DILIGENCE REQUIRED OF BANKS

Simex International v. Court of Appeals, G.R. No. 88013, March 19, 1990
The petitioner is a private corporation engaged in the exportation of food products. It buys
these products from various local suppliers and then sells them abroad. Most of its exports
are purchased by the petitioner on credit.
The petitioner maintained sufficient balance to cover for the checks it issued for payment to
its lenders. However, his 100K deposit was not credit in his account. Subsequently, the
petitioner issued checks had been dishonored for insufficient funds.
Suppliers threatened to prosecute for the dishonored check and withheld the delivery of it
orders. Some have cancelled the petitioner's credit line.
Petitioner complained to the bank, thus it was discovered that a deposit was not credited to
his account. The bank only rectified it after 1 week or 23 days from deposit.
The petitioner filed an action for damages.
WON respondent is liable for damages?
Nominal and moral damages? Yes.
Exemplary damages? Yes
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.
In the case at bar, it is obvious that the respondent bank was remiss in that duty and
violated that relationship. What is especially deplorable is that, having been informed of its
error in not crediting the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three days after the deposit
was made. It bears repeating that the record does not contain any satisfactory explanation
of why the error was made in the first place and why it was not corrected immediately after
its discovery. Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary damages.
"the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship."

Consolidated Bank and Trust Corporation v. Court of Appeals, G. R. No. 138569, September 11, The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2
2003 of Republic Act No. 8791 ("RA 8791"), 18 which took effect on 13 June 2000, declares that the
State recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." 19 This new provision in the general banking law, introduced in 2000, is a
L.C. Diaz through its cashier, Macaraya, filled up a savings (cash) deposit slip for P990 and a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Calapre, International v. Court of Appeals, 20 holding that "the bank is under obligation to treat the
to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. 21
Calapre went to Solidbank and presented the 2 deposit slips & the passbook to the teller. While
the transaction was still on process, he went to Allied Bank to make another transaction. Upon This fiduciary relationship means that the bank’s obligation to observe "high standards of
return to Solid Bank to get the pb, the teller told him that the pb was already taken by integrity and performance" is deemed written into every deposit agreement between a bank
someone who he cannot remember. and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that
Calapre reported the incident to Macaraya. Subsequently, PBC check of 90K was deposited to the degree of diligence required of an obligor is that prescribed by law or contract, and absent
the account. H/e PBC check account was long closed. thus, it was dishonored. such stipulation then the diligence of a good father of a family. 22 Section 2 of RA 8791
prescribes the statutory diligence required from banks — that banks must observe "high
Macaray reported this incident to the management thus, it insturcted the followign day to hold standards of integrity and performance" in servicing their depositors. Although RA 8791 took
any transaction related to the account. Unfortunately, a withdrawal of 300K was made the day effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz’s
before he ordered the txn to be held. Thus, demanded return of money from solidbank but the savings account, jurisprudence 23 at the time of the withdrawal already imposed on banks the
latter refused. same high standard of diligence required under RA No. 8791.
Thus, filed a case for the Recovery of a Sum of Money against Solidbank.
Issue: WON Solidbank is liable? YES
The fiduciary nature of banking does not convert a simple loan into a trust agreement because
banks do not accept deposits to enrich depositors but to earn money for themselves. The law
allows banks to offer the lowest possible interest rate to depositors while charging the highest
possible interest rate on their own borrowers. The interest spread or differential belongs to the
bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui
que trust of banks, then the interest spread or income belongs to the depositors, a situation
that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. The tellers know, or should
know, that the rules on savings account provide that any person in possession of the passbook
is presumptively its owner. If the tellers give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the passbook, facilitating unauthorized
withdrawals by that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such
high degree of diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that
the defendant was at fault or negligent. The burden is on the defendant to prove that he was
not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving
that the defendant was negligent. (on the return of passbook)
The bank must not only exercise "high standards of integrity and performance," it must also
insure that its employees do likewise because this is the only way to insure that the bank will
comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return
to Calapre the passbook, and thus failed to prove that this teller exercised the "high standards
of integrity and performance" required of Solidbank’s employees.
The proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not
returning the passbook to Calapre.
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for
breach of contract due to negligence in the performance of its contractual obligation to L.C.
Diaz. This is a case of culpa contractual, where neither the contributory negligence of the
plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from
liability.
60%/40%
Metropolitan Bank and Trust Company v. Cabilzo, G.R. No. 154469, December 6, 2006
On Nov 12. Cabilzo issued PDC "cash" P 1,000 dated Nov 24.
The check was presented at Westmont bank, indorsed it w/ metrobank later cleared.
Nov 16. CAblizo rep went to the Metrobank for deposit and was later ask by a bank personnel if
Cablizo issued a check amointing to 91K, w/c the former replied in negative. Later that day,
Cablizo called and reiterated that he did not issue check w/ such amount and requested the
bank to return the check for verification, Metro complied.
Upon checking, it was discovered that the check 91K was the check issued originally for 1,000.
The check was altered, the amount and date from Nov 24 to 14. hence, demanded return of
90K. but the bank refused.
Thus, filed a case for reimbursement and damages. Metrobank argued that Westmont liable
being the last endorser thus should assume the liability of a general indorser as it warranted
that the instrument is genuine and in all respect what it purports to be.
Metro also argued that Cablizo was negligent in leaving spaces w/c allowed fraudulent
insertion.
Issue: WON Metrobank is liable, being the drawee, for the alterations on the subject check
bearing the authentic signature of the drawer? YES
An alteration is said to be material if it changes the effect of the instrument.
Now, having laid the premise that the present petition is a case of material alteration, it is
now necessary for us to determine the effect of a materially altered instrument, as well as
the rights and obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder
in due course not a party to the alteration, he may enforce the payment thereof
according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he
assent to the alteration by his express or implied acts. There is no showing that he failed to
exercise such reasonable degree of diligence required of a prudent man which could have
otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never
remiss in the preparation and issuance of the check, and there were no indicia of evidence
that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in
words and figures in order to forewarn the subsequent holders that nothing follows before
and after the amount indicated other than the one specified between the asterisks.
We never fail to stress the remarkable significance of a banking institution to commercial
transactions, in particular, and to the country’s economy in general. The banking system is
an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. The appropriate

PNB v. Pike, G.R. No. 157845, September 20, 2005
Dollar account, japan entertainer, rob, unauthorized withdrawals $7,500, pre-signed
withdrawal slip, request to life hold out order (2nd paragraph inserted exonerating bank from
liability), back side authority by depositor at the back side not accomplished.
Letter to lift hold out order,
Estopped - letter ? NO. denied by respondent.
degree of diligence required of a bank must be a high degree of diligence, if not the
utmost diligence. In the present case, it is obvious that Metrobank was remiss in that duty
and violated that relationship.
x x x The number "1" in the date is clearly imposed on a white figure in the shape of the
number "2". The appellant’s employees who examined the said check should have likewise
been put on guard as to why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said phrase, there is none,
even as 4 asterisks have been placed before and after the word "CASH" in the space for
payee. In addition, the 4 asterisks before the words "ONE THOUSAND PESOS ONLY"
have noticeably been erased with typing correction paper, leaving white marks, over which
the word "NINETY" was superimposed. The same can be said of the numeral "9" in the
amount "91,000", which is superimposed over a whitish mark, obviously an erasure, in lieu
of the asterisk which was deleted to insert the said figure. The appellant’s employees
should have again noticed why only 2 asterisks were placed before the amount in figures,
while 3 asterisks were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words "ONE THOUSAND PESOS
ONLY." The letters of the word "NINETY" are likewise a little bigger when compared with
the letters of the words "ONE THOUSAND PESOS ONLY".
Surprisingly, however, Metrobank failed to detect the above alterations which could not
escape the attention of even an ordinary person. This negligence was exacerbated by the
fact that, as found by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks indorsed for payment
against drawer’s accounts.29 Obviously, the employee allowed by Metrobank to examine
the check was not verse and competent to handle such duty. These factual findings of
the trial court is conclusive upon this court especially when such findings was affirmed the
appellate court.
Apropos thereto, we need to reiterate that by the very nature of their work the degree
of responsibility, care and trustworthiness expected of their employees and officials
is far better than those of ordinary clerks and employees. Banks are expected to
exercise the highest degree of diligence in the selection and supervision of their
employees.
said waiver was intercalated by some other person
At this juncture, it bears emphasizing that negligence of banking institutions should never
be countenanced. The negligence here lies in the lackadaisical attitude exhibited by
employees of petitioner PNB in their treatment of respondent Pike’s US Dollar Savings
Account that resulted in the unauthorized withdrawal of $7,500.00. Nevertheless, though
its employees may be the ones negligent, a bank’s liability as an obligor is not
merely vicarious but primarFy, as banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees,19 and having such
obligation, this Court cannot ignore the circumstances surrounding the case at bar – how
Trial court: 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 withdrawal slips, which form was issued by the
bank itself.
Respondednt denied having written the 2nd of his letter exonerating the bank from liability.
BPI v. Lifetime Marketing, G.R. No. 176434, June 25, 2008
the employees of petitioner PNB turned their heads, nay, closed their eyes to the
suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may
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.
Petitioner PNB does not deny that the withdrawal slips used were in breach of standard
operating procedures of banks in the ordinary and usual course of banking operations as
testified
petitioner PNB’s witness was utterly remiss in protecting the bank’s client, as well as the
bank itself, when he allowed an account holder to make it appear as 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 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. As fittingly found by the courts a quo, if indeed, respondent Pike signed
the withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNB’s AVP at its Buendia
branch, why did he not call respondent Pike’s attention and refer him to the space provided
for authorizing representatives to withdraw from and receive the proceeds of such
withdrawal?
Having admitted that pre-signed withdrawal slips do not constitute the normal procedure
with respect to withdrawals by representatives should have already put petitioner PNB’s
employees on guard. Rather than readily validating and permitting said withdrawals, they
should have proceeded more cautiously. Clearly, petitioner bank’s employee, Lorenzo T.
Bal, an Assistant Vice President at that, was exceedingly careless in his treatment of
respondent Pike’s savings account.
the evidence clearly showed that the petitioner bank did not exercise the degree of
diligence that it ought to have exercised in dealing with their clients.
With banks, the degree of diligence required, contrary to the position of petitioner
PNB, is more than that of a good father of a family considering that the business of
banking is imbued with public interest due to the nature of their functions. The
stability of banks largely depends on the confidence of the people in the honesty and
efficiency of banks. Thus, the law imposes on banks a high degree of obligation to
treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of banking. Section 2 of Republic Act No. 8791,25 which took effect on 13
June 2000, makes a categorical declaration that the State recognizes the "fiduciary nature
of banking that requires high standards of integrity and performance."
We have repeatedly emphasized that the banking industry is impressed with public interest.
Of paramount importance thereto is the trust and confidence of the public in general.
A verification with BPI by LMC showed that Alice Laurel made check deposits with the
named BPI branches and, after the check deposit slips were machine-validated, requested
the teller to reverse the transactions. Based on general banking practices, however, the
cancellation of deposit or payment transactions upon request by any depositor or payor,
requires that all copies of the deposit slips must be retrieved or surrendered to the bank.
This practice, in effect, cancels the deposit or payment transaction, thus, it leaves no
evidence for any subsequent claim or misrepresentation made by any innocent third
person. Notwithstanding this, the verbal requests of Alice Laurel and her husband to
reverse the deposits even after the deposit slips were already received and consummated
were accommodated by BPI tellers.
The above fraudulent transactions of Alice Laurel and her husband was made possible
through BPI teller's failure to retrieve the duplicate original copies of the deposit slips from
the former, every time they ask for cancellation or reversal of the deposit or payment
transaction.
Upon discovery of this fraud in early August 1992, LMC made queries from the BPI
branches involved. In reply to said queries, BPI branch managers formally admitted that
they cancelled, without the permission of or due notice to LMC, the deposit transactions
made by Alice and her husband, and based only upon the latter's verbal request or
representation.
Thereafter, LMC immediately instituted a criminal action for Estafa against Alice Laurel and
her husband Thomas Limoanco but was archived because summons could not be served
upon the spouses as they have absconded. Filed a Complaint for Damages against BPI.
WON BPI observed the highest degree of care in handling LMC's account? NO
BPI v. Casa Montessori, G.R. No. 149454, May 28, 2004
External auditor yabut hired/assigned to CASA, handles the reconciliation of bank statements &
with access to company documents like checks etc.
opened account w/ bpi under Sonny Santos name.
Forged signature of CASA signatories
Issues:
(1) was there forgery under the Negotiable Instruments Law (NIL)? YES
(2) were any of the parties negligent and therefore precluded from setting up forgery as a
defense? only BPI is negligent
Accordingly, the highest degree of diligence is expected, and high standards of integrity and
performance are required of it. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of its relationship with them.8 The fiduciary nature of banking, previously
imposed by case law, is now enshrined in Republic Act No. 8791 or the General
Banking Law of 2000. Section 2 thereof specifically says that the state recognizes the
fiduciary nature of banking that requires high standards of integrity and
performance.
In this case, both the trial court and the Court of Appeals found that the reversal of the
transactions in question was unilaterally undertaken by BPI's tellers without following
normal banking procedure which requires them to ensure that all copies of the deposit slips
are surrendered by the depositor. The machine-validated deposit slips do not show that the
transactions have been cancelled, leading LMC to rely on these slips and to consider Alice
Laurel's account as already paid.
Negligence in this case lies in the tellers' disregard of the validation procedures in place and
BPI's utter failure to supervise its employees. Notably, BPI's managers admitted in several
correspondences with LMC that the deposit transactions were cancelled without LMC's
knowledge and consent and based only upon the request of Alice Laurel and her husband.
It is well to reiterate that the degree of diligence required of banks is more than that
of a reasonable man or a good father of a family. In view of the fiduciary nature of
their relationship with their depositors, banks are duty-bound to treat the accounts of
their clients with the highest degree of care.
(1) Forgery as admitted by Yabut. The PNP Crime Laboratory, after its examination of the
said checks,22 had concluded that the handwritings thereon -- compared to the standard
signature of the drawer -- were not hers.
(2) since the banking business is impressed with public interest, of paramount importance
thereto is the trust and confidence of the public in general. Consequently, the highest
degree of diligence73 is expected,74 and high standards of integrity and performance are
even required, of it.75 By the nature of its functions, a bank is "under obligation to treat the
accounts of its depositors with meticulous care, 76 always having in mind the fiduciary nature
of their relationship."
BPI contends that it has a signature verification procedure but it still failed to detect the
eight instances of forgery. Its negligence consisted in the omission of that degree of
(3) should moral and exemplary damages, attorney’s fees, and interest be awarded?
Philippine Bank of Commerce, et al. v. Court of Appeals, et al., G.R. No. 97626 March 14, 1997
Rommel Marketing (RMC) never practices the regular checking of account. He lets his
secretary do the daily deposit. In the bank, Yabut accomplishes 2 copies of deposit slips.
where the original is filled up with her husband's name and acct number. In the duplicate,
she writes the acct number of her husband and leaves the name in blank. Then, the teller
validates despite the absence of information.
She later writes the name of RMC in the blank portion of the dep slip and changes the
account no. of husband to RMC's.
diligence required78 of a bank. It cannot now feign ignorance, for very early on we have
already ruled that a bank is "bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name
was forged."
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement -
"If no error is reported in ten (10) days, account will be correct." 80 Such notice cannot be
considered a waiver, even if CASA failed to report the error. Neither is it estopped from
questioning the mistake after the lapse of the ten-day period. -auditors use it as a basic
audit procedure
Loss Borne by Proximate Source of Negligence First, Yabut was able to open a bank
account in one of its branches without privity;110 that is, without the proper verification of his
corresponding identification papers. Second, BPI was unable to discover early on not only
this irregularity, but also the marked differences in the signatures on the checks and those
on the signature card. Third, despite the examination procedures it conducted, the Central
Verification Unit111 of the bank even passed off these evidently different signatures as
genuine. Without exercising the required prudence on its part, BPI accepted and encashed
the eight checks presented to it. As a result, it proximately contributed to the fraud and
should be held primarily liable112 for the "negligence of its officers or agents when acting
within the course and scope of their employment."113 It must bear the loss.
External auditor - The auditor does not assume the role of employee or of management in
the client’s conduct of operations 123 and is never under the control or supervision124 of the
client. Yabut was an independent auditor125 hired by CASA. He handled its monthly bank
reconciliations and had access to all relevant documents and checkbooks. 126 In him was
reposed the client’s127 trust and confidence128 that he would perform precisely those
functions and apply the appropriate procedures in accordance with generally accepted
auditing standards.129
Test to determine the existence of negligence : Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here
in effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before him.
The law considers what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.
Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the
duplicate slip was not compulsorily required by the bank in accepting deposits should not
It was later discovered that a total of 304K was not deposited to the account of RMC thus
demanded PBC to return the money, however, respondent refused.
It was RMC's negligence in entrusting cash to a dishonest employee which provided Ms.
Irene Yabut the opportunity to defraud RMC.
Private respondent maintains that the proximate cause of the loss was the negligent act of
the bank, thru its teller Mabayad, in validating the deposit slips, both original and duplicate,
presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact that one of the deposit
slips was not completely accomplished.
WON the proximate cause of the loss (304K) was the petitioner bank's negligence? YES
Reyes, et al. v. Court of Appeals, et al., G.R. No. 118492, August 15, 2001 - DILIGENCE IN
COMMERCIAL TRANSACTIONS
relieve the petitioner bank of responsibility. The odd circumstance alone that such duplicate
copy lacked one vital information — that of the name of the account holder — should have
already put Ms. Mabayad on guard. Rather than readily validating the incomplete duplicate
copy, she should have proceeded more cautiously by being more probing as to the true
reason why the name of the account holder in the duplicate slip was left blank while that in
the original was filled up. She should not have been so naive in accepting hook, line and
sinker the too shallow excuse of Ms. Irene Yabut to the effect that since the duplicate copy
was only for her personal record, she would simply fill up the blank space later on. 11 A
"reasonable man of ordinary prudence" 12 would not have given credence to such
explanation and would have insisted that the space left blank be filled up as a condition for
validation. Unfortunately, this was not how bank teller Mabayad proceeded thus resulting in
huge losses to the private respondent.
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner
bank in the selection and supervision of its bank teller, which was the proximate cause of
the loss suffered by the private respondent, and not the latter's act of entrusting cash to a
dishonest employee, as insisted by the petitioners.
Last clear chance
Due diligence: In the case of banks, however, the degree of diligence required is
more than that of a good father of a family. Considering the fiduciary nature of their
relationship with their depositors, banks are duty bound to treat the accounts of their
clients with the highest degree of care.
As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 in every
case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank
must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank,
such as the failure to duly credit him his deposits as soon as they are made, can
cause the depositor not a little embarrassment if not financial loss and perhaps even
civil and criminal litigation.
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. In the case before us, it is apparent that the petitioner bank was remiss
in that duty and violated that relationship.
the degree of diligence required of banks, is more than that of a good father of a
family where the fiduciary nature of their relationship with their depositors is concerned. In
other words banks are duty bound to treat the deposit accounts of their depositors with
PRCI sent 4 delegates to the said conference 20th Asian Racing Conference in Sydney, AU.
PRCI treasurer went to PBC to apply for a demand draft $1,610 payable to the order of the
20th Asian Racing Conference Secretariat of Sydney, Australia. The respondent bank did
not have an Australian dollar account in any bank in Sydney. He asked if there could be a
way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to
Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of
effecting the requested remittance to Sydney thus: the respondent bank would draw a
demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and
have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac
Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been
customarily resorted to since the 1960's and the procedure has proven to be problem-free.
PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this
arrangement or approach in order to effect the urgent transfer of Australian dollars payable
to the Secretariat of the 20th Asian Racing Conference.
the highest degree of care. But the said ruling applies only to cases where banks act under
their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the
same higher degree of diligence is not expected to be exerted by banks in commercial
transactions that do not involve their fiduciary relationship with their depositors.
The respondent bank was not required to exert more than the diligence of a good father of
a family in regard to the sale and issuance of the subject foreign exchange demand draft.
The case at bar does not involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer and seller, that is,
between the respondent bank as the seller of the subject foreign exchange demand draft,
and PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in
Sydney, Australia as the payee thereof.

Went to the conference, however, FXDD was dishonored twice. Felt humiliated in front of
hearing audience and co-participants, offered to pay in cash. Same thing happened to his
wife.

Westpac-Sydney construed the said cable message as a format for a letter of credit, and
not for a demand draft. Bank checked, it was discovered that code was mistakenly read a 1
isntead of 7. Thus, Wespont Syndey was not able to verify .

The petitioners contend that due to the fiduciary nature of the relationship between the
respondent bank and its clients, the respondent should have exercised a higher degree of
diligence than that expected of an ordinary prudent person in the handling of its affairs as in
the case at bar. The appellate court, according to petitioners, erred in applying the standard
of diligence of an ordinary prudent person only. Petitioners also claim that the respondent
bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a
drawer that "xxx on due presentment, the instrument will be accepted or paid, or both,
according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held
liable for damages for violation of this warranty.

WON PBC in this case is expected to exercise higher degree of due diligence than that of a
good father of a family? NO.

Commercial transaction. higher degree is DD only applies to Depositor and bank being
depositary.