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G.R. No. 155033. December 19, 2007.

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other. However, nothing in the law sanctions or allows the commission of or resort to any extra-
legal or illegal measure or remedy in order for family members to avoid the filing of suits against
1. ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I. SANDEJAS and
another family member for the enforcement or protection of their respective rights.
BENJAMIN A.I. ESPIRITU, petitioners, vs. SPS. ARTURO IGNACIO, JR. and EVELYN
Principle of Pari Delicto; Words and Phrases; The principle of pari delicto provides that when
IGNACIO, respondents. two parties are equally at fault, the law leaves them as they are and denies recovery by either one of
Appeals; Certiorari; Only questions of law are entertained in petitions for review on certiorari them.Petitioners invoke the rule of pari delicto to support their contention that respondents do
under Rule 45 of the Rules of Court, and the trial courts findings of fact, which the Court of Appeals not deserve any relief from the courts. The principle of pari delicto provides that when two parties
affirmed, are generally binding and conclusive upon the Supreme Court; Exceptions.The Court are equally at fault, the law leaves them as they are and denies recovery by either one of them.
agrees with respondents that only questions of law are entertained in petitions for review Indeed, one who seeks equity and justice must come to court with clean hands. However, in the
on certiorari under Rule 45 of the Rules of Court. The trial courts findings of fact, which the Court present case, petitioners were not able to establish that respondents are also at fault. Thus, the
of Appeals affirmed, are generally binding and conclusive upon this court. There are recognized principle of pari delictocannot apply.
exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises 63
or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave VOL. 541, DECEMBER 19, 2007 6
abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of
facts are conflicting; (6) there is no citation of specific evidence on which the factual findings are 3
based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8) Sandejas vs. Ignacio, Jr.
the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly Same; Exceptions; One of the exceptions to the pari delicto principle is where the application of
overlooked certain relevant and undisputed facts that, if properly considered, would justify a the pari delicto rule would violate well-established public policy.The application of the pari
different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such delicto principle is not absolute, as there are exceptions to its application. One of these exceptions
findings are contrary to the admissions of both parties. In the instant case, petitioners failed to is where the application of the pari delicto rule would violate well-established public policy. The
demonstrate that their petition falls under any one of the above exceptions. prevention of lawlessness and the maintenance of peace and order are established public policies.
Rule of Law; Family Code; Attorneys; In a civilized society such as ours, the rule of law should In the instant case, to deny respondents relief on the ground of pari delicto would put a premium
always prevailto allow otherwise would be productive of nothing but mischief, chaos and anarchy; on the illegal act of petitioners in taking from respondents what the former claim to be rightfully
A lawyer-party who has sworn to uphold the rule of law should know better than simply take the theirs.
law into her own handsshe must go to court for relief; While Article 151 of the Family Code Actions; Counterclaims; Tests to Determine Whether Counter-claim Compulsory or Not.
requires that earnest efforts towards a compromise be made before family members Petitioners also question the trial courts ruling that their counterclaim is permissive. This Court
_______________
has laid down the following tests to determine whether a counterclaim is compulsory or not, to wit:
(1) Are the issues of fact or law raised by the claim and the counterclaim largely the same? (2)
*THIRD DIVISION.
62 Would res judicata bar a subsequent suit on defendants claims, absent the compulsory
counterclaim rule? (3) Will substantially the same evidence support or refute plaintiffs claim as
6 SUPREME COURT REPORTS ANNOTATED
well as the defendants counterclaim? and (4) Is there any logical relation between the claim and
2 the counterclaim, such that the conduct of separate trials of the respective claims of the parties
Sandejas vs. Ignacio, Jr. would entail a substantial duplication of effort and time by the parties and the court? Tested
can institute suits against each other, nothing in the law sanctions or allows the commission against the above-mentioned criteria, this Court agrees with the view of the RTC that Rositas
of or resort to any extra-legal or illegal measure or remedy in order for family members to avoid the counterclaim for the recovery of her alleged share in the sale of the Morayta property is permissive
filing of suits against another family member for the enforcement or protection of their respective in nature. The evidence needed to prove respondents claim to recover the amount of P3,000,000.00
rights.Petitioners posture is not sanctioned by law. If they truly believe that Arturo took from petitioners is different from that required to establish Rositas demands for the recovery of
advantage of and violated the rights of Rosita, petitioners should have sought redress from the her alleged share in the sale of the subject Morayta property. The recovery of respondents claim is
courts and should not have simply taken the law into their own hands. Our laws are replete with not contingent or dependent upon the establishment of Rositas counterclaim such that conducting
specific remedies designed to provide relief for the violation of ones rights. In the instant case, separate trials will not result in the substantial duplication of the time and effort of the court and
Rosita could have immediately filed an action for the nullification of the sale of the building she the parties.
owns in light of petitioners claim that the document bearing her conformity to the sale of the said Filing Fees; Rules.In Sun Insurance Office, Ltd., (SIOL) v. Asuncion, 170 SCRA 274 (1989),
building was taken by Arturo from her without her knowledge and consent. Or, in the alternative, this Court laid down the rules on the payment of filing fees, to wit: 1. It is not simply the filing of
as the CA correctly held, she could have brought a suit for the collection of a sum of money to the complaint or appropriate initiatory pleading, but the payment of the
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recover her share in the sale of her property in Morayta. In a civilized society such as ours, the rule
of law should always prevail. To allow otherwise would be productive of nothing but mischief, chaos 6 SUPREME COURT REPORTS ANNOTATED
and anarchy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better. She 4
must go to court for relief. It is true that Article 151 of the Family Code requires that earnest
Sandejas vs. Ignacio, Jr.
efforts towards a compromise be made before family members can institute suits against each
prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or provides that moral damages may be recovered in acts or actions referred to in Articles 21, 26, 27,
nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of 28, 29, 30, 32, 34 and 35 of the same Code. More particularly, Article 21 of the said Code provides
the docket fee, the court may allow payment of the fee within a reasonable time but in no case that any person who willfully causes loss or injury to another in a manner that is contrary to
beyond the applicable prescriptive or reglementary period. 2. The same rule applies to permissive morals, good customs, or public policy shall compensate the latter for the damage. In the present
counterclaims, third-party claims and similar pleadings, which shall not be considered filed until case, the act of Alice and Rosita in fraudulently encashing the subject check to the prejudice of
and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee respondents is certainly a violation of law as well as of the public policy that no one should put the
within a reasonable time but also in no case beyond its applicable prescriptive or reglementary law into his own hands. As to SBTC and its officers, their negligence is so gross as to amount to a
period. 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate willfull injury to respondents. The banking system has become an indispensable institution in the
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim modern world and plays a vital role in the economic life of every civilized society. Whether as mere
not specified in the pleading, or if specified the same has been left for determination by the court, passive entities for the safe-keeping and saving of money or as active instruments of business and
the additional filing fee therefor shall constitute a lien on the judgment. It shall be the commerce, banks have attained a ubiquitous presence among the people, who have come to regard
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess them with respect and even gratitude and most of all, confidence.
and collect the additional fee. 66
Judgments; Jurisdictions; It is settled that any decision rendered without jurisdiction is a 6 SUPREME COURT REPORTS ANNOTATED
total nullity and may be struck down at any time, even on appeal before this Court.In order for 6
the trial court to acquire jurisdiction over her permissive counterclaim, Rosita is bound to pay the
prescribed docket fees. Since it is not disputed that Rosita never paid the docket and filing fees, the Sandejas vs. Ignacio, Jr.
RTC did not acquire jurisdiction over her permissive counterclaim. Nonetheless, the trial court For this reason, banks should guard against injury attributable to negligence or bad faith on
ruled on the merits of Rositas permissive counter-claim by dismissing the same on the ground that its part.
she failed to establish that there is a sharing agreement between her and Arturo with respect to PETITION for review on certiorari of a decision of the Court of Appeals.
the proceeds of the sale of the subject Morayta property and that the amount of P3,000,000.00 The facts are stated in the opinion of the Court.
represented by the check which Rosita and Alice encashed formed part of the proceeds of the said Renato G. Dela Cruz & Associates for petitioners.
sale. It is settled that any decision rendered without jurisdiction is a total nullity and may be Alfredo Sanz and Dante H. Cortez for respondents.
struck down at any time, even on appeal before this Court. In the present case, considering that
the trial court did not acquire jurisdiction over the permissive counterclaim of Rosita, any
proceeding taken up by the trial court and any ruling or judgment rendered in relation to such
AUSTRIA-MARTINEZ, J.:
counterclaim is considered null and void. In effect, Rosita may file a separate action against Arturo
for recovery of a sum of money. Before the Court is a Petition for Review on Certiorariunder Rule 45 of the Rules of
65 Court assailing the Decision of the Court of Appeals (CA) in CA-G.R. CV No.
1

VOL. 541, DECEMBER 19, 2007 6 62404promulgated on August 27, 2002, which affirmed with modification the Decision of
5 the Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil Case No. 65146 dated
December 18, 1998.
Sandejas vs. Ignacio, Jr.
The facts of the case, as summarized by the RTC, are as follows:
Damages; A resort to judicial processes is not, per se, evidence of ill will upon which a claim
It appears from the plaintiffs [petitioners] evidence that Arturo [respondent] is the elder brother
for damages may be based.A resort to judicial processes is not, per se, evidence of ill will upon
of Alice [petitioner] and Rosita [petitioner], Benjamin [petitioner] and Patricia [petitioner] are
which a claim for damages may be based. In China Banking Corporation v. Court of Appeals, 231
Arturos nephew and niece. Arturo and his wife Evelyn [respondent] are residents of the United
SCRA 472 (1994), this Court held: Settled in our jurisprudence is the rule that moral damages
States. In October 1993, Arturo leased from Dr. Borja a condominium unit identified as Unit 28-C
cannot be recovered from a person who has filed a complaint against another in good faith, or
Gilmore Townhomes located at Granada St., Quezon City. The lease was for the benefit of
without malice or bad faith (Philippine National Bank v. Court of Appeals, 159 SCRA 433 [1988]; R
Benjamin who is the occupant of the unit. The rentals were paid by Ignacio. The term of the lease
& B Surety and Insurance v. Intermediate Appellate Court, 129 SCRA 736 [1984]). If damage
is for one (1) year and will expire on October 15, 1994. It appears that Arturo was intending to
results from the filing of the complaint, it is damnum absque injuria (Ilocos Norte Electrical
renew the lease contract. As he had to leave for the U.S., Arturo drew up a check, UCPB Check No.
Company v. Court of Appeals, 179 SCRA 5 [1989]).
GRH-560239 and
Banks and Banking; The banking system has become an indispensable institution in the _______________
modern world and plays a vital role in the economic life of every civilized societybanks have
attained a ubiquitous presence among the people, who have come to regard them with respect and 1 Penned by Justice Amelita G. Tolentino with the concurrence of Justices Ruben T. Reyes (now a member of this Court)

even gratitude and most of all, confidence, and it is for this reason, banks should guard against and Renato C. Dacudao; Rollo, pp. 121-137.
injury attributable to negligence or bad faith on its part.As to moral damages, Article 20 of the 67
Civil Code provides that every person who, contrary to law, willfully or negligently causes damage VOL. 541, DECEMBER 19, 2007 67
to another, shall indemnify the latter for the same. In addition, Article 2219 (10) of the Civil Code
Sandejas vs. Ignacio, Jr.
wrote on it the name of the payee, Dr. Manuel Borja, but left blank the date and amount. He After trial, the RTC rendered judgment dated December 18, 1998 with the following
signed the check. The check was intended as payment for the renewal of the lease. The date and dispositive portion:
the amount were left blank because Arturo does not know when it will be renewed and the new WHEREFORE, in view of the foregoing, judgment is rendered in favor of plaintiffs as against
rate of the lease. The check was left with Arturos sister-in-law, who was instructed to deliver or defendants Security Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice A.I. Sandejas
give it to Benjamin. and Rosita A.I. Cusi, ordering them to pay jointly and severally the plaintiffs the following
The check later came to the possession of Alice who felt that Arturo cheated their sister in the amounts:
amount of three million pesos (P3,000,000.00). She believed that Arturo and Rosita had a joint
and/or money market placement in the amount of P3 million with the UCPB branch at Ortigas
1. (1)P3,000,000.00 plus legal interest on it from March 17, 1995 until the entire amount is
Ave., San Juan and that Ignacio pre-terminated the placement and ran away with it, which
fully paid;
rightfully belonged to Rosita. Alice then inquired from UCPB Greenhills branch if Arturo still has
2. (2)P500,000.00 as moral damages;
an account with them. On getting a confirmation, she together with Rosita drew up a scheme to
3. (3)P200,000.00 as exemplary damages;
recover the P3 million from Arturo. Alice filled up the date of the check with March 17, 1995 and
4. (4)P300,000.00 as attorneys fees; plus
the amount with three million only. Alice got her driver, Kudera, to stand as the payee of the
5. (5)the cost of suit.
check, Dr. Borja. Alice and Rosita came to SBC Greenhills Branch together with a man (Kudera)
2

who[m] they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said
man as Dr. Borja, Rosita, Alice and the man who was later identified as Kudera opened a Joint _______________
Savings Account No. 271-410554-7. As initial deposit for the Joint Savings Account, Alice, Rosita
and Kudera deposited the check. No ID card was required of Mr. Kudera because it is an internal 3RTC Decision, Rollo, pp. 110-111.
policy of the bank that when a valued client opens an account, an identification card is no longer 69
required (TSN, April 21, 1997, pp. 15-16). SBC also allowed the check to be deposited without the VOL. 541, DECEMBER 19, 2007 69
endorsement of the impostor Kudera. SBC officials stamped on the dorsal portion of the check Sandejas vs. Ignacio, Jr.
endorsement/lack of endorsement guaranteed and sent the check for clearing to the Philippine In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount of P100,000.00 as moral
Clearing House Corporation. damages, P50,000.00 as exemplary damages and another P50,000.00 as attorneys fees.
On 21 March 1995, after the check had already been cleared by the drawer bank UCPB, Rosita The counterclaims of Patricia A.I. Sandejas are dismissed.
withdrew P1 million from Joint Savings Account and deposited said amount to the current account SO ORDERED. 4

of Alice with SBC Greenhills Branch. On the same date, Alice caused the transfer of P2 million
Both parties appealed the RTC Decision to the CA.
from the Joint Savings Account to two (2)
_______________ On August 14, 1999, during the pendency of the appeal with the CA, herein
respondent Arturo Ignacio, Jr. (Arturo) died. 5

2 Security Bank and Trust Company. On August 27, 2002, the CA promulgated the presently assailed Decision, disposing
68 as follows:
68 SUPREME COURT REPORTS ANNOTATED WHEREFORE, in view of the foregoing, the assailed decision of the trial court is hereby
Sandejas vs. Ignacio, Jr. AFFIRMED with the MODIFICATION that the judgment shall read as follows: The defendants-
Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia. ... appellants Security Bank and Trust Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice A.I.
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the identity of the persons Sandejas, and Rosita A.I. Cusi, are hereby ordered to jointly and severally pay the plaintiffs the
and the circumstances surrounding the deposit and withdrawal of the check, the three million following amounts:
pesos in the two investment savings account[s] and in the current account just opened with SBC
were withdrawn by Alice and Rosita. 3 1. 1.P3,000,000.00 plus legal interest computed from March 17, 1995 until the entire amount
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a verified is fully paid;
complaint for recovery of a sum of money and damages against Security Bank and Trust 2. 2.P200,000.00 as moral damages;
3. 3.P100,000.00 as exemplary damages;
Company (SBTC) and its officers, namely: Rene Colin D. Gray, Manager; and Sonia
4. 4.P50,000.00 as attorneys fees; plus
Ortiz-Luis, Cashier. The complaint also impleaded herein petitioner Benjamin A.I. 5. 5.the costs of suit.
Espiritu (Benjamin), a John Doe, representing himself as Manuel N. Borja; and a Jane
Doe.
The award of moral damages, exemplary damages, and attorneys fees in favor of Benjamin
On November 7, 1995, the complaint was amended by additionally impleading herein Espiritu is DELETED.
petitioners Alice A.I. Sandejas (Alice), Rosita A.I. Cusi (Rosita) and Patricia A.I. Sandejas SO ORDERED. 6

(Patricia) as defendants who filed their respective answers and counterclaims. Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their respective petitions
for review before this Court.
_______________ 1. ING MEANS TO REGAIN THE MONEY AND TO DENY ARTURO, JR. ANY
RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO AN AWARD OF
Rollo, pp. 118-119.
DAMAGES;
4

5CA Rollo, pp. 100-102.


6Id., at p. 520. 2. (d)IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN
70 SUBMITTING AN AFFIDAVIT OF LOSS OF THE OWNERS COPY OF THE
70 SUPREME COURT REPORTS ANNOTATED TITLE IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH, WHEN
THAT IS NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL OWNERS
Sandejas vs. Ignacio, Jr.
COPY OF THE TITLE WAS WITH ROSITA, IS ANOTHER DISHONEST AND
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R. No. 155038,
REPREHENSIBLE ACT THAT SHOULD NOT HAVE ENTITLED HIM TO
was denied in a Resolution issued by this Court on November 20, 2002, for their failure to
ANY AWARD OF DAMAGES; AND
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properly verify the petition, submit a valid certification of non-forum shopping, and
3. (e)IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412 OF
attach to the petition the duplicate original or certified true copy of the assailed CA
THE CIVIL CODE.
Decision. Said Resolution became final and executory on April 9, 2003.8

On the other hand, the instant petition was given due course. Petitioners enumerated
the following grounds in support of their petition: 1. II.THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE
OF JUDICIAL PROCEEDINGS WHEN IT FAILED TO RESOLVE IN THE
APPEAL THE COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR
1. I.THE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE
THE RECOVERY OF THE AMOUNTS LEGALLY HERS THAT SHOULD
NOT HERETOFORE DECIDED BY THIS COURT AND/OR HAD DECIDED IT
JUSTIFY ALICES BEING ABSOLVED FROM ANY LIABILITY FOR USING
IN A WAY PROBABLY NOT IN ACCORD WITH EQUITY, THE LAW AND
THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY BELONGING
THE APPLICABLE DECISIONS OF THIS COURT, SUCH AS:
TO ROSITA;
2. III.THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE
1. (a)IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED OF JUDICIAL PROCEEDINGS WHEN IT REVERSED THE TRIAL COURTS
SIBLING HAS THE RIGHT TO TAKE MEASURES OR STEPS TO PROTECT FINDING THAT RESPONDENT WAS GUILTY OF BAD FAITH AND
HIS OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE MALICE THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO
GUILTY SIBLING; THE AWARD OF DAMAGES NOTWITHSTANDING THAT THERE WAS
2. (b)IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN FILLING AMPLE EVIDENCE SHOWN THAT SUCH BAD FAITH AND MALICE WAS
OUT THE BLANK PORTIONS OF THE CHECK TO RECOVER WHAT MADE AS A LEVERAGE TO COMPEL ARTUROS SIBLINGS TO RETURN
ARTURO, JR. TOOK FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN TO HIM THE P3,000,000 WHICH WAS NOT HIS; and,
ACTIONABLE TORT; 3. IV.THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN ACCORD
3. (c)IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN WITH LAW WHEN IT DELETED THE AWARD OF DAMAGES TO
SUBMITTING AN AFFIDAVIT OF LOSS OF THE CERTIFICATE OF TIME PETITIONER ESPIRITU AND IN NOT HAVING RULED THAT HE WAS
DEPOSIT FOR P3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA ENTITLED TO A HIGHER AWARD OF DAMAGES CONSIDERING THE
JUST TO BE ABLE TO PRE-TERMINATE THE TIME DEPOSIT AND GET CIRCUMSTANCES OF THE
ITS FACE VALUE, WHEN HE KNEW IT WAS NOT LOST BUT IN FACT
INTACT AND IN THE POSSESSION OF ROSITA, IS A DISHONEST AND 72
REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND ALICE IN TAK-
72 SUPREME COURT REPORTS ANNOTATED
_______________ Sandejas vs. Ignacio, Jr.

7Id., at p. 539. 1. CASE AS WELL AS IN NOT HAVING RULED THAT PATRICIA WAS
CA Rollo, p. 542.
ENTITLED TO AN AWARD OF DAMAGES.
8
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VOL. 541, DECEMBER 19, 2007 71
Petitioners argue that the CA overlooked and ignored vital pieces of evidence showing
Sandejas vs. Ignacio, Jr. that the encashment of the subject check was not fraudulent and, on the contrary, was
justified under the circumstances; and that such encashment did not amount to an of petitioners Alice and Rosita in recovering the P3,000,000.00 which Arturo took from
actionable tort and that it merely called for the application of the civil law rule on pari Rosita; and that it is Rosita who is entitled to damages and attorneys fees for Arturos
delicto. failure and refusal to give her share in the sale of her property in Morayta.
In support of these arguments, petitioners contend that the principal adversaries in In their Memorandum, respondents simply contend that the issues raised by
the present case are full blooded siblings; that the law recognizes the solidarity of family petitioners are factual in nature and that the settled rule is that questions of fact are not
which is why it is made a condition that earnest efforts towards a compromise be exerted subject to review by the Supreme Court in a petition for review on certiorari under Rule
before one family member can institute a suit against the other; that even if Arturo 45 of the Rules of Court. While there are exceptions to this rule, respondents assert that
previously defrauded Rosita and deprived her of her lawful share in the sale of her petitioners failed to show that the instant case falls under any of these exceptions.
property, petitioners Rosita and Alice did not precipitately file suit against him and 74
instead took extra-legal measures to protect Rositas property rights and at the same 74 SUPREME COURT REPORTS ANNOTATED
time preserve the solidarity of their family and save it from public embarrassment. Sandejas vs. Ignacio, Jr.
Petitioners also aver that Rositas and Alices act of encashing the subject check is not
The Courts Ruling
fraudulent because they did not have any unlawful intent and that they merely took from
The Court finds the petition bereft of merit. There is no compelling reason for the Court
Arturo what rightfully belonged to Rosita. Petitioners contend that even granting that
to disturb the findings of facts of the lower courts.
the act of Rosita and Alice amounted to an actionable tort, they could not be adjudged
The trial courts findings are as follows: (1) Rosita failed to establish that there is an
liable to return the amount to respondents or to pay damages in their favor, because the
agreement between her and Arturo that the latter will give her one-third of the proceeds
civil law rule on pari delicto dictates that, when both parties are at fault, neither of them
of the sale of the Morayta property; (2) petitioners were not able to establish by clear and
could expect positive relief from courts of justice and, instead, are left in the state where
sufficient evidence that the P3,000,000.00 which they took from Arturo when they
they were at the time of the filing of the case.
encashed the subject check was part of the proceeds of the sale of the Morayta property;
Petitioners also contend that the CA erred in failing to award damages to Patricia
(3) Rositas counterclaim is permissive and she failed to pay the full docket and filing fees
even if the appellate court sustained the trial courts finding that she was not a party to
for her counterclaim.
the
10

_______________ Petitioners challenge the findings of the RTC and insist that they should not be held
liable for encashing the subject check because Arturo defrauded Rosita and that he
9Petition, Rollo, pp. 17-18. committed deceitful acts which deprived her of her rightful share in the sale of her
73 building in Morayta; that the amount of P3,000,000.00 represented by the check which
VOL. 541, DECEMBER 19, 2007 73 they encashed formed part of the proceeds of the said sale; that Alice and Rosita were
Sandejas vs. Ignacio, Jr. merely moved by their desire to recover from Arturo, Rositas supposed share in the sale
fraudulent acts committed by Rosita and Alice. Petitioners argue that even if Patricia did of her property.
not bother to know the details of the cases against her and left everything to her mother, However, the Court agrees with respondents that only questions of law are
she did not even know the nature of the case against her, or her superiors in the bank entertained in petitions for review on certiorari under Rule 45 of the Rules of Court. The 11

where she worked did not know whether she was the plaintiff or defendant, these were trial courts findings of fact, which the Court of Appeals affirmed, are generally binding
not reasons to deny her award of damages. The fact remains that she had been and conclusive upon this court. There are recognized exceptions to this rule, among
12

maliciously dragged into the case, and that the suit had adversely affected her work and which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the
caused her mental worries and anguish, besmirched reputation, embarrassment and inference is manifestly mistaken, absurd or
_______________
humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the award of RTC Decision, Rollo, pp. 117-118.
10

damages and attorneys fees in his favor. Petitioners assert that the trial court found that Iron Bulk Shipping Phil. Co., Ltd. v. Remington Industrial Sales Corp., 462 Phil. 694, 703; 417 SCRA 229,
11

Benjamin suffered mental anguish, wounded feelings and moral shock as a result of the 234 (2003).
Id., at pp. 703-704; p. 234.
filing of the present case. Citing the credentials and social standing of Benjamin,
12

75
petitioners claim that the award of damages and attorneys fees in his favor should be
increased.
VOL. 541, DECEMBER 19, 2007 75
Lastly, petitioners contend that the award of damages and attorneys fees to Sandejas vs. Ignacio, Jr.
respondents should be deleted for their failure to establish malice or bad faith on the part impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the finding of absence of In any case, the application of the pari delicto principle is not absolute, as there are
facts is contradicted by the presence of evidence on record; (8) the findings of the CA are exceptions to its application. One of these exceptions is where the application of the pari
16

contrary to the findings of the trial court; (9) the CA manifestly overlooked certain delicto rule would violate well-established public policy. The prevention of lawlessness
17

relevant and undisputed facts that, if properly considered, would justify a different and the maintenance of peace and order are established public policies. In the instant
conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such case, to deny respondents relief on the ground of pari delicto would
findings are contrary to the admissions of both parties. In the instant case, petitioners
13 _______________
failed to demonstrate that their petition falls under any one of the above exceptions.
Yu Bun Guan v. Ong, 419 Phil. 845, 856; 367 SCRA 559, 569 (2001).
Petitioners assignments of errors boil down to the basic issue of whether or not Alice
14

Tala Realty Services Corporation v. Banco Filipino Savings and Mortgage Bank, 441 Phil. 1, 45; 392
15

and Rosita are justified in encashing the subject check given the factual circumstances SCRA 506, 540 (2002).
established in the present case. Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492, 515, citing Silagan v.
16

Petitioners posture is not sanctioned by law. If they truly believe that Arturo took Intermediate Appellate Court, 274 Phil. 182, 193; 196 SCRA 774, 785 (1991).
Id.
advantage of and violated the rights of Rosita, petitioners should have sought redress
17

77
from the courts and should not have simply taken the law into their own hands. Our laws
are replete with specific remedies designed to provide relief for the violation of ones
VOL. 541, DECEMBER 19, 2007 77
rights. In the instant case, Rosita could have immediately filed an action for the Sandejas vs. Ignacio, Jr.
nullification of the sale of the building she owns in light of petitioners claim that the put a premium on the illegal act of petitioners in taking from respondents what the
document bearing her conformity to the sale of the said building was taken by Arturo former claim to be rightfully theirs.
from her without her knowledge and consent. Or, in the alternative, as the CA correctly Petitioners also question the trial courts ruling that their counterclaim is permissive.
held, she could have brought a suit for the collection of a sum of money to recover her This Court has laid down the following tests to determine whether a counterclaim is
share in the sale of her property in Morayta. In a civilized society such as ours, the rule compulsory or not, to wit: (1) Are the issues of fact or law raised by the claim and the
of law should always prevail. To allow otherwise would be productive of nothing but counterclaim largely the same? (2) Would res judicata bar a subsequent suit on
mischief, chaos and anar- defendants claims, absent the compulsory counterclaim rule? (3) Will substantially the
_______________ same evidence support or refute plaintiffs claim as well as the defendants counterclaim?
and (4) Is there any logical relation between the claim and the counterclaim, such that
Id., at p. 704; p. 234.
13
the conduct of separate trials of the respective claims of the parties would entail a
76
substantial duplication of effort and time by the parties and the court? 18

76 SUPREME COURT REPORTS ANNOTATED Tested against the above-mentioned criteria, this Court agrees with the view of the
Sandejas vs. Ignacio, Jr. RTC that Rositas counterclaim for the recovery of her alleged share in the sale of the
chy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better. Morayta property is permissive in nature. The evidence needed to prove respondents
She must go to court for relief. claim to recover the amount of P3,000,000.00 from petitioners is different from that
It is true that Article 151 of the Family Code requires that earnest efforts towards a required to establish Rositas demands for the recovery of her alleged share in the sale of
compromise be made before family members can institute suits against each other. the subject Morayta property. The recovery of respondents claim is not contingent or
However, nothing in the law sanctions or allows the commission of or resort to any extra- dependent upon the establishment of Rositas counterclaim such that conducting
legal or illegal measure or remedy in order for family members to avoid the filing of suits separate trials will not result in the substantial duplication of the time and effort of the
against another family member for the enforcement or protection of their respective court and the parties.
rights. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion, this Court laid down the rules on
19

Petitioners invoke the rule of pari delicto to support their contention that respondents the payment of filing fees, to wit:
do not deserve any relief from the courts. _______________
The principle of pari delicto provides that when two parties are equally at fault, the
Tan v. Kaakbay Finance Corporation, 452 Phil. 637, 647; 404 SCRA 518, 525 (2003), citing Intestate
law leaves them as they are and denies recovery by either one of them. Indeed, one who
18
14

Estate of Dalisay v. Hon. Marasigan, 327 Phil. 298, 301; 257 SCRA 509, 513 (1996) and Quintanilla v. Court of
seeks equity and justice must come to court with clean hands. However, in the present
15
Appeals, 344 Phil. 811, 819; 279 SCRA 397, 405-406 (1997).
case, petitioners were not able to establish that respondents are also at fault. Thus, the G.R. Nos. 79937-38, February 13, 1989, 170 SCRA 274.
19

principle of pari delicto cannot apply. 78


78 SUPREME COURT REPORTS ANNOTATED
Sandejas vs. Ignacio, Jr. However, Rositas claims for damages and attorneys fees are compulsory as they
necessarily arise as a result of the filing by respondents of their complaint. Being
compulsory in nature, payment of docket fees is not required. Nonetheless, since
1. 1.It is not simply the filing of the complaint or appropriate initiatory pleading,
23

petitioners are found to be liable to return to respondents the amount of P3,000,000.00 as


but the payment of the prescribed docket fee, that vests a trial court with
well as to pay moral and exemplary damages and attorneys fees, it necessarily follows
jurisdiction over the subject-matter or nature of the action. Where the filing of
that Rositas counterclaim for damages and attorneys fees should be dismissed as
the initiatory pleading is not accompanied by payment of the docket fee, the
correctly done by the RTC and affirmed by the CA.
court may allow payment of the fee within a reasonable time but in no case
As to Patricias entitlement to damages, this Court has held that while no proof of
beyond the applicable prescriptive or reglementary period.
pecuniary loss is necessary in order that moral damages may be awarded, the amount of
2. 2.The same rule applies to permissive counterclaims, third-party claims and
indemnity being left to the discretion of the court, it is nevertheless essential that the
similar pleadings, which shall not be considered filed until and unless the filing
claimant should satisfactorily show the existence of the factual basis of damages and its
fee prescribed therefor is paid. The court may allow payment of said fee within a
causal connection to defendants acts. This is so because moral damages, though
reasonable time but also in no case beyond its applicable prescriptive or
24

incapable of pecuniary estimation, are in the category of an award designed to


reglementary period.
compensate the claimant for actual injury suffered and not to impose a penalty on the
3. 3.Where the trial court acquires jurisdiction over a claim by the filing of the
_______________
appropriate pleading and payment of the prescribed filing fee but, subsequently,
the judgment awards a claim not specified in the pleading, or if specified the Lopez v. David, Jr., G.R. No. 152145, March 30, 2004, 426 SCRA 535, 543.
22

same has been left for determination by the court, the additional filing fee Tan v. Kaakbay, supra note 18, at p. 648; p. 527.
23

therefor shall constitute a lien on the judgment. It shall be the responsibility of Mahinay v. Velasquez, Jr., 464 Phil. 146, 149; 419 SCRA 118, 121 (2004), citing Kierulf v. Court of
24

Appeals, 336 Phil. 414, 431-432; 269 SCRA 433, 451 (1997).
the Clerk of Court or his duly authorized deputy to enforce said lien and assess
80
and collect the additional fee. 20

80 SUPREME COURT REPORTS ANNOTATED


In order for the trial court to acquire jurisdiction over her permissive counterclaim, Sandejas vs. Ignacio, Jr.
Rosita is bound to pay the prescribed docket fees. Since it is not disputed that Rosita
21
wrongdoer. Moreover, additional facts must be pleaded and proven to warrant the grant
25

never paid the docket and filing fees, the RTC did not acquire jurisdiction over her of moral damages under the Civil Code, these being, social humiliation, wounded
permissive counterclaim. Nonetheless, the trial court ruled on the merits of Rositas feelings, grave anxiety, etc. that resulted from the act being complained of. In the 26

permissive counter-claim by dismissing the same on the ground that she failed to present case, both the RTC and the CA were not convinced that Patricia is entitled to
establish that there is a sharing agreement between her and Arturo with respect to the damages. Quoting the RTC, the CA held thus:
proceeds of the sale of the subject Morayta property and that the amount of With respect to Patricia, she did not even bother to know the details of the case against her, she
left everything to the hands of her mother Alice. Her attitude towards the case appears weird, she
P3,000,000.00 represented by the check which Rosita and Alice encashed formed part of
being a banker who seems so concerned of her reputation.
the proceeds of the said sale. Aside from the parties to this case, her immediate superiors in the BPI knew that she is
_______________
involved in a case. They did not however know whether she is the plaintiff or the defendant in the
case. Further, they did not know the nature of the case that she is involved in. It appears that
Id., at p. 285.
20

Patricia has not suffered any of the injuries enumerated in Article 2217 of the Civil Code, thus, she
Suson v. Court of Appeals, 343 Phil. 816, 825; 278 SCRA 284, 290-291 (1997).
21

79 is not entitled to moral damages and attorneys fees. 27

This Court finds no cogent reason to depart from the above-quoted findings as Patricia
VOL. 541, DECEMBER 19, 2007 79
failed to satisfactorily show the existence of the factual basis for granting her moral
Sandejas vs. Ignacio, Jr. damages and the causal connection of such fact to the act of respondents in filing a
It is settled that any decision rendered without jurisdiction is a total nullity and may be complaint against her.
struck down at any time, even on appeal before this Court. 22
In addition, and with respect to Benjamin, the Court agrees with the CA that in the
In the present case, considering that the trial court did not acquire jurisdiction over absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be
the permissive counterclaim of Rosita, any proceeding taken up by the trial court and awarded. The adverse result of an action does not per se
28

any ruling or judgment rendered in relation to such counterclaim is considered null and _______________
void. In effect, Rosita may file a separate action against Arturo for recovery of a sum of
money. 25 Mahinay v. Velasquez, Jr., id., at pp. 149-150; p. 121; Kierulf v. Court of Appeals, id., at p. 432; p. 451.
Mahinay v. Velasquez, Jr., id., at p. 150; p. 121; Kierulf v. Court of Appeals, id.
26
should put the law into his own hands. As to SBTC and its officers, their negligence is so
CA Rollo, p. 518.
gross as to amount to a willfull injury to respondents. The banking system has become an
27

Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28, 2004, 430
28

SCRA 261, 293-294. indispensable institution in the modern world and plays a vital role in the economic life
81 of every civilized society. Whether as mere passive entities for the safe-keeping and
35

VOL. 541, DECEMBER 19, 2007 81 saving of money or as active instruments of business and commerce, banks have attained
a ubiquitous presence among the people, who have come to regard them with respect and
Sandejas vs. Ignacio, Jr.
even gratitude and most of all, confidence. For this reason, banks should guard against
make the action wrongful, or the party liable for it. One may err, but error alone is not a
36

injury attributable to negligence or bad faith on its part.


29

ground for granting such damages. In the absence of malice and bad faith, the mental
37

There is no hard-and-fast rule in the determination of what would be a fair amount of


30

anguish suffered by a person for having been made a party in a civil case is not the kind
moral damages since each case must be governed by its own peculiar facts. The
of anxiety which would warrant the award of moral damages.
38

yardstick should be that it is not palpably and scandalously excessive. Moreover, the
31

A resort to judicial processes is not, per se, evidence of ill will upon which a claim for
39

social standing of the aggrieved party is essen-


damages may be based. 32
_______________
In China Banking Corporation v. Court of Appeals, this Court held: 33

Settled in our jurisprudence is the rule that moral damages cannot be recovered from a person Cagungun v. Planters Development Bank, G.R. No. 158674, October 17, 2005, 473 SCRA 259, 273-274.
35

who has filed a complaint against another in good faith, or without malice or bad faith (Philippine Id., at p. 274.
36

National Bank v. Court of Appeals, 159 SCRA 433[1988]; R & B Surety and Insurance v. Id.
37

Intermediate Appellate Court, 129 SCRA 736 [1984]). If damage results from the filing of the Id., at p. 273.
38

complaint, it is damnum absque injuria (Ilocos Norte Electrical Company v. Court of Appeals, 179 Id.
39

SCRA 5 [1989]). 34
83
In the present case, the Court agrees with the RTC and the CA that petitioners failed to VOL. 541, DECEMBER 19, 2007 83
establish that respondents were moved by bad faith or malice in impleading Patricia and Sandejas vs. Ignacio, Jr.
Benjamin. Hence, Patricia and Benjamin are not entitled to damages. tial to the determination of the proper amount of the award. Otherwise, the goal of40

The Court sustains the award of moral and exemplary damages as well as attorneys enabling him to obtain means, diversions, or amusements to restore him to the status
fees in favor of respondents. quo ante would not be achieved. In the present case, the Court finds no cogent reason to
41

As to moral damages, Article 20 of the Civil Code provides that every person who, modify the amount of moral damages granted by the CA.
contrary to law, willfully or negli- Likewise, the Court finds no compelling reason to disturb the modifications made by
_______________
the CA on the award of exemplary damages and attorneys fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by
29 Id., at p. 294.
30 Id. way of example or correction for the public good, in addition to moral, temperate,
31 Padillo v. Court of Appeals, 422 Phil. 334, 356; 371 SCRA 27, 46 (2001). liquidated, or compensatory damages. In the instant case, the award of exemplary
32 Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No. 155856, May 28, 2004, 430 SCRA 323, damages in favor of respondents is in order for the purpose of deterring those who intend
336.
to enforce their rights by taking measures or remedies which are not in accord with law
G.R. No. 94182, March 28, 1994, 231 SCRA 472.
33

Id., at p. 478.
34
and public policy. On the part of respondent bank, the public relies on a banks sworn
82 profession of diligence and meticulousness in giving irreproachable service. Hence, the 42

82 SUPREME COURT REPORTS ANNOTATED level of meticulousness must be maintained at all times by the banking sector. In the 43

present case the award of exemplary damages is justified by the brazen acts of
Sandejas vs. Ignacio, Jr.
petitioners Rosita and Alice in violating the law coupled with the gross negligence
gently causes damage to another, shall indemnify the latter for the same. In addition,
committed by respondent bank and its officers in allowing the subject check to be
Article 2219 (10) of the Civil Code provides that moral damages may be recovered in acts
deposited which later paved the way for its encashment.
or actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same Code.
As to attorneys fees, Article 2208 of the same Code provides, among others, that
More particularly, Article 21 of the said Code provides that any person who willfully
attorneys fees may be recovered when exemplary damages are awarded or when the
causes loss or injury to another in a manner that is contrary to morals, good customs, or
defen-
public policy shall compensate the latter for the damage. In the present case, the act of _______________
Alice and Rosita in fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public policy that no one 40 Samson, Jr. v. Bank of the Philippine Islands, 453 Phil. 577, 585; 405 SCRA 607, 612 (2003).
Id., at p. 585; p. 612.
41
effect of the instrument in any respect.Petitioner maintains that there exists a duty on the drawee
Prudential Bank v. Court of Appeals, 384 Phil. 817, 826; 328 SCRA 264, 271 (2000).
42
bank to inquire from the drawer before encashing a check only when the check bears a material
Id.
43
alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the
84
date, the sum payable, the time or place of payment, the number or relations of the parties, the
84 SUPREME COURT REPORTS ANNOTATED currency in which payment is to be made or one which adds a place of payment where no place of
Sandejas vs. Ignacio, Jr. payment is specified, or any other change or addition which alters the effect of the instrument in
any respect. With respect to the checks at issue, petitioner points out that they do not contain
dants act or omission has compelled the plaintiff to litigate with third persons or to incur _______________
expenses to protect his interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals * FIRST DIVISION.
dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED. 302

Costs against the petitioners. 3 SUPREME COURT REPORTS ANNOTATED


SO ORDERED. 02
Ynares-Santiago (Chairperson), Carpio-Morales, Chico-Nazario and Nachura,
**
Bank of America NT & SA vs. Philippine Racing Club
JJ., concur. any material alteration. This is a fact which was affirmed by the trial court itself.
Petition denied, judgment affirmed. Same; It is well-settled that banks are engaged in a business impressed with public interest,
Notes.As the symbol of law and order, a judge must refrain from taking the law in and it is their duty to protect in return their many clients and depositors who transact business with
his own hands and instead must resort to the courts for the vindication of his right them.It is well-settled that banks are engaged in a business impressed with public interest, and
except in extreme cases where he must act in self-defense, a judge must abide by the it is their duty to protect in return their many clients and depositors who transact business with
orderly processes of the law to protect his rights. (Bernardo vs. Tiamson, 363 SCRA them. They have the obligation to treat their clients account meticulously and with the highest
279[2001]) degree of care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family.
Pari delicto may not be invoked in a case of the waiver of rights under P.D. No. 27
Same; Every client should be treated equally by a banking institution regardless of the amount
since it runs counter to an avowed fundamental policy of the State. (Siacor vs. of his deposits and each client has the right to expect that every centavo he entrusts to a bank would
Gigantana, 380 SCRA 306 [2002]) be handled with the same degree of care as the accounts of other clients.Taking this with the
The end does not justify the meansguilt cannot be pronounced nor penalty imposed, testimony of petitioners operations manager that in case of an irregularity on the face of the check
unless due process is first observed, which is the essence of fairness and the rule of law in (such as when blanks were not properly filled out) the bank may or may not call the client
a democracy. (Department of Health vs. Camposano, 457 SCRA 438 [2005]) depending on how busy the bank is on a particular day, we are even more convinced that
petitioners safeguards to protect clients from check fraud are arbitrary and subjective. Every client
2. G.R. No. 150228. July 30, 2009.* should be treated equally by a banking institution regardless of the amount of his deposits and
each client has the right to expect that every centavo he entrusts to a bank would be handled with
BANK OF AMERICA NT & SA, petitioner, vs. PHILIPPINE RACING CLUB, the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly
respondent. failed to adhere to the high standard of diligence expected of it as a banking institution.
Banks and Banking; Negotiable Instruments Law; If the signatures are genuine, the bank has Same; Doctrine of Last Clear Chance; In instances where both parties are at fault, this Court
the unavoidable legal and contractual duty to pay.Petitioner insists that it merely fulfilled its has consistently applied the doctrine of last clear chance in order to assign liability.Even if we
obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 126 assume that both parties were guilty of negligent acts that led to the loss, petitioner will still
and 185 of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank emerge as the party foremost liable in this case. In instances where both parties are at fault, this
to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the Court has consistently applied the doctrine of last clear chance in order to assign liability.
drawer-clients genuine signatures. The genuine signatures of the clients duly authorized In Westmont Bank v. Ong, 375 SCRA 212 (2002), we ruled: [I]t is petitioner [bank] which had the
signatories affixed on the checks signify the order for payment. Thus, pursuant to the said last clear chance to stop the fraudulent encashment of the subject checks had it exercised due
obligation, the drawee bank has the duty to determine whether the signatures appearing on the diligence
check are the drawer-clients or its duly authorized signatories. If the signatures are genuine, the 303
bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and VOL. 594, JULY 30, 2009 303
falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty
not to pay. Bank of America NT & SA vs. Philippine Racing Club
Same; Same; A material alteration is defined in Section 125 of the Negotiable Instruments and followed the proper and regular banking procedures in clearing checks. As we had earlier
Law (NIL) to be one which changes the date, the sum payable, the time or place of payment, the ruled, the one who had a last clear opportunity to avoid the impending harm but failed
number or relations of the parties, the currency in which payment is to be made or one which adds a to do so is chargeable with the consequences thereof.
place of payment where no place of payment is specified, or any change or addition which alters the
Damages; Following established jurisprudential precedents, we believe the allocation of sixty 1 Rollo, pp. 80-87.
2 Id., at pp. 122-126.
percent (60%) of the actual damages, involved in this case (represented by the amount of the checks 3 Id., at p. 89.
with legal interest) to petitioner is proper under the premises.Following established 305
jurisprudential precedents, we believe the allocation of sixty percent (60%) of the actual damages VOL. 594, JULY 30, 2009 305
involved in this case (represented by the amount of the checks with legal interest) to petitioner is
proper under the premises. Respondent should, in light of its contributory negligence, bear forty Bank of America NT & SA vs. Philippine Racing Club
percent (40%) of its own loss. It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank
Attorneys Fees; An adverse decision does not ipso facto justify an award of attorneys fees to for encashment a couple of plaintiff-appellee corporations checks (Nos. 401116 and 401117) with
the winning party.We find that the awards of attorneys fees and litigation expenses in favor of the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those
respondent are not justified under the circumstances and, thus, must be deleted. The power of the presigned by plaintiff-appellee corporations authorized signatories.
court to award attorneys fees and litigation expenses under Article 2208 of the NCC demands The two (2) checks had similar entries with similar infirmities and irregularities. On the space
factual, legal, and equitable justification. An adverse decision does not ipso facto justify an award where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries
of attorneys fees to the winning party. Even when a claimant is compelled to litigate with third were instead typewritten: on the upper line was the word CASH while the lower line had the
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no following typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite the
sufficient showing of bad faith could be reflected in a partys persistence in a case other than an highly irregular entries on the face of the checks, defendant-appellant bank, without as much as
erroneous conviction of the righteousness of his cause. verifying and/or confirming the legitimacy of the checks considering the substantial amount
PETITION for review on certiorari of the decision and resolution of the Court of Appeals. involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A
The facts are stated in the opinion of the Court. verification process, even by was of a telephone call to PRCI office, would have taken less than ten
Sycip, Salazar, Hernandez & Gatmaitan for petitioner. (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee
corporation yielded the fact that there was no transaction involving PRCI that call for the payment
Reyno, Tiu, Domingo & Santos for respondent.
of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of
304
PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who
304 SUPREME COURT REPORTS ANNOTATED eventually completed without authority the entries on the pre-signed checks. PRCIs demand for
Bank of America NT & SA vs. Philippine Racing Club defendant-appellant to pay fell on deaf ears. Hence, the complaint.4

LEONARDO-DE CASTRO, J.: After due proceedings, the trial court rendered a Decision in favor of respondent, the
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the dispositive portion of which reads:
Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the
defendant, and the latter is ordered to pay plaintiff:
Appeals (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing Club, Inc. v. Bank of
(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be
America NT & SA, affirming the Decision2 dated March 17, 1994 of the Regional Trial
computed from date of the filing of the herein complaint;
Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. (2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;
Likewise, the present petition assails the Resolution 3 promulgated on September 28, _______________
2001, denying the Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows: 4 Id., at pp. 81-82.
306
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with
different banks in the Metro Manila area. Among the accounts maintained was Current Account 306 SUPREME COURT REPORTS ANNOTATED
No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint Bank of America NT & SA vs. Philippine Racing Club
signatories with respect to said Current Account were plaintiff-appellees President (Antonia (3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and
Reyes) and Vice President for Finance (Gregorio Reyes). To pay the costs of suit.
On or about the 2nd week of December 1988, the President and Vice President of plaintiff- SO ORDERED. 5

appellee corporation were scheduled to go out of the country in connection with the corporations Petitioner appealed the aforesaid trial court Decision to the CA which, however,
business. In order not to disrupt operations in their absence, they pre-signed several checks
affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for
relating to Current Account No. 58891-012. The intention was to insure continuity of plaintiff-
appellees operations by making available cash/money especially to settle obligations that might
Reconsideration of the CA Decision was subsequently denied on September 28, 2001.
become due. These checks were entrusted to the accountant with instruction to make use of the Petitioner now comes before this Court arguing that:
same as the need arose. The internal arrangement was, in the event there was need to make use of I. The Court of Appeals gravely erred in holding that the proximate cause of
the checks, the accountant would prepare the corresponding voucher and thereafter complete the respondents loss was petitioners encashment of the checks.
entries on the pre-signed checks.
_______________
A.
The Court of Appeals gravely erred in holding that petitioner was liable for 8 Sec. 185. Check defined.A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to
the amount of the checks despite the fact that petitioner was merely
a check.
fulfilling its obligation under law and contract. 308
B. The Court of Appeals gravely erred in holding that petitioner had a duty to 308 SUPREME COURT REPORTS ANNOTATED
verify the encashment, despite the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the Bank of America NT & SA vs. Philippine Racing Club
Negotiable Instruments Law, despite its clear applicability to this case; the corollary, but equally unavoidable legal and contractual, duty not to pay.9
II. The Court of Appeals gravely erred in not holding that the proximate cause of Furthermore, petitioner maintains that there exists a duty on the drawee bank to
respondents loss was its own grossly negligent practice of pre-signing checks without inquire from the drawer before encashing a check only when the check bears a material
payees and amounts and delivering these pre-signed checks to its employees (other alteration. A material alteration is defined in Section 125 of the NIL to be one which
than their signatories). changes the date, the sum payable, the time or place of payment, the number or relations
III. The Court of Appeals gravely erred in affirming the trial courts award of attorneys of the parties, the currency in which payment is to be made or one which adds a place of
fees despite the absence of any applicable ground under Article 2208 of the Civil payment where no place of payment is specified, or any other change or addition which
Code. alters the effect of the instrument in any respect. With respect to the checks at issue,
_______________ petitioner points out that they do not contain any material alteration. 10 This is a fact
which was affirmed by the trial court itself.11
5 Id., at p. 126. There is no dispute that the signatures appearing on the subject checks were genuine
307 signatures of the respondents authorized joint signatories; namely, Antonia Reyes and
VOL. 594, JULY 30, 2009 307 Gregorio Reyes who were respondents President and Vice President for Finance,
Bank of America NT & SA vs. Philippine Racing Club respectively. Both pre-signed the said checks since they were both scheduled to go abroad
IV. The Court of Appeals gravely erred in not awarding attorneys fees, moral and and it was apparently their practice to leave with the company accountant checks signed
exemplary damages, and costs of suit in favor of petitioner, who clearly deserves in black to answer for company obligations that might fall due during the signatories
them.6 absence. It is likewise admitted that neither of the subject checks contains any material
From the discussions of both parties in their pleadings, the key issue to be resolved in alteration or erasure.
the present case is whether the proximate cause of the wrongful encashment of the However, on the blank space of each check reserved for the payee, the following
checks in question was due to (a) petitioners failure to make a verification regarding the typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS ONLY. Above
said checks with the respondent in view of the misplacement of entries on the face of the the same is the typewritten word, CASH. On the blank reserved for the amount, the
checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check
same with its employees. writer. The pres-
_______________
Petitioner insists that it merely fulfilled its obligation under law and contract when it
encashed the aforesaid checks. Invoking Sections 1267 and 1858 of the Negotiable
9 Rollo, pp. 296-297.
Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer- 10 Id., at p. 298.
client maintaining a checking account with it is to pay orders for checks bearing the 11 Id., at p. 125.
drawer-clients genuine signatures. The genuine signatures of the clients duly 309
authorized signatories affixed on the checks signify the order for payment. Thus, VOL. 594, JULY 30, 2009 309
pursuant to the said obligation, the drawee bank has the duty to determine whether the Bank of America NT & SA vs. Philippine Racing Club
signatures appearing on the check are the drawer-clients or its duly authorized ence of these irregularities in each check should have alerted the petitioner to be
signatories. If the signatures are genuine, the bank has the unavoidable legal and cautious before proceeding to encash them which it did not do.
contractual duty to pay. If the signatures are forged and falsified, the drawee bank has It is well-settled that banks are engaged in a business impressed with public interest,
_______________
and it is their duty to protect in return their many clients and depositors who transact
6 Id., at pp. 55-56. business with them. They have the obligation to treat their clients account meticulously
7 Sec. 126. Bill of exchange defined.A bill of exchange is an unconditional order in writing addressed by and with the highest degree of care, considering the fiduciary nature of their
one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on relationship. The diligence required of banks, therefore, is more than that of a good
demand or at a fixed or determinable future time a sum certain in money to order or to bearer. father of a family.12
Petitioner asserts that it was not duty-bound to verify with the respondent since the Indeed, taking this with the testimony of petitioners operations manager that in case
amount below the typewritten word CASH, expressed in words, is the very same of an irregularity on the face of
amount indicated in figures by means of a check writer on the amount portion of the _______________
check. The amount stated in words is, therefore, a mere reiteration of the amount stated
14 TSN, testimony of Carlos H. Reyes, October 1, 1991, p. 3.
in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a
311
repetition and that a repetition is not an alteration which if present and material would
have enjoined it to commence verification with respondent. 13
VOL. 594, JULY 30, 2009 311
We do not agree with petitioners myopic view and carefully crafted defense. Although Bank of America NT & SA vs. Philippine Racing Club
not in the strict sense material alterations, the misplacement of the typewritten entries the check (such as when blanks were not properly filled out) the bank may or may not
for the payee and the amount on the same blank and the repetition of the amount using a call the client depending on how busy the bank is on a particular day, 15 we are even more
check writer were glaringly obvious irregularities on the face of the check. Clearly, convinced that petitioners safeguards to protect clients from check fraud are arbitrary
someone made a mistake in filling up the checks and the repetition of the entries was and subjective. Every client should be treated equally by a banking institution regardless
possibly an attempt to rectify the mistake. Also, if the check had been filled up by the of the amount of his deposits and each client has the right to expect that every centavo
person who customarily accomplishes the checks of respondent, it should he entrusts to a bank would be handled with the same degree of care as the accounts of
_______________ other clients. Perforce, we find that petitioner plainly failed to adhere to the high
standard of diligence expected of it as a banking institution.
12 Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company, Inc., G.R. No. In defense of its cashier/tellers questionable action, petitioner insists that pursuant
129015, August 13, 2004, 436 SCRA 402, 421.
13 Id., at p. 299. to Sections 1416 and 1617 of the
310 _______________

310 SUPREME COURT REPORTS ANNOTATED 15 TSN, testimony of Rose Acuban, August 20, 1991, pp. 8-9.
Bank of America NT & SA vs. Philippine Racing Club 16 Sec. 14. Blanks, when may be filled.Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
have occurred to petitioners employees that it would be unlikely such mistakes would be
signature on a blank paper delivered by the person making the signature in order that the paper may be
made. All these circumstances should have alerted the bank to the possibility that the converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.
holder or the person who is attempting to encash the checks did not have proper title to In order, however, that any such instrument when completed may be enforced against any person who became
the checks or did not have authority to fill up and encash the same. As noted by the CA, a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and
within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course,
petitioner could have made a simple phone call to its client to clarify the irregularities
it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in
and the loss to respondent due to the encashment of the stolen checks would have been accordance with the authority given and within a reasonable time.
prevented. 17 Sec. 16. Delivery; when effectual; when presumed.Every contract on a negotiable instrument is
In the case at bar, extraordinary diligence demands that petitioner should have incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between
immediate parties, and as regards a remote party other than a holder in due course, the delivery in order to be
ascertained from respondent the authenticity of the subject checks or the accuracy of the
effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing
entries therein not only because of the presence of highly irregular entries on the face of as the case may be; and in such case the delivery may be shown to have been conditional, or for
the checks but also of the decidedly unusual circumstances surrounding their 312
encashment. Respondents witness testified that for checks in amounts greater than 312 SUPREME COURT REPORTS ANNOTATED
Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure that the
Bank of America NT & SA vs. Philippine Racing Club
payee is indicated by name in the check.14 This was not rebutted by petitioner. Indeed, it
NIL, it could validly presume, upon presentation of the checks, that the party who filled
is highly uncommon for a corporation to make out checks payable to CASH for
up the blanks had authority and that a valid and intentional delivery to the party
substantial amounts such as in this case. If each irregular circumstance in this case were
presenting the checks had taken place. Thus, in petitioners view, the sole blame for this
taken singly or isolated, the banks employees might have been justified in ignoring
debacle should be shifted to respondent for having its signatories pre-sign and deliver the
them. However, the confluence of the irregularities on the face of the checks and
subject checks.18 Petitioner argues that there was indeed delivery in this case because,
circumstances that depart from the usual banking practice of respondent should have
following American jurisprudence, the gross negligence of respondents accountant in
put petitioners employees on guard that the checks were possibly not issued by the
safekeeping the subject checks which resulted in their theft should be treated as a
respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it
voluntary delivery by the maker who is estopped from claiming non-delivery of the
from behavior that fell extremely short of the highest degree of care and diligence
instrument.19
required of it as a banking institution.
Petitioners contention would have been correct if the subject checks were correctly 20 Sec. 15. Incomplete instrument not delivered.Where an incomplete instrument has not been
delivered it will not, if completed and negotiated, without authority, be a valid contract in the hands of any
and properly filled out by the thief and presented to the bank in good order. In that
holder, as against any person whose signature was placed thereon before delivery.
instance, there would be nothing to give notice to the bank of any infirmity in the title of 21 G.R. No. 132560, January 30, 2002, 375 SCRA 212.
the holder of the checks and it could validly presume that there was proper delivery to 22 Id., at p. 223, citing Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, 269 SCRA 695,
the holder. The bank could not be faulted if it encashed the checks under those 707-708.
314
circumstances. However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood that the checks were 314 SUPREME COURT REPORTS ANNOTATED
not properly delivered to the person who encashed the same. In all, we see no reason to Bank of America NT & SA vs. Philippine Racing Club
depart from the finding in the assailed CA Decision that the subject checks are properly dent because, even if we concur that the latter was indeed negligent in pre-signing blank
characterized as checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners
_______________ own operations manager admitted that they could have called up the client for
verification or confirmation before honoring the dubious checks. Verily, petitioner had
a special purpose only, and not for the purpose of transferring the property in the instrument. But where the
instrument is in the hands of a holder of a due course, a valid delivery thereof by all parties prior to him so as the final opportunity to avert the injury that befell the respondent. Failing to make the
to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession necessary verification due to the volume of banking transactions on that particular day is
of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the a flimsy and unacceptable excuse, considering that the banking business is so impressed
contrary is proved. with public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be a high
18 Rollo, p. 304.
19 Id., at p. 306. degree of diligence, if not the utmost diligence.23 Petitioners negligence has been
313 undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, 24 it must suffer the
VOL. 594, JULY 30, 2009 313 consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondents
Bank of America NT & SA vs. Philippine Racing Club
own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:
incomplete and undelivered instruments thus making Section 15 20 of the NIL applicable Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of
in this case. his injury, he cannot recover damages. But if his negligence was only contributory, the immediate
However, we do agree with petitioner that respondents officers practice of pre- and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
signing of blank checks should be deemed seriously negligent behavior and a highly risky damages, but the courts shall mitigate the damages to be awarded.
means of purportedly ensuring the efficient operation of businesses. It should have Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:
occurred to respondents officers and managers that the pre-signed blank checks could _______________
fall into the wrong hands as they did in this case where the said checks were stolen from
23 Gempesaw v. Court of Appeals, G.R. No. 92244, February 9, 1993, 218 SCRA 682, 697.
the company accountant to whom the checks were entrusted.
24 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
Nevertheless, even if we assume that both parties were guilty of negligent acts that and those who in any manner contravene the tenor thereof, are liable for damages.
led to the loss, petitioner will still emerge as the party foremost liable in this case. In 25 G.R. No. 160709, February 23, 2005, 452 SCRA 285, 293.
instances where both parties are at fault, this Court has consistently applied the doctrine 315
of last clear chance in order to assign liability. VOL. 594, JULY 30, 2009 315
In Westmont Bank v. Ong,21 we ruled: Bank of America NT & SA vs. Philippine Racing Club
[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of The underlying precept on contributory negligence is that a plaintiff who is partly responsible
the subject checks had it exercised due diligence and followed the proper and regular banking for his own injury should not be entitled to recover damages in full but must bear the consequences
procedures in clearing checks. As we had earlier ruled, the one who had a last clear of his own negligence. The defendant must thus be held liable only for the damages actually caused
opportunity to avoid the impending harm but failed to do so is chargeable with the by his negligence. xxx xxx xxx
consequences thereof. (emphasis ours)
22
As we previously stated, respondents practice of signing checks in blank whenever its
In the case at bar, petitioner cannot evade responsibility for the loss by attributing
authorized bank signatories would travel abroad was a dangerous policy, especially
negligence on the part of respon-
_______________
considering the lack of evidence on record that respondent had appropriate safeguards or
internal controls to prevent the pre-signed blank checks from falling into the hands of
unscrupulous individuals and being used to commit a fraud against the company. We
cannot believe that there was no other secure and reasonable way to guarantee the non-
disruption of respondents business. As testified to by petitioners expert witness, other (7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;
corporations would ordinarily have another set of authorized bank signatories who would
317
be able to sign checks in the absence of the preferred signatories. 26 Indeed, if not for the
fortunate happenstance that the thief failed to properly fill up the subject checks,
VOL. 594, JULY 30, 2009 317
respondent would expectedly take the blame for the entire loss since the defense of Bank of America NT & SA vs. Philippine Racing Club
forgery of a drawers signature(s) would be unavailable to it. Considering that respondent An adverse decision does not ipso facto justify an award of attorneys fees to the
knowingly took the risk that the pre-signed blank checks might fall into the hands of winning party.29 Even when a claimant is compelled to litigate with third persons or to
wrongdoers, it is but just that respondent shares in the responsibility for the loss. incur expenses to protect his rights, still attorneys fees may not be awarded where no
We also cannot ignore the fact that the person who stole the pre-signed checks subject sufficient showing of bad faith could be reflected in a partys persistence in a case other
of this case from respondents accountant turned out to be another employee, purportedly than an erroneous conviction of the righteousness of his cause.30
a clerk in respondents accounting department. As the employer of the thief, respondent WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its
supposedly had control and supervi- Resolution dated September 28, 2001 are AFFIRMED with the following
_______________ MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty
26 TSN, testimony of Gerardo Martin, a certified public accountant/auditor from Sycip Gorres & Velayo, Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b)
February 25, 1992, p. 6.
316 the awards of attorneys fees and litigation expenses in favor of respondent are deleted.
Proportionate costs.
316 SUPREME COURT REPORTS ANNOTATED
SO ORDERED.
Bank of America NT & SA vs. Philippine Racing Club 3. CITIBANK, N.A., petitioner, vs. ATTY. ERNESTO S. DINOPOL, respondent.
sion over its own employee. This gives the Court more reason to allocate part of the loss Remedial Law; Certiorari; The general rule is that in petitions for review on certain certiorari,
to respondent. the Court will not re-examine the findings of fact of the appellate court; Exceptions.The general
Following established jurisprudential precedents, 27 we believe the allocation of sixty rule is that in petitions for review on certiorari, the Court will not re-examine the findings of fact of
percent (60%) of the actual damages involved in this case (represented by the amount of the appellate court except (a) when the latters findings are grounded entirely on speculations,
the checks with legal interest) to petitioner is proper under the premises. Respondent surmises or conjectures; (b) when its inference is manifestly mistaken, absurd or impossible; (c)
should, in light of its contributory negligence, bear forty percent (40%) of its own loss. when there is a grave abuse of discretion; (d) when its findings of fact are conflicting; and (e) when
Finally, we find that the awards of attorneys fees and litigation expenses in favor of it goes beyond the issues of the case. Citibank fails to convince the Court that the case falls under
respondent are not justified under the circumstances and, thus, must be deleted. The any of the exceptions. Hence, the findings of fact should no longer be reviewed.
Civil Law; Damages; Moral Damages; The award of moral damages should be granted in
power of the court to award attorneys fees and litigation expenses under Article 2208 of
reasonable amounts depending on the facts and circumstances of the case.The award of moral
the NCC28 demands factual, legal, and equitable justification. damages should be granted in reasonable amounts depending on the facts and circumstances of the
_______________
case. Moral damages are meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
27 Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, March 14, 1997, 269 SCRA
humiliation and similar injuries unjustly caused.
695; Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, September 11, 2003, 410
_______________
SCRA 562.
28 Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
* SECOND DIVISION.
costs, cannot be recovered, except:
650
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled 6 SUPREME COURT REPORTS ANNOTATED
the plaintiff to litigate with third persons or to incur 50
expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the Citibank, N.A. vs. Dinopol
plaintiff; Same; Same; Exemplary Damages; The law allows the award of exemplary damages by way of
(4) In case of a clearly unfounded civil action or proceeding example for the public good.As to the award of exemplary damages, the law allows it by way of
against the plaintiff; example for the public good. The business of banking is impressed with public interest and great
(5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid,
reliance is made on the banks sworn profession of diligence and meticulousness in giving
just and demandable claim; irreproachable service. Thus, the Court affirms the award as a way of setting an example for the
(6) In actions for legal support; public good. In addition, it also provided for attorneys fees. Both are subject to legal interest.
Banks and Banking; Banks must always act in good faith and must win the confidence of his credit line was already insufficient to accommodate it. His credit limit had been
clients and people in general.In any event, Citibank should have been more cautious in dealing reduced by the interests and penalty charges imposed as a result of his late payment.
with its clients since its business is imbued with public interest. Banks must always act in good Citibank argued that had Atty. Dinopol been prompt in the payment of his obligations,
faith and must win the confidence of clients and people in general. It is irrelevant whether the
he would not have incurred interests and penalty charges and his credit line of
client is a lawyer or not. 652
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
652 SUPREME COURT REPORTS ANNOTATED
The facts are stated in the opinion of the Court.
Jose Luis V. Agcaoili for petitioner. Citibank, N.A. vs. Dinopol
Romeo B. Igot for respondent. P30,000.00 would have been available at the time the check was issued and presented for
MENDOZA, J.: payment.
This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil On February 20, 2004, the RTC rendered a decision 2against Citibank, the dispositive
Procedure questioning 1] the December 16, 2008 Decision 1 of the Court of Appeals (CA),in portion of which reads:
CA-G.R. CV No. 82291, which affirmed the February 20, 2004 Decision of the Regional In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
Trial Court, Branch 226, Quezon City (RTC), ordering petitioner Citibank, N. defendant bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty.
Ernesto S. Dinopol:
A. (Citibank) to pay respondent Atty. Ernesto S. Dinopol (Atty. Dinopol) moral damages
1) P100,000.00 as and for moral damages;
and attorneys fees; and 2] its June 19, 2009 Resolution denying petitioners motion for 2) P50,000.00 as and for attorneys fees; and
the reconsideration thereof. 3) Costs of suit.
_______________ SO ORDERED.
The RTC reasoned out, among others, that Citibank failed to completely disclose the
1 Rollo, pp. 10-25. Penned by Associate Justice Vicente S.E. Veloso with Associate Justice Rebecca De
Guia-Salvador and Associate Justice Ricardo R. Rosario, concurring. terms and conditions of its Citybank Ready Credit Account when Atty. Dinopol applied
651 for it. Only the general provisions of the agreement were explained to him. The Standard
VOL. 635, NOVEMBER 22, 2010 651 Handbook Guide which would have guided him as to fees, charges and penalties that
could be billed by the bank was never given to him.
Citibank, N.A. vs. Dinopol
Furthermore, the RTC found that Atty. Dinopol was given a go signal by Citibank
Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibanks when he informed the latter that he was going to issue a check in the amount of
Ready Credit Checkbooks advertised offer. After approving his application, Citibank P30,000.00. Citibank failed to advise him that he still had an outstanding balance of
granted Atty. Dinopol a credit line limit of P30,000.00. For said reason, Atty. Dinopol P58.33 as of February 26, 1997. Had he been informed, he could have paid such a small
received from Citibank a check booklet consisting of several checks with a letter stating amount and avoided the dishonor of his check. In fact, when he issued the check on
that the account was ready to use. Later, Citibank billed Atty. Dinopol the sum of March 6, 1997, no bill had yet been sent to him for the amount of P58.33 because he had
P1,545.00 representing Ready Credit Documentary Stamp and Annual Membership Fee just paid P1,629.00 on February 26, 1997. The billing statement, if any, would still be
as reflected in his Statement of Account dated December 26, 1996. Thereafter, Citibank due on March 15, 1997. On March 11, 1997, when the check was presented for payment,
billed him the amount of P1,629.21 for interest and charges as well as late payment Citibank could have called his attention and he could have immediately remitted the
charges as stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid _______________
said interests and charges on February 26, 1997.
On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account 2 Id., at pp. 317-329.
with Citibank in the amount of P30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr. 653
Geonzon) for investment purposes in her restaurant business. However, when the check VOL. 635, NOVEMBER 22, 2010 653
was deposited on March 12, 1997, it was dishonored for the reason, Drawn Against Citibank, N.A. vs. Dinopol
Insufficient Funds or DAIF. Humiliated by the dishonor and the demand notice he amount of P58.00 within the same banking day so that the check would be honored.
received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages against Decision of the Court of Appeals
Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly negligent and On December 16, 2008, the CA affirmed the RTC decision with modification. It
acted in bad faith in dishonoring his check. increased the award of moral damages from P100,000.00 to P500,000.00 and awarded
In defense, Citibank averred that it was completely justified in dishonoring Atty. exemplary damages in the amount of P50,000.00.
Dinopols check because the account did not have sufficient funds at the time it was In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P.
issued. Citibank explained that when said check in the amount of P30,000.00 was issued, Hernando (Hernando), displayed dishonesty in claiming that Atty. Dinopol was provided
with the banks Customer Guidebook. No proof to the contrary was shown by the bank. interest and late payment charges accrued on his unpaid account as provided for in the
Instead of exercising good faith by providing a new account holder like Atty. Dinopol with provisions of the guidebook.
the service guidebook, Citibank argued that since he was a lawyer, the latter should have Further, Citibank claims that a second statement of account dated January 26, 1997
already been familiar with the terms and conditions of his Ready Credit Account. was sent to Atty. Dinopol which
Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first 655
consulted the bank if he could issue one. It was only after being given the affirmative VOL. 635, NOVEMBER 22, 2010 655
response that he issued said check which gave rise to this controversy. The bank should Citibank, N.A. vs. Dinopol
have given the necessary advice to Atty. Dinopol and thereby avoid the dishonor of the showed that the aggregate amount of P1,629.21 was due and payable immediately. This
check for a measly amount of P58.33. amount represents the unpaid sum of P1,545.00 for the annual fee and documentary
Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the stamp tax, P10.00 as penalty charge for the late payment and P74.21 as accrued interest.
check so as to justify the P58.33 deduction from his P30,000.00 credit line. Based on the Atty. Dinopol paid the amount of P1,629.21 only on February 26, 1997. Thereafter,
documentary evidence, the due date for the February 26, 1997 Statement of Account was Citibank sent him another statement of account acknowledging receipt of his payment
March 19, 1997. So, when Atty. Dinopol issued the check on March 6, 1997, the period and, at the same time, charging him the additional amount of P58.33 for penalties and
within which to settle his account was still running, thus, rendering the P58.33 other charges. Since the unpaid amount of P58.33 was automatically billed as an
deduction unjustified. availment against his Ready Credit Facility, his available credit limit at the time of the
In modifying the decision, the CA increased the amount of moral damages from issuance of the subject check on March 6, 1997 was already reduced by P58.33. As a
P100,000.00 to P500,000.00 for the following reasons: 1] Atty. Dinopols staturehe was result, when the subject check was negotiated, it had to be returned due to DAIF.
a lawyer of Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty.
654
Dinopols failure to timely settle his outstanding obligations despite receipt of his
654 SUPREME COURT REPORTS ANNOTATED statements of account. It cannot, therefore, be faulted because it was just exercising its
Citibank, N.A. vs. Dinopol legal right under the terms and conditions of the Ready Credit Facility. It did not act
good standing, yet he was abused by Citibank; 2] the dishonesty displayed by Citibank in fradulently or in bad faith. No proof was shown that the dishonor of the subject check
claiming that Atty. Dinopol was given a service guidebook despite lack of proof thereon; was carried out in an arbitrary, capricious, and malicious manner.
3] the bad faith displayed by Citibank in using a measly amount of P58.33 as basis to Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to
justify its dishonor (due to DAIF) of P30,000.00 worth of check issued by Atty. Dinopol; have carefully considered, known, and understood the provisions and legal effects of the
and 4] the fact that Citibank besmirched Atty. Dinopols reputation and has considerably contracts he entered into.
caused him undue humiliation. Position of the Respondent
Hence, this petition. In answer to Citibanks assertions, Atty. Dinopol counters that the bank failed to
prove that a copy of the guidebook was sent to him. In fact, Citibanks own witness,
Issue Hernando, categorically admitted that the bank did not send him the said guidebook.
According to Atty. Dinopol, Citibank should have
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING 656
THAT PETITIONER CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY. 656 SUPREME COURT REPORTS ANNOTATED
ERNESTO S. DINOPOL FOR DAMAGES. Citibank, N.A. vs. Dinopol
Position of the Petitioner acted in good faith and in a manner deserving of the trust of its customers.
Citibank argues that the dishonor of Atty. Dinopols check was valid as it was done in He also contends that the dishonor of the check due to the non-payment of the penalty
the exercise of its rights and prerogative under the terms and conditions of his Ready charges and interests of P58.33 was uncalled for. The payment of said amount was not
Credit Facility. It insists that it sent a copy of the guidebook to Atty. Dinopol after his yet due on March 6, 1997 when the check was issued and even on March 12, 1997 when
application for the credit facility was approved. it was dishonored. The statement of account would show that the sum of P58.33 was due
It also points out that upon the approval of Atty. Dinopols Ready Credit Facility, the only on March 19, 1997. This only shows that his account was not yet delinquent, both at
latter was initially billed with the amounts of P1,500.00 for the annual fee and P45.00 for the time when said check was issued and when it was eventually presented for payment,
the documentary stamp tax. The total amount of P1,545.00 was indicated in his thereby making the act of the bank of dishonoring the check wanting of any legal basis.
Statement of Account dated December 26, 1996, bearing the due date on or before Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it
January 16, 1997. Atty. Dinopol, however, failed to pay it on or before said date. Thus, dishonered the subject check for a meager amount of P58.33 and for imposing highly
questionable charges against his credit facility account. He believes that the bank, 658 SUPREME COURT REPORTS ANNOTATED
wilfully or negligently, wronged him and damaged his reputation. Hence, it is liable to Citibank, N.A. vs. Dinopol
pay him damages.
1997,9 both dates being days before the said due date. Contrary to Citibanks insistence,
The Courts Ruling
Atty. Dinopol was definitely not yet a delinquent account holder. More importantly,
The general rule is that in petitions for review on certiorari, the Court will not re-
Citibank failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997
examine the findings of fact of the appellate court except (a) when the latters findings
after paying the full amount of P1,629.21 and clearing with the bank if he could issue a
are grounded entirely on speculations, surmises or conjectures; (b) when its inference is
check in the amount of P30,000.00. Citibank did not even refute the allegation that it
manifestly mistaken, absurd or impossible; (c) when there is a grave abuse of discretion;
gave Atty. Dinopol the go-signal to issue such a check.
(d) when its findings of fact are conflicting; and (e) when it goes beyond the issues of the
With respect to damages, the Court is in agreement with the CA in awarding moral
case.3 Citibank fails to convince the Court that the case falls under any of the exceptions.
and exemplary damages. However, the Court cannot sanction the modification by the CA,
Hence, the findings of fact should no longer be reviewed.
_______________ under the circumstances attending the case. It is of the considered view that the award of
the RTC would suffice subject, of course, to the payment of legal interest.
3 J. Hidalgo Uy v. Spouses Medina, G.R. No. 172541, August 8, 2010, 627 SCRA 245. The award of moral damages should be granted in reasonable amounts depending on
657 the facts and circumstances of the case.10 Moral damages are meant to compensate the
VOL. 635, NOVEMBER 22, 2010 657 claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched
Citibank, N.A. vs. Dinopol reputation, wounded feelings, moral shock, social humiliation and similar injuries
At any rate, the Courts agrees with the courts below in concluding that Citibank was unjustly caused.11
liable to Atty. Dinopol for moral and exemplary damages and attorneys fees. As to the award of exemplary damages, the law allows it by way of example for the
A perusal of the evidentiary records shows that Citibank was at fault when it public good. The business of banking is impressed with public interest and great reliance
dishonored the subject check. First, Citibank claims that, as a matter of standard is made on the banks sworn profession of diligence and meticulousness in giving
operating procedure, it sent to Atty. Dinopol the Citibank Ready Credit Customer irreproachable service.12Thus, the Court affirms the award as a way of setting an
Guidebook upon the approval of his Ready Credit Account application and so, he was example for the public good. In
_______________
aware of the terms and conditions stated therein. Yet, except for its bare allegation, no
other substantial proof was presented by Citibank that the guidebook was indeed sent to 8 Id., at p. 259.
Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was not 9 Id., at p. 260.
at all delivered to him. 10 Manila Electric Company v. Spouses Edito and Felicidad Chua and Josefina Paqueo, G.R. No. 160422,
July 5, 2010, 623 SCRA 81.
Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00
11 Cagungun v. Planters Development Bank, 510 Phil. 51, 62-63; 473 SCRA 259, 271 (2005), citing Samson,
and Citibank dishonored it because of insufficiency of funds by P58.33 representing the Jr. v Bank of the Philippine Islands, 453 Phil. 577, 583; 405 SCRA 607, 611 (2003).
amount charged on his credit line for penalties and charges, the said amount was not yet 12 Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan, G.R. No. 167346, April 2, 2007,
overdue. The banks Statement of Account dated January 26, 1997 4 showed that he must 520 SCRA 123, 129.
659
pay the total amount of P1,629.21 representing the annual membership fee of P1,500.00,
documentary stamp tax of P45.00, late charges of P10.00 and interest/charges of P74.21. VOL. 635, NOVEMBER 22, 2010 659
On February 26, 1997, he immediately paid the full amount of P1,629.21 as evidenced by Citibank, N.A. vs. Dinopol
his credit card payment slip.5 The full payment was reflected in his statement of addition, it also provided for attorneys fees. Both are subject to legal interest.
account6 dated February 26, 1997. The same statement of account7 indicated that there In any event, Citibank should have been more cautious in dealing with its clients
were still charges amounting to P58.33 due for payment on March 19, 1997. To since its business is imbued with public interest. Banks must always act in good faith
reiterate, the check was issued on March 6, 19978 and dishonored on March 12, and must win the confidence of clients and people in general. It is irrelevant whether the
_______________ client is a lawyer or not.
It cannot be over emphasized that the banking business is impressed with public interest. Of
4 Rollo, p. 257. paramount importance is the trust and confidence of the public in general in the banking industry.
5 Id., at p. 258.
Consequently, the diligence required of banks is more than that of a Roman pater familias or a
6 Id., at p. 284.
7 Id. good father of a family. The highest degree of diligence is expected.
658 In its declaration of policy, the General Banking Law of 2000 requires of banks the highest
standards of integrity and performance. Needless to say, a bank is under obligation to treat the
accounts of its depositors with meticulous care. The fiduciary nature of the relationship between he is singled out as a suspect in the commission of a crime although not yet in custody. Therefore,
the bank and the depositors must always be of paramount concern. 13 to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of
WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is freedom, with questions propounded on him by the police authorities for the purpose of eliciting
MODIFIED to read as follows: admissions, confessions, or any information. The said constitutional provision does not apply to
In view of the foregoing, judgment is hereby rendered ordering defendant Citibank, N.A. to spontaneous statements made in a voluntary manner whereby an individual orally admits to
pay plaintiff Atty. Ernesto S. Dinopol the following: authorship of a crime. What the Constitution proscribes is the compulsory or coercive disclosure of
1] P100,000.00 as and for moral damages; incriminating facts.
2] P50,000.00 as and for exemplary damages; Same; Self-Incrimination; The right against self-incrimination, which is ordinarily available
3] P50,000.00 as and for attorneys fees; and only in criminal prosecutions, extends to all other government proceedingsincluding civil actions,
4] Costs of suit, legislative investigations, and administrative proceedings that possess a criminal or penal aspect
plus interest at the legal rate reckoned from the filing of the complaint. but not to private investigations done by private individuals.The right against self-incrimination
under Section 17 of Article III of the Constitution, which is ordinarily available only in criminal
prosecutions, extends to all other government proceedingsincluding civil actions, legislative
4. G.R. No. 149454. May 28, 2004. *
investigations, and administrative proceedings that possess a criminal or penal aspectbut not to
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI private investigations done by private individuals. Even in such government proceedings, this right
INTERNATIONALE and LEONARDO T. YABUT, respondents. may be waived, provided the waiver is certain; unequivocal; and intelligently, understanding and
G.R. No. 149507. May 28, 2004. *
willingly made. If in these government proceedings waiver is allowed, all the more is it so in
CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE private investigations. It is of no moment that no criminal case has yet been filed against Yabut.
The filing thereof is entirely up to the appropriate authorities or to the private individuals upon
ISLANDS, respondents.
whom damage has been caused. As we shall also explain later, it is not mandatory for CASAthe
Negotiable Instruments Law; A forged signature is a real or absolute defense, and a person
plaintiff belowto implead Yabut in the civil case before the lower court.
whose signature on a negotiable instrument is forged is deemed to have never become a party thereto
Same; Bill of Rights; The Bill of Rights does not concern itself with the relation between a
and to have never consented to the contract that allegedly gave rise to it.Section 23 of the NIL
private individual and another individualthe Bill of Rights is a charter of liberties for the
provides: Section 23. Forged signature; effect of.When a signature is forged or made without the
individual and a limitation upon
authority of the person whose signature it purports to be, it is wholly inoperative, and no right x x 263
x to enforce payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is precluded from
VOL. 430, MAY 28, 2004 263
setting up the forgery or want of authority. Under this provision, a forged signature is a real or Bank of the Philippine Islands vs. Casa Montessori Internationale
absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to the power of the State.Under these two constitutional provisions, [t]he Bill of Rights does
have never become a party thereto and to have never consented to the contract that allegedly gave not concern itself with the relation between a private individual and another individual. It governs
rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with intent the relationship between the individual and the State. Moreover, the Bill of Rights is a charter of
to defraud, is forgery. liberties for the individual and a limitation upon the power of the [S]tate. These rights are
_______________ guaranteed to preclude the slightest coercion by the State that may lead the accused to admit
something false, not prevent him from freely and voluntarily telling the truth.
FIRST DIVISION.
Negotiable Instruments Law; Checks; Evidence; Best Evidence Rule; Under the best evidence
*

262
rule as applied to documentary evidence, like the checks in question, no secondary evidence or
2 SUPREME COURT REPORTS ANNOTATED substitutionary evidence may inceptively be introduced, as the original writing itself must be
62 produced in court, but when, without bad faith on the part of the offeror, the original checks have
Bank of the Philippine Islands vs. Casa Montessori Internationale already been destroyed or cannot be produced in court, secondary evidence, like microfilm copies,
may be produced.Forgery cannot be presumed. It must be established by clear, positive and
Administrative Investigations; Rights of Suspects; The mantle of protection under Section 12
convincing evidence. Under the best evidence rule as applied to documentary evidence like the
of Article III of the 1987 Constitution covers only the period from the time a person is taken into
checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the
custody for investigation of his possible participation in the commission of a crime or from the time
original writing itself must be produced in court. But when, without bad faith on the part of the
he is singled out as a suspect in the commission of a crime although not yet in custodyto fall
offeror, the original checks have already been destroyed or cannot be produced in court, secondary
within the ambit of Section 12, there must be an arrest or a deprivation of freedom, with questions
evidence may be produced. Without bad faith on its part, CASA proved the loss or destruction of
propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or
the original checks through the Affidavit of the one person who knew of that factYabut. He
any information.In the first place, he was not under custodial investigation. His Affidavit was
clearly admitted to discarding the paid checks to cover up his misdeed. In such a situation,
executed in private and before private individuals. The mantle of protection under Section 12 of
secondary evidence like microfilm copies may be introduced in court.
Article III of the 1987 Constitution covers only the period from the time a person is taken into
Same; Same; Same; Same; Even with respect to documentary evidence, the best evidence rule
custody for investigation of his possible participation in the commission of a crime or from the time
applies only when the contents of the documentsuch as the drawers signature on a checkis the
subject of inquiry.Even with respect to documentary evidence, the best evidence rule applies only VOL. 430, MAY 28, 2004 265
when the contents of a documentsuch as the drawers signature on a checkis the subject of
inquiry. As to whether the document has been actually executed, this rule does not apply; and Bank of the Philippine Islands vs. Casa Montessori Internationale
testimonial as well as any other secondary evidence is admissible. Carina Lebron herself, the Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is
drawers authorized signatory, testified many times that she had never signed those checks. Her it estopped from questioning the mistake after the lapse of the ten-day period. This notice is a
testimonial evidence is admissible; the checks have not been actually executed. The genuineness of simple confirmation or circularizationin accounting parlancethat requests client-depositors to
her handwriting is proved, not only through the courts comparison of the questioned hand-writings affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a
and admittedly genuine specimens thereof, but above all by her. direct corroboration of the correctness of their account balances with their respective banks.
Same; Same; Same; Same; Of no consequence is the fact that the depositor did not present the Internal or external auditors of a bank use it as a basic audit procedurethe results of which its
signature card containing the signatures with which those on the checks were comparedspecimens client-depositors are neither interested in nor privy toto test the details of transactions and
of standard signatures are not limited to such a card.The failure of CASA to produce the balances in the banks records. Evidential matter obtained from independent sources outside a
264 bank only serves to provide greater assurance of reliability than that obtained solely within it for
2 SUPREME COURT REPORTS ANNOTATED purposes of an audit of its own financial statements, not those of its client-depositors.
Same; Same; Same; Banks have no right to impose a condition unilaterally and thereafter
64 consider failure to meet such condition a waiver, and neither may a depositor renounce a right it
Bank of the Philippine Islands vs. Casa Montessori Internationale never possessed.There is always the audit risk that errors would not be detected for various
original checks neither gives rise to the presumption of suppression of evidence nor creates reasons. One, materiality is a consideration in audit planning; and two, the information obtained
an unfavorable inference against it. Such failure merely authorizes the introduction of secondary from such a substantive test is merely presumptive and cannot be the basis of a valid waiver. BPI
evidence in the form of microfilm copies. Of no consequence is the fact that CASA did not present has no right to impose a condition unilaterally and thereafter consider failure to meet such
the signature card containing the signatures with which those on the checks were compared. condition a waiver. Neither may CASA renounce a right it has never possessed.
Specimens of standard signatures are not limited to such a card. Considering that it was not Same; Same; Same; Every right has subjectsactive and passive, the active subject being
produced in evidence, other documents that bear the drawers authentic signature may be resorted entitled to demand its enforcement while the passive one being duty-bound to suffer such
to. Besides, that card was in the possession of BPIthe adverse party. enforcement; The bank could not have been an active subject, because it could not have demanded
Banks and Banking; Checks; Since the banking business is impressed with public interest, of from the depositor a response to its notice, while, on the other hand, the depositor could not have
paramount importance thereto is the trust and confidence of the public in generalthe highest been a passive subject because it had no obligation to respond.Every right has subjectsactive
degree of diligence is expected, and high standards of integrity and performance are even required of and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-
it; A bank is bound to know the signatures of its customers, and if it pays a forged check, it must be bound to suffer such enforcement. On the one hand, BPI could not have been an active subject,
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so because it could not have demanded from CASA a response to its notice. Besides, the notice was a
paid to the account of the depositor whose name was forged.We have repeatedly emphasized that, measly request worded as follows: Please examine x x x and report x x x. CASA, on the other
since the banking business is impressed with public interest, of paramount importance thereto is hand, could not have been a passive subject, either, because it had no obligation to respond. It
the trust and confidence of the public in general. Consequently, the highest degree of diligence is couldas it didchoose not to respond.
expected, and high standards of integrity and performance are even required, of it. By the nature of Same; Same; Estoppel; Words and Phrases; Estoppel precludes individuals from denying or
its functions, a bank is under obligation to treat the accounts of its depositors with meticulous asserting, by their own deed or representation, anything contrary to that established as the truth, in
care, always having in mind the fiduciary nature of their relationship. BPI contends that it has a legal contemplation; Estoppel will not arise from a conduct due to ignorance founded upon an
signature verification procedure, in which checks are honored only when the signatures therein are innocent mistake.Estoppel precludes individuals from denying or asserting, by their own deed or
verified to be the same with or similar to the specimen signatures on the signature cards. representation, anything contrary to that
Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the 266

omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very 2 SUPREME COURT REPORTS ANNOTATED
early on we have already ruled that a bank is bound to know the signatures of its customers; and 66
if it pays a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name was Bank of the Philippine Islands vs. Casa Montessori Internationale
forged. In fact, BPI was the same bank involved when we issued this ruling seventy years ago. established as the truth, in legal contemplation. Our rules on evidence even make a juris et
Same; Same; Audit Procedures; The notice in the monthly statements issued by the bank that de jure presumption that whenever one has, by ones own act or omission, intentionally and
if no error is reported in ten (10) days, the account will be correct cannot be considered a waiver, deliberately led another to believe a particular thing to be true and to act upon that belief, one
even if the depositor failed to report the error, and neither is it estopped from questioning the cannotin any litigation arising from such act or omissionbe permitted to falsify that supposed
mistake after the lapse of the ten-day periodsuch notice is a simple confirmation or truth. In the instant case, CASA never made any deed or representation that misled BPI. The
circularization,in accounting parlance, that requests client-depositors to affirm the accuracy of formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and
items recorded by the banks.The monthly statements issued by BPI to its clients contain a notice consequences of periodic audits. Since its conduct was due to such ignorance founded upon an
worded as follows: If no error is reported in ten (10) days, account will be correct. innocent mistake, estoppel will not arise. A person who has no knowledge of or consent to a
265 transaction may not be estopped by it. Estoppel cannot be sustained by mere argument or
doubtful inference x x x. CASA is not barred from questioning BPIs error even after the lapse of more horrible to a client than to discover later on that the person tasked to detect fraud was the
the period given in the notice. same one who perpetrated it.
Same; Same; For allowing payment on the checks to a wrongful and fictitious payee, the Same; Same; Awareness is not equipollent with discernment.It is a non sequitur to say that
drawee bank becomes liable to its depositor-drawer.For allowing payment on the checks to a the person who receives the monthly bank statements, together with the cancelled checks and
wrongful and fictitious payee, BPIthe drawee bankbecomes liable to its depositor-drawer. other debit/credit memoranda, shall examine the contents and give notice of any discrepancies
Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for within a reasonable time. Awareness is not equipollent with discernment.
reimbursement. It may not debit the drawers account and is not entitled to indemnification from Same; Same; A preschool teacher charged with molding the minds of the youth cannot be
the drawer. In both law and equity, when one of two innocent persons must suffer by the burdened with the intricacies or complexities of corporate existence.Moreover, there was a time
wrongful act of a third person, the loss must be borne by the one whose negligence was the gap between the period covered by the bank statement and the date of its actual receipt. Lebron
proximate cause of the loss or who put it into the power of the third person to perpetrate the personally received the December 1990 bank statement only in January 1991when she was also
wrong. informed of the forgery for the first time, after which she immediately requested a stop payment
Same; Same; Proximate Cause; Words and Phrases; Proximate cause is that cause which, in order. She cannot be faulted for the late detection of the forged December check. After all, the
natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, 268
and without which the result would not have occurred.Proximate cause is determined by the facts 2 SUPREME COURT REPORTS ANNOTATED
of the case. It is that cause which, in natural and continuous sequence, unbroken by any efficient 68
intervening cause, produces the injury, and without which the result would not have occurred.
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client- Bank of the Philippine Islands vs. Casa Montessori Internationale
depositors on checks being encashed, BPI is expected to use reasonable business prudence. In the bank account with BPI was not personal but corporate, and she could not be expected to
performance of that obligation, it is bound by its internal banking rules and regulations that form monitor closely all its finances. A preschool teacher charged with molding the minds of the youth
part of the contract it enters into with its depositors. cannot be burdened with the intricacies or complexities of corporate existence.
Same; Same; Same; Negligence; Forgery; In this jurisdiction, the negligence of the party Same; Same; The depositor could only be blamed, if at all, for its unintelligent choice in the
invoking forgery is recognized as an exception to the general rule that a forged signature is wholly selection and appointment of an auditora fault that is not tantamount to negligence.There is
inoperative.In this jurisdiction, the negligence of the party invoking forgery is recognized as an also a cutoff period such that checks issued during a given month, but not presented for payment
exception to the general rule that a forged signature is wholly inoperative. Contrary to BPIs claim, within that period, will not be reflected therein. An experienced auditor with intent to defraud can
however, we do not find CASA negligent in han- easily conceal any devious scheme from a client unwary of the accounting processes involved by
267 manipulating the cash balances on recordespecially when bank transactions are numerous, large
VOL. 430, MAY 28, 2004 267 and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and
appointment of an auditora fault that is not tantamount to negligence.
Bank of the Philippine Islands vs. Casa Montessori Internationale Same; Same; Negligence is not presumed, but proven by whoever alleges it; The Professional
dling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real Regulation Commission, through the Board of Accountancy, now requires not only accreditation for
defense. the practice of public accountancy, but also the registration of firms in the practice thereof.
Accountants and Auditors; The major purpose of an independent audit is to investigate and Negligence is not presumed, but proven by whoever alleges it. Its mere existence is not sufficient
determine objectively if the financial statements submitted for audit by a corporation have been without proof that it, and no other cause, has given rise to damages. In addition, this fault is
prepared in accordance with the appropriate financial reporting practices of private entities.The common to, if not prevalent among, small and medium-sized business entities, thus leading the
major purpose of an independent audit is to investigate and determine objectively if the financial Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require
statements submitted for audit by a corporation have been prepared in accordance with the today not only accreditation for the practice of public accountancy, but also the registration of firms
appropriate financial reporting practices of private entities. The relationship that arises therefrom in the practice thereof. In fact, among the attachments now required upon registration are the code
is both legal and moral. It begins with the execution of the engagement letter that embodies the of good governance and a sworn statement on adequate and effective training.
terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical Same; Same; If auditors may be held liable for breach of contract and negligence, with all the
and competent performance in all aspects of the audit. The financial statements are more reason may they be charged with the perpetration of fraud upon an unsuspecting client.
representations of the client; but it is the auditor who has the responsibility for the accuracy in the Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CAS A. If auditors
recording of data that underlies their preparation, their form of presentation, and the opinion may be held liable for breach of contract and negligence, with all the more reason may they be
expressed therein. The auditor does not assume the role of employee or of management in the charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to
clients conduct of operations and is never under the control or supervision of the client. pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid
Same; Negligence; Nothing could be more horrible to a client than to discover later on that the under a mistake may rightfully be recovered, and under such terms as the injured party may
person tasked to detect fraud was the same one who perpetrated it.Yabut was an independent choose.
auditor hired by CASA. He handled its monthly bank reconciliations and had access to all relevant Damages; The adverse result of an action does not per se make the action wrongful, or the
documents and checkbooks. In him was reposed the clients trust and confidence that he would party liable for it.In the absence of a wrongful act or omission, or of fraud or bad faith, moral
perform precisely those functions and apply the appropriate procedures in accordance with damages cannot be awarded.
generally accepted auditing standards. Yet he did not meet these expectations. Nothing could be 269
VOL. 430, MAY 28, 2004 269 is had to the Code of Commerce and the Civil Code.Moreover, the failure of the CA to award
interest does not prevent us from granting it upon damages awarded for breach of contract.
Bank of the Philippine Islands vs. Casa Montessori Internationale Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to
The adverse result of an action does not per se make the action wrongful, or the party liable the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be
for it. One may err, but error alone is not a ground for granting such damages. While no proof of governed by the provisions of existing legislation or, in default thereof, by the rules of the law
pecuniary loss is necessary thereforwith the amount to be awarded left to the courts discretion merchant. Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and
the claimant must nonetheless satisfactorily prove the existence of its factual basis and causal the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its
relation to the claimants act or omission. provisions and, in their absence, by the usages of commerce generally observed in each place; and
Same; As a general rule, a corporation is not entitled to moral damages because it cannot in the absence of both rules, by those of the civil law. This law being silent, we look at Article 18 of
experience physical suffering and mental anguish, but, for breach of the fiduciary duty required of a the Civil Code, which states: In matters which are governed by the Code of Commerce and special
bank, a corporate client may claim such damages when its good reputation is besmirched by such laws, their deficiency shall be supplied by its provisions. A perusal of these three statutes
breach, and social humiliation results therefrom.As a general rule, a corporationbeing an unmistakably shows that the award of interest under our civil law is justified.
artificial person without feelings, emotions and senses, and having existence only in legal
contemplationis not entitled to moral damages, because it cannot experience physical suffering PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
and mental anguish. However, for breach of the fiduciary duty required of a bank, a corporate
client may claim such damages when its good reputation is besmirched by such breach, and social
humiliation results therefrom. CASA was unable to prove that BPI had debased the good The facts are stated in the opinion of the Court.
reputation of, and consequently caused incalculable embarrassment to, the former. CASAs mere Benedicto, Verzosa, Geslogo, Burkley & Associates for Bank of the Philippine
allegation or supposition thereof, without any sufficient evidence on record, is not enough. Islands.
Same; Attorneys Fees; When the act or omission of the defendant has compelled the plaintiff to Oscar F. Martinez for Casa Montessori Internationale
incur expenses to protect the latters interest, or where the court deems it just and equitable, Mauricio Law Office for Leonardo Yabut.
attorneys fees may be recovered.Although it is a sound policy not to set a premium on the right to
litigate, we find that CASA is entitled to reasonable attorneys fees based on factual, legal, and PANGANIBAN, J.:
equitable justification. When the act or omission of the defendant has compelled the plaintiff to
incur expenses to protect the latters interest, or where the court deems it just and equitable,
By the nature of its functions, a bank is required to take meticulous care of the deposits
attorneys fees may be recovered. In the present case, BPI persistently denied the claim of CASA
under the NIL to recredit the latters account for the value of the forged checks. This denial of its clients, who have the right to expect high standards of integrity and performance
constrained CASA to incur expenses and exert effort for more than ten years in order to protect its from it. Among
corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of 271
negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the VOL. 430, MAY 28, 2004 271
Court deems it just and equitable to grant ten percent (10%) of the total value adjudged to CASA Bank of the Philippine Islands vs. Casa Montessori Internationale
as attorneys fees.
its obligations in furtherance thereof is knowing the signatures of its clients. Depositors
Same; Interest Rates; Since a court judgment is not a loan or a forbearance of recovery, the
legal interest shall be at six percent (6%) per annum.For the failure of BPI to pay CASA upon are not estopped from questioning wrongful withdrawals, even if they have failed to
demand and for compelling the latter to resort to the courts to obtain payment, legal interest may question those errors in the statements sent by the bank to them for verification.
be adjudicated at the discretion of the Court, the same to run from the The Case
270
Before us are two Petitions for Review under Rule 45 of the Rules of Court, assailing the
1

2 SUPREME COURT REPORTS ANNOTATED March 23, 2001 Decision and the August 17, 2001 Resolution of the Court of Appeals
2 3

70 (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as
Bank of the Philippine Islands vs. Casa Montessori Internationale follows:
filing of the Complaint. Since a court judgment is not a loan or a forbearance of recovery, the WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the
legal interest shall be at six percent (6%) per annum. If the obligation consists in the payment of a modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-
sum of money, and the debtor incurs in delay, the indemnity for damages, there being no half of the value of the forged checks in the amount of P547,115.00 after deductions subject to
stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other
annum. The actual base for its computation shall be on the amount finally adjudged, half to plaintiff corporation [Casa Montessori Internationale (CASA)]. 4

compounded annually to make up for the cost of money already lost to CASA. The assailed Resolution denied all the parties Motions for Reconsideration.
Same; Negotiable Instruments Law; Code of Commerce; Under Section 196 of the NIL, any The Facts
case not provided for shall be governed by the provisions of existing legislation or, in default The facts of the case are narrated by the CA as follows:
thereof, by the rules of the law merchant, and, since damages are not provided for in the NIL, resort
On November 8, 1982, plaintiff CASA Montessori International opened Current Account No. 0291-
5 _______________
0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its
authorized signatories. 6The amount was earlier stated in the CA Decision as P782,000.
_______________ 7The total amount of the encashed checks was earlier computed in the CA Decision to be P782,600.
8Assailed CA Decision, pp. 2-4; G.R. No. 149454, Rollo, pp. 45-47; G.R. No. 149507, Rollo, pp. 23-25.
1G.R. No. 149454, Rollo, pp. 20-40; G.R. No. 149507, Rollo, pp. 3-20. Citations omitted.
2Id., pp. 44-52 & 22-30. Penned by Justice Portia Alio-Hormachuelos, with the concurrence of Justices 273
Fermin A. Martin Jr. (Second Division chairman) and Mercedes Gozo-Dadole (member). VOL. 430, MAY 28, 2004 273
3Id., pp. 54 & 32. Penned by Justice Portia Alio-Hormachuelos, with the concurrence of Justices Ramon A.
Barcelona (Special Former Second Division chairman) and Mercedes Gozo-Dadole (member). Bank of the Philippine Islands vs. Casa Montessori Internationale
4Assailed CA Decision, pp. 8-9; G.R. No. 149454, Rollo, pp. 51-52; G.R. No. 149507, Rollo, pp. 29-30. sulted in the undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI
5This is also referred to in the records as Casa Montessori Internationale or Casa Montessori International, half the total amount claimed; and CASA, the other half. It also disallowed attorneys
Inc.
fees and moral and exemplary damages.
272
Hence, these Petitions. 9

272 SUPREME COURT REPORTS ANNOTATED


Issues
Bank of the Philippine Islands vs. Casa Montessori Internationale In G.R. No. 149454, Petitioner BPI submits the following issues for our consideration:
In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable
encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be
following dates and amounts: proved by clear, positive and convincing evidence; and that the burden of proof lies on the party
Check No. Date Amount alleging the forgery.
1. 839700 April 24, 1990 P 43,400.00 II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable
laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its
2. 839459 Nov. 2, 1990 110,500.00 own negligence, from asserting its forgery claim against BPI, specially taking into account the
3. 839609 Oct. 17, 1990 47,723.00 absence of any negligence on the part of BPI. 10

4. 839549 April 7, 1990 90,700.00 In G.R. No. 149507, Petitioner CASA submits the following issues:
1. The Honorable Court of Appeals erred when it ruled that there is no showing that [BPI],
5. 839569 Sept. 23, 1990 52,277.00
although negligent, acted in bad faith x x x thus denying the prayer for the award of attorneys
6. 729149 Mar. 22, 1990 148,000.00 fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it
7. 729129 Mar. 16, 1990 51,015.00 did not order [BPI] to pay interest on the amounts due to [CASA].
_______________
8. 839684 Dec. 1, 1990 140,000.00
9. 729034 Mar. 2, 1990 98,985.00 9These two cases were consolidated and deemed submitted for decision on July 25, 2002, upon the Courts
Total --- P 782,600.00 6
receipt of BPIs Memorandum in G.R. No. 149454, which was signed by Atty. Justino M. Marquez III. CASAs
Memorandum, signed by Atty. Oscar F. Martinez, was filed on July 4, 2002; while Yabuts Memorandum,
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious signed by Atty. Leny L. Mauricio, was filed on June 25, 2002.
name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. In G.R. No. 149507, a Manifestation (re: Memorandum) by Yabut, also signed by Atty. Mauricio, was filed
Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and on June 25, 2002. BPIs Memorandum, also signed by Atty. Marquez, was filed on June 3, 2002; while CASAs
encashed the checks. Memorandum, also signed by Atty. Martinez, was filed on April 19, 2002.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded 10BPIs Memorandum, p. 7; G.R. No. 149454, Rollo, p. 140. Boldface and upper case characters copied
that the handwritings thereon compared to the standard signature of Ms. Lebron were not written verbatim.
by the latter. 274
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against 274 SUPREME COURT REPORTS ANNOTATED
defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00 in the 7
Bank of the Philippine Islands vs. Casa Montessori Internationale
current and savings accounts of the plaintiff with interest at 6% per annum.
2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in
On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff. 8

the case at bar, thus warranting its conclusion that the loss in the amount of P547.115.00 be
Ruling of the Court of Appeals apportioned between [CASA] and [BPI] x x x. 11

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss These issues can be narrowed down to three. First, was there forgery under the
between BPI and CASA. The appellate court took into account CASAs contributory Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and
negligence that re-
therefore precluded from setting up forgery as a defense? Third, should moral and 17Assailed CA Decision, p. 7; G.R. No. 149454, Rollo, p. 50; G.R. No. 149507, Rollo, p. 28.
RTC Decision, p. 4; G.R. No. 149454, Rollo, p. 59.
exemplary damages, attorneys fees, and interest be awarded?
18

19Yabuts Affidavit, pp. 1-2; G.R. No. 149454, Records, pp. 323-324.
The Courts Ruling 20RTC Decision, p. 4; G.R. No. 149454, Rollo, p. 59.
The Petition in G.R. No. 149454 has no merit, while that in G.R. No. 149507 is partly 21Assailed CA Decision, p. 8; id., p. 51; G.R. No. 149507, Rollo, p. 29.
Questioned Document Report No. 291-91 dated November 25, 1991; G.R. No. 149454, Records, p. 326.
meritorious.
22

23Assailed CA Decision, p. 7; G.R. No. 149454, Rollo, p. 50; G.R. No. 149507, Rollo, p. 28. See also RTC
First Issue: Decision, p. 3; G.R. No. 149454, Rollo, p. 58.
Questioned Document Report No. 029-91 dated January 28, 1991, issued upon the request of BPI Vice
Forged Signature Wholly Inoperative
24

President Amante S. Bueno; G.R. No. 149454, Records, p. 328.


Section 23 of the NIL provides: 25Francisco v. Court of Appeals, 377 Phil. 368, 378; 319 SCRA 354, 362, November 29, 1999. See
Section 23. Forged signature; effect of.When a signature is forged or made without the authority also Almeda v. Court of Appeals, 336 Phil. 621, 629; 269 SCRA 643, 652, March 13, 1997; Fuente v. Court of
of the person whose signature it purports to be, it is wholly inoperative, and no right x x x to Appeals, 335 Phil. 1163, 1169; 268 SCRA 703, February 26, 1997; and People v. Magallano, 334 Phil. 276,
enforce payment thereof against any party thereto, can be acquired through or under such 282; 266 SCRA 305, January 16, 1997.
signature, unless the party against whom it is sought to enforce such right is precluded from 276
setting up the forgery or want of authority. 12
276 SUPREME COURT REPORTS ANNOTATED
Under this provision, a forged signature is a real or absolute defense, and a person
13 14
Bank of the Philippine Islands vs. Casa Montessori Internationale
whose signature on a negotiable instrument is forged is deemed to have never become a
party thereto and to have never consented to the contract that allegedly gave rise to it. 15
Voluntary Admission Not
_______________ Violative of Constitutional Rights`
The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial
11CASAs Memorandum, p. 6; G.R. No. 149507, Rollo, p. 83. investigation, and (2) against self-incrimination.
Act No. 2031 took effect on June 2, 1911. Agbayani, Commentaries and Jurisprudence on the Commercial
In the first place, he was not under custodial investigation. His Affidavit was
12
26

Laws of the Philippines, Vol. I (1989 ed.), p. 191.


13Campos and Lopez-Campos, Notes and Selected Cases on Negotiable Instruments Law (5th ed., 1994), pp. executed in private and before private individuals. The mantle of protection under
27

268-269. Section 12 of Article III of the 1987 Constitution covers only the period from the time a
28

14Gempesaw v. Court of Appeals, 218 SCRA 682, 689, February 9, 1993. person is
15Associated Bank v. Court of Appeals, 322 Phil. 677, 695; 252 SCRA 620, 629, January 31, 1996. _______________
275
VOL. 430, MAY 28, 2004 275 26Custodial investigation is defined as any questioning initiated by law enforcement officers after a person
has been taken into custody or otherwise deprived of his freedom of action in any significant way. Sebastian,
Bank of the Philippine Islands vs. Casa Montessori Internationale Sr. v. Garchitorena, 343 SCRA 463, 470, October 18, 2000, per De Leon, Jr., J. See also Navallo v.
The counterfeiting of any writing, consisting in the signing of anothers name with intent Sandiganbayan, 234 SCRA 175, 183-184, July 18, 1994; People v. Loveria, 187 SCRA 47, 61, July 2, 1990;
to defraud, is forgery. 16 and Miranda v. Arizona, 384 US 436, 444, 16 L. Ed. 2d 694, 706, June 13, 1966.
In the present case, we hold that there was forgery of the drawers signature on the In the deliberations on the 1987 Constitution, Commissioner Felicitas Aquino summed up the right as
extending to the period of custodial interrogation, temporary detention and preliminary technical custody.
check. Bernas, The Constitution of the Republic of the Philippines: A Commentary, Vol. I (1st ed., 1987), p. 345;
First, both the CA and the RTC found that Respondent Yabut himself had
17 18
citing Record of the Constitutional Commission: Proceedings and Debates, Vol. I (1986), pp. 713-714, 716-717.
voluntarily admitted, through an Affidavit, that he had forged the drawers signature 12 of Article III of the Constitution provides for the rights available to a person facing custodial
and encashed the checks. He never refuted these findings. That he had been coerced
19 20
investigation. Cruz, Constitutional Law (1995 ed.), p. 292.
Yabuts Affidavit, supra.
into admission was not corroborated by any evidence on record.
27

x x x [A]mong the rights of a person under custodial investigation is the right to have competent and
21
28

Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, independent counsel preferably of his own choice and if the person cannot afford the services of counsel, that he
after its examination of the said checks, had concluded that the handwritings thereon
22 must be provided with one. Marcelo v. Sandiganbayan, 361 Phil. 772, 788; 302 SCRA 102, 116, January 26,
compared to the standard signature of the drawerwere not hers. This conclusion was
23
1999, per Mendoza, J. See also People v. Porio, 376 SCRA 596, 609-610, February 13, 2002; People v. Suela, 373
SCRA 163, 182, January 15, 2002; People v. Tulin, 416 Phil. 365, 382-383; 364 SCRA 10, August 30,
the same as that in the Report that the PNP Crime Laboratory had earlier issued to
24

2001; People v. Continente, 339 SCRA 1, 17-18, 20-21, 26, August 25, 2000; People v. Santocildes, Jr., 378 Phil.
BPIthe drawee bankupon the latters request. 943, 949-950; 321 SCRA 310, December 21, 1999; People v. Bermas, 365 Phil. 581, 593-596; 306 SCRA 135, 146,
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by April 21, 1999; People v. Santos, 347 Phil. 943, 949-950; 283 SCRA 443, 453, December 22, 1997; People v.
the CA, since these are supported by substantial evidence on record. 25
Andal, 344 Phil. 889, 911-912; 279 SCRA 474, September 25, 1997; People v. Fabro, 342 Phil. 708, 772, 726; 277
_______________ SCRA 19, 32, August 11, 1997; People v. Deniega, 251 SCRA 626, 638-639, De
277
16 Agbayani, supra, p. 191. VOL. 430, MAY 28, 2004 277
Bank of the Philippine Islands vs. Casa Montessori Internationale mandatory for CASAthe plaintiff belowto implead Yabut in the civil case before the
taken into custody for investigation of his possible participation in the commission of a lower court.
crime or from the time he is singled out as a suspect in the commission of a crime Under these two constitutional provisions, [t]he Bill of Rights does not concern itself
40

although not yet in custody. 29


with the relation between a private individ-
_______________
Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with questions propounded on him by the police 34This provision prohibits the compulsory oral examination of prisoners before the trial, or upon trial, for
authorities for the purpose of eliciting admissions, confessions, or any information. The 30
the purpose of extorting unwilling confessions or declarations implicating them in the commission of a crime.
said constitutional provision does not apply to spontaneous statements made in a Bernas, supra, pp. 422-423; citing US v. Tan Teng, 23 Phil. 145, 152, September 7, 1912.
voluntary manner whereby an individual orally admits to authorship of a crime. What
31 32
The kernel of this right is against testimonial compulsion only. Cruz, supra, p. 283. See Regalado, Remedial
Law Compendium, Vol. II (7th rev. ed., 1995), p. 369.
the Constitution proscribes is the compulsory or coercive disclosure of incriminating 35People v. Rondero, 378 Phil. 123, 139-140; 320 SCRA 383, 400, December 9, 1999. See People v. Bacor, 366
facts. 33
Phil. 197, 212; 306 SCRA 522, 536, April 30, 1999.
_______________ 36Cruz, supra, p. 282.
37Secretary of Justice v. Lantion, 379 Phil. 165, 200; 322 SCRA 160, January 18, 2000; citing Pascual, Jr. v.
cember 29, 1995; and People v. Duero, 191 Phil. 679, 687-688; 104 SCRA 379, May 13, 1981. Board of Medical Examiners, 138 Phil. 361, 366; 28 SCRA 344, 348, May 26, 1969, and Cabal v. Kapunan,
29People v. Felixminia, 379 SCRA 567, 575, March 20, 2002, per curiam. See also People v. Bariquit, 341 Jr., 116 Phil. 1361, 1366-1369; 6 SCRA 1059, December 29, 1962. See Bernas, supra, p. 423.
SCRA 600, 618, October 2, 2000; People v. Bravo, 376 Phil. 931, 940; 318 SCRA 812, 821-822, November 22, 38Alvero v. Dizon, 76 Phil. 637, 645, May 4, 1946.
1999; People v. Andan, 336 Phil. 91, 102; 269 SCRA 95, March 3, 1997; and People v. Marra, 236 SCRA 565, 39Cruz, supra, p. 286.
573, September 20, 1994. These rights are available if a person is in custody, even if not yet a suspect; or if 40The Bill of Rights in Article III of the Constitution is a statement of an individuals rights that are
already the suspect, even if not yet in custody. Bernas, supra. normally protected, except in extreme cases of real public necessity, against impairment, usurpation, or
30People v. Arondain, 418 Phil. 354, 367-368; 366 SCRA 98, 105, September 27, 2001, per Ynares- removal
Santiago, J. See also People v. Amestuzo, 413 Phil. 500, 508; 361 SCRA 184, 191, July 12, 2001; People v. 279
Valdez, 341 SCRA 25, 41-42, September 25, 2000; People v. Labtan, 377 Phil. 967, 982, 984; 320 SCRA 140, VOL. 430, MAY 28, 2004 279
December 8, 1999; People v. De la Cruz, 344 Phil. 653, 660-661; 279 SCRA 245, September 17, 1997; People v.
Del Rosario, 365 Phil. 292, 310; 305 SCRA 740, April 14, 1999; People v. Ayson, 175 SCRA 216, 231, July 7, Bank of the Philippine Islands vs. Casa Montessori Internationale
1989; and Gamboa v. Cruz, 162 SCRA 642, 648, June 27, 1988. ual and another individual. It governs the relationship between the individual and the
People v. Dano, 339 SCRA 515, 528, September 1, 2000, per Quisumbing, J. See also Aballe v. People, 183
State. Moreover, the Bill of Rights is a charter of liberties for the individual and a
31

SCRA 196, 205, March 15, 1990; People v. Dy, 158 SCRA 111, 123-124, February 23, 1988; and People v.
41

Taylaran, 195 Phil. 226, 233-234; 108 SCRA 373, October 23, 1981. limitation upon the power of the [S]tate. These rights are guaranteed to preclude the
42 43

32In fact, the exclusionary rule under 12, paragraph (2) of the Bill of Rights, applies only to admissions slightest coercion by the State that may lead the accused to admit something false, not
made in a criminal investigation but not to those made in an administrative investigation. Remolona v. prevent him from freely and voluntarily telling the truth. 44

CSC, 414 Phil. 590, 599; 362 SCRA 304, 311-312, August 2, 2001, per Puno, J. See also Sebastian, Sr. v.
Garchitorena, supra; Manuel v. N.C. Construction Supply, 346 Phil. 1014, 1024; 282 SCRA 326, 335, November
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights
28, 1997; and Lumiqued v. Exevea, 346 Phil. 807, 822-823; 282 SCRA 125, November 18, 1997. does not automatically entitle him to the constitutional protection. When he freely and45

33People v. Dano, supra. See People v. Ordoo, 390 Phil. 169, 183-184; 334 SCRA 673, June 29, 2000. voluntarily executed his Affidavit, the State was not even involved. Such Affidavit may
46

278 therefore be admitted without violating his constitutional rights while under custodial
278 SUPREME COURT REPORTS ANNOTATED investigation and against self-incrimination.
Bank of the Philippine Islands vs. Casa Montessori Internationale _______________

Moreover, the right against self-incrimination under Section 17 of Article III of the
34 35

by any form of State action. Sinco, Philippine Political Law: Principles and Concepts (10th ed., 1954), p. 73.
Constitution, which is ordinarily available only in criminal prosecutions, extends to all 41People v. Silvano, 381 SCRA 607, 616, April 29, 2002, per Mendoza, J. See People v. Domantay, 366 Phil.
other government proceedingsincluding civil actions, legislative investigations, and 36 459, 474; 307 SCRA 1, 17, May 11, 1999; People v. Maqueda, 312 Phil. 646, 675-676; 242 SCRA 565, March 22,
administrative proceedings that possess a criminal or penal aspect but not to private
37
1995; People v. Marti, 193 SCRA 57, 67, January 18, 1991.
Filoteo, Jr. v. Sandiganbayan, 331 Phil. 531, 574; 263 SCRA 222, 261, October 16, 1996, per
investigations done by private individuals. Even in such government proceedings, this
42

Panganiban, J. See Bernas, supra, p. 33.


right may be waived, provided the waiver is certain; unequivocal; and intelligently,
38
43A person suspected or accused of a crime is entitled to the specific safeguards embodied in 12 and 17 of
understanding and willingly made. 39 the Bill of Rights against arbitrary prosecution or punishment. Cruz, supra, p. 274.
If in these government proceedings waiver is allowed, all the more is it so in private 44People v. Vallejo, 382 SCRA 192, 216, May 9, 2002, per curiam; citing People v. Andan, supra. See
also People v. Ordoo, supra; People v. Barlis, 231 SCRA 426, 441, March 24, 1994; and People v. Layuso, 175
investigations. It is of no moment that no criminal case has yet been filed against Yabut. SCRA 47, 53, July 5, 1989.
The filing thereof is entirely up to the appropriate authorities or to the private 45Sinco, supra, p. 670.
individuals upon whom damage has been caused. As we shall also explain later, it is not 46In the absence of coercion, paragraph 17 of Article 32 of the Civil Code does not apply. It states:
Art. 32. Any x x x private individual x x x who directly or indirectly x x x violates or in any manner impedes or impairs any of Even with respect to documentary evidence, the best evidence rule applies only when
the following rights and liberties of another person shall be liable to the latter for damages:
(17) Freedom from being compelled to be a witness against ones self, or from being forced to confess a guilt x x x. the contents of a documentsuch as the drawers signature on a checkis the subject of
280 inquiry. As to whether the document has been actually executed, this rule does not
58

280 SUPREME COURT REPORTS ANNOTATED apply; and testimonial as well as any other secondary evidence is admissible. Carina 59

Bank of the Philippine Islands vs. Casa Montessori Internationale Lebron herself, the drawers authorized signatory, testified many times that she had
never signed those checks. Her testimonial evidence is admissible; the checks have not
Clear, Positive and Convincing been actually executed. The genuineness of her handwriting is proved, not only through
Examination and Evidence the courts comparison of the questioned handwritings and admittedly genuine
The examination by the PNP, though inconclusive, was nevertheless clear, positive and specimens thereof, but above all by her.
60

convincing. The failure of CASA to produce the original checks neither gives rise to the
Forgery cannot be presumed. It must be established by clear, positive and
47
presumption of suppression of evidence nor creates an unfavorable inference against
61

convincing evidence. Under the best evidence rule as applied to documentary evidence
48
it. Such failure merely authorizes
62

like the checks in question, no secondary or substitutionary evidence may inceptively be _______________
introduced, as the original writing itself must be produced in court. But when, without 49

bad faith on the part of the offeror, the original checks have already been destroyed or Ibid.
56

RTC Decision, p. 3; G.R. No. 149454, Rollo, p. 58.


cannot be produced in court, secondary evidence may be produced. Without bad faith on
57
50

3 of Rule 130 of the Rules of Court.


58

its part, CASA proved the loss or destruction of the original checks through the Affidavit Regalado, supra.
59

of the one person who knew of that fact Yabut. He clearly admitted to discarding the
51 22 of Rule 132 of the Rules of Court.
60

paid checks to cover up his misdeed. In such a situation, secondary evidence like
52
This adverse presumption does not arise when the suppression is not willful. Regalado, supra, p. 639;
61

citing People v. Navaja, 220 SCRA 624, 633, March 30, 1993.
microfilm copies may be introduced in court. x x x [T]he genuineness of a standard writing may be established by any of the following: (1) by the
62

The drawers signatures on the microfilm copies were compared with the standard admission of the person sought to be charged with the disputed writing made at or for the purposes of the trial,
signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination or by his testimony; (2) by witnesses who saw the standards written or to whom or in whose hearing the person
that two different persons had written them. Although no conclusive report could be
53 sought to be charged acknowledged the writing thereof; (3) by evidence showing that the reputed writer of the
standard has acquiesced in or recognized the same, or that it has been adopted and acted upon by him in his
issued in the absence of the original checks, she affirmed that her findings were 90
54

business transactions or other concerns. Security Bank & Trust Company v. Triumph Lumber and
percent conclusive. According to her, even if the microfilm copies were the only basis of
55
Construction Corp., 361 Phil. 463, 478; 301 SCRA 537, 551-552, January 21, 1999, per Davide, Jr., C.J.,
comparison, the differences citing BA Finance Corp. v. Court of Appeals, 161 SCRA 608, 618, May 28, 1988.
_______________ 282
282 SUPREME COURT REPORTS ANNOTATED
American Express International, Inc. v. Court of Appeals, 367 Phil. 333, 341; 308 SCRA 65, 71, June 8,
47

1999, per Bellosillo, J.; citing Tenio-Obsequio v. Court of Appeals, 230 SCRA 550, 558, March 1, 1994. Bank of the Philippine Islands vs. Casa Montessori Internationale
See Siasat v. Intermediate Appellate Court, 139 SCRA 238, 248, October 10, 1985. the introduction of secondary evidence in the form of microfilm copies. Of no
63

Metropolitan Bank & Trust Co. v. Court of Appeals, 194 SCRA 169, 176, February 18, 1991. See MWSS v.
48
consequence is the fact that CASA did not present the signature card containing the
Court of Appeals, 227 Phil. 18, 26; 143 SCRA 20, 30, July 14, 1986.
Regalado, supra, p. 555.
49
signatures with which those on the checks were compared. Specimens of standard 64

3(a) of Rule 130 of the Rules of Court.


50 signatures are not limited to such a card. Considering that it was not produced in
De Vera v. Aguilar, 218 SCRA 602, 607, February 9, 1993.
51
evidence, other documents that bear the drawers authentic signature may be resorted
Yabuts Affidavit, p. 1; G.R. No. 149454, Records, p. 323.
52
to. Besides, that card was in the possession of BPIthe adverse party.
65

TSN, January 18, 1994, p. 13.


We have held that without the original document containing the allegedly forged
53

Id., p. 29.
54

Id., pp. 33-34.


55 signature, one cannot make a definitive comparison that would establish forgery; and 66

281 that a comparison based on a mere reproduction of the document under controversy
VOL. 430, MAY 28, 2004 281 cannot produce reliable results. We have also said, however, that a judge cannot merely
67

Bank of the Philippine Islands vs. Casa Montessori Internationale rely on a handwriting experts testimony, but should also exercise independent judgment
68

in evaluating the authenticity of a signature under scrutiny. In the present case, both
were evident. Besides, the RTC explained that although the Report was inconclusive, no
69

56

the RTC and the CA conducted independent examinations of the evidence presented and
conclusive report could have been given by the PNP, anyway, in the absence of the
arrived at reasonable and similar conclusions. Not only did they admit secondary
original checks. This explanation is valid; otherwise, no such report can ever be relied
57

upon in court.
evidence; they also appositely considered testimonial and other documentary evidence in See Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681; 269 SCRA 695, 708-709, March 14,
1997.
the form of the Affidavit. 74Philippine Commercial International Bank v. Court of Appeals, 350 SCRA 446, 472, January 29, 2001.
The best evidence rule admits of exceptions and, as we have discussed earlier, the 752 of Republic Act No. 8791, otherwise known as The General Banking Law of 2000.
first of these has been met. The result of examining a questioned handwriting, even with
70 76Westmont Bank v. Ong, 375 SCRA 212, 221, January 30, 2002; citing Citytrust Banking Corp. v.
the aid of experts and scientific instruments, may be inconclusive; but it is a non 71 Intermediate Appellate Court, 232 SCRA 559, 564, May 27, 1994.
Simex International (Manila), Inc. v. Court of Appeals, 183 SCRA 360, 367, March 19, 1990, per Cruz, J.
sequitur to say that such result is not clear, positive and convincing. The preponderance
77

284
of evidence required in this case has been satisfied. 72

_______________ 284 SUPREME COURT REPORTS ANNOTATED


Bank of the Philippine Islands vs. Casa Montessori Internationale
Regalado, supra, p. 561.
63
of that degree of diligence required of a bank. It cannot now feign ignorance, for very
78

This is the normal process followed in verifying signatures for purposes of making bank withdrawals.
early on we have already ruled that a bank is bound to know the signatures of its
64

Chiang Yia Min v. Court of Appeals, 355 SCRA 608, 622-623, March 28, 2001.
65

Heirs of Gregorio v. Court of Appeals, 360 Phil. 753, 763; 300 SCRA 565, 574, December 29, 1998.
66 customers; and if it pays a forged check, it must be considered as making the payment
Ibid.
67
out of its own funds, and cannot ordinarily charge the amount so paid to the account of
Id., p. 764.
68
the depositor whose name was forged. In fact, BPI was the same bank involved when
79

Ibid.
we issued this ruling seventy years ago.
69

3(a) of Rule 130 of the Rules of Court.


70

Regalado, supra, p. 627.


71
Neither Waiver nor Estoppel
1 of Rule 133 of the Rules of Court.
Results from Failure to
72

283
VOL. 430, MAY 28, 2004 283 Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows:
Bank of the Philippine Islands vs. Casa Montessori Internationale
If no error is reported in ten (10) days, account will be correct. Such notice cannot be 80

Second Issue: considered a waiver, even if CASA failed to report the error. Neither is it estopped from
Negligence Attributable to BPI Alone questioning the mistake after the lapse of the ten-day period.
Having established the forgery of the drawers signature, BPIthe draweeerred in This notice is a simple confirmation or circularizationin accounting parlance
81

making payments by virtue thereof. The forged signatures are wholly inoperative, and that requests client-depositors to affirm the accuracy of items recorded by the banks. Its 82

CASAthe drawer whose authorized signatures do not appear on the negotiable purpose is to obtain from the depositors a direct corroboration of the correctness of their
instrumentscannot be held liable thereon. Neither is the latter precluded from setting account balances with their respective banks. Internal or external auditors of a bank use
83

up forgery as a real defense. it as a basic audit procedure the 84

_______________
Clear Negligence in Allowing Payment
Under a Forged Signature 78Article 1173 of the Civil Code.
We have repeatedly emphasized that, since the banking business is impressed with 79San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands, 59 Phil. 59, 66, December 11, 1933, per
public interest, of paramount importance thereto is the trust and confidence of the public Hull, J.
BPIs Memorandum, p. 14; G.R. No. 149454, Rollo, p. 147.
in general. Consequently, the highest degree of diligence is expected, and high standards
80
73 74

81Aside from positive confirmations, there are also negative ones that request debtors to respond to an
of integrity and performance are even required, of it. By the nature of its functions, a
75
auditor only if the balance in an attached statement is incorrect. Ricchiute, Auditing Concepts and
bank is under obligation to treat the accounts of its depositors with meticulous Standards (rev. 2nd ed., 1991), p. 491.
care, always having in mind the fiduciary nature of their relationship.
76 77
82Santos, Basic Auditing: Theory and Concepts, Vol. I (1988), p. 111.
Association of CPAs in Public Practice, Audit Manual (1985), p. 49.
BPI contends that it has a signature verification procedure, in which checks are
83

84Confirmation of accounts payable balances is normally applied to nearly every audit engagement. Holmes
honored only when the signatures therein are verified to be the same with or similar to and Burns, Auditing Standards and Procedures (9th ed., 1979), p. 675.
the specimen signatures on the signature cards. Nonetheless, it still failed to detect the A bank deposit is in the nature of a simple loan or mutuum, as provided for in Articles 1953 and 1980 of the Civil Code. See De
eight instances of forgery. Its negligence consisted in the omission 285
_______________ VOL. 430, MAY 28, 2004 285
Bank of the Philippine Islands vs. Casa Montessori Internationale
73The diligence required of banks is more than that of a pater familiasor good father of a family. Bank of the
Philippine Islands v. Court of Appeals, 383 Phil. 538, 554; 326 SCRA 641, 657, February 29, 2000. results of which its client-depositors are neither interested in nor privy toto test the
details of transactions and balances in the banks records. Evidential matter obtained85
from independent sources outside a bank only serves to provide greater assurance of ignorance founded upon an innocent mistake, estoppel will not arise. A person who has 97

reliability than that obtained solely within it for purposes of an audit of its own financial
86 no knowledge of or consent to a transaction may not be estopped by it. Estoppel cannot 98

statements, not those of its client-depositors. be sustained by mere argument or doubtful inference x x x. CASA is not barred from 99

Furthermore, there is always the audit risk that errors would not be detected for 87 questioning BPIs error even after the lapse of the period given in the notice.
various reasons. One, materiality is a consideration in audit planning; and two, the 88 _______________
information obtained from such a substantive test is merely presumptive and cannot be
BPIs Memorandum, p. 14; G.R. No. 149454, Rollo, p. 147.
the basis of a valid waiver. BPI has no right to impose a condition unilaterally and
93
89

94 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV (1991), p. 656.
thereafter consider failure to meet such condition a waiver. Neither may CASA renounce 95 Conclusive or absolute presumption. 2(a) of Rule 131 of the Rules of Court.
a right it has never possessed.
90 91 96 Art. 1431 of the Civil Code also provides:
Every right has subjectsactive and passive. While the active subject is entitled to Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
demand its enforcement, the passive one is duty-bound to suffer such enforcement. 92
Ramiro v. Grao, 54 Phil. 744, 750, March 31, 1930.
97

On the one hand, BPI could not have been an active subject, because it could not have Lodovica v. Court of Appeals, 65 SCRA 154, 158, July 18, 1975.
98

demanded from CASA a response to its Kalalo v. Luz, 145 Phil. 152, 161; 34 SCRA 337, July 31, 1970, per Zaldivar, J.
99

_______________ 287
VOL. 430, MAY 28, 2004 287
Leon, Comments and Cases on Credit Transactions, 1995 ed., pp. 32-33; Integrated Realty Corp. v.
Philippine National Bank, 174 SCRA 295, 309, June 28, 1989; Serrano v. Central Bank of the Philippines, 96
Bank of the Philippine Islands vs. Casa Montessori Internationale
SCRA 96, 102, February 14, 1980; and Central Bank of the Philippines v. Morfe, 63 SCRA 114, 119, March 12, Loss Borne by
1975. In bank parlance, a bank deposit is an account payable by the bank to its client-depositor.
85 Santos, supra, p. 102. Proximate Source
86 Association of CPAs in Public Practice, Audit Manual, supra. of Negligence
87 Id., p. 57. For allowing payment on the checks to a wrongful and fictitious payee, BPIthe drawee
100

Id., p. 24.
bankbecomes liable to its deposi-tor-drawer. Since the encashing bank is one of its
88

89 Waiver is defined as the relinquishment of a known right with both knowledge of its existence and an
intention to relinquish it. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, branches, BPI can easily go after it and hold it liable for reimbursement. It may not
101 102

Vol. I (1990), p. 29. debit the drawers account and is not entitled to indemnification from the drawer. In
103 104

90 Article 6 of the Civil Code. both law and equity, when one of two innocent persons must suffer by the wrongful act
The general rule of law is that a person may renounce any right which the law gives x x x. The Manila
of a third person, the loss must be borne by the one whose negligence was the proximate
91

Railroad Company v. The Attorney-General, 20 Phil. 523, 537, December 1, 1911, per Moreland, J. See
Tolentino, supra, p. 30. cause of the loss or who put it into the power of the third person to perpetrate the
92 Tolentino, supra, p. 28. wrong. 105

286 Proximate cause is determined by the facts of the case. It is that cause which, in
106

286 SUPREME COURT REPORTS ANNOTATED natural and continuous sequence, unbroken by any efficient intervening cause, produces
Bank of the Philippine Islands vs. Casa Montessori Internationale the injury, and without which the result would not have occurred. 107

_______________
notice. Besides, the notice was a measly request worded as follows: Please examine x x x
and report x x x. CASA, on the other hand, could not have been a passive subject,
93

100Under Article 1231(1) of the Civil Code, payment is the actual performance that extinguishes an
either, because it had no obligation to respond. It couldas it didchoose not to respond. obligation.
Estoppel precludes individuals from denying or asserting, by their own deed or It implies not only an assent to the order of the drawer and a recognition of the drawees obligation to pay
representation, anything contrary to that established as the truth, in legal the sum therein, but also a compliance with such obligation. Philippine National Bank v. Court of Appeals, 134
Phil. 829, 833; 25 SCRA 693, 698, October 29, 1968.
contemplation. Our rules on evidence even make a juris et de jure presumption that
94 95

101Greenbelt Branch. Assailed CA Decision, p. 3; G.R. No. 149454, Rollo, p. 46; G.R. No. 149507, Rollo, p. 24.
whenever one has, by ones own act or omission, intentionally and deliberately led 102The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., 43 Phil. 678, 683, August
another to believe a particular thing to be true and to act upon that belief, one cannot 23, 1922.
in any litigation arising from such act or omis-sionbe permitted to falsify that supposed 103Campos and Lopez-Campos, supra, pp. 286-287.
Associated Bank v. Court of Appeals, 322 Phil. 677, 697; 252 SCRA 620, 631, January 31, 1996, per
truth.
104
96

Romero, J.; citing The Great Eastern Life Insurance Co. v. Hongkong & Shanghai Banking Corp., supra,
In the instant case, CASA never made any deed or representation that misled BPI. and Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., 157 SCRA 188, 198, January 20,
The formers omission, if any, may only be deemed an innocent mistake oblivious to the 1988.
procedures and consequences of periodic audits. Since its conduct was due to such
105Philippine National Bank v. Court of Appeals, supra, per Concepcion, CJ; citing Blondeau v. Nano, 61 The major purpose of an independent audit is to investigate and determine objectively if
Phil. 625, 631-632, July 26, 1935. See Philippine National Bank v. The National City Bank of New York, 63
the financial statements submitted for audit by a corporation have been prepared in
Phil. 711, 723-726, October 31, 1936.
106Sangco, Philippine Law on Torts and Damages, Vol. I (rev. ed., 1993), p. 90. accordance with the appropriate financial reporting practices of private entities. The 116

107Bataclan v. Medina, 109 Phil. 181, 185-186, October 22, 1957, per Montemayor, J. relationship that arises therefrom is both legal and moral. It begins with the execution
117

288 of the engagement letter that embodies the terms and conditions of the audit and ends
118

288 SUPREME COURT REPORTS ANNOTATED with the fulfilled expectation of the auditors ethical and competent performance in all
119

Bank of the Philippine Islands vs. Casa Montessori Internationale aspects of the audit. 120

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its The financial statements are representations of the client; but it is the auditor who
client-depositors on checks being encashed, BPI is expected to use reasonable business has the responsibility for the accuracy in the
_______________
prudence. In the performance of that obligation, it is bound by its internal banking
108

rules and regulations that form part of the contract it enters into with its depositors. 109
115 Bank of the Philippine Islands v. Court of Appeals, supra, p. 65.
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account 116 Holmes and Burns, supra, p. 1.
in one of its branches without privity; that is, without the proper verification of his
110 During the pendency of this case, an auditor had to ascertain whether the financial statements were in conformity with the
Generally Accepted Accounting Principles (GAAP). Valix and Peralta, Financial Accounting (Vol. I, 1985 ed.), p. 8.
corresponding identification papers. Second, BPI was unable to discover early on not only As of April 2004, the Accounting Standards Council (ASC) of the Philippines has approved many Statements of Financial
this irregularity, but also the marked differences in the signatures on the checks and Accounting Standards (SFAS) and has also adopted several International Accounting Standards (IAS) issued by the
International Accounting Standards Council (IASC). http://www.picpa.com.ph/press. htm, last visited April 23, 2004, 12:05 p.m.
those on the signature card. Third, despite the examination procedures it conducted, the PST.
Central Verification Unit of the bank even passed off these evidently different
111
117Holmes and Burns, supra, p. 79.
signatures as genuine. Without exercising the required prudence on its part, BPI 118Id., p. 206.
accepted and encashed the eight checks presented to it. As a result, it proximately 119Certified public accountants or CPAs adhere to a Code of Professional Ethics, promulgated by the Board
of Accountancy (BOA) on March 15, 1978. In January 2004, a new Code of Ethics for CPAs was approved by the
contributed to the fraud and should be held primarily liable for the negligence of its
112
Board of Directors of the Philippine Institute of CPAs (PICPA), to be recommended for adoption by the BOA
officers or agents when acting within the course and scope of their employment. It must 113
and approval by the Professional Regulation Commission (PRC) as part of the rules and regulations of the BOA
bear the loss. for the practice of the accountancy profession in the Philippines.
http://www.picpa.com.ph/news/codeofethics2.pdf, last visited April 23, 2004, 12:17 p.m. PST.
CASA Not Negligent 120Holmes and Burns, supra, p. 79.
in Its Financial Affairs 290
In this jurisdiction, the negligence of the party invoking forgery is recognized as an 290 SUPREME COURT REPORTS ANNOTATED
exception to the general rule that a forged
114
Bank of the Philippine Islands vs. Casa Montessori Internationale
_______________
recording of data that underlies their preparation, their form of presentation, and the
108Philippine National Bank v. Quimpo, 158 SCRA 582, 585, March 14, 1988, per Gancayco, J. opinion expressed therein. The auditor does not assume the role of employee or of
121 122

109Gempesaw v. Court of Appeals, supra, p. 696. management in the clients conduct of operations and is never under the control or
123

110Agbayani, supra, p. 207. supervision of the client.


124

As testified to on direct examination by Angelita Dandan, senior manager of the BPI Muntinlupa Branch
Yabut was an independent auditor hired by CASA. He handled its monthly bank
111
125

and formerly connected with the BPI Forbes Park Branch. TSN, August 26, 1997, pp. 3-4, and 7.
112x x x [B]anks are expected to exercise the highest degree of diligence in the selection and supervision of reconciliations and had access to all relevant documents and checkbooks. In him was 126

their employees. Bank of the Philippine Island v. Court of Appeals, 216 SCRA 51, 71, November 26, 1992, per reposed the clients trust and confidence that he would perform precisely those
127 128

Gutierrez, Jr., J. functions and apply the appropriate procedures in accordance with generally accepted
Philippine Commercial International Bank v. Court of Appeals, supra, per Quisumbing, J., p. 469.
auditing standards. Yet he did not meet these expectations. Nothing could be more
113
129

114Agbayani, supra, p. 199.


289 horrible to a client than to discover later on that the person tasked to detect fraud was
VOL. 430, MAY 28, 2004 289 the same one who perpetrated it.
Cash Balances
Bank of the Philippine Islands vs. Casa Montessori Internationale
signature is wholly inoperative. Contrary to BPIs claim, however, we do not find CASA
115
Open to Manipulation
negligent in handling its financial affairs. CASA, we stress, is not precluded from setting It is a non sequitur to say that the person who receives the monthly bank statements,
up forgery as a real defense. together with the cancelled checks and other debit/credit memoranda, shall examine the
contents and give notice of any discrepancies within a reasonable time. Awareness is not
Role of Independent Auditor
equipollent with discernment.
_______________ 292 SUPREME COURT REPORTS ANNOTATED
Santos, supra, pp. 11 & 168.
121
Bank of the Philippine Islands vs. Casa Montessori Internationale
Holmes and Burns, supra, p. 80.
122
unwary of the accounting processes involved by manipulating the cash balances on
Ricchiute, supra, p. 48.
123
recordespecially when bank transactions are numerous, large and frequent. CASA
Santos, supra, pp. 52 & 76.
could only be blamed, if at all, for its unintelligent choice in the selection and
124

As testified to on cross-examination by Carina Lebron (TSN, February 13, 1992, pp. 18-19). See Yabuts
125

Affidavit, p. 1; G.R. No. 149454, Records, p. 323. appointment of an auditora fault that is not tantamount to negligence.
That Respondent Yabut is a CPA appears in CASAs pretrial Brief. G.R. No. 149454, Records, p. 83. Negligence is not presumed, but proven by whoever alleges it. Its mere existence is 136

Yabuts Affidavit, supra.


not sufficient without proof that it, and no other cause, has given rise to damages. In
126
137 138

127 Ricchiute, supra, p. 54.


128 Santos, supra, p. 6. addition, this fault is common to, if not prevalent among, small and medium-sized
129 Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 191, January 15, 1992. business entities, thus leading the Professional Regulation Commission (PRC), through
As of April 2004, many Generally Accepted Auditing Standards (GAAS) have been replaced by International Standards on the Board of Accountancy (BOA), to require today not only accreditation for the practice
Auditing (ISA).
291 of public accountancy, but also the registration of firms in the practice thereof. In fact,
139

VOL. 430, MAY 28, 2004 291 among the attachments now required upon registration are the code of good
governance and a sworn statement on adequate and effective training.
140 141

Bank of the Philippine Islands vs. Casa Montessori Internationale The missing checks were certainly reported by the bookkeeper to the accountant 142 143

Besides, in the internal accounting control system prudently installed by CASA, it was 130
her immediate supervisorand by the latter
Yabut who should examine those documents in order to prepare the bank _______________
reconciliations. He owned his working papers, and his output consisted of his opinion
131 132

as well as the clients financial statements and accompanying notes thereto. CASA had 136Taylor v. The Manila Electric Railroad and Light Co., 16 Phil. 8, 28, March 22, 1910, per Carson, J.;
every right to rely solely upon his outputbased on the terms of the audit engagement citing Scaevola in Jurisprudencia del Codigo Civil, Vol. 6 (1902), pp. 551-552.
Taylor v. The Manila Electric Railroad and Light Co., supra, p. 27, quoting the judgment of the Supreme
and could thus be unwittingly duped into believing that everything was in order. Besides,
137

Court of Spain on June 12, 1900.


[g]ood faith is always presumed and it is the burden of the party claiming otherwise to 138Before there can be a judgment for damages, negligence must be affirmatively established by competent
adduce clear and convincing evidence to the contrary. 133 evidence. Sor Consuelo Barcel v. The Manila Electric Railroad and Light Co., 29 Phil. 351, 359, January 28,
Moreover, there was a time gap between the period covered by the bank statement 1915, per Carson, J.
27 of PD 692.
and the date of its actual receipt. Lebron personally received the December 1990 bank
139

140Good governance has been defined as a really strong senior managerial control exercised by the chief
statement only in January 1991 when she was also informed of the forgery for the first
134
executive officer or CEO and one of his/her strongest direct reports. Gerry Conroy, Good Governance and
time, after which she immediately requested a stop payment order. She cannot be Good Management Keys to Successful Project
faulted for the late detection of the forged December check. After all, the bank account Management. http://www.pwcglobal.com/Extweb/ncinthenews.nsf/docid/28123C3F882E4-
8B7CA256AFA007A33EA, last visited May 6, 2004, 1:12 p.m. PST.
with BPI was not personal but corporate, and she could not be expected to monitor Accountability is a key requirement of good governance. As such, it cannot be enforced without transparency and the rule of
closely all its finances. A preschool teacher charged with molding the minds of the youth law. http://www.unescap.org/huset/gg/governance.htm, last visited May 6, 2004, 12:55 p.m. PST.
cannot be burdened with the intricacies or complexities of corporate existence. http://www.picpa.com.ph, last visited May 4, 2004, 1:57 p.m. PST.
141

Isidra Carandang, TSN, February 13, 1992, pp. 18-19.


There is also a cutoff period such that checks issued during a given month, but not
142

Felipa Cabuyao, TSN, February 13, 1992, pp. 18-19.


143

presented for payment within that period, will not be reflected therein. An experienced 135
293
auditor with intent to defraud can easily conceal any devious scheme from a client VOL. 430, MAY 28, 2004 293
_______________
Bank of the Philippine Islands vs. Casa Montessori Internationale
A depositor has a duty to set up an accounting system that is reasonably calculated to prevent any
130 to the auditor. However, both the accountant and the auditor, for reasons known only to
forgery or to render it difficult to perpetrate. Gempesaw v. Court of Appeals, supra, p. 690. them, assured the bookkeeper that there were no irregularities.
A bank reconciliation is an audit technique that verifies if the cash balance appearing on a bank
The bookkeeper who had exclusive custody of the checkbooks did not have to go
131
144 145

statement per bank records is in agreement with that in the depositors records or books of accounts. Meigs and
Meigs, Accounting: The Basis for Business Decisions, Part I (5th ed., 1981), p. 315. directly to CASAs president or to BPI. Although she rightfully reported the matter,
24 of Presidential Decree (PD) No. 692, otherwise known as The Revised Accountancy Law.
132 neither an investigation was conducted nor a resolution of it was arrived at, precisely
Chiang Yia Min v. Court of Appeals, supra, p. 624, per Gonzaga-Reyes, J.
133
because the person at the top of the helm was the culprit. The vouchers, invoices and
G.R. No. 149454, Records, p. 491.
check stubs in support of all check disbursements could be concealed or fabricatedeven
134

Cutoff bank statements do not represent all the transactions in a given month. Ricchiute, supra, p. 498.
135

292 in collusionand management would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CAS 154 Article 2217 of the Civil Code.
Dee Hua Liong Electrical Equipment Corp. v. Reyes, 230 Phil. 101, 107; 145 SCRA 713, November 25,
A. If auditors may be held liable for breach of contract and negligence, with all the more
155
146

1986.
reason may they be charged with the perpetration of fraud upon an unsuspecting client. 156Guilatco v. City of Dagupan, 171 SCRA 382, 389, March 21, 1989; citing Bagumbayan Corp. v.
CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or Intermediate Appellate Court, 217 Phil. 421, 424; 132 SCRA 441, September 30, 1984.
munificence or both. Money paid under a mistake may rightfully be recovered, and 147
157Soberano v. Manila Railroad Co., 124 Phil. 1330, 1337; 18 SCRA 732, 738, November 23, 1966;
citing Fores v. Miranda, 105 Phil. 266, 274, 276, March 4, 1959 and Necesito v. Paras, 104 Phil. 75, 82-83, June
under such terms as the injured party may choose.
30, 1958.
Third Issue: 158Northwest Orient Airlines v. Court of Appeals, 186 SCRA 440, 444, June 8, 1990; citing Sabena Belgian
World Airlines v. Court of Appeals, 171 SCRA 620, 629, March 31, 1989.
Award of Monetary Claims 159Cathay Pacific Airways, Ltd. v. Vazquez, 399 SCRA 207, 220, March 14, 2003, per Davide, Jr., CJ;
Moral Damages Denied citing Francisco v. Ferrer, Jr., 353
We deny CASAs claim for moral damages. 295
In the absence of a wrongful act or omission, or of fraud or bad148 VOL. 430, MAY 28, 2004 295
_______________
Bank of the Philippine Islands vs. Casa Montessori Internationale
Yabut admitted that he had recommended Cabuyao to the position. Yabuts Afffidavit, supra. As a general rule, a corporationbeing an artificial person without feelings, emotions
The job of a bookkeeper is so integrated with a corporation that the regular recording of its business
144 and senses, and having existence only in legal contemplationis not entitled to moral
accounts and transactions safeguards it from possible fraud, which is adverse to its corporate interest. Pabon v. damages, because it
160 cannot experience physical suffering and mental
National Labor Relations Commission, 296 SCRA 7, 14, September 24, 1998.
Yabuts Affidavit, p. 1; G.R. No. 149454, Records, p. 323.
145
anguish. However, for breach of the fiduciary duty required of a bank, a corporate client
161

Holmes and Burns, supra, pp. 84-86.


146 may claim such damages when its good reputation is besmirched by such breach, and
Campos and Lopez-Campos, supra, p. 287; Agbayani, supra, p. 211. Both cited Article 2154 of the Civil
147 social humiliation results therefrom. CASA was unable to prove that BPI had debased
162

Code. the good reputation of, and consequently caused incalculable embarrassment to, the
163

Ong Yiu v. Court of Appeals, 91 SCRA 223, 229, June 29, 1979.
former. CASAs mere allegation or supposition thereof, without any sufficient evidence on
148

294
record, is not enough.
164

294 SUPREME COURT REPORTS ANNOTATED


Exemplary Damages Also Denied
Bank of the Philippine Islands vs. Casa Montessori Internationale We also deny CASAs claim for exemplary damages.
faith, moral damages cannot be awarded. The adverse result of an action does not per
149 150
Imposed by way of correction for the public good, exemplary damages cannot be
165 166

se make the action wrongful, or the party liable for it. One may err, but error alone is not recovered as a matter of right. As we have
167

a ground for granting such damages. While no proof of pecuniary loss is necessary
151
_______________
thereforwith the amount to be awarded left to the courts discretion the claimant 152

must nonetheless satisfactorily prove the existence of its factual basis and causal 153 SCRA 261, 265, February 28, 2001. See also Morris v. Court of Appeals, 352 SCRA 428, 437, February 21,
relation to the claimants act or omission.
154 155
2001; Magat, Jr. v. Court of Appeals, 337 SCRA 298, 307, August 4, 2000; and Tan v. Northwest Airlines,
Inc.,383 Phil. 1026, 1032; 327 SCRA 263, 268, March 3, 2000.
Regrettably, in this case CASA was unable to identify the particular instance LBC Express, Inc. v. Court of Appeals, 236 SCRA 602, 607, September 21, 1994. See Layda v. Court of
160

enumerated in the Civil Codeupon which its claim for moral damages is Appeals, 90 Phil. 724, 730, January 29, 1952.
predicated. Neither bad faith nor negligence so gross that it amounts to malice can be
156 157 Article 2217 of the Civil Code.
161

imputed to BPI. Bad faith, under the law, does not simply connote bad judgment or Morales, The Philippine General Banking Law (Annotated 2002), pp. 3-4; citing Simex International
162

(Manila), Inc. v. Court of Appeals, supra, and Mambulao Lumber Co. v. Philippine National Bank, 130 Phil.
negligence; it imports a dishonest purpose or some moral obliquity and conscious doing
158

366, 391; 22 SCRA 359, January 30, 1968.


of a wrong, a breach of a known duty through some motive or interest or ill will that Sangco, supra, p. 989.
163

partakes of the nature of fraud. 159 Grapilon v. Municipal Council of Carigara, Leyte, 112 Phil. 24, 29; 2 SCRA 103, 108, May 30, 1961.
164

_______________ Article 2229 of the Civil Code.


165

Ledesma v. Court of Appeals, 160 SCRA 449, 456, April 15, 1988, Prudenciado v. Alliance Transport
166

149Suario v. Bank of the Philippine Islands, 176 SCRA 688, 696, August 25, 1989; citing Guita v. Court of System, Inc., 148 SCRA 440, 450, March 16, 1987; and Lopez v. Pan American World Airways, 123 Phil. 256,
Appeals, 139 SCRA 576, 580, November 11, 1985. 267; 16 SCRA 431, March 30, 1966.
150Rubio v. Court of Appeals, 141 SCRA 488, 515-516, March 12, 1986; citing R and B Surety & Insurance De Leon v. Court of Appeals, 165 SCRA 166, 176, August 31, 1988; Sweet Lines, Inc. v. Court of
167

Co., Inc. v. Intermediate Appellate Court, 214 Phil. 649, 657; 129 SCRA 736, 743, June 22, 1984. Appeals, 206 Phil. 663, 669; 121 SCRA 769, 775, April 28, 1983; Octot v. Ybaez, 197 Phil. 76, 82; 111 SCRA 79,
151Filinvest Credit Corp v. Mendez, 152 SCRA 593, 601, July 31, 1987. January 18, 1982; and Ventanilla v. Centeno, 110 Phil. 811, 816; 1 SCRA 215, 221, January 28, 1961, citing
152Article 2216 of the Civil Code. Article 2233 of the Civil Code
153Silva v. Peralta, 110 Phil. 57, 64, November 25, 1960. 296
296 SUPREME COURT REPORTS ANNOTATED incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
Bank of the Philippine Islands vs. Casa Montessori Internationale shall be the payment of x x x legal interest, which is six percent per annum. The actual 178

base for its computation shall be on the amount finally


said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon
adjudged, compounded annually to make up for the cost of money already lost to
forged signatures. Therefore, the former cannot be said to have acted in a wanton,
179 180 181

CASA.
fraudulent, reckless, oppressive or malevolent manner. The latter, having no right to
Moreover, the failure of the CA to award interest does not prevent us from granting it
168

moral damages, cannot demand exemplary damages.


upon damages awarded for breach of contract. Because BPI evidently breached its
169

182

Attorneys Fees Granted contract of deposit with CASA, we award interest in addition to the total amount
Although it is a sound policy not to set a premium on the right to litigate, we find that 170
adjudged. Under Section 196 of the NIL, any case not provided for shall be governed by
CASA is entitled to reasonable attorneys fees based on factual, legal, and equitable the provisions of existing legislation or, in default
justification. 171
_______________
When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest, or where the court deems it just and
172 Jarenco, Torts and Damages in Philippine Law (4th ed., 1983), p. 334; citing Pirovano v. The De la Rama
174

equitable, attorneys fees may be recovered. In the present case, BPI persistently denied
173
Steamship Co., 96 Phil. 335, 367, December 29, 1954.
When a claim is made judicially under Article 1169 of the Civil Code.
the claim of CASA under the NIL to recredit the latters account for the value of the
175

Philippine National Bank v. Utility Assurance & Surety Co., Inc., supra.
176

forged checks. This denial constrained CASA to incur expenses and exert effort for more Cabral v. Court of Appeals, 178 SCRA 90, 93, September 29, 1989.
177

than ten years in order to protect its corporate interest in its bank account. Besides, we Article 2209 of the Civil Code.
178

have already cautioned BPI on a similar act of negligence it had committed seventy years Francisco v. Court of Appeals, supra, p. 381, per Gonzaga-Reyes, J.
179

In compounding interest, x x x the amount of interest earned for a certain period is added to the
ago, but it has remained unrelenting. Therefore,
180

principal for the next period. Interest for the subsequent period is computed on the new amount, which includes
_______________ both the principal and accumulated interest. Smith and Skousen, Intermediate Accounting, the 11th ed., 1992,
p. 235.
168Article 2232 of the Civil Code. See Nadura v. Benguet Consolidated, Inc., 116 Phil. 28, 32; 5 SCRA 879, The payment (cost) for the use of money is interest. Id., p. 234.
181

August 24, 1962. Article 2210 of the Civil Code.


182

169Estopa v. Piansay, Jr., 109 Phil. 640, 642, September 30, 1960. 298
170Firestone Tire & Rubber Co. of the Philippines v. Ines Chavez & Co., Ltd., 124 Phil. 947, 950; 18 SCRA
356, 358, October 19, 1966, citing Heirs of Basilisa Justiva vs. Gustilo, 117 Phil. 71, 73; 7 SCRA 72, 73, January
298 SUPREME COURT REPORTS ANNOTATED
31, 1963. See Tan Ti (alias Tan Tico) v. Alvear, 26 Phil. 566, 571, January 16, 1914. Bank of the Philippine Islands vs. Casa Montessori Internationale
Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 312 Phil. 466, 481; 242
thereof, by the rules of the law merchant. Damages are not provided for in the NIL.
171
183

SCRA 393, 406, March 16, 1995, per Davide, Jr., J. (now C.J.).
172Article 2208 (2) of the Civil Code. See Rivera v. Litam & Co., Inc., 114 Phil. 1009, 1022; 4 SCRA 1072, Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code
April 25, 1962; and Luneta Motor Co. v. Baguio Bus Co., Inc., 108 Phil. 892, 898, June 30, 1960. of Commerce, acts of commerce shall be governed by its provisions and, in their absence,
173Article 2208 (11) of the Civil Code. See Philippine National Bank v. Utility Assurance & Surety Co., by the usages of commerce generally observed in each place; and in the absence of both
Inc., 177 SCRA 208, 219, September 1, 1989; citing Plaridel Surety & Insurance Co., Inc. v. P.L. Galang
rules, by those of the civil law. This law being silent, we look at Article 18 of the Civil
184

Machinery Co., Inc., 100 Phil. 679, 682, January 11, 1957. See also Apelario v. Ines Chavez & Co., Ltd., 113
Phil. 215, 217-218; 3 SCRA 226, 229, October 16, 1961; and Guitarte v. Sabaco, 107 Phil. 437, 440, March 28, Code, which states: In matters which are governed by the Code of Commerce and special
1960. laws, their deficiency shall be supplied by its provisions. A perusal of these three
297 statutes unmistakably shows that the award of interest under our civil law is justified.
VOL. 430, MAY 28, 2004 297 WHEREFORE, the Petition in G.R. No. 149454 is hereby DENIED, and that in G.R.
Bank of the Philippine Islands vs. Casa Montessori Internationale No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is
the Court deems it just and equitable to grant ten percent (10%) of the total value 174
AFFIRMED with modification: BPI is held liable for P547,115, the total value of the
adjudged to CASA as attorneys fees. forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus
interest at the legal rate of six percent (6%) per annumcompounded annually, from the
Interest Allowed
filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof,
For the failure of BPI to pay CASA upon demand and for compelling the latter to resort
subject to reimbursement from Respondent Yabut for the entire amount, excepting
to the courts to obtain payment, legal interest may be adjudicated at the discretion of the
attorneys fees. Let a copy of this Decision be furnished the Board of Accountancy of the
Court, the same to run from the filing of the Complaint. Since a court judgment is not a
Professional Regulation Commission for such action as it may deem appropriate against
175 176

loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per
Respondent Yabut. No costs.
annum. If the obligation consists in the payment of a sum of money, and the debtor
SO ORDERED.
177
appellate court or before the trial court. Obviously, this issue is only an afterthought. An issue
5. G.R. No. 127469. January 15, 2004. *
raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel.
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and
Commercial Law; Banks; Banks required to treat the accounts of its depositors with
LEONILO MARCOS, respondents. meticulous care, always having in mind the fiduciary nature of their relationship.Section 2 of
Remedial Law; Civil Procedure; It is within the trial courts discretion to reopen the evidence Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on
submitted by the plaintiff and allow the defendant to challenge the same by cross-examining the banks when it declares that the State recognizes the fiduciary nature of banking that requires
plaintiffs witnesses or introducing countervailing evidence.There was no violation of the BANKs high standards of integrity and performance. This statutory declaration merely echoes the earlier
right to procedural due process when the trial court denied the BANKs motion to cross-examine pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of
Marcos. Prior to the denial of the motion, the trial court had properly declared the BANK in Appeals requiring banks to treat the accounts of its depositors with meticulous care, always
default. Since the BANK was in default, Marcos was able to present his evidence ex-parteincluding having in mind the fiduciary nature of their relationship. The Court reiterated this fiduciary duty
his own testimony. When the trial court lifted the order of default, the BANK was restored to its of banks in subsequent cases.
standing and rights in the action. However, as a rule, the proceedings already taken should not be Same; Same; The fiduciary relationship means that the banks obligation to observe high
disturbed. Nevertheless, it is within the trial courts discretion to reopen the evidence submitted by standards of integrity and performance is deemed written into every deposit agreement between a
the plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiffs bank and its depositor.Although RA No. 8791 took effect only in the year 2000, at the time that
witnesses or introducing countervailing evidence. The 1964 Rules of Court, the rules then in effect the BANK transacted with Marcos, jurisprudence had already imposed on banks the same high
at the time of the hearing of this case, recognized the trial courts exercise of this discretion. The standard of diligence required under RA No. 8791. This fiduciary relationship means that the
1997 Rules of Court retained this discretion. banks obligation to observe high standards of integrity and performance is deemed written into
Same; Same; A motion to cross-examine is adversarial; The purpose of a notice of a motion is every deposit agreement between a bank and its depositor.
to avoid surprises on the opposite party and to give him time to study and meet the arguments.We Same; Same; A bank is liable for the wrongful acts of its officers done in the interest of the
do not agree with the appellate courts ruling that a motion to cross-examine is a non-litigated bank or in their dealings as bank representatives but not for acts outside the scope of their
motion and that the trial court gravely abused its discretion when it denied the motion to cross- authority.Assuming Pagsaligan was behind the spurious promissory note, the BANK would still
examine. A motion to cross-examine is adversarial. The adverse party in this case had the right to be accountable
resist the motion to cross-examine because the movant had previously forfeited its right to cross- 489
examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party VOL. 419, JANUARY 15, 2004 48
and to give him time to study and meet the arguments. In a motion to cross-examine, the adverse
party has the right not only to prepare a meaningful opposition to the motion but also to be 9
informed that his witness is being recalled for cross-examination. The proof of service was Philippine Banking Corporation vs. Court of Appeals
therefore indispensable and the trial court was correct in denying the oral manifestation to grant to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the
the motion for cross-examination. interest of the bank or in their dealings as bank representatives but not for acts outside the scope
Same; Same; While the right to cross-examine is a vital element of procedural due process, the of their authority.
right does not necessarily require an actual Remedial Law; Best Evidence Rule; The Best Evidence Rule provides that the court shall not
_______________
receive any evidence that is merely substitutionary in its nature such as photocopies as long as the
original evidence can be had.The BANK failed to produce the best evidencethe original copies
*FIRST DIVISION.
488 of the loan application and promissory note. The Best Evidence Rule provides that the court shall
not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long
4 SUPREME COURT REPORTS ANNOTATED
as the original evidence can be had. Absent a clear showing that the original writing has been lost,
88 destroyed or cannot be produced in court, the photocopy must be disregarded, being unworthy of
Philippine Banking Corporation vs. Court of Appeals any probative value and being an inadmissible piece of evidence.
cross-examination but merely an opportunity to exercise this right if desired by the party Same; Same; The purpose of the rule requiring the production of the best evidence is the
entitled to it.While the right to cross-examine is a vital element of procedural due process, the prevention of fraud.The purpose of the rule requiring the production of the best evidence is the
right does not necessarily require an actual cross-examination, but merely an opportunity to prevention of fraud. If a party is in possession of evidence and withholds it, and seeks to substitute
exercise this right if desired by the party entitled to it. Clearly, the BANKS failure to cross- inferior evidence in its place, the presumption naturally arises that the better evidence is withheld
examine is imputable to the BANK when it lost this right as it was in default and failed thereafter for fraudulent purposes, which its production would expose and defeat.
to exhaust the remedies to secure the exercise of this right at the earliest opportunity.
Same; Same; Appeals; Estoppel; An issue raised for the first time on appeal and not raised PETITION for review on certiorari of a decision of the Court of Appeals.
timely in the proceedings in the lower court is barred by estoppel.The BANK raises for the very
first time the issue of judicial admission on the part of Marcos. The BANK even has the audacity to The facts are stated in the opinion of the Court.
fault the Court of Appeals for not ruling on this issue when it never raised this matter before the Noel S.R. Jose for petitioner.
Edgardo M. Salandanan for private respondent. 3Rollo, p. 204.
4The case was docketed as Civil Case No. B-3148.
491
CARPIO, J.:
VOL. 419, JANUARY 15, 2004 491
The Case Philippine Banking Corporation vs. Court of Appeals
Before us is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV
1
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as
No. 34382 dated 10 December 1996 modifying the Decision of the Regional Trial Court,
2
follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt
Fourth Judicial No. CD 83.9 dated 15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10
_______________ dated 15 March 1983 for P251,250. Marcos deposited the required 30% marginal deposit
for the trust receipt agreements. Marcos claimed that his obligation to the BANK was
1Penned by Associate Justice Arturo B. Buena with Associate Justices Ma. Alicia Austria-Martinez and therefore only P595,875 representing 70% of the letters of credit.
Bernardo Ll. Salas, concurring, Third Division. Marcos believed that he and the BANK became creditors and debtors of each other.
2Penned by Judge N. C. Perello.
490 Marcos expected the BANK to offset automatically a portion of his time deposits and the
accumulated interest with the amount covered by the three trust receipts totalling
490 SUPREME COURT REPORTS ANNOTATED
P851,250 less the 30% marginal deposit that he had paid. Marcos argued that if only the
Philippine Banking Corporation vs. Court of Appeals BANK applied his time deposits and the accumulated interest to his remaining
Region, Assisting Court, Binan, Laguna in Civil Case No. B-3148-entitled Leonilo obligation, which is 70% of the total amount of the letters of credit, he would have paid
Marcos v. Philippine Banking Corporation. completely his debt. Marcos further pointed out that since he did not apply for a renewal
The Antecedent Facts of the trust receipt agreements, the BANK had no right to renew the same.
On 30 August 1989, Leonilo Marcos (Marcos) filed with the trial court a Complaint for Marcos accused the BANK of unjustly demanding payment for the total amount of the
Sum of Money with Damages against petitioner Philippine Banking Corporation
3 trust receipt agreements without deducting the 30% marginal deposit that he had
(BANK). 4 already made. He decried the BANKs unlawful charging of accumulated interest because
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan he claimed there was no agreement as to the payment of interest. The interest arose from
(Pagsaligan), one of the officials of the BANK and a close friend of Marcos, persuaded numerous alleged extensions and penalties. Marcos reiterated that there was no
him to deposit money with the BANK. Marcos yielded to Pagsaligans persuasion and agreement to this effect because his time deposits served as the collateral for his
claimed he made a time deposit with the BANK on two occasions. The first was on 11 remaining obligation.
March 1982 for P664,897.67. The BANK issued Receipt No. 635734 for this time deposit. Marcos also denied that he obtained another loan from the BANK for P500,000 with
On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for interest at 25% per annumsupposedly covered by Promissory Note No. 20-97983 dated 24
P764,897.67. The BANK did not issue an official receipt for this time deposit but it October 1983. Marcos bewailed the BANKs belated claim that his time deposits were
acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. applied to this void promissory note on 12 March 1985.
The time deposits earned interest at 17% per annum and had a maturity period of 90 In sum, Marcos claimed that:
days. (1) his time deposit with the BANK in the total sum of P1,428,795.34 has earned 5

Marcos alleged that Pagsaligan kept the various time deposit certificates on the accumulated interest since March 1982 up to the present in the total amount of
assurance that the BANK would take care of the certificates, interests and renewals. P1,727,305.45 at the rate
Marcos claimed that from the time of the deposit, he had not received the principal _______________
amount or its interest.
The sum of P664,897.67 and P764,897.67 is P1,429,795.34, not P1,428,795.34.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time
5

492
deposits and the accumulated interests to buy materials for his construction business.
However, the BANK through Pagsaligan convinced Marcos to keep his time deposits
492 SUPREME COURT REPORTS ANNOTATED
intact and instead to open several domestic letters of credit. The BANK required Marcos Philippine Banking Corporation vs. Court of Appeals
to give a marginal deposit of 30% of the total amount of the letters of credit. The time of 17% per annum so his total money with defendant (the BANK) is P3,156,100.79 less
deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the the amount of P595,875 representing the 70% balance of the marginal deposit and/or
BANK and Pagsaligan, he signed blank printed forms of the application for the domestic balance of the trust agreements; and
letters of credit, trust receipt agreements and promissory notes. (2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a
_______________ balance of P595,875, which the BANK should have automatically deducted from his time
deposits and accumulated interest, leaving the BANKs indebtedness to him at Law. Instead of initiating negotiations for the settlement of the account, Marcos filed this
P2,560,025.79. suit.
Marcos prayed the trial court to declare Promissory Note No. 20-97983 void and to The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that
order the BANK to pay the amount of his time deposits with interest. He also sought the the promissory note is supported by documentary evidence such as Marcos application
award of moral and exemplary damages as well as attorneys fees for P200,000 plus 25% for this loan and the microfilm of the cashiers check issued for the loan. The BANK
of the amount due. insisted that Marcos could not deny the agreement for the payment of interest and
On 18 September 1989, summons and a copy of the complaint were served on the penalties under the trust receipt agreements. The BANK prayed for the dismissal of the
BANK. 6 complaint, payment of damages, attorneys fees and cost of suit.
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied On 15 December 1989, the trial court on motion of Marcos counsel issued an order
the allegations in the complaint. The BANK believed that the suit was Marcos desperate declaring the BANK in default for filing its answer five days after the 15-day period to
attempt to avoid liability under several trust receipt agreements that were the subject of file the answer had lapsed. The trial court also held that the answer is a mere scrap of
9

a criminal complaint. paper because a copy was not furnished to Marcos. In the same order, the trial court
The BANK alleged that as of 12 March 1982, the total amount of the various time allowed Marcos to present his evidence ex parteon 18 December 1989. On that date,
deposits of Marcos was only P764,897.67 and not Pl,428,795.35 as alleged in the
7 Marcos testified and presented documentary evidence. The case was then submitted for
complaint. The P764,897.67 included the P664,897.67 that Marcos deposited on 11 March decision.
1982. _______________
The BANK pointed out that Marcos delivered to the BANK the time deposit
Records, p. 11.
certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos executed the
8

9Rollo, p. 231.
Deed of Assignment to secure his various loan obligations. The BANK claimed that these 494
loans are covered by Promissory Note No. 20-756-82 dated 2 June 1982 for P420,000 and 494 SUPREME COURT REPORTS ANNOTATED
Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed
that these obligations are separate and distinct from the trust receipt agreements. Philippine Banking Corporation vs. Court of Appeals
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK On 19 December 1989, Marcos received a copy of the BANKs Answer with Compulsory
debited his time deposits and applied the Counterclaim.
_______________ On 29 December 1989, the BANK filed an opposition to Marcos motion to declare the
BANK in default. On 9 January 1990, the BANK filed a motion to lift the order of default
6Rollo, p. 211. claiming that it had only then learned of the order of default. The BANK explained that
7Should be P1,429,795.34. See note 5. its delayed filing of the Answer with Counterclaim and failure to serve a copy of the
493
answer on Marcos was due to excusable negligence. The BANK asked the trial court to
VOL. 419, JANUARY 15, 2004 493 set aside the order of default because it had a valid and meritorious defense.
Philippine Banking Corporation vs. Court of Appeals On 7 February 1990, the trial court issued an order setting aside the default order
same to the obligation that is now considered fully paid. The BANK insisted that the
8 and admitting the BANKs Answer with Compulsory Counterclaim. The trial court
Deed of Assignment authorized it to apply the time deposits in payment of Promissory ordered the BANK to present its evidence on 12 March 1990.
Note No. 20-979-83. On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of testified during the ex-partehearing of 18 December 1989. On 12 March 1990, the trial
Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to court denied the BANKs motion and directed the BANK to present its evidence. Trial
finance the purchase of construction materials for their business, L.A. Marcos then ensued.
Construction Company. Pagsaligan suggested the opening of the letters of credit and the The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the
execution of trust receipts, whereby the BANK would agree to purchase the goods needed BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager of the same
by the client through the letters of credit. The BANK would then entrust the goods to the branch from 1982 to 1986.
client, as entrustee, who would undertake to deliver the proceeds of the sale or the goods On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of
themselves to the entrustor within a specified time. material time, the trial court reset the continuation of the cross-examination and
The BANK claimed that Marcos freely entered into the trust receipt agreements. presentation of other evidence. The succeeding hearings were postponed, specifically on
When Marcos failed to account for the goods delivered or for the proceeds of the sale, the 24, 27 and 28 of August 1990, because of the BANKs failure to produce its witness,
BANK filed a complaint for violation of Presidential Decree No. 115 or the Trust Receipts Pagsaligan. The BANK on these scheduled hearings also failed to present other evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the ground that loan of P760,000 and its corresponding payment by virtue of the Deed of Assignment for
Pagsaligan could not attend the hearing because of illness. The trial court denied the the equal sum. 10

motion to postpone and on motion of Marcos counsel ruled that the BANK had waived its If the BANKs claim is true that the time deposits of Marcos amounted only to
right to present further evidence. The trial court considered the case submitted for P764,897.67 and he had already assigned P760,000 of this amount, the trial court
decision. The BANK moved for reconsideration, which the trial court denied. pointed out that what would be left as of 3 June 1982 would only be P4,867.67. Yet, after11

On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the time deposits had matured, the BANK allowed Marcos to open letters of credit three
the BANK appealed to the Court of Appeals. times. The three letters of credit were all secured by the time deposits of Marcos after he
495 had paid the 30% marginal deposit. The trial court opined that if Marcos' time deposit
VOL. 419, JANUARY 15, 2004 495 was only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal
Philippine Banking Corporation vs. Court of Appeals deposit) was guaranteed by only P4,867.67, the remaining time deposits after Marcos
12

On 10 December 1996, the Court of Appeals modified the decision of the trial court by had executed the Deed of Assignment forP760,000.
reducing the amount of actual damages and deleting the attorneys fees awarded to According to the trial court, a security of only P4,867.67 for a loan worth P595,875
13

Marcos. (less 30% marginal deposit) is not only preposterous, it is also comical. Worse, aside from
allowing Marcos to have unsecured trust receipts, the BANK still claimed to have
The Ruling of the Trial Court
granted Marcos another loan for P500,000 on 25 October 1983 covered by Promissory
The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34
Note No. 20-979-83. The BANK is a commercial bank engaged in the business of lending
and not only P764,897.67 as claimed by the BANK. The trial court found that Marcos
money. Allowing a loan of more than a million pesos without collateral is in the words of
made a time deposit on two occasions. The first time deposit was made on 11 March 1982
the trial court, an impossibility and a gross violation of Central Bank Rules and
for P664,897.67 as shown by Receipt No. 635743. On 12 March 1982, Marcos again made
Regulations, which no Bank Manager has such authority to grant. Thus, the trial court
a time deposit for P764,897.67 as acknowledged by Pagsaligan in a letter of certification.
14

held that the BANK could not have granted Marcos the loan covered by Promissory Note
The two time deposits thus amounted to P1,429,795.34.
No. 20-979-83 because it was unsecured by any collateral.
The trial court pointed out that no receipt was issued for the 12 March 1982 time
The trial court required the BANK to produce the original copies of the loan
deposit because the letter of certification was sufficient. The trial court made a finding
application and Promissory Note No. 20-979-83 so that it could determine who applied
that the certification letter did not include the time deposit made on 11 March 1982. The
for this loan. However, the BANK presented to the trial court only the machine copies of
12 March 1982 deposit was in cash while the 11 March 1982 deposit was in checks which
the duplicate of these documents.
still had to clear. The checks were not included in the certification letter since the BANK _______________
could not credit the amounts of the checks prior to clearing. The trial court declared that
even the Deed of Assignment acknowledged that Marcos made several time deposits as Rollo, p. 256.
10

the Deed stated that the assignment was charged against various time deposits. The difference between P764,897.67 and P760,000 is P4,897.67, not P4,867.67.
11

The trial court recognized the existence of the Deed of Assignment and the two loans Should be P4,897.67. See note 11.
12

Should be P4,897.67. See note 11.


that Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2
13

Rollo, p. 257.
14

June 1982 for P420,000. The two loans amounted to P760,000. On 2 June 1982, the same 497
day that he secured the second loan, Marcos executed a Deed of Assignment assigning to VOL. 419, JANUARY 15, 2004 497
the BANK P760,000 of his time deposits. The trial court concluded that obviously the two
Philippine Banking Corporation vs. Court of Appeals
loans were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a Based on the machine copies of the duplicate of the two documents, the trial court
higher rate of interest instead of just withdrawing his time deposits. The trial court saw noticed the following discrepancies: (1) Marcos signature on the two documents are
no rhyme or reason why Marcos had to secure the loans from the BANK. The trial court merely initials unlike in the other documents submitted by the BANK; (2) it is highly
was convinced that Marcos did not know that what he had signed were loan applications unnatural for the BANK to only have duplicate copies of the two documents in its
and a Deed of Assignment in payment for his loans. Nonetheless, the trial court custody; (3) the address of Marcos in the documents is different from the place of
recognized the said residence as stated by Marcos in the other documents annexed by the BANK in its
496 Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588
496 SUPREME COURT REPORTS ANNOTATED less bank charges was issued to Marcos but the checks payee was one ATTY. LEONILO
MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was
Philippine Banking Corporation vs. Court of Appeals not sure what branch of the BANK issued the check for the loan proceeds. The trial court
was convinced that Marcos did not execute the questionable documents covering the 1. 1)to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at
P500,000 loan and Pagsaligan used these documents as a means to justify his inability to the legal rate, until fully restituted;
explain and account for the time deposits of Marcos. 2. 2)to pay-attorneys fees of P200,000.00; [and]
3. 3)[to pay the] cost of these proceedings.
The trial court noted the BANKs defective documentation of its transaction with
Marcos. First, the BANK was not in possession of the original copies of the documents
like the loan applications. Second, the BANK did not have a ledger of the accounts of IT IS SO ORDERED. 16

_______________
Marcos or of his various transactions with the BANK. Last, the BANK did not issue a
certificate of time deposit to Marcos. Again, the trial court attributed the BANKs lapses Ibid., pp. 262-263.
16

to Pagsaligans scheme to defraud Marcos of his time deposits. 499


The trial court also took note of Pagsaligans demeanor on the witness stand. VOL. 419, JANUARY 15, 2004 499
Pagsaligan evaded the questions by giving unresponsive or inconsistent answers
Philippine Banking Corporation vs. Court of Appeals
compelling the trial court to admonish him. When the trial court ordered Pagsaligan to
produce the documents, he conveniently became sick and thus failed to attend the
15
The Ruling of the Court of Appeals
hearings without presenting proof of his physical condition. The Court of Appeals addressed the procedural and substantive issues that the BANK
The trial court disregarded the BANKs assertion that the time deposits were raised.
converted into a savings account at 14% or 10 % per annumupon maturity. The BANK The appellate court ruled that the trial court committed a reversible error when it
never informed Marcos that his time deposits had already matured and these were denied the BANKs motion to cross-examine Marcos. The appellate court ruled that the
converted into a savings account. As to the interest due on the trust receipts, the right to cross-examine is a fundamental right that the BANK did not waive because the
_______________ BANK vigorously asserted this right. The BANKs failure to serve a notice of the motion
to Marcos is not a valid ground to deny the motion to cross-examine. The appellate court
Rollo, p. 262.
15
held that the motion to cross-examine is one of those non-litigated motions that do not
498 require the movant to provide a notice of hearing to the other party.
498 SUPREME COURT REPORTS ANNOTATED The Court of Appeals pointed out that when the trial court lifted the order of default,
Philippine Banking Corporation vs. Court of Appeals it had the duty to afford the BANK its right to cross-examine Marcos. This duty assumed
trial court ruled that there is no basis for such a charge because the documents do not greater importance because the only evidence supporting the complaint is Marcos ex-
stipulate any interest. parte testimony. The trial court should have tested the veracity of Marcos testimony
In computing the amount due to Marcos, the trial court took into account the through the distilling process of cross-examination. The Court of Appeals, however,
marginal deposit that Marcos had already paid which is equivalent to 30% of the total believed that the case should not be remanded to the trial court because Marcos
amount of the three trust receipts. The three trust receipts totalling P851,250 would then testimony on the time deposits is supported by evidence on record from which the
have a balance of P595,875. The balance became due in March 1987 and on the same appellate court could make an intelligent judgment.
date, Marcos time deposits of P669,932.30 had already earned interest from 1983 to 1987 On the second procedural issue, the Court of Appeals held that the trial court did not
totalling P569,323.21 at 17% per annum.Thus, the trial court ruled that the time err when it declared that the BANK had waived its right to present its evidence and had
deposits in 1987 totalled P1,239,115. From this amount, the trial court deducted submitted the case for decision. The appellate court agreed with the grounds relied upon
P595,875, the amount of the trust receipts, leaving a balance on the time deposits of by the trial court in its Order dated 7 September 1990.
P643,240 as of March 1987. However, since the BANK failed to return the time deposits The Court of Appeals, however, differed with the finding of the trial court as to the
of Marcos, which again matured in March 1990, the time deposits with interest, less the total amount of the time deposits. The appellate court ruled that the total amount of the
amount of trust receipts paid in 1987, amounted to P971,292.49 as of March 1990. time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found by the trial
In the alternative, the trial court ruled that even if Marcos had only one time deposit court. The certification letter issued by Pagsaligan showed that Marcos made a time
of P764,897.67 as claimed by the BANK, the time deposit would have still earned interest deposit on 12 March 1982 for P764,897.67. The certification letter shows that the amount
at the rate of 17% per annum.The time deposit of P650,163 would have increased to mentioned in the letter was the aggregate or total amount of the time deposits of Marcos
Pl,415,060 in 1987 after earning interest. Deducting the amount of the three trust as of that date. Therefore, the P764,897.67 already included the P664,897.67 time deposit
receipts, Marcos time deposits still totalled P1,236,969.30 plus interest. made by Marcos on 11 March 1982.
The dispositive portion of the decision of the trial court reads: 500
WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of 500 SUPREME COURT REPORTS ANNOTATED
Plaintiff, directing Defendant Bank as follows:
Philippine Banking Corporation vs. Court of Appeals 1. 1.1)COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8
The Court of Appeals further explained: RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO
Besides, the Official Receipt (Exh. B, p. 32, Records) dated March 11, 1982 covering the sum of AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND
P664,987.67 time deposit did not provide for a maturity date implying clearly that the amount DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO
covered by said receipt forms part of the total sum shown in the letter-certification which contained THE PETITIONERS ANSWER?
a maturity date. Moreover, it taxes ones credulity to believe that appellee would make a time
deposit on March 12, 1982 in the sum of P764,897.67 which except for the additional sum of
1. 2)WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS
P100,000.00 is practically identical (see underlined figures) to the sum of P664,897.67 deposited
the day before March 11, 1982.
WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE
Additionally, We agree with the contention of the appellant that the lower court wrongly WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED
appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the THE CASE SUBMITTED FOR RESOLUTION? 19

alleged application for loan by the appellee with the appellant in the sum of P500,000.00 dated
October 24, 1983. (Exh. J, p. 40, Records), wherein it was stated that the loan is for additional The Ruling of the Court
working capital versus the various time deposit amounting to P760,000.00. (Emphasis supplied)
The petition is without merit.
17

The Court of Appeals sustained the factual findings of the trial court in ruling that
Promissory Note No. 20-979-83 is void. There is no evidence of a bank ledger or Procedural Issues
computation of interest of the loan. The appellate court blamed the BANK for failing to There was no violation of the BANKs right to procedural due process when the trial
comply with the orders of the trial court to produce the documents on the loan. The court denied the BANKs motion to cross-examine Marcos. Prior to the denial of the
BANK also made inconsistent statements. In its Answer to the Complaint, the BANK motion, the trial court had properly declared the BANK in default. Since the BANK was
alleged that the loan was fully paid when it debited the time deposits of Marcos with the in default, Marcos was able to present his evidence ex-parte including his own testimony.
loan. However, in its discussion of the assigned errors, the BANK claimed that Marcos When the trial court lifted the order of default, the BANK was restored to its standing
had yet to pay the loan. and rights in the action. However, as a rule, the proceedings already taken should not be
The appellate court deleted the award of attorneys fees. It noted that the trial court disturbed. Nevertheless, it is within the trial courts discretion to reopen the evidence
20

failed to justify the award of attorneys fees in the text of its decision. The dispositive submitted by the plaintiff and allow the
_______________
portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new Ibid.,p. 37.
18

judgment is hereby rendered ordering the appellant bank to return to the appellee his Ibid., p. 321.
19

time deposit in the sum of P764,897.67 with 17% interest within 90 days from March 11, 20FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, Vol. 1, 173 (Sixth Revised Ed., 1997).
1982 in accordance with the letter-certification and with legal interest thereafter until 502
fully paid. Costs against the appellant. 502 SUPREME COURT REPORTS ANNOTATED
_______________ Philippine Banking Corporation vs. Court of Appeals
defendant to challenge the same, by cross-examining the plaintiff s witnesses or
Rollo, p. 35.
17

501 introducing countervailing evidence. The 1964 Rules of Court, the rules then in effect at
21

VOL. 419, JANUARY 15, 2004 501 the time of the hearing of this case, recognized the trial courts exercise of this discretion.
The 1997 Rules of Court retained this discretion. Section 3, Rule 18 of the 1964 Rules of
22

Philippine Banking Corporation vs. Court of Appeals Court reads:


SO ORDERED. (Emphasis supplied)
18
Sec. 3. Relief from order of default.A party declared in default may any time after discovery
The Issues thereof and before judgment file a motion under oath to set aside the order of default upon proper
The BANK anchors this petition on the following issues: showing that his failure to answer was due to fraud, accident, mistake or excusable neglect and
that he has a meritorious defense. In such case the order of default may be set aside on such terms
and conditions as the judge may impose in the interest of justice. (Emphasis supplied)
1. 1)WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE The records show that the BANK did not ask the trial court to restore its right to cross-
PRIVATE RESPONDENTS OUTSTANDING OBLIGATIONS SECURED BY examine Marcos when it sought the lifting of the default order on 9 January 1990. Thus,
THE ASSIGNMENT OF TIME DEPOSITS? the order dated 7 February 1990 setting aside the order of default did not confer on the
BANK the right to cross-examine Marcos. It was only on 2 March 1990 that the BANK
filed the motion to cross-examine Marcos. During the 12 March 1990 hearing, the trial
court denied the BANKs oral manifestation to grant its motion to cross-examine Marcos this issue when it never raised this matter before the appellate court or before the trial
because there was no proof of service on Marcos. The BANKs counsel pleaded for court. Obviously, this issue is only an afterthought. An issue raised
reconsideration but the trial court denied the plea and ordered the BANK to present its _______________
evidence. Instead of presenting its evidence, the BANK moved for the resetting of the
OSCAR M. HERRERA, REMEDIAL LAW, Vol. I, 733 (2000).
hearing and when the trial court denied the same, the BANK informed the trial court
24

Section 4, Rule 15 of the 1964 Rules of Court.


25

that it was elevating the denial to the upper court. 23


Fulgado v. Court of Appeals, G.R. No. 61570, 12 February 1990, 182 SCRA 81.
26

To repeat, the trial court had previously declared the BANK in default. The trial SeeOSCAR M. HERRERA, REMEDIAL LAW, Vol. 6, 176 (1999 ed.).
27

court therefore had the right to decide whether or not to disturb the testimony of Marcos 504
that had already been terminated even before the trial court lifted the order of default. 504 SUPREME COURT REPORTS ANNOTATED
We do not agree with the appellate courts ruling that a motion to cross-examine is a Philippine Banking Corporation vs. Court of Appeals
non-litigated motion and that the trial court gravely abused its discretion when it denied for the first time on appeal and not raised timely in the proceedings in the lower court is
the motion to cross- barred by estoppel. 28

_______________
The BANK cannot claim that Marcos had admitted the due execution of the
Ibid.
21
documents attached to its answer because the BANK filed its answer late and even failed
22Now Section 3(b), Rule 9 of the 1997 Rules of Court. to serve it on Marcos. The BANKs answer, including the actionable documents it pleaded
23TSN, 12 March 1990, p. 12. and attached to its answer, was a mere scrap of paper. There was nothing that Marcos
503 could specifically deny under oath. Marcos had already completed the presentation of his
VOL. 419, JANUARY 15, 2004 503 evidence when the trial court lifted the order of default and admitted the BANKs
Philippine Banking Corporation vs. Court of Appeals answer. The provision of the Rules of Court governing admission of actionable documents
examine. A motion to cross-examine is adversarial. The adverse party in this case had was not enacted to reward a party in default. We will not allow a party to gain an
the right to resist the motion to cross-examine because the movant had previously advantage from its disregard of the rules.
forfeited its right to cross-examine the witness. The purpose of a notice of a motion is to As to the issue of its right to present additional evidence, we agree with the Court of
avoid surprises on the opposite party and to give him time to study and meet the Appeals that the trial court correctly ruled that the BANK had waived this right. The
arguments. In a motion to cross-examine, the adverse party has the right not only to
24
BANK cannot now claim that it was deprived of its right to conduct a re-direct
prepare a meaningful opposition to the motion but also to be informed that his witness is examination of Pagsaligan. The BANK postponed the hearings three times because of its 29

being recalled for cross-examination. The proof of service was therefore indispensable inability to secure Pagsaligans presence during the hearings. The BANK could have
and the trial court was correct in denying the oral manifestation to grant the motion for presented another witness or its other evidence but it obstinately insisted on the
cross-examination. resetting of the hearing because of Pagsaligans absence allegedly due to illness.
We find no justifiable reason to relax the application of the rule on notice of The BANKs propensity for postponements had long delayed the case. Its motion for
motions to this case. The BANK could have easily refiled the motion to cross-examine
25
postponement based on Pagsaligans illness was not even supported by documentary
with the requisite notice to Marcos. It did not do so. The BANK did not make good its evidence such as a medical certificate. Documentary evidence of the illness is necessary
threat to elevate the denial to a higher court. The BANK waited until the trial court before the trial court could rule that there is a sufficient basis to grant the
rendered a judgment on the merits before questioning the interlocutory order of denial. postponement. 30

While the right to cross-examine is a vital element of procedural due process, the The BANKs Fiduciary Duty to its Depositor
right does not necessarily require an actual cross-examination, but merely an The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory
opportunity to exercise this right if desired by the party entitled to it. Clearly, the
26 note. The existence of Promissory Note
BANKs failure to cross-examine is imputable to the BANK when it lost this right as it
27 _______________
was in default and failed thereafter to exhaust the remedies to secure the exercise of this
Caltex (Philippines), Inc. v. Court of Appeals, G.R. No. 97753, 10 August 1992, 212 SCRA 448.
right at the earliest opportunity.
28

Records, p. 117.
29

The two other procedural lapses that the BANK attributes to the appellate and trial Spouses Reaport v. Judge Mariano, 413 Phil. 299; 361 SCRA 1(2001).
30

courts deserve scant consideration. 505


The BANK raises for the very first time the issue of judicial admission on the part of VOL. 419, JANUARY 15, 2004 505
Marcos. The BANK even has the audacity to fault the Court of Appeals for not ruling on
Philippine Banking Corporation vs. Court of Appeals
No. 20-979-83 could have been easily proven had the BANK presented the original copies transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
of the promissory note and its supporting evidence. In lieu of the original copies, the the account is to reflect at any given time the amount of money the depositor can dispose of as he
BANK presented the machine copies of the duplicate of the documents. These sees fit, confident that the bank will deliver it as and to whomever he directs.
substitute documents have no evidentiary value. The BANKs failure to explain the As the BANKs depositor, Marcos had the right to expect that the BANK was accurately
absence of the original documents and to maintain a record of the offsetting of this loan recording his transactions with it. Upon the maturity of his time deposits, Marcos also
with the time deposits bring to fore the BANKs dismal failure to fulfill its fiduciary duty had the right to withdraw the amount due him after the BANK had correctly debited his
to Marcos. outstanding obligations from his time deposits.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes By the very nature of its business, the BANK should have had in its possession the
this fiduciary duty on banks when it declares that the State recognizes the fiduciary original copies of the disputed promissory note and the records and ledgers evidencing
nature of banking that requires high standards of integrity and performance. This the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed
statutory declaration merely echoes the earlier pronouncement of the Supreme Court to produce the original copies of these documents. Clearly, the BANK failed to treat the
in Simex International (Manila) Inc. v. Court of Appeals requiring banks to treat the
31
account of Marcos with meticulous care.
accounts of its depositors with meticulous care, always having in mind the fiduciary The BANK claims that it is a reputable banking institution and that it has no reason
nature of their relationship. The Court reiterated this fiduciary duty of banks in
32
to forge Promissory Note No. 20-979-83. The trial court and appellate court did not rule
subsequent cases. 33
that it was the bank that forged the promissory note. It was Pagsaligan, the BANKs
Although RA No. 8791 took effect only in the year 2000, at the time that the BANK
34
branch manager and a close friend of Marcos, whom the trial court categorically blamed
transacted with Marcos, jurisprudence had already imposed on banks the same high for the fictitious loan agreements. The trial
_______________
standard of diligence required under RA No. 8791. This fiduciary relationship means
35

that the banks obligation to observe high standards of integrity and performance is Supra,note 31.
36

deemed written into every deposit agreement between a bank and its depositor. 507
_______________
VOL. 419, JANUARY 15, 2004 507
31G.R. No. 88013, 19 March 1990, 183 SCRA 360. Philippine Banking Corporation vs. Court of Appeals
Ibid.
32
court held that Pagsaligan made up the loan agreement to cover up his inability to
See Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February
account for the time deposits of Marcos.
33

1992, 206 SCRA 408; Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May
1994, 232 SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed that
310; Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA deprived Marcos of the amount due him will not excuse the BANK from its obligation to
761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667; 269 SCRA 695(1997); Firestone v. Court of return to Marcos the correct amount of his time deposits with interest. The duty to
Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601.
34RA No. 8791 was approved on 3 May 2000.
observe high standards of integrity and performance imposes on the BANK that
35The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September obligation. The BANK cannot also unjustly enrich itself by keeping Marcos money.
2003, 410 SCRA 562. Assuming Pagsaligan was behind the spurious promissory note, the BANK would still
506 be accountable to Marcos. We have held that a bank is liable for the wrongful acts of its
506 SUPREME COURT REPORTS ANNOTATED officers done in the interest of the bank or in their dealings as bank representatives but
Philippine Banking Corporation vs. Court of Appeals not for acts outside the scope of their authority. Thus, we held:
37

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
The fiduciary nature of banking requires banks to assume a degree of diligence higher
the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor,
than that of a good father of a family. Thus, the BANKs fiduciary duty imposes upon it a
will it be permitted to shirk its responsibility for such frauds; even though no benefit may accrue to
higher level of accountability than that expected of Marcos, a businessman, who the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
negligently signed blank forms and entrusted his certificates of time deposits to third persons where the representation is made in the course of its business by an agent acting
Pagsaligan without retaining copies of the certificates. within the general scope of his authority even though, in the particular case, the agent is secretly
The business of banking is imbued with public interest. The stability of banks largely abusing his authority and attempting to perpetrate a fraud upon his principal or some other
depends on the confidence of the people in the honesty and efficiency of banks. In Simex person, for his own ultimate benefit.38

International (Manila) Inc. v. Court of Appeals we pointed out the depositors reasonable
36
The Existence of Promissory Note No. 20-979-83 was not Proven
expectations from a bank and the banks corresponding duty to its depositor, as follows: The BANK failed to produce the best evidencethe original copies of the loan application
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether and promissory note. The Best Evidence Rule provides that the court shall not receive
such account consists only of a few hundred pesos or of millions. The bank must record every single
any evidence that is merely substitutionary in its nature, such as photocopies, as long as court or appellate court decision. We uphold the finding of the Court of Appeals as to the
44

the original evidence can be had. Absent a clear showing that the original writing has
39 amount of the time deposits as such finding is in accord with the evidence on record.
been lost, destroyed or cannot be produced in court, the photocopy must be disregarded, Marcos claimed that the certificates of time deposit were with Pagsaligan for
being un- safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and the
_______________ letter-certification dated 12 March 1982 to prove the total amount of his time deposits
with the BANK. The letter-certification issued by Pagsaligan reads:
Prudential Bank v. Court of Appeals, G.R. No. 108957, 14 June 1993, 223 SCRA 350.
March 12, 1982
37

Ibid.
38

39San Pedro v. Court of Appeals, 333 Phil. 597; 265 SCRA 733 (1996). Dear Mr. Marcos:
508 This is to certify that we are taking care in your behalf various Time Deposit Certificates
508 SUPREME COURT REPORTS ANNOTATED with an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND
EIGHT HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for
Philippine Banking Corporation vs. Court of Appeals
90 days at 17% p.a. with the interest payable at maturity on June 10, 1982.
worthy of any probative value and being an inadmissible piece of evidence.
Thank you.
40

What the BANK presented were merely the machine copies of the duplicate of the
Sgd. FLORENCIO B. PAGSALIGAN
loan application and promissory note. No explanation was ever offered by the BANK for
Branch Manager
its inability to produce the original copies of the documentary evidence. The BANK also
45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12
did not comply with the orders of the trial court to submit the originals.
March 1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on
The purpose of the rule requiring the production of the best evidence is the prevention
time deposit on 11 March 1982. This is plainly seen from the use of the word aggregate.
of fraud. If a party is in possession of evidence and withholds it, and seeks to substitute
We are not swayed by Marcos testimony that the certification is actually for the first
41

inferior evidence in its place, the presumption naturally arises that the better evidence is
time deposit that he placed on 11 March 1982. The letter-certification speaks of various
withheld for fraudulent purposes, which its production would expose and defeat.
Time Deposits Certificates with an aggregate value of P764,897.67. If the amount
42

The absence of the original of the documentary evidence casts suspicion on the
stated in the letter-certification is for a single time deposit only, and did not include the
existence of Promissory Note No. 20-979-83 considering the BANKs fiduciary duty to
11 March 1982 time deposit, then Marcos should have demanded a new letter of
keep efficiently a record of its transactions with its depositors. Moreover, the
certification from Pagsaligan. Marcos is a businessman. While he already made an error
circumstances enumerated by the trial court bolster the conclusion that Promissory Note
in judgment in entrusting to Pagsaligan the certificates of time deposits, Marcos should
No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent
have known the importance of making the letter-certification reflect the true nature of
proof to establish the existence of Promissory Note No. 20-979-83.
the transaction. Mar-
Total Amount Due to Marcos _______________
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the
total amount of time deposits that Marcos placed with the BANK is only P764,897.67 and Ibid., p. 373.
44

not P1,429,795.34 as found by the trial court. The BANK has always argued that Marcos Ibid., pp. 34-35.
45

510
time deposits only totalled P764,897.67. What the BANK insists on in this petition is the
43

trial courts violation of its right to procedural due process and the absence of any 510 SUPREME COURT REPORTS ANNOTATED
obligation to pay or return anything to Marcos. Marcos, on the other hand, merely prays Philippine Banking Corporation vs. Court of Appeals
for the affirmation of either the trial cos is bound by the letter-certification since he was the one who prodded Pagsaligan to
_______________ issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to
Ibid.
Marcos. The appellate court did not offset Marcos outstanding debt with the BANK
40

41IBM Philippines, Inc. v. National Labor Relations Commission, 365 Phil. 137; 305 SCRA 592 (1999).
Ibid.
42
covered by the three trust receipt agreements even though Marcos admits his obligation
43Rollo, p. 21. under the three trust receipt agreements. The total amount of the trust receipts is
509 P851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the
VOL. 419, JANUARY 15, 2004 509 BANK. This reduced Marcos total debt with the BANK to P595,875 under the trust
Philippine Banking Corporation vs. Court of Appeals receipts.
The trial and appellate courts found that the parties did not agree on the imposition
of interest on the loan covered by the trust receipts and thus no interest is due on this
loan. However, the records show that the three trust receipt agreements contained Rate of Legal Interest = 12% per annum
52

Period from 15 March 1983 (Date Trust Receipt No. CD 83.9 was issued) to 6 March 1987 (date when Trust
stipulations for the payment of interest but the parties failed to fill up the blank spaces
Receipt No. CD 83.9 became due) = 1,452 days
on the rate of interest. Put differently, the Interest Due = (Value of Trust Receipt No. CD 83.9 after payment of the marginal deposit) (12%) (Number
BANK and Marcos expressly agreed in writing on the payment of interest without, 46
of Days)/ 365 days
however, specifying the rate of interest. We, therefore, impose the legal interest of Interest Due = (P210,618.75) (12%) (1,452)/365
Interest Due = P100,543.04
12% per annum, the legal interest for the forbearance of money, on each of the three 47

Rate of Legal Interest = 12% per annum


53

trust receipts. Period from 15 March 1983 (Date Trust Receipt No. CD 83.10 was issued) to 6 March 1987 (date when
Based on Marcos testimony and the BANKs letter of demand, the trust receipt
48 49
Trust Receipt No. CD 83.10 became due) = 1,452 days
agreements became due in March 1987, The records do not show exactly when in March Interest Due = (Value of Trust Receipt No. CD 83.10 after payment of the marginal deposit) (12%) (Number
of Days)/ 365 days
1987 the obligation became due. In accordance with Article 2212 of the Civil Code, in
512
such a case the court shall fix the period of the duration of the obligation. The BANKs 50

letter of demand is dated 6 March 1989. We hold that the trust receipts became due on 6
512 SUPREME COURT REPORTS ANNOTATED
March 1987. Philippine Banking Corporation vs. Court of Appeals
_______________ When the trust receipts became due on 6 March 1987, Marcos owed the BANK
P880,812.48. This amount included P595,875, the principal value of the three trust
Article 1956, Civil Code of the Philippines.
46
receipts after payment of the marginal deposit, and P284,937.48, the interest then due on
EDGARDO L. PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. 5, 832 (14th Ed, 2000); Biesterbos v.
the three trust receipts.
47

Court of Appeals, G.R. No. 152529, 22 September 2003, 411 SCRA 396.
TSN, 18 December 1989, p. 24.
48 Upon maturity of the three trust receipts, the BANK should have automatically
Records, p. 36.
49
deducted, by way of offsetting, Marcos outstanding debt to the BANK from his time
Article 2212 of the Civil Code provides: If the obligation does not fix a period, but from its nature and the
50
deposits and its accumulated interest. Marcos time deposits of P764,897.67 had already
circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
511 earned interest of P616,318.92 as of 6 March 1987. Thus, Marcos total funds with the
54 55

BANK amounted to P1,381,216.59 as of the maturity of the trust receipts. After


VOL. 419, JANUARY 15, 2004 511
deducting P880,812.48, the amount Marcos owed the BANK, from Marcos funds with the
Philippine Banking Corporation vs. Court of Appeals BANK of P1,381,216.59, Marcos remaining time deposits as of 6 March 1987 is only
Marcos payment of the marginal deposit of P255,375 for the trust receipts resulted in P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the
the proportionate reduction of the three trust receipts. The reduced value of the trust date of filing of Marcos complaint with the trial court, is P211,622.96. From 30 August
56

receipts and their respective interest as of 6 March 1987 are as follows: _______________

1. 1.Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was Interest Due = (P174,637.5) (12%) (1,452)/365
Interest Due = P83,366.68
reduced to P210,618.75 with interest of P101,027.76. 51
54The time deposits matured every 90 days. The practice of banks is to compound the interest earned on
2. 2.Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was every renewal of the time deposit. However, Marcos failed to allege and prove this practice. The documents
reduced to P210,618.75 with interest of P100,543.04. 52 presented in court to prove the time deposits do not contain any stipulation on compounding of interest. Thus,
3. 3.Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 the interest on Marcos time deposits is computed on a straight, non-compounded basis. See Mambulao Lumber
Co. v. Philippine National Bank, 130 Phil. 366 (1968); The Consolidated Bank and Trust Corporation v. Court of
was reduced to P174,637.5 with interest of P83,366.68. 53
Appeals, G.R. No. 138569, 11 September 2003, 410 SCRA 562.
55Stipulated Interest Rate = 17% per annum, with interest earned capitalized every 90 days upon every
_______________ renewal of the time deposits.
Period from 10 June 1982 (Maturity date of the time deposits) to 6 March 1987 (Due date of the trust
The courts shall also fix the duration of the period when it depends on the will of the debtor. receipts) = 1,730 days
In every case, the courts shall determine such period as may under the circumstances have been probably Interest Due = (Principal) (17%) (Number of Days)/ 365 days
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. Interest Due = (P 764,897.67) (17%) (1,730)/365 = P616,318.92
Rate of Legal Interest = 12% per annum
51
56Stipulated Interest Rate = 17% per annum
Period from 8 March 1983 (Date Trust Receipt No. CD 83.7 was issued) to 6 March 1987 (date when Trust Period from 6 March 1987 (Due date of the trust receipts) to 30 August 1989 (Date of filing of the complaint
Receipt No. CD 83.7 became due) = 1,459 days with the trial court) = 908 days
Interest Due = (Value of Trust Receipt No. CD 83.7 after payment of the marginal deposit) (12%) (Number Interest Due = (Time deposits and interest -total value of the trust receipts) (17%) (Number of Days)/ 365
of Days)/ 365 days days
Interest Due = (P210,618.75) (12%) (1,459)/365 513
Interest Due = P101,027.76
VOL. 419, JANUARY 15, 2004 513 Note.A bank is under obligation to treat the accounts of its depositors with
Philippine Banking Corporation vs. Court of Appeals meticulous care whether such account consists only of a few hundred pesos or of millions
of pesos. (Philippine National Bank vs. Court of Appeals, 315 SCRA 309 [1999])
1989, the interest due on the accumulated interest of P211,622.96 should earn legal
interest at 12% per annumpursuant to Article 2212 of the Civil Code.
57

The BANKs dismal failure to account for Marcos money justifies the award of 6. G.R. No. 157845. September 20, 2005. *

moral and exemplary damages. Certainly, the BANK, as employer, is liable for the
58 59
PHILIPPINE NATIONAL BANK, petitioner, vs. NORMAN Y. PIKE, respondent.
Appeals; Elementary is the rule that the Supreme Court is not the appropriate venue to
negligence or the misdeed of its branch manager which caused Marcos mental anguish
consider anew the factual issues as it is not a trier of facts, and, it generally does not weigh anew the
and serious anxiety. Moral damages of P100,000 is reasonable and is in accord with our
60

evidence already passed upon by the Court of Appeals.Elementary is the rule that this Court is
rulings in similar cases involving banks negligence with regard to the accounts of their not the appropriate venue to consider anew the factual issues as it is not a trier of facts, and, it
depositors. 61
generally does not weigh anew the evidence already passed upon by the Court of Appeals. When
We also award P20,000 to Marcos as exemplary damages. The law allows the grant of this Court is tasked to go over once more the evidence presented by both parties, and analyze,
exemplary damages by way of example for the public good. The public relies on the 62 assess and weigh them to ascertain if the trial court and the appellate court were correct in
banks fiduciary duty to observe the highest degree of diligence. The banking sector is according superior credit to this or that piece of evidence of one party or the other, the Court
expected to maintain at all times this high level of meticulousness. 63
cannot and will not do the same. Such task is foreclosed by the rule enunciated under Section 1 of
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with Rule 45 of the Rules of Court.
Banks and Banking; Negligence; It bears emphasizing that negligence of banking institutions
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to
should never be countenancedthough its employees may be the ones negligent, a banks liability as
private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his an obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree
time deposits, with interest at 17% per annum from 30 August 1989 until full payment. of diligence in the selection and supervision of their employees.At this juncture, it bears
Petitioner Philippine Banking Corporation is also ordered to pay to private respondent emphasizing that negligence of banking institutions should never be countenanced. The negligence
Leonilo Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12% here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their treatment
legal interest per annum from 30 August 1989 until full pay- of respondent Pikes US Dollar Savings Account that resulted in the unauthorized withdrawal of
_______________ $7,500.00. Nevertheless, though its employees may be the ones negligent, a banks liability as an
obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree of
Interest Due = (P500,404.11) (17%) (908)/365 = P211,622.96 diligence in the selection and supervision of their employees, and having such obligation, this
57Article 2212 of the Civil Code provides: Interest due shall earn legal interest from the time it is judicially Court cannot ignore the circumstances surrounding the case at barhow the employees of
demanded, although the obligation may be silent upon this point. petitioner PNB turned their heads, nay, closed their eyes to the suspicious circumstances enfolding
Philippine National Bank v. Court of Appeals, G.R. No. 126152, 28 September 1999, 315 SCRA 309.
the two withdrawals subject of the case at bar. It may even be said that they went out of their ways
58

59Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.
60The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September
to disregard stan-
_______________
2003, 410 SCRA 562; Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.
Ibid. Seealso Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310.
61

SECOND DIVISION.
Prudential Bank v. Court of Appeals,supra, note 59.
*
62
329
Ibid.
63

514 VOL. 470, SEPTEMBER 20, 2005 3


514 SUPREME COURT REPORTS ANNOTATED 29
Aradillos vs. Court of Appeals Philippine National Bank vs. Pike
ment. Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by dard operating procedures formulated to ensure the security of each and every account that
way of moral damages and P20,000 as exemplary damages to private respondent Leonilo they are handling. Petitioner PNB does not deny that the withdrawal slips used were in breach of
Marcos. standard operating procedures of banks in the ordinary and usual course of banking operations as
testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner PNBs
Costs against petitioner.
Buendia branch.
SO ODERED. Same; Same; A banks employee was utterly remiss in protecting the banks client, as well as
Davide, Jr. (C.J., Chairman), Panganiban, Ynares-Santiago and Azcuna, the bank itself, when he allowed an account holder to make it appear as if he was the one actually
JJ., concur. withdrawing from an account and actually receiving the withdrawn amountordinarily, banks
Judgment affirmed with modification. allow withdrawal by someone who is not the account holder so long as the account holder authorizes
his representative to withdraw and receive from his account by signing on the space provided
particularly for such transactions, usually found at the back of withdrawal slips.Petitioner PNBs
witness was utterly remiss in protecting the banks client, as well as the bank itself, when he omission factually established; thirdly, proof that the wrongful act or omission of the defendant is
allowed an account holder to make it appear as if he was the one actually withdrawing from an the proximate cause of the damages sustained by the claimant; and fourthly, that the case is
account and actually receiving the withdrawn amount. Ordinarily, banks allow withdrawal by predicated on any of the
someone who is not the account holder so long as the account holder authorizes his representative 331
to withdraw and receive from his account by signing on the space provided particularly for such VOL. 470, SEPTEMBER 20, 2005 3
transactions, usually found at the back of withdrawal slips. As fittingly found by the courts a quo, 31
if indeed, respondent Pike signed the withdrawal slips in the presence of Mr. Lorenzo Bal,
petitioner PNBs AVP at its Buendia branch, why did he not call respondent Pikes attention and Philippine National Bank vs. Pike
refer him to the space provided for authorizing representatives to withdraw from and receive the instances expressed or envisioned by Articles 2219 and 2220 of the Civil Code.
proceeds of such withdrawal? Or, at the very least, sign or initial the same so that he could identify
the pre-signed withdrawal slips made by Mr. Pike? PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
Same; Same; General Banking Law of 2000 (R.A. No. 8791);With banks, the degree of
diligence required is more than that of a good father of a family considering that the business of The facts are stated in the opinion of the Court.
banking is imbued with public interest due to the nature of their functionsthe law imposes on
The Chief Legal Counsel and Edwin B. Panganibanfor petitioner PNB.
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. Though passed long after the unauthorized
Rey Nathaniel C. Ifurung for respondent.
withdrawals in the instant case, Sec. 2 of R.A. No. 8791, which took effect on 13 June 2000, which
makes a categorical declaration CHICO-NAZARIO, J.:
330
3 SUPREME COURT REPORTS ANNOTATED This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
30 as amended, seeks to reverse the Decision dated 19 December 2002, and the
1

Resolution dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389,
2

Philippine National Bank vs. Pike


which affirmed with modification the Decision rendered by the Regional Trial Court
3

that the State recognizes the fiduciary nature of banking that requires high standards of
(RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor
integrity and performance, is a statutory affirmation of the Supreme Court decisions already in
esse at the time of such withdrawals.With banks, the degree of diligence required, contrary to the of herein respondent Norman Pike (Pike).
position of petitioner PNB, is more than that of a good father of a family considering that the The case stemmed from a complaint filed by herein respondent Pike4

business of banking is imbued with public interest due to the nature of their functions. The for damages against Philippine National Bank (PNB) on 04 January 1994.
5

stability of banks largely depends on the confidence of the people in the honesty and efficiency of _______________
banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of banking. Section 2 1Penned by Associate Justice Juan Q. Enriquez, Jr. with Associate Justices Bernardo P. Abesamis and
of Republic Act No. 8791, which took effect on 13 June 2000, makes a categorical declaration that Edgardo F. Sundiam, concurring; Rollo, p. 8.
Rollo, p. 16.
the State recognizes the fiduciary nature of banking that requires high standards of integrity and
2

3Penned by Honorable Enrico A. Lanzanas, presiding judge of RTC-Branch 07, Manila; Rollo, p. 43.
performance. Though passed long after the unauthorized withdrawals in this case, the 4Records, pp. 1-5.
aforequoted provision is a statutory affirmation of Supreme Court decisions already in esse at the 5In his complaint filed before the RTC, herein respondent Pike prayed that judgment be rendered ordering
time of such withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of defendant PNB (herein petitioner) to pay the following:
Appeals, that the bank is under obligation to treat the accounts of its depositors with meticulous 1. US$7,500.00 plus 3% interest per month until fully paid representing actual damages;
care, always having in mind the fiduciary nature of their relationship. 332
Damages; An award of moral damages would require, firstly, evidence of besmirched 332 SUPREME COURT REPORTS ANNOTATED
reputation, or physical, mental or psychological suffering sustained by the claimant; secondly, a
Philippine National Bank vs. Pike
culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant; and fourthly, the case is Complainant Pike often traveled to and from Japan as a gay entertainer in said country.
predicated on any of the instances expressed or envisioned by Articles 2219 and 2220 of the Civil Sometime in 1991, he opened U.S. Dollar Savings Account No. 0265-704591-0 with
Code.The award of moral and exemplary damages is left to the sound discretion of the court, and herein petitioner PNB Buendia branch for which he was issued a corresponding
if such discretion is well exercised, as in this case, it will not be disturbed on appeal. In the case passbook. The complaint alleged in substance that before complainant Pike left for Japan
of Philippine Telegraph & Telephone Corporation v. Court of Appeals, we had the occasion to on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and
reiterate the conditions to be met in order that moral damages may be recovered. In said case we key, in his home; that on 19 April 1993, a few hours after he arrived from Japan, he
stated: An award of moral damages would require, firstly, evidence of besmirched reputation, or discovered that some of his valuables were missing including the passbook; that he
physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or
immediately reported the incident to the police which led to the arrest and prosecution of
a certain Mr. Joy Manuel Davasol; that complainant Pike also discovered that Davasol April 5, 1993, because his clients signatures were forged and the withdrawal made thereon were
made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account No. 0265- unauthorized . . .
_______________
704591-0, both times at the PNB Buendia branch on the following dates:
DATE AMOUNT 6Records, pp. 22-47.
31 March 1993 $3,500.00 334
05 April 1993 4,000.00 334 SUPREME COURT REPORTS ANNOTATED
TOTAL $7,500.00 Philippine National Bank vs. Pike
that on several occasions, complainant Pike went to defendant PNBs Buendia branch On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic) Dollar Account Passbook . . .
and verbally protested the unauthorized withdrawals and likewise demanded the return and requested the PNB to replace the same and allow him to make withdrawals thereon. He stated
of the total withdrawn amount of U.S. $7,500.00, on the ground that he never authorized that his passbook was stolen together with other valuables which he discovered only in the early
morning of April 19, 1993 . . .
anybody to withdraw from his account as the signatures appearing on the subject
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB,
withdrawal slips were clearly forgeries; that defendant PNB refused to Buendia Branch the full contents of said letter hereto quoted as follows:
_______________
May 6, 1993
The Manager
1. 2.P25,000.00 for and as attorneys fees plus P1,000.00 honorarium per court appearance;
2. 3.P50,000.00 as moral damages; Philippine National Bank
3. 4.P50,000.00 as exemplary damages; and Buendia Branch
4. 5.P20,000.00 as cost of suit and litigation expenses. RTC Records, p. 4. Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
333
VOL. 470, SEPTEMBER 20, 2005 333 Sir:
Philippine National Bank vs. Pike
credit said amount back to complainants U.S. Dollar Savings Account without justifiable In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-
reason, and instead, defendant bank wrote him that it exercised due diligence in the order on my dollar savings passbook No. 265-704591-0, I am now requesting your good
handling of said account; and that on 06 May 1993, complainant Pike wrote defendant office to lift the same so I can withdraw the remaining balance of my passbook which was
PNB simply to request that the hold-account be lifted so that he may withdraw the reported lost sometime in March of this year.
remaining balance left in his U.S.$ Savings Account and nothing else. I also promise not to hold responsible the bank and its officers for the withdrawal
On the other hand, defendant PNB alleged, in its Motion to Dismiss of 18 April 1994, 6
made on my dollar savings passbook on March 19 and April 5, 1993 respectively as a
a counterstatement of facts. Its factual allegations read: result of the lost (sic) of my passbook.
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, together with a certain Joy Sgd. NORMAN Y. PIKE
Davasol went to see PNB AVP Mr. Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of Depositor
$2,000.00. Mr. Pike also informed AVP Val that he is leaving for abroad (Japan) and made verbal Philippine Passport
instruction to honor all withdrawals to be transmitted by his Talent Manager and Choreographer, No. H918022
Joy Davasol who shall present pre-signed withdrawal slips bearing his (Pikes) signature. . . Issued at Manila on
On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiffs sister executed Sept. 6, 1990
an affidavit . . . . stating therein that they discovered today (April 19, 1993) the lost (sic) of her Place of Issuance
brothers passbook issued by PNB on account of robbery, committed in the residence/office of her
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to
brother, promptly reporting the matter to the police authorities and her brother cannot report the withdraw the remaining balance from his passbook . . . .
matter to the Bank because he was currently in Japan and therefore requesting the Bank to issue 335
a hold-order on her brothers passbook.
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was
VOL. 470, SEPTEMBER 20, 2005 335
the one who reported the matter) after one month in Japan, he (complainant) arrived yesterday. . . Philippine National Bank vs. Pike
On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiffs counsel sent a demand A letter dated May 18, 1993 was sent to Plaintiffs counsel . . . by PNB . . . stating that the Bank
letter to VP Violeta T. Suquila (then VP and Manager of PNB Buendia Branch) demanding the regrets that it cannot accede to such request inasmuch as the Bank exercised due diligence of a
bank to credit back the amount of US$7,500.00 which were withdrawn on March 31, 1993 and good father to his family in the handling of transactions covering the deposit account of Mr. Pike . .
.
On July 2, 1993, Plaintiffs counsel sent a letter to PNB Vice Pres. Suquila denying that his 1. 1.Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee
client made any such promise not to hold responsible the bank and its officers for the withdrawal the amount of $7,500.00 plus interest of 6% per annum to be computed from the date of
made . . . . the filing of the complaint which interest rate shall become 12% per annum from the
A letter dated July 29, 1993 . . . was sent to Plaintiffs counsel by VP Suquila stating that time the judgment in this case becomes final and executory until its satisfaction;
plaintiffs withdrawal of the remaining balance of his account with the Bank effectively estops him
from claiming on the alleged unauthorized withdrawals. _______________
The trial court, in its decision dated 10 January 1997, made the following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not 7Rollo, pp. 52-54.
impressed with the defense put up by the bank. Its contention that the withdrawals were 8Rollo, pp. 54-55.
authorized by the plaintiff because there was an arrangement between the bank represented by its 9[denial of mr by rtc].
Asst. Vice President Lorenzo Bal, Jr. and the depositor Norman Y. Pike to the effect that pre- 337
signed withdrawal slips, that is, withdrawal slip signed by the depositor in the presence of Mr. Bal VOL. 470, SEPTEMBER 20, 2005 337
whereby it would be made to appear that it was the depositor himself who presented the same to
the bank despite the fact that it was another person who presented the same should be honored by
Philippine National Bank vs. Pike
the bank cannot be sanctioned by the court. Firstly, the court is not satisfied that there was indeed
such an arrangement. . . It is Mr. Bals contention that such an arrangement although not 1. 2.The award for moral damages is reduced to P20,000.00; and
ordinarily entered into is still a legal procedure of the bank and is resorted to accommodate the 2. 3.The award for exemplary damages is likewise reduced to P20,000.00.
depositors specially honored and valued depositor at that.
... Costs against appellant. 10

The court compared the signatures in the questioned withdrawal slips with the known The appellate court held that:
signatures of the depositor and is convinced that the signatures in the unauthorized withdrawal Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to
slips do not correspond to the true signatures of the depositor. make withdrawals. Appellee even left pre-signed withdrawal slips before he went to Japan.
From the evidence that it received, the court is convinced that the bank was negligent in the However, appellant could have told appellee to authorize the withdrawal by a representative by
performance of its duties such that indicating the same at the space provided at the back portion of the withdrawal slip. This
336
operational flaw was observed by the trial court, when it ruled:
336 SUPREME COURT REPORTS ANNOTATED The court cannot also understand why the bank did not require the correct, proper and the usual procedure of
requiring a depositor who is withdrawing the money through a representative to fill up the back portion of the
Philippine National Bank vs. Pike withdrawal slips, which form was issued by the bank itself.
unauthorized withdrawals were made in the deposit of plaintiff Norman Y. Pike. 7
A perusal of the records discloses that appellee had previously authorized withdrawals by a
The dispositive portion of the trial courts decision reads: representative. However, these withdrawals were properly accompanied by a withdrawal by a
WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff representative form aside from a handwritten request by appellee to allow such withdrawals by
and against the defendant and ordering the defendant to pay the following: his representative, or a typewritten letter-request for withdrawal by a representative. Certainly,
appellant lacked the due care and caution required of managers and employees of a firm engaged
1. 1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is in so sensitive and demanding business as banking.
paid; In its desire to be exonerated from liability, appellant advances the argument that, granting
2. 2.P25,000.00 for and as attorneys fees; negligence on its part, appellee condoned this negligence as shown in his letter dated May 6, 1993,
3. 3.P50,000.00 as moral damages and P50,000.00 as exemplary damages; and wherein appellee purportedly undertook, not to hold the bank and its officers responsible for the
4. 4.Plus the costs of suit.
8 unauthorized withdrawals from his account.
We do not agree. It should be emphasized that while the appellee admitted signing the letter
Defendant PNBs motion for reconsideration was subsequently denied by the court a quo. 9
dated May 6, 1993, he, however,
_______________
On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002,
affirming the findings of the RTC that indeed defendant-appellant PNB was negligent in 10 Rollo, p. 15.
exercising the diligence required of a business imbued with public interest such as that of 338
the banking industry, however, it modified the rate of interest and award for damages, to 338 SUPREME COURT REPORTS ANNOTATED
wit: Philippine National Bank vs. Pike
WHEREFORE, premises considered, the Decision dated January 10, 1997 issued by the Regional
denied having undertook (sic) to exonerate the appellant from liability for the unauthorized
Trial Court of Manila, Branch 7, in Civil Case No. 94-68821, is hereby AFFIRMED with
withdrawals. Appellee questioned the second paragraph of the said letter as being superimposed so
MODIFICATION, as follows:
that his signature overlapped the text of the second paragraph of said letter. A waiver of right, in
order to be valid, should be in a language that clearly manifests his desire to do so. In the A priori, it is quite evident that the petition is anchored on a plea to review or re-
instant case, appellees filing of the instant action is inconsistent with appellants contention that examine the factual conclusions reached by the trial court and affirmed by the Court of
he had waived his right to question appellants negligent act of allowing the unauthorized Appeals, and for this Court to hold otherwise. Whether:
withdrawals from his account. 11

Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02


1. 1)respondent Pikes signatures appearing on the pertinent withdrawal slips used
April 2003, the Court of Appeals denied said motion.
by Joy Manuel Davasol to withdraw the amount of $7,500.00, were forgeries, as
Hence, this petition.
13

found by the trial court and affirmed by the Court of Appeals, or were authentic
Petitioner PNB now seeks the review of the aforequoted decision and resolution of the
as claimed by petitioner bank; and
Court of Appeals predicated on the following issues:
I. 2. 2)respondent Pike in fact executed a waiver absolving petitioner bank from any
legal responsibility due to the unauthorized withdrawals, as maintained by
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN petitioner bank, or the paragraph containing said waiver was intercalated by
THIS CASE; some other person, thus, amounting no waiver at all, as held by the courts a
quo.
II.
are questions of fact and not of law. Inexorably, these issues call for an inquiry into the
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY PROVEN THAT THE facts and evidence on record. This, as we have so often held, we cannot do.
SIGNATURES APPEARING ON THE TWO (2) QUESTIONED PRE-SIGNED WITHDRAWAL Elementary is the rule that this Court is not the appropriate venue to consider anew
SLIP FORMS ARE ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE 132 OF
the factual issues as it is not a
THE REVISED RULES OF COURT; and _______________

III. tive, namely Joy Manuel Davasol, to be able to withdraw from said US $ Savings Account by presenting a
pre-signed withdrawal slip.
WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST 13The person who, undisputedly, withdrew the amount of $7,500.00 from the US Dollar Savings Account of
A PARTY IN GOOD FAITH. respondent Pike.
Petitioner PNB contends that due to the verbal instructions of respondent Pike, a valued
12
340
depositor, it allowed the 340 SUPREME COURT REPORTS ANNOTATED
_______________ Philippine National Bank vs. Pike
trier of facts, and, it generally does not weigh anew the evidence already passed upon by
11Rollo, pp. 12-13.
12According to petitioner PNBs AVP Lorenzo T. Bal, respondent Pike gave verbal instructions to allow the the Court of Appeals. When this Court is tasked to go over once more the evidence
14

latters representa- presented by both parties, and analyze, assess and weigh them to ascertain if the trial
339 court and the appellate court were correct in according superior credit to this or that
VOL. 470, SEPTEMBER 20, 2005 339 piece of evidence of one party or the other, the Court cannot and will not do the
Philippine National Bank vs. Pike same. Such task is foreclosed by the rule enunciated under Section 1 of Rule 45 of the
15 16

withdrawal by another person. Plus, the fact that said respondent withdrew the Rules of Court:
SECTION 1. Filing of petition with Supreme Court.. . . The petition shall raise only questions of
remaining balance in his US Savings Account and executed a waiver releasing petitioner
law which must be distinctly set forth.
17

PNB from any liability due to the loss of the funds should rightly negate a finding of
We have oft ruled that factual findings of the Court of Appeals are conclusive on the
negligence on its part. Accordingly, petitioner PNB claims that the appellate court, as
parties and not reviewable by this Courtand they carry even more weight when the
well as the trial court erred in holding that the withdrawals in question were
Court of Appeals affirms the factual findings of the trial court, and in the absence of
18

unauthorized as the signatures appearing on the subject withdrawal slips were forgeries.
any showing that the findings complained of are totally devoid of support in the evidence
Petitioner PNB, therefore, argues that it should not be held liable for the amount
on record, or that they are so glaringly erroneous as to constitute serious abuse of
withdrawn from the account of respondent Pike in the sum of $7,500.00, as well as for
discretion, such findings must stand. The courts a quo are in a much better position to
moral and exemplary damages.
evaluate properly the evidence.
Finding no other alternative but to affirm their finding that petitioner PNB
negligently allowed the unauthorized
_______________ A: Yes, sir. Because it was pre signed withdrawal slip.
Prudential Bank and Trust Company v. Reyes, G.R. No. 141093, 20 February 2001, 352 SCRA 316;
14
Q: What does the signature appear, the word recipient means?
and Langkaan Realty Development, Inc. v. United Coconut Planters Bank, G.R. No. 139437, 08 December A: Received.
2000, 347 SCRA 542.
Elayda v. Court of Appeals, G.R. No. 49327, 18 July 1991, 199 SCRA 349.
15
Q: So, what you are saying is that, the depositor here signed this even
Appeal by Certiorari to the Supreme Court.
16
before receiving the amount?
Question of law has been defined as one that does not call for any examination of the probative value of
17

the evidence presented by the parties. A: Because before the withdrawal was made, Mr. Pike, the depositor
Borromeo v. Sun, G.R. No. 75908, 22 October 1999, 317 SCRA 176.
18
came to the bank when he withdrew the $2,000.00 and instructed me
341
or requested us even the supervisor to honor all withdrawal slip.
VOL. 470, SEPTEMBER 20, 2005 341
Q: And this is a regular procedure?
Philippine National Bank vs. Pike
A: Yes, sir.
withdrawals subject of the case at bar, the instant petition for review must necessarily
fail. Q: Are you sure of that?
At this juncture, it bears emphasizing that negligence of banking institutions should A: Yes, sir.
never be countenanced. The negligence here lies in the lackadaisical attitude exhibited Q: Do you have written manual on this particular procedure, Mr.
by employees of petitioner PNB in their treatment of respondent Pikes US Dollar Witness?
Savings Account that resulted in the unauthorized withdrawal of $7,500.00. A: Of course, that includes in the Rules and regulations of the bank.
Nevertheless, though its employees may be the ones negligent, a banks liability as an
obligor is not merely vicarious but primary, as banks are expected to exercise the highest Q Are you are (sic) are very sure of that?
degree of diligence in the selection and supervision of their employees, and having such19
A: And banking is a fast transaction between the depositor and the
obligation, this Court cannot ignore the circumstances surrounding the case at barhow bank.
the employees of petitioner PNB turned their heads, nay, closed their eyes to the Q: And then, is the use of the back portion of the withdrawalslip . . .
suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may with a heading of authorization?
even be said that they went out of their ways to disregard standard operating procedures
formulated to ensure the security of each and every account that they are handling.
A: Normally, a depositor and the bank agrees on certain terms that if
Petitioner PNB does not deny that the withdrawal slips used were in breach of standard you allow withdrawal from his account, his or her account, its
operating procedures of banks in the ordinary and usual course of banking operations as enough that the signature of the depositor appears on both spaces in
testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of the front side of the withdrawal slip. Even if you do not have the
Petitioner PNBs Buendia branch, on cross-examination he stated thus:
20

back portion of the withdrawal slip.


Q: Mr. Witness, when the original of Exhibit B was presented to you
21

Q: You are very sure of that?


for approval, how many signatures of depositor appears thereon? A: Yes, sir.
A: Two (2) signatures appears (sic) on the face of the withdrawal slip. Q: And that has been done with the other withdrawal slip of Norman
_______________
Pike as stated or as shown in the Statement of Account?
Bank of Philippine Islands v. Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51.
19 343
TSN, 01 December 1994, pp. 18-20.
20
VOL. 470, SEPTEMBER 20, 343
Withdrawal slip for $4,000.00.
21

342 2005
342 SUPREME COURT REPORTS ANNOTATED Philippine National Bank vs. Pike
Philippine National Bank vs. Pike A: Yes, sir.
Q: When it (sic) was (sic) presented to you immediately? Q: That withdrawal made by
A: Yes, sir. representative?
Q: Are you sure of that? A: Yes, sir.
From the foregoing, petitioner PNBs witness was utterly remiss in protecting the banks ...
client, as well as the bank itself, when he allowed an account holder to make it appear as Q: And Mr. witness, Exhibit C-1 which is being kept at your
22

if he was the one actually withdrawing from an account and actually receiving the
withdrawn amount. Ordinarily, banks allow withdrawal by someone who is not the
vault, also contains a picture?
account holder so long as the account holder authorizes his representative to withdraw A: Yes, sir.
and receive from his account by signing on the space provided particularly for such Q: And the picture of the depositor?
transactions, usually found at the back of withdrawal slips. As fittingly found by the A: Yes, sir.
courts a quo, if indeed, respondent Pike signed the withdrawal slips in the presence of Q: And are you familiar with the identity of the depositor Norman
Mr. Lorenzo Bal, petitioner PNBs AVP at its Buendia branch, why did he not call
Pike?
respondent Pikes attention and refer him to the space provided for authorizing
representatives to withdraw from and receive the proceeds of such withdrawal? Or, at A: What particular identity?
the very least, sign or initial the same so that he could identify the pre-signed Q: His appearance?
withdrawal slips made by Mr. Pike? A: He is gay looking fellow.
Q: You are also saying that on March 15, 1993, you likewise met Joy COURT: Answer. You are familiar with his physical appearance?
Manuel Dabasol? A: Not so much. Because there are so much depositor(sic) in the
A: Yes, sir. bank. [Emphasis ours.]
23

Q: And you (sic) also saying on March 15, 1993, you also met Norman By his own testimony, the witness negated the very reason for the banks bizarre
Pike, the depositor, accommodation of the alleged verbal request of respondent Pikethat he was a valued
A: Yes, sir. client. From the aforequoted, it appears that the witness, Lorenzo Bal, was not even
reasonably familiar with respondent Pike, yet, he was ready, willing and able to
Q: And when did you first met (sic) Norman Pike? accommodate the verbal request of said depositor. Worse still, the witness still ap-
A: March 15 when he withdrew $2,000.00. _______________
Q: That was the first time?
Savings Signature Card of Norman Pike.
22

A: First time, yes. TSN, 01 December 1994, pp. 22-25.


23

Q: And Mr. Norman Pike was already transacting with you long before 345
that day, is this correct? For how long was he transacting with you? VOL. 470, SEPTEMBER 20, 2005 345
A: That was my first time. Philippine National Bank vs. Pike
344 proved the withdrawal transaction without asking for any proof of identification for the
344 SUPREME COURT REPORTS ANNOTATED reason that: 1) Davasol was in possession of a pre-signed withdrawal slip; and 2) the
Philippine National Bank vs. Pike witness recognized the signature of respondent Pikeeven after admitting that he did
not bother to counter check the signature on the slip with the specimen signature card of
Q: That was the first time. What I mean is, that he was transacting respondent Pike and that he met respondent Pike just once so that he cannot seem to
with the PNB, Buendia Branch long before you met him? recall what the latter looks like. The ensuing quoted testimony of the same witness will
A: Maybe. justify a finding of negligence amounting to bad faith, to wit:
... Q: And you also met Joy Manuel Dabasol on March 15?
Q: And the withdrawal made on April 5, 1993 which you A: Yes, sir.
approved, you did not look at Exhibit C, the Savings Q: And can you describe Joy Manuel Dabasol?
Signature Card Individual? A: I cannot recall his face but then he is a Talent manager, because there
A: We do not look at that, that is kept in the vault. are so many depositors in the bank.
Q: Yes or no? ...
A: No, sir. Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you
verbal authority to honor withdrawal by Joy Manuel Dabasol? authorities?
A: Yes, sir. A: Yes.
Q: Why did you not require then that Mr. Pike instead sign the Q: Is that Standard Operating Procedure?
authorization portion and that the name of Joy Manuel Dabasol A: It is not SPO, but when you knew the client, Your Honor, you have
appear thereon with his signature? to honor also the trust and confidence. Let us say if you
... Q: According to you, you met Norman Pike only on March 15, 1993
A: I required Mr. Norman Pike to sign the withdrawal slip on the face of and immediately you allowed him to withdraw through pre-signed
the withdrawal slip. withdrawal slip?
Q: But not the authorization portion of the said withdrawal slip? A: Yes, Your Honor. Because a depositor requested you to honor his
... signature, you have to do that or else willand besides the request
A: No, because that is sufficient already. is for purpose of expediency, Your Honor. Because most often than
Q: And is this your normal procedure, Mr. witness? This particular that, he is out of the country, in Japan. And his Talent Manager is
procedure that you conducted? the one managing the recruiting agency. The money will be used in
A: I dont think so. the operating expenses.
Q: Mr. witness, whenon April 5, 1993, when Joy Dabasol came to the ...
office and according to you, you do not remember him, is that 347

correct? VOL. 470, 347


SEPTEMBER 20, 2005
346 Philippine National Bank vs. Pike
346 SUPREME COURT REPORTS ANNOTATED Q: You did not even bother to look at the Savings
Philippine National Bank vs. Pike Signature Card Individual, yes or no?
A: I cannot recall his face. A: No, sir. [Emphases supplied.]
24

... Having admitted that pre-signed withdrawal slips do not constitute the normal
Q: And he just showed you a withdrawal slip, is this correct? procedure with respect to withdrawals by representatives should have already put
petitioner PNBs employees on guard. Rather than readily validating and permitting said
A: Yes, on April 5. withdrawals, they should have proceeded more cautiously. Clearly, petitioner banks
Q: Did you require him to produce any Identification Card, yes or no? employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless
A: No. in his treatment of respondent Pikes savings account.
Q: And how did you know then that it was Joy Dabasol who was From the foregoing, the evidence clearly showed that the petitioner bank did not
making the withdrawal on April 5? exercise the degree of diligence that it ought to have exercised in dealing with their
clients.
A: because the presigned withdrawal slip was presented to me.
With banks, the degree of diligence required, contrary to the position of petitioner
Q: Is that all your basis? PNB, is more than that of a good father of a family considering that the business of
A: Yes, sir. Because his signature appears. banking is imbued with public interest due to the nature of their functions. The stability
... of banks largely depends on the confidence of the people in the honesty and efficiency of
Q: Mr. witness, this alleged authority given to you by Norman Pike to banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary nature of
honor withdrawal by Joy Manuel Dabasol, was that in writing?
banking. Section 2 of Republic Act No. 8791, which took effect on 13 June 2000, makes a
25

A: It was verbally requested. categorical declaration that the State recognizes the fiduciary nature of banking that
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal requires high standards of integrity and performance. 26
Though passed long after the unauthorized withdrawals in this case, the aforequoted petitioner PNB likewise avers that its actions were made in good faith, for this reason,
provision is a statutory affirmation of Supreme Court decisions already in esse at the there is no factual basis for said award.
time of such Petitioner PNBs assertions fail to impress us.
_______________ The award of moral and exemplary damages is left to the sound discretion of the
court, and if such discretion is well exercised, as in this case, it will not be disturbed on
Id., pp. 26-52.
appeal. In the case of Philippine Telegraph & Telephone Corporation v. Court of
24
33

25The General Banking Law of 2000.


26The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September Appeals, we had the occasion to reiterate the conditions to be met in order that moral
34

2003, 410 SCRA 562. damages may be recovered. In said case we stated:
348 An award of moral damages would require, firstly, evidence of besmirched reputation, or physical,
348 SUPREME COURT REPORTS ANNOTATED mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission of the defendant is the
Philippine National Bank vs. Pike proximate cause of the damages sustained by the claimant; and fourthly, that the case is
withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of predicated on any of the instances expressed or envisioned by Articles 2219 and 35

Appeals, that the bank is under obligation to treat the accounts of its depositors with
27 _______________
meticulous care, always having in mind the fiduciary nature of their relationship. 28

Petitioner PNBs Memorandum, p. 43; Rollo, p. 277.


Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of
32

33 Barzaga v. Court of Appeals, G.R. No. 115159, 12 February 1997, 268 SCRA 105, 1997.
Appeals, we clarified that said fiduciary relationship means that the banks obligation to
29 34 G.R. No. 139268, 03 September 2002, 388 SCRA 270.

35 Art. 2219. Moral damages may be recovered in the following and analogous cases:
observe highest standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of banking
1. (1)A criminal offense resulting in physical injuries;
requires banks to assume a degree of diligence higher than that of a good father of a 2. (2)Quasi-delicts causing physical injuries;
family. Article 1172 of the New Civil Code states that the degree of diligence required of 3. (3)Seduction, abduction, rape or other lascivious acts;
4. (4)Adultery or concubinage;
an obligor is that prescribed by law or contract, and absent such stipulation then the
30

5. (5)Illegal or arbitrary detention or arrest;


diligence of a family. In every case, the depositor expects the bank to treat his account 6. (6)Illegal search;
with the utmost fidelity, whether such accounts consist only of a few hundred pesos or of
millions of pesos. 31
350
_______________ 350 SUPREME COURT REPORTS ANNOTATED
27G.R. No. 88013, 19 March 1990, 183 SCRA 360. Philippine National Bank vs. Pike
28Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206, 2220 of the Civil Code.
36

SCRA 408; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310; Metropolitan Bank & Specifically, in culpa contractual or breach of contract, as here, moral damages are
Trust Co v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Firestone v. Court of
Appeals, G.R. No. 113236, 05 March 2001, 353 SCRA 601.
recoverable only if the defendant has acted fraudulently or in bad faith, or is found 37

29Supra, note 19. guilty of gross negligence amounting to bad faith, or in wanton disregard of his 38

30The provisions of the New Civil Code on simple loan govern the contract between a bank and its contractual obligations. Verily, the breach must be wanton, reckless, malicious, or in bad
39

depositor. Specifically, Article 1880 categorically provides that . . . savings . . . deposits of money in banks and faith, oppressive or abusive. 40

similar institutions shall be governed by the provisions concerning simple loan. Thus, the relationship between
a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it lends the bank money;
There is no reason to disturb the trial courts finding of petitioner banks employees
and the bank is the debtor, which agrees to pay the depositor on demand. negligence in their treatment of respondent Pikes account. In the case on hand, the
31Supra, note 11. Court of Appeals sustained, and rightly so, that an award of moral damages is
349 warranted. For, as found by said appellate court, citing the case of Prudential Bank v.
VOL. 470, SEPTEMBER 20, 2005 349 Court of Appeals, the banks negligence is a result of lack of due care and caution
41

_______________
Philippine National Bank vs. Pike
Anent the issue of the propriety of the award of damages in this case, petitioner PNB
1. (7)Libel, slander or any other form of defamation;
asseverates that there was no evidence to prove that respondent Pike suffered anguish, 2. (8)Malicious prosecution;
embarrassment and mental sufferings due to its acts in allowing the alleged
32
3. (9)Acts mentioned in article 309;
unauthorized withdrawals. And, having relied on the instructions of a valued depositor, 4. (10)Acts of actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also authorized by the depositor to do so. (Bank of the Philippine Islands vs. Court of
recover moral damages.
Appeals, 326 SCRA 641[2000])
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of
this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
36 o0o
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.
Article 2220 New Civil Code.
37
7. G.R. No. 170598. October 9, 2013.*
Supra.
38 FAR EAST BANK & TRUST COMPANY, petitioner, vs. ROBERT MAR CHANTE, a.k.a.
Supra, note 27.
39
ROBERT MAR G. CHAN, respondents.
Herbosa v. Court of Appeals, G.R. No. 119086, 25 January 2002, 374 SCRA 578.
40
Remedial Law; Evidence; Burden of Proof; Words and Phrases; Burden of proof is a term that
G.R. No. 125536, 16 March 2000, 328 SCRA 264.
refers to two separate and quite different concepts, namely: (a) the risk of non-persuasion, or the
41

351
burden of persuasion, or simply persuasion burden; and (b) the duty of producing evidence, or the
VOL. 470, SEPTEMBER 20, 2005 351 burden of going forward with the evidence, or simply the production burden or the burden of
Philippine National Bank vs. Pike evidence.Burden of proof is a term that refers to two separate and quite different concepts,
required of managers and employees of a firm engaged in so sensitive and demanding namely: (a) the risk of non-persuasion, or the burden of persuasion, or simply persuasion burden;
and (b) the duty of producing evidence, or the burden of going forward with the evidence, or simply
business, as banking, hence, the award of P20,000.00 as moral damages, is proper.
the production burden or the burden of evidence. In its first concept, it is the duty to establish the
The award of exemplary damages is also proper as a warning to petitioner PNB and truth of a given proposition or issue by such a quantum of evidence as the law demands in the case
all concerned not to recklessly disregard their obligation to exercise the highest and at which the issue arises. In its other concept, it is the duty of producing evidence at the beginning
strictest diligence in serving their depositors. or at any subsequent stage of trial in order to make or meet a prima facie case. Generally speaking,
Finally, the aforestated grant of exemplary damages entitles respondent Pike the burden of proof in its second concept passes from party to party as the case progresses, while in its
award of attorneys fees in the amount of P20,000.00 and the award of P10,000.00 for first concept it rests throughout upon the party asserting the affirmative of the issue.
litigation expenses. 42 Same; Same; Same; The burden of proof, which may either be on the plaintiff or the
WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 defendant, is on the plaintiff if the defendant denies the factual allegations of the complaint in the
December 2002, and the Resolution dated 02 April 2003, both of the Court of Appeals, in manner required by the Rules of Court; or on the defendant if he admits expressly or impliedly the
essential allegations but raises an affirmative defense or defenses, that, if proved, would exculpate
CA-G.R. CV No. 59389, which affirmed with modification the Decision rendered by the
him from liability.In civil cases, the burden of proof is on the party who would be defeated if no
Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case evidence is given on either side. This is because our system frees the trier of facts from the
No. 94-68821, are hereby AFFIRMED with the MODIFICATION that petitioner PNB is responsibility of investigating and presenting the facts and arguments, placing that responsibility
directed to pay respondent Pike additional 1) P20,000.00 representing attorneys fees; entirely upon the respective parties. The burden of proof, which may
and 2) P10,000.00 representing expenses of litigation. Costs against petitioner PNB. _______________
* FIRST DIVISION.
SO ORDERED. 150
Puno (Chairman), Austria-Martinez, Callejo, Sr.and Tinga, JJ., concur.
1 SUPREME COURT REPORTS ANNOTATED
Petition denied, assailed decision and resolution affirmed with modification.
_______________ 50
Far East Bank & Trust Company vs. Chante
42 Art. 2208 (1) of the New Civil Code provides: either be on the plaintiff or the defendant, is on the plaintiff if the defendant denies the
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered,
except: factual allegations of the complaint in the manner required by the Rules of Court; or on the
(1) When exemplary damages are awarded; defendant if he admits expressly or impliedly the essential allegations but raises an affirmative
.... defense or defenses, that, if proved, would exculpate him from liability.
352 Same; Same; Preponderance of Evidence; As the rule indicates, preponderant evidence refers to
352 SUPREME COURT REPORTS ANNOTATED evidence that is of greater weight, or more convincing, than the evidence offered in opposition to
Orola vs. Rural Bank of Pontevedra (Capiz), Inc. it.Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil actions, and
delineates how preponderance of evidence is determined, viz.: Section 1. In civil cases, the party
Notes.In the world of commerce, especially in the field of banking, the promised having the burden of proof must establish his case by a preponderance of evidence. In
word is crucialonce given, it may no longer be broken. (Allied Banking Corporation vs. determining where the preponderance or superior weight of evidence on the issues
Court of Appeals, 294 SCRA 803 [1998]) involved lies, the court may consider all the facts and circumstances of the case, the
The requirement of presentation of the passbook when withdrawing an amount witnesses manner of testifying, their intelligence, their means and opportunity of
cannot be given mere lip service even though the person making the withdrawal is knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current
interest, and also their personal credibility so far as the same may legitimately appear account depositor of petitioner Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch
upon the trial. The court may also consider the number of witnesses, though the preponderance is (Current Account No. 5012-00340-3). FEBTC issued to him Far East Card No. 05-01120-
not necessarily with the greater number. (Emphasis supplied) As the rule indicates, preponderant
5-0 with July 1993 as the expiry date. The card, known as a Do-It-All card to handle
evidence refers to evidence that is of greater weight, or more convincing, than the evidence offered
credit card and ATM transactions, was tagged in his current account. As a security
in opposition to it. It is proof that leads the trier of facts to find that the existence of the contested
fact is more probable than its nonexistence. feature, a personal identification number (PIN), known only to Chan as the depositor,
Banks and Banking; The Supreme Court reminds that as a banking institution, Far East was required in order to gain access to the account. Upon the cards issuance, FEBTC
Bank & Trust Co. (FEBTC) had the duty and responsibility to ensure the safety of the funds it held required him as the depositor to key in the six-digit PIN. Thus, with the use of his card
in trust for its depositors.Being the plaintiff, FEBTC must rely on the strength of its own evidence and the PIN, he could then deposit and withdraw funds from his current account from
instead of upon the weakness of Chans evidence. Its burden of proof thus required it to any FEBTC ATM facility, including the MEGALINK facilities of other member banks
preponderantly demonstrate that his ATM card had been used to make the withdrawals, and that that included the Philippine National Bank (PNB).
he had used the ATM card and PIN by himself or by another person to make the fraudulent Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East
withdrawals. Otherwise, it could not recover from him any funds supposedly improperly with-
151
Bank & Trust Co. (FEBTC) on July 1, 1992 in the RTC,3 to recover from Chan the
principal sum of P770,488.30 representing the unpaid balance of the amount
VOL. 707, OCTOBER 9, 2013 15
fraudulently withdrawn from Chans Current Account No. 5012-00340-3 with the use of
1 Far East Card No. 05-01120-5-0.
Far East Bank & Trust Company vs. Chante FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992,
drawn from the ATM account. We remind that as a banking institution, FEBTC had the duty Chan had used Far East Card No. 05-01120-5-0 to withdraw funds totaling P967,000.00
and responsibility to ensure the safety of the funds it held in trust for its depositors. It could not from the PNB-MEGALINK ATM facility at the Manila Pavilion Hotel in Manila; that the
avoid the duty or evade the responsibility because it alone should bear the price for the fraud withdrawals were done in a series of 242 transactions with the use of the same machine,
resulting from the system bug on account of its exclusive control of its computer system. at P4,000.00/withdrawal, except for transaction No. 108 at 3:51 a.m. of May 5, 1992,
PETITION for review on certiorari of a decision of the Court of Appeals. when the machine dispensed only P3,000.00; that MEGALINKS journal tapes showed
The facts are stated in the opinion of the Court. that Far East Card No. 05-01120-5-0 had been used in all the 242
Benedicto, Verzosa, Felipe & Burkley Law Office for petitioner. _______________
BERSAMIN, J.: 3 Records, pp. 1-7.
In this dispute between a bank and its depositor over liability for several supposedly 153
fraudulent withdrawals from the latters account through an automated tellering VOL. 707, OCTOBER 9, 2013 153
machine (ATM), we hereby resolve the issue of liability against the bank because of the Far East Bank & Trust Company vs. Chante
intervention of a system bug that facilitated the purported withdrawals. transactions; and that the transactions were processed and recorded by the respective
The Case computer systems of PNB and MEGALINK despite the following circumstances, namely:
Under review on certiorari is the decision promulgated on August 1, 2005, 1 whereby (a) the offline status of the branch of account (FEBTC Ongpin Branch); (b) Chans
the Court of Appeals (CA) reversed the judgment the Regional Trial Court, Branch 51, in account balance being only P198,511.70 at the time, as shown in the bank statement; (c)
Manila (RTC) rendered in favor of the petitioner on May 14, 1998 in Civil Case No. 92- the maximum withdrawal limit of the ATM facility being P50,000.00/day; and (d) his
61706.2 Thereby, the CA relieved the depositor of any liability for the supposedly withdrawal transactions not being reflected in his account, and no debits or deductions
fraudulent withdrawals. from his current account with the FEBTC Ongpin Branch being recorded.
_______________
1 Rollo, pp. 42-63; penned by Associate Justice Arturo D. Brion (now a Member of this Court), with
FEBTC added that at the time of the ATM withdrawal transactions, there was an
Associate Justice Eugenio S. Labitoria (retired) and Associate Justice Eliezer R. De los Santos error in its computer system known as system bug whose nature had allowed Chan to
(retired/deceased) concurring. successfully withdraw funds in excess of his current credit balance of P198,511.70; and
2 Id., at pp. 75-82. that Chan had taken advantage of the system bug to do the withdrawal transactions.
152
On his part, Chan denied liability. Although admitting his physical possession of Far
152 SUPREME COURT REPORTS ANNOTATED East Card No. 05-01120-5-0 on May 4 and May 5, 1992, he denied making the ATM
Far East Bank & Trust Company vs. Chante withdrawals totalling P967,000.00, and instead insisted that he had been actually home
Antecedents at the time of the withdrawals. He alluded to a possible inside job as the cause of the
supposed withdrawals, citing a newspaper report to the effect that an employee of
FEBTCs had admitted having debited accounts of its depositors by using his knowledge However, after recognizing the card and went to the path of his account it could
of computers as well as information available to him. Chan claimed that it would be not get a signal to proceed with the transaction so it proceeded to the other path
physically impossible for any human being like him to stand long hours in front of the who gave the signal to go on and dispense money. But there was a computer error
ATM facility just to withdraw funds. He contested the debiting of his account, stating as it did not only dispense the money limit for the day but it continued to dispense
that the debiting had affected his business and had caused him to suffer great a lot more until it reached the amount of P967,000.00 which took the defendant till
humiliation after the dishonor of his sufficiently-funded checks by FEBTC. the hours of the morning to obtain. But defendant says he did not use his card. He
The records show that FEBTC discovered the system bug only after its routine alleges that it could be an inside job just like what happened to the said bank
reconciliation of the ATM-MEGALINK transactions on May 7, 1992; that it immediately which was published in the newspaper wherein the bank employee admitted
adopted having done the theft through his knowledge of the computer. Could this be true?
154 The Court opines that it is not far-fetched. However why did this Court state
154 SUPREME COURT REPORTS ANNOTATED that plaintiffs cause of action will survive? The action of the defendant after
Far East Bank & Trust Company vs. Chante the incident gave him away. Merely two days after the heavy withdrawal,
remedial and corrective measures to protect its interest in order to avoid incurring the defendant returned not at the exact scene of the incident but at a
further damage as well as to prevent a recurrence of the incident; that one of the nearby branch which is also in Ermita and tried again to withdraw. But
measures it adopted pursuant to its ATM Service Agreement with Chan was to program at this time the bank already knew what happened so it blocked the card
its computer system to repossess his ATM card; that his ATM card was repossessed at and retained it being a hot card. The defendant was not successful this
the Ermita Branch of FEBTC when he again attempted to withdraw at the ATM facility time so what he did was to issue a check almost for the whole amount of
there; that the ATM facility retained his ATM card until its recovery by the bank; and his balance in his account leaving only a minimal amount. This incident
that FEBTC conducted an in-depth investigation and a time-and-motion study of the puzzles the Court. Maybe the defendant was hoping that the machine
withdrawals in question. nearby may likewise dispense so much amount without being detected.
On May 14, 1992, FEBTC debited his current account in the amount of P192,517.20 He will not definitely go back to the U.N. branch as he
_______________
pursuant to Chans ATM Service Agreement. It debited the further sum of P3,000.00 on 6 Rollo, pp. 78-81 (bold emphasis is supplied).
May 18, 1992, leaving the unrecovered portion of the funds allegedly withdrawn by him 156
at P770,488.30. Thus, on May 14 and May 18, 1992, FEBTC sent to Chan letters
156 SUPREME COURT REPORTS ANNOTATED
demanding the reimbursement of the unrecovered balance of P770,488.30, but he turned
a deaf ear to the demands, impelling it to bring this case on July 1, 1992. 4 Far East Bank & Trust Company vs. Chante
Ruling of the RTC may think that it is being watched and so he went to a nearby branch.
As reflected in the pre-trial order of October 19, 1992, the issues to be resolved were, Unfortunately, luck was not with him this time and his card was taken by
firstly, whether or not Chan had himself withdrawn the total sum of P967,000.00 with the bank. The fact that he hastily withdrew the balance of his account
the use of his Far East Card No. 05-01120-5-0 at the PNB-MEGALINK ATM facility; after his card was retained by the bank only showed his knowledge that
and, secondly, if the answer to the first issue was that he did, whether or not he was the bank may debit his account. It also showed his intent to do something
liable to reimburse to FEBTC the amount of P770,488.30 as actual damages, plus further other than first inquire why his card was considered a hot card if
interest.5 he is really innocent. When he went to the Ermita branch to withdraw
_______________ from the ATM booth he was intending to withdraw not more than
4 Supra note 3. P50,000.00 as it is the banks limit for the day and if ever he needed a
5 Records, p. 102.
bigger amount than P50,000.00 immediately he should have gone to the
155
branch for an over the counter transaction but he did not do so and
VOL. 707, OCTOBER 9, 2013 155 instead issued a check for P190,000.00 dated May 7, 1992 and another
Far East Bank & Trust Company vs. Chante check for P5,000.00 dated May 13, 1992. To the mind of the Court, to take
On May 14, 1998, the RTC rendered judgment in favor of FEBTC, pertinently holding advantage of a computer error, to gain sudden and undeserved amount of
and ruling as follows:6 money should be condemned in the strongest terms.
In the instant case, what happened was that the defendant who was at the There are no available precedents in this case regarding computer errors, but
U.N. Branch of the PNB used his card. He entered his PIN to have access to a the Court feels that defendant should be held liable for the mistaken amount he
withdrawal transaction from his account in Far East Bank, Ongpin Branch. was able to get from the machine based on the following provisions of the law.
Articles 19, 21, 22 and 23 of the Civil Code x x x. INTEREST AT THE RATE OF 24% PER ANNUM BASED MERELY ON CONJECTURES
xxxx AND SUSPICIONS NOT ESTABLISHED BY SOLID EVIDENCE;
There is likewise one point that the Court would like to discuss about the 2. THE TRIAL COURT ERRED IN AWARDING IN FAVOR OF APPELLEE
EXEMPLARY DAMAGES IN THE AMOUNT OF P100,000.00 AND ATTORNEYS FEES
allegation of the defendant that it was impossible for him to withdraw the money
IN THE AMOUNT OF P30,000.00;
in such long period and almost minute after minute. This Court believes that
3. THE TRIAL COURT ERRED IN NOT ORDERING THE RESTITUTION OF THE
money is the least of all, a person may give priority in life. There are many who AMOUNT OF P196,521.30 ILLEGALLY DEBITED BY APPELLEE FROM APPELLANTS
would sacrifice a lot just to have lots of it, so it would not be impossible for one to ACCOUNT.
take time, stand for several hours and just enter some items in the computer if the On August 1, 2005, the CA promulgated the assailed decision, reversing the RTCs
return would be something like a million or close to a million. In fact, the effort judgment, to wit:
157 x x x. The issues really before us are issues of contract application and issues of fact that
VOL. 707, OCTOBER 9, 2013 157 would require an examination and appreciation of the evidence presented. The first order
Far East Bank & Trust Company vs. Chante therefore in our review of the trial courts decision is to take stock of the established and
undisputed facts, and of the evidence the parties have presented. We say this at the outset
exerted was just peanuts compared to other legitimate ways of earning a living as the as we believe that it was in this respect that the lower court failed in its consideration and
only capital or means used to obtain it was the defendants loss of sleep and the time appreciation of the case.
spent in withdrawing the same. xxxx
Moreover, though the cause of action in this case may be the erroneous _______________
7 CA Rollo, pp. 34-52.
dispensation of money due to computer bug which is not of defendants wrong 159
doing, the Court sees that what was wrong was the failure to return the amount in
VOL. 707, OCTOBER 9, 2013 159
excess of what was legally his. There is such a thing as JUSTICE. Justice means
rendering to others their due. A person is just when he is careful about respecting Far East Bank & Trust Company vs. Chante
the rights of others, and who knows too, how to claim what he rightfully deserves An evidentiary dilemma we face in this case is the fact that there is no direct evidence
on the issue of who made the actual withdrawals. Chan correctly claims that the bank failed
as a consequence of fulfilling his duties.
to present any witness testifying that he (Chan) made the actual withdrawals. At the same
From the foregoing, the conclusion is manifest that plaintiff is within its right
time, Chan can only rely on his own uncorroborated testimony that he was at home on the
in initiating the instant suit, as defendants refusal to pay the claim constitutes night that withdrawals were made. We recognize that the bank can claim that no other
the cause of action for sum of money. evidence of actual withdrawal is necessary because the PIN unique to Chan is already
xxxx evidence that only Chan or his authorized representative and none other could have
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Far East accessed his account. But at the same time, we cannot close our eyes to the fact that
Bank and Trust Company and against the defendant Robert Mar Chante a.k.a. computers and the ATM system is not perfect as shown by an incident cited by Chan
Robert Mar G. Chan ordering the latter to pay the former the following: involving the FEBTC itself. Aside from the vulnerability to inside staff members, we take
1. the amount of P770,488.30 as actual damages representing the unrecovered judicial notice that no less than our own Central Bank has publicly warned banks about
other nefarious schemes involving ATM machines. In a March 7, 2003 letter, the Central
balance of the amounts withdrawn by defendant;
Bank stated:
2. interest of 24% per annum on the actual damages from July 1, 1992, the
March 7, 2003
date of the filing of the complaint until fully paid; BSP CIRCULAR LETTER
3. the amount of P100,000.00 as exemplary damages; TO : All Banks
4. the sum of P30,000.00 as and for attorneys fees; and SUBJECT:Technology Fraud on ATM Systems
5. the costs of the suit. Please be advised that there were incidents in other countries regarding technology
Defendants counterclaim is hereby dismissed for lack of merit.158 fraud in ATM systems perpetrated by unscrupulous individuals and/or syndicates.
158 SUPREME COURT REPORTS ANNOTATED These acts are carried out by:
1. A specialized scanner attached to
Far East Bank & Trust Company vs. Chante the ATM card slot, and;
SO ORDERED. 2. A pinhole camera
Ruling of the CA xxxx
Chan appealed,7 assigning the following errors to the RTC, to wit: In light of the absence of conclusive direct evidence of actual withdrawal that we can rely
1. THE TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE upon, we have to depend on evidence other than direct to reach verdict in this case. 160
FOR THE ALLEGED WITHDRAWAL OF THE AMOUNT OF P967,000.00 WITH 160 SUPREME COURT REPORTS ANNOTATED
Far East Bank & Trust Company vs. Chante that the withdrawals had been an inside job. His denial effectively traversed FEBTCs
xxxx claim of his direct and personal liability for the withdrawals, that it would lose the case
WHEREFORE, premises considered, we hereby GRANT the appeal and unless it competently and sufficiently established that he had personally made the
accordingly REVERSE and SET ASIDEthe Decision dated May 14, 1998 of the Regional withdrawals himself, or that he had caused the withdrawals. In other words, it carried
Trial Court of Manila, Branch 51, in Civil Case No. 92-61706. We the burden of proof.
accordingly ORDER plaintiff-appellee Far East Bank and Trust Company (FEBTC) to Burden of proof is a term that refers to two separate and quite different concepts,
return to Chan the amount of Php196,571.30 plus 12% interest per annum computed from namely: (a) the risk of non-persuasion, or the burden of persuasion, or simply persuasion
August 7, 1992 the time Chan filed his counterclaim until the obligation is satisfied.
burden; and (b) the duty of producing evidence, or the burden of going forward with the
Costs against the plaintiff-appellee FEBTC.
SO ORDERED. 8
evidence, or simply the production burden or the burden of evidence. 10 In its first concept,
FEBTC moved for reconsideration, but the CA denied its motion on November 24, it is the duty to establish the truth of a given proposition or issue
_______________
2005.9 10 James, Jr., Burdens of Proof, 47 Virginia Law Review 51 (1961).
Issues 162
Hence, FEBTC has appealed, urging the reversal of the CAs adverse decision, and 162 SUPREME COURT REPORTS ANNOTATED
praying that Chan be held liable for the withdrawals made from his account on May 4
Far East Bank & Trust Company vs. Chante
and May 5, 1992; and that it should not be held liable to return to Chan the sum of
by such a quantum of evidence as the law demands in the case at which the issue
P196,571.30 debited from his account.
arises.11 In its other concept, it is the duty of producing evidence at the beginning or at
Ruling
any subsequent stage of trial in order to make or meet a prima facie case. Generally
The appeal lacks merit.
speaking, burden of proof in its second concept passes from party to party as the case
FEBTC would want us to hold that Chan had authored the May 4 and May 5, 1992
progresses, while in its first concept it rests throughout upon the party asserting the
ATM withdrawals based on the following attendant factors, namely: (a) ATM
affirmative of the issue.12
transactions were processed and identified by the PIN, among others; (b) the PIN was
The party who alleges an affirmative fact has the burden of proving it because mere
exclusive and known only to the account holder; (c) the ATM was tagged in the
allegation of the fact is not evidence of it.13 Verily, the party who asserts, not he who
cardholders account where the ATM transactions were debited or credited; (d) the
denies, must prove.14
account
_______________ In civil cases, the burden of proof is on the party who would be defeated if no evidence
8 Supra note 1, at pp. 48-63. is given on either side.15This is because our system frees the trier of facts from the
9 Rollo, pp. 65-68. responsibility of investigating and presenting the facts and arguments, placing that
161 responsibility entirely upon the respective parties.16 The burden of proof, which may
VOL. 707, OCTOBER 9, 2013 161 either be on the plaintiff or the defendant, is on the plaintiff if the defendant denies the
Far East Bank & Trust Company vs. Chante factual allegations of the complaint in the manner required by the Rules of Court; or on
number tagged in the ATM card identified the cardholder; (e) the ATM withdrawals were the defendant if he admits expressly or impliedly the essential allegations but
documented transactions; and (f) the transactions were strictly monitored and recorded _______________
11 Giblin v. Dudley Hardware Co., 44 R.I. 371, 375, 117 A. 418, 419 (1922); see also People v. Macagaling,
not only by FEBTC as the bank of account but also by the ATM machine and G.R. No. 109131-33, October 3, 1994, 237 SCRA 299, 320.
MEGALINK. In other words, the ATM transactions in question would not be processed 12 Id.; see also Birmingham Trust & Savings Co. v. Acacia Mutual Life Assn, 221 Ala. 561, 130 So. 327
unless the PIN, which was known only to Chan as the cardholder, had been correctly (1930).
entered, an indication both that it was his ATM card that had been used, and that all the 13 Luxuria Homes, Inc. v. Court of Appeals, G.R. No. 125986, January 28, 1999, 302 SCRA 315,
325; Coronel v. Court of Appeals, G.R. No. 103577, October 7, 1996, 263 SCRA 15, 35.
transactions had been processed successfully by the PNB-MEGALINK ATM facility at 14 Martin v. Court of Appeals, G.R. No. 82248, January 30, 1992, 205 SCRA 591, 596; Luxuria Homes, Inc.
the Manila Pavilion Hotel with the use of the correct PIN. v. Court of Appeals, supra, at p. 327.
We disagree with FEBTC. 15 Pacific Banking Corporation Employees Organization v. Court of Appeals, G.R. No. 109373, March 27,
Although there was no question that Chan had the physical possession of Far East 1998, 288 SCRA 198, 206.
16 James, Jr., supra, at p. 52.
Card No. 05-01120-5-0 at the time of the withdrawals, the exclusive possession of the 163
card alone did not suffice to preponderantly establish that he had himself made the VOL. 707, OCTOBER 9, 2013 163
withdrawals, or that he had caused the withdrawals to be made. In his answer, he denied
using the card to withdraw funds from his account on the dates in question, and averred Far East Bank & Trust Company vs. Chante
raises an affirmative defense or defenses, that, if proved, would exculpate him from These tapes, however, are not as reliable as FEBTC represented them to be as they are
liability.17 not even internally consistent. A disturbing internal discrepancy we note relates to the
Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil amounts reflected as ledger balance and available balance. We find it strange that for
every 4,000.00 pesos allegedly withdrawn by Chan, the available balance increased rather
actions, and delineates how preponderance of evidence is determined, viz.:
than diminished. Worse, the amount of available balance as reflected in the tapes was way
Section 1. In civil cases, the party having the burden of proof must establish
above the actual available balance of less than Php200,000.00 that Chans current account
his case by a preponderance of evidence. In determining where the
had at that time. These discrepancies must inevitably reflect on the integrity of the journal
preponderance or superior weight of evidence on the issues involved lies, the
tapes; the proven inconsistencies
court may consider all the facts and circumstances of the case, the witnesses 165
manner of testifying, their intelligence, their means and opportunity of knowing
the facts to which they are testifying, the nature of the facts to which they testify, VOL. 707, OCTOBER 9, 2013 165
the probability or improbability of their testimony, their interest or want of Far East Bank & Trust Company vs. Chante
interest, and also their personal credibility so far as the same may legitimately in some aspects of these tapes leave the other aspects suspect and uncertain. But more
appear upon the trial. The court may also consider the number of witnesses, though the than this, we are not convinced that the tapes lead us to the inevitable conclusion
preponderance is not necessarily with the greater number. (Emphasis supplied) that Chans card, rather than a replacement card containing Chans PIN and card
As the rule indicates, preponderant evidence refers to evidence that is of greater number or some other equivalent scheme, was used. To our mind, we cannot
weight, or more convincing, than the evidence offered in opposition to it. 18 It is proof that discount this possibility given the available technology making computer fraud a
leads the trier of facts to find that the existence of the contested fact is more probable possibility, the cited instances of computer security breaches, the admitted
than its nonexistence.19 system bug, and most notably the fact that the withdrawals were made under
Being the plaintiff, FEBTC must rely on the strength of its own evidence instead of circumstances that took advantage of the system bug. System errors of this kind,
when taken advantage of to the extent that had happened in this case, are
upon the weakness of Chans evidence. Its burden of proof thus required it to
planned for. Indeed, prior preparation must take place to avoid suspicion and
preponderantly demonstrate that his ATM card had been used to make the attention where the withdrawal was made for seven (7) long hours in a place
_______________
frequented by hundreds of guests, over 242 transactions where the physical
17 Sambar v. Levi Straus & Co., G.R. No. 132604, March 6, 2002, 378 SCRA 364, 371.
18 Jison v. Court of Appeals, G.R. No. 124853, February 24, 1998, 286 SCRA 495, 532. volume of the money withdrawn was not insignificant. To say that this was done
19 2 McCormick on Evidence, Fifth Edition, 422. by the owner of the account based solely on the records of the transactions, is a
164 convenient but not a convincing explanation. 20

164 SUPREME COURT REPORTS ANNOTATED In our view, the CAs ruling was correct.
To start with, Edgar Munarriz, FEBTCs very own Systems Analyst, admitted that
Far East Bank & Trust Company vs. Chante
the bug infecting the banks computer system had facilitated the fraudulent
withdrawals, and that he had used the ATM card and PIN by himself or by another withdrawals.21 This admission impelled the CA to thoroughly dissect the situation in
person to make the fraudulent withdrawals. Otherwise, it could not recover from him any order to determine the consequences of the intervention of the system bug in FEBTCs
funds supposedly improperly withdrawn from the ATM account. We remind that as a computer system. It ultimately determined thusly:
banking institution, FEBTC had the duty and responsibility to ensure the safety of the Significantly, FEBTC made the admission that there was a program bug in its computer
funds it held in trust for its depositors. It could not avoid the duty or evade the system. To di-
responsibility because it alone should bear the price for the fraud resulting from the _______________
20 Supra note 1, at pp. 58-60 (bold emphasis is supplied).
system bug on account of its exclusive control of its computer system. 21 TSN, July 16, 1993, pp. 70-84.
Did FEBTC discharge its burden of proof? 166
The CA ruled that FEBTC did not because 166 SUPREME COURT REPORTS ANNOTATED
After a review of the records of this case, we find the totality of evidence submitted by
FEBTC insufficient to establish the crucial facts that would justify a judgment in its favor.
Far East Bank & Trust Company vs. Chante
To our mind, the fact that Chans account number and ATM card number were gress, computers are run based on specific pre-arranged instructions or programs that act
the ones used for the withdrawals, by itself, is not sufficient to support the on data or information that computer users input. Computers can only process these
conclusion that he should be deemed to have made the withdrawals. FEBTC offers inputted data or information according to the installed programs. Thus, computers are as
in this regard the PNB ATMs journal tapes to prove the withdrawals and their details efficient, as accurate and as convenient to use as the instructions in their installed
the time of the transactions; the account number used; the ATM card number; and the programs. They can count, sort, compute and arrive at decisions but they do so only and
amount withdrawn and at the same time declared that these tapes are authentic and strictly in accordance with the programs that make them work. To cite an easy example, a
genuine. computer can be programmed to sort a stack of cards prepared by male and female clients,
into male and female stacks, respectively. To do this, the computer will first scan a card and
look at the place (a field) where the male/female information can be found. This Far East Bank & Trust Company vs. Chante
information may be in an appropriate box which the bank client checks or shades to count, was by-passed. Thus, 242 withdrawals were made over an eight hour
indicate if he/she is male or female. The computer will check if the box beside the word period, in the total amount of P967,000.00. 22

Female is shaded. If it is, it will send the card to the Female bin. If the box beside the
Secondly, the RTCs deductions on the cause of the withdrawals were faulty. In
male is shaded, it will send the card to the Male bin. If both the squares are shaded or
none is shaded or the card cannot be read, it will send the card to the Unknown bin. This holding against Chan, the RTC chiefly relied on inferences drawn from his acts
way, the female cards and the male cards can be sorted efficiently. However, the program subsequent to the series of withdrawals, specifically his attempt to withdraw funds from
instructions can be written in such a way that the computer can only make two decisions, his account at an FEBTC ATM facility in Ermita, Manila barely two days after the
that is, if the Female box is shaded, then the card goes to the Female bin; otherwise, the questioned withdrawals; his issuance of a check for P190,000.00 immediately after the
card goes to the Male bin. In this program, all the Female cards will be sorted correctly capture of his ATM card by the ATM facility; his failure to immediately report the
but the Male bin will contain all the other cards, that is, the Male cards, the cards with no capture of his ATM card to FEBTC; and his going to FEBTC only after the dishonor of
shading at all, and all the other cards that cannot be classified. The imperfect results the check he had issued following the freezing of his account. The inferences were not
arose from the imperfect program instructions or from a program bug. warranted, however, because the subsequent acts would not persuasively establish his
Something very close to this example happened in the present case.
actual participation in the withdrawals due to their being actually susceptible of other
According to the testimony of the FEBTCs systems analyst, there were two
computer programs that were involved in the transactions: CAPDROTH and interpretations consistent with his innocence.
SCPUP 900. CAPDROTH is the program that validates if the account exists in the We join the CAs observation that Chans subsequent acts could have been impelled
FEBTC files, if the transaction is valid, and if the by so many reasons and motivations, and cannot simply be given the meaning that the
167 lower court attributed to them, and, instead, were even consistent with the purpose and
VOL. 707, OCTOBER 9, 2013 167 nature of his maintaining the current account deposit with FEBTC, rendering the acts
Far East Bank & Trust Company vs. Chante not unusual nor illegal. 23 Although he was expected to forthwith bring his cards
branch where the account is maintained is ON-LINE (i.e., continuously sending capture to FEBTCs attention, that he did not do so could have other plausible
data). When the Chan transaction entered the system, it was validated by explanations consistent with good faith, among them his being constantly occupied as a
CAPDROTH which, on seeing that the FEBTC-Ongpin branch was off-line, businessman to attend to the multifarious activities of his business. He might have also
returned a decision code passing on the decision to authorize the transaction to honestly believed that he still had the sufficient funds in his current account, as borne
the SCPUP 900, another module. However, SCPUP 900 was not expecting this type out by his issuance of a check instead after the capture of the card so as not for him to
of response or decision code. As the SCPUP 900 program was originally written, it undermine any financial obligation then becom-
will send back an error message and abort a requested transaction if it receives _______________
an error message from any other module; otherwise, it will send a message 22 Supra note 1, at pp. 51-53 (bold emphasis is supplied).
authorizing the transaction. In other words, SCPUP 900 had only two decisions to 23 Rollo, p. 57.
make: check if the message is an error message, if not then, authorize. Since what 169
it received in the disputed transactions were not error messages and were not VOL. 707, OCTOBER 9, 2013 169
also authorizations, it sent back authorization messages allowing the cash
Far East Bank & Trust Company vs. Chante
withdrawals. It kept on sending authorization messages for the 242 cash
withdrawal transactions made from Chans account between the evening of May 4 ing due. Nor should his opting to withdraw funds from his account at the ATM facility in
and early morning of May 5, 1992. This program bug was the reason the 242 cash Ermita in less than two days after the questioned withdrawals manifest responsibility on
withdrawals were allowed by the PNB ATM-Megalink machine. his part, for he could also be properly presumed to be then still unaware of the situation
The program bug occurred because of the simultaneous presence of three involving his account. We note that his letters24 written in response to FEBTCs written
conditions that allowed it to happen: (1) the withdrawal transactions involved a demands to him disclosed honest intentions rather than malice.
current account; (2) the current account was with a branch that at that time was Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with
off-line; and (3) the transaction originated from MEGALINK (i.e., through the bug infection of FEBTCs computer system at the time of the withdrawals and adept
MEGALINK through a member bank other than FEBTC). Because of the bug,
with the workings of the computer system had committed the fraud. This likelihood was
Chans account was not accessed at the time of the transactions so that
withdrawals in excess of what the account contained were allowed. Additionally, not far-fetched considering that FEBTC had immediately adopted corrective measures
FEBTCs rule that only a maximum withdrawable amount per day (in the present upon its discovery of the system bug, by which FEBTC admitted its negligence in
case P50,000.00 per day) can be made from an ATM ac- ensuring an error-free computer system; and that the system bug had affected only the
168 account of Chan.25 Truly, the trial court misapprehended the extent to which the system
168 SUPREME COURT REPORTS ANNOTATED bug had made the computer system of FEBTC stumble in serious error.
Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish tion on the PINs of the depositors was stored or discarded as to become useless for any
that the PNB-MEGALINKs ATM facility at the Manila Pavilion Hotel had actually purpose.
dispensed cash in the very significantly large amount alleged during the series of In view of the foregoing, FEBTC did not present preponderant evidence proving
questioned withdrawals. For sure, FEBTC should have proved the actual dispensing of Chans liability for the supposedly fraudulent withdrawals. It thus failed in discharging
funds from the ATM facility as the factual basis for its claim against Chan. It did require its burden of persuasion.
PNB to furnish a validated showing of the exact level of cash then carried by the latters WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals;
ATM facility in the Manila Pavilion Hotel on May 4, 1992.26 Yet, when PNB employee and DIRECTS the petitioner to pay the costs of suit.
_______________ SO ORDERED.
24 Records, pp. 31-35.
Sereno (CJ.), Leonardo-De Castro, Reyes and Leonen,** JJ., concur.
25 Per Eduardo Munarriz, TSN, October 18, 1993, pp. 72-75, only the account of Chan was reported to
FEBTC; per Irene Tan, TSN, October 10, 1994, pp. 21-22, the fraudulent withdrawals from Chans account Judgment affirmed.
were the only bug-related problem received at FEBTCs Ongpin branch. Notes.The banking system has become an indispensable institution in the modern
26 TSN, May 18, 1994, pp. 11-14. world and plays a vital role in the economic life of every civilized societyit is important
170
that banks should guard against injury attributable to negligence or bad faith on its part;
170 SUPREME COURT REPORTS ANNOTATED The highest degree of diligence is expected, and high standards of integrity and
Far East Bank & Trust Company vs. Chante performance are required of banks. (Security Bank and Trust Company vs. Rizal
Erwin Arellano stood as a witness for FEBTC, he confirmed the authenticity of the Commercial Banking Corporation, 577 SCRA 407 [2009])
journal tapes that had recorded Chans May 4 and May 5, 1992 supposed ATM The bank is under obligation to treat the accounts of its depositors with meticulous
transactions but did not categorically state how much funds PNB-MEGALINKs ATM care, always having in mind the fiduciary nature of their relationship; The fiduciary
facility at the Manila Pavilion Hotel had exactly carried at the time of the withdrawals, nature of banking requires banks to assume a degree of diligence higher than that of a
particularly the amounts immediately preceding and immediately following the series of good father of a family. (Central Bank of the Philippines vs. Citytrust Banking
withdrawals. The omission left a yawning gap in the evidence against Chan. Corporation, 578 SCRA 27 [2009])
And lastly, Chans allegation of an inside job accounting for the anomalous o0o
withdrawals should not be quickly dismissed as unworthy of credence or weight. FEBTC _______________
employee Manuel Del Castillo, another witness for FEBTC, revealed that FEBTC had 8. G.R. No. 118492. August 15, 2001. *

previously encountered problems of bank accounts being debited despite the absence of GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON.
any withdrawal transactions by their owners. He attributed the problems to the COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.
erroneous tagging of the affected accounts as somebody elses account, allowing the latter Remedial Law; Petition for Review; Factual findings of the Court of Appeals are conclusive on
to withdraw from the affected accounts with the use of the latters own ATM card, and to the parties and not reviewable by the Courtand they carry even more weight when the Court of
Appeals affirms the factual findings of the trial court.Section 1 of Rule 45 of the Revised Rules of
the formers account being debited.27 The revelation of Del Castillo tended to support
Court provides that (T)he petition (for review) shall raise only questions of law which must be
Chans denial of liability, as it showed the possibility of withdrawals being made by distinctly set forth. Thus, we have ruled that factual findings of the Court of Appeals are
another person despite the PIN being an exclusive access number known only to the conclusive on the parties and not reviewable by this Courtand they carry even more weight when
cardholder.28 the Court of Appeals affirms the factual findings of the trial court.
It is true that Del Castillo also declared that FEBTC did not store the PINs of its Commercial Law; Banks and Banking; Negligence; The degree of diligence required of banks
clients ATM cards. However, he mentioned that FEBTC had stored the opposite is more than that of a good father of a family where the fiduciary nature of their relationship with
numbers corresponding to the PINs, which meant that the PINs did not remain entirely their depositors is concerned; The same higher degree of diligence is not expected to be exerted by
irretrievable at all times and in all cases by any of its officers or employees with access to banks in commercial transactions that do not involve their fiduciary relationship with their
the banks computer system. Accordingly, Del Castillos assertion that the PINs were depositors.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
rendered useless upon being entered in the banks computer system did not entirely
Appealsupholding a long standing doctrine, we ruled that the degree of diligence required of banks,
disclose how the informa- is more than that of a good father of a family where the fiduciary nature of their relationship with
_______________
27 TSN, March 31, 1993, pp. 26-29.
their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of
28 Id., at pp. 29-30. their depositors with the highest degree of care. But the said ruling applies only to cases where
171 banks act under their fiduciary capacity, that is, as deposi-
_______________
VOL. 707, OCTOBER 9, 2013 171
Far East Bank & Trust Company vs. Chante * SECOND DIVISION.
52 Godofredo asked if there could be a way for respondent bank to accommodate PRCIs
5 SUPREME COURT REPORTS ANNOTATED urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then
2 informed Godofredo of a roundabout way of effecting the requested remittance to Sydney
Reyes vs. Court of Appeals thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney,
tary of the deposits of their depositors. But the same higher degree of diligence is not Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S.
expected to be exerted by banks in commercial transactions that do not involve their fiduciary dollar account of the respondent in Westpac Bank in New York, U.S.A (Westpac-New
relationship with their depositors. York for brevity). This arrangement has been customarily resorted to since the 1960s
and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H.
PETITION for review on certiorari of a decision of the Court of Appeals. 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
The facts are stated in the opinion of the Court. Asian Racing Conference.
Benitez, Parlade, Africa, Herrera, Parlade & Panga Law Offices for petitioners. On July 28, 1988, the respondent bank approved the said application of PRCI and
Antonio R. Bautista & Partners for private respondent. 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
DE LEON, JR., J.: order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and
addressed to Westpac-Sydney as the drawee bank.
Before us is a petition for review of the Decision dated July 22, 1994 and
1 On August 10, 1988, upon due presentment of the foreign exchange demand draft,
Resolution dated December 29, 1994 of the Court of Appeals affirming with modification
2 3 denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor
the Decision dated November 12, 1992 of the Regional Trial Court of Makati, Metro
4 stating the following: x x x No account held with Westpac. Meanwhile, on August 16,
Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses 1988, Westpac-New York sent a cable to respondent bank informing the latter that its
Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars
Trust Company. (AU$1,610.00) was debited. On August 19, 1988, in response to PRCIs complaint about
The undisputed facts of the case are as follows: the dishonor of the said foreign exchange demand draft, respondent bank informed
In view of the 20th Asian Racing Conference then scheduled to be held in September, Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn
1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four against the Westpac-Sydney and informing the latter to be reimbursed from the
(4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for respondent banks
finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the 54
clubs chief cashier, to the respondent bank to apply for a foreign exchange demand draft 54 SUPREME COURT REPORTS ANNOTATED
in Australian dollars. Reyes vs. Court of Appeals
Godofredo went to respondent banks Buendia Branch in Makati City to apply for a dollar account in Westpac-New York. The respondent bank on the same day likewise
demand draft in the amount One Thousand Six informed Westpac-New York requesting the latter to honor the reimbursement claim of
_________________
Westpac-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,
1Penned by Associate Justice Jorge S. Imperial and concurred in by Associate Justices Pacita Canizares-
Nye and Conrado M. Vasquez, Jr.; Rollo, pp. 24-42. that the respondent bank has no deposit dollar account with the drawee Westpac-
2Rollo, p. 44. Sydney.
3Fourteenth Division. On September 17, 1988 and September 18, 1988, respectively, petitioners spouses
Court of Appeals Rollo, pp. 60-80.
Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing
4

53
conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of
VOL. 363, AUGUST 15, 2001 53 September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a
Reyes vs. Court of Appeals conference delegate. At the registration desk, in the presence of other delegates from
Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian various member countries, he was told by a lady member of the conference secretariat
Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent that he could not register because the foreign exchange demand draft for his registration
banks assistant cashier, Mr. Yasis, who at first denied the application for the reason fee had been dishonored for the second time. A discussion ensued in the presence and
that respondent bank did not have an Australian dollar account in any bank in Sydney. 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 The petitioners appealed the decision of the trial court to the Court of Appeals. On July
conference secretariat that he be shown the subject foreign exchange demand draft that 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted
had been dishonored as well as the covering letter after which he promised that he would the award of
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
Court of Appeals Rollo, p. 80.
and gave him his name plate and conference kit. It was only two (2) days later, or on
5

56
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
56 SUPREME COURT REPORTS ANNOTATED
promised. Reyes vs. Court of Appeals
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in attorneys fees to the defendant (herein respondent bank) and the pronouncement as to
Sydney. She too was embarrassed and humiliated at the registration desk of the the costs. The decretal portion of the decision of the appellate court states:
conference secretariat when she was told in the presence and within the hearing of other WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs complaint, is hereby
delegates that she could not be registered due to the dishonor of the subject foreign AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special
exchange demand draft. She felt herself trembling and unable to look at the people pronouncement as to costs.
SO ORDERED.
around her. Fortunately, she saw her husband coming toward her. He saved the
6

According to the appellate court, there is no basis to hold the respondent bank liable for
situation for her by telling the
55 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:
VOL. 363, AUGUST 15, 2001 55
xxx xxx xxx
Reyes vs. Court of Appeals Thus, the Bank had every reason to believe that the transaction finally went through smoothly,
secretariat member that he had already arranged for the payment of the registration fees considering that its New York account had been debited and that there was no miscommunication
in cash once he was shown the dishonored demand draft. Only then was petitioner between it and Westpac-New York. SWIFT is a worldwide association used by almost all banks and
Puyat-Reyes given her name plate and conference kit. 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
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of
Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no
the House of Representatives representing the lone Congressional District of Makati,
reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-
Metro Manila. She has been an officer of the Manila Banking Corporation and was cited Sydney.
by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with From the evidence, it appears that the root cause of the miscommunications of the Banks
her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Banks SWIFT
plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary message as an MT799 format. However, a closer look at the Banks Exhs. 6 and 7 would show
service as the Societys campaign chairman for the ninth (9th) consecutive year. that despite what appears to be an asterisk written over the figure before 99, the figure can still
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, be distinctly seen as a number 1 and not number 7, to the effect that Westpac-Sydney was
Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the 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
respondent bank due to the dishonor of the said foreign exchange demand draft issued by
of the numbers 1 to 7, since Exhs. 6 and 7 are just documentary copies of the cable message
the respondent bank. The petitioners claim that as a result of the dishonor of the said
sent to Westpac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding
demand draft, they were exposed to unnecessary shock, social humiliation, and deep the cable message which caused the Banks message to be sent to the wrong department, the
mental anguish in a foreign country, and in the presence of an international audience. mistake was Westpacs, not the Banks. The
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: 6Rollo, p. 42.
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiffs 57
complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of VOL. 363, AUGUST 15, 2001 57
P50,000.00, as reasonable attorneys fees. Costs against the plaintiff. Reyes vs. Court of Appeals
SO ORDERED.
Bank had done what an ordinary prudent person is required to do in the particular situation,
5

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 not reviewable by this Courtand they carry even more weight when the Court of
embarrassment and corresponding damage that appellants may have incurred. 7
Appeals affirms the factual findings of the trial court. 10

xxx xxx xxx The courts a quo found that respondent bank did not misrepresent that it was
Hence, this petition, anchored on the following assignment of errors: maintaining a deposit account with Westpac-Sydney. Respondent banks assistant
I
cashier explained to Godofredo Reyes, representating PRCI and petitioner Gregorio H.
Reyes, how the transfer of Australian dollars would be effected through Westpac-New
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT
York where the respondent bank has a dollar account to Westpac-Sydney where the
NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN
ORDINARY PRUDENT PERSON WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the
IMPOSED BY LAW UPON THE BANKS. 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
II arrangement or procedure. In
________________
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF 9 Section 61. Liability of drawer.The drawer by drawing the instrument admits the existence of the payee
and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or
THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE
paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
DRAWER THEREOF. duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled
to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own
III liability to the holder.
10 Boromeo v. Sun, 317 SCRA 176, 182 (1999).
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN 59
OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT WAS VOL. 363, AUGUST 15, 2001 59
DUE TO PRIVATE RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK. 8
Reyes vs. Court of Appeals
The petitioners contend that due to the fiduciary nature of the relationship between the
other words, the petitioners are estopped from denying the said arrangement or
respondent bank and its clients, the respondent bank should have exercised a higher
procedure. Similar arrangements have been a long-standing practice in banking to
degree of diligence than that expected of an ordinary prudent person in the handling of
facilitate international commercial transactions. In fact, the SWIFT cable message sent
its affairs as in the case at bar. The appellate court, according to petitioners, erred in
by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim
applying the standard of diligence of an ordi-
_________________
reimbursement from its New York branch, Westpac-New York, where respondent bank
has a deposit dollar account.
7Rollo, p. 40. The facts as found by the courts a quo show that respondent bank did not cause an
8Rollo, p. 14a. erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the
58 erroneous decoding of the cable message on the part of Westpac-Sydney that caused the
58 SUPREME COURT REPORTS ANNOTATED dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney
Reyes vs. Court of Appeals in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of
nary prudent person only. Petitioners also claim that the respondent bank violated respondent bank as MT799 instead of as MT199. As a result, Westpac-Sydney
Section 61 of the Negotiable Instruments Law which provides the warranty of a drawer
9
construed the said cable message as a format for a letter of credit, and not for a demand
that x x x on due presentment, the instrument will be accepted or paid, or both, draft. The appellate court correctly found that the figure before 99 can still be distinctly
according to its tenor x x x. Thus, the petitioners argue that respondent bank should be seen as a number 1 and not number 7. Indeed, the line of a 7 is in a slanting position
held liable for damages for violation of this warranty. The petitioners pray this: Court to while the line of a 1 is in a horizontal position. Thus, the number 1 in MT199 cannot
re-examine the facts to cite certain instances of negligence. be construed as 7. 11

It is our view and we hold that there is no reversible error in the decision of the The evidence also shows that the respondent bank exercised that degree of diligence
appellate court. expected of an ordinary prudent person under the circumstances obtaining. Prior to the
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition (for first dishonor of the subject foreign exchange demand draft, the respondent bank advised
review) shall raise only questions of law which must be distinctly set forth. Thus, we Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit
have ruled that factual findings of the Court of Appeals are conclusive on the parties and the dollar account of respondent bank with the former. As soon as the demand draft was
12

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 Sydney merely stated that the respondent bank has no deposit account with it to cover
Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac- for the amount of One Thousand Six Hundred Ten Australian Dollar (AU$1610.00)
Sydney. Respondent bank also sent two (2) more cable messages
13 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
Exhibit 6.
deposit dollar account with Westpac-New York. That was the reason why the respondent
11

Exhibit 4.
12

Exhibit 7.
13
bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent
60 banks) deposit dollar account with it and to transfer or credit the corresponding amount
60 SUPREME COURT REPORTS ANNOTATED to Westpac-Sydney to cover the amount of the said demand draft.
Reyes vs. Court of Appeals 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
to Westpac-New York inquiring why the demand draft was not honored.
the petitioners appeared to be under estoppel as earlier mentioned, it is no longer
14

With these established facts, we now determine the degree of diligence that banks are
necessary to discuss the alleged application of Section 61 of the Negotiable Instruments
required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court
Law to the case at bar. In any event, it was established that the respondent bank acted
of Appeals upholding a long standing doctrine, we ruled that the degree of diligence
in good faith and that it did not cause the embarrassment of the petitioners in Sydney,
15

required of banks, is more than that of a good father of a family where the fiduciary
Australia. Hence, the Court of Appeals did not commit any reversible error in its
nature of their relationship with their depositors is concerned. In other words banks are
challenged decision.
duty bound to treat the deposit accounts of their depositors with the highest degree of
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court
care. But the said ruling applies only to cases where banks act under their fiduciary
of Appeals is AFFIRMED. Costs against the petitioners.
capacity, that is, as depositary of the deposits of their depositors. But the same higher
SO ORDERED.
degree of diligence is not expected to be exerted by banks in commercial transactions that
Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur.
do not involve their fiduciary relationship with their depositors.
Petition denied, judgment affirmed.
Considering the foregoing, the respondent bank was not required to exert more than
Note.Banks being greatly affected with public interest are expected to exercise a
the diligence of a good father of a family in regard to the sale and issuance of the subject
degree of diligence in the handling of its affairs higher than expected of an ordinary
foreign exchange demand draft. The case at bar does not involve the handling of
business firm. (Ibaon Rural Bank, Inc. vs. Court of Appeals,321 SCRA 88 [1999])
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
o0o
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 9. G.R. No. 174134. July 30, 2008.*
of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian FIRST PLANTERS PAWNSHOP, INC., petitioner, vs. COMMISSIONER OF INTERNAL
Racing Conference in Sydney. REVENUE, respondent.
The evidence shows that the respondent bank did everything within its power to Taxation; Pawnshops; The determination of a pawnshops tax liability depends on the tax
prevent the dishonor of the subject foreign exchange demand draft. The erroneous treatment of a pawnshop business.The determination of petitioners tax liability depends on the
reading of its cable message to Westpac-Sydney by an employee of the latter could not tax treatment of a pawnshop business. Oddly, there has not been any definitive declaration in this
have been foreseen by the respondent bank. Being unaware that its employee regard despite the fact that pawnshops have long been in existence. All that has been stated is
what pawnshops are not, but not what pawnshops are. The BIR itself has maintained an
erroneously read the said cable message, Westpac-
_________________
ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 15-91 issued on
March 11, 1991, a pawnshop business was considered as akin to lending investors business
Exhibits 9 and 10.
14
activity and subject to 5% percentage tax beginning January 1, 1991, under Section 116 of the Tax
269 SCRA 695, 708-709 (1997).
15
Code of 1977, as amended by E.O. No. 273. With the passage of Republic Act (R.A.) No. 7716 or the
61 EVAT Law in 1994, the BIR abandoned its earlier position and maintained that pawnshops are
subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was complemented
VOL. 363, AUGUST 15, 2001 61
by Revenue Memorandum Circular No. 45-01 dated October 12, 2001, which provided that
Reyes vs. Court of Appeals pawnshop operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996,
while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for percentage 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a
tax, pursuant to Section 109(z) of the Tax Code of 1997. person or entity engaged in the business of lending money on personal property delivered as
Same; Same; Pawnshops should have been treated as non-bank financial intermediaries from security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or
the very beginning, subject to the appropriate taxes provided by law.Prior to the EVAT Law, pawn brokerage. The pawnshops are to be treated as non-bank financial intermediaries is further
pawn- bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko Sentral
_______________ ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial Institutions. The
Manual includes pawnshops in the list of non-bank financial intermediaries.
* THIRD DIVISION. Same; Same; Same; Since petitioner pawnshop is a non-bank financial intermediary, it is
607shops were treated as lending investors subject to lending investors tax. Subsequently, subject to 10% Value Added Tax (VAT) for the tax years 1996 to 2002, but, with the levy, assessment
with the Courts ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under and collection of VAT from non-bank financial intermediaries being specifically deferred by law,
the general classification of sale or exchange of services under Section 108(A) of the Tax Code of then it is not liable for VAT during these tax years.Coming now to the issue at handSince
1997, as amended. R.A. No. 9238 finally classified pawnshops as Other Non-bank Financial petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax609years 1996
Intermediaries. The Court finds that pawnshops should have been treated as non-bank financial to 2002; however, with the levy, assessment and collection of VAT from non-bank
intermediaries from the very beginning, subject to the appropriate taxes provided by law. financial intermediaries being specifically deferred by law, then petitioner is not liable
Same; Same; Value Added Tax (VAT); For the year 2000, pawnshops were not subject to 10% for VAT during these tax years. But with the full implementation of the VAT system on non-
Value Added Tax (VAT) under the general provision on sale or exchange of services as defined bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said
under Section 108(A) of the Tax Code of 1997instead, due to the specific nature of its business, tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer
pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries, liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may
as provided in the same Section 108(A).At the time of the disputed assessment, that is, for the be.
year 2000, pawnshops were not subject to 10% VAT under the general provision on sale or Same; Same; Documentary Stamp Tax (DST); Pledge; A pawnshop is liable for documentary
exchange of services as defined under Section 108(A) of the TAX Code of 1997, which states: sale stamp taxes; The subject of Documentary Stamp Tax (DST) is not limited to the document alone
or exchange of services means the performance of all kinds of services in the Philippines for others pledge, which is an exercise of a privilege to transfer obligations, rights or properties incident
for a fee, remuneration or consideration x x x. Instead, due to the specific nature of its business, thereto, is also subject to Documentary Stamp Tax (DST).Petitioner is liable for documentary
pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries, stamp taxes. The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v.
as provided in the same Section 108(A). Commissioner of Internal Revenue, 489 SCRA 147 (2006), in which it was ruled that the subject of
Same; Same; Same; Banks and Banking; General Banking Law of 2000 (Republic Act No. DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer
8791); Republic Act No. 8791 provides that banks shall refer to entities engaged in the lending of obligations, rights or properties incident thereto, is also subject to DST.
funds obtained in the form of deposits; Financial intermediaries are defined as persons or entities
PETITION for review on certiorari of the decision and resolution of the Court of Tax
whose principal functions include the lending, investing or placement of funds or evidences of
Appeals.
indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them,
either for their own account or for the account of others.R.A. No. 337, as amended, or the General The facts are stated in the opinion of the Court.
Banking Act characterizes the terms banking institution and bank as synonymous and Siguion Reyna, Montecillo & Ongsiako for petitioner.
interchangeable and specifically include commercial banks, saving bank, mortgage banks, The Solicitor General for respondent.
development banks, rural banks, stock savings and loan associations, and branches and agencies AUSTRIA-MARTINEZ, J.:
in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and
2000,608meanwhile, provided that banks shall refer to entities engaged in the lending of funds documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for
obtained in the form of deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and the year 2000. The core of petitioners argument is that it is not a lending investor within
other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the
the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as
classification of banks. Financial intermediaries, on the other hand, are defined as persons or
entities whose principal functions include the lending, investing or placement of funds or evidences
amended, and therefore not subject to value-added tax (VAT). Petitioner also contends
of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through that a pawn ticket is not subject to documentary610stamp tax (DST) because it is not
them, either for their own account or for the account of others. proof of the pledge transaction, and even assuming that it is so, still, it is not subject to
Same; Same; Same; Pawnshop Regulation Act (P.D. No. 114); A pawnshops business and tax since a documentary stamp tax is levied on the document issued and not on the
operations are governed by P.D. No. 114 and Central Bank Circular No. 374 (Rules and Regulations transaction.
for Pawnshops); It need not be elaborated that pawnshops are non-banks/banking institutionsthe The facts:
nature of their business activities partakes that of a financial intermediary in that its principal In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR
function is lending.It need not be elaborated that pawnshops are non-banks/banking institutions. that it has an existing tax deficiency on its VAT and DST liabilities for the year 2000.
Moreover, the nature of their business activities partakes that of a financial intermediary in that
The deficiency assessment was at P541,102.79 for VAT and P23,646.33 for
its principal function is lending. A pawnshops business and operations are governed by
DST.1 Petitioner protested the assessment for lack of legal and factual bases. 2
Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No.
Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, 11 Rollo, pp. 82-83.
12 Id., at p. 34.
directing payment of VAT deficiency in the amount of P541,102.79 and DST deficiency in
612Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.13
the amount of P24,747.13, inclusive of surcharge and interest. 3 Petitioner filed a
protest,4 which was denied by Acting Regional Director Anselmo G. Adriano per Final With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994, 14 the BIR
Decision on Disputed Assessment dated January 29, 2004.5 abandoned its earlier position and maintained that pawnshops are subject to 10% VAT,
Petitioner then filed a petition for review with the Court of Tax Appeals (CTA). 6 In a as implemented by Revenue Regulations No. 7-95. This was complemented by Revenue
Decision dated May 9, 2005, the 2nd Division of the CTA upheld the deficiency Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop
assessment.7 Petitioner filed a motion for reconsideration 8which was denied in a operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996,
Resolution dated October 7, 2005.9 while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for
Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
2006, the dispositive portion of which reads as follows: CTA decisions affirmed the BIRs position that pawnshops are subject to VAT. In H.
_______________ Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue,15 the CTA ruled that
the petitioner therein was subject to 10% VAT under Section 108 of the Tax Code of
1 Rollo, Annex C, p. 84. 1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue16 reiterates
2 Id., Annex D, pp. 85-90. said ruling. It was the CTAs view that the services rendered by pawnshops fall under
3 Id., Annex E, pp. 91-95.
the general definition of sale or exchange of services under Section 108(A) of the Tax
4 Id., Annex F, pp. 96-107.
5 Id., Annex G, p. 108. Code of 1997.
6 Id., Annex H, pp. 109-122. On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J.
7 Id., Annex I, pp. 150-168. Lhuillier Pawnshop, Inc.17 in
8 Id., Annex J, pp. 169-183. _______________
9 Id., Annex K, pp. 184-188.
611
13 As clarified by BIR Revenue Memorandum Circular No. 43-91 issued on May 27, 1991.
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of 14 Entitled, An Act Restructuring the Value-Added Tax (VAT) System, Widening its Tax Base and
merit. The assailed Decision dated May 9, 2005 and Resolution dated October 7, 2005 are hereby Enhancing its Administration, and for these purposes Amending and Repealing the Relevant Provisions of the
AFFIRMED. National Internal Revenue Code, as amended, and for Other Purposes.
SO ORDERED. 10 15 C.T.A. Case No. 6915, April 11, 2004.
Petitioner sought reconsideration but this was denied by the CTA En Banc per 16 C.T.A. Case No. 7069, June 17, 2005.
17 G.R. No. 150947, July 15, 2003, 406 SCRA 178. Penned by Chief Justice Hilario G. Davide, Jr. with the
Resolution dated August 14, 2006.11
concurrence of Associate Justices Jose Vitug, Consuelo Ynares-Santiago, Antonio T. Carpio and Adolfo S.
Hence, the present petition for review under Rule 45 of the Rules of Court based on Azcuna.
the following grounds: 613which it was categorically ruled that while pawnshops are engaged in the business of
I. lending money, they are not considered lending investors for the purpose of imposing
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING percentage taxes.18 The Court gave the following reasons: first, under the 1997 Tax Code,
PETITIONER LIABLE FOR VAT.
pawnshops and lending investors were subjected to different tax treatments; second,
II.
THE HONORABLE COURT OF TAX APPEALS EN BANCGRAVELY ERRED IN RULING THAT Congress never intended pawnshops to be treated in the same way as lending
PETITIONER IS LIABLE FOR DST ON PAWN TICKETS. 12 investors; third, Section 116 of the NIRC of 1997 subjects to percentage tax dealers in
The determination of petitioners tax liability depends on the tax treatment of a securities and lending investors only; and lastly, the BIR had ruled several times prior
pawnshop business. Oddly, there has not been any definitive declaration in this regard to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not subject to the
despite the fact that pawnshops have long been in existence. All that has been stated is 5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977, as
what pawnshops are not, but not what pawnshops are. amended by Executive Order No. 273.
The BIR itself has maintained an ambivalent stance on this issue. Initially, In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-
in Revenue Memorandum Order No. 15-91 issued on March 11, 1991, a pawnshop 2004 dated June 16, 2004, canceling the previous lending investors tax assessments on
business was considered as akin to lending investors business activity and subject to pawnshops. Said Circular stated, inter alia:
5% percentage tax beginning January 1, 1991, under In view of the said Supreme Court decision, all assessments on pawnshops for percentage
_______________ taxes as lending investors are hereby cancelled. This Circular is being issued for the sole purpose of
resolving the tax liability of pawnshops to the 5% lending investors tax provided under the then
10 Id., at p. 80. Section 116 of the NIRC of 1977, as amended, and shall not cover issues relating to their other tax
liabilities. All internal revenue officials are enjoined from issuing assessments on pawnshops for Under the National Internal Revenue Code of 1977, pawnshops should have been levied the 5%
21

percentage taxes on lending investors, under then Section 116 of the NIRC of 1977, as amended. percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops Section 119 (now Section 121 of the Tax Code of 1997);
are now subject thereof. This shall however, be covered by another issuance. 19
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should have 22

Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and
pawnshops businesses were allowed to settle their VAT liabilities for the tax years 1996- financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax
2002 Code of 1997); 23

_______________ This was restated by R.A. No. 8241, which amended R.A. No. 7716, although the levy, collection
24

and assessment of the 10% VAT on services rendered by banks, non-bank financial
18 Id., at p. 185. intermediaries, finance companies, and other financial intermediaries not performing quasi-
19 ftp://ftp.bir.gov.ph/webadmin1/pdf/1887rmc36_04.pdf. banking functions, were made effective January 1, 1998; 25

614pursuant to a memorandum of agreement entered into by the Commissioner of


Internal Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular _______________
likewise instructed all revenue officers to ensure that all VAT due from pawnshops
beginning January 1, 2003, including increments thereto, if any, are assessed and 21 Presidential Decree No. 1158.
22 Effective May 28, 1994.
collected from pawnshops under its jurisdictions. 23 The implementation of the VAT system under R.A. No. 7716 was made effective January 1, 1996 (see Commissioner of
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, Internal Revenue v. Philippine Global Communications, Inc., G.R. No. 144696, August 16, 2006, 499 SCRA 53).
24 Approved on December 20, 1996.
2004 entitled, An Act Amending Certain Sections of the National Internal Revenue Code 25 R.A. No. 8241, Section 11 provides:
of 1997, as amended, by Excluding Several Services from the Coverage of the Value- SEC. 11. Section 17 of Republic Act No. 7716 is hereby amended to read as follows:
added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial 616

Intermediaries Performing Quasi-banking Functions and Other Non-bank Financial


Intermediaries beginning January 01, 2004.20 R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT under Section 108
26

Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on but the levy, collection and assessment thereof were again deferred until December 31, 1999; 27

February 10, 2004 advising all banks and non-bank financial intermediaries that they The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until
shall remain liable under the VAT system. December 31, 2000, and by R.A. No. 9010, until December 31, 2002;
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance With no further deferments given by law, the levy, collection and assessment of the 10% VAT on
banks, non-bank financial intermediaries, finance companies, and other financial intermediaries
issued Revenue Regulations No. 10-2004 dated October 18, 2004, classifying pawnshops
not performing quasi-banking functions were finally made effective beginning January 1, 2003;
as Other Non-bank Financial Intermediaries. The BIR then issued Revenue
Memorandum Circular No. 73-2004 on November 25, 2004, prescribing the guidelines _______________
and policies on the assessment and collection of 10% VAT for gross annual sales/
receipts exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts not SEC. 17. Effectivity of the Imposition of VAT on Certain Goods, Properties and Services.The value-
exceeding P550,000.00 of pawnshops prior to January 1, 2005. added tax shall be levied, assessed and collected on the following transactions, starting January 1, 1998:
xxxx
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject (b) Services rendered by banks, non-bank financial intermediaries, finance companies and other
to lending investors tax. Subsequently, with the Courts ruling in Lhuillier, pawnshops financial intermediaries not performing quasi-banking functions;
x x x x:
were 26 R.A. No. 8424 renamed the National Internal Revenue Code of 1977 to National Internal Revenue Code of 1997, or the
_______________ Tax Code of 1997, and took effect on January 1, 1998.
27 R.A. No. 8428, Section 5 provides:
SEC. 5. Transitory Provisions.Deferment of the Effectivity of the Imposition of VAT on Certain Services.
20 Republic Act (R.A.) No. 9238 lapsed into law on February 05, 2004 without the signature of the
The effectivity of the imposition of the value-added tax on services as prescribed in Section 17(a) and (b) of Republic
President, in accordance with Article VI, Section 27 (1) of the Constitution. Act No. 7616, as amended by Republic Act 8241, is hereby further deferred until December 31, 1999, unless Congress
615then treated as VAT-able enterprises under the general classification of sale or deems otherwise: Provided, That the said services shall continue to pay the applicable tax prescribed under the
exchange of services under Section 108(A) of the Tax Code of 1997, as amended. R.A. No. present provisions of the National Internal Revenue Code, as amended.
617
9238 finally classified pawnshops as Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial
Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by law,
intermediaries, finance companies, and other financial intermediaries not performing quasi-
thus banking functions were specifically exempted from VAT, and the 0% to 5% percentage tax on
28
gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of Nothing in this code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar financing activities.
the Tax Code of 1997. 29

619non-bank financial intermediaries and finance companies; and non-life insurance


companies (except their crop insurances), including surety, fidelity, indemnity and bonding
_______________ companies; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase sale or exchange of services shall
28 R.A. No. 9238, Section 2 provides: likewise include: x x x (Emphasis and underscoring supplied)
SEC. 2. Section 109 of the same Code is hereby amended by rewording paragraph (1) and
inserting additional paragraphs after (z) which shall now read as follows: The tax treatment of pawnshops as non-bank financial intermediaries is not without
SEC. 109. Exempt Transactions.The following shall be exempt from the value-added basis.
tax: R.A. No. 337, as amended, or the General Banking Act characterizes the
xxxx terms banking institution and bank as synonymous and interchangeable and specifically
(aa) Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries; include commercial banks, savings bank, mortgage banks, development banks, rural
xxxx banks, stock savings and loan associations, and branches and agencies in the Philippines
The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or of foreign banks.30 R.A. No. 8791 or the General Banking Law of 2000, meanwhile,
properties or services which are otherwise not subject to VAT, but who issue a VAT invoice or receipt provided that banks shall refer to entities engaged in the lending of funds obtained in the
therefor shall, in additional to his liability to other applicable percentage tax, if any, be liable to the tax
imposed in Section 106 or 108 without the benefit of input tax credit, and such tax shall also be form of deposits.31 R.A. No. 8791 also included cooperative banks, Islamic banks and
recognized as input tax credit to the purchaser under Section 110, all of this Code. other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in
29 R.A. No. 9238, Section 4 reads: the classification of banks.32
Section 4. Section 122 of the National Internal Revenue Code of 1997, as amended, is hereby Financial intermediaries, on the other hand, are defined as persons or entities whose
restored with amendments to read as follows:
Sec. 122. Tax on Other Non-Bank Financial Intermediaries.There shall be collected a tax of five principal functions include the lending, investing or placement of funds or evidences of
percent (5%) on the gross receipts derived by other non-bank financial intermediaries doing business in the indebtedness or equity deposited with them, acquired by them, or otherwise coursed
Philippines, from interest, commissions, discounts and all other items treated as gross income under this through them, either for their own account or for the account of others.33
code: Provided, that interests, commissions and discounts from lending activities, as well as income from It need not be elaborated that pawnshops are non-banks/banking institutions.
financial leasing, shall
Moreover, the nature of their business
618At the time of the disputed assessment, that is, for the year 2000, pawnshops were
_______________
not subject to 10% VAT under the general provision on sale or exchange of services as
defined under Section 108(A) of the Tax Code of 1997, which states: sale or exchange of 30 Section 2.
services means the performance of all kinds of services in the Philippines for others for a 31 Section 3.1.
fee, remuneration or consideration x x x. Instead, due to the specific nature of its 32 Section 3.1 (e), (f), and (g).
33 General Banking Act, Section 2-D(c); Manual of Regulations for Non-Bank Financial Institution,
business, pawnshops were then subject to 10% VAT under the category of non-bank 4101Q.1.
financial intermediaries, as provided in the same Section 108(A), which reads: 620activities partakes that of a financial intermediary in that its principal function is
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
lending.
(A) Rate and Base of Tax.There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
A pawnshops business and operations are governed by Presidential Decree (P.D.) No.
including the use or lease of properties. 114 or the Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules and
The phrase sale or exchange of services means the performance of all kinds or services in the Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a person or
Philippines for others for a fee, remuneration or consideration, including x x x services of banks, entity engaged in the business of lending money on personal property delivered as
_______________ security for loans and shall be synonymous, and may be used interchangeably, with
pawnbroker or pawn brokerage.
be taxed on the basis of remaining maturities of the instruments from which such receipts are derived, in
accordance with the following schedule: That pawnshops are to be treated as non-bank financial intermediaries is further
bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko
maturity period is five (5) years or less .. 5% Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial
maturity period is more than five (5) years ... 1%
Provided, however, that in case the maturity period is shortened thru pretermination, then the maturity period
Institutions. The Manual includes pawnshops in the list of non-bank financial
shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct intermediaries, viz.:
rate shall be applied accordingly. 4101Q.1 Financial Intermediaries
Provided, finally, that the generally accepted accounting principles as may be prescribed by the Securities and
Exchange Commission for other non-bank financial intermediaries shall likewise be the basis for the calculation of
xxx
gross receipts. Non-bank financial intermediaries shall include the following:
(1) A person or entity licensed and/or registered with any government regulatory body Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For
as a non-bank financial intermediary, such as investment house, investment company, Pawnshops issued by the Central Bank to implement the Act, require every pawnshop or
financing company, securities dealer/broker, lending investor, pawnshop, money broker pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket signed by
x x x. (Emphasis supplied) the pawnbroker and containing the following details: (1) name and residence of the pawner; (2)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit: date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL maturity; (6) description of pawn; (7) signature of pawnbroker or his authorized agent; (8)
INTERMEDIARIES.Whereas, in relation to Sec. 2.3 of Rev. Regs No. 9-2004 defining Non-bank signature or thumb mark of pawner or his authorized agent; and (9) such other terms and
Financial Intermediaries, the term pawnshop as defined under Presidential Decree No. 114 conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central
which authorized its creation, to be a person or entity engaged in the business of lending money, all Bank Circular No. 445, prescribed a standard form of pawn tickets with entries for the required
fall within the classification of Non-bank Financial Intermediaries and therefore, covered by Sec. 4 details on its face and the mandated terms and conditions of the pledge at the dorsal portion
of R.A. No. 9238. thereof.
621This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
Regulations for Non-Bank Financial Intermediaries and reiterated in BSP Circular No. 204-99, xxxx
classifying pawnshops as one of Non-bank Financial Intermediaries within the supervision of the True, the law does not consider said ticket as an evidence of security or indebtedness. However,
Bangko Sentral ng Pilipinas. for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshops
non-bank financial intermediaries. obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is
therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no
Coming now to the issue at handSince petitioner is a non-bank financial
tax may be imposed on a pawn ticket.
intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the
the levy, assessment and collection of VAT from non-bank financial government; and that a tax623cannot be imposed without clear and express words for that purpose.
intermediaries being specifically deferred by law,34 then petitioner is not liable Taking our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there
for VAT during these tax years. But with the full implementation of the VAT system is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly
on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for subjects all pledges to DST. It states that [o]n every x x x pledge x x x there shall be collected a
10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. documentary stamp tax x x x. It is clear, categorical, and needs no further interpretation or
9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross construction. The explicit tenor thereof requires hardly anything than a simple application.
receipts from 0% to 5%, as the case may be. xxxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by
Lastly, petitioner is liable for documentary stamp taxes.
pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v.
which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners
Commissioner of Internal Revenue,35 in which it was ruled that the subject of DST is not nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax
limited to the document alone. Pledge, which is an exercise of a privilege to transfer exemption represents a loss of revenue to the government and must, therefore, not rest on vague
obligations, rights or properties incident thereto, is also subject to DST, thus inference. Exemption from taxation is never presumed. For tax exemption to be recognized, the
x x x x the subject of a DST is not limited to the document embodying the enumerated grant must be clear and express; it cannot be made to rest on doubtful implications.
transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, Under the principle of stare decisis et non quieta movere (follow past precedents and
rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of do not disturb what has been settled), once a case has been decided one way, any other
Appeals, it was held that:
_______________
case involving exactly the same point at issue, as in the case at bar, should be decided in
the same manner.36
34 See pages 7-8 of this Decision. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7,
35 G.R. No. 166786, May 3, 2006, 489 SCRA 147. 2006 and Resolution dated August 14, 2006 of the Court of Tax Appeals En Banc is
622x x x x
MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined
deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and SET
as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers
to the creditor or to a third person movable property as security for the performance of the ASIDE, while its assessment for DST deficiency in the amount of P24,747.13, inclusive of
principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and surcharge and interest, is UPHELD.
accessories, shall be returned to the debtor or to the third person. This is essentially the business of
pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop 10. G.R. No. 189871. August 13, 2013.*
Regulation Act, as persons or entities engaged in lending money on personal property delivered as DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents.
security for loans.
Labor Law; Termination of Employment; Illegal Dismissals; By the nature of an illegal dismissal case, the and Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 688 SCRA 530 (2013), this Court affirmed the
reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code.No essential authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that the BSP-MB
change is made by a recomputation as this step is a necessary consequence that flows from the nature of the may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
illegality of dismissal declared by the Labor Arbiter in that decision. A recomputation (or an original computation, money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans
if no previous computation has been made) is a part of the law specifically, Article 279 of the Labor Code and made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe
the established jurisprudence on this provision that is read into the decision. By the nature of an illegal different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor loans of financial intermediaries.
Code. The recomputation of Same; When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
_______________ forbearance of money, the interest due should be that which may have been stipulated in writing; In the absence of
* EN BANC.
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
440
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.When the obligation
4 SUPREME COURT REPORTS ANNOTATED is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
40 should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per
Nacar vs. Gallery Frames annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions
the consequences of illegal dismissal upon execution of the decision does not constitute an alteration or of Article 1169 of the Civil Code.442
amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of 4 SUPREME COURT REPORTS ANNOTATED
final judgments. 42
Same; Same; Same; Article 279 of the Labor Code provides for the consequences of illegal dismissal in no
uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
Nacar vs. Gallery Frames
reinstatement is allowed.That the amount respondents shall now pay has greatly increased is a consequence that Same; When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
it cannot avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiters decision. amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.When
Article 279 provides for the consequences of illegal dismissal in no uncertain terms, qualified only by an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
the finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable
decrees. In allowing separation pay, the final decision effectively declares that the employment relationship ended certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run
so that separation pay and backwages are to be computed up to that point. from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
Interest Rates; In the absence of an express stipulation as to the rate of interest that would govern the cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
judgments shall no longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
Lines vs. Court of Appeals, 234 SCRA 78 (1994), and Subsection X305.1 of the Manual of Regulations for Banks finally adjudged.
and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of
before its amendment by BSP-MB Circular No. 799 but will now be six percent (6%) per annum effective July legal interest, shall be 6% per annum from such finality until its satisfaction.When the judgment of the court
1, 2013.In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no paragraph 1 or paragraph 2, above, shall be 6% per annumfrom such finality until its satisfaction, this interim
longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines, Inc. v. Court of period being deemed to be by then an equivalent to a forbearance of credit.
Appeals, 234 SCRA 78 (1994) and Subsection X305.1 of the Manual of Regulations for Banks and Sections PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its The facts are stated in the opinion of the Court.
441 Carlo A. Domingo for petitioner.
VOL. 703, AUGUST 13, 2013 44 Cabio Law Office and Associates for respondent.
443
1
VOL. 703, AUGUST 13, 2013 443
Nacar vs. Gallery Frames
amendment by BSP-MB Circular No. 799 but will now be six percent (6%) per annum effective July 1, Nacar vs. Gallery Frames
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. PERALTA, J.:
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the
1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying
Same; Monetary Board; The Bangko Sentral ng Pilipinas-Monetary Board may prescribe the maximum petitioners motion for reconsideration.
rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, The factual antecedents are undisputed.
including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions.In the recent case of Advocates for Truth in Lending, Inc.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of SO ORDERED.4
the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or _______________
4 Id., at pp. 82-84. (Emphasis supplied.)
Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
445
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that
he was dismissed from employment without a valid or just cause. Thus, petitioner was awarded VOL. 703, AUGUST 13, 2013 445
backwages and separation pay in lieu of reinstatement in the amount of P158,919.92. The dispositive Nacar vs. Gallery Frames
portion of the decision, reads: Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated
With the foregoing, we find and so rule that respondents failed to discharge the burden of February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents
showing that complainant was dismissed from employment for a just or valid cause. All the filed a motion for reconsideration, but it was denied. 6
more, it is clear from the records that complainant was never afforded due process before he Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
was terminated. As such, we are perforce constrained to grant complainants prayer for the 2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for
payments of separation pay in lieu of reinstatement to his former position, considering the Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.7
strained relationship between the parties, and his apparent reluctance to be reinstated, Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding
computed only up to promulgation of this decision as follows: no reversible error on the part of the CA, this Court denied the petition in the Resolution dated April
_______________ 17, 2002.8
1 Penned by Associate Justice Vicente S. E. Veloso, with Associate Justices Rebecca De Guia-Salvador and Ricardo R.
Rosario, concurring; Rollo, pp. 33-48.
An Entry of Judgment was later issued certifying that the resolution became final and executory on
2 Id., at p. 32. May 27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
3 Id., at pp. 79-84. conference was consequently scheduled, but respondents failed to appear. 10
444 On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
444 SUPREME COURT REPORTS ANNOTATED backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of the
Nacar vs. Gallery Frames Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and
SEPARATION PAY Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
_______________
Date Hired = August 1990 5 Id., at pp. 85-93.
Rate = P198/day 6 Resolution dated July 24, 2000, id., at pp. 94-96.
Date of Decision = Aug. 18, 1998 7 Rollo, p. 35.
8 Id., at pp. 35-36.
Length of Service = 8 yrs. & 1 month
9 Id., at p. 36.
P198.00 x 26 days x 8 months = P41,184.00 10 Id., at p. 100.
BACKWAGES 11 Id.
Date Dismissed = January 24, 1997 12 Id., at p. 101.
Rate per day = P196.00 446
Date of Decisions = Aug. 18, 1998 446 SUPREME COURT REPORTS ANNOTATED
a) 1/24/97 to 2/5/98 = 12.36 mos. Nacar vs. Gallery Frames
P196.00/day x 12.36 mos. = P62,986.56 On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff
b) 2/6/98 to 8/18/98 = 6.4 months to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to Quash
Prevailing Rate per day = P62,986.00 Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of
P198.00 x 26 days x 6.4 mos. = P32,947.20 P62,986.56 and limited backwages of P95,933.36, no more recomputation is required to be made of the
TOTAL = P95.933.76 said awards. They claimed that after the decision becomes final and executory, the same cannot be
xxxx altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the
WHEREFORE, premises considered, judgment is hereby rendered finding respondents motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.
guilty of constructive dismissal and are therefore, ordered: Respondents again appealed before the NLRC, which on June 30, 2003 issued a
1. To pay jointly and severally the complainant the amount of sixty-two thousand nine Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of the
hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation judgment award.
pay; On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be
2. To pay jointly and severally the complainant the amount of nine (sic) five thousand final and executory. Consequently, another pre-execution conference was held, but respondents failed
nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and to appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce
3. All other claims are hereby dismissed for lack of merit. the earlier recomputed judgment award in the sum of P471,320.31. 18
The records of the case were again forwarded to the Computation and Examination Unit for I
recomputation, where the judgment award of petitioner was reassessed to be in the total amount of WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED
only P147,560.19. GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005
ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15,
original amount as de- 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE
_______________
13 Id., at pp. 97-102. BODY OF THE SAME DECISION. 26

14 Id., at p. 37. Petitioner argues that notwithstanding the fact that there was a computation of backwages in the
15 Id., at pp. 103-108. Labor Arbiters decision, the same is not final until reinstatement is made or until finality of the
16 Id., at pp. 109-113. decision, in case of an award of separation pay. Petitioner maintains that considering that the October
17 Id., at pp. 114-117.
18 Id., at p. 101. 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002
447 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27,
VOL. 703, AUGUST 13, 2013 447 2002, the reckoning point for the compu-
_______________
Nacar vs. Gallery Frames 24 Id., at pp. 33-48.
termined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation 25 Id., at p. 32.
26 Id., at p. 27.
of his backwages and separation pay. 449
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment
VOL. 703, AUGUST 13, 2013 449
award that was due to petitioner in the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the recomputation of the monetary Nacar vs. Gallery Frames
award to include the appropriate interests.19 tation of the backwages and separation pay should be on May 27, 2002 and not when the decision of
On May 10, 2005, the Labor Arbiter issued an Order 20granting the motion, but only up to the the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to
amount of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should the payment of interest from the finality of the decision until full payment by the respondents.
be enforced considering that it was the one that became final and executory. However, the Labor On their part, respondents assert that since only separation pay and limited backwages were
Arbiter reasoned that since the decision states that the separation pay and backwages are computed awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is
only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be required to be made of said awards. Respondents insist that since the decision clearly stated that the
executed. Thus, since petitioner already received P147,560.19, he is only entitled to the balance of separation pay and backwages are computed only up to [the] promulgation of this decision, and
P11,459.73. considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its computed by the Labor Arbiter in the total amount of P158,919.92. Respondents added that it was only
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was during the execution proceedings that the petitioner questioned the award, long after the decision had
likewise denied in the Resolution23 dated January 31, 2007. become final and executory. Respondents contend that to allow the further recomputation of the
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591. backwages to be awarded to petitioner at this point of the proceedings would substantially vary the
_______________ decision of the Labor Arbiter as it violates the rule on immutability of judgments.
19 Id., at p. 40. The petition is meritorious.
20 Id., at pp. 65-69.
21 Id., at pp. 70-74. The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
22 Id., at pp. 60-64. Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of
23 Id., at pp. 58-59. the computation of the awards made, and whether this violated the principle of immutability of
448 judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the
448 SUPREME COURT REPORTS ANNOTATED above-cited case that the decision already provided for the computation of the payable separation pay
Nacar vs. Gallery Frames and backwages due and did not further order the computation of the monetary awards up to the time of
On September 23, 2008, the CA rendered a Decision24denying the petition. The CA opined that the finality of the judgment. Also in Session Delights, the
_______________
since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already 27 G.R. No. 172149, February 8, 2010, 612 SCRA 10.
became final and executory, a belated correction thereof is no longer allowed. The CA stated that there 450
is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be 450 SUPREME COURT REPORTS ANNOTATED
modified in any respect, except to correct clerical errors or mistakes. Petitioner filed a Motion for
Reconsideration, but it was denied in the Resolution25 dated October 9, 2009. Nacar vs. Gallery Frames
Hence, the petition assigning the lone error: dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor included as well the payment for awards the final CA decision had deleted specifically, the
arbiters original computation of the awards made, pegged as of the time the decision was rendered and proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
confirmed with modification by a final CA decision, is legally proper. The question is posed, given that questioned in the present petition.
the petitioner did not immediately pay the awards stated in the original labor arbiters decision; it delayed We see no error in the CA decision confirming that a recomputation is necessary as it essentially
payment because it continued with the litigation until final judgment at the CA level. considered the labor arbiters original decision in accordance with its basic component parts as we
A source of misunderstanding in implementing the final decision in this case proceeds from the way discussed above. To reiterate, the first part contains the finding of illegality and its monetary
the original labor arbiter framed his decision. The decision consists essentially of two parts. consequences; the second part is the computation of the awards or monetary consequences of the illegal
The first is that part of the decision that cannot now be disputed because it has been confirmed with dismissal, computed as of the time of the labor arbiters original decision. 28

finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of Consequently, from the above disquisitions, under the terms of the decision which is sought to be
reinstatement, backwages, attorneys fees, and legal interests. executed by the petitioner, no essential change is made by a recomputation as this step is a necessary
The second part is the computation of the awards made. On its face, the computation the labor arbiter consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in
made shows that it was time-bound as can be seen from the figures used in the computation. This part, that decision.29 A recomputation (or an original computation, if no previous computation has been
being merely a computation of what the first part of the decision established and declared, can, by its
nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-
made) is a part of the law specifically, Article 279 of the Labor Code and the established
computed because the computation is already in the labor arbiters decision that the CA had affirmed. The jurisprudence on this provision that is read into the decision. By the nature of an illegal dismissal
public and private respondents, on the other hand, posit that a re-computation is necessary because the case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor
relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does
up to the finality of the decision, if separation pay is to be given in lieu reinstatement. not constitute an alteration or amendment of the final decision being implemented. The illegal
That the labor arbiters decision, at the same time that it found that an illegal dismissal had taken dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected,
place, also made a computation of the award, is understandable and this is not a violation of the principle of immutability of final judgments.30
451 _______________
VOL. 703, AUGUST 13, 2013 451 28 Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at pp. 21-23.
29 Id., at p. 25.
Nacar vs. Gallery Frames 30 Id., at pp. 25-26.
in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a computation 453
be made. This Section in part states: VOL. 703, AUGUST 13, 2013 453
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded. Nacar vs. Gallery Frames
Clearly implied from this original computation is its currency up to the finality of the labor arbiters That the amount respondents shall now pay has greatly increased is a consequence that it cannot
decision. As we noted above, this implication is apparent from the terms of the computation itself, and no avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiters
question would have arisen had the parties terminated the case and implemented the decision at that point. decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms, qualified
However, the petitioner disagreed with the labor arbiters findings on all counts i.e., on the finding only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed.
of illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of
NLRC which, in turn, affirmed the labor arbiters decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.
the reinstatement that the law decrees. In allowing separation pay, the final decision effectively
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a declares that the employment relationship ended so that separation pay and backwages are to be
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in computed up to that point.31
affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v.
to the labor arbiter of origin for execution. Court of Appeals,32 the Court laid down the guidelines regarding the manner of computing legal
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the interest, to wit:
original labor arbiters decision, the implementing labor arbiter ordered the award re-computed; he II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
apparently read the figures originally ordered to be paid to be the computation due had the case been the rate of interest, as well as the accrual thereof, is imposed, as follows:
terminated and implemented at the labor arbiters level. Thus, the labor arbiter re-computed the award to 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
include the separation pay and the backwages due up to the finality of the CA decision that fully loan or forbearance of money, the interest due should be that which may have been stipulated in
terminated the case on the merits. Unfortunately, the labor arbiters approved computation went beyond writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
the finality of the CA decision (July 29, 2003) and demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
452 computed from default, i.e., from judicial or extrajudicial demand under and subject to the
452 SUPREME COURT REPORTS ANNOTATED provisions of Article 1169 of the Civil Code.
_______________
Nacar vs. Gallery Frames 31 Id., at p. 26.
32 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
454
454 SUPREME COURT REPORTS ANNOTATED This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
Nacar vs. Gallery Frames would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or
2. When an obligation, not constituting a loan or forbearance of money, is breached, an credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum as
interest on the amount of damages awarded may be imposed at the discretion of the court at the
reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
where the demand is established with reasonable certainty, the interest shall begin to run from the Financial Institutions, before its amendment by BSP-MB Circular No. 799 but will now be six
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could
certainty cannot be so reasonably established at the time the demand is made, the interest shall only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per
begin to run only from the date the judgment of the court is made (at which time the annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
quantification of damages may be deemed to have been reasonably ascertained). The actual base percent (6%) per annum shall be the prevailing rate of interest when applicable.
for the computation of legal interest shall, in any case, be on the amount finally adjudged. Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
3. When the judgment of the court awarding a sum of money becomes final and executory, Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
and to issue and enforce Circu-
12% per annum from such finality until its satisfaction, this interim period being deemed to be by _______________
then an equivalent to a forbearance of credit. 33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution ance of any money, goods or credit and the rate allowed in judgment shall be twelve percent (12%) per annum.
No. 796 dated May 16, 2013, approved the amendment of Section 2 34 of Circular No.
_______________ 39 The Section is under P Regulations or Regulations Governing Pawnshops. It reads:
33 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at pp. 95-97. (Citations omitted; italics in the original).
4303P.1 Rate of interest in the absence of stipulation. The rate of interest for a loan or forbearance of money in the
34 SECTION 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
absence of an expressed contract as to such rate of interest, shall be twelve percent (12%) per annum. (Circular No. 656 dated 02
judg- June 2009)
455 40 Supra note 32, at pp. 95-97.
VOL. 703, AUGUST 13, 2013 455 41 G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.
457
Nacar vs. Gallery Frames
905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series of 2013, effective July 1, 2013,
VOL. 703, AUGUST 13, 2013 457
the pertinent portion of which reads: Nacar vs. Gallery Frames
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions lars when it ruled that the BSP-MB may prescribe the maximum rate or rates of interest for all loans
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low
Circular No. 905, Series of 1982: priority such as consumer loans, as well as such loans made by pawnshops, finance companies and
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates
and the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
for different types of borrowings, including deposits and deposit substitutes, or loans of financial
shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
36
intermediaries.
Banks and Sections 4305Q.1, 4305S.3 37 38 Nonetheless, with regard to those judgments that have become final and executory prior to July 1,
_______________ 2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate of
ments, in the absence of express contract as to such rate of interest, shall continue to be twelve percent (12%) per annum. interest fixed therein.
35 Rate of interest in the absence of stipulation; Dated June 21, 2013.
36 X305.1 Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance of any money, goods or credits and To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
the rate allowed in judgments, in the absence of expressed contract as to such rate of interest, shall be twelve percent (12%) per annum. Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
37 The Section is under Q Regulations or Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions. It
reads: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance of any money, delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per
annum.
on Damages of the Civil Code govern in determining the measure of recoverable damages.
38 The Section is under S Regulations or Regulations Governing Non-Stock Savings and Loan Associations. It reads: II. With regard particularly to an award of interest in the concept of actual and compensatory
4305S.3 Interest in the absence of contract. In the absence of express contract, the rate of interest for the loan or forbear damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
456
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
456 SUPREME COURT REPORTS ANNOTATED or forbearance of money, the interest due should be that which may have been stipulated in
Nacar vs. Gallery Frames writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
39
demanded. In the absence of stipulation, the rate of interest shall
amended accordingly. _______________
42 Supra note 32. Monetary Board to the Court of Appeals. (United Coconut Planters Bank vs. E. Ganzon,
458
Inc., 591 SCRA 321 [2009])
458 SUPREME COURT REPORTS ANNOTATED Court is of the view that the Monetary Board approval is not required for Philippine
Nacar vs. Gallery Frames Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks.
be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand (Philippine Deposit Insurance Corporation [PDIC] vs. Philippine Countryside Rural
under and subject to the provisions of Article 1169 of the Civil Code. Bank, Inc., 640 SCRA 322 [2011])
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of 11. G.R. No. 166096. September 11, 2008.*
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, PHILIPPINE NATIONAL BANK, petitioner, vs. RAMON BRIGIDO L. VELASCO,
except when or until the demand can be established with reasonable certainty. Accordingly, respondent.
where the demand is established with reasonable certainty, the interest shall begin to run from Civil Procedure; Appeals; Certiorari; St. Martin Funeral Homes v. National Labor Relations
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such Commission, 295 SCRA 494 (1998) settled any doubt as to the manner of elevating decisions of the
certainty cannot be so reasonably established at the time the demand is made, the interest shall National Labor Relations Commission (NLRC) to the Court of Appeals (CA) by holding that the
begin to run only from the date the judgment of the court is made (at which time the legislative intendment was that the special civil action of certiorari was and still is the proper
quantification of damages may be deemed to have been reasonably ascertained). The actual vehicle for judicial review of decisions of the National Labor Relations Commission (NLRC).The
base for the computation of legal interest shall, in any case, be on the amount finally adjudged. correct remedy that should have been availed of is the special civil action of certiorari under Rule
3. When the judgment of the court awarding a sum of money becomes final and executory, the 65. As this Court held in the case of Pure Foods Corporation v. NLRC, 171 SCRA 415 (1989), the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be party may also seasonably avail of the special civil action for certiorari, where the tribunal, board
6% per annum from such finality until its satisfaction, this interim period being deemed to be or officer exercising judicial functions has acted without or in excess of its jurisdiction, or with
by then an equivalent to a forbearance of credit. grave abuse of discretion, and praying that judgment be rendered annulling or modifying the
And, in addition to the above, judgments that have become final and executory prior to July 1, proceedings, as the law requires, of such tribunal, board or officer. In any case, St. Martin Funeral
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed Home v. National Labor Relations Commission, 295 SCRA 494 (1998), settled any doubt as to the
therein. manner of elevating decisions of the NLRC to the CA by holding that the legislative intendment
was that the special civil action of certiorari was and still is the proper vehicle for judicial review of
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
decisions of the NLRC.
Appeals in CA-G.R. SP _______________
459
VOL. 703, AUGUST 13, 2013 459 * THIRD DIVISION.
513
Nacar vs. Gallery Frames
VOL. 564, SEPTEMBER 11, 2008 5
No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents
are ORDERED to PAY petitioner: 13
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up Philippine National Bank vs. Velasco
to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory; Labor Law; Termination of Employment; Velasco committed serious misconduct, hence, his
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay dismissal is justified.II. Velasco committed serious misconduct, hence, his dismissal is
per year of service; and justified.Article 282 of the Labor Code enumerates the just causes where an employer may
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from terminate the services of an employee, to wit: a) Serious misconduct or willful disobedience by the
May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full employee of the lawful orders of his employer or representative in connection with his work; b)
satisfaction. Gross and habitual neglect by the employee of his duties; c) Fraud or willful breach by the
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary employee of the trust reposed in him by his employer or duly authorized representative; d)
benefits awarded and due to petitioner in accordance with this Decision. Commission of a crime or offense by the employee against the person of his employer or any
SO ORDERED. immediate member of his family or his duly authorized representative; and e) Other causes
Sereno (CJ.), Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del Castillo, Abad, analogous to the foregoing.
Same; Misconduct; It is settled that in order for misconduct to be serious, it must be of such
Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe and Leonen, JJ., concur.
grave and aggravated character and not merely trivial or unimportant.Ordinary misconduct
Judgment and resolution reversed and set aside. would not justify the termination of the services of an employee. The law is explicit that the
Notes.There is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which misconduct should be serious. It is settled that in order for misconduct to be serious, it must be of
explicitly allows an appeal of the decisions of the Bangko Sentral ng Pilipinas (BSP) such grave and aggravated character and not merely trivial or unimportant. As amplified by
jurisprudence, the misconduct must (1) be serious; (2) relate to the performance of the employees and independent of each other. A service of irregularities, when combined, may constitute
duties; and (3) show that the employee has become unfit to continue working for the employer. serious misconduct which is a just cause for dismissal.The Labor Arbiter and the NLRC are in
Banks and Banking; Velasco violated bank rules when he transacted a no-book withdrawal unison that Velasco transacted a no-book withdrawal and failed to present a letter of introduction
by his failure to present his passbook to the PNB, Ligao, Albay Branch on June 30, 1995.The at PNB Ligao, Albay Branch on June 30, 1995. He also forged his passbook to cover up his offense.
misconduct is serious. Velasco violated bank rules when he transacted a no-book withdrawal Being duly supported by substantial evidence, We sustain said finding. Fitness for continued
by his failure to present his passbook to the PNB Ligao, Albay Branch on June 30, 1995. Section employment cannot be compartmentalized into tight little cubicles of aspects of character, conduct,
1216 of the Manual of Regulations for Banks and Other Financial Intermediaries state that and ability separate and independent of each other. A service of irregularities, when combined,
[b]anks are prohibited from issuing/accepting withdrawal authority slips or any other similar may constitute serious misconduct which is a just cause for dismissal.
instruments designed to effect withdrawals of savings deposits without following the usual practice Same; Same; When he violated bank rules and regulations and tried to cover up his
of requiring the depositors concerned to present their passbooks and accomplishing the necessary infractions by falsifying his passbook, he was not only committing them as a depositor but also, or
withdrawal slips. Further, he failed to present any letter of introduction as mandated under rather more so, as an officer of the bank. It is akin to falsification of time cards, and circulation of
General Circular 3-72-92 which requires that [b]efore going out-of-town, the Depositor secures a fake meal tickets, which this Court held as a just cause for terminating the services of an
Letter of Introduction from the branch/office where his Peso Savings Account is maintained. 514 employee.On one hand, he failed to present his passbook and a letter of introduction when he
5 SUPREME COURT REPORTS ANNOTATED withdrew US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious misconduct
was aggravated when he presented a falsified passbook to make it appear that he did not commit
14 any misdeed. On the other hand, he worked for PNB for eighteen (18) long years, his last position
Philippine National Bank vs. Velasco having been as Manager 1 of the IAD. As such, he was involved in the examination of the books of
Same; A strict reading of General Circular 3-72-92 would lead one to conclude that only account of PNB. Thus, when he violated bank rules and regulations and tried to cover up his
person with peso savings account are required to secure a letter of introduction. However, simple infractions by falsifying his passbook, he was not only committing them as a depositor but also, or
logic dictates that those maintaining dollar savings account are also included.True, a strict rather more so, as an officer of the bank. It is akin to falsification of time cards, and circulation of
reading of General Circular 3-72-92 would lead one to conclude that only persons with peso savings fake meal tickets, which this Court held as a just cause for terminating the services of an
account are required to secure a letter of introduction. However, simple logic dictates that those employee.
maintaining dollar savings account are also included. No cogent reason would be served by the rule Same; Managerial Employees; Managerial employees like Velasco are tasked to perform key
if only persons with peso savings account are required to get a letter of introduction. Otherwise, and senstitive functions and are bound by more exacting work ethics. Indeed, not even his eighteen
there can be a circumvention of the rule. Nemo potest facere per alium qud non potest facere per (18) years of service could exonerate him.C. Velasco has become unfit to continue working at
directum. No one is allowed to do indirectly what he is prohibited to do directly. Sinuman ay PNB. His acts render him unfit to remain in the employ of the bank. That it is his first offense is of
hindi pinapayagang gawin nang hindi tuwiran ang ipinagbabawal gawin nang tuwiran. no516
Same; The banking system is an indispensable institution in the modern world. It plays a 5 SUPREME COURT REPORTS ANNOTATED
vital role in the economic life of every civilized nation.As an audit officer, Velasco should be the
16
first to ensure that banking laws, policies, rules and regulations, are strictly observed and applied
by its officers in the day-to-day transactions. The banking system is an indispensable institution in Philippine National Bank vs. Velasco
the modern world. It plays a vital role in the economic life of every civilized nation. Whether banks moment because he holds a managerial position. Employers are allowed wide latitude of
act as mere passive entities for the safekeeping and saving of money, or as active instruments of discretion in terminating managerial employees who, by virtue of their position, require full trust
business and commerce, they have become an ubiquitous presence among the citizenry, who have and confidence in the performance of their duties. Managerial employees like Velasco are tasked to
come to regard them with respect and even gratitude and, most of all, confidence. perform key and sensitive functions and are bound by more exacting work ethics. Indeed, not even
Evidence; Alibi; The claim of Velasco that his initial answer was made under pressing his eighteen (18) years of service could exonerate him. As this Court held in Equitable PCIBank v.
circumstances is too flimsy an excuse. It partakes of the nature of an alibi.We find no cogent Caguioa, 466 SCRA 686 (2005): The leniency sought by respondent on the basis of her 35 years of
reason to depart from Our ruling in Perez. The claim of Velasco that his initial answer was made service to the bank must be weighed in conjunction with the other considerations raised by
under pressing circumstances is too flimsy an excuse. It partakes of the nature of an alibi. As such, petitioners. As that service has been amply compensated, her plea for leniency cannot offset her
it constitutes a self-serving negative evidence which cannot he accorded greater evidentiary weight dishonesty. Even government employees who are validly dismissed from the service by reason of
than the declaration of credible witnesses who testified on affirmative matters. The Court has timely discovered offenses are deprived of retirement benefits. Treating respondent in the same
consistently frowned upon the defense of alibi, and received it with caution, not only because it is manner as the loyal and code-abiding employees, despite the timely discovery of her Code
inherently weak and unreliable but also because it can be easily fabricated. 515 violations, may indeed have a demoralizing effect on the entire bank. Be it remembered that banks
VOL. 564, SEPTEMBER 11, 2008 5 thrive on and endeavor to retain public trust and confidence, every violation of which must thus be
accompanied by appropriate sanctions.
15 Same; Philippine National Bank; Philippine National Bank (PNB) was registered under the
Philippine National Bank vs. Velasco Corporation Code under SEC Reg. No. ASO 96-005555 dated May 27, 1996. Thus, on that day,
Labor Law; Termination of Employment; Fitness for continued employment cannot be employees of Philippine National Bank (PNB) came under the jurisdiction of the Labor Code.PNB
compartmentalized into tight little cubicles of aspects of character, conduct, and ability separate was registered under the Corporation Code under SEC Reg. No. ASO 96-005555 dated May 27,
1996. Thus, on that day, employees of PNB came under the jurisdiction of the Labor Code, whose dismissal and damages of Ramon Brigido L. Velasco against Philippine National Bank
Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules state: Section 8. Preventive (PNB).
Suspension.The employer may place the worker concerned under preventive suspension if his
continued employment poses a serious and imminent threat to the life or property of the employer The Facts
or his co-workers. Section 9. No preventive suspension shall last longer than thirty (30) days. The
employer shall thereafter reinstate the worker in his former or in a substantially equivalent
position or the employer may extend the period of suspension provided that during the period of Ramon Brigido L. Velasco, a PNB audit officer, and his wife, Belen Amparo E.
extension, he pays the wages and other benefits due to the worker. In such case, the worker shall Velasco, maintained Dollar Savings Account No. 010-714698-95 at PNB Escolta Branch.
not be bound to reimburse the amount paid to him during the extension if the employer decides, On June 30, 1995, while on official business at the Legazpi Branch, he went to the PNB
after completion of the hearing, to dismiss the worker.517 Ligao, Albay Branch and withdrew US$15,000.00 from the dollar savings account. At
VOL. 564, SEPTEMBER 11, 2008 5 that time, the account had a balance of US$15,486.07. The Ligao Branch is an off-line
17 branch, i.e., one with no network connection or computer linkage with other PNB
branches and the head office. The transaction was evidenced by an Interoffice Sav-
Philippine National Bank vs. Velasco _______________
Same; Termination of Employment; He is not entitled to separation and backwages because he
was not illegally dismissed.He is not entitled to separation and backwages because he was not 1 Rollo, pp. 78-89; Annex A. CA-G.R. No. 61881. Penned by Associate Justice Danilo P. Pine, with
illegally dismissed. We note though that PNB was not at all insensitive to his plight, considering Associate Justices Martin S. Villarama, Jr. and Arcangelita Romilla-Lontok, concurring.
(1) his restitution of the amount akin to no actual loss to the bank, and (2) his length of service of 2 Id., at pp. 90-91; Annex B.
eighteen (18) years. As stated earlier, PNB imposed on Velasco the penalty of forced resignation 3 Id., at pp. 108-114; Annex D. NLRC CA No. 020663-99. Penned by Commissioner Ireneo B. Bernardo,
with benefits, instead of dismissal. The records bear out that he was granted P542,110.75 as with Commissioners Lourdes C. Javier and Tito F. Genilo, concurring.
4 Id., at pp. 93-106; Annex C. NLRC NRC Case No. 00-12-08987-97.
separation benefits which was used to offset his loan in the bank, leaving an outstanding balance of
5 Annex F.
P167,625.82 as of May 27, 1997. We find that PNB acted humanely under the circumstances. 519
Same; Same; The difference between the position of the employer and the employee, simply
considering the latter as economically weaker, is not a justification for the violation of the rights of
VOL. 564, SEPTEMBER 11, 2008 519
the former.The law imposes great burdens on the employer. One needs only to look at the varied Philippine National Bank vs. Velasco
provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working man. The ings Account Withdrawal Slip, also known as the Ticket Exchange Center (TEC).6
Labor Code is titled that way and not as Employer Code. As one American ruling puts it, the On July 10, 1995, PNB Escolta Branch received the TEC covering the withdrawal. It
protection of labor is the highest office of our laws. Corollary to this, however, is the right of the
was included among the proofsheet entries of Cashier IV Ruben Francisco, Jr. The
employer to expect from the employee no less than adequate work, diligence and good conduct. As
withdrawal was not, however, posted in the computer of the Escolta Branch when it
Mr. Justice Joseph McKenna of the United States Supreme Court said in Arizona Copper Co. v.
Hammer, 250 US 400 (1919), [t]he difference between the position of the employer and the received said advice. This means that the withdrawal was not recorded. Thus, the
employee, simply considering the latter as economically weaker, is not a justification for the account of Velasco had an overstatement of US$15,000.00.
violation of the rights of the former. Sometime in September 1995, while Velasco was on a provincial audit, he claimed
PETITION for review on certiorari of the decision and resolution of the Court of Appeals. calling through phone a kin in Manila who just arrived from abroad. This kin allegedly
The facts are stated in the opinion of the Court. told him that his New York-based brother, Gregorio Velasco, sent him various checks
The Legal Counsel for petitioner. through his kin totaling US$15,000.00 and that the checks would just be deposited in
Cruz Law Firm for respondent. time in Velascos account.
518 On October 6, 1995, Velasco updated his dollar savings account by depositing
518 SUPREME COURT REPORTS ANNOTATED US$12.78, reflecting a balance of US$15,486.01. He was allegedly satisfied with the
Philippine National Bank vs. Velasco updated balance, as he thought that the US$15,000.00 in his account was the amount
given by his brother.
REYES, R.T., J.:
On different dates, Velasco made several inter-branch withdrawals from the dollar
THIS is a tale of a bank officer-depositor clinging to his position after violating bank
savings account, to wit:
regulations and falsifying his passbook to cover up a false transaction.
Before the Court is a petition for review on certiorariunder Rule 45 of the 1997 Rules PNB Branch Date Amount
of Civil Procedure seeking the reversal of the Decision 1 and Resolution2 of the Court of PNB Legaspi November 7, 1995 US$2,000.00
Appeals (CA). The appealed decision reversed those of the National Labor Relations PNB Legaspi November 13, 1995 3,329.97
Commission (NLRC)3 and the Labor Arbiter4 which dismissed the complaint for illegal Cash Dept. November 23, 1995 4,000.00
Total US$9,329.97 On February 27, 1996, PNB Ligao, Albay Branch division chief III, Rexor Quiambao,
Mrs. Belen Velasco also withdrew several amounts on the dollar account, viz.: financial specialist II, Emma Gacer, and division chief II, Renato M. Letada, confirmed
_______________ the no-book withdrawal.10
On March 5, 1996, PNB formally charged Velasco with Dishonesty, Grave
6 Annex G. Misconduct, and/or Conduct Grossly Prejudicial to the Best Interest of the Service for the
520 irregular handling of Dollar Savings Account No. 010-714698-9.11 The administrative
520 SUPREME COURT REPORTS ANNOTATED charge alleged that: (1) he transacted a no-book withdrawal against his Dollar Savings
Philippine National Bank vs. Velasco Account No. 010-714698-9 at PNB Ligao, Albay Branch in violation of Section 1216 of the
Manual of Regulations for Banks; (2) in transacting the no-book withdrawal, he failed to
PNB Branch Date Amount
present any letter of introduction as required under General Circular 3-72/92; (3) the
PNB CEPZ December 6, 1995 US$11,494.00 irregular inter-branch withdrawal was aggravated by the failure of Escolta Branch to
PNB Frisco January 2, 1996 1,292.32 post/enter the withdrawal into the computer upon receipt of the TEC advice, resulting in
Total US$12,786.32 the overstatement of the account balance by US$15,000.00; and (4) since he was
Subsequently, the dollar savings account of the spouses was closed. presumed to be fully aware that neither the deposit nor withdrawal of the US$15,000.00
On February 6, 1996, in the course of conducting an audit at PNB Escolta Branch, was reflected on the passbook, he was able to appropriate the amount for his personal
Molina D. Salvador, a member of the Internal Audit Department (IAD) of PNB, benefit, free of interest, to the damage and prejudice of PNB. 12
discovered that the inter-branch withdrawal made on June 30, 1995 by Velasco at PNB _______________
Ligao, Albay Branch in the amount of US$15,000.00 was not posted; and that no deposit
9 Annex I.
of said amount had been credited to the dollar savings account. 10 CA Rollo, pp. 186-188; Annex M.
On February 7, 1996, Velasco was notified of the glitch when he reported at the IAD. 11 Annex J.
He said it was only in the evening that he was able to verify from his kin that the latter 12 Rollo, pp. 123-125.
was not able to deposit in his account the US$15,000.00.7 522
The following day, or on February 8, 1996, Velasco went to Dolorita Donado, assistant 522 SUPREME COURT REPORTS ANNOTATED
vice president of the Internal Audit Department and team leader of the Escolta Task Philippine National Bank vs. Velasco
Force, and delivered three (3) checks in the amount of US$5,000.00 each or a total of On April 8, 1996, PNB withheld his rice and sugar subsidy, dental/optical/outpatient
US$15,000.00. However, Donato returned the checks to Velasco and instructed him that medical benefits, consolidated medical benefits, commutation of hospitalization benefits,
he should personally deposit the checks. clothing allowance, longevity pay, anniversary bonus, Christmas bonus and cash gift,
On February 14, 1996, he deposited the checks and the amount was consequently performance incentive award, and mid-year financial assistance.13 On April 10, 1996, he
applied to his unposted withdrawal of US$15,000.00. was placed under preventive suspension for a period of ninety (90) days. 14
Meanwhile, on February 9, 1996, PNB vice president, B.C. Hermoso, On May 2, 1996, Velasco submitted his sworn Answer 15to the administrative charge
required8 Velasco to submit a written explanation concerning the incident. against him. Unlike his previous answer, he here claimed that his withdrawal on June
_______________
30, 1995 was with passbook. As proof, he attached a copy of his passbook 16 bearing the
7 Id., at p. 121.
withdrawal entry of US$15,000.00 on June 30, 1995. Explaining the inconsistency with
8 Annex H. his sworn letter-explanation on February 12, 1996, he said his initial answer was made
521 under pressing circumstances. He was unable to find his passbook which was then kept
VOL. 564, SEPTEMBER 11, 2008 521 by his wife who could not be contacted at that moment.
Philippine National Bank vs. Velasco On October 2, 1996, the Administrative Adjudication Office (AAO) of PNB composed
of Fernando R. Mangubat, Jr., Wilfredo S. Verzosa, Celso D. Benologa, and Jesse L.
On February 12, 1996, he submitted his sworn letter-explanation.9 He described the
Figueroa exonerated Velasco of the charges of dishonesty and conduct prejudicial to the
inter-branch withdrawal at PNB Ligao, Albay Branch on June 30, 1995 as no-book, i.e.,
best interest of service. However, he was found guilty of grave misconduct, mitigated by
without the corresponding presentation to the bank teller of the savings passbook. He
length of service and absence of actual loss to PNB. Thus, he was meted the penalty
stated, among others, that his withdrawal was accommodated as the statement of
of forced resignation with benefits.17
account showed a balance of US$15,486.01, and that he is personally known to the
officers and staff, being a former colleague at the PNB Ligao, Albay Branch.
On October 31, 1996, Velasco was formally notified of the findings of the AAO after its early as October 6, 1995, when he updated his passbook, Velasco should have known that
approval by the management. As of that time, he had been employed with PNB for (1) his brothers checks in the amount of US$15,000.00 have not been deposited in his
eighteen (18) years, holding the position of Manager 1 of the IAD. He dollar savings account and (2) he appears to have been improperly credited with
_______________ US$15,000.00.21
Moreover, the Labor Arbiter held that the entry in the passbook purportedly
13 CA Rollo, p. 121; Annex G.
reflecting the withdrawal of US$15,000.00 is a forgery. It was done to conform to the
14 Annex K.
15 Annex L. defense of Velasco that he presented his passbook on June 30, 1995.22
16 Rollo, p. 117. On the charge of illegal suspension, the Labor Arbiter held that the preventive
17 Annex M. suspension of Velasco was reasonable in view of the sensitive nature of his position. It
523
was also necessary to protect the records of PNB. 23 It follows that the withholding of his
VOL. 564, SEPTEMBER 11, 2008 523 company benefits is reasonable.24 Nonetheless, he should be paid his salary from May 12,
Philippine National Bank vs. Velasco 1996 up to October 31, 1996.25
was earning P14,932.00 per month plus a monthly allowance of P3,940.00 or a total His claim for damages and attorneys fees must be denied because PNB did not
salary of P18,872.00 per month. violate his rights.26
On December 22, 1997, he filed a Complaint18 against PNB for illegal suspension, Dissatisfied with the decision of the Labor Arbiter, both Velasco 27 and PNB28 appealed
illegal dismissal, and damages before the NLRC. to the NLRC.
On July 31, 2000, the NLRC affirmed with modification the Labor Arbiter decision,
Labor Arbiter, NLRC, and CA Dispositions disposing, thus:
_______________
On July 9, 1999, Labor Arbiter Pablo C. Espiritu gave judgment, the dispositive
21 Id., at pp. 101-102.
portion of which reads: 22 Id., at pp. 104-105.
WHEREFORE, judgment is hereby rendered as follows: 23 Id., at p. 105.
1. Dismissing the complaint for illegal dismissal against respondents for want of merit. 24 Id.
2. Ordering PNB to pay complainant unpaid wages for the period May 12, 1996 to October 31, 25 Id.
1996 in the amount of P103,796.00. 26 Id., at pp. 105-106.
3. Dismissing complainants claims for damages and other monetary claims for lack of merit. 27 Annex T.
SO ORDERED. 19
28 Annex U.
525
In his ruling, the Labor Arbiter opined that as an employee and officer of PNB for
eighteen (18) years, Velasco is expected to know bank procedures, including the expected VOL. 564, SEPTEMBER 11, 2008 525
entries in a savings passbook. Even if it should be assumed that he presented his Philippine National Bank vs. Velasco
passbook when he withdrew US$15,000.00 at the PNB Ligao Branch on June 30, 1995, WHEREFORE, the decision appealed from is hereby MODIFIED to the extent that the award
he should have known that there was something wrong with the amounts credited to his of unpaid salaries is hereby REDUCED to the complainants salaries from May 27, 1996 to July 31,
account when he made an update on October 6, 1995. Being an audit officer, and fully 1996. Other dispositions in the appealed decision stands (sic) affirmed.
29

aware of his withdrawal of US$15,000.00, he should have made inquiries on the In sustaining the Labor Arbiter, the NLRC held that Velascos lack of knowledge of
inconsistency of the entries in his passbook.20 the non-posting of his withdrawal is not credible. Even a cursory look at his passbook
_______________ shows that no deposit of US$15,000.00 was ever made. That there was still a balance of
more than US$15,000.00 in his account after the withdrawal he made on June 30, 1995
18 Annex O. could only mean that the withdrawal was never posted. Worse, based also on the entries
19 Rollo, p. 106. in his passbook, it is clear that the withdrawal on June 30, 1995 was a no-book
20 Id., at p. 101.
524
transaction. The withdrawal of US$15,000.00 was not taken into consideration in the
determination of the balance of June 30, 1995 and the succeeding dates. Thus, it is clear
524 SUPREME COURT REPORTS ANNOTATED
that the entry in question was falsified. It was made merely to bolster his subsequent
Philippine National Bank vs. Velasco claim that he presented his passbook when he withdrew on June 30, 1995. 30
The Labor Arbiter also found as flimsy the argument that the additional The NLRC concluded that the falsification of the passbook shows deceit on the part of
US$15,000.00 was the amount given to Velasco by his brother from the United States. As Velasco. He took advantage of his position. The posting of the falsified entry could not
have been made without, or was at least facilitated by, his being an employee of the PNB has filed the instant petition for review on certiorari, putting forth the following
bank. Thus, his subsequent withdrawals amounted to losses on the part of the bank. He issues for Our resolution, viz.:
made those withdrawals from his account with full knowledge that the balance of his I. WHETHER OR NOT THE COURT OF APPEALS ERREDAND GRAVELY ABUSED ITS
passbook of more than US$15,000.00 was attributed to the non-posting of the June 30, DISCRETION IN FINDING THAT RESPONDENT HAS BEEN ILLEGALLY DISMISSED BY
1995 withdrawal.31 THE PETITIONERS.
II. WHETHER OR NOT THE COURT OF APPEALS ERREDAND GRAVELY ABUSED ITS
The NLRC also held that he had been preventively suspended for more than thirty
DISCRETION IN DIRECTING PNB TO PAY RESPONDENT SEPARATION PAY AND
(30) days as of May 27, 1996. Since he was paid his salaries from August 1, 1996 to
BACKWAGES. (Underscoring supplied)
38

October We add a third issue which was raised by PNB before the CA but was, however, left
_______________
unresolved: whether Velasco took the correct recourse when he elevated the decision of
29 Rollo, p. 114. the NLRC to the CA by way of petition for review on certiorari under Rule 43.
30 Id., at pp. 112-113.
31 Id., at p. 113. Our Ruling
526
526 SUPREME COURT REPORTS ANNOTATED I. Appeal does not lie from the decision of the NLRC.
Philippine National Bank vs. Velasco We first address the procedural question on the propriety of the Rule 43 petition. Rule
31, 1996, he may recover only his salary from May 27, 1996 to July 31, 1996. 32 43 provides for appeal from quasi-judicial agencies to the CA by way of petition for
Like the Labor Arbiter, the NLRC held that Velasco may not recover damages. His review. Petition for review on certiorari or appeal by certiorari is a recourse to the
dismissal was not done oppressively or in bad faith. Neither was he subjected to Supreme Court under Rule 45.
unnecessary embarrassment or humiliation.33 The mode of appeal resorted to by Velasco is wrong because appeal is not the proper
His motion for reconsideration having been denied, Velasco elevated the matter to the remedy in elevating to the CA the decision of the NLRC. Section 2, Rule 43 of the 1997
CA by way of petition for review on certiorari under Rule 43 of the Rules of Court.34On Rules of Civil Procedure is explicit that Rule 43 shall not apply to judgments or final
April 22, 2004, the CA rendered the assailed decision, the fallo stating, thus: orders issued under the Labor Code of the Philippines.
WHEREFORE, for the foregoing discussions, We REVERSEand SET ASIDE the findings of _______________
public respondent NLRC and Labor Arbiter and hereby enter a decision ordering PNB to pay
petitioner a separation pay equivalent to half-month salary for every year of service, plus 38 Id., at p. 413.
backwages from the time of his illegal termination up to the finality of this decision. 528
SO ORDERED. 35 528 SUPREME COURT REPORTS ANNOTATED
According to the CA, the failure of Velasco to present his passbook and a letter of Philippine National Bank vs. Velasco
introduction does not constitute misconduct. Assuming for the sake of argument that he The correct remedy that should have been availed of is the special civil action
committed a serious misconduct in not properly monitoring his account with ordinary of certiorari under Rule 65. As this Court held in the case of Pure Foods Corporation v.
diligence and prudence, the same may be said of PNB when it failed to make the NLRC,39 the party may also seasonably avail of the special civil action for certiorari,
necessary posting of his withdrawal.36 Lastly, the alleged offense of Velasco is not work- where the tribunal, board or officer exercising judicial functions has acted without or in
related to constitute just cause for his dismissal.37 excess of its jurisdiction, or with grave abuse of discretion, and praying that judgment be
_______________
rendered annulling or modifying the proceedings, as the law requires, of such tribunal,
32 Id.
board or officer.40 In any case, St. Martin Funeral Home v. National Labor Relations
33 Id., at p. 114. Commission41settled any doubt as to the manner of elevating decisions of the NLRC to
34 Annex W. the CA by holding that the legislative intendment was that the special civil action
35 Rollo, pp. 88-89. of certiorariwas and still is the proper vehicle for judicial review of decisions of the
36 Id., at pp. 85-86.
37 Id., at p. 86.
NLRC.42
527 That the decision of the NLRC is not subject to appeal could have been a ground for
VOL. 564, SEPTEMBER 11, 2008 527 the CA to dismiss the appeal of Velasco.43 But even assuming, arguendo, that his petition
could be liberally treated as one for certiorariunder Rule 65, the recourse should not have
Philippine National Bank vs. Velasco
prospered.
Issues II. Velasco committed serious misconduct, hence, his dismissal is justified.
_______________ order for misconduct to be serious, it must be of such grave and aggravated character
and not merely trivial or unimportant.50 As amplified by jurisprudence, the misconduct
39 G.R. No. 78591, March 21, 1989, 171 SCRA 415.
must (1) be serious; (2) relate to the performance of the employees duties; and (3) show
40 Id., at p. 424.
41 G.R. No. 130866, September 16, 1998, 295 SCRA 494. that the employee has become unfit to continue working for the employer.51
42 St. Martin Funeral Home v. National Labor Relations Commission,id., at p. 507. Measured by the foregoing yardstick, We rule that Velasco committed serious
43 Rules of Civil Procedure (1997), Sec. 1. Grounds for dismissal of appeal.An appeal may be dismissed misconduct that warrants termination from employment.
by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:
A. The misconduct is serious. Velasco violated bank rules when he transacted a
xxxx
(i) The fact that the order or judgment appealed from is not appealable. no-book withdrawal by his failure to present his passbook to the PNB Ligao, Albay
529 Branch on June 30, 1995. Section 1216 of the Manual of Regulations for Banks and
VOL. 564, SEPTEMBER 11, 2008 529 Other Financial Intermediaries state that [b]anks are prohibited from issuing/accepting
withdrawal authority slips or any other similar instruments designed to effect
Philippine National Bank vs. Velasco
withdrawals of savings deposits without following the usual practice of requiring the
Article 282 of the Labor Code enumerates the just causes where an employer may
depositors concerned to present their passbooks and accomplishing the necessary
terminate the services of an employee,44 to wit:
withdrawal slips.
a) Serious misconduct or willful disobedience by the employee of the lawful orders of _______________
his employer or representative in connection with his work;
b) Gross and habitual neglect by the employee of his duties; 48 Camus v. Civil Service Board of Appeals, id., at p. 306; p. 375.
c) Fraud or willful breach by the employee of the trust reposed in him by his 49 Id., citing In re Morilleno, 43 Phil. 212, 214 (1922).
employer or duly authorized representative; 50 Austria v. National Labor Relations Commissions, supra note 47.
51 Philippine Aeolus Automotive United Corporation v. National Labor Relations Commission, G.R. No.
d) Commission of a crime or offense by the employee against the person of his 124617, April 28, 2000, 331 SCRA 237, 246; Molato v. National Labor Relations Commission, G.R. No. 113085,
employer or any immediate member of his family or his duly authorized representative; January 2, 1997, 266 SCRA 42, 46; Aris Philippines, Inc. v. National Labor Relations Commission, G.R. No.
and 97817, November 10, 1994, 238 SCRA 59, 62.
e) Other causes analogous to the foregoing. 531
In Austria v. National Labor Relations Commission,45the Court defined misconduct as VOL. 564, SEPTEMBER 11, 2008 531
improper and wrongful conduct. It is the transgression of some established and definite Philippine National Bank vs. Velasco
rule of action, a forbidden act, a dereliction of duty, willful in character, and implies Further, he failed to present any letter of introduction as mandated under General
wrongful intent and not mere error in judgment.46 In Camus v. Civil Service Board of Circular 3-72-92 which requires that [b]efore going out-of-town, the Depositor secures a
Appeals,47 miscon- Letter of Introduction from the branch/office where his Peso Savings Account is
_______________
maintained.
The presentation of passbook and letter of introduction is not without a valid reason.
44 As contradistinguished with Article 285 of the Labor Code, which enumerates the instances when an
employee may terminate his employment relation with the employer, to wit: (1) Serious insult by the employer As aptly stated by the IAD of PNB:
or his representative on the honor and person of the employee; (2) Inhuman and unbearable treatment accorded Considering that the PNB Ligao, Albay Branch is an offline branch, it is a must that an LOI
the employee by the employer or his representative; (3) Commission of a crime or offense by the employer or his and the passbook be presented by the depositor before any withdrawal is allowed. This procedure is
representative against the person of the employee or any of the immediate members of his family; and (4) Other required in order for the negotiating branch to determine or ascertain the available balance and
causes analogous to any of the foregoing. the specimen signature of the withdrawing party. Moreover, the maintaining branch upon issuance
45 G.R. No. 124382, August 16, 1999, 312 SCRA 410. of the LOI shall place a hold on the account in the computer as an internal control procedure. 52

46 Austria v. National Labor Relations Commission, id., at p. 429, citing Cosep v. National Labor Relations
Commission, G.R. No. 124966, June 16, 1998, 290 SCRA 704.
True, a strict reading of General Circular 3-72-92 would lead one to conclude that
47 112 Phil. 301; 2 SCRA 370 (1961). only persons with peso savings account are required to secure a letter of introduction.
530 However, simple logic dictates that those maintaining dollar savings account are also
530 SUPREME COURT REPORTS ANNOTATED included. No cogent reason would be served by the rule if only persons with peso savings
Philippine National Bank vs. Velasco account are required to get a letter of introduction. Otherwise, there can be a
circumvention of the rule. Nemo potest facere per alium qud non potest facere per
duct was described as wrong or improper conduct.48 It implies a wrongful intention and
directum. No one is allowed to do indirectly what he is prohibited to do
not a mere error of judgment.49
directly. Sinuman ay hindi pinapayagang gawin nang hindi tuwiran ang
Of course, ordinary misconduct would not justify the termination of the services of an
ipinagbabawal gawin nang tuwiran.
employee. The law is explicit that the misconduct should be serious. It is settled that in
As an audit officer, Velasco should be the first to ensure that banking laws, policies, is not estopped from charging its other employees who might as well have been remiss
rules and regulations, are strictly observed and applied by its officers in the day-to-day with their job.
transactions. The banking system is an indispensable institution in the modern world. It Of course, We are not unaware that Velasco had a change of heart. In his sworn
plays a vital role in the economic life of Letter-Explanation February 12, 1996, he admitted that his June 30, 1995 withdrawal of
_______________ US$15,000.00 was a no-book transaction. However, in his sworn Answer dated April
30, 1996, he claimed that he actually presented his passbook when he withdrew on June
52 CA Rollo, p. 99.
30, 1995.
532
To recall, he was charged with dishonesty, grave misconduct, and/or conduct grossly
532 SUPREME COURT REPORTS ANNOTATED prejudicial to the best interest of the service for irregularly handling his dollar savings
Philippine National Bank vs. Velasco account. Thus, it is safe to assume that when he prepared his February 12, 1996 sworn
every civilized nation. Whether banks act as mere passive entities for the safekeeping Letter-Explanation, the circumstances surrounding his June 30, 1995 withdrawal at
and saving of money, or as active instruments of business and commerce, they have PNB Ligao, Albay Branch were still fresh on his mind. The allegations against him were
become an ubiquitous presence among the citizenry, who have come to regard them with serious, which should have put him on guard from preparing a haphazard explanation.
respect and even gratitude and, most of all, confidence.53 He should have been mindful that dire consequences would surely befall him should the
The CA, however, opined that the failure of Velasco to abide by the rules is not charges against him be proven. Lest it be forgotten, the no-book withdrawal was
serious misconduct because (1) from the admission of PNB itself, allowing bank confirmed by the concerned officers of PNB Ligao, Albay Branch, namely, Quiambao,
personnel who are out-of-town to make a no-book transaction without a letter of Gacer, and Letada. These circumstances, taken together, lead to no other conclusion than
introduction is considered a common practice, and (2) the approving officers of PNB that Velasco changed his explanation from no-book to with book transaction after
Ligao Branch should have also been administratively charged considering that the no- realizing that he violated bank rules and regulations.
book transaction could not have pushed through without their approval. 54 Perez v. People,59 is illustrative on this score. Perez, an acting municipal treasurer,
In Santos v. San Miguel Corporation,55 petitioner, in his defense, cited the prolonged submitted two contradicting answers explaining the location of the missing funds under
practice of payroll personnel, including persons in managerial levels, of encashing his custody
personal checks. Finding this argument unmeritorious, the Court held that [p]rolonged _______________
practice of encashing personal checks among respondents payroll personnel does not
excuse or justify petitioners misdeeds. Her willful and deliberate acts were in gross 58 See Soriano v. National Labor Relations Commission, G.R. No. L-75510, October 27, 1987, 155 SCRA
124.
violation of respondents policy against encashment of personal checks of its personnel, 59 G.R. No. 164763, February 12, 2008, 544 SCRA 532.
embodied in its Cash Department Memorandum dated September 6, 1989. 56 The Court 534
even added that petitioner cannot feign ignorance of such memorandum as she is duty- 534 SUPREME COURT REPORTS ANNOTATED
bound to keep abreast of company policies related to financial matters within the
Philippine National Bank vs. Velasco
corporation.57 We apply the same principle here.
_______________ and control: the first, reiterating his previous verbal admission before the audit team
that part of the money was used to pay for the loan of his late brother, another portion
53 Simex International (Manila), Inc. v. Court of Appeals, G.R. No. 88013, March 19, 1990, 183 SCRA 360, was spent for the food of his family, and the rest for his medicine; and the second,
366-367. claiming that the alleged missing amount was in the possession and custody of his
54 Rollo, pp. 84-85.
accountable personnel at the time of the audit examination.
55 G.R. No. 149416, March 14, 2003, 399 SCRA 172.
56 Santos v. San Miguel Corporation, id., at p. 183. This Court held that the sudden turnaround of Perez was merely an afterthought. He
57 Id.; see also San Miguel Corporation v. National Labor Relations Commission, G.R. No. L-50321, March only changed his story to exonerate himself, after realizing that his first Answer put
13, 1984, 128 SCRA 180. him in a hole, so to speak.60 Neither did the Court believe that his alleged sickness
533
affected the preparation of his first Answer. Perez presented no convincing evidence that
VOL. 564, SEPTEMBER 11, 2008 533 his disease at the time he formulated that Answer diminished his capacity to formulate a
Philippine National Bank vs. Velasco true, clear and coherent response to any query. In fact, its contents merely reiterated his
Suffice it to state that the option of who to charge or punish belongs to PNB. As an verbal explanation to the auditing team on January 5, 1989 on how he disposed of the
employer, PNB is given the latitude to determine who among its erring employees should missing funds.61
be punished, to what extent and what penalty to impose. 58 Too, by charging Velasco, PNB We find no cogent reason to depart from Our ruling in Perez. The claim of Velasco
that his initial answer was made under pressing circumstances is too flimsy an excuse. It
partakes of the nature of an alibi. As such, it constitutes a self-serving negative evidence exculpation. The deposit of the money from his brother should have been reflected in the
which cannot he accorded greater evidentiary weight than the declaration of credible on-line computer of PNB. The deposit would have also been posted for update upon the
witnesses who testified on affirmative matters.62 The Court has consistently frowned presentation of the passbook on October 6, 1995. No deposit of US$15,000.00 was,
upon the defense of alibi, and received it with caution, not only because it is inherently however, reflected in the passbook.
weak and unreliable but also because it can be easily fabricated.63 In Aboitiz Shipping Corporation v. Dela Serna,64 Tiu v. National Labor Relations
Also worth noting is that Velasco never imputed any ill motive on the part of Rexor, Commission,65 Five J Taxi v. National Labor Relations Commission,66 and Falguera v.
Gacer, and Letada who collectively Linsangan,67 among other cases, this Court consistently held that factual findings of
_______________ quasi-judicial agencies, which have acquired expertise in matters entrusted to their
jurisdiction, are accorded not only respect but also finality if they are supported by
60 Perez v. People, id., at p. 11; p. 551.
substantial evidence.68 Thus, in the absence of proof that the Labor Arbiter or the NLRC
61 Id., at p. 13; p. 553.
62 People v. Estomaca, G.R. Nos. 134288-89, January 15, 2002, 373 SCRA 197. had gravely abused their discretion, this Court shall deem conclusive and will not
63 People v. Villamor, G.R. Nos. 140407-08 & 141908-09, January 15, 2002, 373 SCRA 254. overturn their particular factual findings.69
535 _______________
VOL. 564, SEPTEMBER 11, 2008 535
64 G.R. No. 88538, July 25, 1991, 199 SCRA 568.
Philippine National Bank vs. Velasco 65 G.R. No. 83433, November 12, 1992, 215 SCRA 540.
narrated that the June 30, 1995 withdrawal was a no-book transaction. They confirmed 66 G.R. No. 111474, August 22, 1994, August 22, 1994, 235 SCRA 556.
his earlier version that he did not present his passbook when he withdrew the 67 G.R. No. 114848, December 14, 1995, 251 SCRA 364.
68 See also German Marine Agencies, Inc. v. National Labor Relations Commission, G.R. No. 142049,
US$15,000.00 on June 30, 1995. In any case, the fact that he changed his stance puts his January 30, 2001, 350 SCRA 629, 646, citing Travelaire & Tours Corporation v. National Labor Relations
credibility in doubt. Was he lying when he submitted his sworn letter-explanation of Commission, G.R. No. 131523, August 20, 1998, 294 SCRA 505; Suarez v. National Labor Relations
February 12, 1996, or when he submitted his sworn Answer dated April 30, Commission, G.R. No. 124723, July 31, 1998, 293 SCRA 496; Autobus Workers Union v. National Labor
1996? Allegans contraria non est audiendus. He is not to be heard who alleges things Relations Commission, G.R. No. 117453, June 26, 1998, 291 SCRA 219; Prangan v. National Labor Relations
Commission, G.R. No. 126529, April 15, 1998, 289 SCRA 142; International Pharmaceuticals, Inc. v. National
contradictory to each other. Hindi dapat pakinggan ang nagsasabi ng mga bagay Labor Relations Commission, G.R. No. 106331, March 9, 1998, 287 SCRA 213; Villa v. National Labor Relations
na salungat sa isat-isa. Commission, G.R. No. 117043, January 14, 1998, 284 SCRA 105.
Velasco did not only violate bank rules and regulations. What compounds his offense 69 Id., at p. 647, citing Gandara Mill Supply v. National Labor Relations Commission, G.R. No. 126703,
was his unusual silence. He never informed PNB about the huge overstatement of December 29, 1998, 300 SCRA 702; National Union of Workers in Hotels, Restaurants and
537
US$15,000.00 in his account. He updated his passbook on October 6, 1995 by depositing
US$12.78. Thus, as early as that date, he should have known that something was wrong VOL. 564, SEPTEMBER 11, 2008 537
with the credited balance in his passbook and reported it immediately to the concerned Philippine National Bank vs. Velasco
officers of PNB. What he did, instead, was to keep mum until PNB discovered the The Labor Arbiter and the NLRC are in unison that Velasco transacted a no-book
incident and notified him on February 7, 1996, or almost eight (8) months after his no- withdrawal and failed to present a letter of introduction at PNB Ligao, Albay Branch on
book withdrawal on June 30, 1995. June 30, 1995. He also forged his passbook to cover up his offense. Being duly supported
With his silence, he clearly intended to gain at the expense of PNB. The omission to by substantial evidence, We sustain said finding. Fitness for continued employment
report is not trivial or inconsequential because it gave him the opportunity to withdraw cannot be compartmentalized into tight little cubicles of aspects of character, conduct,
from his dollar savings account more than its real balance, as what he actually did. He and ability separate and independent of each other. A service of irregularities, when
took advantage of the overstatement of his account, instead of protecting the interest of combined, may constitute serious misconduct which is a just cause for dismissal. 70
the bank. It would be impossible for him not to detect the error at the time he deposited B. The serious misconduct relates to the performance of duties. The CA
US$12.78 on October 6, 1995, because his account had a big balance despite the fact that ruled that the offense of Velasco was not work-related and does not warrant dismissal. It
no large amount of money was deposited. likewise held that there is no proof that his failure to be a good depositor affected his
His claim that he was satisfied with the updated balance of US$15,486.01 on October 6, duties or performance as an employee of PNB.71
1995, as he thought that the US$15,000.00 in his account was the amount given by his At first glance, the acts committed by Velasco pertain only to his being a depositor of
brother, is simply unbelievable. It is a desperate attempt at536 PNB. But he has a dual personality. He was a depositor and, at the same time, an officer
536 SUPREME COURT REPORTS ANNOTATED of the bank.
Philippine National Bank vs. Velasco On one hand, he failed to present his passbook and a letter of introduction when he
withdrew US$15,000.00 at PNB Ligao, Albay Branch on June 30, 1995. This serious
misconduct was aggravated when he presented a falsified passbook to make it appear deprived of retirement benefits. Treating respondent in the same manner as the loyal and code-
that he did not commit any misdeed. On the other hand, he worked for PNB for eighteen abiding employees, despite the timely discovery of her Code violations, may indeed have a
(18) long years, his last position having been as Manager 1 of the IAD. As demoralizing effect on the entire bank. Be it remembered that banks thrive on and endeavor to
_______________ retain public trust and confidence, every violation of which must thus be accompanied by
appropriate sanctions. 77

Allied Industries v. National Labor Relations Commission, G.R. No. 125561, March 6, 1998, 287 SCRA 192. III. The CA erred in directing PNB to pay Velasco separation pay and
backwages. PNB has no other liability to Velasco, except his unpaid wages from
70 Piedad v. Lanao del Norte Electric Cooperative, Inc., G.R. No. 73735, August 31, 1987, 153 SCRA 500, May 27, 1996 to July 31, 1996.
509, citing National Service Corporation v. Leogardo, Jr., G.R. No. L-64296, July 20, 1984, 130 SCRA 502; see PNB was registered under the Corporation Code under SEC Reg. No. ASO 96-005555
also Gustilo v. Wyeth Philippines, Inc., G.R. No. 149629, October 4, 2004, 440 SCRA 67, 75.
71 Rollo, pp. 86-87. dated May 27, 1996.78 Thus, on that day, employees of PNB came under the jurisdiction of
538 the Labor Code, whose Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules
538 SUPREME COURT REPORTS ANNOTATED state:
Section 8. Preventive Suspension.The employer may place the worker concerned under
Philippine National Bank vs. Velasco preventive suspension if his continued employment poses a serious and imminent threat to the life
such, he was involved in the examination of the books of account of PNB. Thus, when he or property of the employer or his co-workers.
violated bank rules and regulations and tried to cover up his infractions by falsifying his Section 9. No preventive suspension shall last longer than thirty (30) days. The employer
passbook, he was not only committing them as a depositor but also, or rather more so, as shall thereafter reinstate the worker in his former or in a substantially equivalent position or the
an officer of the bank. It is akin to falsification of time cards, 72 and circulation of fake employer may extend the period of suspension provided that during the
_______________
meal tickets,73 which this Court held as a just cause for terminating the services of an
employee. 76 G.R. No. 159170, August 12, 2005, 466 SCRA 686.
C. Velasco has become unfit to continue working at PNB. Taken together, his 77 Equitable PCIBank v. Caguioa, id., at p. 698.
78 Rollo, p. 165.
acts render him unfit to remain in the employ of the bank. That it is his first offense is of 540
no moment because he holds a managerial position. Employers are allowed wide latitude
540 SUPREME COURT REPORTS ANNOTATED
of discretion in terminating managerial employees who, by virtue of their position,
require full trust and confidence in the performance of their duties. 74 Managerial Philippine National Bank vs. Velasco
employees like Velasco are tasked to perform key and sensitive functions and are bound period of extension, he pays the wages and other benefits due to the worker. In such case, the
worker shall not be bound to reimburse the amount paid to him during the extension if the
by more exacting work ethics.75 Indeed, not even his eighteen (18) years of service
_______________ employer decides, after completion of the hearing, to dismiss the worker.
PNB has the right to preventively suspend Velasco during the pendency of the
72 See San Miguel Corporation Employees Union v. Ferrer-Calleja, G.R. No. 80141, July 5, 1989, 175 SCRA administrative case against him. It was obviously done as a measure of self-protection. It
85. was necessary to secure the vital records of PNB which, in view of the position of Velasco
73 Ibarrientos v. National Labor Relations Commission, G.R. No. 75277, July 31, 1989, 175 SCRA 761. as internal auditor, are easily accessible to him.
74 Mendoza v. National Labor Relations Commission, G.R. No. 131405, July 20, 1999, 310 SCRA 846; see
also Etcuban, Jr. v. Sulpicio Lines, Inc., G.R. No. 148410, January 17, 2005, 448 SCRA 516; Tan v. National
Velasco was preventively suspended for more than thirty (30) days as of May 27,
Labor Relations Commission, G.R. No. 128290, November 24, 1998, 299 SCRA 169, 183; Filipro, Incorporated v. 1996, while the records bear that Velasco was paid his salaries from August 1, 1996 to
National Labor Relations Commission, G.R. No. L-70546, October 16, 1986, 145 SCRA 123; Lamsan Trading, October 31, 1996.79 Thus, the NLRC is correct in its holding that he may recover his
Inc. v. Leogardo, Jr., G.R. No. L-73245, September 30, 1986, 144 SCRA 571; Metro Drug Corporation v. salaries from May 27, 1996 to July 31, 1996.
National Labor Relations Commission, G.R. No. L-72248, July 22, 1986, 143 SCRA 132; San Miguel
Corporation v. National Labor Relations Commission, G.R. No. L-70177, June 25, 1986, 142 SCRA 376.
He is not entitled to separation and backwages because he was not illegally
75 Gonzales v. National Labor Relations Commission, G.R. No. 131653, March 26, 2001, 355 SCRA 195. dismissed.80 We note though that PNB was not at all insensitive to his plight, considering
539 (1) his restitution of the amount akin to no actual loss to the bank, and (2) his length of
VOL. 564, SEPTEMBER 11, 2008 539 service of eighteen (18) years.81 As stated earlier, PNB imposed on Velasco the penalty of
Philippine National Bank vs. Velasco forced resignation with benefits, instead of dismissal. The records bear out that he was
granted P542,110.75 as separation benefits82 which was used to offset his loan in the
could exonerate him. As this Court held in Equitable PCIBank v. Caguioa:76
The leniency sought by respondent on the basis of her 35 years of service to the bank must be bank, leaving an outstanding balance of P167,625.82 as of May 27, 1997. 83 We find that
weighed in conjunction with the other considerations raised by petitioners. As that service has PNB acted humanely under the circumstances.
been amply compensated, her plea for leniency cannot offset her dishonesty. Even government One last word.
employees who are validly dismissed from the service by reason of timely discovered offenses are _______________
79 Rollo, p. 258; Annex 1. Court of Appeals, District of Columbia Circuit, emphasized that while individual bank branches
80 See Labor Code, Art. 279; Philippine Carpet Employees Association v. Philippine Carpet Manufacturing may be treated as independent of one another, each branch, unless
Corporation, G.R. Nos. 140269-70, September 14, 2000, 340 SCRA 383. _______________
81 Rollo, p. 164. * THIRD DIVISION.
82 CA Rollo, p. 200. 192
83 Id., at p. 203. 1 SUPREME COURT REPORTS ANNOTATED
541
92
VOL. 564, SEPTEMBER 11, 2008 541 Philippine Deposit Insurance Corporation vs. Citibank, N.A.
separately incorporated, must be viewed as a part of the parent bank rather than as an
Philippine National Bank vs. Velasco independent entity.
The law imposes great burdens on the employer. One needs only to look at the varied Same; Same; Both Section 75 of R.A. No. 8791 and Section 5 of R.A. No. 7221 require the head
provisions of the Labor Code. Indeed, the law is tilted towards the plight of the working office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine
man. The Labor Code is titled that way and not as Employer Code. As one American branch.In addition, Philippine banking laws also support the conclusion that the head office of a
ruling puts it, the protection of labor is the highest office of our laws. 84 foreign bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The
Corollary to this, however, is the right of the employer to expect from the employee no General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of
less than adequate work, diligence and good conduct. 85 As Mr. Justice Joseph McKenna of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of
all the liabilities of its Philippine branch, to wit: Republic Act No. 8791: Sec. 75. Head Office
the United States Supreme Court said in Arizona Copper Co. v. Hammer,86 [t]he
Guarantee.In order to provide effective protection of the interests of the depositors and other
difference between the position of the employer and the employee, simply considering the
creditors of Philippine branches of a foreign bank, the head office of such branches shall fully
latter as economically weaker, is not a justification for the violation of the rights of the guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of
former.87 the Philippines who are creditors of a branch in the Philippines of foreign bank shall have
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED and preferential rights to the assets of such branch in accordance with the existing laws. Republic Act
SET ASIDE. The Decision of the National Labor Relations Commission is REINSTATED. No. 7721: Sec. 5. Head Office Guarantee.The head office of foreign bank branches shall
SO ORDERED. guarantee prompt payment of all liabilities of its Philippine branches.
12. G.R. No. 170290. April 11, 2012.* Same; Same; Philippine Deposit Insurance Corporation (PDIC); The purpose of the Philippine
Deposit Insurance Corporation (PDIC) is to protect the depositing public in the event of a bank
PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. CITIBANK, N.A.
closure.The purpose of the PDIC is to protect the depositing public in the event of a bank closure.
and BANK OF AMERICA, S.T. & N.A., respondents. It has already been sufficiently established by US jurisprudence and Philippine statutes that the
Mercantile Law; Banks and Banking; Where a bank maintains branches, each branch head office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of
becomes a separate business entity with separate books of account; Nevertheless, when considered Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the
with relation to the parent bank they are not independent agencies; they are, what their name deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the
imports, merely branches, and are subject to the supervision and control of the parent bank; head office and the branch are two separate entities and that the funds placed by the head office
Ultimate liability for a debt of a branch would rest upon the parent bank.For lack of judicial and its foreign branches with the Philippine branch are considered deposits within the meaning of
precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office,
case of Sokoloff v. The National City Bank of New York, 130 Misc. 66, 224 N.Y.S. 102, where the would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses
Supreme Court of New York held: Where a bank maintains branches, each branch becomes it may incur occasioned by the closure of Citibank Philippines. Surely
a separate business entity with separate books of account. A depositor in one branch cannot 193
issue checks or drafts upon another branch or demand payment from such other branch, and in VOL. 669, APRIL 11, 2012 193
many other respects the branches are considered separate corporate entities and as distinct from
one another as any other bank. Nevertheless, when considered with relation to the parent Philippine Deposit Insurance Corporation vs. Citibank, N.A.
bank they are not independent agencies; they are, what their name imports, merely our law makers could not have envisioned such a preposterous circumstance when they
branches, and are subject to the supervision and control of the parent bank, and are created PDIC.
instrumentalities whereby the parent bank carries on its business, and are established for its own Same; Same; The head office of a bank and its branches are considered as one under the eyes
particular purposes, and their business conduct and policies are controlled by the parent bank and of the law. While branches are treated as separate business units for commercial and financial
their property and assets belong to the parent bank, although nominally held in the names of the reporting purposes, in the end, the head office remains responsible and answerable for the liabilities
particular branches. Ultimate liability for a debt of a branch would rest upon the parent of its branches which are under its supervision and control.It is clear that the head office of a
bank. [Emphases supplied] This ruling was later reiterated in the more recent case of United bank and its branches are considered as one under the eyes of the law. While branches are treated
States v. BCCI Holdings Luxembourg, 48 F.3d 551, 554 (D.C.Cir.1995), where the United States as separate business units for commercial and financial reporting purposes, in the end, the head
office remains responsible and answerable for the liabilities of its branches which are under its
supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank 5 Id., at pp. 35 and 244.
and BA, to insure the money placements made by their home office and other branches. Deposit 6 Id., at p. 79.
insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the 195
funds and the one which made the placements are one and the same legal entity. VOL. 669, APRIL 11, 2012 195
PETITION for review on certiorari of a decision of the Court of Appeals. Philippine Deposit Insurance Corporation vs. Citibank, N.A.
The facts are stated in the opinion of the Court. in their books under the account Due to Head Office/Branches.7 Because BA also
Elpidio J. Vega for petitioner. excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking
Jose Luis V. Agcaoili for respondents. the remittance of P109,264.83 representing deficiency premium assessments for dollar
MENDOZA, J.: deposits.8
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Believing that litigation would inevitably arise from this dispute, Citibank and BA
Procedure, assailing the October 27, 2005 Decision1 of the Court of Appeals (CA) in CA- each filed a petition for declaratory relief before the Court of First Instance (now the
G.R. CV No. 61316, entitled Citibank, N.A. and Bank of America, S.T. & N.A. v. Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979, respectively. 9 In
Philippine Deposit Insurance Corporation. their petitions, Citibank and BA sought a declaratory judgment stating that the money
_______________
1 Rollo, pp. 34-46; penned by Associate Justice Aurora Santiago-Lagman and concurred in by Associate placements they received from their head office and other foreign branches were not
Justice Ruben T. Reyes (retired member of this Court) and Associate Justice Rebecca de Guia-Salvador of the deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of
Fourth Division. R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments
194 made by PDIC were improper and erroneous.10 The cases were then consolidated.11
194 SUPREME COURT REPORTS ANNOTATED On June 29, 1998, the Regional Trial Court, Branch 163, Pasig
Philippine Deposit Insurance Corporation vs. Citibank, N.A. City (RTC) promulgated its Decision12 in favor of Citibank and BA, ruling that the subject
The Facts money placements were not deposits and did not give rise to insurable deposit liabilities,
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government and that the deficiency assessments issued by PDIC were improper and erroneous.
instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A. Therefore, Citibank and BA were not liable to pay the same. The RTC reasoned out that
No. 9302.2 the money placements subject of the petitions were not assessable for insurance purposes
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent under the PDIC Charter because said placements were deposits made outside of the
Bank of America, S.T. & N.A. (BA) is a national banking association, both of which are Philippines and, under Section 3.05(b) of the PDIC Rules and Regula-
_______________
duly organized and existing under the laws of the United States of America and duly
7 Id., at pp. 36 and 84.
licensed to do business in the Philippines, with offices in Makati City. 3 8 Id., at pp. 83-84.
In 1977, PDIC conducted an examination of the books of account of Citibank. It 9 Id., at p. 36.
discovered that Citibank, in the course of its banking business, from September 30, 1974 10 Id., at pp. 55 and 62.
11 Id ., at p. 36.
to June 30, 1977, received from its head office and other foreign branches a total of
12 Id., at pp. 78-93; penned by Judge Aurelio C. Trampe.
P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were 196
interest-bearing with corresponding maturity dates.4 These funds, which were lodged in 196 SUPREME COURT REPORTS ANNOTATED
the books of Citibank under the account Their Account-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject to Philippine Deposit Insurance Corporation vs. Citibank, N.A.
assessment for insurance.5 As such, in a letter dated March 16, 1978, PDIC assessed tions,13 such deposits are excluded from the computation of deposit liabilities. Section 3(f)
Citibank for deficiency in the sum of P1,595,081.96.6 of the PDIC Charter likewise excludes from the definition of the term deposit any
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which obligation of a bank payable at the office of the bank located outside the Philippines. The
revealed that from September 30, 1976 to June 30, 1978, BA received from its head office RTC further stated that there was no depositor-depository relationship between the
and its other foreign branches a total of P629,311,869.10 in dollars, covered by respondents and their head office or other branches. As a result, such deposits were not
Certificates of Dollar Time Deposit that were interest-bearing with corresponding included as third-party deposits that must be insured. Rather, they were considered
maturity dates and lodged inter-branch deposits which were excluded from the assessment base, in accordance with
_______________ the practice of the United States Federal Deposit Insurance Corporation (FDIC) after
2 Id., at pp. 13-14. which PDIC was patterned.
3 Id., at pp. 47 and 56. Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its
4 Id., at pp. 35 and 83.
October 27, 2005 Decision. In so ruling, the CA found that the money placements were
received as part of the banks internal dealings by Citibank and BA as agents of their 198 SUPREME COURT REPORTS ANNOTATED
respective head offices. This showed that the head office and the Philippine branch were Philippine Deposit Insurance Corporation vs. Citibank, N.A.
considered as the same entity. Thus, no bank deposit could have arisen from the
Respondents similarly identify only one issue in this case:
transactions between the Philippine branch and the head office because there did not
Whether or not the money placements subject matter of these petitions are assessable
exist two separate contracting parties to act as depositor and depositary. 14 Secondly, the for insurance purposes under the PDIC Act. 19

CA called attention to the purpose for the creation of PDIC which was to protect the The sole question to be resolved in this case is whether the funds placed in the
deposits of depositors in the Philippines Philippine branch by the head office and foreign branches of Citibank and BA are
_______________
13 Section 3.05 Exclusions from Deposit Liabilities.For assessment purposes, the following items may be insurable deposits under the PDIC Charter and, as such, are subject to assessment for
excluded in computing the total deposit liabilities: insurance premiums.
xxx The Courts Ruling
b. Deposit liabilities of a bank which are payable at an office of the bank located outside the Philippines The Court rules in the negative.
unless the insured bank which is incorporated under the laws of the Philippines and which maintains a branch
outside the Philippines has elected to include for insurance its deposit obligations payable only at such branch A branch has no separate legal personality;
in which case such deposit liabilities should be included as part of the total deposit liabilities. Purpose of the PDIC
14 Rollo, pp. 41-42. PDIC argues that the head offices of Citibank and BA and their individual foreign
187 branches are separate and independent entities. It insists that under American
VOL. 669, APRIL 11, 2012 187 jurisprudence, a banks head office and its branches have a principal-agent relationship
Philippine Deposit Insurance Corporation vs. Citibank, N.A. only if they operate in the same jurisdiction. In the case of foreign branches, however, no
and not the deposits of the same bank through its head office or foreign such relationship exists because the head office and said foreign branches are deemed to
branches.15 Thirdly, because there was no law or jurisprudence on the treatment of inter- be two distinct entities.20Under Philippine law, specifically, Section 3(b) of R.A. No. 3591,
branch deposits between the Philippine branch of a foreign bank and its head office and which defines the terms bank and banking institutions, PDIC contends that the law
other branches for purposes of insurance, the CA was guided by the procedure observed treats a branch of a foreign bank as a separate and independent banking unit. 21
by the FDIC which considered inter-branch deposits as non-assessable.16 Finally, the CA The respondents, on the other hand, initially point out that the factual findings of the
cited Section 3(f) of R.A. No. 3591, which specifically excludes obligations payable at the RTC and the CA, with regard to the nature of the money placements, the capacity in
office of the bank located outside the Philippines from the definition of a deposit or an which the
_______________
insured deposit. Since the subject money placements were made in the respective head
19 Id., at p. 283.
offices of Citibank and BA located outside the Philippines, then such placements could 20 Id., at pp. 254-255.
not be subject to assessment under the PDIC Charter.17 21 Id., at p. 260.
Hence, this petition. 199
VOL. 669, APRIL 11, 2012 199
The Issues Philippine Deposit Insurance Corporation vs. Citibank, N.A.
same were received by the respondents and the exclusion of inter-branch deposits from
PDIC raises the issue of whether or not the subject dollar deposits are assessable for assessment, can no longer be disturbed and should be accorded great weight by this
insurance purposes under the PDIC Charter with the following assigned errors: Court.22 They also argue that the money placements are not deposits. They postulate that
A.
for a deposit to exist, there must be at least two partiesa depositor and a depository
The appellate court erred in ruling that the subject dollar deposits are money
placements, thus, they are not subject to the provisions of Republic Act No. 6426
each with a legal personality distinct from the other. Because the respondents respective
otherwise known as the Foreign Currency Deposit Act of the Philippines. head offices and their branches form only a single legal entity, there is no creditor-debtor
B. relationship and the funds placed in the Philippine branch belong to one and the same
The appellate court erred in ruling that the subject dollar deposits are not covered by bank. A bank cannot have a deposit with itself.23
the PDIC insurance. 18 This Court is of the opinion that the key to the resolution of this controversy is the
_______________ relationship of the Philippine branches of Citibank and BA to their respective head
15 Id., at p. 42.
offices and their other foreign branches.
16 Id., at p. 43.
17 Id., at p. 45. The Court begins by examining the manner by which a foreign corporation can
18 Id., at pp. 21, 247-248. establish its presence in the Philippines. It may choose to incorporate its own subsidiary
198 as a domestic corporation, in which case such subsidiary would have its own separate
and independent legal personality to conduct business in the country. In the alternative, separately incorporated, must be viewed as a part of the parent bank rather than as an
it may create a branch in the Philippines, which would not be a legally independent unit, independent entity.
and simply obtain a license to do business in the Philippines. 24 In addition, Philippine banking laws also support the conclusion that the head office
In the case of Citibank and BA, it is apparent that they both did not incorporate a of a foreign bank and its branches are considered as one legal entity. Section 75 of R.A.
separate domestic corporation to represent its business interests in the Philippines. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act
Their Philippine branches are, as the name implies, merely branches, without a separate Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to
legal personality from their parent company, Citibank and BA. Thus, being one and the guarantee the prompt payment of all the liabilities of its Philippine branch, to wit:
same entity, the funds placed by the respondents in their respective Republic Act No. 8791:
_______________ Sec. 75. Head Office Guarantee.In order to provide effective protection of the interests of the
22 Id., at pp. 285-286. depositors and other creditors of Philippine branches of a foreign bank, the head office of such
23 Id., at p. 290. branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.
24 Campos, Jose Jr. and Campos, Maria Clara L., The Corporation Code: Comments, Notes and Selected Residents and citizens of the Philippines who are creditors of a branch in the Philippines of foreign
Cases, Vol. II, p. 484.
bank shall have preferential rights to the assets of such branch in accordance with the existing
200
laws.
200 SUPREME COURT REPORTS ANNOTATED Republic Act No. 7721:
Philippine Deposit Insurance Corporation vs. Citibank, N.A. Sec. 5. Head Office Guarantee.The head office of foreign bank branches shall guarantee prompt
branches in the Philippines should not be treated as deposits made by third parties payment of all liabilities of its Philippine branches.
subject to deposit insurance under the PDIC Charter. Moreover, PDIC must be reminded of the purpose for its creation, as espoused in
For lack of judicial precedents on this issue, the Court seeks guidance from American Section 1 of R.A. No. 3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter
jurisprudence. In the leading case of Sokoloff v. The National City Bank of New
referred to as the Corporation which shall insure, as herein provided, the deposits of all banks
York,25 where the Supreme Court of New York held: which are entitled to the benefits of insurance under this Act, and which shall have the powers
Where a bank maintains branches, each branch becomes a separate business entity hereinafter granted.202
with separate books of account. A depositor in one branch cannot issue checks or drafts upon
another branch or demand payment from such other branch, and in many other respects the 202 SUPREME COURT REPORTS ANNOTATED
branches are considered separate corporate entities and as distinct from one another as any other Philippine Deposit Insurance Corporation vs. Citibank, N.A.
bank. Nevertheless, when considered with relation to the parent bank they are not The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing
independent agencies; they are, what their name imports, merely branches, and are public by way of providing permanent and continuing insurance coverage on all insured deposits.
subject to the supervision and control of the parent bank, and are instrumentalities R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the
whereby the parent bank carries on its business, and are established for its own particular establishment of the PDIC:
purposes, and their business conduct and policies are controlled by the parent bank and their
Section 1. Statement of State Policy and Objectives.It is hereby declared to be the policy of the
property and assets belong to the parent bank, although nominally held in the names of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve,
particular branches. Ultimate liability for a debt of a branch would rest upon the parent
maintain faith and confidence in the countrys banking system, and protect it from illegal schemes
bank. [Emphases supplied]
and machinations.
This ruling was later reiterated in the more recent case of United States v. BCCI Towards this end, the government must extend all means and mechanisms necessary for the
Holdings Luxembourg26 where the United States Court of Appeals, District of Columbia Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and
Circuit, emphasized that while individual bank branches may be treated as independent safeguarding the interests of the depositing public by way of providing permanent and continuing
of one another, each branch, unless insurance coverage on all insured deposits, and in helping develop a sound and stable banking
_______________ system at all times.
25 130 Misc. 66, 224 N.Y.S. 102 (Sup. Ct. 1927), affd without opinion, 223 A.D. 754, 227 N.Y.S. 907, affd The purpose of the PDIC is to protect the depositing public in the event of a bank
250 N.Y.S. 69.
26 48 F.3d 551, 554 (D.C.Cir.1995), aff'd 833 F.Supp. 32 (D.D.C.1993), cert. denied sub nom. Liquidation
closure. It has already been sufficiently established by US jurisprudence and Philippine
Commission for BCCI (Overseas) Ltd., Macau v. United States, 516 U.S. 1008, 116 S.Ct. 563, 133 L.Ed.2d 489 statutes that the head office shall answer for the liabilities of its branch. Now, suppose
(1995). the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would
201 then be required to answer for the deposit liabilities of Citibank Philippines. If the Court
VOL. 669, APRIL 11, 2012 201 were to adopt the posture of PDIC that the head office and the branch are two separate
Philippine Deposit Insurance Corporation vs. Citibank, N.A. entities and that the funds placed by the head office and its foreign branches with the
Philippine branch are considered deposits within the meaning of the PDIC Charter, it
would result to the incongruous situation where Citibank, as the head office, would be 100% foreign currency cover for their deposit liability arising from the dollar time
placed in the ridiculous position of having to reimburse itself, as depositor, for the losses deposits as required by Section 4 of R.A. No. 6426.29
it may incur occasioned by the closure of Citibank Philippines. Surely our law makers To refute PDICs allegations, the respondents explain the inter-branch transactions
could not have envisioned such a preposterous circumstance when they created PDIC. 203 which necessitate the creation of the accounts or placements subject of this case. When
VOL. 669, APRIL 11, 2012 203 the Philippine branch needs to procure foreign currencies, it will coordinate with a
Philippine Deposit Insurance Corporation vs. Citibank, N.A. branch in another country which handles foreign currency purchases. Both branches
have existing accounts with their head office and when a money placement is made in
Finally, the Court agrees with the CA ruling that there is nothing in the definition of
relation to the acquisition of foreign currency from the international market, the amount
a bank and a banking institution in Section 3(b) of the PDIC Charter 27 which
is credited to the account of the Philippine branch with its head office while the same is
explicitly states that the head office of a foreign bank and its other branches are separate
debited from the account of the branch which facilitated the purchase. This is further
and distinct from their Philippine branches.
documented by the issuance of a certificate of time deposit with a stated interest rate and
There is no need to complicate the matter when it can be solved by simple logic
maturity date. The interest rate represents the cost of obtaining the funds while the
bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head office
maturity date represents the date on which the placement must be returned. On the
of a bank and its branches are considered as one under the eyes of the law. While
maturity date, the amount previously credited to the account of
branches are treated as separate business units for commercial and financial reporting _______________
purposes, in the end, the head office remains responsible and answerable for the 28 Rollo, p. 252.
liabilities of its branches which are under its supervision and control. As such, it is 29 Id., at pp. 256-257.
unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money 205
placements made by their home office and other branches. Deposit insurance is VOL. 669, APRIL 11, 2012 205
superfluous and entirely unnecessary when, as in this case, the institution holding the Philippine Deposit Insurance Corporation vs. Citibank, N.A.
funds and the one which made the placements are one and the same legal entity. the Philippine branch is debited, together with the cost for obtaining the funds, and
Funds not a deposit under the credited to the account of the other branch. The respondents insist that the interest rate
definition of the PDIC Charter; and maturity date are simply the basis for the debit and credit entries made by the head
Excluded from assessment office in the accounts of its branches to reflect the inter-branch accommodation.30 As
PDIC avers that the funds are dollar deposits and not money placements. Citing R.A. regards the maintenance of currency cover over the subject money placements, the
No. 6848, it defines money placement as a deposit which is received with authority to respondents point out that they maintain foreign currency cover in excess of what is
_______________
required by law as a matter of prudent banking practice.31
27 The term Bank and Banking Institution shall be synonymous and interchangeable and shall include
banks, commercial banks, savings banks, mortgage banks, rural banks, development banks, cooperative banks, PDIC attempts to define money placement in order to impugn the respondents claim
stock savings and loan associations and branches and agencies in the Philippines of foreign banks and all other that the funds received from their head office and other branches are money placements
corporations authorized to perform banking functions in the Philippines (as amended by Republic Act Nos. 7400 and not deposits, as defined under the PDIC Charter. In the process, it loses sight of the
and 9302).
important issue in this case, which is the determination of whether the funds in question
204
are subject to assessment for deposit insurance as required by the PDIC Charter. In its
204 SUPREME COURT REPORTS ANNOTATED struggle to find an adequate definition of money placement, PDIC desperately cites
Philippine Deposit Insurance Corporation vs. Citibank, N.A. R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the
invest. Because there is no evidence to indicate that the respondents were authorized to Philippines. Reliance on the said law is unfounded because nowhere in the law is the
invest the subject dollar deposits, it argues that the same cannot be considered money term money placement defined. Additionally, R.A. No. 6848 refers to the establishment
placements.28 PDIC then goes on to assert that the funds received by Citibank and BA are of an Islamic bank subject to the rulings of Islamic Sharia to assist in the development of
deposits, as contemplated by Section 3(f) of R.A. No. 3591, for the following reasons: (1) the Autonomous Region of Muslim Mindanao (ARMM),32 making it utterly irrelevant to
the dollar deposits were received by Citibank and BA in the course of their banking the case at bench. Since Citibank and BA are neither Islamic banks nor are they located
operations from their respective head office and foreign branches and were recorded in anywhere near the ARMM, then it should be painfully obvious that R.A. No. 6848 cannot
their books as Account-Head Office/Branches-Time Deposits pursuant to Central Bank aid us in deciding this case.
Circular No. 343 which implements R.A. No. 6426; (2) the dollar deposits were credited _______________
as dollar time accounts and were covered by Certificates of Dollar Time Deposit which 30 Id., at pp. 297-300.
31 Id., at p. 302.
were interest-bearing and payable upon maturity, and (3) the respondents maintain 32 Republic Act No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines
(1990), Section 3.
206 parent company and it is the practice of the FDIC to exclude such inter-branch deposits
206 SUPREME COURT REPORTS ANNOTATED from a banks total deposit liabilities subject to assessment.34
Philippine Deposit Insurance Corporation vs. Citibank, N.A. All things considered, the Court finds that the funds in question are not deposits
Furthermore, PDIC heavily relies on the fact that the respondents documented the within the definition of the PDIC Charter and are, thus, excluded from assessment.
money placements with certificates of time deposit to simply conclude that the funds WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court
involved are deposits, as contemplated by the PDIC Charter, and are consequently of Appeals in CA-G.R. CV No. 61316 is AFFIRMED.
_______________
subject to assessment for deposit insurance. It is this kind of reasoning that creates non- 34 Rollo, p. 90.
existent obscurities in the law and obstructs the prompt resolution of what is essentially 208
a straightforward issue, thereby causing this case to drag on for more than three 208 SUPREME COURT REPORTS ANNOTATED
decades.
Philippine Deposit Insurance Corporation vs. Citibank, N.A.
Noticeably, PDIC does not dispute the veracity of the internal transactions of the
respondents which gave rise to the issuance of the certificates of time deposit for the SO ORDERED.
funds the subject of the present dispute. Neither does it question the findings of the RTC Velasco, Jr. (Chairperson), Peralta, Abad and Reyes,**JJ., concur.
and the CA that the money placements were made, and were payable, outside of the Petition denied, judgment affirmed.
Philippines, thus, making them fall under the exclusions to deposit liabilities. PDIC also Notes.A certificate of deposit is a written acknowledgment by a bank or banker of
fails to impugn the truth of the testimony of John David Shaffer, then a Fiscal Agent and the receipt of a sum of money on deposit which the bank or banker promises to pay to the
Head of the Assessment Section of the FDIC, that inter-branch deposits were excluded depositor, to the order of the depositor, or to some other person or his order, whereby the
from the assessment base. Therefore, the determination of facts of the lower courts shall relation of debtor and creditor between the bank and the depositor is created; A
be accepted at face value by this Court, following the well-established principle that certificate of deposit is also defined as a receipt issued by a bank for an interest-bearing
factual findings of the trial court, when adopted and confirmed by the CA, are binding time deposit coming due at a specified future date. (Philippine Banking Corporation
and conclusive on this Court, and will generally not be reviewed on appeal. 33 [Now: Global Business Bank, Inc.] vs. Commissioner of Internal Revenue, 577 SCRA 366
As explained by the respondents, the transfer of funds, which resulted from the inter- [2009])
branch transactions, took place in the books of account of the respective branches in their Court is of the view that the Monetary Board approval is not required for Philippine
head office located in the United States. Hence, because it is payable outside of the Deposit Insurance Corporation (PDIC) to conduct an investigation on the Banks.
Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter: (Philippine Deposit Insurance Corporation [(PDIC] vs. Philippine Countryside Rural
_______________ Bank, Inc., 640 SCRA 322 [2011])
33 Eterton Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation, G.R. No. 179812, July 6, o0o
2010, 624 SCRA 148, 154.
13. G.R. No. 121413. January 29, 2001. *

207
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF
VOL. 669, APRIL 11, 2012 207 ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES,
Philippine Deposit Insurance Corporation vs. Citibank, N.A. INC. and CITIBANK, N.A., respondents.
Sec. 3(f) The term deposit means the unpaid balance of money or its equivalent received by a G.R. No. 121479. January 29, 2001. *

bank in the usual course of business and for which it has given or is obliged to give credit to a
FORD PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS and CITIBANK, N.A.
commercial, checking, savings, time or thrift account or which is evidenced by its certificate of
deposit, and trust funds held by such bank whether retained or deposited in any department of and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.
said bank or deposit in another bank, together with such other obligations of a bank as the Board G.R. No. 128604. January 29, 2001. *

of Directors shall find and shall prescribe by regulations to be deposit liabilities of the FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE
Bank; Provided, that any obligation of a bank which is payable at the office of the bank COMMERCIAL INTERNATIONAL BANK and THE COURT OF APPEALS,
located outside of the Philippines shall not be a deposit for any of the purposes of this respondents.
Act or included as part of the total deposits or of the insured deposits; Provided further, Negligence; Torts; Quasi-Delicts; The general rule is that if the master is injured by the
that any insured bank which is incorporated under the laws of the Philippines may elect to include negligence of a third person and by the concurring contributory negligence of his own servant or
for insurance its deposit obligation payable only at such branch. [Emphasis supplied] agent, the latters negligence is imputed to his superior and will defeat the superiors action against
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the the third person, assuming, of course that the contributory negligence was the proximate cause of the
FDIC, after which PDIC was modelled, is also persuasive. Inter-branch deposits refer to injury of which complaint is made.On this point, jurisprudence regarding the imputed negligence
funds of one branch deposited in another branch and both branches are part of the same of employer in a master-servant relationship is instructive. Since a master may be held for his
servants wrongful act, the law imputes to the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury to a third person, the negligence or 4 SUPREME COURT REPORTS ANNOTATED
wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. The
general rule is that if the master is injured by the negligence of a third person and by the 48
concurring contributory negligence of his own servant or agent, the latters negligence is imputed Philippine Commercial and International Bank vs. Court of Appeals
to his superior and will defeat the superiors action against the third person, assuming, of course Manager's checks and enabled the syndicate to encash the same. On record, PCIBank failed
that the contributory negligence was the proximate cause of the injury of which complaint is made. to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to
Same; Same; Same; Words and Phrases; Proximate cause is that which, in the natural and verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was
continuous sequence, unbroken by any efficient, intervening cause, produces the injury, and without duly authorized, showed lack of care and prudence required in the circumstances. Furthermore, it
which the result would was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR.
________________ As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent.
SECOND DIVISION.
Same; Same; Same; Negotiable Instruments; It is a well-settled rule that the relationship
*

447
between the payee or holder of commercial paper and the bank to which it is sent for collection is, in
VOL. 350, JANUARY 29, 2001 44 the absence of an agreement to the contrary, that of principal and agent.It is a well-settled rule
7 that the relationship between the payee or holder of commercial paper and the bank to which it is
Philippine Commercial and International Bank vs. Court of Appeals sent for collection is, in the absence of an agreement to the contrary, that of principal and agent. A
bank which receives such paper for collection is the agent of the payee or holder.
not have occurred.Accordingly, we need to determine whether or not the action of
Same; Same; Same; Even considering arguendo, that the diversion of the amount of a check
Godofredo Rivera, Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was the
payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion
proximate cause of the loss or damage. As defined, proximate cause is that which, in the natural
must be properly authorized by the payor.Even considering arguendo, that the diversion of the
and continuous sequence, unbroken by any efficient, intervening cause produces the injury, and
amount of a check payable to the collecting bank in behalf of the designated payee may be allowed,
without which the result would not have occurred.
still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can
Banks and Banking; Negotiable Instruments; Checks; The mere fact that the forgery was
be justified only by proof of authority from the drawer, or that the drawer has clothed his agent
committed by a drawer-payors confidential employee or agent, who by virtue of his position had
with apparent authority to receive the proceeds of such check.
unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not
Same; Same; Same; Crossed Checks; Words and Phrases; The crossing of the check with the
entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstances raising
phrase Payees Account Only, is a warning that the check should be deposited only in the account
estoppel against the drawer.It appears that although the employees of Ford initiated the
of the payee; It is the collecting bank which is bound to scrutinize the check and to know its
transactions attributable to an organized syndicate, in our view, their actions were not the
depositors before it could make the clearing indorsement all prior indorsements and lor lack
proximate cause of encashing the checks payable to the CIR. The degree of Fords negligence, if
ofindorsement guaranteed.Indeed, the crossing of the check with the phrase Payees Account
any, could not be characterized as the proximate cause of the injury to the parties. The Board of
Only, is a warning that the check should be deposited only in the account of the CIR. Thus, it is
Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank
the duty of the collecting bank PCIBank to ascertain that the check be deposited in payees account
Check No. SN-04867. Riveras instruction to replace the said check with PCIBanks Managers
only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to
Check was not in the ordinary course of business which could have prompted PCIBank to validate
know its depositors before it could make the clearing indorsement all prior indorsements and/or
the same. As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established
lack of indorsement guaranteed.
that these checks were made payable to the CIR. Both were crossed checks. These checks were 449
apparently turned around by Fords employees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payors VOL. 350, JANUARY 29, 2001 44
confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating 9
the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss Philippine Commercial International Bank vs. Court of Appeals
to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This
Same; Same; Same; A bank which cashes a check drawn upon another bank, without
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential
requiring proof as to the identity of persons presenting it, or making inquiries with regard to them,
employees who hold them in their possession.
cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards
Same; Checks; Collecting Banks; Taxation; A bank authorized to collect the payment of
diverted to the hands of a third party.Banking business requires that the one who first cashes
taxpayers in behalf of the Bureau of Internal Revenue is duty bound to consult its principal
and negotiates the check must take some precautions to learn whether or not it is genuine. And if
regarding the unwarranted instructions given by the pay or of its agent.Citibank Check No. SN-
the one cashing the check through indifference or other circumstance assists the forger in
04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary
committing the fraud, he should not be permitted to retain the proceeds of the check from the
banking transaction, sent to Central Clearing with the indorsement at the back all prior
drawee whose sole fault was that it did not discover the forgery or the defect in the title of the
indorsements and/or lack of indorsements guaranteed, and was presented to Citibank for
person negotiating the instrument before paying the check. For this reason, a bank which cashes a
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its
448
check drawn upon another bank, without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds against the drawee when the Same; Same; Same; Same; Doctrine of Comparative Negligence; Where both the collecting and
proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee banks failed in their respective obligations and both were negligent in the selection and
drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual supervision of their employees, both are equally liable for the loss of the proceeds of checks
proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one fraudulently encashed.Thus, invoking the doctrine of comparative negligence, we are of the view
who encashed a check which had been forged or diverted and in turn received payment thereon that both PCIBank and Citibank failed in their respective obligations and both were negligent in
from the drawee, is guilty of negligence which proximately contributed to the success of the fraud the selection and supervision of their employees resulting in the encashment of Citibank Check
practiced on the drawee bank. The latter may recover from the holder the money paid on the check. Nos. SN-10597 and 16508. Thus, we are constrained to hold them equally liable for the loss of the
Same; Same; Torts; As a general rule, a banking corporation is liable for the wrongful or proceeds of said checks issued by Ford in favor of the CIR.
tortuous acts and declarations of its officers or agents within the course and scope of their 451
employmentit may be liable for the tortuous acts of its officers even as regards that species of tort VOL. 350, JANUARY 29, 2001 45
of which malice is an essential element.In this case, there was no evidence presented confirming 1
the conscious participation of PCIBank in the embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents Philippine Commercial International Bank vs. Court of Appeals
within the course and scope of their employment. A bank will be held liable for the negligence of its Same; Same; Same; Same; The banking business is so impressed with public interest where
officers or agents when acting within the course and scope of their employment. It may be liable for the trust and confidence of the public in general is of paramount importance such that the
the tortuous acts of its officers even as regards that species of tort of which malice is an essential appropriate standard of diligence must be very high, if not the highest, degree of diligence.Time
element. In this case, we find a situation where the PCIBank appears also to be the victim of the and again, we have stressed that banking business is so impressed with public interest where the
scheme hatched by a syndicate in which its own management employees had participated. trust and confidence of the public in general is of paramount importance such that the appropriate
Same; Same; Same; The general rule is that a bank is liable for the fraudulent acts or standard of diligence must be very high, if not the highest, degree of diligence. A banks liability as
representations of an officer or agent acting within the course and apparent scope of his employment obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the
or authority.A bank hold- selection and supervision of its employees is of no moment.
450 Same; Same; Same; Same; Banks are expected to exercise the highest degree of diligence in the
4 SUPREME COURT REPORTS ANNOTATED selection and supervision of their employees.Banks handle daily transactions involving millions of
pesos. By the very nature of their work the degree of responsibility, care and trustworthiness
50
expected of their employees and officials is far greater than those of ordinary clerks and employees.
Philippine Commercial International Bank vs. Court of Appeals Banks are expected to exercise the highest degree of diligence in the selection and supervision of
ing out its officers and agents as worthy of confidence will not be permit- ted to profit by the their employees.
frauds these officers or agents were enabled to perpetrate in the apparent course of their Same; Same; Same; Prescription; The statute of limitations begins to run when the bank gives
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no the depositor notice of the payment, and an action upon a check is ordinarily governed by the
benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the statutory period applicable to instruments in writing; An action upon a written contract must be
fraudulent acts or representations of an officer or agent acting within the course and apparent brought within ten years from the time the right of action accrues.The statute of limitations
scope of his employment or authority. And if an officer or employee of a bank, in his official begins to run when the bank gives the depositor notice of the payment, which is ordinarily when
capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the check is returned to the alleged drawer as a voucher with a statement of his account, and an
the bank is liable for his misappropriation of such sum. action upon a check is ordinarily governed by the statutory period applicable to instruments in
Same; Same; Same; Negligence; As a business affected with public interest and because of the writing. Our laws on the matter provide that the action upon a written contract must be brought
nature of its functions, a bank is under obligation to treat the accounts of its depositors with within ten years from the time the right of action accrues. Hence, the reckoning time for the
meticulous care, always having in mind the fiduciary nature of their relationship.Citibank should prescriptive period begins when the instrument was issued and the corresponding check was
have scrutinized Citibank Check Numbers SN-10597 and 16508 before paying the amount of the returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the
proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing cause of action for the recovery of the proceeds of Citibank Check No. SN-04867 would normally be
stamps at the back of Citibank Check Nos. SN-10597 and 16508 do not bear any initials. Citibank a month after December 19, 1977, when Citibank paid the face value of the check in the amount of
failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1983,
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been barely six years had lapsed. Thus, we conclude that Fords cause of action to recover the amount of
discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent Citibank Check No. SN-04867 was seasonably filed within the period provided by law.
upon it, which is to ensure that the amount of the checks should be paid only to its designated 452
payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, 4 SUPREME COURT REPORTS ANNOTATED
constitutes negligence in carrying out the banks duty to its depositors. The point is that as a 52
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 Philippine Commercial International Bank vs. Court of Appeals
fiduciary nature of their relationship. Same; Same; Same; Negligence; Failure on the part of the depositor to examine its passbook,
statements of account, and cancelled checks and to give notice within a reasonable time (or as
required by statute) of any discrepancy which it may in the exercise of due care and diligence find The stipulated facts submitted by the parties as accepted by the Court of Appeals are as
therein, serves to mitigate the banks liability by reducing the award of interest from twelve percent follows:
(12%) to six percent (6%) per annum.We also find that Ford is not completely blameless in its On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the
failure to detect the fraud. Failure on the part of the depositor to examine its passbook, statements amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of
of account, and cancelled checks and to give notice within a reasonable time (or as required by plaintiffs percentage or manufacturers sales taxes for the third quarter of 1977.
statute) of any discrepancy which it may in the exercise of due care and diligence find therein, The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
serves to mitigate the banks liability by reducing the award of interest from twelve percent (12%) subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the
to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the Philippines, proceeds of the check was paid to IBAA as collecting or depository bank.
responsibility arising from negligence in the performance of every kind of obligation is also __________________
demandable, but such liability may be regulated by the courts, according to the circumstances. In
quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may Penned by Justice B. A. Adefuin-dela Cruz and concurred in by Justices Jesus M. Elbinias and Lourdes K.
1

recover. Tayao-Jaguros, rollo, G.R. No. 121413, pp. 27-42.


Rollo, G.R. No. 121413, pp. 44-45.
2

Penned by Justice Jose C. de la Rama and concurred in by Justices Emeterio C. Cui and Eduardo G.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
3

Montenegro, rollo, G.R. No. 128604, pp. 45-60.


Rollo, G.R. No. 128604, pp. 42-43.
4

The facts are stated in the opinion of the Court. 454


Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for Ford Philippines, Inc. 454 SUPREME COURT REPORTS ANNOTATED
Agabin, Verzola, Hermoso, Layaoen and De Castro for private respondent PCIB.
Philippine Commercial International Bank vs. Court of Appeals
Angara, Abello, Concepcion, Regala and Cruz for respondent Citibank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee
thereof, the Commissioner of Internal Revenue.
QUISUMBING, J.: As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the
plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its
These consolidated petitions involve several fraudulently negotiated checks. percentage/manufacturers sales taxes for the third quarter of 1977 and that said second payment
The original actions a quo were instituted by Ford Philippines to recover from the of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue.
drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial It is further admitted by defendant Citibank that during the time of the transactions in
International Bank (PCI-Bank) [formerly Insular Bank of Asia and America], the value question, plaintiff had been maintaining a checking account with defendant Citibank; that
of several checks payable to the Commissioner of Internal Revenue, which were Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines
embezzled allegedly by an organized syndicate.
and written in between said lines was the phrase Payees Account Only; and that defendant
453
Citibank paid the full face value of the check in the amount of P4,746,114.41 to the defendant
VOL. 350, JANUARY 29, 2001 453 IBAA.
Philippine Commercial International Bank vs. Court of Appeals It has been duly established that for the payment of plaintiffs percentage tax for the last
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002, dated
October 20, 1977, designating therein in Muntinlupa, Metro Manila, as the authorized agent bank
Decision of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford Philippines,
1

of Metrobank, Alabang Branch to receive the tax payment of the plaintiff.


Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philippine
On December 19, 1977, plaintiffs Citibank Check No. SN-04867, together with the Revenue
Commercial International Bank), and the August 8, 1995 Resolution, ordering the 2
Tax Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The
collecting bank, Philippine Commercial International Bank, to pay the amount of latter accepted the check and sent it to the Central Clearing House for clearing on the same day,
Citibank Check No. SN-04867. with the indorsement at the back all prior indorsements and/or lack of indorsements guaranteed.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date,
Decision of the Court of Appeals and its March 5, 1997 Resolution in CA-G.R. No.
3 4 December 19, 1977, and the latter paid the face value of the check in the amount of P4,746,114.41.
28430entitled Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial Consequently, the amount of P4,746,114.41 was debited in plaintiffs account with the defendant
International Bank, affirming in toto the judgment of the trial court holding the Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of
defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters
as damages for the misapplied proceeds of the plaintiffs Citibank Check Numbers SN-
dated October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it
10597 and 16508. will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then
I. G.R. Nos. 121413 and 121479 plaintiff shall hold the defendants liable for reim-
455 1. 1.Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to
VOL. 350, JANUARY 29, 2001 455 pay the plaintiff the amount of P4,746,114.41 representing the face value of plaintiffs
Citibank Check No. SN-04867, with interest thereon at the legal rate starting January
Philippine Commercial International Bank vs. Court of Appeals 20, 1983, the date when the original complaint was filed until the amount is fully paid,
bursement of the face value of the same. Both defendants denied liability and refused to pay. plus costs;
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed 2. 2.On defendant Citibanks cross-claim: ordering the cross-defendant IBAA (now PCI
to the plaintiffsupposed to be Exhibit D, the latter was officially informed, among others, that BANK) to reimburse defendant Citibank for whatever amount the latter has paid or may
its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent pay to the plaintiff in accordance with the next preceding paragraph;
and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within 3. 3.The counterclaims asserted by the defendants against the plaintiff, as well as that
fifteen days from receipt of the letter. Upon advice of the plaintiffs lawyers, plaintiff on March 11, asserted by the cross-defendant against the cross-claimant are dismissed, for lack of
1982, paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment merits; and
of plaintiffs percentage tax for the third quarter of 1977. 4. 4.With costs against the defendants.
As a consequence of defendants refusal to reimburse plaintiff of the payment it had made for
the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original
complaint before this Court. SO ORDERED. 6

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated
International Bank (PCIBank) with the latter as the surviving entity. their respective petitions for review on certiorari to the Court of Appeals. On March 27,
Defendant Citibank maintains that; the payment it made of plaintiffs Citibank Check No. SN- 1995, the appellate court issued its judgment as follows:
04867 in the amount of P4,746,114.41 was in due course; it merely relied on the clearing stamp of WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with
the depository/collecting bank, the defendant IBAA that all prior indorsements and/or lack of modifications.
indorsements guaranteed; and the proximate cause of plaintiffs injury is the gross negligence of The court hereby renders judgment:
defendant IBAA in indorsing the plaintiffs Citibank check in question. _________________
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank Check No.
SN-04867 was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking 6Rollo, G.R. No. 121413, pp. 131-132.
account with defendant Citibank. 5
457
Although it was not among the stipulated facts, an investigation by the National Bureau VOL. 350, JANUARY 29, 2001 457
of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Philippine Commercial International Bank vs. Court of Appeals
Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold
back the check because there was an error in the computation of the tax due to the 1. 1.Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is
Bureau of Internal Revenue (BIR). With Riveras instruction, PCIBank replaced the concerned;
check with two of its own Man- 2. 2.Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of
__________________ P4,746,114.41 representing the face value of plaintiffs Citibank Check No. SN-04867,
with interest thereon at the legal rate starting January 20, 1983, the date when the
5Supra, see note 1, pp. 32-34 (All citations omitted). original complaint was filed until the amount is fully paid;
456 3. 3.Dismissing the counterclaims asserted by the defendants against the plaintiff as well as
456 SUPREME COURT REPORTS ANNOTATED that asserted by the cross-defendant against the cross-claimant, for lack of merits.
Philippine Commercial International Bank vs. Court of Appeals
agers Checks (MCs). Alleged members of a syndicate later deposited the two MCs with Costs against the defendant IBAA (now PCI Bank).
the Pacific Banking Corporation. IT IS SO ORDERED. 7

Ford, with leave of court, filed a third-party complaint before the trial court PCIBank moved to reconsider the above-quoted decision of the Court of Appeals, while
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party Ford filed a Motion for Partial Reconsideration. Both motions were denied for lack of
defendants. But the court dismissed the complaint against PBC for lack of cause of merit.
action. The court likewise dismissed the third-party complaint against Godofredo Rivera Separately, PCIBank and Ford filed before this Court, petitions for review by
because he could not be served with summons as the NBI declared him as a fugitive certiorari under Rule 45.
from justice. In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the
On June 15, 1989, the trial court rendered its decision, as follows: Twelfth Division of the Court of Appeals contending that it merely acted on the
Premises considered, judgment is hereby rendered as follows: instruction of Ford and such cause of action had already prescribed.
PCIBank sets forth the following issues for consideration:
1. I.Did the respondent court err when, after finding that the petitioner acted on the 2. 2.PCIBank which affixed its indorsement on the subject check (All prior
check drawn by respondent Ford on the said respondents instructions, it indorsement and/or lack of indorsement guaranteed), is liable as collecting
nevertheless found the petitioner liable to the said respondent for the full