Banking | Deposit Function | 1

[ G.R. No. 160260, October 24, 2012 ] and delivered to Tan the following Associated Bank checks[8] drawn
against her current account and payable to "cash," to wit:
WESTMONT BANK, FORMERLY ASSOCIATED BANK NOW UNITED
OVERSEAS BANK PHILIPPINES, PETITIONER,
CHECK NO. CURRENT ACCT. DATE AMOUNT
VS. ______________________________________
MYRNA DELA ROSA-RAMOS, DOMINGO TAN AND WILLIAM CO, 467322 (Exh. 1008-08341-0 May 8, 1988 PhP200,000.00
RESPONDENTS. A)
510290 (Exh. 1008-08734-3 June 10, 1988 232,500.00
MENDOZA, J.:
C)
This is a Petition for Review under Rule 45 of the 1997 Rules of Civil 613307 (Exh. 1008-08734-3 June 14, 1988 200,000.00
procedure seeking a partial review of the February 14, 2003 E)
Decision[1] and the October 2, 2003 Resolution[2] of the Court of 613306 (Exh. 1008-08734-3 July 4, 1988 290,595.00
D)
Appeals (CA), in CA-G.R. CV No. 63983, which modified the September
______________________________________
16, 1998 Decision of the Regional Trial Court, Branch 7, Manila (RTC) in
Civil Case No. 89-47926 entitled, Myrna Dela Rosa-Ramos v. Westmont
According to Dela Rosa-Ramos, Check No. 467322 for P200,000.00
Bank, formerly Associated Bank, Domingo Tan, and William Go.
was a "stale" guarantee check. The check was originally dated August
The petition was filed on November 24, 2003 and received by this Court 28, 1987 but was altered to make it appear that it was dated May 8,
on December 15, 2003. The case was given due course on February 6, 1988. Tan then deposited the check in the account of the other
2008. respondent, William Co (Co), despite the obvious superimposed date. As
a result, the amount of P200,00.00 or the value indicated in the check
The Facts was eventually charged against her checking account.[9]
From 1986, respondent Myrna Dela Rosa-Ramos (Dela Rosa-Ramos)
Check No. 510290 for P232,500.00, dated June 10, 1988, was issued
maintained a checking/current account with the United Overseas Bank
in payment of cigarettes that Dela Rosa-Ramos bought from Co. This
Philippines[3] (Bank) at the latter's Sto. Cristo Branch, Binondo, Manila.
check allegedly "bounced" so she replaced it with her "good customer's
In her several transactions with the Bank, Dela Rosa-Ramos got
check and cash" and gave it to Tan. The latter, however, did not return
acquainted with its Signature Verifier, respondent Domingo Tan (Tan).[4]
the bounced check to her. Instead, he "redeposited" it in Co's account.[10]
In the course of their acquaintance, Tan offered Dela Rosa-Ramos a
"special arrangement"[5] wherein he would finance or place sufficient Check No. 613307 for P200,000.00, was another guarantee check that
funds in her checking/current account whenever there would be an was also "undated." Dela Rosa-Ramos claimed that it was Tan who placed
overdraft or when the amount of said checks would exceed the balance the date "June 14, 1988." For this check, an order to stop payment was
of her current account. It was their arrangement to make sure that the issued because of insufficient funds. Expectedly, the words "PAYMENT
checks she would issue would not be dishonored. Tan offered the service STOPPED" were stamped on both sides of the check. This check was not
for a fee of P50.00 a day for every P40,000.00 he would finance. This returned to her either and, instead, it was "redeposited" in Co's
financier-debtor relationship started in 1987 and lasted until1998.[6] account.[11]
In order to guarantee payment for such funding, Dela Rosa-Ramos issued
Check Nos. 510290 and 613307 were both dishonored for insufficient
postdated checks covering the principal amount plus interest as
funds. When Dela Rosa-Ramos got the opportunity to confront Co
computed by Tan on specified date. There were also times when she just
regarding their deposit of the two checks, the latter disclosed that her
paid in cash.[7] Relative to their said agreement, Dela Rosa-Ramos issued

two checks were deposited in his account to cover for his P432,500.00
cash which was taken by Tan. Then, with a threat to expose her
relationship with a married man, Tan and Co were able to coerce her to
replace the two above-mentioned checks with Check No. 598648[12] in
the amount of P432,500.00 which was equivalent to the total amount of
the two dishonored checks.[13]
Check No. 613306 for P290,595.00, was also undated when delivered
to Tan who later placed the date, July 4, 1988. Dela Rosa-Ramos pointed
out that as of July 5, 1988, her checking account had P121,989.66 which
was insufficient to answer for the value of said check. A check of a certain
Lee See Bin in the amount of P170,000.00 was, however, deposited in
her checking account. As a result, Tan was able to encash Check No.
613306 and withdrew her P121,989.66 balance. Later, Dela Rosa-
Ramos found out that the Lee See Bin Check was not funded because the
Bank's bookkeeper demanded from her the return of the deficiency.[14]
Claiming that the four checks mentioned were deposited by Tan without
her consent, Dela Rosa-Ramos instituted a complaint[15] against Tan and
the Bank before the RTC seeking, among other things, to recover from
the Bank the sum of P754,689.66 representing the total amount charged
or withdrawn from her current account. Dela Rosa-Ramos subsequently
amended her complaint to include Co.[16]
During the trial, Tan's partial direct testimony was ordered stricken off
the records because he failed to complete it and make himself available
for cross-examination. Later, it was found out that he had passed
away.[17]
On September 16, 1998, the RTC resolved the case in this wise:
WHEREFORE, judgment is hereby rendered, sentencing defendant
Associated Bank now the Westmont Bank and defendants DOMINGO TAN
and WILLIAM CO, to pay the plaintiff, jointly and severally:
1. The sum of P754,689.66, representing plaintiff's lost deposit,
plus interest thereon at the legal rate of 12% per annum from the filing
of the complaint, until fully paid;
2. The sum of P1,000,000.00, as moral damages;
3. The sum equivalent to 10% thereof, as exemplary damages;
Banking | Deposit Function | 2
4. The sum equivalent to 25% of the total amount due, as and for
attorney's fees; and
5. Costs.
Defendant's counterclaims are hereby dismissed for lack of merit. SO
ORDERED.[18]
Co and the Bank appealed their cases to the CA. As Co failed to file a
brief within the period prescribed, his appeal was dismissed.[19] The CA
then proceeded to resolve the appeal of the Bank. On February 14, 2003,
the CA rendered its appealed decision, the dispositive portion of which
reads:
WHEREFORE, premises considered, Decision dated September 16, 1998
of the Regional Trial Court of Manila, National Capital Region, Branch 7,
in Civil Case No. 89-17926, is hereby AFFIRMED with the
MODIFICATION that: (a) the defendants are liable only for the amount
of P521,989.00 covering Check Nos. 467322, 613307 and P121,989.66
covered by Check No. 613306 and (b) deleting the award for moral
damages and attorney's fees. SO ORDERED.[20]
Still not satisfied, the Bank moved for partial reconsideration. On October
2, 2003, the CA denied it for lack of merit. In the case of Co, he never
appealed the CA decision. Thus, only the Bank is now before this Court
raising the following issues:
I WITHOUT DELINEATING THE SOURCE OF THE RESPECTIVE
OBLIGATIONS OF PETITIONER BANK, RESPONDENT TAN AND
RESPONDENT CO IN RELATION TO RESPONDENT DELA ROSA-RAMOS,
THE HONORABLE COURT OF APPEALS UTTERLY AND GRAVELY ERRED
WHEN IT SWEEPINGLY AFFIRMED THE JUDGMENT OF THE HONORABLE
TRIAL COURT MAKING THEM JOINTLY AND SEVERALLY LIABLE FOR THE
JUDGMENT AWARD IN FAVOR OF RESPONDENT DELA ROSA-RAMOS.
II THE JUDGMENT AWARD AGAINST PETITIONER BANK UNDER
CHECK NO. 467322 (EXH. 'A') IS TOTALLY WITHOUT LEGAL BASIS AS
THE SAME WAS MERELY BASED ON SPECULATIVE ASSUMPTION OR
PURE SPECULATION.
III THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT THE ACCOUNT OF RESPONDENT DELA ROSA-RAMOS

WAS DEBITED WITH THE FACE AMOUNT OF CHECK NO. 613307 (EXH.
'E') AS SUCH FINDING IS CONTRARY TO THE FINDING OF THE
HONORABLE TRIAL COURT THAT THE SAID CHECK WAS DISHONORED
TOGETHER WITH CHECK NO. 510290 (EXH. 'C') FOR THE REASON THAT
BOTH CHECKS WERE DRAWN AGAINST INSUFFICIENT FUNDS.
IV NOTWITHSTANDING AND CLEARLY CONTRADICTING ITS VERY
FINDING THAT "AS TO CHECK NO. 613306 (EXH.'D'), THIS COURT
OPINES THAT NO MANIFEST IRREGULARITY EXISTS," THE HONORABLE
COURT OF APPEALS GROSSLY ERRED WHEN IT ERRONEOUSLY FOUND
PETITIONER BANK LIABLE IN THE AMOUNT OF P121,989.96 COVERED
BY SAID CHECK.
V ASSUMING ARGUENDO THAT PETITIONER BANK IS LIABLE TO
ANSWER FOR THE ALLEGED DAMAGES SUFFERED BY RESPONDENT
DELA ROSA-RAMOS, THE HONORABLE COURT OF APPEALS GROSSLY
ERRED WHEN IT FAILED TO PASS UPON PETITIONER BANK'S CROSS-
CLAIM AGAINST RESPONDENT TAN.[21]
It must be remembered that public interest is intimately carved into the
banking industry because the primordial concern here is the trust and
confidence of the public. This fiduciary nature of every bank's relationship
with its clients/depositors impels it to exercise the highest degree of care,
definitely more than that of a reasonable man or a good father of a
family.[22] It is, therefore, required to treat the accounts and deposits of
these individuals with meticulous care.[23] The rationale behind this is
well-expressed in Sandejas v. Ignacio,[24]
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized
society banks have attained a ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and most
of all, confidence, and it is for this reason, banks should guard against
injury attributable to negligence or bad faith on its part.
Considering that banks can only act through their officers and
employees, the fiduciary obligation laid down for these institutions
necessarily extends to their employees. Thus, banks must ensure that
their employees observe the same high level of integrity and
performance for it is only through this that banks may meet and comply
Banking | Deposit Function | 3
with their own fiduciary duty.[25] It has been repeatedly held that "a
bank's liability as an obligor is not merely vicarious, but primary"[26] since
they are expected to observe an equally high degree of diligence, not
only in the selection, but also in the supervision of its employees. Thus,
even if it is their employees who are negligent, the bank's responsibility
to its client remains paramount making its liability to the same to be a
direct one.
Guided by the following standard, the Bank, given the fiduciary nature of
its relationship with Dela Rosa- Ramos, should have exerted every effort
to safeguard and protect her money which was deposited and entrusted
with it. As found by both the RTC and the CA, Ramos was defrauded and
she lost her money because of the negligence attributable to the Bank
and its employees. Indeed, it was the employees who directly dealt with
Dela Rosa-Ramos, but the Bank cannot distance itself from them. That
they were the ones who gained at the expense of Dela Rosa-Ramos will
not excuse it of its fundamental responsibility to her. As stated by the
RTC,
The factual circumstances attending the repeated irregular entries and
transactions involving the current account of the plaintiff-appellee is
evidently due to, if not connivance, gross negligence of other bank
officers since the repeated assailed transactions could not possibly be
committed by defendant Tan alone considering the fact that the
processing of the questioned checks would pass the hands of various
bank officers who positively identified their initials therein. Having a
number of employees commit mistake or gross negligence at the same
situation is so puzzling and obviates the appellant bank's laxity in hiring
and supervising its employees. Hence, this Court is of the opinion that
the appellant bank should be held liable for the damages suffered by the
plaintiff-appellee in the case at bench.[27]
That matter being settled, the next matter to be determined is the
amount of liability of the Bank.
As regards Check No. 467322, the Bank avers that Dela Rosa- Ramos'
acquiesced to the change of the date in the said check. It argues that
her continued acts of dealing and transacting with the Bank like
subsequently issuing checks despite her experience with this check only
shows her acquiescence which is tantamount to giving her consent.

Obviously, the Bank has not taken to heart its fiduciary responsibility to
its clients. Rather than ask and wonder why there were indeed
subsequent transactions, the more paramount issue is why the Bank
through its several competent employees and officers, did not stop,
double check and ascertain the genuineness of the date of the check
which displayed an obvious alteration. This failure on the part of the Bank
makes it liable for that loss. As the RTC held:
x x x defendant-bank is not faultless in the irregularities of its signature-
verifier. In the first place, it should have readily rejected the obviously
altered plaintiff's ?200,000.00-check, thus, avoid its unwarranted
deposit in defendant-Co's account and its corollary loss from plaintiff's
deposit, had its other employees, even excepting TAN, performed their
duties efficiently and well. x x x[28]
The glaring error did not escape the observation of the CA either. On the
matter, it hastened to add:
A careful scrutiny of the evidence shows that indeed the date of Check
No. 467322 had been materially altered from August 1987 to May 8,
1988 in accordance with Section 125 of the Negotiable Instruments Law.
It is worthy to take note of the fact that such alteration was not
countersigned by the drawer to make it a valid correction of its date as
consented by its drawer as the standard operating procedure of the
appellant bank in such situation as admitted by its Sto. Cristo Branch
manager, Mabini Z. Mil(l)an. x x x.[29]
On Check No. 613307, the Bank argues that the CA erred in
considering that the said check was debited against the account of Dela
Rosa-Ramos when the fact was that it was dishonored for having been
drawn against insufficient funds. This means that the check was not
charged against her account.
In this regard, the Court agrees with the Bank. Indeed, the admission
made by Dela Rosa-Ramos that she had to issue a replacement check
for Check No. 613307 as well as for Check No. 510290 only proves
that these checks were never paid and charged or debited against her
account. The replacement check is, of course, a totally different matter
and is not covered as an issue in this case.
Banking | Deposit Function | 4
Lastly, with respect to Check No. 613306, the Court agrees with the
CA when it found:
x x x that no manifest irregularity exists as shown from the Statement
of Accounts for the month of July 1988 that as of July 4, 1988, the
plaintiff-appellee had an outstanding deposit of P121,989.66. It was also
cleared therein that, on July 5, 1988, ?170,000.00, through the check of
Lee See Bin with the same UNITED OVERSEAS BANK-Sto. Cristo Branch,
was deposited on the account of the plaintiff-appellee and on the very
same day Check No. 613306 in the amount of P290,595.00 was approved
and processed and its equivalent was debited from the account of the
plaintiff-appellee since the check is an 'on-us' check which is deposited
to an account of another with the same branch as that of the drawer of
the said check, and is considered as good as cash if funded, hence, may
be withdrawn on the very same day it was deposited.[30]
The Court has reviewed the findings of the RTC on the matter and agrees
with the CA that there was no irregularity. The burden of proof was on
Dela Rosa-Ramos to establish that Lee See Bin was fictitious and that the
money which purportedly came from him was merely simulated. She
unfortunately failed to discharge this burden.
Withal, the Bank should only be made to answer the value of Check No.
467322 in the amount of P200,000.00 plus the legal rate of interest.
This must be further tempered down for there is no denying that it was
Dela Rosa-Ramos who exposed herself to risk when she entered into that
"special arrangement" with Tan. While the Bank reneged on its
responsibility to Dela Rosa-Ramos, she is nevertheless equally guilty of
contributory negligence. It has been held that where the bank and a
depositor are equally negligent, they should equally suffer the loss. The
two must both bear the consequences of their mistakes.[31] Thus, the
Bank should only pay 50% of the actual damages awarded while Dela
Rosa-Ramos should have to shoulder the remaining 50%.
Considering that Tan was primarily responsible for the damages caused
to Dela Rosa-Ramos, the Bank can seek compensation from his estate,
subject to the applicable laws and rules.
The reinstatement of deleted damages sought by Dela Rosa-Ramos in
her comment may not be entertained for she did not appeal the CA
 Banking | Deposit Function | 5

decision.

WHEREFORE, the petition for review is PARTIALY GRANTED. The

February 14, 2003 Decision and the October 2, 2003 Resolution of the
Court of Appeals in CA-G.R. CV No. 63983 are MODIFIED. Petitioner
United Overseas Bank Philippines (formerly Westmont Bank) is hereby
ordered to pay respondent Myrna Dela Rosa-Ramos the amount of
?100,000.00, representing 50% of the actual damages awarded plus
legal interest. SO ORDERED.

G.R. No. 183774 : November 14, 2012
PHILIPPINE BANKING CORPORATION, Petitioner,
v.
ARTURO DY, BERNARDO DY, JOSE DELGADO AND CIPRIANA
DELGADO, Respondents.
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails the January 30, 2008
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51672, which
set aside the October 5, 1994 Decision2 of the Regional Trial Court of
Cebu City, Branch 22 (RTC) and directed the Register of Deeds of Cebu
City to cancel Transfer Certificate of Title (TCT) Nos. 517683 and 519014
in the names of respondents Arturo Dy and Bernardo Dy (Dys) and to
issue the corresponding TCTs in the name of respondent Cipriana
Delgado (Cipriana).
The Factual Antecedents
Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot,
denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla,
Cebu, covered by TCT No. 18568. She and her husband, respondent Jose
Delgado (Jose), entered into an agreement with a certain Cecilia Tan
(buyer) for the sale of the said property for a consideration of
P10.00/sq.m. It was agreed that the buyer shall make partial payments
from time to time and pay the balance when Cipriana and Jose (Sps.
Delgado) are ready to execute the deed of sale and transfer the title to
her.
At the time of sale, the buyer was already occupying a portion of the
property where she operates a noodle (bihon) factory while the rest was
occupied by tenants which Sps. Delgado undertook to clear prior to full
payment. After paying the total sum of P147,000.00 and being then
ready to pay the balance, the buyer demanded the execution of the deed,
which was refused. Eventually, the buyer learned of the sale of the
property to the Dys and its subsequent mortgage to petitioner Philippine
Banking Corporation (Philbank), prompting the filing of the Complaint for
annulment of certificate of title, specific performance and/or
reconveyance with damages against Sps. Delgado, the Dys and Philbank.
Banking | Deposit Function | 6
In their Answer, Sps. Delgado, while admitting receipt of the partial
payments made by the buyer, claimed that there was no perfected sale
because the latter was not willing to pay their asking price of
P17.00/sq.m. They also interposed a cross-claim against the Dys
averring that the deeds of absolute sale in their favor dated June 28,
19826 and June 30, 19827 covering Lot No. 6966 and the adjoining Lot
No. 4100-A (on which Sps. Delgado's house stands), were fictitious and
merely intended to enable them (the Dys) to use the said properties as
collateral for their loan application with Philbank and thereafter, pay the
true consideration of P17.00/sq.m. for Lot No. 6966. However, after
receiving the loan proceeds, the Dys reneged on their agreement,
prompting Sps. Delgado to cause the annotation of an adverse claim on
the Dys' titles and to inform Philbank of the simulation of the sale. Sps.
Delgado, thus, prayed for the dismissal of the complaint, with a
counterclaim for damages and a cross-claim against the Dys for the
payment of the balance of the purchase price plus damages.
For their part, the Dys denied knowledge of the alleged transaction
between cross-claimants Sps. Delgado and buyer. They claimed to have
validly acquired the subject property from Sps. Delgado and paid the full
consideration therefor as the latter even withdrew their adverse claim
and never demanded for the payment of any unpaid balance.
On the other hand, Philbank filed its Answer8 asserting that it is an
innocent mortgagee for value without notice of the defect in the title of
the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all
the damages that may be adjudged against it in the event they are
declared seller and purchaser in bad faith, respectively.
In answer to the cross-claim, Sps. Delgado insisted that Philbank was
not a mortgagee in good faith for having granted the loan and accepted
the mortgage despite knowledge of the simulation of the sale to the Dys
and for failure to verify the nature of the buyers physical possession of a
portion of Lot No. 6966. They thereby prayed for the cancellation of the
mortgage in Philbank's favor.
Subsequently, Sps. Delgado amended their cross-claim against the Dys
to include a prayer for the nullification of the deeds of absolute sale in
the latter's favor and the corresponding certificates of title, and for the
consequent reinstatement of Ciprianas title.9

The complaints against the Dys and Philbank were subsequently
withdrawn. On the other hand, both the buyer and Sps. Delgado never
presented any evidence in support of their respective claims. Hence, the
RTC limited itself to the resolution of the claims of Sps. Delgado, Philbank
and the Dys against one another.
The RTC Ruling
In the Decision10 dated October 5, 1994, the RTC dismissed the cross-
claims of Sps. Delgado against the Dys and Philbank. It noted that other
than Sps. Delgado's bare allegation of the Dys' supposed non-payment
of the full consideration for Lot Nos. 6966 and 4100-A, they failed to
adduce competent evidence to support their claim. On the other hand,
the Dys presented a cash voucher11 dated April 6, 1983 duly signed by
Sps. Delgado acknowledging receipt of the total consideration for the two
lots.
The RTC also observed that Sps. Delgado notified Philbank of the
purported simulation of the sale to the Dys only after the execution of
the loan and mortgage documents and the release of the loan proceeds
to the latter, negating their claim of bad faith. Moreover, they
subsequently notified the bank of the Dys' full payment for the two lots
mortgaged to it.
The CA Ruling
However, on appeal, the CA set aside12 the RTC's decision and ordered
the cancellation of the Dys' certificates of title and the reinstatement of
Cipriana's title. It ruled that there were no perfected contracts of sale
between Sps. Delgado and the Dys in view of the latter's admission that
the deeds of sale were purposely executed to facilitate the latter's loan
application with Philbank and that the prices indicated therein were not
the true consideration. Being merely simulated, the contracts of sale
were, thus, null and void, rendering the subsequent mortgage of the lots
likewise void.
The CA also declared Philbank not to be a mortgagee in good faith for its
failure to ascertain how the Dys acquired the properties and to exercise
greater care when it conducted an ocular inspection thereof. It thereby
canceled the mortgage over the two lots.
Banking | Deposit Function | 7
The Petition
In the present petition, Philbank insists that it is a mortgagee in good
faith. It further contends that Sps. Delgado are estopped from denying
the validity of the mortgage constituted over the two lots since they
participated in inducing Philbank to grant a loan to the Dys.
On the other hand, Sps. Delgado maintain that Philbank was not an
innocent mortgagee for value for failure to exercise due diligence in
transacting with the Dys and may not invoke the equitable doctrine of
estoppel to conceal its own lack of diligence.
For his part, Arturo Dy filed a Petition-in-Intervention13 arguing that
while the deeds of absolute sale over the two properties were admittedly
simulated, the simulation was only a relative one involving a false
statement of the price. Hence, the parties are still bound by their true
agreement. The same was opposed/objected to by both Philbank14 and
Sps. Delgado15 as improper, considering that the CA judgment had long
become final and executory as to the Dys who neither moved for
reconsideration nor appealed the CA Decision.
The Ruling of the Court
The petition is meritorious.
At the outset, the Court takes note of the fact that the CA Decision
nullifying the questioned contracts of sale between Sps. Delgado and the
Dys had become final and executory. Accordingly, the Petition-in-
Intervention filed by Arturo Dy, which seeks to maintain the subject
contracts' validity, can no longer be entertained. The cancellation of the
Dys' certificates of title over the disputed properties and the issuance of
new TCTs in favor of Cipriana must therefore be upheld.
However, Philbank's mortgage rights over the subject properties shall be
maintained. While it is settled that a simulated deed of sale is null and
void and therefore, does not convey any right that could ripen into a valid
title,16 it has been equally ruled that, for reasons of public policy, 17 the
subsequent nullification of title to a property is not a ground to annul the
contractual right which may have been derived by a purchaser,
mortgagee or other transferee who acted in good faith.18

The ascertainment of good faith or lack of it, and the determination of
whether due diligence and prudence were exercised or not, are questions
of fact19 which are generally improper in a petition for review on certiorari
under Rule 45 of the Rules of Court (Rules) where only questions of law
may be raised. A recognized exception to the rule is when there are
conflicting findings of fact by the CA and the RTC,20 as in this case.
Primarily, it bears noting that the doctrine of "mortgagee in good faith"
is based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title are not required to go beyond what appears
on the face of the title. This is in deference to the public interest in
upholding the indefeasibility of a certificate of title as evidence of lawful
ownership of the land or of any encumbrance thereon. 21 In the case of
banks and other financial institutions, however, greater care and due
diligence are required since they are imbued with public interest, failing
which renders the mortgagees in bad faith. 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 genuineness of the title to determine the real owner(s)
thereof.22 The apparent purpose of an ocular inspection is to protect the
"true owner" of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto.23
In this case, while Philbank failed to exercise greater care in conducting
the ocular inspection of the properties offered for mortgage, 24 its
omission did not prejudice any innocent third parties. In particular, the
buyer did not pursue her cause and abandoned her claim on the property.
On the other hand, Sps. Delgado were parties to the simulated sale in
favor of the Dys which was intended to mislead Philbank into granting
the loan application. Thus, no amount of diligence in the conduct of the
ocular inspection could have led to the discovery of the complicity
between the ostensible mortgagors (the Dys) and the true owners (Sps.
Delgado). In fine, Philbank can hardly be deemed negligent under the
premises since the ultimate cause of the mortgagors' (the Dys') defective
title was the simulated sale to which Sps. Delgado were privies.
Indeed, a finding of negligence must always be contextualized in line with
the attendant circumstances of a particular case. As aptly held in
Philippine National Bank v. Heirs of Estanislao Militar,25 "the diligence
Banking | Deposit Function | 8
with which the law requires the individual or a corporation at all times to
govern a particular conduct varies with the nature of the situation in
which one is placed, and the importance of the act which is to be
performed."26 Thus, without diminishing the time-honored principle that
nothing short of extraordinary diligence is required of banks whose
business is impressed with public interest, Philbank's inconsequential
oversight should not and cannot serve as a bastion for fraud and deceit.
To be sure, fraud comprises "anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal duty or
equitable duty, trust, or confidence justly reposed, resulting in damage
to another, or by which an undue and unconscientious advantage is taken
of another."27 In this light, the Dys' and Sps. Delgado's deliberate
simulation of the sale intended to obtain loan proceeds from and to
prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps.
Delgado cannot now be allowed to deny the validity of the mortgage
executed by the Dys in favor of Philbank as to hold otherwise would
effectively sanction their blatant bad faith to Philbank's detriment.
Accordingly, in the interest of public policy, fair dealing, good faith and
justice, the Court accords Philbank the rights of a mortgagee in good
faith whose lien to the securities posted must be respected and
protected. In this regard, Philbank is entitled to have its mortgage carried
over or annotated on the titles of Cipriana Delgado over the said
properties.
WHERFORE, the assailed January 30, 2008 Decision of the Court of
Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED with
MODIFICATION upholding the mortgage rights of petitioner Philippine
Banking Corporation over the subject properties.
SO ORDERED.

G.R. No. 158143 September 21, 2011
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,
vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.
BRION, J.:
Before us is a petition for review on certiorari,1 filed by the Philippine
Commercial International Bank2 (Bank or PCIB), to reverse and set aside
the decision3 dated April 29, 2003 of the Court of Appeals (CA) in CA-
G.R. CV No. 69955. The CA overturned the September 22, 2000 decision
of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case
No. 93-3181, which held respondent Rolando Ramos liable to PCIB for
the amount of ₱895,000.00.
FACTUAL ANTECEDENTS
On September 10, 1993, PCIB filed an action for recovery of sum of
money with damages before the RTC against Antonio Balmaceda, the
Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB
alleged that between 1991 and 1993, Balmaceda, by taking advantage
of his position as branch manager, fraudulently obtained and encashed
31 Manager’s checks in the total amount of Ten Million Seven Hundred
Eighty Two Thousand One Hundred Fifty Pesos (₱10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to file an amended
complaint to implead Rolando Ramos as one of the recipients of a portion
of the proceeds from Balmaceda’s alleged fraud. PCIB also increased the
number of fraudulently obtained and encashed Manager’s checks to 34,
in the total amount of Eleven Million Nine Hundred Thirty Seven
Thousand One Hundred Fifty Pesos (₱11,937,150.00). The RTC granted
this motion.
Since Balmaceda did not file an Answer, he was declared in default. On
the other hand, Ramos filed an Answer denying any knowledge of
Balmaceda’s scheme. According to Ramos, he is a reputable
businessman engaged in the business of buying and selling fighting
cocks, and Balmaceda was one of his clients. Ramos admitted receiving
money from Balmaceda as payment for the fighting cocks that he sold to
Balmaceda, but maintained that he had no knowledge of the source of
Balmaceda’s money.
THE RTC DECISION
On September 22, 2000, the RTC issued a decision in favor of PCIB, with
the following dispositive portion:
Banking | Deposit Function | 9
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and against the defendants as follows:
1. Ordering defendant Antonio Balmaceda to pay the amount of
₱11,042,150.00 with interest thereon at the legal rate from [the] date of
his misappropriation of the said amount until full restitution shall have
been made[.]
2. Ordering defendant Rolando Ramos to pay the amount of ₱895,000.00
with interest at the legal rate from the date of misappropriation of the
said amount until full restitution shall have been made[.]
3. Ordering the defendants to pay plaintiff moral damages in the sum of
₱500,000.00 and attorney’s fees in the amount of ten (10%) percent of
the total misappropriated amounts sought to be recovered.
4. Plus costs of suit. SO ORDERED.4
From the evidence presented, the RTC found that Balmaceda, by taking
undue advantage of his position and authority as branch manager of the
Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the bank’s funds by falsifying several commercial
documents. He accomplished this by claiming that he had been instructed
by one of the Bank’s corporate clients to purchase Manager’s checks on
its behalf, with the value of the checks to be debited from the client’s
corporate bank account. First, he would instruct the Bank staff to prepare
the application forms for the purchase of Manager’s checks, payable to
several persons. Then, he would forge the signature of the client’s
authorized representative on these forms and sign the forms as PCIB’s
approving officer. Finally, he would have an authorized officer of PCIB
issue the Manager’s checks. Balmaceda would subsequently ask his
subordinates to release the Manager’s checks to him, claiming that the
client had requested that he deliver the checks.5 After receiving the
Manager’s checks, he encashed them by forging the signatures of the
payees on the checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted
that although the Manager’s checks payable to Ramos were crossed
checks, Balmaceda was still able to encash the checks.6 After Balmaceda
encashed three of these Manager’s checks, he deposited most of the
money into Ramos’ account.7 The RTC concluded that from the
₱11,937,150.00 that Balmaceda misappropriated from PCIB,
₱895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos’
allegation that the sum of money deposited into his Savings Account
(PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it
held Ramos liable to pay PCIB the amount of ₱895,000.00.

THE COURT OF APPEALS DECISION
On appeal, the CA dismissed the complaint against Ramos, holding that
no sufficient evidence existed to prove that Ramos colluded with
Balmaceda in the latter’s fraudulent manipulations.8
According to the CA, the mere fact that Balmaceda made Ramos the
payee in some of the Manager’s checks does not suffice to prove that
Ramos was complicit in Balmaceda’s fraudulent scheme. It observed that
other persons were also named as payees in the checks that Balmaceda
acquired and encashed, and PCIB only chose to go after Ramos. With
PCIB’s failure to prove Ramos’ actual participation in Balmaceda’s fraud,
no legal and factual basis exists to hold him liable.
The CA also found that PCIB acted illegally in freezing and debiting
₱251,910.96 from Ramos’ bank account. The CA thus decreed:
WHEREFORE, the appeal is granted. The Decision of the trial court
rendered on September 22, 2000[,] insofar as appellant Ramos is
concerned, is SET ASIDE, and the complaint below against him is
DISMISSED.
Appellee is hereby ordered to release the amount of ₱251,910.96 to
appellant Ramos plus interest at [the] legal rate computed from
September 30, 1993 until appellee shall have fully complied therewith.
Appellee is likewise ordered to pay appellant Ramos the following:
a) ₱50,000.00 as moral damages
b) ₱50,000.00 as exemplary damages, and
c) ₱20,000.00 as attorney’s fees.
No costs. SO ORDERED.9
THE PETITION
In the present petition, PCIB avers that:
I THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO
EVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY
WITH RESPONDENT BALMACEDA
II THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER
TO RELEASE THE AMOUNT OF ₱251,910.96 TO RESPONDENT RAMOS
Banking | Deposit Function | 10
AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES10
PCIB contends that the circumstantial evidence shows that Ramos had
knowledge of, and acted in complicity with Balmaceda in, the
perpetuation of the fraud. Ramos’ explanation that he is a businessman
and that he received the Manager’s checks as payment for the fighting
cocks he sold to Balmaceda is unconvincing, given the large sum of
money involved. While Ramos presented evidence that he is a reputable
businessman, this evidence does not explain why the Manager’s checks
were made payable to him in the first place.
PCIB maintains that it had the right to freeze and debit the amount of
₱251,910.96 from Ramos’ bank account, even without his consent, since
legal compensation had taken place between them by operation of law.
PCIB debited Ramos’ bank account, believing in good faith that Ramos
was not entitled to the proceeds of the Manager’s checks and was
actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus
be held liable for moral and exemplary damages.
OUR RULING
We partly grant the petition.
At the outset, we observe that the petition raises mainly questions of fact
whose resolution requires the re-examination of the evidence on record.
As a general rule, petitions for review on certiorari only involve questions
of law.11 By way of exception, however, we can delve into evidence and
the factual circumstance of the case when the findings of fact in the
tribunals below (in this case between those of the CA and of the RTC)
are conflicting. When the exception applies, we are given latitude to
review the evidence on record to decide the case with finality.12
Ramos’ participation in Balmaceda’s scheme not proven
From the testimonial and documentary evidence presented, we find it
beyond question that Balmaceda, by taking advantage of his position as
branch manager of PCIB’s Sta. Cruz, Manila branch, was able to apply
for and obtain Manager’s checks drawn against the bank account of one
of PCIB’s clients. The unsettled question is whether Ramos, who received
a portion of the money that Balmaceda took from PCIB, should also be
held liable for the return of this money to the Bank.
PCIB insists that it presented sufficient evidence to establish that Ramos
colluded with Balmaceda in the scheme to fraudulently secure Manager’s
checks and to misappropriate their proceeds. Since Ramos’ defense –

anchored on mere denial of any participation in Balmaceda’s wrongdoing
– is an intrinsically weak defense, it was error for the CA to exonerate
Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish his
case by a preponderance of evidence, or evidence which, to the court, is
more worthy of belief than the evidence offered in opposition. 13 This
Court, in Encinas v. National Bookstore, Inc.,14 defined "preponderance
of evidence" in the following manner:
"Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be
synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." Preponderance of evidence is a phrase
which, in the last analysis, means probability of the truth. It is evidence
which is more convincing to the court as worthy of belief than that which
is offered in opposition thereto.
The party, whether the plaintiff or the defendant, who asserts the
affirmative of an issue has the onus to prove his assertion in order to
obtain a favorable judgment, subject to the overriding rule that the
burden to prove his cause of action never leaves the plaintiff. For the
defendant, an affirmative defense is one that is not merely a denial of an
essential ingredient in the plaintiff's cause of action, but one which, if
established, will constitute an "avoidance" of the claim.15
Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its
positive assertion that Ramos conspired with Balmaceda in perpetrating
the latter’s scheme to defraud the Bank. In PCIB’s estimation, it
successfully accomplished this through the submission of the following
evidence:
[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their
submarkings, the application forms for MCs, show that [these MCs were
applied for in favor of Ramos;]
[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings
prove that the MCs were issued in favor of x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB].16
We cannot accept these submitted pieces of evidence as sufficient to
satisfy the burden of proof that PCIB carries as plaintiff.
On its face, all that PCIB’s evidence proves is that Balmaceda used
Ramos’ name as a payee when he filled up the application forms for the
Banking | Deposit Function | 11
Manager’s checks. But, as the CA correctly observed, the mere fact that
Balmaceda made Ramos the payee on some of the Manager’s checks is
not enough basis to conclude that Ramos was complicit in Balmaceda’s
fraud; a number of other people were made payees on the other
Manager’s checks yet PCIB never alleged them to be liable, nor did the
Bank adduce any other evidence pointing to Ramos’ participation that
would justify his separate treatment from the others. Also, while Ramos
is Balmaceda’s brother-in-law, their relationship is not sufficient, by
itself, to render Ramos liable, absent concrete proof of his actual
participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that Balmaceda acted on
his own when he applied for the Manager’s checks against the bank
account of one of PCIB’s clients, as well as when he encashed the
fraudulently acquired Manager’s checks.
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the
relevant events, testified that Balmaceda committed all the acts
necessary to obtain the unauthorized Manager’s checks – from filling up
the application form by forging the signature of the client’s
representative, to forging the signatures of the payees in order to encash
the checks. As Mrs. Costes stated in her testimony:
Q: I am going into [these] particular instances where you said that Mr.
Balmaceda [has] been making unauthorized withdrawals from particular
account of a client or a client of yours at Sta. Cruz branch. Would you
tell us how he effected his unauthorized withdrawals?
A: He prevailed upon the domestic remittance clerk to prepare the
application of a Manager’s check which [has] been debited to a client’s
account. This particular Manager’s check will be payable to a certain
individual thru his account as the instruction of the client.
Q: What was your findings in so far as the particular alleged instruction
of a client is concerned?
A: We found out that he forged the signature of the client.
Q: On that particular application?
A: Yes sir.
Q: Showing to you several applications for Manager’s Check previously
attached as Annexes "A, B, C, D and E["] of the complaint. Could you
please tell us where is that particular alleged signature of a client

applying for the Manager’s check which you claimed to have been forged
by Mr. Balmaceda?
A: Here sir.
xxxx
Q: After the accomplishment of this application form as you stated Mrs.
witness, do you know what happened to the application form?
A: Before that application form is processed it goes to several stages.
Here for example this was signed supposed to be by the client and his
signature representing that, he certified the signature based on their
records to be authentic.
Q: When you said he to whom are you referring to?
A: Mr. Balmaceda. And at the same time he approved the transaction.
xxxx
Q: Do you know if the corresponding checks applied for in the application
forms were issued?
A: Yes sir.
Q: Could you please show us where these checks are now, the one
applied for in Exhibit "A" which is in the amount of ₱150,000.00, where
is the corresponding check?
A: Rolando Ramos dated December 26, 1991 and one of the signatories
with higher authority, this is Mr. Balmaceda’s signature.
Q: In other words he is likewise approving signatory to the Manager’s
check?
A: Yes sir. This is an authority that the check [has] been encashed.
Q: In other words this check issued to Rolando Ramos dated December
26, 1991 is a cross check but nonetheless he allowed to encash by
granting it.
Could you please show us?
ATTY. PACES: Witness pointing to an initial of the defendant Antonio
Balmaceda, the notation cross check.
Banking | Deposit Function | 12
A: And this is his signature.
xxxx
Q: How about the check corresponding to Exhibit E-2 which is an
application for ₱125,000.00 for a certain Rolando Ramos. Do you have
the check?
A: Yes sir.
ATTY. PACES: Witness producing a check dated December 19, 1991 the
amount of ₱125,000.00 payable to certain Rolando Ramos.
Q: Can you tell us whether the same modus operandi was ad[o]pted by
Mr. Balmaceda in so far as he is concerned?
A: Yes sir he is also the right signer and he authorized the cancellation
of the cross check.17 (emphasis ours)
xxxx
Q: These particular checks [Mrs.] witness in your findings, do you know
if Mr. Balmaceda [has] again any participation in these checks?
A: He is also the right signer and approved officer and he was authorized
to debit on file.
xxxx
Q: And do you know if these particular checks marked as Exhibit G-2 to
triple FFF were subsequently encashed?
A: Yes sir.
Q: Were you able to find out who encashed?
A: Mr. Balmaceda himself and besides he approved the encashment
because of the signature that he allowed the encashment of the check.
xxxx
Q: Do you know if this particular person having in fact withdraw of
received the proceeds of [these] particular checks, the payee?
A: No sir.
Q: It was all Mr. Balmaceda dealing with you?

A: Yes sir.
Q: In other words it would be possible that Mr. Balmaceda himself gotten
the proceeds of the checks by forging the payees signature?
A: Yes sir.18 (emphases ours)
Mrs. Nilda Laforteza, the Commercial Account Officer of PCIB’s Sta. Cruz,
Manila branch at the time the events of this case occurred, confirmed
Mrs. Costes’ testimony by stating that it was Balmaceda who forged
Ramos’ signature on the Manager’s checks where Ramos was the payee,
so as to encash the amounts indicated on the checks. 19 Mrs. Laforteza
also testified that Ramos never went to the PCIB, Sta. Cruz, Manila
branch to encash the checks since Balmaceda was the one who deposited
the checks into Ramos’ bank account. As revealed during Mrs. Laforteza’s
cross-examination:
Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda,
did you ever see my client go to the bank to encash these checks?
A: No it is Balmaceda who is depositing in his behalf.
Q: Did my client ever call up the bank concerning this amount?
A: Yes he is not going to call PCIBank Sta. Cruz branch because his
account is maintained at Pasig.
Q: So Mr. Balmaceda was the one who just remitted or transmitted the
amount that you claimed [was sent] to the account of my client?
A: Yes.20 (emphases ours)
Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to
prove that Ramos encashed a Manager’s check for ₱480,000.00, could
only testify that the money was deposited into Ramos’ PCIB bank
account. She could not attest that Ramos himself presented the
Manager’s check for deposit in his bank account.21 These testimonies
clearly dispute PCIB’s theory that Ramos was instrumental in the
encashment of the Manager’s checks.
We also find no reason to doubt Ramos’ claim that Balmaceda deposited
these large sums of money into his bank account as payment for the
fighting cocks that Balmaceda purchased from him. Ramos presented
two witnesses – Vicente Cosculluela and Crispin Gadapan – who testified
that Ramos previously engaged in the business of buying and selling
fighting cocks, and that Balmaceda was one of Ramos’ biggest clients.
Banking | Deposit Function | 13
Quoting from the RTC decision, PCIB stresses that Ramos’ own witness
and business partner, Cosculluela, testified that the biggest net profit he
and Ramos earned from a single transaction with Balmaceda amounted
to no more than ₱100,000.00, for the sale of approximately 45 fighting
cocks.22 In PCIB’s view, this testimony directly contradicts Ramos’
assertion that he received approximately ₱400,000.00 from his biggest
transaction with Balmaceda. To PCIB, the testimony also renders
questionable Ramos’ assertion that Balmaceda deposited large amounts
of money into his bank account as payment for the fighting cocks.
On this point, we find that PCIB misunderstood Cosculluela’s testimony.
A review of the testimony shows that Cosculluela specifically referred to
the net profit that they earned from the sale of the fighting cocks;23 PCIB
apparently did not take into account the capital, transportation and other
expenses that are components of these transactions. Obviously, in sales
transactions, the buyer has to pay not only for the value of the thing
sold, but also for the shipping costs and other incidental costs that
accompany the acquisition of the thing sold. Thus, while the biggest net
profit that Ramos and Cosculluela earned in a single transaction
amounted to no more than ₱100,000.00,24 the inclusion of the actual
acquisition costs of the fighting cocks, the transportation expenses (i.e.,
airplane tickets from Bacolod or Zamboanga to Manila) and other
attendant expenses could account for the ₱400,000.00 that Balmaceda
deposited into Ramos’ bank account.
Given that PCIB failed to establish Ramos’ participation in Balmaceda’s
scheme, it was not even necessary for Ramos to provide an explanation
for the money he received from Balmaceda. Even if the evidence adduced
by the plaintiff appears stronger than that presented by the defendant,
a judgment cannot be entered in the plaintiff’s favor if his evidence still
does not suffice to sustain his cause of action;25 to reiterate, a
preponderance of evidence as defined must be established to achieve
this result.
PCIB itself at fault as employer
In considering this case, one point that cannot be disregarded is the
significant role that PCIB played which contributed to the perpetration of
the fraud. We cannot ignore that Balmaceda managed to carry out his
fraudulent scheme primarily because other PCIB employees failed to
carry out their assigned tasks – flaws imputable to PCIB itself as the
employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance
clerk working at the PCIB, Sta. Cruz, Manila branch at the time of the
incident, testified that Balmaceda broke the Bank’s protocol when he

ordered the Bank’s employees to fill up the application forms for the
Manager’s checks, to be debited from the bank account of one of the
bank’s clients, without providing the necessary Authority to Debit from
the client.26 PCIB also admitted that these Manager’s checks were
subsequently released to Balmaceda, and not to the client’s
representative, based solely on Balmaceda’s word that the client had
tasked him to deliver these checks.27
Despite Balmaceda’s gross violations of bank procedures – mainly in the
processing of the applications for Manager’s checks and in the releasing
of the Manager’s checks – Balmaceda’s co-employees not only turned a
blind eye to his actions, but actually complied with his instructions. In
this way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the fact that it allowed
Balmaceda to encash the Manager’s checks that were plainly crossed
checks. A crossed check is one where two parallel lines are drawn across
its face or across its corner.28 Based on jurisprudence, the crossing of a
check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once
— to the one who has an account with the bank; and (c) the act of
crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due
course.29 In other words, the crossing of a check is a warning that the
check should be deposited only in the account of the payee. When a
check is crossed, it is the duty of the collecting bank to ascertain that the
check is only deposited to the payee’s account.30 In complete disregard
of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s
checks which were all crossed checks, or checks payable to the "payee’s
account only."
The General Banking Law of 200031 requires of banks the highest
standards of integrity and performance. The banking business is
impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking industry. Consequently,
the diligence required of banks is more than that of a Roman pater
familias or a good father of a family.32 The highest degree of diligence is
expected.33
While we appreciate that Balmaceda took advantage of his authority and
position as the branch manager to commit these acts, this circumstance
cannot be used to excuse the manner the Bank – through its employees
–handled its clients’ bank accounts and thereby ignored established bank
procedures at the branch manager’s mere order. This lapse is made all
Banking | Deposit Function | 14
the more glaring by Balmaceda’s repetition of his modus operandi 33
more times in a period of over one year by the Bank’s own estimation.
With this kind of record, blame must be imputed on the Bank itself and
its systems, not solely on the weakness or lapses of individual
employees.
Principle of unjust enrichment not applicable
PCIB maintains that even if Ramos did not collude with Balmaceda, it still
has the right to recover the amounts unjustly received by Ramos
pursuant to the principle of unjust enrichment. This principle is embodied
in Article 22 of the Civil Code which provides:
Article 22. Every person who through an act of performance by another,
or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal ground, shall return the
same to him.
To have a cause of action based on unjust enrichment, we explained in
University of the Philippines v. Philab Industries, Inc.34 that:
Unjust enrichment claims do not lie simply because one party benefits
from the efforts or obligations of others, but instead it must be shown
that a party was unjustly enriched in the sense that the term unjustly
could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant
must unequivocally prove that another party knowingly received
something of value to which he was not entitled and that
the state of affairs are such that it would be unjust for the person
to keep the benefit. Unjust enrichment is a term used to depict result
or effect of failure to make remuneration of or for property or benefits
received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must
confer benefit by mistake, fraud, coercion, or request. Unjust enrichment
is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution.35 (emphasis ours)
Ramos cannot be held liable to PCIB on account of unjust enrichment
simply because he received payments out of money secured by fraud
from PCIB. To hold Ramos accountable, it is necessary to prove that he
received the money from Balmaceda, knowing that he (Ramos) was not
entitled to it. PCIB must also prove that Ramos, at the time that he
received the money from Balmaceda, knew that the money was acquired
through fraud. Knowledge of the fraud is the link between Ramos and

PCIB that would obligate Ramos to return the money based on the
principle of unjust enrichment.
However, as the evidence on record indicates, Ramos accepted the
deposits that Balmaceda made directly into his bank account, believing
that these deposits were payments for the fighting cocks that Balmaceda
had purchased. Significantly, PCIB has not presented any evidence
proving that Ramos participated in, or that he even knew of, the
fraudulent sources of Balmaceda’s funds.
PCIB illegally froze and debited Ramos’ assets
We also find that PCIB acted illegally in freezing and debiting Ramos’
bank account. In BPI Family Bank v. Franco,36 we cautioned against the
unilateral freezing of bank accounts by banks, noting that:
More importantly, [BPI Family Bank] does not have a unilateral right to
freeze the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant [BPI Family Bank], or any bank for that
matter, the right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.37
We see no legal merit in PCIB’s claim that legal compensation took place
between it and Ramos, thereby warranting the automatic deduction from
Ramos’ bank account. For legal compensation to take place, two persons,
in their own right, must first be creditors and debtors of each
other.38 While PCIB, as the depositary bank, is Ramos’ debtor in the
amount of his deposits, Ramos is not PCIB’s debtor under the evidence
the PCIB adduced. PCIB thus had no basis, in fact or in law, to
automatically debit from Ramos’ bank account.
On the award of damages
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful,
we cannot hold PCIB liable for moral and exemplary damages. Since a
contractual relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the award of moral
damages depends on the applicability of Article 2220 of the Civil Code,
which provides:
Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of
Banking | Deposit Function | 15
contract where the defendant acted fraudulently or in bad faith.
[emphasis ours]
Bad faith does not simply connote bad judgment or negligence; it imports
a dishonest purpose or some moral obliquity and conscious commission
of a wrong; it partakes of the nature of fraud.39
As the facts of this case bear out, PCIB did not act out of malice or bad
faith when it froze Ramos’ bank account and subsequently debited the
amount of ₱251,910.96 therefrom. While PCIB may have acted hastily
and without regard to its primary duty to treat the accounts of its
depositors with meticulous care and utmost fidelity,40 we find that its
actions were propelled more by the need to protect itself, and not out of
malevolence or ill will. One may err, but error alone is not a ground for
granting moral damages.41
We also disallow the award of exemplary damages. Article 2234 of the
Civil Code requires a party to first prove that he is entitled to moral,
temperate or compensatory damages before he can be awarded
exemplary damages. Since no reason exists to award moral damages, so
too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of
attorney’s fees in Ramos’ favor. Taking into consideration the time and
efforts involved that went into this case, we increase the award of
attorney’s fees from ₱20,000.00 to ₱75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the
decision of the Court of Appeals dated April 29, 2003 in CA-G.R. CV No.
69955 with the MODIFICATION that the award of moral and exemplary
damages in favor of Rolando N. Ramos is DELETED, while the award of
attorney’s fees is INCREASED to ₱75,000.00. Costs against the
Philippine Commercial International Bank.
SO ORDERED.

G.R. No. 180257 February 23, 2011
EUSEBIO GONZALES, Petitioner,
vs.
PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA
OCAMPO, and ROBERTO NOCEDA, Respondents.
VELASCO, JR., J.:
The Case
This is an appeal via a Petition for Review on Certiorari under Rule 45
from the Decision1 dated October 22, 2007 of the Court of Appeals (CA)
in CA-G.R. CV No. 74466, which denied petitioner’s appeal from the
December 10, 2001 Decision2 in Civil Case No. 99-1324 of the Regional
Trial Court (RTC), Branch 138 in Makati City. The RTC found justification
for respondents’ dishonor of petitioner’s check and found petitioner
solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses
Panlilio) for the three promissory notes they executed in favor of
respondent Philippine Commercial and International Bank (PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good
15 years before he filed the instant case. His account with PCIB was
handled by respondent Edna Ocampo (Ocampo) until she was replaced
by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the
execution of a Credit-On-Hand Loan Agreement3 (COHLA), in which the
aggregate amount of the accounts of Gonzales with PCIB served as
collateral for and his availment limit under the credit line. Gonzales drew
from said credit line through the issuance of check. At the institution of
the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD
8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP
500,000. Subsequently, on December 26, 1995 and January 3, 1999, the
spouses Panlilio and Gonzales obtained two additional loans from PCIB in
the amounts of PhP 1,000,000 and PhP 300,000, respectively. These
three loans amounting to PhP 1,800,000 were covered by three
promissory notes.4 To secure the loans, a real estate mortgage (REM)
over a parcel of land covered by Transfer Certificate of Title (TCT) No.
38012 was executed by Gonzales and the spouses Panlilio. Notably, the
promissory notes specified, among others, the solidary liability of
Gonzales and the spouses Panlilio for the payment of the loans. However,
Banking | Deposit Function | 16
it was the spouses Panlilio who received the loan proceeds of PhP
1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio
through the automatic debiting of their account with PCIB. But the
spouses Panlilio, from the month of July 1998, defaulted in the payment
of the periodic interest dues from their PCIB account which apparently
was not maintained with enough deposits. PCIB allegedly called the
attention of Gonzales regarding the July 1998 defaults and the
subsequent accumulating periodic interest dues which were left still left
unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in
favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit
line (COHLA). However, on October 13, 1998, upon presentment for
payment by Unson of said check, it was dishonored by PCIB due to the
termination by PCIB of the credit line under COHLA on October 7, 1998
for the unpaid periodic interest dues from the loans of Gonzales and the
spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor
of the check. They had a heated argument in the premises of the
Philippine Columbian Association (PCA) where they are both members,
which caused great embarrassment and humiliation to Gonzales.
Thereafter, on November 5, 1998, Unson sent a demand letter5 to
Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of
Unson sent a second demand letter6 to Gonzales with the threat of legal
action. With his FCD account that PCIB froze, Gonzales was forced to
source out and pay the PhP 250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting
that the check he issued had been fully funded, and demanded the return
of the proceeds of his FCD as well as damages for the unjust dishonor of
the check.7 PCIB replied on March 22, 1999 and stood its ground in
freezing Gonzales’ accounts due to the outstanding dues of the
loans.8 On May 26, 1999, Gonzales reiterated his demand, reminding
PCIB that it knew well that the actual borrowers were the spouses Panlilio
and he never benefited from the proceeds of the loans, which were
serviced by the PCIB account of the spouses Panlilio.9
PCIB’s refusal to heed his demands compelled Gonzales to file the instant
case for damages with the RTC, on account of the alleged unjust dishonor
of the check issued in favor of Unson.
The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in
favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows –
(a) on the first issue, plaintiff is liable to pay defendant Bank as principal
under the promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on part
of the defendant Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to
damages from each other.
No pronouncement as to costs. SO ORDERED.10
The RTC found Gonzales solidarily liable with the spouses Panlilio on the
three promissory notes relative to the outstanding REM loan. The trial
court found no fault in the termination by PCIB of the COHLA with
Gonzales and in freezing the latter’s accounts to answer for the past due
PhP 1,800,000 loan. The trial court ruled that the dishonor of the check
issued by Gonzales in favor of Unson was proper considering that the
credit line under the COHLA had already been terminated or revoked
before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales’ appeal and affirming in toto the RTC Decision.
The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December 10,
2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.11
In dismissing Gonzales’ appeal, the CA, first, confirmed the RTC’s
findings that Gonzales was indeed solidarily liable with the spouses
Panlilio for the three promissory notes executed for the REM
loan; second, it likewise found neither fault nor negligence on the part of
PCIB in dishonoring the check issued by Gonzales in favor of Unson,
ratiocinating that PCIB was merely exercising its rights under the
contractual stipulations in the COHLA brought about by the outstanding
past dues of the REM loan and interests for which Gonzales was solidarily
liable with the spouses Panlilio to pay under the promissory notes.
Banking | Deposit Function | 17
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment of
errors:
I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM
PROMISSORY NOTES (EXHIBITS "A", "B" AND "C", PETITIONER;
EXHIBITS "1", "2" AND "3", RESPONDENT) PERTAINED TO BORROWER
JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR
GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONER’S
CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00
FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF MERELY "REFER TO
DRAWER" GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT
SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON
HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL
OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE
PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR
DAMAGES.12
The Court’s Ruling
The core issues can be summarized, as follows: first, whether Gonzales
is liable for the three promissory notes covering the PhP 1,800,000 loan
he made with the spouses Panlilio where a REM over a parcel of land
covered by TCT No. 38012 was constituted as security; and second,
whether PCIB properly dishonored the check of Gonzales drawn against
the COHLA he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly found
Gonzales solidarily liable with the spouses Panlilio for the three
promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the
following:

(1) Promissory Note BD-090-1766-95,13 dated October 30, 1995, for PhP
500,000 was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,14 dated December 26, 1995, for
PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP
300,000 was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above promissory
notes. First, Gonzales admitted that he is an accommodation party which
PCIB did not dispute. In his testimony, Gonzales admitted that he merely
accommodated the spouses Panlilio at the suggestion of Ocampo, who
was then handling his accounts, in order to facilitate the fast release of
the loan. Gonzales testified:
ATTY. DE JESUS: Now in this case you filed against the bank you
mentioned there was a loan also applied for by the Panlilio’s in the sum
of P1.8 Million Pesos. Will you please tell this Court how this came about?
GONZALES: Mr. Panlilio requested his account officer . . . . at that time
it is a P42.0 Million loan and if he secures another P1.8 Million loan the
release will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and
we co-owned the property I agreed initially to use my name so that the
loan can be utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually received
the proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.16
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio also
placed under your name initially?
Banking | Deposit Function | 18
A: Well it was actually suggested by the account officer at that time Edna
Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is the
boss of Edna so he has been familiar with my account ever since its
inception.
Q: So these two officers Ocampo and Noceda knew that this was actually
the account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are
always informing me that the account will be debited to Mr. Panlilio’s
account.17
Moreover, the first note for PhP 500,000 was signed by Gonzales and his
wife as borrowers, while the two subsequent notes showed the spouses
Panlilio sign as borrowers with Gonzales. It is, thus, evident that
Gonzales signed, as borrower, the promissory notes covering the PhP
1,800,000 loan despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by
Noceda, that the PhP 1,800,000 loan proceeds went to the spouses
Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned the
proceeds of the 1.8 million loan was received by Mr. Panlilio?
NOCEDA: Yes sir.18
The fact that the loans were undertaken by Gonzales when he signed as
borrower or co-borrower for the benefit of the spouses Panlilio—as shown
by the fact that the proceeds went to the spouses Panlilio who were
servicing or paying the monthly dues—is beside the point. For signing as
borrower and co-borrower on the promissory notes with the proceeds of
the loans going to the spouses Panlilio, Gonzales has extended an
accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the
spouses Panlilio for the loans. In Ang v. Associated Bank,19 quoting the
definition of an accommodation party under Section 29 of the Negotiable
Instruments Law, the Court cited that an accommodation party is a
person "who has signed the instrument as maker, drawer, acceptor, or

indorser, without receiving value therefor, and for the purpose of lending
his name to some other person."20 The Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other
person. An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the
instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation
party, as if the contract was not for accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of principal
and surety—the accommodation party being the surety. As such, he is
deemed an original promisor and debtor from the beginning; he is
considered in law as the same party as the debtor in relation to whatever
is adjudged touching the obligation of the latter since their liabilities are
interwoven as to be inseparable. Although a contract of suretyship is in
essence accessory or collateral to a valid principal obligation, the surety’s
liability to the creditor is immediate, primary and absolute; he
is directly and equally bound with the principal. As an equivalent of a
regular party to the undertaking, a surety becomes liable to the debt and
duty of the principal obligor even without possessing a direct or personal
interest in the obligations nor does he receive any benefit therefrom.21
Thus, the knowledge, acquiescence, or even demand by Ocampo for an
accommodation by Gonzales in order to extend the credit or loan of PhP
1,800,000 to the spouses Panlilio does not exonerate Gonzales from
liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, "For value received, the
undersigned (the "BORROWER") jointly and severally promise to pay
x x x." Solidary liability cannot be presumed but must be established by
law or contract.22 Article 1207 of the Civil Code pertinently states that
"there is solidary liability only when the obligation expressly so states, or
when the obligation requires solidarity." This is true in the instant case
where Gonzales, as accommodation party, is immediately, equally, and
absolutely bound with the spouses Panlilio on the promissory notes which
indubitably stipulated solidary liability for all the borrowers. Moreover,
the three promissory notes serve as the contract between the parties.
Banking | Deposit Function | 19
Contracts have the force of law between the parties and must be
complied with in good faith.23
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory
notes, We shall now touch upon the question of whether it was proper
for PCIB to dishonor the check issued by Gonzales against the credit line
under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is
limited to review of errors of law.24 The factual findings of the trial court,
especially when affirmed by the appellate court, are generally binding on
us unless there was a misapprehension of facts or when the inference
drawn from the facts was manifestly mistaken.25 The instant case falls
within the exception.
The courts a quo found and held that there was a proper dishonor of the
PhP 250,000 check issued by Gonzales against the credit line, because
the credit line was already closed prior to the presentment of the check
by Unson; and the closing of the credit line was likewise proper pursuant
to the stipulations in the promissory notes on the bank’s right to set off
or apply all moneys of the debtor in PCIB’s hand and the stipulations in
the COHLA on the PCIB’s right to terminate the credit line on grounds of
default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed about
the default of the spouses Panlilio and that the September 21, 1998
account statement of the credit line shows a balance of PhP 270,000
which was likewise borne out by the December 7, 1998 PCIB’s
certification that he has USD 8,715.72 in his FCD account which is more
than sufficient collateral to guarantee the PhP 250,000 check, dated
September 30, 1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a quo committed
reversible error in not finding negligence by PCIB in the dishonor of the
PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind that
while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan
covered by the three promissory notes, Gonzales is only an
accommodation party and as such only lent his name and credit to the
spouses Panlilio. While not exonerating his solidary liability, Gonzales has

a right to be properly apprised of the default or delinquency of the loan
precisely because he is a co-signatory of the promissory notes and of his
solidary liability.
We note that it is indeed understandable for Gonzales to push the
spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan,
since he was only an accommodation party and was not personally
interested in the loan. Thus, a meeting was set by Gonzales with the
spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the
spouses Panlilio’s jewelry shop in SM Megamall on October 5, 1998.
Unfortunately, the meeting did not push through due to the heavy traffic
Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough to
properly apprise Gonzales about the default and the outstanding dues.
Verily, it is not enough to be merely informed to pay over a hundred
thousand without being formally apprised of the exact aggregate amount
and the corresponding dues pertaining to specific loans and the dates
they became due.
Gonzales testified that he was not duly notified about the outstanding
interest dues of the loan:
ATTY. DE JESUS: Now when Mr. Panlilio’s was encountering problems
with the bank did the defendant bank [advise] you of any problem with
the same account?
GONZALES: They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.26
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified:
ATTY. PADILLA: Can you tell this Honorable Court what is it that you told
Mr. Gonzales when you spoke to him at the celphone?
NEPOMUCENO: I just told him to update the interest so that we would
not have to cancel the COH Line and he could withdraw the money that
was in the deposit because technically, if an account is past due we are
not allowed to let the client withdraw funds because they are allowed to
offset funds so, just to help him get his money, just to update the interest
so that we could allow him to withdraw.
Q: Withdraw what?
Banking | Deposit Function | 20
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would not
be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with us
so that’s why we suggested just to update the interest because at the
end of everything, he would be able to withdraw more funds than the
interest that the money he would be needed to update the interest.27
From the foregoing testimonies, between the denial of Gonzales and the
assertion by PCIB that Gonzales was properly apprised, we find for
Gonzales. We find the testimonies of the former PCIB employees to be
self-serving and tenuous at best, for there was no proper written notice
given by the bank. The record is bereft of any document showing that,
indeed, Gonzales was formally informed by PCIB about the past due
periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact by
releasing the proceeds of the loan to the spouses Panlilio and likewise
only informed the spouses Panlilio of the interest dues. The spouses
Panlilio, through their account28 with PCIB, were paying the periodic
interest dues and were the ones periodically informed by the bank of the
debiting of the amounts for the periodic interest payments. Gonzales
never paid any of the periodic interest dues. PCIB’s Noceda admitted as
much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest for
this loan, is it not, it’s always Mr. Panlilio who was paying the interest for
this loan?
NOCEDA: Yes sir.29
Indeed, no evidence was presented tending to show that Gonzales was
periodically sent notices or notified of the various periodic interest dues
covering the three promissory notes. Neither do the records show that
Gonzales was aware of amounts for the periodic interests and the
payment for them. Such were serviced by the spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid starting
July 1998. And such notification must be formal or in written form
considering that the outstanding periodic interests became due at various

dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have
to be certain so that Gonzales is not only properly apprised but is given
the opportunity to pay them being solidarily liable for the loans covered
by the promissory notes.
It is the bank which computes these periodic interests and such dues
must be put into writing and formally served to Gonzales if he were asked
to pay them, more so when the payments by the spouses Panlilio were
charged through the account of the spouses Panlilio where the interest
dues were simply debited. Such arrangement did not cover Gonzales’
bank account with PCIB, since he is only an accommodation party who
has no personal interest in the PhP 1,800,000 loan. Without a clear and
determinate demand through a formal written notice for the exact
periodic interest dues for the loans, Gonzales cannot be expected to pay
for them.
In business, more so for banks, the amounts demanded from the debtor
or borrower have to be definite, clear, and without ambiguity. It is not
sufficient simply to be informed that one must pay over a hundred
thousand aggregate outstanding interest dues without clear and certain
figures. Thus, We find PCIB negligent in not properly informing Gonzales,
who is an accommodation party, about the default and the exact
outstanding periodic interest dues. Without being properly apprised,
Gonzales was not given the opportunity to properly act on them.
It was only through a letter30 sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP 1,800,000 loan at a
much later date, i.e., as of October 31, 1998, when Gonzales was
formally apprised by PCIB. In it, the interest due was PhP 106,1616.71
and penalties for the unpaid interest due of PhP 64,766.66, or a total
aggregate due of PhP 171,383.37. But it is not certain and the records
do not show when the letter was sent and when Gonzales received it.
What is clear is that such letter was belatedly sent by PCIB and received
by Gonzales after the fact that the latter’s FCD was already frozen, his
credit line under the COHLA was terminated or suspended, and his PhP
250,000 check in favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the
counsel of PCIB sent to Gonzales demanding payment of the PhP
1,800,000 loan. Obviously, these formal written notices sent to Gonzales
were too late in the day for Gonzales to act properly on the delinquency
and he already suffered the humiliation and embarrassment from the
dishonor of his check drawn against the credit line.
To reiterate, a written notice on the default and deficiency of the PhP
1,800,000 loan covered by the three promissory notes was required to
Banking | Deposit Function | 21
apprise Gonzales, an accommodation party. PCIB is obliged to formally
inform and apprise Gonzales of the defaults and the outstanding
obligations, more so when PCIB was invoking the solidary liability of
Gonzales. This PCIB failed to do.
Second. PCIB was grossly negligent in not giving prior notice to Gonzales
about its course of action to suspend, terminate, or revoke the credit
line, thereby violating the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY — The COH shall be effective for a period of one (1) year
commencing from the receipt by the CLIENT of the COH checkbook
issued by the BANK, subject to automatic renewals for same periods
unless terminated by the BANK upon prior notice served on
CLIENT.31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as required
by the above stipulation in the COHLA. Noceda testified on cross-
examination on the Offering Ticket32 recommending the termination of
the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the plaintiff
Mr. Gonzales is it not?
NOCEDA: No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this
Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to him,
it’s only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed
by Liza that he has to pay his obligations or else it will adversely affect
the status of the account.33
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand
extended solely of course to Mr. Eusebio Gonzales who is the plaintiff
here, Mr. Panlilio is not included in this credit on hand facility. Did I gather
from you as per your Exhibit 7 as of October 2, 1998 you were the one
who recommended the cancellation of this credit on hand facility?
NEPOMUCENO: It was recommended by the account officer and I
supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his credit
on hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I don’t recall and we have to look at the folder to determine if they
were informed.
Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid
interest and that if he is able to update his interest he can extend the
promissory note or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in this
letter to the clients advising them or Mr. Gonzales that his credit on hand
facility was already cancelled?
A: I don’t know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio
aware that his credit on hand facility was already cancelled?
Banking | Deposit Function | 22
A: No actually he can understand it from the last sentence. "If you will
be able to update your outstanding interest, we can apply the extension
of your promissory note" so in other words we are saying that if you
don’t, you cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998 letter
is only the loan of 1.8 million is it not, as you can see from the letter?
Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to the
credit on hand facility which was being utilized by Mr. Gonzales is it not?
A: But I don’t know if there are other letters that are not presented to
me now.34
The foregoing testimonies of PCIB officers clearly show that not only did
PCIB fail to give prior notice to Gonzales about the Offering Ticket for the
process of termination, suspension, or revocation of the credit line under
the COHLA, but PCIB likewise failed to inform Gonzales of the fact that
his credit line has been terminated. Thus, we find PCIB grossly negligent
in the termination, revocation, or suspension of the credit line under the
COHLA. While PCIB invokes its right on the so-called "cross default
provisions," it may not with impunity ignore the rights of Gonzales under
the COHLA.
Indeed, the business of banking is impressed with public interest and
great reliance is made on the bank’s sworn profession of diligence and
meticulousness in giving irreproachable service. Like a common carrier
whose business is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors. 35 In this
instance, PCIB is sorely remiss in the diligence required in treating with
its client, Gonzales. It may not wantonly exercise its rights without
respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that "[e]very person must,
in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith." This
is the basis of the principle of abuse of right which, in turn, is based upon
the maxim suum jus summa injuria (the abuse of right is the greatest
possible wrong).36
In order for Art. 19 to be actionable, the following elements must be
present: "(1) the existence of a legal right or duty, (2) which is exercised
in bad faith, and (3) for the sole intent of prejudicing or injuring

another."37 We find that such elements are present in the instant case.
The effectivity clause of the COHLA is crystal clear that termination of
the COH should be done only upon prior notice served on the
CLIENT. This is the legal duty of PCIB––to inform Gonzales of the
termination. However, as shown by the above testimonies, PCIB failed
to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a
conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity."38 In the instant case, PCIB was able to send
a letter advising Gonzales of the unpaid interest on the loans39 but failed
to mention anything about the termination of the COHLA. More
significantly, no letter was ever sent to him about the termination of the
COHLA. The failure to give prior notice on the part of PCIB is already
prima facie evidence of bad faith.40 Therefore, it is abundantly clear that
this case falls squarely within the purview of the principle of abuse of
rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or
revoke the COHLA under the "cross default provisions" of both the
promissory notes and the COHLA. However, these cross default
provisions do not confer absolute unilateral right to PCIB, as they are
qualified by the other stipulations in the contracts or specific
circumstances, like in the instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice,
to set off or apply to the payment of this Note any and all moneys
which may be in its hands on deposit or otherwise belonging to
the Borrower. The Borrower irrevocably appoint/s the Lender, effective
upon the nonpayment of this Note on demand/at maturity or upon the
happening of any of the events of default, but without any obligation on
the Lender’s part should it choose not to perform this mandate, as the
attorney-in-fact of the Borrower, to sell and dispose of any property of
the Borrower, which may be in the Lender’s possession by public or
private sale, and to apply the proceeds thereof to the payment of this
Note; the Borrower, however, shall remain liable for any
deficiency.41 (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of
an accommodation party who, as such, has not been servicing the
payment of the dues of the loans, and must first be properly apprised in
writing of the outstanding dues in order to answer for his solidary
obligation.
Banking | Deposit Function | 23
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT — The CLIENT shall be considered in default under the COH
if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any contract
of the CLIENT with the BANK or any bank, persons, corporations or
entities for the payment of borrowed money, or any other event of
default in such contracts.42
The above pertinent default clause must be read in conjunction with the
effectivity clause (No. 4 of the COHLA, quoted above), which expressly
provides for the right of client to prior notice. The rationale is simple: in
cases where the bank has the right to terminate, revoke, or suspend the
credit line, the client must be notified of such intent in order for the latter
to act accordingly—whether to correct any ground giving rise to the right
of the bank to terminate the credit line and to dishonor any check issued
or to act in accord with such termination, i.e., not to issue any check
drawn from the credit line or to replace any checks that had been issued.
This, the bank—with gross negligence—failed to accord Gonzales, a
valued client for more than 15 years.
Fourth. We find the testimony43 of Ocampo incredible on the point that
the principal borrower of the PhP 1,800,000 loan covered by the three
promissory notes is Gonzales for which the bank officers had special
instructions to grant and that it was through the instructions of Gonzales
that the payment of the periodic interest dues were debited from the
account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed
shows Gonzales as the principal borrower, the other promissory notes
dated December 26, 1995 and January 3, 1996 evidently show that it
was Jose Panlilio who was the principal borrower with Gonzales as co-
borrower. For another, Ocampo cannot feign ignorance on the
arrangement of the payments by the spouses Panlilio through the
debiting of their bank account. It is incredulous that the payment
arrangement is merely at the behest of Gonzales and at a mere verbal
directive to do so. The fact that the spouses Panlilio not only received
the proceeds of the loan but were servicing the periodic interest dues
reinforces the fact that Gonzales was only an accommodation party.
Thus, due to PCIB’s negligence in not giving Gonzales—an
accommodation party—proper notice relative to the delinquencies in the
PhP 1,800,000 loan covered by the three promissory notes, the unjust

termination, revocation, or suspension of the credit line under the COHLA
from PCIB’s gross negligence in not honoring its obligation to give prior
notice to Gonzales about such termination and in not informing Gonzales
of the fact of such termination, treating Gonzales’ account as closed and
dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB.
This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD
account was frozen and had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good
father of the family considering that the business of banking is imbued
with public interest due to the nature of their function. The law imposes
on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
nature of banking.44 Had Gonzales been properly notified of the
delinquencies of the PhP 1,800,000 loan and the process of terminating
his credit line under the COHLA, he could have acted accordingly and the
dishonor of the check would have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized
society—banks have attained a ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and most
of all, confidence, and it is for this reason, banks should guard against
injury attributable to negligence or bad faith on its part.45
In the instant case, Gonzales suffered from the negligence and bad faith
of PCIB. From the testimonies of Gonzales’ witnesses, particularly those
of Dominador Santos46 and Freddy Gomez,47 the embarrassment and
humiliation Gonzales has to endure not only before his former close
friend Unson but more from the members and families of his friends and
associates in the PCA, which he continues to experience considering the
confrontation he had with Unson and the consequent loss of standing and
credibility among them from the fact of the apparent bouncing check he
issued. Credit is very important to businessmen and its loss or
impairment needs to be recognized and compensated.48
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute acts of
contra bonus mores. Art. 21 of the Civil Code refers to such acts when it
says, "Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for damage."
Banking | Deposit Function | 24
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages "are
recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss
of any kind x x x."49 We further explained the nature of nominal damages
in Almeda v. Cariño:
x x x Its award is thus not for the purpose of indemnification for a loss
but for the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. When granted by
the courts, they are not treated as an equivalent of a wrong inflicted but
simply a recognition of the existence of a technical injury. A violation of
the plaintiff’s right, even if only technical, is sufficient to support an
award of nominal damages. Conversely, so long as there is a showing of
a violation of the right of the plaintiff, an award of nominal damages is
proper.50 (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the accrued
interest and most especially, for the suspension of his COHLA. For failure
to do so, the bank is liable to pay nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.51 In this case, the Court finds that
the grant of PhP 50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,52 failure to give prior notice
when required, such as in the instant case, constitutes a breach of
contract and is a clear violation of Art. 21 of the Code. In cases such as
this, Art. 2219 of the Code provides that moral damages may be
recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code
provides that "[w]illful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad
faith." Similarly, "every person who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter for the
same."53 Evidently, Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the right
to recover reasonable moral damages, if the depositor suffered mental
anguish, serious anxiety, embarrassment, and humiliation.54 Although
incapable of pecuniary estimation, moral damages are certainly
recoverable if they are the proximate result of the defendant’s wrongful
act or omission. The factual antecedents bolstered by undisputed
testimonies likewise show the mental anguish and anxiety Gonzales had
to endure with the threat of Unson to file a suit. Gonzales had to pay
 Banking | Deposit Function | 25

Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting
Gonzales to demand from PCIB and to file the instant suit.

The award of moral damages is aimed at a restoration within the limits

of the possible, of the spiritual status quo ante—it must always
reasonably approximate the extent of injury and be proportional to the
wrong committed.55 Thus, an award of PhP 50,000 is reasonable moral
damages for the unjust dishonor of the PhP 250,000 which was the
proximate cause of the consequent humiliation, embarrassment, anxiety,
and mental anguish suffered by Gonzales from his loss of credibility
among his friends, colleagues and peers.

Furthermore, the initial carelessness of the bank’s omission in not

properly informing Gonzales of the outstanding interest dues––
aggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the
termination of the credit line––justifies the grant of exemplary damages
of PhP 10,000. Such an award is imposed by way of example or correction
for the public good.

Finally, an award for attorney’s fees is likewise called for from PCIB’s
negligence which compelled Gonzales to litigate to protect his interest.
In accordance with Art. 2208(1) of the Code, attorney’s fees may be
recovered when exemplary damages are awarded. We find that the
amount of PhP 50,000 as attorney’s fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA

Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is
hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral
damages, PhP 10,000 as exemplary damages, and PhP 50,000 as
attorney’s fees.

No pronouncement as to costs.

SO ORDERED.

[G.R. No. 165339 : August 23, 2010]
EQUITABLE PCI BANK, PETITIONER,
VS.
ARCELITO B. TAN, RESPONDENT.
PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of
the Rules of Court seeking to set aside the Decision[1] and the
Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 41928.
The antecedents are as follows:
Respondent Arcelito B.Tan maintained a current and savings account
with Philippine Commercial International Bank (PCIB), now petitioner
Equitable PCI Bank.[3] On May 13, 1992, respondent issued PCIB Check
No. 275100 postdated May 30, 1992[4] in the amount of P34,588.72 in
favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance
with petitioner was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc.
deposited the aforesaid check to its account with Solid Bank, Carbon
Branch, Cebu City. After clearing, the amount of the check was
immediately debited by petitioner from respondent's account thereby
leaving him with a balance of only P558.87.
Meanwhile, respondent issued three checks from May 9 to May 16, 1992,
specifically, PCIB Check No. 275080 dated May 9, 1992, payable to
Agusan del Sur Electric Cooperative Inc. (ASELCO) for the amount of
P6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to
Agusan del Norte Electric Cooperative Inc., (ANECO) for the amount of
P6,472.01; and PCIB Check No. 314104 dated May 16, 1992 payable in
cash for the amount of P10,000.00. When presented for payment, PCIB
Check Nos. 275080, 275097 and 314014 were dishonored for being
drawn against insufficient funds.
As a result of the dishonor of Check Nos. 275080 and 275097 which were
payable to ASELCO and ANECO, respectively, the electric power supply
for the two mini-sawmills owned and operated by respondent, located in
Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut
Banking | Deposit Function | 26
off on June 1, 1992 and May 28, 1992, respectively, and it was restored
only on July 20 and August 24, 1992, respectively.
Due to the foregoing, respondent filed with the Regional Trial Court (RTC)
of Cebu City a complaint against petitioner, praying for payment of losses
consisting of unrealized income in the amount of P1,864,500.00. He also
prayed for payment of moral damages, exemplary damages, attorney's
fees and litigation expenses.
Respondent claimed that Check No. 275100 was a postdated check in
payment of Bills of Lading Nos. 15, 16 and 17, and that his account with
petitioner would have had sufficient funds to cover payment of the three
other checks were it not for the negligence of petitioner in immediately
debiting from his account Check No. 275100, in the amount of
P34,588.72, even as the said check was postdated to May 30, 1992. As
a consequence of petitioner's error, which brought about the dishonor of
the two checks paid to ASELCO and ANECO, the electric supply to his two
mini-sawmills was cut off, the business operations thereof were stopped,
and purchase orders were not duly served causing tremendous losses to
him.
In its defense, petitioner denied that the questioned check was postdated
May 30, 1992 and claimed that it was a current check dated May 3, 1992.
It alleged further that the disconnection of the electric supply to
respondent's sawmills was not due to the dishonor of the checks, but for
other reasons not attributable to the bank.
After trial, the RTC, in its Decision[5] dated June 21, 1993, ruled in favor
of petitioner and dismissed the complaint.
Aggrieved by the Decision, respondent filed a Notice of Appeal.[6] In its
Decision dated May 31, 2004, the Court of Appeals reversed the decision
of the trial court and directed petitioner to pay respondent the sum of
P1,864,500.00 as actual damages, P50,000.00 by way of moral
damages, P50,000.00 as exemplary damages and attorney's fees in the
amount of P30,000.00. Petitioner filed a motion for reconsideration,
which the CA denied in a Resolution dated August 24, 2004.
Hence, the instant petition assigning the following errors:

I THE FOURTH DIVISION OF THE COURT OF APPEALS DEFIED
OFFICE ORDER NO. 82-04-CG BY HOLDING ON TO THIS CASE AND
DECIDING IT INSTEAD OF UNLOADING IT AND HAVING IT RE-RAFFLED
AMONG THE DIVISIONS IN CEBU CITY.
II THE COURT OF APPEALS ERRED IN REVERSING THE FINDING OF
THE REGIONAL TRIAL COURT THAT CHECK NO. 275100 WAS DATED MAY
3, 1992.
III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT'S WAY OF WRITING THE DATE ON CHECK NO. 275100
WAS THE PROXIMATE CAUSE OF THE DISHONOR OF HIS THREE OTHER
CHECKS.
IV THE COURT OF APPEALS ERRED IN AWARDING ACTUAL
DAMAGES, MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S
FEES.
Anent the first issue, petitioner submits that the CA defied Office Order
No. 82-04-CG dated April 5, 2004 issued by then CA Presiding Justice
Cancio C. Garcia when it failed to unload CA-G.R. CV No. 41928 so that
it may be re-raffled among the Divisions in Cebu City.
Office Order No. 82-04-CG[7] provides:
xxxx
In view of the reorganization of the different Divisions due to the
appointment of eighteen (18) new Justices to the additional divisions in
the cities of Cebu and Cagayan de Oro, the raffle of civil, criminal and
special cases submitted for decision and falling within the jurisdiction of
the additional divisions shall commence on April 6, 2004.
The raffle of newly-filed cases and those for completion likewise falling
within the jurisdiction of the additional divisions, shall start on April 12,
2004.
xxxx
Petitioner alleged that since the aforementioned Office Order directed the
raffle of civil, criminal and special cases submitted for decision and falling
within the jurisdiction of the additional divisions on April 6, 2004, CA-
Banking | Deposit Function | 27
G.R. CV No. 41928 should have been unloaded by the CA's Fourth
Division and re-raffled to the CA's Division in Cebu City instead of
deciding the case on May 31, 2004.
Respondent argued that the CA's Fourth Division correctly acted in taking
cognizance of the case. The CA defended its jurisdiction by ruling that
cases already submitted for decision as of the effectivity of Republic Act
(R.A.) 8246[8] on February 1, 1997 were no longer included for re-raffle
to the newly-created Visayas and Mindanao Divisions of the CA,
conformable to Section 5 of the said statute.
Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is
provided that:
Section 3. Section 10 of Batas Pambansa Blg. 129, as amended, is hereby
further amended to read as follows:
Sec. 10. Place of Holding Sessions. -- The Court of Appeals shall have its
permanent stations as follows: The first seventeen (17) divisions shall be
stationed in the City of Manila for cases coming from the First to the Fifth
Judicial Regions; the Eighteenth, Nineteenth, and Twentieth Divisions
shall be in Cebu City for cases coming from the Sixth, Seventh and Eighth
Judicial Regions; the Twenty-first, Twenty-second and Twenty-third
Divisions shall be in Cagayan de Oro City for cases coming from the
Ninth, Tenth, Eleventh, and Twelfth Judicial Regions. Whenever
demanded by public interest, or whenever justified by an increase in case
load, the Supreme Court, upon its own initiative or upon
recommendation of the Presiding Justice of the Court of Appeals, may
authorize any division of the Court to hold sessions periodically, or for
such periods and at such places as the Supreme Court may determine,
for the purpose of hearing and deciding cases. Trials or hearings in the
Court of Appeals must be continuous and must be completed within three
(3) months unless extended by the Chief Justice of the Supreme Court.
Further, Section 5 of the same Act provides:
Upon the effectivity of this Act, all pending cases, except those which
have been submitted for resolution, shall be referred to the proper
division of the Court of Appeals.[9]

Although CA-G.R. CV No. 41928 originated from Cebu City and is thus
referable to the CA's Divisions in Cebu City, the said case was already
submitted for decision as of July 25, 1994.[10] Hence, CA-G.R. CV No.
41928, which was already submitted for decision as of the effectivity of
R.A. 8246, i.e., February 1, 1997, can no longer be referred to the CA's
Division in Cebu City. Thus, the CA's Former Fourth Division correctly
ruled that CA-G.R. CV No. 41928 pending in its division was not among
those cases that had to be re-raffled to the newly-created CA Divisions
in the Visayas Region.
Further, administrative issuances must not override, supplant or modify
the law, but must remain consistent with the law they intend to carry
out.[11] Thus, Office Order No. 82-04-CG cannot defeat the provisions of
R.A. 8246.
As to the second issue, petitioner maintains that the CA erred in
reversing the finding of the RTC that Check No. 275100 was dated May
3, 1992. Petitioner argued that in arriving at the conclusion that Check
No. 275100 was postdated May 30, 1992, the CA just made a visual
examination of the check, unlike the RTC which verified the truth of
respondent's testimony relative to the issuance of Check No. 275100.
Respondent argued that the check was carefully examined by the CA
which correctly found that Check No. 275100 was postdated to May 30,
1992 and not May 3, 1992.
The principle is well established that this Court is not a trier of facts.
Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised. The resolution of factual issues is
the function of the lower courts whose findings on these matters are
received with respect and are, as a rule, binding on this Court. However,
this rule is subject to certain exceptions. One of these is when the
findings of the appellate court are contrary to those of the trial
court.[12] Due to the divergence of the findings of the CA and the RTC,
We shall re-examine the facts and evidence presented before the lower
courts.
The RTC ruled that:
xxxx
Banking | Deposit Function | 28
The issue to be resolved in this case is whether or not the date of PCIB
Check No. 275100 is May 3, 1992 as contended by the defendant, or May
30, 1992 as claimed by the plaintiff. The date of the check is written as
follows - 5/3/0/92. From the manner by which the date of the check is
written, the Court cannot really make a pronouncement as to whether
the true date of the check is May 3 or May 30, 1992, without inquiring
into the background facts leading to the issuance of said check.
According to the plaintiff, the check was issued to Sulpicio Lines in
payment of bill of lading nos. 15, 16 and 17. An examination of bill of
lading no. 15, however, shows that the same was issued, not in favor of
plaintiff but in favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading
No. 16 is issued in favor of Suson Lumber and not to plaintiff. Likewise,
Bill of Lading No. 17 shows that it was issued to Jazz Cola and not to
plaintiff. Furthermore, the receipt for the payment of the freight for the
shipments reflected in these three bills of lading shows that the freight
was paid by Coca Cola Bottlers Philippines, Inc. and not by plaintiff.
Moreover, the said receipt shows that it was paid in cash and not by
check. From the foregoing, the evidence on record does not support the
claim of the plaintiff that Check No. 275100 was issued in payment of
bills of lading nos. 15, 16 and 17.
Hence, the conclusion of the Court is that the date of the check was May
3, 1992 and not May 30, 1992.[13]
xxxx
In fine, the RTC concluded that the check was dated May 3, 1992 and
not May 30, 1992, because the same check was not issued to pay for
Bills of Lading Nos. 15, 16 and 17, as respondent claims. The trial court's
conclusion is preposterous and illogical. The purpose for the issuance of
the check has no logical connection with the date of the check. Besides,
the trial court need not look into the purpose for which the check was
issued. A reading of Check No. 275100[14] would readily show that it was
dated May 30, 1992. As correctly observed by the CA:
On the first issue, we agree with appellant that appellee Bank apparently
erred in misappreciating the date of Check No. 275100. We have
carefully examined the check in question (Exh. DDDD) and we are
convinced that it was indeed postdated to May 30, 1992 and not May 3,

1992 as urged by appellee. The date written on the check clearly appears
as "5/30/1992" (Exh. DDDD-4). The first bar (/) which separates the
numbers "5" and "30" and the second bar (/) which further separates the
number "30" from the year 1992 appear to have been done in heavy,
well-defined and bold strokes, clearly indicating the date of the check as
"5/30/1992" which obviously means May 30, 1992. On the other hand,
the alleged bar (/) which appellee points out as allegedly separating the
numbers "3" and "0," thereby leading it to read the date as May 3, 1992,
is not actually a bar or a slant but appears to be more of an unintentional
marking or line done with a very light stroke. The presence of the figure
"0" after the number "3" is quite significant. In fact, a close examination
thereof would unerringly show that the said number zero or "0" is
connected to the preceding number "3." In other words, the drawer of
the check wrote the figures "30" in one continuous stroke, thereby
contradicting appellee's theory that the number "3" is separated from the
figure "0" by a bar. Besides, appellee's theory that the date of the check
is May 3, 1992 is clearly untenable considering the presence of the figure
"0" after "3" and another bar before the year 1992. And if we were to
accept appellee's theory that what we find to be an unintentional mark
or line between the figures "3" and "0" is a bar separating the two
numbers, the date of the check would then appear as "5/3/0/1992, which
is simply absurd. Hence, we cannot go along with appellee's theory which
will lead us to an absurd result. It is therefore our conclusion that the
check was postdated to May 30, 1992 and appellee Bank or its personnel
erred in debiting the amount of the check from appellant's account even
before the check's due date. Undoubtedly, had not appellee bank
prematurely debited the amount of the check from appellant's account
before its due date, the two other checks (Exhs. LLLL and GGGG)
successively dated May 9, 1992 and May 16, 1992 which were paid by
appellant to ASELCO and ANECO, respectively, would not have been
dishonored and the said payees would not have disconnected their supply
of electric power to appellant's sawmills, and the latter would not have
suffered losses.
The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of R.A. 8791[15] decrees:
Declaration of Policy. - The State recognizes the vital role of banks in
providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that requires high
Banking | Deposit Function | 29
standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and responsive to the
demands of a developing economy.
Although R.A. 8791 took effect only in the year 2000, the Court had
already imposed on banks the same high standard of diligence required
under R.A. 8791 at the time of the untimely debiting of respondent's
account by petitioner in May 1992. In Simex International (Manila), Inc.
v. Court of Appeals,[16] which was decided in 1990, the Court held 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.
The diligence required of banks, therefore, is more than that of a good
father of a family.[17] In every case, the depositor expects the bank to
treat his account with the utmost fidelity, whether such account consists
only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly
as possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he
directs.[18] From the foregoing, it is clear that petitioner bank did not
exercise the degree of diligence that it ought to have exercised in dealing
with its client.
With respect to the third issue, petitioner submits that respondent's way
of writing the date on Check No. 275100 was the proximate cause of the
dishonor of his three other checks. Contrary to petitioner's view, the
Court finds that its negligence is the proximate cause of respondent's
loss.
Proximate cause is that cause which, in a natural and continuous
sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred. [19] The
proximate cause of the loss is not respondent's manner of writing the
date of the check, as it was very clear that he intended Check No. 275100
to be dated May 30, 1992 and not May 3, 1992. The proximate cause is
petitioner's own negligence in debiting the account of the respondent

prior to the date as appearing in the check, which resulted in the
subsequent dishonor of several checks issued by the respondent and the
disconnection by ASELCO and ANECO of his electric supply.
The bank on which the check is drawn, known as the drawee bank, is
under strict liability to pay to the order of the payee in accordance with
the drawer's instructions as reflected on the face and by the terms of the
check.[20] Thus, payment made before the date specified by the drawer
is clearly against the drawee bank's duty to its client.
In its memorandum[21] filed before the RTC, petitioner submits that
respondent caused confusion on the true date of the check by writing the
date of the check as 5/3/0/92. If, indeed, petitioner was confused on
whether the check was dated May 3 or May 30 because of the "/" which
allegedly separated the number "3" from the "0," petitioner should have
required respondent drawer to countersign the said "/" in order to
ascertain the true intent of the drawer before honoring the check. As a
matter of practice, bank tellers would not receive nor honor such checks
which they believe to be unclear, without the counter-signature of its
drawer. Petitioner should have exercised the highest degree of diligence
required of it by ascertaining from the respondent the accuracy of the
entries therein, in order to settle the confusion, instead of proceeding to
honor and receive the check.
Further, petitioner's branch manager, Pedro D. Tradio, in a
letter[22] addressed to ANECO, explained the circumstances surrounding
the dishonor of PCIB Check No. 275097. Thus:
June 11, 1992
ANECO
Agusan del Norte
Gentlemen:
This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the
amount of P6,472.01 payable to your goodselves issued by Mr. Arcelito
B. Tan (MANWOOD Industries) which was returned by PCIB Mandaue
Branch for insufficiency of funds.
Banking | Deposit Function | 30
Please be advised that the return of the aforesaid check was a result of
an earlier negotiation to PCIB-Mandaue Branch through a deposit made
on May 14, 1992 with SOLIDBANK Carbon Branch, or through Central
Bank clearing via Philippine Clearing House Corporation facilities, of a
postdated check which ironically and without bad faith passed undetected
through several eyes from the payee of the check down to the depository
bank and finally the drawee bank (PCIB) the aforesaid Check No. 275097
issued to you would have been honored because it would have been
sufficiently funded at the time it was negotiated. It should be
emphasized, however, that Mr. Arcelito B. Tan was in no way responsible
for the dishonor of said PCIB Check No. 275097.
We hope that the foregoing will sufficiently explain the circumstances of
the dishonor of PCIB Check No. 275097 and would clear the name and
credit of Mr. Arcelito Tan from any misimpressions which may have
resulted from the dishonor of said check.
Thank you.
xxxx
Although petitioner failed to specify in the letter the other details of this
"postdated check," which passed undetected from the eyes of the payee
down to the petitioner drawee bank, the Court finds that petitioner was
evidently referring to no other than Check No. 275100 which was
deposited to Solidbank, and was postdated May 30, 1992. As correctly
found by the CA:
In the aforequoted letter of its Manager, appellee Bank expressly
acknowledged that Check No. 275097 (Exh. GGGG) which appellant paid
to ANECO "was sufficiently funded at the time it was negotiated," but it
was dishonored as a "result of an earlier negotiation to PCIB-Mandaue
Branch through a deposit made on May 14, 1992 with SOLIDBANK xxx
xxx xxx of a postdated check which xxx xxx passed undetected." He
further admitted that "Mr. Arcelito B. Tan was in no way responsible for
the dishonor of said PCIB Check No. 275097." Needless to state, since
appellee's Manager has cleared appellant of any fault in the dishonor of
the ANECO check, it [necessarily] follows that responsibility therefor or
fault for the dishonor of the check should fall on appellee bank. Appellee's
attempt to extricate itself from its inadvertence must therefore fail in the
face of its Manager's explicit acknowledgment of responsibility for the
inadvertent dishonor of the ANECO check.[23]

Evidently, the bank's negligence was the result of lack of due care
required of its managers and employees in handling the accounts of its
clients. Petitioner was negligent in the selection and supervision of its
employees. In Citibank, N.A. v. Cabamongan,[24] the Court ruled:
xxx
We now resolve the question on the award of actual, moral and
exemplary damages, as well as attorney's fees by the CA to the
respondent.
The CA based the award of actual damages in the amount of
P1,864,500.00 on the purchase orders[25] submitted by respondent. The
CA ruled that:
x x x In the case at bar, appellant [respondent herein] presented
adequate evidence to prove losses consisting of unrealized income that
he sustained as a result of the appellee Bank's gross negligence.
Appellant identified certain Purchase Orders from various customers
which were not met by reason of the disruption of the operation of his
sawmills when ANECO and ASELCO disconnected their supply of
electricity thereto. x x x
Actual or compensatory damages are those awarded in order to
compensate a party for an injury or loss he suffered. They arise out of a
sense of natural justice and are aimed at repairing the wrong done.
Except as provided by law or by stipulation, a party is entitled to an
adequate compensation only for such pecuniary loss as he has duly
proven.[26] To recover actual damages, not only must the amount of loss
be capable of proof; it must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence
obtainable.[27]
Respondent's claim for damages was based on purchase orders from
various customers which were allegedly not met due to the disruption of
the operation of his sawmills. However, aside from the purchase orders
and his testimony, respondent failed to present competent proof on the
specific amount of actual damages he suffered during the entire period
his power was cut off. No other evidence was provided by respondent to
show that the foregoing purchase orders were not met or were canceled
Banking | Deposit Function | 31
by his various customers. The Court cannot simply rely on speculation,
conjecture or guesswork in determining the amount of damages.[28]
Moreover, an examination of the purchase orders and job orders reveal
that the orders were due for delivery prior to the period when the power
supply of respondent's two sawmills was cut off on June 1, 1992 to July
20, 1992 and May 28, 1992 to August 24, 1992, respectively. Purchase
Order No. 9906[29] delivery date is May 4, 1992; Purchase Order No.
9269[30] delivery date is March 19, 1992; Purchase Order No.
147796[31] is due for delivery on January 31, 1992; Purchase Order No.
76000[32] delivery date is February and March 1992; and Job Order No.
1824,[33] dated March 18, 1992, has a 15 days duration of work. Clearly,
the disconnection of his electricity during the period May 28, 1992 to
August 24, 1992 could not possibly affect his sawmill operations and prior
orders therefrom.
Given the dearth of respondent's evidence on the matter, the Court
resolves to delete the award of actual damages rendered by the CA in
favor of respondent for his unrealized income.
Nonetheless, in the absence of competent proof on the actual damages
suffered, respondent is entitled to temperate damages. Under Article
2224 of the Civil Code of the Philippines, temperate or moderate
damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount cannot, from the nature of the
case, be proved with certainty.[34] The allowance of temperate damages
when actual damages were not adequately proven is ultimately a rule
drawn from equity, the principle affording relief to those definitely injured
who are unable to prove how definite the injury.[35]
It is apparent that respondent suffered pecuniary loss. The negligence of
petitioner triggered the disconnection of his electrical supply, which
temporarily halted his business operations and the consequent loss of
business opportunity. However, due to the insufficiency of evidence
before Us, We cannot place its amount with certainty. Article 2216[36] of
the Civil Code instructs that assessment of damages is left to the
discretion of the court according to the circumstances of each case.
Under the circumstances, the sum of P50,000.00 as temperate damages
is reasonable.

Anent the award of moral damages, it is settled that moral damages are
meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injuries unjustly
caused.[37] In Philippine National Bank v. Court of Appeals,[38] the Court
held that 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. Responsibility arising from
negligence in the performance of every kind of obligation is demandable.
While petitioner's negligence in that case may not have been attended
with malice and bad faith, the banks' negligence caused respondent to
suffer mental anguish, serious anxiety, embarrassment and humiliation.
In said case, We ruled that respondent therein was entitled to recover
reasonable moral damages.
In this case, the unexpected cutting off of respondent's electricity, which
resulted in the stoppage of his business operations, had caused him to
suffer humiliation, mental anguish and serious anxiety. The award of
P50,000.00 is reasonable, considering the reputation and social standing
of respondent. As found by the CA, as an accredited supplier,
respondent had been reposed with a certain degree of trust by various
reputable and well- established corporations.
On the award of exemplary damages, Article 2229 of the Civil Code
states:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
The law allows the grant of exemplary damages to set an example for
the public good. The banking system has become an indispensable
institution in the modern world and plays a vital role in the economic life
of every civilized society. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business
and commerce, banks have attained an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks should guard against
injury attributable to negligence or bad faith on its part. Without a doubt,
it has been repeatedly emphasized that since the banking business is
Banking | Deposit Function | 32
impressed with public interest, of paramount importance thereto is the
trust and confidence of the public in general. Consequently, the highest
degree of diligence is expected, and high standards of integrity and
performance are even required of it.[39] Petitioner, having failed in this
respect, the award of exemplary damages in the amount of P50,000.00
is in order.
As to the award of attorney's fees, Article 2208 [40] of the Civil Code
provides, among others, that attorney's fees may be recovered when
exemplary damages are awarded or when the defendant's act or
omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest.[41] Respondent has been forced to
undergo unnecessary trouble and expense to protect his interest. The
Court affirms the appellate court's award of attorney's fees in the amount
of P30,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 41928, dated May
31, 2004 and August 24, 2004, respectively, are AFFIRMED with the
following MODIFICATIONS:
1. The award of One Million Eight Hundred Sixty-Four Thousand and Five
Hundred Pesos (P1,864,500.00) as actual damages, in favor of
respondent Arcelito B. Tan, is DELETED; and
2. Petitioner Equitable PCI Bank is instead directed to pay respondent
the amount of Fifty Thousand Pesos (P50,000.00) as temperate
damages.
SO ORDERED.

G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically
moral and exemplary damages. The negligence of the private respondent
has already been established. All we have to ascertain is whether the
petitioner is entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private
corporation engaged in the exportation of food products. It buys these
products from various local suppliers and then sells them abroad,
particularly in the United States, Canada and the Middle East. Most of its
exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a
checking account in its branch at Romulo Avenue, Cubao, Quezon City.
On May 25, 1981, the petitioner deposited to its account in the said bank
the amount of P100,000.00, thus increasing its balance as of that date
to P190,380.74. 1 Subsequently, the petitioner issued several checks
against its deposit but was suprised to learn later that they had been
dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño
in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:
Banking | Deposit Function | 33
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services,
Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country
Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in
the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June
9, 1981, a letter of demand to the petitioner, threatening prosecution if
the dishonored check issued to it was not made good. It also withheld
delivery of the order made by the petitioner. Similar letters were sent to
the petitioner by the Malabon Long Life Trading, on June 15, 1981, and
by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled
the petitioner's credit line and demanded that future payments be made
by it in cash or certified check. Meantime, action on the pending orders
of the petitioner with the other suppliers whose checks were dishonored
was also deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited
by the petitioner on May 25, 1981, had not been credited to it. The error
was rectified on June 17, 1981, and the dishonored checks were paid
after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation
from the respondent bank for its "gross and wanton negligence." This
demand was not met. The petitioner then filed a complaint in the then
Court of First Instance of Rizal claiming from the private respondent
moral damages in the sum of P1,000,000.00 and exemplary damages in
the sum of P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that
moral and exemplary damages were not called for under the
circumstances. However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal damages in the
amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This
decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private
respondent was guilty of negligence but agreed that the petitioner was
nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission
by the defendant-appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious,
fraudulent, wanton and gross bad faith and negligence on the part of the
defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us
that the negligence of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no more than a slap on
the wrist. We feel it is not enough to say that the private respondent
rectified its records and credited the deposit in less than a month as if
this were sufficient repentance. The error should not have been
committed in the first place. The respondent bank has not even explained
why it was committed at all. It is true that the dishonored checks were,
as the Court of Appeals put it, "eventually" paid. However, this took
almost a month when, properly, the checks should have been paid
immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the
grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton
bad faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the
respondent bank, the decision practically ignored the prejudice suffered
by the petitioner. This was simply glossed over if not, indeed,
disbelieved. The fact is that the petitioner's credit line was canceled and
its orders were not acted upon pending receipt of actual payment by the
suppliers. Its business declined. Its reputation was tarnished. Its
standing was reduced in the business community. All this was due to the
fault of the respondent bank which was undeniably remiss in its duty to
the petitioner.
Banking | Deposit Function | 34
Article 2205 of the Civil Code provides that actual or compensatory
damages may be received "(2) for injury to the plaintiff s business
standing or commercial credit." There is no question that the petitioner
did sustain actual injury as a result of the dishonored checks and that
the existence of the loss having been established "absolute certainty as
to its amount is not required." 7 Such injury should bolster all the more
the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said
claim.
We agree that moral damages are not awarded to penalize the defendant
but to compensate the plaintiff for the injuries he may have suffered. 8 In
the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondent's fault. The
respondent court said that the claimed losses are purely speculative and
are not supported by substantial evidence, but if failed to consider that
the amount of such losses need not be established with exactitude
precisely because of their nature. Moral damages are not susceptible of
pecuniary estimation. Article 2216 of the Civil Code specifically provides
that "no proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated." That
is why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to "the
circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of
preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not being
a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is where the corporation has
a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the
private respondent's negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable
debtor was diminished. The private respondent makes much of the one
instance when the petitioner was sued in a collection case, but that did

not prove that it did not have a good reputation that could not be marred,
more so since that case was ultimately settled. 10 It does not appear that,
as the private respondent would portray it, the petitioner is an unsavory
and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the
sum of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated
or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him."
As we have found that the petitioner has indeed incurred loss through
the fault of the private respondent, the proper remedy is the award to it
of moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have
become an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, most of all, confidence.
Thus, even the humble wage-earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person,
with equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the petitioner,
the bank is a trusted and active associate that can help in the running of
their affairs, not only in the form of loans when needed but more often
Banking | Deposit Function | 35
in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with
the utmost fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part
of the bank, such as the dishonor of a check without good reason, can
cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
The 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. In the case at bar, it is obvious
that the respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having been informed
of its error in not crediting the deposit in question to the petitioner, the
respondent bank did not immediately correct it but did so only one week
later or twenty-three days after the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the
error was made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes under the concept
of the wanton manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of
its discretion, hereby imposes upon the respondent bank exemplary
damages in the amount of P50,000.00, "by way of example or correction
for the public good," in the words of the law. It is expected that this
ruling will serve as a warning and deterrent against the repetition of the
ineptness and indifference that has been displayed here, lest the
confidence of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the
private respondent is ordered to pay the petitioner, in lieu of nominal
damages, moral damages in the amount of P20,000.00, and exemplary
 Banking | Deposit Function | 36

damages in the amount of P50,000.00 plus the original award of

attorney's fees in the amount of P5,000.00, and costs.

SO ORDERED.

G.R. No. 118492 August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST
COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the
Decision1
dated July 22, 1994 and
Resolution2 dated December 29, 1994 of the Court of Appeals 3 affirming
with modification the Decision4 dated November 12, 1992 of the Regional
Trial Court of Makati, Metro Manila, Branch 64, which dismissed the
complaint for damages of petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes against respondent Far East Bank and Trust
Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
(PRCI, for brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for finance, racing
manager, treasurer, and director of PRCI, sent Godofredo Reyes, the
club's chief cashier, to the respondent bank to apply for a foreign
exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20 th Asian
Racing Conference Secretariat of Sydney, Australia. He was attended to
by respondent bank's assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not have an
Australian dollar account in any bank in Sydney. Godofredo asked if there
could be a way for respondent bank to accommodate PRCI's urgent need
to remit Australian dollars to Sydney. Yasis of respondent bank then
informed Godofredo of a roundabout way of effecting the requested
remittance to Sydney thus: the respondent bank would draw a demand
draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for
brevity) and have the latter reimburse itself from the U.S. dollar account
Banking | Deposit Function | 37
of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New
York for brevity). This arrangement has been customarily resorted to
since the 1960's and the procedure has proven to be problem-free. PRCI
and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed
to this arrangement or approach in order to effect the urgent transfer of
Australian dollars payable to the Secretariat of the 20th Asian Racing
Conference.
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in
the sum applied for, that is, One Thousand Six Hundred Ten Australian
Dollars (AU$ 1,610.00), payable to the order of the 20 th Asian Racing
Conference Secretariat of Sydney, Australia, and addressed to Westpac-
Sydney as the drawee bank.
On August 10, 1988, upon due presentment of the foreign exchange
demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: "xxx No
account held with Westpac." Meanwhile, on August 16, 1988, Wespac-
New York sent a cable to respondent bank informing the latter that its
dollar account in the sum of One Thousand Six Hundred Ten Australian
Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to
PRCI's complaint about the dishonor of the said foreign exchange
demand draft, respondent bank informed Westpac-Sydney of the
issuance of the said demand draft FXDD No. 209968, drawn against the
Wespac-Sydney and informing the latter to be reimbursed from the
respondent bank's dollar account in Westpac-New York. The respondent
bank on the same day likewise informed Wespac-New York requesting
the latter to honor the reimbursement claim of Wespac-Sydney. On
September 14, 1988, upon its second presentment for payment, FXDD
No. 209968 was again dishonored by Westpac-Sydney for the same
reason, that is, that the respondent bank has no deposit dollar account
with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988, respectively,
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for
Australia to attend the said racing conference. When petitioner Gregorio
H. Reyes arrived in Sydney in the morning of September 18, 1988, he
went directly to the lobby of Hotel Regent Sydney to register as a
conference delegate. At the registration desk, in the presence of other

delegates from various member of the conference secretariat that he
could not register because the foreign exchange demand draft for his
registration fee had been dishonored for the second time. A discussion
ensued in the presence and within the hearing of many delegates who
were also registering. Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the conference
secretariat that he be shown the subject foreign exchange demand draft
that had been dishonored as well as the covering letter after which he
promised that he would pay the registration fees in cash. In the
meantime he demanded that he be given his name plate and conference
kit. The lady member of the conference secretariat relented and gave
him his name plate and conference kit. It was only two (2) days later, or
on September 20, 1988, that he was given the dishonored demand draft
and a covering letter. It was then that he actually paid in cash the
registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was embarassed and humiliated at the
registration desk of the conference secretariat when she was told in the
presence and within the hearing of other delegates that she could not be
registered due to the dishonor of the subject foreign exchange demand
draft. She felt herself trembling and unable to look at the people around
her. Fortunately, she saw her husband, coming toward her. He saved the
situation for her by telling the secretariat member that he had already
arranged for the payment of the registration fee in cash once he was
shown the dishonored demand draft. Only then was petitioner Puyat-
Reyes given her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was
a member of the House of Representatives representing the lone
Congressional District of Makati, Metro Manila. She has been an officer
of the Manila Banking Corporation and was cited by Archbishop Jaime
Cardinal Sin as the top lady banker of the year in connection with her
conferment of the Pro-Ecclesia et Pontifice Award. She has also been
awarded a plaque of appreciation from the Philippine Tuberculosis
Society for her extraordinary service as the Society's campaign chairman
for the ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court
of Makati, Metro Manila, a complaint for damages, docketed as Civil Case
Banking | Deposit Function | 38
No. 88-2468, against the respondent bank due to the dishonor of the
said foreign exchange demand draft issued by the respondent bank. The
petitioners claim that as a result of the dishonor of the said demand draft,
they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an
international audience.
On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein
petitioners), the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant,
dismissing plaintiff's complaint, and ordering plaintiffs to pay to
defendant, on its counterclaim, the amount of P50,000.00, as reasonable
attorney's fees. Costs against the plaintiff. SO ORDERED.5
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of
the trial court but in effect deleted the award of attorney's fees to the
defendant (herein respondent bank) and the pronouncement as to the
costs. The decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismissed
plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED and
SET ASIDE in all other respect. No special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the respondent
bank liable for damages for the reason that it exerted every effort for the
subject foreign exchange demand draft to be honored. The appellate
court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally
went through smoothly, considering that its New York account had been
debited and that there was no miscommunication between it and
Westpac-New York. SWIFT is a world wide association used by almost all
banks and is known to be the most reliable mode of communication in
the international banking business. Besides, the above procedure, with
the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-

New York as the reimbursement Bank had been in place since 1960s and
there was no reason for the Bank to suspect that this particular demand
draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the
miscommunications of the Bank's SWIFT message is the erroneous
decoding on the part of Westpac-Sydney of the Bank's SWIFT message
as an MT799 format. However, a closer look at the Bank's Exhs. "6" and
"7" would show that despite what appears to be an asterick written over
the figure before "99", the figure can still be distinctly seen as a number
"1" and not number "7", to the effect that Westpac-Sydney was
responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part
of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and
"7" are just documentary copies of the cable message sent to Wespac-
Sydney. Hence, if there was mistake committed by Westpac-Sydney in
decoding the cable message which caused the Bank's message to be sent
to the wrong department, the mistake was Westpac's, not the Bank's.
The Bank had done what an ordinary prudent person is required to do in
the particular situation, although appellants expect the Bank to have
done more. The Bank having done everything necessary or usual in the
ordinary course of banking transaction, it cannot be held liable for any
embarrassment and corresponding damage that appellants may have
incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING
THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON"
WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW
UPON THE BANKS.
II THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT
THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF
PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF.
Banking | Deposit Function | 39
III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR
OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S
NEGLIGENCE AND NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the
relationship between the respondent bank and its clients, the respondent
should have exercised a higher degree of diligence than that expected of
an ordinary prudent person in the handling of its affairs as in the case at
bar. The appellate court, according to petitioners, erred in applying the
standard of diligence of an ordinary prudent person only. Petitioners also
claim that the respondent bank violate Section 61 of the Negotiable
Instruments Law9 which provides the warranty of a drawer that "xxx on
due presentment, the instrument will be accepted or paid, or both,
according to its tenor xxx." Thus, the petitioners argue that respondent
bank should be held liable for damages for violation of this warranty. The
petitioners pray this Court to re-examine the facts to cite certain
instances of negligence.
It is our view and we hold that there is no reversible error in the decision
of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he
petition (for review) shall raise only questions of law which must be
distinctly set forth." Thus, we have ruled that factual findings of the Court
of Appeals are conclusive on the parties and not reviewable by this Court
– and they carry even more weight when the Court of Appeals affirms
the factual findings of the trial court.10
The courts a quo found that respondent bank did not misrepresent that
it was maintaining a deposit account with Westpac-Sydney. Respondent
bank's assistant cashier explained to Godofredo Reyes, representing
PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian
dollars would be effected through Westpac-New York where the
respondent bank has a dollar account to Westpac-Sydney where the
subject foreign exchange demand draft (FXDD No. 209968) could be
encashed by the payee, the 20th Asian Racing Conference Secretariat.
PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes,
through their said representative, agreed to that arrangement or
procedure. In other words, the petitioners are estopped from denying
the said arrangement or procedure. Similar arrangements have been a

long standing practice in banking to facilitate international commercial
transactions. In fact, the SWIFT cable message sent by respondent bank
to the drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New York, where
respondent bank has a deposit dollar account. The facts as found by the
courts a quo show that respondent bank did not cause an erroneous
transmittal of its SWIFT cable message to Westpac-Sydney. It was the
erroneous decoding of the cable message on the part of Westpac-Sydney
that caused the dishonor of the subject foreign exchange demand draft.
An employee of Westpac-Sydney in Sydney, Australia mistakenly read
the printed figures in the SWIFT cable message of respondent bank as
"MT799" instead of as "MT199". As a result, Westpac-Sydney construed
the said cable message as a format for a letter of credit, and not for a
demand draft. The appellate court correct found that "the figure before
'99' can still be distinctly seen as a number '1' and not number '7'."
Indeed, the line of a "7" is in a slanting position while the line of a "1" is
in a horizontal position. Thus, the number "1" in "MT199" cannot be
construed as "7".11
The evidence also shows that the respondent bank exercised that degree
of diligence expected of an ordinary prudent person under the
circumstances obtaining. Prior to the first dishonor of the subject foreign
exchange demand draft, the respondent bank advised Westpac-New York
to honor the reimbursement claim of Westpac-Sydney and to debit the
dollar account12 of respondent bank with the former. As soon as the
demand draft was dishonored, the respondent bank, thinking that the
problem was with the reimbursement and without any idea that it was
due to miscommunication, re-confirmed the authority of Westpac-New
York to debit its dollar account for the purpose of reimbursing Westpac-
Sydney.13 Respondent bank also sent two (2) more cable messages to
Westpac-New York inquiring why the demand draft was not honored.14
With these established facts, we now determine the degree of diligence
that banks are required to exert in their commercial dealings.
In Philippine Bank of Commerce v. Court of Appeals15 upholding a long
standing doctrine, we ruled that the degree of diligence required of
banks, is more than that of a good father of a family where the fiduciary
nature of their relationship with their depositors is concerned. In other
words banks are duty bound to treat the deposit accounts of their
depositors with the highest degree of care. But the said ruling applies
Banking | Deposit Function | 40
only to cases where banks act under their fiduciary capacity, that is, as
depositary of the deposits of their depositors. But the same higher
degree of diligence is not expected to be exerted by banks in commercial
transactions that do not involve their fiduciary relationship with their
depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at
bar does not involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer
and seller, that is, between the respondent bank as the seller of the
subject foreign exchange demand draft, and PRCI as the buyer of the
same, with the 20th Asian Racing conference Secretariat in Sydney,
Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration
fees of the petitioners as delegates of the PRCI to the 20 th Asian Racing
Conference in Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand
draft. The erroneous reading of its cable message to Westpac-Sydney by
an employee of the latter could not have been foreseen by the
respondent bank. Being unaware that its employee erroneously read the
said cable message, Westpac-Sydney merely stated that the respondent
bank has no deposit account with it to cover for the amount of One
Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in
the foreign exchange demand draft. Thus, the respondent bank had the
impression that Westpac-New York had not yet made available the
amount for reimbursement to Westpac-Sydney despite the fact that
respondent bank has a sufficient deposit dollar account with Westpac-
New York. That was the reason why the respondent bank had to re-
confirm and repeatedly notify Westpac-New York to debit its (respondent
bank's) deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of the
said demand draft.
In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault of
the respondent bank, whereas the petitioners appeared to be under
 Banking | Deposit Function | 41

estoppel as earlier mentioned, it is no longer necessary to discuss the

alleged application of Section 61 of the Negotiable Instruments Law to
the case at bar. In any event, it was established that the respondent
bank acted in good faith and that it did not cause the embarrassment of
the petitioners in Sydney, Australia. Hence, the Court of Appeals did not
commit any reversable error in its challenged decision.

WHEREFORE, the petition is hereby DENIED, and the assailed decision

of the Court of Appeals is AFFIRMED. Costs against the petitioners. SO
ORDERED.

G.R. No. 140687 December 18, 2006
CHINA BANKING CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JOSE "JOSEPH"
GOTIANUY as substituted by ELIZABETH GOTIANUY
LO, respondents.
CHICO-NAZARIO, J.:
A Complaint for recovery of sums of money and annulment of sales of
real properties and shares of stock docketed as CEB-21445 was filed by
Jose "Joseph" Gotianuy against his son-in-law, George Dee, and his
daughter, Mary Margaret Dee, before the Regional Trial Court (RTC) of
Cebu City, Branch 58.
Jose Gotianuy accused his daughter Mary Margaret Dee of stealing,
among his other properties, US dollar deposits with Citibank N.A.
amounting to not less than P35,000,000.00 and US$864,000.00. Mary
Margaret Dee received these amounts from Citibank N.A. through checks
which she allegedly deposited at China Banking Corporation (China
Bank). He likewise accused his son-in-law, George Dee, husband of his
daughter, Mary Margaret, of transferring his real properties and shares
of stock in George Dee's name without any consideration. Jose Gotianuy,
died during the pendency of the case before the trial court.1 He was
substituted by his daughter, Elizabeth Gotianuy Lo. The latter presented
the US Dollar checks withdrawn by Mary Margaret Dee from his US dollar
placement with Citibank. The details of the said checks are:
1) CITIBANK CHECK NO. 69003194405412 dated September 29 1997 in
the amount of US$5,937.52 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET;
2) CITIBANK CHECK NO. 69003194405296 dated September 29 1997 in
the amount of US$7,197.59 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET;
3) CITIBANK CHECK NO. 69003194405414 dated September 29 1997 in
the amount of US$1,198.94 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET;
Banking | Deposit Function | 42
4) CITIBANK CHECK NO. 69003194405413 dated September 29 1997 in
the amount of US$989.04 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET;
5) CITIBANK CHECK NO. 69003194405297 dated October 01 1997 in the
amount of US$766,011.97 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET; and
6) CITIBANK CHECK NO. 69003194405339 dated October 09 1997 in the
amount of US$83,053.10 payable to GOTIANUY: JOSE AND/OR DEE:
MARY MARGARET.2
Upon motion of Elizabeth Gotianuy Lo, the trial court3 issued a subpoena
to Cristota Labios and Isabel Yap, employees of China Bank, to testify on
the case. The Order of the trial court dated 23 February 1999, states:
Issue a subpoena ad testificandum requiring MS. ISABEL YAP and
CRISTOTA LABIOS of China Banking Corporation, Cebu Main Branch,
corner Magallanes and D. Jakosalem Sts., Cebu City, to appear in person
and to testify in the hearing of the above entitled case on March 1, 1999
at 8:30 in the morning, with regards to Citibank Checks (Exhs. "AAA" to
"AAA-5") and other matters material and relevant to the issues of this
case.4
China Bank moved for a reconsideration. Resolving the motion, the trial
court issued an Order dated 16 April 1999 and held:
The Court is of the view that as the foreign currency fund (Exhs. "AAA"
to "AAA-5") is deposited with the movant China Banking Corporation,
Cebu Main Branch, Cebu City, the disclosure only as to the name or in
whose name the said fund is deposited is not violative of the law. Justice
will be better served if the name or names of the depositor of said fund
shall be disclosed because such a disclosure is material and important to
the issues between the parties in the case at bar.
Premises considered, the motion for reconsideration is denied partly and
granted partly, in the sense that Isabel Yap and/or Cristuta Labios are
directed to appear before this Court and to testify at the trial of this case
on April 20, 1999, May 6 & 7, 1999 at 10:00 o'clock in the morning and
only for the purpose of disclosing in whose name or names is the foreign

currency fund (Exhs. "AAA" to "AAA-5") deposited with the movant Bank
and not to other matters material and relevant to the issues in the case
at bar.5
From this Order, China Bank filed a Petition for Certiorari6 with the Court
of Appeals. In a Decision7 dated 29 October 1999, the Court of Appeals
denied the petition of China Bank and affirmed the Order of the RTC.
In justifying its conclusion, the Court of Appeals ratiocinated:
From the foregoing, it is pristinely clear the law specifically encompasses
only the money or funds in foreign currency deposited in a bank. Thus,
the coverage of the law extends only to the foreign currency deposit in
the CBC account where Mary Margaret Dee deposited the Citibank checks
in question and nothing more.
It has to be pointed out that the April 16, 1999 Order of the court of
origin modified its previous February 23, 1999 Order such that the CBC
representatives are directed solely to divulge "in whose name or names
is the foreign currency fund (Exhs. "AAA" to "AAA-5") deposited with the
movant bank." It precluded inquiry on "other materials and relevant to
the issues in the case at bar." We find that the directive of the court
below does not contravene the plain language of RA 6426 as amended
by P.D. No. 1246.
The contention of petitioner that the [prescription] on absolute
confidentiality under the law in question covers even the name of the
depositor and is beyond the compulsive process of the courts is palpably
untenable as the law protects only the deposits itself but not the name
of the depositor. To uphold the theory of petitioner CBC is reading into
the statute "something that is not within the manifest intention of the
legislature as gathered from the statute itself, for to depart from the
meaning expressed by the words, is to alter the statute, to legislate and
not to interpret, and judicial legislation should be avoided. Maledicta
expositio quae corrumpit textum – It is a dangerous construction which
is against the words. Expressing the same principle is the maxim: Ubi lex
non distinguit nec nos distinguere debemos, which simply means that
where the law does not distinguish, we should not make any distinction."
(Gonzaga, Statutes and their Construction, p. 75.)8
Banking | Deposit Function | 43
From the Decision of the Court of Appeals, China Bank elevated the case
to this Court based on the following issues:
I THE HONORABLE COURT OF APPEALS HAS INTERPRETED THE
PROVISION OF SECTION 8 OF R.A. 6426, AS AMENDED, OTHERWISE
KNOWN AS THE FOREIGN CURRENCY DEPOSIT ACT, IN A MANNER
CONTRARY TO THE LEGISLATIVE PURPOSE, THAT IS, TO PROVIDE
ABSOLUTE CONFIDENTIALITY OF WHATEVER INFORMATION RELATIVE
TO THE FOREIGN CURRENCY DEPOSIT.
II PRIVATE RESPONDENT IS NOT THE OWNER OF THE
QUESTIONED FOREIGN CURRENCY DEPOSIT. THUS, HE CANNOT
INVOKE THE AID OF THE COURT IN COMPELLING THE DISCLOSURE OF
SOMEONE ELSE'S FOREIGN CURRENCY DEPOSIT ON THE FLIMSY
PRETEXT THAT THE CHECKS (IN FOREIGN CURRENCY) HE HAD ISSUED
MAY HAVE ENDED UP THEREIN.
III PETITIONER CAN RIGHTLY INVOKE THE PROVISION OF SEC. 8,
R.A. 6426, IN BEHALF OF THE FOREIGN CURRENCY DEPOSITOR, OWING
TO ITS SOLEMN OBLIGATION TO ITS CLIENT TO EXERCISE
EXTRAORDINARY DILIGENCE IN THE HANDLING OF THE ACCOUNT.9
As amended by Presidential Decree No. 1246, the law reads:
SEC. 8. Secrecy of Foreign Currency Deposits. – All foreign currency
deposits authorized under this Act, as amended by Presidential Decree
No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the written
permission of the depositor, in no instance shall such foreign currency
deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative
or legislative or any other entity whether public or private: Provided,
however, that said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever. (As amended by PD No. 1035, and further amended by PD
No. 1246, prom. Nov. 21, 1977) (Emphasis supplied.)

Under the above provision, the law provides that all foreign currency
deposits authorized under Republic Act No. 6426, as amended by Sec. 8,
Presidential Decree No. 1246, Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034
are considered absolutely confidential in nature and may not be inquired
into. There is only one exception to the secrecy of foreign currency
deposits, that is, disclosure is allowed upon the written permission of the
depositor.
This much was pronounced in the case of Intengan v. Court of
Appeals,10 where it was held that the only exception to the secrecy of
foreign currency deposits is in the case of a written permission of the
depositor.
It must be remembered that under the whereas clause of Presidential
Decree No. 1246 which amended Sec. 8 of Republic Act No. 6426, the
Foreign Currency Deposit System including the Offshore Banking System
under Presidential Decree 1034 were intended to draw deposits from
foreign lenders and investors, and we quote:
Whereas, in order to assure the development and speedy growth of the
Foreign Currency Deposit System and the Offshore Banking System in
the Philippines, certain incentives were provided for under the two
Systems such as confidentiality of deposits subject to certain exceptions
and tax exemptions on the interest income of depositors who are
nonresidents and are not engaged in trade or business in the Philippines;
Whereas, making absolute the protective cloak of confidentiality over
such foreign currency deposits, exempting such deposits from tax, and
guaranteeing the vested rights of depositors would better encourage the
inflow of foreign currency deposits into the banking institutions
authorized to accept such deposits in the Philippines thereby placing such
institutions more in a position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to the economic
development of the country.
As to the deposit in foreign currencies entitled to be protected under the
confidentiality rule, Presidential Decree No. 1034,11 defines deposits to
mean funds in foreign currencies which are accepted and held by an
Banking | Deposit Function | 44
offshore banking unit in the regular course of business, with the
obligation to return an equivalent amount to the owner thereof, with or
without interest.12
It is in this light that the court in the case of Salvacion v. Central Bank
of the Philippines,13 allowed the inquiry of the foreign currency deposit in
question mainly due to the peculiar circumstances of the case such that
a strict interpretation of the letter of the law would result to rank
injustice. Therein, Greg Bartelli y Northcott, an American tourist, was
charged with criminal cases for serious illegal detention and rape
committed against then 12 year-old Karen Salvacion. A separate civil
case for damages with preliminary attachment was filed against Greg
Bartelli. The trial court issued an Order granting the Salvacions'
application for the issuance of a writ of preliminary attachment. A notice
of garnishment was then served on China Bank where Bartelli held a
dollar account. China Bank refused, invoking the secrecy of bank
deposits. The Supreme Court ruled: "In fine, the application of the law
depends on the extent of its justice x x x It would be unthinkable, that
the questioned law exempting foreign currency deposits from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever would be used as a device by an accused x x x for
wrongdoing, and in so doing, acquitting the guilty at the expense of the
innocent.14
With the foregoing, we are now tasked to determine the single material
issue of whether or not petitioner China Bank is correct in its submission
that the Citibank dollar checks with both Jose Gotianuy and/or Mary
Margaret Dee as payees, deposited with China Bank, may not be looked
into under the law on secrecy of foreign currency deposits. As a corollary
issue, sought to be resolved is whether Jose Gotianuy may be considered
a depositor who is entitled to seek an inquiry over the said deposits.
The Court of Appeals, in allowing the inquiry, considered Jose Gotianuy,
a co-depositor of Mary Margaret Dee. It reasoned that since Jose
Gotianuy is the named co-payee of the latter in the subject checks, which
checks were deposited in China Bank, then, Jose Gotianuy is likewise a
depositor thereof. On that basis, no written consent from Mary Margaret
Dee is necessitated.

We agree in the conclusion arrived at by the Court of Appeals.
The following facts are established: (1) Jose Gotianuy and Mary Margaret
Dee are co-payees of various Citibank checks;15 (2) Mary Margaret Dee
withdrew these checks from Citibank;16 (3) Mary Margaret Dee admitted
in her Answer to the Request for Admissions by the Adverse Party sent
to her by Jose Gotianuy17 that she withdrew the funds from Citibank upon
the instruction of her father Jose Gotianuy and that the funds belonged
exclusively to the latter; (4) these checks were endorsed by Mary
Margaret Dee at the dorsal portion; and (5) Jose Gotianuy discovered
that these checks were deposited with China Bank as shown by the stamp
of China Bank at the dorsal side of the checks.
Thus, with this, there is no issue as to the source of the funds. Mary
Margaret Dee declared the source to be Jose Gotianuy. There is likewise
no dispute that these funds in the form of Citibank US dollar Checks are
now deposited with China Bank.
As the owner of the funds unlawfully taken and which are undisputably
now deposited with China Bank, Jose Gotianuy has the right to inquire
into the said deposits.
A depositor, in cases of bank deposits, is one who pays money into the
bank in the usual course of business, to be placed to his credit and
subject to his check or the beneficiary of the funds held by the bank as
trustee.18
On this score, the observations of the Court of Appeals are worth
reiterating:
Furthermore, it is indubitable that the Citibank checks were drawn
against the foreign currency account with Citibank, NA. The monies
subject of said checks originally came from the late Jose Gotianuy, the
owner of the account. Thus, he also has legal rights and interests in the
CBC account where said monies were deposited. More importantly, the
Citibank checks (Exhibits "AAA" to "AAA-5") readily demonstrate (sic)
that the late Jose Gotianuy is one of the payees of said checks. Being a
co-payee thereof, then he or his estate can be considered as a co-
depositor of said checks. Ergo, since the late Jose Gotianuy is a co-
Banking | Deposit Function | 45
depositor of the CBC account, then his request for the assailed subpoena
is tantamount to an express permission of a depositor for the disclosure
of the name of the account holder. The April 16, 1999 Order perforce
must be sustained.19 (Emphasis supplied.)
One more point. It must be remembered that in the complaint of Jose
Gotianuy, he alleged that his US dollar deposits with Citibank were
illegally taken from him. On the other hand, China Bank employee
Cristuta Labios testified that Mary Margaret Dee came to China Bank and
deposited the money of Jose Gotianuy in Citibank US dollar checks to the
dollar account of her sister Adrienne Chu.20 This fortifies our conclusion
that an inquiry into the said deposit at China Bank is justified. At the very
least, Jose Gotianuy as the owner of these funds is entitled to a hearing
on the whereabouts of these funds.
All things considered and in view of the distinctive circumstances
attendant to the present case, we are constrained to render a limited pro
hac vice ruling.21 Clearly it was not the intent of the legislature when it
enacted the law on secrecy on foreign currency deposits to perpetuate
injustice. This Court is of the view that the allowance of the inquiry would
be in accord with the rudiments of fair play,22 the upholding of fairness
in our judicial system and would be an avoidance of delay and time-
wasteful and circuitous way of administering justice.23
WHEREFORE, premises considered, the Petition is DENIED. The
Decision of the Court of Appeals dated 29 October 1999 affirming the
Order of the RTC, Branch 58, Cebu City dated 16 April 1999
is AFFIRMED and this case is ordered REMANDED to the trial court for
continuation of hearing with utmost dispatch consistent with the above
disquisition. No costs.
SO ORDERED.
 Banking | Deposit Function | 46

G.R. No. 69162 February 21, 1992 bank could not contact them because they actually reside in Porac,
Pampanga. The city address and telephone number which they gave to
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs. the bank belonged to Mrs. Canlas' parents.
THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR
CANLAS and VIVIENE CANLAS, respondents. On December 15, 1977, the private respondents filed a complaint for
damages against CBTC in the Court of First Instance of Pampanga (p.
GRIÑO-AQUINO, J.: 113, Rollo).

In a decision dated September 3, 1984, the Intermediate Appellate Court On February 27, 1978, the bank filed a motion to dismiss the complaint
(now Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A. for improper venue. The motion was denied.
Canlas, et al., Plaintiff-Appellees vs. Commercial Bank and Trust
Company of the Philippines, Defendant-Appellant," reduced to P105,000 During the pendency of the case, the Bank of the Philippine Islands (BPI)
the P465,000 damage-award of the trial court to the private respondents and CBTC were merged. As the surviving corporation under the merger
for an error of a bank teller which resulted in the dishonor of two small agreement and under Section 80 (5) of the Corporation Code of the
checks which the private respondents had issued against their joint Philippines, BPI took over the prosecution and defense of any pending
current account. This petition for review of that decision was filed by the claims, actions or proceedings by and against CBTC.
Bank.
On May 5, 1981, the Regional Trial Court of Pampanga rendered a
The respondent spouses, Arthur and Vivienne Canlas, opened a joint decision against BPI, the dispositive portion of which reads:
current account No. 210-520-73 on April 25, 1977 in the Quezon City
branch of the Commercial Bank and Trust Company of the Philippines WHEREFORE, judgment is hereby rendered sentencing defendant to pay the
(CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had plaintiff the following:
an existing separate personal checking account No. 210-442-41 in the
1. P 5,000.00 as actual damages;
same branch.
2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for plaintiff
When the respondent spouses opened their joint current account, the
Vivienne S. Canlas representing moral damages;
"new accounts" teller of the bank pulled out from the bank's files the old
and existing signature card of respondent Arthur Canlas for Current 3. P 150.000.00 as exemplary damages;
Account No. 210-442-41 for use as I D and reference. By mistake, she
placed the old personal account number of Arthur Canlas on the deposit 4. P 10,000.00 as attorney's fees; and
slip for the new joint checking account of the spouses so that the initial
deposit of P2,250 for the joint checking account was miscredited to 5. Costs. (p. 36, Rollo).
Arthur's personal account (p. 9, Rollo). The spouses subsequently
On appeal, the Intermediate Appellate Court deleted the actual damages
deposited other amounts in their joint account.
and reduced the other awards. The dispositive portion of its decision
However, when respondent Vivienne Canlas issued a check for Pl,639.89 reads:
in April 1977 and another check for P1,160.00 on June 1, 1977, one of
WHEREFORE, the judgment appealed from is hereby modified as follows:
the checks was dishonored by the bank for insufficient funds and a
penalty of P20 was deducted from the account in both instances. In view 1. The award of P50,000.00 in actual damages is herewith deleted.
of the overdrawings, the bank tried to call up the spouses at the
telephone number which they had given in their application form, but the

2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees Arthur
Canlas and Vivienne S. Canlas, not P50,000.00 each.
3. Exemplary damages is likewise reduced to the sum of P50,000.00 and
attorney's fees to P5,000.00.
Costs against the defendants appellant. (p. 40, Rollo.)
Petitioner filed this petition for review alleging that the appellate court
erred in holding that:
1. The venue of the case had been properly laid at Pampanga in the light
of private respondents' earlier declaration that Quezon City is their true
residence.
2. The petitioner was guilty of gross negligence in the handling of private
respondents' bank account.
3. Private respondents are entitled to the moral and exemplary damages
and attorney's fees adjudged by the respondent appellate court.
On the question of venue raised by petitioner, it is evident that personal
actions may be instituted in the Court of First Instance (now Regional
Trial Court) of the province where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff (Section 2[b], Rule 4 of the Rules
of Court). In this case, there was ample proof that the residence of the
plaintiffs is B. Sacan, Porac, Pampanga (p. 117, Rollo). The city address
of Mrs. Canlas' parents was placed by the private respondents in their
application for a joint checking account, at the suggestion of the new
accounts teller, presumably to facilitate mailing of the bank statements
and communicating with the private respondents in case any problems
should arise involving the account. No waiver of their provincial residence
for purposes of determining the venue of an action against the bank may
be inferred from the so-called "misrepresentation" of their true
residence.
The appellate court based its award of moral and exemplary damages,
and attorney's fees on its finding that the mistake committed by the new
accounts teller of the petitioner constituted "serious" negligence (p.
38, Rollo). Said court further stressed that it cannot absolve the
petitioner from liability for damages to the private respondents, even on
Banking | Deposit Function | 47
the assumption of an honest mistake on its part, because of the
embarrassment that even an honest mistake can cause its depositors (p.
31, Rollo).
There is no merit in petitioner's argument that it should not be considered
negligent, much less held liable for damages on account of the
inadvertence of its bank employee for Article 1173 of the Civil Code only
requires it to exercise the diligence of a good father of family.
In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA
360, 367), this Court stressed the fiduciary nature of the relationship
between a bank and its depositors and the extent of diligence expected
of it in handling the accounts entrusted to its care.
In every case, the depositor expects the bank to treat his account with
the utmost fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part
of the bank, such as the dishonor of a check without good reason, can
cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
The 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. . . .
The bank is not expected to be infallible but, as correctly observed by
respondent Appellate Court, in this instance, it must bear the blame for
not discovering the mistake of its teller despite the established procedure
requiring the papers and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck them for possible
errors. Apparently, the officials and employees tasked to do that did not
perform their duties with due care, as may be gathered from the
testimony of the bank's lone witness, Antonio Enciso, who casually
declared that "the approving officer does not have to see the account
numbers and all those things. Those are very petty things for the
approving manager to look into" (p. 78, Record on Appeal).
 Banking | Deposit Function | 48

Unfortunately, it was a "petty thing," like the incorrect account number

that the bank teller wrote on the initial deposit slip for the newly-opened
joint current account of the Canlas spouses, that sparked this half-a-
million-peso damage suit against the bank.

While the bank's negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety, embarrassment
and humiliation to the private respondents for which they are entitled to
recover reasonable moral damages (American Express International, Inc.
vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is
proper for the private respondents were compelled to litigate to protect
their interest (Art. 2208, Civil Code). However, the absence of malice
and bad faith renders the award of exemplary damages improper (Globe
Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778).

WHEREFORE, the petition for review is granted. The appealed decision is

MODIFIED by deleting the award of exemplary damages to the private
respondents. In all other respects, the decision of the Intermediate
Appellate Court, now Court of Appeals, is AFFIRMED. No costs.

SO ORDERED.
 Banking | Deposit Function | 49

[G.R. No. 138569. September 11, 2003.] Teller No. 6 stamped the deposit slips with the words "DUPLICATE" and
"SAVING TELLER 6 SOLIDBANK HEAD OFFICE." Since the transaction
THE CONSOLIDATED BANK and TRUST CORPORATION, Petitioner, took time and Calapre had to make another deposit for L.C. Diaz with
v. Allied Bank, he left the passbook with Solidbank. Calapre then went to
COURT OF APPEALS and L.C. DIAZ and COMPANY, Allied Bank. When Calapre returned to Solidbank to retrieve the
CPA’s, Respondents. passbook, Teller No. 6 informed him that "somebody got the passbook.
Calapre went back to L.C. Diaz and reported the incident to Macaraya.
CARPIO, J.:

Macaraya immediately prepared a deposit slip in duplicate copies with a

The Case
check of P200,000. Macaraya, together with Calapre, went to Solidbank
and presented to Teller No. 6 the deposit slip and check. The teller
Before us is a petition for review of the Decision of the Court of Appeals
stamped the words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK
dated 27 October 1998 and its Resolution dated 11 May 1999. The
HEAD OFFICE" on the duplicate copy of the deposit slip. When Macaraya
assailed decision reversed the Decision of the Regional Trial Court of
asked for the passbook, Teller No. 6 told Macaraya that someone got the
Manila, Branch 8, absolving petitioner Consolidated. Bank and Trust
passbook but she could not remember to whom she gave the passbook.
Corporation, now known as Solidbank Corporation ("Solidbank"), of any
When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller
liability. The questioned resolution of the appellate court denied the
No. 6 answered that someone shorter than Calapre got the passbook.
motion for reconsideration of Solidbank but modified the decision by
Calapre was then standing beside Macaraya.
deleting the award of exemplary damages, attorney’s fees, expenses of
litigation and cost of suit.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for
the deposit of a check for P90,000 drawn on Philippine Banking
The Facts
Corporation ("PBC"). This PBC check of L.C. Diaz was a check that it had
"long closed." PBC subsequently dishonored the check because of
Solidbank is a domestic banking corporation organized and existing
insufficient funds and because the signature in the check differed from
under Philippine laws. Private respondent L.C. Diaz and Company, CPA’s
PBC’s specimen signature. Failing to get back the passbook, Macaraya
("L.C. Diaz"), is a professional partnership engaged in the practice of
went back to her office and reported the matter to the Personnel Manager
accounting.
of L.C. Diaz, Emmanuel Alvarez.
Sometime in March 1976, L.C. Diaz opened a savings account with
The following day, 15 August 1991, L.C. Diaz through its Chief Executive
Solidbank, designated as Savings Account No. S/A 200-16872-6.
Officer, Luis C. Diaz ("Diaz"), called up Solidbank to stop any transaction
using the same passbook until L.C. Diaz could open a new account. On
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
the same day, Diaz formally wrote Solidbank to make the same request.
("Macaraya"), filled up a savings (cash) deposit slip for P990 and a
It was also on the same day that L.C. Diaz learned of the unauthorized
savings (checks) deposit slip for P50. Macaraya instructed the messenger
withdrawal the day before, 14 August 1991, of P300,000 from its savings
of L.C. Diaz, Ismael Calapre ("Calapre"), to deposit the money with
account. The withdrawal slip for the P300,000 bore the signatures of the
Solidbank. Macaraya also gave Calapre the Solidbank passbook.
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit The signatories, however, denied signing the withdrawal slip. A certain
slips and the passbook. The teller acknowledged receipt of the deposit Noel Tamayo received the P300,000.
by returning to Calapre the duplicate copies of the two deposit slips.

In an Information dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan ("Ilagan") and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional Trial
Court of Manila dismissed the criminal case after the City Prosecutor filed
a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum of
Money against Solidbank with the Regional Trial Court of Manila, Branch
8. After trial, the trial court rendered on 28 December 1994 a decision
absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed to the Court of Appeals. On 27 October 1998,
the Court of Appeals issued its Decision reversing the decision of the trial
court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the
motion for reconsideration of Solidbank. The appellate court, however,
modified its decision by deleting the award of exemplary damages and
attorney’s fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings
account written on the passbook. The rules state that "possession of this
book shall raise the presumption of ownership and any payment or
payments made by the bank upon the production of the said book and
entry therein of the withdrawal shall have the same effect as if made to
the depositor personally."
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the
signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller
stamped the withdrawal slip with the words "Saving Teller No. 5." The
teller then passed on the withdrawal slip to Genere Manuel ("Manuel")
for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the
Banking | Deposit Function | 50
signatures on the withdrawal slip with the specimen on the signature
cards. The trial court concluded that Solidbank acted with care and
observed the rules on savings account when it allowed the withdrawal of
P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C.
Diaz to prove that the signatures on the withdrawal slip were forged. The
trial court admonished L.C. Diaz for not offering in evidence the National
Bureau of Investigation ("NBI") report on the authenticity of the
signatures on the withdrawal slip for P300,000. The trial court believed
that L.C. Diaz did not offer this evidence because it is derogatory to its
action.
Another provision of the rules on savings account states that the
depositor must keep the passbook "under lock and key." When another
person presents the passbook for withdrawal prior to Solidbank’s receipt
of the notice of loss of the passbook, that person is considered as the
owner of the passbook. The trial court ruled that the passbook presented
during the questioned transaction was "now out of the lock and key and
presumptively ready for a business transaction."
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbank’s act of allowing the
withdrawal of P300,000 was not the direct and proximate cause of the
loss. The trial court held that L.C. Diaz’s negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diaz’s negligence:
(1) the possession of the passbook by a person other than the depositor
L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an unauthorized person
of a PBC check "long closed" by L.C. Diaz, which check was deposited on
the day of the fraudulent withdrawal.
The trial court debunked L.C. Diaz’s contention that Solidbank did not
follow the precautionary procedures observed by the two parties
whenever L.C. Diaz withdrew significant amounts from its account. L.C.
Diaz claimed that a letter must accompany withdrawals of more than
P20,000. The letter must request Solidbank to allow the withdrawal and
convert the amount to a manager’s check. The bearer must also have a
letter authorizing him to withdraw the same amount. Another person
driving a car must accompany the bearer so that he would not walk from

Solidbank to the office in making the withdrawal. The trial court pointed
out that L.C. Diaz disregarded these precautions in its past withdrawal.
On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter
of authorization or any communication with Solidbank that the money be
converted into a manager’s check.
The trial court further justified the dismissal of the complaint by holding
that the case was a last ditch effort of L.C. Diaz to recover P300,000 after
the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING
the complaint.
The Court further renders judgment in favor of defendant bank pursuant
to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00)
as attorney’s fees. With costs against plaintiff. SO ORDERED.
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbank’s negligence was the
proximate cause of the unauthorized withdrawal of P300,000 from the
savings account of L.C. Diaz. The appellate court reached this conclusion
after applying the provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the
provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are
present in this case, namely: (a) damages suffered by the plaintiff; (b)
fault or negligence of the defendant, or some other person for whose
acts he must respond; and (c) the connection of cause and effect
between the fault or negligence of the defendant and the damage
incurred by the plaintiff.
Banking | Deposit Function | 51
The Court of Appeals pointed out that the teller of Solidbank who received
the withdrawal slip for P300,000 allowed the withdrawal without making
the necessary inquiry. The appellate court stated that the teller, who was
not presented by Solidbank during trial, should have called up the
depositor because the money to be withdrawn was a significant amount.
Had the teller called up L.C. Diaz, Solidbank would have known that the
withdrawal was unauthorized. The teller did not even verify the identity
of the impostor who made the withdrawal. Thus, the appellate court
found Solidbank liable for its negligence in the selection and supervision
of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller, Solidbank could not escape liability because of
the doctrine of "last clear chance." Solidbank could have averted the
injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the
withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business
and functions of banks are affected with public interest. Banks are
obligated to treat the accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their relationship with their
clients. The Court of Appeals found Solidbank remiss in its duty, violating
its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby
REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust
Corporation. to pay plaintiff-appellant the sum of Three Hundred
Thousand Pesos (P300,000.00), with interest thereon at the rate of 12%
per annum from the date of filing of the complaint until paid, the sum of
P20,000.00 as exemplary damages, and P20,000.00 as attorney’s fees
and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellee’s counterclaim in the
amount of P30,000.00 as attorney’s fees. SO ORDERED.

Acting on the motion for reconsideration of Solidbank, the appellate court
affirmed its decision but modified the award of damages. The appellate
court deleted the award of exemplary damages and attorney’s fees.
Invoking Article 2231 of the Civil Code, the appellate court ruled that
exemplary damages could be granted if the defendant acted with gross
negligence. Since Solidbank was guilty of simple negligence only, the
award of exemplary damages was not justified. Consequently, the award
of attorney’s fees was also disallowed pursuant to Article 2208 of the
Civil Code. The expenses of litigation and cost of suit were also not
imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998
is affirmed with modification by deleting the award of exemplary
damages and attorney’s fees, expenses of litigation and cost of suit. SO
ORDERED.
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK
SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST
CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED
THE WITHDRAWAL OF P300,000.00 TO RESPONDENT’S MESSENGER
EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE
ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD
FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF
A BIG AMOUNT IN A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST
CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANK’S TELLER
HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN
IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON
THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENT’S
Banking | Deposit Function | 52
PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT
WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS
CHECKS AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT
CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER
ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES
AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL
CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK’S
NEGLIGENCE WAS ONLY CONTRIBUTORY.
The Ruling of the Court
The petition is partly meritorious.
Solidbank’s Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz
based on the provisions of the rules on savings account, a recognition of
the contractual relationship between Solidbank and L.C. Diaz, the latter
being a depositor of the former. On the other hand, the Court of Appeals
applied the law on quasi-delict to determine who between the two parties
was ultimately negligent. The law on quasi-delict or culpa aquiliana is
generally applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Article 1980 of the Civil Code
expressly provides that." . . savings . . . deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan." There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The

depositor lends the bank money and the bank agrees to pay the depositor
on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took
effect on 13 June 2000, declares that the State recognizes the "fiduciary
nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law, introduced
in 2000, is a statutory affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v. Court of Appeals, holding
that "the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the bank’s obligation to observe
"high standards of integrity and performance" is deemed written into
every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil Code states
that the degree of diligence required of an obligor is that prescribed by
law or contract, and absent such stipulation then the diligence of a good
father of a family. Section 2 of RA 8791 prescribes the statutory diligence
required from banks — that banks must observe "high standards of
integrity and performance" in servicing their depositors. Although RA
8791 took effect almost nine years after the unauthorized withdrawal of
the P300,000 from L.C. Diaz’s savings account, jurisprudence at the time
of the withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not
convert the contract between the bank and its depositors from a simple
loan to a trust agreement, whether express or implied. Failure by the
bank to pay the depositor is failure to pay a simple loan, and not a breach
of trust. The law simply imposes on the bank a higher standard of
integrity and performance in complying with its obligations under the
contract of simple loan, beyond those required of non-bank debtors
under a similar contract of simple loan.
Banking | Deposit Function | 53
The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks to
offer the lowest possible interest rate to depositors while charging the
highest possible interest rate on their own borrowers. The interest spread
or differential belongs to the bank and not to the depositors who are not
cestui que trust of banks. If depositors are cestui que trust of banks, then
the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that "responsibility arising from
negligence in the performance of every kind of obligation is demandable."
For breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the "transaction took
time" and he had to go to Allied Bank for another transaction. The
passbook was still in the hands of the employees of Solidbank for the
processing of the deposit when Calapre left Solidbank. Solidbank’s rules
on savings account require that the "deposit book should be carefully
guarded by the depositor and kept under lock and key, if possible." When
the passbook is in the possession of Solidbank’s tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.
Likewise, Solidbank’s tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the depositor or his
authorized representative. The tellers know, or should know, that the
rules on savings account provide that any person in possession of the
passbook is presumptively its owner. If the tellers give the passbook to
the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively
failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive
the same.

In culpa contractual, once the plaintiff proves a breach of contract, there
is a presumption that the defendant was at fault or negligent. The burden
is on the defendant to prove that he was not at fault or negligent. In
contrast, in culpa aquiliana the plaintiff has the burden of proving that
the defendant was negligent. In the present case, L.C. Diaz has
established that Solidbank breached its contractual obligation to return
the passbook only to the authorized representative of L.C. Diaz. There is
thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on
Solidbank to prove that there was no negligence on its part or its
employees.
Solidbank failed to discharge its burden. Solidbank did not present to the
trial court Teller No. 6, the teller with whom Calapre left the passbook
and who was supposed to return the passbook to him. The record does
not indicate that Teller No. 6 verified the identity of the person who
retrieved the passbook. Solidbank also failed to adduce in evidence its
standard procedure in verifying the identity of the person retrieving the
passbook, if there is such a procedure, and that Teller No. 6 implemented
this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of
exercising the required diligence in the selection and supervision of
employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.
The bank must not only exercise "high standards of integrity and
performance," it must also insure that its employees do likewise because
this is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised
the "high standards of integrity and performance" required of Solidbank’s
employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is
the proximate cause of the unauthorized withdrawal. The trial court
believed that L.C. Diaz’s negligence in not securing its passbook under
Banking | Deposit Function | 54
lock and key was the proximate cause that allowed the impostor to
withdraw the P300,000. For the appellate court, the proximate cause was
the teller’s negligence in processing the withdrawal without first verifying
with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and
without which the result would not have occurred. Proximate cause is
determined by the facts of each case upon mixed considerations of logic,
common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank
had the contractual obligation to return the passbook only to Calapre,
the authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.
Solidbank’s failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbank’s rules on savings account, mere possession
of the passbook raises the presumption of ownership. It was the
negligent act of Solidbank’s Teller No. 6 that gave the impostor
presumptive ownership of the passbook. Had the passbook not fallen into
the hands of the impostor, the loss of P300,000 would not have
happened. Thus, the proximate cause of the unauthorized withdrawal
was Solidbank’s negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate court’s theory that the proximate
cause of the unauthorized withdrawal was the teller’s failure to call up
L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call
up L.C. Diaz to confirm the withdrawal. There is no arrangement between
Solidbank and L.C. Diaz to this effect. Even the agreement between
Solidbank and L.C. Diaz pertaining to measures that the parties must
observe whenever withdrawals of large amounts are made does not
direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C.
Diaz therefore had the burden to prove that it is the usual practice of

Solidbank to call up its clients to verify a withdrawal of a large amount
of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on
guard to verify the withdrawal. Prior to the withdrawal of P300,000, the
impostor deposited with Teller No. 6 the P90,000 PBC check, which later
bounced. The impostor apparently deposited a large amount of money
to deflect suspicion from the withdrawal of a much bigger amount of
money. The appellate court thus erred when it imposed on Solidbank the
duty to call up L.C. Diaz to confirm the withdrawal when no law requires
this from banks and when the teller had no reason to be suspicious of
the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of
L.C. Diaz, he was familiar with its teller so that there was no more need
for the teller to verify the withdrawal. Solidbank relies on the following
statements in the Booking and Information Sheet of Emerano Ilagan:
. . . Ilagan also had with him (before the withdrawal) a forged check of
PBC and indicated the amount of P90,000 which he deposited in favor of
L.C. Diaz and Company. After successfully withdrawing this large sum of
money, Accused Ilagan gave alias Rey (Noel Tamayo) his share of the
loot. Ilagan then hired a taxicab in the amount of P1,000 to transport
him (Ilagan) to his home province at Bauan, Batangas. Ilagan
extravagantly and lavishly spent his money but a big part of his loot was
wasted in cockfight and horse racing. Ilagan was apprehended and
meekly admitted his guilt. (Emphasis supplied.)
L.C. Diaz refutes Solidbank’s contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo. Both the trial
and appellate courts stated that this Noel Tamayo presented the
passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find
no justifiable reason to reverse the factual finding of the trial court and
the Court of Appeals. The tellers who processed the deposit of the
P90,000 check and the withdrawal of the P300,000 were not presented
during trial to substantiate Solidbank’s claim that Ilagan deposited the
Banking | Deposit Function | 55
check and made the questioned withdrawal. Moreover, the entry quoted
by Solidbank does not categorically state that Ilagan presented the
withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of
the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity
to avoid the loss but failed to do so, is chargeable with the loss. Stated
differently, the antecedent negligence of the plaintiff does not preclude
him from recovering damages caused by the supervening negligence of
the defendant, who had the last fair chance to prevent the impending
harm by the exercise of due diligence.
We do not apply the doctrine of last clear chance to the present case.
Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of
culpa contractual, where neither the contributory negligence of the
plaintiff nor his last clear chance to avoid the loss, would exonerate the
defendant from liability. Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the recovery of damages
by the plaintiff but does not exculpate the defendant from his breach of
contract.
Mitigated Damages
Under Article 1172, "liability (for culpa contractual) may be regulated by
the courts, according to the circumstances." This means that if the
defendant exercised the proper diligence in the selection and supervision
of its employee, or if the plaintiff was guilty of contributory negligence,
then the courts may reduce the award of damages. In this case, L.C.
Diaz was guilty of contributory negligence in allowing a withdrawal slip
signed by its authorized signatories to fall into the hands of an impostor.
Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals, where the Court
held the depositor guilty of contributory negligence, we allocated the
damages between the depositor and the bank on a 40-60 ratio. Applying
 Banking | Deposit Function | 56

the same ruling to this case, we hold that L.C. Diaz must shoulder 40%
of the actual damages awarded by the appellate court. Solidbank must
pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

MODIFICATION. Petitioner Solidbank Corporation shall pay private
respondent L.C. Diaz and Company, CPA’s only 60% of the actual
damages awarded by the Court of Appeals. The remaining 40% of the
actual damages shall be borne by private respondent L.C. Diaz and
Company, CPA’s. Proportionate costs.

SO ORDERED.

G.R. No. 156132 October 12, 2006
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS'
FINANCE CORPORATION, doing business under the name and style
of FNCB Finance, petitioners,
vs.
MODESTA R. SABENIANO, respondent.
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of
the Revised Rules of Court, of the Decision2 of the Court of Appeals in
CA-G.R. CV No. 51930, dated 26 March 2002, and the Resolution,3 dated
20 November 2002, of the same court which, although modifying its
earlier Decision, still denied for the most part the Motion for
Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank)
is a banking corporation duly authorized and existing under the laws of
the United States of America and licensed to do commercial banking
activities and perform trust functions in the Philippines.
Petitioner Investor's Finance Corporation, which did business under the
name and style of FNCB Finance, was an affiliate company of petitioner
Citibank, specifically handling money market placements for its clients.
It is now, by virtue of a merger, doing business as part of its successor-
in-interest, BPI Card Finance Corporation. However, so as to consistently
establish its identity in the Petition at bar, the said petitioner shall still
be referred to herein as FNCB Finance.4
Respondent Modesta R. Sabeniano was a client of both petitioners
Citibank and FNCB Finance. Regrettably, the business relations among
the parties subsequently went awry.
On 8 August 1985, respondent filed a Complaint 5
against petitioners,
docketed as Civil Case No. 11336, before the Regional Trial Court (RTC)
of Makati City. Respondent claimed to have substantial deposits and
money market placements with the petitioners, as well as money market
placements with the Ayala Investment and Development Corporation
(AIDC), the proceeds of which were supposedly deposited automatically
and directly to respondent's accounts with petitioner Citibank.
Respondent alleged that petitioners refused to return her deposits and
Banking | Deposit Function | 57
the proceeds of her money market placements despite her repeated
demands, thus, compelling respondent to file Civil Case No. 11336
against petitioners for "Accounting, Sum of Money and Damages."
Respondent eventually filed an Amended Complaint6 on 9 October 1985
to include additional claims to deposits and money market placements
inadvertently left out from her original Complaint.
In their joint Answer7 and Answer to Amended Complaint,8 filed on 12
September 1985 and 6 November 1985, respectively, petitioners
admitted that respondent had deposits and money market placements
with them, including dollar accounts in the Citibank branch in Geneva,
Switzerland (Citibank-Geneva). Petitioners further alleged that the
respondent later obtained several loans from petitioner Citibank, for
which she executed Promissory Notes (PNs), and secured by (a) a
Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b)
Deeds of Assignment of her money market placements with petitioner
FNCB Finance. When respondent failed to pay her loans despite repeated
demands by petitioner Citibank, the latter exercised its right to off-set or
compensate respondent's outstanding loans with her deposits and money
market placements, pursuant to the Declaration of Pledge and the Deeds
of Assignment executed by respondent in its favor. Petitioner Citibank
supposedly informed respondent Sabeniano of the foregoing
compensation through letters, dated 28 September 1979 and 31 October
1979. Petitioners were therefore surprised when six years later, in 1985,
respondent and her counsel made repeated requests for the withdrawal
of respondent's deposits and money market placements with petitioner
Citibank, including her dollar accounts with Citibank-Geneva and her
money market placements with petitioner FNCB Finance. Thus,
petitioners prayed for the dismissal of the Complaint and for the award
of actual, moral, and exemplary damages, and attorney's fees.
When the parties failed to reach a compromise during the pre-trial
hearing,9 trial proper ensued and the parties proceeded with the
presentation of their respective evidence. Ten years after the filing of the
Complaint on 8 August 1985, a Decision10 was finally rendered in Civil
Case No. 11336 on 24 August 1995 by the fourth Judge 11 who handled
the said case, Judge Manuel D. Victorio, the dispositive portion of which
reads –
WHEREFORE, in view of all the foregoing, decision is hereby rendered as
follows:

(1) Declaring as illegal, null and void the setoff effected by the defendant
Bank [petitioner Citibank] of plaintiff's [respondent Sabeniano] dollar
deposit with Citibank, Switzerland, in the amount of US$149,632.99, and
ordering the said defendant [petitioner Citibank] to refund the said
amount to the plaintiff with legal interest at the rate of twelve percent
(12%) per annum, compounded yearly, from 31 October 1979 until fully
paid, or its peso equivalent at the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the
defendant Bank [petitioner Citibank] in the amount of ₱1,069,847.40 as
of 5 September 1979 and ordering the plaintiff [respondent Sabeniano]
to pay said amount, however, there shall be no interest and penalty
charges from the time the illegal setoff was effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the
parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court
of Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned
the findings of the RTC that she was still indebted to petitioner Citibank,
as well as the failure of the RTC to order petitioners to render an
accounting of respondent's deposits and money market placements with
them. On the other hand, petitioners argued that petitioner Citibank
validly compensated respondent's outstanding loans with her dollar
accounts with Citibank-Geneva, in accordance with the Declaration of
Pledge she executed in its favor. Petitioners also alleged that the RTC
erred in not declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision12 affirming
with modification the RTC Decision in Civil Case No. 11336, dated 24
August 1995, and ruling entirely in favor of respondent in this wise –
Wherefore, premises considered, the assailed 24 August
1995 Decision of the court a quo is hereby AFFIRMED with
MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-
appellant Bank of the plaintiff-appellant's dollar deposit with Citibank,
Switzerland, in the amount of US$149,632.99, and ordering defendant-
appellant Citibank to refund the said amount to the plaintiff-appellant
Banking | Deposit Function | 58
with legal interest at the rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979 until fully paid, or its peso
equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent
evidence the alleged indebtedness of plaintiff-appellant, the set-off of
₱1,069,847.40 in the account of Ms. Sabeniano is hereby declared as
without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-
appellant's money market placements, savings account and current
accounts, the former is hereby ordered to return the same, in accordance
with the terms and conditions agreed upon by the contending parties as
evidenced by the certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No.
22526) issued on 17 March 1977, ₱318,897.34 with 14.50% interest
p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No.
22528) issued on 17 March 1977, ₱203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No.
04952), issued on 02 June 1977, ₱500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No.
04962), issued on 02 June 1977, ₱500,000.00 with 17% interest per
annum;
(v) The Two Million (₱2,000,000.00) money market placements of Ms.
Sabeniano with the Ayala Investment & Development Corporation (AIDC)
with legal interest at the rate of twelve percent (12%) per annum
compounded yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the
plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND
PESOS (₱500,000.00) as exemplary damages, and ONE HUNDRED
THOUSAND PESOS (₱100,000.00) as attorney's fees.
Apparently, the parties to the case, namely, the respondent, on one
hand, and the petitioners, on the other, made separate attempts to bring

the aforementioned Decision of the Court of Appeals, dated 26 March
2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the
Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and
instead, filed immediately with this Court on 3 May 2002 a Motion for
Extension of Time to File a Petition for Review,13 which, after payment of
the docket and other lawful fees, was assigned the docket number G.R.
No. 152985. In the said Motion, respondent alleged that she received a
copy of the assailed Court of Appeals Decision on 18 April 2002 and,
thus, had 15 days therefrom or until 3 May 2002 within which to file her
Petition for Review. Since she informed her counsel of her desire to
pursue an appeal of the Court of Appeals Decision only on 29 April 2002,
her counsel neither had enough time to file a motion for reconsideration
of the said Decision with the Court of Appeals, nor a Petition
for Certiorari with this Court. Yet, the Motion failed to state the exact
extension period respondent was requesting for.
Since this Court did not act upon respondent's Motion for Extension of
Time to file her Petition for Review, then the period for appeal continued
to run and still expired on 3 May 2002.14 Respondent failed to file any
Petition for Review within the prescribed period for appeal and, hence,
this Court issued a Resolution,15 dated 13 November 2002, in which it
pronounced that –
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et
al.). – It appearing that petitioner failed to file the intended petition for
review on certiorari within the period which expired on May 3, 2002, the
Court Resolves to DECLARE THIS CASE
TERMINATED and DIRECT the Division Clerk of Court to INFORM the
parties that the judgment sought to be reviewed has become final and
executory.
The said Resolution was duly recorded in the Book of Entries of
Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of Appeals a Motion for
Reconsideration of its Decision in CA-G.R. CV No. 51930, dated 26 March
Banking | Deposit Function | 59
2002. Acting upon the said Motion, the Court of Appeals issued the
Resolution,16 dated 20 November 2002, modifying its Decision of 26
March 2002, as follows –
WHEREFORE, premises considered, the instant Motion for
Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V)
paragraph 3 of the assailed Decision's dispositive portion is hereby
ordered DELETED.
The challenged 26 March 2002 Decision of the Court
is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 51930, dated 26 March 2002 and 20 November 2002,
respectively, petitioners filed the present Petition, docketed as G.R. No.
156132. The Petition was initially denied17 by this Court for failure of the
petitioners to attach thereto a Certification against Forum Shopping.
However, upon petitioners' Motion and compliance with the
requirements, this Court resolved18 to reinstate the Petition.
The Petition presented fourteen (14) assignments of errors allegedly
committed by the Court of Appeals in its Decision, dated 26 March 2002,
involving both questions of fact and questions of law which this Court,
for the sake of expediency, discusses jointly, whenever possible, in the
succeeding paragraphs.
I The Resolution of this Court, dated 13 November 2002, in
G.R. No. 152985, declaring the Decision of the Court of Appeals,
dated 26 March 2002, final and executory, pertains to respondent
Sabeniano alone.
Before proceeding to a discussion of the merits of the instant Petition,
this Court wishes to address first the argument, persistently advanced
by respondent in her pleadings on record, as well as her numerous
personal and unofficial letters to this Court which were no longer made
part of the record, that the Decision of the Court of Appeals in CA-G.R.
CV No. 51930, dated 26 March 2002, had already become final and
executory by virtue of the Resolution of this Court in G.R. No. 152985,
dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to
respondent's Motion for Extension of Time to File a Petition for Review.

Respondent, though, did not file her supposed Petition. Thus, after the
lapse of the prescribed period for the filing of the Petition, this Court
issued the Resolution, dated 13 November 2002, declaring the Decision
of the Court of Appeals, dated 26 March 2002, final and executory. It
should be pointed out, however, that the Resolution, dated 13 November
2002, referred only to G.R. No. 152985, respondent's appeal, which she
failed to perfect through the filing of a Petition for Review within the
prescribed period. The declaration of this Court in the same Resolution
would bind respondent solely, and not petitioners which filed their own
separate appeal before this Court, docketed as G.R. No. 156132, the
Petition at bar. This would mean that respondent, on her part, should be
bound by the findings of fact and law of the Court of Appeals, including
the monetary amounts consequently awarded to her by the appellate
court in its Decision, dated 26 March 2002; and she can no longer refute
or assail any part thereof. 19
This Court already explained the matter to respondent when it issued a
Resolution20 in G.R. No. 156132, dated 2 February 2004, which
addressed her Urgent Motion for the Release of the Decision with the
Implementation of the Entry of Judgment in the following manner –
[A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we
resolved to grant the motion, reinstate the petition and require
Sabeniano to file a comment thereto in our Resolution of June 23, 2003.
Sabeniano filed a Comment dated July 17, 2003 to which Citibank and
FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in
fact participated in, the proceedings in G.R. No. 156132. She cannot
feign ignorance of the proceedings therein and claim that the Decision of
the Court of Appeals has become final and executory. More precisely,
the Decision became final and executory only with regard to
Sabeniano in view of her failure to file a petition for review within the
extended period granted by the Court, and not to Citibank and FNCB
Finance whose Petition for Review was duly reinstated and is now
submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis
supplied.)
Banking | Deposit Function | 60
To sustain the argument of respondent would result in an unjust and
incongruous situation wherein one party may frustrate the efforts of the
opposing party to appeal the case by merely filing with this Court a
Motion for Extension of Time to File a Petition for Review, ahead of the
opposing party, then not actually filing the intended Petition.21 The party
who fails to file its intended Petition within the reglementary or extended
period should solely bear the consequences of such failure.
Respondent Sabeniano did not commit forum shopping.
Another issue that does not directly involve the merits of the present
Petition, but raised by petitioners, is whether respondent should be held
liable for forum shopping.
Petitioners contend that respondent committed forum shopping on the
basis of the following facts:
While petitioners' Motion for Reconsideration of the Decision in CA-G.R.
CV No. 51930, dated 26 March 2002, was still pending before the Court
of Appeals, respondent already filed with this Court on 3 May 2002 her
Motion for Extension of Time to File a Petition for Review of the same
Court of Appeals Decision, docketed as G.R. No. 152985. Thereafter,
respondent continued to participate in the proceedings before the Court
of Appeals in CA-G.R. CV No. 51930 by filing her Comment, dated 17
July 2002, to petitioners' Motion for Reconsideration; and a Rejoinder,
dated 23 September 2002, to petitioners' Reply. Thus, petitioners argue
that by seeking relief concurrently from this Court and the Court of
Appeals, respondent is undeniably guilty of forum shopping, if not
indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable
for forum shopping.
Forum shopping has been defined as the filing of two or more suits
involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable
judgment.22 The test for determining forum shopping is whether in the
two (or more) cases pending, there is an identity of parties, rights or
causes of action, and relief sought.23 To guard against this deplorable
practice, Rule 7, Section 5 of the revised Rules of Court imposes the
following requirement –

SEC. 5. Certification against forum shopping. – The plaintiff or principal
party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto
and simultaneously filed therewith: (a) that he has not theretofore
commenced any action or filed any claim involving the same issues in
any court, tribunal or quasi-judicial agency and, to the best of his
knowledge, no such other action or claim is pending therein; (b) if there
is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same
or similar action or claim has been filed or is pending, he shall report that
fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable
by mere amendment of the complaint or other initiatory pleading but
shall be cause for the dismissal of the case without prejudice, unless
otherwise provided, upon motion and after hearing. The submission of a
false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party
or his counsel clearly constitute willful and deliberate forum shopping,
the same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as cause for administrative sanctions.
Although it may seem at first glance that respondent was simultaneously
seeking recourse from the Court of Appeals and this Court, a careful and
closer scrutiny of the details of the case at bar would reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No.
152985 than to file with this Court a Motion for Extension of Time within
which to file her Petition for Review. For unexplained reasons, respondent
failed to submit to this Court her intended Petition within the
reglementary period. Consequently, this Court was prompted to issue a
Resolution, dated 13 November 2002, declaring G.R. No. 152985
terminated, and the therein assailed Court of Appeals Decision final and
executory. G.R. No. 152985, therefore, did not progress and
respondent's appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before
this Court, upon the timely filing of which, the case before this Court
commences; much in the same way a case is initiated by the filing of a
Banking | Deposit Function | 61
Complaint before the trial court. The Petition for Review establishes the
identity of parties, rights or causes of action, and relief sought from this
Court, and without such a Petition, there is technically no case before
this Court. The Motion filed by respondent seeking extension of time
within which to file her Petition for Review does not serve the same
purpose as the Petition for Review itself. Such a Motion merely presents
the important dates and the justification for the additional time requested
for, but it does not go into the details of the appealed case.
Without any particular idea as to the assignments of error or the relief
respondent intended to seek from this Court, in light of her failure to file
her Petition for Review, there is actually no second case involving the
same parties, rights or causes of action, and relief sought, as that in CA-
G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is
required to be attached to the initiatory pleading, which, in G.R. No.
152985, should have been respondent's Petition for Review. It is in that
Certification wherein respondent certifies, under oath, that: (a) she has
not commenced any action or filed any claim involving the same issues
in any court, tribunal or quasi-judicial agency and, to the best of her
knowledge, no such other action or claim is pending therein; (b) if there
is such other pending action or claim, that she is presenting a complete
statement of the present status thereof; and (c) if she should thereafter
learn that the same or similar action or claim has been filed or is pending,
she shall report that fact within five days therefrom to this Court. Without
her Petition for Review, respondent had no obligation to execute and
submit the foregoing Certification against Forum Shopping. Thus,
respondent did not violate Rule 7, Section 5 of the Revised Rules of
Court; neither did she mislead this Court as to the pendency of another
similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26
March 2002, essentially ruled in favor of respondent, does not necessarily
preclude her from appealing the same. Granted that such a move is
ostensibly irrational, nonetheless, it does not amount to malice, bad faith
or abuse of the court processes in the absence of further proof. Again, it
should be noted that the respondent did not file her intended Petition for
Review. The Petition for Review would have presented before this Court
the grounds for respondent's appeal and her arguments in support
thereof. Without said Petition, any reason attributed to the respondent

for appealing the 26 March 2002 Decision would be grounded on mere
speculations, to which this Court cannot give credence.
II As an exception to the general rule, this Court takes
cognizance of questions of fact raised in the Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases
brought before it from the Court of Appeals by virtue of Rule 45 of the
Revised Rules of Court is limited to reviewing errors of law. Findings of
fact of the Court of Appeals are conclusive upon this Court. There are,
however, recognized exceptions to the foregoing rule, namely: (1) when
the findings are grounded entirely on speculation, surmises, or
conjectures; (2) when the interference made is manifestly mistaken,
absurd, or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when in making its findings, the
Court of Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to those of the trial court; (8) when the
findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the respondent;
and (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record.24
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are
contrary to those of the RTC,25 thus, resulting in its substantial
modification of the trial court's Decision, and a ruling entirely in favor of
the respondent. In addition, petitioners invoked in the instant Petition for
Review several exceptions that would justify this Court's review of the
factual findings of the Court of Appeals, i.e., the Court of Appeals made
conflicting findings of fact; findings of fact which went beyond the issues
raised on appeal before it; as well as findings of fact premised on the
supposed absence of evidence and contradicted by the evidence on
record.
On the basis of the foregoing, this Court shall proceed to reviewing and
re-evaluating the evidence on record in order to settle questions of fact
raised in the Petition at bar.
Banking | Deposit Function | 62
The fact that the trial judge who rendered the RTC Decision in
Civil Case No. 11336, dated 24 August 1995, was not the same
judge who heard and tried the case, does not, by itself, render
the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years
from the institution of the said case. In the course of its trial, the case
was presided over by four (4) different RTC judges.26 It was Judge
Victorio, the fourth judge assigned to the case, who wrote the RTC
Decision, dated 24 August 1995. In his Decision,27 Judge Victorio made
the following findings –
After carefully evaluating the mass of evidence adduced by the parties,
this Court is not inclined to believe the plaintiff's assertion that the
promissory notes as well as the deeds of assignments of her FNCB
Finance money market placements were simulated. The evidence is
overwhelming that the plaintiff received the proceeds of the loans
evidenced by the various promissory notes she had signed. What is more,
there was not an iota of proof save the plaintiff's bare testimony that she
had indeed applied for loan with the Development Bank of the Philippines.
More importantly, the two deeds of assignment were notarized, hence
they partake the nature of a public document. It makes more than
preponderant proof to overturn the effect of a notarial attestation. Copies
of the deeds of assignments were actually filed with the Records
Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted
the existence of her loans with the defendant Bank in the total amount
of ₱1,920,000.00 exclusive of interests and penalty charges (Exhibits
"28", "31", "32", and "33").
In fine, this Court hereby finds that the defendants had established the
genuineness and due execution of the various promissory notes
heretofore identified as well as the two deeds of assignments of the
plaintiff's money market placements with defendant FNCB Finance, on
the strength of which the said money market placements were applied
to partially pay the plaintiff's past due obligation with the defendant
Bank. Thus, the total sum of ₱1,053,995.80 of the plaintiff's past due
obligation was partially offset by the said money market placement

leaving a balance of ₱1,069,847.40 as of 5 September 1979 (Exhibit
"34").
Disagreeing in the foregoing findings, the Court of Appeals stressed, in
its Decision in CA-G.R. CV No. 51930, dated 26 March 2002, "that
the ponente of the herein assailed Decision is not the Presiding Judge
who heard and tried the case."28 This brings us to the question of
whether the fact alone that the RTC Decision was rendered by a judge
other than the judge who actually heard and tried the case is sufficient
justification for the appellate court to disregard or set aside the findings
in the Decision of the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a
disputable presumption that the RTC Decision was rendered by the judge
in the regular performance of his official duties. While the said
presumption is only disputable, it is satisfactory unless contradicted or
overcame by other evidence.29 Encompassed in this presumption of
regularity is the presumption that the RTC judge, in resolving the case
and drafting his Decision, reviewed, evaluated, and weighed all the
evidence on record. That the said RTC judge is not the same judge who
heard the case and received the evidence is of little consequence when
the records and transcripts of stenographic notes (TSNs) are complete
and available for consideration by the former.
In People v. Gazmen,30 this Court already elucidated its position on such
an issue –
Accused-appellant makes an issue of the fact that the judge who penned
the decision was not the judge who heard and tried the case and
concludes therefrom that the findings of the former are erroneous.
Accused-appellant's argument does not merit a lengthy discussion. It is
well-settled that the decision of a judge who did not try the case is not
by that reason alone erroneous.
It is true that the judge who ultimately decided the case had not heard
the controversy at all, the trial having been conducted by then Judge
Emilio L. Polig, who was indefinitely suspended by this Court.
Nonetheless, the transcripts of stenographic notes taken during the trial
were complete and were presumably examined and studied by Judge
Banking | Deposit Function | 63
Baguilat before he rendered his decision. It is not unusual for a judge
who did not try a case to decide it on the basis of the record. The fact
that he did not have the opportunity to observe the demeanor of the
witnesses during the trial but merely relied on the transcript of their
testimonies does not for that reason alone render the judgment
erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a
better position to observe the witnesses on the stand and determine by
their demeanor whether they are telling the truth or mouthing falsehood,
it does not necessarily follow that a judge who was not present during
the trial cannot render a valid decision since he can rely on the transcript
of stenographic notes taken during the trial as basis of his decision.
Accused-appellant's contention that the trial judge did not have the
opportunity to observe the conduct and demeanor of the witnesses since
he was not the same judge who conducted the hearing is also untenable.
While it is true that the trial judge who conducted the hearing would be
in a better position to ascertain the truth and falsity of the testimonies
of the witnesses, it does not necessarily follow that a judge who was not
present during the trial cannot render a valid and just decision since the
latter can also rely on the transcribed stenographic notes taken during
the trial as the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the
witness is whether or not such is in conformity with knowledge and
consistent with the experience of mankind (People vs. Morre, 217 SCRA
219 [1993]). Further, the credibility of witnesses can also be assessed
on the basis of the substance of their testimony and the surrounding
circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A critical
evaluation of the testimony of the prosecution witnesses reveals that
their testimony accords with the aforementioned tests, and carries with
it the ring of truth end perforce, must be given full weight and credit.
Irrefragably, by reason alone that the judge who penned the RTC
Decision was not the same judge who heard the case and received the
evidence therein would not render the findings in the said Decision
 Banking | Deposit Function | 64

erroneous and unreliable. While the conduct and demeanor of witnesses Money market placement with FNCB Finance, evidenced by PN No. 5758 (which ₱ 500,000.00
may sway a trial court judge in deciding a case, it is not, and should not cancels and supersedes PN No. 2962), earning 17% interest p.a.
be, his only consideration. Even more vital for the trial court judge's
decision are the contents and substance of the witnesses' testimonies, This Court is tasked to determine whether petitioners are indeed liable
as borne out by the TSNs, as well as the object and documentary to return the foregoing amounts, together with the appropriate interests
evidence submitted and made part of the records of the case. and penalties, to respondent. It shall trace respondent's transactions
with petitioners, from her money market placements with petitioner
This Court proceeds to making its own findings of fact. Citibank and petitioner FNCB Finance, to her savings and current
accounts with petitioner Citibank, and to her dollar accounts with
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, Citibank-Geneva.
dated 26 March 2002, has become final and executory as to the
respondent, due to her failure to interpose an appeal therefrom within Money market placements with petitioner Citibank
the reglementary period, she is already bound by the factual findings in
the said Decision. Likewise, respondent's failure to file, within the The history of respondent's money market placements with petitioner
reglementary period, a Motion for Reconsideration or an appeal of the Citibank began on 6 December 1976, when she made a placement of
Resolution of the Court of Appeals in the same case, dated 20 November ₱500,000.00 as principal amount, which was supposed to earn an
2002, which modified its earlier Decision by deleting paragraph 3(v) of interest of 16% p.a. and for which PN No. 20773 was issued. Respondent
its dispositive portion, ordering petitioners to return to respondent the did not yet claim the proceeds of her placement and, instead, rolled-over
proceeds of her money market placement with AIDC, shall already bar or re-invested the principal and proceeds several times in the succeeding
her from questioning such modification before this Court. Thus, what is years for which new PNs were issued by petitioner Citibank to replace
for review before this Court is the Decision of the Court of Appeals, dated the ones which matured. Petitioner Citibank accounted for respondent's
26 March 2002, as modified by the Resolution of the same court, dated original placement and the subsequent roll-overs thereof, as follows –
20 November 2002.
Date PN No. Cancels Maturity Date Amount Interest
(mm/dd/yyyy PN No. (mm/dd/yyyy) (P) (p.a.)
Respondent alleged that she had several deposits and money market
12/06/1976 20773 None 01/13/1977 500,000.00 16%
placements with petitioners. These deposits and money market
01/14/1977 21686 20773 02/08/1977 508,444.44 15%
placements, as determined by the Court of Appeals in its Decision, dated
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4%
26 March 2002, and as modified by its Resolution, dated 20 November
22528 21686 03/16/1977 200,000.00 15-3/4%
2002, are as follows –
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2%
Deposit/Placement Amount 23357 22528 04/20/1977 203,150.00 14-1/2%
Dollar deposit with Citibank-Geneva $ 149,632.99
Petitioner Citibank alleged that it had already paid to respondent the
Money market placement with Citibank, evidenced by Promissory Note (PN) No. ₱ 318,897.34 principal amounts and proceeds of PNs No. 23356 and 23357, upon their
23356 (which cancels and supersedes PN No. 22526), earning 14.5% interest maturity. Petitioner Citibank further averred that respondent used the
per annum (p.a.) ₱500,000.00 from the payment of PNs No. 23356 and 23357, plus
Money market placement with Citibank, evidenced by PN No. 23357 (which ₱ 203,150.00 ₱600,000.00 sourced from her other funds, to open two time deposit
cancels and supersedes PN No. 22528), earning 14.5% interest p.a. (TD) accounts with petitioner Citibank, namely, TD Accounts No. 17783
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which ₱ 500,000.00 and 17784.
cancels and supersedes PN No. 4952), earning 17% interest p.a.
Petitioner Citibank did not deny the existence nor questioned the
authenticity of PNs No. 23356 and 23357 it issued in favor of respondent

for her money market placements. In fact, it admitted the genuineness
and due execution of the said PNs, but qualified that they were no longer
outstanding.31 In Hibberd v. Rohde and McMillian,32 this Court delineated
the consequences of such an admission –
By the admission of the genuineness and due execution of an instrument,
as provided in this section, is meant that the party whose signature it
bears admits that he signed it or that it was signed by another for him
with his authority; that at the time it was signed it was in words and
figures exactly as set out in the pleading of the party relying upon it;
that the document was delivered; and that any formal requisites required
by law, such as a seal, an acknowledgment, or revenue stamp, which it
lacks, are waived by him. Hence, such defenses as that the signature is
a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425;
Cox vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73
Ind., 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escaño, 11 Phil.
Rep., 92); or that it was unauthorized, as in the case of an agent signing
for his principal, or one signing in behalf of a partnership (Country
Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220;
Naftzker vs. Lantz, 137 Mich., 441) or of a corporation
(Merchant vs. International Banking Corporation, 6 Phil Rep., 314;
Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162
Mich., 509); or that, in the case of the latter, that the corporation was
authorized under its charter to sign the instrument
(Merchant vs. International Banking Corporation, supra); or that the
party charged signed the instrument in some other capacity than that
alleged in the pleading setting it out (Payne vs. National Bank, 16 Kan.,
147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83;
Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y.,
253; Fire Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off
by the admission of its genuineness and due execution.
The effect of the admission is such that in the case of a promissory note
a prima facie case is made for the plaintiff which dispenses with the
necessity of evidence on his part and entitles him to a judgment on the
pleadings unless a special defense of new matter, such as payment, is
interposed by the defendant (Papa vs. Martinez, 12 Phil. Rep., 613;
Chinese Chamber of Commerce vs. Pua To Ching, 14 Phil. Rep., 222;
Banco Español-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x x x
Banking | Deposit Function | 65
Since the genuineness and due execution of PNs No. 23356 and 23357
are uncontested, respondent was able to establish prima facie that
petitioner Citibank is liable to her for the amounts stated therein. The
assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such
resting on petitioner Citibank. Respondent having proved the existence
of the obligation, the burden of proof was upon petitioner Citibank to
show that it had been discharged.33 It has already been established by
this Court that –
As a general 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 non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by
payment.
When the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such
defense to the claim of the creditor. Where the debtor introduces some
evidence of payment, the burden of going forward with the evidence –
as distinct from the general burden of proof – shifts to the creditor, who
is then under the duty of producing some evidence of non-payment.34
Reviewing the evidence on record, this Court finds that petitioner
Citibank failed to satisfactorily prove that PNs No. 23356 and 23357 had
already been paid, and that the amount so paid was actually used to
open one of respondent's TD accounts with petitioner Citibank.
Petitioner Citibank presented the testimonies of two witnesses to support
its contention of payment: (1) That of Mr. Herminio Pujeda,35 the officer-
in-charge of loans and placements at the time when the questioned
transactions took place; and (2) that of Mr. Francisco Tan,36 the former
Assistant Vice-President of Citibank, who directly dealt with respondent
with regard to her deposits and loans.
The relevant portion37 of Mr. Pujeda's testimony as to PNs No. 23356 and
23357 (referred to therein as Exhibits No. "47" and "48," respectively) is
reproduced below –

Atty. Mabasa: Okey [sic]. Now Mr. Witness, you were asked to testify in
this case and this case is [sic] consist [sic] of several documents
involving transactions between the plaintiff and the defendant. Now,
were you able to make your own memorandum regarding all these
transactions?
A Yes, based on my recollection of these facts, I did come up of [sic] the
outline of the chronological sequence of events.
Court: Are you trying to say that you have personal knowledge or
participation to these transactions?
A Yes, your Honor, I was the officer-in charge of the unit that was
processing these transactions. Some of the documents bear my
signature.
Court: And this resume or summary that you have prepared is based on
purely your recollection or documents?
A Based on documents, your Honor.
Court: Are these documents still available now?
A Yes, your honor.
Court: Better present the documents.
Atty. Mabasa: Yes, your Honor, that is why your Honor.
Atty. Mabasa: Now, basing on the notes that you prepared, Mr. Witness,
and according to you basing also on your personal recollection about all
the transactions involved between Modesta Sabeniano and defendant
City Bank [sic] in this case. Now, would you tell us what happened to the
money market placements of Modesta Sabeniano that you have earlier
identified in Exhs. "47" and "48"?
A The transactions which I said earlier were terminated and booked to
time deposits.
Q And you are saying time deposits with what bank?
A With First National Citibank.
Q Is it the same bank as Citibank, N.A.?
Banking | Deposit Function | 66
A Yes, sir.
Q And how much was the amount booked as time deposit with defendant
Citibank?
A In the amount of ₱500,000.00.
Q And outside this ₱500,000.00 which you said was booked out of the
proceeds of Exhs. "47" and "48", were there other time deposits opened
by Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit for ₱600,000.00.
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta
Sabeneano [sic] had time deposit placements with Citibank in the
amount of ₱500,000.00 which is the proceeds of Exh. "47" and "48" and
another ₱600,000.00, is it not?
A Yes, sir.
Q And would you know where did the other ₱600,000 placed by Mrs.
Sabeneano [sic] in a time deposit with Citibank, N.A. came [sic] from?
A She funded it directly.
Q What are you saying Mr. Witness is that the ₱600,000 is a [sic] fresh
money coming from Mrs. Modesta Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs
No. 23356 and 23357 (referred to therein as Exhibits "E" and "F,"
respectively), as follows –
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan
from Exhibits "A" to "F", which are Exhibits of the plaintiff. Now, do I
understand from you that the original amount is Five Hundred Thousand
and thereafter renewed in the succeeding exhibits?
Mr. Tan : Yes, Sir.
Atty. Mabasa : Alright, after these Exhibits "E" and "F" matured, what
happened thereafter?

Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits "E" and "F"?
Before anything else, it should be noted that when Mr. Pujeda's
testimony before the RTC was made on 12 March 1990 and Mr. Tan's
deposition in Hong Kong was conducted on 3 September 1990, more
than a decade had passed from the time the transactions they were
testifying on took place. This Court had previously recognized the frailty
and unreliability of human memory with regards to figures after the lapse
of five years.38 Taking into consideration the substantial length of time
between the transactions and the witnesses' testimonies, as well as the
undeniable fact that bank officers deal with multiple clients and process
numerous transactions during their tenure, this Court is reluctant to give
much weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the
payment of PNs No. 23356 and 23357 and the use by respondent of the
proceeds thereof for opening TD accounts. This Court finds it implausible
that they should remember, after all these years, this particular
transaction with respondent involving her PNs No. 23356 and 23357 and
TD accounts. Both witnesses did not give any reason as to why, from
among all the clients they had dealt with and all the transactions they
had processed as officers of petitioner Citibank, they specially
remembered respondent and her PNs No. 23356 and 23357. Their
testimonies likewise lacked details on the circumstances surrounding the
payment of the two PNs and the opening of the time deposit accounts by
respondent, such as the date of payment of the two PNs, mode of
payment, and the manner and context by which respondent relayed her
instructions to the officers of petitioner Citibank to use the proceeds of
her two PNs in opening the TD accounts.
Moreover, while there are documentary evidences to support and trace
respondent's money market placements with petitioner Citibank, from
the original PN No. 20773, rolled-over several times to, finally, PNs No.
23356 and 23357, there is an evident absence of any documentary
evidence on the payment of these last two PNs and the use of the
proceeds thereof by respondent for opening TD accounts. The paper trail
seems to have ended with the copies of PNs No. 23356 and 23357.
Although both Mr. Pujeda and Mr. Tan said that they based their
testimonies, not just on their memories but also on the documents on
file, the supposed documents on which they based those portions of their
testimony on the payment of PNs No. 23356 and 23357 and the opening
Banking | Deposit Function | 67
of the TD accounts from the proceeds thereof, were never presented
before the courts nor made part of the records of the case.
Respondent's money market placements were of substantial amounts –
consisting of the principal amount of ₱500,000.00, plus the interest it
should have earned during the years of placement – and it is difficult for
this Court to believe that petitioner Citibank would not have had
documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February
1990,39 petitioners' counsel attempted to present in evidence a
document that would supposedly support the claim of petitioner Citibank
that the proceeds of PNs No. 23356 and 23357 were used by respondent
to open one of her two TD accounts in the amount of ₱500,000.00.
Respondent's counsel objected to the presentation of the document since
it was a mere "xerox" copy, and was blurred and hardly readable.
Petitioners' counsel then asked for a continuance of the hearing so that
they can have time to produce a better document, which was granted by
the court. However, during the next hearing and continuance of Mr.
Pujeda's testimony on 12 March 1990, petitioners' counsel no longer
referred to the said document.
As respondent had established a prima facie case that petitioner Citibank
is obligated to her for the amounts stated in PNs No. 23356 and 23357,
and as petitioner Citibank failed to present sufficient proof of payment of
the said PNs and the use by the respondent of the proceeds thereof to
open her TD accounts, this Court finds that PNs No. 23356 and 23357
are still outstanding and petitioner Citibank is still liable to
respondent for the amounts stated therein.
The significance of this Court's declaration that PNs No. 23356 and 23357
are still outstanding becomes apparent in the light of petitioners' next
contentions – that respondent used the proceeds of PNs No. 23356 and
23357, together with additional money, to open TD Accounts No. 17783
and 17784 with petitioner Citibank; and, subsequently, respondent pre-
terminated these TD accounts and transferred the proceeds thereof,
amounting to ₱1,100,000.00, to petitioner FNCB Finance for money
market placements. While respondent's money market placements with
petitioner FNCB Finance may be traced back with definiteness to TD
Accounts No. 17783 and 17784, there is only flimsy and unsubstantiated
connection between the said TD accounts and the supposed proceeds
paid from PNs No. 23356 and 23357. With PNs No. 23356 and 23357 still
 Banking | Deposit Function | 68

unpaid, then they represent an obligation of petitioner Citibank separate 08/31/1977 8167 5757 08/25/1978 500,000.00 14%
and distinct from the obligation of petitioner FNCB Finance arising from 8169 5752 08/25/1978 500,000.00 14%
respondent's money market placements with the latter.
As presented by the petitioner FNCB Finance, respondent rolled-over only
Money market placements with petitioner FNCB Finance the principal amounts of her money market placements as she chose to
receive the interest income therefrom. Petitioner FNCB Finance also
According to petitioners, respondent's TD Accounts No. 17783 and
pointed out that when PN No. 4962, with principal amount of
17784, in the total amount of ₱1,100,000.00, were supposed to mature
₱600,000.00, matured on 1 June 1977, respondent received a partial
on 15 March 1978. However, respondent, through a letter dated 28 April
payment of the principal which, together with the interest, amounted to
1977,40 pre-terminated the said TD accounts and transferred all the
₱102,633.33;44 thus, only the amount of ₱500,000.00 from PN No. 4962
proceeds thereof to petitioner FNCB Finance for money market
was rolled-over to PN No. 5758.
placement. Pursuant to her instructions, TD Accounts No. 17783 and
17784 were pre-terminated and petitioner Citibank (then still named Based on the foregoing records, the principal amounts of PNs No. 5757
First National City Bank) issued Manager's Checks (MC) No. and 5758, upon their maturity, were rolled over to PNs No. 8167 and
19925341 and 19925142 for the amounts of ₱500,000.00 and 8169, respectively. PN No. 816745 expressly canceled and superseded PN
₱600,00.00, respectively. Both MCs were payable to Citifinance (which, No. 5757, while PN No. 816946 also explicitly canceled and superseded
according to Mr. Pujeda,43 was one with and the same as petitioner FNCB PN No. 5758. Thus, it is patently erroneous for the Court of Appeals to
Finance), with the additional notation that "A/C MODESTA R. still award to respondent the principal amounts and interests covered by
SABENIANO." Typewritten on MC No. 199253 is the phrase "Ref. PNs No. 5757 and 5758 when these were already canceled and
Proceeds of TD 17783," and on MC No. 199251 is a similar phrase, "Ref. superseded. It is now incumbent upon this Court to determine what
Proceeds of TD 17784." These phrases purportedly established that the subsequently happened to PNs No. 8167 and 8169.
MCs were paid from the proceeds of respondent's pre-terminated TD
accounts with petitioner Citibank. Upon receipt of the MCs, petitioner Petitioner FNCB Finance presented four checks as proof of payment of
FNCB Finance deposited the same to its account with Feati Bank and the principal amounts and interests of PNs No. 8167 and 8169 upon their
Trust Co., as evidenced by the rubber stamp mark of the latter found at maturity. All the checks were payable to respondent's savings account
the back of both MCs. In exchange, petitioner FNCB Finance booked the with petitioner Citibank, with the following details –
amounts received as money market placements, and accordingly issued
PNs No. 4952 and 4962, for the amounts of ₱500,000.00 and Date of Issuance Check No. Amount Notation
₱600,000.00, respectively, payable to respondent's savings account with (mm/dd/yyyy) (₱)
petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1 June 09/01/1978 76962 12,833.34 Interest payment on PN#08167
1977. Once again, respondent rolled-over several times the principal 09/01/1978 76961 12,833.34 Interest payment on PN#08169
09/05/1978 77035 500,000.00 Full payment of principal on PN#08167 which
amounts of her money market placements with petitioner FNCB Finance,
is hereby cancelled
as follows –
09/05/ 1978 77034 500,000.00 Full payment of principal on PN#08169 which
Date PN No. Cancels Maturity Date Amount Interest is hereby cancelled
(mm/dd/yyyy) PN No. (mm/dd/yyyy) (₱) (p.a.)
Then again, Checks No. 77035 and 77034 were later returned to
04/29/1977 4952 None 06/01/1977 500,000.00 17%
petitioner FNCB Finance together with a memo,47 dated 6 September
4962 None 06/01/1977 600,000.00 17% 1978, from Mr. Tan of petitioner Citibank, to a Mr. Bobby Mendoza of
06/02/1977 5757 4952 08/31/1977 500,000.00 17% petitioner FNCB Finance. According to the memo, the two checks, in the
5758 4962 08/31/1977 500,000.00 17% total amount of ₱1,000,000.00, were to be returned to respondent's
 Banking | Deposit Function | 69

account with instructions to book the said amount in money market
placements for one more year. Pursuant to the said memo, Checks No.
77035 and 77034 were invested by petitioner FNCB Finance, on behalf
of respondent, in money market placements for which it issued PNs No.
20138 and 20139. The PNs each covered ₱500,000.00, to earn 11%
interest per annum, and to mature on 3 September 1979.
On 3 September 1979, petitioner FNCB Finance issued Check No.
100168, pay to the order of "Citibank N.A. A/C Modesta Sabeniano," in
the amount of ₱1,022,916.66, as full payment of the principal amounts
and interests of both PNs No. 20138 and 20139 and, resultantly,
canceling the said PNs.48 Respondent actually admitted the issuance and
existence of Check No. 100168, but with the qualification that the
proceeds thereof were turned over to petitioner Citibank.49 Respondent
did not clarify the circumstances attending the supposed turn over, but
on the basis of the allegations of petitioner Citibank itself, the proceeds
of PNs No. 20138 and 20139, amounting to ₱1,022,916.66, was used by
it to liquidate respondent's outstanding loans. Therefore, the
determination of whether or not respondent is still entitled to the return
of the proceeds of PNs No. 20138 and 20139 shall be dependent on the
resolution of the issues raised as to the existence of the loans and the
authority of petitioner Citibank to use the proceeds of the said PNs,
together with respondent's other deposits and money market
placements, to pay for the same.
Since both the RTC and the Court of Appeals had consistently recognized
only the ₱31,079.14 of respondent's savings account with petitioner
Citibank, and that respondent failed to move for reconsideration or to
appeal this particular finding of fact by the trial and appellate courts, it
is already binding upon this Court. Respondent is already precluded from
claiming any greater amount in her savings and current accounts with
petitioner Citibank. Thus, this Court shall limit itself to determining
whether or not respondent is entitled to the return of the amount of
₱31,079.14 should the off-set thereof by petitioner Citibank against her
supposed loans be found invalid.
Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC
her own computations of her money market placements and dollar
accounts with Citibank-Geneva, purportedly amounting to a total of
United States (US) $343,220.98, as of 23 June 1985. 51 In her
Memorandum filed with the RTC, she claimed a much bigger amount of
deposits and money market placements with Citibank-Geneva, totaling
US$1,336,638.65.52 However, respondent herself also submitted as part
of her formal offer of evidence the computation of her money market
placements and dollar accounts with Citibank-Geneva as determined by
the latter.53 Citibank-Geneva accounted for respondent's money market
placements and dollar accounts as follows –

Savings and current accounts with petitioner Citibank MODESTA SABENIANO &/OR
==================
Respondent presented and submitted before the RTC deposit slips and US$ 30'000.-- Principal Fid. Placement
bank statements to prove deposits made to several of her accounts with + US$ 339.06 Interest at 3,875% p.a. from 12.07. – 25.10.79
petitioner Citibank, particularly, Accounts No. 00484202, 59091, and - US$ 95.-- Commission (minimum)
472-751, which would have amounted to a total of ₱3,812,712.32, had US$ 30'244.06 Total proceeds on 25.10.1979
there been no withdrawals or debits from the said accounts from the time US$ 114'000.-- Principal Fid. Placement
the said deposits were made. + US$ 1'358.50 Interest at 4,125% p.a. from 12.07. – 25.10.79
- US$ 41.17 Commission
Although the RTC and the Court of Appeals did not make any definitive US$ 115'317.33 Total proceeds on 25.10.1979
findings as to the status of respondent's savings and current accounts US$ 145'561.39 Total proceeds of both placements on 25.10.1979
with petitioner Citibank, the Decisions of both the trial and appellate + US$ 11'381.31 total of both current accounts
courts effectively recognized only the ₱31,079.14 coming from US$ 156'942.70 Total funds available
respondent's savings account which was used to off-set her alleged - US$ 149'632.99 Transfer to Citibank Manila on 26.10.1979
outstanding loans with petitioner Citibank.50 (counter value of Pesos 1'102'944.78)
US$ 7'309.71 Balance in current accounts
 Banking | Deposit Function | 70

- US$ 6'998.84 Transfer to Citibank Zuerich – ac no. 121359 on March According to petitioner Citibank, respondent incurred her loans under the
13, 1980 circumstances narrated below.
US$ 310.87 various charges including closing charges
As early as 9 February 1978, respondent obtained her first loan from
According to the foregoing computation, by 25 October 1979, respondent petitioner Citibank in the principal amount of ₱200,000.00, for which she
had a total of US$156,942.70, from which, US$149,632.99 was executed PN No. 31504.54 Petitioner Citibank extended to her several
transferred by Citibank-Geneva to petitioner Citibank in Manila, and was other loans in the succeeding months. Some of these loans were paid,
used by the latter to off-set respondent's outstanding loans. The balance while others were rolled-over or renewed. Significant to the Petition at
of respondent's accounts with Citibank-Geneva, after the remittance to bar are the loans which respondent obtained from July 1978 to January
petitioner Citibank in Manila, amounted to US$7,309.71, which was 1979, appropriately covered by PNs (first set).55 The aggregate principal
subsequently expended by a transfer to another account with Citibank- amount of these loans was ₱1,920,000.00, which could be broken down
Zuerich, in the amount of US$6,998.84, and by payment of various bank as follows –
charges, including closing charges, in the amount of US$310.87. Rightly
so, both the RTC and the Court of Appeals gave more credence to the PN No. Date of Date of Maturity Principal Date of Release MC No.
computation of Citibank-Geneva as to the status of respondent's Issuance (mm/dd/yyyy) Amount (mm/dd/yyyy)
(mm/dd/yyyy)
accounts with the said bank, rather than the one prepared by respondent
32935 07/20/1978 09/18/1978 ₱ 400,000.00 07/20/1978 220701
herself, which was evidently self-serving. Once again, this Court shall
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered
limit itself to determining whether or not respondent is entitled to the
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285
return of the amount of US$149,632.99 should the off-set thereof by
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439
petitioner Citibank against her alleged outstanding loans be found
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467
invalid. Respondent cannot claim any greater amount since she did not
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
perfect an appeal of the Decision of the Court of Appeals, dated 26 March
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203
2002, which found that she is entitled only to the return of the said
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270
amount, as far as her accounts with Citibank-Geneva is concerned.
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357
III Petitioner Citibank was able to establish by 34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400
preponderance of evidence the existence of respondent's loans. Total ₱ 1,920,000.00

Petitioners' version of events When respondent was unable to pay the first set of PNs upon their
maturity, these were rolled-over or renewed several times, necessitating
In sum, the following amounts were used by petitioner Citibank to the execution by respondent of new PNs in favor of petitioner Citibank.
liquidate respondent's purported outstanding loans – As of 5 April 1979, respondent had the following outstanding PNs (second
set),56 the principal amount of which remained at ₱1,920,000.00 –
Description Amount
Principal and interests of PNs No. 20138 and 20139 ₱ 1,022,916.66 PN No. Date of Issuance Date of Maturity Principal Amount
(money market placements with petitioner FNCB Finance) (mm/dd/yyyy) (mm/dd/yyyy)
Savings account with petitioner Citibank 31,079.14 34510 01/01/1979 03/02/1979 P 400,000.00
Dollar remittance from Citibank-Geneva (peso equivalent of 1,102,944.78 34509 01/02/1979 03/02/1979 100,000.00
US$149,632.99) 34534 01/09/1979 03/09/1979 150,000.00
Total
34612 01/19/1979 03/16/1979 150,000.00
₱ 2,156,940.58
34741 01/26/1979 03/12/1979 100,000.00

35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
356946 03/20/1979 05/29/1979 250,000.00
35697 03/30/1979 05/29/1979 220,000.00
Total ₱ 1,920,000.00
All the PNs stated that the purpose of the loans covered thereby is "To
liquidate existing obligation," except for PN No. 34534, which stated for
its purpose "personal investment."
Respondent secured her foregoing loans with petitioner Citibank by
executing Deeds of Assignment of her money market placements with
petitioner FNCB Finance. On 2 March 1978, respondent executed in favor
of petitioner Citibank a Deed of Assignment57 of PN No. 8169, which was
issued by petitioner FNCB Finance, to secure payment of the credit and
banking facilities extended to her by petitioner Citibank, in the aggregate
principal amount of ₱500,000.00. On 9 March 1978, respondent executed
in favor of petitioner Citibank another Deed of Assignment, 58 this time,
of PN No. 8167, also issued by petitioner FNCB Finance, to secure
payment of the credit and banking facilities extended to her by petitioner
Citibank, in the aggregate amount of ₱500,000.00. When PNs No. 8167
and 8169, representing respondent's money market placements with
petitioner FNCB Finance, matured and were rolled-over to PNs No. 20138
and 20139, respondent executed new Deeds of Assignment,59 in favor of
petitioner Citibank, on 25 August 1978. According to the more recent
Deeds, respondent assigned PNs No. 20138 and 20139, representing her
rolled-over money market placements with petitioner FNCB Finance, to
petitioner Citibank as security for the banking and credit facilities it
extended to her, in the aggregate principal amount of ₱500,000.00 per
Deed.
In addition to the Deeds of Assignment of her money market placements
with petitioner FNCB Finance, respondent also executed a Declaration of
Pledge,60 in which she supposedly pledged "[a]ll present and future
fiduciary placements held in my personal and/or joint name with
Citibank, Switzerland," to secure all claims the petitioner Citibank may
have or, in the future, acquire against respondent. The petitioners' copy
of the Declaration of Pledge is undated, while that of the respondent, a
Banking | Deposit Function | 71
copy certified by a Citibank-Geneva officer, bore the date 24 September
1979.61
When respondent failed to pay the second set of PNs upon their maturity,
an exchange of letters ensued between respondent and/or her
representatives, on one hand, and the representatives of petitioners, on
the other.
The first letter62 was dated 5 April 1979, addressed to respondent and
signed by Mr. Tan, as the manager of petitioner Citibank, which stated,
in part, that –
Despite our repeated requests and follow-up, we regret you have not
granted us with any response or payment.
We, therefore, have no alternative but to call your loan of ₱1,920,000.00
plus interests and other charges due and demandable. If you still fail to
settle this obligation by 4/27/79, we shall have no other alternative but
to refer your account to our lawyers for legal action to protect the interest
of the bank.
Respondent sent a reply letter63 dated 26 April 1979, printed on paper
bearing the letterhead of respondent's company, MC Adore International
Palace, the body of which reads –
This is in reply to your letter dated April 5, 1979 inviting my attention to
my loan which has become due. Pursuant to our representation with you
over the telephone through Mr. F. A. Tan, you allow us to pay the
interests due for the meantime.
Please accept our Comtrust Check in the amount of ₱62,683.33.
Please bear with us for a little while, at most ninety days. As you know,
we have a pending loan with the Development Bank of the Philippines in
the amount of ₱11-M. This loan has already been recommended for
approval and would be submitted to the Board of Governors. In fact, to
further facilitate the early release of this loan, we have presented and
furnished Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you grant
us our request for a little more time.

A week later or on 3 May 1979, a certain C. N. Pugeda, designated as
"Executive Secretary," sent a letter64 to petitioner Citibank, on behalf of
respondent. The letter was again printed on paper bearing the letterhead
of MC Adore International Palace. The pertinent paragraphs of the said
letter are reproduced below –
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request
for a re-computation of the interest and penalty charges on her loan in
the aggregate amount of ₱1,920,000.00 with maturity date of all
promissory notes at June 30, 1979. As she has personally discussed with
you yesterday, this date will more or less assure you of early settlement.
In this regard, please entrust to bearer, our Comtrust check for
₱62,683.33 to be replaced by another check with amount resulting from
the new computation. Also, to facilitate the processing of the same, may
we request for another set of promissory notes for the signature of Mrs.
Sabeniano and to cancel the previous ones she has signed and forwarded
to you.
This was followed by a telegram,65 dated 5 June 1979, and received by
petitioner Citibank the following day. The telegram was sent by a Dewey
G. Soriano, Legal Counsel. The telegram acknowledged receipt of the
telegram sent by petitioner Citibank regarding the "re-past due
obligation" of McAdore International Palace. However, it reported that
respondent, the President and Chairman of MC Adore International
Palace, was presently abroad negotiating for a big loan. Thus, he was
requesting for an extension of the due date of the obligation until
respondent's arrival on or before 31 July 1979.
The next letter,66 dated 21 June 1979, was signed by respondent herself
and addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB
Finance. Respondent wrote therein –
Re: PN No. 20138 for ₱500,000.00 & PN No. 20139 for ₱500,000.00
totalling ₱1 Million, both PNs will mature on 9/3/1979.
This is to authorize you to release the accrued quarterly interests
payment from my captioned placements and forward directly to Citibank,
Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable
on my outstanding loan with Citibank.
Banking | Deposit Function | 72
Please note that the captioned two placements are continuously
pledged/hypothecated to Citibank, Manila to support my personal
outstanding loan. Therefore, please do not release the captioned
placements upon maturity until you have received the instruction from
Citibank, Manila.
On even date, respondent sent another letter67 to Mr. Tan of petitioner
Citibank, stating that –
Re: S/A No. 25-225928 and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding
balance from my captioned accounts and credit the amount to my loan
outstanding account with you.
Unlike respondent's earlier letters, both letters, dated 21 June 1979, are
printed on plain paper, without the letterhead of her company, MC Adore
International Palace.
By 5 September 1979, respondent's outstanding and past due obligations
to petitioner Citibank totaled ₱2,123,843.20, representing the principal
amounts plus interests. Relying on respondent's Deeds of Assignment,
petitioner Citibank applied the proceeds of respondent's money market
placements with petitioner FNCB Finance, as well as her deposit account
with petitioner Citibank, to partly liquidate respondent's outstanding loan
balance,68 as follows –
Respondent's outstanding obligation (principal and interest) ₱ 2,123,843.20
Less: Proceeds from respondent's money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
Deposits in respondent's bank accounts with petitioner
Citibank (31,079.14)
Balance of respondent's obligation ₱ 1,069,847.40
Mr. Tan of petitioner Citibank subsequently sent a letter,69 dated 28
September 1979, notifying respondent of the status of her loans and the
foregoing compensation which petitioner Citibank effected. In the letter,
Mr. Tan informed respondent that she still had a remaining past-due
obligation in the amount of ₱1,069,847.40, as of 5 September 1979, and
should respondent fail to pay the amount by 15 October 1979, then
petitioner Citibank shall proceed to off-set the unpaid amount with

respondent's other collateral, particularly, a money market placement in
Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on
paper bearing the letterhead of MC Adore International Palace, as
regards the ₱1,920,000.00 loan account supposedly of MC Adore Finance
& Investment, Inc., and requested for a statement of account covering
the principal and interest of the loan as of 31 October 1979. She stated
therein that the loan obligation shall be paid within 60 days from receipt
of the statement of account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises
Tolentino dropped by the office of petitioner Citibank, with a letter, dated
9 October 1979, and printed on paper with the letterhead of MC Adore
International Palace, which authorized the bearer thereof to represent
the respondent in settling the overdue account, this time, purportedly,
of MC Adore International Palace Hotel. The letter was signed by
respondent as the President and Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of
petitioner Citibank, sent a letter to respondent, dated 31 October 1979,
informing her that petitioner Citibank had effected an off-set using her
account with Citibank-Geneva, in the amount of US$149,632.99, against
her "outstanding, overdue, demandable and unpaid obligation" to
petitioner Citibank. Atty. Agcaoili claimed therein that the compensation
or off-set was made pursuant to and in accordance with the provisions
of Articles 1278 through 1290 of the Civil Code. He further declared that
respondent's obligation to petitioner Citibank was now fully paid and
liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner
Citibank's building at Paseo de Roxas St., Makati, Metro Manila.
Petitioners submitted a Certification70 to this effect, dated 17 January
1991, issued by the Chief of the Arson Investigation Section, Fire District
III, Makati Fire Station, Metropolitan Police Force. The 7 th floor of
petitioner Citibank's building housed its Control Division, which was in
charge of keeping the necessary documents for cases in which it was
involved. After compiling the documentary evidence for the present case,
Atty. Renato J. Fernandez, internal legal counsel of petitioner Citibank,
forwarded them to the Control Division. The original copies of the MCs,
which supposedly represent the proceeds of the first set of PNs, as well
Banking | Deposit Function | 73
as that of other documentary evidence related to the case, were among
those burned in the said fire.71
Respondent's version of events
Respondent disputed petitioners' narration of the circumstances
surrounding her loans with petitioner Citibank and the alleged authority
she gave for the off-set or compensation of her money market
placements and deposit accounts with petitioners against her loan
obligation.
Respondent denied outright executing the first set of PNs, except for one
(PN No. 34534 in particular). Although she admitted that she obtained
several loans from petitioner Citibank, these only amounted to
₱1,150,000.00, and she had already paid them. She secured from
petitioner Citibank two loans of ₱500,000.00 each. She executed in favor
of petitioner Citibank the corresponding PNs for the loans and the Deeds
of Assignment of her money market placements with petitioner FNCB
Finance as security.72 To prove payment of these loans, respondent
presented two provisional receipts of petitioner Citibank – No.
19471,73 dated 11 August 1978, and No. 12723,74 dated 10 November
1978 – both signed by Mr. Tan, and acknowledging receipt from
respondent of several checks in the total amount of ₱500,744.00 and
₱500,000.00, respectively, for "liquidation of loan."
She borrowed another ₱150,000.00 from petitioner Citibank for personal
investment, and for which she executed PN No. 34534, on 9 January
1979. Thus, she admitted to receiving the proceeds of this loan via MC
No. 228270. She invested the loan amount in another money market
placement with petitioner FNCB Finance. In turn, she used the very same
money market placement with petitioner FNCB Finance as security for
her ₱150,000.00 loan from petitioner Citibank. When she failed to pay
the loan when it became due, petitioner Citibank allegedly forfeited her
money market placement with petitioner FNCB Finance and, thus, the
loan was already paid.75
Respondent likewise questioned the MCs presented by petitioners,
except for one (MC No. 228270 in particular), as proof that she received
the proceeds of the loans covered by the first set of PNs. As recounted
in the preceding paragraph, respondent admitted to obtaining a loan of
₱150,000.00, covered by PN No. 34534, and receiving MC No. 228270

representing the proceeds thereof, but claimed that she already paid the
same. She denied ever receiving MCs No. 220701 (for the loan of
₱400,000.00, covered by PN No. 33935) and No. 226467 (for the loan of
₱250,000.00, covered by PN No. 34079), and pointed out that the checks
did not bear her indorsements. She did not deny receiving all other
checks but she interposed that she received these checks, not as
proceeds of loans, but as payment of the principal amounts and/or
interests from her money market placements with petitioner Citibank.
She also raised doubts as to the notation on each of the checks that
reads "RE: Proceeds of PN#[corresponding PN No.]," saying that such
notation did not appear on the MCs when she originally received them
and that the notation appears to have been written by a typewriter
different from that used in writing all other information on the checks
(i.e., date, payee, and amount).76 She even testified that MCs were not
supposed to bear notations indicating the purpose for which they were
issued.
As to the second set of PNs, respondent acknowledged having signed
them all. However, she asserted that she only executed these PNs as
part of the simulated loans she and Mr. Tan of petitioner Citibank
concocted. Respondent explained that she had a pending loan application
for a big amount with the Development Bank of the Philippines (DBP),
and when Mr. Tan found out about this, he suggested that they could
make it appear that the respondent had outstanding loans with petitioner
Citibank and the latter was already demanding payment thereof; this
might persuade DBP to approve respondent's loan application. Mr. Tan
made the respondent sign the second set of PNs, so that he may have
something to show the DBP investigator who might inquire with
petitioner Citibank as to respondent's loans with the latter. On her own
copies of the said PNs, respondent wrote by hand the notation, "This isa
(sic) simulated non-negotiable note, signed copy given to Mr. Tan., (sic)
per agreement to be shown to DBP representative. itwill (sic) be returned
to me if the ₱11=M (sic) loan for MC Adore Palace Hotel is approved by
DBP."77
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented
by both sides to this case, it is this Court's assessment that respondent
did indeed have outstanding loans with petitioner Citibank at the time it
effected the off-set or compensation on 25 July 1979 (using respondent's
Banking | Deposit Function | 74
savings deposit with petitioner Citibank), 5 September 1979 (using the
proceeds of respondent's money market placements with petitioner FNCB
Finance) and 26 October 1979 (using respondent's dollar accounts
remitted from Citibank-Geneva). The totality of petitioners' evidence as
to the existence of the said loans preponderates over respondent's.
Preponderant evidence means that, as a whole, the evidence adduced by
one side outweighs that of the adverse party.78
Respondent's outstanding obligation for ₱1,920,000.00 had been
sufficiently documented by petitioner Citibank.
The second set of PNs is a mere renewal of the prior loans originally
covered by the first set of PNs, except for PN No. 34534. The first set of
PNs is supported, in turn, by the existence of the MCs that represent the
proceeds thereof received by the respondent.
It bears to emphasize that the proceeds of the loans were paid to
respondent in MCs, with the respondent specifically named as payee.
MCs checks are drawn by the bank's manager upon the bank itself and
regarded to be as good as the money it represents.79 Moreover, the MCs
were crossed checks, with the words "Payee's Account Only."
In general, a crossed check cannot be presented to the drawee bank for
payment in cash. Instead, the check can only be deposited with the
payee's bank which, in turn, must present it for payment against the
drawee bank in the course of normal banking hours. The crossed check
cannot be presented for payment, but it can only be deposited and the
drawee bank may only pay to another bank in the payee's or indorser's
account.80 The effect of crossing a check was described by this Court
in Philippine Commercial International Bank v. Court of Appeals81 –
[T]he crossing of a check with the phrase "Payee's Account Only" is a
warning that the check should be deposited in the account of the payee.
Thus, it is the duty of the collecting bank PCI Bank to ascertain that the
check be deposited in payee's account only. It is bound to scrutinize the
check and to know its depositors before it can make the clearing
indorsement "all prior indorsements and/or lack of indorsement
guaranteed."
The crossed MCs presented by petitioner Bank were indeed deposited in
several different bank accounts and cleared by the Clearing Office of the

Central Bank of the Philippines, as evidenced by the stamp marks and
notations on the said checks. The crossed MCs are already in the
possession of petitioner Citibank, the drawee bank, which was ultimately
responsible for the payment of the amount stated in the checks. Given
that a check is more than just an instrument of credit used in commercial
transactions for it also serves as a receipt or evidence for the drawee
bank of the cancellation of the said check due to payment, 82 then, the
possession by petitioner Citibank of the said MCs, duly stamped "Paid"
gives rise to the presumption that the said MCs were already paid out to
the intended payee, who was in this case, the respondent.
This Court finds applicable herein the presumptions that private
transactions have been fair and regular,83 and that the ordinary course
of business has been followed.84 There is no question that the loan
transaction between petitioner Citibank and the respondent is a private
transaction. The transactions revolving around the crossed MCs – from
their issuance by petitioner Citibank to respondent as payment of the
proceeds of her loans; to its deposit in respondent's accounts with
several different banks; to the clearing of the MCs by an independent
clearing house; and finally, to the payment of the MCs by petitioner
Citibank as the drawee bank of the said checks – are all private
transactions which shall be presumed to have been fair and regular to all
the parties concerned. In addition, the banks involved in the foregoing
transactions are also presumed to have followed the ordinary course of
business in the acceptance of the crossed MCs for deposit in respondent's
accounts, submitting them for clearing, and their eventual payment and
cancellation.
The afore-stated presumptions are disputable, meaning, they are
satisfactory if uncontradicted, but may be contradicted and overcome by
other evidence.85 Respondent, however, was unable to present sufficient
and credible evidence to dispute these presumptions.
It should be recalled that out of the nine MCs presented by petitioner
Citibank, respondent admitted to receiving one as proceeds of a loan (MC
No. 228270), denied receiving two (MCs No. 220701 and 226467), and
admitted to receiving all the rest, but not as proceeds of her loans, but
as return on the principal amounts and interests from her money market
placements.
Banking | Deposit Function | 75
Respondent admitted receiving MC No. 228270 representing the
proceeds of her loan covered by PN No. 34534. Although the principal
amount of the loan is ₱150,000.00, respondent only received
₱146,312.50, because the interest and handling fee on the loan
transaction were already deducted therefrom.86 Stamps and notations at
the back of MC No. 228270 reveal that it was deposited at the Bank of
the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-
28.87 The check also bore the signature of respondent at the back.88 And,
although respondent would later admit that she did sign PN No. 34534
and received MC No. 228270 as proceeds of the loan extended to her by
petitioner Citibank, she contradicted herself when, in an earlier
testimony, she claimed that PN No. 34534 was among the PNs she
executed as simulated loans with petitioner Citibank.89
Respondent denied ever receiving MCs No. 220701 and 226467.
However, considering that the said checks were crossed for payee's
account only, and that they were actually deposited, cleared, and paid,
then the presumption would be that the said checks were properly
deposited to the account of respondent, who was clearly named the
payee in the checks. Respondent's bare allegations that she did not
receive the two checks fail to convince this Court, for to sustain her,
would be for this Court to conclude that an irregularity had occurred
somewhere from the time of the issuance of the said checks, to their
deposit, clearance, and payment, and which would have involved not
only petitioner Citibank, but also BPI, which accepted the checks for
deposit, and the Central Bank of the Philippines, which cleared the
checks. It falls upon the respondent to overcome or dispute the
presumption that the crossed checks were issued, accepted for deposit,
cleared, and paid for by the banks involved following the ordinary course
of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondent's
signature at the back does not negate deposit thereof in her account.
The liability for the lack of indorsement on the MCs no longer fall on
petitioner Citibank, but on the bank who received the same for deposit,
in this case, BPI Cubao Branch. Once again, it must be noted that the
MCs were crossed, for payee's account only, and the payee named in
both checks was none other than respondent. The crossing of the MCs
was already a warning to BPI to receive said checks for deposit only in
respondent's account. It was up to BPI to verify whether it was receiving

the crossed MCs in accordance with the instructions on the face thereof.
If, indeed, the MCs were deposited in accounts other than respondent's,
then the respondent would have a cause of action against BPI.90
BPI further stamped its guarantee on the back of the checks to the effect
that, "All prior endorsement and/or Lack of endorsement guaranteed."
Thus, BPI became the indorser of the MCs, and assumed all the
warranties of an indorser,91 specifically, that the checks were genuine
and in all respects what they purported to be; that it had a good title to
the checks; that all prior parties had capacity to contract; and that the
checks were, at the time of their indorsement, valid and subsisting.92 So
even if the MCs deposited by BPI's client, whether it be by respondent
herself or some other person, lacked the necessary indorsement, BPI, as
the collecting bank, is bound by its warranties as an indorser and cannot
set up the defense of lack of indorsement as against petitioner Citibank,
the drawee bank.93
Furthermore, respondent's bare and unsubstantiated denial of receipt of
the MCs in question and their deposit in her account is rendered suspect
when MC No. 220701 was actually deposited in Account No. 0123-0572-
28 of BPI Cubao Branch, the very same account in which MC No. 228270
(which respondent admitted to receiving as proceeds of her loan from
petitioner Citibank), and MCs No. 228203, 228357, and 228400 (which
respondent admitted to receiving as proceeds from her money market
placements) were deposited. Likewise, MC No. 226467 was deposited in
Account No. 0121-002-43 of BPI Cubao Branch, to which MCs No.
226285 and 226439 (which respondent admitted to receiving as
proceeds from her money market placements) were deposited. It is an
apparent contradiction for respondent to claim having received the
proceeds of checks deposited in an account, and then deny receiving the
proceeds of another check deposited in the very same account.
Another inconsistency in respondent's denial of receipt of MC No. 226467
and her deposit of the same in her account, is her presentation of Exhibit
"HHH," a provisional receipt which was supposed to prove that
respondent turned over ₱500,000.00 to Mr. Tan of petitioner Citibank,
that the said amount was split into three money market placements, and
that MC No. 226467 represented the return on her investment from one
of these placements.94 Because of her Exhibit "HHH," respondent
effectively admitted receipt of MC No. 226467, although for reasons
other than as proceeds of a loan.
Banking | Deposit Function | 76
Neither can this Court give credence to respondent's contention that the
notations on the MCs, stating that they were the proceeds of particular
PNs, were not there when she received the checks and that the notations
appeared to be written by a typewriter different from that used to write
the other information on the checks. Once more, respondent's allegations
were uncorroborated by any other evidence. Her and her counsel's
observation that the notations on the MCs appear to be written by a
typewriter different from that used to write the other information on the
checks hardly convinces this Court considering that it constitutes a mere
opinion on the appearance of the notation by a witness who does not
possess the necessary expertise on the matter. In addition, the notations
on the MCs were written using both capital and small letters, while the
other information on the checks were written using capital letters only,
such difference could easily confuse an untrained eye and lead to a hasty
conclusion that they were written by different typewriters.
Respondent's testimony, that based on her experience transacting with
banks, the MCs were not supposed to include notations on the purpose
for which the checks were issued, also deserves scant consideration.
While respondent may have extensive experience dealing with banks, it
still does not qualify her as a competent witness on banking procedures
and practices. Her testimony on this matter is even belied by the fact
that the other MCs issued by petitioner Citibank (when it was still named
First National City Bank) and by petitioner FNCB Finance, the existence
and validity of which were not disputed by respondent, also bear similar
notations that state the reason for which they were issued.
Respondent presented several more pieces of evidence to substantiate
her claim that she received MCs No. 226285, 226439, 226467, 226057,
228357, and 228400, not as proceeds of her loans from petitioner
Citibank, but as the return of the principal amounts and payment of
interests from her money market placements with petitioners. Part of
respondent's exhibits were personal checks95 drawn by respondent on
her account with Feati Bank & Trust Co., which she allegedly invested in
separate money market placements with both petitioners, the returns
from which were paid to her via MCs No. 226285 and 228400. Yet, to
this Court, the personal checks only managed to establish respondent's
issuance thereof, but there was nothing on the face of the checks that
would reveal the purpose for which they were issued and that they were
actually invested in money market placements as respondent claimed.

Respondent further submitted handwritten notes that purportedly
computed and presented the returns on her money market placements,
corresponding to the amount stated in the MCs she received from
petitioner Citibank. Exhibit "HHH-1"96 was a handwritten note, which
respondent attributed to Mr. Tan of petitioner Citibank, showing the
breakdown of her BPI Check for ₱500,000.00 into three different money
market placements with petitioner Citibank. This Court, however, noticed
several factors which render the note highly suspect. One, it was written
on the reversed side of Provisional Receipt No. 12724 of petitioner
Citibank which bore the initials of Mr. Tan acknowledging receipt of
respondent's BPI Check No. 120989 for ₱500,000.00; but the initials on
the handwritten note appeared to be that of Mr. Bobby Mendoza of
petitioner FNCB Finance.97 Second, according to Provisional Receipt No.
12724, BPI Check No. 120989 for ₱500,000.00 was supposed to be
invested in three money market placements with petitioner Citibank for
the period of 60 days. Since all these money market placements were
made through one check deposited on the same day, 10 November 1978,
it made no sense that the handwritten note at the back of Provisional
Receipt No. 12724 provided for different dates of maturity for each of
the money market placements (i.e., 16 November 1978, 17 January
1979, and 21 November 1978), and such dates did not correspond to the
60 day placement period stated on the face of the provisional receipt.
And third, the principal amounts of the money market placements as
stated in the handwritten note – ₱145,000.00, ₱145,000.00 and
₱242,000.00 – totaled ₱532,000.00, and was obviously in excess of the
₱500,000.00 acknowledged on the face of Provisional Receipt No. 12724.
Exhibits "III" and "III-1," the front and bank pages of a handwritten note
of Mr. Bobby Mendoza of petitioner FNCB Finance,98 also did not deserve
much evidentiary weight, and this Court cannot rely on the truth and
accuracy of the computations presented therein. Mr. Mendoza was not
presented as a witness during the trial before the RTC, so that the
document was not properly authenticated nor its contents sufficiently
explained. No one was able to competently identify whether the initials
as appearing on the note were actually Mr. Mendoza's.
Also, going by the information on the front page of the note, this Court
observes that payment of respondent's alleged money market
placements with petitioner FNCB Finance were made using Citytrust
Checks; the MCs in question, including MC No. 228057, were issued by
Banking | Deposit Function | 77
petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.),
petitioner FNCB Finance, and petitioner Citibank may be affiliates of one
another, they each remained separate and distinct corporations, each
having its own financial system and records. Thus, this Court cannot
simply assume that one corporation, such as petitioner Citibank or
Citytrust, can issue a check to discharge an obligation of petitioner FNCB
Finance. It should be recalled that when petitioner FNCB Finance paid for
respondent's money market placements, covered by its PNs No. 8167
and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance
issued its own checks.
As a last point on this matter, if respondent truly had money market
placements with petitioners, then these would have been evidenced by
PNs issued by either petitioner Citibank or petitioner FNCB Finance,
acknowledging the principal amounts of the investments, and stating the
applicable interest rates, as well as the dates of their of issuance and
maturity. After respondent had so meticulously reconstructed her other
money market placements with petitioners and consolidated the
documentary evidence thereon, she came surprisingly short of offering
similar details and substantiation for these particular money market
placements.
Since this Court is satisfied that respondent indeed received the proceeds
of the first set of PNs, then it proceeds to analyze her evidence of
payment thereof.
In support of respondent's assertion that she had already paid whatever
loans she may have had with petitioner Citibank, she presented as
evidence Provisional Receipts No. 19471, dated 11 August 1978, and No.
12723, dated 10 November 1978, both of petitioner Citibank and signed
by Mr. Tan, for the amounts of ₱500,744.00 and ₱500,000.00,
respectively. While these provisional receipts did state that Mr. Tan, on
behalf of petitioner Citibank, received respondent's checks as payment
for her loans, they failed to specifically identify which loans were actually
paid. Petitioner Citibank was able to present evidence that respondent
had executed several PNs in the years 1978 and 1979 to cover the loans
she secured from the said bank. Petitioner Citibank did admit that
respondent was able to pay for some of these PNs, and what it identified
as the first and second sets of PNs were only those which remained
unpaid. It thus became incumbent upon respondent to prove that the
checks received by Mr. Tan were actually applied to the PNs in either the

first or second set; a fact that, unfortunately, cannot be determined from
the provisional receipts submitted by respondent since they only
generally stated that the checks received by Mr. Tan were payment for
respondent's loans.
Mr. Tan, in his deposition, further explained that provisional receipts
were issued when payment to the bank was made using checks, since
the checks would still be subject to clearing. The purpose for the
provisional receipts was merely to acknowledge the delivery of the
checks to the possession of the bank, but not yet of payment.99 This bank
practice finds legitimacy in the pronouncement of this Court that a check,
whether an MC or an ordinary check, is not legal tender and, therefore,
cannot constitute valid tender of payment. In Philippine Airlines, Inc. v.
Court of Appeals, 100 this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as
payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code;
Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos,
9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in payment
of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is
actually realized (Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank
would have been dependent on whether the checks delivered by
respondent were actually cleared and paid for by the drawee banks.
As for PN No. 34534, respondent asserted payment thereof at two
separate instances by two different means. In her formal offer of
exhibits, respondent submitted a deposit slip of petitioner Citibank, dated
11 August 1978, evidencing the deposit of BPI Check No. 5785 for
₱150,000.00.101 In her Formal Offer of Documentary Exhibits, dated 7
July 1989, respondent stated that the purpose for the presentation of the
said deposit slip was to prove that she already paid her loan covered by
PN No. 34534.102 In her testimony before the RTC three years later, on
28 November 1991, she changed her story. This time she narrated that
the loan covered by PN No. 34534 was secured by her money market
Banking | Deposit Function | 78
placement with petitioner FNCB Finance, and when she failed to pay the
said PN when it became due, the security was applied to the loan,
therefore, the loan was considered paid.103 Given the foregoing,
respondent's assertion of payment of PN No. 34534 is extremely dubious.
According to petitioner Citibank, the PNs in the second set, except for PN
No. 34534, were mere renewals of the unpaid PNs in the first set, which
was why the PNs stated that they were for the purpose of liquidating
existing obligations. PN No. 34534, however, which was part of the first
set, was still valid and subsisting and so it was included in the second set
without need for its renewal, and it still being the original PN for that
particular loan, its stated purpose was for personal
investment.104 Respondent essentially admitted executing the second set
of PNs, but they were only meant to cover simulated loans. Mr. Tan
supposedly convinced her that her pending loan application with DBP
would have a greater chance of being approved if they made it appear
that respondent urgently needed the money because petitioner Citibank
was already demanding payment for her simulated loans.
Respondent's defense of simulated loans to escape liability for the second
set of PNs is truly a novel one.1âwphi1 It is regrettable, however, that
she was unable to substantiate the same. Yet again, respondent's version
of events is totally based on her own uncorroborated testimony. The
notations on the second set of PNs, that they were non-negotiable
simulated notes, were admittedly made by respondent herself and were,
thus, self-serving. Equally self-serving was respondent's letter, written
on 7 October 1985, or more than six years after the execution of the
second set of PNs, in which she demanded return of the simulated or
fictitious PNs, together with the letters relating thereto, which Mr. Tan
purportedly asked her to execute. Respondent further failed to present
any proof of her alleged loan application with the DBP, and of any
circumstance or correspondence wherein the simulated or fictitious PNs
were indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its
officers and available documentation, consistently treated the said PNs
as regular loans – accepted, approved, and paid in the ordinary course
of its business.
The PNs executed by the respondent in favor of petitioner Citibank to
cover her loans were duly-filled out and signed, including the disclosure

statement found at the back of the said PNs, in adherence to the Central
Bank requirement to disclose the full finance charges to a loan granted
to borrowers.
Mr. Tan, then an account officer with the Marketing Department of
petitioner Citibank, testified that he dealt directly with respondent; he
facilitated the loans; and the PNs, at least in the second set, were signed
by respondent in his presence.105
Mr. Pujeda, the officer who was previously in charge of loans and
placements, confirmed that the signatures on the PNs were verified
against respondent's specimen signature with the bank.106
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan
processor, was responsible for booking respondent's loans. Booking the
loans means recording it in the General Ledger. She explained the
procedure for booking loans, as follows: The account officer, in the
Marketing Department, deals directly with the clients who wish to borrow
money from petitioner Citibank. The Marketing Department will forward
a loan booking checklist, together with the borrowing client's PNs and
other supporting documents, to the loan pre-processor, who will check
whether the details in the loan booking checklist are the same as those
in the PNs. The documents are then sent to Signature Control for
verification of the client's signature in the PNs, after which, they are
returned to the loan pre-processor, to be forwarded finally to the loan
processor. The loan processor shall book the loan in the General Ledger,
indicating therein the client name, loan amount, interest rate, maturity
date, and the corresponding PN number. Since she booked respondent's
loans personally, Ms. Dondoyano testified that she saw the original PNs.
In 1986, Atty. Fernandez of petitioner Citibank requested her to prepare
an accounting of respondent's loans, which she did, and which was
presented as Exhibit "120" for the petitioners. The figures from the said
exhibit were culled from the bookings in the General Ledger, a fact which
respondent's counsel was even willing to stipulate.107
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at
the Control Department of petitioner Citibank. She was presented by
petitioner Citibank to expound on the microfilming procedure at the bank,
since most of the copies of the PNs were retrieved from microfilm.
Microfilming of the documents are actually done by people at the
Operations Department. At the end of the day or during the day, the
Banking | Deposit Function | 79
original copies of all bank documents, not just those pertaining to loans,
are microfilmed. She refuted the possibility that insertions could be made
in the microfilm because the microfilm is inserted in a cassette; the
cassette is placed in the microfilm machine for use; at the end of the
day, the cassette is taken out of the microfilm machine and put in a safe
vault; and the cassette is returned to the machine only the following day
for use, until the spool is full. This is the microfilming procedure followed
everyday. When the microfilm spool is already full, the microfilm is
developed, then sent to the Control Department, which double checks
the contents of the microfilms against the entries in the General Ledger.
The Control Department also conducts a random comparison of the
contents of the microfilms with the original documents; a random review
of the contents is done on every role of microfilm.108
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose
from the ranks, initially working as a secretary in the Personnel Group;
then as a secretary to the Personnel Group Head; a Service Assistant
with the Marketing Group, in 1972 to 1974, dealing directly with
corporate and individual clients who, among other things, secured loans
from petitioner Citibank; the Head of the Collection Group of the Foreign
Department in 1974 to 1976; the Head of the Money Transfer Unit in
1976 to 1978; the Head of the Loans and Placements Unit up to the early
1980s; and, thereafter, she established operations training for petitioner
Citibank in the Asia-Pacific Region responsible for the training of the
officers of the bank. She testified on the standard loan application
process at petitioner Citibank. According to Ms. Rubio, the account officer
or marketing person submits a proposal to grant a loan to an individual
or corporation. Petitioner Citibank has a worldwide policy that requires a
credit committee, composed of a minimum of three people, which would
approve the loan and amount thereof. There can be no instance when
only one officer has the power to approve the loan application. When the
loan is approved, the account officer in charge will obtain the
corresponding PNs from the client. The PNs are sent to the signature
verifier who would validate the signatures therein against those
appearing in the signature cards previously submitted by the client to
the bank. The Operations Unit will check and review the documents,
including the PNs, if it is a clean loan, and securities and deposits, if it is
collateralized. The loan is then recorded in the General Ledger. The Loans
and Placements Department will not book the loans without the PNs.
When the PNs are liquidated, whether they are paid or rolled-over, they

are returned to the client.109 Ms. Rubio further explained that she was
familiar with respondent's accounts since, while she was still the Head of
the Loan and Placements Unit, she was asked by Mr. Tan to prepare a
list of respondent's outstanding obligations.110 She thus calculated
respondent's outstanding loans, which was sent as an attachment to Mr.
Tan's letter to respondent, dated 28 September 1979, and presented
before the RTC as Exhibits "34-B" and "34-C."111
Lastly, the exchange of letters between petitioner Citibank and
respondent, as well as the letters sent by other people working for
respondent, had consistently recognized that respondent owed petitioner
Citibank money.
In consideration of the foregoing discussion, this Court finds that the
preponderance of evidence supports the existence of the respondent's
loans, in the principal sum of ₱1,920,000.00, as of 5 September 1979.
While it is well-settled that the term "preponderance of evidence" should
not be wholly dependent on the number of witnesses, there are certain
instances when the number of witnesses become the determining factor
– fact sought to be established from them is only the general result of the
The preponderance of evidence may be determined, under certain
conditions, by the number of witnesses testifying to a particular fact or
state of facts. For instance, one or two witnesses may testify to a given
state of facts, and six or seven witnesses of equal candor, fairness,
intelligence, and truthfulness, and equally well corroborated by all the
remaining evidence, who have no greater interest in the result of the
suit, testify against such state of facts. Then the preponderance of
evidence is determined by the number of witnesses. (Wilcox vs. Hines,
100 Tenn. 524, 66 Am. St. Rep., 761.)112
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals
summarily dismissing the documentary evidence submitted by
petitioners based on its broad and indiscriminate application of the best
evidence rule.
In general, the best evidence rule requires that the highest available
degree of proof must be produced. Accordingly, for documentary
evidence, the contents of a document are best proved by the production
Banking | Deposit Function | 80
of the document itself,113 to the exclusion of any secondary or
substitutionary evidence.114
The best evidence rule has been made part of the revised Rules of Court,
Rule 130, Section 3, which reads –
SEC. 3. Original document must be produced; exceptions. – When the
subject of inquiry is the contents of a document, no evidence shall be
admissible other than the original document itself, except in the following
cases:
(a) When the original has been lost or destroyed, or cannot be produced
in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;
(c) When the original consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the
whole; and
(d) When the original is a public record in the custody of a public officer
or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only
when the subject of the inquiry is the contents of the document. The
scope of the rule is more extensively explained thus –
But even with respect to documentary evidence, the best evidence rule
applies only when the content of such document is the subject of the
inquiry. Where the issue is only as to whether such document was
actually executed, or exists, or on the circumstances relevant to or
surrounding its execution, the best evidence rule does not apply and
testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin,
op. cit., p. 78). Any other substitutionary evidence is likewise admissible
without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition
it is offered not as documentary, but as real, evidence. Parol evidence of

the fact of execution of the documents is allowed (Hernaez, et al. vs.
McGrath, etc., et al., 91 Phil 565). x x x 115
In Estrada v. Desierto,116 this Court had occasion to rule that –
It is true that the Court relied not upon the original but only copy of
the Angara Diary as published in the Philippine Daily Inquirer on
February 4-6, 2001. In doing so, the Court, did not, however, violate the
best evidence rule. Wigmore, in his book on evidence, states that:
"Production of the original may be dispensed with, in the trial court's
discretion, whenever in the case in hand the opponent does not bona fide
dispute the contents of the document and no other useful purpose will
be served by requiring production.24
"x x x x
"In several Canadian provinces, the principle of unavailability has been
abandoned, for certain documents in which ordinarily no real dispute
arised. This measure is a sensible and progressive one and deserves
universal adoption (post, sec. 1233). Its essential feature is that a copy
may be used unconditionally, if the opponent has been given an
opportunity to inspect it." (Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and
weighed in evidence the photocopies and microfilm copies of the PNs,
MCs, and letters submitted by the petitioners to establish the existence
of respondent's loans. The terms or contents of these documents were
never the point of contention in the Petition at bar. It was respondent's
position that the PNs in the first set (with the exception of PN No. 34534)
never existed, while the PNs in the second set (again, excluding PN No.
34534) were merely executed to cover simulated loan transactions. As
for the MCs representing the proceeds of the loans, the respondent either
denied receipt of certain MCs or admitted receipt of the other MCs but
for another purpose. Respondent further admitted the letters she wrote
personally or through her representatives to Mr. Tan of petitioner
Citibank acknowledging the loans, except that she claimed that these
letters were just meant to keep up the ruse of the simulated loans. Thus,
respondent questioned the documents as to their existence or execution,
or when the former is admitted, as to the purpose for which the
Banking | Deposit Function | 81
documents were executed, matters which are, undoubtedly, external to
the documents, and which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should
apply to the evidence presented by petitioners regarding the existence
of respondent's loans, it should be borne in mind that the rule admits of
the following exceptions under Rule 130, Section 5 of the revised Rules
of Court –
SEC. 5. When the original document is unavailable. – When the original
document has been lost or destroyed, or cannot be produced in court,
the offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a
copy, or by a recital of its contents in some authentic document, or by
the testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was
established through the testimonies of witnesses, such as Mr. Tan, before
whom most of the documents were personally executed by respondent.
The original PNs also went through the whole loan booking system of
petitioner Citibank – from the account officer in its Marketing
Department, to the pre-processor, to the signature verifier, back to the
pre-processor, then to the processor for booking.117 The original PNs
were seen by Ms. Dondoyano, the processor, who recorded them in the
General Ledger. Mr. Pujeda personally saw the original MCs, proving
respondent's receipt of the proceeds of her loans from petitioner
Citibank, when he helped Attys. Cleofe and Fernandez, the bank's legal
counsels, to reconstruct the records of respondent's loans. The original
MCs were presented to Atty. Cleofe who used the same during the
preliminary investigation of the case, sometime in years 1986-1987. The
original MCs were subsequently turned over to the Control and
Investigation Division of petitioner Citibank.118
It was only petitioner FNCB Finance who claimed that they lost the
original copies of the PNs when it moved to a new office. Citibank did not
make a similar contention; instead, it explained that the original copies
of the PNs were returned to the borrower upon liquidation of the loan,
either through payment or roll-over. Petitioner Citibank proffered the
excuse that they were still looking for the documents in their storage or
warehouse to explain the delay and difficulty in the retrieval thereof, but
not their absence or loss. The original documents in this case, such as

the MCs and letters, were destroyed and, thus, unavailable for
presentation before the RTC only on 7 October 1987, when a fire broke
out on the 7th floor of the office building of petitioner Citibank. There is
no showing that the fire was intentionally set. The fire destroyed relevant
documents, not just of the present case, but also of other cases, since
the 7th floor housed the Control and Investigation Division, in charge of
keeping the necessary documents for cases in which petitioner Citibank
was involved.
The foregoing would have been sufficient to allow the presentation of
photocopies or microfilm copies of the PNs, MCs, and letters by the
petitioners as secondary evidence to establish the existence of
respondent's loans, as an exception to the best evidence rule.
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following
pronouncement –
Besides, We find the declaration and conclusions of this Court in CA-G.R.
CV No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs.
City Bank, N.A., et al, promulgated on 15 January 1990,
as disturbing taking into consideration the similarities of the fraud,
machinations, and deceits employed by the defendant-appellant Citibank
and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against
Citibank and the person of Francisco Tan in CA-G.R. CV No. 15934 were
affirmed in toto by the Highest Magistrate in a Minute Resolution dated
22 August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as
to whether the nine (9) Promissory Notes were indeed executed with
considerations, the doubts, coupled by the findings and conclusions of
this Court in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No.
93350. should be construed against herein defendants-appellants
Citibank and FNCB Finance.
What this Court truly finds disturbing is the significance given by the
Court of Appeals in its assailed Decision to the Decision 119 of its Third
Division in CA-G.R. CV No. 15934 (or the Dy case), when there is an
absolute lack of legal basis for doing such.
Banking | Deposit Function | 82
Although petitioner Citibank and its officer, Mr. Tan, were also involved
in the Dy case, that is about the only connection between the Dy case
and the one at bar. Not only did the Dy case tackle transactions between
parties other than the parties presently before this Court, but the
transactions are absolutely independent and unrelated to those in the
instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from
herein petitioner Citibank amounting to ₱7,000,000.00, secured to the
extent of ₱5,000,000.00 by a Third Party Real Estate Mortgage of the
properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy
and her husband were unaware of the said loans and the mortgage of
their properties. The transactions were carried out exclusively between
Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan guilty
of fraud for his participation in the questionable transactions, essentially
because he allowed Caedo to take out the signature cards, when these
should have been signed by the Dy spouses personally before him.
Although the Dy spouses' signatures in the PNs and Third Party Real
Estate Mortgage were forged, they were approved by the signature
verifier since the signature cards against which they were compared to
were also forged. Neither the RTC nor the Court of Appeals, however,
categorically declared Mr. Tan personally responsible for the forgeries,
which, in the narration of the facts, were more likely committed by
Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was
no third party involved who could have perpetrated any fraud or forgery
in her loan transactions. Although respondent attempted to raise
suspicion as to the authenticity of her signatures on certain documents,
these were nothing more than naked allegations with no corroborating
evidence; worse, even her own allegations were replete with
inconsistencies. She could not even establish in what manner or under
what circumstances the fraud or forgery was committed, or how Mr. Tan
could have been directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its
Third Division in the Dy case, it should not have given the said case much
weight when it rendered the assailed Decision, since the former does not
constitute a precedent. The Court of Appeals, in the challenged Decision,
did not apply any legal argument or principle established in the Dy case
but, rather, adopted the findings therein of wrongdoing or misconduct on

the part of herein petitioner Citibank and Mr. Tan. Any finding of
wrongdoing or misconduct as against herein petitioners should be made
based on the factual background and pieces of evidence submitted in this
case, not those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case
not as a legal precedent for the present case, but rather as evidence of
similar acts committed by petitioner Citibank and Mr. Tan. A basic rule
of evidence, however, states that, "Evidence that one did or did not do a
certain thing at one time is not admissible to prove that he did or did not
do the same or similar thing at another time; but it may be received to
prove a specific intent or knowledge, identity, plan, system, scheme,
habit, custom or usage, and the like."120 The rationale for the rule is
explained thus –
The rule is founded upon reason, public policy, justice and judicial
convenience. The fact that a person has committed the same or similar
acts at some prior time affords, as a general rule, no logical guaranty
that he committed the act in question. This is so because, subjectively,
a man's mind and even his modes of life may change; and, objectively,
the conditions under which he may find himself at a given time may
likewise change and thus induce him to act in a different way. Besides,
if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant to
surprise as well as confuse the court and prolong the trial.121
The factual backgrounds of the two cases are so different and unrelated
that the Dy case cannot be used to prove specific intent, knowledge,
identity, plan, system, scheme, habit, custom or usage on the part of
petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the
present case.
IV The liquidation of respondent's outstanding loans were
valid in so far as petitioner Citibank used respondent's savings
account with the bank and her money market placements with
petitioner FNCB Finance; but illegal and void in so far as
petitioner Citibank used respondent's dollar accounts with
Citibank-Geneva.
Savings Account with petitioner Citibank
Banking | Deposit Function | 83
Compensation is a recognized mode of extinguishing obligations.
Relevant provisions of the Civil Code provides –
Art. 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
There is little controversy when it comes to the right of petitioner Citibank
to compensate respondent's outstanding loans with her deposit account.
As already found by this Court, petitioner Citibank was the creditor of
respondent for her outstanding loans. At the same time, respondent was
the creditor of petitioner Citibank, as far as her deposit account was
concerned, since bank deposits, whether fixed, savings, or current,
should be considered as simple loan or mutuum by the depositor to the
banking institution.122 Both debts consist in sums of money. By June
1979, all of respondent's PNs in the second set had matured and became
demandable, while respondent's savings account was demandable
anytime. Neither was there any retention or controversy over the PNs
and the deposit account commenced by a third person and
communicated in due time to the debtor concerned. Compensation takes
place by operation of law,123 therefore, even in the absence of an
expressed authority from respondent, petitioner Citibank had the right
to effect, on 25 June 1979, the partial compensation or off-set of
respondent's outstanding loans with her deposit account, amounting to
₱31,079.14.

Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the
money market placements and bank account used by petitioner Citibank
to complete the compensation or off-set of respondent's outstanding
loans, which came from persons other than petitioner Citibank.
Respondent's money market placements were with petitioner FNCB
Finance, and after several roll-overs, they were ultimately covered by
PNs No. 20138 and 20139, which, by 3 September 1979, the date the
check for the proceeds of the said PNs were issued, amounted to
₱1,022,916.66, inclusive of the principal amounts and interests. As to
these money market placements, respondent was the creditor and
petitioner FNCB Finance the debtor; while, as to the outstanding loans,
petitioner Citibank was the creditor and respondent the debtor.
Consequently, legal compensation, under Article 1278 of the Civil Code,
would not apply since the first requirement for a valid compensation, that
each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the
proceeds of respondent's money market placements with petitioner FNCB
Finance by virtue of the Deeds of Assignment executed by respondent in
its favor.
The Court of Appeals did not consider these Deeds of Assignment
because of petitioners' failure to produce the original copies thereof in
violation of the best evidence rule. This Court again finds itself in
disagreement in the application of the best evidence rule by the appellate
court.
To recall, the best evidence rule, in so far as documentary evidence is
concerned, requires the presentation of the original copy of the document
only when the context thereof is the subject of inquiry in the case.
Respondent does not question the contents of the Deeds of Assignment.
While she admitted the existence and execution of the Deeds of
Assignment, dated 2 March 1978 and 9 March 1978, covering PNs No.
8169 and 8167 issued by petitioner FNCB Finance, she claimed, as
defense, that the loans for which the said Deeds were executed as
security, were already paid. She denied ever executing both Deeds of
Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139.
Banking | Deposit Function | 84
These are again issues collateral to the contents of the documents
involved, which could be proven by evidence other than the original
copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements
with petitioner FNCB Finance were notarized documents, thus, admissible
in evidence. Rule 132, Section 30 of the Rules of Court provides that –
SEC. 30. Proof of notarial documents. – Every instrument duly
acknowledged or proved and certified as provided by law, may be
presented in evidence without further proof, the certificate of
acknowledgement being prima facie evidence of the execution of the
instrument or document involved.
Significant herein is this Court's elucidation in De Jesus v. Court of
Appeals,124 which reads –
On the evidentiary value of these documents, it should be recalled that
the notarization of a private document converts it into a public one and
renders it admissible in court without further proof of its authenticity
(Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a public
document duly executed and entered in the proper registry is presumed
to be valid and genuine until the contrary is shown by clear and
convincing proof (Asido vs. Guzman, 57 Phil. 652 [1918]; U.S. vs.
Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA 308
[1991]). As such, the party challenging the recital of the document must
prove his claim with clear and convincing evidence (Diaz vs. Court of
Appeals, 145 SCRA 346 [1986]).
The rule on the evidentiary weight that must be accorded a notarized
document is clear and unambiguous. The certificate of acknowledgement
in the notarized Deeds of Assignment constituted prima facie evidence of
the execution thereof. Thus, the burden of refuting this presumption fell
on respondent. She could have presented evidence of any defect or
irregularity in the execution of the said documents125 or raised questions
as to the verity of the notary public's acknowledgment and certificate in
the Deeds.126 But again, respondent admitted executing the Deeds of
Assignment, dated 2 March 1978 and 9 March 1978, although claiming
that the loans for which they were executed as security were already
paid. And, she assailed the Deeds of Assignment, dated 25 August 1978,
with nothing more than her bare denial of execution thereof, hardly the

clear and convincing evidence required to trounce the presumption of
due execution of a notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but
even secured certified literal copies thereof from the National
Archives.127 Mr. Renato Medua, an archivist, working at the Records
Management and Archives Office of the National Library, testified that
the copies of the Deeds presented before the RTC were certified literal
copies of those contained in the Notarial Registries of the notary publics
concerned, which were already in the possession of the National
Archives. He also explained that he could not bring to the RTC the
Notarial Registries containing the original copies of the Deeds of
Assignment, because the Department of Justice (DOJ) Circular No. 97,
dated 8 November 1968, prohibits the bringing of original documents to
the courts to prevent the loss of irreplaceable and priceless
documents.128
Accordingly, this Court gives the Deeds of Assignment grave importance
in establishing the authority given by the respondent to petitioner
Citibank to use as security for her loans her money her market
placements with petitioner FNCB Finance, represented by PNs No. 8167
and 8169, later to be rolled-over as PNs No. 20138 and 20139. These
Deeds of Assignment constitute the law between the parties, and the
obligations arising therefrom shall have the force of law between the
parties and should be complied with in good faith.129 Standard clauses in
all of the Deeds provide that –
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon
demand, as the case may be, the ASSIGNEE is fully authorized and
empowered to collect and receive the PLACEMENT (or so much thereof
as may be necessary) and apply the same in payment of the
OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and
from time to time, upon request by the ASSIGNEE, the ASSIGNOR will
promptly execute and deliver any and all such further instruments and
documents as may be necessary to effectuate this Assignment.
xxxx
Banking | Deposit Function | 85
5. This Assignment shall be considered as sufficient authority to FNCB
Finance to pay and deliver the PLACEMENT or so much thereof as may
be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in
accordance with terms and provisions hereof.130
Petitioner Citibank was only acting upon the authority granted to it under
the foregoing Deeds when it finally used the proceeds of PNs No. 20138
and 20139, paid by petitioner FNCB Finance, to partly pay for
respondent's outstanding loans. Strictly speaking, it did not effect a legal
compensation or off-set under Article 1278 of the Civil Code, but rather,
it partly extinguished respondent's obligations through the application of
the security given by the respondent for her loans. Although the pertinent
documents were entitled Deeds of Assignment, they were, in reality,
more of a pledge by respondent to petitioner Citibank of her credit due
from petitioner FNCB Finance by virtue of her money market placements
with the latter. According to Article 2118 of the Civil Code –
ART. 2118. If a credit has been pledged becomes due before it is
redeemed, the pledgee may collect and receive the amount due. He shall
apply the same to the payment of his claim, and deliver the surplus,
should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them
being redeemed by respondent, so that petitioner Citibank collected from
petitioner FNCB Finance the proceeds thereof, which included the
principal amounts and interests earned by the money market
placements, amounting to ₱1,022,916.66, and applied the same against
respondent's outstanding loans, leaving no surplus to be delivered to
respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondent's savings account and the
total application of the proceeds of PNs No. 20138 and 20139 to
respondent's outstanding loans, there still remained a balance of
₱1,069,847.40. Petitioner Citibank then proceeded to applying
respondent's dollar accounts with Citibank-Geneva against her remaining
loan balance, pursuant to a Declaration of Pledge supposedly executed
by respondent in its favor.

Certain principles of private international law should be considered herein
because the property pledged was in the possession of an entity in a
foreign country, namely, Citibank-Geneva. In the absence of any
allegation and evidence presented by petitioners of the specific rules and
laws governing the constitution of a pledge in Geneva, Switzerland, they
will be presumed to be the same as Philippine local or domestic laws;
this is known as processual presumption.131
Upon closer scrutiny of the Declaration of Pledge, this Court finds the
same exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have
the Deeds of Assignment of the PNs notarized, yet left the Declaration of
Pledge unnotarized. This Court would think that petitioner Citibank would
take greater cautionary measures with the preparation and execution of
the Declaration of Pledge because it involved respondent's "all present
and future fiduciary placements" with a Citibank branch in another
country, specifically, in Geneva, Switzerland. While there is no express
legal requirement that the Declaration of Pledge had to be notarized to
be effective, even so, it could not enjoy the same prima
facie presumption of due execution that is extended to notarized
documents, and petitioner Citibank must discharge the burden of proving
due execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the
Declaration of Pledge was actually executed. The photocopy of the
Declaration of Pledge submitted by petitioner Citibank before the RTC
was undated.132 It presented only a photocopy of the pledge because it
already forwarded the original copy thereof to Citibank-Geneva when it
requested for the remittance of respondent's dollar accounts pursuant
thereto. Respondent, on the other hand, was able to secure a copy of the
Declaration of Pledge, certified by an officer of Citibank-Geneva, which
bore the date 24 September 1979.133 Respondent, however, presented
her passport and plane tickets to prove that she was out of the country
on the said date and could not have signed the pledge. Petitioner Citibank
insisted that the pledge was signed before 24 September 1979, but could
not provide an explanation as to how and why the said date was written
on the pledge. Although Mr. Tan testified that the Declaration of Pledge
was signed by respondent personally before him, he could not give the
exact date when the said signing took place. It is important to note that
the copy of the Declaration of Pledge submitted by the respondent to the
Banking | Deposit Function | 86
RTC was certified by an officer of Citibank-Geneva, which had possession
of the original copy of the pledge. It is dated 24 September 1979, and
this Court shall abide by the presumption that the written document is
truly dated.134 Since it is undeniable that respondent was out of the
country on 24 September 1979, then she could not have executed the
pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was
in a standard printed form. It was constituted in favor of Citibank, N.A.,
otherwise referred to therein as the Bank. It should be noted, however,
that in the space which should have named the pledgor, the name of
petitioner Citibank was typewritten, to wit –
The pledge right herewith constituted shall secure all claims which the
Bank now has or in the future acquires against Citibank, N.A., Manila (full
name and address of the Debtor), regardless of the legal cause or the
transaction (for example current account, securities transactions,
collections, credits, payments, documentary credits and collections)
which gives rise thereto, and including principal, all contractual and
penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being
the same entity. Was a mistake made by whoever filled-out the form?
Yes, it could be a possibility. Nonetheless, considering the value of such
a document, the mistake as to a significant detail in the pledge could
only be committed with gross carelessness on the part of petitioner
Citibank, and raised serious doubts as to the authenticity and due
execution of the same. The Declaration of Pledge had passed through the
hands of several bank officers in the country and abroad, yet, surprisingly
and implausibly, no one noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of
Pledge. She claimed that the signature was a forgery. When a document
is assailed on the basis of forgery, the best evidence rule applies –
Basic is the rule of evidence that when the subject of inquiry is the
contents of a document, no evidence is admissible other than the original
document itself except in the instances mentioned in Section 3, Rule 130
of the Revised Rules of Court. Mere photocopies of documents are
inadmissible pursuant to the best evidence rule. This is especially true
when the issue is that of forgery.

As a rule, forgery cannot be presumed and must be proved by clear,
positive and convincing evidence and the burden of proof lies on the party
alleging forgery. The best evidence of a forged signature in an instrument
is the instrument itself reflecting the alleged forged signature. The fact
of forgery can only be established by a comparison between the alleged
forged signature and the authentic and genuine signature of the person
whose signature is theorized upon to have been forged. Without the
original document containing the alleged forged signature, one cannot
make a definitive comparison which would establish forgery. A
comparison based on a mere xerox copy or reproduction of the document
under controversy cannot produce reliable results.135
Respondent made several attempts to have the original copy of the
pledge produced before the RTC so as to have it examined by experts.
Yet, despite several Orders by the RTC,136 petitioner Citibank failed to
comply with the production of the original Declaration of Pledge. It is
admitted that Citibank-Geneva had possession of the original copy of the
pledge. While petitioner Citibank in Manila and its branch in Geneva may
be separate and distinct entities, they are still incontestably related, and
between petitioner Citibank and respondent, the former had more
influence and resources to convince Citibank-Geneva to return, albeit
temporarily, the original Declaration of Pledge. Petitioner Citibank did not
present any evidence to convince this Court that it had exerted diligent
efforts to secure the original copy of the pledge, nor did it proffer the
reason why Citibank-Geneva obstinately refused to give it back, when
such document would have been very vital to the case of petitioner
Citibank. There is thus no justification to allow the presentation of a mere
photocopy of the Declaration of Pledge in lieu of the original, and the
photocopy of the pledge presented by petitioner Citibank has nil
probative value.137 In addition, even if this Court cannot make a
categorical finding that respondent's signature on the original copy of the
pledge was forged, it is persuaded that petitioner Citibank willfully
suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed
would be adverse to petitioner Citibank if produced.138
Without the Declaration of Pledge, petitioner Citibank had no authority
to demand the remittance of respondent's dollar accounts with Citibank-
Geneva and to apply them to her outstanding loans. It cannot effect legal
compensation under Article 1278 of the Civil Code since, petitioner
Banking | Deposit Function | 87
Citibank itself admitted that Citibank-Geneva is a distinct and separate
entity. As for the dollar accounts, respondent was the creditor and
Citibank-Geneva is the debtor; and as for the outstanding loans,
petitioner Citibank was the creditor and respondent was the debtor. The
parties in these transactions were evidently not the principal creditor of
each other.
Therefore, this Court declares that the remittance of respondent's dollar
accounts from Citibank-Geneva and the application thereof to her
outstanding loans with petitioner Citibank was illegal, and null and void.
Resultantly, petitioner Citibank is obligated to return to respondent the
amount of US$149,632,99 from her Citibank-Geneva accounts, or its
present equivalent value in Philippine currency; and, at the same time,
respondent continues to be obligated to petitioner Citibank for the
balance of her outstanding loans which, as of 5 September 1979,
amounted to ₱1,069,847.40.
V The parties shall be liable for interests on their monetary
obligations to each other, as determined herein.
In summary, petitioner Citibank is ordered by this Court to pay
respondent the proceeds of her money market placements, represented
by PNs No. 23356 and 23357, amounting to ₱318,897.34 and
₱203,150.00, respectively, earning an interest of 14.5% per annum as
stipulated in the PNs,139 beginning 17 March 1977, the date of the
placements.
Petitioner Citibank is also ordered to refund to respondent the amount of
US$149,632.99, or its equivalent in Philippine currency, which had been
remitted from her Citibank-Geneva accounts. These dollar accounts,
consisting of two fiduciary placements and current accounts with
Citibank-Geneva shall continue earning their respective stipulated
interests from 26 October 1979, the date of their remittance by Citibank-
Geneva to petitioner Citibank in Manila and applied against respondent's
outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance
of her outstanding loans, which amounted to ₱1,069,847.40 as of 5
September 1979. These loans continue to earn interest, as stipulated in
the corresponding PNs, from the time of their respective maturity dates,
since the supposed payment thereof using respondent's dollar accounts

from Citibank-Geneva is deemed illegal, null and void, and, thus,
ineffective.
VI Petitioner Citibank shall be liable for damages to
respondent.
Petitioners protest the award by the Court of Appeals of moral damages,
exemplary damages, and attorney's fees in favor of respondent. They
argued that the RTC did not award any damages, and respondent, in her
appeal before the Court of Appeals, did not raise in issue the absence of
such.
While it is true that the general rule is that only errors which have been
stated in the assignment of errors and properly argued in the brief shall
be considered, this Court has also recognized exceptions to the general
rule, wherein it authorized the review of matters, even those not
assigned as errors in the appeal, if the consideration thereof is necessary
in arriving at a just decision of the case, and there is a close inter-relation
between the omitted assignment of error and those actually assigned
and discussed by the appellant.140 Thus, the Court of Appeals did not err
in awarding the damages when it already made findings that would
justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect
legal compensation of respondent's local deposits, as well as its right to
the proceeds of PNs No. 20138 and 20139 by virtue of the notarized
Deeds of Assignment, to partly extinguish respondent's outstanding
loans, it finds that petitioner Citibank did commit wrong when it failed to
pay and properly account for the proceeds of respondent's money market
placements, evidenced by PNs No. 23356 and 23357, and when it sought
the remittance of respondent's dollar accounts from Citibank-Geneva by
virtue of a highly-suspect Declaration of Pledge to be applied to the
remaining balance of respondent's outstanding loans. It bears to
emphasize that banking is impressed with public interest and its fiduciary
character requires high standards of integrity and performance.141 A
bank is under the obligation to treat the accounts of its depositors with
meticulous care whether such accounts consist only of a few hundred
pesos or of millions of pesos.142 The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible.143 Petitioner Citibank evidently failed to exercise the required
Banking | Deposit Function | 88
degree of care and transparency in its transactions with respondent,
thus, resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her
investments and deposits for more than two decades. During this span
of years, respondent had found herself in desperate need of the amounts
wrongfully withheld from her. In her testimony144 before the RTC,
respondent narrated –
Q By the way Mrs. Witness will you kindly tell us again, you said before
that you are a businesswoman, will you tell us again what are the
businesses you are engaged into [sic]?
A I am engaged in real estate. I am the owner of the Modesta Village 1
and 2 in San Mateo, Rizal. I am also the President and Chairman of the
Board of Macador [sic] Co. and Business Inc. which operates the Macador
[sic] International Palace Hotel. I am also the President of the Macador
[sic] International Palace Hotel, and also the Treasures Home Industries,
Inc. which I am the Chairman and president of the Board and also
operating affiliated company in the name of Treasures Motor Sales
engaged in car dealers [sic] like Delta Motors, we are the dealers of the
whole Northern Luzon and I am the president of the Disto Company, Ltd.,
based in Hongkong licensed in Honkong [sic] and now operating in Los
Angeles, California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or
community organization for social and civil activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the
Philippines in 1976, I am also an officer of the … Chamber of Real Estate
Business Association; I am also an officer of the Chatholic [sic] Women's
League and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?

A I was also a candidate for Mayo last January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in
Regional I, Pangasinan.
Q What happened to your businesses you mentioned as a result of your
failure to recover you [sic] investments and bank deposits from the
defendants?
A They are not all operating, in short, I was hampered to push through
the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what
are those that are paralyzed and what remain inactive?
A Of all the company [sic] that I have, only the Disto Company that is
now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later
as Assemblywoman of Region I, what happened to this?
A I won by voting but when election comes on [sic] the counting I lost
and I protested this, it is still pending and because I don't have financial
resources I was not able to push through the case. I just have it pending
in the Comelec.
Q Now, do these things also affect your social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a businesswoman I would like to
inform the Honorable Court that I was awarded as the most outstanding
businesswoman of the year in 1976 but when this money was not given
back to me I was not able to comply with the commitments that I have
promised to these associations that I am engaged into [sic], sir.
Banking | Deposit Function | 89
For the mental anguish, serious anxiety, besmirched reputation, moral
shock and social humiliation suffered by the respondent, the award of
moral damages is but proper. However, this Court reduces the amount
thereof to ₱300,000.00, for the award of moral damages is meant to
compensate for the actual injury suffered by the respondent, not to
enrich her.145
Having failed to exercise more care and prudence than a private
individual in its dealings with respondent, petitioner Citibank should be
liable for exemplary damages, in the amount of ₱250,000.00, in
accordance with Article 2229146 and 2234147 of the Civil Code.
With the award of exemplary damages, then respondent shall also be
entitled to an award of attorney's fees.148 Additionally, attorney's fees
may be awarded when a party is compelled to litigate or to incur
expenses to protect his interest by reason of an unjustified act of the
other party.149 In this case, an award of ₱200,000.00 attorney's fees
shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to
petitioners.1âwphi1 Respondent was compelled to institute the present
case in the exercise of her rights and in the protection of her interests.
In fact, although her Complaint before the RTC was not sustained in its
entirety, it did raise meritorious points and on which this Court rules in
her favor. Any injury resulting from the exercise of one's rights
is damnum absque injuria.150
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY
GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No.
51930, dated 26 March 2002, as already modified by its Resolution,
dated 20 November 2002, is hereby AFFIRMED WITH
MODIFICATION, as follows –
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen
Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos
(₱318,897.34) and Two Hundred Three Thousand One Hundred Fifty
Pesos (₱203,150.00), respectively, plus the stipulated interest of
Fourteen and a half percent (14.5%) per annum, beginning 17 March
1977;
 Banking | Deposit Function | 90

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred

Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from
respondent's Citibank-Geneva accounts to petitioner Citibank in Manila,
and the application of the same against respondent's outstanding loans
with the latter, is DECLARED illegal, null and void. Petitioner Citibank
is ORDERED to refund to respondent the said amount, or its equivalent
in Philippine currency using the exchange rate at the time of payment,
plus the stipulated interest for each of the fiduciary placements and
current accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in

the amount of Three Hundred Thousand Pesos (₱300,000.00);
exemplary damages in the amount of Two Hundred Fifty Thousand Pesos
(₱250,000.00); and attorney's fees in the amount of Two Hundred
Thousand Pesos (₱200,000.00); and

4. Respondent is ORDERED to pay petitioner Citibank the balance of her

outstanding loans, which, from the respective dates of their maturity to
5 September 1979, was computed to be in the sum of One Million Sixty-
Nine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos
(₱1,069,847.40), inclusive of interest. These outstanding loans shall
continue to earn interest, at the rates stipulated in the corresponding
PNs, from 5 September 1979 until payment thereof.

SO ORDERED.

[G.R. NO. 153784 October 25, 2005]
ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA
IV, Petitioners,
v.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK (Now EQUITABLE PCIBANK), Respondents.
TINGA, J.:
Employees who abuse their position for fiduciary gain cannot be shielded
from the consequences of their wrongdoing even on account of the
bank's operational laxities that may have provided the gateway for their
shenanigans. Their misconduct provides the bank with cause for the
termination of their employment.
The facts follow.
Petitioners Romeo Cadiz ("Cadiz"), Carlito Bongkingki ("Bongkingki") and
Prisco Gloria IV ("Gloria") were employed as signature verifier,
bookkeeper, and foreign currency denomination clerk/bookkeeper-
reliever, respectively, in the main office branch (MOB) of Philippine
Commercial International Bank (respondent bank).
The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed
a complaint with PCIB for the alleged non-receipt of a Six Hundred Dollar
($600.00) demand draft drawn against it which was purchased by her
husband from Hongkong and Shanghai Banking Corporation. Upon
verification, it was uncovered that the demand draft was deposited on
10 June 1988 with FCDU Savings Account (S/A) No. 1083-4, an account
under the name of Sonia Alfiscar (Alfiscar). Further investigation
revealed that the demand draft, together with four (4) other checks, was
made to appear as only one deposit covered by HSBC Check No. 979120
for One Thousand Two Hundred Thirty-two Dollars (US$1,232.00).
The Branch Manager, Ismael R. Sandig, then presided over a series of
meetings, wherein Cadiz, Bongkingki and Gloria allegedly verbally
admitted their participation in a scheme to divert funds intended for other
accounts using the Savings Account of Alfiscar. Subsequently, Cadiz
allegedly paid Alqueza P12,690.00, the peso equivalent of US$600, but
insisted that the corresponding receipt be issued in Alfiscar's name
instead.
On account of these allegations, a special audit examination was
conducted by the bank. On 31 January 1989, the internal auditors of the
Banking | Deposit Function | 91
bank, headed by Lizza G. Baylon, submitted their findings in an official
report. The auditors determined that as early as July 1987, petitioner
Cadiz had reserved the savings account in the name of Sonia Alfiscar.
The account was opened on 27 November 1987 and closed on 23 June
1988. Twenty-five (25) deposit slips involving the account were posted
by Bongkingki while sixteen (16) deposit slips were posted by Gloria. A
verification of the deposit slips yielded findings of miscoded checks,
forged signatures, non-validation of deposit slips by the tellers, wrongful
deposit of second-endorsed checks into foreign currency deposit
accounts, the deposit slips which do not bear the required approval of
bank officers, and withdrawals made either on the day of deposit or the
following banking day.1
In view of such findings, show-cause memoranda2 were served on
petitioners, requiring them to explain within seventy-two (72) hours why
no disciplinary action should
be taken against them in connection with the results of the special audit
examination. On 22 March 1989, petitioners submitted their written
explanations.3 Not satisfied with their explanations, respondent bank in
memoranda4 all dated 22 June 1989 dismissed petitioners from
employment for violation of Article III Section 1 B-2 and Article III
Section 1-C of the Code of Discipline.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal
on 18 September 1989. Labor Arbiter Ernesto S. Dinopol adjudged that
petitioners were illegally dismissed and ordered their reinstatement and
payment of backwages. This conclusion was based on the notices of
dismissal, which, to the mind of the labor arbiter, was couched in general
terms and without explaining how the rules were violated. The labor
arbiter also attributed petitioners' acts in fraudulently coding several
deposit slips as "1511" (immediately withdrawable) as mere procedural
inadequacies, with the fault attributable to respondent bank for its
laxity.5
The labor arbiter's Decision was reversed on appeal before the Second
Division of the National Labor Relations Commission (NLRC), which, in
a Decision6 dated 30 June 1994, ordered the dismissal of the petition. In
doing so, the NLRC departed from the labor arbiter's finding of facts and
concluded that petitioners were dismissed for just cause. Dismissing
petitioners' appeal, the Court of Appeals Ninth Division similarly
determined on the basis of substantial evidence that petitioners were
validly terminated in its own Decision7 dated 13 July 2001.

After the appellate court denied petitioner's motion for reconsideration,
the matter was brought before this Court in a Petition for Review on
Certiorari.8
The issues to be resolved are whether the Court of Appeals erred in not
sustaining the findings of the labor arbiter and upholding those of the
NLRC and whether the Court of Appeals erred in dismissing the petition
by ignoring petitioners' claims that they were dismissed without just
cause and due process.9
In its Comment,10 respondent bank seeks to have the petition dismissed
inasmuch as all the issues raised herein involve questions of fact. We
note that as a general rule, only questions of law may be brought upon
this Court in a Petition for Review on Certiorari under Rule 45 of the Rules
of Court. This Court is not a trier of facts, and as such is tasked to
calibrate and assess the probative weight of evidence adduced by the
parties during trial all over again.11
However, if there are competing factual findings by the different triers of
fact, such as those made in this case by the labor arbiter on one hand,
and those of the NLRC and Court of Appeals on the other hand, this Court
is compelled to go over the records of the case, as well as the
submissions of the parties, and resolve the factual issues. 12 With this in
mind, we shall now proceed to examine the decisions under review.
The general thesis as laid down by the NLRC and Court of Appeals is that
petitioners had surreptitiously diverted funds deposited by depositors to
S/A No. 1083-4 which was under their control and disposition. On the
other hand, a perusal of the labor arbiter's Decision reveals a different
perspective from which the case was approached. While the labor arbiter
conceded that petitioners Bongkingki and Gloria had miscoded several
deposit slips, rendering them immediately withdrawable, he
characterized the errors as "mere procedural inadequacies" which were
preventable had management exercised greater control over its
employees.13
Far from petitioners' thrust, the miscoding of deposit slips cannot be
downplayed as "mere procedural inadequacies." After all, it is such
miscoding that precipitated the fraudulent withdrawals in the first place.
The act operated as the first indispensable step towards the commission
of fraud on the bank.
More disturbing though is the labor arbiter's willingness to acquit
petitioners of culpability on account of the purported negligence of the
bank. It is similar to concluding that the bank guards, and not the
burglars, bear primary culpability for a bank robbery. Whatever liability
or responsibility was expected of the bank stands as an issue separate
Banking | Deposit Function | 92
from the liability of the recreant bank employees. Even assuming that
the bank observed less-than-ideal controls over the security of its
operations, such laxity does not serve as the carte blanche signal for the
bank employees to take advantage of safeguard control lapses and
perpetrate chicanery on their employer.
The labor arbiter also evaluated the bank's claim that Cadiz had
reimbursed the amount of $600 to the aggrieved depositor Alqueza while
making it appear that it was Alfiscar who had actually made the refund.
In disbelieving this claim, the Labor Arbiter concluded that "it is
unthinkable for a lowly bank employee to impose his will upon his high
and mighty employer."14
This pronouncement is revelatory of absurd logic. The notion that a lowly
employee will never countermand the will or interests of the employer is
sufficiently rebutted by any labor law casebook, any omnibus of our labor
jurisprudence, and the evolution of the human experience that disquiets
persons from unhesitatingly acceding to the presumptive good faith of
others. It is an accepted premise of life and jurisprudence that persons
are capable, upon impure motivations, of taking advantage of others,
whether their social lessers, equals, or betters. The necessity of
punishment arises from this flaw of human nature. This philosophic
stance of the labor arbiter actually obviates the nature of sin.
Obviously, we are hard-pressed to accord high regard to the labor
arbiter's discernment as a trier of facts. Nonetheless, his claim that there
were procedural flaws attending the dismissal of petitioners warrants
some deliberation.
The labor arbiter ruled that the notices of dismissal served on petitioners
was insufficient as it failed to specifically delineate how petitioners had
violated the internal rules of the bank. However, the notices do cite the
rules which petitioners had violated and refer to the fact that such
violations occurred relating to S/A No. 1083-4 account of Sonia Alfiscar
and/or Rosalinda Alqueza.
There is no demand that the notices of dismissal themselves be couched
in the form and language of judicial or quasi-judicial decisions. What is
required is that the employer conduct a formal investigation process,
with notices duly served on the employees informing them of the fact of
investigation, and subsequently, if warranted, a separate notice of
dismissal.15 Through the formal investigatory process, the employee
must be accorded the right to present his/her side, which must be
considered and weighed by the employer. The employee must be
sufficiently apprised of the nature of the charge against him/her, so as
to be able to intelligently defend against the charges.

In the instant case, records show that respondent bank complied with
the two-notice rule prescribed in Article 277(b) of the Labor
Code.16 Petitioners were given all avenues to present their side and
disprove the allegations of respondent bank. An informal meeting was
held between the branch manager of MOB, the three petitioners and Mr.
Gener, the Vice-President of the PCIB Employees Union. As per report,
petitioners admitted having used Alfiscar's account to divert funds
intended for other accounts. A special audit investigation was conducted
to determine the extent of the fraudulent transactions. Based on the
results of the investigation, respondent bank sent show-cause
memoranda to petitioners, asking them to explain their lapses, under
pain of disciplinary action. The memoranda, which constitute the first
notice, specified the various questionable acts committed by petitioners.
Afterwards, petitioners submitted their respective replies to the
memoranda. This very well complies with the requirement for hearing,
by which petitioners were afforded the opportunity to defend themselves.
The second notice came in the form of the termination memoranda,
informing petitioners of their dismissal from service. From the foregoing,
it is clear that the required procedural due process for their termination
was strictly complied with.
All told, we hold that the factual appreciation and conclusions rendered
by the labor arbiter are not worthy of adoption by this Court. In contrast,
from the factual determinations made by the NLRC and the Court of
Appeals, we accept the following facts as proven:
1. Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on
respondent bank's "new account register."
2. Foreign denominated checks payable to other payees were diverted
into the said account.
3. The various deposit slips, covering the said checks, did not bear the
machine validation of any of the tellers-in-charge.
4. The signatures of the MOB officers appearing on the said deposit slips
were in fact forged.
5. The posting of said bank transactions bore the initials of petitioners
Bongkingki or Gloria.
6. The deposit slips were coded as "1511" or "on-us check."
7. Petitioner Cadiz agreed to pay Alqueza the equivalent amount of
$600.00 but it was made to appear that Alfiscar paid the said amount.
Banking | Deposit Function | 93
8. In view of these findings, petitioners were served with show-cause
memoranda asking them to explain the lapses.
9. Finding their explanations unsatisfactory, petitioners were terminated
from employment.
It is from these established facts that we consider the arguments now
presented by petitioners. In light of these facts, petitioners' arguments
hardly detract from the conclusion that their behavior in the course of
the discharge of their duties is clearly malfeasant, and constitutes ground
for their termination on account of just cause.
First, petitioners insist that the show-cause memoranda served on them
did not impute any fraudulent behavior, but merely lapses. We disagree.
The show-cause memoranda were occasioned by the confidential report
prepared by Sandig, as well as the findings of the special audit
examination. The confidential report prepared by Sandig addressed to
the Vice-President of respondent bank pertains to the discovery of
fraudulent transactions on S/A No.1083-4 involving three employees of
respondent bank. The report detailed how the events transpired,
including the admissions of petitioners. From there, a special audit
examination was conducted to make a thorough investigation of the
questioned account. The examination yielded conspicuous findings that
anomalous transactions had taken place involving petitioners.
Moreover, the show-cause memoranda respectively served on petitioners
clearly indicate that they were being made to answer questions
pertaining to possible anomalous behavior on their part. For example,
petitioners were asked to explain why they had posted the questioned
deposits on the ledger, although there were no teller validations or teller
stamps, and also on what basis they considered such transactions to be
valid.17 On the other hand, the show-cause memorandum to Cadiz
directly asks him to provide the personal details of Sonia Alfiscar, why
he went out of his way to make a special arrangement for the mysterious
Alfiscar, and other questions pertaining to the Alfiscar accounts.
We thus cannot give credence to the averments of petitioners that the
memoranda pertain to "lapses", and not fraudulent transactions. The
bank could not have been expected to conclude outright that petitioners
were guilty of fraud, despite all the indicia that they indeed were.
Certainly, the purpose of the show-cause memoranda was to afford
petitioners the opportunity to acquit themselves of culpable
responsibility. It would have been quite irresponsible for the bank to have
premised the queries therein on irretractable conclusions that petitioners
had been guilty of anomalous transactions.

Second, petitioners contend that they should be relieved of any liability
considering that respondent bank did not suffer a pecuniary loss. This
claim must obviously fail.
There is jurisprudential support, as noted by the Court of Appeals in
citing University of the East v. NLRC18 that lack of material or pecuniary
damages would not in any way mitigate a person's liability nor obliterate
the loss of trust and confidence. In the case of Etcuban v. Sulpicio
Lines,19 this Court definitively ruled that:
. . . Whether or not the respondent bank was financially prejudiced is
immaterial. Also, what matters is not the amount involved, be it paltry
or gargantuan; rather the fraudulent scheme in which the petitioner was
involved, which constitutes a clear betrayal of trust and confidence. . . .
Moreover, it cannot be discounted that as bank employees, the
responsibilities of petitioners are impressed with a high degree of public
interest. Private persons entrust their fortunes to banks, and it would
cause a breakdown of the financial order if the judicial system were to
leave unsanctioned bank employees who treat depositor's accounts as
their own private kitty.
Still, petitioners insist that respondent bank never lost trust and
confidence in them as it did not place them under preventive suspension,
and more tellingly, it even promoted them after the labor arbiter had
ordered their reinstatement. Preventive suspension, which is never
obligatory on the part of the employer, may be resorted to only when
the continued employment of the employee poses "a serious and
imminent threat to the life or property of the employer or of his co-
workers."20 The bank points out that the Alfiscar account, through which
the anomalous transactions were coursed, was no longer active at the
time the fraud was discovered.21 Clearly, the bank had reason to
conclude that the imminence of the threat posed by the employees was
not as vital as it would have been had the dubious account still been
open.
As to the alleged promotions, the original employer, PCIB, admits that
petitioners had been reinstated by reason of the Decision, but such act
was by no means voluntary. PCIB however does not rebut the allegations
that Bongkingki and Cadiz were assigned to sensitive positions within the
bank after their compulsory reinstatement. This may be so, but the fact
that PCIB lost no time in removing the employees from the plantilla after
the NLRC reversed the labor arbiter's Decision hardly evinces any
continuing trust and confidence on the part of the bank, as maintained
by petitioners. Moreover, considering that these reinstated employees
were, for the meantime, regular employees of the bank, it is within the
Banking | Deposit Function | 94
discretion of PCIB to reassign them as it sees fit, taking into account the
circumstances.
Moreover, it would simply be temerarious for the Court to sanction the
reinstatement of bank employees who have clearly engaged in
anomalous banking practices. The particular fiduciary responsibilities
reposed on banks and its employees cannot be emphasized enough. The
fiduciary nature of banking22 is enshrined in Republic Act No. 8791 or the
General Banking Law of 2000. Section 2 of the law specifically says that
the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance."23 The bank must not only
exercise "high standards of integrity and performance," it must also
ensure that its employees do likewise because this is the only way to
ensure that the bank will comply with its fiduciary duty.24
All given, we affirm the conclusion that petitioners were dismissed for
just cause. Loss of trust and confidence is one of the just causes for
termination by employer under Article 282 of the Labor Code. The breach
of trust must be willful, meaning it must be done intentionally, knowingly,
and purposely, without justifiable excuse.25 Ideally, loss of confidence
applies only to cases involving employees occupying positions of trust
and confidence or to those situations where the employee is routinely
charged with the care and custody of the employer's money or
property.26 Utmost trust and confidence are deemed to have been
reposed on petitioners by virtue of the nature of their work.
The facts as established, as well as the need to assert the public interest
in safeguarding against bank fraud, militate against the present petition.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of
the Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 157314 July 29, 2005
FAR EAST BANK AND TRUST COMPANY, NOW BANK OF THE
PHILIPPINE ISLANDS, Petitioners,
vs.
THEMISTOCLES PACILAN, JR., Respondent.
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari filed by Far East
Bank and Trust Company (now Bank of the Philippines Islands) seeking
the reversal of the Decision1 dated August 30, 2002 of the Court of
Appeals (CA) in CA-G.R. CV No. 36627 which ordered it, together with
its branch accountant, Roger Villadelgado, to pay respondent
Themistocles Pacilan, Jr.2 the total sum of ₱100,000.00 as moral and
exemplary damages. The assailed decision affirmed with modification
that of the Regional Trial Court (RTC) of Negros Occidental, Bacolod City,
Branch 54, in Civil Case No. 4908. Likewise sought to be reversed and
set aside is the Resolution dated January 17, 2003 of the appellate court,
denying petitioner bank’s motion for reconsideration.
The case stemmed from the following undisputed facts:
Respondent Pacilan opened a current account with petitioner bank’s
Bacolod Branch on May 23, 1980. His account was denominated as
Current Account No. 53208 (0052-00407-4). The respondent had since
then issued several postdated checks to different payees drawn against
the said account. Sometime in March 1988, the respondent issued Check
No. 2434886 in the amount of ₱680.00 and the same was presented for
payment to petitioner bank on April 4, 1988.
Upon its presentment on the said date, Check No. 2434886 was
dishonored by petitioner bank. The next day, or on April 5, 1988, the
respondent deposited to his current account the amount of ₱800.00. The
said amount was accepted by petitioner bank; hence, increasing the
balance of the respondent’s deposit to ₱1,051.43.
Subsequently, when the respondent verified with petitioner bank about
the dishonor of Check No. 2434866, he discovered that his current
account was closed on the ground that it was "improperly handled." The
records of petitioner bank disclosed that between the period of March 30,
1988 and April 5, 1988, the respondent issued four checks, to wit: Check
No. 2480416 for ₱6,000.00; Check No. 2480419 for ₱50.00; Check No.
2434880 for ₱680.00 and; Check No. 2434886 for ₱680.00, or a total
amount of ₱7,410.00. At the time, however, the respondent’s current
Banking | Deposit Function | 95
account with petitioner bank only had a deposit of ₱6,981.43. Thus, the
total amount of the checks presented for payment on April 4, 1988
exceeded the balance of the respondent’s deposit in his account. For this
reason, petitioner bank, through its branch accountant, Villadelgado,
closed the respondent’s current account effective the evening of April 4,
1988 as it then had an overdraft of ₱428.57. As a consequence of the
overdraft, Check No. 2434886 was dishonored.
On April 18, 1988, the respondent wrote to petitioner bank complaining
that the closure of his account was unjustified. When he did not receive
a reply from petitioner bank, the respondent filed with the RTC of Negros
Occidental, Bacolod City, Branch 54, a complaint for damages against
petitioner bank and Villadelgado. The case was docketed as Civil Case
No. 4908. The respondent, as complainant therein, alleged that the
closure of his current account by petitioner bank was unjustified because
on the first banking hour of April 5, 1988, he already deposited an
amount sufficient to fund his checks. The respondent pointed out that
Check No. 2434886, in particular, was delivered to petitioner bank at the
close of banking hours on April 4, 1988 and, following normal banking
procedure, it (petitioner bank) had until the last clearing hour of the
following day, or on April 5, 1988, to honor the check or return it, if not
funded. In disregard of this banking procedure and practice, however,
petitioner bank hastily closed the respondent’s current account and
dishonored his Check No. 2434886.
The respondent further alleged that prior to the closure of his current
account, he had issued several other postdated checks. The petitioner
bank’s act of closing his current account allegedly preempted the
deposits that he intended to make to fund those checks. Further, the
petitioner bank’s act exposed him to criminal prosecution for violation
of Batas Pambansa Blg. 22.
According to the respondent, the indecent haste that attended the
closure of his account was patently malicious and intended to embarrass
him. He claimed that he is a Cashier of Prudential Bank and Trust
Company, whose branch office is located just across that of petitioner
bank, and a prominent and respected leader both in the civic and banking
communities. The alleged malicious acts of petitioner bank besmirched
the respondent’s reputation and caused him "social humiliation, wounded
feelings, insurmountable worries and sleepless nights" entitling him to
an award of damages.
In their answer, petitioner bank and Villadelgado maintained that the
respondent’s current account was subject to petitioner bank’s Rules and
Regulations Governing the Establishment and Operation of Regular
Demand

Deposits which provide that "the Bank reserves the right to close an
account if the depositor frequently draws checks against insufficient
funds and/or uncollected deposits" and that "the Bank reserves the right
at any time to return checks of the depositor which are drawn against
insufficient funds or for any reason."3
They showed that the respondent had improperly and irregularly handled
his current account. For example, in 1986, the respondent’s account was
overdrawn 156 times, in 1987, 117 times and in 1988, 26 times. In all
these instances, the account was overdrawn due to the issuance of
checks against insufficient funds. The respondent had also signed several
checks with a different signature from the specimen on file for dubious
reasons.
When the respondent made the deposit on April 5, 1988, it was obviously
to cover for issuances made the previous day against an insufficiently
funded account. When his Check No. 2434886 was presented for
payment on April 4, 1988, he had already incurred an overdraft; hence,
petitioner bank rightfully dishonored the same for insufficiency of funds.
After due proceedings, the court a quo rendered judgment in favor of the
respondent as it ordered the petitioner bank and Villadelgado, jointly and
severally, to pay the respondent the amounts of ₱100,000.00 as moral
damages and ₱50,000.00 as exemplary damages and costs of suit. In so
ruling, the court a quo also cited petitioner bank’s rules and regulations
which state that "a charge of ₱10.00 shall be levied against the depositor
for any check that is taken up as a returned item due to ‘insufficiency of
funds’ on the date of receipt from the clearing office even if said check is
honored and/or covered by sufficient deposit the following banking day."
The same rules and regulations also provide that "a check returned for
insufficiency of funds for any reason of similar import may be
subsequently recleared for one more time only, subject to the same
charges."
According to the court a quo, following these rules and regulations, the
respondent, as depositor, had the right to put up sufficient funds for a
check that was taken as a returned item for insufficient funds the day
following the receipt of said check from the clearing office. In fact, the
said check could still be recleared for one more time. In previous
instances, petitioner bank notified the respondent when he incurred an
overdraft and he would then deposit sufficient funds the following day to
cover the overdraft. Petitioner bank thus acted unjustifiably when it
immediately closed the respondent’s account on April 4, 1988 and
deprived him of the opportunity to reclear his check or deposit sufficient
funds therefor the following day.
Banking | Deposit Function | 96
As a result of the closure of his current account, several of the
respondent’s checks were subsequently dishonored and because of this,
the respondent was humiliated, embarrassed and lost his credit standing
in the business community. The court a quo further ratiocinated that
even granting arguendo that petitioner bank had the right to close the
respondent’s account, the manner which attended the closure
constituted an abuse of the
said right. Citing Article 19 of the Civil Code of the Philippines which
states that "[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith" and Article 20 thereof which states that
"[e]very person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same," the court a
quo adjudged petitioner bank of acting in bad faith. It held that, under
the foregoing circumstances, the respondent is entitled to an award of
moral and exemplary damages.
The decretal portion of the court a quo’s decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. Ordering the defendants [petitioner bank and Villadelgado], jointly and
severally, to pay plaintiff [the respondent] the sum of ₱100,000.00 as
moral damages;
2. Ordering the defendants, jointly and severally, to pay plaintiff the sum
of ₱50,000.00 as exemplary damages plus costs and expenses of the
suit; and
3. Dismissing [the] defendants’ counterclaim for lack of merit. SO
ORDERED.4
On appeal, the CA rendered the Decision dated August 30, 2002,
affirming with modification the decision of the court a quo.
The appellate court substantially affirmed the factual findings of the
court a quo as it held that petitioner bank unjustifiably closed the
respondent’s account notwithstanding that its own rules and regulations
allow that a check returned for insufficiency of funds or any reason of
similar import, may be subsequently recleared for one more time, subject
to standard charges. Like the court a quo, the appellate court observed
that in several instances in previous years, petitioner bank would inform
the respondent when he incurred an overdraft and allowed him to make
a timely deposit to fund the checks that were initially dishonored for
insufficiency of funds. However, on April 4, 1988, petitioner bank
immediately closed the respondent’s account without even notifying him

that he had incurred an overdraft. Even when they had already closed
his account on April 4, 1988, petitioner bank still accepted the deposit
that the respondent made on April 5, 1988, supposedly to cover his
checks.
Echoing the reasoning of the court a quo, the CA declared that even as
it may be conceded that petitioner bank had reserved the right to close
an account for repeated overdrafts by the respondent, the exercise of
that right must never be despotic or arbitrary. That petitioner bank chose
to close the account outright and return the check, even after accepting
a deposit sufficient to cover the said check, is contrary to its duty to
handle the respondent’s account with utmost fidelity. The exercise of the
right is not absolute and good faith, at least, is required. The manner by
which petitioner bank closed the account of the respondent runs afoul of
Article 19 of the Civil Code which enjoins every person, in the exercise
of his rights, "to give every one his due, and observe honesty and good
faith."
The CA concluded that petitioner bank’s precipitate and imprudent
closure of the respondent’s account had caused him, a respected officer
of several civic and banking associations, serious anxiety and
humiliation. It had, likewise, tainted his credit standing. Consequently,
the award of damages is warranted. The CA, however, reduced the
amount of damages awarded by the court a quo as it found the same to
be excessive:
We, however, find excessive the amount of damages awarded by the
RTC. In our view the reduced amount of ₱75,000.00 as moral damages
and ₱25,000.00 as exemplary damages are in order. Awards for damages
are not meant to enrich the plaintiff-appellee [the respondent] at the
expense of defendants-appellants [the petitioners], but to obviate the
moral suffering he has undergone. The award is aimed at the restoration,
within limits possible, of the status quo ante, and should be
proportionate to the suffering inflicted.5
The dispositive portion of the assailed CA decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject
to the MODIFICATION that the award of moral damages is reduced to
₱75,000.00 and the award of exemplary damages reduced to
₱25,000.00. SO ORDERED.6
Petitioner bank sought the reconsideration of the said decision but in the
assailed Resolution dated January 17, 2003, the appellate court denied
its motion. Hence, the recourse to this Court.
Banking | Deposit Function | 97
Petitioner bank maintains that, in closing the account of the respondent
in the evening of April 4, 1988, it acted in good faith and in accordance
with the rules and regulations governing the operation of a regular
demand deposit which reserves to the bank "the right to close an account
if the depositor frequently draws checks against insufficient funds and/or
uncollected deposits." The same rules and regulations also provide that
"the depositor is not entitled, as a matter of right, to overdraw on this
deposit and the bank reserves the right at any time to return checks of
the depositor which are drawn against insufficient funds or for any
reason."
It cites the numerous instances that the respondent had overdrawn his
account and those instances where he deliberately signed checks using
a signature different from the specimen on file. Based on these facts,
petitioner bank was constrained to close the respondent’s account for
improper and irregular handling and returned his Check No. 2434886
which was presented to the bank for payment on April 4, 1988.
Petitioner bank further posits that there is no law or rule which gives the
respondent a legal right to make good his check or to deposit the
corresponding amount to cover said check within 24 hours after the same
is dishonored or returned by the bank for having been drawn against
insufficient funds. It vigorously denies having violated Article 19 of the
Civil Code as it insists that it acted in good faith and in accordance with
the pertinent banking rules and regulations.
The petition is impressed with merit.
A perusal of the respective decisions of the court a quo and the appellate
court show that the award of damages in the respondent’s favor was
anchored mainly on Article 19 of the Civil Code which, quoted anew
below, reads:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
The elements of abuse of rights are the following: (a) the existence of a
legal right or duty; (b) which is exercised in bad faith; and (c) for the
sole intent of prejudicing or injuring another.7 Malice or bad faith is at
the core of the said provision.8 The law always presumes good faith and
any person who seeks to be awarded damages due to acts of another
has the burden of proving that the latter acted in bad faith or with ill-
motive.9 Good faith refers to the state of the mind which is manifested
by the acts of the individual concerned. It consists of the intention to
abstain from taking an unconscionable and unscrupulous advantage of
another.10 Bad faith does not simply connote bad judgment or simple

negligence, dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty due to some motives or interest
or ill-will that partakes of the nature of fraud.11 Malice connotes ill-will or
spite and speaks not in response to duty. It implies an intention to do
ulterior and unjustifiable harm. Malice is bad faith or bad motive.12
Undoubtedly, petitioner bank has the right to close the account of the
respondent based on the following provisions of its Rules and Regulations
Governing the Establishment and Operation of Regular Demand
Deposits:
10) The Bank reserves the right to close an account if the depositor
frequently draws checks against insufficient funds and/or uncollected
deposits.
…
12) …
However, it is clearly understood that the depositor is not entitled, as a
matter of right, to overdraw on this deposit and the bank reserves the
right at any time to return checks of the depositor which are drawn
against insufficient funds or for any other reason.
The facts, as found by the court a quo and the appellate court, do not
establish that, in the exercise of this right, petitioner bank committed an
abuse thereof. Specifically, the second and third elements for abuse of
rights are not attendant in the present case. The evidence presented by
petitioner bank negates the existence of bad faith or malice on its part
in closing the respondent’s account on April 4, 1988 because on the said
date the same was already overdrawn. The respondent issued four
checks, all due on April 4, 1988, amounting to ₱7,410.00 when the
balance of his current account deposit was only ₱6,981.43. Thus, he
incurred an overdraft of ₱428.57 which resulted in the dishonor of his
Check No. 2434886. Further, petitioner bank showed that in 1986, the
current account of the respondent was overdrawn 156 times due to his
issuance of checks against insufficient funds.13 In 1987, the said account
was overdrawn 117 times for the same
reason.14 Again, in 1988, 26 times.15 There were also several instances
when the respondent issued checks deliberately using a signature
different from his specimen signature on file with petitioner bank. 16 All
these circumstances taken together justified the petitioner bank’s closure
of the respondent’s account on April 4, 1988 for "improper handling."
It is observed that nowhere under its rules and regulations is petitioner
bank required to notify the respondent, or any depositor for that matter,
Banking | Deposit Function | 98
of the closure of the account for frequently drawing checks against
insufficient funds. No malice or bad faith could be imputed on petitioner
bank for so acting since the records bear out that the respondent had
indeed been improperly and irregularly handling his account not just a
few times but hundreds of times. Under the circumstances, petitioner
bank could not be faulted for exercising its right in accordance with the
express rules and regulations governing the current accounts of its
depositors. Upon the opening of his account, the respondent had agreed
to be bound by these terms and conditions.
Neither the fact that petitioner bank accepted the deposit made by the
respondent the day following the closure of his account constitutes bad
faith or malice on the part of petitioner bank. The same could be
characterized as simple negligence by its personnel. Said act, by itself,
is not constitutive of bad faith.
The respondent had thus failed to discharge his burden of proving bad
faith on the part of petitioner bank or that it was motivated by ill-will or
spite in closing his account on April 4, 1988 and in inadvertently
accepting his deposit on April 5, 1988.
Further, it has not been shown that these acts were done by petitioner
bank with the sole intention of prejudicing and injuring the respondent.
It is conceded that the respondent may have suffered damages as a
result of the closure of his current account. However, there is a material
distinction between damages and injury. The Court had the occasion to
explain the distinction between damages and injury in this wise:
… Injury is the illegal invasion of a legal right; damage is the loss, hurt
or harm which results from the injury; and damages are the recompense
or compensation awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the loss or harm was
not the result of a violation of a legal duty. In such cases, the
consequences must be borne by the injured person alone, the law affords
no remedy for damages resulting from an act which does not amount to
a legal injury or wrong. These situations are often called damnum absque
injuria.
In other words, in order that a plaintiff may maintain an action for the
injuries of which he complains, he must establish that such injuries
resulted from a breach of duty which the defendant owed to the plaintiff
– a concurrence of injury to the plaintiff and legal responsibility by the
person causing it. The underlying basis for the award of tort damages is
the premise that the individual was injured in contemplation of law. Thus,
there must first be a breach of some duty and the imposition of liability
 Banking | Deposit Function | 99

for that breach before damages may be awarded; and the breach of such
duty should be the proximate cause of the injury.17

Whatever damages the respondent may have suffered as a

consequence, e.g., dishonor of his other insufficiently funded checks,
would have to be borne by him alone. It was the respondent’s repeated
improper

and irregular handling of his account which constrained petitioner bank

to close the same in accordance with the rules and regulations governing
its depositors’ current accounts. The respondent’s case is clearly one
of damnum absque injuria.

WHEREFORE, the petition is GRANTED. The Decision dated August 30,

2002 and Resolution dated January 17, 2003 of the Court of Appeals in
CA-G.R. CV No. 36627 are REVERSED AND SET ASIDE.

SO ORDERED.

G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of
Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional
Trial Court of Makati, Branch 139,2 which dismissed the complaint filed
by petitioner Bank of the Philippine Islands against private respondent
Benjamin C. Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained
in petitioner bank's Buendia Avenue Extension Branch, Continental Bank
Manager's Check No. 000147574 dated August 17, 1984, payable to
"cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00)
and duly endorsed by private respondent on its dorsal side. 5 It appears
that the check belonged to a certain Henry who went to the office of
private respondent and requested him to deposit the check in his dollar
account by way of accommodation and for the purpose of clearing the
same. Private respondent acceded, and agreed to deliver to Chan a
signed blank withdrawal slip, with the understanding that as soon as the
check is cleared, both of them would go to the bank to withdraw the
amount of the check upon private respondent's presentation to the bank
of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on
October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the
amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably,
the withdrawal slip shows that the amount was payable to Ramon A. de
Guzman and Agnes C. de Guzman and was duly initialed by the branch
assistant manager, Teresita Lindo.6
On November 20, 1984, petitioner received communication from the
Wells Fargo Bank International of New York that the said check deposited
by private respondent was a counterfeit check7 because it was "not of
the type or style of checks issued by Continental Bank
Banking | Deposit Function | 100
International."8 Consequently, Mr. Ariel Reyes, the manager of
petitioner's Buendia Avenue Extension Branch, instructed one of its
employees, Benjamin D. Napiza IV, who is private respondent's son, to
inform his father that the check bounced.9 Reyes himself sent a telegram
to private respondent regarding the dishonor of the check. In turn,
private respondent's son wrote to Reyes stating that the check been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He
also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00
to petitioner bank. On December 18, 1984, Reyes reminded private
respondent of his son's promise and warned that should he fail to return
that amount within seven (7) days, the matter would be referred to the
bank's lawyers for appropriate action to protect the bank's
interest.11 This was followed by a letter of the bank's lawyer dated April
8, 1985 demanding the return of the $2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20,
198513 stating that he deposited the check "for clearing purposes" only
to accommodate Chan. He added:
Further, please take notice that said check was deposited on September
3, 1984 and withdrawn on October 23, 1984, or a total period of fifty
(50) days had elapsed at the time of withdrawal. Also, it may not be
amiss to mention here that I merely signed an authority to withdraw said
deposit subject to its clearing, the reason why the transaction is not
reflected in the passbook of the account. Besides, I did not receive its
proceeds as may be gleaned from the withdrawal slip under the
captioned signature of recipient.
If at all, my obligation on the transaction is moral in nature, which (sic)
I have been and is (sic) still exerting utmost and maximum efforts to
collect from Mr. Henry Chan who is directly liable under the
circumstances.
xxx xxx xxx

On August 12, 1986, petitioner filed a complaint against private
respondent, praying for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus legal interest from date of demand to
date of full payment, a sum equivalent to 20% of the total amount due
as attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a
"blank" withdrawal slip with the understanding that the amount
deposited would be withdrawn only after the check in question has been
cleared. He likewise alleged that he instructed the party to whom he
issued the signed blank withdrawal slip to return it to him after the bank
draft's clearance so that he could lend that party his passbook for the
purpose of withdrawing the amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the amount of $2,541.67
from his dollar savings account through collusion with one of petitioner's
employees. Private respondent added that he had "given the Plaintiff fifty
one (51) days with which to clear the bank draft in question." Petitioner
should have disallowed the withdrawal because his passbook was not
presented. He claimed that petitioner had no one to blame except itself
"for being grossly negligent;" in fact, it had allegedly admitted having
paid the amount in the check "by mistake" . . . "if not altogether due to
collusion and/or bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank procedures," by way
of counterclaim, private respondent prayed for moral damages of
P100,000.00, exemplary damages of P50,000.00 and attorney's fees of
30% of whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party
complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even
without private respondent's passbook. Thus, private respondent prayed
that third party defendant Chan be made to refund to him the amount
withdrawn and to pay attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the
third party complaint, whenever it asserted that per paragraph 2 of the
Rules and Regulations governing BPI savings accounts, private
Banking | Deposit Function | 101
respondent alone was liable "for the value of the credit given on account
of the draft or check deposited." It contended that private respondent
was estopped from disclaiming liability because he himself authorized the
withdrawal of the amount by signing the withdrawal slip. Petitioner
prayed for the denial of the said motion so as not to unduly delay the
disposition of the main case asserting that private respondent's claim
could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief
and to avoid multiplicity of suits, the motion to admit third party
complaint should be granted. Meanwhile, the trial court issued orders on
August 25, 1987 and October 28, 1987 directing private respondent to
actively participate in locating Chan. After private respondent failed to
comply, the trial court, on May 18, 1988, dismissed the third party
complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint.
The lower court held that petitioner could not hold private respondent
liable based on the check's face value alone. To so hold him liable "would
render inutile the requirement of "clearance" from the drawee bank
before the value of a particular foreign check or draft can be credited to
the account of a depositor making such deposit." The lower court further
held that "it was incumbent upon the petitioner to credit the value of the
check in question to the account of the private respondent only upon
receipt of the notice of final payment and should not have authorized the
withdrawal from the latter's account of the value or proceeds of the
check." Having admitted that it committed a "mistake" in not waiting for
the clearance of the check before authorizing the withdrawal of its value
or proceeds, petitioner should suffer the resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The
appellate court held that petitioner committed "clears gross negligence"
in allowing Ruben Gayon, Jr. to withdraw the money without presenting
private respondent's passbook and, before the check was cleared and in
crediting the amount indicated therein in private respondent's account.
It stressed that the mere deposit of a check in private respondent's
account did not mean that the check was already private respondent's
property. The check still had to be cleared and its proceeds can only be
withdrawn upon presentation of a passbook in accordance with the

bank's rules and regulations. Furthermore, petitioner's contention that
private respondent warranted the check's genuineness by endorsing it is
untenable for it would render useless the clearance requirement.
Likewise, the requirement of presentation of a passbook to ascertain the
propriety of the accounting reflected would be a meaningless exercise.
After all, these requirements are designed to protect the bank from
deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC,14 where this Court stated that a personal check is not legal
tender or money, and held that the check deposited in this case must be
cleared before its value could be properly transferred to private
respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals'
Decision, petitioner filed this petition for review on certiorari, raising the
following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN
RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN
ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at
the dorsal side of the check, should be liable for the amount stated
therein in accordance with the following provision of the Negotiable
Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. — Every indorser who indorses
without qualification, warrants to all subsequent holders in due course —
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of
the next preceding section; and
Banking | Deposit Function | 102
(b) That the instrument is at the time of his indorsement, valid and
subsisting.
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what
it purports to be; (b) that he has a good title to it, and (c) that all prior
parties had capacity to contract.15 In People v. Maniego,16 this Court
described the liabilities of an indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on
account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right "to enforce payment of the instrument for the
full amount thereof against all parties liable thereon. Among the "parties
liable thereon." Is an indorser of the instrument, i.e., "a person placing
his signature upon an instrument otherwise than as a maker, drawer or
acceptor * * unless he clearly indicated by appropriate words his
intention to be bound in some other capacity." Such an indorser "who
indorses without qualification," inter alia "engages that on due
presentment, * * (the instrument) shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonored, and
the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or any subsequent indorser who may be
compelled to pay it." Maniego may also be deemed an "accommodation
party" in the light of the facts, i.e., a person "who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving
value thereof, and for the purpose of lending his name to some other
person." As such, she is under the law "liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the
instrument knew * * (her) to be only an accommodation party,"
although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated, "since the relation

between them is in effect that of principal and surety, the
accommodation party being the surety.
It is thus clear that ordinarily private respondent may be held liable as
an indorser of the check or even as an accommodation party.17 However,
to hold private respondent liable for the amount of the check he
deposited by the strict application of the law and without considering the
attending circumstances in the case would result in an injustice and in
the erosion of the public trust in the banking system. The interest of
justice thus demands looking into the events that led to the encashment
of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent
"presented the opportunity for the withdrawal of the amount in
question." Petitioner relied "on the genuine signature on the withdrawal
slip, the personality of private respondent's son and the lapse of more
than fifty (50) days from date of deposit of the Continental Bank draft,
without the same being returned yet."18 We hold, however, that the
propriety of the withdrawal should be gauged by compliance with the
rules thereon that both petitioner bank and its depositors are duty-bound
to observe.
In the passbook that petitioner issued to private respondent, the
following rules on withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally but in some
exceptional circumstances, the Bank may allow withdrawal by another
upon the depositor's written authority duly authenticated; and neither a
deposit nor a withdrawal will be permitted except upon the presentation
of the depositor's savings passbook, in which the amount deposited
withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in
currency of the account at the request of the depositor in writing on the
withdrawal slip or by authenticated cable. Such request must indicate
the name of the payee/s, amount and the place where the funds are to
be paid. Any stamp, transmission and other charges related to such
withdrawals shall be for the account of the depositor and shall be paid
by him/her upon demand. Withdrawals may also be made in the form of
Banking | Deposit Function | 103
travellers checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be
withdrawal only in the manner above provided, upon presentation of the
depositor's savings passbook and with the withdrawal form supplied by
the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account
deposit under the Philippine foreign currency deposit system, two
requisites must be presented to petitioner bank by the person
withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the
depositor's passbook. Private respondent admits he signed a blank
withdrawal slip ostensibly in violation of Rule No. 6 requiring that the
request for withdrawal must name the payee, the amount to be
withdrawn and the place where such withdrawal should be made. That
the withdrawal slip was in fact a blank one with only private respondent's
two signatures affixed on the proper spaces is buttressed by petitioner's
allegation in the instant petition that had private respondent indicated
therein the person authorized to receive the money, then Ruben Gayon,
Jr. could not have withdrawn any amount. Petitioner contends that "(I)n
failing to do so (i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any amount and to collect the
same."20
Such contention would have been valid if not for the fact that the
withdrawal slip itself indicates a special instruction that the amount is
payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being
the case, petitioner's personnel should have been duly warned that
Gayon, who was also employed in petitioner's Buendia Ave. Extension
branch,21 was not the proper payee of the proceeds of the check.
Otherwise, either Ramon or Agnes de Guzman should have issued
another authority to Gayon for such withdrawal. Of course, at the dorsal
side of the withdrawal slip is an "authority to withdraw" naming Gayon
the person who can withdraw the amount indicated in the check. Private
respondent does not deny having signed such authority. However,
considering petitioner's clear admission that the withdrawal slip was a
blank one except for private respondent's signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was

intercalated and thereafter it was signed by Gayon or whoever was
allowed by petitioner to withdraw the amount. Under these facts, there
could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount
withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign
currency savings passbook by the depositor in person. For withdrawals
thru a representative, depositor should accomplish the authority at the
back." The requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even though
the person making the withdrawal is authorized by the depositor to do
so. This is clear from Rule No. 6 set out by petitioner so that, for the
protection of the bank's interest and as a reminder to the depositor, the
withdrawal shall be entered in the depositor's passbook. The fact that
private respondent's passbook was not presented during the withdrawal
is evidenced by the entries therein showing that the last transaction that
he made with the bank was on September 3, 1984, the date he deposited
the controversial check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another rule
that is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the
same manner; provided, however, that deposits of drafts, checks,
money orders, etc. will be accented as subject to collection only and
credited to the account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in effecting such
collection shall be for the account of the depositor. If the account has
sufficient balance, the collection shall be debited by the Bank against the
account. If, for any reason, the proceeds of the deposited checks, drafts,
money orders, etc., cannot be collected or if the Bank is required to
return such proceeds, the provisional entry therefor made by the Bank
in the savings passbook and its records shall be deemed automatically
cancelled regardless of the time that has elapsed, and whether or not
the defective items can be returned to the depositor; and the Bank is
hereby authorized to execute immediately the necessary corrections,
amendments or changes in its record, as well as on the savings passbook
Banking | Deposit Function | 104
at the first opportunity to reflect such cancellation. (Emphasis and
underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his
name, private respondent did not become the outright owner of the
amount stated therein. Under the above rule, by depositing the check
with petitioner, private respondent was, in a way, merely designating
petitioner as the collecting bank. This is in consonance with the rule that
a negotiable instrument, such as a check, whether a manager's check or
ordinary check, is not legal tender.23 As such, after receiving the deposit,
under its own rules, petitioner shall credit the amount in private
respondent's account or infuse value thereon only after the drawee bank
shall have paid the amount of the check or the check has been cleared
for deposit. Again, this is in accordance with ordinary banking practices
and with this Court's pronouncement that "the collecting bank or last
endorser generally suffers the loss because has the duty to ascertain the
genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the
genuineness of the endorsements."24 The rule finds more meaning in this
case where the check involved is drawn on a foreign bank and therefore
collection is more difficult than when the drawee bank is a local one even
though the check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial
bank in Madrid, Spain, paid the amounts represented in three (3) checks
to Virginia Boncan, the finance officer of the Philippine Embassy in
Madrid. The bank did so without previously clearing the checks with the
drawee bank, the Philippine National Bank in New York, on account of
the "special treatment" that Boncan received from the personnel of
Banco Atlantico's foreign department. The Court held that the
encashment of the checks without prior clearance is "contrary to normal
or ordinary banking practice specially so where the drawee bank is a
foreign bank and the amounts involved were large." Accordingly, the
Court approved the Auditor General's denial of Banco Atlantico's claim
for payment of the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected
with public interest. By the nature of its functions, a bank is under

obligation to treat the accounts of its depositors "with meticulous care,
always having in mind the fiduciary nature of their relationship."27 As
such, in dealing with its depositors, a bank should exercise its functions
not only with the diligence of a good father of a family but it should do
so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private
respondent's deposit, failed to exercise the diligence of a good father of
a family. In total disregard of its own rules, petitioner's personnel
negligently handled private respondent's account to petitioner's
detriment. As this Court once said on this matter:
Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and
reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides that test by which to determine
the existence of negligence in a particular case which may be stated as
follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence.
The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet pater-familias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and
determines liability by that.29
Petitioner violated its own rules by allowing the withdrawal of an amount
that is definitely over and above the aggregate amount of private
respondent's dollar deposits that had yet to be cleared. The bank's ledger
on private respondent's account shows that before he deposited
$2,500.00, private respondent had a balance of only $750.00. 30 Upon
private respondent's deposit of $2,500.00 on September 3, 1984, that
amount was credited in his ledger as a deposit resulting in the
corresponding total balance of $3,250.00.31 On September 10, 1984, the
amount of $600.00 and the additional charges of $10.00 were indicated
therein as withdrawn thereby leaving a balance $2,640.00. On
Banking | Deposit Function | 105
September 30, 1984, an interest of $11.59 was reflected in the ledger
and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92.32 On November 19, 1984 the word
"hold" was written beside the balance of $109.92.33 That must have been
the time when Reyes, petitioner's branch manager, was informed
unofficially of the fact that the check deposited was a counterfeit, but
petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York
the following day, November 20, 1984.34 According to Reyes, Wells Fargo
Bank International handled the clearing of checks drawn against U.S.
banks that were deposited with petitioner.35
From these facts on record, it is at once apparent that petitioner's
personnel allowed the withdrawal of an amount bigger than the original
deposit of $750.00 and the value of the check deposited in the amount
of $2,500.00 although they had not yet received notice from the clearing
bank in the United States on whether or not the check was funded. Reyes'
contention that after the lapse of the 35-day period the amount of a
deposited check could be withdrawn even in the absence of a clearance
thereon, otherwise it could take a long time before a depositor could
make a withdrawal,36 is untenable. Said practice amounts to a disregard
of the clearance requirement of the banking system.
While it is true that private respondent's having signed a blank
withdrawal slip set in motion the events that resulted in the withdrawal
and encashment of the counterfeit check, the negligence of petitioner's
personnel was the proximate cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic,
common sense, policy and precedent, is "that cause, which, in natural
and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred."37 The proximate cause of the withdrawal and eventual loss of
the amount of $2,500.00 on petitioner's part was its personnel's
negligence in allowing such withdrawal in disregard of its own rules and
the clearing requirement in the banking system. In so doing, petitioner
assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting
damage.1âwphi1.nêt
 Banking | Deposit Function | 106

WHEREFORE, the petition for review on certiorari is DENIED. The

Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.