“Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay:
a. the amount of P80 million with interest at the legal rate from the time this complaint was filed less
P14,667,678.01;
b. the amount of P100,000.00 as reasonable attorney’s fees; and
c. the cost.
SO ORDERED.”
On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed Decision with
modification, thus:
“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.

Page 15 of 36
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:
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 FMIC’S COMPLAINT, MOTION FOR RECONSIDERATION OF THE TRIAL COURT’S 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 respondent’s 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
respondent’s 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, petitioner’s Branch Manager, and Antonio Ong, respondent’s 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. Respondent’s 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]

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 (depositor’s) checks.”[4]

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 Tevesteco’s savings
account. Certainly, such was a normal reaction of respondent as a depositor to petitioner’s 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, petitioner’s argument that Central Bank regulations prohibit demand deposit from earning
interest is bereft of merit.
Page 16 of 36
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:
“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 respondent’s account with petitioner is a demand deposit, still it would earn interest.

Going back to the unauthorized transfer of respondent’s 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 respondent’s 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 vs. Court of Appeals, [6]
thus:
“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 vs. Government Service Insurance System,[7] we ruled:
“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 vs. 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 (petitioner’s) internal procedures. Petitioner’s 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 respondent’s representative
in failing to find out the scope of authority of petitioner’s 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 respondent’s 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
Page 17 of 36
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]

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 Tevesteco’s
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, petitioner’s transfer of respondent’s 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.
G.R. No. 121413, January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (FORMERLY INSULAR BANK OF ASIA AND AMERICA),
PETITIONER, VS. COURT OF APPEALS AND FORD PHILIPPINES, INC. AND CITIBANK, N.A.,
RESPONDENTS.

G.R. NO. 121479

FORD PHILIPPINES, INC., PETITIONER-PLAINTIFF, VS. COURT OF APPEALS AND CITIBANK, N.A. AND
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, RESPONDENTS.

G.R. NO. 128604

FORD PHILIPPINES, INC., PETITIONER, VS. CITIBANK, N.A., PHILIPPINE COMMERCIAL

INTERNATIONAL BANK AND THE COURT OF APPEALS, RESPONDENTS.

DECISION
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.

The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, 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 syndicate.

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision[1] of 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 Philippine Commercial International Bank), and the August 8, 1995 Resolution, [2] ordering the
collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867.

In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision [3] of the Court of Appeals and
its March 5, 1997 Resolution[4] in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and
Philippine Commercial International Bank," affirming in toto the judgment of the trial court holding the defendant
drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied
proceeds of the plaintiff's Citibank 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:
Page 18 of 36
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff's percentage or
manufacturer's sales taxes for the third quarter of 1977.

The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the
Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as
collecting or depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the
Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was
compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales
taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was
duly received by the Bureau of Internal Revenue.

It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been
maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and
issued by the plaintiff in favor of the 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 check in the amount of P4,746,114.41 to the defendant IBAA.

It has been duly established that for the payment of plaintiff's percentage tax for the 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 Metrobank, Alabang Branch to receive the tax
payment of the plaintiff.

On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the 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 same day, with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented the check for
payment to defendant Citibank on same date, December 19, 1977, and the latter paid the face value of the check
in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in plaintiff's account
with the defendant Citibank and the check was returned to the plaintiff.

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 addressed to the plaintiff -
supposed to be Exhibit "D", the latter was officially informed, among others, that its check in the amount of
P4,746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized
persons, hence, plaintiff has to pay the said amount within fifteen days from receipt 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 payment of plaintiff's percentage tax for the third quarter of 1977.

As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to
the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank)
with the latter as the surviving entity.

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 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 cause of
plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question.

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-04867 was paid
to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant Citibank."[5]
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
Page 19 of 36
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 court 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. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, 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, plus costs;
2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI BANK) to reimburse
defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with
the next preceding paragraph;
3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-
defendant against the cross-claimant are dismissed, for lack of merits; and
4. With costs against the defendants.
SO ORDERED."[6]
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for
review on certiorari to the Court of Appeals. On March 27, 1995, the appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.

The court hereby renders judgment:

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]
PCIBank 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 cause 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:
Page 20 of 36
 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. PCIBank 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 syndicate 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 left 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 concerned, 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 anew,
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, of delivering the same to 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
Page 21 of 36
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 shares 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 CASTILLO 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) REMBERTO
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 absolving 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 of 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 institution.
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 arguendo that defendant 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 in 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 appropriate quarterly percentage taxes of Ford, the checks were diverted and
encashed for the eventual distribution among the members 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:

Page 22 of 36
"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 force 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 perpetrator in breach of faith
amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his
principal. If the principal could prove that there was no negligence in the performance of his duties, he may set up
the personal defense to escape liability and recover from other parties who, through their own negligence, allowed
the commission of the crime.

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 the question 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 in 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 funds of
Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damage to Ford lies in
its own officers and employees who carried out the fraudulent 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 that 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 concurring 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, assuming, 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 which 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
Page 23 of 36
No. SN-04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in the
ordinary 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
employees, 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 perpetrating the fraud and imposing the
forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of 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:
"x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collecting bank of the BIR, it has the responsibility to make sure that the check in question is deposited
in Payee's account only.
xxxxxxxxx

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 one Godofredo Rivera and in his
signature to the authenticity of such signature considering that the plaintiff is not a client of the defendant IBAA."
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 agreement 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 GUARANTEED 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
asserts that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questioned crossed
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 question 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
scrutinize the check and to know its depositors before it could make the clearing indorsement "all prior
Page 24 of 36
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 defendant'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
precautions to learn whether or not it is genuine. And if the one cashing the check through indifference or other
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
personal, 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 participation 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 participated.

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 Pro-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 it 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 indebtedness lodged with his bank for collection, the
bank is liable for his misappropriation of such sum.[30]
Page 25 of 36
Moreover, as correctly pointed out by Ford, Section 5[31] 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 checks 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 infirmity 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 62[32] of the Negotiable
Instruments Law, Ford argues that by accepting the instrument, the acceptor 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,
constitutes 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 importance 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]

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability to seek
judicial relief seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the
relief was sought only in 1983, or seven years thereafter.

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

Our laws on the matter provide that the action upon a written contract must be brought within ten years from the
time the right of action accrues.[41] Hence, the reckoning time for the prescriptive period begins when the
instrument was issued and the corresponding check was returned by the bank to its depositor (normally a month

Page 26 of 36
thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of Citibank Check No. SN
04867 would normally be a month after December 19, 1977, when Citibank paid the face value of the check in the
amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1983,
barely six years had lapsed. Thus, we conclude that 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 that Ford is not completely blameless in its failure to detect the fraud. Failure on the part of
the depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a
reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due care and
diligence find therein, serves to mitigate the banks' liability by reducing the award of interest from twelve percent
(12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines,
responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages that he may recover.[42]

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

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

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

SO ORDERED.

G.R. No. 113236, March 05, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, PETITIONER, VS. COURT OF APPEALS AND
LUZON DEVELOPMENT BANK, RESPONDENTS.

DECISION
QUISUMBING, J.:
This petition assails the decision[1] dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546,
which affirmed the judgment[2] of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:
...[D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of
the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its
client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special
savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the
medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.

In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby
Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.

On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit
Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by
the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This
singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal
slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as
a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff
the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:
Page 27 of 36
DATE WITHDRAWAL AMOUNT
SLIP NO.

June 15, 1978 42127 P1,198,092.80

July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it
[sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips.
Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored
and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that
defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00
plaintiff's belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and
that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On this
basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per
agreement (Exh. "B").

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated
June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not
paid for the reason `NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total
sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's
gross negligence.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the
damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file
this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are
recoverable from the defendant.

Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions
mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it
was denied by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth
being that when the special withdrawal slips were received by defendant, it only verified whether or not the
signatures therein were authentic, and whether or not the deposit level in the passbook concurred with the savings
ledger, and whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special
withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly negligent in
treating the withdrawal slips as check when it is clearly stated therein that the withdrawal slips are non-negotiable;
that defendant is not a privy to any of the transactions between Fojas-Arca and plaintiff for which reason defendant
is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff
it is merely an extension of usual bank courtesy to a prospective client; that defendant is only dealing with its
depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause
of action against it (pp. 1-3, Dec.; pp. 368-370, id).[3]
Petitioner's complaint[4] for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113,
docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was
liable for damages under Article 2176[5] in relation to Articles 19[6] and 20[7] of the Civil Code. As noted by the CA,
petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of
the special withdrawal slips without the presentation of the depositor's passbook thereby giving the impression that
the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general
appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor
two of the four special withdrawal slips.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed
the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present
the passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent
bank was negligent in not requiring a passbook under the subject transaction. The appellate court also found that
the special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's
assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the
respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to
Page 28 of 36
do so would have been a violation of the law on the secrecy of bank deposits.

Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any
fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the
dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code.[8]
The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by
petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from
the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current
account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention
arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated
June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency
of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires
from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from
petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.[9] Hence,
the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this
case.[10] Petitioner itself concedes this point.[11] Thus, respondent bank was under no obligation to give immediate
notice that it would not make payment on the subject withdrawal slips. Citibank should have known that
withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to
the situation involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had
honored and paid the previous withdrawal slips, automatically credited petitioner's current account with the
amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent
bank. It presumed that the withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money.[12] The withdrawal slips in question lacked this character.

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 millions of pesos.[13] The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be
honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the
highest degree of care.[14]

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the
basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the name of the depositor or current
account holder, the date of the deposit, and the amount of the deposit either in cash or in check.[15]

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner
admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously
accepted them as such, Citibank - and petitioner as account-holder - must bear the risks attendant to the
acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent
liable for their admitted mistake.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. 173134, September 02, 2015
BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. TARCILA FERNANDEZ, RESPONDENT.
Page 29 of 36
DALMIRO SIAN, THIRD PARTY RESPONDENT.

DECISION
BRION, J.:
We resolve the Petition for Review on Certiorari filed by the petitioner Bank of the Philippine Islands (BPI) under
Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) July 14, 2005 Decision[1] and the June 14, 2006
Resolution[2] in CA-G.R. CV No. 61764.
The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her proportionate share in
the proceeds of four joint AND/OR accounts that the petitioner BPI released to her estranged husband Manuel G.
Fernandez (Manuel) without the presentation of the requisite certificates of deposit. The facts leading to this
dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and Marco Fernandez,
opened the following AND/OR deposit accounts with the petitioner BPI, Shaw Blvd. Branch:
1) Peso Time Certificate of Deposit No. 2425545 issued on June 27, 1991 in the name(s) of Manuel G.
Fernandez Sr. or Baby Fernandez or Monique Fernandez in the amount of P1,684,661.40, with a term of
90 days and a corresponding interest at 17.5% per annum;[3]

2) Peso Time Certificate of Deposit No. 2425556 issued on July 1, 1991 in the name(s) of Manuel G.
Fernandez Sr. or Marco Fernandez or Tarcila Fernandez, in the amount of P1,534,335.10, with a term
of 92 days and interest at 17.5% per annum;[4]

3) FCDU Time Certificate of Deposit No. 449059 issued on August 27, 1991 in the name(s) of Manuel or
Tarcila Fernandez in the amount of US$36,219.53, with a term of 30 days and interest at 5.3125% per
annum;

4) Deposit under SA No. 3301-0145-61 issued on September 10, 1991 in the name(s) of Manuel Fernandez
or Baby Fernandez or Monique Fernandez in the amount of P11,369,800.78 with interest at 5% per
annum.[5]

The deposits were subject to the following conditions:

"x x x
2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if pre-termination is
allowed, it is subject to an interest penalty to be determined on the date of pre-termination;
3. Endorsement and presentation of the Certificate of Deposit is necessary for the renewal or
termination of the deposit"
On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint AND/OR accounts.
She brought with her the certificates of time deposit and the passbook, and presented them to the bank. BPI,
however, refused the requested pre-termination despite Tarcila's presentation of the covering certificates. Instead,
BPI, through its branch manager, Mrs. Elma San Pedro Capistrano (Capistrano), insisted on contacting
Manuel, alleging in this regard that this is an integral part of its standard operating procedure.[6]

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination of the joint AND/OR
accounts.[7] Manuel claimed that he had lost the same certificates of deposit that Tarcila had earlier brought with
her.[8] BPI, through Capistrano, this time acceded to the pre-termination requests, blindly believed Manuel's
claim,[9] and requested him to accomplish BPI's pro-forma affidavit of loss.[10]

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR accounts. He was
accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian), and two (2) alleged National Bureau
of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss that he previously
accomplished and an Indemnity Agreement that he and Sian executed on the same day. The Indemnity Agreement
discharged BPI from any liability in connection with the pre-termination.[11] Notably, none of the co-depositors
were contacted in carrying out these transactions.

Page 30 of 36
On the same day, the proceeds released to Manuel were funneled to Sian's newly opened account with BPI.
Immediately thereafter, Capistrano requested Sian to sign blank withdrawal slips, which Manuel used
to withdraw the funds from Sian's newly opened account.[12] Sian's account, after its use, was closed on
the same day.[13]

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of Marriage, etc." against
Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC No. 2098.[14] Based on the records, this
civil case has been archived.[15]

Tarcila never received her proportionate share of the pre-terminated deposits,[16] prompting her to demand from
BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When her demands remained unheeded,
Tarcila initiated a complaint for damages with the Regional Trial Court (RTQ of Makati City, Branch 59, docketed as
Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits were invalid with
respect to her share.[17] She argued that BPI was in bad faith for allowing the pre-termination of the time deposits
based on Manuel's affidavit of loss when the bank had actual knowledge that the certificates of deposit were in her
possession.[18]

In its answer, BPI alleged that the accounts contained conjugal funds that Manuel exclusively funded. [19] BPI
further argued that Tarcila could not ask for her share of the pre-terminated deposits because her share in the
conjugal property is considered inchoate until its dissolution.[20] BPI further denied refusing Tarcila's request for
pre-termination as it processed her request but she left the branch before BPI could even contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity Agreement they
had previously executed. As summons against Manuel remained unserved,[21] only BPI's complaint against Sian
proceeded to trial.

During the pre-trial, the parties admitted, among others, the conjugal nature of the funds deposited with BPI.

After trial on the merits, the RTC of Makati, Branch 59, ruled in favor of Tarcila and awarded her the following
amounts: 1.) 1/2 of US$36,379.87; 2.) 1/3 of P11,3369,800.78; 3.) 1/3 of Php1,684,661.40; and 1/3 of
P1,534,335.10. The RTC likewise ordered BPI to pay Tarcila the amount of P50,000.00 representing exemplary
damages and P500,000.00 as attorney's fees.

In its decision,[22] the RTC opined that the AND/OR nature of the accounts indicate an active solidarity that thus
entitled any of the account holders to demand from BPI payment of their proceeds. Since Tarcila made the first
demand upon BPI, payments should have been made to her[23] under Article 1214 of the Civil Code, which
provides:
"Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to him."
The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that he was merely
coerced into signing the Indemnity Agreement.[24] BPI appealed the RTC ruling with the CA.
CA Ruling

On July 14, 2005, the CA denied BPFs appeal through the decision[25] that BPI now challenges before this Court.
The CA ruled that as a co-depositor and a solidary creditor of joint "AND/OR" accounts, BPI did not enjoy the
prerogative to determine the source of the deposited funds and to refuse payment to Tarcila on this basis.

The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the certificates of deposits
and in facilitating the swift funneling of the funds to Sian's account, which allowed Manuel to withdraw them.[26]
The CA noted that the transactions were accomplished in one sitting for the purpose of misleading anyone who
would try to trace Manuel's deposit accounts.[27]

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It affirmed the factual
finding that intimidation and undue influence vitiated Sian's consent in signing the Indemnity Agreement. [28]

BPI moved for the reconsideration of the CA ruling, but the appellate court denied its motion in its June 14, 2006
Resolution.[29] BPI then filed the present petition for review on certiorari under Rule 45 with this Court.
The Petition and Comment

Page 31 of 36
BPI insists in its present petition[30] that the CA and the court a quo erred in applying the provisions of Article 1214
of the Civil Code to the present case. It believes that the CA should have relied on the conjugal partnership of
gains provision in view of the existing marriage between the spouses. Accordingly, BPI argues that Tarcila could
not have suffered any damage from its payment of the proceeds to Manuel inasmuch as the proceeds of the pre-
terminated accounts formed part of the conjugal partnership of gains.

BPI likewise claims that it did not breach its obligations under the certificates of deposit; it processed Tarciia's pre-
termination request but she left the branch before her request could be completed. Moreover, assuming without
conceding that BPI indeed declined Tarciia's request, it posits that it possessed the discretion to do so since the
request for pre-termination was done prior to their maturity dates. Thus, BPI firmly believes that it could not be
accused of wanton, fraudulent, reckless, or malevolent conduct as it was merely exercising its rights.

Finally, BPI insists that Sian's consent was not vitiated when he signed the Indemnity Agreement. According to
BPI, the records are bereft of any proof that Sian was actually threatened to sign the Indemnity Agreement. Thus,
BPI maintains that it may validly invoke the Agreement to release itself from any liability.

In her Comment,[31] Tarcila points out that the petition raised questions of fact that are not proper issues in a
petition for review on certiorari.[32] She also argues that BPI's acts were not mere precautionary steps but were
indicia of bias and bad faith. Finally, Tarcila adds that the issue of who has management, control, and custody of
conjugal property cannot be set up to justify BPI's patent bad faith.

Sian failed to file his Comment on the petition. Nevertheless, he filed a Memorandum [33] in compliance with the
Court's September 22, 2008 Resolution.[34] He alleged that Manuel forced and intimidated him to sign the
Indemnity Agreement.
THE COURT'S RULING

We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of
money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of debtor and creditor between the bank and the
depositor is created.[35] In particular, the certificates of deposit contain provisions on the amount of interest,
period of maturity, and manner of termination. Specifically, they stressed that endorsement and presentation of
the certificate of deposit is indispensable to their termination. In other words, the accounts may only be
terminated upon endorsement and presentation of the certificates of deposit. Without the requisite
presentation of the certificates of deposit, BPI may not terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two steps. First, it must
ensure the identity of the account holder. Second, BPI must demand the surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability measure to other
co-depositors. By requiring the presentation of the certificates prior to termination, the other depositors
may rely on the fact that their investments in the interest-yielding accounts may not be
indiscriminately withdrawn by any of their co-depositors. This protective mechanism likewise benefits
the bank, which shields it from liability upon showing that it released the funds in good faith to an
account holder who possesses the certificates. Without the presentation of the certificates of deposit, BPI
may not validly terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the prejudice of
Tarcila. BPI allowed the termination of the accounts without demanding the surrender of the certificates of
deposits, in the ordinary course of business. Worse, BPI even had actual knowledge that the certificates of
deposit were in Tarcila's possession and yet it chose to release the proceeds to Manuel on the basis of
a falsified affidavit of loss, in gross violation of the terms of the deposit agreements.

As we have stressed in the case of FEBTC v. Querimit:[36]

"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement. As a rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove payment. The debtor has the burden of

Page 32 of 36
showing with legal certainty that the obligation has been discharged by payment, x x x Petitioner
should not have paid respondent's husband or any third party without requiring the surrender of the
certificates of deposit."[37]
BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal in character. This
contention, however, is misleading. The principal issue involved in the present case is BPFs breach of its obligations
under the express terms of the certificates of deposit and the consequent damage that Tarcila suffered as a co-
depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the proceeds of the
certificates of deposits. As the CA noted in the assailed Decision, the series of transactions were accomplished
in one sitting for the purpose of misleading anyone who would try to trace the proceeds of [Manuel]'s
deposit accounts.[38] As the court a quo likewise observed:
"Aside from the affidavit of loss, the bank required [Manuel] to execute an Indemnity Agreement. Hence, on
September 26, 1991, [Manuel] returned to the bank. This time, Dalmiro Sian, his son-in-law, Atty. Hector
Rodriguez, his lawyer, and two NBI agents were with him. There, the bank required him and Sian to sign an
Indemnity Agreement whereby they undertook "to hold the bank free and harmless from all liabilities arising from
said [pre-termination]." The agreement was prepared by one of the officers of the bank. At the same time, Sian
was told to open a new account under his name. The opening of a new account N. 3305-0539-44 in the
name of Sian was facilitated. The proceeds of the four deposit accounts were then transferred or
deposited to this new account in the name of Sian. x x x Sian also signed two blank withdrawal slips. With
the use of these withdrawal slips, [Manuel] Fernandez withdrew all the proceeds deposited under the
name of Sian. Shortly thereafter, account no. 3305-0539-44 was closed."[39]
It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share in proceeds.
Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by making it appear that the funds
were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these transactions. Bad faith
imports a dishonest purpose and conscious wrongdoing.[40] It means a breach of a known duty through some
motive or interest or ill will.[41]

A review of the records of the case show ample evidence supporting BPI's bad faith, as shown by the clear bias it
had against Tarcila. As the CA observed:
"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the face of the fact
that [BPI]'s officers did not require the presentation of the certificates of deposit from [Manuel] but
even assisted and facilitated the pre-termination transaction by the latter on the basis of a mere pro-
forma and defective affidavit of loss, which the bank itself supplied, despite the fact that [BPI]'s
officers were fully aware that the certificates were not lost but in the possession of [Tarcila]. Moreover,
given the fact that said affidavit of loss was executed by [Manuel] just a few minutes after [Tarcila] had presented
the certificates of deposit to [BPI], it taxes one's credulity to say that [BPI] believed in good faith that the
certificates were indeed lost."[42]
Similarly, the trial court observed:
"It is quite alarming to note the eagerness and haste by which the defendant bank accommodated [Manuel] 's
request for the pre-termination of the questioned account deposits and the subsequent release to him of the full
proceeds thereof, to the exclusion of the [Tarcila]. The prejudice of the officers of [BPI] against the [Tarcila] is very
apparent. Elma Capistrano, branch manager, categorically testified that [Tarcila] is a client of the bank only in
name; and that she does not consider [Tarcila] as a primary depositor to the account because the source of the
money being deposited and being transacted was [Manuel]."[43]
BPI argues that it merely took precautionary steps when it insisted on contacting Manuel as a form of standard
operating procedure. This assertion, however, is belied by BPI's own witness. During her testimony, Capistrano
narrated:
"x x x

Q: Can you tell us why it was necessary for the branch to get in touch with Mr. Manuel Fernandez?

A: Because he is the one that handles and is in control of all the money deposited in the branch[44]

Page 33 of 36
xxx

Q: I heard you mentioned the word "primary depositor" does that mean that Mrs. Tarcila Fernandez is not a
primary depositor?

A: Personally, I do not really consider her as the primary depositor to the account because the source
of the money being deposited and being transacted was Mr. Manuel Fernandez.[45]

xxx

Q: Were you the one who recommended that Mr. Manuel Fernandez prepare this affidavit of loss?

A: That is the usual things that we tell our clients if the original of the certificates of deposits (sic) or passbook
or checkbooks are missing.

Q: But is it not a fact that earlier a few minutes before Mr. Fernandez came, you were aware that the
certificates were not actually missing but were in the possession of Mrs. [Tarcila] Fernandez, is it
not?

A: Yes Sir.

Q: And yet when this affidavit of loss was later prepared and presented to you, did you give due
course to this affidavit of loss? Did you accept the truth of the contents of this affidavit of loss?

A: Because it is Mr. [Manuel] Fernandez who is in possession of all the certificates, and if he is
missing it, I believed that it is really missing."[46]
The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel as the primary
depositor despite the clear import of the nature of their AND/OR account, which permits either or any of the co-
depositors to transact with BPI, upon the surrender of the certificates of deposit. Worse, BPI facilitated the
scheme in order to allow Manuel to obtain the proceeds and conceal any evidence of wrongdoing.

BPI did not only fail to exercise that degree of diligence required by the nature of its business, it also
exercised its functions with bad faith and manifest partiality against Tarcila. The bank even recognized
an affidavit of loss whose allegations, the bank knew, were false. This aspect of the transactions opens
up other issues that we do not here decide because they are outside the scope of the case before us.

One aspect is criminal in nature because Manuel swore to a falsity and the act was with the knowing
participation of bank officers. The other issue is administrative in character as these bank officers
betrayed the trust reposed in them by the bank. We mention all these because these are disturbing
acts to observe in a banking institution as large as the BPI.

BPI is sternly reminded that the business of banks is impressed with public interest. The fiduciary nature of their
relationship with their depositors requires it to treat the accounts of its clients with the highest degree of
integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also transgresses the
general banking law[47] and Article 19 of the Civil Code, which directs every person, in the exercise of his rights, "to
give everyone his due, and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

BPI assails the CA's declaration voiding the Indemnity Agreement that would allow it to hold Sian liable for the
withdrawn deposits.[48] It argues that Sian's allegation of vitiation of consent should not be recognized as it is
based solely on the presence of Manuel's lawyer and two (2) alleged NBI Agents.[49] BPI thus claims that "mere
presence" of law enforcement officers cannot be reasonably equated as imminent threat.[50]

This particular issue involves a factual determination of vitiated consent, which is a question of fact and one which
is not generally appropriate in a petition for review on certiorari under Rule 45. We, however, are not precluded
from again examining the evidence introduced and considered with respect to this factual issue where the CA's
Page 34 of 36
finding of vitiated consent is both speculative and mistaken.[51]

We agree with BPFs observation on this point that there is nothing in the records that even remotely resembles
vitiation of consent. In order that intimidation may vitiate consent, it is essential that the intimidation was the
moving cause for giving consent.[52] Moreover, the threatened act must be unjust or unlawful.[53] In addition, the
threat must be real or serious, and must produce well-grounded fear from the fact that the person making the
threat has the necessary means or ability to inflict the threat.[54]

Nothing in the records supports this conclusion. In fact, we find it difficult to believe that the presence of Manuel,
his lawyer, and two (2) NBI agents could amount to intimidation in the absence of any act or threatened
injury on Sian. If he did sign the Indemnity Agreement with reluctance, vitiation of consent is still negated, as we
held in Vales v. Villa:[55]
"There must, then, be a distinction to be made between a case where a person gives his consent reluctantly and
even against his good sense: and judgment, and where he, in reality, gives no consent at all, as where he executes
a contract or performs an act against his will under a pressure which he cannot resist. It is clear that one acts as
voluntarily and independently in the eye of the law when he acts reluctantly and with hesitation as when he acts
spontaneously and joyously. Legally speaking he acts as voluntarily and freely when he acts wholly against his
better sense and judgment as when he acts in conformity with them. Between the two acts there is no difference in
law. But when his sense, judgment, and his will rebel and he refuses absolutely to act as requested, but is
nevertheless overcome by force or intimidation to such an extent that he becomes a mere automation and acts
mechanically only, a new element enters, namely, a disappearance of the personality of the actor. He ceases to
exist as an independent entity with faculties and judgment, and in his place is substituted another — the one
exercising the force or making use of intimidation. While his hand signs, the will which moves it is another's. While
a contract is made, it has, in reality and in law, only one party to it; and, there being only one party, the one using
the force or the intimidation, it is unenforceable for lack of a second party.

From these considerations it is clear that every case of alleged intimidation must be examined to determine within
which class it falls. If it is within the first class it is not duress in law, if it falls in the second, it is."
This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity Agreement on the basis
of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine resting on the theory that courts will not
aid parties who base their cause of action on their own immoral or illegal acts.[56] When two parties, acting
together, commit an illegal or wrongful act, the party held responsible for the act cannot recover from the other,
because both have been equally culpable and the damage resulted from their joint offense. [57]

In the present case, equity dictates that BPI should not be allowed to claim from Sian on the basis of the
Indemnity Agreement. The facts unmistakably show that both BPI and Sian participated in the deceptive scheme to
allow Manuel to withdraw the funds. As succinctly admitted by Capistrano during her testimony:
xxx

Q: I see, in other words, the same certificates of deposit earlier presented by Mrs. Tarcila were
recognized by the bank as having been lost and thereafter transactions were made in favor of Mr.
Manuel Fernandez, that was what happened?

A: Yes Sir, because of the representation of Mr. Manuel Fernandez that he lost it.

Q: You accepted, the bank immediately accepted in face value that representation?
A: Yes Sir.[58]
BPI knew very well the irregularity in Manuel's transaction for it had actual knowledge that the
certificates of deposit were in Tarcila's possession. Because of this knowledge, it entertained the possibility
of reprisal from the co-depositors. Thus, it took shrewdly calculated steps and required Manuel and Sian to
execute an Indemnity Agreement, hoping that this instrument would absolve it from liability.

BPI and Sian are in pari delicto, thus, no affirmative relief should be given to one against the other. BPI came to
court with unclean hands; for which reason, it cannot obtain relief and thereby gain from its indispensable
participation in the irregular transaction. One who seeks equity and justice must come to court with clean
hands.[59]

Award of exemplary damages proper

Page 35 of 36
Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages.[60] In quasi-delicts, exemplary damages may be granted
if the defendant acted with gross negligence.[61]

In the present case, BPI's bias and bad faith unquestionably caused prejudice to Tarcila. The law allows the grant
of exemplary damages in cases such as this to serve as a warning to the public and as a deterrent against the
repetition of this kind of deleterious actions.[62] From this perspective, we find that the CA did not err in affirming
the RTC's award of P50,000.00 by way of exemplary damages.

Attorney's fees in order

In view of the award of exemplary damages, we find that that the CA did not err in confirming the RTC's award of
attorney's fees, in accordance with Article 2208 (1) of the Civil Code. We find the award of attorney's fees,
equivalent to P500,000.00, to be just and reasonable under the circumstances.

WHEREFORE, premises considered, the petition is hereby DENIED.

Costs against the petitioner.

SO ORDERED.

Page 36 of 36